SECOND DIVISION

[G.R. NO. 152471 : August 18, 2006]

FIESTA WORLD MALL CORPORATION, Petitioner, v. LINBERG

PHILIPPINES, INC., Respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari1 assailing

the Decision2 dated December 12, 2001 and Resolution3 dated February 28,
2002 rendered by the Court of Appeals in CA-G.R. SP No. 63671, entitled
"Fiesta World Mall Corporation, petitioner, v. Hon. Florito S. Macalino,
Presiding Judge of the Regional Trial Court (RTC), Branch 267, Pasig City,
and Linberg Philippines, Inc., respondents."

The facts of this case are:

Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World
Mall located at Barangay Maraouy, Lipa City; while Linberg Philippines, Inc.,
respondent, is a corporation that builds and operates power plants.

On January 19, 2000, respondent filed with the Regional Trial Court (RTC),
Branch 267, Pasig City, a Complaint for Sum of Money against petitioner,
docketed as Civil Case No. 67755. The complaint alleges that on November
12, 1997, petitioner and respondent executed a build-own-operate
agreement, entitled "Contract Agreement for Power Supply Services, 3.8 MW
Base Load Power Plant"4 (the Contract). Under this Contract, respondent will
construct, at its own cost, and operate as owner a power plant, and to
supply petitioner power/electricity at its shopping mall in Lipa City.
Petitioner, on the other hand, will pay respondent "energy fees" to be
computed in accordance with the Seventh Schedule of the Contract, the
pertinent portions of which provide:

2.1 x x x

E1 - 988,888 kw-hr x BER

E2 - (ED-988,888) x BER

Where:
E1 & E2 - Energy fees in pesos for the billing period. Where E1 is based on
the minimum energy off-take of 988,888 kw-hrs. per month and E2 is based
on the actual meter reading less the minimum off-take.

BER '' Base energy rate at Ps 2.30/Kw-Hr billing rate based on the exchange
rate of Ps 26.20 to the US dollar, and with fuel oil to be supplied by LINBERG
at its own cost. The base energy rate is subject to exchange rate adjustment
accordingly to the formula as follows:

BER - 0.6426 + 0.3224 Pn + 1.345 Fn

26.40 4.00

WHERE:

Pn - is defined as the average of the Bangko Sentral ng Pilipinas' published

dealing rates for thirty (30) trading days immediately prior to the new billing
rate.

Fn - Weighted average of fuel price per liter based on the average of the last
three (3) purchases made by LINBERG as evidenced by purchase invoices.

ED - Energy delivered in kw-hrs per meter reading.

3. Minimum Energy Off-Take

The energy fees payable to LINBERG shall be on the basis of actual KWH
generated by the plant. However, if the actual KWH generated is less than
the minimum energy off-take level, the calculation of the energy fees shall
be made as if LINBERG has generated the minimum energy off-take level of
988,888 KW-HR per month.

The complaint further alleges that respondent constructed the power plant in
Lipa City at a cost of about P130,000,000.00. In November 1997, the power
plant became operational and started supplying power/electricity to
petitioner's shopping mall in Lipa City. In December 1997, respondent
started billing petitioner. As of May 21, 1999, petitioner's unpaid obligation
amounted to P15,241,747.58, exclusive of interest. However, petitioner
questioned the said amount and refused to pay despite respondent's
repeated demands.

In its Answer with Compulsory Counterclaim, petitioner specifically denied

the allegations in the complaint, claiming that respondent failed to fulfill its
obligations under the Contract by failing to supply all its power/fuel needs.
From November 10, 1998 until May 21, 1999, petitioner personally
shouldered the cost of fuel. Petitioner also disputed the amount of energy
fees specified in the billings made by respondent because the latter failed to
monitor, measure, and record the quantities of electricity delivered by taking
photographs of the electricity meter reading prior to the issuance of its
invoices and billings, also in violation of the Contract.5 Moreover, in the
computation of the electrical billings, the minimum off-take of energy (E2)
was based solely on the projected consumption as computed by respondent.
However, based on petitioner's actual experience, it could not consume the
energy pursuant to the minimum off-take even if it kept open all its lights
and operated all its machinery and equipment for twenty-four hours a day
for a month. This fact was admitted by respondent. While both parties had
discussions on the questioned billings, however, "there were no earnest
efforts to resolve the differences in accordance with the arbitration clause
provided for in the Contract."

Finally, as a special affirmative defense in its answer, petitioner alleged that

respondent's filing of the complaint is premature and should be dismissed on
the ground of non-compliance with paragraph 7.4 of the Contract which
provides:

7.4 Disputes

If FIESTA WORLD disputes the amount specified by any invoice, it shall pay
the undisputed amount on or before such date(s), and the disputed amount
shall be resolved by arbitration of three (3) persons, one (1) by mutual
choice, while the other two (2) to be each chosen by the parties themselves,
within fourteen (14) days after the due date for such invoice and all or any
part of the disputed amount paid to LINBERG shall be paid together with
interest pursuant to Article XXV from the due date of the invoice. It is
agreed, however, that both parties must resolve the disputes within thirty
(30) days, otherwise any delay in payment resulting to loss to LINBERG
when converted to $US as a result of depreciation of the Pesos shall be for
the account of FIESTA WORLD. Corollarily, in case of erroneous billings,
however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such
deterioration, plus interest computed pursuant to Art. XXV from the date
FIESTA WORLD paid for the erroneous billing. (Underscoring
supplied)cralawlibrary

Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on

the ground that respondent violated the arbitration clause provided in the
Contract, thereby rendering its cause of action premature.
This was opposed by respondent, claiming that paragraph 7.4 of the
Contract on arbitration is not the provision applicable to this case; and that
since the parties failed to settle their dispute, then respondent may resort to
court action pursuant to paragraph 17.2 of the same Contract which
provides:

17.2 Amicable Settlement

The parties hereto agree that in the event there is any dispute or difference
between them arising out of this Agreement or in the interpretation of any of
the provisions hereto, they shall endeavor to meet together in an effort to
resolve such dispute by discussion between them but failing such resolution
the Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve
such dispute or difference and the joint decision of such shall be binding
upon the parties hereto, and in the event that a settlement of any such
dispute or difference is not reached, then the provisions of Article XXI shall
apply.

Article XXI, referred to in paragraph 17.2 above, reads:

ARTICLE XXI

JURISDICTION

The parties hereto submit to the exclusive jurisdiction of the proper courts of
Pasig City, Republic of the Philippines for the hearing and determination of
any action or proceeding arising out of or in connection with this Agreement.

In its Order dated October 3, 2000, the trial court denied petitioner's motion
for lack of merit.

Petitioner then filed a Motion for Reconsideration but it was denied in an

Order dated January 11, 2001.

Dissatisfied, petitioner elevated the matter to the Court of Appeals via a

Petition for Certiorari, docketed as CA-G.R. SP No. 63671. On December 12,
2001, the appellate court rendered its Decision dismissing the petition and
affirming the challenged Orders of the trial court.

Petitioner's Motion for Reconsideration of the above Decision was likewise

denied by the appellate court in its Resolution6 dated February 28, 2002.

Hence, the instant Petition for Review on Certiorari.

The sole issue for our resolution is whether the filing with the trial court of
respondent's complaint is premature.

Paragraph 7.4 of the Contract, quoted earlier, mandates that should

petitioner dispute any amount of energy fees in the invoice and billings
made by respondent, the same "shall be resolved by arbitration of three (3)
persons, one (1) by mutual choice, while the other two (2) to be each
chosen by the parties themselves." The parties, in incorporating such
agreement in their Contract, expressly intended that the said matter in
dispute must first be resolved by an arbitration panel before it reaches the
court. They made such arbitration mandatory.

It is clear from the records that petitioner disputed the amount of energy
fees demanded by respondent. However, respondent, without prior recourse
to arbitration as required in the Contract, filed directly with the trial court its
complaint, thus violating the arbitration clause in the Contract.

It bears stressing that such arbitration agreement is the law between the
parties. Since that agreement is binding between them, they are expected to
abide by it in good faith.7 And because it covers the dispute between them in
the present case, either of them may compel the other to arbitrate.8 Thus, it
is well within petitioner's right to demand recourse to arbitration.

We cannot agree with respondent that it can directly seek judicial recourse
by filing an action against petitioner simply because both failed to settle
their differences amicably. Suffice it to state that there is nothing in the
Contract providing that the parties may dispense with the arbitration clause.
Article XXI on jurisdiction cited by respondent, i.e., that "the parties hereto
submit to the exclusive jurisdiction of the proper courts of Pasig City" merely
provides for the venue of any action arising out of or in connection with the
stipulations of the parties in the Contract.

Moreover, we note that the computation of the energy fees disputed by

petitioner also involves technical matters that are better left to an arbitration
panel who has expertise in those areas. Alternative dispute resolution
methods or ADRs - like arbitration, mediation, negotiation and conciliation -
are encouraged by this Court. By enabling the parties to resolve their
disputes amicably, they provide solutions that are less time-consuming, less
tedious, less confrontational, and more productive of goodwill and lasting
relationships.9 To brush aside such agreement providing for arbitration in
case of disputes between the parties would be a step backward. As we held
in BF Corporation v. Court of Appeals,10
It should be noted that in this jurisdiction, arbitration has been held valid
and constitutional. Even before the approval on June 19, 1953 of Republic
Act No. 876 (The Arbitration Law), this Court has countenanced the
settlement of disputes through arbitration (Puromines, Inc. v. Court of
Appeals, G.R. No. 91228, March 22, 1993, 220 SCRA 281-290). Republic Act
No. 876 was adopted to supplement the New Civil Code's provisions on
arbitration (Chung Fu Industries Phils., Inc. v. Court of Appeals, G.R. No.
92683, February 25, 1992, 206 SCRA 545, 551). Its potentials as one of the
alternative dispute resolution methods that are now rightfully vaunted as
'the wave of the future' in international relations, is recognized worldwide.
To brush aside a contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a step backward.

In this connection, since respondent has already filed a complaint with the
trial court without prior recourse to arbitration, the proper procedure to
enable an arbitration panel to resolve the parties' dispute pursuant to their
Contract is for the trial court to stay the proceedings.11 After the arbitration
proceeding has been pursued and completed, then the trial court may
confirm the award made by the arbitration panel.12

In sum, we hold that the Court of Appeals erred in disregarding the

arbitration clause in the parties' Contract.

WHEREFORE, we GRANT the instant petition. The assailed Decision and

Resolution of the Court of Appeals in CA-G.R. SP No. 63671 are REVERSED.
The parties are ordered to submit their controversy to the arbitration panel
pursuant to paragraph 7.4 of the Contract. The Regional Trial Court, Branch
267, Pasig City is directed to suspend the proceedings in Civil Case No.
67755 until after the Arbitration Panel shall have resolved the controversy
and submitted its report to the trial court. Costs against respondent.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 91228. March 22, 1993.

PUROMINES, INC., petitioner, vs. COURT OF APPEAL and PHILIPP BROTHERS

OCEANIC, INC., respondents.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS OF VENDOR; DAMAGES ARISING FROM CARRIAGE

AND DELIVERY. — We agree with the court a quo that the sales contract is
comprehensive enough to include claims for damages arising from carriage and delivery
of the goods. As a general rule, the seller has the obligation to transmit the goods to the
buyer, and concomitant thereto, the contracting of a carrier to deliver the same.

2. COMMERCIAL LAW; MARITIME TRANSPORTATION; MARITIME COMMERCE;

CHARTER PARTIES, CONSTRUED. — American jurisprudence defines charter party
as a contract by which an entire ship or some principal part thereof is let by the owner to
another person for a specified time or use. Charter or charter parties are of two kinds.
Charter of demise or bareboat and contracts of affreightment.

3. ID.; ID.; ID.; ID.; KINDS; CHARTER OF DEMISE, CONSTRUED. — Under the
demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own
people and becomes, in effect, the owner pro hac vice, subject to liability to others for
damages caused by negligence. To create a demise the owner of a vessel must
completely and exclusively relinquish possession, anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or not a charter
party at all.

4. ID.; ID.; ID.; ID.; ID.; CONTRACT OF AFFREIGNMENT, CONSTRUED. — A contract

of affreightment is in which the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for a special service to be rendered by the owner of the
vessel and under such contract the general owner retains the possession, command
and navigation of the ship, the charterer or freighter merely having use of the space in
the vessel in return for his payment of the charter hire. If the charter is a contract of
affreightment, which leaves the general owner in possession of the ship as owner for
the voyage, the rights, responsibilities of ownership rest on the owner and the charterer
is usually free from liability to third persons in respect of the ship.

5. ID.; ID.; ID.; ID.; LIABILITY TO THIRD PERSONS FOR GOODS SHIPPED ON
BOARD A VESSEL. — Responsibility to third persons for goods shipped on board a
vessel follows the vessel's possession and employment; and if possession is transferred
to the charterer by virtue of a demise, the charterer, and not the owner, is liable as
carrier on the contract of affreightment made by himself or by the master with third
persons, and is answerable for loss, damage or non-delivery of goods received for
transportation. An owner who retains possession of the ship, though the hold is the
property of the charterer, remains liable as carrier and must answer for any breach of
duty as to the care, loading or unloading of the cargo.

6. ID.; ID.; ID.; ID.; BILLS OF LADING; ARBITRATION PROVISION THEREOF,

CONSIDERED AND RESPECTED. — Whether the liability of respondent should be
based on the same contract or that of the bill of lading, the parties are nevertheless
obligated to respect the arbitration provisions on the sales contract and/or the bill of
lading. Petitioner being a signatory and party to the sales contract cannot escape from
his obligation under the arbitration clause as stated therein. Arbitration has been held
valid and constitutional. Even before the enactment of Republic Act No. 876, this Court
has countenanced the settlement of disputes through arbitration. The rule now is that
unless the agreement is such as absolutely to close the doors of the courts against the
parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. As pointed out in the case of Mindanao Portland
Cement Corp. v. McDough Construction Company of Florida 18 wherein the plaintiff
sued defendant for damages arising from a contract, the Court said: "Since there
obtains herein a written provision for arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the parties to proceed to their
arbitration in accordance with the terms of their agreement (Sec. 6 Republic Act 876).
Respondent's arguments touching upon the merits of the dispute are improperly raised
herein. They should be addressed to the arbitrators. This proceeding is merely a
summary remedy to enforce the agreement to arbitrate. The duty of the court in this
case is not to resolve the merits of the parties' claims but only to determine if they
should proceed to arbitration or not. And although it has been ruled that a privolous or
patently baseless claim should not be ordered to arbitration it is also recognized that the
mere fact that a defense exist against a claim does not make it frivolous or baseless."

7. REMEDIAL LAW; CIVIL PROCEDURE; PLEADINGS; COMPLAINT; ANNEXES

ATTACHED THEREOF, PART OF THE RECORD. — Petitioner contend that the
arbitration provision in the bills of lading should not have been discussed as an issue in
the decision of the Court of Appeals since it was not raised as a special or affirmative
defense. The three bills of lading were attached to the complaint as Annexes "A," "B,"
and "C," and are therefore parts thereof and may be considered as evidence although
not introduced as such. Hence, it was then proper for the court a quo to discuss the
contents of the bills of lading, having been made part of the record.
DECISION

NOCON, J p:

This is a special civil action for certiorari and prohibition to annul and set aside the
Decision of the respondent Court of Appeals dated November 16, 1989 1 reversing the
order of the trial court and dismissing petitioner's compliant in Civil Case No. 89-47403,
entitled Puromines, Inc. v. Maritime Factors, Inc. and Philipp Brothers Oceanic, Inc.

Culled from the records of this case, the facts show that petitioner, Puromines, Inc.
(Puromines for brevity) and Makati Agro Trading, Inc. (not a party in this case) entered
into a contract with private respondents Philipp Brothers Oceanic, Inc. for the sale of
prilled Urea in bulk. The Sales Contract No. S151.8.01018 provided, among others an
arbitration clause which states, thus:

"9. Arbitration

"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 should they be unable to agree, the
decision of an Umpire appointed by them to be final. The Arbitrators and Umpire are all
to be commercial men and resident in London. This submission may be made a rule of
the High Court of Justice in England by either party." 2

On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at
Yuzhny, USSR a shipment of 15,500 metric tons prilled Urea in bulk complete and in
good order and condition for transport to Iloilo and Manila, to be delivered to petitioner.
Three bills of lading were issued by the ship-agent in the Philippines, Maritime Factors
Inc., namely: Bill of Lading No. dated May 12, 1988 covering 10,000 metric tons for
discharge Manila; Bill of Lading No. 2 of even date covering 4,000 metric tons for
unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering
1,500 metric tons likewise for discharged in Manila

The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and
in good order and condition. However, the shipments covered by Bill of Lading Nos. 1
and 3 were discharged in Manila in bad order and condition, caked, hardened and
lumpy, discolored and contaminated with rust and dirt. Damages were valued at P683,
056. 29 including additional discharging expenses.

Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of
carriage against Maritime Factors Inc. (which was not included as respondent in this
petition) as ship-agent in the Philippines for the owners of the vessel MV "Liliana
Dimitrova," while private respondent, Philipp Brothers Oceanic Inc., was impleaded as
charterer of the said vessel and proper party to accord petitioner complete relief.
Maritime Factors, Inc. filed its Answer 5 to the complaint, while private respondent filed
a motion to dismiss, dated February 9, 1989, on the grounds that the complaint states
no cause of action; that it was prematurely filed; and that petitioner should comply with
the arbitration clause in the sales contract. 6

The motion to dismiss was opposed by petitioner contending the inapplicability of the
arbitration clause inasmuch as the cause of action did not arise from a violation of the
terms of the sales contract but rather for claims of cargo damages where there is no
arbitration agreement. On April 26, 1989, the trial court denied respondent's motion to
dismiss in this wise:

"The sales contract in question states in part:

'Any disputes arising under this contract shall be settled by arbitration . . .(emphasis
supplied)

"A perusal of the facts alleged in the complaint upon which the question of sufficiency of
the cause of action of the complaint arose from a breach of contract of carriage by the
vessel chartered by the defendant Philipp Brothers Oceanic, Inc. Thus, the
aforementioned arbitration clause cannot apply to the dispute in the present action
which concerns plaintiff's claim for cargo loss/damage arising from breach of contract of
carriage.

"That the defendant is not the ship owner or common carrier and therefore plaintiff does
not have legal right against it since every action must be brought against the real party
in interest has no merit either for by the allegations in the complaint the defendant
herein has been impleaded as charterer of the vessel, hence, a proper party." 7

Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The
appellate court found that the arbitration provision in the sales contract and/or the bills
of lading is applicable in the present case. Said the court:

"An examination of the sales contract No. S151.8.01018 shows that it is broad enough
to include the claim for damages arising from the carriage and delivery of the goods
subject-matter thereof.

"It is also noted that the bills of lading attached as Annexes 'A', 'B' and 'C' to the
complaint state, in part, 'any dispute arising under this Bill of Lading shall be referred to
arbitration of the Maritime Arbitration Commission at the USSR Chamber of Commerce
and Industry, 6 Kuibyshevskaia Str., Moscow, USSR, in accordance with the rules of
procedure of said commission.'

Considering that the private respondent was one of the signatories to the sales
contract . . . all parties are obliged o respect the terms and conditions of the said sales
contract, including the provision thereof on 'arbitration.' "
Hence, this petition The issue raised is: Whether the phrase "any dispute arising under
this contract" in the arbitration clause of the sales contract covers a cargo claim against
the vessel (owner and/or charterers) for breach of contract of carriage.

Petitioner states in its complainants that Philipp Brothers "was the charterer of the
vessel MV 'Liliana Dimitrova' which transported the shipment from Yuzhny USSR to
Manila." Petitioner further alleged that the caking and hardening, wetting and melting,
and contamination by rust and dirt of the damaged portions of the shipment were due to
the improper ventilation and inadequate storage facilities of the vessel; that the wetting
of the cargo was attributable to the failure of the crew to close the hatches before and
when it rained while the shipment was being unloaded in the Port of Manila; and that as
a direct and natural consequence of the unseaworthiness and negligence of the vessel
(sic), petitioner suffered damages in the total amount of P683, 056.29 Philippine
currency." 8 (Emphasis supplied)

Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of
action of the complaint arose from breach of contract of carriage by the vessel that was
chartered by defendant Philipp Brothers." 9

In the present petition, petitioner argues that the sales contract does not include the
contract of carriage which is a different contract entered into by the carrier with the
cargo owners. That it was an error for the respondent court to touch upon the arbitration
provision of the bills lading in its decision inasmuch as the same was not raised as an
issue by private respondent who was not a party in the bills of lading (emphasis Ours).
Petitioner contradicts itself.

We agree with the court a quo that the sales contract is comprehensive enough to
include claims for damages arising from carriage and delivery of the goods. As a
general rule, the seller has the obligation to transmit the goods to the buyer, and
concomitant thereto, the contracting of a carrier to deliver the same. Art. 1523 of the
Civil Code provides:

"Art. 1523. Where in pursuance of a contract of sale, the seller in authorized or required
to send the goods to the buyer, delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of
the goods to the buyer, except in the cases provided for in article 1503, first, second
and third paragraphs, or unless a contrary intent appear.

"Unless otherwise authorized by the buyer, the seller must take such contract with the
carrier on behalf of the buyer as may be reasonable, having regard to the nature of the
goods and the other circumstances of the case. If the seller omit so to do, and the
goods are lost or damaged in course of transit, the buyer may decline to treat the
delivery to the carrier as a delivery to himself,, or may hold the seller responsible in
damages."

xxx xxx xxx

The disputed sales contact provides for conditions relative to the delivery of goods, such
as date of shipment, demurrage, weight as determined by the bill of lading at load port
and more particularly the following provisions:

"3. Intention is to ship in one bottom, approximately 5,000 metrics tons to Puromines
and approximately 15,000 metric tons to Makati Agro. However, Sellers to have right to
ship material as partial shipment or co-shipment in addition to above. In the event of co-
shipment to a third party within Philippines same to be discussed with and acceptable to
both Puromines and Makati Agro.

"4. Sellers to appoint neutral survey for Seller's account to conduct initial draft survey at
first discharge port and final survey at last discharge port. Surveyors results to be
binding and final. In the event draft survey results show a quantity less than the
combined Bills of Lading quantity for both Puromines and Makati Agro, Sellers to refund
the difference. In the event that draft survey results show a quantity in excess of
combined Bills of Lading of quantity of both Puromines and Makati Agro then Buyers to
refund the difference.

"5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have
any liability to separate cargo or to deliver cargo separately or to deliver
minimum/maximum quantities stated on individual Bills of Lading. At each port vessel is
to discharge in accordance with Buyers local requirements and it is Buyer's
responsibility to separate individual quantities required by each of them at each port
during or after discharged."

As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to
the cargo from the bill of lading which is the contract of affreightment together with the
sales contract. Consequently, the (petitioner) is bound by the provisions and terms of
said bill of lading and of the arbitration clause incorporated in the sales contract."

Assuming arguendo that the liability of respondent is not based on the sales contract,
but rather on the contract of carriage, being the charterer of the vessel MV "Liliana
Dimitrova," it would, therefore, be material to show what kind of charter party the
respondent had with the shipowner to determine respondent's liability.

American jurisprudence defines charter party as a contract by which an entire ship or

some principal part thereof is let by the owner to another person for a specified time or
use. 10 Charter or charter parties are of two kinds. Charter of demise or bareboat and
contracts of affreightment.

Under the demise or bareboat charter of the vessel, the charterer will generally be
considered as owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes, in effect, the owner pro hac vice, subject to
liability to others for damages caused by negligence. 11 To create a demise the owner
of a vessel must completely and exclusively relinquish possession, anything short of
such a complete transfer is a contract of affreightment (time or voyage charter party) or
not a charter party at all.

On the other hand, a contract of affreightment is in which the owner of the vessel leases
part or all of its space to haul goods for others. It is a contract for a special service to be
rendered by the owner of the vessel 12 and under such contract the general owner
retains the possession, command and navigation of the ship, the charterer or freighter
merely having use of the space in the vessel in return for his payment of the charter
hire. 13 If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights, responsibilities of ownership
rest on the owner and the charterer is usually free from liability to third persons in
respect of the ship. 14

Responsibility to third persons for goods shipped on board a vessel follows the vessel's
possession and employment; and if possession is transferred to the charterer by virtue
of a demise, the charterer, and not the owner, is liable as carrier on the contract of
affreightment made by himself or by the master with third persons, and is answerable
for loss, damage or non-delivery of goods received for transportation. An owner who
retains possession of the ship, though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading or
unloading of the cargo. 15

Assuming that in the present case, the charter party is a demise or bareboat charter,
then Philipp Brothers is liable to Puromines, Inc., subject to the terms and conditions of
the sales contract. On the other hand, if the contract between respondent and the owner
of the vessel MV "Liliana Dimitrova" was merely that of affreightment, then it cannot be
held liable for the damages caused by the breach of contract of carriage, the evidence
of which is the bills of lading

In any case, whether the liability of respondent should be based on the same contract or
that of the bill of lading, the parties are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or the bill of lading. Petitioner being a signatory and
party to the sales contract cannot escape from his obligation under the arbitration
clause as stated therein.

Neither can petitioner contend that the arbitration provision in the bills of lading should
not have been discussed as an issue in the decision of the Court of Appeals since it
was not raised as a special or affirmative defense. The three bills of lading were
attached to the complaint as Annexes "A," "B," and "C," and are therefore parts thereof
and may be considered as evidence although not introduced as such. 16 Hence, it was
then proper for the court a quo to discuss the contents of the bills of lading, having been
made part of the record.

Going back to the main subject of this case, arbitration has been held valid and
constitutional. Even before the enactment of Republic Act No. 876, this Court has
countenanced the settlement of disputes through arbitration. The rule now is that unless
the agreement is such as absolutely to close the doors of the courts against the parties,
which agreement would be void, the courts will look with favor upon such amicable
arrangements and will only interfere with great reluctance to anticipate or nullify the
action of the arbitrator. 17

As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough

Construction Company of Florida 18 wherein the plaintiff sued defendant for damages
arising from a contract, the Court said:

"Since there obtains herein a written provision for arbitration as well as failure on
respondent's part to comply therewith, the court a quo rightly ordered the parties to
proceed to their arbitration in accordance with the terms of their agreement (Sec. 6
Republic Act 876). Respondent's arguments touching upon the merits of the dispute are
improperly raised herein. They should be addressed to the arbitrators. This proceeding
is merely a summary remedy to enforce the agreement to arbitrate. The duty of the
court in this case is not to resolve the merits of the parties' claims but only to determine
if they should proceed to arbitration or not. And although it has been ruled that a
frivolous or patently baseless claim should not be ordered to arbitration it is also
recognized that the mere fact that a defense exist against a claim does not make it
frivolous or baseless." 19

In the case of Bengson v. Chan, 20 We upheld the provision of a contract which

required the parties to submit their disputes to arbitration and We held as follows:

"The trial court sensibly said that 'all the causes of action alleged in the plaintiffs
amended complaint are based upon the supposed violations committed by the
defendants of the 'Contract of Construction of a Building' and that 'the provisions of
paragraph 15 hereof leave a very little room for doubt that the said causes of action are
embraced within the phrase 'any and all questions, disputes or differences between the
parties hereto relative to the construction of the building,' which must be determined by
arbitration of two persons and such determination by the arbitrators shall be 'final,
conclusive and binding upon both parties unless they to court, in which the case the
determination by arbitration is a condition precedent 'for taking any court action."

xxx xxx xxx

"We hold that the terms of paragraph 15 clearly express the intention of the parties that
all disputes between them should first be arbitrated before court action can be taken by
the aggrieved party." 21

Premises considered, We uphold the validity and applicability of the arbitration clause
as stated in Sales Contract No. S151.8.01018 to the present dispute.

WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is

AFFIRMED.
SO ORDERED.

168 Phil. 272

AQUINO, J.:
This is a case involving arbitration.  On June 21, 1965 Soledad F. Bengson and Mariano
M. Chan entered into a contract for the construction of a six-story building
on Bengson's lot located at Rizal Avenue, San Fernando, La Union.  In that contract
Soledad F. Bengson bound herself to pay Chan, the contractor, the sum of P352,000 for
the materials, labor and construction expenses.
It was stipulated inter alia that the construction would start on July 5, 1965; that the
first and second stories, together with the theater, should be completed and available for
use within five months from July 5, 1965 and that the construction should be finished
within twelve calendar months from that date in conformity with the plans and
specifications signed by the parties.  The contract contains the following arbitration
clause:
"15.  Any and all questions, disputes or differences arising between the parties hereto
relative to the construction of the BUILDING shall be determined by arbitration of two
persons, each chosen by the parties themselves.  The determination of said arbitration
shall be final, conclusive and binding upon both parties hereto, unless they choose to go
to court, in which case the determination by arbitration is a condition precedent for
taking any court action.  The expenses of arbitration shall be borne by both parties
equally."
On May 24, 1966 Soledad F. Bengson filed an action for damages against Mariano M.
Chan and the sureties on his performance bond.  She alleged that Mariano M. Chan
violated the contract by not constructing the first and second stories within the
stipulated five-month period; that because the contractor admitted at a conference on
May 8, 1966 that he was unable to continue or complete the construction, Soledad
P. Bengson terminated the contract; that she suffered damages amounting to P85,000
as a consequence of Chan's failure to construct the commercial building and that Chan
did not comply with clauses 7 and 8 of the contract in not attending to his work and in
not submitting periodic reports of the work done as a basis for the payment of the
laborers' wages.  The damages claimed totalled P183,800.
Mariano M. Chan and his sureties, Leoncio Chan (the owner of the Universal
Construction Supply) and Mutual Security Insurance Corporation, alleged in their
answer that the contractor stopped the construction because Soledad
F. Bengson refused to pay for ninety percent of the work already accomplished; that the
construction actually started in February, 1966 because of the changes requested
by Bengson; that the demolition of the old building was effected from July to December,
1965, and that the stipulation for the construction of the first and second  stories within
five months was novated by the parties.
The contractor and his sureties further alleged that Soledad F. Bengson had paid him
P74,750 but refused to pay on May 8, 1966 the additional sum of P31,450 as the balance
of ninety percent of the work already accomplished worth P118,000; that by reason
of Bengson's failure to pay the balance, Chan, notified her that he would stop the
construction and that he actually stopped the construction on May 30, 1966 when he
was served with a copy of the complaint.
Mariano M. Chan filed counterclaims for P45,223.23 as the balance due on the contract;
P15,000 as the value of the materials in the construction yard; P20,000 as
reimbursement of the expenses for the demolition of the old building; P5,000 as the
value of his construction equipment under Bengson's control and P35,000 as damages.
On November 16, 1966 the defendants filed an amended answer wherein they alleged as
an additional affirmative defense that the complaint states no cause of action because
Soledad F. Bengson did not first submit the controversy for arbitration as required in
the aforequoted paragraph 15 of the construction contract.
After holding a hearing, the trial court in its order of November 24, 1966 sustained that
new defense and dismissed the complaint.  Bengson appealed.
Appellant Bengson's five assignments of errors may be reduced to the issues of whether
the trial court erred (1) in allowing the defendants to plead a new affirmative defense in
their amended answer and (2) in holding that the causes of action in plaintiff's
complaint are embraced in the requirement for arbitration as a condition precedent to a
court action.
(1) We hold that there is no merit in appellant Bengson's contention that the defendants
waived the defense of lack of cause of action.  It is true that the defendants did not
interpose as a defense in their original answer Bengson's failure to resort to arbitration
before going to court or the defense that her complaint does not state a cause of
action.  The omission did not constitute a waiver of that defense because section 2, Rule
9 of the Rules of Court explicitly provides that "defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived; except the failure to
state a cause of action which may be alleged in a later pleading, if one is permitted".
(2) Appellant Bengson's other contention that her causes of action do-not involve
disputes relative to the construction of the building and, consequently, should not be
submitted for arbitration, is not well-taken.
The trial court sensibly said that "all the causes of action alleged in the plaintiff's
amended complaint are based upon the supposed violations committed by the
defendants of the 'Contract for the Construction of a Building'" and that "the provisions
of paragraph 15 thereof leave very little room for doubt that the said causes of action are
embraced within the phrase 'any and all questions, disputes or differences between the
parties hereto relative to the construction of the building', which must be determined by
arbitration of two persons and such determination by the arbitrators shall be 'final,
conclusive and binding upon both parties' unless they go to court, in which case the
determination by arbitration is 'a condition precedent for taking any court action'."
Appellant Bengson argues that paragraph 15 refers to disputes as to "the technical
process of putting up the building", meaning whether there was an adherence to the
plans and specifications, and that her causes of action for damages do not involve
questions as to the construction of the building but refer to disputes "based on violation
of the contract for construction".
She points out that the contract for the construction of the building and the construction
of the building are different concepts, just as the Constitution and the formation of the
government under the Constitution are different concepts; that a dispute relating to the
construction contract is not necessarily a dispute relative to the construction of the
building; that the parties did not have any dispute prior to the filing of the complaint,
and that it was only after the filing of the case that a dispute arose between them.
Appellant Bengson alternatively argues that if arbitration is proper, then the trial court
in conformity with section 6 of the Arbitration Law, Republic Act No. 876, should have
required the parties to proceed to arbitration.
On the other hand, the defendants argue that the broad and inclusive terms of
paragraph 15 embrace all breaches of the contract.  They point out that the provision of
paragraph 4 of the contract regarding submission to arbitration of the contractor's
request for extension shows that arbitration is not restricted to disputes relative to "the
technical process of putting up the building".
We hold that the terms of paragraph 15 clearly express the intention of the parties that
all disputes between them should first be arbitrated before court action can be taken by
the aggrieved party.
Bengson's interpretation of paragraph 15 as being limited to controversies with respect
"to the joining together of stones, steel, wood and other material to put up a building"
has a sophistical flavor.  Her superfine distinction between the contract for the
construction of the building and the construction of the building is specious but not
convincing.
However, although the causes of action in Bengson's complaint are covered by
paragraph 15, her failure to resort to arbitration does not warrant the dismissal of her
complaint.  We agree with her alternative contention that arbitration may be resorted to
during the pendency of the case.  The Arbitration Law provides:
"SEC. 6. Hearing by court. - A party aggrieved by the failure, neglect or refusal of
another to perform under an agreement in writing providing for arbitration may
petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement.  Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon the party in
default.  The court shall hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue, shall make an order
directing the parties to proceed to arbitration in accordance with the terms of the
agreement.  If the making of the agreement or default be in issue the court shall proceed
to summarily hear such issue.  If the finding be that no agreement in writing providing
for arbitration was made, or that there is no default in the proceeding thereunder, the
proceeding shall be dismissed.  If the finding be that a written provision for arbitration
was made and there is a default in proceeding thereunder, an order shall be made
summarily directing the parties to proceed with the arbitration in accordance with the
terms thereof.
"The court shall decide all motions, petitions or applications filed under the provisions
of this Act, within ten days after such motions, petitions, or applications have been
heard by it.
"SEC. 7. Stay of civil action. - If any suit or proceeding be brought upon an issue arising
out of an agreement providing for the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement:  Provided, That
the applicant for the stay is not in default in proceeding with such arbitration."
Within the meaning of section 6, the failure of Soledad F. Bengson to resort to
arbitration may be regarded as a refusal to comply with the stipulation for
arbitration.  And defendants' interposition of the defense that arbitration is a condition
precedent to the institution of a court action may be interpreted as a petition for an
order that arbitration should proceed as contemplated in section 15.
Therefore, instead of dismissing the case, the proceedings therein should be suspended
and the parties should be directed to go through the motions of arbitration at least
within a sixty-day period.  With the consent of the parties, the trial court may appoint a
third arbitrator to prevent a deadlock between the two arbitrators.  In the event that the
disputes between the parties could not be settled definitively by arbitration, then the
hearing of the instant case should be resumed.
WHEREFORE, the trial court's order of dismissal is reversed and set aside.  If the
parties cannot reach an amicable settlement at this late hour, then the trial court should
give them at least sixty days from notice within which to settle their disputes by
arbitration and, if no settlement is finalized within that period, it should hold a pre-trial
and try the case.  No costs.
SO ORDERED.

HIRD DIVISION

G. R. No. 141833 - March 26, 2003

LM POWER ENGINEERING CORPORATION, Petitioner, vs. CAPITOL

INDUSTRIAL CONSTRUCTION GROUPS, INC., Respondent.

PANGANIBAN, J.:

Alternative dispute resolution methods or ADRs -- like arbitration, mediation,

negotiation and conciliation -- are encouraged by the Supreme Court. By
enabling parties to resolve their disputes amicably, they provide solutions
that are less time-consuming, less tedious, less confrontational, and more
productive of goodwill and lasting relationships.1

The Case
Before us is a Petition for Review on Certiorari2 under Rule 45 of the Rules of
Court, seeking to set aside the January 28, 2000 Decision of the Court of
Appeals3 (CA) in CA-GR CV No. 54232. The dispositive portion of the
Decision reads as follows:

"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE.

The parties are ORDERED to present their dispute to arbitration in
accordance with their Sub-contract Agreement. The surety bond posted by
[respondent] is [d]ischarged."4

The Facts

On February 22, 1983, Petitioner LM Power Engineering Corporation and

Respondent Capitol Industrial Construction Groups Inc. entered into a
"Subcontract Agreement" involving electrical work at the Third Port of
Zamboanga.5

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

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

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

In its Order12 dated September 15, 1987, the RTC denied the Motion on the
ground that the dispute did not involve the interpretation or the
implementation of the Agreement and was, therefore, not covered by the
arbitral clause.13

After trial on the merits, the RTC14 ruled that the take-over of some work
items by respondent was not equivalent to a termination, but a mere
modification, of the Subcontract. The latter was ordered to give full payment
for the work completed by petitioner.

Ruling of the Court of Appeals

On appeal, the CA reversed the RTC and ordered the referral of the case to
arbitration. The appellate court held as arbitrable the issue of whether
respondents take-over of some work items had been intended to be a
termination of the original contract under Letter "K" of the Subcontract. It
ruled likewise on two other issues: whether petitioner was liable under the
warranty clause of the Agreement, and whether it should reimburse
respondent for the work the latter had taken over.15

Hence, this Petition.16

The Issues

In its Memorandum, petitioner raises the following issues for the Courts
consideration:

"A

Whether or not there exist[s] a controversy/dispute between petitioner and

respondent regarding the interpretation and implementation of the Sub-
Contract Agreement dated February 22, 1983 that requires prior recourse to
voluntary arbitration;

"B

In the affirmative, whether or not the requirements provided in Article

III 1 of CIAC Arbitration Rules regarding request for arbitration ha[ve] been
complied with[.]"17

The Courts Ruling

The Petition is unmeritorious.

First Issue:
Whether Dispute Is Arbitrable

Petitioner claims that there is no conflict regarding the interpretation or the

implementation of the Agreement. Thus, without having to resort to prior
arbitration, it is entitled to collect the value of the services it rendered
through an ordinary action for the collection of a sum of money from
respondent. On the other hand, the latter contends that there is a need for
prior arbitration as provided in the Agreement. This is because there are
some disparities between the parties positions regarding the extent of the
work done, the amount of advances and billable accomplishments, and the
set off of expenses incurred by respondent in its take-over of petitioners
work.

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

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

"6. The Parties hereto agree that any dispute or conflict as regards to

interpretation and implementation of this Agreement which cannot be settled
between [respondent] and [petitioner] amicably shall be settled by means of
arbitration x x x."19

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

A review of the factual allegations of the parties reveals that they differ on
the following questions: (1) Did a take-over/termination occur? (2) May the
expenses incurred by respondent in the take-over be set off against the
amounts it owed petitioner? (3) How much were the advances and billable
accomplishments?

The resolution of the foregoing issues lies in the interpretation of the

provisions of the Agreement. According to respondent, the take-over was
caused by petitioners delay in completing the work. Such delay was in
violation of the provision in the Agreement as to time schedule:

"G. TIME SCHEDULE

"[Petitioner] shall adhere strictly to the schedule related to the WORK and
complete the WORK within the period set forth in Annex C hereof. NO time
extension shall be granted by [respondent] to [petitioner] unless a
corresponding time extension is granted by [the Ministry of Public Works and
Highways] to the CONSORTIUM."20

Because of the delay, respondent alleges that it took over some of the work
contracted to petitioner, pursuant to the following provision in the
Agreement:

"K. TERMINATION OF AGREEMENT

"[Respondent] has the right to terminate and/or take over this Agreement

for any of the following causes:

xxx-xxx-xxx

6. If despite previous warnings by [respondent], [petitioner] does not

execute the WORK in accordance with this Agreement, or persistently or
flagrantly neglects to carry out [its] obligations under this Agreement."21

Supposedly, as a result of the "take-over," respondent incurred expenses in

excess of the contracted price. It sought to set off those expenses against
the amount claimed by petitioner for the work the latter accomplished,
pursuant to the following provision:

"If the total direct and indirect cost of completing the remaining part of the
WORK exceed the sum which would have been payable to [petitioner] had it
completed the WORK, the amount of such excess [may be] claimed by
[respondent] from either of the following:

1. Any amount due [petitioner] from [respondent] at the time of the

termination of this Agreement."22

The issue as to the correct amount of petitioners advances and billable

accomplishments involves an evaluation of the manner in which the parties
completed the work, the extent to which they did it, and the expenses each
of them incurred in connection therewith. Arbitrators also need to look into
the computation of foreign and local costs of materials, foreign and local
advances, retention fees and letters of credit, and taxes and duties as set
forth in the Agreement. These data can be gathered from a review of the
Agreement, pertinent portions of which are reproduced hereunder:

"C. CONTRACT PRICE AND TERMS OF PAYMENT

xxx-xxx-xxx
"All progress payments to be made by [respondent] to [petitioner] shall be
subject to a retention sum of ten percent (10%) of the value of the
approved quantities. Any claims by [respondent] on [petitioner] may be
deducted by [respondent] from the progress payments and/or retained
amount. Any excess from the retained amount after deducting [respondents]
claims shall be released by [respondent] to [petitioner] after the issuance of
[the Ministry of Public Works and Highways] of the Certificate of Completion
and final acceptance of the WORK by [the Ministry of Public Works and
Highways].

xxx-xxx-xxx

"D. IMPORTED MATERIALS AND EQUIPMENT

"[Respondent shall open the letters of credit for the importation of

equipment and materials listed in Annex E hereof after the drawings,
brochures, and other technical data of each items in the list have been
formally approved by [the Ministry of Public Works and Highways]. However,
petitioner will still be fully responsible for all imported materials and
equipment.

"All expenses incurred by [respondent], both in foreign and local currencies

in connection with the opening of the letters of credit shall be deducted from
the Contract Prices.

xxx-xxx-xxx

"N. OTHER CONDITIONS

xxx-xxx-xxx

"2. All customs duties, import duties, contractors taxes, income taxes, and
other taxes that may be required by any government agencies in connection
with this Agreement shall be for the sole account of [petitioner]."23

Being an inexpensive, speedy and amicable method of settling

disputes,24 arbitration -- along with mediation, conciliation and negotiation --
is encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the
commercial kind.25 It is thus regarded as the "wave of the future" in
international civil and commercial disputes.26 Brushing aside a contractual
agreement calling for arbitration between the parties would be a step
backward.27
Consistent with the above-mentioned policy of encouraging alternative
dispute resolution methods, courts should liberally construe arbitration
clauses. Provided such clause is susceptible of an interpretation that covers
the asserted dispute, an order to arbitrate should be granted.28 Any doubt
should be resolved in favor of arbitration.29

Second Issue:
Prior Request for Arbitration

According to petitioner, assuming arguendo that the dispute is arbitrable,

the failure to file a formal request for arbitration with the Construction
Industry Arbitration Commission (CIAC) precluded the latter from acquiring
jurisdiction over the question. To bolster its position, petitioner even cites
our ruling in Tesco Services Incorporated v. Vera.30 We are not persuaded.

Section 1 of Article II of the old Rules of Procedure Governing Construction

Arbitration indeed required the submission of a request for arbitration, as
follows:

"SECTION. 1. Submission to Arbitration -- Any party to a construction

contract wishing to have recourse to arbitration by the Construction Industry
Arbitration Commission (CIAC) shall submit its Request for Arbitration in
sufficient copies to the Secretariat of the CIAC; PROVIDED, that in the case
of government construction contracts, all administrative remedies available
to the parties must have been exhausted within 90 days from the time the
dispute arose."

Tesco was promulgated by this Court, using the foregoing provision as

reference.

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

"SECTION 1. Submission to CIAC Jurisdiction An arbitration clause in a

construction contract or a submission to arbitration of a construction dispute
shall be deemed an agreement to submit an existing or future controversy to
CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to arbitration, it
is not necessary for the parties to enter into a submission agreement before
the claimant may invoke the jurisdiction of CIAC."
The foregoing amendments in the Rules were formalized by CIAC Resolution
Nos. 2-91 and 3-93.31

The difference in the two provisions was clearly explained in China Chang
Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et
al.32 (an extended unsigned Resolution) and reiterated in National Irrigation
Administration v. Court of Appeals,33 from which we quote thus:

"Under the present Rules of Procedure, for a particular construction contract

to fall within the jurisdiction of CIAC, it is merely required that the parties
agree to submit the same to voluntary arbitration Unlike in the original
version of Section 1, as applied in the Tesco case, the law as it now stands
does not provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to acquire
jurisdiction over the same. Rather, it is plain and clear that as long as the
parties agree to submit to voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within the jurisdiction of the CIAC,
such that, even if they specifically choose another forum, the parties will not
be precluded from electing to submit their dispute before the CIAC because
this right has been vested upon each party by law, i.e., E.O. No. 1008."34

Clearly, there is no more need to file a request with the CIAC in order to vest
it with jurisdiction to decide a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of the

parties to submit to arbitration the disputes covered therein. Because that
clause is binding, they are expected to abide by it in good faith.35 And
because it covers the dispute between the parties in the present case, either
of them may compel the other to arbitrate.36

Since petitioner has already filed a Complaint with the RTC without prior
recourse to arbitration, the proper procedure to enable the CIAC to decide
on the dispute is to request the stay or suspension of such action, as
provided under RA 876 [the Arbitration Law].37

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.

Costs against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 102881 December 7, 1992

TOYOTA MOTOR PHILIPPINES CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, HON. FERNANDO V. GOROSPE, JR. and SUN VALLEY
MANUFACTURING & DEVELOPMENT CORPORATION, respondents.

GUTIERREZ, JR., J.:

This case involves a boundary dispute between Toyota Motor Phil. Corporation (Toyota)
and Sun Valley Manufacturing and Development Corporation (Sun Valley).

Both Toyota and Sun Valley are the registered owners of two (2) adjoining parcels of
land situated in La Huerta, Parañaque, Metro Manila which they purchased from the
Asset Privatization Trust (APT).

The properties in question formerly belonged to Delta Motors Corporation (DMC). They
were foreclosed by the Philippine National Bank (PNB) and later transferred to the
national government through the APT for disposition.

APT then proceeded to classify the DMC properties according to the existing
improvements, i.e., buildings, driveways, parking areas, perimeter fence, walls and
gates and the land on which the improvements stood. The entire DMC property is called
GC III-Delta Motors Corporation, divided into Delta I, Delta II, and Delta III. Further
subdivisions for the separate catalogues were made for each division e.g. Delta I into
Lots 1, 2 and 3. After this classification, APT parcelled out and catalogued the
properties for bidding and sale.

Part of the duly parcelled Delta I property (Lot 2) was sold to Toyota through public
bidding on May 12, 1988 for the amount of P95,385,000.00. After its purchase, Toyota
constructed a concrete hollow block (CHB) perimeter fence around its alleged property.

On October 5, 1990, another part of the parcelled Delta I (Lot 1) covering an area of
55,236 square meters was purchased by Sun Valley from APT for the bid price of
P124,349,767.00. Relying upon the title description of its property and the surveys it
had commissioned, Sun Valley claimed that Toyota's perimeter fence overlaps Sun
Valley's property along corners 11 to 15 by 322 square meters and corners 19 to 1 by
401 square meters for a total of 723 square meters. (Rollo, p. 841)

Negotiations between the two (2) corporations for a possible settlement of the dispute
bogged down. Court battles ensued, grounded on purely procedural issues. In pursuing
the resolution of the dispute, both Toyota and Sun Valley opted to file separate actions.
Much of the complications that arose and are now before us can be traced to the two
separate cases pursued by both parties. There are other cases arising from the same
dispute but which are not before us.

Culled from the records, these are the antecedents of the two cases which transpired
below.

TOYOTA CASE (Civil Case No. 91-2504)

On September 11, 1991, Toyota filed a case against APT and Sun Valley docketed as
Civil Case No. 91-2504 with the Regional Trial Court of Makati, Branch 146 presided by
Judge Salvador Tensuan. The complaint was for the reformation of the Deed of Sale
executed between Toyota and APT. Toyota alleges that the instrument failed to reflect
the true intention of the parties, as evidenced by the failure of the title to include the 723
square meters strip of land.

Toyota alleges that the discrepancy came about because of the serious flaw in the
classification/cataloguing of properties bidded out for sale by APT. Toyota was made to
understand that included in its perimeter fence is the disputed strip of land. Thus,
Toyota sought the resurvey of the property to correct this error in the title. Sun Valley
was impleaded considering that it purchased the adjoining land whose title allegedly
included the 723 square meters property.

On September 11, 1991, upon Toyota's application, Judge Tensuan issued a temporary
restraining order (TRO) enjoining Sun Valley and APT from any act of destruction and
removal of Toyota's walls and structures. Sun Valley and APT were respectively served
summons on the following day.

On September 16, 1991, Sun Valley filed a motion to dismiss, on the ground that the
Toyota complaint failed to state a cause of action against it (1) since it was not a party
to the contract of the deed of sale between Toyota and APT, and (2) the complaint was
in effect a collateral attack on its title.

On September 27, 1991, Judge Tensuan initially denied Toyota's application for
preliminary injunction on the finding that there was no evidence of any threatened
destruction, removal or dispossession of Toyota's property.

On October 10, 1991, Judge Tensuan denied Sun Valley's motion to dismiss.
Both Toyota and Sun Valley filed their respective motions for reconsideration. Toyota
moved to reconsider the denial of its injunctive application while Sun Valley moved to
reconsider the denial of its motion to dismiss.

On October 30, 1991, APT filed its answer with affirmative defenses alleging that the
complaint must be dismissed on the ground that Toyota and APT should first have
resorted to arbitration as provided in Toyota's deed of sale with APT. On December 4,
1991, Toyota filed a motion alleging that Sun Valley's long threatened destruction and
removal of Toyota's walls and structures were actually being implemented to which
Judge Tensuan issued another TRO enjoining acts of destruction and removal of the
perimeter walls and structures on the contested area.

Consequently, on December 17, 1991, Judge Tensuan reconsidered his earlier denial
of Toyota's application for injunction and granted a writ of preliminary injunction
enjoining Sun Valley from proceeding with its threatened destruction and removal of
Toyota's walls and directed Sun Valley to restore the premises to the status quo ante.

On December 11, 1991, Judge Tensuan denied Sun Valley's motion for reconsideration
of its motion to dismiss. Sun Valley elevated this denial to the Court of Appeals. The
case was docketed as CA-G.R. Sp. No. 26942 and raffled to the Eleventh (11th)
Division.

Judge Tensuan's jurisdiction to act considering the defense of prematurity of action for
failure to arbitrate the validity of the TRO issued on December 4, 1991 and the order
granting injunctive reliefs were challenged in a petition for certiorari filed with the Court
of Appeals and docketed as CA-G.R. No. 26813, assigned to the Second (2nd) Division.

SUN VALLEY CASE (Civil Case No. 91-2550)

On September 16, 1991, Sun Valley, on the other hand, filed a case for recovery of
possession of the disputed 723 square meters boundary with the Regional Trial Court
(RTC) Makati, Branch 61 presided by Judge Fernando Gorospe, Jr.

On the same day, Judge Gorospe issued a TRO enjoining Toyota from committing
further acts of dispossession against Sun Valley.

On September 19, 1991, Toyota moved to lift the TRO and opposed Sun Valley's
application for injunction.

On September 23, 1991, Toyota filed a motion to dismiss on the ground that the RTC
has no jurisdiction over the case since the complaint was a simple ejectment case
cognizable by the Metropolitan Trial Court (MTC). The motion to dismiss was set for
hearing on September 27, 1991.
On September 27, 1991, Sun Valley filed an amended complaint to incorporate an
allegation that Toyota's possession of the alleged disputed area began in September,
1988 when Toyota purchased the property.

Ruling that the amendment was a matter of right, Judge Gorospe admitted the amended
complaint. Toyota adopted its motion to dismiss the original complaint as its motion to
dismiss the amended complaint. After the arguments to Toyota's motion to dismiss, the
same was submitted for resolution. Sun Valley's application for prohibitory and
mandatory injunction contained in its complaint was set for hearing on October 1, 1991.

Protesting the admission of the amended complaint, Toyota went to the Court of
Appeals, on certiorari on October 1, 1991. This petition was docketed as CA-G.R. No.
26152 raffled to the Tenth (10th) Division.

Toyota was later prompted to file two supplemental petitions, before the Court of
Appeals as a result of Judge Gorospe's alleged hasty issuance of four (4) Orders, all
dated October 1, 1992. These are:

(1) First supplemental petition dated October 4, 1991 which sought to nullify the Order
denying Toyota's motion to dismiss the amended complaint.

(2) Second supplemental petition dated October 23, 1991 which sought the nullification
of the orders granting Sun Valley's application for preliminary prohibitory and mandatory
injunction and denying Toyota's motion to cross-examine Sun Valley's witnesses on the
latter's injunction application.

On November 27, 1991, respondent Court of Appeals' Tenth Division promulgated its
questioned decision which is primarily the subject matter of the present petition before
us.

The respondent court denied due course to the Toyota petition on the finding that the
amendment of Sun Valley's complaint was a valid one as Sun Valley's action was not
for unlawful detainer but an accion publiciana. Furthermore, the supplemental petitions
filed by Toyota assailing the prohibitory and mandatory injunctive writ were not ruled
upon as they were expunged from the records because of Toyota's failure to attach a
motion to admit these supplemental petitions.

Consequently, Toyota filed the present petition for certiorari on December 9, 1991.

Earlier, upon an ex-parte motion to clarify filed by Sun Valley on October 25, 1991,
Judge Gorospe issued another order dated December 2, 1991 which followed Sun
Valley to break open and demolish a portion of the Toyota perimeter walls, and
eventually to secure possession of the disputed area. Toyota was constrained to come
to this Court for relief.
On December 11, 1991, we issued a TRO enjoining the implementation of Judge
Gorospe's injunction and break-open orders dated October 1, 1991 and December 2,
1991 respectively as well as further proceedings in Civil Case No. 91-2550.

Meanwhile, the Court of Appeals' Second Division issued a TRO ordering respondent
Judge Tensuan and all other persons acting in his behalf to cease and desist from
further proceeding with Civil Case No. 91-2504 and from enforcing the Order dated
December 17, 1991 and the writ of preliminary mandatory injunction dated December
19, 1991.

This prompted Toyota to file a motion to quash the TRO and file a supplemental petition
with this Court impleading the Court of Appeals' Second Division.

On January 13, 1992, we admitted the supplemental petition.

On January 10, 1992, the Court of Appeals' Second Division issued the Resolution
granting Sun Valley's application for preliminary injunction which enjoined Judge
Tensuan in the Toyota case from implementing his injunction Order and from
proceeding with the case before him (Civil Case No. 91-2504).

Thus, Toyota filed its Second Supplemental Petition with this Court challenging the
validity of the injunction writ issued by the Court of Appeals' Second Division.

This Second Supplemental Petition was admitted on February 10, 1992.

On February 10, 1992, we gave due course to Toyota's petition.

Subsequently, through a manifestation dated April 29, 1992, Toyota informed the Court
that on April 15, 1992, the Court of Appeals' 11th Division (Sun Valley case) rendered a
decision dismissing the case before it for lack of merit. The Court of Appeals ruled that
the Toyota complaint was not a collateral attack on Sun Valley's title and that misjoinder
of parties is not a ground for dismissal.

A subsequent motion for reconsideration was denied in a resolution dated August 10,
1992.

In the instant petition Toyota raises the following issues, to wit:

1. The Court of Appeals' 10th Division gravely abused its discretion when it ignored or
pretended to ignore Toyota's protests against Judge Gorospe's injunction orders.

2. Sun Valley is guilty of forum-shopping and Judge Gorospe of case-grabbing.

Sun Valley, on the other hand raises the following:

1. Whether or not the petitioner availed of the proper mode of elevating the case to this
Court.

2. Whether or not the Court of Appeals committed grave abuse of discretion in refusing
to act upon petitioner's supplemental petitions for certiorari.

3. Whether or not the complaint filed in the court below is an accion publiciana which is
within the jurisdiction of the RTC.

4. Whether or not Judge Salvador S. Tensuan had jurisdiction to take cognizance of

Civil Case No. 2504 for reformation of instrument.

5. Whether or not respondent Judge Gorospe, Jr. committed grave abuse of discretion
in granting private respondent's application for a writ of preliminary
prohibitory/mandatory injunction.

6. Whether or not Judge Tensuan committed grave abuse of discretion in issuing the
writ of mandatory injunction dated December 19, 1991.

This case is far from settlement on the merits. Through legal maneuverings, the parties
have succeeded in muddling up the vital issues of the case and getting the lower courts
embroiled in numerous appeals over technicalities. As it is now, there are three
appellate decisions/resolutions before us for review and conflicting orders issued by
lower courts as a result of the separate cases filed by the parties. As in the case
of Consolidated Bank and Trust Corp. v. Court of Appeal,s 193 SCRA 158 [1991], the
Court is explicit in stating that:

xxx xxx xxx

Where there are conflicting but inextricably interconnected issues in one

and the same complicated case, it is best that these be resolved in one
integrated proceeding where an overall picture of the entirety of the case
can be presented and examined. Piecemeal determinations by several
trial courts on segments of the basic issue and disconnected appeals to
different Divisions of the Court of Appeals resulting in separate decisions
each dealing with only part of the problem are discouraged. Needless
multiplicity of suits is something which is frowned upon.

x x x           x x x          x x x

Amid the clutter of extraneous materials which have certainly bloated the records of this
case, we find only two (2) issues vital to the disposition of the petition: first, is the matter
of jurisdiction, who as between Judge Tensuan or Judge Gorospe has jurisdiction over
the dispute; and second, who as between the parties has the rightful possession of the
land.
Anent the issue on jurisdiction, we examine the two actions filed by the parties.

Toyota filed an action for reformation on September 11, 1991, before Judge Tensuan
alleging that the true intentions of the parties were not expressed in the instrument (Art.
1359 Civil Code). The instrument sought to be reformed is the deed of sale executed by
APT in favor of Toyota. Toyota alleges that there was a mistake in the designation of
the real properties subject matter of the contract. Sun Valley was impleaded in order to
obtain complete relief since it was the owner of the adjacent lot.

Sun Valley, however, argues that the complaint for reformation states no cause of
action against it since an action for reformation is basically one strictly between the
parties to the contract itself. Third persons who are not parties to the contract cannot
and should not be involved. Thus, Sun Valley contends that it should not have been
impleaded as a defendant.

The Court of Appeals' 11th Division, in its decision promulgated on April 15, 1992 where
the denial of Sun Valley's motion to dismiss was sustained, correctly ruled that
misjoinder of parties is not a ground for dismissal.

American jurisprudence from where provisions on reformation of instruments were

taken discloses that suits to reform written instruments are subject to the general rule in
equity that all persons interested in the subject matter of the litigation, whether it is a
legal or an equitable interest should be made parties, so that the court may settle all
their rights at once and thus prevent the necessity of a multiplicity of suits (Bevis
Construction Co. v. Grace [Fla App] 115 So 2d 84; Green v. Stone, 54 N.J.E. 387, 34 A
1099). As a general rule, therefore, all persons to be affected by the proposed
reformation must be made parties (American Fidelity & Casualty Co. v. Elder, 189 Ga
229, 5 SE 2d 668; Kemp v. Funderburk, 224 NC 353, 30 SE 2d 155). In an action to
reform a deed, all parties claiming an interest in the land or any part thereof purportedly
conveyed by the instrument sought to be reformed, and whose interests will be affected
by the reformation of the instrument are necessary parties to the action (Kemp v.
Funderburk, 224 NC 353, 30 SE 2d 155).

From the foregoing jurisprudence, it would appear that Toyota was correct in impleading
Sun Valley as party defendant. However, these principles are not applicable under the
particular circumstances of this case. Under the facts of the present case, Toyota's
action for reformation is dismissible as against Sun Valley.

Attention must first be brought to the fact that the contract of sale executed between
APT and Toyota provides an arbitration clause which states that:

xxx xxx xxx

5. In case of disagreement or conflict arising out of this Contract, the

parties hereby undertake to submit the matter for determination by a
 committee of experts, acting as arbitrators, the composition of which shall
be as follows:

a) One member to be appointed by the VENDOR;

b) One member to be appointed by the VENDEE;

c) One member, who shall be a lawyer, to be appointed by

both of the aforesaid parties;

The members of the Arbitration Committee shall be appointed not later

than three (3) working days from receipt of a written notice from either or
both parties. The Arbitration Committee shall convene not later than three
(3) weeks after all its members have been appointed and proceed with the
arbitration of the dispute within three (3) calendar months counted
therefrom. By written mutual agreement by the parties hereto, such time
limit for the arbitration may be extended for another calendar month. The
decision of the Arbitration Committee by majority vote of at least two (2)
members shall be final and binding upon both the VENDOR and the
VENDEE; (Rollo, pp. 816-817)

x x x           x x x          x x x

The contention that the arbitration clause has become disfunctional because of the
presence of third parties is untenable.

Contracts are respected as the law between the contracting parties (Mercantile Ins. Co.
Inc. v. Felipe Ysmael, Jr. & Co., Inc., 169 SCRA 66 [1989]). As such, the parties are
thereby expected to abide with good faith in their contractual commitments (Quillan v.
CA, 169 SCRA 279 [1989]). Toyota is therefore bound to respect the provisions of the
contract it entered into with APT.

Toyota filed an action for reformation of its contract with APT, the purpose of which is to
look into the real intentions/agreement of the parties to the contract and to determine if
there was really a mistake in the designation of the boundaries of the property as
alleged by Toyota. Such questions can only be answered by the parties to the contract
themselves. This is a controversy which clearly arose from the contract entered into by
APT and Toyota. Inasmuch as this concerns more importantly the parties APT and
Toyota themselves, the arbitration committee is therefore the proper and convenient
forum to settle the matter as clearly provided in the deed of sale.

Having been apprised of the presence of the arbitration clause in the motion to dismiss
filed by APT, Judge Tensuan should have at least suspended the proceedings and
directed the parties to settle their dispute by arbitration (Bengson v. Chan, 78 SCRA
113 [1977], Sec. 7, RA 876). Judge Tensuan should have not taken cognizance of the
case.
But the more apparent reason which warrants the dismissal of the action as against Sun
Valley is the fact that the complaint for reformation amounts to a collateral attack on Sun
Valley's title, contrary to the finding of the Court of Appeals' 11th Division.

It is disputed that Sun Valley has a Torrens title registered in its name by virtue of its
purchase of the land from APT.

Toyota contends that the 723 square meters strip of land which it understood to be
included in its purchase from APT was erroneously included in Sun Valley's title. This is
the reason why reformation was sought to correct the mistake.

Well-settled is the rule that a certificate of title can not be altered, modified, or cancelled
except in a direct proceeding in accordance with law (Section 48, P.D. No. 1529).

In the case of Domingo v. Santos Ongsiako, Lim y Sia (55 Phil. 361 [1930]), the Court
held that:

. . . The fact should not be overlooked that we are here confronted with
what is really a collateral attack upon a Torrens title. The circumstance
that the action was directly brought to recover a parcel of land does not
alter the truth that the proceeding involves a collateral attack upon a
Torrens title, because as we have found, the land in controversy lies within
the boundaries determined by that title. The Land Registration Law
defines the methods under which a wrongful adjudication of title to land
under the Torrens system may be corrected . . .

While reformation may often be had to correct mistakes in defining the boundary of
lands conveyed so as to identify the lands, it may not be used to pass other lands from
those intended to be bought and sold, notwithstanding a mistake in pointing out the
lines, since reformation under these circumstances would be inequitable and unjust.
(McCay v. Jenkins, 244 Ala 650, 15 So 2d 409, 149 ALR 746)

Assuming that Toyota is afforded the relief prayed for in the Tensuan court, the latter
can not validly order the contested portion to be taken out from the Sun Valley's TCT
and award it in favor of Toyota.

An action for reformation is in personam, not in rem (Cohen v. Hellman Commercial

Trust & Savings Bank, 133 Cal App 758, 24 P2d 960; Edwards v. New York Life Ins.
Co. 173 Tenn 102, 114 SW 2d 808) even when real estate is involved (Agurs v. Holt,
232 La 1026, 95 So 2d 644; Vallee v. Vallee (La App) 180 So 2d 570). It is merely an
equitable relief granted to the parties where through mistake or fraud, the instrument
failed to express the real agreement or intention of the parties. While it is a recognized
remedy afforded by courts of equity it may not be applied if it is contrary to well-settled
principles or rules. It is a long standing principle that equity follows the law. It is applied
in the abscence of and never against statutory law (Zabat v. Court of Appeals, 142
SCRA 587 [1986]). Courts are bound by rules of law and have no arbitrary discretion to
disregard them. (See Arsenal v. Intermediate Appellate Court, 143 SCRA 40 [1986].)
Courts of equity must proceed with utmost caution especially when rights of third parties
may intervene. Thus in the instant case, vis-a-vis well-settled principles or rules in land
registration, the equitable relief of reformation may not come into play in order to
transfer or appropriate a piece of land that one claims to own but which is titled in the
name of a third party.

On the other hand, Sun Valley filed an action for reconveyance against Toyota to
recover possession of the strip of land encroached upon and occupied by the latter.
What Sun Valley seeks in its complaint is the recovery of possession de jure and not
merely possession de facto. Toyota moved to dismiss on the assumption that the
complaint was one for unlawful detainer cognizable by the MTC.

We do not find any reversible error in the decision of the Court of Appeals' 10th Division
where it upheld Judge Gorospe's order denying Toyota's motion to dismiss. An
amendment to a complaint before a responsive pleading is filed, is a matter of right
(Rule 10, Sec. 2). Whether or not the complaint was amended, Sun Valley's complaint
was one for accion publiciana cognizable by the RTC. Its right over the land is premised
on the certificate of title registered in its name after it had purchased said land from
APT. As the registered owner it had the right of possession of said land illegally
occupied by another (Ybañez v. IAC, 194 SCRA 743 [1991]). The case of Banayos
v. Susana Realty, Inc. (71 SCRA 557 [1976]) is quite instructive:

xxx xxx xxx

We deem it advisable, at this point, to reiterate the essential differences

between three kinds of actions for the recovery of possession of real
property, namely: (1) the summary action for forcible entry and unlawful
detainer; (2) the accion publiciana; and (3) the accion de reivindicacion.

The action for forcible entry may be brought where dispossession of real
property had taken place by any of the means provided for in Section 1 of
Rule 70 of the Revised Rules of Court, and in the case of unlawful
detainer, where the possession is withheld after the expiration or
termination of the right to hold possession, by virtue of any contract
express or implied. These two actions must be filed within one (1) year
after such unlawful deprivation or withholding of possession with the
municipal or city court. These actions in their essence are mere quieting
processes by virtue of which a party in possession of land may not be, by
force, dispossessed of that land, the law restoring to him such possession
in a summary manner, until the right of ownership can be tried in due
course of law. They are, therefore, intended to provide an expeditious
means of protecting actual possession or right to possession of property.
The aforesaid Rule 70 does not, however, cover all of the cases of
dispossession of lands. Thus, "whenever the owner is dispossessed by
any other means than those mentioned he may maintain his action in the
 Court of First Instance, and it is not necessary for him to wait until the
expiration of twelve months before commencing an action to be
repossessed or declared to be owner of land." (Gumiran v. Gumiran, 21
Phil. 174, 179. Cf. Medina, et al. v. Valdellon, 63 SCRA 278) Courts of
First Instance have jurisdiction over actions to recover possession of real
property illegally detained, together with rents due and damages, even
though one (1) year has not expired from the beginning of such illegal
detention, provided the question of ownership of such property is also
involved. In other words, if the party illegal dispossessed desires to raise
the question of illegal dispossession as well as that of the ownership over
the property, he may commence such action in the Court of First Instance
immediately or at any time after such illegal dispossession. If he decides
to raise the question of illegal dispossession only, and the action is filed
more than one (1) year after such deprivation or withholding of
possession, then the Court of First Instance will have original jurisdiction
over the case. (Bishop of Cebu v. Mangoron, 6 Phil. 286; Catholic Church
v. Tarlac and Victoria, 9 Phil. 450; Ledesma v. Marcos, 9 Phil. 618;
Medina, et al. v. Valdellon, supra) The former is an accion de
reivindicacion which seeks the recovery of ownership as well as
possession, while the latter refers to an accion publiciana, which is the
recovery of the right to possess and is a plenary action in an ordinary
proceeding in the Court of First Instance. (Sec. 88, Rep. Act No. 296; Rule
70, Rules of Court; Manila Railroad Co. v. Attorney General, 20 Phil. 523;
Lim Cay v. Del, 55 Phil. 692; Central Azucarera de Tarlac v. De Leon, 56
Phil. 169; Navarro v. Aguila, 66 Phil. 604; Luna v. Carandang, 26 SCRA
306; Medina, et al. v. Valdellon, supra; Pasaqui, et al. v. Villablanca, et
al., supra).

With the finding that Toyota's action for reformation is dismissable as it is in effect a
collateral attack on Sun Valley's title, Sun Valley's action for recovery of possession filed
before Judge Gorospe now stands to be the proper forum where the following dispute
may be tried or heard.

We now come to the issue as to which of the parties has a legal right over the property
to warrant the issuance of the preliminary mandatory/prohibitory injunction.

In actions involving realty, preliminary injunction will lie only after the plaintiff has fully
established his title or right thereto by a proper action for the purpose. To authorize a
temporary injunction, the complainant must make out at least a prima facie showing of a
right to the final relief. Preliminary injunction will not issue to protect a right not in
esse (Buayan Cattle Co. Inc. v. Quintillan, 128 SCRA 286-287 [1984]; Ortigas &
Company, Limited Partnership v. Ruiz, 148 SCRA 326 [1987]).

Two requisites are necessary if a preliminary injunction is to issue, namely, the

existence of the right to be protected, and the facts against which the injunction is to be
directed, are violative of said right. In particular, for a writ of preliminary injunction to
issue, the existence of the right and the violation must appear in the allegations of the
complaint and an injunction is proper also when the plaintiff appears to be entitled to the
relief demanded in his complaint. Furthermore, the complaint for injunctive relief must
be construed strictly against the pleader (Ortigas & Company, Limited Partnership v.
Ruiz, supra).

In the instant case the existence of a "clear positive right" especially calling for judicial
protection has been shown by Sun Valley.

Toyota's claim over the disputed property is anchored on the fact of its purchase of the
property from APT, that from the circumstances of the purchase and the intention of the
parties, the property including the disputed area was sold to it.

Sun Valley, on the other hand has TCT No. 49019 of the Registry of Deeds of
Parañaque embracing the aforesaid property in its name, having been validly acquired
also from APT by virtue of a Deed of Sale executed in its favor on December 5, 1990
(Rollo, pp. 823-825; 826-827).

There are other circumstances in the case which militate against Toyota's claim for legal
possession over the disputed area.

The fact that Toyota has filed a suit for reformation seeking the inclusion of the 723
square meters strip of land is sufficient to deduce that it is not entitled to take over the
piece of property it now attempts to appropriate for itself.

As early as September, 1988 prior to the construction of the perimeter fence, Toyota
was already aware of the discrepancies in the property's description in the title and the
actual survey.

The letter of its surveyor company, Summa Kumagai thus reveals:

09 September, 1988

TOYOTA MOTOR PHILIPPINES CORPORATION

10th Floor, Metrobank Plaza
Sen. Gil J. Puyat Ave.
Makati, Metro Manila

ATTENTION: MR. FLORENCIO JURADO

Finance Officer

SUBJECT: PHASE I RENOVATION WORK

PERIMETER FENCE

GENTLEMEN:
 This is in connection with the construction of the Perimeter Fence for the
Toyota Motor Plant Facilities which to this date we have not started yet
due to the following reasons:

1. Lack of fencing permit which can only be applied to and issued by the
Parañaque Building Official upon receipt of the transfer certificate to title
and tax declaration.

2. Although the Building Official has verbally instructed us to proceed with

the renovation work and construction of fence, we could not execute the
fencing work due to discrepancies on the consolidation plan and the
existing property monuments. These discrepancies was (sic) confirmed
with the representatives of the Geodetic Engineer.

Kindly expedite the immediate confirmation with the Geodetic Engineer on

the final descriptions of the property lines.

We would appreciate your usual prompt attention regarding this matter.

Very truly yours,

CESAR D. ELE
Project Manager (Emphasis supplied, Rollo, p. 811)

Despite such notification, Toyota continued to build the perimeter fence. It is highly
doubtful whether Toyota may be considered a builder in good faith to be entitled to
protection under Article 448 of the Civil Code.

The records also reveal that Toyota's own surveyor, the Certeza Surveying & Acrophoto
Systems, Inc. confirmed in its reports dated April 1 and April 5, 1991 that Toyota's
perimeter fence overlaps the boundaries of Sun Valley's lot (Rollo, pp. 833-383).

Even communication exchanges between and among APT, Toyota & Sun Valley show
that the parties are certainly aware that the ownership of the disputed property more
properly pertains to Sun Valley. Among these are the following:

May 28, 1991

MR. JOSE CH. ALVAREZ

President
Sun Valley Manufacturing &
Development Corp. (SVMDC)
Cor. Aurora Blvd. and Andrews Ave.
Pasay City, Metro Manila

Dear Mr. Alvarez:

Thank you for honoring our invitation to a luncheon meeting held at noon
time today at Sugi Restaurant.

As per our understanding, we would like to propose as a package the

settlement of differences between your property and ours as follows:

1. Boundary Issue between TMP Main Office & Factory and

the recently acquired property of SVMDC.

The boundary lines to our property lines bidded early 1988

were determined after making full payment in August 1988
jointly by representatives of TMP/Metrobank — Messrs.
Mitake, Pedrosa, Alonzo and Jurado, APT — Mr. Bince
together with representatives of Geo-Resources who
installed the monuments and prepared the technical
description of the property. The construction of the fence
utilized existing fence marked yellow on Exhibit 1 and made
sure that the new fence to set boundaries were on top of the
monuments set by Geo-Resources. The replacement of
existing wire fence were affected by setting concrete walls
on exactly the same position.

This is the reason why we are surprised top be informed that

our fence goes beyond the boundary lines set forth in the
Technical Description on the Transfer Certificate of Title
(TCT) to our property. This occurs even on fence already
existing and should have been maintained in the TCT.

Since we have manifested our intention when we set

boundaries to our property, we propose the following in
relation to the excess area occupied by TMP.

1. We offer to give way to an access road 5 m. wide more or

less from point 15 to 16 of Lot 2 (14.65 m. in length) at the
back of our Paint Storage Building (Exhibit 2).

2. We propose to pay for the balance of excess land inside

TMP fence (contested areas) at a price mutually agreed
upon.

II. Question of ownership of certain permanent

improvements (underground water reservoir and perimeter
walls/fences) located at Lot 6 which we won by bidding from
APT on October 5, 1990.
 We have made our position to APT that these permanent
improvements are part of Lot 6 on "as is where is" bid basis
(See explanatory map — Exhibit 3). However, since you
have relayed to us that the underground water reservoir is of
no use to you, as part of the total package we are proposing
to pay for the underground water reservoir, the applicable
perimeter walls/fences and the water pump/pipings at a price
mutually agreed upon.

We hope that through this proposal we would settle our differences and
look forward to a more cooperative relationship between good neighbors.

We will appreciate your favorable consideration and immediate attention

on the matter.

Very
truly
yours,

MASA
O
MITA
KE
Presid
ent

July 4, 1991

TOYOTA MOTOR PHILIPPINES CORPORATION

Rm. 15, South Superhighway
Parañaque, Metro Manila

ATTENTION: MR. MASAO MITAKE

President

Gentlemen:

This refers to our several meetings regarding the property problems at

"Lot 6" and your encroachment of SVMD LOT I.

We wish to thank you for finally acknowledging the legitimacy of our

demands on both properties. In order to start a good business
relationship, we propose that the property problem at "LOT 6" which
 consists of the perimeter fence, water reservoir, water pump and systems
be settled first, in the amount of P3,500,000.00 payable to CMANC.

We also would like to request you to allow us to continue usage of the

MERALCO posts and lines connecting to SVMD power station which
passes thru your property and allow entry of MERALCO linemen from time
to time.

Upon acceptance of these requests, I will confer which our Japanese

partners to consider the selling of the 723 sq. m. of land adjacent to your
Assembly Plant which you continue to use even after said property has
been legally transferred to us from last quarter of 1990.

In view of your present good behavior, we are hoping that this first
problem be settled not later than July 15, 1991, otherwise, we will consider
the whole matter as unacceptable to you and we, therefore, proceed as
earlier demanded to immediately demolish the CHB fence that prevents us
from using our property.

We hope for your immediate action to start the resolution of these

unwanted problems.

Very truly yours,

JOSE CH.
ALVAREZ
President (Rollo, p.
832; Emphasis
supplied)

Moreover, Sun Valley puts forth evidence that Toyota has altered the boundaries of its
own property by moving the monuments erected thereon by APT's surveyor Geo-
Resources and Consultancy, Inc. when Lot 2 was initially surveyed in August 1988:

The Asset Privitalization Trust

10th Floor, BA-Lepanto Building
9847 Paseo de Roxas Building
Metro Manila

Attention: Mr. Felipe B. Bince, Jr.

Associate Executive Trustee

Dear Sirs:

This has reference to our letter to your office dated April 8, 1991, a copy of
which is attached, regarding the check survey of Delta I. After asking
 some of the field men who participated in the various surveys of Delta I
from the consolidation to subdivision surveys, we found out that some
more of the present corner points are not the same points shown to them
during the surveys. We shall show this during a meeting with the
representatives of the owners of Lots 1 and 2.

We hope this will clarify the discrepancies.

Very
truly
yours,

NORB
ERTO
S.
VILA
Exec.
Vice
Pres.
&
Gen.
Mana
ger

(Emphasis supplied; Rollo, p. 839)

There is therefore sufficient and convincing proof that Sun Valley has a clear legal right
to possession in its favor to warrant the issuance of a writ of preliminary/mandatory
injunction. Sun Valley's TCT gives it that right to possession. On the other hand, Toyota
has not established its right over the said property except for the assertion that there
was a mistake in an instrument which purportedly should have included the questioned
strip of land.

As between the two (2) parties, Sun Valley has a better right. Under the circumstances,
therefore, and considering that the clear legal right of Toyota to possession of the
disputed area has not been established sufficient to grant the prayed for relief, a writ of
preliminary mandatory injunction may be issued pendente lite. (See Mara, Inc. v.
Estrella, 65 SCRA 471 [1975]; De Gracia v. Santos, 79 Phil. 365 [1947]; Rodulfa v.
Alfonso, 76 Phil. 225 [1946] and Torre v. Querubin, 101 Phil. 53 [1957])

In view of all the foregoing, the petition is hereby DISMISSED for failure to show
reversible error, much less grave abuse of discretion, on the part of the respondent
court.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

 SECOND DIVISION

[G.R. No. 135362. December 13, 1999.]

HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for

herself and as legal guardian of the minor FABRICE CYRILL D.
SALAS, MA. CRISTINA S. LESACA, and KARINA TERESA D.
SALAS, Petitioners, v. LAPERAL REALTY CORPORATION, ROCKWAY
REAL ESTATE CORPORATION, SOUTH RIDGE VILLAGE, INC.,
MAHARAMI DEVELOPMENT CORPORATION, Spouses THELMA D.
ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses
VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA,
FLORANTE DE LA CRUZ, JESUS VICENTE B. CAPELLAN, and the
REGISTER OF DEEDS FOR LIPA CITY, Respondents.

DECISION

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Order 1 of Branch 85 of

the Regional Trial Court of Lipa City 2 dismissing petitioners’ complaint 3 for
rescission of several sale transactions involving land owned by Augusto L.
Salas, Jr., their predecessor-in-interest, on the ground that they failed to
first resort to arbitration.cralawnad

Salas, Jr. was the registered owner of a vast tract of land in Lipa City,
Batangas spanning 1,484,354 square meters.

On May 15, 1987, he entered into an Owner-Contractor Agreement 4

(hereinafter referred to as the Agreement) with respondent Laperal Realty
Corporation (hereinafter referred to as Laperal Realty) to render and provide
complete (horizontal) construction services on his land.

On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in

favor of respondent Laperal Realty to exercise general control, supervision
and management of the sale of his land, for cash or on installment basis.

On June 10, 1989, Salas, Jr. left his home in the morning for a business trip
to Nueva Ecija. He never returned.chanrobles.com : virtual law library
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of
Makati City a verified petition for the declaration of presumptive death of her
husband, Salas, Jr., who had then been missing for more than seven (7)
years. It was granted on December 12, 1996. 5

Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and
sold subdivided portions thereof to respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. on February 22, 1990; to
respondent spouses Abrajano and Lava and Oscar Dacillo on June 27, 1991;
and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capalan on June 4, 1996 (all of whom are hereinafter referred to as
respondent lot buyers).

On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional

Trial Court of Lipa City a Complaint 6 for declaration of nullity of sale,
reconveyance, cancellation of contract, accounting and damages against
herein respondents which was docketed as Civil Case No. 98-
0047.chanrobles law library : red

On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss 7 on

the ground that petitioners failed to submit their grievance to arbitration as
required under Article VI of the Agreement which
provides:jgc:chanrobles.com.ph

"ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER’S representative

shall be referred to the committee represented by:chanrob1es virtual 1aw
library

a. One representative of the OWNER;

b. One representative of the CONTRACTOR;

c. One representative acceptable to both OWNER and CONTRACTOR." 8

On May 5, 1998, respondent spouses Abrajano and Lava and respondent

Dacillo filed a Joint Answer with Counterclaim and Crossclaim 9 praying for
dismissal of petitioners’ Complaint for the same reason.

On August 9, 1998, the trial court issued the herein assailed Order
dismissing petitioners’ Complaint for non-compliance with the foregoing
arbitration clause.
Hence this petition.chanrobles.com : virtual law library

Petitioners argue, thus:jgc:chanrobles.com.ph

"The petitioners’ causes of action did not emanate from the Owner-
Contractor Agreement."cralaw virtua1aw library

"The petitioners’ causes of action for cancellation of contract and accounting

are covered by the exception under the Arbitration Law."cralaw virtua1aw
library

"Failure to arbitrate is not a ground for dismissal." 10

In a catena of cases 11 inspired by Justice Malcolm’s provocative dissent in

Vega v. San Carlos Milling Co. 12 , this Court has recognized arbitration
agreements as valid, binding, enforceable and not contrary to public policy
so much so that when there obtains a written provision for arbitration which
is not complied with, the trial court should suspend the proceedings and
order the parties to proceed to arbitration in accordance with the terms of
their agreement. 13 Arbitration is the "wave of the future" in dispute
resolution. 14 To brush aside a contractual agreement calling for arbitration
in case of disagreement between parties would be a step backward. 15

Nonetheless, we grant the petition.cralawnad

A submission to arbitration is a contract. 16 As such, the Agreement,

containing the stipulation on arbitration, binds the parties thereto, as well as
their assigns and heirs. 17 But only they. Petitioners, as heirs of Salas, Jr.,
and respondent Laperal Realty are certainly bound by the Agreement. If
respondent Laperal Realty had assigned its rights under the Agreement to a
third party, making the former, the assignor, and the latter, the assignee,
such assignee would also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in the assignee the
power to enforce them to the same extent as the assignor could have
enforced them against the debtor 18 or in this case, against the heirs of the
original party to the Agreement. However, respondents Rockway Real Estate
Corporation, South Ridge Village, Inc., Maharami Development Corporation,
spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de
la Cruz and Jesus Vicente Capellan are not assignees of the rights of
respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land
and sell the same. They are, rather, buyers of the land that respondent
Laperal Realty was given the authority to develop and sell under the
Agreement. As such, they are not "assigns" contemplated in Art. 1311 of the
New Civil Code which provides that "contracts take effect only between the
parties, their assigns and heirs" .

Petitioners claim that they suffered lesion of more than one-fourth (1/4) of
the value of Salas, Jr.’s land when respondent Laperal Realty subdivided it
and sold portions thereof to respondent lot buyers. Thus, they instituted
action 19 against both respondent Laperal Realty and respondent lot buyers
for rescission of the sale transactions and reconveyance to them of the
subdivided lots. They argue that rescission, being their cause of action, falls
under the exception clause in Sec. 2 of Republic Act No. 876 which provides
that "such submission [to] or contract [of arbitration] shall be valid,
enforceable and irrevocable, save, upon such grounds as exist at law for the
revocation of any contract" .

The petitioners’ contention is without merit. For while rescission, as a

general rule, is an arbitrable issue, 20 they impleaded in the suit for
rescission the respondent lot buyers who are neither parties to the
Agreement nor the latter’s assigns or heirs. Consequently, the right to
arbitrate as provided in Article VI of the Agreement was never vested in
respondent lot buyers.chanroblesvirtual|awlibrary

Respondent Laperal Realty, as a contracting party to the Agreement, has the

right to compel petitioners to first arbitrate before seeking judicial relief.
However, to split the proceedings into arbitration for respondent Laperal
Realty and trial for the respondent lot buyers, or to hold trial in abeyance
pending arbitration between petitioners and respondent Laperal Realty,
would in effect result in multiplicity of suits, duplicitous procedure and
unnecessary delay. On the other hand, it would be in the interest of justice if
the trial court hears the complaint against all herein respondents and
adjudicates petitioners’ rights as against theirs in a single and complete
proceeding.

WHEREFORE, the instant petition is hereby GRANTED. The Order dated

August 19, 1998 of Branch 85 of the Regional Trial Court of Lipa City is
hereby NULLIFIED and SET ASIDE. Said court is hereby ordered to proceed
with the hearing of Civil Case No. 98-0047.

Costs against private respondents.chanrobles.com.ph : virtual law library

SO ORDERED.