THIRD DIVISION

[G.R. No. 120105. March 27, 1998]

BF CORPORATION, petitioner, vs. COURT OF APPEALS, SHANGRI-LA PROPERTIES, COLAYCO, ALFREDO C. RAMOS, INC., RUFO B. MAXIMO G. LICAUCO IIIand BENJAMIN C. RAMOS, respondents.

D E C I S I O N

ROMERO, J.:

The basic issue in this petition for review on certiorari is whether or not the contract for the construction of the EDSA Plaza between petitioner BF Corporation and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of disagreement between the parties in the implementation of contractual provisions.

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter engaged the former to construct the main structure of the EDSA Plaza Project, a shopping mall complex in the City of Mandaluyong.

The construction work was in progress when SPI decided to expand the project by engaging the services of petitioner again. Thus, the parties entered into an agreement for the main contract works after which construction work began.

However, petitioner incurred delay in the construction work that SPI considered as serious and substantial.[1] On the other hand, according to petitioner, the construction works progressed

in faithful compliance with the First Agreement until a fire broke out on November 30, 1990 damaging Phase I of the Project.[2] Hence, SPI proposed the re-negotiation of the agreement between them.

Consequently, on May 30, 1991, petitioner and SPI entered into a written agreement denominated as Agreement for the Execution of Builders Work for the EDSA Plaza Project. Said agreement would cover the construction work on said project as of May 1, 1991 until its eventual completion.

According to SPI, petitioner failed to complete the construction works and abandoned the project.[3] This resulted in disagreements between the parties as regards their respective liabilities under the contract. On July 12, 1993, upon SPIs initiative, the parties respective representatives met in conference but they failed to come to an agreement.[4]

Barely two days later or on July 14, 1993, petitioner filed with the Regional Trial Court of Pasig a complaint for collection of the balance due under the construction agreement. Named defendants therein were SPI and members of its board of directors namely, Alfredo C. Ramos, Rufo B. Colayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr., Maximo G. Licauco III and Benjamin C. Ramos.

On August 3, 1993, SPI and its co-defendants filed a motion to suspend proceedings instead of filing an answer. The motion was anchored on defendants allegation that the formalTRADE CONTRACT  for the construction of the project provided for a clause requiring prior resort to arbitration before judicial intervention could be invoked in any dispute arising from the contract.The following day, SPI submitted a copy of the conditions of the contract containing the arbitration clause that it failed to append to its motion to suspend proceedings.

Petitioner opposed said motion claiming that there was no formal contract between the parties although they entered into an agreement defining their rights and obligations in undertaking the project. It emphasized that the agreement did not provide for arbitration and therefore the court could not be deprived of

jurisdiction conferred by law by the mere allegation of the existence of an arbitration clause in the agreement between the parties.

In reply to said opposition, SPI insisted that there was such an arbitration clause in the existing contract between petitioner and SPI. It alleged that suspension of proceedings would not necessarily deprive the court of its jurisdiction over the case and that arbitration would expedite rather than delay the settlement of the parties respective claims against each other.

In a rejoinder to SPIs reply, petitioner reiterated that there was no arbitration clause in the contract between the parties. It averred that granting that such a clause indeed formed part of the contract, suspension of the proceedings was no longer proper. It added that defendants should be declared in default for failure to file their answer within the reglementary period.

In its sur-rejoinder, SPI pointed out the significance of petitioners admission of the due execution of the Articles of Agreement. Thus, on page D/6 thereof, the signatures of Rufo B. Colayco, SPI president, and Bayani Fernando, president of petitioner appear, while page D/7 shows that the agreement is a public document duly notarized on November 15, 1991 by Notary Public Nilberto R. Briones as document No. 345, page 70, book No. LXX, Series of 1991 of his notarial register.[5]

Thereafter, upon a finding that an arbitration clause indeed exists, the lower court[6] denied the motion to suspend proceedings, thus:

It appears from the said document that in the letter-agreement dated May 30, 1991 (Annex C, Complaint), plaintiff BF and defendant Shangri-La Properties, Inc. agreed upon the terms and conditions of the Builders Work for the EDSA Plaza Project (Phases I, II and Carpark), subject to the execution by the parties of a formalTRADE CONTRACT . Defendants have submitted a copy of the alleged trade contract, which is entitled

`Contract Documents For Builders Work Trade Contractor dated 01 May 1991, page 2 of which is entitled `Contents of Contract Documents with a list of the documents therein contained, and Section A thereof consists of the abovementioned Letter-Agreement dated May 30, 1991. Section C of the said Contract Documents is entitled `Articles of Agreement and Conditions of Contract which, per its Index, consists of Part A (Articles of Agreement) and B (Conditions of Contract). The said Articles of Agreement appears to have been duly signed by President Rufo B. Colayco of Shangri-La Properties, Inc. and President Bayani F. Fernando of BF and their witnesses, and was thereafter acknowledged before Notary Public Nilberto R. Briones of Makati, Metro Manila on November 15, 1991. The said Articles of Agreement also provides that the `Contract Documents' therein listed `shall be deemed an integral part of this Agreement, and one of the said documents is the `Conditions of Contract which contains the Arbitration Clause relied upon by the defendants in their Motion to Suspend Proceedings.

This Court notes, however, that the `Conditions of Contract referred to, contains the following provisions:

`3. Contract Document.

Three copies of the Contract Documents referred to in the Articles of Agreement shall be signed by the parties to the contract and distributed to the Owner and the

Contractor for their safe keeping. (underscoring supplied)

And it is significant to note further that the said `Conditions of Contract is not duly signed by the parties on any page thereof --- although it bears the initials of BFs representatives (Bayani F. Fernando and Reynaldo M. de la Cruz) without the initials thereon of any representative of Shangri-La Properties, Inc.

Considering the insistence of the plaintiff that the said Conditions of Contract was not duly executed or signed by the parties, and the failure of the defendants to submit any signed copy of the said document, this Court entertains serious doubt whether or not the arbitration clause found in the said Conditions of Contract is binding upon the parties to the Articles of Agreement. (Underscoring supplied.)

The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was too late in the day for defendants to invoke arbitration. It quoted the following provision of the arbitration clause:

Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably have failed; in no case, however, shall the demand he made be later than the time of final payment except as otherwise expressly stipulated in the contract.

Against the above backdrop, the lower court found that per the May 30, 1991 agreement, the project was to be completed by October 31, 1991. Thereafter, the contractor would pay P80,000 for each day of delay counted from November 1, 1991 with liquified (sic) damages up to a maximum of 5% of the total contract price.

The lower court also found that after the project was completed in accordance with the agreement that contained a provision on progress payment billing, SPI took possession and started operations thereof by opening the same to the public in November, 1991. SPI, having failed to pay for the works, petitioner billed SPI in the total amount of P110,883,101.52, contained in a demand letter sent by it to SPI on February 17, 1993. Instead of paying the amount demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference on that claim for July 12, 1993. The conference took place but it proved futile.

Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required that `Notice of the demand for arbitration of a dispute shall be filed in writing with the other party x x x x in no case x x x x later than the time of final payment x x x x which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiffs billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, this Court finds that it cannot stay the proceedings in this case as required by Sec. 7 of Republic Act

No. 876, because defendants are in default in proceeding with such arbitration.

The lower court denied SPIs motion for reconsideration for lack of merit and directed it and the other defendants to file their responsive pleading or answer within fifteen (15) days from notice.

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

The reasons given by the respondent Court in denying petitioners motion to suspend proceedings are untenable.

1. The notarized copy of the articles of agreement attached as Annex A to petitioners reply dated August 26, 1993, has been submitted by them to the respondent Court (Annex G, petition). It bears the signature of petitioner Rufo B. Colayco, president of petitioner Shangri-La Properties, Inc., and of Bayani Fernando, president of respondent Corporation (Annex G-1, petition). At page D/4 of said articles of agreement it is expressly provided that the conditions of contract are `deemed an integral part thereof (page 188, rollo). And it is at pages D/42 to D/44 of the conditions of contract that the provisions for arbitration are found (Annexes G-3 to G-5, petition, pp. 227-229). Clause No. 35 on arbitration specifically provides:

Provided always that in case any dispute or difference shall arise between the Owner or the Project Manager on his behalf and the Contractor, either during the progress or after the completion or abandonment of the Works as

to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith (including any matter or being left by this Contract to the discretion of the Project Manager or the withholding by the Project Manager of any certificate to which the Contractor may claim to be entitled or the measurement and valuation mentioned in clause 30 (5) (a) of these Conditions or the rights and liabilities of the parties under clauses 25, 26, 32 or 33 of these Conditions), the Owner and the Contractor hereby agree to exert all efforts to settle their differences or dispute amicably. Failing these efforts then such dispute or difference shall be referred to Arbitration in accordance with the rules and procedures of the Philippine Arbitration Law.

The fact that said conditions of contract containing the arbitration clause bear only the initials of respondent Corporations representatives, Bayani Fernando and Reynaldo de la Cruz, without that of the representative of petitioner Shangri-La Properties, Inc. does not militate against its effectivity. Said petitioner having categorically admitted that the document, Annex A to its reply dated August 26, 1993 (Annex G, petition), is the agreement between the parties, the initial or signature of said petitioners representative to signify conformity to arbitration is no longer necessary. The parties, therefore, should be allowed to submit their dispute to arbitration in accordance with their agreement.

2. The respondent Court held that petitioners `are in default in proceeding with such arbitration. It took note of `the fact that under the supposed Arbitration Clause invoked by defendants, it is required that Notice of the

demand for arbitration of a dispute shall be filed in writing with the other party x x x in no case x x x later than the time of final payment, which apparently, had elapsed, not only because defendants had taken possession of the finished works and the plaintiffs billings for the payment thereof had remained pending since November, 1991 up to the filing of this case on July 14, 1993, but also for the reason that defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months, x x x.

Respondent Court has overlooked the fact that under the arbitration clause

Notice of the demand for arbitration dispute shall be filed in writing with the other party to the contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed; in no case, however, shall the demand be made later than the time of final payment except as otherwise expressly stipulated in the contract (underscoring supplied)

quoted in its order (Annex A, petition). As the respondent Court there said, after the final demand to pay the amount of P110,883,101.52, instead of paying, petitioners set up its own claim against respondent Corporation in the amount of P220,000,000.00 and set a conference thereon on July 12, 1993. Said conference proved futile. The next day, July 14, 1993, respondent Corporation filed its complaint against petitioners. On August 13, 1993, petitioners wrote to respondent Corporation requesting arbitration. Under the circumstances, it cannot be said that petitioners resort to

arbitration was made beyond reasonable time. Neither can they be considered in default of their obligation to respondent Corporation.

Hence, this petition before this Court. Petitioner assigns the following errors:

A.

THE COURT OF APPEALS ERRED IN ISSUING THE EXTRAORDINARY WRIT OF CERTIORARI ALTHOUGH THE REMEDY OF APPEAL WAS AVAILABLE TO RESPONDENTS.

B.

THE COURT OF APPEALS ERRED IN FINDING GRAVE ABUSE OF DISCRETION IN THE FACTUAL FINDINGS OF THE TRIAL COURT THAT:

(i) THE PARTIES DID NOT ENTER INTO AN AGREEMENT TO ARBITRATE.

(ii) ASSUMING THAT THE PARTIES DID ENTER INTO THE AGREEMENT TO ARBITRATE, RESPONDENTS ARE ALREADY IN DEFAULT IN INVOKING THE AGREEMENT TO ARBITRATE.

On the first assigned error, petitioner contends that the Order of the lower court denying the motion to suspend proceedings is a resolution of an incident on the merits. As such, upon the continuation of the proceedings, the lower court would appreciate the evidence adduced in their totality and

thereafter render a decision on the merits that may or may not sustain the existence of an arbitration clause. A decision containing a finding that the contract has no arbitration clause can then be elevated to a higher court in an ordinary appeal where an adequate remedy could be obtained.Hence, to petitioner, the Court of Appeals should have dismissed the petition for certiorari because the remedy of appeal would still be available to private respondents at the proper time.[7]

The above contention is without merit.

The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of appeal is succinctly reiterated in Ongsitco v. Court of Appeals[8] as follows:

x x x. Countless times in the past, this Court has held that `where appeal is the proper remedy, certiorari will not lie. The writs of certiorari and prohibition are remedies to correct lack or excess of jurisdiction or grave abuse of discretion equivalent to lack of jurisdiction committed by a lower court. `Where the proper remedy is appeal, the action for certiorari will not be entertained. x x x. Certiorariis not a remedy for errors of judgment. Errors of judgment are correctible by appeal, errors of jurisdiction are reviewable by certiorari.

Rule 65 is very clear. The extraordinary remedies of certiorari, prohibition and mandamus are available only when `there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law x x x. That is why they are referred to as `extraordinary. x x x.

The Court has likewise ruled that certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are

reviewable by timely appeal and not by a special civil action of certiorari.[9]v. Court of Appeals, 327 Phil. 1, 41-42 (1996).9

This is not exactly so in the instant case. While this Court does not deny the eventual jurisdiction of the lower court over the controversy, the issue posed basically is whether the lower court prematurely assumed jurisdiction over it. If the lower court indeed prematurely assumed jurisdiction over the case, then it becomes an error of jurisdiction which is a proper subject of a petition forcertiorari before the Court of Appeals. And if the lower court does not have jurisdiction over the controversy, then any decision or order it may render may be annulled and set aside by the appellate court.

However, the question of jurisdiction, which is a question of law depends on the determination of the existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found that there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration clause does not exist.

The issue, therefore, posed before the Court of Appeals in a petition for certiorari is whether the Arbitration Clause does not in fact exist. On its face, the question is one of fact which is not proper in a petition for certiorari.

The Court of Appeals found that an Arbitration Clause does in fact exist. In resolving said question of fact, the Court of Appeals interpreted the construction of the subject contract documents containing the Arbitration Clause in accordance with Republic Act No. 876 (Arbitration Law) and existing jurisprudence which will be extensively discussed hereunder. In effect, the issue posed before the Court of Appeals was likewise a question of law. Being a question of law, the private respondents rightfully invoked the special civil action of certiorari.

It is that mode of appeal taken by private respondents before the Court of Appeals that is being questioned by the petitioners before this Court. But at the heart of said issue is the question of whether there exists an Arbitration Clause because

if an Arbitration Clause does not exist, then private respondents took the wrong mode of appeal before the Court of Appeals.

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

Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may be relaxed.[10] As we shall show hereunder, had the Court of Appeals dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been resolved in accordance with evidence extant in the record of the case. Consequently, this would have resulted in a judicial rejection of a contractual provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract between petitioner and private respondents is a legal issue that must be determined in this petition for review on certiorari.

Petitioner, while not denying that there exists an arbitration clause in the contract in question, asserts that in contemplation of law there could not have been one considering the following points.First, the trial court found that the conditions of contract embodying the arbitration clause is not duly signed by the parties. Second, private respondents misrepresented before the Court of Appeals that they produced in the trial court a notarized duplicate original copy of the construction agreement because what were submitted were mere photocopies thereof. The contract(s) introduced in court by private respondents were therefore of dubious authenticity because: (a) the Agreement for the Execution of Builders Work for the EDSA Plaza Project does not contain an arbitration clause, (b) private respondents surreptitiously attached as Annexes `G-3 to `G-5 to their petition before the Court of Appeals but these documents are not parts

of the Agreement of the parties as there was no formalTRADE CONTRACT  executed, (c) if the entire compilation of documents is indeed a formalTRADE CONTRACT , then it should have been duly notarized, (d) the certification from the Records Management and Archives Office dated August 26, 1993 merely states that the notarial record of Nilberto Briones x x x is available in the files of (said) office as Notarial Registry Entry only, (e) the same certification attests that the document entered in the notarial registry pertains to the Articles of Agreement only without any other accompanying documents, and therefore, it is not a formal trade contract, and (f) the compilation submitted by respondents are a mere hodge-podge of documents and do not constitute a single intelligible agreement.

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

This Court may as well proceed to determine whether the arbitration clause does exist in the parties contract. Republic Act No. 876 provides for the formal requisites of an arbitration agreement as follows:

Section 4. Form of arbitration agreement. A contract to arbitrate a controversy thereafter arising between the parties, as well as a submission to arbitrate an existing controversy, shall be in writing and subscribed by the party sought to be charged, or by his lawful agent.

The making of a contract or submission for arbitration described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the parties of the province or city where any of the parties

resides, to enforce such contract of submission. (Underscoring supplied.)

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

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

Petitioners contention that there was no arbitration clause because the contract incorporating said provision is part of a hodge-podge document, is therefore untenable. A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence.[13] A contract may be encompassed in several instruments even though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as though there had been only one copy of the agreement and both had signed it.[14]

The flaw in petitioners contentions therefore lies in its having segmented the various components of the whole contract between the parties into several parts. This notwithstanding, petitioner ironically admits the execution of the Articles of Agreement. Notably, too, the lower court found that the said Articles of Agreement also provides that the `Contract Documents therein listed `shall be deemed an integral part of this Agreement, and one of the said documents is the `Conditions of Contract which contains the Arbitration Clause. It is this Articles of Agreement that was duly signed by Rufo B. Colayco, president of private respondent SPI, and Bayani F. Fernando, president of petitioner corporation. The same agreement was duly subscribed before notary public Nilberto R. Briones. In other words, the subscription of the principal agreement effectively covered the other documents incorporated by reference therein.

This Court likewise does not find that the Court of Appeals erred in ruling that private respondents were not in default in invoking the provisions of the arbitration clause which states that (t)he demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably had failed. Under the factual milieu, private respondent SPI should have paid its liabilities under the contract in accordance with its terms. However, misunderstandings appeared to have cropped up between the parties ostensibly brought about by either delay in the completion of the construction work or by force majeure or the fire that partially gutted the project. The almost two-year delay in paying its liabilities may not therefore be wholly ascribed to private respondent SPI.

Besides, private respondent SPIs initiative in calling for a conference between the parties was a step towards the agreed resort to arbitration. However, petitioner posthaste filed the complaint before the lower court. Thus, while private respondent SPIs request for arbitration on August 13, 1993 might appear an afterthought as it was made after it had filed the motion to suspend proceedings, it was because petitioner also appeared

to act hastily in order to resolve the controversy through the courts.

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

In this connection, it bears stressing that the lower court has not lost its jurisdiction over the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only been stayed. After the special proceeding of arbitration[16] has been pursued and completed, then the lower court may confirm the award[17] made by the arbitrator.

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, this Court has countenanced the settlement of disputes through arbitration.[18] Republic Act No. 876 was adopted to supplement the New Civil Codes provisions on arbitration.[19] 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.

WHEREFORE, the questioned Decision of the Court of Appeals is hereby AFFIRMED and the petition for certiorari DENIED. This Decision is immediately executory. Costs against petitioner.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 110434 December 13, 1993

HI-PRECISION STEEL CENTER, INC., petitioner, vs.LIM KIM STEEL BUILDERS, INC., and CONSTRUCTION INDUSTRY ARBITRATION COMMISSION,respondents.

Felix Q. Vinluan and Siguion Reyna, Montecillo & Ongsiako for petitioner.

De Castro & Cagampang Law Offices for Lim Kim teel Builders, Inc.

R E S O L U T I O N

 

FELICIANO, J.:

On 18 June 1993, a "Petition for Extension to File Petition for Review" 1 was filed before the Court, petitioner Hi-Precision Steel Center, Inc. ("Hi-Precision") stating that it intended to file a Petition for Review on Certiorari in respect of the 13 November 1992 Award 2 and 13 May 1993 Order 3 of public respondent Construction Industry Arbitration Commission ("CIAC") in Arbitration Case No. 13-90. The Petition (really a Motion) prayed for an extension of thirty (30) days or until 21 July 1993 within which to file a Petition for Review.

An opposition 4 to the Motion was filed by private respondent Lim Kim Steel Builders, Inc. ("Steel Builders") on 5 July 1993. On the same day, however, the Court issued a Resolution 5 granting the Motion with a warning that no further extension would be given.

The Opposition, the subsequent Reply 6 of petitioner filed on 20 July 1993 and the Petition for Review 7 dated 21 July 1993, were noted by the Court in its Resolution 8 of 28 July 1993. The Court also required private respondent

Steel Builders to file a Comment on the Petition for Review and Steel Builders complied.

The Petition prays for issuance of a temporary restraining order 9 to stay the execution of the assailed Order and Award in favor of Steel Builders, which application the Court merely noted, as it did subsequent Urgent Motions for a temporary restraining order. 10

Petitioner Hi-Precision entered into a contract with private respondent Steel Builders under which the latter as Contractor was to complete a P21 Million construction project owned by the former within a period of 153 days, i.e.from 8 May 1990 to 8 October 1990. The project completion date was firstMOVED  to 4 November 1990. On that date, however, only 75.8674% of the project was actually completed. Petitioner attributed this non-completion to Steel Builders which allegedly had frequently incurred delays during theoriginal contract period and the extension period. Upon the other hand, Steel Builders insisted that the delays in the project were either excusable or due to Hi-Precision's own fault and issuance of change orders. The project was taken over on 7 November 1990, and eventually completed on February 1991, by Hi-Precision.

Steel Builders filed a "Request for Adjudication" with public respondent CIAC. In its Complaint filed with the CIAC, Steel Builders sought payment of its unpaid progress buildings, alleged unearned profits and other receivables. Hi-Precision, upon the other hand, in its Answer and Amended Answer, claimed actual and liquidated damages, reimbursement of alleged additional costs it had incurred in order to complete the project and attorney's fees.

The CIAC formed an Arbitral Tribunal with three (3) members, two (2) being appointed upon nomination of Hi-Precision and Steel Builders, respectively; the third member (the Chairman) was appointed by the CIAC as a common nominee of the two (2) parties. On the Chairman was a lawyer. After the arbitration proceeding, the Arbitral Tribunal rendered a unanimous Award dated 13 November 1992, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, the Owner [petitioner Hi-Precision] is ordered to pay the Contractor [private respondent Steel Builders] the amount of P6,400,717.83 and all other claims of the parties against

each other are deemed compensated and offset. No pronouncement as to costs.

The Parties are enjoined to abide by the award. 11

Upon motions for reconsideration filed, respectively, by Hi-Precision and Steel Builders, the Arbitral Tribunal issued an Order dated 13 May 1993 which reduced the net amount due to contractor Steel Builders to P6,115,285.83. 12

In its Award, the Arbitral Tribunal stated that it was guided by Articles 1169, 1192 and 2215 of the Civil Code. With such guidance, the arbitrators concluded that (a) both parties were at fault, though the Tribunal could not point out which of the parties was the first infractor; and (b) the breaches by one party affected the discharge of the reciprocal obligations of the other party. With mutual fault as a principal premise, the Arbitral Tribunal denied (a) petitioner's claims for the additional costs allegedly incurred to complete the project; and (b) private respondent's claim for profit it had failed to earn because of petitioner's take over of the project.

The Tribunal then proceeded to resolve the remaining specific claims of the parties. In disposing of these multiple, detailed claims the Arbitral Tribunal, in respect of one or more of the respective claims of the parties: (a) averaged out the conflicting amounts and percentages claimed by the parties; 13 (b) found neither basis nor justification for a particular claim; 14 (c) found the evidence submitted in support of particular claims either weak or non-existent; 15 (d) took account of the admissions of liability in respect of particular claims; 16 (e) relied on its own expertise in resolving particular claims; 17 and (f) applied a "principle of equity" in requiring each party to bear its own loss resulting or arising from mutual fault or delay (compensation morae). 18

Petitioner Hi-Precision now asks this Court to set aside the Award, contending basically that it was the contractor Steel Builders who had defaulted on its contractual undertakings and so could not be the injured party and should not be allowed to recover any losses it may have incurred in the project. Petitioner Hi-Precision insists it is still entitled to damages, and claims that the Arbitral Tribunal committed grave abuse of discretion when it allowed certain claims by Steel Builders and offset them against claims of Hi-Precision.

A preliminary point needs to be made. We note that the Arbitral Tribunal has not been impleaded as a respondent in the Petition at bar. The CIAC has indeed been impleaded; however, the Arbitral Award was not rendered by the CIAC, but rather by the Arbitral Tribunal. Moreover, under Section 20 of Executive Order No. 1008, dated 4 February 1985, as amended, it is the Arbitral Tribunal, or the single Arbitrator, with the concurrence of the CIAC, which issues the writ of execution requiring any sheriff or other proper officer to execute the award. We consider that the Arbitral Tribunal which rendered the Award sought to be reviewed and set aside, should be impleaded even though the defense of its Award would presumably have to be carried by the prevailing party.

Petitioner Hi-Precision apparently seeks review of both under Rule 45 and Rule 65 of the Rules of Court. 19 We do not find it necessary to rule which of the two: a petition for review under Rule 45 or a petition for certiorari under Rule 65 — is necessary under Executive Order No. 1008, as amended; this issue was, in any case, not squarely raised by either party and has not been properly and adequately litigated.

In its Petition, Hi-Precision purports to raise "legal issues," and in presenting these issues, prefaced each with a creative formula:

(1)

The public respondent [should be the "Arbitral Tribunal'] committed serious error in law, if not grave abuse of discretion, when it failed to strictly apply Article 1191, New Civil Code, against thecontractor . . .;

(2)

The public respondent committee serious error in law, if not grave abuse of discretion, when it failed to rule in favor of the owner, now petitioner herein, all the awards it claimed on arbitration, and when it nonetheless persisted in its awards of damages in favor of therespondent. . . .;

(3)

The public respondent committed serious error in law, if not grave abuse of discretion, for its abject failure to apply

the doctrine of waiver, estoppel against the contractor, the private respondent herein, when it agreed on November 16, 1990 to award termination of the contract and the owner's takeover of the project . . .;

(4)

The public respondent committed serious error in law, if not grave abuse of discretion, when it did not enforce the law between the parties, the "technical specification[s]" which is one of the contract documents, particularly to par. (a), sub-part 3.01, part 3, Sec. 2b, which expressly requires that major site work activities like stripping, removal and stockpiling of top soil shall be done "prior to the start of regular excavation or backfiling work", the principal issue in arbitration being non-compliance with the contract documents;

(5)

The public respondent committed serious error in law, if not grave abuse of discretion, when it found, in the May 13, 1993 Order, the petitioner "guilty of estoppel" although it is claimed that the legal doctrine of estoppel does not apply with respect to the required written formalities in the issuance of change order . . .;

(6)

The exceptional circumstances in Remalante vs. Tibe, 158 SCRA 138, where the Honorable Supreme Court may review findings of facts, are present in the instant case, namely; (a) when the inference made is manifestly absurd, mistaken or impossible (Luna vs. Linatoc, 74 Phil. 15); (2) when there is grave abuse of discretion in the appreciation of facts (Buyco vs. People, 95 Phil. 253); (3) when the judgment is premised on a misapprehension of facts (De la Cruz v. Sosing, 94 Phil. 26 and Castillo vs. CA, 124 SCRA 808); (4) when the findings of fact are conflicting (Casica v. Villaseca, 101 Phil. 1205); (5) when the findings are contrary to the admissions of the parties (Evangelista v. Alto Surety, 103 Phil. 401), and therefore, the findings of facts of the public

respondent in the instant case may be reviewed by the Honorable Supreme Court. 20 (Emphasis partly applied and partly in the original)

From the foregoing, petitioner Hi-Precision may be seen to be making two (2) basic arguments:

(a) Petitioner asks this Court to correct legal errors committed by the Arbitral Tribunal, which at the same time constitute grave abuse of discretion amounting to lack of jurisdiction on the part of the Arbitral Tribunal; and

(b) Should the supposed errors petitioner asks us to correct be characterized as errors of fact, such factual errors should nonetheless be reviewed because there was "grave abuse of discretion" in the misapprehension of facts on the part of the Arbitral Tribunal.

Executive Order No. 1008, as amended, provides, in its Section 19, as follows:

Sec. 19. Finality of Awards. — The arbitral award shall be binding upon the parties. It shall be final and inappealable except on questions of law which shall be appealable to the Supreme Court.

Section 19 makes it crystal clear that questions of fact cannot be raised in proceedings before the Supreme Court — which is not a trier of facts — in respect of an arbitral award rendered under the aegis of the CIAC. Consideration of the animating purpose of voluntary arbitration in general, and arbitration under the aegis of the CIAC in particular, requires us to apply rigorously the above principle embodied in Section 19 that the Arbitral Tribunal's findings of fact shall be final and inappealable.

Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the entire hierarchy of courts.

Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can have recourse. The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of national development goals. 21

Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The parties here had recourse to arbitration and chose the arbitrators themselves; they must have had confidence in such arbitrators. The Court will not, therefore, permit the parties to relitigate before it the issues of facts previously presented and argued before the Arbitral Tribunal, save only where a very clear showing is made that, in reaching its factual conclusions, the Arbitral Tribunal committed an error so egregious and hurtful to one party as to constitute a grave abuse of discretion resulting in lack or loss of jurisdiction. 22 Prototypical examples would be factual conclusions of the Tribunal which resulted in deprivation of one or the other party of a fair opportunity to present its position before the Arbitral Tribunal, and an award obtained through fraud or the corruption of arbitrators. 23 Any other, more relaxed, rule would result in setting at naught the basic objective of a voluntary arbitration and would reduce arbitration to a largely inutile institution.

Examination of the Petition at bar reveals that it is essentially an attempt to re-assert and re-litigate before this Court the detailed or itemized factual claims made before the Arbitral Tribunal under a general averment that the Arbitral Tribunal had "misapprehended the facts" submitted to it. In the present Petition, too, Hi-Precision claims that the Arbitral Tribunal had committed grave abuse of discretion amounting to lack of jurisdiction in reaching its factual and legal conclusions.

The first "legal issue" submitted by the Petition is the claimed misapplication by the Arbitral Tribunal of the first and second paragraphs of Article 1911 of the Civil Code. 24 Article 1191 reads:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Hi-Precision contends energetically that it is the injured party and that Steel Builders was the obligor who did not comply with what was incumbent upon it, such that Steel Builders was the party in default and the entity guilty of negligence and delay. As the injured party, Hi-Precision maintains that it may choose between the fulfillment or rescission of the obligation in accordance with Article 1191, and is entitled to damages in either case. Thus, Hi-Precision continues, when the contractor Steel Builders defaulted on the 153rd day of the original contract period, Hi-Precision opted for specific performance and gave Steel Builders a 30-day extension period with which to complete the project.

What petitioner Hi-Precision, in its above argument, disregards is that the determination of whether Hi-Precision or Steel Builders was the "injured party" is not to be resolved by an application of Article 1191. That determination is eminently a question of fact, for it requires ascertainment and identification of which the two (2) contending parties had first failed to comply with what is incumbent upon it. In other words, the supposed misapplication of Article 1191, while ostensibly a "legal issue," is ultimately a question of fact, i.e., the determination of the existence or non-existence of a fact or set of facts in respect of which Article 1191 may be properly applied. Thus, to ask this Court to correct a claimed misapplication or non-application of Article 1191 is to compel this Court to determine which of the two (2) contending parties was the "injured party" or the "first infractor." As noted earlier, the Arbitral Tribunal after the prolonged arbitration proceeding, was unable to make that factual

determination and instead concluded that both parties had committed breaches of their respective obligations. We will not review, and much less reverse, that basic factual finding of the Arbitral Tribunal.

A second "legal issue" sought to be raised by petitioner Hi-Precision relates to the supposed failure of the Arbitral Tribunal to apply the doctrines of estoppel and waiver as against Steel Builders. 25 The Arbitral Tribunal, after declaring that the parties were mutually at fault, proceeded to enumerate the faults of each of the parties. One of the faults attributed to petitioner Hi-Precision is that it had failed to give the contractor Steel Builders the required 15-day notice for termination of the contract. 26 This was clearly a finding of fact on the part of the Tribunal, supported by the circumstance that per the record, petitioner had offered no proof that it had complied with such 15-day notice required under Article 28.01 of the General Conditions of Contract forming part of the Contract Documents. Petitioner Hi-Precision's argument is that a written Agreement dated 16 November 1990 with Steel Builders concerning the take over of the project by Hi-Precision, constituted waiver on the part of the latter of its right to a 15-day notice of contract termination. Whether or not that Agreement dated 16 November 1990 (a document not submitted to this Court) is properly characterized as constituting waiver on the part of Steel Builders, may be conceded to be prima facie a question of law; but, if it is, and assumingarguendo that the Arbitral Tribunal had erred in resolving it, that error clearly did not constitute a grave abuse of discretion resulting in lack or loss of jurisdiction on the part of the Tribunal.

A third "legal issue" posed by Hi-Precision relates to the supposed failure on the part of the Arbitral Tribunal "to uphold the supremacy of 'thelaw between the parties' and enforce it against private respondent [Steel Builders]." 27 The "law between that parties" here involved is the "Technical Specifications" forming part of the Contract Documents. Hi-Precision asserts that the Arbitral Tribunal did not uphold the "law between the parties," but instead substituted the same with "its [own] absurd inference and 'opinion' on mud." Here again, petitioner is merely disguising a factual question as a "legal issue," since petitioner is in reality asking this Court to review the physical operations relating, e.g., to site preparation carried out by the contractor Steel Builders and to determine whether such operations were in accordance with the Technical Specifications of the project. The Arbitral Tribunal resolved Hi-Precision's claim by finding that Steel Builders had complied substantially with the Technical Specifications. This Court will not pretend that it has the technical and engineering capability to review the resolution of that factual issue by the Arbitral Tribunal.

Finally, the Petition asks this Court to "review serious errors in the findings of fact of the [Arbitral Tribunal]." 28 In this section of its Petition,

Hi-Precision asks us to examine each item of its own claims which the Arbitral Tribunal had rejected in its Award, and each claim of the contractor Steel Builders which the Tribunal had granted. In respect of each item of the owner's claims and each item of the contractor's claims, Hi-Precision sets out its arguments, to all appearances the same arguments it had raised before the Tribunal. As summarized in the Arbitral Award, Contractor's Claims were as follows:

12.1. Unpaid Progress Billing 1,812,706.95

12.2. Change Order 1 0.0012.3. -do- 2 10,014.0012.4. -do- 3 320,000.0012.5. -do- 4 112,300.7012.6. -do- 5 398,398.0012.7. -do- 6 353,050.3812.8. -do- 7 503,836.5312.9. -do- 8 216,138.7512.10. -do- 9 101,621.4012.11. -do- 10 7,200.0012.12. -do- 11 0.0012.13. -do- 12 7,800.0012.14. -do- 13 49,250.0012.15. -do- 14 167,952.0012.16. -do- 15 445,600.0012.17. -do- 16 92,457.3012.18. -do- 17 1,500.0012.19. 20,240.0012.20. 63,518.0012.21. 0.0012.22. 0.0012.23. 0.0012.24. 0.0012.25. 0.0012.26. 730,201.5712.27. 1,130,722.7012.28. 0.0012.29. 273,991.0012.30. 0.00

———————12.31. 7,318,499.28 29

=============

Upon the other hand, the petitioner's claims we are asked to review and grant are summarized as follows:

1. Actual DamagesAdvance Downpayment[at] signing of Contractwhich is subject to 40%deduction every progressbilling (40% of Contract Price) P8,406,000.00Progress Billings 5,582,585.55Advances made to Lim Kima) prior to take-over 392,781.45b) after the take-overCivil Works 1,158,513.88Materials 4,213,318.72Labor 2,155,774.79Equipment Rental 1,448,208.90———————P8,974,816.45Total Amount Paid for Construction 23,650,183.00Less: Contract Price (21,000,000.00)IA Excess of amount paidover contract price 2,650,163.29IB Other items due from LimKim Steel Buildersa. Amount not yet deductedfrom Downpayment dueto non-completion of Project(P24.1326%) 2,027,138.40b. Due to Huey Commercialused for HSCI Project 51,110.40IC Additional construction expensesa. Increases in prices since Oct. 5,272,096.81b. Cost of money of (a) 873,535.49ID Installation of machinerya. Foreign exchange loss 11,565,048.37b. Cost of money (a) 2,871,987.01I[E] Raw Materialsa. Foreign exchange loss 4,155,982.18b. Cost of money (a) 821,242.72c. Additional import levy of 5% 886,513.33d. Cost of money (c) 170,284.44e. Cost of money on marginaldeposit on Letter of Credit 561,195.25IF Cost of money on holding to CRC INTY 3,319,609.63

Total Actual Damages 35,295,927.322. Liquidated Damages 2,436,000.003. Attorney's Fees 500,000.00———————P38,231,927.32 30

=============

We consider that in asking this Court to go over each individual claim submitted by it and each individual countering claim submitted by Steel Builders to the Arbitral Tribunal, petitioner Hi-Precision is asking this Court to pass upon claims which are either clearly and directly factual in nature or require previous determination of factual issues. This upon the one hand. Upon the other hand, the Court considers that petitioner Hi-Precision has failed to show any serious errors of law amounting to grave abuse of discretion resulting in lack of jurisdiction on the part of the Arbitral Tribunal, in either the methods employed or the results reached by the Arbitral Tribunal, in disposing of the detailed claims of the respective parties.

WHEREFORE, for all the foregoing, the Petition is hereby DISMISSED for lack of merit. Costs against petitioner.

SO ORDERED.

PHILIPPINE ARBITRATION UPDATES: The case of Korea Technologies Co., Ltd. v. Hon. Alberto A. Lerma1 and Pacific General Steel Manufacturing Corporation, G.R. No. 143581, Jan. 7, 2008. The Facts: Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a contract with Pacific General Steel Manufacturing Corporation [Pacific General], a domestic corporation, whereby Korea Tech undertook to ship and install in Pacific General’s site in Carmona, Cavite the machinery and facilities necessary for manufacturing LPG cylinders, and to initially operate the plant after it is installed. The plant, after completion of installation, could not be operated by Pacific General due to its financial difficulties affecting the supply of materials. The last payments made by Pacific General to Korea Tech consisted of postdated checks which were dishonored upon presentment. According to Pacific General, it stopped payment because Korea Tech had delivered a hydraulic press which was different in kind and of lower quality than that agreed upon. Korea Tech also failed to deliver equipment parts already paid for by it. It threatened to cancel the contract with Korea Tech and dismantle the Carmona plant. Korea Tech initiated arbitration before the Korea Commercial Arbitration Board [KCAB] in Seoul, Korea and, at the same time, commenced a civil action before the Regional Trial Court [the “trial court”] where it prayed that Pacific General be restrained from dismantling the plant and equipment. Pacific General opposed the application and argued that the arbitration clause was null and void, being contrary to public policy as it ousts the local court of jurisdiction. It also alleged that Korea Tech was not entitled to the payment of the amount covered by the two checks, and that Korea Tech was liable for damages. The trial court denied the application for preliminary injunction and declared the arbitration agreement null and void. Korea Tech moved to dismiss the counterclaims for damages. Meanwhile, Pacific General filed a motion “for inspection of things” to determine whether there was indeed alteration of the quantity and lowering of quality of the machineries and equipment and whether these were properly installed. Korea Tech opposed the motion arguing that these issues were proper for determination in the arbitration proceeding. The court denied the motion to dismiss and granted the motion for inspection of things. The court also directed the Branch Sheriff to proceed with the inspection of the machineries and equipment in the plant. The Branch Sheriff later reported his finding that the enumerated machineries and equipment were not fully and 1 RTC Muntinlupa. Br. 256 2 properly installed. Korea Tech filed a petition for certiorari before the Court of Appeals [CA]. The court dismissed the petition and held that an arbitration clause which provided for a final determination of the legal

rights of the parties to the contract by arbitration was against public policy. Further appeal was made to the Supreme Court by way of a petition for review. The Supreme Court (the “Court”) held: 1. Re: The trial court’s order directing the Branch Sheriff to inspect the plant, equipment and facilities. The sheriff lacked the competence to conduct an inspection of the Carmona plant, equipment and facilities. The trial court’s order directing the sheriff to do so is evidently flawed and devoid of legal basis. There was a real and imminent threat of irreparable destruction or substantial damage to the Korea Tech equipment and machineries. The trial court gravely abused its discretion. A resort to certiorari is proper. 2. Re: The validity of the arbitration clause. “The arbitration clause is valid.2 It has not been shown to be contrary to any law, or against morals, good customs, public order or public policy3 . The arbitration clause stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the award is final and binding. This is not contrary to public policy. 4 We find no reason why the arbitration clause should not be respected and complied with by both parties.” This ruling, the Court said, is consonant with the declared policy in Section 2 of the ADR Act that “the State (shall) actively promote party autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to resolve their disputes.” Citing Section 24 of the ADR Act5 , the Court said the trial court does not have jurisdiction over disputes that are properly the subject of arbitration pursuant to an arbitration clause. In the earlier case of BF Corporation v. Court of Appeals and Shangri-la Properties, Inc.,6 where the trial court refused to refer the parties to arbitration notwithstanding the existence 2 Gonzales v. Climax Mining Ltd. G.R. No. 161957 and G.R. No. 167994m Jan. 22, 2007, 512 SCRA 148 citing Manila Electric Co. v. Pasay Transporation Co., 57 Phil. 600 (1932); Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, Feb. 7, 2001; 351 SCRA 373, 381 3 Citing Arts. 2044 in relation to Art. 2038, 2039 and 2040, Civil Code 4 . Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc., 102 Phil. 1 (1957); BF Corporation v. Court of Appeals, G.R. No. 120105, March 27, 1298; 288 SCRA 267, 286; LM Power Engineering Corporation v. Capitol Industrial Construction Groups, Inc., G.R. No. 141833, March 26, 2003; 399 SCRA 562, 569-570. 5 Sec. 24. Referral to Arbitration. – A court before which an action is brought in a manner which is the subject matter of an arbitration agreement shall, if at least one party so requests not later than the pre-trial conference, upon the request of both parties thereafter, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. 6 G.R. No. 120105, March 28, 1998; 288 SCRA

267 3 of an arbitration agreement between them, the Supreme Court said the trial court had prematurely exercised its jurisdiction over the case. The Court further emphasized that a submission to arbitration is a contract7 . As a rule, contracts are respected as the law between the contracting parties and produce effect between them, their assigns and heirs.8 Courts should liberally review arbitration clauses. Any doubt should be resolved in favor of arbitration. 9 3. Re: Termination of contract with arbitration clause A party may not unilaterally rescind or terminate the contract (that contains an arbitration clause) for whatever cause without first resorting to arbitration. The rule allowing extrajudicial rescission of a contract in case of breach10does not apply when the contract contains a valid arbitration clause as the issues arising from such alleged breaches of the contract by a party must be brought first and resolved by arbitration. Thus, the issues arising from the contract between Korea Tech and Pacific General on whether the equipment and machineries delivered and installed were properly installed and operational in Carmona and other issues related thereto are proper for arbitration. 4. Re: Pacific General’s counterclaim for damages Where the issue of validity of the arbitration clause or of its proper scope is submitted to a trial court in a petition to compel arbitration, the Arbitration Law confines the court’s authority to pass upon issue such in a summary proceeding. The trial court must refrain from taking up the claim of the contending parties for damages which may be ventilated in a separate proceeding at the appropriate time and venue.11 5. Re: the grant of interim relief: While the issue of the proper installation of the equipment and machineries might well be under the primary jurisdiction of the arbitral body, the trial court, under the ADR Act, has the jurisdiction to hear and grant interim measures to protect vested rights of the parties.12 Considering that the equipment and machineries are in the possession of Pacific General, it has the right to protect and preserve the equipment in the best way it can. Pacific General has the right to dismantle and transfer the equipment and machineries either for protection or preservation 7 Gonzales v. Climax Mining Ltd. G.R. No. 167994, January 22, 2007; 527 SCRA 148 8 Citing Del Monte Corporation-USA v. CA, 404 Phil. 192 (2001) 9 LM Power Engineering Corp. v. Capitol Industrial Construction Groups, Inc., G.R. No. 141833, March 26, 2003 10 The rescission, however, is valid provisionally only because whether or not there was a breach of contract that justified its rescission is not issue for later judicial determination. University of the Philippines v. De los Angeles G.R. No. L-28602, September 29, 1970; 35 SCRA 102, and reiterated in succeeding cases, vide: San Lorenzo Shipping Corp. v. BJ Marthel International. Inc., G.R. No. 14583,

Nov. 19, 2004; 443 SCRA 163, etc. 11 La Naval Drug Corp. v. CA, G.R. No. 103200, August 31, 1994; 236 SCRA 78 12 Citing Section 28, RA 9285; Article 17, Model Law, and Transfield Philippines, Inc. v. Luzon Hydro Corporation, G.R. No. 146717, May 19, 2006; 490 SCRA 14, 20-21 4 or for the better way to make good use of them. It must therefore preserve and maintain them with the diligence of a good father of a family until final resolution of the dispute and the enforcement of the award, if any. 6. Re: Enforcement of award in a domestic or international arbitration An arbitral award in a domestic or international arbitration is subject to enforcement by a court upon application of the prevailing party for the confirmation or recognition and enforcement of an award.13 Under Section 42 of the ADR Act, “The recognition and enforcement of such (foreign) arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court.” An arbitral award is immediately executory upon the lapse of the period provided by law. For an award rendered in domestic or non-international arbitration, unless a petition to vacate the award is filed within thirty (30) days from the date of serve upon the latter,14 the award is subject to confirmation by the court.15 For an award rendered in a domestic, international arbitration, the period for filing an application to set it aside is not later than three (3) months from the date the applicant received the award,16 otherwise the court shall recognize and enforce it.17 7. Re: Enforcement of foreign arbitral award In an attempt to allay the fear by Pacific General of submitting its dispute to arbitration in Seoul, South Korea under the rules of the Korea Commercial Arbitration Board, the Supreme Court said in obiter dictum: In case a foreign arbitral body is chosen by the parties, the arbitral rules of our domestic arbitration bodies would not be applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law [UNCITRAL] in the New York Convention on June 21, 1985, the Philippine committed itself to be bound by the Model Law. We have even incorporated the Model Law in Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004.” x x x x x x “Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the 13 Section 23, RA 876; Article 35, Model Law 14 Section 26, RA 876 15 Section 23, RA 876 16 Model Law Article 34(3) 17 Model Law Article 35 5 RTC which can set aside, reject or vacate it.”…. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial review on specific grounds provided for.” There is

obviously a confusion between or among the following: (a) The 1958 New York Convention; (b) The UNCITRAL Model Law on International Commercial Arbitration; and (c) The UNCITRAL Arbitration Rules. The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards is, as the name itself implies, a multi-lateral treaty signed in New York City on June 10, 1958. The Philippines was among the original signers of the 1958 New York Convention18, although, as a treaty, it was subject to ratification by the Senate. This ratification was given on May 10, 1965 under Resolution No. 71 of the Philippine Senate.19 The Philippines deposited its ratification of the Convention on July 6, 1967. The UNCITRAL Model Law on International Commercial Arbitration was approved by the United Nations Commission on International Law on June 21, 1985 at the close of the Commission’s 18th annual session. In Resolution No. 40/72 approved on December 11, 1985, the General Assembly requested member States “to give due consideration to the Model Law on International Commercial Arbitration, in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international arbitration practice.” The Model Law was therefore given as a model that member States can adopt with or without modification as their law to govern international commercial arbitration. By itself, it is not a statute. It becomes one when it is enacted into law by a State. Until the Philippine Congress adopted it as part of the ADR Act of 2004, the Model Law on International Commercial Arbitration was not part of our law. The UNCITRAL Arbitration Rules were likewise the product of UNCITRAL adopted during its 9th session after extensive consultations with arbitral institutions and centers of international commercial arbitration. The United Nations General Assembly approved Resolution No. 31/98 on December 15, 1976 recommending the use of the Arbitration Rules in the settlement of disputes 18 The Philippine delegation signed ad referendum with reservation that it will apply the Convention, on the basis of reciprocity, to the recognition and enforcement of awards made only in the territory of another Contracting State and only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration. 19 See National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Philippines, Inc., G.R. No. 87958, April 26, 1990; 184 SCRA 682 6 arising in the context of international commercial relations, particularly by reference to the Arbitration Rules in commercial contracts.“ These rules have been used widely in ad hoc arbitrations although arbitral institutions have been known to have adopted the UNCITRAL Arbitration Rules as part of their own rules of procedure. The Philippine Dispute Resolution Center,

Inc., for example, uses the UNCITRAL Arbitration Rules as its arbitration rules, subject to certain modifications. The Model Law or the UNCITRAL Arbitration Rules, unlike the 1958 New York Convention, was not opened “for signature” by member States as they are not treaties. For the same reason, they were not submitted to the Senate for ratification. The 1958 New York Convention provides that recognition and enforcement of an award may be refused by a court upon specific grounds.20 This is clear from Sections 42 and 45 of the ADR Act ,21 that the most a Philippine court can do is 20 Article V provides that: 1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where recognition and enforcement is sought, proof that: (a) The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it, or failing any indication thereon, under the law of the country where the award was made; or (b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized or enforced; or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; (e) The award has not yet become binding on the parties, or has been set aside, or suspended by competent authority of the country in which, or under the laws of which, that award was made. 2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that: (a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. 21 Section 42. Application of the New York Convention. - The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention. The recognition and enforcement of such arbitral awards shall be filed with the regional trial court in accordance with the rules of

procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages. The applicant shall establish that the country in which the foreign arbitration award has been made is a party to the New York Convention. If the application for rejection or suspension of enforcement of an award has been made, the regional trial court may, if it considers it proper, vacate its decision and may also, on the application of the party claiming recognition or enforcement of the award, order the party to provide appropriate security. Section 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an application for recognition and enforcement of an arbitral award in accordance with the procedural rules to be promulgated by the Supreme Court only on those grounds raised under Article V of the New York Convention. Any other 7 to refuse recognition of a foreign arbitral award. The Supreme Court further held: “The differences between a final arbitral award from an international or foreign arbitral tribunal and an award given by a local arbitral tribunal are the specific grounds or conditions that vest jurisdiction over our courts to review the awards. “For foreign or international arbitral awards which must first be confirmed by the RTC, the grounds for setting aside, rejecting or vacating the award by the RTC are provided under Article 34(2) of the UNCITRAL Model Law. “For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23 of RA 876 and shall be recognized as final and executory decisions of the RTC, they may also be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.” Perhaps the following distinctions need to be made. When the place of arbitration is outside the Philippines, its foreign origin would be clear from the arbitral award itself. At the end portion of the award, the arbitrator will state the jurisdiction or country where the award is made, thus: Made in Hong Kong, February 27, 2008, or Made in Singapore, February 27, 2008 An arbitral award made in Hong Kong or Singapore or any other place outside the Philippines will be, in the Philippines, a foreign arbitral award. An international commercial arbitration that is governed by the Philippine Model Law on International Commercial Arbitration is a domestic arbitration. This is obvious from the fact that our model law can only govern an international commercial arbitration in the Philippines.22 If the place of arbitration is another country, such as, for example, Hong Kong or Singapore, it will be governed

by the arbitration law of Hong Kong or Singapore as the case may be. The decision in Korea Tech confused foreign arbitration with international commercial arbitration. An arbitration is international if the conditions provided in Article 1(3) of the Model Law are satisfied. (3) An arbitration is international if: ground raised shall be disregarded by the regional trial court. 22 See Article 1(2), Model Law 8 (a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, have their places of business in different states; or (b) one of the following places is situated outside the State in which the parties have their places of business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place where the subject-matter of the dispute is most closely connected; or (c) the parties have expressed agreed that the subject matter of the arbitration agreement relates to more than one country. If the dispute between Korea Tech and Pacific General will be submitted to arbitration in the Philippines, the arbitration will be international because Korea Tech has its place of business in Korea or outside the Philippines. It will nevertheless be domestic because the Philippines is the place of arbitration. In other words, an arbitration can be both domestic (as opposed to foreign) and international. An arbitration is domestic if it is not international. If the arbitration does not include a foreign element, e.g., it does not fall under Article 1(3) of the Model Law, the arbitration will be domestic. To avoid confusion arising from the use of words having more than one meaning, it is well to make this clarification by classifying arbitration into domestic or foreign. As earlier mentioned, a foreign arbitration is an arbitration where the agreed place of arbitration is outside the Philippines. A domestic arbitration is an arbitration where the agreed place of arbitration is the Philippines. A domestic arbitration is further classified into: international or non-international. It is international where one of the elements of internationality enumerated in Article 1(3) of the Model Law is present; otherwise, the arbitration would be non-international. A foreign arbitral award, unlike an award in a domestic international or noninternational arbitration, cannot be set aside by a court. RA 9285 recognizes that an award rendered in a domestic, non-international arbitration which is governed by RA 876, may be vacated by a court upon any of the grounds enumerated in Section 24 of the law. The Model Law likewise provides that an award made in a domestic, international commercial arbitration may be set aside by a court upon any of the grounds enumerated in Article 34 thereof. Article V of the 1958 New York Convention enumerates the grounds upon which the court of a foreign

jurisdiction may refuse recognition and enforcement of a foreign arbitral award. Section 42 of the ADR Act provides that: “The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention.” In the exercise of judicial review, a Philippine court cannot set aside 9 a foreign arbitral award. It can only refuse it recognition by rejecting an application for recognition and enforcement of a foreign arbitral award. The Supreme Court finally held: “While it (Pacific General) may have misgivings on the foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.” The Korea Commercial Arbitration Board is a center or institution for arbitration in South Korea. A stipulation in the arbitration agreement to submit a dispute under the rules of an institution means that the institution administers the arbitration but the dispute is submitted, not to the institution, but to the arbitrator or arbitral panel appointed for the dispute. KCAB, therefore, does not make or render an award. _______________ This article was prepared by Custodio O. Parlade, of-counsel of the Parlade Hildawa Parlade Eco & Panga and president emeritus of the Philippine Dispute Resolution Center, Inc. For further information on this topic, please contact Custodio O. Parlade at (632) 687 5362; by mail at 26th Floor, The Orient Square, F. Ortigas, Jr., Ortigas Center, Pasig City 1605 Philippines, or by e-mail at: coparlade@phpeplaw.com or gingparlade@yahoo.com

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 154048               November 27, 2009

STANFILCO EMPLOYEES AGRARIAN REFORM BENEFICIARIES MULTI-PURPOSE COOPERATIVE,Petitioner, vs.DOLE PHILIPPINES, INC. (STANFILCO DIVISION), ORIBANEX SERVICES, INC. and SPOUSES ELLY AND MYRNA ABUJOS, Respondents.

D E C I S I O N

BRION, J.:

Before this Court is the petition for review on certiorari1 filed by petitioner Stanfilco Employees Agrarian Reform Beneficiaries Multi-Purpose Cooperative (SEARBEMCO). It assails:

(a) the decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 66148 dated November 27, 2001; and

(b) the CA’s resolution3 of June 13, 2002 in the same case, denying SEARBEMCO’s motion for reconsideration.

THE FACTUAL ANTECEDENTS

On January 29, 1998, SEARBEMCO, as seller, and respondent DOLE Philippines, Inc. (Stanfilco Division) (DOLE), as buyer, entered into a Banana Production and Purchase Agreement4 (BPPA). The BPPA provided that SEARBEMCO shall sell exclusively to DOLE, and the latter shall buy from the former, all Cavendish bananas of required specifications to be planted on the land owned by SEARBEMCO. The BPPA states:

The SELLER agrees to sell exclusively to the BUYER, and the BUYER agrees to buy all Cavendish Banana of the Specifications and Quality

described in EXHIBIT "A" hereof produced on the SELLER’S plantation covering an area of 351.6367 hectares, more or less, and which is planted and authorized under letter of instruction no. 790 as amended on November 6, 1999 under the terms and conditions herein stipulated. The SELLER shall not increase or decrease the area(s) stated above without the prior written approval of the BUYER. However, the SELLER may reduce said area(s) provided that if the SELLER replaces the reduction by planting bananas on an equivalent area(s) elsewhere, it is agreed that such replacement area(s) shall be deemed covered by the Agreement. If the SELLER plants an area(s) in excess of said 351.6367 hectares, the parties may enter into a separate agreement regarding the production of said additional acreage. SELLER will produce banana to the maximum capacity of the plantation, as much as practicable, consistent with good agricultural practices designed to produce banana of quality having the standards hereinafter set forth for the duration of this Banana Production and Purchase Agreement.

SEARBEMCO bound and obliged itself, inter alia, to do the following:

V. SPECIFIC OBLIGATIONS OF THE SELLER

x x x

p.) Sell exclusively to the BUYER all bananas produced from the subject plantation, except those rejected by the BUYER for failure to meet the specifications and conditions contained in Exhibit "A" hereof. In the case of any such rejected bananas, the SELLER shall have the right to sell such rejected bananas to third parties, for domestic non-export consumption. The SELLER shall only sell bananas produced from the plantation and not from any other source. [Emphasis supplied.]

Any dispute arising from or in connection with the BPPA between the parties shall be finally settled through arbitration. To quote the BPPA:

IX. ARBITRATION OF DISPUTE

All disputes arising in connection with this Agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) Arbitrators appointed in accordance with said Rules. The Arbitration shall be held in a venue to be agreed by the parties. Judgment upon the award rendered may be entered in any Philippine Court having jurisdiction or application may be made to such

court for judicial acceptance of the award and as order of enforcement, as the case may be.

On December 11, 2000, DOLE filed a complaint with the Regional Trial Court5 (RTC) against SEARBEMCO, the spouses Elly and Myrna Abujos (spouses Abujos), and Oribanex Services, Inc. (Oribanex) for specific performance and damages, with a prayer for the issuance of a writ of preliminary injunction and of a temporary restraining order. DOLE alleged that SEARBEMCO sold and delivered to Oribanex, through the spouses Abujos, the bananas rejected by DOLE, in violation of paragraph 5(p), Article V of the BPPA which limited the sale of rejected bananas for "domestic non-export consumption." DOLE further alleged that Oribanex is likewise an exporter of bananas and is its direct competitor.

DOLE narrated in its complaint how SEARBEMCO sold and delivered the rejected bananas to Oribanex through the spouses Abujos:

9.) That, however, on April 12, 2000 at about 5:00 o’clock in the afternoon, [DOLE] through its authorized security personnel discovered that defendant SEARBEMCO, in violation of Section 5(p) Article V of the Banana Production and Purchase Agreement, packed the bananas rejected by [DOLE] in boxes marked "CONSUL" in Packing Plant 32 in DAPCO Panabo and sold and delivered them to defendant Abujos;

10.) That about 373 "CONSUL" marked boxes were packed and knowingly sold by defendant SEARBEMCO to ORIBANEX SERVICES, INC. through defendants Abujos who carried and loaded the same on board a blue Isuzu Canter bearing plate no. LDM 976 and delivered to defendant ORIBANEX for export at the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy of which is hereto attached as Annex "B";

11.) That the following day, April 13, 2000, again the same security found that defendant SEARBEMCO continued to pack the bananas rejected by plaintiff in boxes marked as "CONSUL" and, in violation of paragraph 5(p) Article V of the Banana Production and Purchase Agreement, sold and delivered them to defendant ORIBANEX SERVICES, INC., for export, through defendants Abujos;

12.) That about 648 "CONSUL" marked boxes were packed and knowingly sold by defendant SEARBEMCO to ORIBANEX

SERVICES, INC., through defendants Abujos who carried and loaded the same on board a red Isuzu Forwarder, bearing plate no. LCV 918, and delivered to defendant ORIBANEX for export at the TEFASCO Wharf covered by Abujos Delivery Receipt, a copy of which is hereto attached and marked as Annex "C";

13.) That the sale of a total of 712 boxes of rejected bananas covering April 12 and 13, 2000, or any other dates prior thereto or made thereafter by defendant SEARBEMCO to defendant ORIBANEX SERVICES, INC. through defendant Abujos is in utter violation of the Agreement between plaintiff [DOLE] and defendant SEARBEMCO that SEARBEMCO may sell bananas rejected by plaintiff to parties for domestic non-export consumption only.

SEARBEMCO responded with a motion to dismiss on the grounds of lack of jurisdiction over the subject matter of the claim, lack of cause of action, failure to submit to arbitration which is a condition precedent to the filing of a complaint, and the complaint’s defective verification and certification of non-forum shopping.6 SEARBEMCO argued that:

1) the Department of Agrarian Reform Adjudication Board (DARAB) has exclusive jurisdiction over the action filed by DOLE, pursuant to Sections 1 and 3(e) of Administrative Order No. 09, Series of 19987 (AO No. 9-98) and Section 5(a) and (c) of Administrative Order No. 02, Series of 19998 (AO No. 2-99) of the Department of Agrarian Reform (DAR), since the dispute between the parties is an agrarian dispute within the exclusive competence of the DARAB to resolve;

2) the filing of the complaint is premature, as the dispute between DOLE and SEARBEMCO has not been referred to and resolved by arbitration, contrary to Article IX of the BPPA and Article V, Sec. 30(g)9 of AO No. 9-98 of the DAR;

3) it did not violate Section 5(p), Article V of the BPPA, since the rejected bananas were sold to the spouses Abujos who were third-party buyers and not exporters of bananas; and

4) the complaint is fatally defective as the Board of Directors of DOLE did not approve any resolution authorizing Atty. Reynaldo Echavez to execute the requisite Verification and Certification

Against Forum Shopping and, therefore, the same is fatally defective.

DOLE opposed SEARBEMCO’s motion to dismiss alleging, among others, that:

1) the dispute between the parties is not an agrarian dispute within the exclusive jurisdiction of the DARAB under Republic Act No. 665710 (RA No. 6657); and

2) the Arbitration Clause of the BPPA is not applicable as, aside from SEARBEMCO, DOLE impleaded other parties (i.e., the spouses Abujos and Oribanex who are not parties to the BPPA) as defendants.11

Subsequently, DOLE filed on February 2, 2001 an amended complaint,12 the amendment consisting of the Verification and Certification against forum shopping for DOLE executed by Danilo C. Quinto, DOLE’s Zone Manager.

THE RTC RULING

The RTC denied SEARBEMCO’s motion to dismiss in an Order dated May 16, 2001.13 The trial court stated that the case does not involve an agrarian conflict and is a judicial matter that it can resolve.

SEARBEMCO moved for the reconsideration of the RTC Order.14 The RTC denied the motion for lack of merit in its Order of July 12, 2001.15

THE CA RULING

On July 26, 2001, SEARBEMCO filed a special civil action for certiorari16 with the CA alleging grave abuse of discretion on the part of the RTC for denying its motion to dismiss and the subsequent motion for reconsideration.

SEARBEMCO argued that the BPPA the parties executed is an agri-business venture agreement contemplated by DAR’s AO No. 9-98. Thus, any dispute arising from the interpretation and implementation of the BPPA is an agrarian dispute within the exclusive jurisdiction of the DARAB.

In a decision dated November 27, 2001,17 the CA found that the RTC did not gravely abuse its discretion in denying SEARBEMCO’s motion to dismiss and motion for reconsideration.1avvphi1

The CA ruled that "the [DAR] has no jurisdiction, under said [AO No. 9-98], over actions between [SEARBEMCO] and [DOLE] for enforcement of the said Agreement when one commits a breach thereof and for redress by way of specific performance and damages inclusive of injunctive relief."18 It held that the case is not an agrarian dispute within the purview of Section 3(d) of RA No. 6657,19 but is an action to compel SEARBEMCO to comply with its obligations under the BPPA; it called for the application of the provisions of the Civil Code, not RA No. 6657.

The CA likewise disregarded SEARBEMCO’s emphatic argument that DOLE’s complaint was prematurely filed because of its failure to first resort to arbitration. The arbitration clause under the BPPA, said the CA, applies only when the parties involved are parties to the agreement; in its complaint, DOLE included the spouses Abujos and Oribanex as defendants. According to the CA, "if [DOLE] referred its dispute with [SEARBEMCO] to a Panel of Arbitrators, any judgment rendered by the latter, whether for or against [DOLE] will not be binding on the [spouses Abujos] and [Oribanex], as case law has it that only the parties to a suit, as well as their successors-in-interest, are bound by the judgment of the Court or quasi-judicial bodies."20

On SEARBEMCO’s argument that the Verification and Certification Against Forum Shopping under DOLE’s amended complaint is defective for failure to state that this was based on "personal knowledge," the CA ruled that the omission of the word "personal" did not render the Verification and Certification defective.

SEARBEMCO moved for reconsideration of the decision, but the CA denied the motion for lack of merit in its resolution of June 13, 2002.21

ASSIGNMENT OF ERRORS

In the present petition, SEARBEMCO submits that the CA erred in ruling that:

1.) the RTC has jurisdiction over the subject matter of the complaint of DOLE, considering that the case involves an agrarian dispute within the exclusive jurisdiction of the DARAB;

2.) the complaint of DOLE states a cause of action, despite the fact that SEARBEMCO has not violated any provision of the BPPA; and

3.) the filing of the complaint is not premature, despite DOLE’s failure to submit its claim to arbitration – a condition precedent to any juridical recourse.

THE COURT’S RULING

We do not find the petition meritorious.

DOLE’s complaint falls within the jurisdiction of the regular courts, not the DARAB.

SEARBEMCO mainly relies on Section 5022 of RA No. 6657 and the characterization of the controversy as an agrarian dispute or as an agrarian reform matter in contending that the present controversy falls within the competence of the DARAB and not of the regular courts. The BPPA, SEARBEMCO claims, is a joint venture and a production, processing and marketing agreement, as defined under Section 5 (c) (i) and (ii) of DAR AO No. 2-99;23 hence, any dispute arising from the BPPA is within the exclusive jurisdiction of the DARAB. SEARBEMCO also asserts that the parties’ relationship in the present case is not only that of buyer and seller, but also that of supplier of land covered by the CARP and of manpower on the part of SEARBEMCO, and supplier of agricultural inputs, financing and technological expertise on the part of DOLE. Therefore, SEARBEMCO concludes that the BPPA is not an ordinary contract, but one that involves an agrarian element and, as such, is imbued with public interest.

We clarify at the outset that what we are reviewing in this petition is the legal question of whether the CA correctly ruled that the RTC committed no grave abuse discretion in denying SEARBEMCO’s motion to dismiss. In ruling for legal correctness, we have to view the CA decision in the same context that the petition for certiorari it ruled upon was presented to the appellate court; we have to examine the CA decision from the prism of whether it correctly determined the presence or absence of grave abuse of discretion in the RTC ruling before it, not on the basis of whether the RTC ruling on the merits of the case was correct. In other words, we have to be keenly aware that the CA undertook a Rule 65 review, not a review on appeal, of the challenged RTC ruling. A court acts with grave abuse of discretion amounting to lack

or excess of jurisdiction when its action was performed in a capricious and whimsical exercise of judgment equivalent to lack of discretion. The abuse of discretion must be so patent and gross as to amount to an evasion of a positive duty or to a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of the law, as where the power is exercised in an arbitrary and despotic manner by reason or passion or personal hostility.24

As the CA found, the RTC’s action was not attended by any grave abuse of discretion and the RTC correctly ruled in denying SEARBEMCO’s motion to dismiss. We fully agree with the CA.

Section 3(d) of RA No. 6657 is clear in defining an agrarian dispute: "any controversy relating to tenurial arrangements, whether leasehold, tenancy, stewardship or otherwise, over lands devoted to agriculture, including dispute concerning farm-workers’ associations or representations of persons in negotiating, fixing, maintaining, changing or seeking to arrange terms or conditions of such tenurial arrangements. It includes any controversy relating to compensation of lands acquired under this Act and other terms and conditions of transfer of ownership from landowners to farmworkers, tenants and other agrarian reform beneficiaries, whether the disputants stand in the proximate relation of farm operator and beneficiary, landowner and tenant, or lessor and lessee."25

RA No. 6657 is procedurally implemented through the 2003 DARAB Rules of Procedure where Section 1, Rule II26 enumerates the instances where the DARAB shall have primary and exclusive jurisdiction. A notable feature of RA No. 6657 and its implementing rules is the focus on agricultural lands and the relationship over this landthat serves as the basis in the determination of whether a matter falls under DARAB jurisdiction.

In Heirs of the Late Hernan Rey Santos v. Court of Appeals,27 we held that:

For DARAB to have jurisdiction over a case, there must exist a tenancy relationship between the parties. x x x. In Vda. De Tangub v. Court of Appeals (191 SCRA 885), we held that the jurisdiction of the Department of Agrarian Reform is limited to the following: a.) adjudication of all matters involving implementation of agrarian reform; b.) resolution of agrarian conflicts and land tenure related problems; and c.) approval and disapproval of the conversion, restructuring or readjustment of

agricultural lands into residential, commercial, industrial, and other non-agricultural uses. [Emphasis supplied].

The case of Pasong Bayabas Farmers Association, Inc. v. Court of Appeals28 lists down the indispensable elements for a tenancy relationship to exist: "(1) the parties are the landowner and the tenant or agricultural lessee; (2) the subject matter of the relationship is an agricultural land; (3) there is consent between the parties to the relationship; (4) the purpose of the relationship is to bring about agricultural production; (5) there is personal cultivation on the part of the tenant or agricultural lessee; and (6) the harvest is shared between the landowner and the tenant or the agricultural lessee."

The parties in the present case have no tenurial, leasehold, or any other agrarian relationship that could bring their controversy within the ambit of agrarian reform laws and within the jurisdiction of the DARAB. In fact, SEARBEMCO has no allegation whatsoever in its motion to dismiss regarding any tenancy relationship between it and DOLE that gave the present dispute the character of an agrarian dispute.

We have always held that tenancy relations cannot be presumed. The elements of tenancy must first be proved by substantial evidence which can be shown through records, documents, and written agreements between the parties. A principal factor, too, to consider in determining whether a tenancy relationship exists is the intent of the parties.29

SEARBEMCO has not shown that the above-mentioned indispensable elements of tenancy relations are present between it and DOLE. It also cannot be gleaned from the intention of the parties that they intended to form a tenancy relationship between them. In the absence of any such intent and resulting relationship, the DARAB cannot have jurisdiction. Instead, the present petition is properly cognizable by the regular courts, as the CA and the RTC correctly ruled.

Notably, the requirement of the existence of tenurial relationship has been relaxed in the cases of Islanders CARP-Farmers Beneficiaries Muti-Purpose Cooperative, Inc. v. Lapanday Agricultural and Dev’t. Corporation30and Cubero v. Laguna West Multi-Purpose Cooperative, Inc.31 The Court, speaking through former Chief Justice Panganiban, declared in Islanders that:

[The definition of ‘agrarian dispute’ in RA No. 6657 is] broad enough to include disputes arising from any tenurial arrangement beyond the

traditional landowner-tenant or lessor-lessee relationship. xxx [A]grarian reform extends beyond the mere acquisition and redistribution of land, the law acknowledges other modes of tenurial arrangements to effect the implementation of CARP.32

While Islanders and Cubero may seem to serve as precedents to the present case, a close analysis of these cases, however, leads us to conclude that significant differences exist in the factual circumstances between those cases and the present case, thus rendering the rulings in these cited cases inapplicable.

Islanders questioned (through a petition for declaration of nullity filed before the RTC of Tagum City) the lack of authority of the farmer-beneficiaries’ alleged representative to enter into a Joint Production Agreement with Lapanday. The farmers-beneficiaries assailed the validity of the agreement by additionally claiming that its terms contravened RA No. 6657.

Cubero likewise involved a petition to declare the nullity of a Joint Venture Agreement between the farmer-beneficiaries and Laguna West Multi-Purpose Cooporative, Inc. The successors of the farmer-beneficiaries assailed the agreement before the RTC of Tanauan, Batangas for having been executed within the 10-year prohibitory period under Section 27 of RA No. 6657.

In both cases, the Court ruled that the RTC lacked jurisdiction to hear the complaint and declared the DARAB as the competent body to resolve the dispute. The Court declared that when the question involves the rights and obligations of persons engaged in the management, cultivation, and use of an agricultural land covered by CARP, the case falls squarely within the jurisdictional ambit of the DAR.

Carefully analyzed, the principal issue raised in Islanders and Cubero referred to the management, cultivation, and use of the CARP-covered agricultural land; the issue of the nullity of the joint economic enterprise agreements in Islanders and Cubero would directly affect the agricultural land covered by CARP. Those cases significantly did not pertain to post-harvest transactions involving the produce from CARP-covered agricultural lands, as the case before us does now.

Moreover, the resolution of the issue raised in Islanders and Cubero required the interpretation and application of the provisions of RA No. 6657, considering that the farmer-beneficiaries claimed that the

agreements contravened specific provisions of that law. In the present case, DOLE’s complaint for specific performance and damages before the RTC did not question the validity of the BPPA that would require the application of the provisions of RA No. 6657; neither did SEARBEMCO’s motion to dismiss nor its other pleadings assail the validity of the BPPA on the ground that its provisions violate RA No. 6657. The resolution of the present case would therefore involve, more than anything else, the application of civil law provisions on breaches of contract, rather than agrarian reform principles. Indeed, in support of their arguments, the parties have capitalized and focused on their relationship as buyer and seller. DOLE, the buyer, filed a complaint against SEARBEMCO, the seller, to enforce the BPPA between them and to compel the latter to comply with its obligations. The CA is thus legally correct in its declaration that "the action before the RTC does not involve an agrarian dispute, nor does it call for the application of Agrarian Reform laws. x x x. The action of [DOLE] involves and calls for the application of the New Civil Code, in tandem with the terms and conditions of the [BPPA] of [SEARBEMCO] and [DOLE]."33

We find SEARBEMCO’s reliance on DAR AO No. 9-98 and AO No. 2-99 as bases for DARAB’s alleged expanded jurisdiction over all disputes arising from the interpretation of agribusiness ventures to be misplaced. DARAB’s jurisdiction under Section 50 of RA No. 6657 should be read in conjunction with the coverage of agrarian reform laws; administrative issuances like DAR AO Nos. 9-98 and 2-99 cannot validly extend the scope of the jurisdiction set by law. In so ruling, however, we do not pass upon the validity of these administrative issuances. We do recognize the possibility that disputes may exist between parties to joint economic enterprises that directly pertain to the management, cultivation, and use of CARP-covered agricultural land. Based on our above discussion, these disputes will fall within DARAB’s jurisdiction.

Even assuming that the present case can be classified as an agrarian dispute involving the interpretation or implementation of agribusiness venture agreements, DARAB still cannot validly acquire jurisdiction, at least insofar as DOLE’s cause of action against the third parties – the spouses Abujos and Oribanex – is concerned. To prevent multiple actions, we hold that the present case is best resolved by the trial court.

DOLE’s complaint validly states a cause of action

SEARBEMCO asserts that the pleading containing DOLE’s claim against it states no cause of action. It contends that it did not violate any of the provisions of the BPPA, since the bananas rejected by DOLE were sold

to the spouses Abujos who are third-party buyers and are not exporters of bananas – transactions that the BPPA allows. Since the sole basis of DOLE’s complaint was SEARBEMCO’s alleged violation of the BPPA, which SEARBEMCO insists did not take place, the complaint therefore did not state a cause of action.

Due consideration of the basic rules on "lack of cause of action" as a ground for a motion to dismiss weighs against SEARBEMCO’s argument.

In the case of Jimenez, Jr. v. Jordana,34 this Court had the opportunity to discuss the sufficiency of the allegations of the complaint to uphold a valid cause of action, as follows:

In a motion to dismiss, a defendant hypothetically admits the truth of the material allegations of the plaintiff’s complaint. This hypothetical admission extends to the relevant and material facts pleaded in, and the inferences fairly deductible from, the complaint. Hence, to determine whether the sufficiency of the facts alleged in the complaint constitutes a cause of action, the test is as follows: admitting the truth of the facts alleged, can the court render a valid judgment in accordance with the prayer?

To sustain a motion to dismiss, the movant needs to show that the plaintiff’s claim for relief does not exist at all. On the contrary, the complaint is sufficient "if it contains sufficient notice of the cause of action even though the allegations may be vague or indefinite, in which event, the proper recourse would be, not a motion to dismiss, but a motion for a bill of particulars.35

In applying this authoritative test, we must hypothetically assume the truth of DOLE’s allegations, and determine whether the RTC can render a valid judgment in accordance with its prayer.

We find the allegations in DOLE’s complaint to be sufficient basis for the judgment prayed for. Hypothetically admitting the allegations in DOLE’s complaint that SEARBEMCO sold the rejected bananas to Oribanex, a competitor of DOLE and also an exporter of bananas, through the spouses Abujos, a valid judgment may be rendered by the RTC holding SEARBEMCO liable for breach of contract. That the sale had been to the spouses Abujos who are not exporters is essentially a denial of DOLE’s allegations and is not therefore a material consideration in weighing the merits of the alleged "lack of cause of action." What SEARBEMCO stated is a counter-statement of fact and conclusion, and is a defense that it will

have to prove at the trial. At this point, the material consideration is merely what the complaint expressly alleged. Hypothetically assuming DOLE’s allegations of ultimate sale to Oribanex, through the spouses Abujos, to be true, we hold – following the test of sufficiency in Jordana – that DOLE’s prayer for specific performance and damages may be validly granted; hence, a cause of action exists.

The filing of the complaint is not premature since arbitration proceedings are not necessary in the present case

SEARBEMCO argues that DOLE failed to comply with a condition precedent before the filing of its complaint with the RTC, i.e., DOLE did not attempt to settle their controversy through arbitration proceedings. SEARBEMCO relies on Article V, Section 30(g) of DAR AO No. 9-9836 and Section 10 of DAR AO No. 2-9937 which provide that "as a rule, voluntary methods such as mediation or conciliation, shall be preferred in resolving disputes involving joint economic enterprises." SEARBEMCO also cites Section IX of the BPPA which provides that all disputes arising out of or in connection with their agreement shall be finally settled through arbitration.

Following our conclusion that agrarian laws find no application in the present case, we find – as the CA did – that SEARBEMCO’s arguments anchored on these laws are completely baseless. Furthermore, the cited DAR AO No. 2-99, on its face, only mentions a "preference," not a strict requirement of referral to arbitration. The BPPA-based argument deserves more and closer consideration.

We agree with the CA ruling that the BPPA arbitration clause does not apply to the present case since third parties are involved. Any judgment or ruling to be rendered by the panel of arbitrators will be useless if third parties are included in the case, since the arbitral ruling will not bind them; they are not parties to the arbitration agreement. In the present case, DOLE included as parties the spouses Abujos and Oribanex since they arenecessary parties, i.e., they were directly involved in the BPPA violation DOLE alleged, and their participation are indispensable for a complete resolution of the dispute. To require the spouses Abujos and Oribanex to submit themselves to arbitration and to abide by whatever judgment or ruling the panel of arbitrators shall make is legally untenable; no law and no agreement made with their participation can compel them to submit to arbitration.

In support of its position, SEARBEMCO cites the case of Toyota Motor Philippines Corp. v. Court of Appeals38which holds that, "the contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable. Contracts are respected as the law between the contracting parties. As such, the parties are thereby expected to abide with good faith in their contractual commitments." SEARBEMCO argues that the presence of third parties in the complaint does not affect the validity of the provisions on arbitration.

Unfortunately, the ruling in the Toyota case has been superseded by the more recent cases of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation39 and Del Monte Corporation-USA v. Court of Appeals.40

Heirs of Salas involved the same issue now before us: whether or not the complaint of petitioners-heirs in that case should be dismissed for their failure to submit the matter to arbitration before filing their complaint. The petitioners-heirs included as respondents third persons who were not parties to the original agreement between the petitioners-heirs and respondent Laperal Realty. In ruling that prior resort to arbitration is not necessary, this Court held:

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 petitioner’s rights as against theirs in a single and complete proceeding.41

The case of Del Monte is more direct in stating that the doctrine held in the Toyota case has already been abandoned:

The Agreement between petitioner DMC-USA and private respondent MMI is a contract. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract. As a rule, contracts are respected as the law between the contracting parties and produce effect as between them, their assigns and heirs. Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing Director for Export Sales Paul E. Derby, and private respondents MMI and its Managing Director Lily Sy

are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to the Agreement and cannot even be considered assigns or heirs of the parties, are not bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in the State of California pursuant to the arbitration clause and the suspension of the proceedings in Civil Case No. 2637-MN pending the return of the arbitral award could be called for but only as to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and Lily Sy, and not as to other parties in this case, in accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, which superseded that of [sic] Toyota Motor Philippines Corp. v. Court of Appeals.

x x x x

The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.42

Following these precedents, the CA was therefore correct in its conclusion that the parties’ agreement to refer their dispute to arbitration applies only where the parties to the BPPA are solely the disputing parties.

Additionally, the inclusion of third parties in the complaint supports our declaration that the present case does not fall under DARAB’s jurisdiction. DARAB’s quasi-judicial powers under Section 50 of RA No. 6657 may be invoked only when there is prior certification from the Barangay Agrarian Reform Committee (or BARC) that the dispute has been submitted to it for mediation and conciliation, without any success of settlement.43 Since the present dispute need not be referred to arbitration (including mediation or conciliation) because of the inclusion of third parties, neither SEARBEMCO nor DOLE will be able to present the requisite BARC certification that is necessary to invoke DARAB’s jurisdiction; hence, there will be no compliance with Section 53 of RA No. 6657.

WHEREFORE, premises considered, we hereby DENY the petition for certiorari for lack of merit. The Regional Trial Court, Branch 34,

Panabo City, is hereby directed to proceed with the case in accordance with this Decision. Costs against petitioner SEARBEMCO.

SO ORDERED.