ADR

Case Digests 1

Equitable PCI Bank v. RCBC

FACTS: On May 24, 2000, petitioners Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of Bankard,
Inc., as sellers, and respondent RCBC Capital Corporation (RCBC), as buyer, executed a Share Purchase Agreement5
(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.

On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account after which it was
given full management and operational control of Bankard. June 2, 2000 is also considered by the parties as the
Closing Date referred to in the SPA

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

Following unsuccessful attempts at settlement, RCBC, in accordance with Sec. 10 of the SPA, filed a Request for
Arbitration dated May 12, 20048 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.

To the Request for Arbitration, petitioners filed an Answer dated July 28, 2004,9 denying RCBC’s inculpatory
averments and setting up the following affirmative allegations: the period for filing of the asserted claim had
already lapsed by force of Sec. 7 of the SPA; RCBC is not entitled to rescission having had ample opportunity and
reasonable time to file a claim against petitioners; RCBC is not entitled to its alternative prayer of damages, being
guilty of laches and failing to set out the details of the breach as required under Sec. 7.

ICC-ICA ruled in favour RCBC arguing that they are not barred from availing the remedies, has provided necessary
evidence to establish their claim but cannot rescind the agreement

On October 26, 2007, RCBC filed with the RTC a Motion to Confirm Partial Award. On the same day, petitioners
countered with a Motion to Vacate the Partial Award. On November 9, 2007, petitioners again filed a Motion to
Suspend and Inhibit Barker and Kaplan. On January 8, 2008, the RTC issued the first assailed order confirming the
Partial Award and denying the adverted separate motions to vacate and to suspend and inhibit. From this order,
petitioners sought reconsideration, but their motion was denied by the RTC in the equally assailed second order of
March 17, 2008.

ISSUE: Whether the proper recourse of the parties were to appeal before SC

RULING: NO, the proper recourse of the parties are to appeal the assailed decision of RTC regarding the arbitral
award

Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the decision of the RTC
confirming as arbitral award is an appeal before the CA pursuant to Sec. 46 of Republic Act No. (RA) 9285,
otherwise known as the Alternative Dispute Resolution Act of 2004, or completely, An Act to Institutionalize the
Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative
Dispute Resolution, and for other Purposes, promulgated on April 2, 2004 and became effective on April 28, 2004
after its publication on April 13, 2004.

In Korea Technologies Co., Ltd v. Lerma, we explained, inter alia, that the RTC decision of an assailed arbitral award
is appealable to the CA and may further be appealed to this Court, thus:

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

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

It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was already effective at
the time the arbitral proceedings were commenced by RCBC through a request for arbitration filed before the ICC-
ICA on May 12, 2004. Besides, the assailed confirmation order of the RTC was issued on March 17, 2008. Thus,
petitioners clearly took the wrong mode of appeal and the instant petition can be outright rejected and dismissed.

ISSUE: Whether the arbitral award should be overturned

RULING: NO, an arbitral award cannot be easily overturned

As a rule, the award of an arbitrator cannot be set aside for mere errors of judgment either as to the law or as to
the facts. Courts are without power to amend or overrule merely because of disagreement with matters of law or
facts determined by the arbitrators. They will not review the findings of law and fact contained in an award, and
will not undertake to substitute their judgment for that of the arbitrators, since any other rule would make an
award the commencement, not the end, of litigation. Errors of law and fact, or an erroneous decision of matters
submitted to the judgment of the arbitrators, are insufficient to invalidate an award fairly and honestly made.
Judicial review of an arbitration is, thus, more limited than judicial review of a trial.

Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination
of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators’
determinations, their award must be vacated. In the same manner, an award must be vacated if it was made in
"manifest disregard of the law."

In this case, there is no manifest disregard of the law: RCBC has two options of remedy provided under the
agreement whereby the records show that in its Request for Arbitration dated May 12, 2004, RCBC prayed for the
rescission of the SPA, restitution of the whole purchase price, and damages not for reduction of price or for the
return of any overpayment. Even in its May 5, 2000 letter,21 RCBC did not ask for the recovery of any overpayment
or reduction of price, merely stating in it that the accounts of Bankard, as reflected in its AFS for 1999, were
overstated which, necessarily, resulted in an overpayment situation. RCBC was emphatic and unequivocal that
petitioners violated their warranty covered by Sec. 5(g) of the SPA.

Thus, RCBC has two distinct alternative remedies in case of an overvaluation of Bankard’s financial condition. It
may invoke Sec. 5(h) when the conditions of the threshold aggregate overvaluation and the claim made within the
six-month time-bar are present. In the alternative, it may invoke Sec. 5(g) when it finds that a claim for "curing the
breach" and/or damages will be more advantageous to its interests provided it is filed within three (3) years from
closing date. Since it has two remedies, RCBC may opt to exercise either one. Of course, the exercise of either one
will preclude the other.
ISSUE: Whether petitioner were denied of due process in the arbitral proceedings

RULING: NO, they were not deprived of due process

In a catena of cases, we have ruled that "[t]he essence of due process is the opportunity to be heard. What the
law prohibits is not the absence of previous notice but the absolute absence thereof and the lack of opportunity to
be heard.

The foregoing events unequivocally demonstrate ample opportunity for petitioners to verify and examine RCBC’s
summaries, accounting records, and reports. The pleadings reveal that RCBC granted petitioners’ requests for
production of documents and accounting records. More so, they had more than three (3) years to prepare for their
defense after RCBC’s submission of its brief of evidence. Finally, it must be emphasized that petitioners had the
opportunity to appeal the Partial Award to the RTC, which they in fact did. Later, petitioners even moved for the
reconsideration of the denial of their appeal. Having been able to appeal and move for a reconsideration of the
assailed rulings, petitioners cannot claim a denial of due process.

Sec. 15 of RA 876 or the Arbitration Law provides that: 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.

In administrative proceedings, the essence of due process is simply an opportunity to be heard, or an opportunity
to explain one’s side or opportunity to seek a reconsideration of the action or ruling complained of. This
constitutional mandate is deemed satisfied if a person is granted an opportunity to seek reconsideration of an
action or a ruling.

Chung Fu v. CA

FACTS: It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity) and
private respondent Roblecor Philippines, Inc. (Roblecor for short) forged a construction agreement 1 whereby
respondent contractor committed to construct and finish on December 31, 1989, petitioner corporation's
industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of P42,000,000.00. In the event of
disputes arising from the performance of subject contract, it was stipulated therein that the issue(s) shall be
submitted for resolution before a single arbitrator chosen by both parties.

However, respondent Roblecor failed to complete the work despite the extension of time allowed it by Chung Fu.
Subsequently, the latter had to take over the construction when it had become evident that Roblecor was not in a
position to fulfill its obligation.

Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23, Roblecor on May
18, 1990, filed a petition for Compulsory Arbitration with prayer for Temporary Restraining Order before
respondent Regional Trial Court, pursuant to the arbitration clause in the construction agreement. Chung Fu
moved to dismiss the petition and further prayed for the quashing of the restraining order.
Among the provisions found in their arbitration agreement is: The parties mutually agree that the decision of the
arbitrator shall be final and unappealable. Therefore, there shall be no further judicial recourse if either party
disagrees with the whole or any part of the arbitrator's award.

On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor, the sum of
P16,108,801.00. He further declared the award as final and unappealable, pursuant to the Arbitration Agreement
precluding judicial review of the award.

Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu moved to remand
the case for further hearing and asked for a reconsideration of the judgment award claiming that Arbitrator
Asuncion committed twelve (12) instances of grave error by disregarding the provisions of the parties' contract.

Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek reconsideration
therefrom but to no avail. The trial court granted Roblecor's Motion for Confirmation of Award and accordingly,
entered judgment in conformity therewith. Moreover, it granted the motion for the issuance of a writ of execution
filed by respondent.

ISSUE: Whether the arbitral award can no longer be reviewed by the courts due to the provision barring it.

RULING: NO, they can still be reviewed by the courts

It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute and
without exceptions. Where the conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrators' award may be annulled or rescinded. 19 Additionally,
under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an
arbitrator's award. 20 Thus, if and when the factual circumstances referred to in the above-cited provisions are
present, judicial review of the award is properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it
is in accordance with law or within the scope of his authority? How may the power of judicial review be invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind,
however, that this action will lie only where a grave abuse of discretion or an act without or in excess of
jurisdiction on the part of the voluntary arbitrator is clearly shown.

After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion to Remand
Case For Further Hearing and Reconsideration and Opposition to Motion for Confirmation of Award, we find that
petitioners have amply made out a case where the voluntary arbitrator failed to apply the terms and provisions of
the Construction Agreement which forms part of the law applicable as between the parties, thus committing a
grave abuse of discretion.

But the respondent trial court's refusal to look into the merits of the case, despite prima facie showing of the
existence of grounds warranting judicial review, effectively deprived petitioners of their opportunity to prove or
substantiate their allegations. In so doing, the trial court itself committed grave abuse of discretion. Likewise, the
appellate court, in not giving due course to the petition, committed grave abuse of discretion. Respondent courts
should not shirk from exercising their power to review, where under the applicable laws and jurisprudence, such
power may be rightfully exercised; more so where the objections raised against an arbitration award may properly
constitute grounds for annulling, vacating or modifying said award under the laws on arbitration.
 Korea Tech v. Lerma

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

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.

KOGIES filed a Complaint for Specific Performance, docketed as Civil Case No. 98-1178 against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998,
which was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that (among other things)
PGSMC violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be restrained from dismantling and transferring the machinery and
equipment installed in the plant which the latter threatened to do on July 4, 1998.

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

RTC and CA ruled that the arbitration clause in their agreement is void because it is contrary to public policy hence
granting private respondent herein the power to unilaterally rescind the contract

ISSUE: Whether the arbitration clause is void

RULING: NO, it is not void

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.

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

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

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority and jurisdiction to
set aside, reject, or vacate a foreign arbitral award on grounds provided under Art. 34(2) of the UNCITRAL Model
Law. Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by
the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set aside, reject, or
vacate it. In this sense, what this Court held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable
insofar as the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction since these arbitral
awards are not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285 has
made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial review on specific
grounds provided for.

Firstly, while the issue of the proper installation of the equipment and machineries might well be under the
primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction to hear
and grant interim measures to protect vested rights of the parties. Sec. 28 pertinently provides: (a) It is not
incompatible with an arbitration agreement for a party to request, before constitution of the tribunal, from a Court
to grant such measure. After constitution of the arbitral tribunal and during arbitral proceedings, a request for an
interim measure of protection, or modification thereof, may be made with the arbitral or to the extent that the
arbitral tribunal has no power to act or is unable to act effectivity, the request may be made with the Court.

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

LM Power v. Capitol Industrial Construction Group

FACTS: On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial
Construction Groups Inc. entered into a "Subcontract Agreement" involving electrical work at the Third Port of
Zamboanga.5

On April 25, 1985, respondent took over some of the work contracted to petitioner.6 Allegedly, the latter had
failed to finish it because of its inability to procure materials.7

Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90.8
Contesting the accuracy of the amount of advances and billable accomplishments listed by the former, the latter
refused to pay. Respondent also took refuge in the termination clause of the Agreement.9 That clause allowed it to
set off the cost of the work that petitioner had failed to undertake -- due to termination or take-over -- against the
amount it owed the latter.

Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint10
for the collection of the amount representing the alleged balance due it under the Subcontract. Instead of
submitting an Answer, respondent filed a Motion to Dismiss,11 alleging that the Complaint was premature,
because there was no prior recourse to arbitration.

In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did not
involve the interpretation or the implementation of the Agreement and was, therefore, not covered by the arbitral
clause.

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held as
arbitrable the issue of whether respondent’s take-over of some work items had been intended to be a termination
of the original contract under Letter "K" of the Subcontract.

ISSUE: Whether the issue is the proper subject of arbitration

RULING: YES, it is a proper subject matter of arbitration

We side with respondent. Essentially, the dispute arose from the parties’ incongruent positions on whether certain
provisions of their Agreement could be applied to the facts. The instant case involves technical discrepancies that
are better left to an arbitral body that has expertise in those areas. In any event, the inclusion of an arbitration
clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of arbitral bodies,
because the awards are still judicially reviewable under certain conditions.18

In the case before us, the Subcontract has the following arbitral clause:

"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation
of this Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be
settled by means of arbitration x x x."19

Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their
Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of advances and billable
accomplishments, the application of the provision on termination, and the consequent set-off of expenses.

The issue as to the correct amount of petitioner’s advances and billable accomplishments involves an evaluation of
the manner in which the parties completed the work, the extent to which they did it, and the expenses each of
them incurred in connection therewith. Arbitrators also need to look into the computation of foreign and local
costs of materials, foreign and local advances, retention fees and letters of credit, and taxes and duties as set forth
in the Agreement.

On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has
dispensed with this requirement and recourse to the CIAC may now be availed of whenever a contract "contains a
clause for the submission of a future controversy to arbitration,"

Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a
construction dispute.
The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the
disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith.35 And
because it covers the dispute between the parties in the present case, either of them may compel the other to
arbitrate.36

Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the proper
procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action, as
provided under RA 876 [the Arbitration Law].

Insular Bank v. FEBTC

FACTS: On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a complaint against Home
Bankers Trust and Company (HBTC)4 with the Philippine Clearing House Corporation’s (PCHC) Arbitration
Committee docketed as Arbicom Case No. 91-069.5 Respondent sought to recover from the petitioner, the sum of
P25,200,000.00 representing the total amount of the three checks drawn and debited against its clearing account.
HBTC sent these checks to respondent for clearing by operation of the PCHC clearing system. Thereafter,
respondent dishonored the checks for insufficiency of funds and returned the checks to HBTC. However, the latter
refused to accept them since the checks were returned by respondent after the reglementary regional clearing
period.

January 17, 1992, before the termination of the arbitration proceedings, respondent filed another complaint but
this time with the Regional Trial Court (RTC) in Makati City docketed as Civil Case No. 92-145 for Sum of Money and
Damages with Preliminary Attachment.

RTC issued an order suspending the trial due to the pendency of the arbitration with PCHC Aribitration Committee.

PCHC AC ruling: IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against
the defendant sentencing the latter to pay the plaintiff the sum of P25.2 million as principal.

Aggrieved, petitioner filed a petition for review in the case suspended by RTC: Acting on plaintiff Far East Bank and
Trust Company’s "Motion To Dismiss Petition For Review For Lack Of Jurisdiction", considering that the petition for
review is a separate and distinct case, the same must comply with all the requirements for filing initiatory
pleadings for civil actions before this Court so that since the commencement of the subject petition lacks the
mandatory requirements provided for, except the payment of docket fees, for lack of jurisdiction, the petition for
review is hereby dismissed.

ISSUE: Whether the recourse of petitioner herein was proper

RULING: NO, his recourse with RTC is erroneous

SEC. 23. Confirmation of award. – At any time within one month after the award is made, any party to the
controversy which was arbitrated may apply to the court having jurisdiction, as provided in Section 28, for an order
confirming the award; and thereupon the court must grant such order unless the award is vacated, modified or
corrected, as prescribed herein. Notice of such motion must be served upon the adverse party or his attorney as
prescribed by law for the service of such notice upon an attorney in action in the same court.

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

(b) That there was evident partiality or corruption in the arbitrators or any of them; or

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

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not made.

Petitioner had several judicial remedies available at its disposal after the Arbitration Committee denied its Motion
for Reconsideration. It may petition the proper RTC to issue an order vacating the award on the grounds provided
for under Section 24 of the Arbitration Law.34 Petitioner likewise has the option to file a petition for review under
Rule 43 of the Rules of Court with the Court of Appeals on questions of fact, of law, or mixed questions of fact and
law.35 Lastly, petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the ground that the
Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction. Since this case involves acts or omissions of a quasi-judicial agency, the petition
should be filed in and cognizable only by the Court of Appeals.36

In this instance, petitioner did not avail of any of the abovementioned remedies available to it. Instead it filed a
petition for review with the RTC where Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC Rules
to sustain its action. Clearly, it erred in the procedure it chose for judicial review of the arbitral award.

Reyes v, Balde II

FACTS: On October 20, 2002, respondent-spouses Cesar and Carmelita Esquig entered into a Design-Build
Construction Agreement5 with petitioner Charles Bernard H. Reyes, doing business under the name and style of
CBH Reyes Architects, for the architectural design and construction of a 2-storey residence in Tahanan Village,
Parañaque City. In accordance with the contract, spouses Esquig paid the amount of P1,050,000 as down
payment.6 Thereafter, construction commenced.

According to petitioner, Papas meddled with the construction works by demanding changes and additional works
which entailed additional cost. Papas also refused to pay petitioner’s progress billing and the salary of the laborers.
Petitioner thereafter prepared an accounting report of all the additional works and their corresponding costs,
however, Papas denied all the items in the list and refused to pay the same.

Thus, on May 26, 2003, petitioner filed a complaint for Accounting, Collection of Sum of Money, Rescission of
Contract with Damages against spouses Esquig and Rosemarie Papas with the Regional Trial Court of Muntinlupa
City which was docketed as Civil Case No. 03110.

On July 15, 2003, respondents filed a motion to dismiss Civil Case No. 03-110 on the ground that the court has no
jurisdiction over the subject matter of the case. They claimed that the Design-Build Construction Agreement
contained an arbitration clause, thus any dispute arising therefrom should be brought before the CIAC.

On even date, respondents also filed a complaint before the CIAC against the petitioner, docketed as CIAC Case No.
13-2003. Respondents alleged that petitioner unreasonably delayed the construction and refused to finish the
project. Thus, they prayed that petitioner be ordered to finish the project or, in the alternative, to pay the cost to
finish the same; to reimburse the overpayments made by respondents; and to pay liquidated damages, attorney’s
fees and costs of the suit.

Petitioner filed a motion to dismiss on the ground that there is an existing case filed before RTC, however CIAC
denied the prayer of petitioner.

Meanwhile, on February 27, 2004, the Regional Trial Court of Muntinlupa City, Branch 203 issued an Order8
denying the motion to dismiss filed by respondents. The trial court held that it has jurisdiction over the complaint
for accounting, rescission of contract and damages.

CA affirmed the decision of CIAC that it validly acquire jurisidiction to hear the case

ISSUE: Whether CIAC has jurisdiction to hear the case

RULING: YES, CIAC has jurisdiction to hear the case

SECTION 4. Jurisdiction.—The CIAC shall have original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute
arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes
may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must
agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions;
amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of
employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall
continue to be covered by the Labor Code of the Philippines.

In the case of Philrock, Inc. v. Construction Industry Arbitration Commission,13 the Court has ruled that CIAC has
original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into
by parties that have agreed to submit their dispute to voluntary arbitration.

Section 1, Article III of the CIAC Rules of Procedure Governing Construction Arbitration likewise provides that
recourse to the CIAC may be availed of whenever a contract contains a clause for the submission of a future
controversy to arbitration

Clearly, the presence of the arbitration clause in the parties’ contract vests jurisdiction on the CIAC on all
controversies arising from such contract. The arbitral clause in the agreement is a commitment by the parties to
submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to abide by it
in good faith.14 Where the jurisdiction of CIAC is properly invoked, the failure or refusal of herein petitioner to
arbitrate shall not affect the proceedings. Arbitration proceedings shall continue notwithstanding the absence or
lack of participation of petitioner, and the award shall be made after receiving the evidence of the claimant.15

With respect to petitioner’s contention that the action is purely civil in nature hence, jurisdiction rests with the
Regional Trial Court, the same must fail. Since the action is rooted on alleged violations of the agreement, it is
embraced by the term “construction dispute.” As CIAC aptly ruled:
 cursory perusal of the claims in civil case would show that such fall within the scope of CIAC jurisdiction,
to wit: (1) accounting of all payments made for the purchase of construction materials; (2) cost of
additional work; (3) balance on the contract price; (4) interest; (5) rescission of contract; (6) moral
damages; (7) exemplary damages; and (8) cost of suit.”

BF Corp v. CA

FACTS: Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter
engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall complex in the
City of Mandaluyong. The construction work was in progress when SPI decided to expand the project by engaging
the services of petitioner again. Thus, the parties entered into an agreement for the main contract works after
which construction work began.

According to SPI, petitioner "failed to complete the construction works and abandoned the project."3 This resulted
in disagreements between the parties as regards their respective liabilities under the contract.

Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a complaint for
collection of the balance due under the construction agreement.

On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an answer.
The motion was anchored on defendants' allegation that the formal trade contract for the construction of the
project provided for a clause requiring prior resort to arbitration before judicial intervention could be invoked in
any dispute arising from the contract.

The 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, not only
because defendants had taken possession of the finished works and the plaintiff's billings for the payment thereof
had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason
that defendants have failed to file any written notice of any demand for arbitration during the said long period of
one year and eight months, this Court finds that it cannot stay the proceedings in this case as required by Sec. 7 of
Republic Act No. 876, because defendants are in default in proceeding with such arbitration.

Instead of filing an answer to the complaint, SPI filed a petition for certiorari under Rule 65 of the Rules of Court
before the Court of Appeals. Said appellate court granted the petition, annulled and set aside the orders and
stayed the proceedings in the lower court.

Petitioner denies the existence of the arbitration clause primarily on the ground that the representatives of the
contracting corporations did not sign the "Conditions of Contract" that contained the said clause. Its other
contentions, specifically that insinuating fraud as regards the alleged insertion of the arbitration clause, are
questions of fact that should have been threshed out below.

ISSUE: Whether there exist an arbitration clause between the parties

RULING: YES, there exist an arbitration clause

This Court may as well proceed to determine whether the arbitration clause does exist in the parties' contract.
Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows:
 Sec. 4. Form of arbitration agreement. — A contract to arbitrate a controversy thereafter arising
between the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and
subscribed by the party sought to be charged, or by his lawful agent.

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

The formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writing and (b)
it must be subscribed by the parties or their representatives. There is no denying that the parties entered into a
written contract that was submitted in evidence before the lower court. To "subscribe" means to write
underneath, as one's name; to sign at the end of a document. 11 That word may sometimes be construed to mean
to give consent to or to attest.12

The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in the
contract in question. The Articles of Agreement, which incorporates all the other contracts and agreements
between the parties, was signed by representatives of both parties and duly notarized. The failure of the private
respondent's representative to initial the "Conditions of Contract" would therefor not affect compliance with the
formal requirements for arbitration agreements because that particular portion of the covenants between the
parties was included by reference in the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract incorporating said provision is
part of a "hodge-podge" document, is therefore untenable. A contract need not be contained in a single writing. It
may be collected from several different writings which do not conflict with each other and which, when connected,
show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence. 13 A
contract may be encompassed in several instruments even though every instrument is not signed by the parties,
since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed
instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the
parties, is binding on both to the same extent as though there had been only one copy of the agreement and both
had signed it.

The arbitration clause provides for a "reasonable time" within which the parties may avail of the relief under that
clause. "Reasonableness" is a relative term and the question of whether the time within which an act has to be
done is reasonable depends on attendant circumstances. 15 This Court finds that under the circumstances
obtaining in this case, a one-month period from the time the parties held a conference on July 12, 1993 until
private respondent SPI notified petitioner that it was invoking the arbitration clause, is a reasonable time. Indeed,
petitioner may not be faulted for resorting to the court to claim what was due it under the contract. However, we
find its denial of the existence of the arbitration clause as an attempt to cover up its misstep in hurriedly filing the
complaint before the lower court.

ABS-CBN v. WINS

FACTS: On September 27, 1999, 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. Under the agreement, respondent was granted 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 from
March to May 2002.3 Petitioner claimed that these were "unauthorized insertions" constituting a material breach
of their agreement. Consequently, on May 9, 2002,4 petitioner notified respondent of its intention to terminate
the agreement effective June 10, 2002.Thereafter, respondent filed an arbitration suit pursuant to the arbitration
clause of its agreement with petitioner. It contended that the airing of WINS WEEKLY was made with petitioner's
prior approval.

The arbitrator found in favor of respondent.7 He held that petitioner gave its approval to respondent for the airing
of WINS WEEKLY as shown by a series of written exchanges between the parties. He also ruled that, had there
really been a material breach of the agreement, petitioner should have terminated the same instead of sending a
mere notice to terminate said agreement. The arbitrator found that petitioner threatened to terminate the
agreement due to its desire to compel respondent to re-negotiate the terms thereof for higher fees. He further
stated that even if respondent committed a breach of the agreement, the same was seasonably cured. He then
allowed respondent to recover temperate damages, attorney's fees and one-half of the amount it paid as
arbitrator's 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. It was docketed as CA-G.R. SP No. 81940. It alleged serious errors of fact and law and/or
grave abuse of discretion amounting to lack or excess of jurisdiction on the part of the arbitrator.

On February 16, 2005, the CA rendered the assailed decision dismissing ABS-CBN’s petition for lack of jurisdiction.
It stated that as the TOR itself provided that the arbitrator's decision shall be final and unappealable and that no
motion for reconsideration shall be filed, then the petition for review must fail. It ruled that it is the RTC which has
jurisdiction over questions relating to arbitration. It held that the only instance it can exercise jurisdiction over an
arbitral award is an appeal from the trial court's decision confirming, vacating or modifying the arbitral award. It
further stated that a petition for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if
the courts refuse or neglect to inquire into the facts of an arbitrator's award.

ISSUE: Whether 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 arbitrator’s decision are
other than those for a petition to vacate an arbitral award enumerated under RA 876.

RULING: NO, generally the proper recourse is still before RTC in reviewing the arbitral award however,
petitioner herein recourse was in alternative manner

Section 24 of RA 876 provides for the specific grounds for a petition to vacate an award made by an arbitrator: In
any one of the following cases, the court must make an order vacating the award upon the petition of any party to
the controversy when such party proves affirmatively that in the arbitration proceedings:

(a) The award was procured by corruption, fraud, or other undue means; or

(b) That there was evident partiality or corruption in the arbitrators or any of them; or

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

(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not made.

Based on the foregoing provisions, the law itself clearly provides that the RTC must issue an order vacating an
arbitral award only "in any one of the . . . cases" enumerated therein. Under the legal maxim in statutory
construction expressio unius est exclusio alterius, the explicit mention of one thing in a statute means the
elimination of others not specifically mentioned. 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.

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.

As to petitioner's arguments that a petition for certiorari under Rule 65 may also be resorted to, we hold the same
to be in accordance with the Constitution and jurisprudence.

Nevertheless, although petitioner’s 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.20

Proper issues that may be raised in a petition for review under Rule 43 pertain to errors of fact, law or mixed
questions of fact and law.21 While a petition for certiorari under Rule 65 should only limit itself to errors of
jurisdiction, that is, grave abuse of discretion amounting to a lack or excess of jurisdiction.22 Moreover, it cannot
be availed of where appeal is the proper remedy or as a substitute for a lapsed appeal

A careful reading of the assigned errors reveals that the real issues calling for the CA's resolution were less the
alleged grave abuse of discretion exercised by the arbitrator and more about the arbitrator’s 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).

Chang v. Real Assurance

FACTS: The property insured, consisting of a stock of goods, was entirely destroyed by a fire on the 11th day of
March, 1905. On the same day the plaintiffs notified the agent of the defendant of the loss and within fifteen days
thereafter presented to the company a detailed statement of the articles which had been destroyed and of their
value. Plaintiffs were notified by the company that this proof was insufficient and that they must obtain the sworn
certificates of two merchants to the truth of their statement.

Plaintiffs were again notified that their proof was insufficient. Various interviews were had between the agent of
the defendant and the plaintiff Chang and the plaintiffs’ lawyer between the latter part of March and the 21st of
June, 1905. During this time the plaintiffs furnished additional evidence relating to the justice of their claim and
were told that their proofs were still insufficient. No indication was made by the company’s agent as to what other
proofs should be furnished, he offering, however, at one of the interview to settle the claim for 3,000 pesos. This
offer was refused by the plaintiffs.

Plaintiff filed a case for recovery of the insurance proceeds but defendant answered that no case shall be filed
based on their stipulated clause: policy of fire insurance contained a clause providing that in the event of a loss
under the policy, unless the company should deny all liability, as a condition precedent to the bringing of any suit
by the insured upon the policy the latter should first submit the question of liability and indemnity to arbitration.

ISSUE: Whether the acts of the insurance company is repeating that plaintiff has insufficient evidence constitute
as waiver of the arbitration clause

RULING: YES, it is a waiver

Under all the circumstances in the case, we think that the statement made by the company’s agent on the 21st day
of June amounted to a denial of liability on the ground that proper proofs of loss had not been presented and that,
therefore, there had been a failure of the assured to comply with one of the terms of the policy. The delay of the
company in taking any affirmative action between the 11th day of March and the 21st day of June; its repeated
statements that the proofs were insufficient without indicating in any way what other proofs should be furnished,
and its final statement that it could go no further with the case, was sufficient evidence to show that it did not
intend to pay. This view is somewhat confirmed by what took place afterwards before the arbitrators, both of
whom were appointed by the defendant in accordance with the terms of the policy. At the first meeting of these
arbitrators the defendant objected to any award being made upon the ground that the proof of loss which had
been furnished was sworn to before a notary public and not before the municipal judge, as required by the
provisions of the Code of Commerce.

Simple silence of the company is not sufficient. If it remains passive, it is the duty of the assured to take affirmative
action to secure arbitration. Neither will the failure of the company to return proofs of loss, or its failure to point
out defects therein, amount to a waiver of the arbitration clause. These acts may amount to a waiver of the clause
requiring the furnishing of proofs of loss, but such an action can not constitute proof that the company has refused
to pay the policy because the defendant has failed to comply with the terms and conditions thereof.

Chan v. Rock Insurance

FACTS: Plaintiff alleges that he was the owner of 30,992.50 kilos of hemp stored in the warehouse in Calbayog,
Province of Samar, Philippine Islands, which on the 25 of March, 1916, he requested the defendant Law Union and
Rock Insurance Co., Ltd., to insure against loss by fire in the sum of P5,000

that during the life of the policy the hemp was destroyed by fire in the bodega where it was insured; that its value
was P21,296.27; that he at once notified the defendant of the loss, and in all other respects complied with the
terms and conditions of the policy, and made a demand for the payment of the full amount of the insurance. That
defendant refused and still refuses to pay the same or any part thereof, and plaintiff prays for judgment for
P5,000, with interest and costs.

Defendant requested that its liability should be submitted to arbitration, in accord with the provisions of the
policy, and he (arbitrator) made return of arbitration to the effect that said plaintiff had only seven bales of hemp
destroyed in the fire of April 10, 1918, as hereinbefore set forth, with which return the said plaintiff is dissatisfied,
and comes to this court for proper action under this amended complaint and it is hereby expressly stipulated and
declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such
arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained.

the trial court rendered judgment against each of the defendants for P202.78, and that plaintiff should pay the
costs of the action, from which he appealed, claiming that the court erred in holding that the decision of the
arbitrator is conclusive or in any way binding on the plaintiff; that the arbitrator's decision is in the main supported
by the evidence; and that it erred in not awarding judgment for the plaintiff, is prayed for in his complaint.

ISSUE: Whether the arbitration is binding against the plaintiff

RULING: YES, it is binding to plaintiff

In the instant case, it will be noted that sometime after the action was commenced and upon the request of the
defendants, the plaintiff agreed to arbitrate under the terms and provisions of the policies; that the parties
mutually agreed upon an arbitrator; and that each appeared before him and offered his or its evidence upon the
questions in dispute. There is no claim or pretense that the proceedings were not honestly and fairly conducted.
Having formally agreed and submitted to an arbitration after the action was commenced, it may well be doubted
whether the plaintiff can at this time question the validity of the proceedings, except upon the ground of fraud or
mistake.

Arbitration as a method of settling disputes and controversies is recognized at common law. The award of the
arbitrators is binding on the parties, but, in the absence of statute, the successful party can only enforce his rights
thereunder by a suit at law. Thus the only gain by a common law arbitration is the substitution of the definite
findings of the award as the basis of a suit, in the place of the former unsettled rights of the parties. In an action on
the award the award itself is conclusive evidence of all matters therein contained, provided the arbitrators have
not exceeded the powers delegated to them by the agreement of submission. The courts regard matters
submitted as concluded by the award, and in an action thereon they will not review the merits of the arbitrators'
findings.

In the instant case, there was no dispute about the policy of insurance or the fire. The only real difference was the
amount of the loss which plaintiff sustained, and that was the only question submitted to arbitration. In
December, the arbitrator found the amount of plaintiff's hemp which was destroyed, but did not find its value.

Hence the award on the question submitted was not complete or final. In the finding of the actual value of the
hemp, there was no change or revision of any previous finding. It was simply the completion by the arbitrator of an
unfinished work. No formal notice was served on the arbitrator, and he was not removed or discharged, and until
such time as his duties were fully performed, or he was discharged, he would have the legal right to complete his
award. The plaintiff, having agreed to arbitration after the action was commenced and submitted his proof to the
arbitrator, in the absence of fraud or mistake, is estopped and bound by the award.

Allen v. Province of Tayabas

FACTS: Province of Tayabas and Arthur F, Allen (Allen) entered into a contract whereby the contractor agreed to
construct five reinforced concrete bridges. One provision of the contract was that the bridges were to be
constructed "in accordance with the said advertisements, instructions to bidders, general conditions, plans,
specifications, proposal, and this agreement”.

Four of the bridges were accepted by the Government and paid for. The dispute between the parties arose as to
the fifth bridge. As to this bridge, the Province of Tayabas partially paid but refused to pay the balance because
Allen had deviated from the specifications and because the work was defective.

Allen filed an action to recover the balance refused to be paid by Province of Tayabas. While the latter, on its
defense, alleged defective work on the part of the Allen, and that the contract was not approved by the Governor-
General under Act No. 1600.

The trial court ruled in favor of Allen holding that the law which makes the approval of the Governor-General a
prerequisite only to the purchase or conveyance of real property by a province.

Since the Province of Tayabas’ Motion for New trial was denied, it elevated the case to the Supreme Court
contending that the certificate by the district engineer and the Director of Public Works must be obtained before
suit can be brought on a contract; that the findings of these officials are conclusive; and that the complaint must
contain an averment to this effect. On the other hand, Allen contends that neither the law nor the contract
requires the submission to arbitration of disputes between the Government and the contractor.

ISSUE: Whether or not, the certification of the district engineer and the Director of Public Works which must be
obtained first before a suit can be brought on a contract constitutes an arbitration agreement

RULING: NO, it is not an arbitration agreement

The Certification of the district engineer and the Director of Public Works is not an arbitration agreement but a
condition precedent before a contractor can recover from a contract, nevertheless, Allen is entitled to recover
even without such Certificate on the ground of substantial performance.

Act No. 1401, as amended by Act No. 1752, was in force when this action was instituted. The same provisions are
now found in slightly altered phraseology in section 1917-1923 of the Administrative Code of 1917. The law gives
the district engineer supervision over all contacts connected with public works, which exceed the estimated cost of
P500.

Allen speaks of the provisions of the law and the portions of the contract in questions as possibly constituting an
arbitration agreement. We deem these provisions to be more correctly labelled a condition precedent to the
contractor's right to obtain payment; the condition is for the satisfaction of the Government.

Both the law and the contract provide in mandatory language for a certificate of acceptance by the Director of
Public Works or his representative before any payment shall be made on any public work for the Government.

The rule is well-settled that in the absence of fraud or of such gross mistake as would necessarily imply bad faith;
contractors with public corporations are concluded by the decisions of engineers or like officers where the
contract contains such a stipulation. The public corporation can rely on the provision in a contract that
performance by the other party shall be approved by or satisfactory to it, or a particular officer, board or
committee.
However, it has been held that the provision of a contract to perform work for the city requiring the contractor to
obtain the certificate of the city engineer that the work has been done in accordance with the contract and the
approval of such work by certain boards or committees, before he is entitled to payment therefor, does not
deprive him of the right to recover for the work, if it has been done in substantial conformity to the contract,
because the city's officers arbitrarily or unreasonably refuse the certificate and approval called for.

Substantial performance and the unfounded refusal of the certificate of approval can be proved in various ways.
Thus, acceptance and occupancy of the building by the owner amounts to an acknowledgment that the work has
been performed substantially as required by the contract. Other circumstances, as partial payment, also show
acquiescence on the part of purchaser.

Moreover, it has been held that, if the plaintiff's right of action depends upon a condition precedent he must
allege and prove the fulfilment of the condition or a legal excuse for its non-fulfilment. And if he omits such
allegation, his declaration, complaint, or petition, will be bad on demurrer." Undoubtedly, the complaint should
have alleged either the performance of the condition precedent, approval by the Director of Public Works or the
District Engineer, or a good and sufficient excuse for not obtaining it. However, the complaint contains the general
averment that the Allen fully and faithfully complied with all the terms and conditions of the said contract, while
some months subsequent to the filing of the complaint but previous to the trial, the Province of Tayabas accepted
the bridge. A failure to allege a condition precedent or a legal reason for dispensing with it may be cured by the
issues tendered by the answer and the proof.

Vega v. San Carlos Milling

FACTS: This action is for the recovery of 32,959 kilos of centrifugal sugar, or its value, P6,252, plus the payment of
P500 damages and the costs.

By virtue of these considerations, the court is of opinion that with respect to the complaint, the plaintiff must be
held to have a better right to the possession of the 32,959 kilos of centrifugal sugar manufactured in the
defendants' central and the latter is sentenced to deliver them to the plaintiff, and in default, the selling price
thereof, amounting to P5,981.06 deposited in the office of the clerk of the court.

The defendant company appealed from this judgment, and alleges that the lower court erred in having held itself
with jurisdiction to take cognizance of and render judgment in the cause because of the following arbitration
clause:

That it (the Mill — Party of the first part) will submit and all differences that may arise between the Mill
and the Planters to the decision of arbitrators, two of whom shall be chosen by the Mill and two by the
Planters, who in case of inability to agree shall select a fifth arbitrator, and to respect and abide by the
decision of said arbitrators, or any three of them, as the case may be.

ISSUE: Whether the court erred in rendering a decision because it is a condition precedent

RULING: NO, it is not a condition precedent

It is an admitted fact that the differences which arose between the parties, and which are the subject of the
present litigation have not been submitted to the arbitration provided for in the above quoted clauses.

Defendant contends that as such stipulations on arbitration are valid, they constitute a condition precedent, to
which the plaintiff should have resorted before applying to the courts, as he prematurely did.
The defendant is right in contending that such covenants on arbitration are valid, but they are not for the reason a
bar to judicial action, in view of the way they are expressed:

An agreement to submit to arbitration, not consummated by an award, is no bar to suit at law or in equity
concerning the subject matter submitted. And the rule applies both in respect of agreements to submit
existing differences and agreements to submit differences which may arise in the future. (5 C. J., 42.)

And in view of the terms in which the said covenants on arbitration are expressed, it cannot be held that in
agreeing on this point, the parties proposed to establish the arbitration as a condition precedent to judicial action,
because these clauses quoted do not create such a condition either expressly or by necessary inference.

The expression "subject to the provisions as to arbitration, hereinbefore appearing" does not declare such to be a
condition precedent. This phrase does not read "subject to the arbitration," but "subject to the provisions as to
arbitration hereinbefore appearing." And, which are these "provisions as to arbitration hereinbefore appearing?"
Undoubtedly clauses 23 and 14 quoted above, which do not make arbitration a condition precedent.

Del monte v. CA

FACTS: On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA (DMC-USA)
appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del
Monte products in the Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year
periods with the consent of the parties. The Agreement provided, among others, for an arbitration clause:

This Agreement shall be governed by the laws of the State of California and/or, if applicable, the United
States of America. All disputes arising out of or relating to this Agreement or the parties relationship,
including the termination thereof, shall be resolved by arbitration in the City of San Francisco, State of
California, under the Rules of the American Arbitration Association. The arbitration panel shall consist of
three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and
third of whom shall be selected by the other two members and shall have relevant experience in the
industry

Private respondents predicated their complaint on the alleged violations by petitioners of Arts. 20, 21 and 23 of
the Civil Code. According to private respondents, DMC-USA products continued to be brought into the country by
parallel importers despite the appointment of private respondent MMI as the sole and exclusive distributor of Del
Monte products thereby causing them great embarrassment and substantial damage.

Private respondents claimed that they had exhausted all possible avenues for an amicable resolution and
settlement of their grievances; that as a result of the fraud, bad faith, malice and wanton attitude of petitioners,
they should be held responsible for all the actual expenses incurred by private respondents

Petitioners filed a Motion to Suspend Proceedings[13] invoking the arbitration clause in their Agreement with
private respondents.

In a Resolution[14] dated 23 December 1996 the trial court deferred consideration of petitioners Motion to
Suspend Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings
considering that the action was for damages with prayer for the issuance of Writ of Preliminary Attachment and
not on the Distributorship Agreement.
On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the alleged damaging acts
recited in the Complaint, constituting petitioners causes of action, required the interpretation of Art. 21 of the Civil
Code[16] and that in determining whether petitioners had violated it "would require a full blown trial" making
arbitration "out of the question."

ISSUE: Whether the dispute between the parties warrants the submission to arbitration

RULING: YES, it warrants submission HOWEVER given that some parties of this case are not bound by the
arbitral clause, the same should not be submitted

A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement
between petitioner DMC-USA and private respondent MMI is valid and the dispute between the parties is
arbitrable. However, this Court must deny the petition.

The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit
to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a
contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as
between them, their assigns and heirs.[24] Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and
its Managing Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing Director
LILY SY are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners
Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be
considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause therein.
Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and the
suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called
for[25] but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and
not as to the other parties in this case

In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of
the presence of third parties is untenable ratiocinating that "[c]ontracts are respected as the law between the
contracting parties"[28] and that "[a]s such, the parties are thereby expected to abide with good faith in their
contractual commitments."[29] However, in Salas, Jr., only parties to the Agreement, their assigns or heirs have
the right to arbitrate or could be compelled to arbitrate. The Court went further by declaring that in recognizing
the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to
arbitration as to some of the parties on one hand and trial for the others on the other hand, or the suspension of
trial pending arbitration between some of the parties, should not be allowed as it would, in effect, result in
multiplicity of suits, duplicitous procedure and unnecessary delay.