Professional Documents
Culture Documents
Adr Set PNCC Vs CA G.R. No. 165433 February 6, 2007
Adr Set PNCC Vs CA G.R. No. 165433 February 6, 2007
FACTS: A contract for the construction of the Philippine Merchant Marine Academys (PMMAs) Replication Project
located in San Marcelino, Zambales, was entered into between the PNCC and PMMA. Included in the scope of works for
the Replication Project was the construction of a gymnasium building. The construction of said gymnasium was
subcontracted by PNCC to MCS under a Subcontract Agreement. n a Certificate of Acceptance dated 6 April 2000, PNCC
certified that MCS had satisfactorily completed the construction of the gymnasium building based on the plans,
drawings, and specifications thereof on March 1999. However, despite several demands made by MCS, PNCC failed to
pay the balance of the contract price left after deducting the partial payments made by the latter.
Hence, on 6 September 2002, MCS filed with the CIAC Arbitral Tribunal a Request for Adjudication praying for the award
of various sums of money, including interest and damages, against PNCC in the total amount of P24,988,597.44. MCS
maintained that notwithstanding the fact that the construction of the gymnasium had been satisfactorily completed as
early as 1999, PNCC still failed to fully satisfy its obligation to pay the price of the construction project under the
Subcontract Agreement despite several written demands.
For its defense, PNCC alleged that the request for arbitration was premature, as MCS had no cause of action against
PNCC since the latter is still in the process of paying its obligation to MCS. Furthermore, PNCC claimed that although its
payments were made in installments, said payments were made regularly, contrary to the claim of MCS that said
installment payments were irregular and took a very long period of time.
Asserting that the CIAC Arbitral Tribunal committed error in ruling that the claim of MCS is not premature, PNCC filed a
Petition for Review before the Court of Appeals, which was dismissed by the appellate court in a Decision.
Aggrieved by the aforequoted Decision, PNCC filed the instant petition raising as issues the alleged prematurity of
respondents action and the impropriety of the award of attorneys fees and arbitration fees.
While petitioner does not dispute the fact that MCS has remaining receivables from PNCC under the Subcontract
Agreement, PNCC insists that such obligation of petitioner to pay respondent the remaining balance of the contract
price is not yet ripe for court or legal action as no cause of action exists, since PNCC has not yet violated the rights of
respondent. PNCC maintains that before the filing of the complaint for arbitration, petitioner was in the process of
paying its obligations with claimant, thus the complaint for arbitration filed by MCS was premature.
In its Memorandum, petitioner rationalizes its position that the Request for Adjudication made by MCS before the CIAC
Arbitral Tribunal is premature in view of the fact that PNCCs last installment payment to MCS was in July 2002, after the
latter’s last demand for payment in April 2002. Petitioner further highlights its efforts to fulfill its obligations to MCS by
stressing the fact that it had paid MCS a substantial amount under the Subcontract Agreement, inasmuch as out of the
contract price of P19,483,572.65, only the balance of P6,352,791.33 remains unpaid. PNCC argues that it has never
refused, expressly nor impliedly, to comply with its responsibility under the Subcontract Agreement, thus, MCS lacks a
cause of action as against petitioner.
ISSUE: W/N the Decision of the CIAC Arbitral Tribunal failed to state the legal and factual basis for the same.
HELD: On the issue of the propriety of the award of attorney’s fees and arbitration costs, petitioner maintains that the
Decision of the CIAC Arbitral Tribunal failed to state the legal and factual basis for the same. We do not agree. As
correctly stated by the Court of Appeals, the CIAC Arbitral Tribunal Decision amply explained the bases for the awards of
attorneys fees and arbitration cost. As pointed out by the appellate court, on the basis of its findings that PNCC
exercised gross and evident bad faith in delaying its payment of MCS claims and the law applicable in such cases, the
CIAC Arbitral Tribunal adjudged PNCC liable for attorneys fees and cost of arbitration. Furthermore, we agree with the
Court of Appeals when it said that that there is no justifiable reason to disturb the findings of the CIAC Arbitral Tribunal
as said quasi-judicial body has considered the evidence at hand and the records clearly show that its decision is amply
supported by substantial evidence.
Petitioners argument that the CIAC Arbitral Tribunal should not have passed upon the issue of attorneys fees as said
issue is non-arbitrable under Section 2 of Article IV of the Rules Governing Construction Arbitration is rejected. Under
the Section 2, Article IV of the Rules of Procedure Governing Construction Arbitration:
Section 2. Non-Arbitrable Issues Pursuant to Section 4 of Executive Order No. 1008, claims for moral damages,
exemplary damages, opportunity/business losses in addition to liquidated damages, and attorneys fees are not
arbitrable except when the parties acquiesce or mutually agree to submit the same for arbitration and to abide
by the decision of the arbitrator thereon. [Emphasis ours]
While it is true that under the aforementioned provision of law, attorneys fees is not an arbitrable issue, yet, the same
also provides that it may be the subject of arbitration if the parties agree to submit the same for arbitration. In the case
it bar, it must be underscored that under the Terms of Reference agreed to by the parties during the arbitration
proceedings, PNCC agreed that one of the issues to be determined in the proceedings is who between the parties is
entitled to attorneys fees. Clearly, petitioner has acquiesced to the submission of the issue of attorneys fees to
arbitration. What's more, in petitioners very own Answer submitted before the CIAC Arbitral Tribunal, petitioner asked
for attorneys fees as part of its own compulsory counterclaim. This act of petitioner clearly negates its further assertion
that it never agreed to submit the issue of attorneys fees for arbitration.
Facts: LICOMCEN, the developer, and Foundation Specialist, Inc. (FSI), the contractor, signed a Construction Agreement
for the bored pile foundation of LCC City Mall in Legaspi. LICOMCEN was given the right to suspend the work or
terminate the contract.
During the course of the construction, LICOMCEN revised the design with substantial reduction in number and length of
piles. FSI was informed of the major revision and ordered the nondelivery of steel bars approved initially pending the
approval of the new design. FSI, however, replied that the steel bars were already shipped out of Manila and was
advised that only 50% should be delivered. Despite the order, the whole batch was subsequently delivered to the site.
LICOMCEN ordered suspension of work and demobilization of the materials and equipment for the project.
Subsequently, LICOMCEN indefinitely suspended the project, due to a pending case in the Ombudsman, which
amounted to termination of contract.
FSI demanded payment for its work accomplishments, material costs, and standby off equipment, as well as other
expenses amounting to P22,667,026.97, but LICOMCEN took no heed. The case reached CIAC and after due proceedings,
ruled in favor of FSI.
Held: LICOMCEN insists that the CIAC had no jurisdiction over the suit. Citing GC-05 and GC-61 of the GCC, it posits that
jurisdiction over the dispute rests with the regular courts of Legaspi City. The argument is misplaced. Section 4 of
Executive Order (E.O.) No. 1008, or the Construction Industry Arbitration Law, provides that The CIAC shall have original
and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire
jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. Corollarily, Section 1, Article
III of the Rules of Procedure Governing Construction Arbitration provides that recourse to the CIAC may be availed of
whenever a contract contains a clause for the submission of a future controversy to arbitration.
Based on the records of the case, the contract between LICOMCEN and FSI had an arbitration clause that state that in
case of dispute, the same shall be submitted for arbitration under the Construction Industry Arbitration Law. In addition,
LICOMCEN actively participated in the proceedings before the CIAC. While it is true that LICOMCEN initially assailed the
jurisdiction of the CIAC, but when the CIAC asserted its jurisdiction in its Order, LICOMCEN did not seek relief from the
CIAC ruling. Instead, LICOMCEN took part in the discussion on the merits of the case, even going to the extent of seeking
affirmative relief. The active involvement of a party in the proceedings is tantamount to an invocation of, or at least an
acquiescence to, the court's jurisdiction. Such participation indicates a willingness to abide by the resolution of the case,
and will bar said party from later on impugning the court or body's jurisdiction. After submitting itself to arbitration
proceedings and actively participating therein, LICOMCEN is estopped from assailing the jurisdiction of the CIAC, merely
because the latter rendered an adverse decision.
Frabelle Fishing Corporation vs. Philippine American Life Insurance Company (530 SCRA 543) G.R. No. 158560
August 17, 2007
FACTS: On May 8, 1996, respondents entered into a Memorandum of Agreement (1996 MOA) whereby each agreed to
contribute cash, property, and services for the construction and development of Philamlife Tower, a 45-storey office
condominium along Paseo de Roxas, Makati City.
On December 6, 1996, respondents executed a Deed of Assignment (1996 DOA) wherein they assigned to Frabelle
Properties Corporation (Frabelle) their rights and obligations under the 1996 MOA with respect to the construction,
development, and subsequent ownership of Unit No. 38-B located at the 38th floor of Philamlife Tower. The parties also
stipulated that the assignee shall be deemed as a co-developer of the construction project with respect to Unit No. 38-B.
Frabelle, in turn, assigned to Frabelle Fishing Corporation (Frabelle Fishing), petitioner herein, its rights, obligations and
interests over Unit No. 38-B.
On March 9, 1998, petitioner Frabelle Fishing and respondents executed a Memorandum of Agreement (1998 MOA) to
fund the construction of designated office floors in Philamlife Tower.
The dispute between the parties started when petitioner found material concealment on the part of respondents
regarding certain details in the 1996 DOA and 1998 MOA and their gross violation of their contractual obligations as
condominium developers. These violations are: (a) the non-construction of a partition wall between Unit No. 38-B and
the rest of the floor area; and (b) the reduction of the net usable floor area from four hundred sixty eight (468) square
meters to only three hundred fifteen (315) square meters.
Dissatisfied with its existing arrangement with respondents, petitioner, on October 22, 2001, referred the matter to the
Philippine Dispute Resolution Center, Inc. (PDRCI) for arbitration. However, in a letter dated November 7, 2001,
respondents manifested their refusal to submit to PDRCI’s jurisdiction.
On February 11, 2002, petitioner filed with the Housing and Land Use Regulatory Board (HLURB), Expanded National
Capital Region Field Office a complaint for reformation of instrument, specific performance and damages against
respondents, docketed as HLURB Case No. REM-021102-11791. Petitioner alleged, among others, that the contracts do
not reflect the true intention of the parties; and that it is a mere buyer and not co-developer and/or co-owner of the
condominium unit.
ISSUE: Whether or not the HLURB has jurisdiction over the complaint for reformation of instruments, specific
performance and damages
HELD: The petition lacks merit. As the records show, the complaint filed by petitioner with the HLURB is one for
reformation of instruments. Petitioner claimed that the terms of the contract are not clear and prayed that they should
be reformed to reflect the true stipulations of the parties. Petitioner prayed:
WHEREFORE, in view of all the foregoing, it is respectfully prayed of this Honorable Office that after due notice
and hearing, a judgment be please rendered:
Declaring that the instruments executed by the complainant FRABELLE and respondent PHILAM to have
been in fact a Contract to Sell. The parties are thereby governed by the provisions of P.D. 957 entitled,
Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof as
buyer and developer, respectively, of a condominium unit and not as co-developer and/or co-owner of
the same;
x x x (Emphasis supplied)
We hold that being an action for reformation of instruments, petitioners complaint necessarily falls under the
jurisdiction of the Regional Trial Court pursuant to Section 1, Rule 63 of the 1997 Rules of Civil Procedure, as amended,
which provides:
SECTION 1. Who may file petition. Any person interested under a deed, will, contract or other written
instrument, whose rights are affected by a statute, executive order or regulation, ordinance, or any other
governmental regulation may, before breach or violation thereof, bring an action in the appropriate Regional
Trial Court to determine any question of construction or validity arising, and for a declaration of his rights or
duties thereunder.
An action for the reformation of an instrument, to quiet title to real property or remove clouds therefrom, or to
consolidate ownership under Article 1607 of the Civil Code, may be brought under this Rule. (Emphasis ours)
As correctly held by the Court of Appeals, any disagreement as to the nature of the parties relationship which would
require first an amendment or reformation of their contract is an issue which the courts may and can resolve without
the need of the expertise and specialized knowledge of the HLURB.
Korea Technologies Co., Ltd., v. Hon. Alberto A. Lerma, et al., G.R. No. 143581 7 January 2008
Korea Technologies Co., Ltd. (KOGIES), a Korean corporation, entered into a contract with Pacific General Steel
Manufacturing Corp. (PGSMC), a domestic corporation, for the supply and installation by KOGIES of Liquefied Petroleum
Gas Cylinder manufacturing plants in favor of PGSMC. The Contract’s arbitration clause provided that all disputes arising
from the contract or breach thereof shall be settled by arbitration in Seoul, Korea, in accordance with the Commercial
Arbitration Rules of the Korean Commercial Arbitration Board (KCAB) and the award shall be final and binding on the
parties.
PGSMC subsequently informed KOGIES that it was canceling the contract due to altered quantity and lowered quality of
the machinery. It also threatened to dismantle and transfer the installed machinery.
KOGIES contended that PGSMC cannot unilaterally rescind the contract nor dismantle and transfer the machinery. It
then commenced arbitration proceedings before the KCAB in Seoul, Korea and filed a complaint for specific performance
with application for injunction before a Philippine trial court to compel PGSMC to comply with the arbitration clause of
the contract.
PGSMC, on the other hand, took the position that the arbitration clause, which provided that the arbitral award shall be
“final and binding upon the parties”, was null and void for being against public policy as it ousted Philippine courts of
jurisdiction.
The trial court agreed with PGSMC and denied KOGIES’ application for preliminary injunction. The Court of Appeals
affirmed the trial court’s Order.
On further appeal, the Philippine Supreme Court reversed the trial court and the Court of Appeals and ruled as follows:
1. An arbitration clause that states that the arbitral award shall be final and binding is valid.
The Supreme Court held that the law of the place where the contract is made (i.e., the Philippines)
governs the contract and that, under the Philippine Civil Code, a stipulation that an arbitral award shall
be final and binding is a valid stipulation. The Supreme Court found that the arbitration clause was
mutually and voluntarily agreed upon by the parties and was not contrary to any law, morals, good
customs, public order, or public policy.
2. Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004 (the “ADR Law”),
may be given retroactive effect.
The Supreme Court ruled that while the ADR Law was passed only in 2004, it nonetheless applies to the
case because it is a procedural law and, therefore, may be given retroactive effect.
The Supreme Court held a “final” award may still be judicially reviewed. Philippine courts may set aside
“foreign or international” arbitral awards under the grounds in Section 34 of the UNCITRAL Model Law
on International Commercial Arbitration. The Supreme Court also noted that the ADR Law provides for
an appeal to the Court of Appeals, and a further appeal to the Supreme Court, as the remedy of an
aggrieved party where the trial court sets aside, rejects, vacates, modifies, or corrects an arbitral award.
4. The unilateral rescission of contracts with an arbitration clause is “improper and illegal.”
The Supreme Court had previously held that the rescission by the non-defaulting party of a contract on
account of breach by the other party is valid (although such unilateral rescission may be questioned in
court). Significantly, the Supreme Court here held that “where an arbitration clause in a contract is
availing, neither of the parties can unilaterally treat the contract as rescinded since whatever infractions
or breaches by a party or differences arising from the contract must be brought first and resolved by
arbitration, and not through an extrajudicial rescission or judicial action.”
ABS-CBN Broadcasting Corporation v. World Interactive Network Systems (WINS) Japan Co., Ltd. (G.R. No. 169332) 11
February 2008
ABS-CBN Broadcasting Corporation (ABS-CBN), a domestic corporation, entered into a licensing agreement (Agreement)
with World Interactive Network Systems (WINS) Japan Co., Ltd. (WINS), a foreign corporation licensed under the laws of
Japan. Under the Agreement, ABS-CBN granted WINS an exclusive license to distribute and sublicense the television
service known as “The Filipino Channel” (TFC) in Japan.
Arbitration proceedings were commenced by WINS after ABS-CBN threatened to terminate the Agreement on the
ground that WINS allegedly inserted, without authority, several episodes of “WINS Weekly”, a weekly 35-minute
community news program for Filipinos in Japan, into the TFC programming. The arbitrator ruled in favor of WINS, finding
that ABS-CBN had in fact given its approval for the airing of WINS Weekly and that it threatened to terminate the
Agreement merely as a strategy to re-negotiate for higher fees.
WINS filed a petition for the confirmation of the award before the Philippine trial court.
ABS-CBN, on the other hand, questioned the arbitral award by filing with the Court of Appeals a petition for review
under Rule 43 of the Rules of Court (a mode of appeal to question errors of fact and/or law) or, in the alternative, a
petition for certiorari under Rule 65 (an original action based on grave abuse of discretion amounting to lack or excess of
jurisdiction).
The Court of Appeals dismissed ABS-CBN’s petition for lack of jurisdiction, holding that it is the trial court which has
jurisdiction “over questions relating to arbitration”. The Court of Appeals held that the only instance it can exercise
jurisdiction over an arbitral award is an appeal from the trial court's decision confirming, vacating or modifying the
arbitral award.
On Appeal, the Supreme Court affirmed the Court of Appeals’ ruling but for a different reason. On the procedural issue,
the Supreme Court that ABS-CBN cannot simultaneously avail of the alternative remedies under Rule 43 and Rule 65.
On the issue of the scope of judicial review, the Supreme Court disagreed with the Court of Appeals’ position that an
aggrieved party cannot seek recourse against an arbitral award directly with the Court of Appeals.
According to the Supreme Court, a party aggrieved by an arbitral award has three (3) remedies, to wit: (a) a petition in
the proper trial court to issue an order to vacate the award under Republic Act No. 876 (which applies to domestic
arbitration); (b) a petition for review with the Court of Appeals under Rule 43 of the Rules of Court on questions of fact,
of law, or mixed questions of fact and law; and (c) a petition for certiorari with the Court of Appeals under Rule 65 of the
Rules of Court if the arbitrator acted without or in excess of his jurisdiction or with grave abuse of discretion amounting
to lack or excess of jurisdiction.
(a) The award was procured by corruption, fraud, or other undue means; or
(b) That there was evident partiality or corruption in the arbitrators or any of them; or
(c) That the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause
shown, or in refusing to hear evidence pertinent and material to the controversy; that one or more of the
arbitrators was disqualified to act as such under section nine hereof, and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced;
or
(d) That the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and
definite award upon the subject matter submitted to them was not made.
Rule 43
The Supreme Court noted that Rule 43 of the Rules of Court expressly applies to awards, judgments, final orders or
resolutions of quasi-judicial agencies, including voluntary arbitrators authorized by law.
Rule 65
As for the remedy under Rule 65, the Supreme Court stressed that it will not hesitate to review a voluntary arbitrator’s
award where there is a showing of grave abuse of authority or discretion amounting to lack or excess of jurisdiction, and
there is no appeal, nor any plain, speedy remedy in the course of law.
It should be noted that the Philippine Alternative Dispute Resolution Act of 2004 (“ADR Law”) adopted and incorporated
the provisions of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”), which limits
recourse against an international arbitral award only to the grounds specified under Section 34 of the Model Law (e.g.,
incapacity of a party to the arbitration agreement or the invalidity of the arbitration agreement under the applicable
law). Neither the Model Law, nor the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards, to which the Philippines acceded in 1967, recognize the setting aside of international/foreign on the broader
grounds of errors of law and/or fact or grave abuse of discretion.
Notably, the ruling in ABS-CBN treated the case as a “domestic” arbitration even though one of the parties, i.e., WINS,
was a Japanese corporation and a substantial portion of the obligation, i.e., the distribution and sublicensing of the “The
Filipino Channel”, was performed in Japan. Perhaps this may be explained by the fact that the arbitral award in this case
was rendered prior to the enactment of the ADR Law. It was only under the ADR Law that a distinction was made
between domestic arbitration and international arbitration. Under the ADR Law, international arbitration shall be
governed by the Model Law, while domestic arbitration shall be governed by R.A. No, 876. The ADR Law adopts the
definition of international arbitration under Article 1(3) of the Model Law. Domestic arbitration, on the other hand,
defines domestic arbitration as arbitration that is not international.
However, in Korea Technologies Co., Ltd., v. Hon. Alberto A. Lerma, et al. (G.R. No. 143581, 7 January 2008), the
Supreme Court held that the ADR Law, being a procedural law, may be given retroactive effective. Hence, there appears
to be a conflict in this respect between ABS-CBN and Korea Technologies. It is hoped that the ruling of the Supreme
Court in ABS-CBN regarding the remedies against a “domestic” arbitral award, especially Rule 43 (allowing appellate
review on both questions of fact and law), will not be applied to foreign arbitral awards.
Benguet Corporation v. Department of Environment and Natural Resources - Mines Adjudication Board and J.G.
Realty and Mining (G.R. No. 163101, 13 February 2008)
Benguet Corporation (“Benguet”) and J.G. Realty and Mining (“J.G. Realty”) entered into a Royalty Agreement with
Option to Purchase (“RAWOP”), wherein J.G. Realty was acknowledged as the owner of four mining claims covered by
Mineral Production Sharing Agreement (“MPSA”) Application No. APSA-V-0009 jointly filed by J.G. Realty as claimowner
and Benguet as operator. The RAWOP, among others, provide that “any disputes x x x between Benguet and [J.G.
Realty] with reference to anything whatsoever pertaining to [the RAWOP] x x x shall not be cause of any action x x x in
any court or administrative agency but shall x x x be referred to a Board of Arbitrators consisting of three (3) members,
one to be selected by Benguet, another to be selected by [J.G. Realty] and the third to be selected by the
aforementioned two arbitrators so appointed.” It further provides that “no action shall be instituted in court as to any
matter in dispute as hereinabove stated, except to enforce the decision of the majority of the Arbitrators.”
J.G. Realty subsequently informed Benguet that it was terminating the RAWOP by reason of Benguet’s failure to comply
with its obligations thereunder. J.G. Realty sought the cancellation of the RAWOP, filing a petition for this purpose with
the Panel of Arbitrators (“POA”) having territorial jurisdiction over the mining area involved. In its Decision, the POA
declared the RAWOP cancelled. The decision was affirmed on appeal to the Mines Adjudication Board (“MAB”).
Among the issues raised before the Supreme Court is whether or not the POA lacks jurisdiction over the dispute in view
of the arbitration clause.
The Court resolved this issue in the affirmative ruling that under Philippine domestic arbitration law, an agreement to
avail of voluntary arbitration before resort is made to the courts or quasi-judicial agencies of the government is a valid
contractual stipulation that must be adhered to by the parties. Interpreting the provisions of the law and of the RAWOP,
the Court ruled that, in the event a case that should properly be the subject of voluntary arbitration is erroneously filed
with the courts or quasi-judicial agencies, the court or quasi-judicial agency shall determine, on motion, whether such
contractual provision for arbitration is sufficient/effective and, if in the affirmative, the court or quasi-judicial agency
shall then order the enforcement of said provision.
In resolving this issue, the Court rejected the contention of J.G. Realty that prior resort to arbitration is unavailing in the
instant case because the POA’s mandate is to arbitrate disputes involving mineral agreements. It stated that there is a
clear distinction between compulsory and voluntary arbitration. The arbitration provided by the POA is compulsory,
while the nature of the arbitration provision in the RAWOP is voluntary, not involving any government agency.
Interestingly, it is not clear if or how the ruling will impact other types of commercial disputes which, under Philippine
law, are required to undergo compulsory arbitration by a government agency, such as labor disputes. Notably, Republic
Act No. 9285 provides that its provisions shall not apply to the resolution of labor disputes.
FACTS: The Facts Equitable PCI Bank, Inc. (EPCIB) and the individual shareholders of Bankard, Inc., as sellers, and
respondent RCBC Capital Corporation (RCBC), as buyer, executed a Share Purchase Agreement (SPA) for the purchase of
petitioners interests in Bankard, representing 226,460,000 shares, for the price of PhP 1,786,769,400.
To expedite the purchase, RCBC agreed to dispense with the conduct of a due diligence audit on the financial status of
Bankard. Under the SPA, RCBC undertakes, on the date of contract execution, to deposit, as downpayment, 20% of the
purchase price, or PhP 357,353,880, in an escrow account. The escrowed amount, the SPA stated, should be released to
petitioners on an agreed-upon release date and the balance of the purchase price shall be delivered to the share buyers
upon the fulfillment of certain conditions agreed upon, in the form of a manager’s check.
The Financial Condition of Bankard Sec. 5 (g). The audited financial statements of Bankard for the three (3) fiscal
years ended December 31, 1997, 1998 and 1999, and the unaudited financial statements for the first quarter ended
31 March 2000, are fair and accurate, and complete in all material respects, and have been prepared in accordance
with generally accepted accounting principles consistently followed throughout the period indicated xxx
i) the balance sheet of Bankard as of 31 December 1999, as prepared and certified by SGV & Co. (SGV),
and the unaudited balance sheet for the first quarter ended 31 March 2000, present a fair and accurate
statement as of those dates, of Bankard’s financial condition and of all its assets and liabilities, and is
complete in all material respects; and
ii) ii) the statements of Bankardâs profit and loss accounts for the fiscal years 1996 to 1999, as prepared
and certified by SGV, and the unaudited profit and loss accounts for the first quarter ended 31 March
2000, fairly and accurately present the results of the operations of Bankard for the periods indicated,
and are complete in all material respects.
On June 2, 2000, RCBC deposited the stipulated downpayment amount in an escrow account after which it was given full
management and operational control of Bankard. June 2, 2000 is also considered by the parties as the Closing Date
referred to in the SPA.
Thereafter, in a letter of May 5, 2003, RCBC informed petitioners of its having overpaid the purchase price of the subject
shares, claiming that there was an overstatement of valuation of accounts amounting to PhP 478 million, resulting in the
overpayment of over PhP 616 million. Thus, RCBC claimed that petitioners violated their warranty, as sellers, embodied
in Sec. 5(g) of the SPA (Sec. 5[g] hereinafter).
Following unsuccessful attempts at settlement, RCBC, filed a Request for Arbitration with the ICC-ICA. In the request,
RCBC charged Bankard with deviating from, contravening and not following generally accepted accounting principles and
practices in maintaining their books. Due to these improper accounting practices, RCBC alleged that both the audited
and unaudited financial statements of Bankard prior to the stock purchase were far from fair and accurate and, hence,
violated the representations and warranties of petitioners in the SPA. Per RCBC, its overpayment amounted to PhP 556
million. It thus prayed for the rescission of the SPA, restitution of the purchase price, payment of actual damages in the
amount of PhP 573,132,110, legal interest on the purchase price until actual restitution, moral damages, and litigation
and attorneyâs fees. As alternative to rescission and restitution, RCBC prayed for damages in the amount of at least PhP
809,796,092 plus legal interest.
ICC-ICA: Ruled that RCBC’s claim is not time-barred; there was no laches from pursuing its claim; there was
overstatement of the assets, revenue and net worth of Bankard; RCBC is entitled to damagages but it is not entitled to
the rescission of the SPA.
HELD: YES. The Court will not overturn an arbitral award unless it was made in manifest disregard of the law.
In Asset Privatization Trust v. Court of Appeals, the Court held: “As a rule, the award of an arbitrator cannot be set aside
for mere errors of judgment either as to the law or as to the facts. Courts are without power to amend or overrule
merely because of disagreement with matters of law or facts determined by the arbitrators. They will not review the
findings of law and fact contained in an award, and will not undertake to substitute their judgment for that of the
arbitrators, since any other rule would make an award the commencement, not the end, of litigation. Errors of law and
fact, or an erroneous decision of matters submitted to the judgment of the arbitrators, are insufficient to invalidate an
award fairly and honestly made. Judicial review of an arbitration is, thus, more limited than judicial review of a trial.
Finally, it should be stressed that while a court is precluded from overturning an award for errors in determination of
factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators’
determinations, their award must be vacated. In the same manner, an award must be vacated if it was made in manifest
disregard of the law.”
Thus, to justify the vacation of an arbitral award on account of manifest disregard of the law, the arbiter’s findings must
clearly and unequivocally violate an established legal precedent. Anything less would not suffice. In the present case,
petitioners, in a bid to establish that the arbitral award was issued in manifest disregard of the law, allege that the
Partial Award violated the principles of prescription, due process, and estoppel. A review of petitioner’s arguments
would, however, show that their arguments are bereft of merit. Thus, the Partial Award dated September 27, 2007
cannot be vacated.
Other issues:
RCBC’s Claim Is Not Time-Barred. It cannot be disputed that an overstatement or overvaluation of Bankard’s financial
condition as of closing date translates into a misrepresentation not only of the accuracy and truthfulness of the financial
statements under Sec. 5(g), but also as to Bankard’s actual net worth mentioned in Sec. 5(h). Overvaluation presupposes
mistakes in the entries in the financial statements and amounts to a breach of petitioners’ representations and
warranties under Sec. 5.
Consequently, such error in the financial statements would impact on the figure representing the net worth of Bankard
as of closing date. An overvaluation means that the financial condition of Bankard as of closing date, i.e., June 2, 2000, is
overstated, a situation that will definitely result in a breach of EPCIB’s representations and warranties.
DEVELOPMENT BANK OF THE PHILIPPINES v. ROMEO TESTON 545 SCRA 422 (2008)
By virtue of a Deed of Conditional Sale, Romeo Teston purchased, on installment basis, two (2) parcels of land situated in
Masbate, Teston from Development Bank of the Philippines (DBP). Teston defaulted in the payment of his amortizations.
Consequently, DBP rescinded their contract of conditional sale. DBP thereafter transferred the two (2) parcels of land to
the government. It was subsequently found out that Teston had also voluntarily offered the two parcels of land for
inclusion in the Comprehensive Agrarian Reform Program (CARP) under the Voluntary Offer to Sell. Teston filed before
the Department of Agrarian Reform Adjudication Board (DARAB) a Petition against DBP alleging that under the
Comprehensive Agrarian Reform Law, Republic Act No. 6657, DBP‘s right to rescind the sale was extinguished by
operation of law. The DARAB Regional Adjudicator dismissed Teston‘s petition on the ground that Teston has never been
the owner of the land, hence could not have validly offered the property under the Voluntary Offer to Sell scheme. On
appeal, the DARAB affirmed the Regional Adjudicators decision. The Court of Appeals modified the Trial Court‘s decision
by ordering DBP to return to Teston the P1,000,000 downpayment paid by Teston without requiring the latter to present
evidence. Hence, this petition.
ISSUE: Whether or not the Court of Appeals erred in modifying DARAB‘s decision ordering DBP to return to Teston the
P1,000,000 downpayment allegedly paid by Teston
HELD: It is elementary that a judgment must conform to, and be supported by, both the pleadings and the evidence, and
must be in accordance with the theory of the action on which the pleadings are framed and the case was tried. The
judgment must be secudum allegata et probata. Due process considerations justify this requirement. It is improper to
enter an order which exceeds the scope of relief sought by the pleadings, absent notice which affords the opposing
party an opportunity to be heard with respect to the proposed relief. The fundamental purpose of the requirement that
allegations of a complaint must provide the measure of recovery is to prevent surprise to the defendant. To require DBP
to return the alleged P1,000,000 without first giving it an opportunity to present evidence would violate the
Constitutional provision that no person shall be deprived of life, liberty,or property without due process of law. The
essence of due process is to be found in the reasonable opportunity to be heard and submit any evidence one may have
in support of ones defense.
PARAMOUNT INSURANCE CORP., petitioner, vs. A.C. ORDOÑEZ CORPORATION and FRANKLIN SUSPINE, respondents.
FACTS: Petitioner Paramount Insurance Corp. is the subrogee of Maximo Mata, the registered owner of a Honda City
sedan involved in a vehicular accident with a truck mixer owned by respondent corporation and driven by respondent
Franklin A. Suspine on September 10, 1997, at Brgy. Panungyanan, Gen. Trias, Cavite.
Petitioner filed before the MTC of Makati City, a complaint for damages against respondents. Based on the Sheriff’s
Return of Service, summons remained unserved on respondent Suspine, while it was served on respondent corporation
and received by Samuel D. Marcoleta of its Receiving Section on April 3, 2000.
On May 19, 2000, petitioner filed a Motion to Declare Defendants in Default; however, on June 28, 2000, respondent
corporation filed an Omnibus Motion (And Opposition to Plaintiff’s Motion to Declare Defendant in Default) alleging that
summons was improperly served upon it because it was made to a secretarial staff who was unfamiliar with court
processes; and that the summons was received by Mr. Armando C. Ordoñez, President and General Manager of
respondent corporation only on June 24, 2000. Respondent corporation asked for an extension of 15 days within which
to file an Answer.
HELD: Yes. There is no merit in petitioner’s claim that respondent corporation lacks legal personality to file an appeal.
Although the cancellation of a corporation’s certificate of registration puts an end to its juridical personality, Sec. 122 of
the Corporation Code, however provides that a corporation whose corporate existence is terminated in any manner
continues to be a body corporate for three years after its dissolution for purposes of prosecuting and defending suits by
and against it and to enable it to settle and close its affairs. Moreover, the rights of a corporation, which is dissolved
pending litigation, are accorded protection by law pursuant to Sec. 145 of the Corporation Code, to wit:
Section 145. Amendment or repeal. No right or remedy in favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders,
members, directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of
said corporation or by any subsequent amendment or repeal of this Code or of any part thereof.
Dissolution or even the expiration of the three-year liquidation period should not be a bar to a corporation’s
enforcement of its rights as a corporation.
Facts: Heunghwa Industry Co., Ltd. (petitioner) is was able to secure a contract with the Department of Public Works and
Highways (DPWH) to construct the Roxas-Langogan Road in Palawan.
Petitioner entered into a subcontract agreement with respondent DJ Builders Corporation to do earthwork, sub base
course and box culvert of said project. The agreement contained an arbitration clause. The agreed price was not fully
paid, hence, respondent filed before the Regional Trial Court (RTC) for "Breach of Contract, Collection of Sum of Money
with Application for Preliminary Injunction, Preliminary Attachment, and Prayer for Temporary Restraining Order and
Damages".
Petitioner averred that it was not obliged to pay respondent because the latter caused the stoppage of work. Petitioner
further claimed that it failed to collect from the DPWH due to respondent's poor equipment performance. Parties
submit specific issues, such as manpower and equipment standby time, unrecouped mobilization expenses, retention,
discrepancy of billings, and price escalation for fuel and oil usage. The said motion was granted by the RTC.
Petitioner, filed with the RTC a motion to withdraw the Order which referred the case to the CIAC, claiming it never
authorized the referral. Respondent opposed the motion contending that petitioner was already estopped from asking
for the recall of the Order.
Issue: whether or not the CIAC or the RTC has the jurisdiction over the case.
Held: CIAC has jurisdiction over the case. The CIAC original and exclusive jurisdiction over the construction dispute was
the agreement of the parties and not the Court's referral order. The CIAC aptly ruled that the recall of the referral order
by the RTC did not deprive the CIAC of the jurisdiction it had already acquired.
The position of CIAC is anchored on Executive Order No. 1008 (1985) which created CIAC and vested in it "original and
exclusive jurisdiction" over construction disputes in construction projects in the Philippines provided the parties agreed
to submit such disputes to arbitration. The basis of the Court referral is precisely the agreement of the parties in court,
and that, by this agreement as well as by the court referral of the specified issues to arbitration, under Executive Order
No. 1008 (1985), the CIAC had in fact acquired original and exclusive jurisdiction over these issues.
In section 4.2 of the CIAC Rules, the failure despite due notice which amounts to a refusal of the Respondent to
arbitrate, shall not stay the proceedings notwithstanding the absence or lack of participation of the Respondent. In such
case, CIAC shall appoint the arbitrator/s in accordance with these Rules. Arbitration proceedings shall continue, and the
award shall be made after receiving the evidence of the Claimant. Therefore, the proceedings cannot then be voided
merely because of the non-participation of petitioner. Section 4.2 of the CIAC Rules is clear and it leaves no room for
interpretation. Therefore, petitioner's prayer that the case be remanded to CIAC in order that it may be given an
opportunity to present evidence is untenable. Petitioner had its chance and lost it, more importantly so, by its own
choice. This Court will not afford a relief that is apparently inconsistent with the law.