Pertinent terms of such lease agreement, as provided

in the Deed of Donation, were as follows:

Koppel, Inc. vs. Makati Rotary Club Foundation,
1. The period of the lease is for twenty-five (25) years,
or until the 25th of May 2000;
Inc. [2013] 2. The amount of rent to be paid by FKI for the first
twenty-five (25) years is P40,126.00 per annum.
The Deed of Donation also stipulated that the lease
over the subject property is renewable for another
period of twenty-five (25) years upon mutual
December 11, 2013Juan Knows agreement of FKI and the Respondent. In which case,
Jurisprudence Tags: Alternative Dispute the amount of rent shall be determined in accordance
Resolution, Arbitration Clause, Arbitration Law, Case with item 2(g) of the Deed of Donation.
Digests, Case Law, Construction
Indus, Jurisprudence, Law, Philippines In October 1976, FKI and the Respondent executed
an Amended Deed of Donation that reiterated the
Will the disagreement between parties to a provisions of the Deed of Donation, including those
relating to the lease of the subject land.
contract be rendered non-arbitrable if, in the
Verily, by virtue of the lease agreement contained in
the Deed of Donation and Amended Deed of Donation,
arbitration thereof, the validity of the contract FKI was able to continue in its possession and use of
the subject land.
itself will have to be determined?
Two (2) days before the lease incorporated in the Deed
May a party to a contract invoke the arbitration of Donation and Amended Deed of Donation was set to
expire, or on 23 May 2000, FKI and Respondent
clause thereof and, at the same time, impugn executed another contract of lease (2000 Lease
Contract) covering the subject land. In this 2000 Lease
the validity of the contract itself? Contract, FKI and Respondent agreed on a new five-
year lease to take effect on the 26th of May 2000, with
annual rents ranging from P4M for the first year up to
Is it necessary for a party seeking arbitration to
P4.9M for the fifth year.
The 2000 Lease Contract also contained an arbitration
first file a request or an application therefor clause enforceable in the event the parties come to
disagreement about the interpretation, application
with the court to render an arbitration clause and execution of the lease.

operational? After the 2000 Lease Contract expired, FKI and

Respondent agreed to renew their lease for another
If parties to a contract already underwent five (5) years. This new lease (2005 Lease Contract)
required FKI to pay a fixed annual rent of P4.2M.In
Judicial Dispute Resolution (JDR) proceedings addition to paying the fixed rent, however, the 2005
Lease Contract also obligated FKI to make a yearly
donation of money to the Respondent. Such
before the court, may they still refer their
donations ranged from P3M for the first year up to
P3.9M for the fifth year.
dispute to arbitration?
Notably, the 2005 Lease Contract contained an
G.R. No. 198075 (September 04, 2013) arbitration clause similar to that in the 2000 Lease
PEREZ, J.: Contract, to wit:
FACTS:
19. Governing Law The provisions of this [2005 Lease
In 1975, Fedders Koppel, Incorporated (FKI) Contract] shall be governed, interpreted and construed
bequeathed a parcel of land exclusive of improvements in all aspects in accordance with the laws of the
thereon in favor of Respondent Makati Rotary Club Republic of the Philippines.
Foundation, Inc. by way of a conditional donation. Any disagreement as to the interpretation,
Respondent accepted the donation with all of its application or execution of this [2005 Lease
conditions. On 26 May 1975, FKI and the Respondent Contract] shall be submitted to a board of three
executed a Deed of Donation evidencing their (3) arbitrators constituted in accordance with
consensus. the arbitration law of the Philippines. The
decision of the majority of the arbitrators shall
One of the conditions of the donation required the
be binding upon [FKI and Respondent]. (Emphasis
Respondent to lease the subject land back to FKI under
supplied)
terms specified in their Deed of Donation. With the
Respondents acceptance of the donation, a lease From 2005 to 2008, FKI faithfully paid the rentals and
agreement between them was, therefore, effectively donations due it per the 2005 Lease Contract. But in
incorporated in the Deed of Donation. June of 2008, FKI sold all its rights and properties
relative to its business in favor of herein Petitioner Petitioner refused to comply with the demands of the
Koppel, Incorporated. Respondent. Instead, on 30 September 2009, Petitioner
filed with the RTC of Paraaque City a Complaint for
On 29 August 2008, FKI and Petitioner executed the Rescission or Cancellation of the Deed of
an Assignment and Assumption of Lease and Donation Donation and Amended Deed of Donation against the
wherein FKI, with the conformity of the Respondent, Respondent.
formally assigned all of its interests and obligations On 5 October 2009, Respondent filed an Unlawful
under the Amended Deed of Donationand the 2005 Detainer caseagainst the Petitioner before the MeTC of
Lease Contract in favor of Petitioner. Paraaque City.
On 4 November 2009, Petitioner filed an Answer with
The following year, Petitioner discontinued the Compulsory Counterclaim.In it, Petitioner reiterated its
payment of the rent and donation under the objection over the rental stipulations of the 2005 Lease
2005 Lease Contract. Contract for being violative of the material conditions
of the Deed of Donation and Amended Deed of
Petitioners refusal to pay such rent and donation Donation.
emanated from its belief that the rental stipulations of
the 2005 Lease Contract, and even of the 2000 Lease On 27 April 2010, the MeTC rendered judgment in favor
Contract, cannot be given effect because they violated of the Petitioner. While the MeTC refused to dismiss the
one of the material conditions of the donation of the action on the ground that the dispute is subject to
subject land, as stated in the Deed of arbitration, it nonetheless sided with the Petitioner with
Donation and Amended Deed of Donation. respect to the issues regarding the insufficiency of the
Respondents demand and the nullity of the 2005
According to Petitioner, the Deed of Lease Contract.
Donation and Amended Deed of Donation actually
established not only one but two (2) lease agreements The Respondent appealed to the RTC which reversed
between FKI and Respondent, i.e., one lease for the the MeTCs decision.
first twenty-five (25) years or from 1975 to 2000, and
another lease for the next twenty-five (25) years Aggrieved, the Petitioner appealed to the CA which
thereafter or from 2000 to 2025. Both leases are affirmed the decision of the RTC.
material conditions of the donation of the subject land.
Hence, the present Petition for Review on
Petitioner points out that while a definite amount of Certiorari under Rule 45.
rent for the second twenty-five (25) year lease was not ISSUE:
fixed in the Deed of Donation and Amended Deed of
Donation, both deeds nevertheless prescribed rules Whether or not the present dispute is arbitrable under
and limitations by which the same may be determined. the Arbitration Clause of the 2005 Lease Agreement
Such rules and limitations ought to be observed in any Contract?
succeeding lease agreements between Petitioner and
Respondent for they are, in themselves, material ARGUMENTS:
conditions of the donation of the subject land.
At different points in the proceedings of this case, the
In this connection, Petitioner cites item 2(g) of following arguments were offered against the
the Deed of Donation and Amended Deed of application of the arbitration clause of the 2005 Lease
Donation that supposedly limits the amount of rent for Contract:
the lease over the second twenty-five (25) years to
only three percent (3%) of the fair market value of the 1. The disagreement between the Petitioner and
[subject] land excluding the improvements. Respondent is non-arbitrable as it will
inevitably touch upon the issue of the validity
For Petitioner then, the rental stipulations of both of the 2005 Lease Contract. It was submitted
the 2000 Lease Contract and 2005 Lease that one of the reasons offered by the
Contract cannot be enforced as they are clearly, in Petitioner in justifying its failure to pay under
view of their exorbitant exactions, in violation of the the 2005 Lease Contractwas the nullity of such
aforementioned threshold in item 2(g) of the Deed of contract for being contrary to law and public
Donation and Amended Deed of Donation. policy. The Supreme Court, in Gonzales v.
Consequently, Petitioner insists that the amount of rent Climax Mining, Ltd. [2005], held that the
it has to pay thereon is and must still be governed by validity of contract cannot be subject of
the limitations prescribed in the Deed of arbitration proceedings as such questions are
Donation and Amended Deed of Donation. legal in nature and require the application and
interpretation of laws and jurisprudence which
Respondent then sent Demand Letters to Petitioners is necessarily a judicial function.
notifying the latter of its default, demanding for the 2. The Petitioner cannot validly invoke the
settlement of the rent and donations due for the year arbitration clause of the 2005 Lease
2009. Respondent intimated of cancelling the 2005 Contract while, at the same time, impugn such
Lease Contract should Petitioner fail to settle the said contracts validity.
obligations. In its last sent Demand Letter, Respondent
demand Petitioner to immediately vacate the leased 3. Even assuming that it can invoke the
premises should it fail to pay such obligations within arbitration clause whilst denying the validity of
seven (7) days from its receipt of the letter. the 2005 Lease Contract, Petitioner still did not
file a formal application before the MeTC so as
 to render such arbitration clause operational. requiring the technical knowledge and experience of
Section 24 of Republic Act No. 9285 requires mining authorities in order to be resolved. Accordingly,
the party seeking arbitration to first file a since the complaint for arbitration in Gonzales did not
request or an application therefor with the raise mining disputes as contemplated under R.A. No.
court not later than the preliminary conference. 7942 but only issues relating to the validity of certain
mining related agreements, SC held that such
4. Petitioner and Respondent already complaint could not be arbitrated before the PA-MGB. It
underwent JDR proceedings before the RTC. is in this context that SC made the pronouncement now
Hence, a further referral of the dispute to in discussion:
arbitration would only be circuitous. Moreover, Arbitration before the Panel of Arbitrators is proper only
an ejectment case, in view of its summary when there is a disagreement between the parties as
nature, already fulfills the prime purpose of to some provisions of the contract between them,
arbitration, i.e., to provide parties in conflict which needs the interpretation and the application of
with an expedient method for the resolution of that particular knowledge and expertise possessed by
their dispute. Arbitration then would no longer members of that Panel. It is not proper when one of the
be necessary in this case. parties repudiates the existence or validity of such
contract or agreement on the ground of fraud or
RULING: oppression as in this case. The validity of the
contract cannot be subject of arbitration
YES. None of the above-mentioned arguments have proceedings.Allegations of fraud and duress in the
any merit. The MeTC, RTC and CA all erred in execution of a contract are matters within the
overlooking the significance of the arbitration clause jurisdiction of the ordinary courts of law. These
incorporated in the 2005 Lease Contract. As the SC questions are legal in nature and require the
sees it, that is a fatal mistake. application and interpretation of laws and
jurisprudence which is necessarily a judicial
Hence, the Petition is GRANTED and thus referring the
function. (Emphasis supplied)
Petitioner and the Respondent to arbitration pursuant
to the arbitration clause of the 2005 Lease Contract, SC in Gonzales did not simply base its rejection of the
repeatedly included in the 2000 Lease Contract and in complaint for arbitration on the ground that the issue
the 1976 Amended Deed of Donation. raised therein, i.e., the validity of contracts, is per
se non-arbitrable. The real consideration behind the
RATIO DECIDENDI:
ruling was the limitation that was placed by R.A.
The arbitration clause of the 2005 Lease No. 7942 upon the jurisdiction of the PA-MGB as
Contract stipulates that any disagreement as to the an arbitral body. Gonzales rejected the complaint
interpretation, application or execution of the 2005 for arbitration because the issue raised therein is not
Lease Contract ought to be submitted to arbitration. To a mining dispute per R.A. No. 7942 and it is for this
the mind of the Court, such stipulation is clear and is reason, and only for this reason, that such issue is
comprehensive enough so as to include virtually any rendered non-arbitrable before the PA-MGB. As stated
kind of conflict or dispute that may arise from the 2005 beforehand, R.A. No. 7942 clearly limited the
Lease Contract including the one that presently besets jurisdiction of the PA-MGB only to mining disputes.
Petitioner and Respondent.
Much more instructive for our purposes, on the other
First. The disagreement between the Petitioner and hand, is the recent case of Cargill Philippines, Inc.
Respondent falls within the all-encompassing terms of v. San Fernando Regal Trading, Inc [2011].
the arbitration clause of the 2005 Lease Contract. In Cargill, SC answered the question of whether issues
While it may be conceded that in the arbitration of involving the rescission of a contract are arbitrable.
such disagreement, the validity of the 2005 Lease The respondent in Cargill argued against arbitrability,
Contract, or at least, of such contracts rental also citing therein Gonzales. After
stipulations would have to be determined, the same dissecting Gonzales, SC ruled in favor of arbitrability.
would not render such disagreement non-arbitrable. Thus, SC held:
The quotation from Gonzalescase that was used to Respondent contends that assuming that the existence
justify the contrary position was taken out of context. of the contract and the arbitration clause is conceded,
the CAs decision declining referral of the parties
The pivotal issue that confronted the Court in dispute to arbitration is still correct. It claims that its
the Gonzales case was whether the complaint for complaint in the RTC presents the issue of whether
arbitration raises arbitrable issues that the Panel of under the facts alleged, it is entitled to rescind the
Arbitrators of the Mines and Geosciences Bureau (PA- contract with damages; and that issue constitutes a
MGB) can take cognizance of. judicial question or one that requires the exercise of
judicial function and cannot be the subject of an
Gonzales decided the issue in the negative. In holding arbitration proceeding. Respondent cites our ruling in
that the PA-MGB was devoid of any jurisdiction to take Gonzales, wherein we held that a panel of arbitrator is
cognizance of the complaint for arbitration, this Court bereft of jurisdiction over the complaint for declaration
pointed out to the provisions of R.A. No. 7942, or the of nullity/or termination of the subject contracts on the
Mining Act of 1995, which granted the PA-MGB with grounds of fraud and oppression attendant to the
exclusive original jurisdiction only over mining execution of the addendum contract and the other
disputes, i.e., disputes involving rights to mining contracts emanating from it, and that the complaint
areas, mineral agreements or permits, and surface should have been filed with the regular courts as it
owners, occupants, claimholders or concessionaires involved issues which are judicial in nature.
Such argument is misplaced and respondent Apart from other submissions, the movant shall attach
cannot rely on the Gonzales case to support its to his motion an authentic copy of the arbitration
argument. (Emphasis ours) agreement.

Second. Petitioner may still invoke the arbitration The request shall contain a notice of hearing addressed
clause of the 2005 Lease Contract notwithstanding the to all parties specifying the date and time when it
fact that it assails the validity of such contract. This is would be heard. The party making the request shall
due to the doctrine of separability. serve it upon the respondent to give him the
opportunity to file a comment or opposition as
Under the doctrine of separability, an arbitration provided in the immediately succeeding Rule before
agreement is considered as independent of the main the hearing. [Emphasis ours; italics original]
contract. Being a separate contract in itself, the
arbitration agreement may thus be invoked regardless Attention must be paid, however, to the salient
of the possible nullity or invalidity of the main contract. wordings of Rule 4.1. It reads: [a] party to a pending
action filed in violation of the arbitration agreement x x
Once again instructive is Cargill, wherein SC held that, x may request the court to refer the parties to
as a further consequence of the doctrine of arbitration in accordance with such agreement.
separability, even the very party who repudiates the
main contract may invoke its arbitration clause. In using the word may to qualify the act of filing a
request under Section 24 of R.A. No. 9285, the
Third. The operation of the arbitration clause in this Special ADR Rules clearly did not intend to limit the
case is not at all defeated by the failure of the invocation of an arbitration agreement in a pending
Petitioner to file a formal request or application suit solely via such request. After all, non-compliance
therefor with the MeTC. SC finds that the filing of a with an arbitration agreement is a valid defense to any
request pursuant to Section 24 of R.A. No. offending suit and, as such, may even be raised in
9285 is not the sole means by which an arbitration an answer as provided in our ordinary rules of
clause may be validly invoked in a pending suit. procedure.
Section 24 of R.A. No. 9285 reads: In this case, it is conceded that Petitioner was not able
SEC. 24. Referral to Arbitration. A court before to file a separate request of arbitration before the
which an action is brought in a matter which is the MeTC. However, it is equally conceded that the
subject matter of an arbitration agreement shall, if at Petitioner, as early as in its Answer with Counterclaim,
least one party so requests not later that the pre-trial had already apprised the MeTC of the existence of the
conference, or upon the request of both parties arbitration clause in the 2005 Lease Contractand, more
thereafter, refer the parties to arbitration unless it finds significantly, of its desire to have the same enforced in
that the arbitration agreement is null and void, this case. This act of Petitioner is enough valid
inoperative or incapable of being performed. [Emphasis invocation of his right to arbitrate.
ours; italics original]
Fourth. The fact that the Petitioner and Respondent
The request referred to in the above provision is, in already underwent through JDR proceedings before the
turn, implemented by Rules 4.1 to 4.3 of A.M. No. 07- RTC, will not make the subsequent conduct of
11-08-SC or the Special Rules of Court on Alternative arbitration between the parties unnecessary or
Dispute Resolution (Special ADR Rules): circuitous. The JDR system is substantially different
RULE 4: REFERRAL TO ADR from arbitration proceedings.

Rule 4.1. Who makes the request. A party to a The JDR framework is based on the processes
pending action filed in violation of the arbitration of mediation, conciliation or early neutral
agreement, whether contained in an arbitration clause evaluation which entails the submission of a dispute
or in a submission agreement, may request the court before a JDR judge who shall merely facilitate
to refer the parties to arbitration in accordance with settlement between the parties in conflict or make a
such agreement. non-binding evaluation or assessment of the chances
of each partys case. Thus in JDR, the JDR judge lacks
Rule 4.2. When to make request. (A) Where the the authority to render a resolution of the dispute that
arbitration agreement exists before the action is filed. is binding upon the parties in conflict. In arbitration, on
The request for referral shall be made not later than the other hand, the dispute is submitted to
the pre-trial conference. After the pre-trial conference, an arbitrator/sa neutral third person or a group of
the court will only act upon the request for referral if it thereofwho shall have the authority to render a
is made with the agreement of all parties to the case. resolution binding upon the parties.
(B) Submission agreement. If there is no existing Clearly, the mere submission of a dispute to JDR
arbitration agreement at the time the case is filed but proceedings would not necessarily render the
the parties subsequently enter into an arbitration subsequent conduct of arbitration a mere surplusage.
agreement, they may request the court to refer their The failure of the parties in conflict to reach an
dispute to arbitration at any time during the amicable settlement before the JDR may, in fact, be
proceedings. supplemented by their resort to arbitration where a
binding resolution to the dispute could finally be
Rule 4.3. Contents of request. The request for achieved. This situation precisely finds application to
referral shall be in the form of a motion, which shall the case at bench.
state that the dispute is covered by an arbitration
agreement.
Neither would the summary nature of ejectment cases when the Petitioner and the Respondent should have
be a valid reason to disregard the enforcement of the been referred to arbitration. This case must, therefore,
arbitration clause of the 2005 Lease Contract. be remanded to the MeTC and be suspended at said
Notwithstanding the summary nature of ejectment point. Inevitably, the decisions of the MeTC, RTC and
cases, arbitration still remains relevant as it aims not the Court of Appeals must all be vacated and set aside.
only to afford the parties an expeditious method of The Petitioner and the Respondent must then be
resolving their dispute. referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract.
A pivotal feature of arbitration as an alternative mode
of dispute resolution is that it is, first and foremost, a KOPPEL INC V. MAKATI ROTARY CLUB
product of party autonomy or the freedom of the FOUNDATION INC, G.R. NO 198075 (2013)
parties to make their own arrangements to resolve FACTS: Fedders Koppel Inc (FKI) owned a parcel of
their own disputes. Arbitration agreements manifest land in Paranaque. Within the subject property are
not only the desire of the parties in conflict for an buildings and other improvements dedicated to the
expeditious resolution of their dispute. They also business of FKI
represent, if not more so, the parties mutual aspiration 1. In 1975, FKI bequeathed the subject property
to achieve such resolution outside of judicial auspices, (exclusive of the improvements) in favor of
in a more informal and less antagonistic environment Makati Rotary Club by way of a conditional
under the terms of their choosing. Needless to state, donation
this critical feature can never be satisfied in an 2. The donation provides that the donee, Makati
ejectment case no matter how summary it may be. Rotary Club, was required to lease the subject
property to FKI under the terms specified in the
Legal Effect of the Application of the Arbitration Deed of Donation.
Clause 3. The stipulations in the donation provides:
a. that the period of lease shall be for 25
Since there really are no legal impediments to the years (until May 25, 2000) and the annual
application of the arbitration clause of the 2005 rent for the first 25 years is P40,126
Contract of Lease in this case, We find that the instant b. The lease is subject to renewable for
unlawful detainer action was instituted in violation of another 25 years upon mutual agreement
such clause. The Law, therefore, should have governed of the donor and donee
the fate of the parties and this suit: c. In case of disagreement, the matter shall
be referred to a Board of arbitrators (3-
R.A. No. 876 member) appointed and with powers in
Section 7. Stay of civil action. If any suit or accordance with the Arbitration Law of the
proceeding be brought upon an issue arising out of an Philippines (RA 878)
agreement providing for the arbitration thereof, the 4. Before the lease contract was set to expire, FKI
court in which such suit or proceeding is pending, upon and Makati Rotary Club executed another
being satisfied that the issue involved in such suit or contract extending the lease for 5 years, with
proceeding is referable to arbitration, shall stay the annual rents ranging from P4,000,000 for the
action or proceeding until an arbitration has 1st year up to P4,900,00 for the 5th year. The
been had in accordance with the terms of the 2000 Lease contract an arbitration clause
agreement: Provided, That the applicant for the stay worded as:
is not in default in proceeding with such arbitration. Any disagreement as to the interpretation,
[Emphasis supplied] application or execution of the [2000 Lease]
contract shall be submitted to a board of 3
R.A. No. 9285
arbitrators constituted in accordance with the
Section 24. Referral to Arbitration. A court before
Arbitration Law of the Philippines. The decision
which an action is brought in a matter which is the
of the majority of the board shall be binding
subject matter of an arbitration agreement shall, if at
upon FKI and respondent
least one party so requests not later that the pre-trial
5. After the 2000 Lease Contract expired, FKI and
conference, or upon the request of both parties
respondent agreed to renew their lease for
thereafter, refer the parties to arbitration unless it
another 5 years at a fixed rate pf P4,200,000
finds that the arbitration agreement is null and void,
per annum (2005 Lease Contract). In addition,
inoperative or incapable of being performed. [Emphasis
the contract also obligated FKI to make a
supplied]
yearly donation of money to respondent
It is clear that under the law, the instant unlawful ranging from P3 million for the 1st year up to
detainer action should have been stayed; the Petitioner P3.9 million for the 5th year. The lease contract
and the Respondent should have been referred to contained an arbitration clause similar to the
arbitration pursuant to the arbitration clause of 2000 lease contract. From 2005 to 2008, FKI
the 2005 Lease Contract. The MeTC, however, did not paid the rentals and donations due based on
do so in violation of the lawwhich violation was, in the 2005 Lease Contract.
turn, affirmed by the RTC and Court of Appeals on 6. In Aug 2008, FKI assigned all its interest and
appeal. obligations in favor of petitioner Koppel Inc.
The next year, Koppel discontinued the
The violation by the MeTC of the clear directives under payment of the rentals and donations under
R.A. Nos. 876 and 9285 renders invalid all proceedings the 2005 Lease Contract. Koppels refusal to
it undertook in the ejectment case after the filing by pay was based on the premise that the
Petitioner of its Answer with Counterclaimthe point subsequent lease contracts violated one of the
 material conditions of the donation of the arbitration because RA 7942 (Mining Act of 1995)
property, i.e. Item 2(g) of the Deed of Donation grants PA-MGB with exclusive original jurisdiction only
states that the rent of the subject property over mining disputes. Since the complaint for
over the second 25 years was limited to only arbitration in the Gonzales case did not raise mining
3% of the fair market value of the subject disputes as contemplated under RA 7942, the SC held
property excluding the improvements such complaint could not arbitrated before the PA-MGB.
7. On June 1, 2009, Makati Rotary Club sent a
demand letter notifying Koppel of its default. The Court in Gonzales did not simply reject the
Petitioner (Sept 22, 2009) sent a reply complaint on the ground that the issue of validity of
expressing its disagreement over the rental contracts per se is non-arbitrable. The real
stipulations of the 2005 Lease Contract and consideration bind the ruling was the limitation that
offered to pay P80,502.79 instead of was placed by RA 7942 upon the jurisdiction of PA-MGB
P8,394,000 as demanded by respondent as an arbitral body.
8. Respondent send a subsequent demand letter
(Sept 25, 2009) ordering Koppel Inc to vacate Petitioner may still invoke the arbitration clause of the
the premises should it fail to pay its obligation 2005 Lease Contract notwithstanding the fact that it
within 7 days from receipt of letter. assails the validity of such contract. This is due to the
9. Petitioner Koppel refused to comply with the doctrine of separability. Under said doctrine, an
demands of the respondent and instead, filed arbitration agreement is considered as independent of
with RTC Paranaque a complaint for the the main contract. Being a separate contract in itself,
rescission or cancellation of the Deed of the arbitration agreement may thus be invoked
Donation regardless of the possible nullity or invalidity of the
10. Thereafter, Makati Rotary Club filed an unlawful main contract.
detainer case against Koppel before MTC
Paranaque. In the ejectment suit, Koppel The operation of the arbitration clause in this case is
reiterated its objections over the rental not defeated by Koppels failure to file a formal
stipulations of the 2005 Lease Contract and request or application with the MTC. In using the
questioned the jurisdiction of the MTC in view word may to qualify the act of filing a request
of the arbitration clause contained in the Lease under Sec 24 of RA 9285 (Special ADR Rues) clearly did
Contract not intend to limit invocation of an arbitration
11. In the ejectment case, RTC ruled in favor of agreement in a pending suit solely via such request.
Koppel Inc. While it did not dismiss the action After all, non-compliance with an arbitration agreement
on the ground of arbitration, MTC sided with is a valid defense to any offending suit and, as such,
petitioner with respect to the issues regarding may even be raised in an answer as provided in our
the insufficiency of the respondents demand ordinary rules of procedure.
and the nullity of the 2005 Lease contract
12. On appeal, RTC reversed the MTC decision and CAB: As early as in its answer with counterclaim,
ordered Koppel to vacate the subject property. Koppel had already apprised MTC of the existence of
As to the existing improvements, RTC held that the arbitration clause in the 2005 Lease Contract; such
the same were built in good faith subject to the act is enough valid invocation of his right to arbitrate.
provisions under Art 1678 NCC. CA affirmed
13. Arguments against arbitration: The fact that petitioner and respondent already
The dispute between petitioner and underwent through JDR proceedings before the RTC,
respondent involves the validity of the will not make the subsequent arbitration between the
2005 Lease Contract. Citing Gonzales v. parties unnecessary or circuitous. The JDR system is
Climax Mining: The validity of contract substantially different from arbitration proceedings.
cannot be subject the arbitration
proceedings as such questions are legal in The JDR framework is based on the processes
nature and require the application of of mediation, conciliation or early neutral
interpretation of laws and jurisprudence evaluation which entails the submission of a dispute
which is necessarily a judicial function before a JDR judge who shall merely facilitate
Petitioner cannot validly invoke the settlement between the parties in conflict or make a
arbitration clause while at the same time, non-binding evaluation or assessment of the chances
impugn such contracts validity of each partys case. Thus in JDR, the JDR judge lacks
Petitioner did not file a formal application the authority to render a resolution of the dispute that
before the MTC so as to render the is binding upon the parties in conflict. In arbitration, on
arbitration clause operational the other hand, the dispute is submitted to an
arbitrator/sa neutral third person or a group of
The parties underwent Judicial Dispute
thereofwho shall have the authority to render a
Resolution (JDR); further referral of the
resolution binding upon the parties.
dispute to arbitration would only be
circuitous
ISSUE: What is the nature of an arbitration
proceeding?
ISSUE: WON the present dispute is subject to
arbitration
HELD: A pivotal feature of arbitration as an alternative
mode of dispute resolution is that it is, first and
HELD: Yes. Respondent took the ruling in the Gonzales
foremost, a product of party autonomy or the freedom
case out of context. PA-MGB was devoid of any
of the parties to make their own arrangements to
jurisdiction to take cognizance of the complaint for
resolve their own disputes. Arbitration agreements Petitioner J Plus Asia Development Corporation and
manifest not only the desire of the parties in conflict Martin E. Mabunay entered into a Construction
for an expeditious resolution of their dispute. They also Agreement on December 24, 2007 whereby the latter
represent, if not more so, the parties mutual aspiration undertook to build the formers 72-room
to achieve such resolution outside of judicial auspices, condominium/hotel located in Boracay Island.
in a more informal and less antagonistic environment
under the terms of their choosing. Needless to state,
this critical feature can never be satisfied in an The project, costing P42M, was to be completed within
ejectment case no matter how summary it may be. one year or 365 days reckoned from the first calendar
day after signing of the Notice of Award and Notice to
ISSUE: What are the legal effects of the arbitration Proceed and receipt of down payment (20% of contract
clause? price). The P8.4M down payment was fully paid on
January 14, 2008. Payment of the balance of the
HELD: Since there really are no legal impediments to contract price will be based on actual work finished
the application of the arbitration clause of the 2005 within 15 days from receipt of the monthly progress
Contract of Lease in this case, the unlawful detainer billings. Per the agreed work schedule, the completion
action was instituted in violation of such clause. date of the project was December 2008. Mabunay also
submitted the required Performance Bond issued by
Under Sec 7, RA 9285, the instant unlawful detainer Respondent Utility Assurance Corporation in the
action should have been stayed; the petitioner and the
amount equivalent to 20% down payment or P8.4M.
respondent should have been referred to arbitration
pursuant to the arbitration clause of the 2005 Lease
Contract. The MeTC, however, did not do so in violation Mabunay commenced work at the project site on
of the lawwhich violation was, in turn, affirmed by the January 7, 2008. Petitioner paid up to the 7th monthly
RTC and Court of Appeals on appeal. progress billing sent by Mabunay. As of September 16,
2008, Petitioner had paid the total amount of P15.98M
The violation by the MTC of the clear directives under inclusive of the 20% down payment. However, as of
R.A. Nos. 876 and 9285 renders invalid all proceedings said date, Mabunay had accomplished only 27.5% of
it undertook in the ejectment case after the filing by the project. It was later found out by the joint
petitioner of its Answer with Counterclaimthe point inspection and evaluation by the Petitioner and
when the petitioner and the respondent should have Mabunay that, as of November 14, 2008, the project
been referred to arbitration. This case must, therefore,
was only 31.39% complete and that the uncompleted
be remanded to the MeTC and be suspended at said
portion was 68.61%.
point. Inevitably, the decisions of the MeTC, RTC and
the Court of Appeals must all be vacated and set aside.
On November 19, 2008, Petitioner terminated the
contract and sent Demand Letters to Mabunay and
Respondent surety. As its demands went unheeded,
Petitioner filed a Request for Arbitration before the
J Plus Asia Development Corporation vs. Utility Construction Industry Arbitration Commission (CIAC).

In his Answer, Mabunay claimed that the delay was

Assurance Corporation [2013] caused by retrofitting and other revision works ordered
by Petitioner. He asserted that he actually had until
April 30, 2009 to finish the project since the 365 days
period of completion started only on May 2, 2008 after
December 2, 2013Juan Knows clearing the retrofitted old structure. Hence, the
Jurisprudence Tags: Alternative Dispute termination of the contract by Petitioner was
Resolution, Arbitration Clause, Arbitration Law, Case premature and the filing of the Complaint against him
Digests, Case Law, Construction was baseless, malicious and in bad faith.
Indus, Jurisprudence, Law, Philippines
Respondent, on the other hand, filed a Motion to
Dismiss on the ground that Petitioner has no cause of
Does CA have jurisdiction to review arbitral action and the complaint states no cause of action
against it. The CIAC denied the Motion to Dismiss.
awards?
In its Answer Ex Abundante Ad Cautelam with
G.R. No. 199650 (June 26, 2013) Compulsory Counterclaims and Cross-claims,
Respondent argued that the Performance Bond merely
guaranteed the 20% down payment and not the entire
VILLARAMA, JR., J.:
obligation of Mabunay under the Construction
Agreement. Since the value of the projects
FACTS: accomplishment already exceeded the said amount,
Respondents obligation under the Performance
Bond had been fully extinguished. As to the claim for
alleged overpayment to Mabunay, Respondent construction disputes. On the contrary, Section 40
contended that it should not be credited against the thereof expressly declares that confirmation by the RTC
20% down payment which was already exhausted and is NOT required, thus:
such application by Petitioner is tantamount to reviving
an obligation that had been legally extinguished by SEC. 40. Confirmation of Award. The confirmation of a
payment. Respondent also set up a cross-claim domestic arbitral award shall be governed by Section
against Mabunay who executed in its favor 23 of R.A. 876.
an Indemnity Agreement whereby Mabunay undertook
to indemnify Respondent for whatever amounts it may
A domestic arbitral award when confirmed shall be
be adjudged liable to pay Petitioner under the surety
enforced in the same manner as final and executory
bond.
decisions of the Regional Trial Court.

On February 2, 2010, CIAC rendered its Decision and

The confirmation of a domestic award shall be made by
made Awards in favor of Petitioner. CIAC ruled that
the regional trial court in accordance with the Rules of
Mabunay had incurred delay which entitled Petitioner
Procedure to be promulgated by the Supreme Court.
to the stipulated liquidated damages and unrecouped
down payment.
A CIAC arbitral award need not be confirmed by the
regional trial court to be executory as provided under
Dissatisfied, Respondent filed in the CA a Petition for
E.O. No. 1008. (Emphasis supplied.)
Reviewunder Rule 43 of the 1997 Rules of Civil
Procedure, as amended, which reversed the CIACs
ruling. EO No. 1008 vests upon the CIAC original and exclusive
jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in
Hence, the present Petition for Review on
construction in the Philippines, whether the dispute
Certiorari under Rule 45 seeking to reverse the CA
arises before or after the completion of the contract, or
insofar as it denied its claims under the Performance
after the abandonment or breach thereof. By express
Bond and to reinstate in its entirety the February 2,
provision of Section 19 thereof, the arbitral award of
2010 CIAC Decision.
the CIAC is final and unappealable, except on questions
of law, which are appealable to the Supreme Court.
ISSUE: With the amendments introduced by RA No. 7902 and
promulgation of the 1997 Rules of Civil Procedure, as
Whether or not the Alternative Dispute Resolution Act amended, the CIAC was included in the enumeration of
of 2004 and the Special ADR Rules have stripped the quasi- judicial agencies whose decisions or awards may
CA of jurisdiction to review arbitral awards? be appealed to the CA in a Petition for Review under
Rule 43. Such review of the CIAC award may involve
ARGUMENT: either questions of fact, of law, or of fact and law.

Petitioner contends that that with the Petitioner misread the provisions of A.M. No. 07-11-08-
institutionalization of alternative dispute resolution SC (Special ADR Rules) promulgated by the SC and
under RA No. 9285, otherwise known as the Alternative which took effect on October 30, 2009. Since RA No.
Dispute Resolution Act of 2004, the CA was divested of 9285 explicitly excluded CIAC awards from domestic
jurisdiction to review the decisions or awards of the arbitration awards that need to be confirmed to be
CIAC. executory, said awards are therefore not covered by
Rule 11 of the Special ADR Rules, as they continue to
be governed by EO No. 1008, as amended and the
RULING:
rules of procedure of the CIAC. The CIAC Revised
Rules of Procedure Governing Construction
NO. The Petitioners contention is without merit. Arbitration provide for the manner and mode of appeal
Petitioner erroneously relied on the provision in RA No. from CIAC decisions or awards in Section 18 thereof,
9285 allowing any party to a domestic arbitration to which reads:
file in the RTC a petition either to confirm, correct or
vacate a domestic arbitral award.
SECTION 18.2 Petition for review. A petition for review
from a final award may be taken by any of the parties
The Petition is GRANTED. The assailed decision of the within fifteen (15) days from receipt thereof in
CA is REVERSED and SET ASIDE. The Award made in accordance with the provisions of Rule 43 of the Rules
the Decision rendered by CIAC dated February 2, 2010 of Court.
is REINSTATED with MODIFICATIONS.
Puromines v CA
RATIO DECIDENDI: March 22, 1993
PUROMINES, INC.
SC holds that RA No. 9285 did not confer on RTCs vs.
jurisdiction to review awards or decisions of the CIAC in
COURT OF APPEALS and PHILIPP BROTHERS OCEANIC, and condition. However, shipments covered by Bill
INC of Lading Nos. 1 and 3 were discharged in
NOCON, J p: Manila in bad order and condition, caked,
hardened and lumpy, discolored and contaminated
SUMMARY: A sales contract for the sale of prilled urea with rust and dirt.
was entered into by Puromines and Makati Agro and it o Damages were valued at P683, 056. 29
was provided therein that any disputes arising from the including additional discharging expenses.
contract shall be settled by arbitration in London. The Puromines filed a complaint with the trial court for
shipment covered by 3 bills of lading was undertaken breach of contract of carriage against Maritime
by MV Liliana Dimitrova with Philipp Brothers as Factors Inc. (not included as respondent in this
charterer of said vessel. When shipment covered by Bill petition) as ship-agent for the owners of the vessel
of Lading 2&3 were discharged in Manila in bad order MV "Liliana Dimitrova," while Philipp Brothers
and condition, Puromines filed a complaint with TC for Oceanic Inc., was impleaded as charterer of the
breach of contract of carriage against Maritime, ship- said vessel
agent and Philipp Brothers, as charterer. Philipp filed a o Caking and hardening, wetting and
motion to dismiss on the basis that case should be melting, and contamination by rust and dirt
brought to arbitration first. Puromines opposed of the damaged portions of the shipment
contending that the sales contract does not include were due to the improper ventilation and
contract of carriage, the latter not covered by inadequate storage facilities of the vessel
agreement on arbitration. SC: Granted Motion to o Wetting of the cargo was attributable to the
Dismiss, sales contract and bill of lading provides failure of the crew to close the hatches
covers arbitration clause. Assuming the cause of action before and when it rained while the
is based on contract of carriage, it must be first shipment was being unloaded in the Port of
determined what kind of charter party had with the Manila;
shipowner to determine liability. If contract of o As a direct and natural consequence of the
affreightment, charterer is not liable as possession is unseaworthiness and negligence of the
still with owner. If charter of demise or bareboat, then vessel, Puromines suffered damages in the
charterer is liable as it is considered the owner and total amount of P683, 056.29.
therefore would be liable for damage or loss. Maritime Factors, Inc. filed its Answer to the
complaint, while Philipp filed a motion to dismiss
FACTS:
on the grounds that:
Puromines, Inc. and Makati Agro Trading, Inc. (not a o the complaint states no cause of action; it
party in this case) entered into a contract with was prematurely filed; and Puromines
Philipp Brothers Oceanic, Inc. for the sale of should comply with the arbitration clause
prilled Urea in bulk. in the sales contract.
Sales Contract provided an arbitration clause: Puromines opposed motion to dismiss contending
o "9. Arbitration: "Any disputes arising under the inapplicability of the arbitration clause
this contract shall be settled by inasmuch as the cause of action did not arise
arbitration in London in accordance with from a violation of the terms of the sales contract
the Arbitration Act 1950 and any statutory but rather for claims of cargo damages where
amendment or modification thereof. Each there is no arbitration agreement.
party is to appoint an Arbitrator, and TC: Denied Philipp's motion to dismiss. Arbitration
should they be unable to agree, the
not applicable.
decision of an Umpire appointed by them
o Sales contract states in part: 'Any
to be final. The Arbitrators and Umpire are
disputes arising under this contract
all to be commercial men and resident
shall be settled by arbitration
in London. This submission may be made
o Facts alleged in the complaint show that
a rule of the High Court of Justice in
the cause of action arose from a breach of
England by either party."
contract of carriage by the vessel chartered
May 22, 88: M/V "Liliana Dimitrova" loaded on
by Philipp Brothers thus; the arbitration
board at Yuzhny, USSR a shipment of 15k metric clause cannot apply to the dispute in the
tons prilled Urea in bulk complete and in good present action which concerns Puromines'
order and condition for transport to Iloilo and claim for cargo loss/damage arising from
Manila, to be delivered to Puromines. breach of contract of carriage.
3 bills of lading were issued by the ship-agent, o No merit to allegations that Philipp, not
Maritime Factors Inc: being the ship owner, is therefore not the
o Bill of Lading No. 1 dated May 12, 88 real party in interest as it was impleaded
covering 10k metric tons for discharge to as charterer of the vessel, hence, a
Manila; proper party
o Bill of Lading No. 2 of even date covering CA: Complaint Dismissed. The arbitration provision
4k metric tons for unloading in Iloilo City; in the sales contract and/or the bills of lading is
and applicable in the present case.
o Bill of Lading No. 3, same date, covering o Sales contract is broad enough to
1,500 metric tons likewise for discharge in include the claim for damages arising
Manila from the carriage and delivery of the
Shipment covered by Bill of Lading No. 2 was goods subject-matter thereof.
discharged in Iloilo City complete and in good order
 o Bills of lading state: 'Any dispute arising affreightment together with the sales
under this Bill of Lading shall be referred to contract. It is BOUND by the provisions and terms
arbitration of the Maritime Arbitration of said bill of lading and of the ARBITRATION
Commission xxx CLAUSE incorporated in the sales contract.
Hence, this special civil action for certiorari and
prohibition. 2) Assuming that the liability of Philipp is not based on
o Puromines argues that the sales contract the sales contract, but rather on the contract of
does not include the contract of carriage, being the charterer of the vessel MV "Liliana
carriage which is a different contract Dimitrova," it is material to show what kind of charter
entered into by the carrier with the cargo party Philipp had with owner of vessel to determine
owners. former's liability. Assuming that in the present case,
o Error for CA to touch upon the arbitration the charter party is a demise or bareboat charter,
provision of the bills lading in its decision then Philipp Brothers is liable to Puromines, Inc.,
inasmuch as the same was not raised as subject to the terms and conditions of the sales
an issue by Philipp who was not a party in contract. On the other hand, if the contract between
the bills of lading Philipp and the owner of the vessel MV "Liliana
ISSUES: Dimitrova" was merely that of affreightment, then it
1) Whether the phrase "any dispute arising under this cannot be held liable for the damages caused by the
contract" in the arbitration clause of the sales contract breach of contract of carriage, the evidence of which is
covers a cargo claim against the vessel (owner and/or the bill of lading.
charterers) for breach of contract of carriage? (YES) Charter party: Definition
2) Assuming that the cause of action arises from the American jurisprudence defines charter party as a
contract of carriage, whether Philipp, as charterer, contract by which an entire ship or some principal part
would be liable for the loss or damage? (Depends on thereof is let by the owner to another person for a
type of charter, YES if charter of demise, NO if contract specified time or use. (Ward v. Thompson)
of affreightment) Two Kinds of Charter Parties
3) Whether arbitration provision should not have been o Charter of demise or bareboat AND contracts of
discussed as it was not raised as a defense? (NO) affreightment.
Demise or Bareboat Charter of Veseel
RATIO: Charterer will generally be considered as OWNER for the
1) Sales contract is comprehensive enough to include voyage or service stipulated
claims for damages arising from carriage and delivery The charterer mans the vessel with his own people and
of the goods. becomes, in effect, the owner pro hac vice, subject to
GENERAL RULE: Seller has the obligation to liability to others for damages caused by negligence.
transmit the goods to the buyer, and concomitant (Assistance, Inc. v. Teledyne Industries Inc)
thereto, the contracting of a carrier to deliver
the same.
o Art. 1523: Where in pursuance of a To create a demise, the owner of a vessel must
contract of sale, the seller is authorized or completely and exclusively relinquish possession.
required to send the goods to the
buyer, delivery of the goods to a Responsibility to third persons for goods shipped on board
carrier, whether named by the buyer or a vessel follows the vessel's possession and employment;
not, for the purpose of transmission to the and if possession is transferred to the charterer by virtue
buyer is deemed to be a delivery of the of a demise, the charterer, and not the owner, is
goods to the buyer, EXCEPT in the cases liable as carrier on the contract of affreightment made
provided for in article 1503, first, second by himself or by the master with third persons, and is
and third paragraphs, or UNLESS a contrary answerable for loss, damage or non-delivery of goods
intent appear. received for transportation.
o "Unless otherwise authorized by the buyer,
the seller must take such contract
with the carrier on behalf of the buyer o In any case, whether the liability of Philipp should
as may be reasonable, having regard to the be based on the same contract or that of the bill of
nature of the goods and the other lading, the parties are nevertheless obligated to
circumstances of the case. If the seller respect the arbitration provisions on the
omits so to do, and the goods are lost or sales contract and/or the bill of lading.
damaged in course of transit, the buyer Puromines being a signatory and party to the sales
may decline to treat the delivery to contract cannot escape from his obligation under
the carrier as a delivery to himself, or the arbitration clause as stated therein.
may hold the seller responsible in Arbitration Clauses
damages." o Arbitration has been held valid and constitutional.
Sales Contract provides for conditions relative to Even before the enactment of RA 876, SC has
the delivery of goods, such as date of shipment, countenanced the settlement of disputes
demurrage, weight as determined by the bill of through arbitration. The rule now is that UNLESS
lading at load port and more particularly the the agreement is such as absolutely to close the
provisions in the contract. xxxx doors of the courts against the parties, which
Puromines derives his right to the cargo from the agreement would be void, the courts will look with
bill of lading which is the contract of favor upon such amicable arrangements and will
only interfere with great reluctance to
 anticipate or nullify the action of the covering 1,500 metric tons likewise for discharge in
arbitrator. (Arbitration as a Means of Reducing Manila. The shipment covered by Bill of Lading No. 2
Court Congestion, Coquia, Jorge quoting Malcolm, was discharged in Iloilo City complete and in good
J.) order and condition. However, the shipments covered
o Mindanao Portland Cement Corp. v. McDonough by Bill of Lading Nos. 1 and 3 were discharged in
Construction Company of Florida: With a written Manila in bad order and condition, caked, hardened
provision for arbitration as well as failure on and lumpy, discolored and contaminated with rust and
respondent's part to comply, parties must proceed dirt. Damages were valued at P683,056.29 including
to their arbitration in accordance with the terms of
additional discharging expenses. Consequently,
their agreement (Sec. 6, RA 876). Proceeding in
petitioner filed a complaint 3 with the trial court 4 for
court is merely a summary remedy to enforce
the agreement to arbitrate. The duty of the breach of contract of carriage against Maritime Factors,
court in this case is not to resolve the merits of the Inc. (which was not included as respondent in this
parties' claims but only to determine if they petition) as ship-agent in the Philippines for the owners
should proceed to arbitration or not. And of the vessel MV "Liliana Dimitrova," while private
although it has been ruled that a frivolous or respondent, Philipp Brothers Oceanic, Inc., was
patently baseless claim should not be ordered to impleaded as charterer of the said vessel and proper
arbitration it is also recognized that the mere fact party to accord petitioner complete relief. Answer to
that a defense exist against a claim does not the complaint, while private respondent filed a motion
make it frivolous or baseless. to dismiss, dated February 9, 1989, on the grounds
that the complaint states no cause of action; that it
3) Puromines contention that the arbitration provision was prematurely filed; and that petitioner should
in the bills of lading should not have been discussed as comply with the arbitration clause in the sales contract.
an issue in the CA decision since it was not raised as a The motion to dismiss was opposed by petitioner
special or affirmative defense is without merit. The 3
contending the inapplicability of the arbitration clause
bills of lading were attached to the complaint as
inasmuch as the cause of action did not arise from a
Annexes and are therefore parts thereof and may be
considered as evidence although not introduced as violation of the terms of the sales contract but rather
such. (Philippine Bank of Communications v. CA) It was for claims of cargo damages where there is no
then proper for CA/TC to discuss the contents of the arbitration agreement. The Court rendered a decision
bills of lading, having been made part of the record. in favor of the petitioner. Unsatisfied with the
DISPOSITIVE: Arbitration clause stated in Sales judgment, the respondent appealed and the lowers
Contract valid and applicable. CA Affirmed. courts decision was reversed by the appellate court.
Hence this petition.
Puromines v. CA, 220 SCRA 281

FACTS:
ISSUE:
Puromines, Inc. (Puromines for brevity) and Makati Agro
Trading, Inc. (not a party in this case) entered into a Whether the phrase "any dispute arising under this
contract with private respondent Philipp Brothers contract" in the arbitration clause of the sales contract
Oceanic, Inc. for the sale of prilled Urea in bulk. The covers a cargo claim against the vessel (owners and/or
Sales Contract No. S151.8.01018 provided, among charterers) for breach of contract of carriage
others an arbitration clause which states, thus: Any
disputes arising under this contract shall be settled by
arbitration in London in accordance with the Arbitration
Act 1950 and any statutory amendment or modification
thereof. Each party is to appoint an Arbitrator, and RULING:
should they be unable to agree, the decision of an
Umpire appointed by them to be final. The Arbitrators Yes. An examination of the sales contract No.
and Umpire are all to be commercial men and resident S151.8.01018 shows that it is broad enough to include
in London. This submission may be made a rule of the the claim for damages arising from the carriage and
High Court of Justice in England by either party. delivery of the goods subject-matter thereof.
Considering that the private respondent was one of the
On or about May 22, 1988, the vessel M/V "Liliana signatories to the sales contract . . . all parties are
Dimitrova" loaded on board at Yuzhny, USSR a obliged to respect the terms and conditions of the said
shipment of 15,500 metric tons prilled Urea in bulk sales contract, including the provision thereof on
complete and in good order and condition for transport "arbitration." Arbitration has been held valid and
to Iloilo and Manila, to be delivered to petitioner. Three constitutional. Even before the enactment of Republic
bills of lading were issued by the ship-agent in the Act No. 876, this Court has countenanced the
Philippines, Maritime Factors Inc., namely: Bill of Lading settlement of disputes through arbitration. The rule
No. 1 dated May 12, 1988 covering 10,000 metric tons now is that unless the agreement is such as absolutely
for discharge in Manila; Bill of Lading No. 2 of even to close the doors of the courts against the parties,
date covering 4,000 metric tons for unloading in Iloilo which agreement would be void, the courts will look
City; and Bill of Lading No. 3, also dated May 12, 1988, with favor upon such amicable arrangements and will
only interfere with great reluctance to anticipate or unappealable and that there shall be no further
nullify the action of the arbitrator. Premises considered, judicial recourse if either party disagrees with the
we uphold the validity and applicability of the whole or any part of the arbitrators award.
arbitration clause as stated in Sales Contract No.
S151.8.01018 to the present dispute. WHEREFORE, Ruling:
petition is hereby DISMISSED and the decision of the
court a quo is AFFIRMED.
We rule in the negative. 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
CHUNG FU INDUSTRIES V. CA (G.R. NO. 96283) and arbitrations are obtaining, the arbitrators award
may be annulled or rescinded. Additionally, under
Facts: Sections 24 and 25 of the Arbitration Law, there are
grounds for vacating, modifying or rescinding an
Petitioner Chung Fu Industries (Philippines) and private arbitrators award. Thus, if and when the factual
respondent Roblecor Philippines, Inc. forged a circumstances referred to in the above-cited provisions
construction agreement whereby respondent are present, judicial review of the award is properly
contractor committed to construct and finish petitioner warranted.
corporations industrial/factory complex. In the event of
disputes arising from the performance of subject This is where the proper remedy is certiorari under
contract, it was stipulated therein that the issue(s) Rule 65 of the Revised Rules of Court. It is to be borne
shall be submitted for resolution before a single in mind, however, that this action will lie only where a
arbitrator chosen by both parties. Roblecor filed a grave abuse of discretion or an act without or in excess
petition for Compulsory Arbitration with prayer for of jurisdiction on the part of the voluntary arbitrator is
Temporary Restraining Order before respondent RTC to clearly shown. It should be stressed, too, that voluntary
claim the unsatisfied account and unpaid progress arbitrators, by the nature of their functions, act in a
billings. Chung Fu moved to dismiss the petition and quasi-judicial capacity. It stands to reason, therefore,
further prayed for the quashing of the restraining order. that their decisions should not be beyond the scope of
Subsequent negotiations between the parties the power of judicial review of this Court.
eventually led to the formulation of an arbitration
agreement which, among others, provides: The parties In the case at bar, petitioners assailed the arbitral
mutually agree that the decision of the arbitrator shall award on the following grounds, most of which allege
be final and unappealable. Therefore, there shall be no error on the part of the arbitrator in granting
further judicial recourse if either party disagrees with compensation for various items which apparently are
the whole or any part of the arbitrators disputed by said petitioners. After closely studying the
award. Respondent RTC approved the arbitration list of errors, as well as petitioners discussion of the
agreement and thereafter, Engr. Willardo Asuncion was same in their Motion to Remand Case For Further
appointed as the sole arbitrator. Arbitrator Asuncion Hearing and Reconsideration and Opposition to Motion
ordered petitioner to immediately pay respondent for Confirmation of Award, we find that petitioners have
contractor and further declared the award as final and amply made out a case where the voluntary arbitrator
unappealable. Roblecor then moved for the failed to apply the terms and provisions of the
confirmation of said award which was accordingly Construction Agreement which forms part of the law
confirmed and a writ of execution granted to it. applicable as between the parties, thus committing a
Meanwhile, Chung Fu moved to remand the case for grave abuse of discretion. Furthermore, in granting
further hearing and asked for a reconsideration of the unjustified extra compensation to respondent for
judgment award claiming that Arbitrator Asuncion several items, he exceeded his powers all of which
committed twelve (12) instances of grave error by would have constituted ground for vacating the award
disregarding the provisions of the parties contract. under Section 24 (d) of the Arbitration Law.
Chung Fus Motion was denied and similarly its motion
for reconsiderationn. Chung Fu elevated the case via a
petition for certiorari to respondent CA. The respondent Wherefore, the petition is granted. The Resolutions of
appellate court concurred with the findings and the CA as well as the Orders of respondent RTC are
conclusions of respondent trial court. A motion for hereby SET ASIDE. Accordingly, this case is REMANDED
reconsideration of said resolution was filed by to the court of origin for further hearing on this matter.
petitioner, but was similarly denied. All incidents arising therefrom are reverted to
the status quo ante until such time as the trial court
shall have passed upon the merits of this case.
Issue:

CALIFORNIA AND HAWAIIAN SUGAR COMPANY vs.

Whether or not petitioners are estopped from PIONEER INSURANCE AND SURETY CORPORATION [G.R.
questioning the arbitration award allegedly in view of No. 139273. November 28, 2000] CALIFORNIA AND
the stipulations in the parties arbitration agreement HAWAIIAN SUGAR COMPANY; PACIFIC GULF MARINE,
that the decision of the arbitrator shall be final and
INC.; and C.F. SHARP & COMPANY, petitioners, vs. reconsideration Issue: In their Memorandum,
PIONEER INSURANCE AND SURETY CORPORATION, petitioners submit the following issues for our
respondent. Facts of the Case: Before us is a Petition consideration: 1. Whether or not insurer, as subrogee
for Review on Certiorari under Rule 45 of the Rules of of the consignee, is bound by the charter party which is
Court, assailing the January 21, 1999 Decision of the incorporated and referred to in the bill of lading. 2.
Court of Appeals[1] (CA) in CA-GR SP No. 33723, as Whether or not the motion to dismiss should be
well as the July 6, 1999 CA Resolution[2] denying granted on the ground that a condition precedent has
reconsideration. The challenged Decision, which not been complied with, based on the arbitration
sustained the Orders[3]of the Regional Trial Court of clause incorporated in the bill of lading. 3. Whether or
Makati City, dismissing the instant petition. The Facts, not the Court of Appeals erred in holding that the trial
as summarized as follows: November 27, 1990 >>the court did not commit grave abuse of discretion in
vessel MV SUGAR ISLANDER arrived at the port of denying petitioners motion for preliminary hearing. 4.
Manila carrying a cargo of soybean meal in bulk Whether or not the trial court can defer the resolution
consigned to several consignees, one of which was the of a motion to dismiss on the ground that the ground
Metro Manila Feed Millers Association (Metro for relied upon is indubitable. 5. Whether or not the
[b]revity). Discharging of cargo from vessel to barges petitioners have resorted to an improper remedy which
commenced on November 30, 1990. From the barges, makes them responsible for delaying the case. In the
the cargo was allegedly offloaded, rebagged and main, the two principal matters before us are: (1) the
reloaded on consignees delivery trucks. Respondent, denial of petitioners Motion for Preliminary Hearing
however, claims that when the cargo [was] weighed on and (2) the propriety of the CA ruling regarding the
a licensed truck scale a shortage of 255.051 metric arbitration clause. Held: The Petition is meritorious.
tons valued at P1,621,171.16 was discovered. The Affirmative Defense May Be Raised True, Section 6,
above-mentioned shipment was insured with private Rule 16 of the 1997 Rules,[11] specifically provides
respondent against all risk in the amount of that a preliminary hearing on the affirmative defenses
P19,976,404.00. Due to the alleged refusal of may be allowed only when no motion to dismiss has
petitioners to settle their respective liabilities, been filed. Section 6, however, must be viewed in the
respondent, as insurer, paid the consignee Metro light of Section 3 of the same Rule,[12] which requires
Manila Feed Millers Association. March 26, 1992 >>as courts to resolve a motion to dismiss and prohibits
alleged subrogee of Metro, private respondent filed a them from deferring its resolution on the ground of
complaint for damages against herein petitioners. indubitability. Clearly then, Section 6 disallows a
Within the reglementary period to file an Answer, preliminary hearing of affirmative defenses once a
petitioners filed a Motion to Dismiss the complaint on motion to dismiss has been filed because such defense
the ground that respondents claim is premature, the should have already been resolved. In the present
same being arbitrable. Private respondent filed its case, however, the trial court did not categorically
Opposition thereto and petitioners filed their Reply to resolve petitioners Motion to Dismiss, but merely
Opposition. November 11, 1992 >>[the RTC] issued an deferred resolution thereof. Indeed, the present Rules
Order deferring the hearing on the Motion to Dismiss are consistent with Section 5, Rule 16 of the pre- 1997
until the trial and directing petitioners to file their Rules of Court, because both presuppose that no
Answer. Petitioners then moved to reconsider said motion to dismiss had been filed; or in the case of the
Order which was, however, denied by [the RTC] on the pre-1997 Rules, if one has been filed, it has not been
ground that the reason relied upon by herein unconditionally denied.[14] Hence, the ground invoked
petitioners in its Motion to Dismiss and Motion for may still be pleaded as an affirmative defense even if
Reconsideration [was] a matter of defense which they the defendants Motion to Dismiss has been filed but
must prove with their evidence. August 20, 1993 >> not definitely resolved, or if it has been deferred as it
petitioners filed their Answer with Counterclaim and could be under the pre-1997 Rules. Denial of the
Crossclaim alleging therein that plaintiff, herein Motion for a Preliminary Hearing Was a Grave Abuse of
respondent, did not comply with the arbitration clause Discretion Undeniably, a preliminary hearing is not
of the charter party; hence, the complaint was mandatory, but subject to the discretion of the trial
allegedly prematurely filed. The trial court set the case court. In the light of the circumstances in this case,
for pre-trial on November 26, 1993. November 15 and though, we find that the lower court committed grave
16, 1993 >>petitioners filed a Motion to Defer Pre-Trial abuse of discretion in refusing to grant the Motion. We
and Motion to Set for Preliminary Hearing the note that the trial court deferred the resolution of
Affirmative Defense of Lack of Cause of Action for petitioners Motion to Dismiss because of a single
Failure to comply with Arbitration Clause, respectively. issue. It was apparently unsure whether the charter
Private respondent did not file an Opposition to the party that the bill of lading referred to was indeed the
said Motion to Set for Preliminary Hearing. December Baltimore Berth Grain Charter Party submitted by
28, 1993 >>[the RTC] issued an Order denying the petitioners. Considering that there was only one
Motion to Set for Preliminary Hearing. February 2, 1994 question, which may even be deemed to be the very
>>petitioners filed a Motion for Reconsideration of the touchstone of the whole case, the trial court had no
Order dated December 28, 1993. February 11, 1994 cogent reason to deny the Motion for Preliminary
>> [the RTC] issued an Order denying petitioners Hearing. Indeed, it committed grave abuse of
Motion for Reconsideration. Hence, the instant petition. discretion when it denied a preliminary hearing on a
January 21, 1999 >>CA affirmed the decision of RTC simple issue of fact that could have possibly settled the
July 6, 1999 >>CA denied the motion for entire case. Verily, where a preliminary hearing
appears to suffice, there is no reason to go on to trial. KAPUNAN, J.:
One reason why dockets of trial courts are clogged is
the unreasonable refusal to use a process or This is a petition for review on certiorari seeking the
procedure, like a motion to dismiss, which is designed reversal of the decision of the Court of Appeals on
to abbreviate the resolution of a case. Second Issue: November 18, 1992 affirming in toto the Order of the
The Arbitration Clause The CA also erred when it held Regional Trial Court of Quezon City, Branch 91
that the arbitration clause was not binding on dismissing the petitioners third-party complaint
respondent. We reiterate that the crux of this case is against private respondent banks for lack of
whether the trial court committed grave abuse of jurisdiction.
discretion in denying the aforecited Motion. There was
neither need nor reason to rule on the applicability of The facts of the case, as found by both the trial court
the arbitration clause. Be that as it may, we find the and the Court of Appeals are undisputed:
CAs reasoning on this point faulty. Citing Pan Malayan
Insurance Corporation v. CA,[17] it ruled that the right In a complaint for Violation of the
of respondent insurance company as subrogee was not Negotiable Instrument Law and
based on the charter party or any other contract; Damages, plaintiffs 1 seek the recovery
rather, it accrued upon the payment of the insurance of the amount of P900,913.60 which
claim by private respondent to the insured consignee. defendant bank 2 charged against their
There was nothing in Pan Malayan, however, that current account by virtue of the sixteen
prohibited the applicability of the arbitration clause to (16) checks drawn by them despite the
the subrogee. That case merely discussed, inter alia, apparent alterations therein with
the accrual of the right of subrogation and the legal respect to the name of the payee, that
is, the name Filipinas Shell was erased
basis therefor.[18] This issue is completely different
and substituted with Ever Trading and
from that of the consequences of such subrogation;
DBL Trading by their supervisor
that is, the rights that the insurer acquires from the Jeremias Cabrera, without their
insured upon payment of the indemnity. WHEREFORE, knowledge and consent.
the Petition is GRANTED and the appealed Decision is
hereby REVERSED. The case is REMANDED to the trial
Answering the complaint, defendant
court for preliminary hearing on petitioners affirmative
bank claimed that the subject checks
defense. No costs. appeared to have been regularly issued
and free from any irregularity which
would excite or arouse any suspicion or
warrant their dishonor when the same
G.R. No. 107918 June 14, 1994 were negotiated and honored by it;
that it observed and exercised the
ASSOCIATED BANK, petitioner, required diligence, care and the
vs. prescribed standard verification
HON. COURT OF APPEALS, HON. MARINA L. procedures before finally accepting and
BUZON, as Presiding Judge of RTC, Quezon City, honoring the subject checks and that
MM, Br. 91, VISITACION SERRA FLORES RTC, the proximate cause of plaintiffs loss,
Quezon City, MM, Br. 91, MA. ASUNCION FLORES, if any, was their own laxity, negligence
PHILIPPINE COMMERCIAL INTERNATIONAL BANK, and lack of control, due care and
FAR EAST BANK & TRUST CO., SECURITY BANK & diligence in the conduct of their
TRUST CO. and CITYTRUST BANKING business affairs.
CORPORATION, respondents.
With leave of court, defendant bank
Soluta, Leonidas, Marifosque, Balce, Santiago & Aguila filed a Third-Party Complaint against
Law Office for petitioner. Philippine Commercial International
Bank, Far East Bank & Trust Company,
Security Bank and Trust Company and
Rector Law Office for respondent Flores.
Citytrust Banking Corporation for
reimbursement, contribution,
Balgos and Perez Law Office for respondent PCIB. indemnity from said third-party
defendants for being the collecting
Dumaraos, Oracion, Panganiban & Associates for banks of the subject checks and by
respondent FEBTC. virtue of their bank guarantee for all
checks sent for clearing to the
Philippine Clearing House Corporation
Cauton, Banares, Carpio, Ishiwata and Associates for
(PCHC), as provided for in Section 17,
respondent SBTC.
(PCHC), as provided for in Section 17,
PCHC Clearing House Rules and
Gonzaga, Soneja and Gale Law Offices for respondent Regulations.
Citytrust.
In its Answer to the Third-Party
Complaint, Citytrust Banking
Corporation averred that the subject and Regulations are applicable only if
checks appeared to be complete and the suit or action is between
regular on their face with no indication participating member banks, whereas
that an original payees name was the plaintiffs are private persons and
erased and superimposed with the third-party complaint between
another; that plaintiffs fault and participating member banks is only a
negligence in failing to examine their consequence of the original action
monthly bank statements, together initiated by the plaintiffs. 3
with the returned checks and their own
check stubs, put them under estoppel The trial court dismissed the third-party complaint for
and cannot recover the proceeds of the lack of jurisdiction citing Section 36 of the Clearing
checks against it, an innocent third- House Rules and Regulations of the PCHC providing for
party, and plaintiff must suffer the loss settlement of disputes and controversies involving any
as their negligence was the proximate check or item cleared through the body with the PCHC.
cause thereof; and that third party It ruled citing the Arbitration Rules of Procedure
plaintiff is barred from recovering from that the decision or award of the PCHC through its
it base on the provisions of Sections 20 arbitration committee/arbitrator is appealable only on
and 21 of the Philippine Clearing Rules questions of law to any of the Regional Trial Courts in
and Regulations. the National Capital Region where the head office of
any of the parties is located. 4
Philippine Commercial International
Bank alleged that the subject check On the plaintiffs contention that jurisdiction vests with
was complete and regular on its face the court only if the suit or action is between
and was paid by it only upon participating member banks without the involvement
presentment to the drawee bank for of private parties the trial court held:
clearing who, upon examination
thereof, found the same to be complete
and regular on its face; that it was only The third-party complaint concerning a
after said check was cleared by third- dispute or controversy among clearing
party plaintiff for payment that it participants involving the subject
allowed the payee to withdraw the checks cleared through PCHC is
proceeds of the check from its account; actually independent of, separate and
that the cause of action of the third- distinct from the plaintiffs
party plaintiff is barred by estoppel complaint. . . .
and/or laches for its failure to return
the check to it within the period xxx xxx xxx
provided for under Clearing House
Rules and Regulations; that this Court As the plaintiffs are not parties to the
has no jurisdiction over the suit as it third party complaint, the provisions of
and third-party plaintiff are members of the clearing house rules and
the Philippine Clearing House and regulations on arbitration are,
bound by the Rules and Regulations therefore, applicable to Third-Party
thereof providing for arbitration. plaintiff and third party defendant.
Consequently this court has no
A Motion To Dismiss was filed by jurisdiction over the third party
Security Bank and Trust Company on complaint. 5
the grounds that third-party plaintiff
failed to resort to arbitration as After the trial court denied plaintiffs Motion for
provided for in Section 36 of the Reconsideration, 6 petitioner appealed to the Court of
Clearing House Rules and Regulations Appeals which promulgated the challenged decision on
of the Philippine Clearing House November 18, 1992 dismissing the petition for lack of
Corporation, and that it was released merit.
from any liability with the acceptance
by third-party plaintiff of the subject
check. Undaunted, petitioner is now before this Court seeking
a review of respondent courts decision on a lone
assignment of error:
The record does not show of any
Answer to the Third-Party Complaint
having been filed by Far East Bank & RESPONDENT COURT OF APPEALS
Trust Company, although a "Reply To ERRED IN HOLDING THAT PETITIONER
FEBTC Answer" was filed by third-party DRAWEE BANKS THIRD PARTY
plaintiff. COMPLAINT AGAINST PRIVATE
RESPONDENT COLLECTING BANKS FALL
WITHIN THE JURISDICTION OF THE
On the other hand, third-party plaintiff PCHC AND NOT THE REGULAR COURT.
maintains that this Court has
jurisdiction over the suit as the
provisions of the Clearing House Rules We find no merit in the petition.
The Clearing House Rules and Regulations on the jurisdiction of the PCHC as a forum for resolving
Arbitration of the Philippine Clearing House Corporation disputes and controversies involving checks and other
are clearly applicable to petitioner and private clearing items when it held that "the participation of
respondents, third party plaintiff and defendants, two banks. . . in the Clearing Operations of the PCHC
respectively, in the court below. Petitioner Associated (was) a manifestation of its submission to its
Banks third party complaint in the trial court was one jurisdiction." 9
for reimbursement, contribution and indemnity against
the Philippine Commercial and Industrial Bank (PCIB), The applicable PCHC provisions on the question of
the Far East Bank and Trust, Co. (FEBTC), Security Bank jurisdiction provide:
and Trust Co. (SBTC), and the CityTrust Banking
Corporation (CTBC), in connection with petitioners
having honored sixteen checks which said respondent Sec. 3 AGREEMENT TO THESE RULES
banks supposedly endorsed to the former for collection
in 1989. Under the rules and regulations of the It is the general agreement and
Philippine Clearing House Corporation (PCHC), the understanding, that any participant in
mere act of participation of the parties concerned in its the PCHC MICR clearing operations, by
operations in effect amounts to a manifestation of the mere act of participation, thereby
agreement by the parties to abide by its rules and manifests its agreement to these Rules
regulations. 7 As a consequence of such participation, a and Regulations, and its subsequent
party cannot invoke the jurisdiction of the courts over amendments.
disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the xxx xxx xxx
arbitration processes laid out by the body. Since claims
relating to the regularity of checks cleared by banking
institutions are among those claims which should first Sec. 36 ARBITRATION
be submitted for resolution by the PCHCs Arbitration
Committee, petitioner Associated Bank, having 36.1 Any dispute or controversy
voluntarily bound itself to abide by such rules and between two or more clearing
regulations, is estopped from seeking relief from the participants involving any check/item
Regional Trial Court on the coattails of a private claim cleared thru PCHC shall be submitted
and in the guise of a third party complaint without first to the Arbitration Committee, upon
having obtained a decision adverse to its claim from written complaint of any involved
the said body. It cannot bypass the arbitration process participant by filing the same with the
on the basis of its averment that its third party PCHC serving the same upon the other
complaint is inextricably linked to the original party or parties, who shall within fifteen
complaint in the Regional Trial Court. (15) days after receipt thereof, file with
the Arbitration Committee its written
Under its Articles of Incorporation, the PCHC provides answer to such written complaint and
"an effective, convenient, efficient, economical and also within the same period serve the
relevant exchange and facilitate service limited to same upon the complaining
check processing and sorting by way of assisting participant. This period of fifteen (15)
member banks, entities in clearing checks and other days may be extended by the
clearing items as defined and existing in future Central Committee not more than once for
Bank of the Philippines Circulars, memoranda, circular another period of fifteen (15) days, but
letters rules and regulations and policies in pursuance upon agreement in writing of the
of Section 107 of RA 265." Pursuant to its function complaining party, said extension may
involving the clearing of checks and other clearing be for such period as the latter may
items, the PCHC has adopted rules and regulations agree to.
designed to provide member banks with a procedure
whereby disputes involving the clearance of checks Section 36.6 is even more emphatic:
and other negotiable instruments undergo a process of
arbitration prior to submission to the courts below. This 36.6 The fact that a bank participates
procedure not only ensures a uniformity of rulings in the clearing operations of PCHC shall
relating to factual disputes involving checks and other be deemed its written and subscribed
negotiable instruments but also provides a mechanism consent to the binding effect of this
for settling minor disputes among participating and arbitration agreement as if it had done
member banks which would otherwise go directly to so in accordance with Section 4 of the
the trial courts. While the PCHC Rules and Regulations Republic Act No. 876 otherwise known
allow appeal to the Regional Trial Courts only on as the Arbitration Law.
questions of law, this does not preclude our lower
courts from dealing with questions of fact already
decided by the PCHC arbitration when warranted and Thus, not only do the parties manifest by mere
appropriate. participation their consent to these rules, but such
participation is deemed (their) written and subscribed
consent to the binding effect of arbitration agreements
In Banco de Oro Savings and Mortgage Banks vs. under the PCHC rules. Moreover, a participant subject
Equitable Banking Corporation 8 this Court had the to the Clearing House Rules and Regulations of the
occasion to rule on the validity of these rules as well as PCHC may go on appeal to any of the Regional Trial
Courts in the National Capital Region where the head relief route salesmen, regular lead helpers, regular
office of any of the parties is located only after a relief lead helpers, regular route helpers, regular relief
decision or award has been rendered by the arbitration route helpers and order-taker collectors who are
committee or arbitrator on questions of law. 10 assigned in various sales offices specified in the parties
collective bargaining agreement. On the other hand,
Clearly therefore, petitioner Associated Bank, by its the respondent company is a domestic corporation
voluntary participation and its consent to the duly organized and existing under the laws of the
arbitration rules cannot go directly to the Regional Trial Philippines and is engaged in the manufacture and
Court when it finds it convenient to do so. The distribution of its soft drink products.
jurisdiction of the PCHC under the rules and regulations
is clear, undeniable and is particularly applicable to all
the parties in the third party complaint under their In January 1989, the UNION filed a Notice of Strike with
obligation to first seek redress of their disputes and the National Conciliation and Mediation Board raising
grievances with the PCHC before going to the trial certain issues for conciliation. As a result of said
court. dispute, the UNION staged a strike.

Finally, the contention that the third party complaint Subsequently, the Board succeeded in making the
should not have been dismissed for being a necessary parties agree to a voluntary settlement of the case via
and inseparable offshoot of the main case over which a Memorandum of Agreement signed by them on
the court a quo had already exercised jurisdiction February 9, 1989. Among others, the petitioner and the
misses the fundamental point about such pleading. A respondent agreed, as follows:
third party complaint is a mere procedural device
which under the Rules of Court is allowed only with the
...
courts permission. It is an action "actually independent
of, separate and distinct from the plaintiffs complaint"
(s)uch that, were it not for the Rules of Court, it would 1. Christmas Bonus
be necessary to file the action separately from the
original complaint by the defendant against the third The Company shall grant to all those covered by the
party. 11 Bargaining Unit represented by the Union an amount
equivalent to fifty (50%) percent of their average
IN VIEW OF THE FOREGOING, the petition is DENIED for commission for the last six (6) months.
lack of merit. With costs against petitioner.
The union hereby acknowledges that the granting of a
SO ORDERED. Christmas bonus is purely a Management prerogative
and as such, in determining the amount thereof the
[G.R. No. 155651. July 28, 2005] same is solely a discretion of Management. The parties
however agree that henceforth whenever Management
COCA-COLA BOTTLERS PHILIPPINES, INC., SALES exercises this prerogative, the same shall include the
FORCE UNION-PTGWO-BALAIS, petitioner, average commission for the last six (6) months prior to
vs. COCA-COLA BOTTLERS, PHILIPPINES, the grant.
INC., respondent.
Since then, the management granted to each covered
DECISION employee every December of the year a certain
percentage of his basic pay and an amount equivalent
CHICO-NAZARIO, J.: to fifty (50%) percent of his average commission for
the last six months prior to the grant. However, in
December 1999, the respondent granted a fixed
This is a petition for review on certiorari seeking amount of P4,000.00 only, eliminating thereby the said
the reversal of the Court of Appeals Decision [1] and 50% employees average commission for the last six
Resolution[2] dated 22 May 2002 and 03 October 2002, months for members of the union. Thus, claiming the
respectively, affirming the 21 January 2001 Decision of same as violation of the MOA, the union submitted its
the panel of voluntary arbitrators (Panel) of the grievance to the respondent. No settlement was
National Conciliation Mediation Board (NCMB) for the reached, hence, the case was then referred to a Panel
reason that the Panel decision had already attained of Voluntary Arbitrators.
finality.

Petitioner claimed that the MOA establishes the

The following is a narration by the Court of companys obligation to pay additionally 50% of the
Appeals of the undisputed facts: average commission whenever it decides to grant a
bonus and that the fixed amount of P4,000.00 granted
The Coca-Cola Bottlers Philippines, Inc. Sales Force in December 1999, although denominated as ex-gratia
Union-PTGWO is a legitimate labor organization duly was actually a Christmas bonus. In support of its stand,
registered with the Department of Labor and the Union submitted sample payslips for the prior years
Employment, and is the sole and exclusive bargaining wherein the company granted a performance grant or
representative of all regular route salesmen, regular one time grant computed as a percentage of the
employees basic salary. An illustrative example was some way to allow you and your families to enjoy the
that given to Jose Manalusan. His payslip dated festive season.
December 6, 1996 shows his basic rate at P5,080.00
and an item SPL GRNT in the amount of P4,786.41. On In denying the claim of the Union for the payment of
top of the payslip (sic) appear the words 80% the additional 50% of the average commission for the
performance grant. According to the Union, this last six months, the respondent argues that the said
amount of P4,786. is P722.41 more than 80% of MOA is not applicable since the company did not grant
Manalusans then basic rate (80% of P5,080.00 being Christmas bonus in 1999.
PhP4,064.00). Thus, the Union concludes that the
difference of P722.41 represents additional 50% of
After hearing and the submission of evidence and
average commission. In sum, the Union asseverates
position papers, the Arbitration Panel composed of
that the grant of the additional 50% of the average
Apron Mangabat and Noel Sanchez, as chairman and
commission has become a practice since 1989 and has
member, respectively, denied petitioners claim and
ripened into a contractual obligation.
declared that the P4,000.00 given as ex gratia is not a
bonus, while Arnel Dolendo, another member
On the other hand, the respondent company countered dissented. The dispositive portion of the decision reads
that in 1999 it suffered its worst financial performance as follows:
in its history; that its sales volume was twenty percent
(20%) behind plan and ten percent (10%) below the
WHEREFORE, judgment is hereby rendered declaring
sales in 1998, as a result, it suffered an abnormal loss
that the special Ex Gratia payment of P4,000.00 made
of Two Billion Five Hundred Million Pesos
pursuant to the Memo of Mr. Peter Baker dated
(P2,500,000,000.00); that faced with tremendous
December 14, 1999 was not a Christmas bonus and
losses, the management decided not to grant bonuses
therefore, the claim of the Union for an additional 50%
to its employees in 1999; that through Memorandum
of average commission on top of said P4,000.00 is
99010 dated December 14, 1999, its President, Mr.
hereby denied.[3]
Peter Baker explained to the employees the companys
financial situation and the decision not to grant
bonuses; that in the same memo however, the A copy of this Decision dated 21 January 2001 was
company granted a special ex gratia payment of Four received by petitioners counsel on 20 February 2001.
Thousand Pesos (P4,000.00) to all its permanent Said Decision was signed only by the Chairman of the
employees, . . . Panel, Mr. Apron Mangabat, and one of its members,
Atty. Noel Sanchez. As to the third member, Atty. Arnel
Dolendo, instead of a signature on top of his printed
During the past year (sic) we have suffered greatly as a
name, the following notation appears:
result of a number of internal and external issues
including the effect of the general economic pressures
in the Philippines. Dissented during deliberation.

Our sales volume in 1999 is approximately 20% behind Will file a separate opinion.
the plan and 10% below last year. This together with
lower than expected prices and increased costs will No separate opinion, however, was attached to the
result in a financial performance which is undoubtedly Decision as received by petitioner, through its counsel.
the worst in our history. Thus, on 22 February 2001 (two days after receipt of
the Decision), petitioner filed an Urgent Ex-Parte
The Coca-cola Amatil Board has announced that it Manifestation with Motion where it essentially
expects an abnormal loss of PhP2.5 Billion (AUD100 questioned the validity of the decision, opining that the
million) before tax at CCBPI in 1999 and that reported Panels decision without such dissenting and separate
on-going results will be below everyones expectations. opinion attached thereto makes the decision
incomplete and prematurely issued. It consequently
prayed that the questioned Decision be held in
In these circumstances the CCBPI Executive Committee
abeyance and for the Panel to immediately issue an
has decided that the CCBPI is not able to pay bonuses
order to the effect that the prescriptive period available
to any staff in 1999. As your new president, it
to any of the parties to seek any legal remedy or relief
disappoints me greatly to have to inform you of this
be suspended in the meantime.
situation.

The Panel did not directly act on this motion.

Our situation has been discussed with the CCA Board
Instead, on 02 March 2001, petitioner received a Notice
and they are understanding of the difficulties we face a
of Transmittal from the NCMB furnishing it a copy of
(sic) present and grateful of the efforts of our
Atty. Dolendos separate opinion together with the 21
associates at all levels. Furthermore, the management
January 2001 Decision. Thus, on 12 March 2001,
of CCA has agreed to make a special Ex
petitioner filed a motion for reconsideration of the 21
Gratia payment PhP4,000.00 to all permanent
January 2001 Decision.
employees of CCBPI. Our hope that [t]his will assist in
 On 30 May 2001, the Panel denied petitioners the highest court of the land, as what remains to be
motion for reconsideration. A copy of the Order of done is the purely ministerial enforcement or execution
denial was received by petitioner on 09 July 2001. By of the judgment.
virtue thereof, petitioner filed a Petition for Review
before the Court of Appeals on 24 July 2001. The doctrine of finality of judgment is grounded on
fundamental considerations of public policy and sound
In dealing with the controversy, the Court of practice that at the risk of occasional errors, the
Appeals adopted a two-tiered approach. First, it held judgment of adjudicating bodies must become final
that contrary to the view of the Panel, the P4,000.00 and executory on some definite date fixed by law. In
special ex gratia payment is a Christmas bonus, hence, the more recent case of DBP v. NLRC, the Supreme
petitioners members are entitled to the additional 50% Court reiterated that the doctrine of immutability of
average commission for the last six months prior to the final judgment is adhered to by necessity
grant pursuant to the Memorandum of Agreement notwithstanding occasional errors that may result
entered into between petitioner and respondent Coca- thereby, since litigations must somehow come to an
Cola Bottlers Philippines, Inc. This notwithstanding, the end for otherwise, it would be even more intolerable
Court of Appeals dismissed the petition on the ground than the wrong and injustice it is designed to correct.
that petitioners motion for reconsideration dated 12
March 2001 of the Decision of the Panel that was And, acting on petitioners motion for reconsideration,
originally received on 20 February 2001 was filed out of the Court of Appeals held:
time; hence, the said Decision already became final
and executory after ten (10) calendar days from receipt
We cannot simply yield to the submission of the
of the copy of the Decision by the parties pursuant to
petitioner that the decision of the panel of Voluntary
Article 262-A of the Labor Code. The Court of Appeals
Arbitrators had not yet became final and executory. It
ratiocinated thus:
is not correct to say that March 2, 2001, the date when
the petitioner union received the January 21, 2001
On the matter of procedure, Article 262-A of the Labor decision of the panel of Voluntary Arbitrators together
Code governs. It provides that the award or decision of with the dissenting opinion of Voluntary Arbitrator Arnel
the Voluntary Arbitrator or panel of Voluntary Dolendo should be considered as the reckoning date
Arbitrators shall be final and executory after ten (10) for purposes of filing a motion for reconsideration. The
calendar days from receipt of the copy of the award or absence of the dissenting opinion in the copy of the
decision by the parties. Moreover, Section 6, Rule VII of assailed decision duly received by the petitioner on
the NCMB Procedural Guidelines in the Conduct of February 20, 2001 did not make the said decision
Voluntary Arbitration Proceedings, dated July 28, 1989, incomplete, for it disposed of all the issues of the case
states categorically, to wit: validly raised. Well settled is the rule that a dissenting
opinion, as it is, is a mere expression of the individual
Section 6. Finality of Award or Decisions. Awards or view of the dissenting justice from the conclusion held
decisions of voluntary arbitrator become final and by the majority of the court and therefore, not binding.
executory after ten (10) calendar days from receipt of It is the dispositive portion of the decision or the fallo,
copies of the award or decision by the parties. which contains the final and actual adjudication of the
rights of the parties that constitutes the judgment of
The above-mentioned rule makes the voluntary the court. Hence, to forestall the finality of the
arbitrators award final and executory after ten calendar arbitrators award, petitioner should have filed a motion
days from receipt of a copy of the decision or award by for reconsideration within the reglementary period of
the parties. Presumably, the decision may still be ten (10) days, without waiting for the dissenting
reconsidered by the Voluntary Arbitrator on the basis of opinion of Voluntary Arbitrator Dolendo. Thus, the filing
a motion for reconsideration seasonably filed during of the motion for reconsideration of the arbitrators
that period. Thus, the seasonable filing of a motion for award only on March 12, 2001 was way beyond the ten
reconsideration following the receipt by the petitioner (10) day reglementary period and had the effect of
of a copy of the decision or award of the panel of rendering the panel of Voluntary Arbitrators decision
Voluntary Arbitrators, is a mandatory requirement to final and executory. Certainly, in allowing the
forestall the finality of such decision or award. In the arbitrators award to lapse into finality on the flimsy
case at bar however, the petitioner filed on March 12, excuse that it has to receive the dissenting opinion of
2001 a motion for reconsideration of the arbitrators Arnel Dolendo does not find support in law. Finality of
decision, which it received on February 20, 2001. judgment becomes a fact when the reglementary
Without doubt at the time the said motion was filed, period to appeal lapses, and no appeal is perfected
which was beyond the reglementary period of ten (10) within such period. It is a jurisdictional event which can
days, the decision had already become final and not be made to depend on the convenience of a party.
[4]
executory. It is a hornbook rule that once a judgment
has become final and executory, it may no longer be
modified in any respect, even if the modification is From this aspect of the Court of Appeals Decision
meant to be an erroneous conclusion of fact or law, and Resolution, petitioner now comes before us for
and regardless of whether the modification is redress, assigning as sole issue the following:
attempted to be made by the court rendering it or by
THE HONORABLE COURT OF APPEALS COMMITTED A We are not unmindful that in labor disputes, social
REVERSIBLE ERROR WHEN IT DISMISSED THE PETITION justice exhorts courts to lean backwards in favor of the
ON MERE TECHNICALITY CONTRARY TO SETTLED working class. Corollary thereto, it is doctrinal that in
JURISPRUDENCE, AFTER FAVORABLY RULING ON THE labor disputes, rules of procedure cannot be applied in
MERITS IN FAVOR OF PETITIONER a rigid and technical sense.[10] Thus, in appropriate
cases, we have not hesitated to relax matters of
The resolution of the present controversy hinges procedure in the interest of substantial justice.[11] As
for the most part on the correct disposition of applied herein, however, our hands are tied by the fact
petitioners argument that the Panels Decision sans the that the case had already attained finality long before
dissenting opinion of one of its members was it got here. As we declared in Nacuray v. National
irregularly issued; hence, did not toll the running of the Labor Relations Commission[12] --
prescriptive period within which to file a motion for
reconsideration. To sustain petitioners argument would . . . Nothing is more settled in law than that when a
mean that the subject Decision could still be reviewed judgment becomes final and executory it becomes
by the Court of Appeals. A contrary resolution would immutable and unalterable. The same may no longer
stamp the subject decision with finality rendering it be modified in any respect, even if the modification is
impervious to review pursuant to the doctrine of meant to correct what is perceived to be an erroneous
finality of judgments. conclusion of fact or law, and whether made by the
highest court of the land. The reason is grounded on
Rule VII, Section 1 of the Procedural Guidelines in the fundamental considerations of public policy and
the Conduct of Voluntary Arbitration Proceedings sound practice that, at the risk of occasional error, the
provides the key. Therein, what constitutes the judgments or orders of courts must be final at some
voluntary arbitrators decision (and, by extension, that definite date fixed by law.
of the Panel of voluntary arbitrators) is defined with
precision, to wit: WHEREFORE, premises considered, the Court of
Appeals Decision dated 22 May 2002 and its Resolution
Section 1. Decision Award. -- The final arbitral dated 03 October 2002 are hereby AFFIRMED. No
disposition of issue/s submitted to voluntary arbitration costs.
is the Decision. The disposition may take the form of a
dismissal of a claim or grant of specific remedy, either SO ORDERED.
by way of prohibition of particular acts or specific
performance of particular acts. In the latter case the JORGE GONZALES and PANEL OF ARBITRATORS vs.
decision is called an Award. CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP.
and AUSTRALASIAN PHILIPPINES MINING INC., G.R.
In herein case, the Decision of the Panel was in the No. 161957, January 22, 2007
form of a dismissal of petitioners complaint. Naturally,
this dismissal was contained in the main decision and Facts: This is a consolidation of two petitions rooted in
not in the dissenting opinion. Thus, under Section 6, the same disputed Addendum Contract entered into by
the parties.
Rule VII of the same guidelines implementing Article
262-A of the Labor Code, this Decision, as a matter of
In one case, the Court held that the DENR Panel of
course, would become final and executory after ten Arbitrators had no jurisdiction over the complaint for
(10) calendar days from receipt of copies of the the annulment of the Addendum Contract on grounds
decision by the parties even without receipt of the of fraud and violation of the Constitution and that the
dissenting opinion unless, in the meantime, a motion action should have been brought before the regular
for reconsideration[5] or a petition for review to the courts as it involved judicial issues.
Court of Appeals under Rule 43 of the Rules of
Court[6] is filed within the same 10-day period. As Gonzales averred that the DENR Panel of Arbitrators
correctly pointed out by the Court of Appeals, a Has jurisdiction because the case involves a mining
dissenting opinion is not binding on the parties as it is dispute that properly falls within the ambit of the
a mere expression of the individual view of the Panels authority.
dissenting member from the conclusion held by the
majority of the Court, following our ruling in Garcia v. Respondents Climax Mining Ltd., et al., on the other
Perez[7] as reiterated in National Union of Workers in hand, seek reconsideration/clarification on the decision
holding that the case should not be brought for
Hotels, Restaurants and Allied Industries v. NLRC.[8]
arbitration under R.A. No. 876. They argued that the
arbitration clause in the Addendum Contract should be
Prescinding from the foregoing, the Court of treated as an agreement independent of the other
Appeals correctly dismissed the petition before it as it terms of the contract, and that a claimed rescission of
no longer had any appellate jurisdiction to alter or the main contract does not avoid the duty to arbitrate.
nullify the decision of the Panel.[9]The Panels Decision
had become final and executory, hence, On another case, Gonzales challenged the order of the
unchallengeable. 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 ground of fraud, as it had already been determined
the nullity, inoperativeness, or incapability of that the case should have been brought before the
performance of the arbitration clause/agreement raised regular courts involving as it did judicial issues.
by one of the parties to the alleged arbitration
agreement must be determined by the court prior to Gonzales v. climax mining 512 scra 138 (CHECK
referring them to arbitration. BECAUSE THE DIGEST CIRCULATED STATES
ANOTHER CASE)
While Climax-Arimco contended that an application to Facts:
compel arbitration under Sec. 6 of R.A. No. 876 confers co-production, joint venture and/or
on the trial court only a limited and special production-sharing letter-agreement :
jurisdiction, i.e., a jurisdiction solely to determine (a) -Gonzales granted to GeoPhilippines and Inmex
whether or not the parties have a written contract to the exclusive right to explore and survey the
arbitrate, and (b) if the defendant has failed to comply mining claims for 36 months w/n w/c the
with that contract. GeoPhilippines and Immex could decide to take
an operating agreement on the mining claims
Issue: Whether or not arbitration is proper even and/or develop, operated, mine and otherwise
though issues of validity and nullity of the Addendum exploit the mining claims and market any and all
Contract and, consequently, of the arbitration clause minerals
were raised. -They later extended the agreement to another 3
years and then agreed to an Addendum to the
Ruling: Positive. latter extension contract wherein Arimco would
obtain a Financial and Technical Assistance
In La Naval Drug Corporation v. Court of Appeals, the Agreement (FTAA) from the Govt, which it did.
Court held that R.A. No. 876 explicitly confines the -An OPERATING AND FINANCIAL ACCOMODATION
court's authority only to the determination of whether CONTRACT and Assignment, Accession
or not there is an agreement in writing providing for Agreement was entered between Climax-Arimco
arbitration. In the affirmative, the statute ordains that and Australasian Philippines whereby Climax-
the court shall issue an order "summarily directing the Arimco transfers its FTAA t Australasian
parties to proceed with the arbitration in accordance Philippines.
with the terms thereof." If the court, upon the other -GONZALES FILED BEFORE THE PANEL OF
hand, finds that no such agreement exists, "the ARBITRATORS, REGION II, MINES AND
proceeding shall be dismissed." The cited case also GEOSCIENCES BUREAU OF THE DENR vs. Climax-
stressed that the proceedings are summary in nature. Arimco Mining Corporation, Climax, and
Australasian Philippines a COMPLAINT FOR
Implicit in the summary nature of the judicial NULLIFICATION OF THE ADDENDM CONTRACT
proceedings is the separable or independent character (which provides for Arimco-Climax applying for a
of the arbitration clause or agreement. FTAA), the FTAA, and the other two agreements
entered between Arimco-Climax and Australasian
The doctrine of separability or severability enunciates Philippines on the grounds of FRAUD,
that an arbitration agreement is independent of the OPPRESSION, AND/OR VIOLATION OF SECTION 2,
main contract. The arbitration agreement is to be ARTICLE XII OF THE CONSTI
treated as a separate agreement and the arbitration *ARB PANEL: COMPLAINT DISMISSED, lack of
agreement does not automatically terminate when the jurisdiction. MR GRANTED (dispute involves
contract of which it is part comes to an end. rights to mining areas and dispute involves
surface owners, occupansta and claim
The separability of the arbitration agreement is owners/concessionaires, the ruling on the validity
especially significant to the determination of whether of the assailed contracts would result to the
the invalidity of the main contract also nullifies the grant or denial of mining rights over the
arbitration clause. Indeed, the doctrine denotes that properties)
the invalidity of the main contract, also referred to as NOTE, HOWEVER, THAT DID NOT RULE ON
the container contract, does not affect the validity of CONSTITUTIONALITY. MR by Arimco-Climax and
the arbitration agreement. Irrespective of the fact that Australasian Philippines.
the main contract is invalid, the arbitration *ARB PANEL: DENIED (there was a mining
clause/agreement still remains valid and enforceable. dispute involved, contacts involve exploration
and exploitation of minerals over disputed areas.
The validity of the contract containing the agreement PETITION FOR CERTIORARI W/ CA.
to submit to arbitration does not affect the applicability *CA: GRANTE PETITION.
of the arbitration clause itself. A contrary ruling would a Jurisdiction of Arb Panel: NONE OVER THE
suggest that a partys mere repudiation of the main ISSUE
contract is sufficient to avoid arbitration. That is ...limited only to the resolution of mining
exactly the situation that the separability doctrine, as disputes, defined as those which raise
well as jurisprudence applying it, seeks to avoid. a question of fact or matter requiring the
technical knowledge and experience of
The Court added that when it declared that the case mining authorities. As the complaint
should not be brought for arbitration, it should be alleged fraud, oppression and violation of
clarified that the case referred to is the case actually the Consti, which are QUESTIONS OF
filed by Gonzales before the DENR Panel of Arbitrators, LAW, Arb Panel had NO JURISDICTION.
which was for the nullification of the main contract on
 a NO AVERMENTS AS TO FRAUD OR (WON THE COMPLAINT RAISES A MINING
OPPRESSION DISPUTE OR A JUDICIAL QUESTION)? NO
and if ever there are, it would only make
JUDICIAL QUESTION MINING D
the contract voidable
a ACTION PRESCRIBED proper for determination by the courts Panel of
Addendum Contract executed 1991,
should have annulled it w/n 4 years (til question involves the determination of what (a) rights
1995) but action was filed in 1999. the law is and what the legal rights of the (b) miner
a PETITION SHOULD HAVE BEEN SETTLED parties are with respect to the matter in (c) surfac
THROUGH ARBITRATION controversy.
*MR DENIED (Lack of merit)
*PETITION FOR REVIEW, R45 Controversies or disagreements of civil or granting
ISSUES contractual nature between litigants permits,
(a) Whether there was forum-shopping on the deciding
part of respondents for their failure to disclose to
-what the COMPLAINT ALLEGES: respondents,
this Court their filing of a Petition to Compel for
conspiring and confederating w/ one another,
Arbitration before the Regional Trial Court of
misrepresented under the Addendum Contract
Makati City, Branch 148, which is currently
and FTAA that Climax-Arimco possessed financial
pending.
and technical capacity to put the project into
(b) Whether counsel for respondent Climax
commercial production, when in truth it had no
had authority to file the petition for
such qualification whatsoever. By so doing,
certiorari before the Court of Appeals
respondents have allegedly caused damage not
considering that the signor of the petition for
only to petitioner but also to RP
certioraris Verification and Certification of Non-
-IF FRAUD: complaint avers fraud or
forum Shopping was not authorized to sign the
misrepresentation, which vitiates Gonzales'
same in behalf of respondent Climax.
consent, and under A1390 of the NCC, is one of
(c) Whether the complaint filed by petitioner
the grounds for the annulment of a voidable
raises a mining dispute over which the Panel of
contract.
Arbitrators has jurisdiction, or a judicial question
-IF VIOLATION OF ART XII, SECTION 2 OF
which should properly be brought before the
CONSTI: by their lack of financial and technical
regular courts.
competence to carry out the mining project, do
(d) Whether the dispute between the
not qualify to enter into a co-production, joint
parties should be brought for arbitration
venture or production sharing agreement with
under Rep. Act No. 876.
the Government, in circumvention of and in
HELD
patent violation of the spirit and purpose of the
(a)On Forum Shopping: NONE
Constitution, particularly Section 2, Article XII
-copies of the Petition to Compel for Arbitration
thereof.
not attached, so Court cannot determine WON
(WAH! WRONG CASE) THE RULING HERE IS
the same involves related COA and the grant of
THIS:
the same or substantially the same reliefs
The DENR Panel of Arbitrators had NO
-Nature of actions different: Petition for certiorari
JURISDICTION over the complaint for the
determines GADALEJ, Petition to compel for
annulment of the Addendum Contract on grounds
arbitration seeks implementation of the
of fraud and violation of the Constitution + Action
arbitration clause
should have been brought before the regular
(b)AUTHORITY OF COUNSEL TO FILE
courts as it involves judicial issues.
PETITION FOR CERTIORARI
Court also ruled that case should not be brought
W/O SECRETARY'S CERTIFICATE, AND THE
for arbitration under RA 876
VERIFICATION IN THE CNFS: NO AUTHORITY,
FROM THE DIGEST: MR of the 1995 case!
NO CNFS. BUT IRRELEVANT AS THE PANEL
From the 1995 ruling, BOTH PARTIES FILED MR
OF ARBITRATORS HAD NO JURISDICTION
NOTE: there is another Case wherein RTC ordered
OVER THE COMPLAINT FILED BY GONZALES.
Gonzales to proceed w/ arbitration proceedings
-CNFS FOR CORPORATIONS: The signatory in the
(un ung forum shopping argument ni Gonzales)
case of the corporation should be a duly
GONZALES ARGUES
authorized director or officer of the corporation
DENR Panel of Arbitrators had jurisdiction: the
who has knowledge of the matter being certified.
case involves a mining dispute
If, as in this case, the petitioner is a corporation,
CLIMAX ARGUES
a board resolution authorizing a corporate
Case could be brought for arbitration under RA
officer to execute the certification against forum-
876: the arbitration clause in the Addendum
shopping is necessary. A certification not signed
Contract should be treated as an agreement
by a duly authorized person renders the petition
independent of the other terms of the contract,
subject to dismissal.
and that a claimed rescission of the main
(c)WON PANEL OF ARBITRATORS HAVE
contract does not avoid the duty to arbitrate
JURISDICTION OVER THE COMPLAINT FOR
ISSUES AND RULING:
DECLARATION OF NULLITY AND/OR
1 WON DENR PANEL OF ARBITRATORS HAD
TERMINATION OF THE SUBJECT CONTRACTS
JURISDICTION over Gonzales' petition for
ON THE GROUND OF FRAUD, OPPRESSION
nullification of the container contract
AND VIOLATION OF THE CONSTITUTION
AS I JUST GOT THIS FROM THE DIGEST, IT'S
MAGULO. The digest seem to imply YES.
 BOTH the PANEL OF ARBITRATORS AND THE CA BF CASE NOT APPLICABLE: Here, Gonzales'
FOUND THAT: petition raises a QUESTION OF LAW, NOT A
a THROUGH THE VARIOUS AGREEMENT, QUESTION OF JURISDICTION
GONZALES HAD ASSIGNED HIS INTEREST -plus Judge Pimentel merely acted pursuant to RA
OVER THE MINERAL CLAIMS ALL IN FAVOR 876, thus it acted w/n its jurisdiction.
OF CLIMAX-ARIMCO 1 WON it was proper for the RTC to order
a W/O GONZALES ASSIGNING HIS INTEREST arbitration even if the validity of both the
OVER THE MINERAL CLAIMS IN FAVOR OF Container Contract and the Arbitration
CLIMAX-ARIMCO, THERE WOULD BE NO Clause was questioned? YES. Sans the issue
FTAA TO SPEAK OF of the validity of the Container Contract,
BUT CA LIKEWISE FOUND THAT GONZALES' based on the DOCTRINE OF SEPARABILITY, if
ALLEGATION OF FRAUD, OPPRESSION, AND there's a valid arbitration clause then the
VIOLATION OF THE CONSTITUTION WERE parties should proceed arbitration.
UNSUBSTANTIATED. WEIRD. PERO I GUESS NO 2 points:
DAPAT. 1 RA 876 is limited only to the resolution of the
1 WON THE PETITION IS PROPER SUBJECT OF question of WON the arbitration agreement was
RA 876 validly entered (not the validity of the container
NO. Note however that this case involves the contract)
petition of Gonzales to nullify the Container 1 The separability of the arbitration clause from the
contract which was already held proper ONLY Container Contract means that regardless if the
FOR THE COURTS TO determine. The validity of container contract is valid or not, the arbitration
the container contract is not a proper subject for clause's validity is a different issue.
arbitration. ON HISTORY OF ARBITRATION IN RP
-As would be seen in the resolution of the court Civil Code and RA 876 expressly authorizes
below, the dispute between Climax-Arimco and arbitration of domestic disputes.
Gonzales (though I don't know what are the Foreign arbitration, as a system of settling
grounds invoked by Climax-Arimco in enforcing commercial disputes of an international
the Arbitration contract) is proper for arbitration, character, was likewise recognized when RP
with the RTC finding that the Arbitration Contract adhered to the UN CONVENTION ON THE
(separable from the container clause) was validly RECOGNITION AND ENFORECEMENT OF FOREIGN
made. ARBITRAL AWARDS OF 1958, giving reciprocal
PETITION to COMPEL FOR ARBITRATION recognition and allowing enforcement of
CASE FILED BY CLIMAX-ARIMCO: international arbitration agreements between
FACTS: Climax-Arimco sent Gonzales a Demand parties of different nationalities w/ a contracting
for Arbitration pursuant to Clause 19.1 of the state
Addendum Contract and Section 5 of RA 876. As The enactment of RA 9285 further
Gonzales did not heed the demand, they filed a institutionalized the use of alternative dispute
Petition to compel aritration before RTC Makati. resolution systems, including arbitration, in the
-Gonzales filed MTD, but failed to set for hearing settlement of disputes
so filed an ANSWER w/ Counterclaim: ON LA NAVAL V. CA: RA 876 explicitly confines
a Question validity of Addendum Contract: the court's authority only to the DETERMINATION
VOID for Climax-Arimco's acts of fraud, OF WON THERE IS AN AGREEMENT IN WRITING
oppression and violation of the consti (as PROVIDING FOR ARBITRATION.
he argued earlier) >IF THERE IS: the court would issue an order
*RTC: Set case for pre-trial (though initially, it "summarily directing the parties to proceed w/
was not granted): Gonzales made the issue of arbitration in accordance w/ the terms thereof:
the making the arbitration agreement (i.e. >IF THERE'S NONE: dismiss proceedings
validity of arbitration agreement) ON DOCTRINE OF SEPARABILITY OF THE
---ARB AGREEMENT VALID. PROCEED W/ ARB CLAUSE: an agreement is to be treated as
ARBITRATION. APPOINTED RETIRED CA JUSTICE a separate agreement and the arbitration
COQUIA AS SOLE ARBITRATOR. MFR DENIED. agreement does not automatically terminate
*Gonzales filed R65 PETITION when the contract of which it is part comes to an
ISSUES AND RULING end.
1 WON R65 PETITION MAY BE CONSIDERED -the invalidity of the main contract (CONTAINER
AN APPEAL IN ARBITRATION PROCEEDINGS. CONTRACT) does not affect the validity of the
NO. arbitration agreement.
-under RA 876, it should be APPEAL BY ON ARTICLE 16 (1) OF THE UNCITRAL
CERTIORARI (R45! PETITION FOR REVIEW UNDER MODEL LAW _ ARTICLE 21(2) OF THE
CERTIORARI, PURE QUESTIONS OF LAW) UNCITRAL ARBITRATION RULES, PRIMA
-term "may": refers to the filing of an PAINTS CASE:
appeal, not the mode of review to be -in the Prima Paints case, Prima Paints argues
employed. that it had been fraudulently induced by F&C to
-right to appeal is not part of due process of law sign the consulting agreement. The US High
but is a mere statutory privilege to be exercised Court held that the court should not order the
ONLY IN THE MANNER AND IN ACCORDANCE W/ parties to arbitrate IF THE MAKING OF
LAW THE ARBITRATION AGREEMENT IS IN ISSUE.
Court should not entertain the argument of fraud
in the making of the CONTAINER AGREEMENT
and if the arguments of the parties pertain to the The arbitrator may with the consent of parties
validity of the CONTAINER AGREEMENT, NOT THE enlarge the time, from time to time, to make and
ARBITRATION AGREEMENT, then don't take publish the award.
cognizance of the case. The venue for arbitration shall be at Dehra dun.
Oil and national gas comm vs. ca 293 scra 26 ARBITRAL AWARD
FACTS -for ONGS, Pacific Cement LIABLE
-Oil and Natural Gas Commission (ONGC) is an ENFORCEMENT OF THE AWARD
Indian GOCC. Pacific Cement is a private RP In Dehru Dun, India
Corporation. -ONGC filed PETITION w/ foreign Court in India,
-the 2 entered a contract wherein Pacific Cement praying that the decision of the arbitrator be
would supply ONGC 4,300 metric tons of OIL made "the Rule of Court" in India
WELL CEMENT and ONGC would pay -Foreign court sent notices to Pacific Cement for
$477,300.00. filing objections, which it did. It was also notified
THE DISPUTE that it needed to pay the required filing fees, w/o
-Oil well cement was loaded on board the ship specifying how much filing fees are required.
MV SURUTANA NAVA for delivery to Bombay and Pacific Cement inquired how much they were
Calcutta, India BUT A DISPUTE BETWEEN PACIFIC supposed to pay BUT THE FOREIGN COURT, W/O
CEMENT AND SHIPOWNER CAUSED THE OIL WELL REPLYING ON THE SAID REQUEST, GRANTED THE
CEMENT NOT BE DELIVERED. Pacific Cement was PETITION OF ONGC.
already paid for the oil well cement so ONGC -ONGC made demands for Pacific Cement to
demanded the delivery of the said cement comply with said order but Pacific Cement
-Negotiations ensued. Pacific Cement agreed to refused. SO
replace the 4300 metric tons of oil well cement In Surigao
w/ CLASS "G" CEMEENT free. But the CLASS "G" -ONGC filed a COMPLAINT FOR ENFORCEMENT OF
cement did not conform with the specifications of FOREIGN AWARD OF FOREIGN COURT
ONGC. - Pacific Cement filed MTD:
DEMAND FOR ARBITRATION a ONGC had NO CAPACITY TO SUE
-ONGC informed Pacific Cement that it was a Lack of COA
referring its claim to an arbitrator pursuant to a Claim or demand has been waived,
Clause 16 of their contract: abandoned, or otherwise extinguished
Except where otherwise provided in the supply -OPPOSITION TO MTD, rejoinder
order/contract all questions and disputes, *RTC: DISMISS COMPLAINT
relating to the meaning of the specification a ONGC has COA: the rule prohibiting
designs, drawings and instructions herein before foreign corporations transacting business
mentioned and as to quality of workmanship of in the Philippines without a license from
the items ordered or as to any other question, maintaining a suit in Philippine courts
claim, right or thing whatsoever, in any way admits of an exception, that is, when the
arising out of or relating to the supply foreign corporation is suing on an isolated
order/contract design, drawing, specification, transaction as in this case
instruction or these conditions or otherwise a BUT ONGC lacks a valid COA: the
concerning the materials or the execution or dispute (nondelivery of the purchased
failure to execute the same during materials) is not covered by the Arbitration
stipulated/extended period or after the Clause and should have been properly
completion/abandonment thereof shall be litigated before a court of law, pursuant to
referred to the sole arbitration of the persons Clause No. 15 of the Contract/Supply Order.
appointed by Member of the Commission at the THUS, THE PROCEEDINGS BEFORE THE
time of dispute. It will be no objection to any ARBITRATOR WERE NULL AND VOID AND
such appointment that the arbitrator so THE FOREIGN COURT HAD, THEREFORE,
appointed is a Commission employer (sic) that he ADOPTED NO LEGAL AWARD W/C COULD
had to deal with the matter to which the supply BE THE SOURCE OF AN ENFORCEABLE
or contract relates and that in the course of his RIGHT.
duties as Commission's employee he had *appeal to CA: affirm RTC. DISMISS COMPLAINT.
expressed views on all or any of the matter in a Arbitrator did not have jurisdiction over the
dispute or difference. dispute between the parties, so foreign
The arbitrator to whom the matter is originally court cannot validly adopt arbitrator's
referred being transferred or vacating his office award
or being unable to act for any reason the Member a Full text of the foreign judgment ONLY
of the Commission shall appoint another person CONTAINS THE DISPOSITIE PORTION, NO
to act as arbitrator in accordance with the terms FINDINGS OF FACT AND LAW so CANNOT
of the contract/supply order. Such person shall be BE ENFORCED BY ANY PHILIPPINE COURT.
entitled to proceed with reference from the stage a Foreign court violated due process when if
at which it was left by his predecessor. Subject as dismissed objections of Pacific Cement w/o
aforesaid the provisions of the Arbitration Act, first replying as to the amount of filing fees
1940, or any Statutory modification or re- required to give Pacific Cement the
enactment there of and the rules made there opportunity to pay the same
under and for the time being in force shall apply a Arbitration proceeding defective because
to the arbitration proceedings under this clause. only ONGC appointed the arbitrator, and
 the arbitrator is a former employee of All questions, disputes and differences, arising
ONGC (presumed bias). MR DENIED under out of or in connection with this supply
ISSUES AND RULING order, shall be subject to the exclusive
WON the arbitrator had jurisdiction over jurisdiction of the court, within the local limits of
the dispute between ONGC and Pacific whose jurisdiction and the place from which this
Cement under Clause 16? YES supply order is situated.
a WON the non-delivery of the Oil Well *review on StatCon
Cement is a proper subject for arbitration -If the Clause 16 would be interpreted to
under Clause 16)? NO contemplate even the non-delivery of the oil well
Relevant part of Clause 16: cement, Clause 15 would be a mere superfluity!
". . . or as to any other question, claim, right or The correct interpretation to give effect to both
thing whatsoever, in any way arising out of or stipulations in the contract is for Clause 16 to be
relating to the supply order/contract design, confined to all claims or disputes arising from or
drawing, specification, instruction or these relating to the design, drawing, instructions,
conditions . . .". specifications or quality of the materials of the
COURT: to fall within the purview of this phrase, supply order/contract, and for Clause 15 to cover
the "claim, right or thing whatsoever" must arise all other claims or disputes.
out of or relate to the design, drawing, a WON the failure of the replacement cement
specification, or instruction of the supply to conform to the specifications of the
order/contract. contact falls w/n the ambit of the
". . . or otherwise concerning the materials or the Arbitration Clause? YES
execution or failure to execute the same during -This may fall under the first classification (see
the stipulated/extended period or after above)
completion/abandonment thereof . . ." ON ARGUMENT OF PACIFIC CEMENT THAT IT HAD
COURT: The doctrine of noscitur a sociis, NO OBLIGATION TO MAKE REPLACEMENT, AND
although a rule in the construction of statutes, is THAT IT UNDERTOOK THE LATTER ONLY IN THE
equally applicable in the ascertainment of the SPIRIT OF LIBERALITY AND TO FOSTER GOOD
meaning and scope of vague contractual BUSINESS RELATIONSHIP: NONSENSE!
stipulations, such as the aforementioned phrase. a WON Pacific Cement was able to recover
According to the maxim noscitur a sociis, where the cargo is immaterial to its subsisting
a particular word or phrase is ambiguous in itself duty to make good its promise to deliver
or is equally susceptible of various meanings, its the cargo at the stipulated place of
correct construction may be made clear and delivery.
specific by considering the company of the words a What inspires credulity is not that the
in which it is found or with which it is associated, replacement was done in the spirit of
or stated differently, its obscurity or doubt may liberality but that it was undertaken
be reviewed by reference to associated words. precisely because of the private
*Under the Arbitration Clause: 3 matters respondent's recognition of its duty to do
may be submitted for arbitration: so under the supply order/contract, Clause
(1) all questions and disputes, relating to 16 of which remains in force and effect
the meaning of the specification designs, until the full execution thereof.
drawings and instructions herein before WON the judgment of the foreign court is
mentioned and as to quality or workmanship of enforceable in this jurisdiction even if it
the items ordered; or does not state the facts and the law upon
(2) any other question, claim, right or thing which the award was based? YES
whatsoever, in any way arising out of or relating -The Order of the Civil Judge of Dehra Dun
to the supply order/contract design, drawing, adopted the findings of facts and law of the
specification, instruction or these conditions; or arbitrator as contained in the Award Paper. The
(3) otherwise concerning the materials or Award Paper contains an exhaustive discussion of
the execution or failure to execute the the representative claims and defenses of the
same during stipulated/extended period or after parties, and the arbitrator's evaluation of the
the completion/abandonment thereof. same
*COURT: The non-delivery of the oil well cement -the consti mandate DOES NOT PRECLUDE THE
is definitely not in the nature of a dispute arising VALIDITY OF "MEMORANDUM DECISIONS"
from the failure to execute the supply (Francisco v. Permskul, Romero vs. CA).
order/contract design, drawing, instructions, Even in RP, incorporation by reference is allowed
specifications or quality of the materials. That IF ONLY TO AVOID THE CUMBERSOME
Clause 16 should pertain only to matters REPRODUCTION OF THE DECISION OF THE
involving the technical aspects of the contract is LOWER COURTS, OR PORTIONS THEROF, IN THE
but a logical inference considering that the DECISION OF THE HIGHER COURT. This is
underlying purpose of a referral to arbitration is particularly true when the decision sought to be
for such technical matters to be deliberated upon incorporated is a lengthy and thorough
by a person possessed with the required skill and discussion of the facts and conclusions arrived
expertise which may be otherwise absent in the at. (Award Paper in this case is 18 pages long,
regular courts. single spaced)
-agrees w/ CA that the matter is properly NORTHWEST ORIENT AIRLINES V. CA: A
cognizable by regular courts under Clause 15. foreign judgment is presumed to be valid and
binding in the country from which it comes, until
 the contrary is shown. It is also proper to
presume the regularity of the proceedings and
the giving of due notice therein.
Under Section 50, Rule 39 of the Rules of Court, a
judgment in an action in personam of a tribunal CORO
HON. FRANCO T. FALCON, IN HIS CAPACITY
of a foreign country having jurisdiction to AS THE PRESIDING JUDGE OF BRANCH 71 Chair
pronounce the same is presumptive evidence of OF THE REGIONAL TRIAL COURT IN PASIG
a right as between the parties and their VELA
CITY and BCA INTERNATIONAL
successors-in-interest by a subsequent title. The
CORPORATION,
judgment may, however, be assailed by evidence LEON
of want of jurisdiction, want of notice to the
party, collusion, fraud, or clear mistake of law or Respondents. DEL C
fact. Also, under Section 3 of Rule 131, a court,
whether of the Philippines or elsewhere, enjoys PERE
the presumption that it was acting in the lawful
exercise of jurisdiction and has regularly
performed its official duty. 39
-Consequently, the party attacking a foreign
judgment, the private respondent herein, had the Prom
burden of overcoming the presumption of its
validity which it failed to do in the instant case.
-The foreign judgment being valid, there is
nothing else left to be done than to order its
enforcement, despite the fact that the petitioner
merely prays for the remand of the case to the Septe
RTC for further proceedings. As this Court has
ruled on the validity and enforceability of the x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
said foreign judgment in this jurisdiction, further - - - - - - - - - - -x
proceedings in the RTC for the reception of
evidence to prove otherwise are no longer
necessary.
WON Pacific Cement's right to due process
was violated? DECISION
NO. There is no violation of due process even if
no hearing was conducted, where the party was
given a chance to explain his side of the
controversy and he waived his right to do so.
ON FAILURE OF THE FOREIGN COURT TO LEONARDO-DE CASTRO, J.:
REPLY
-Pacific Cement should not have waited almost 1
year for the foreign court's reply, as the court is
not required to do so. A genuine concern for its
cause should have prompted the private
respondent to ascertain with all due diligence the Before the Court is a Petition for Certiorari and
correct amount of legal fees to be paid. The
private respondent did not act with prudence and prohibition under Rule 65 of the Rules of Court with a
diligence thus its plea that they were not
prayer for the issuance of a temporary restraining
accorded the right to procedural due process
cannot elicit either approval or sympathy from order and/or a writ of preliminary injunction filed by
this Court.
ON PRESUMED BIAS OF THE ARBITRATOR petitioners Department of Foreign Affairs (DFA) and
-the Arbitration clause specifically provides that if
the arbitrator is an employee of the ONGC, it is Bangko Sentral ng Pilipinas (BSP). Petitioners pray that
not a ground for objection. the Court declare as null and void the Order [1] dated
DISPOSITION: GRANT PETITION, ENFORCE February 14, 2007 of respondent Judge Franco T. Falcon
FOREIGN JUDGMENT.
DEPARTMENT OF FOREIGN AFFAIRS and (Judge Falcon) in Civil Case No. 71079, which granted
BANGKO SENTRAL NG PILIPINAS, G.R. No.
the application for preliminary injunction filed by
Petitioners, respondent BCA International Corporation

(BCA). Likewise, petitioners seek to prevent respondent

Judge Falcon from implementing the corresponding Writ

- versus - of Preliminary Injunction dated February 23,

Present:
2007[2] issued pursuant to the aforesaid Order.
 In compliance with the Notice of Award dated

September 29, 2000 and Section 11.3, Rule 11 of the

The facts of this case, as culled from the records, are
IRR of the BOT Law, [6] BCA incorporated a project
as follows:
company, the Philippine Passport Corporation (PPC) to

undertake and implement the MRP/V Project.

Being a member state of the International Civil Aviation

Organization (ICAO),[3] the Philippines has to comply

On February 8, 2001, a Build-Operate-Transfer
with the commitments and standards set forth in ICAO
Agreement[7] (BOT Agreement) between the DFA and
Document No. 9303[4] which requires the ICAO member
PPC was signed by DFA Acting Secretary Lauro L. Baja,
states to issue machine readable travel documents
Jr. and PPC President Bonifacio Sumbilla. Under the BOT
(MRTDs)[5] by April 2010.
Agreement, the MRP/V Project was defined as follows:

Thus, in line with the DFAs mandate to improve the Section 1.02 MRP/V
passport and visa issuance system, as well as the Project refers to all the activities and
services undertaken in the fulfillment of
storage and retrieval of its related application records, the Machine Readable Passport and
Visa Project as defined in the Request
and pursuant to our governments ICAO commitments, for Proposals (RFP), a copy of which is
the DFA secured the approval of the President of the hereto attached as Annex A, including
but not limited to project financing,
Philippines, as Chairman of the Board of the National systems development, installation and
maintenance in the Philippines and
Economic and Development Authority (NEDA), for the
Foreign Service Posts (FSPs), training of
implementation of the Machine Readable Passport and DFA personnel, provision of all project
consumables (related to the production
Visa Project (the MRP/V Project) under the Build- of passports and visas, such as printer
Operate-and-Transfer (BOT) scheme, provided for by supplies, etc.), scanning of application
and citizenship documents, creation of
Republic Act No. 6957, as amended by Republic Act No. data bases, issuance of machine
readable passports and visas, and site
7718 (the BOT Law), and its Implementing Rules and
preparation in the Central Facility and
Regulations (IRR). Thus, a Pre-qualification, Bids and Regional Consular Offices (RCOs)
nationwide.[8]
Awards Committee (PBAC) published an invitation to

pre-qualify and bid for the supply of the needed

machine readable passports and visas, and conducted

the public bidding for the MRP/V Project on January 10, On April 5, 2002, former DFA Secretary Teofisto
2000. Several bidders responded and BCA was among T. Guingona and Bonifacio Sumbilla, this time as BCA
those that pre-qualified and submitted its technical and President, signed an Amended BOT Agreement [9] in
financial proposals.On June 29, 2000, the PBAC found order to reflect the change in the designation of the
BCAs bid to be the sole complying bid; hence, it parties and to harmonize Section 11.3 with Section
permitted the DFA to engage in direct negotiations with 11.8[10] of the IRR of the BOT Law. The Amended BOT
BCA. On even date, the PBAC recommended to the DFA Agreement was entered into by the DFA and BCA with
Secretary the award of the MRP/V Project to BCA on a the conformity of PPC.
BOT arrangement.
 The two BOT Agreements (the original version On April 12, 2002, an Assignment

signed on February 8, 2001 and the amended version Agreement[12] was executed by BCA and PPC, whereby

signed April 5, 2002) contain substantially the same BCA assigned and ceded its rights, title, interest and

provisions except for seven additional paragraphs in benefits arising from the Amended BOT Agreement to

the whereas clauses and two new provisions Section PPC.

9.05 on Performance and Warranty Securities and

Section 20.15 on Miscellaneous Provisions. The two

additional provisions are quoted below: As set out in Article 8 of the original and the

Amended BOT Agreement, the MRP/V Project was

divided into six phases:

Section 9.05. The PPC has
posted in favor of the DFA the
performance security required for
Phase 1 of the MRP/V Project and shall Phase 1. Project Planning
be deemed, for all intents and Phase The Project Proponent [BCA]
purposes, to be full compliance by BCA shall prepare detailed plans and
with the provisions of this Article 9. specifications in accordance with
Annex A of this [Amended] BOT
Agreement within three (3) months
xxxx from issuance of the NTP (Notice to
Proceed) [from the date of effectivity of
this Amended BOT Agreement]. This
phase shall be considered complete
Section 20.15 It is clearly and upon the review, acceptance and
expressly understood that BCA may approval by the DFA of these plans and
assign, cede and transfer all of its the resulting Master Plan, including the
rights and obligations under this Master Schedule, the business process
Amended BOT Agreement to PPC, as specifications, the acceptance criteria,
fully as if PPC is the original signatory among other plans.
to this Amended BOT Agreement,
provided however that BCA shall
nonetheless be jointly and severally
liable with PPC for the performance of xxxx
all the obligations and liabilities under
this Amended BOT Agreement.[11]
The DFA must approve all detailed
plans as a condition precedent to the
issuance of the CA [Certificate of
Acceptance] for Phase 1.

Also modified in the Amended BOT Agreement

was the Project Completion date of the MRP/V Project Phase 2. Implementation of
the MRP/V Project at the Central
which set the completion of the implementation phase
Facility Within six (6) months from
of the project within 18 to 23 months from the date of issuance of the CA for Phase 1, the
PROJECT PROPONENT [BCA] shall
effectivity of the Amended BOT Agreement as opposed complete the implementation of the
to the previous period found in the original BOT MRP/V Project in the DFA Central
Facility, and establish the network
Agreement which set the completion within 18 to 23 design between the DFA Central
Facility, the ten (10) RCOs [Regional
months from receipt of the NTP (Notice to Proceed) in Consular Offices] and the eighty (80)
accordance with the Project Master Plan. FSPs [Foreign Service Posts].

xxxx
 application system software and its
source code and/or licenses (subject to
Phase 3. Implementation of Section 5.02 [H]), peripherals,
the MRP/V Project at the Regional leasehold improvements, physical and
Consular Offices This phase computer security improvements,
represents the replication of the Automated Fingerprint Identification
systems as approved from the Central Systems, and all other MRP/V facilities
Facility to the RCOs throughout the shall commence at least six (6) months
country, as identified in the RFP prior to the end of the [Amended] BOT
[Request for Proposal]. The approved Agreement. The transition will include
systems are those implemented, the training of DFA personnel who will
evaluated, and finally approved by DFA be taking over the responsibilities of
as described in Phase 1.The Project system operation and maintenance
Proponent [BCA] will be permitted to from the Project Proponent [BCA]. The
begin site preparation and the Project Proponent [BCA] shall bear all
scanning and database building costs related to this transfer. [13] (Words
operations in all offices as soon as the in brackets appear in the Amended
plans are agreed upon and BOT Agreement)
accepted. This includes site
preparation and database building
operations in these Phase-3 offices.

Within six (6) months from issuance of To place matters in the proper perspective, it
CA for Phase 2, the Project Proponent should be pointed out that both the DFA and BCA
[BCA] shall complete site preparation
and implementation of the approved impute breach of the Amended BOT Agreement against
systems in the ten (10) RCOs, including
each other.
a fully functional network connection
between all equipment at the Central
Facility and the RCOs.

According to the DFA, delays in the completion

Phase 4. Full of the phases permeated the MRP/V Project due to the
Implementation, including all
Foreign Service Posts Within three submission of deficient documents as well as
(3) to eight (8) months from issuance
intervening issues regarding BCA/PPCs supposed
of the CA for Phase-3, the Project
Proponent [BCA] shall complete all financial incapacity to fully implement the project.
preparations and fully implement the
approved systems in the eighty (80)
FSPs, including a fully functional
network connection between all
equipment at the Central Facility and On the other hand, BCA contends that the DFA
the FSPs. Upon satisfactory completion failed to perform its reciprocal obligation to issue to
of Phase 4, a CA shall be issued by the
DFA. BCA a Certificate of Acceptance of Phase 1 within 14

working days of operation purportedly required by

Phase 5. In Service Section 14.04 of the Amended BOT Agreement. BCA

Phase Operation and maintenance of bewailed that it took almost three years for the DFA to
the complete MRP/V Facility to provide
machine readable passports and visas issue the said Certificate allegedly because every
in all designated locations around the
appointee to the position of DFA Secretary wanted to
world.
review the award of the project to BCA. BCA further

alleged that it was the DFAs refusal to approve the

Phase
6. Transition/Turnover Transition/Tur location of the DFA Central Facility which prevented
nover to the DFA of all operations and
BCA from proceeding with Phase 2 of the MRP/V
equipment, to include an orderly
transfer of ownership of all hardware, Project.
 which to comply with the other financial requirements

which the DFA insisted on.[18]

Later, the DFA sought the opinion of the

Department of Finance (DOF) and the Department of

Justice (DOJ) regarding the appropriate legal actions in

According to the DFA, BCAs financial warranty
connection with BCAs alleged delays in the completion
is a continuing warranty which requires that it shall
of the MRP/V Project. In a Letter dated February 21,
have the necessary capitalization to finance the MRP/V
2005,[14] the DOJ opined that the DFA should issue a
Project in its entirety and not on a per phase basis as
final demand upon BCA to make good on its
BCA contends. Only upon sufficient proof of its financial
obligations, specifically on the warranties and
capability to complete and implement the whole
responsibilities regarding the necessary capitalization
project will the DFAs obligation to choose and approve
and the required financing to carry out the MRP/V
the location of its Central Facility arise. The DFA
Project.The DOJ used as basis for said
asserted that its approval of a Central Facility site was
recommendation, the Letter dated April 19, 2004[15] of
not ministerial and upon its review, BCAs proposed site
DOF Secretary Juanita Amatong to then DFA Secretary
for the Central Facility was purportedly unacceptable in
Delia Albert stating, among others, that BCA may not
terms of security and facilities. Moreover, the DFA
be able to infuse more capital into PPC to use for the
allegedly received conflicting official letters and
completion of the MRP/V Project.
notices[19] from BCA and PPC regarding the true

ownership and control of PPC. The DFA implied that the

disputes among the shareholders of PPC and between

Thus, on February 22, 2005, DFA sent a
PPC and BCA appeared to be part of the reason for the
letter[16] to BCA, through its project company PPC,
hampered implementation of the MRP/V Project.
invoking BCAs financial warranty under Section 5.02(A)

of the Amended BOT Agreement.[17] The DFA required

BCA to submit (a) proof of adequate capitalization

BCA, in turn, submitted various letters and documents
(i.e., full or substantial payment of stock subscriptions);
to prove its financial capability to complete the MRP/V
(b) a bank guarantee indicating the availability of a
Project.[20] However, the DFA claimed these documents
credit facility of P700 million; and (c) audited financial
were unsatisfactory or of dubious authenticity. Then on
statements for the years 2001 to 2004.
August 1, 2005, BCA terminated its Assignment

Agreement with PPC and notified the DFA that it would

directly implement the MRP/V Project. [21] BCA further

In reply to DFAs letter, BCA, through PPC, informed the
claims that the termination of the Assignment
former of its position that its financial capacity was
Agreement was upon the instance, or with the
already passed upon during the prequalification
conformity, of the DFA, a claim which the DFA disputed.
process and that the Amended BOT Agreement did not

call for any additional financial requirements for the

implementation of the MRP/V Project. Nonetheless, BCA

On December 9, 2005, the DFA sent a Notice of
submitted its financial statements for the years 2001
Termination[22] to BCA and PPC due to their alleged
and 2002 and requested for additional time within
failure to submit proof of financial capability to

complete the entire MRP/V Project in accordance with

the financial warranty under Section 5.02(A) of the BCAs request for mutual discussion under Section

Amended BOT Agreement. The Notice states: 19.01 of the Amended BOT Agreement[26] was

purportedly ignored by the DFA and left the dispute

unresolved through amicable means within 90 days.

After a careful evaluation and
consideration of the matter, including Consequently, BCA filed its Request for Arbitration
the reasons cited in your letters dated
dated April 7, 2006[27] with the Philippine Dispute
March 3, May 3, and June 20, 2005, and
upon the recommendation of the Office Resolution Center, Inc. (PDRCI), pursuant to Section
of the Solicitor General (OSG), the
Department is of the view that your 19.02 of the Amended BOT Agreement which provides:
continuing default in complying with
the requisite bank guarantee and/or
credit facility, despite repeated notice
and demand, is legally unjustified. Section 19.02 Failure to
Settle Amicably If the Dispute cannot
be settled amicably within ninety (90)
days by mutual discussion as
In light of the foregoing contemplated under Section 19.01
considerations and upon the instruction herein, the Dispute shall be settled
of the Secretary of Foreign Affairs, the with finality by an arbitrage tribunal
Department hereby formally operating under International Law,
TERMINATE (sic) the Subject Amended hereinafter referred to as the Tribunal,
BOT Agreement dated 5 April 2005 under the UNCITRAL Arbitration Rules
(sic)[23] effective 09 December contained in Resolution 31/98 adopted
2005. Further, and as a consequence of by the United Nations General
this termination, the Department Assembly on December 15, 1976, and
formally DEMAND (sic) that you pay entitled Arbitration Rules on the United
within ten (10) days from receipt Nations Commission on the
hereof, liquidated damages equivalent International Trade Law.The DFA and
to the corresponding performance the BCA undertake to abide by and
security bond that you had posted for implement the arbitration award. The
the MRP/V Project. place of arbitration shall be Pasay City,
Philippines, or such other place as may
mutually be agreed upon by both
Please be guided accordingly. parties. The arbitration proceeding
shall be conducted in the English
language.[28]

On December 14, 2005, BCA sent a letter [24] to the DFA

demanding that it immediately reconsider and revoke As alleged in BCAs Request for Arbitration, PDRCI is a
its previous notice of termination, otherwise, BCA non-stock, non-profit organization composed of
would be compelled to declare the DFA in default independent arbitrators who operate under its own
pursuant to the Amended BOT Agreement. When the Administrative Guidelines and Rules of Arbitration as
DFA failed to respond to said letter, BCA issued its own well as under the United Nations Commission on the
Notice of Default dated December 22, 2005 [25]
against International Trade Law (UNCITRAL) Model Law on
the DFA, stating that if the default is not remedied International Commercial Arbitration and other
within 90 days, BCA will be constrained to terminate applicable laws and rules. According to BCA, PDRCI can
the MRP/V Project and hold the DFA liable for damages. act as an arbitration center from whose pool of

accredited arbitrators both the DFA and BCA may

select their own nominee to become a member of the

arbitral tribunal which will render the arbitration award.

 and objections available to it under the

law. Subsequently, however, in a letter dated May 29,

BCAs Request for Arbitration filed with the PDRCI
2006,[32] the DFA declined the request for arbitration
sought the following reliefs:
before the PDRCI. While it expressed its willingness to

resort to arbitration, the DFA pointed out that under

1. A judgment nullifying and Section 19.02 of the Amended BOT Agreement, there is
setting aside the Notice of Termination
dated December 9, 2005 of no mention of a specific body or institution that was
Respondent [DFA], including its previously authorized by the parties to settle their
demand to Claimant [BCA] to pay
liquidated damages equivalent to the dispute. The DFA further claimed that the arbitration of
corresponding performance security
the dispute should be had before an ad hocarbitration
bond posted by Claimant [BCA];
body, and not before the PDRCI which has as its

accredited arbitrators, two of BCAs counsels of

2. A judgment (a) confirming
the Notice of Default dated December record. Likewise, the DFA insisted that PPC, allegedly
22, 2005 issued by Claimant [BCA] to
an indispensable party in the instant case, should also
Respondent [DFA]; and (b) ordering
Respondent [DFA] to perform its participate in the arbitration.
obligation under the Amended BOT
Agreement dated April 5, 2002 by
approving the site of the Central
Facility at the Star Mall Complex on
Shaw Boulevard, Mandaluyong City, The DFA then sought the opinion of the DOJ on the
within five days from receipt of the
Notice of Termination dated December 9, 2005 that it
Arbitral Award; and
sent to BCA with regard to the MRP/V Project.

3. A judgment ordering
respondent [DFA] to pay damages to
Claimant [BCA], reasonably estimated In DOJ Opinion No. 35 (2006) dated May 31, 2006,
at P50,000,000.00 as of this date,
representing lost business
[33]
the DOJ concurred with the steps taken by the DFA,
opportunities; financing fees, costs and
stating that there was basis in law and in fact for the
commissions; travel expenses; legal
fees and expenses; and costs of termination of the MRP/V Project. Moreover, the DOJ
arbitration, including the fees of the
arbitrator/s.[29] recommended the immediate implementation of the

project (presumably by a different contractor) at the

soonest possible time.

PDRCI, through a letter dated April 26, 2006,

[30]
invited the DFA to submit its Answer to the Request Thereafter, the DFA and the BSP entered into a
for Arbitration within 30 days from receipt of said letter Memorandum of Agreement for the latter to provide
and also requested both the DFA and BCA to nominate the former passports compliant with international
their chosen arbitrator within the same period of time. standards. The BSP then solicited bids for the supply,

delivery, installation and commissioning of a system

for the production of Electronic Passport Booklets or e-

Initially, the DFA, through a letter dated May 22, 2006, Passports.[34]
[31]
requested for an extension of time to file its answer,

without prejudice to jurisdictional and other defenses

 merits of BCAs Request for Arbitration;
For BCA, the BSPs invitation to bid for the supply and and
purchase of e-Passports (the e-Passport Project) would

only further delay the arbitration it requested from the

(c) render judgment affirming
DFA.Moreover, this new e-Passport Project by the BSP the interim relief granted to BCA until
the dispute between the parties shall
and the DFA would render BCAs remedies moot have been resolved with finality.
inasmuch as the e-Passport Project would then be

replacing the MRP/V Project which BCA was carrying

BCA also prays for such other relief,
out for the DFA. just and equitable under the premises.
[37]

Thus, BCA filed a Petition for Interim Relief [35] under

Section 28 of the Alternative Dispute Resolution Act of

BCA alleged, in support for its application for a
2004 (R.A. No. 9285),[36] with the Regional Trial Court
Temporary Restraining Order (TRO), that unless the
(RTC) of Pasig City, Branch 71, presided over by
DFA and the BSP were immediately restrained, they
respondent Judge Falcon. In that RTC petition, BCA
would proceed to undertake the project together with a
prayed for the following:
third party to defeat the reliefs BCA sought in its

Request for Arbitration, thus causing BCA to suffer

WHEREFORE, BCA respectfully prays grave and irreparable injury from the loss of substantial
that this Honorable Court, before the investments in connection with the implementation of
constitution of the arbitral tribunal in
PDRCI Case No. 30-2006/BGF, grant the MRP/V Project.
petitioner interim relief in the following
manner:

Thereafter, the DFA filed an Opposition (to the

(a) upon filing of this Petition,
immediately issue an order temporarily Application for Temporary Restraining Order and/or Writ
restraining Respondents [DFA and BSP], of Preliminary Injunction) dated January 18, 2007,
their agents, representatives,
awardees, suppliers and assigns (i) [38]
alleging that BCA has no cause of action against it
from awarding a new contract to
as the contract between them is for machine readable
implement the Project, or any similar
electronic passport or visa project; or passports and visas which is not the same as the
(ii) if such contract has been awarded,
from implementing such Project or contract it has with the BSP for the supply of electronic
similar projects until further orders
passports. The DFA also pointed out that the Filipino
from this Honorable Court;
people and the governments international standing

would suffer great damage if a TRO would be issued to

(b) after notice and hearing, issue a
writ of preliminary injunction ordering stop the e-Passport Project. The DFA mainly anchored
Respondents [DFA and BSP], their
its opposition on Republic Act No. 8975, which prohibits
agents, representatives, awardees,
suppliers and assigns to desist (i) from trial courts from issuing a TRO, preliminary injunction
awarding a new contract to implement
the Project or any similar electronic or mandatory injunction against the bidding or
passport or visa project; or (ii) if such awarding of a contract or project of the national
contract has been awarded, from
implementing such Project or similar government.
projects, and to maintain the status
quo ante pending the resolution on the
On January 23, 2007, after summarily hearing the TRO on the bidding for a national government project

parties oral arguments on BCAs application for the like the e-Passport Project pursuant to the provisions of

issuance of a TRO, the trial court ordered the issuance Republic Act No. 8975. Under Section 3 of Republic Act

of a TRO restraining the DFA and the BSP, their agents, No. 8975, the RTC could only issue a TRO against a

representatives, awardees, suppliers and assigns from national government project if it involves a matter

awarding a new contract to implement the Project or of extreme urgency involving a constitutional issue,

any similar electronic passport or visa project, or if such that unless a TRO is issued, grave injustice and

such contract has been awarded, from implementing irreparable injury will arise.

such or similar projects.[39] The trial court also set for

hearing BCAs application for preliminary injunction.

Thereafter, BCA filed an Omnibus Comment [on

Opposition and Supplemental Opposition (To the

Consequently, the DFA filed a Motion for Application for Temporary Restraining Order and/or Writ

Reconsideration[40] of the January 23, 2007 Order. The of Preliminary Injunction)] and Opposition [to Motion for

BSP, in turn, also sought to lift the TRO and to dismiss Reconsideration (To the Temporary Restraining Order

the petition. In its Urgent Omnibus Motion dated dated January 23, 2007)] and Urgent Omnibus Motion

February 1, 2007,[41] the BSP asserted that BCA is not [(i) To Lift Temporary Restraining Order; and (ii) To

entitled to an injunction, as it does not have a clear Dismiss the Petition] dated January 31, 2007. [42] The

right which ought to be protected, and that the trial DFA and the BSP filed their separate Replies (to BCAs

court has no jurisdiction to enjoin the implementation Omnibus Comment) dated February 9, 2007 [43] and

of the e-Passport Project which, the BSP alleged, is a February 13, 2007,[44] respectively.

national government project under Republic Act No.

8975.
On February 14, 2007, the trial court issued an Order

granting BCAs application for preliminary injunction, to

In the hearings set for BCAs application for preliminary wit:

injunction, BCA presented as witnesses, Mr. Bonifacio

Sumbilla, its President, Mr. Celestino Mercader, Jr. from

WHEREFORE, in view of the
the Independent Verification and Validation Contractor above, the court resolves that it has
jurisdiction over the instant petition
commissioned by the DFA under the Amended BOT
and to issue the provisional remedy
Agreement, and DFA Assistant Secretary Domingo prayed for, and therefore, hereby
GRANTS petitioners [BCAs] application
Lucenario, Jr. as adverse party witness. for preliminary injunction. Accordingly,
upon posting a bond in the amount of
Ten Million Pesos (P10,000,000.00), let
a writ of preliminary injunction issue
The DFA and the BSP did not present any witness ordering respondents [DFA and BSP],
their agents, representatives,
during the hearings for BCAs application for preliminary awardees, suppliers and assigns to
desist (i) from awarding a new contract
injunction. According to the DFA and the BSP, the trial
to implement the project or any similar
court did not have any jurisdiction over the case electronic passport or visa project or
(ii) if such contract has been awarded
considering that BCA did not pay the correct docket from implementing such project or
fees and that only the Supreme Court could issue a similar projects.
 urgent motion for issuance of a TRO and/or writ of
The motion to dismiss is denied
preliminary injunction,[49] thus:
for lack of merit. The motions for
reconsideration and to lift temporary
restraining Order are now moot and
academic by reason of the expiration of
After deliberating on the
the TRO.[45]
petition for certiorari and prohibition
with temporary restraining order and/or
writ of preliminary injunction assailing
the Order dated 14 February 2007 of
the Regional Trial Court, Branch 71,
On February 16, 2007, BCA filed an Amended Petition, Pasig City, in Civil Case No. 71079, the
Court, without necessarily giving due
[46]
wherein paragraphs 3.3(b) and 4.3 were modified to course thereto, resolves to require
respondents to COMMENT thereon
add language to the effect that unless petitioners were
(not to file a motion to dismiss) within
enjoined from awarding the e-Passport Project, BCA ten (10) days from notice.

would be deprived of its constitutionally-protected right

to perform its contractual obligations under the original The Court further resolves
to GRANT the Office of the Solicitor
and amended BOT Agreements without due process of
Generals urgent motion for issuance of
law. Subsequently, on February 26, 2007, the DFA and a temporary restraining order and/or
writ of preliminary injunction dated 05
the BSP received the Writ of Preliminary Injunction March 2007 and ISSUE a TEMPORARY
dated February 23, 2007. RESTRAINING ORDER, as prayed for,
enjoining respondents from
implementing the assailed Order dated
14 February 2007 and the Writ of
Preliminary Injunction dated 23
Hence, on March 2, 2007, the DFA and the BSP filed the February 2007, issued by respondent
Judge Franco T. Falcon in Civil Case No.
instant Petition for Certiorari[47] and prohibition under
71079 entitled BCA International
Rule 65 of the Rules of Court with a prayer for the Corporation vs. Department of Foreign
Affairs and Bangko Sentral ng Pilipinas,
issuance of a temporary restraining order and/or a writ and from conducting further
of preliminary injunction, imputing grave abuse of proceedings in said case until further
orders from this Court.
discretion on the trial court when it granted interim

relief to BCA and issued the assailed Order dated

February 14, 2007 and the writ of preliminary

injunction dated February 23, 2007. BCA filed on April 2, 2007 its Comment with Urgent

Motion to Lift TRO,[50] to which the DFA and the BSP

filed their Reply dated August 14, 2007.[51]

The DFA and the BSP later filed an Urgent Motion for

Issuance of a Temporary Restraining Order and/or Writ

of Preliminary Injunction dated March 5, 2007.[48] In a Resolution dated June 4, 2007, [52] the Court denied

BCAs motion to lift TRO. BCA filed another Urgent

Omnibus Motion dated August 17, 2007, for the

On March 12, 2007, the Court required BCA to file its reconsideration of the Resolution dated June 4, 2007,
comment on the said petition within ten days from praying that the TRO issued on March 12, 2007 be
notice and granted the Office of the Solicitor Generals lifted and that the petition be denied.
 (II) RESPONDEN
In a Resolution dated September 10, 2007, [53] the Court T BCA HAS NOT
denied BCAs Urgent Omnibus Motion and gave due SHOWN THAT
IT WILL
course to the instant petition. The parties were SUSTAIN GRAVE
AND
directed to file their respective memoranda within 30
IRREPARABLE
days from notice of the Courts September 10, 2007 INJURY THAT
MUST BE
Resolution. PROTECTED BY
AN
INJUNCTION.ON
THE
CONTRARY, IT
Petitioners DFA and BSP submit the following issues for IS THE FILIPINO
PEOPLE, WHO
our consideration: PETITIONERS
PROTECT, THAT
WILL SUSTAIN
SERIOUS AND
SEVERE INJURY
ISSUES
BY THE
INJUNCTION.[54]

WHETHER OR NOT THE RESPONDENT

JUDGE GRAVELY ABUSED HIS At the outset, we dispose of the procedural
DISCRETION AMOUNTING TO LACK OR
objections of BCA to the petition, to wit: (a) petitioners
EXCESS OF JURISDICTION WHEN HE
ISSUED THE ASSAILED ORDER, WHICH did not follow the hierarchy of courts by filing their
EFFECTIVELY ENJOINED THE
IMPLEMENTATION OF THE E-PASSPORT petition directly with this Court, without filing a motion
PROJECT -- A NATIONAL GOVERNMENT for reconsideration with the RTC and without filing a
PROJECT UNDER REPUBLIC ACT NO.
8975. petition first with the Court of Appeals; (b) the person

who verified the petition for the DFA did not have

II personal knowledge of the facts of the case and whose

appointment to his position was highly irregular; and

(c) the verification by the Assistant Governor and

WHETHER OR NOT THE RESPONDENT
JUDGE ACTED WITH GRAVE ABUSE OF General Counsel of the BSP of only selected
DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN GRANTING paragraphs of the petition was with the purported
RESPONDENT BCAS INTERIM intent to mislead this Court.
RELIEF INASMUCH AS:

(I) RESPONDE
NT BCA HAS
NOT Although the direct filing of petitions
ESTABLISHED A for certiorari with the Supreme Court is discouraged
CLEAR RIGHT
THAT CAN BE when litigants may still resort to remedies with the
PROTECTED BY
lower courts, we have in the past overlooked the failure
AN
INJUNCTION; of a party to strictly adhere to the hierarchy of courts
AND
on highly meritorious grounds. Most recently, we

relaxed the rule on court hierarchy in the case

of Roque, Jr. v. Commission on Elections, [55] wherein we was appointed to his position as Acting Secretary under

held: purportedly irregular circumstances, we find that BCA

failed to sufficiently prove such allegations. In any

event, we have previously held that [d]epending on the

The policy on the hierarchy of nature of the allegations in the petition, the verification
courts, which petitioners indeed failed may be based either purely on personal knowledge, or
to observe, is not an iron-clad rule.
For indeed the Court has full entirely on authentic records, or on both sources.
discretionary power to take cognizance [57]
The alleged lack of personal knowledge of Mr.
and assume jurisdiction of special civil
actions Custodio (which, as we already stated, BCA failed to
for certiorari and mandamus filed
directly with it for exceptionally prove) would not necessarily render the verification
compelling reasons or if warranted
defective for he could have verified the petition purely
by the nature of the issues clearly
and specifically raised in the petition. on the basis of authentic records.
[56]
(Emphases ours.)

As for the assertion that the partial verification

The Court deems it proper to adopt a similarly liberal of Assistant Governor and General Counsel Juan de
attitude in the present case in consideration of the
Zuniga, Jr. was for the purpose of misleading this Court,
transcendental importance of an issue raised
BCA likewise failed to adduce evidence on this
herein. This is the first time that the Court is confronted
with the question of whether an information and point. Good faith is always presumed. Paragraph 3 of

communication technology project, which does not Mr. Zunigas verification indicates that his partial
conform to our traditional notion of the term verification is due to the fact that he is verifying only
infrastructure, is covered by the prohibition on the
the allegations in the petition peculiar to the BSP. We
issuance of court injunctions found in Republic Act No.
see no reason to doubt that this is the true reason for
8975, which is entitled An Act to Ensure the
Expeditious Implementation and Completion of his partial or selective verification.

Government Infrastructure Projects by Prohibiting

Lower Courts from Issuing Temporary Restraining
Orders, Preliminary Injunctions or Preliminary
Mandatory Injunctions, Providing Penalties for In sum, BCA failed to successfully rebut the
Violations Thereof, and for Other Purposes. Taking into presumption that the official acts (of Mr. Custodio and
account the current trend of computerization and
Mr. Zuniga) were done in good faith and in the regular
modernization of administrative and service systems of
performance of official duty.[58] Even assuming the
government offices, departments and agencies, the
resolution of this issue for the guidance of the bench verifications of the petition suffered from some defect,
and bar, as well as the general public, is both timely we have time and again ruled that [t]he ends of justice
and imperative. are better served when cases are determined on the

merits after all parties are given full opportunity to

ventilate their causes and defenses rather than on

technicality or some procedural imperfections.[59] In

Anent BCAs claim that Mr. Edsel T. Custodio
other words, the Court may suspend or even disregard
(who verified the Petition on behalf of the DFA) did not
rules when the demands of justice so require.[60]
have personal knowledge of the facts of the case and
 the governments direction, to restrain,
prohibit or compel the following acts:

(a) Acquisition, clearance

We now come to the substantive issues
and development of
involved in this case. the right-of-way and/or
site or location of any
national government
project;

On whether
the trial court (b) Bidding or awarding of
had contract/project of the
jurisdiction to national government as
issue a writ defined under Section 2
of hereof;
preliminary
injunction in
the present
case (c) Commencement,
prosecution, execution,
implementation,
operation of any such
contract or project;

In their petition, the DFA and the BSP argue

that respondent Judge Falcon gravely abused his (d) Termination or

rescission of any such
discretion amounting to lack or excess of jurisdiction contract/project; and
when he issued the assailed orders, which effectively

enjoined the bidding and/or implementation of the e- (e) The undertaking or

Passport Project. According to petitioners, this violated authorization of any
other lawful activity
the clear prohibition under Republic Act No. 8975 necessary for such
contract/project.
regarding the issuance of TROs and preliminary

injunctions against national government projects, such

as the e-Passport Project. This prohibition shall apply in all cases,

disputes or controversies instituted by
a private party, including but not
limited to cases filed by bidders or
those claiming to have rights through
such bidders involving such
The prohibition invoked by petitioners is found contract/project. This prohibition shall
not apply when the matter is of
in Section 3 of Republic Act No. 8975, which reads:
extreme urgency involving a
constitutional issue, such that unless a
temporary restraining order is issued,
grave injustice and irreparable injury
will arise. The applicant shall file a
Section 3. Prohibition on the
bond, in an amount to be fixed by the
Issuance of Temporary Restraining
court, which bond shall accrue in favor
Orders, Preliminary Injunctions and
of the government if the court should
Preliminary Mandatory Injunctions. No
finally decide that the applicant was
court, except the Supreme Court, shall
not entitled to the relief sought.
issue any temporary restraining order,
preliminary injunction or preliminary
mandatory injunction against the
government, or any of its subdivisions, If after due hearing the court finds that
officials or any person or entity, the award of the contract is null and
whether public or private, acting under void, the court may, if appropriate
under the circumstances, award the
 contract to the qualified and winning
bidder or order a rebidding of the
same, without prejudice to any liability
that the guilty party may incur under
existing laws.
As petitioners themselves pointed out, there

are three types of national government projects

enumerated in Section 2(a), to wit:

From the foregoing, it is indubitable that no

court, aside from the Supreme Court, may enjoin a

national government project unless the matter is one (a) current and future
national government
of extreme urgency involving a constitutional issue infrastructure projects,
such that unless the act complained of is enjoined, engineering works and
service contracts, including
grave injustice or irreparable injury would arise. projects undertaken by
government-owned and
controlled corporations;

What then are the national government

(b) all projects covered
projects over which the lower courts are without by R.A. No. 6975, as amended
jurisdiction to issue the injunctive relief as mandated by R.A. No. 7718, or the Build-
Operate-and-Transfer ( BOT)
by Republic Act No. 8975? Law; and

(c) other related and

Section 2(a) of Republic Act No. 8975 provides: necessary activities, such as
site acquisition, supply and/or
installation of equipment and
materials, implementation,
construction, completion,
Section 2. Definition of Terms. operation, maintenance,
improvement repair and
rehabilitation, regardless of the
source of funding.

(a) National government

projects shall refer to all current and
future national government
infrastructure, engineering works and
service contracts, including projects
undertaken by government-owned and
-controlled corporations, all projects Under Section 2(a) of the BOT Law as amended
covered by Republic Act No. 6975, as by Republic Act No. 7718,[61] private sector
amended by Republic Act No. 7718,
otherwise known as the Build-Operate- infrastructure or development projects are those
and-Transfer Law, and other related
normally financed and operated by the public
and necessary activities, such as site
acquisition, supply and/or installation sector but which will now be wholly or partly
of equipment and materials,
implementation, construction, implemented by the private sector, including but
completion, operation, maintenance, not limited to, power plants, highways, ports,
improvement, repair and rehabilitation,
regardless of the source of funding. airports, canals, dams, hydropower projects, water

supply, irrigation, telecommunications, railroads and

railways, transport systems, land reclamation projects, national government projects to cover not only the

industrial estates or townships, housing, government infrastructure projects enumerated in Presidential

buildings, tourism projects, markets, slaughterhouses, Decree No. 1818, but also future projects that may

warehouses, solid waste management, information likewise be considered national government

technology networks and database infrastructure projects, like the e-Passport Project, to

infrastructure, education and health facilities, wit:

sewerage, drainage, dredging, and other infrastructure

and development projects as may be authorized by the

appropriate agency. Senator Cayetano. x x x Mr.

President, the present bill, the Senate
Bill No. 2038, is actually an
improvement of P.D. No. 1818 and
definitely not a repudiation of what I
In contrast, Republic Act No. 9184, [62] also known as the have earlier said, as my good friend
clearly stated. But this is really an
Government Procurement Reform Act, defines
effort to improve both the scope and
infrastructure projects in Section 5(k) thereof in this definition of the term government
projects and to ensure that lower court
manner: judges obey and observe this
prohibition on the issuance of TROs on
infrastructure projects of the
government.
(k) Infrastructure Projects -
include the construction, improvement,
rehabilitation, demolition, repair,
restoration or maintenance of roads
and bridges, railways, airports, xxxx
seaports, communication
facilities, civil works components of
information technology projects,
irrigation, flood control and drainage, Senator Cayetano. That is why, Mr.
water supply, sanitation, sewerage and President, I did try to explain why I
solid waste management systems, would accept the proposed
shore protection, energy/power and amendment, meaning the totality of
electrification facilities, national the repeal of P.D. 1818 which is not
buildings, school buildings, hospital found in the original version of the bill,
buildings and other related because of my earlier explanation that
construction projects of the the definition of the term government
government. (Emphasis supplied.) infrastructure project covers all of
those enumerated in Section 1 of P.D.
No. 1818. And the reason for that, as
we know, is we do not know what else
could be considered government
infrastructure project in the next 10 or
In the present petition, the DFA and the BSP 20 years.

contend that the bidding for the supply, delivery,

installation and commissioning of a system for the

x x x So, using the Latin maxim of
production of Electronic Passport Booklets, is a national
expression unius est exclusion alterius,
government project within the definition of Section 2 of which means what is expressly
mentioned is tantamount to an express
Republic Act No. 8975. Petitioners also point to the exclusion of the others, that is the
Senate deliberations on Senate Bill No. 2038[63] (later reason we did not include particularly
an enumeration of certain activities of
Republic Act No. 8975) which allegedly show the the government found in Section 1 of
P.D. No. 1818. Because to do that, it
legislatives intent to expand the scope and definition of
may be a good excuse for a brilliant
 lawyer to say Well, you know, since it information technology networks
does not cover this particular activity, and database infrastructure.
ergo, the Regional Trial Court may issue
TRO.

In relation to information
technology projects, infrastructure
projects refer to the civil works
components thereof. (R.A. No.
9184 [2003], Sec. 5[c]{sic}).[64]
Using the foregoing discussions to establish that the

intent of the framers of the law was to broaden the

scope and definition of national government projects Respondent BSPs request for bid, for
and national infrastructure projects, the DFA and the the supply, delivery, installation and
commissioning of a system for the
BSP submit that the said scope and definition had since production of Electronic Passport
Booklets appears to be beyond the
evolved to include the e-Passport Project. They assert
scope of the term civil works.
that the concept of infrastructure must now refer to Respondents did not present evidence
to prove otherwise.[65] (Emphases ours.)
any and all elements that provide support, framework,

or structure for a given system or organization,

including information technology, such as the e-

Passport Project.

From the foregoing, it can be gleaned that the trial

court accepted BCAs reasoning that, assuming the e-

Passport Project is a project under the BOT Law,

Interestingly, petitioners represented to the trial court
Section 2 of the BOT Law must be read in conjunction
that the e-Passport Project is a BOT project but in their
with Section 5(c) of Republic Act No. 9184 or the
petition with this Court, petitioners simply claim that
Government Procurement Reform Act to the effect that
the e-Passport Project is a national government project
only the civil works component of information
under Section 2 of Republic Act No. 8975. This
technology projects are to be considered
circumstance is significant, since relying on the claim
infrastructure. Thus, only said civil works component of
that the e-Passport Project is a BOT project, the trial
an information technology project cannot be the
court ruled in this wise:
subject of a TRO or writ of injunction issued by a lower

court.

The prohibition against issuance of TRO

and/or writ of preliminary injunction
under RA 8975 applies only to
national government Although the Court finds that the trial court had
infrastructure project covered by
the BOT Law, (RA 8975, Sec 3[b] in jurisdiction to issue the writ of preliminary injunction,
relation to Sec. 2).
we cannot uphold the theory of BCA and the trial court

that the definition of the term infrastructure project in

Republic Act No. 9184 should be applied to the BOT

The national government projects
covered under the BOT are Law.
enumerated under Sec. 2 of RA6957,
as amended, otherwise known as the
BOT Law. Notably, it includes
 development projects -
Section 5 of Republic Act No. 9184 prefaces the The general description
definition of the terms therein, including the term of infrastructure or
development projects
infrastructure project, with the following phrase: For normally financed and
operated by the public
purposes of this Act, the following terms or words
sector but which will
and phrases shall mean or be understood as follows x x now be wholly or partly
implemented by the
x. private sector,
including but not
limited to, power
plants, highways, ports,
airports, canals, dams,
hydropower projects,
This Court has stated that the definition of a term in a
water supply, irrigation,
statute is not conclusive as to the meaning of the same telecommunications,
railroads and railways,
term as used elsewhere.[66] This is evident when the transport systems, land
legislative definition is expressly made for the reclamation projects,
industrial estates of
purposes of the statute containing such definition. [67] townships, housing,
government buildings,
tourism projects,
markets,
slaughterhouses,
warehouses, solid
There is no legal or rational basis to apply the
waste
definition of the term infrastructure project in one management, informa
tion technology
statute to another statute enacted years before and networks and
which already defined the types of projects it database
infrastructure,
covers. Rather, a reading of the two statutes involved education and health
facilities, sewerage,
will readily show that there is a legislative intent to drainage, dredging,
treat information technology projects differently under and other
infrastructure and
the BOT Law and the Government Procurement Reform development projects
as may be authorized
Act.
by the appropriate
agency pursuant to this
Act. Such projects shall
be undertaken through
contractual
In the BOT Law as amended by Republic Act No. 7718, arrangements as
defined hereunder and
the national infrastructure and development projects such other variations
covered by said law are enumerated in Section 2(a) as as may be approved by
the President of the
follows: Philippines.

For the
construction stage of
SEC. 2. Definition of Terms. -
these infrastructure
The following terms used in this Act
projects, the project
shall have the meanings stated below:
proponent may obtain
financing from foreign
and/or domestic
(a) Pri sources and/or engage
vate sector the services of a
infrastructure or foreign and/or Filipino
 contractor: Provided,
That, in case an
infrastructure or a xxxx
development facility's
operation requires a
public utility franchise, v. Private
the facility operator Sector Infrastructure
must be a Filipino or if or Development
a corporation, it must Projects - The general
be duly registered with description of
the Securities and infrastructure or
Exchange Commission Development Projects
and owned up to at normally financed, and
least sixty percent operated by the public
(60%) by sector but which will
Filipinos: Provided, now be wholly or partly
further, That in the financed, constructed
case of foreign and operated by the
contractors, Filipino private sector,
labor shall be including but not
employed or hired in limited to, power
the different phases of plants, highways, ports,
construction where airports, canals, dams,
Filipino skills are hydropower projects,
available: Provided, water supply, irrigation,
finally, That projects telecommunications,
which would have railroad and railways,
difficulty in sourcing transport systems, land
funds may be financed reclamation projects,
partly from direct industrial estates or
government townships, housing,
appropriations and/or government buildings,
from Official tourism projects, public
Development markets,
Assistance (ODA) of slaughterhouses,
foreign governments or warehouses, solid
institutions not waste
exceeding fifty percent management, informati
(50%) of the project on technology
cost, and the balance networks and database
to be provided by the infrastructure, educatio
project proponent. n and health facilities,
(Emphasis supplied.) sewerage, drainage,
dredging, and other
infrastructure and
development projects
as may otherwise be
authorized by the
A similar provision appears in the Revised IRR of the appropriate
Agency/LGU pursuant
BOT Law as amended, to wit: to the Act or these
Revised IRR. Such
projects shall be
undertaken through
Contractual
SECTION 1.3 - DEFINITION OF Arrangements as
TERMS defined herein,
including such other
variations as may be
For purposes of these Implementing approved by the
Rules and Regulations, the terms and President of the
phrases hereunder shall be understood Philippines.
as follows:
 xxxx
Project awarded to BCA under the BOT Law appears to

include both civil works (i.e., site preparation of the

SECTION 2.2 -
Central Facility, regional DFA offices and foreign service
ELIGIBLE TYPES OF PROJECTS
posts) and non-civil works aspects (i.e., development,

installation and maintenance in the Philippines and

The Construction, rehabilitation,
improvement, betterment, expansion, foreign service posts of a computerized passport and
modernization, operation, financing
visa issuance system, including creation of databases,
and maintenance of the following types
of projects which are normally financed storage and retrieval systems, training of personnel
and operated by the public sector
which will now be wholly or partly and provision of consumables).
financed, constructed and operated by
the private sector, including other
infrastructure and development
projects as may be authorized by the
appropriate agencies, may be proposed In contrast, under Republic Act No. 9184 or the
under the provisions of the Act and
these Revised IRR, provided however Government Procurement Reform Act, which
that such projects have a cost recovery
contemplates projects to be funded by public funds,
component which covers at least 50%
of the Project Cost, or as determined by the term infrastructure project was limited to only the
the Approving Body:
civil works component of information technology

projects. The non-civil works component of information

xxxx
technology projects would be treated as an acquisition

of goods or consulting services as the case may be.

h. Information
technology (IT) and
data base
infrastructure,
including
This limited definition of infrastructure project in
modernization of IT,
geo-spatial resource relation to information technology projects under
mapping and cadastral
survey for resource Republic Act No. 9184 is significant since the IRR of
accounting and Republic Act No. 9184 has some provisions that are
planning.
(Underscoring particular to infrastructure projects and other
supplied.)
provisions that are applicable only to procurement of

goods or consulting services.[68]

Undeniably, under the BOT Law, wherein the projects

are to be privately funded, the entire information Implicitly, the civil works component of information

technology project, including the civil works technology projects are subject to the provisions on

component and the technological aspect thereof, is infrastructure projects while the technological and

considered an infrastructure or development project other components would be covered by the provisions

and treated similarly as traditional infrastructure on procurement of goods or consulting services as the

projects. All the rules applicable to traditional circumstances may warrant.

infrastructure projects are also applicable to

information technology projects. In fact, the MRP/V

 Government Infrastructure Projects and
When Congress adopted a limited definition of what is for Other Purposes, and other
to be considered infrastructure in relation to applicable laws; and

information technology projects under the Government

Procurement Reform Act, legislators are presumed to b) Private sector infrastructure or

development projects and other
have taken into account previous laws concerning procurement covered by Republic
infrastructure projects (the BOT Law and Republic Act Act No. 7718 (R.A. 7718), entitled
An Act Authorizing the Financing,
No. 8975) and deliberately adopted the limited Construction, Operation and
Maintenance of Infrastructure
definition. We can further presume that Congress had
Projects by the Private Sector, and
written into law a different treatment for information for Other Purposes, as
amended: Provided, however, That
technology projects financed by public funds vis-a- for the portions financed by the
visprivately funded projects for a valid legislative Government, the provisions of this
IRR-A shall apply.
purpose.

The IRR-B for foreign-funded

procurement activities shall be the
subject of a subsequent issuance.
The idea that the definitions of terms found in the (Emphases supplied.)

Government Procurement Reform Act were not meant

to be applied to projects under the BOT Law is further

reinforced by the following provision in the IRR of the

Government Procurement Reform Act: The foregoing provision in the IRR can be taken as an

administrative interpretation that the provisions of

Republic Act No. 9184 are inapplicable to a BOT project

except only insofar as such portions of the BOT project

Section 1. Purpose and General
Coverage that are financed by the government.

This Implementing Rules and

Regulations (IRR) Part A, hereinafter
called IRR-A, is promulgated pursuant Taking into account the different treatment of
to Section 75 of Republic Act No. 9184
(R.A. 9184), otherwise known as the information technology projects under the BOT Law
Government Procurement Reform Act
and the Government Procurement Reform Act,
(GPRA), for the purpose of prescribing
the necessary rules and regulations for petitioners contention the trial court had no jurisdiction
the modernization, standardization,
and regulation of the procurement to issue a writ of preliminary injunction in the instant
activities of the government. This IRR-
case would have been correct if the e-Passport Project
A shall cover all fully domestically-
funded procurement activities from was a project under the BOT Law as they represented
procurement planning up to contract
implementation and to the trial court.
termination, exceptfor the following:

a) Acquisition of real property which

shall be governed by Republic Act No. However, petitioners presented no proof that the e-
8974 (R.A. 8974), entitled An Act to
Passport Project was a BOT project. On the contrary,
Facilitate the Acquisition of Right-of-
Way Site or Location for National evidence adduced by both sides tended to show that
the e-Passport Project was a procurement contract

under Republic Act No. 9184.

Could the e-Passport Project be considered as

engineering works or a service contract or as related

and necessary activities under Republic Act No. 8975

The BSPs on-line request for expression of interest and which may not be enjoined?
to bid for the e-Passport Project[69] from the BSP

website and the newspaper clipping [70] of the same

request expressly stated that [t]he two stage bidding

procedure under Section 30.4 of the Implementing We hold in the negative. Under Republic Act No. 8975,

Rules and Regulation (sic) Part-A of Republic Act No. a service contract refers

9184 relative to the bidding and award of the contract to infrastructure contracts entered into by any

shall apply. During the testimony of DFA Assistant department, office or agency of the national

Secretary Domingo Lucenario, Jr. before the trial court, government with private entities and nongovernment

he admitted that the e-Passport Project is a BSP organizations for services related or incidental to the

procurement project and that it is the BSP that will pay functions and operations of the department, office or

the suppliers.[71] In petitioners Manifestation dated July agency concerned.On the other hand, the phrase other

29, 2008[72] and the Erratum[73] thereto, petitioners related and necessary activities obviously refers to

informed the Court that a contract for the supply of a activities related to a government infrastructure,

complete package of systems design, technology, engineering works, service contract or project under

hardware, software, and peripherals, maintenance and the BOT Law. In other words, to be considered a service

technical support, ecovers and datapage security contract or related activity, petitioners must show that

laminates for the centralized production and the e-Passport Project is an infrastructure project or

personalization of Machine Readable Electronic necessarily related to an infrastructure project. This,

Passport was awarded to Francois Charles Oberthur petitioners failed to do for they saw fit not to present

Fiduciaire. In the Notice of Award dated July 2, any evidence on the details of the e-Passport Project

2008[74] attached to petitioners pleading, it was stated before the trial court and this Court. There is nothing

that the failure of the contractor/supplier to submit the on record to indicate that the e-Passport Project has a

required performance bond would be sufficient ground civil works component or is necessarily related to an

for the imposition of administrative penalty under infrastructure project.

Section 69 of the IRR-A of Republic Act No. 9184.

Indeed, the reference to Section 30.4[75] of the IRR of

Republic Act No. 9184 (a provision specific to the

Being a government procurement contract under procurement of goods) in the BSPs request for interest
Republic Act No. 9184, only the civil works component and to bid confirms that the e-Passport Project is a
of the e-Passport Project would be considered an procurement of goods and not an infrastructure
infrastructure project that may not be the subject of a project. Thus, within the context of Republic Act No.
lower court-issued writ of injunction under Republic Act 9184 which is the governing law for the e-Passport
No. 8975. Project the said Project is not an infrastructure project
 (2) Suc
that is protected from lower court issued injunctions h relief may be
under Republic Act No. 8975, which, to reiterate, has granted:

for its purpose the expeditious and efficient

implementation and completion of government (i) to

prevent
infrastructure projects. irrepara
ble loss
or
injury;
We note that under Section 28, Republic Act

No. 9285 or the Alternative Dispute Resolution Act of

(ii) to
2004,[76] the grant of an interim measure of protection provide
security
by the proper court before the constitution of an for the
arbitral tribunal is allowed: perform
ance of
any
obligati
Sec. 28. Grant of Interim on;
Measure of Protection. (a) It is not
incompatible with an arbitration
agreement for a party to request, (iii) to
before constitution of the tribunal, from produc
a Court an interim measure of e or
protection and for the Court to grant preserv
such measure. After constitution of the e any
arbitral tribunal and during arbitral evidenc
proceedings, a request for an interim e; or
measure of protection, or modification
thereof, may be made with the arbitral (iv) to
tribunal or to the extent that the compel
arbitral tribunal has no power to act or any
is unable to act effectively, the request other
may be made with the Court.The appropr
arbitral tribunal is deemed constituted iate act
when the sole arbitrator or the third or
arbitrator, who has been nominated, omissio
has accepted the nomination and n.
written communication of said
nomination and acceptance has been
received by the party making the (3) Th
request. e order granting
provisional relief may
be conditioned upon
(a) The following rules the provision of
on interim or security or any act or
provisional relief shall omission specified in
be observed: the order.

(1) An (4) Int

y party may request erim or provisional
that provisional relief relief is requested by
be granted against the written application
adverse party. transmitted by
reasonable means to
the Court or arbitral
tribunal as the case
may be and the party
 against whom the relief
is sought, describing in governing national government projects, Republic Act
appropriate detail the No. 8975 which prohibits courts, except the Supreme
precise relief, the party
against whom the relief Court, from issuing TROs and writs of preliminary
is requested, the
injunction in cases involving national government
grounds for the relief,
and the evidence projects.
supporting the request.

(5) Th However, as discussed above, the prohibition in

e order shall be binding
upon the parties. Republic Act No. 8975 is inoperative in this case, since

petitioners failed to prove that the e-Passport Project is

(6) Eit national government project as defined therein. Thus,

her party may apply the trial court had jurisdiction to issue a writ of
with the Court for
assistance in preliminary injunction against the e-Passport Project.
implementing or
enforcing an interim
measure ordered by an
arbitral tribunal. On whether
the trial
courts
issuance of a
(7) A
writ of
party who does not
injunction
comply with the order
was proper
shall be liable for all
damages resulting from
noncompliance,
including all expenses
and reasonable
attorneys fees, paid in Given the above ruling that the trial court had
obtaining the orders
judicial enforcement. jurisdiction to issue a writ of injunction and going to the

second issue raised by petitioners, we answer the

question: Was the trial courts issuance of a writ of

injunction warranted under the circumstances of this

Section 3(h) of the same statute provides that
case?
the "Court" as referred to in Article 6 of the Model Law

shall mean a Regional Trial Court.

Petitioners attack on the propriety of the trial

courts issuance of a writ of injunction is two-

Republic Act No. 9285 is a general law
pronged: (a) BCA purportedly has no clear right to the
applicable to all matters and controversies to be
injunctive relief sought; and (b) BCA will suffer no
resolved through alternative dispute resolution
grave and irreparable injury even if the injunctive relief
methods. This law allows a Regional Trial Court to grant
were not granted.
interim or provisional relief, including preliminary

injunction, to parties in an arbitration case prior to the

constitution of the arbitral tribunal. This general To support their claim that BCA has no clear
statute, however, must give way to a special law right to injunctive relief, petitioners mainly allege that
the MRP/V Project and the e-Passport Project are not One preliminary point, however, that must be

the same project.Moreover, the MRP/V Project settled here is whether BCA retains a right to seek

purportedly involves a technology (the 2D optical bar relief against the DFA under the Amended BOT

code) that has been rendered obsolete by the latest Agreement in view of BCAs previous assignment of its

ICAO developments while the e-Passport Project will rights to PPC. Without preempting any factual finding

comply with the latest ICAO standards (the contactless that the appropriate court or arbitral tribunal on the

integrated circuit). Parenthetically, and not as a main matter of the validity of the assignment agreement

argument, petitioners imply that BCA has no clear with PPC or its termination, we agree with BCA that it

contractual right under the Amended BOT Agreement remained a party to the Amended BOT Agreement,

since BCA had previously assigned all its rights and notwithstanding the execution of the assignment

obligations under the said Agreement to PPC. agreement in favor of PPC, for it was stipulated in the

Amended BOT Agreement that BCA would be solidarily

liable with its assignee. For convenient reference, we

BCA, on the other hand, claims that the reproduce the relevant provision of the Amended BOT
Amended BOT Agreement also contemplated the Agreement here:
supply and/or delivery of e-Passports with the

integrated circuit technology in the future and not only

Section 20.15. It is clearly
the machine readable passport with the 2D optical bar and expressly understood that BCA
code technology. Also, it is BCAs assertion that the may assign, cede and transfer all of its
rights and obligations under this
integrated circuit technology is only optional under the Amended BOT Agreement to PPC
[Philippine Passport Corporation], as
ICAO issuances. On the matter of its assignment of its
fully as if PPC is the original signatory
rights to PPC, BCA counters that it had already to this Amended BOT
Agreement, provided however that
terminated (purportedly at DFAs request) the BCA shall nonetheless be jointly
assignment agreement in favor of PPC and that even and severally liable with PPC for
the performance of all the
assuming the termination was not valid, the Amended obligations and liabilities under
this Amended BOT
BOT Agreement expressly stated that BCA shall remain
Agreement. (Emphasis supplied.)
solidarily liable with its assignee, PPC.

Most of these factual allegations and counter- Furthermore, a review of the records shows
allegations already touch upon the merits of the main that the DFA continued to address its correspondence
controversy between the DFA and BCA, i.e., the validity regarding the MRP/V Project to both BCA and PPC, even
and propriety of the termination of the Amended BOT after the execution of the assignment agreement.
Agreement (the MRP/V Project) between the DFA and Indeed, the DFAs Notice of Termination dated
BCA. The Court deems it best to refrain from ruling on December 9, 2005 was addressed to Mr. Bonifacio
these matters since they should be litigated in the Sumbilla as President of both BCA and PPC and referred
appropriate arbitration or court proceedings between to the Amended BOT Agreement executed between the
or among the concerned parties. Department of Foreign Affairs (DFA), on one hand, and

the BCA International Corporation and/or the Philippine

Passport Corporation (BCA/PPC). At the very least, the

 In the event that the government
DFA is estopped from questioning the personality of defaults on certain major obligations
BCA to bring suit in relation to the Amended BOT in the contract and such failure is not
remediable or if remediable shall
Agreement since the DFA continued to deal with both remain unremedied for an
unreasonable length of time, the
BCA and PPC even after the signing of the assignment
project proponent/contractor may,
agreement. In any event, if the DFA truly believes that by prior notice to the concerned
national government agency or local
PPC is an indispensable party to the action, the DFA government unit specifying the turn-
may take necessary steps to implead PPC but this over date, terminate the contract.
The project proponent/contractor shall
should not prejudice the right of BCA to file suit or to be reasonably compensated by the
Government for equivalent or
seek relief for causes of action it may have against the
proportionate contract cost as
DFA or the BSP, for undertaking the e-Passport Project defined in the contract. (Emphases
supplied.)
on behalf of the DFA.

With respect to petitioners contention that BCA

In addition, the Amended BOT Agreement,
will suffer no grave and irreparable injury so as to
which is the law between and among the parties to it,
justify the grant of injunctive relief, the Court finds that
pertinently provides:
this particular argument merits consideration.
Section 17.01 Default In
case a party commits an act
constituting an event of default,
the non-defaulting party may
The BOT Law as amended by Republic Act No. terminate this Amended BOT
Agreement by serving a written notice
7718, provides: to the defaulting party specifying the
grounds for termination and giving the
defaulting party a period of ninety (90)
days within which to rectify the default.
SEC. 7. Contract Termination. - In the If the default is not remedied within
event that a project is revoked, this period to the satisfaction of the
cancelled or terminated by the non-defaulting party, then the latter
Government through no fault of will serve upon the former a written
the project proponent or by mutual notice of termination indicating the
agreement, the Government effective date of termination.
shall compensate the said project
proponent for its actual
expenses incurred in the project plus
a reasonable rate of return thereon Section 17.02 Proponents
not exceeding that stated in the Default If this Amended BOT
contract as of the date of such Agreement is terminated by reason
revocation, cancellation or of the BCAs default, the DFA shall
termination: Provided, That the interest have the following options:
of the Government in this instances
shall be duly insured with the
Government Service Insurance System A. Allow the
[GSIS] or any other insurance entity BCAs unpaid
duly accredited by the Office of the creditors who
Insurance Commissioner: Provided, hold a lien on
finally, That the cost of the insurance the MRP/V
coverage shall be included in the terms Facility to
and conditions of the bidding referred foreclose on
to above. the MRP/V
Facility. The
right of the
BCAs unpaid
 creditors to time and from
foreclose on time to time.
the MRP/V The DFA shall
Facility shall be cooperate with
valid for the the creditors
duration of the with a view to
effectivity of facilitating the
this Amended choice of a
BOT Substitute BCA,
Agreement; or, who shall take-
over the
operation,
maintenance
B. Allow the
and
BCAs unpaid
management of
creditors who
the MRP/V
hold a lien on
Project, within
the MRP/V
three (3)
Facility to
months from
designate a
the BCAs
substitute
receipt of the
BCA for the
notice of
MRP/V Project,
termination
provided the
from the DFA.
designated
The Substituted
substitute BCA
BCA shall have
is qualified
all the rights
under existing
and obligations
laws and
of the previous
acceptable to
BCA as
the DFA. This
contained in
substitute BCA
this Amended
shall
BOT
hereinafter be
Agreement; or
referred to as
the Substitute
BCA. The
Substitute BCA C. Take-over
shall assume the MRP/V
all the BCAs Facility and
rights and assume all
privileges, as attendant
well as the liabilities
obligations, thereof.
duties and
responsibilities
hereunder;
D. In all
provided,
cases of
however, that
termination
the DFA shall at
due to the
all times and its
default of the
sole option,
BCA, it shall
have the right
pay DFA
to invoke and
liquidated
exercise any
damages equi
other remedy
valent to the
which may be
applicable the
available to the
(sic)
DFA under any
Performance
applicable laws,
Security.
rules and/or
regulations
which may be
in effect at any Section 17.03 DFAs
Default If this Amended BOT
Agreement is terminated by the BCA by menta
reason of the DFAs Default, the DFA tion,
shall: minus
the
aggreg
ate
A. Be
amoun
obligated to
t of
take over the
the
MRP/V
attend
Facility on an
ant
as is, where is
liabiliti
basis, and shall
es
forthwith
assum
assume
ed by
attendant
the
liabilities
DFA,
thereof; and
plus
ten
percen
B. Pay t
liquidated (10%)
damages to thereo
the BCA f. The
equivalent to amount
the following of such
amounts, which compe
may be nsation
charged to the shall be
insurance determi
proceeds ned as
referred to in of the
Article 12: date of
the
notice
(1) In of
the termina
event tion
of and
termin shall
ation becom
prior e due
to and
compl deman
etion o dable
f the ninety
implem (90)
entatio days
n of the after
MRP/V the
Project, date of
damag this
es notice
shall of
be termina
paid tion.
equiva Under
lent to this
the Amend
value ed BOT
of Agreem
compl ent, the
eted term
imple Value
of the unreas
Comple onably
ted withhel
Implem d.
entatio
n shall
mean
(2) In
the
the
aggreg
event
ate of
of
all
termin
reasona
ation
ble
after
costs
compl
and
etion
expens
of
es
design
incurre
,
d by
develo
the
pment
BCA in
, and
connect
install
ion
ation
with, in
of the
relation
MRP/V
to
Projec
and/or
t, just
by
compe
reason
nsatio
of the
n shall
MRP/V
be
Project,
paid
excludi
equiva
ng all
lent to
interest
the
and
presen
capitali
t value
zed
of the
interest
net
, as
incom
certifie
e
d by a
which
reputab
the
le and
BCA
indepe
expect
ndent
s to
account
earn
ing firm
or
to be
realize
appoint
during
ed by
the
the
unexpi
BCA
red or
and
remain
subject
ing
to the
term
approv
of this
al by
Amend
the
ed
DFA,
BOT
such
Agree
approv
ment u
al shall
sing
not be
 the
internal the part of the project proponent, subject to the
rate of payment of the actual expenses incurred by the
return
on proponent plus a reasonable rate of return.
equity
(IRRe)
defined
in the
Under the BOT Law and the Amended BOT
financia
l Agreement, in the event of default on the part of the
projecti
ons of government (in this case, the DFA) or on the part of the
the proponent, the non-defaulting party is allowed to
BCA
and terminate the agreement, again subject to proper
agreed
compensation in the manner set forth in the
upon
by the agreement.
parties,
which
Time and again, this Court has held that to be entitled
is
attache to injunctive relief the party seeking such relief must
d
hereto be able to show grave, irreparable injury that is not
and capable of compensation.
made
as an
integral
part of
this In Lopez v. Court of Appeals, [77] we held:
Amend
ed BOT
Agreem
ent as Generally, injunction is a
Schedul preservative remedy for the protection
e 1. of one's substantive right or interest. It
(Empha is not a cause of action in itself
ses but merely a provisional remedy, an
supplie adjunct to a main suit. It is resorted
d.) to only when there is a pressing
necessity to avoid injurious
consequences which cannot be
remedied under any standard
compensation. The application of the
injunctive writ rests upon the existence
The validity of the DFAs termination of the of an emergency or of a special reason
before the main case can be regularly
Amended BOT Agreement and the determination of the
heard. The essential conditions for
party or parties in default are issues properly threshed granting such temporary injunctive
relief are that the complaint alleges
out in arbitration proceedings as provided for by the facts which appear to be sufficient to
agreement itself. However, even if we hypothetically constitute a proper basis for injunction
and that on the entire showing from
accept BCAs contention that the DFA terminated the the contending parties, the injunction is
reasonably necessary to protect the
Amended BOT Agreement without any default or
legal rights of the plaintiff pending the
wrongdoing on BCAs part, it is not indubitable that BCA litigation. Two requisites are necessary
if a preliminary injunction is to issue,
is entitled to injunctive relief. namely, the existence of a right to be
protected and the facts against which
The BOT Law expressly allows the government the injunction is to be directed are
violative of said right. In particular, for
to terminate a BOT agreement, even without fault on a writ of preliminary injunction to issue,
 the existence of the right and the there exists no certain pecuniary
violation must appear in the allegation standard for the measurement of
of the complaint and a preliminary damages. (Emphases supplied.)
injunction is proper only when the
plaintiff (private respondent
herein) appears to be entitled to
the relief demanded in his
complaint. (Emphases supplied.)
It is still contentious whether this is a case of

termination by the DFA alone or both the DFA and

BCA. The DFA contends that BCA, by sending its own

We reiterated this point in Transfield Philippines, Inc. v. Notice of Default, likewise terminated or abandoned

Luzon Hydro Corporation,[78] where we likewise opined: the Amended BOT Agreement. Still, whether this is a

termination by the DFA alone without fault on the part

of BCA or a termination due to default on the part of

Before a writ of preliminary injunction
may be issued, there must be a clear either party, the BOT Law and the Amended BOT
showing by the complaint that there Agreement lay down the measure of compensation to
exists a right to be protected and that
the acts against which the writ is to be be paid under the appropriate circumstances.
directed are violative of the said right.
It must be shown that the invasion of
the right sought to be protected is
material and substantial, that the right
Significantly, in BCAs Request for Arbitration with the
of complainant is clear and
unmistakable and that there is an PDRCI, it prayed for, among others, a judgment
urgent and paramount necessity for
the writ to prevent serious ordering respondent [DFA] to pay damages to Claimant
damage. Moreover, an injunctive [BCA], reasonably estimated at P50,000,000.00 as of
remedy may only be resorted to
when there is a pressing necessity [the date of the Request for Arbitration], representing
to avoid injurious consequences
lost business opportunities; financing fees, costs and
which cannot be remedied under
any standard compensation. commissions; travel expenses; legal fees and
(Emphasis supplied.)
expenses; and costs of arbitration, including the fees of

the arbitrator/s.[80] All the purported damages that BCA

claims to have suffered by virtue of the DFAs

As the Court explained previously in Philippine Airlines, termination of the Amended BOT Agreement are plainly

Inc. v. National Labor Relations Commission [79]: determinable in pecuniary terms and can be

reasonably estimated according to BCAs own words.

An injury is considered
irreparable if it is of such constant
and frequent recurrence that no fair Indeed, the right of BCA, a party which may or may not
and reasonable redress can be had
therefor in a court of law, or where have been in default on its BOT contract, to have the
there is no standard by which their termination of its BOT contract reversed is not
amount can be measured with
reasonable accuracy, that is, it is guaranteed by the BOT Law. Even assuming BCAs
not susceptible of mathematical
innocence of any breach of contract, all the law
computation. It is considered
irreparable injury when it cannot be provides is that BCA should be adequately
adequately compensated in
damages due to the nature of the compensated for its losses in case of contract
injury itself or the nature of the termination by the government.
right or property injured or when
There is one point that none of the parties has BOT Agreement and thus, there is no direct violation of

highlighted but is worthy of discussion. In seeking to Republic Act No. 8795, a grant of injunctive relief as

enjoin the government from awarding or implementing prayed for by BCA will indirectly contravene the same

a machine readable passport project or any similar statute.

electronic passport or visa project and praying for the

maintenance of the status quo ante pending the

resolution on the merits of BCAs Request for Verily, there is valid reason for the law to deny

Arbitration, BCA effectively seeks to enjoin the preliminary injunctive relief to those who seek to

termination of the Amended BOT Agreement for the contest the governments termination of a national

MRP/V Project. government contract. The only circumstance under

which a court may grant injunctive relief is the

existence of a matter of extreme urgency involving a

There is no doubt that the MRP/V Project is a project constitutional issue, such that unless a TRO or

covered by the BOT Law and, in turn, considered a injunctive writ is issued, grave injustice and irreparable

national government project under Republic Act No. injury will result.

8795. Under Section 3(d) of that statute, trial courts

Now, BCA likewise claims that unless it is granted
are prohibited from issuing a TRO or writ of preliminary
injunctive relief, it would suffer grave and irreparable
injunction against the government to restrain or
injury since the bidding out and award of the e-
prohibit the termination or rescission of any such
Passport Project would be tantamount to a violation of
national government project/contract.
its right against deprivation of property without due

process of law under Article III, Section 1 of the

Constitution. We are unconvinced.

The rationale for this provision is easy to understand.

For if a project proponent that the government believes

to be in default is allowed to enjoin the termination of

Article III, Section 1 of the Constitution provides [n]o
its contract on the ground that it is contesting the
person shall be deprived of life, liberty, or property
validity of said termination, then the government will
without due process of law, nor shall any person be
be unable to enter into a new contract with any other
denied the equal protection of the laws. Ordinarily, this
party while the controversy is pending
constitutional provision has been applied to the
litigation. Obviously, a courts grant of injunctive relief
exercise by the State of its sovereign powers such as,
in such an instance is prejudicial to public interest
its legislative power,[81] police power,[82] or its power of
since government would be indefinitely hampered in its
eminent domain.[83]
duty to provide vital public goods and services in order

to preserve the private proprietary rights of the project

proponent. On the other hand, should it turn out that

In the instant case, the State action being assailed is
the project proponent was not at fault, the BOT Law
the DFAs termination of the Amended BOT Agreement
itself presupposes that the project proponent can be
with BCA. Although the said agreement involves a
adequately compensated for the termination of the
public service that the DFA is mandated to provide and,
contract. Although BCA did not specifically pray for the
therefore, is imbued with public interest, the
trial court to enjoin the termination of the Amended
relationship of DFA to BCA is primarily contractual and with some anomaly, it is indeed a cause for grave

their dispute involves the adjudication of contractual concern but it is a matter that must be investigated

rights. The propriety of the DFAs acts, in relation to the and litigated in the proper forum. It has no bearing on

termination of the Amended BOT Agreement, should be the issue of whether BCA would suffer grave and

gauged against the provisions of the contract itself and irreparable injury such that it is entitled to injunctive

the applicable statutes to such contract. These relief from the courts.

contractual and statutory provisions outline what

constitutes due process in the present case. In all, BCA

failed to demonstrate that there is a constitutional In all, we agree with petitioners DFA and BSP that the

issue involved in this case, much less a constitutional trial courts issuance of a writ of preliminary injunction,

issue of extreme urgency. despite the lack of sufficient legal justification for the

same, is tantamount to grave abuse of discretion.

As for the DFAs purported failure to appropriate

sufficient amounts in its budget to pay for liquidated To be very clear, the present decision touches only on

damages to BCA, this argument does not support BCAs the twin issues of (a) the jurisdiction of the trial court

position that it will suffer grave and irreparable injury if to issue a writ of preliminary injunction as an interim

it is denied injunctive relief. The DFAs liability to BCA relief under the factual milieu of this case; and (b) the

for damages is contingent on BCA proving that it is entitlement of BCA to injunctive relief. The merits of

entitled to such damages in the proper the DFA and BCAs dispute regarding the termination of

proceedings. The DFA has no obligation to set aside the Amended BOT Agreement must be threshed out in

funds to pay for liquidated damages, or any other kind the proper arbitration proceedings. The civil case

of damages, to BCA until there is a final and executory pending before the trial court is purely for the grant of

judgment in favor of BCA. It is illogical and impractical interim relief since the main case is to be the subject of

for the DFA to set aside a significant portion of its arbitration proceedings.

budget for an event that may never happen when such

idle funds should be spent on providing necessary

services to the populace. For if it turns out at the end BCAs petition for interim relief before the trial court is

of the arbitration proceedings that it is BCA alone that essentially a petition for a provisional remedy

is in default, it would be the one liable for liquidated (i.e., preliminary injunction) ancillary to its Request for

damages to the DFA under the terms of the Amended Arbitration in PDRCI Case No. 30-2006/BGF. BCA

BOT Agreement. specifically prayed that the trial court grant it interim

relief pending the constitution of the arbitral tribunal in

With respect to BCAs allegation that the e-Passport
the said PDRCI case.Unfortunately, during the
Project is grossly disadvantageous to the Filipino
pendency of this case, PDRCI Case No. 30-2006/BGF
people since it is the government that will be spending
was dismissed by the PDRCI for lack of jurisdiction, in
for the project unlike the MRP/V Project which would
view of the lack of agreement between the parties to
have been privately funded, the same is immaterial to
arbitrate before the PDRCI.[84] In Philippine National
the issue at hand. If it is true that the award of the e-
Bank v. Ritratto Group, Inc.,[85] we held:
Passport Project is inimical to the public good or tainted
 19.02 of the Amended BOT Agreement regarding the

A writ of preliminary injunction is an proper body to which a dispute between the parties
ancillary or preventive remedy that
may be submitted and the failure of the parties to
may only be resorted to by a litigant to
protect or preserve his rights or agree on such an arbitral tribunal. However, this Court
interests and for no other purpose
during the pendency of the principal cannot allow this impasse to continue indefinitely. The
action. The dismissal of the parties involved must sit down together in good faith
principal action thus results in the
denial of the prayer for the and finally come to an understanding regarding the
issuance of the writ. x x x.
constitution of an arbitral tribunal mutually acceptable
(Emphasis supplied.)
to them.

In view of intervening circumstances, BCA can no WHEREFORE, the instant petition is

longer be granted injunctive relief and the civil case hereby GRANTED. The assailed Order dated February
before the trial court should be accordingly 14, 2007 of the Regional Trial Court of Pasig in Civil
dismissed. However, this is without prejudice to the Case No. 71079 and the Writ of Preliminary Injunction
parties litigating the main controversy in arbitration dated February 23, 2007 are REVERSED and SET
proceedings, in accordance with the provisions of the ASIDE. Furthermore, Civil Case No. 71079 is
Amended BOT Agreement, which should proceed with hereby DISMISSED.
dispatch.

No pronouncement as to costs.
It does not escape the attention of the Court that the

delay in the submission of this controversy to

arbitration was caused by the ambiguity in Section