Alternative Dispute Resolution Cases

G.R. No. 121227 August 17, 1998

VICENTE SAN JOSE, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and OCEAN TERMINAL SERVICES, INC., respondent.

Before the Court is a Petition for Certiorari seeking to annul a Decision of the National Labor Relations Commission dated April 20, 1995 in NLRC-NCR-CA-No. 00671-94 which reversed, on jurisdictional ground, a Decision of the Labor Arbiter dated January 19, 1994 in NLRC-NCR Case No. 00-03-02101-93 a case for a money claim — underpayment of retirement benefit. Records do not show that petitioner presented a Motion for Reconsideration of subject Decision of the National Labor Relations Commission, which motion is, generally required before the filing of Petition for Certiorari.

While the rule prescribing the requisite motion for reconsideration is not absolute and recognizes some exceptions, there is no showing that the case at bar constitutes an exception. Nevertheless, we gave due course to the petition to enable the Court to reiterate and clarify the jurisdictional boundaries between Labor Arbiters and Voluntary Arbitrator or Panel of Voluntary Arbitrators over money claims, and to render substantial and speedy justice to subject aged stevedore retiree who first presented his claim for retirement benefit in April 1991, or seven years ago.

Labor law practitioners and all lawyers, for that matter, should be fully conversant with the requirements for the institution of certiorari proceedings under Rule 65 of the Revised Rules of Court. For instance, it is necessary that a Motion for Reconsideration of the Decision of the National Labor Relations Commission must first be resorted to. The ruling in Corazon Jamer v. National Labor Relations Commission, G.R. No. 112630, September 5, 1997, comes to the fore and should be well understood and observed. An ordinary allegation — ". . . and there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law" (Rule 65, Sec. 1, Revised Rules of Court) is not a foolproof substitute for a Motion for Reconsideration, absence of which can be fatal to a Petition for Certiorari. Petitioner cannot and should not rely on the liberality of the Court simply because he is a working man.

In the Jamer case, this court said:

. . . This premature action of petitioners constitutes a fatal infirmity as ruled in a long line of decisions, most recently is the case of Building Care Corporation v. National Labor Relations Commission —

The filing of such motion is intended to afford public respondent an opportunity to correct any actual or fancied error attributed to it by way of a re-examination of the legal and factual aspects of the case. Petitioner's inaction or negligence under the circumstances is tantamount to a deprivation of the right and opportunity of the respondent commission to cleanse itself of an error unwittingly committed or to vindicate itself of an act unfairly imputed. . . .

Likewise, a motion for reconsideration is an adequate remedy; hence certiorari proceedings, as in this case, will not prosper.

As stated in the Decision of the Labor Arbiter in NLRC-NCR-Case No. 00-03-0201-93, dated January 19, 1994, the facts of this case are undisputed. The Labor Arbiter reported, thus:

Complainant, in his position paper (Record, pages 11 to 14) states that he was hired sometime in July 1980 as a stevedore continuously until he was advised in April 1991 to retire from service considering that he already reached 65 years old (sic); that accordingly, he did apply for retirement and was paid P3,156.39 for retirement pay . . . (Rollo, pp. 15, 26-27, 58-59).

Decision of the Labor Arbiter in NLRC-NCR-Case No. 00-03-02101-93, January 9, 1994(Rollo, pp. 15017, at pp. 16-17).

The Labor Arbiter decided the case solely on the merits of the complaint. Nowhere in the Decision is made mention of or reference to the issue of jurisdiction of the Labor Arbiter (Rollo, pp. 15-17). But the issue of jurisdiction is the bedrock of the Petition because, as earlier intimated, the Decision of the National Labor Relations Commission, hereinbelow quoted, reversed the Labor Arbiter's Decision on the issue of jurisdiction. Reads subject Decision of the Labor Arbiter:

Respondents, in their Reply to complainant's position paper, allege (Record, pages 18 to 21) that complainant's latest basic salary was P120.34 per day; that he only worked on rotation basis and not seven days a week due to numerous stevedores who can not all be given assignments at the same time; that all stevedores only for paid every time they were assigned or actually performed stevedoring; that the computation used in arriving at the amount of P3,156.30 was the same computation applied to the other stevedores; that the use of divisor 303 is not applicable because complainant performed stevedoring job only on call, so while he was connected with the company for the past 11 years, he did not actually render 11 years of service; that the burden of proving that complainant's latest salary was P200.00 rests upon him; that he already voluntarily signed a waiver of quitclaim; that if indeed respondent took advantage of his illiteracy into signing his quitclaim, he would have immediately filed this complaint but nay, for it took him two (2) years to do so.

The issue therefore is whether or not complainant is entitled to the claimed differential of separation pay.

We find for the complainant. He is entitled to differential.

We cannot sustain a computation of length of service based on the ECC contribution records. Likewise, the allegation that complainant rendered service for only five days a month for the past 11 years is statistically improbable, aside from the fact

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that the best evidence thereof are complainant's daily time records which respondent are (sic) duty bound to keep and make available anytime in case of this.

The late filing has no bearing. The prescription period is three years. It is suffice (sic) that the filing falls within the period.

Whether or not complainant worked on rotation basis is a burden which lies upon the employer. The presumption is that the normal working period is eight (8) hours a day and six (6) days a week, or 26 days a month, unless proven otherwise.

Also, the burden of proving the amount of salaries paid to employees rests upon the employer not on the employee. It can be easily proven by payrolls, vouchers, etc. which the employers are likewise duty bound to keep and present. There being non, we have to sustain complainant's assertion that his latest salary rate was P200 a day or P5,200 a month. Therefore, his retrenchment pay differential is P25,443.70 broken down as follows:

P200 x 26 days = P5,200 x 11 years

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= (P2,600 x 11 years) - P3,156.30

= P28,600 - P3,156.30

= P25,443.70

The Decision of the National Labor RelationsCommission in NLRC-NCR-CA No. 06701-94April 20, 1995 (Rollo, pp. 18-21).

The National Labor Relations Commission reversed on jurisdictional ground the aforesaid Decision of the Labor Arbiter; ruling, as follows:

. . . His claim for separation pay differential is based on the Collective Bargaining Agreement (CBA) between his union and the respondent company, the pertinent portion of which reads:

. . . ANY UNION member shall be compulsory retired (sic) by the company upon reaching the age of sixty (60) years, unless otherwise extended by the company for justifiable reason. He shall be paid his retirement pay equivalent to one-half (1/2) month salary for every year of service, a fraction of at least six months being considered as one (1) whole year.

. . . The company agrees that in case of casual employees and/or workers who work on rotation basis the criterion for determining their retirement pay shall be 303 rotation calls or work days as equivalent to one (1) year and shall be paid their retirement pay equivalent to one half (1/2) month for every year of service.

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Since the instant case arises from interpretation or implementation of a collective bargaining agreement, the Labor Arbiter should have dismissed it for lack of jurisdiction in accordance with Article 217 (c) of the Labor Code, which reads: (Emphasis supplied)

Art. 217. Jurisdiction of Labor Arbiter and the Commission.

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(c) Cases arising from the interpretation or implementation of collective bargaining agreement and those arising from the interpretation or enforcement of company procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitrator as may be provided in said agreements.

Petitioner contends that:

I. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS DISCRETION IN GIVING DUE COURSE TO THE APPEAL DESPITE THE FACT 4 (SIC) THAT IT WAS FILED OUT OF TIME AND THERE IS NO SHOWING THAT A SURETY BOND WAS POSTED.

II. THE PUBLIC RESPONDENT NLRC GRAVELY ABUSED ITS DISCRETION IN SETTING ASIDE THE DECISION OF . . . DATED 19 JANUARY 1994 AND DISMISSING THE CASE ON THE GROUND OF LACK OF JURISDICTION WHEN THE ISSUE DOES NOT INVOLVE ANY PROVISION OF THE COLLECTIVE BARGAINING AGREEMENT. (Rollo, pp. 7-8)

The Manifestation and Motion (In Lieu of Comment) sent in on December 6, 1995 by the Office of the Solicitor General support the second issue, re: jurisdiction raised by the Petitioner (Rollo, pp. 26-33, at pp. 38-32).

Labor Arbiter Decision

Labor Arbiters should exert all efforts to cite statutory provisions and/or judicial decision to buttress their dispositions. An Arbiter cannot rely on simplistic statements, generalizations, and assumptions. These are not substitutes for reasoned judgment. Had the Labor Arbiter exerted more research efforts, support for the Decision could have been found in pertinent provisions of the Labor Code, its implementing Rules, and germane decisions of the Supreme Court. As this Court said in Juan Saballa, at al. v. NLRC, G.R. No. 102472-84, August 22, 1996:

. . . This Court has previously held that judges and arbiters should draw up their decisions and resolutions with due care, and make certain that they truly and accurately reflect their conclusions and their final dispositions. A decision should faithfully comply with Section 14, Article VIII of the Constitution which provides that no decision shall be rendered by any court without expressing therein clearly and distinctly the facts of the case and the law on which it is based. If such decision had to be completely overturned or set aside, upon the modified decision, such resolution or decision should likewise state the factual and legal foundation relied upon. The reason for this is obvious: aside from being required by the

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Constitution, the court should be able to justify such a sudden change of course; it must be able to convincingly explain the taking back of its solemn conclusions and pronouncements in the earlier decision. The same thing goes for the findings of fact made by the NLRC, as it is a settled rule that such findings are entitled to great respect and even finality when supported by substantial evidence; otherwise, they shall be struck down for being whimsical and capricious and arrived at with grave abuse of discretion. It is a requirement of due process and fair play that the parties to a litigation be informed of how it was decided, with an explanation of the factual and legal reasons that led to the conclusions of the court. A decision that does not clearly and distinctly state the facts and the law on which it is based leaves the parties in the dark as to how it was reached and is especially prejudicial to the losing party, who is unable to pinpoint the possible errors of the court for review by a higher tribunal. . . .

This is not an admonition but rather, advice and a critique to stress that both have obligations to the Courts and students of the law. Decisions of the Labor Arbiters, the National Labor Relations Commission, and the Supreme Court serve not only to adjudicate disputes, but also as an educational tool to practitioners, executives, labor leaders and law students. They all have a keen interest in methods of analysis and the reasoning processes employed in labor dispute adjudication and resolution. In fact, decisions rise or fall on the basis of the analysis and reasoning processes of decision makers or adjudicators.

On the issues raised by the Petitioner, we rule:

1. Timeliness of AppealAnd Filing of Appeal Bond

The Court rules that the appeal of the respondent corporation was interposed within the reglementary period, in accordance with the Rules of the National Labor Relations Commission, and an appeal bond was duly posted. We adopt the following Comment dated August 14, 1996, submitted by the National Labor Relations Commission, to wit:

. . . While it is true that private respondent company received a copy of the decision dated January 19, 1994 of the Labor Arbiter . . . and filed its appeal on February 14, 1994, it is undisputed that the tenth day within which to file an appeal fell on a Saturday, the last day to perfect an appeal shall be the next working day.

Thus, the amendments to the New Rules of Procedure of the NLRC, Resolution No. 11-01-91 which took effect on January 14, 1992, provides in part:

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1. Rule VI, Sections 1 and 6 are hereby amended to read as follows:

Sec. 1. Period of Appeal — Decisions, awards or orders of the Labor Arbiter . . . shall be final and executory unless appealed to the Commission by any or both parties within ten (10) calendar days from receipt of such decisions, awards or orders of the Labor Arbiter . . . . . . If the 10th day . . . falls on

a Saturday, Sunday or a Holiday, the last day to perfect the decision shall be the next working day. (Emphasis supplied)

Hence, it is crystal clear that the appeal was filed within the prescriptive period to perfect an appeal. Likewise, the petitioner's contention that private respondent did not post the required surety bond, deserves scant consideration, for the simple reason that a surety bond was issued by BF General Insurance Company, Inc., in the amount of P25,443.70 (Rollo, pp. 63-64).

2. Jurisdictional Issue

The jurisdiction of Labor Arbiters and Voluntary Arbitrator or Panel of Voluntary Arbitrators is clearly defined and specifically delineated in the Labor Code. The pertinent provisions of the Labor Code, read:

A. Jurisdiction of Labor Arbiters

Art. 217. Jurisdiction of Labor Arbiter and the Commission. — (a) Except as otherwise provided under this Code the Labor Arbiter shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment;

4. claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and,

6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000) regardless of whether accompanied with a claim for reinstatement.

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(c) Cases arising from the interpretation or implementation of collective bargaining agreement and those arising from the interpretation or enforcement of company procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitrator so maybe provided in said agreement.

B. Jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators

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Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. — The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the collective bargaining agreement. For purposes of this Article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.

The Commission, its Regional Offices and the Regional Directors of the Department of Labor and Employment shall not entertain disputes, grievances or matters under the exclusive and original jurisdiction of the Voluntary Arbitrator or panel of Voluntary Arbitrators and shall immediately dispose and refer the same to the Grievance Machinery or Voluntary Arbitration provided in the Collective Bargaining Agreement.

Art. 262. Jurisdiction over other labor disputes. — The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

The aforecited provisions of law cannot be read in isolation or separately. They must be read as a whole and each Article of the Code reconciled one with the other. An analysis of the provisions of Articles 217, 261, and 262 indicates, that:

1. The jurisdiction of the Labor Arbiter and Voluntary Arbitrator or Panel of Voluntary Arbitrators over the cases enumerated in Articles 217, 261 and 262, can possibly include money claims in one form or another.

2. The cases where the Labor Arbiters have original and exclusive jurisdiction are enumerated in Article 217, and that of the Voluntary Arbitrator or Panel of Voluntary Arbitrators in Article 261.

3. The original and exclusive jurisdiction of Labor Arbiters is qualified by an exception as indicated in the introductory sentence of Article 217 (a), to wit:

Art. 217. Jurisdiction of Labor Arbiters . . . (a) Except as otherwise provided under this Code the Labor Arbiter shall have original and exclusive jurisdiction to hear and decide . . . the following cases involving all workers. . . .

The phrase "Except as otherwise provided under this Code" refers to the following exceptions:

A. Art. 217. Jurisdiction of Labor Arbiters . . .

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(c) Cases arising from the interpretation or implementation of collective bargaining agreement and those arising from the interpretation or enforcement of company procedure/policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitrator as may be provided in said agreement.

B. Art. 262. Jurisdiction over other labor disputes. — The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

Parenthetically, the original and exclusive jurisdiction of the Labor Arbiter under Article 217 (c), for money claims is limited only to those arising from statutes or contracts other than a Collective Bargaining Agreement. The Voluntary Arbitrator or Panel of Voluntary Arbitrators will have original and exclusive jurisdiction over money claims "arising from the interpretation or implementation of the Collective Bargaining Agreement and, those arising from the interpretation or enforcement of company personnel policies", under Article 261.

4. The jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators is provided for in Arts. 261 and 262 of the Labor Code as indicated above.

1. A close reading of Article 261 indicates that the original and exclusive jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators is limited only to:

. . . unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies . . . Accordingly, violations of a collective bargaining agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. . . . .

2. Voluntary Arbitrators or Panel of Voluntary Arbitrators, however, can exercise jurisdiction over any and all disputes between an employer and a union and/or individual worker as provided for in Article 262.

Art. 262. Jurisdiction over other labor disputes. — The voluntary arbitrator or panel of voluntary arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks.

It must be emphasized that the jurisdiction of the Voluntary Arbitrator or Panel of Voluntary Arbitrators under Article 262 must be voluntarily conferred upon by both labor and management. The labor disputes referred to in the same Article 262 can include all those disputes mentioned in Article 217 over which the Labor Arbiter has original and exclusive jurisdiction.

As shown in the above contextual and wholistic analysis of Articles 217, 261, and 262 of the Labor Code, the National Labor Relations Commission correctly ruled that the Labor Arbiter had no jurisdiction to hear and decide petitioner's money-claim-underpayment of retirement

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benefits, as the controversy between the parties involved an issue "arising from the interpretation or implementation" of a provision of the collective bargaining agreement. The Voluntary Arbitrator or Panel of Voluntary Arbitrators has original and exclusive jurisdiction over the controversy under Article 261 of the Labor Code, and not the Labor Arbiter.

3. Merits of the Case

The Court will not remand the case to the Voluntary Arbitrator or Panel of Voluntary Arbitrators for hearing. This case has dragged on far too long — eight (8) years. Any further delay would be a denial of speedy justice to an aged retired stevedore. There is further the possibility that any Decision by the Voluntary Arbitrator or Panel of Voluntary Arbitrators will be appealed to the Court of Appeals, and finally to this Court. Hence, the Court will rule on the merits of the case.

We adopt as our own the retirement benefit computation formula of the Labor Arbiter, and the reasons therefor as stated in the decision abovequoted.

The simple statement of the Labor Arbiter that "we cannot sustain a computation of length of service based on ECC contribution records", was not amply explained by the Labor Arbiter; however, there is legal and factual basis for the same. It is unrealistic to expect a lowly stevedore to know what reports his employer submits to the Employee's Compensation Commission under Book IV, Health, Safety and Welfare Benefits, Title II, Employees Compensation and State Insurance Fund, of the Labor Code, simply because the insurance fund is solely funded by the employer and the rate of employer's contribution varies according to time and actuarial computations. (See Articles 183-184; Labor Code). The worker has no ready access to this employer's record. In fact, it is farthest from his mind to inquire into the amount of employer's contribution, much less whether the employer remits the contributions. The worker is at all times entitled to benefits upon the occurrence of the defined contingency even when the employer fails to remit the contributions. (See Article 196 (b), Labor Code).

All employers are likewise required to keep an employment record of all their employees, namely: payrolls; and time records. (See Book III, Rule X, specifically Secs. 6, 7, 8, 1 and 12, Omnibus Rules — Implementing the Labor Code).

The respondent-employer was afforded the opportunity to show proof of the petitioner's length of service and pay records. In both instances, the respondent-employer failed. By its own folly, it must therefore suffer the consequences of such failure. (South Motorists Enterprises v. Tosoc, 181 SCRA 386, [1990]) From the very beginning — by the provision of the retirement provision of the Collective Bargaining Agreement, i.e., the length of service as requirement for retirement, and salary as a basis for benefit computation — the employer was forewarned of the need for accurate record keeping. This is precisely the basis of retirement, and the computation of benefits based on years of service and monthly wage.

To recapitulate; the Court hereby rules —

1. That the National Labor Relations Commission correctly ruled that the Labor Arbiter had no jurisdiction over the case, because the case involved an issue "arising from the interpretation or implementation" of a Collective Bargaining Agreement;

2. That the appeal to the National Labor Relations Commission was filed within the reglementary period and that the appeal bond was filed; and

3. That we adopt the computation formula for the retirement benefits by the Labor Arbiter, and the basis thereof, The respondent must therefore pay the petitioner the additional amount of Twenty-Five Thousand Four Hundred Forty-Three and Seventy Centavos P25,443.70) Pesos.

In view of the long delay in the disposition of the case, this decision is immediately executory.

SO ORDERED.

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G.R. No. 108001 March 15, 1996

SAN MIGUEL CORPORATION, ANGEL G. ROA and MELINDA MACARAIG, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION (Second Division), LABOR ARBITER EDUARDO J. CARPIO, ILAW AT BUKLOD NG MANGGAGAWA (IBM), ET AL., respondents.

HERMOSISIMA, JR., J.:p

In the herein petition for certiorari under Rule 65, petitioners question the jurisdiction of the Labor Arbiter to hear a complaint for unfair labor practice, illegal dismissal, and damages, notwithstanding the provision for grievance and arbitration in the Collective Bargaining Agreement.

Let us unfurl the facts.

Private respondents, employed by petitioner San Miguel Corporation (SMC) as mechanics, machinists, and carpenters, were and still are, bona fide officers and members of private respondent Ilaw at Buklod ng Manggagawa.

On or about July 31, 1990, private respondents were served a Memorandum from petitioner Angel G. Roa, Vice-President and Manager of SMC's Business Logistics Division (BLD), to the effect that they had to be separated from the service effective October 31, 1990 on the ground of "redundancy or excess personnel." Respondent union, in behalf of private respondents, opposed the intended dismissal and asked for a dialogue with management.

Accordingly, a series of dialogues were held between petitioners and private respondents. Even before the conclusion of said dialogues, the aforesaid petitioner Angel Roa issued another Memorandum on October 1, 1990 informing private respondents that they would be dismissed from work effective as of the close of business hours on November 2, 1990. Private respondents were in fact purged on the date aforesaid.

Thus, on February 25, 1991, private respondents filed a complaint against petitioners for Illegal Dismissal and Unfair Labor Practices, with a prayer for damages and attorney's fees, with the Arbitration Branch of respondent National Labor Relations Commission. The complaint 1

was assigned to Labor Arbiter Eduardo F. Carpio for hearing and proper disposition.

On April 15, 1991, petitioners filed a motion to dismiss the complaint, alleging that respondent Labor Arbiter had no jurisdiction over the subject matter of the complaint, and that respondent Labor Arbiter must defer consideration of the unfair labor practice complaint until after the parties have gone through the grievance procedure provided for in the existing Collective Bargaining Agreement (CBA). Respondent Labor Arbiter denied this motion in a Resolution, dated September 23, 1991.

The petitioners appealed the denial to respondent Commission on November 8, 1991. Unimpressed by the grounds therefor, respondent Commission dismissed the appeal in its assailed Resolution, dated August 11, 1992. Petitioners promptly filed a Motion for Reconsideration which, however, was denied through the likewise assailed Resolution, dated October 29, 1992.

Hence, the instant petition for certiorari alleging the following grounds was filed by the petitioners:

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RESPONDENT LABOR ARBITER CANNOT EXERCISE JURISDICTION OVER THE ALLEGED ILLEGAL TERMINATION AND ALLEGED ULP CASES WITHOUT PRIOR RESORT TO GRIEVANCE AND ARBITRATION PROVIDED UNDER THE CBA.

II

THE STRONG STATE POLICY ON 'THE PROMOTION OF VOLUNTARY MODES OF SETTLEMENT OF LABOR DISPUTES CRAFTED IN THE CONSTITUTION AND THE LABOR CODE DICTATES THE SUBMISSION OF THE CBA DISPUTE TO GRIEVANCE AND ARBITRATION. 2

Petitioners posit the basic principle that a collective bargaining agreement is a contract between management and labor that must bind and be enforced in the first instance as between the parties thereto. In this case, the CBA between the petitioners and respondent union provides, under Section 1, Article V entitled ARBITRATION, that "wages, hours of work, conditions of employment and/or employer-employee relations shall be settled by arbitration." Petitioners' thesis is that the dispute as to the termination of the union members and the unfair labor practice should first be settled by arbitration, and not directly by the labor arbiter, following the above provision of the CBA, which ought to be treated as the law between the parties thereto.

The argument is unmeritorious. The law in point is Article 217 (a) of the Labor Code. It is elementary that this law is deemed written into the CBA. In fact, the law speaks in plain and unambiguous terms that termination disputes, together with unfair labor practices, are matters falling under the original and exclusive jurisdiction of the Labor Arbiter, to wit:

Art. 217 Jurisdiction of Labor Arbiters and theCommission — (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide . . . the following cases involving all workers, whether agricultural or non-agricultural:

(1) Unfair labor practice cases;

(2) Termination disputes;

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The sole exception to the above rule can be found under Article 262 of the same Code, which provides:

Art. 262. Jurisdiction over other labor disputes — The voluntary arbitrator or panel of voluntary arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining dead locks. (As added by RA 6715).

We subjected the records of this case, particularly the CA to meticulous scrutiny and we find no agreement between SMC and the respondent union that would state in unequivocal language that petitioners and the respondent union conform to the submission of termination disputes and unfair labor practices to voluntary arbitration. Section 1, Article V of the CBA, cited by the herein petitioners, certainly does not provide so. Hence, consistent with the general rule under Article 217 (a) of the Labor Code, the Labor Arbiter properly has jurisdiction over the complaint filed by the respondent

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union on February 25, 1991 for illegal dismissal and unfair labor practice.

Petitioners point however to Section 2, Article III of the CBA, under the heading Job Security, to show that the dispute is a proper subject of the grievance procedure, viz:

. . . The UNION, however, shall have the right to seek reconsideration of any discharge, lay-off or disciplinary action, and such requests for reconsideration shall be considered a dispute or grievance to be dealt with in accordance with the procedure outlined in Article IV hereof [on Grievance Machinery] . . . 3 (Emphasis ours)

Petitioners allege that respondent union requested management for a "reconsideration and review" of the company's decision to terminate the employment of the union members. By this act, petitioners argue, respondent union recognized that the questioned dismissal is a grievable dispute by virtue of Section 2, Article III of the CBA. This allegation was strongly denied by the respondent union. In a Memorandum filed for the public respondent NLRC, the Solicitor General supported the position of the respondent union that it did not seek reconsideration from the SMC management in regard to the dismissal of the employees.

Petitioners fail miserably to prove that, indeed, the respondent union requested for a reconsideration or review of the management decision to dismiss the private respondents. A punctilious examination of the records indubitably reveals that at no time did the respondent union exercise its right to seek reconsideration of the company's move to terminate the employment of the union members, which request for reconsideration would have triggered the application of Section 2, Article III of the CBA, thus resulting in the treatment of the dispute as a grievance to be dealt with in accordance with the Grievance Machinery laid down in Article IV of the CBA. Stated differently, the filing of a request for reconsideration by the respondent union, which is the condition sine qua non to categorize the termination dispute and the ULP complaint as a grievable dispute, was decidedly absent in the case at bench. Hence, the respondent union acted well within their rights in filing their complaint for illegal dismissal and ULP directly with the Labor Arbiter under Article 217 (a) of the Labor Code.

Second. Petitioners insist that involved in the controversy is the interpretation and implementation of the CBA which is grievable and arbitrable by law under Article 217 (c) of the Labor Code, viz:

Art. 217 (c). Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements. (As amended by RA 6715).

Petitioners theorize that since respondents questioned the discharges, the main question for resolution is whether SMC had the management right or prerogative to effect the discharges on the ground of redundancy, and this necessarily calls for the interpretation or implementation of Article III (Job Security) in relation to Article IV (Grievance Machinery) of the CBA. 4

Petitioner's theory does not hold water. There is no connection whatsoever between SMC's management prerogative to effect the discharges and the interpretation or implementation of Articles III and IV of the CBA. The only relevant provision under Article III that may need interpretation or implementation is Section 2 which was cited herein. However, as patiently pointed out by this court, said provision does not come into play considering that the union never exercised its right to seek reconsideration of the discharges effected by the company. It would have been different had the union sought reconsideration. Such recourse under Section 2 would have been treated as a grievance under Article IV (Grievance Machinery) of the CBA, thus calling for the possible interpretation or implementation of the entire provision on Grievance Machinery as agreed upon by the parties. This was not the case however. The union brought the termination dispute directly to the Labor Arbiter rendering Articles III and IV of the CBA inapplicable for the resolution of this case.

The discharges, petitioners also contend, call for the interpretation or enforcement of company personnel policies, particularly SMC's personnel policies on lay-offs arising from redundancy, and so, they may be considered grievable and arbitrable by virtue of Article 217 (c). Not necessarily so. Company personnel policies are guiding principles stated in broad, long-range terms that express the philosophy or beliefs of an organization's top authority regarding personnel matters. They deal with matters affecting efficiency and well being of employees and include, among others, the procedure in the administration of wages, benefits, promotions, transfer and other personnel movements which are usually not spelled out in the collective agreement. The usual source of grievances, however, is the rules and regulations governing disciplinary actions. 5 Judging therefrom, the questioned discharges due to alleged redundancy can hardly be considered company personnel policies and therefore need not directly be subject to the grievance machinery nor to voluntary arbitration.

Third. Petitioners would like to persuade us that respondents' ULP claims are merely conclusory and cannot serve to vest jurisdiction to the Labor Arbiters. Petitioners argue with passion: "How was the employee discharges' (sic) right to self-organization restrained by their termination? Respondent did not show. There is no allegation of the existence of anti-union animus or of the ultimate facts showing how the discharges affected the rights to self-organization of individual respondents." 6 In short, petitioners maintain that respondents complaint does not allege a genuine case for ULP.

The Court is not convinced.

The complaint alleges that:

5. Individual complainants are bona fide officers and members of complainant Ilaw at Buklod ng Manggagawa (IBM). They are active and militant in the affairs and activities of the union.

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23. The dismissal or lock-out from work of the individual complainants clearly constitutes an act of unfair labor practices in the light of the fact that the work being performed by the individual complainants are being contracted out by the respondent company, and, therefore, deprives individual complainants of their right to work and it constitutes a criminal violation of existing laws.

xxx xxx xxx

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25. The acts of the respondent company in economically coercing employees to accept payment of separation and/or retirement benefits, pending final resolution of the labor disputes between the parties constitute acts of unfair labor practice in the light of the fact that there is undue interference, restraint, and coercion of employees in the exercise of their right to self-organization and collective bargaining. 7

Short of pre-empting the proceedings before the Labor Arbiter, the above complaint, makes out a genuine case for ULP.

In Manila Pencil Co. v. CIR, 8 this Court had occasion to observe that even where business conditions justified a lay-off of employees, unfair labor practices were committed in the form of discriminatory dismissal where only unionists were permanently dismissed. This was despite the valid excuse given by the Manila Pencil Company that the dismissal of the employees was due to the reduction of the company's dollar allocations for importation and that both union members and non-union members were laid-off. The Court, thru Justice Makalintal, rebuffed the petitioner Company and said:

. . . The explanation, however, does not by any means account for the permanent dismissal of five of the unionists, where it does not appear that non-unionists were similarly dismissed.

xxx xxx xxx

And the discrimination shown by the Company strongly is confirmed by the fact that during the period from October 1958 to August 17, 1959 it hired from fifteen to twenty new employees and ten apprentices. It says these employees were for its new lead factory, but is (sic) not shown that the five who had been permanently dismissed were not suitable for work in that new factory.

A similar ruling was made by this Court in People's Bank and Trust Co. v. People's Bank and Trust Co. Employees Union 9 involving the lay-off by a bank of sixty-five (65) employees who were active union members allegedly by reason of retrenchment. The Court likewise found the employer in that case to have committed ULP in effecting the discharges.

This Court was more emphatic however in Bataan Shipyard and Engineering Co., Inc. v. NLRC, et al.: 10

Under the circumstances obtaining in this case, We are inclined to believe that the company had indeed been discriminatory in selecting the employees who were to be retrenched. All of the retrenched employees are officers and members of the NAFLU. The record of the case is bereft of any satisfactory explanation from the Company regarding this situation. As such, the action taken by the firm becomes highly suspect. It leads Us to conclude that the firm had been discriminating against membership in the NAFLU, an act which amounts to interference in the employees' exercise of their right of self-organization. Under Art. 249 (now Art. 248) of the Labor Code of the Philippines, such interference is considered an act of unfair labor practice on the part of the Company . . . (Emphasis ours).

It matters not that the cause of termination in the above cited cases was retrenchment while that in the instant case was redundancy. The important fact is that in all of these cases, including the one at bar, all of the dismissed employees were officers and members of their respective unions, and their employers failed to give a satisfactory explanation as to why this group of employees was singled out.

It may be the case that employees other than union members may have been terminated also by petitioner SMC on account of its redundancy program. If that is true, the discharges may really be for a bona fide authorized cause under Article 283 11 of the Labor Code. On the other hand, it is also possible that such may only be a clever scheme of the petitioner company to camouflage its real intention of discriminating against union members particularly the private respondents. In any case, these matters will be best ventilated in a hearing before the Labor Arbiter.

It is for the above reason that we cannot hold the petitioners guilty of the ULP charge. This will be the task of the Labor Arbiter. We however find that based on the circumstances surrounding this case and settled jurisprudence on the subject, the complaint filed by the private respondents on February 25, 1991 alleges facts sufficient to constitute a bona fide case of ULP, and therefore properly cognizable by the Labor Arbiter under Article 217 (a) of the Labor Code. This is consistent with the rule that jurisdiction over the subject matter is determined by the allegations of the complaint. 12

Finally, petitioners try to impress on this Court the strong State policy on the promotion of voluntary modes of settlement of labor disputes crafted in the Constitution and the Labor Code which dictate the submission of the CBA dispute to grievance and arbitration. 13

In this regard, the response of the Solicitor General is apt:

Petitioners deserve commendation for divulging and bringing to public respondents' attention the noble legislative intent behind the law mandating the inclusion of grievance and voluntary arbitration provisions in the CBA. However, in the absence of an express legal conferment thereof, jurisdiction cannot be appropriated by an official or tribunal (sic) no matter how well-intentioned it is, even in the pursuit of the dearest substantial right (Concurring Opinion of Justice Barredo, Estanislao v. Honrado, 114 SCRA 748, 29 June 1982). 14

In the same manner, petitioners cannot arrogate into the powers of voluntary arbitrators the original and exclusive jurisdiction of Labor Arbiters over unfair labor practices, termination disputes, and claims for damages, in the absence of an express agreement between the parties in order for Article 262 15 of the Labor Law to apply in the case at bar. 16

WHEREFORE, the instant petition is DISMISSED for lack of merit and the resolutions of the National Labor Relations Commission dated August 11, 1992 and October 29, 1992 are hereby AFFIRMED.

SO ORDERED.

8

G.R. No. 138094 May 29, 2003

MARILOU GUANZON APALISOK, petitioner, vs.RADIO PHILIPPINES NETWORK RADIO STATION DYKC and STATION MANAGER GEORGE SUAZO, respondents.

CARPIO MORALES, J.:

Before this Court is a petition for review on certiorari under Rule 45 assailing the Court of Appeals Decision1 of October 30, 1998 and Resolution 2 of February 26, 1999.

On May 15, 1995, Marilou Gaunzon Apalisok (petitioner), then Production Chief of Radio Philippines Network (RPN) Station DYKC, received a Memorandum3 from Branches Operations Manager Gilito Datoc asking her to submit a written explanation why no disciplinary action should be taken against her for performance of acts hostile to RPN, and arrogant, disrespectful and defiant behavior towards her superior Station Manager George Suazo.

Complying, petitioner submitted on May 16, 1995 her Answer4 to the memorandum.

On May 31, 1995, petitioner received another memorandum from the Administrative Manager of RPN, informing her of the termination of her services effective the close of regular office hours of June 15, 1995.

By letter of June 5, 1995, petitioner informed RPN, by letter of June 5, 1995, of her decision to waive her right to resolve her case through the grievance machinery of RPN as provided for in the Collective Bargaining Agreement (CBA) and to lodge her case before the proper government forum. She thereafter filed a complaint against RPN DYKC and Suazo (respondents) for illegal dismissal before the National Labor Relations Commission, Regional Arbitration Branch of Region 7 which referred it to the National Conciliation and Mediation Board.

By Submission Agreement5 dated June 20, 1995 signed by their respective counsels, petitioner and respondents agreed to submit for voluntary arbitration the issue of whether petitioner's dismissal was valid and to abide by the decision of the voluntary arbitrator.

In her position paper6 submitted before the voluntary arbitrator, petitioner prayed that her dismissal be declared invalid and that she be awarded separation pay, backwages and other benefits granted to her by the Labor Code since reinstatement is no longer feasible due to strained relations. She also prayed that she be awarded P2,000,000.00 for moral damages and P500,000.00 for exemplary damages.

Respondents on the other hand prayed for the dismissal of the complaint, arguing that the voluntary arbitrator had no jurisdiction over the case and, assuming that he had, the complaint is dismissible for lack of merit as petitioner was not illegally dismissed.7

On October 18, 1995, the voluntary arbitrator rendered an Award8 in favor of petitioner, the dispositive portion of which reads:

WHEREFORE, above premises considered, this Voluntary Arbitrator rules that the dismissal of complainant was invalid.

However, considering the impracticality of reinstatement because of proven strained relation between the parties, respondents, instead shall pay complainant the amount of FOUR HUNDRED ELEVEN THOUSAND ONE HUNDRED TWENTY SIX PESOS & SEVENTY-SIX CENTAVOS (P411,126.76) itemized as follows:

In summary, the total award is hereunder itemized:

1. SEPARATION PAY (P14,600.00 divide by 30 days multiplied by 15 days per year of service x 19 years) .........................................

2. BACKWAGES (P14,600 X 6 months) .............................

3. MORAL AND EXEMPLARY DAMAGES ...........................

4. SERVICE INCENTIVE LEAVES (P14,600 divide by 30 days = P486.67 x 5 days = P2,433.35 x 19 years .......

5. ATTORNEY'S FEES (10%) ...........................

All other claims are hereby denied.

SO ORDERED. (Emphasis supplied)

Respondents' motion for reconsideration9 of the Award having been denied by the voluntary arbitrator by Order of November 21, 1995, they filed a petition for certiorari before this Court, docketed as G.R. No. 122841.

By Resolution10 of December 13, 1995, the Third Division of this Court referred G.R. No. 122841 to the Court of Appeals, following the case of Luzon Development Bank v. Association of Luzon Development Bank Employees, et al.11 holding that decisions or awards of a voluntary arbitrator or panel of arbitrators in labor cases are reviewable by the Court of Appeals.

The Court of Appeals, finding that the option of petitioner not to subject the dispute to the grievance machinery provided for in the CBA was tantamount to relinquishing her right to avail of the aid of a voluntary arbitrator in settling the dispute which "likewise converted an unresolved grievance into a resolved one," held that the voluntary arbitrator did not have jurisdiction over petitioner's complaint and accordingly nullified and set aside, by Decision of October 30, 1998, the voluntary arbitration award.

Petitioner's Motion for Reconsideration12 of the Court of Appeals Decision having been denied by Resolution13 of February 26, 1999, the present petition was filed which raises the following issues:

1. Whether or not the Voluntary Arbitrator had jurisdiction over petitioner's complaint, and

2. Whether or not respondents are guilty of estoppel.14

Petitioner, citing Article 262 of the Labor Code of the Philippines, as amended which reads:

ARTICLE 262. JURISDICTION OVER OTHER LABOR DISPUTES. The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks. (Emphasis and italics supplied),

contends that her option not to subject the dispute to the grievance machinery of RPN did not amount to her relinquishing of her right to avail of voluntary arbitration as a mode of settling it for she and respondents in fact agreed to have the dispute settled by a voluntary arbitrator when they freely executed the above-said Submission Agreement. She thus concludes that the voluntary arbitrator has jurisdiction over the controversy.15

Petitioner contends in any event that even assuming that the voluntary arbitrator had no jurisdiction over the case, it would not be in keeping with settled jurisprudence to allow a losing party to question the

9

authority of the voluntary arbitrator after it had freely submitted itself to its authority.16

The petition is impressed with merit.

The above quoted Article 262 of the Labor Code provides that upon agreement of the parties, the voluntary arbitrator can hear and decide all other labor disputes.

Contrary to the finding of the Court of Appeals, voluntary arbitration as a mode of settling the dispute was not forced upon respondents. Both parties indeed agreed to submit the issue of validity of the dismissal of petitioner to the jurisdiction of the voluntary arbitrator by the Submission Agreement duly signed by their respective counsels.

As the voluntary arbitrator had jurisdiction over the parties' controversy, discussion of the second issue is no longer necessary.

WHEREFORE, the Court of Appeals Decision of October 30, 1998 is hereby SET ASIDE and the voluntary arbitration Award of October 18, 1995 is hereby REINSTATED.

SO ORDERED.

10

G.R. No. 140960 January 20, 2003

LUDO & LUYM CORPORATION, petitioner, vs.FERDINAND SAORNIDO as voluntary arbitrator and LUDO EMPLOYEES UNION (LEU) representing 214 of its officers and members, respondents.

QUISUMBING, J.:

This petition for review on certiorari seeks to annul and set aside the decision1 of the Court of Appeals promulgated on July 6, 1999 and its Order denying petitioner’s motion for reconsideration in CA-G.R. SP No. 44341.

The relevant facts as substantially recited by the Court of Appeals in its decision are as follows:

Petitioner LUDO & LUYM CORPORATION (LUDO for brevity) is a domestic corporation engaged in the manufacture of coconut oil, corn starch, glucose and related products. It operates a manufacturing plant located at Tupas Street, Cebu City and a wharf where raw materials and finished products are shipped out.

In the course of its business operations, LUDO engaged the arrastre services of Cresencio Lu Arrastre Services (CLAS) for the loading and unloading of its finished products at the wharf. Accordingly, several arrastre workers were deployed by CLAS to perform the services needed by LUDO.

These arrastre workers were subsequently hired, on different dates, as regular rank-and-file employees of LUDO every time the latter needed additional manpower services. Said employees thereafter joined respondent union, the LUDO Employees Union (LEU), which acted as the exclusive bargaining agent of the rank-and-file employees.

On April 13, 1992, respondent union entered into a collective bargaining agreement with LUDO which provides certain benefits to the employees, the amount of which vary according to the length of service rendered by the availing employee.

Thereafter, the union requested LUDO to include in its members’ period of service the time during which they rendered arrastre services to LUDO through the CLAS so that they could get higher benefits. LUDO failed to act on the request. Thus, the matter was submitted for voluntary arbitration.

The parties accordingly executed a submission agreement raising the sole issue of the date of regularization of the workers for resolution by the Voluntary Arbitrator.

In its decision dated April 18, 1997, the Voluntary Arbitrator ruled that: (1) the respondent employees were engaged in activities necessary and desirable to the business of petitioner, and (2) CLAS is a labor-only contractor of petitioner.2 It disposed of the case thus:

WHEREFORE, in view of the foregoing, this Voluntary Arbitrator finds the claims of the complainants meritorious and so hold that:

a. the 214 complainants, as listed in the Annex A, shall be considered regular employees of the respondents six (6) months from the first day of service at CLAS;

b. the said complainants, being entitled to the CBA benefits during the regular employment, are awarded a) sick leave, b) vacation leave & c) annual wage and salary increases during such period in the

amount of FIVE MILLION SEVEN HUNDRED SEVEN THOUSAND TWO HUNDRED SIXTY ONE PESOS AND SIXTY ONE CENTAVOS (P5,707,261.61) as computed in "Annex A";

c. the respondents shall pay attorney’s fees of ten (10) percent of the total award;

d. an interest of twelve (12) percent per annum or one (1) percent per month shall be imposed to the award from the date of promulgation until fully paid if only to speed up the payment of these long over due CBA benefits deprived of the complaining workers.

Accordingly, all separation and/or retirement benefits shall be construed from the date of regularization aforementioned subject only to the appropriate government laws and other social legislation.

SO ORDERED.3

In due time, LUDO filed a motion for reconsideration, which was denied. On appeal, the Court of Appeals affirmed in toto the decision of the Voluntary Arbitrator, thus:

WHEREFORE, finding no reversible error committed by respondent voluntary arbitrator, the instant petition is hereby DISMISSED.

SO ORDERED.4

Hence this petition. Before us, petitioner raises the following issues:

I

WHETHER OR NOT BENEFITS CONSISTING OF SALARY INCREASES, VACATION LEAVE AND SICK LEAVE BENEFITS FOR THE YEARS 1977 TO 1987 ARE ALREADY BARRED BY PRESCRIPTION WHEN PRIVATE RESPONDENTS FILED THEIR CASE IN JANUARY 1995;

II

WHETHER OR NOT A VOLUNTARY ARBITRATOR CAN AWARD BENEFITS NOT CLAIMED IN THE SUBMISSION AGREEMENT.5

Petitioner contends that the appellate court gravely erred when it upheld the award of benefits which were beyond the terms of submission agreement. Petitioner asserts that the arbitrator must confine its adjudication to those issues submitted by the parties for arbitration, which in this case is the sole issue of the date of regularization of the workers. Hence, the award of benefits by the arbitrator was done in excess of jurisdiction.6

Respondents, for their part, aver that the three-year prescriptive period is reckoned only from the time the obligor declares his refusal to comply with his obligation in clear and unequivocal terms. In this case, respondents maintain that LUDO merely promised to review the company records in response to respondents’ demand for adjustment in the date of their regularization without making a categorical statement of refusal.7 On the matter of the benefits, respondents argue that the arbitrator is empowered to award the assailed benefits because notwithstanding the sole issue of the date of regularization, standard companion issues on reliefs and remedies are deemed incorporated. Otherwise, the whole arbitration process would be rendered purely academic and the law creating it inutile.8

11

The jurisdiction of Voluntary Arbitrator or Panel of Voluntary Arbitrators and Labor Arbiters is clearly defined and specifically delineated in the Labor Code. The pertinent provisions of the Labor Code, read:

Art. 217. Jurisdiction of Labor Arbiters and the Commission. --- (a) Except as otherwise provided under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural:

1. Unfair labor practice cases:

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wage, rates of pay, hours of work and other terms and conditions of employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations;

xxx

Art. 261. Jurisdiction of Voluntary Arbitrators or panel of Voluntary Arbitrators. — The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.


Art. 262. Jurisdiction over other labor disputes. — The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks."

In construing the above provisions, we held in San Jose vs. NLRC, 9 that the jurisdiction of the Labor Arbiter and the Voluntary Arbitrator or Panel of Voluntary Arbitrators over the cases enumerated in the Labor Code, Articles 217, 261 and 262, can possibly include money claims in one form or another.10 Comparatively, in Reformist Union of R.B. Liner, Inc. vs. NLRC,11 compulsory arbitration has been defined both as "the process of settlement of labor disputes by a government agency which

has the authority to investigate and to make an award which is binding on all the parties, and as a mode of arbitration where the parties are compelled to accept the resolution of their dispute through arbitration by a third party (emphasis supplied)."12 While a voluntary arbitrator is not part of the governmental unit or labor department’s personnel, said arbitrator renders arbitration services provided for under labor laws.

Generally, the arbitrator is expected to decide only those questions expressly delineated by the submission agreement. Nevertheless, the arbitrator can assume that he has the necessary power to make a final settlement since arbitration is the final resort for the adjudication of disputes.13 The succinct reasoning enunciated by the CA in support of its holding, that the Voluntary Arbitrator in a labor controversy has jurisdiction to render the questioned arbitral awards, deserves our concurrence, thus:

In general, the arbitrator is expected to decide those questions expressly stated and limited in the submission agreement. However, since arbitration is the final resort for the adjudication of disputes, the arbitrator can assume that he has the power to make a final settlement. Thus, assuming that the submission empowers the arbitrator to decide whether an employee was discharged for just cause, the arbitrator in this instance can reasonable assume that his powers extended beyond giving a yes-or-no answer and included the power to reinstate him with or without back pay.

In one case, the Supreme Court stressed that "xxx the Voluntary Arbitrator had plenary jurisdiction and authority to interpret the agreement to arbitrate and to determine the scope of his own authority subject only, in a proper case, to the certiorari jurisdiction of this Court. The Arbitrator, as already indicated, viewed his authority as embracing not merely the determination of the abstract question of whether or not a performance bonus was to be granted but also, in the affirmative case, the amount thereof.

By the same token, the issue of regularization should be viewed as two-tiered issue. While the submission agreement mentioned only the determination of the date or regularization, law and jurisprudence give the voluntary arbitrator enough leeway of authority as well as adequate prerogative to accomplish the reason for which the law on voluntary arbitration was created – speedy labor justice. It bears stressing that the underlying reason why this case arose is to settle, once and for all, the ultimate question of whether respondent employees are entitled to higher benefits. To require them to file another action for payment of such benefits would certainly undermine labor proceedings and contravene the constitutional mandate providing full protection to labor.14

As regards petitioner’s contention that the money claim in this case is barred by prescription, we hold that this contention is without merit. So is petitioner’s stance that the benefits claimed by the respondents, i.e., sick leave, vacation leave and 13th-month pay, had already prescribed, considering the three-year period for the institution of monetary claims.15 Such determination is a question of fact which must be ascertained based on the evidence, both oral and documentary, presented by the parties before the Voluntary Arbitrator. In this case, the Voluntary Arbitrator found that prescription has not as yet set in to bar the respondents’ claims for the monetary benefits awarded to them. Basic is the rule that findings of fact of administrative and quasi-

12

judicial bodies, which have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality.16 Here, the Voluntary Arbitrator received the evidence of the parties first-hand. No compelling reason has been shown for us to diverge from the findings of the Voluntary Arbitrator, especially since the appellate court affirmed his findings, that it took some time for respondent employees to ventilate their claims because of the repeated assurances made by the petitioner that it would review the company records and determine therefrom the validity of the claims, without expressing a categorical denial of their claims. As elucidated by the Voluntary Arbitrator:

The respondents had raised prescription as defense. The controlling law, as ruled by the High Court, is:

"The cause of action accrues until the party obligated refuses xxx to comply with his duty. Being warded off by promises, the workers not having decided to assert [their] right[s], [their] causes of action had not accrued…" (Citation omitted.)

Since the parties had continued their negotiations even after the matter was raised before the Grievance Procedure and the voluntary arbitration, the respondents had not refused to comply with their duty. They just wanted the complainants to present some proofs. The complainant’s cause of action had not therefore accrued yet. Besides, in the earlier voluntary arbitration case aforementioned involving exactly the same issue and employees similarly situated as the complainants’, the same defense was raised and dismissed by Honorable Thelma Jordan, Voluntary Arbitrator.

In fact, the respondents’ promised to correct their length of service and grant them the back CBA benefits if the complainants can prove they are entitled rendered the former in estoppel, barring them from raising the defense of laches or prescription. To hold otherwise amounts to rewarding the respondents for their duplicitous representation and abet them in a dishonest scheme against their workers.17

Indeed, as the Court of Appeals concluded, under the equitable principle of estoppel, it will be the height of injustice if we will brush aside the employees’ claims on a mere technicality, especially when it is petitioner’s own action that prevented them from interposing the claims within the prescribed period.

WHEREFORE, the petition is denied. The appealed decision of the Court of Appeals in CA-G.R. SP No. 44341 and the resolution denying petitioner’s motion for reconsideration, are AFFIRMED. Costs against petitioner.

SO ORDERED.

13

G.R. No. 121171 December 29, 1998

ASSET PRIVATIZATION TRUST, petitioner, vs.COURT OF APPEALS, JESUS S. CABARRUS, SR., JESUS S. CABARRUS, JR., JAIME T. CABARRUS, JOSE MIGUEL CABARRUS, ALEJANDRO S. PASTOR, JR., ANTONIO U. MIRANDA, and MIGUEL M. ANTONIO, as Minority Stock-Holders of Marinduque Mining and Industrial Corporation, respondents.

KAPUNAN, J.:

The petition for review on certiorari before us seeks to reverse and set aside the decision of the Court of Appeals which denied due course to the petition for certiorari filed by the Asset Privatization Trust (APT) assailing the order of the Regional Trial Court (RTC) Branch 62, Makati City. The Makati RTC's order upheld and confirmed the award made by the Arbitration Committee in favor of Marinduque Mining and Industrial Corporation (MMIC) and against the Government, represented by herein petitioner APT for damages in the amount of P2.5 BILLION (or approximately P4.5 BILLION, including interest).

Ironically, the staggering amount of damages was imposed on the Government for exercising its legitimate right of foreclosure as creditor against the debtor MMIC as a consequence of the latter's failure to pay its overdue and unpaid obligation of P22 billion to the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP).

The antecedent factsof the case.

The development, exploration and utilization of the mineral deposits in the Surigao Mineral Reservation have been authorized by Republic Act No. 1528, as amended by Republic Acts Nos. 2077 and 4167, by virtue of which laws, a Memorandum of Agreement was drawn on July 3, 1968, whereby the Republic of the Philippines thru the Surigao Mineral Reservation Board, granted MMIC the exclusive right to explore, develop and exploit nickel, cobalt and other minerals in the Surigao mineral reservation. 1 MMIC is a domestic corporation engaged in mining with respondent Jesus S. Cabarrus, Sr. as President and among its original stockholders.

The Philippine Government undertook to support the financing of MMIC by purchase of MMIC debenture bonds and extension of guarantees. Further, the Philippine Government obtained a firm commitment form the DBP and/or other government financing institutions to subscribe in MMIC and issue guarantee/s for foreign loans or deferred payment arrangements secured from the US Eximbank, Asian Development Bank, Kobe Steel, of amount not exceeding US$100 Million. 2

DBP approved guarantees in favor of MMIC and subsequent requests for guarantees were based on the unutilized portion of the Government commitment. Thereafter, the Government extended accommodations to MMIC in various amounts.

On July 13, 1981, MMIC, PNB and DBP executed a Mortgage Trust Agreement 3 whereby MMIC, as mortgagor, agreed to constitute a mortgage in favor or PNB and DBP as mortgagees, over all MMIC's assets; subject of real estate and chattel mortgage executed by the mortgagor, and additional assets described and identified, including assets of whatever kind, nature or description, which the mortgagor may acquire whether in substitution of, in replenishment, or in addition thereto.

Article IV of the Mortgage Trust Agreement provides for Events of Default, which expressly includes the event that the MORTGAGOR shall fail to pay any amount secured by this Mortgage Trust Agreement when due. 4

Article V of the Mortgage Trust Agreement prescribes in detail, and in addition to the enumerated events of defaults, circumstances by which the mortgagor may be declared in default, the procedure therefor, waiver of period to foreclose, authority of Trustee before, during and after foreclosure, including taking possession of the mortgaged properties. 5

In various requests for advances/remittances of loans if huge amounts, Deeds of Undertaking, Promissory Notes, Loan Documents, Deeds of Real Estate Mortgages, MMIC invariably committed to pay either on demand or under certain terms the loans and accommodations secured from or guaranteed by both DBP and PNB.

By 1984, DBP and PNB's financial both in loans and in equity in MMIC had reached tremendous proportions, and MMIC was having a difficult time meeting its financial obligations. MMIC had an outstanding loan with DBP in the amount of P13,792,607,565.92 as of August 31, 1984 and with PNB in the amount of P8,789,028,249.38 as July 15, 1984 or a total Government expose of Twenty Two Billion Six Hundred Sixty-Eight Million Five Hundred Thirty-Seven Hundred Seventy and 05/100 (P22, 668,537,770.05), Philippine Currency. 6 Thus, a financial restructuring plan (FRP) designed to reduce MMIC's interest expense through debt conversion to equity was drafted by the Sycip Gorres Velayo accounting firm. 7 On April 30, 1984, the FRP was approved by the Board of Directors of the MMIC. 8 However, the proposed FRP had never been formally adopted, approved or ratified by either PNB or DBP. 9

In August and September 1984, as the various loans and advances made by DBP and PNB to MMIC had become overdue and since any restructuring program relative to the loans was no longer feasible, and in compliance with the directive of Presidential Decree No. 385, DBP and PNB as mortgagees of MMIC assets, decided to exercise their right to extrajudicially foreclose the mortgages in accordance with the Mortgage Trust Agreement. 10

The foreclosed assets were sold to PNB as the lone bidder and were assigned to three newly formed corporations, namely, Nonoc Mining Corporation, Maricalum Mining and Industrial Corporation, and Island Cement Corporation. In 1986, these assets were transferred to the Asset Privatization Trust (APT). 11

On February 28, 1985, Jesus S. Cabarrus, Sr., together with the other stockholders of MMIC, filed a derivative suit against DBP and PNB before the RTC of Makati, Branch 62, for Annulment of Foreclosures, Specific Performance and Damages. 12 The suit, docketed as Civil Case No. 9900, prayed that the court: (1) annul the foreclosures, restore the foreclosed assets to MMIC, and require the banks to account for their use and operation in the interim; (2) direct the banks to honor and perform their commitments under the alleged FRP; and (3) pay moral and exemplary damages, attorney's fees, litigation expenses and costs.

In the course of the trial, private respondents and petitioner APT, as successor of the DBP and the PNB's interest in MMIC, mutually agreed to submit the case to arbitration by entering into a "Compromise and Arbitration Agreement," stipulating, inter alia:

NOW THEREFORE, for and in consideration of the foregoing premises and the mutual covenants contained herein the parties agree as follows:

1. Withdrawal and Compromise. The parties have agreed to withdraw their respective claims from the

14

Trial Court and to resolve their dispute through arbitration by praying to the Trial Court to issue a Compromise Judgment based on this Compromise and Arbitration Agreement.

In withdrawing their dispute from the court and in choosing to resolve it through arbitration, the parties have agreed that:

(a) their respective money claims shall be reduced to purely money claims; and

(b) as successor and assignee of the PNB and DBP interests in MMIC and the MMIC accounts, APT shall likewise succeed to the rights and obligations of PNB and DBP in respect of the controversy subject of Civil Case No. 9900 to be transferred to arbitration and any arbitral award/order against either PNB and/or DBP shall be the responsibility be discharged by and be enforceable against APT, the parties having agreed to drop PNB and DBP from the arbitration.

2. Submission. The parties hereby agree that (a) the controversy in Civil Case No. 9900 shall be submitted instead to arbitration under RA 876 and (b) the reliefs prayed for in Civil Case No. 9900 shall, with the approval of the Trial Court of this Compromise and Arbitration Agreement, be transferred and reduced to pure pecuniary/money claims with the parties waiving and foregoing all other forms of reliefs which they prayed for or should have prayed for in Civil Case No. 9900. 13

The Compromise and Arbitration Agreement limited the issues to the following:

5. Issues The issues to be submitted for the Committee's resolution shall be (a) Whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors, (b) Whether or not the actions leading to, and including,. the PNB-DBP foreclosure of the MMIC assets were proper, valid and in goodfaith. 14

This agreement was presented for approval to the trial court. On October 14, 1992, the Makati RTC, Branch 61, issued an order, to wit:

WHEREFORE, this Court orders:

1. Substituting PNB and DBP with the Asset Privatization Trust as party defendant.

2. Approving the Compromise and Arbitration Agreement dated October 6, 1997, attached as Annex "C" of the Omnibus Motion.

3. Approving the Transformation of the reliefs prayed for [by] the plaintiffs in this case into pure money claims; and

4. The Complaint is hereby DISMISSED. 15

The Arbitration Committee was composed of retired Supreme Court Justice Abraham Sarmiento as Chairman, Atty. Jose C. Sison and former Court of Appeals Justice Magdangal Elma as Members. On November 24, 1993, after conducting several hearings, the Arbitration Committee rendered a majority decision in favor of MMIC, the pertinent portions of which read as follows:

Since, as this Committee finds, there is no foreclosure at all as it was not legally and validly done, the Committee holds and so declares that the loans of PNB and DBP to MMIC. for the payment and recovery of which the void foreclosure sales were undertaken, continue to remain outstanding and unpaid. Defendant APT as the successor-in-interest of PNB and DBP to the said loans is therefore entitled and retains the right, to collect the same from MMIC pursuant to, and based on the loan documents signed by MMIC, subject to the legal and valid defenses that the latter may duly and seasonably interpose. Such loans shall, however, be reduced by the amount which APT may have realized from the sale of the seized assets of MMIC which by agreement should no longer be returned even if the foreclosures were found to be null and void.

The documentary evidence submitted and adopted by the parties (Exhibits "3", "3-B"; Exhibit "100"; and also Exhibit "ZZZ") as their exhibits would show that the total outstanding obligation due to DBP and PNB as of the date of foreclosure is P22,668,537,770.05, more or less.

Therefore defendant APT can, and is still entitled to, collect the outstanding obligations of MMIC to PNB and DBP amounting to P22,668,537,770.05, more or less, with interest thereon as stipulated in the loan documents from the date of foreclosure up to the time they are fully paid less the proportionate liability of DBP as owner of 87% of the total capitalization of MMIC under the FRP. Simply put, DBP shall share in the award of damages to, and in the obligations of, MMIC in proportion to its 87% equity in tile total capital stock of MMIC.

xxx xxx xxx

As this Committee holds that the FRP is valid, DBP's equity in MMIC is raised to 87%. So pursuant to the above provision of the Compromise and Arbitration Agreement, the 87% equity of DBP is hereby deducted from the actual damages of P19,486,118,654.00 resulting in the net actual damages of P2,531,635,425.02 plus interest.

DISPOSITION

WHEREFORE, premises considered, judgment is hereby rendered:

1. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P2,531,635,425.02 with interest thereon at the legal rate of six per cent

15

(6%) per annum reckoned from August 3, 9, and 24, 1984, pari passu, as and for actual damages. Payment of these actual damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

2. Ordering the defendant to pay to the Marinduque Mining and Industrial Corporation, except the DBP, the sum of P13,000.000.00, as and for moral and exemplary damages. Payment of these moral and exemplary damages shall be offset by APT from the outstanding and unpaid loans of MMIC with DBP and PNB, which have not been converted into equity. Should there be any balance due to MMIC after the offsetting, the same shall be satisfied from the funds representing the purchase price of the sale of the shares of Island Cement Corporation in the amount of P503,000,000.00 held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supercede [sic] it pursuant to paragraph (9) of the Compromise and Arbitration Agreement;

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supersede it, pursuant to paragraph (9) of the Compromise and Arbitration Agreement, as and for moral damages; and

4. Ordering the defendant to pay arbitration costs.

This Decision is FINAL and EXECUTORY.

IT IS SO ORDERED. 16

Motions for reconsideration were filed by both parties, but the same were denied.

On October 17, 1993, private respondents filed in the same Civil Case No. 9900 an "Application/Motion for Confirmation of Arbitration Award." Petitioner countered with an "Opposition and Motion to Vacate Judgment" raising the following grounds.

1. The plaintiffs Application/Motion is improperly filed with this branch of the Court, considering that the said motion is neither a part nor the continuation of the proceedings in Civil Case No. 9900 which was dismissed upon motion of the parties. In fact, the defendants in the said Civil Case No. 9900 were the Development Bank of the Philippines and the Philippine National Bank (PNB);

2. Under Section 71 of Rep. Act 876, an arbitration under a contract or submission shall be deemed a special proceedings and a party to the controversy which was arbitrated may apply to the court having jurisdiction, (not necessarily with this Honorable Court) for an order confirming the award;

3. The issues submitted for arbitration have been limited to two: (1) propriety of the plaintiffs filing the derivative suit and (2) the regularity of the foreclosure proceedings. The arbitration award sought to be confirmed herein, far exceeded the issues submitted and even granted moral damages to one of the herein plaintiffs;

4. Under Section 24 of Rep. Act 876, the Court must make an order vacating the award where 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. 17

Private respondents filed a "REPLY AND OPPOSITION" dated November 10, 1984, arguing that a dismissal of Civil Case No. 9900 was merely a "qualified dismissal" to pave the way for the submission of the controversy to arbitration and operated simply as "a mere suspension of the proceedings" They denied that the Arbitration Committee had exceeded its powers.

In an Order dated November 28, 1993, the trial court confirmed the award of the Arbitration Committee. The dispositive portion of said order reads:

WHEREFORE, premises considered, and in the light of the parties [sic] Compromise and Arbitration Agreement dated October 6, 1992, the Decision of the Arbitration Committee promulgated on November 24, 1993, as affirmed in a Resolution dated July 26, 1994, and finally settled and clarified in the Separate Opinion dated September 2, 1994 of Committee Member Elma, and the pertinent provisions of RA 876, also known as the Arbitration Law, this Court GRANTS PLAINTIFFS' APPLICATION AND THUS CONFIRMS THE ARBITRATION AWARD, AND JUDGMENT IS HEREBY RENDERED:

(a) Ordering the defendant APT to the Marinduque Mining and Industrial Corporation (MMIC), except the DBP, the sum of P3,811,757,425.00, as and for actual damages, which shall be partially satisfied from the funds held under escrow in the amount of P503,000,000.00 pursuant to the Escrow Agreement dated April 22, 1988. The balance of the award, after the escrow funds are fully applied, shall be executed against the APT;

(b) Ordering the defendant to pay to the MMIC, except the DBP, the sum of P13,000,000.00 as and for moral and exemplary damages;

(c) Ordering the defendant to pay to Jesus S. Cabarrus, Sr., the sum of P10,000,000.00 as and for moral damages; and

(d) Ordering the defendant to pay the herein plaintiffs/applicants/movants the sum of P1,705,410.23 as arbitration costs.

16

In reiteration of the mandates of Stipulation No. 10 and Stipulation No. 8 paragraph 2 of the Compromise and Arbitration Agreement, and the final edict of the Arbitration Committee's decision, and with this Court's Confirmation, the issuance of the Arbitration Committee's Award shall henceforth be final and executory.

SO ORDERED. 18

On December 27, 1994, petitioner filed its motion for reconsideration of the Order dated November 28, 1994. Private respondents, in turn, submitted their reply and opposition thereto.

On January 18, 1995, the trial court handed down its order denying APT's motion for reconsideration for lack of merit and for having been filed out of time. The trial court declared that "considering that the defendant APT, through counsel, officially and actually received a copy of the Order of this Court dated November 28, 1994 on December 6, 1994, the Motion for Reconsideration thereof filed by the defendant APT on December 27, 1994, or after the lapse of 21 days, was clearly filed beyond the 15-day reglementary period prescribed or provided for by law for the filing of an appeal from final orders, resolutions, awards, judgments or decisions of any court in all cases, and by necessary implication for the filing of a motion for reconsideration thereof."

On February 7, 1995, petitioner received private respondents' Motion for Execution and Appointment of Custodian of Proceeds of Execution dated February 6, 1995.

Petitioner thereafter filed with the Court of Appeals a special civil action for certiorari with temporary restraining order and/or preliminary injunction dated February 13, 1996 to annul and declare as void the Orders of the RTC-Makati dated November 28, 1994 and January 18, 1995 for having been issued without or in excess of jurisdiction and/or with grave abuse of discretion. 19 As ground therefor, petitioner alleged that:

I

THE RESPONDENT JUDGE HAS NOT VALIDLY ACQUIRED JURISDICTION MUCH LESS, HAS THE COURT AUTHORITY, TO CONFIRM THE ARBITRAL AWARD CONSIDERING THAT THE ORIGINAL CASE, CIVIL CASE NO. 9900, HAD PREVIOUSLY BEEN DISMISSED.

II

THE RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF DISCRETION AND ACTED WITHOUT OR IN EXCESS OF JURISDICTION, IN ISSUING THE QUESTIONED ORDERS CONFIRMING THE ARBITRAL AWARD AND DENYING THE MOTION FOR RECONSIDERATION OF ORDER OF AWARD.

III

THE RESPONDENT JUDGE GROSSLY ABUSED HIS DISCRETION AND ACTED WITHOUT OR IN EXCESS OF AND WITHOUT JURISDICTION IN RECKONING THE COUNTING OF THE PERIOD TO FILE MOTION FOR RECONSIDERATION, NOT FROM THE DATE OF SERVICE OF THE COURT'S COPY CONFIRMING THE AWARD, BUT FROM RECEIPT OF A XEROX COPY OF WHAT PRESUMABLY IS THE OPPOSING COUNSEL'S COPY THEREOF. 20

On July 12, 1995, he Court of Appeals, through its Fifth-Division, denied due course and dismissed the petition for certiorari.

Hence, the instant petition for review on certiorari imputing to the Court of Appeals the following errors:

ASSIGNMENT OF ERRORS

I

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE MAKATI REGIONAL TRIAL COURT, BRANCH 62 WHICH HAS PREVIOUSLY DISMISSED CIVIL CASE NO. 9900 HAD LOST JURISDICTION TO CONFIRM THE ARBITRAL AWARD UNDER THE SAME CIVIL CASE AND NOT RULING THAT THE APPLICATION FOR CONFIRMATION SHOULD HAVE BEEN FILED AS A NEW CASE TO BE RAFFLED OFF AMONG THE DIFFERENT BRANCHES OF THE RTC.

II

THE COURT OF APPEALS LIKEWISE ERRED IN HOLDING THAT PETITIONER WAS ESTOPPED FROM QUESTIONING THE ARBITRATION AWARD, WHEN PETITIONER QUESTIONED THE JURISDICTION OF THE RTC-MAKATI, BRANCH 62 AND AT THE SAME TIME MOVED TO VACATE THE ARBITRAL AWARD.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENT TRIAL COURT SHOULD HAVE EITHER DISMISSED/DENIED PRIVATE RESPONDENTS' MOTION/PETITION FOR CONFIRMATION OF ARBITRATION AWARD AND/OR SHOULD HAVE CONSIDERED THE MERITS OF THE MOTION TO VACATE ARBITRAL AWARD.

IV

THE COURT OF APPEALS ERRED IN NOT TREATING PETITIONER APT'S PETITION FOR CERTIORARI AS AN APPEAL TAKEN FROM THE ORDER CONFIRMING THE AWARD.

V

THE COURT OF APPEALS ERRED IN NOT RULING ON THE LEGAL ISSUE OF WHEN TO RECKON THE COUNTING OF THE PERIOD TO FILE A MOTION FOR RECONSIDERATION. 21


I

The RTC of Makati, Branch 62,

did not have jurisdiction to confirm

the arbitral award.

The use of the term "dismissed" is not "a mere semantic imperfection". The dispositive portion of the Order of the trial court dated October 14, 1992 stated in no uncertain terms:

4. The Complaint is hereby DISMISSED. 22

The term "dismiss" has a precise definition in law. "To dispose of an action, suit, or motion without trial on the issues involved. Conclude, discontinue, terminate, quash." 23

17

Admittedly, the correct procedure was for the parties to go back to the court where the case was pending to have the award confirmed by said court. However, Branch 62 made the fatal mistake of issuing a final order dismissing the case. While Branch 62 should have merely suspended the case and not dismissed it, 24 neither of the parties questioned said dismissal. Thus, both parties as well as said court are bound by such error.

It is erroneous then to argue, as private respondents do, that petitioner APT was charged with the knowledge that the "case was merely stayed until arbitration finished," as again, the order of Branch 62 in very clear terms stated that the "complaint was dismissed." By its own action, Branch 62 had lost jurisdiction over the case. It could not have validly reacquired jurisdiction over the said case on mere motion of one of the parties. The Rules of Court is specific on how a new case may be initiated and such is not done by mere motion in a particular branch of the RTC. Consequently, as there was no "pending action" to speak of, the petition to confirm the arbitral award should have been filed as a new case and raffled accordingly to one of the branches of the Regional Trial Court.

II

Petitioner was not estopped from

questioning the jurisdiction of

Branch 62 of the RTC of Makati.

The Court of Appeals ruled that APT was already estopped to question the jurisdiction of the RTC to confirm the arbitral award because it sought affirmative relief in said court by asking that the arbitral award be vacated.

The rule is that "Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the invocation of this defense may be done at any time. It is neither for the courts nor for the parties to violate or disregard that rule, let alone to confer that jurisdiction this matter being legislative in character." 25 As a rule then, neither waiver nor estoppel shall apply to confer jurisdiction upon a court barring highly meritorious and exceptional circumstances. 26 One such exception was enunciated in Tijam vs. Sibonghanoy, 27 where it was held that "after voluntarily submitting a cause and encountering an adverse decision on the merits, it is too late for the loser to question the jurisdiction or power of the court."

Petitioner's situation is different because from the outset, it has consistently held the position that the RTC, Branch 62 had no jurisdiction to confirm the arbitral award; consequently, it cannot be said that it was estopped from questioning the RTC's jurisdiction. Petitioner's prayer for the setting aside of the arbitral award was not inconsistent with its disavowal of the court's jurisdiction.

III

Appeal of petitioner to the

Court of Appeals thru certiorari

under Rule 65 was proper.

The Court of Appeals in dismissing APT's petition for certiorari upheld the trial court's denial of APT's motion for reconsideration of the trial court's order confirming the arbitral award, on the ground that said motion was filed beyond the 15-day reglementary period; consequently, the petition for certiorari could not be resorted to as substitute to the lost right of appeal.

We do not agree.

Section 99 of Republic Act No. 876, 28 provides that:

. . . An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award through certiorari proceedings, but such appeals shall be limited to questions of law. . . ..

The aforequoted provision, however, does not preclude a party aggrieved by the arbitral award from resorting to the extraordinary remedy of certiorari under Rule 65 of the Rules of Court where, as in this case, the Regional Trial Court to which the award was submitted for confirmation has acted without jurisdiction or with grave abuse of discretion and there is no appeal, nor any plain, speedy remedy in the course of law.

Thus, Section 1 of Rule 65 provides:

Sec 1. Petition for Certiorari: — When any tribunal, board or officer exercising judicial functions, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion and there is no appeal, nor any plain, speed, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings, as the law requires, of such tribunal, board or officer.

In the instant case, the respondent court erred in dismissing the special civil action for certiorari, it being clear from the pleadings and the evidence that the trial court lacked jurisdiction and/or committed grave abuse of discretion in taking cognizance of private respondents' motion to confirm the arbitral award and, worse, in confirming said award which is grossly and patently not in accord with the arbitration agreement, as will be hereinafter demonstrated.

IV

The nature and limits of the

Arbitrators' power.

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. 29 Courts are without power to amend or overrule merely because of disagreement with matters of law or facts determined by the arbitrators. 30 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. 31 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. 32 Judicial review of an arbitration is thus, more limited than judicial review of a trial. 33

Nonetheless, the arbitrators' award is not absolute and without exceptions. The arbitrators cannot resolve issues beyond the scope of the submission agreement. 34 The parties to such an agreement are bound by the arbitrators' award only to the extent and in the manner prescribed by the contract and only if the award is rendered in conformity thereto. 35 Thus, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, rescinding or modifying an arbitration award. Where the conditions described in Articles 2038, 36

2039, 37 and 1040 38 of the Civil Code applicable to compromises and arbitration are attendant, the arbitration award may also be annulled.

18

In Chung Fu Industries (Phils.) vs. Court of Appeals, 39 we held:

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

According, Section 20 of R.A. 876 provides:

Sec. 20. Form and contents of award. — The award must be made in writing and signed and acknowledge by a majority of the arbitrators, if more than one; and by the sole arbitrator, if there is only only. Each party shall be furnished with a copy of the award. The arbitrators in their award may grant any remedy or relief which they deem just and equitable and within the scope of the agreement of the parties, which shall include, but not be limited to, the specific performance of a contract.

xxx xxx xxx

The arbitrators shall have the power to decide only those matters which have been submitted to them. The terms of the award shall be confined to such disputes. (Emphasis ours).

xxx xxx xxx

Sec. 24 of the same law enumerating the grounds for vacating an award states:

Sec. 24. Grounds for vacating award. — In any one of the following cases, the court must make an order vacating the award upon the petition of any party to the controversy when such party proves affirmatively that in the arbitration proceeding:

(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 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. (Emphasis ours)

xxx xxx xxx.

Section 25 which enumerates the grounds for modifying the award provides:

Sec. 25. Grounds for modifying or correcting award — In anyone of the following cases, the court must make an order modifying or correcting the award, upon the application of any party to the controversy which was arbitrated:

(a) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property referred to in the award; or

(b) Where the arbitrators have awarded upon a matter not submitted to them, not affecting the merits of the decision upon the matter submitted; or

(c) Where the award is imperfect in a matter of form not affecting the merits of the controversy, and if it had been a commissioner's report, the defect could have been amended or disregarded by the court.

xxx xxx xxx

Finally, it should be stressed that while a court is precluded from overturning an award for errors in the determination of factual issues, nevertheless, if an examination of the record reveals no support whatever for the arbitrators determinations, their award must be vacated. 40 in the same manner, an award must be vacated if it was made in "manifest disregard of the law." 41

Against the backdrop of the foregoing provisions and principles, we find that the arbitrators came out with an award in excess of their powers and palpably devoid of factual and legal basis.

V

There was no financial

structuring program:

foreclosure of mortgage

was fully justified.

The point need not be belabored that PNB and DBP had the legitimate right to foreclose of the mortgages of MMIC whose obligations were past due. The foreclosure was not a wrongful act of the banks and, therefore, could not be the basis of any award of damages. There was no financial restructuring agreement to speak of that could have constituted an impediment to the exercise of the banks' right to foreclose.

As correctly stated by Mr. Jose C. Sison, a member of the Arbitration Committee who wrote a separate opinion:

1. The various loans and advances made by DBP and PNB to MMIC have become overdue and remain unpaid. The fact that a FRP was drawn up is enough to establish that MMIC has not been complying with the terms of the loan agreement. Restructuring simply connotes that the obligations are past due that is why it is "restructurable";

19

2. When MMIC thru its board and the stockholders agreed and adopted the FRP, it only means that MMIC had been informed or notified that its obligations were past due and that foreclosure is forthcoming;

3. At that stage, MMIC also knew that PNB-DBP had the option of either approving the FRP or proceeding with the foreclosure. Cabarrus, who filed this case supposedly in behalf of MMIC should have insisted on the FRP. Yet Cabarrus himself opposed the FRP;

4. So when PNB-DBP proceeded with the foreclosure, it was done without bad faith but with the honest and sincere belief that foreclosure was the only alternative; a decision further explained by Dr. Placido Mapa who testified that foreclosure was, in the judgment of PNB, the best move to save MMIC itself.

Q : Now in this portion of Exh. "L" which was marked as Exh. "L-1", and we adopted as Exh. 37-A for the respondent, may I know from you, Dr. Mapa what you meant by "that the decision to foreclose was neither precipitate nor arbitrary"?

A : Well, it is not a whimsical decision but rather decision arrived at after weighty consideration of the information that we have received, and listening to the prospects which reported to us that what we had assumed would be the premises of the financial rehabilitation plan was not materialized nor expected to materialize.

Q : And this statement that "it was premised upon the known fact" that means, it was referring to the decision to foreclose, was premised upon the known fact that the rehabilitation plan earlier approved by the stockholders was no longer feasible, just what is meant "by no longer feasible"?

A : Because the revenue that they were counting on to make the rehabilitation plan possible, was not anymore expected to be forthcoming because it will result in a short fall compared to the prices that were actually taking place in the market.

Q : And I suppose that was what you were referring to when you stated that the production targets and assumed prices of MMIC's products, among other projections, used in the financial reorganization program that will make it viable were not met nor expected to be met?

A : Yes.

xxx xxx xxx

Which brings me to my last point in this separate opinion. Was PNB and DBP absolutely unjustified in foreclosing the mortgages?

In this connection, it can readily be seen and it cannot quite be denied that MMIC accounts in PNB-DBP were past due. The drawing up of the FRP is the best proof of this. When MMIC adopted a

restructuring program for its loan, it only meant that these loans were already due and unpaid. If these loans were restructurable because they were already due and unpaid, they are likewise "forecloseable". The option is with the PNB-DBP on what steps to take.

The mere fact that MMIC adopted the FRP does not mean that DBP-PNB lost the option to foreclose. Neither does it mean that the FRP is legally binding and implementable. It must be pointed that said FRP will, in effect, supersede the existing and past due loans of MMIC with PNB-DBP. It will become the new loan agreement between the lenders and the borrowers. As in all other contracts, there must therefore be a meeting of minds of the parties; the PNB and DBP must have to validly adopt and ratify such FRP before they can be bound by it; before it can be implemented. In this case, not an iota of proof has been presented by the PLAINTIFFS showing that PNB and DBP ratified and adopted the FRP. PLAINTIFFS simply relied on a legal doctrine of promissory estoppel to support its allegations in this regard. 42

Moreover, PNB and DBP had to initiate foreclosure proceedings as mandated by P.D. No. 385, which took effect on January 31, 1974. The decree requires government financial institutions to foreclose collaterals for loans where the arrearages amount to 20% of the total outstanding obligations. The pertinent provisions of said decree read as follow:

Sec. 1. It shall be mandatory for government financial institutions, after the lapse of sixty (60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for any loan, credit, accommodation, and/or guarantees granted by them whenever the arrearages on such account, including accrued interest and other charges, amount to at least twenty percent (20%) of the total outstanding obligations, including interest and other charges, as appearing in the books of account and/or related records of the financial institutions concerned. This shall be without prejudice to the exercise by the government financial institutions of such rights and/or remedies available to them under their respective contracts with their debtors, including the right to foreclosure on loans, credits, accommodations and/or guarantees on which the arrearages are less than twenty percent (20%).

Sec. 2. No restraining order temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties, except after due hearing in which it is established by the borrower and admitted by the government financial institution concerned that twenty percent (20%) of the outstanding arrearages has been paid after the

20

filing of foreclosure proceedings. (Emphasis supplied.)

Private respondents' thesis that the foreclosure proceedings were null and void because of lack of publication in the newspaper is nothing more than a mere unsubstantiated aliegation not borne out by the evidence. In any case, a disputable presumption exists in favor of petitioner that official duty has been regularly performed and ordinary course of business has been followed. 43

VI

Not only was the foreclosure rightfully exercised by the PNB and DBP, but also, from the facts of the case, the arbitrators in making the award went beyond the arbitration agreement.

In their complaint filed before the trial court, private respondent Cabarrus, et al. prayed for judgment in their favor:

1. Declaring the foreclosures effected by the defendants DBP and PNB on the assets of MMIC null and void and directing said defendants to restore the foreclosed assets to the possession of MMIC, to render an accounting of their use and/or operation of said assets and to indemnify MMIC for the loss occasioned by its dispossession or the deterioration thereof;

2. Directing the defendants DBP and PNB to honor and perform their commitments under the financial reorganization plan which was approved at the annual stockholders' meeting of MMIC on 30 April 1984;

3. Condemning the defendants DBP and PNB, jointly and severally to pay the plaintiffs actual damages consisting of the loss of value of their investments amounting to not less than P80,000,000, the damnum emergens and lucrum cessans in such amount as may be established during the trial, moral damages in such amount as this Honorable Court may deem just and equitable in the premises, exemplary damages in such amount as this Honorable Court may consider appropriate for the purpose of setting an example for the public good, attorney's fees and litigation expenses in such amounts as may be proven during the trial, and the costs legally taxable in this litigation.

Further, plaintiffs pray for such other reliefs as may be just and equitable in the premises. 44

Upon submission for arbitration, the Compromise and Arbitration Agreement of the parties clearly and explicitly defined and limited the issues to the following:

(a) whether PLAINTIFFS have the capacity or the personality to institute this derivative suit in behalf of the MMIC or its directors;

(b) whether or not the actions leading to, and including, the PNB-DBP foreclosure of the MMIC assets were proper, valid and in good faith. 45

Item No. 8 of the Agreement provides for the period by which the Committee was to render its decision, as well as the nature thereof:

8. Decision. The committee shall issue a decision on the controversy not later than six (6) months from the date of its constitution.

In the event the committee finds that PLAINTIFFS have the personality to file this suit and the extra-judicial foreclosure of the MMIC assets wrongful, it shall make an award in favor of the PLAINTIFFS (excluding DBP), in an amount as may be established or warranted by the evidence which shall be payable in Philippine Pesos at the time of the award. Such award shall be paid by the APT or its successor-in-interest within sixty (60) days from the date of the award in accordance with the provisions of par. 9 hereunder. . . . . The PLAINTIFFS' remedies under this Section shall be in addition to other remedies that may be available to the PLAINTIFFS, all such remedies being cumulative and not exclusive of each other.

On the other hand, in case the arbitration committee finds that PLAINTIFFS have no capacity to sue and/or that the extra-judicial foreclosure is valid and legal, it shall also make an award in favor of APT based on the counterclaims of DBP and PNB in an amount as may be established or warranted by the evidence. This decision of the arbitration committee in favor of APT shall likewise finally settle all issues regarding the foreclosure of the MMIC assets so that the funds held in escrow mentioned in par. 9 hereunder will thus be released in full in favor ofAPT. 46

The clear and explicit terms of the submission notwithstanding, the Arbitration Committee clearly exceeded its powers or so imperfectly executed them: (a) in ruling on and declaring valid the FRP; (b) in awarding damages to MMIC which was not a party to the derivative suit; and (c) in awarding moral damages to Jesus S. Cabarrus, Sr.

The arbiters overstepped

their powers by declaring as

valid the proposed Financial

Restructuring Program.

The Arbitration Committee went beyond its mandate and thus acted in excess of its powers when it ruled on the validity of, and gave effect to, the proposed FRP.

In submitting the case to arbitration, the parties had mutually agreed to limit the issue to the "validity of the foreclosure" and to transform the relief prayed for therein into pure money claims.

There is absolutely no evidence that the DBP and PNB agreed, expressly or impliedly, to the proposed FRP. It cannot be overemphasized that a FRP, as a contract, requires the consent of the parties thereto. 47 The contract must bind both contracting parties. 48 Private respondents even by their own admission recognized that the FRP had yet not been carried out and that the loans of MMIC had not yet been converted into equity. 49

However, the Arbitration Committee not only declared the FRP valid and effective, but also converted the loans of MMIC into equity raising the equity of DBP to 87%. 50

21

The Arbitration Committee ruled that there was "a commitment to carry out the FRP" 51 on the ground of promissory estoppel.

Similarly, the principle of promissory estoppel applies in the present case considering as we observed, the fact that the government (that is, Alfredo Velayo) was the FRP's proponent. Although the plaintiffs are agreed that the government executed no formal agreement, the fact remains that the DBP itself which made representations that the FRP constituted a "way out" for MMIC. The Committee believes that although the DBP did not formally agree (assuming that the board and stockholders' approvals were not formal enough), it is bound nonetheless if only for its conspicuous representations.

Although the DBP sat in the board in a dual capacity — as holder of 36% of MMIC's equity (at that time) and as MMIC's creditor — the DBP can not validly renege on its commitments simply because at the same time, it held interests against the MMIC.

The fact, of course, is that as APT itself asserted, the FRP was being "carried out" although apparently, it would supposedly fall short of its targets. Assuming that the FRP would fail to meet its targets, the DBP — and so this Committee holds — can not, in any event, brook any denial that it was bound to begin with, and the fact is that adequate or not (the FRP), the government is still bound by virtue of its acts.

The FRP, of course, did not itself promise a resounding success, although it raised DBP's equity in MMIC to 87%. It is not an excuse, however, for the government to deny its commitments. 52

Atty. Sison, however, did not agree and correctly observed that:

But the doctrine of promissory estoppel can hardly find application here. The nearest that there can be said of any estoppel being present in this case is the fact that the board of MMIC was, at the time the FRP was adopted, mostly composed of PNB and DBP representatives. But those representatives, singly or collectively, are not themselves PNB or DBP. They are individuals with personalities separate and distinct from the banks they represent. PNB and DBP have different boards with different members who may have different decisions. It is unfair to impose upon them the decision of the board of another company and thus pin them down on the equitable principle of estoppel. Estoppel is a principle based on equity and it is certainly not equitable to apply it in this particular situation. Otherwise the rights of entirely separate distinct and autonomous legal entities like PNB and DBP with thousands of stockholders will be suppressed and rendered nugatory. 53

As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent should not exceed his authority. 54 In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-for-equity swap. And if they

had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP.

Further, how could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. As Atty. Sison in his separate opinion persuasively put it:

Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB, 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMIC's credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a "reputation" besmirched by the act of foreclosure. 55

The arbiters exceeded their

authority in awarding damages

to MMIC, which is not impleaded

as a party to the derivative suit.

Civil Case No. 9900 filed before the RTC being a derivative suit, MMIC should have been impleaded as a party. It was not joined as a party plaintiff or party defendant at any stage of the proceedings. As it is, the award of damages to MMIC, which was not a party before the Arbitration Committee, is a complete nullity.

Settled is the doctrine that in a derivative suit, the corporation is the real party in interest while the stockholder filing suit for the corporation's behalf is only a nominal party. The corporation should be included as a party in the suit.

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. . . . . 56

It is a condition sine qua non that the corporation be impleaded as a party because —

. . . Not only is the corporation an indispensable party, but it is also the present rule that it must be served with process. The reason given is that the judgment must be made binding upon the corporation in order that the corporation may get the benefit of the suit and may not bring a subsequent suit against the same defendants for the same cause of action. In other words the

22

corporation must be joined as party because it is its cause of action that is being litigated and because judgment must be a res ajudicata against it. 57

The reasons given for not allowing direct individual suit are:

(1) . . . "the universally recognized doctrine that a stockholder in a corporation has no title legal or equitable to the corporate property; that both of these are in the corporation itself for the benefit of the stockholders." In other words, to allow shareholders to sue separately would conflict with the separate corporate entity principle;

(2) . . . that the prior rights of the creditors may be prejudiced. Thus, our Supreme Court held in the case of Evangelista v. Santos, that "the stockholders may not directly claim those damages for themselves for that would result in the appropriation by, and the distribution among them of part of the corporate assets before the dissolution of the corporation and the liquidation of its debts and liabilities, something which cannot be legally done in view of section 16 of the Corporation Law . . .;

(3) the filing of such suits would conflict with the duty of the management to sue for the protection of all concerned;

(4) it would produce wasteful multiplicity of suits; and

(5) it would involve confusion in a ascertaining the effect of partial recovery by an individual on the damages recoverable by the corporation for the same act. 58

If at all an award was due MMIC, which it was not, the same should have been given sans deduction, regardless of whether or not the party liable had equity in the corporation, in view of the doctrine that a corporation has a personality separate and distinct from its individual stockholders or members. DBP's alleged equity, even if it were indeed 87%, did not give it ownership over any corporate property, including the monetary award, its right over said corporate property being a mere expectancy or inchoate right. 59 Notably, the stipulation even had the effect of prejudicing the other creditors of MMIC.

The arbiters, likewise,

exceeded their authority

in awarding moral damages

to Jesus Cabarrus, Sr.

It is perplexing how the Arbitration Committee can in one breath rule that the case before it is a derivative suit, in which the aggrieved party or the real party in interest is supposedly the MMIC, and at the same time award moral damages to an individual stockholder, to wit:

WHEREFORE, premises considered, judgment is hereby rendered:

xxx xxx xxx

3. Ordering the defendant to pay to the plaintiff, Jesus S. Cabarrus, Sr., the sum of P10,000,000.00, to be satisfied likewise from the funds held under

escrow pursuant to the Escrow Agreement dated April 22, 1988 or to such subsequent escrow agreement that would supersede it, pursuant to paragraph (9), Compromise and Arbitration Agreement, as and for moral damages; . . . 60

The majority decision of the Arbitration Committee sought to justify its award of moral damages to Jesus S. Cabarrus, Sr. by pointing to the fact that among the assets seized by the government were assets belonging to Industrial Enterprise Inc. (IEI), of which Cabarrus is the majority stockholder. It then acknowledged that Cabarrus had already recovered said assets in the RTC, but that "he won no more than actual damages. While the Committee cannot possibly speak for the RTC, there is no doubt that Jesus S. Cabarrus, Sr., suffered moral damages on account of that specific foreclosure, damages the Committee believes and so holds, he, Jesus S. Cabarrus, Sr., may be awarded in this proceeding." 61

Cabarrus cause of action for the seizure of the assets belonging to IEI, of which he is the majority stockholder, having been ventilated in a complaint he previously filed with the RTC, from which he obtained actual damages, he was barred by res judicata from filing a similar case in another court, this time asking for moral damages which he failed to get from the earlier case. 62 Worse, private respondents violated the rule against non-forum shopping.

It is a basic postulate that a corporation has a personality separate and distinct from its stockholders. 63 The properties foreclosed belonged to MMIC, not to its stockholders. Hence, if wrong was committed in the foreclosure, it was done against the corporation. Another reason is that Jesus S. Cabarrus, Sr. cannot directly claim those damages for himself that would result in the appropriation by, and the distribution to, him part of the corporation's assets before the dissolution of the corporation and the liquidation of its debts and liabilities. The Arbitration Committee, therefore, passed upon matters nor submitted to it. Moreover, said cause of action had already been decided in a separate case. It is thus quite patent that the arbitration committee exceeded the authority granted to it by the parties' Compromise and Arbitration Agreement by awarding moral damages to Jesus S. Cabarrus, Sr.

Atty. Sison, in his separate opinion, likewise expressed befuddlement to the award of moral damages to Jesus S. Cabarrus, Sr.:

It is clear and it cannot be disputed therefore that based on these stipulated issues, the parties themselves have agreed that the basic ingredient of the causes of action in this case is the wrong committed on the corporation (MMIC) for the alleged illegal foreclosure of its assets. By agreeing to this stipulation, PLAINTIFFS themselves (Cabarrus, et al.) admit that the cause of action pertains only to the corporation (MMIC) and that they are filing this for and in behalf of MMIC.

Perforce this has to be so because it is the basic rule in Corporation Law that "the shareholders have no title, legal or equitable to the property which is owned by the corporation (13 Am. Jur. 165; Pascual vs. Oresco, 14 Phil. 83). In Ganzon & Sons vs. Register of Deeds, 6 SCRA 373, the rule has been reiterated that "a stockholder is not the co-owner of corporate property." Since the property or assets foreclosed belongs [sic] to MMIC, the wrong committed, if any, is done against the corporation. There is therefore no direct injury or direct violation

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of the rights of Cabarrus et al. There is no way, legal or equitable, by which Cabarrus et al. could recover damages in their personal capacities even assuming or just because the foreclosure is improper or invalid. The Compromise and Arbitration Agreement itself and the elementary principles of Corporation Law say so. Therefore, I am constrained to dissent from the award of moral damages to Cabarrus. 64

From the foregoing discussions, it is evident that, not only did the arbitration committee exceed its powers or so imperfectly execute them, but also, its findings and conclusions are palpably devoid of any factual basis, and in manifest disregard of the law.

We do not find it necessary to remand this case to the RTC for appropriate action. The pleadings and memoranda filed with this Court, as well as in the Court of Appeals, raised and extensively discussed the issues on the merits. Such being the case, there is sufficient basis for us to resolve the controversy between the parties anchored on the records and the pleadings before us. 65

WHEREFORE, the Decision of the Court of Appeals dated July 17, 1995, as well as the Orders of the Regional Trial Court of Makati, Branch 62, dated November 28, 1994 and January 19, 1995, is hereby REVERSED and SET ASIDE, and the decision of the Arbitration Committee is hereby VACATED.

SO ORDERED.

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CELESTINO VIVIERO, petitioner, vs. COURT OF APPEALS, HAMMONIA MARINE SERVICES, and HANSEATIC SHIPPING CO., LTD. respondents.

D E C I S I O N

BELLOSILLO, J.:

CELESTINO VIVERO, in this petition for review, seeks the reversal of the Decision of the Court of Appeals of 26 May 1999 setting aside the Decision of the National Labor Relations Commission of 28 May 1998 as well as its Resolution of 23 July 1998 denying his motion for its reconsideration, and reinstating the decision of the Labor Arbiter of 21 January 1997.

Petitioner Vivero, a licensed seaman, is a member of the Associated Marine Officers and Seamen's Union of the Philippines (AMOSUP). The Collective Bargaining Agreement entered into by AMOSUP and private respondents provides, among others -

ARTICLE XII

GRIEVANCE PROCEDURE

x x x x

Sec. 3. A dispute or grievance arising in connection with the terms and provisions of this Agreement shall be adjusted in accordance with the following procedure:

1. Any seaman who feels that he has been unjustly treated or even subjected to an unfair consideration shall endeavor to have said grievance adjusted by the designated representative of the unlicensed department abroad the vessel in the following manner:

A. Presentation of the complaint to his immediate superior.

B. Appeal to the head of the department in which the seaman involved shall be employed.

C. Appeal directly to the Master.

Sec. 4. If the grievance cannnot be resolved under the provision of Section 3, the decision of the Master shall govern at sea x x x x in foreign ports and until the vessel arrives at a port where the Master shall refer such dispute to either the COMPANY or the UNION in order to resolve such dispute. It is understood, however, if the dispute could not be resolved then both parties shall avail of the grievance procedure.

Sec. 5. In furtherance of the foregoing principle, there is hereby created a GRIEVANCE COMMITTEE to be composed of two COMPANY REPRESENTATIVES to be designated by the COMPANY and two LABOR REPRESENTATIVES to be designated by the UNION.

Sec. 6. Any grievance, dispute or misunderstanding concerning any ruling, practice, wages or working conditions in the COMPANY, or any breach of the Employment Contract, or any dispute arising from the meaning or the application of the provision of this Agreement or a claim of violation thereof or any complaint that any such crewmembers may have against the COMPANY, as well as complaint which the COMPANY may have against such crewmembers shall be brought to the attention of the GRIEVANCE COMMITTEE before either party takes any action, legal or otherwise.

Sec. 7. The COMMITTEE shall resolve any dispute within seven (7) days from and after the same is submitted to it for resolution and if the same cannot be settled by the COMMITTEE or if the COMMITTEE fails to act on the dispute within the 7-day period herein provided, the same shall be referred to a VOLUNTARY ARBITRATION COMMITTEE.

An "impartial arbitrator" will be appointed by mutual choice and consent of the UNION and the COMPANY who shall hear and decide the dispute or issue presented to him and his decision shall be final and unappealable x x x x

As found by the Labor Arbiter -

Complainant was hired by respondent as Chief Officer of the vessel "M.V. Sunny Prince" on 10 June 1994 under the terms and conditions, to wit:

Duration of Contract - - - - 10 months

Basic Monthly Salary - - - - US $1,100.00

Hours of Work - - - - 44 hrs./week

Overtime - - - - 495 lump O.T.

Vacation leave with pay - - - - US $220.00/mo.

On grounds of very poor performance and conduct, refusal to perform his job, refusal to report to the Captain or the vessel’s Engineers or cooperate with other ship officers about the problem in cleaning the cargo holds or of the shipping pump and his dismal relations with the Captain of the vessel, complainant was repatriated on 15 July 1994.

On 01 August 1994, complainant filed a complaint for illegal dismissal at Associated Marine Officers’ and Seaman’s Union of the Philippines (AMOSUP) of which complainant was a member. Pursuant to Article XII of the Collective Bargaining Agreement, grievance proceedings were conducted; however, parties failed to reach and settle the dispute amicably, thus, on 28 November 1994, complainant filed [a] complaint with the Philippine Overseas Employment Administration (POEA).

The law in force at the time petitioner filed his Complaint with the POEA was EO No. 247.

While the case was pending before the POEA, private respondents filed a Motion to Dismiss on the ground that the POEA had no jurisdiction over the case considering petitioner Vivero's failure to refer it to a Voluntary Arbitration Committee in accordance with the CBA between the parties. Upon the enactment of RA 8042, the Migrant Workers and Overseas Filipinos Act of 1995, the case was transferred to the Adjudication Branch of the National Labor Relations Commission.

On 21 January 1997 Labor Arbiter Jovencio Ll. Mayor Jr., on the basis of the pleadings and documents available on record, rendered a decision dismissing the Complaint for want of jurisdiction. According to the Labor Arbiter, since the CBA of the parties provided for the referral to a Voluntary Arbitration Committee should the Grievance Committee fail to settle the dispute, and considering the mandate of Art. 261 of the Labor Code on the original and exclusive jurisdiction of Voluntary Arbitrators, the Labor Arbiter clearly had no jurisdiction over the case.

Petitioner (complainant before the Labor Arbiter) appealed the dismissal of his petition to the NLRC. On 28 May 1998 the NLRC set aside the decision of the Labor Arbiter on the ground that the record was clear that petitioner had exhausted his remedy by submitting his case to the Grievance Committee of AMOSUP. Considering however that he could not obtain any settlement he had to ventilate his case before the proper forum, i.e., the Philippine Overseas Employment Administration. The NLRC further held that the contested portion in the CBA providing for the intercession of a Voluntary Arbitrator was not binding upon petitioner since both petitioner and private respondents had to agree voluntarily to submit the case before a Voluntary Arbitrator or Panel of Voluntary Arbitrators. This would entail expenses as the Voluntary Arbitrator chosen by the parties had to be paid.

25

Inasmuch however as petitioner chose to file his Complaint originally with POEA, then the Labor Arbiter to whom the case was transferred would have to take cognizance of the case.

The NLRC then remanded the case to the Labor Arbiter for further proceedings. On 3 July 1998 respondents filed a Motion for Reconsideration which was denied by the NLRC on 23 July 1998.

Thus, private respondents raised the case to the Court of Appeals contending that the provision in the CBA requiring a dispute which remained unresolved by the Grievance Committee to be referred to a Voluntary Arbitration Committee, was mandatory in character in view of the CBA between the parties. They stressed that "since it is a policy of the state to promote voluntary arbitration as a mode of settling labor disputes, it is clear that the public respondent gravely abused its discretion in taking cognizance of a case which was still within the mantle of the Voluntary Arbitration Commitee’s jurisdiction."

On the other hand, petitioner argued -

(A)s strongly suggested by its very title, referral of cases of this nature to the Voluntary Arbitration Committee is voluntary in nature. Otherwise, the committee would not have been called Voluntary Arbitration Committee but rather, a Compulsory Arbitration Committee. Moreover, if the referral of cases of similar nature to the Voluntary Arbitration Committee would be deemed mandatory by virtue of the provisions in the CBA, the [NLRC] would then be effectively deprived of its jurisdiction to try, hear and decide termination disputes, as provided for under Article 217 of the Labor Code. Lastly, [respondents] ought to be deemed to have waived their right to question the procedure followed by [petitioner], considering that they have already filed their Position Paper before belatedly filing a Motion to Dismiss x x x x

But the Court of Appeals ruled in favor of private respondents. It held that the CBA "is the law between the parties and compliance therewith is mandated by the express policy of the law." Hence, petitioner should have followed the provision in the CBA requiring the submission of the dispute to the Voluntary Arbitration Committee once the Grievance Committee failed to settle the controversy. According to the Court of Appeals, the parties did not have the choice to "volunteer" to refer the dispute to the Voluntary Arbitrator or a Panel of Arbitrators when there was already an agreement requiring them to do so. "Voluntary Arbitration" means that it is binding because of a prior agreement or contract, while "Compulsory Arbitration" is when the law declares the dispute subject to arbitration, regardless of the consent or desire of the parties.

The Court of Appeals further held that the Labor Code itself enumerates the original and exclusive jurisdiction of the Voluntary Arbitrator or Panel of Voluntary Arbitrators, and prohibits the NLRC and the Regional Directors of the Department of Labor and Employment (DOLE) from entertaining cases falling under the same. Thus, the fact that private respondents filed their Position Paper first before filing their Motion to Dismiss was immaterial and did not operate to confer jurisdiction upon the Labor Arbiter, following the well-settled rule that jurisdiction is determined by law and not by consent or agreement of the parties or by estoppel.

Finally, the appellate court ruled that a case falling under the jurisdiction of the Labor Arbiter as provided under Art. 217 of the Labor Code may be lodged instead with a Voluntary Arbitrator because the law prefers, or gives primacy, to voluntary arbitration instead of compulsory arbitration. Consequently, the contention that the NLRC would be deprived of its jurisdiction to try, hear and decide termination disputes under Art. 217 of the Labor Code, should the instant dispute

be referred to the Voluntary Arbitration Committee, is clearly bereft of merit. Besides, the Voluntary Arbitrator, whether acting solely or in a panel, enjoys in law the status of a quasi-judicial agency independent of, and apart from, the NLRC since his decisions are not appealable to the latter.

Celestino Vivero, in his petition for review assailing the Decision of the Court of Appeals, alleges that the appellate court committed grave abuse of discretion in holding that a Voluntary Arbitrator or Panel of Voluntary Arbitrators, and not the Adjudication Branch of the NLRC, has jurisdiction over his complaint for illegal dismissal. He claims that his complaint for illegal dismissal was undeniably a termination dispute and did not, in any way, involve an "interpretation or implementation of collective bargaining agreement" or "interpretation" or "enforcement" of company personnel policies. Thus, it should fall within the original and exclusive jurisdiction of the NLRC and its Labor Arbiter, and not with a Voluntary Arbitrator, in accordance with Art. 217 of the Labor Code.

Private respondents, on the other hand, allege that the case is clearly one "involving the proper interpretation and implementation of the Grievance Procedure found in the Collective Bargaining Agreement (CBA) between the parties" because of petitioner’s allegation in his claim/assistance request form submitted to the Union, to wit:

NATURE OF COMPLAINT

3. Illegal Dismissal - Reason: (1) That in this case it was the master of M.V. SUNNY PRINCE Capt. Andersen who created the trouble with physical injury and stating false allegation; (2) That there was no proper procedure of grievance; (3) No proper notice of dismissal.

Is there a Notice of dismissal? _x_ Yes or ____ No

What date? 11 July 1994

Is there a Grievance Procedure observed? ____ Yes or _x_ No

Private respondents further allege that the fact that petitioner sought the assistance of his Union evidently shows that he himself was convinced that his Complaint was within the ambit of the jurisdiction of the grievance machinery and subsequently by a Panel of Voluntary Arbitrators as provided for in their CBA, and as explicitly mandated by Art. 261 of the Labor Code.

Thus, the issue is whether the NLRC is deprived of jurisdiction over illegal dismissal cases whenever a CBA provides for grievance machinery and voluntary arbitration proceedings. Or, phrased in another way, does the dismissal of an employee constitute a "grievance between the parties," as defined under the provisions of the CBA, and consequently, within the exclusive original jurisdiction of the Voluntary Arbitrators, thereby rendering the NLRC without jurisdiction to decide the case?

On the original and exclusive jurisdiction of Labor Arbiters, Art. 217 of the Labor Code provides -

Art. 217. Jurisdiction of Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code, the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: (1) Unfair labor practice cases; (2) Termination disputes; (3) If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; (4) Claims for actual, moral,

26

exemplary and other forms of damages arising from the employer-employee relations; (5) Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and, (6) Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements (emphasis supplied).

However, any or all of these cases may, by agreement of the parties, be submitted to a Voluntary Arbitrator or Panel of Voluntary Arbitrators for adjudication. Articles 261 and 262 of the Labor Code provide -

Art. 261. Jurisdiction of Voluntary Arbitrators or Panel of Voluntary Arbitrators. - The Voluntary Arbitrator or panel of Voluntary Arbitrators shall have original and exclusive jurisdiction to hear and decide all unresolved grievances arising from the interpretation or implementation of the Collective Bargaining Agreement and those arising from the interpretation or enforcement of company personnel policies referred to in the immediately preceding article. Accordingly, violations of a Collective Bargaining Agreement, except those which are gross in character, shall no longer be treated as unfair labor practice and shall be resolved as grievances under the Collective Bargaining Agreement. For purposes of this article, gross violations of Collective Bargaining Agreement shall mean flagrant and/or malicious refusal to comply with the economic provisions of such agreement.


Art. 262. Jurisdiction Over Other Labor Disputes. - The Voluntary Arbitrator or panel of Voluntary Arbitrators, upon agreement of the parties, shall also hear and decide all other labor disputes including unfair labor practices and bargaining deadlocks (emphasis supplied).

Private respondents attempt to justify the conferment of jurisdiction over the case on the Voluntary Arbitrator on the ground that the issue involves the proper interpretation and implementation of the Grievance Procedure found in the CBA. They point out that when petitioner sought the assistance of his Union to avail of the grievance machinery, he in effect submitted himself to the procedure set forth in the CBA regarding submission of unresolved grievances to a Voluntary Arbitrator.

The argument is untenable. The case is primarily a termination dispute. It is clear from the claim/assistance request form submitted by petitioner to AMOSUP that he was challenging the legality of his dismissal for lack of cause and lack of due process. The issue of whether there was proper interpretation and implementation of the CBA provisions comes into play only because the grievance procedure provided for in the CBA was not observed after he sought his Union’s assistance in contesting his termination. Thus, the question to be

resolved necessarily springs from the primary issue of whether there was a valid termination; without this, then there would be no reason to invoke the need to interpret and implement the CBA provisions properly.

In San Miguel Corp. v. National Labor Relations Commission this Court held that the phrase "all other labor disputes" may include termination disputes provided that the agreement between the Union and the Company states "in unequivocal language that [the parties] conform to the submission of termination disputes and unfair labor practices to voluntary arbitration." Ergo, it is not sufficient to merely say that parties to the CBA agree on the principle that "all disputes" should first be submitted to a Voluntary Arbitrator. There is a need for an express stipulation in the CBA that illegal termination disputes should be resolved by a Voluntary Arbitrator or Panel of Voluntary Arbitrators, since the same fall within a special class of disputes that are generally within the exclusive original jurisdiction of Labor Arbiters by express provision of law. Absent such express stipulation, the phrase "all disputes" should be construed as limited to the areas of conflict traditionally within the jurisdiction of Voluntary Arbitrators, i.e., disputes relating to contract-interpretation, contract-implementation, or interpretation or enforcement of company personnel policies. Illegal termination disputes - not falling within any of these categories - should then be considered as a special area of interest governed by a specific provision of law.

In this case, however, while the parties did agree to make termination disputes the proper subject of voluntary arbitration, such submission remains discretionary upon the parties. A perusal of the CBA provisions shows that Sec. 6, Art. XII (Grievance Procedure) of the CBA is the general agreement of the parties to refer grievances, disputes or misunderstandings to a grievance committee, and henceforth, to a voluntary arbitration committee. The requirement of specificity is fulfilled by Art. XVII (Job Security) where the parties agreed -

Sec. 1. Promotion, demotion, suspension, dismissal or disciplinary action of the seaman shall be left to the discretion of the Master, upon consultation with the Company and notification to the Union. This notwithstanding, any and all disciplinary action taken on board the vessel shall be provided for in Appendix “B” of this Agreement x x x x

Sec. 4. x x x x Transfer, lay-off or discipline of seamen for incompetence, inefficiency, neglect of work, bad behavior, perpetration of crime, drunkenness, insubordination, desertion, violation of x x x regulations of any port touched by the Company’s vessel/s and other just and proper causes shall be at Master’s discretion x x x in the high seas or foreign ports. The Master shall refer the case/dispute upon reaching port and if not satisfactorily settled, the case/dispute may be referred to the grievance machinery or procedure hereinafter provided (emphasis supplied).

The use of the word "may" shows the intention of the parties to reserve the right to submit the illegal termination dispute to the jurisdiction of the Labor Arbiter, rather than to a Voluntary Arbitrator. Petitioner validly exercised his option to submit his case to a Labor Arbiter when he filed his Complaint before the proper government agency.

Private respondents invoke Navarro III v. Damasco wherein the Court held that "it is the policy of the state to promote voluntary arbitration as a mode of settling disputes." It should be noted, however, that in Navarro III all the parties voluntarily submitted to the jurisdiction of the Voluntary Arbitrator when they filed their respective position papers and submitted documentary evidence before him. Furthermore, they manifested during the initial conference that they were not questioning

27

the authority of the Voluntary Arbitrator. In the case at bar, the dispute was never brought to a Voluntary Arbitrator for resolution; in fact, petitioner precisely requested the Court to recognize the jurisdiction of the Labor Arbiter over the case. The Court had held in San Miguel Corp. v. NLRC that neither officials nor tribunals can assume jurisdiction in the absence of an express legal conferment. In the same manner, petitioner cannot arrogate into the powers of Voluntary Arbitrators the original and exclusive jurisdiction of Labor Arbiters over unfair labor practices, termination disputes, and claims for damages, in the absence of an express agreement between the parties in order for Art. 262 of the Labor Code to apply in the case at bar. In other words, the Court of Appeals is correct in holding that Voluntary Arbitration is mandatory in character if there is a specific agreement between the parties to that effect. It must be stressed however that, in the case at bar, the use of the word "may" shows the intention of the parties to reserve the right of recourse to Labor Arbiters.

The CBA clarifies the proper procedure to be followed in situations where the parties expressly stipulate to submit termination disputes to the jurisdiction of a Voluntary Arbitrator or Panel of Voluntary Arbitrators. For when the parties have validly agreed on a procedure for resolving grievances and to submit a dispute to voluntary arbitration then that procedure should be strictly observed. Non-compliance therewith cannot be excused, as petitioner suggests, by the fact that he is not well-versed with the "fine prints" of the CBA. It was his responsibility to find out, through his Union, what the provisions of the CBA were and how they could affect his rights. As provided in Art. 241, par. (p), of the Labor Code -

(p) It shall be the duty of any labor organization and its officers to inform its members on the provisions of its constitution and by-laws, collective bargaining agreement, the prevailing labor relations system and all their rights and obligations under existing labor laws.

In fact, any violation of the rights and conditions of union membership is a "ground for cancellation of union registration or expulsion of officer from office, whichever is appropriate. At least thirty percent (30%) of all the members of a union or any member or members especially concerned may report such violation to the Bureau [of Labor Relations] x x x x"

It may be observed that under Policy Instruction No. 56 of the Secretary of Labor, dated 6 April 1993, "Clarifying the Jurisdiction Between Voluntary Arbitrators and Labor Arbiters Over Termination Cases and Providing Guidelines for the Referral of Said Cases Originally Filed with the NLRC to the NCMB," termination cases arising in or resulting from the interpretation and implementation of collective bargaining agreements and interpretation and enforcement of company personnel policies which were initially processed at the various steps of the plant-level Grievance Procedures under the parties' collective bargaining agreements fall within the original and exclusive jurisdiction of the voluntary arbitrator pursuant to Art. 217 (c) and Art. 261 of the Labor Code; and, if filed before the Labor Arbiter, these cases shall be dismissed by the Labor Arbiter for lack of jurisdiction and referred to the concerned NCMB Regional Branch for appropriate action towards an expeditious selection by the parties of a Voluntary Arbitrator or Panel of Arbitrators based on the procedures agreed upon in the CBA.

As earlier stated, the instant case is a termination dispute falling under the original and exclusive jurisdiction of the Labor Arbiter, and does not specifically involve the application, implementation or enforcement of company personnel policies contemplated in Policy Instruction No. 56. Consequently, Policy Instruction No. 56 does not apply in the case at bar. In any case, private respondents never invoked the application of Policy Instruction No. 56 in their Position Papers, neither did they raise

the question in their Motion to Dismiss which they filed nine (9) months after the filing of their Position Papers. At this late stage of the proceedings, it would not serve the ends of justice if this case is referred back to a Voluntary Arbitrator considering that both the AMOSUP and private respondents have submitted to the jurisdiction of the Labor Arbiter by filing their respective Position Papers and ignoring the grievance procedure set forth in their CBA.

After the grievance proceedings have failed to bring about a resolution, AMOSUP, as agent of petitioner, should have informed him of his option to settle the case through voluntary arbitration. Private respondents, on their part, should have timely invoked the provision of their CBA requiring the referral of their unresolved disputes to a Voluntary Arbitrator once it became apparent that the grievance machinery failed to resolve it prior to the filing of the case before the proper tribunal. The private respondents should not have waited for nine (9) months from the filing of their Position Paper with the POEA before it moved to dismiss the case purportedly for lack of jurisdiction. As it is, private respondents are deemed to have waived their right to question the procedure followed by petitioner, assuming that they have the right to do so. Under their CBA, both Union and respondent companies are responsible for selecting an impartial arbitrator or for convening an arbitration committee; yet, it is apparent that neither made a move towards this end. Consequently, petitioner should not be deprived of his legitimate recourse because of the refusal of both Union and respondent companies to follow the grievance procedure.

WHEREFORE, the Decision of the Court of Appeals is SET ASIDE and the case is remanded to the Labor Arbiter to dispose of the case with dispatch until terminated considering the undue delay already incurred.

SO ORDERED.

28

G.R. No. 129169 November 17, 1999

NATIONAL IRRIGATION ADMINISTRATION (NIA), petitioner, vs.HONORABLE COURT OF APPEALS (4th Division), CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, and HYDRO RESOURCES CONTRACTORS CORPORATION, respondents.

DAVIDE, JR., C.J.:

In this special civil action for certiorari under Rule 65 of the Rules of Court, the National Irrigation Administration (hereafter NIA), seeks to annul and set aside the Resolutions 1 of the Court of Appeals in CA-GR. SP No. 37180 dated 28 June 1996 and 24 February 1997, which dismissed respectively NIA's petition for certiorari and prohibition against the Construction Industry Arbitration Commission (hereafter CIAC), and the motion for reconsideration thereafter filed.

Records show that in a competitive bidding held by NIA in August 1978, Hydro Resources Contractors Corporation (hereafter HYDRO) was awarded Contract MPI-C-2 for the construction of the main civil works of the Magat River Multi-Purpose Project. The contract provided that HYDRO would be paid partly in Philippine pesos and partly in U.S. dollars. HYDRO substantially completed the works under the contract in 1982 and final acceptance by NIA was made in 1984. HYDRO thereafter determined that it still had an account receivable from NIA representing the dollar rate differential of the price escalation for the contract. 2

After unsuccessfully pursuing its case with NIA, HYDRO, on 7 December 1994, filed with the CIAC a Request for Adjudication of the aforesaid claim. HYDRO nominated six arbitrators for the arbitration panel, from among whom CIAC appointed Engr. Lauro M. Cruz. On 6 January 1995, NIA filed its Answer wherein it questioned the jurisdiction of the CIAC alleging lack of cause of action, laches and estoppel in view of HYDRO's alleged failure to avail of its right to submit the dispute to arbitration within the prescribed period as provided in the contract. On the same date, NIA filed a Compliance wherein it nominated six arbitrators, from among whom CIAC appointed Atty. Custodio O. Parlade, and made a counterclaim for P1,000,000 as moral damages; at least P100,000 as exemplary damages; P100,000 as attorney's fees; and the costs of the arbitration. 3

The two designated arbitrators appointed Certified Public Accountant Joven B. Joaquin as Chairman of the Arbitration Panel. The parties were required to submit copies of the evidence they intended to present during the proceedings and were provided the draft Terms of Reference. 4

At the preliminary conference, NIA through its counsel Atty. Joy C. Legaspi of the Office of the Government Corporate Counsel, manifested that it could not admit the genuineness of HYDRO's evidence since NIA's records had already been destroyed. NIA requested an opportunity to examine the originals of the documents which HYDRO agreed to provide. 5

After reaching an accord on the issues to be considered by the arbitration panel, the parties scheduled the dates of hearings and of submission of simultaneous memoranda. 6

On 13 March 1995, NIA filed a Motion to Dismiss 7 alleging lack of jurisdiction over the disputes. NIA contended that there was no agreement with HYDRO to submit the dispute to CIAC for arbitration considering that the construction contract was executed in 1978 and the project completed in 1982, whereas the Construction Industry

Arbitration Law creating CIAC was signed only in 1985; and that while they have agreed to arbitration as a mode of settlement of disputes, they could not have contemplated submission of their disputes to CIAC. NIA further argued that records show that it had not voluntarily submitted itself to arbitration by CIAC citing TESCO Services, Inc. v. Hon. Abraham Vera, et al., 8 wherein it was ruled:

CIAC did not acquire jurisdiction over the dispute arising from the sub-contract agreement between petitioner TESCO and private respondent LAROSA. The records do not show that the parties agreed to submit the disputes to arbitration by the CIAC . . . . While both parties in the sub-contract had agreed to submit the matter to arbitration, this was only between themselves, no request having been made by both with the CIAC. Hence, as already stated, the CIAC, has no jurisdiction over the dispute. . . . . Nowhere in the said article (sub-contract) does it mention the CIAC, much less, vest jurisdiction with the CIAC.

On 11 April 1995, the arbitral body issued an order 9 which deferred the determination of the motion to dismiss and resolved to proceed with the hearing of the case on the merits as the grounds cited by NIA did not seem to be "indubitable." NIA filed a motion for reconsideration of the aforesaid Order. CIAC in denying the motion for reconsideration ruled that it has jurisdiction over the HYDRO's claim over NIA pursuant to E.O 1008 and that the hearing should proceed as scheduled. 10

On 26 May 1996, NIA filed with the Court of Appeals an original action of certiorari and prohibition with prayer for restraining order and/or injunction, seeking to annul the Orders of the CIAC for having been issued without or in excess of jurisdiction. In support of its petition NIA alleged that:

A

RESPONDENT CIAC HAS NO AUTHORITY OR JURIDICTION TO HEAR AND TRY THIS DISPUTE BETWEEN THE HEREIN PARTIES AS E.O. NO. 1008 HAD NO RETROACTIVE EFFECT.

B

THE DISPUTE BETWEEN THE PARTIES SHOULD BE SETTLED IN ACCORDANCE WITH GC NO. 25, ART. 2046 OF THE CIVIL CODE AND R.A. NO. 876 THE GOVERNING LAWS AT THE TIME CONTRACT WAS EXECUTED AND TERMINATED.

C

E.O. NO. 1008 IS A SUBSTANTIVE LAW, NOT MERELY PROCEDURAL AS RULED BY THE CIAC.

D

AN INDORSEMENT OF THE AUDITOR GENERAL DECIDING A CONTROVERSY IS A DECISION BECAUSE ALL THE ELEMENTS FOR JUDGMENT ARE THERE; THE CONTROVERSY, THE AUTHORITY TO DECIDE AND THE DECISION. IF IT IS NOT APPEALED SEASONABLY, THE SAME BECOMES FINAL.

E

29

NIA HAS TIMELY RAISED THE ISSUE OF JURISDICTION. IT DID NOT WAIVE NOR IS IT ESTOPPED FROM ASSAILING THE SAME.

F

THE LEGAL DOCTRINE THAT JURISDICTION IS DETERMINED BY THE STATUTE IN FORCE AT THE TIME OF THE COMMENCEMENT OF THE ACTION DOES NOT ONLY APPLY TO THE INSTANT CASE. 11

The Court of Appeals, after finding that there was no grave abuse of discretion on the part of the CIAC in issuing the aforesaid Orders, dismissed the petition in its Resolution dated 28 June 1996. NIA's motion for reconsideration of the said decision was likewise denied by the Court of Appeals on 26 February 1997.

On 2 June 1997, NIA filed before us an original action for certiorari and prohibition with urgent prayer for temporary restraining order and writ of preliminary injunction, praying for the annulment of the Resolutions of the Court of Appeals dated 28 June 1996 and 24 February 1997. In the said special civil action, NIA merely reiterates the issues it raised before the Court of Appeals. 12

We take judicial notice that on 10 June 1997, CIAC rendered a decision in the main case in favor of HYDRO. 13 NIA assailed the said decision with the Court of Appeals. In view of the pendency of the present petitions before us the appellate court issued a resolution dated 26 March 1998 holding in abeyance the resolution of the same until after the instant petitions have been finally decided. 14

At the outset, we note that the petition suffers from a procedural defect that warrants its outright dismissal. The questioned resolutions of the Court of Appeals have already become final and executory by reason of the failure of NIA to appeal therefrom. Instead of filing this petition for certiorari under Rule 65 of the Rules of Court, NIA should have filed a timely petition for review under Rule 45.

There is no doubt that the Court of Appeals has jurisdiction over the special civil action for certiorari under Rule 65 filed before it by NIA. The original jurisdiction of the Court of Appeals over special civil actions for certiorari is vested upon it under Section 9(1) of B.P. 129. This jurisdiction is concurrent with the Supreme Court 15 and with the Regional Trial Court. 16

Thus, since the Court of Appeals had jurisdiction over the petition under Rule 65, any alleged errors committed by it in the exercise of its jurisdiction would be errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari. 17 If the aggrieved party fails to do so within the reglementary period, and the decision accordingly becomes final and executory, he cannot avail himself of the writ of certiorari, his predicament being the effect of his deliberate inaction. 18

The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and not a special civil action under Rule 65 of the Rules of Court, now Rule 45 and Rule 65, respectively, of the 1997 Rules of Civil Procedure. 19 Rule 45 is clear that decisions, final orders or resolutions of the Court of Appeals in any case, i.e., regardless of the nature of the action or proceedings involved, may be appealed to this Court by filing a petition for review, which would be but a continuation of the appellate process over the original case. 20 Under Rule 45 the reglementary period to appeal is fifteen (15) days from notice of judgment or denial of motion for reconsideration. 21

In the instant case the Resolution of the Court of Appeals dated 24 February 1997 denying the motion for reconsideration of its Resolution

dated 28 June 1997 was received by NIA on 4 March 1997. Thus, it had until 19 March 1997 within which to perfect its appeal. NIA did not appeal. What it did was to file an original action for certiorari before this Court, reiterating the issues and arguments it raised before the Court of Appeals.

For the writ of certiorari under Rule 65 of the Rules of Court to issue, a petitioner must show that he has no plain, speedy and adequate remedy in the ordinary course of law against its perceived grievance. 22

A remedy is considered "plain, speedy and adequate" if it will promptly relieve the petitioner from the injurious effects of the judgment and the acts of the lower court or agency. 23 In this case, appeal was not only available but also a speedy and adequate remedy.

Obviously, NIA interposed the present special civil action of certiorari not because it is the speedy and adequate remedy but to make up for the loss, through omission or oversight, of the right of ordinary appeal. It is elementary that the special civil action of certiorari is not and cannot be a substitute for an appeal, where the latter remedy is available, as it was in this case. A special civil action under Rule 65 of the Rules of Court will not be a cure for failure to timely file a petition for review on certiorari under Rule 45 of the Rules of Court. 24 Rule 65 is an independent action that cannot be availed of as a substitute for the lost remedy of an ordinary appeal, including that under Rule 45, 25

especially if such loss or lapse was occasioned by one's own neglect or error in the choice of remedies. 26

For obvious reasons the rules forbid recourse to a special civil action for certiorari if appeal is available, as the remedies of appeal and certiorari are mutually exclusive and not alternative or successive. 27 Although there are exceptions to the rules, none is present in the case at bar. NIA failed to show circumstances that will justify a deviation from the general rule as to make available a petition for certiorari in lieu of taking an appropriate appeal.

Based on the foregoing, the instant petition should be dismissed.

In any case, even if the issue of technicality is disregarded and recourse under Rule 65 is allowed, the same result would be reached since a review of the questioned resolutions of the CIAC shows that it committed no grave abuse of discretion.

Contrary to the claim of NIA, the CIAC has jurisdiction over the controversy. Executive Order No. 1008, otherwise known as the "Construction Industry Arbitration Law" which was promulgated on 4 February 1985, vests upon CIAC 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. The 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. 28

The complaint of HYDRO against NIA on the basis of the contract executed between them was filed on 7 December 1994, during the effectivity of E.O. No. 1008. Hence, it is well within the jurisdiction of CIAC. The jurisdiction of a court is determined by the law in force at the time of the commencement of the action. 29

NIA's argument that CIAC had no jurisdiction to arbitrate on contract which preceded its existence is untenable. E.O. 1008 is clear that the CIAC has jurisdiction over all disputes arising from or connected with construction contract whether the dispute arises before or after the completion of the contract. Thus, the date the parties entered into a contract and the date of completion of the same, even if these occurred before the constitution of the CIAC, did not automatically

30

divest the CIAC of jurisdiction as long as the dispute submitted for arbitration arose after the constitution of the CIAC. Stated differently, the jurisdiction of CIAC is over the dispute, not the contract; and the instant dispute having arisen when CIAC was already constituted, the arbitral board was actually exercising current, not retroactive, jurisdiction. As such, there is no need to pass upon the issue of whether E.O. No. 1008 is a substantive or procedural statute.

NIA also contended that the CIAC did not acquire jurisdiction over the dispute since it was only HYDRO that requested for arbitration. It asserts that to acquire jurisdiction over a case, as provided under E.O. 1008, the request for arbitration filed with CIAC should be made by both parties, and hence the request by one party is not enough.

It is undisputed that the contracts between HYDRO and NIA contained an arbitration clause wherein they agreed to submit to arbitration any dispute between them that may arise before or after the termination of the agreement. Consequently, the claim of HYDRO having arisen from the contract is arbitrable. NIA's reliance with the ruling on the case of Tesco Services Incorporated v. Vera, 30 is misplaced.

The 1988 CIAC Rules of Procedure which were applied by this Court in Tesco case had been duly amended by CIAC Resolutions No. 2-91 and 3-93, Section 1 of Article III of which read as follows:

Submission to CIAC Jurisdiction — An arbitration clause in a construction contract or a submission to arbitration of a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.

Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary arbitration. Unlike in the original version of Section 1, as applied in the Tesco case, the law as it now stands does not provide that the parties should agree to submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008. 31

Moreover, it is undeniable that NIA agreed to submit the dispute for arbitration to the CIAC. NIA through its counsel actively participated in the arbitration proceedings by filing an answer with counterclaim, as well as its compliance wherein it nominated arbitrators to the proposed panel, participating in the deliberations on, and the formulation of, the Terms of Reference of the arbitration proceeding, and examining the documents submitted by HYDRO after NIA asked for the originals of the said documents. 32

As to the defenses of laches and prescription, they are evidentiary in nature which could not be established by mere allegations in the pleadings and must not be resolved in a motion to dismiss. Those issues must be resolved at the trial of the case on the merits wherein both

parties will be given ample opportunity to prove their respective claims and defenses. 33 Under the rule 34 the deferment of the resolution of the said issues was, thus, in order. An allegation of prescription can effectively be used in a motion to dismiss only when the complaint on its face shows that indeed the action has already prescribed. 35 In the instant case, the issue of prescription and laches cannot be resolved on the basis solely of the complaint. It must, however, be pointed that under the new rules, 36 deferment of the resolution is no longer permitted. The court may either grant the motion to dismiss, deny it, or order the amendment of the pleading.

WHEREFORE, the instant petition is DISMISSED for lack of merit. The Court of Appeals is hereby DIRECTED to proceed with reasonable dispatch in the disposition of C.A. G.R. No. 44527 and include in the resolution thereof the issue of laches and prescription.

SO ORDERED.

31

[G.R. No. 141897. September 24, 2001]

METRO CONSTRUCTION, INC., Petitioner, vs. CHATHAM PROPERTIES, INC., respondent.

D E C I S I O N

DAVIDE, JR., C.J.:

The core issue in this case is whether under existing law and rules the Court of Appeals can also review findings of facts of the Construction Industry Arbitration Commission (CIAC).

Respondent Chatham Properties, Inc. (CHATHAM) and petitioner Metro Construction, Inc. (MCI) entered into a contract for the construction of a multi-storey building known as the Chatham House located at the corner of Herrera and Valero Streets, Salcedo Village, Makati City, Metro Manila. In April 1998, MCI sought to collect from CHATHAM a sum of money for unpaid progress billings and other charges and instituted a request for adjudication of its claims with the CIAC. The case was docketed as CIAC Case No. 10-98. The arbitral tribunal was composed of Joven B. Joaquin as Chairman, and Beda G. Fajardo and Loreto C. Aquino as members.

The preliminary conference before the CIAC started in June 1998 and was concluded a month after with the signing of the Terms of Reference (TOR) of the Case. [1 The hearings immediately started with the presentation of MCIs witnesses, namely: Ms. Ma. Suzette S. Nucum, Chief Accountant; Ms. Isabela Redito, Office Engineer; Mr. John Romulo, Field Manager; and Dr. John Y. Lai, President. CHATHAMs witnesses were: Engr. Ruperto Kapunan III, Managing Director of RK Development and Construction Co., Inc. (RKDCCI), which was the Construction Manager firm hired by CHATHAM to oversee the construction work of the Chatham House; Engr. Alex Bautista, Area Manager of RKDCCI; Mr. Avelino M. Mercado, CHATHAMs Project Manager; and Engr. Jose T. Infante.

In the meantime, the TOR was amended and finalized on 19 August 1998. [2

The facts, as admitted by the parties before the CIAC and incorporated in the original TOR, are as follows:

1. On 21 April 1994, the parties formally entered into a xxx contract for the construction of the Chatham House xxx for the contract price of P50,000,000.00 inclusive of value-added tax, subject to adjustments in accordance with Article 9 of the contract. Construction of the project, however, commenced on 15 April 1994 upon the release by CHATHAM of the downpayment.

2. On 12 July 1994, a Supplemental Contract was executed by and between the parties whereby CHATHAM authorized MCI to procure in behalf of the former materials, equipment, tools, fixtures, refurbishing, furniture, and accessories necessary for the completion of the project.

3. Under Section 1.04 of the Supplemental Contract, the total amount of procurement and transportation cost[s] and expenses which may be reimbursed by MCI from CHATHAM shall not exceed the amount of P75,000,000.00.

4. In the course of the construction, Change Orders No. 1, 4, 8A, 11, 12 and 13 were implemented, payment of which were recommended by xxx RKDCCI and approved by one of CHATHAMs Project Managers, Romulo F. Sugay.

5. On 15 September 1995, CHATHAM through its Project Manager, Romulo F. Sugay, agreed to give P20,000 per floor for five (5) floors, or a total of P100,000.00 as bonus/incentive pay to MCIs construction

workers for the completion of each floor on schedule. CHATHAM reimbursed MCI the amount of P60,000.00 corresponding to bonuses advanced to its workers by the latter for the 14th, 16th, and 17th floors.

6. CHATHAMs payments to MCI totaled P104,875,792.37, representing payments for portions of MCIs progress billings and xxx additional charges.

The parties then stipulated on the following issues, again, as set forth in the TOR:

1. Is MCI entitled to its claims for unpaid progress billings amounting to P21,062,339.76?

2. Were the approved Change Orders 1, 4, 8a, 11, 12 and 13 fully paid by CHATHAM? If not, is MCI entitled to its claim for the unpaid balance?

3. Is CHATHAM liable for Change Orders 7a, 7b, 10, 14, 15, 16, 17, 19 and 20?

4. Were the CHB works from the 8th to the 31st floors part of the original contract or in the nature of extra/additional works? Is CHATHAM liable for the same? If so, how much?

5. Is MCI entitled to an additional reimbursement of P40,000.00 for bonuses granted to workers as an incentive for the early completion of each floor?

6. Were the deductions in the amount of P1,393,458.84 made by CHATHAM in MCIs progress billing reasonable?

7. Is MCIs claim of P1,646,502.00 for labor escalation valid?

8. Is MCI entitled to payment of attendance fee? To what extent and how much?

9. Did MCI fail to complete and/or deliver the project within the approved completion period? If so, is MCI liable for liquidated damages and how much?

10. Whether or not CHATHAM is entitled to claim x x actual damages? If so, to what extent and how much?

11. Whether or not CHATHAM is entitled to x x x additional counterclaims as follows:

11.1 Core testing expenses and penalty for concrete strength failure P3,630,587.38

11.2. Expenses to rectify structural steel works for the foundation P1,331,139.74.

11.3. Cost of additional materials (concrete & rebars) supplied by CPI P5,761,457.91

12. Are the parties entitled to their respective claims for attorneys fees and cost of litigation? If so, how much?[3

In the resolution of these issues, the CIAC discovered significant data, which were not evident or explicit in the documents and records but otherwise revealed or elicited during the hearings, which the CIAC deemed material and relevant to the complete adjudication of the case. In its decision of 19 October 1998, [4 the CIAC made the following findings and conclusions:

It was established during the hearing that the contract was awarded to MCI through negotiation as no bidding was conducted. xxx It was also revealed that two agreements were entered into, one is labeled Construction Contract for the total fixed amount of P50,000,000.00 and the other a Supplemental Contract for an amount not to exceed

32

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P75,000,000.00. The latter is supposed to cover the procurement of materials for the project. The Construction Contract provides for monthly progress billings and payments based on actual accomplishments of the various phases of work. The Supplemental Contract provides for reimbursement of [the] total amount of procurement and transportation costs and expenses, upon MCIs presentation of suppliers invoices/receipts.

However, from testimonies of witnesses from both parties, it was revealed that the two distinct manner(s) of payment to MCI was set aside. The earlier attempt by CHATHAM to prove that MCI was remiss in submitting suppliers invoices and/or receipts in support of its billings against the Supplemental Contract was in fact later on abandoned when CHATHAMs witness Mercado admitted that the matter of adherence to the payment provision of the Supplemental Contract is a non-issue. This was borne out by the fact that progress billings and payments under both contracts were made on the basis of percentage of project completion.

Both documentary and testimonial evidence prove that, effectively, the construction contract and supplemental contract is but one agreement for a lump sum contract amount of P125,000,000.00.

xxx

There was also the admitted fact that the contract was negotiated and awarded in the absence of a complete construction plan. In any case, in support of the total contract amount of P125 MILLION, is a Cost Breakdown (Exh. 17-L), where the estimated quantities of owner furnished materials (OFM) are indicated. It is however, understood that these quantities are estimates, based on (an) incomplete set of construction plans. It is likewise understood that except for the OFM, all the other costs in the Cost Breakdown form the basis for the lump-sum agreement under the contract, subject to adjustment only if there are any significant changes in the contract plans.

RKDCCI in its letter to MCI dated 15 Feb. 1995 (Exh. 4), informed MCI that it was confirming the agreement allegedly accepted by Dr. Lai that the Building Committee will take over the management of the construction operations (of the project) albeit under certain conditions. Specifically, the take over was for an interim period and will extend only after concreting of up to basement level 5 or up to 30 May 1995 whichever is later. The letter also stated that the Building Committee xxx will be responsible for management and direction including management of MCI engineers at the site, sequencing of work, additional labor, additional equipment and management of the yard and staging area. The letter, however, emphasized that the intent is not a take over of the contract or take over of the entire work and in fact, it was mentioned that MCI will still be responsible for earth anchoring and steel fabrication work.

CHATHAM claims that the interim take-over was necessitated by MCIs delay in the progress of its work, due allegedly to MCIs lack of manpower and equipment. During the hearings of this case, this claim of MCIs lack of manpower, necessary equipment, qualified engineers and inefficient construction management was testified to by both Mr. Mercado [of CHATHAM] and Engr. Kapunan of RKDCCI. CHATHAMs witnesses, however, testified that in spite of these alleged deficiencies, MCI was nevertheless allowed to continue to take full control of the operations. When asked why termination of the contract was not resorted to if truly, MCI was not performing its contracted obligations, witnesses Mercado and Kapunan cited special relations between the owner of MCI (Dr. John Lai) and the president of CHATHAM (Mr. Lamberto UnOcampo) as the reason.

On the other hand, Dr. Lai contends that, as explained in his letter to CHATHAM dated 17 February 1995, (Exh. 4-A) MCIs work was on schedule. During the hearings, Dr. Lai also insisted that beginning 15 February 1995, MCI was relieved of full control of the construction operations, that it was relegated to (be) a mere supplier of labor, materials and equipment, and that the alleged interim takeover actually extended through the completion of the project. Dr. Lai cited CHATHAMs purchases of materials, fielding labor force and sub-contracting works allegedly for the project without his knowledge and consent as proof that CHATHAM had taken full control of the project.

To the above allegation of MCI that CHATHAM went ahead and procured materials, hired labor and entered into sub-contract agreements with the intention of eventually charging the costs thereof to MCI, witness Mercado countered, that CHATHAM has the right to do this under the provisions of Article 27 of the contract, dealing with Recision, Cancellation, Termination of Contract.

By way of responding to the various counterclaims of CHATHAM, MCI referred to a letter of [the former] addressed to MCI dated 18 January 1997 (Exhibit E-1) the first paragraph of which reads as follows:

After evaluating all the documents issued and received from both Chatham Properties Inc. and Metro Construction, Inc., the Building Committee of Chatham Properties, Inc. evaluated them. The Building Committee finds the total receivable of Metro Construction is in the amount of EIGHT MILLION PESOS (P8,000,000.00) only.

When queried by the Tribunal if the said amount already took into account the costs and expenses (Chatham) claims to have incurred for the account of MCI, Mr. Mercado answered in the affirmative. When queried further how the amount was arrived at, Mr. Mercado replied that it was the sum the Building Committee figured it was willing to pay MCI simply to close the issue.

Mr. Mercado even added that while MCI is not actually entitled to this amount, it was out of friendship that CHATHAM offered this sum to MCI as final settlement under the contract.

It is with the above attendant circumstances that this Tribunal will be guided in the resolution of issues brought before it for adjudication. From what this Tribunal finds as peculiar circumstances surrounding the contracting and implementation of the CHATHAM House Project, it arrived at the following fundamental conclusions:

1. That indeed special friendly relations were present between the parties in this case, although decisions by either party on any particular issue were made not purely on the basis of such special relations. For example, this Tribunal believes that, contrary to the allegation of (CHATHAMs) witnesses, the decision not to terminate the contract was not due to the admitted special relations only, but also due to the greater problems the project would be faced with by terminating the MCI contract and mobilizing another contractor.

2. That while there was no official termination of the contract, the manner by which CHATHAM had taken upon themselves the procurement of materials, the fielding of labor, the control over MCIs engineers, and the subcontracting of various phases of work on its own, is considered by this Tribunal as implied termination of the contract. The idea of allowing MCI to remain on the project in spite of what CHATHAM claims (to be) MCIs shortcomings, and MCIs agreement to stay on the project under conditions set by CHATHAM, is believed a matter of mutual benefit to both parties.

3. That CHATHAMs invoking its rights under the provisions of Article 27 of the construction contract is believed out of place, as it failed to

33

observe the required antecedent acts before it can exercise its prerogative under the said contract provision.

4. That there is no reason to believe, either party was in any way guilty of bad faith in acting as it did on certain relevant matters. However, this Tribunal is of the belief that due perhaps to the eagerness on the part particularly of CHATHAMs representatives to take such steps it considered necessary to insure completion of the project within the period desired by CHATHAM, it deviated from some generally accepted procedures in the construction industry in dealing with MCI. One example was not giving MCI the opportunity to rectify some of what CHATHAM considered as construction deficiencies and instead engaging the services of other parties to undertake the corrective works and later on charging the costs thereof to MCI.

In addition to the above conclusions resulting from what this Tribunal considered peculiar of circumstances surrounding the implementation of the project that were revealed during the proceedings of this case, this Tribunal finds the necessity of establishing a cut-off date with regard to the fiscal liability of one party towards the other.

Mr. Avelino Mercado of CHATHAM presented a list of what he claims as its Payments to MCI (Exhibit 7) summarized as follows:

a. Down payment (Paid in two equal trances) P20,000,000.00

b. Cash Advance for Mobilization 800,000.00

c. Payments of Progress Billings up to Billing No. 19 71,081,183.44

d. Other Payments (Mar 1994 to Apr 1996) 5,474,419.67

e. Advances on MCI Payrolls (April 1996 to March 1997) 8,196,755.51

Total P104,752,358.42

The records of this case show that the last progress payment to MCI was in January 1996 representing payment of Progress Billing No. 19 for the period ending 31 December 1995. The percentage of completion claimed then by MCI was 80.02%, the amount evaluated and eventually paid to MCI was the equivalent of 77.15% work accomplishment. No further progress payments were made thereafter, other than for advances to cover MCI payrolls from April 1996 to March 1997 in the amount of P8,196,755.51 and for various advances and payments of approved change orders in the amount of P5,474,419.67.

In the meantime, up to Billing No. 23 for the period ending 30 April 1996, MCI billed CHATHAM a total accomplishment of 95.29%. This billing was however, evaluated by CHATHAM, and in its letter to MCI dated 27 May 1996 (Exhibit E) it confirmed that MCIs remaining balance of work stands at P7,374,201.15 as of 23 May 1996. This amount, percentage-wise, equals roughly 5.88% of the contract amount as testified to by Engr. Jose Infante. (Exhibit 22-B). Therefore, what was computed as MCIs work accomplishment as of 23 May 1996 was 94.12% and it is this evaluation which this Tribunal believes MCI is entitled to as of said date.

Applying this percentage of completion of 94.12% to the P125,000,000.00 contract amount gives a total accomplishment equivalent to P117,650,000.00 as of 23 May 1996. Add to this amount the sum of P5,353,091.08 representing the total of approved Change Orders as of 31 December 1995 gives a total MCI accomplishment of P123,003,091.08, as CHATHAM saw it. Of this amount, CHATHAM admitted having paid MCI the total sum of P104,752,358.42 only (Exhibit 7) up to March 15, 1997, leaving a balance of P18,250,732.66. It should be noted that of the total payment of P104,752,358.42, the sum of P5,750,000.00 was paid after May 1996 so that as of 23 May 1996, CHATHAMs total payment to MCI was P99,002,358.42.

Effectively, therefore, the amount due MCI as of 23 May 1996 amounted to P24,005,732.66 computed as follows:

Total accomplishment as of 23 May 1996 at 94.12% P117,655,000.00

Add approved change orders 5,353,091.08

Total P123,008,091.08

Less payments up to 23 May 1996 99,002,358.42

Balance due MCI as of 23 May 1996 P24,005,732.66

Of the above balance of P24,005,732.66 as of 23 May 1996, the only payments made by CHATHAM to MCI is the sum of P5,750,000.00 from June 1996 onwards, allegedly to cover MCI payrolls. It is of course noted that CHATHAMs suspension of further payments to MCI was because it had been undertaking on its own, the further procurement of materials and sub-contracting of various phases of works on the project.

In consideration of the above facts, this Tribunals conclusion that there was in fact an implied take over of the project is further confirmed. Furthermore, this Tribunal additionally concludes that the cut-off date for purposes of delineating the financial obligations of the parties between them should be 23 May 1996, the date when CHATHAM evaluated MCIs accomplishment at 94.10% but nevertheless suspended all further progress payments to MCI.

MCI presented further documentary evidence (Exhibit E-6) the subject of which is PUNCHLISTING-CIVIL STRUCTURAL. In this particular document which bears the signatures of representatives of both MCI and RKDCCI, MCI tried to prove that as of 30 August 1996 it had actually attained 99.16% work accomplishment. While it may be true that as of that date the project had reached 99.16% completion, there is no incontrovertible evidence showing that MCI was responsible for such accomplishment. This was in fact actually testified to by Engr. Alex Bautista of RKDCCI, when he said that it was an evaluation of the projects completion stage, not necessarily MCIs work accomplishment. This Tribunal therefore stands firm on its conclusion that MCIs accomplishment is only up to the extent of 94.10%.[5

With those findings, the CIAC disposed of the specific money claims by either granting or reducing them. On Issue No. 9, i.e., whether CHATHAM failed to complete and/or deliver the project within the approved completion period and, if so, whether CHATHAM is liable for liquidated damages and how much, the CIAC ruled in this wise:

This Tribunal holds that the provision of the contract insofar as the Overall Schedule is concerned cannot justifiably be applied in the instant case in view of the implied take-over of the Chatham House project by CHATHAM. Accordingly, this Tribunal finds no necessity to resolve whether or not MCI complete[d] and/or deliver[ed] the project within the approved completion period. In fact, Mr. Mercado testified that it was CHATHAM who ultimately completed the project, with assistance of the construction managers.

In any case, this Tribunal finds merit in RKDCCIs claim that MCI was in delay in the concreting milestone and that [it] is liable for liquidated damages therefor. This, notwithstanding MCIs invoking that Chatham is estopped from claiming liquidated damages after it failed to deduct the alleged liquidated damages from MCIs progress billings. This Tribunal holds that such failure to deduct, which CHATHAM claims it did in order not to hamper progress of work in the project, is an option which [it] may or may not exercise.

However, this Tribunal finds that CHATHAMs Exh. 11-A where the liquidated damages on delays in concreting milestone was applied is

34


not consistent with [its] own Exhibit 3-I. This Tribunal notes that in Exh. 11-A, CHATHAM included a projected delay of 85 days for the Helipad Concreting works, while no such projected delay was included in Exh. 3-I as it should be.

This Tribunal holds that Exh. 3-I showing a delay of 294 days in concreting milestones should rightfully be used in computing liquidated damages. Accordingly, this Tribunal holds that MCI is liable for liquidated damages in the amount of P3,062,498.78 as follows:

1/4x1/3[(1/10xP125,000,000.00)1%]x294=P3,062,498.78.[6

The CIAC then decreed:

Accordingly, as presented below, all the amounts due MCI are first listed and added up and the total payment is deducted therefrom. The admitted total payment figure as reflected in the Terms of Reference is the amount applied instead of the total reflected in CHATHAMs Summary of Payments which incidentally reflected a lesser amount. From the Balance Due MCI the Amounts CPI is Held Entitled To is deducted and the Net Amount Due MCI is arrived at.

A. AMOUNTS HELD MCI IS ENTITLED TO:

A.1. From the original contract: 94.12% of P125,000,000.00 P117,650,000.00

A.2 Approved Change Orders 5,353,091.08

A.3 Pending Change Orders 1,648,560.46

A.4 CHB Works 1,248,654.71

A.5 Workers Bonus -0-

A.6 Disputed Deductions 909,484.70

A.7 Labor Escalation 1,076,256.00

A.8 Attendance Fee 508,162.73

Total P128,394,209.68

Less: Total payments-Item II-6 of TOR 104,875,792.37

Balance Due MCI P 23,518,417.31

B. AMOUNTS HELD CPI IS ENTITLED TO:

B.1. Liquidated Damages P 3,062,498.78

B.2. Actual Damages 335,994.50

B.3. Penalties 1,778,285.44

B.4 Cash Payments in Behalf of MCI 2,214,715.68

Total Amount Due CPI P 7,391,494.40

C. NET AMOUNT DUE MCI (A minus B) P16,126,922.91

WHEREFORE, judgment is hereby rendered in favor of the Claimant [MCI] directing Respondent [CHATHAM] to pay Claimant [MCI] the net sum of SIXTEEN MILLION ONE HUNDRED TWENTY SIX THOUSAND NINE HUNDRED TWENTY TWO & 91/100 (16,126,922.91) PESOS.

SO ORDERED. [7

Impugning the decision of the CIAC, CHATHAM instituted a petition for review with the Court of Appeals, which was docketed as CA-G.R. SP No. 49429. In its petition, CHATHAM alleged that:

The Arbitral Tribunal grossly erred in failing to indicate specific reference to the evidence presented or to the transcript of stenographic notes in arriving at its questioned Decision, in violation of

the cardinal rule under Section 1, Rule 36 of the Revised Rules of Civil Procedure that a judgment must state clearly and definitely the facts and the law on which it is based.

The Tribunals conclusions are grounded entirely on speculations, surmises and conjectures.

The Arbitral Tribunal grossly erred in failing to consider the evidence presented by CHATHAM and the testimony of its witnesses.

The Arbitral Tribunal gravely abused its discretion in considering arbitrarily that there was an implied takeover contrary to the facts and evidence submitted.

The Arbitral Tribunal committed grave error and gross misapprehension of facts in holding that CHATHAM is not entitled to liquidated damages despite failure of MCI to meet the over-all schedule of completion.

The Arbitral Tribunal manifestly erred in holding that MCI is entitled to its claim for unpaid progress billings.

The Arbitral Tribunal committed gross and reversible error in equating the percentage of MCIs work accomplishment with the entire work in place, despite evidence to the contrary.

The Arbitral Tribunal gravely erred in making 23 May 1996 as the cut-off date for purposes of delineating the financial obligations of the parties.

The Arbitral Tribunal erred in denying CHATHAM its claim for actual damages pursuant to Article 27.8 of the Construction Contract.

The facts set forth in CHATHAMs Answer with Compulsory Counterclaim as well as its documentary and testamentary evidence were not overturned or controverted by any contrary evidence.[8

In its decision of 30 September 1999, [9 the Court of Appeals simplified the assigned errors into one core issue, namely, the propriety of the CIACs factual findings and conclusions. In upholding the decision of the CIAC, the Court of Appeals confirmed the jurisprudential principle that absent any showing of arbitrariness, the CIACs findings as an administrative agency and quasi-judicial body should not only be accorded great respect but also given the stamp of finality. However, the Court of Appeals found exception in the CIACs disquisition of Issue No. 9 on the matter of liquidated damages.

The Court of Appeals disagreed with the CIACs finding that there was an implied takeover by CHATHAM of the project and that it was unnecessary for the CIAC to rule on whether MCI completed and/or delivered the project within the approved completion schedule of the project since CHATHAM failed to observe the antecedent acts required for the termination of the contract, as set forth in the Construction Agreement.

The Court of Appeals ascertained that the evidence overwhelmingly proved that there was no takeover by CHATHAM and that MCI exercised complete control, authority and responsibility over the construction. In support of this conclusion, the appellate court pointed to the following evidentiary bases: [10

1. Testimony of CHATHAMs Engr. Kapunan that the interim takeover for the works on the basement was triggered by lack of manpower and delays as early as February 1995, as evidenced by their assessment[11 and that the interim takeover was only with respect to the direction or management of the field operations and was limited only to works on the basement and intended to assist MCI to catch up with the schedule of completion, since at that time the project was very much delayed; thereafter, the MCI was back in full control of the project. [12

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2. Testimony of Engr. Bautista that the takeover was only partial and temporary and limited to the management portion on the basement only and that MCI was always in control of the project.[13

3. Testimony of Engr. Infante that MCI personnel were constantly present in the project and the intervention (not takeover) by CHATHAM was justified to ensure completion of the project on time.[14

4. Documentary exhibits evincing the nature and extent of MCIs work during the takeover period which belied its claims that it was not in control of the project because of the takeover thus:

Exhibit 4 Letter dated 15 February 1995 of Engr. Kapunan of RKDCCI to John Lai of MCI stating that the takeover of directions or management of the field operations is interim, i.e. while the takeover is effective immediately it will extend only after concreting Level B-1 or approximately until 30 May 1995 which ever is later.

Exhibit 4-A Letter dated 17 February 1995 written by Dr. Lai of MCI to Engr. Kapunan in response to the latters 15 February 1995 letter stating that [A]lso we were assured that we will not be responsible for any errors or accidents that may occur during this INTERIM period, indicating that Dr. Lai was very much aware of the interim period.

Exhibit 4-C - Letter dated 18 February 1995 written by Engr. Ben C. Ruiz of RKDCCI to Dr. Lai containing the reasons for the takeover.

Exhibit 8A Letter dated 5 September 1995 written by Dr. E.G. Tabujara to Dr. Lai/Romy Laron (Project Manager of MCI) requesting for an engineer of MCI to accompany the inspector of RKDCCI to witness batching procedures. By so doing, Dr. E.G. Tabujara acknowledged that Dr. Lai was in control of the project.

Exhibit 8 Letter dated 4 September 1995 by Engr. Romulo R. Sugay to Dr. Lai offering an incentive to the workers of MCI to exert (their) best effort for topping off by the end of December; another clear indication that Dr. Lai was in control of the project.

Exhibit 4-D Letter dated 4 January 1996 indicating that Mr. H.T. Go offered Dr Lai an incentive of P1,800,000 on the condition that MCI meets the new schedule/milestones. MCIs acceptance of the incentive offer likewise shows that MCI was in control of the Project.

Exhibits 3, 3-I, 3-M, 3-N, 3-W-1, 3-X, 3-Y, and 3-Z among others containing reminders to MCI of its duties and shortcomings, likewise attest to the fact that MCI was in control (of) and responsible for the Project, although markedly deficient.

Exhibits 5, 5-A, 5-B, 5-C, 5-D, 5-E, 5-F, 5-O, C-7, and E-9 evidencing that MCI continued to manage other works on the project even during the time of the interim takeover of the basement works, as seen in the series of communications between CHATHAM or RKDCCI and MCI within the period beginning February 1995 to 30 May 1995.

5. Respondents Request for Adjudication, Annex G, Records, Folder No. 6 - which incorporated Change Order No. 12, among others, dated 28 August 1995, recommended by the RKDCCI and accepted by Dr. Lai, and which request for an extension of 25 days readily showed that even after 30 May 1995, after the close of the supposed takeover period, MCI was still the contractor in complete control of the project for it would not have otherwise accepted the said change order if it (were) no longer the Contractor of the project due to the termination of the Construction agreement as of said date on account of the alleged takeover.

6. Exhibits 3-J, 3-M, 3-Q, 3-R, 3-V, 3-W-1, 3-W-2, 5-F, 5-1, 6, 12-II, 12-JJ, 12-MM, and 12-NN tending to prove that RKDCCI monitored the work from start to finish and had zealously pointed out to MCI the defects or

improper execution of the construction works, and gave MCI all the opportunity to rectify the construction deficiencies and complete the works of the project.

The Court of Appeals concluded that the interim takeover was necessitated by CHATHAMs insistence to meet its own turnover dates with the buyers of the projects units. Thus, CHATHAM was constrained to hire subcontractors with sufficient manpower and supervision and incur various expenses to facilitate the completion of the project and/or assist MCI in making up for its delay.

The Court of Appeals then considered it imperative to determine whether MCI failed to complete the project on time for which it may be held liable for liquidated damages based on the delays in the overall schedule of completion pursuant to Art. 13.5 of the Construction Agreement, to wit:

13.5. Over-All Schedule For not meeting the final completion date of the PROJECT, the OWNER will deduct from the Contract Sum or amounts due the CONTRACTOR, the amount equivalent to 1/10 of 1% of the Contract Sum for every calendar day of delay, provided, however, that the maximum penalty should not exceed 25% of the fee payable to the CONTRACTOR as stipulated in the Bill of Quantities. Penalties from concreting milestones shall be deducted from the penalty of Over-All Schedule.[15

The Court of Appeals disposed of the controversy in this wise:

As is extant from the records, the completion date of the Project under the Construction Contract or under the revised construction schedule was never met by reason of [MCIs] lack of manpower, necessary equipment, qualified engineers and inefficient management of the construction works on the Project. Thus, under the Contract (Exhibit 1), [MCI] had 780 days, or until 22 January 1996, from starting date, or April 12, 1994, to finish the project. The completion date, however, was not followed and was revised as early as December 17, 1994, extending the milestone dates up to March 15, 1996 (Exhibits 3-G and 3-H). As of December 25, 1995, the number of days delayed was already 294 days. Thus, on February 22, 1996, the contract milestones were again revised, inclusive of 53 days extension, to May 23, 1996 (Exhibits 3-I and 3-O). The May 23, 1996 turnover milestone nor the July 22, 1996 turnover of the whole project were neither met (Exhibits 3-P, 3-R, 3-S and 3-T but [CHATHAM] was again constrained to allow [MCI] to continue working on the Project to complete the balance of the works (Exhibit M). And all throughout the construction of the Project, [CHATHAM] had to assist [MCI] along the way to expedite the execution and completion of the Project (Exhibits 3-K and 3-V).

From the foregoing disquisitions, it is clear that [MCI] is liable for liquidated damages, as per Article 13.5 of the Construction Contract, for its failure to complete the project within the period stipulated in the Construction Contract and even despite an extension of 53 days from the original schedule or of the overall schedule of completion. [MCI] should therefore pay [CHATHAM] the amount of liquidated damages equivalent to P24,125,000.00 for 193 days of delay in the overall schedule of completion counted from overall completion date on July 22, 1996 up to the date of completion on February 15, 1997, as stated in the Certificate of Occupancy, computed as follows, to wit:

1/10[1%(P125,000,000.00)] per day x 193 days

=[1/10 (P1,250,000.00)] per day x 193 days

=P125,000.00 per day x 193 days

=P24,125,000.00

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IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered partially granting [CHATHAMs] claim for liquidated damages. The Tribunals Decision dated 19 October 1998 is hereby AFFIRMED with the modification on [MCIs] liability for liquidated damages in the amount of P24,125,000.00. Thus,

A. AMOUNTS [MCI] IS ENTITLED TO:

A.1. From the original contract: 94.12% of P125,000,000.00 P117,650,000.00

A.2 Approved Change Orders 5,353,091.08

A.3 Pending Change Orders 1,648,560.46

A.4 CHB Works 1,248,654.71

A.5 Workers Bonus -0-

A.6 Disputed Deductions 909,484.70

A.7 Labor Escalation 1,076,256.00

A.8 Attendance Fee 508,162.73

Total P128,394,209.68

Less: Total payments-Item ll-6 of TOR 104,875,792.37

Balance Due Respondent P 23,518,417.31

B. AMOUNTS [CHATHAM] IS ENTITLED TO:

B.1. Liquidated Damages P 24,125,000.00

B.2. Actual Damages 335,994.50

B.3. Penalties 1,778,285.44

B.4 Cash Payments in Behalf of MCI 2,214,715.68

Total Amount Due CPI P 28,453,995.62

C. NET AMOUNT DUE [CHATHAM] (B minus A) P 4,935,578.31

Correspondingly, Respondent [MCI] is hereby directed to pay the Petitioner [CHATHAM] the net sum of FOUR MILLION NINE HUNDRED THIRTY-FIVE THOUSAND FIVE HUNDRED SEVENTY-EIGHT & 31/100 (P4,935,578.31) PESOS.[16

MCI promptly filed on 25 October 1999 a motion for reconsideration. In its Resolution of 4 February 2000, the Court of Appeals denied MCIs motion for reconsideration for lack of merit, as well as CHATHAMs Motion to Lift Garnishment and Levy Pending Appeal, filed on 13 October 1999, for being premature. [17

Thus, MCI filed the instant petition for review to challenge the decision of the Court of Appeals. MCI alleges that the Court of Appeals erred in reviewing and reversing the CIACs factual findings, that there was an implied takeover by CHATHAM of the project, and that MCI was not in delay in the overall schedule. In so doing, the Court of Appeals contravened Section 19 of Executive Order (E.O.) No. 1008, [18 which limits the review of an Arbitral Award to only questions of law, thus:

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

MCI then asserts that as signatories to the contract, it and CHATHAM complied with this legal provision when they included as part of their TOR the stipulation that [t]he decision of the Arbitral Tribunal shall be final and non-appealable except on questions of law. Accordingly, the

binding character of this provision upon the parties is conclusive and final.

MCI also contends that while it may be argued that recent (1) issuances by the Supreme Court, specifically, Circular No. 1-91, which eventually became Revised Administrative Circular No. 1-95; (2) legislation, in particular, Republic Act No. 7902, which amended Batas Pambansa Blg. 129; and (3) amendments to the Rules on Civil Procedure, modifying E.O. No. 1008 in the sense that questions of facts, of law, or mixed questions of facts and law may be the subject of an appeal of the CIACs decision to the Court of Appeals, it is still E.O. No. 1008 which remains to be the fundamental and substantive law that endows parties to an arbitral controversy the right to appeal. Hence, the provisions on appeal of E.O. No. 1008 should be controlling, i.e., only questions of law should be entertained. Therefore, the only effect of these rules on E.O. No. 1008 is the transfer of the appeal forum from the Supreme Court to the Court of Appeals.

MCI further asserts that, even assuming that the CIACs findings of facts are reviewable on appeal, the Court of Appeals gravely abused its discretion when it accepted hook, line and sinker CHATHAMs contention that MCI was in delay, and ignored competent, clear and substantial evidence that prove the contrary, and that CHATHAM is not entitled to liquidated damages.

For its part, CHATHAM avers that the evolution on the rules governing appeals from judgments, decisions, resolutions, orders or awards of the CIAC convincingly discloses that E.O. No. 1008 has already been superseded. With the power of the Supreme Court to promulgate rules concerning the protection and enforcement of constitutional rights, pleadings, practice, and procedure in all courts, its issuances and amendments to the Rules on Civil Procedure, not to mention R.A. No. 7902, as enacted by Congress, effectively modified E.O. No. 1008. Accordingly, the judgments, awards, decisions, resolutions, orders or awards of the CIAC are now appealable to the Court of Appeals on questions of facts, mixed questions of facts and law, and questions of law, and no longer with the Supreme Court on exclusively questions of law. Further, the TOR cannot limit the expanded jurisdiction of the Court of Appeals based on the latest rules. Thus, the Court of Appeals did not err in reviewing the factual findings of the CIAC.

CHATHAM also contends that, even if the Court of Appeals can only review questions of law, said court did not err in rendering the questioned decision as the conclusions therein, drawn as they were from factual determinations, can be considered questions of law.

Finally, CHATHAM asseverates that the Court of Appeals did not commit grave abuse of discretion in reversing the CIACs ascertainment on the implied take-over and liquidated damages.

This Court shall now resolve the primary issue raised in this case.

E.O. No. 1008 vests upon the CIAC 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. [19 By express provision of Section 19 thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law, which are appealable to the Supreme Court.

The parties, however, disagree on whether the subsequent Supreme Court issuances on appellate procedure and R.A. No. 7902 removed from the Supreme Court its appellate jurisdiction in Section 19 of E.O. No. 1008 and vested the same in the Court of Appeals, and whether appeals from CIAC awards are no longer confined to questions of law.

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On 27 February 1991, this Court issued Circular No. 1-91, which prescribes the Rules Governing Appeals to the Court of Appeals from Final Orders or Decisions of the Court of Tax Appeals and Quasi-Judicial Agencies. Pertinent portions thereof read as follows:

1. Scope -- These rules shall apply to appeals from final orders or decisions of the Court of Tax Appeals. They shall also apply to appeals from final orders or decisions of any quasi-judicial agency from which an appeal is now allowed by statute to the Court of Appeals or the Supreme Court. Among these agencies are the Securities and Exchange Commission, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Secretary of Agrarian Reform and Special Agrarian Courts under R.A. No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission and Philippine Atomic Energy Commission.

2. Cases not Covered. -- These rules shall not apply to decisions and interlocutory orders of the National Labor Relations Commission or the Secretary of Labor and Employment under the Labor Code of the Philippines, the Central Board of Assessment Appeals, and other quasi-judicial agencies from which no appeal to the courts is prescribed or allowed by statute.

3. Who may appeal and where to appeal. -- The appeal of a party affected by a final order, decision, or judgment of the Court of Tax Appeals or a quasi-judicial agency shall be taken to the Court of Appeals within the period and in the manner herein provided, whether the appeal involves questions of fact or of law or mixed questions of fact and law. From final judgments or decisions of the Court of Appeals, the aggrieved party may appeal by certiorari to the Supreme Court as provided in Rule 45 of the Rules of Court.

Subsequently, on 23 February 1995, R.A. No. 7902 was enacted. It expanded the jurisdiction of the Court of Appeals and amended for that purpose Section 9 of B.P. Blg. 129, otherwise known as the Judiciary Reorganization Act of 1980. [20

Section 9(3) thereof reads:

Section 9. Jurisdiction. -- The Court of Appeals shall exercise:

x x x

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Social Security Commission, the Employees Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

The Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including the power to grant and conduct new trials or further proceedings. x x x

Then this Court issued Administrative Circular No. 1-95, [21 which revised Circular No. 1-91. Relevant portions of the former reads as follows:

1. Scope. --These rules shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards, judgments, final orders or resolutions of any quasi-judicial agency from which an appeal is authorized to be taken to the Court of Appeals or the Supreme Court. Among these agencies are the Securities and Exchange Commission, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunication Commission, Department of Agrarian Reform under Republic Act No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, and Construction Industry Arbitration Commission.

Section 2. Cases Not Covered. These rules shall not apply to judgments or final orders issued under the Labor Code of the Philippines, Central Board of Assessment Appeals, and by other quasi-judicial agencies from which no appeal to the court is prescribed or allowed.

Section 3. Where to Appeal. -- An appeal under these rules may be taken to the Court of Appeals within the period and in the manner herein provided, whether the appeal involves questions of fact, of law, or mixed questions of fact and law.

Thereafter, this Court promulgated the 1997 Rules on Civil Procedure. Sections 1, 2 and 3 of Rule 43 thereof provides:

Section 1. Scope. -- This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law.

Section 2. Cases Not Covered. This Rule shall not apply to judgments or final orders issued under the Labor Code of the Philippines.

Section 3. Where to Appeal. -- An appeal under this Rule may be taken to the Court of Appeals within the period and in the manner herein provided, whether the appeal involves question of fact, of law, or mixed questions of fact and law.

Through Circular No. 1-91, the Supreme Court intended to establish a uniform procedure for the review of the final orders or decisions of the Court of Tax Appeals and other quasi-judicial agencies provided that an appeal therefrom is then allowed under existing statutes to either the Court of Appeals or the Supreme Court. The Circular designated the Court of Appeals as the reviewing body to resolve questions of fact or of law or mixed questions of fact and law.

It is clear that Circular No. 1-91 covers the CIAC. In the first place, it is a quasi-judicial agency. A quasi-judicial agency or body has been defined as an organ of government other than a court and other than a legislature, which affects the rights of private parties through either adjudication or rule-making. [22 The very definition of an administrative agency includes its being vested with quasi-judicial

38




powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts. [23 The CIACs primary function is that of a quasi-judicial agency, which is to adjudicate claims and/or determine rights in accordance with procedures set forth in E.O. No. 1008.

In the second place, the language of Section 1 of Circular No. 1-91 emphasizes the obvious inclusion of the CIAC even if it is not named in the enumeration of quasi-judicial agencies. The introductory words [a]mong these agencies are preceding the enumeration of specific quasi-judicial agencies only highlight the fact that the list is not exclusive or conclusive. Further, the overture stresses and acknowledges the existence of other quasi-judicial agencies not included in the enumeration but should be deemed included. In addition, the CIAC is obviously excluded in the catalogue of cases not covered by the Circular and mentioned in Section 2 thereof for the reason that at the time the Circular took effect, E.O. No. 1008 allows appeals to the Supreme Court on questions of law.

In sum, under Circular No. 1-91, appeals from the arbitral awards of the CIAC may be brought to the Court of Appeals, and not to the Supreme Court alone. The grounds for the appeal are likewise broadened to include appeals on questions of facts and appeals involving mixed questions of fact and law.

The jurisdiction of the Court of Appeals over appeals from final orders or decisions of the CIAC is further fortified by the amendments to B.P. Blg.129, as introduced by R.A. No. 7902. With the amendments, the Court of Appeals is vested with appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, except those within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

While, again, the CIAC was not specifically named in said provision, its inclusion therein is irrefutable. The CIAC was not expressly covered in the exclusion. Further, it is a quasi-judicial agency or instrumentality. The decision in Luzon Development Bank v. Luzon Development Bank Employees [24 sheds light on the matter, thus:

Assuming arguendo that the voluntary arbitrator or the panel of voluntary arbitrators may not strictly be considered as a quasi-judicial agency, board or commission, still both he and the panel are comprehended within the concept of a quasi-judicial instrumentality. It may even be stated that it was to meet the very situation presented by the quasi-judicial functions of the voluntary arbitrators here, as well as the subsequent arbitrator/arbitral tribunal operating under the Construction Industry Arbitration Commission, that the broader term instrumentalities was purposely included in [Section 9 of B.P. Blg. 129 as amended by R.A. No. 7902].

An instrumentality is anything used as a means or agency. Thus, the terms governmental agency or instrumentality are synonymous in the sense that either of them is a means by which a government acts, or by which a certain government act or function is performed. The word instrumentality, with respect to a state, contemplates an authority to which the state delegates governmental power for the performance of a state function.

Any remaining doubt on the procedural mutation of the provisions on appeal in E.O. No. 1008, vis--vis Circular No. 1-91 and R.A. No. 7902, was completely removed with the issuance by the Supreme Court of Revised Administrative Circular No. 1-95 and the 1997 Rules of Civil Procedure. Both categorically include the CIAC in the enumeration of quasi-judicial agencies comprehended therein. Section 3 of the former and Section 3, Rule 43 of the latter, explicitly expand the issues that may be raised in an appeal from quasi-judicial agencies or instrumentalities to the Court of Appeals within the period and in the manner therein provided. Indisputably, the review of the CIAC award may involve either questions of fact, of law, or of fact and law.

In view of all the foregoing, we reject MCIs submission that Circular No. 1-91, B.P. Blg. 129, as amended by R.A. 7902, Revised Administrative Circular 1-95, and Rule 43 of the 1997 Rules of Civil Procedure failed to efficaciously modify the provision on appeals in E.O. No. 1008. We further discard MCIs claim that these amendments have the effect of merely changing the forum for appeal from the Supreme Court to the Court of Appeals.

There is no controversy on the principle that the right to appeal is statutory. However, the mode or manner by which this right may be exercised is a question of procedure which may be altered and modified provided that vested rights are not impaired. The Supreme Court is bestowed by the Constitution with the power and prerogative, inter alia, to promulgate rules concerning pleadings, practice and procedure in all courts, as well as to review rules of procedure of special courts and quasi-judicial bodies, which, however, shall remain in force until disapproved by the Supreme Court. [25 This power is constitutionally enshrined to enhance the independence of the Supreme Court. [26

The right to appeal from judgments, awards, or final orders of the CIAC is granted in E.O. No. 1008. The procedure for the exercise or application of this right was initially outlined in E.O. No. 1008. While R. A. No. 7902 and circulars subsequently issued by the Supreme Court and its amendments to the 1997 Rules on Procedure effectively modified the manner by which the right to appeal ought to be exercised, nothing in these changes impaired vested rights. The new rules do not take away the right to appeal allowed in E.O. No. 1008. They only prescribe a new procedure to enforce the right. [27 No litigant has a vested right in a particular remedy, which may be changed by substitution without impairing vested rights; hence, he can have none in rules of procedure which relate to remedy. [28

The foregoing discussion renders academic MCIs assertion on the binding effect of its stipulation with CHATHAM in the TOR that the decision of the CIAC shall be final and non-appealable except on questions of law. The agreement merely adopted Section 19 of E.O. No. 1008, which, as shown above, had been modified.

The TOR, any contract or agreement of the parties cannot amend, modify, limit, restrict or circumscribe legal remedies or the jurisdiction of courts. Rules of procedure are matters of public order and interest and unless the rules themselves so allow, they cannot be altered, changed or regulated by agreements between or stipulations of the parties for their singular convenience. [29

Having resolved the existence of the authority of the Court of Appeals to review the decisions, awards, or final orders of the CIAC, the Court shall now determine whether the Court of Appeals erred in rendering the questioned decision of 30 September 1999.

Settled is the general rule that the findings of facts of the Court of Appeals are binding on us. There are recognized exceptions to the rule,

39








such as when the findings are contrary to those of the trial court, [30 as in this case. Hence, we have to take a closer reexamination of this case.

The CIAC is certain that the evidence overwhelmingly tended to prove that the manner by which CHATHAM took charge in the procurement of materials, fielding of labor, control of MCI engineers and the subcontracting of various phases of the work, constituted an implied takeover of the project. The CIAC then concludes that the cut-off date for delineating the fiscal liabilities of the parties is 23 May 1996 when CHATHAM evaluated MCIs work accomplishment at 94.12% and then suspended all further progress payments to MCI. For these reasons, the CIAC found it trifling to determine whether MCI was in delay based on the Overall Schedule. However, the CIAC discovered that MCI was in delay for 294 days in the concreting milestone and held the latter liable for liquidated damages in the amount of P3,062,498.78.

The Court of Appeals made a contrary conclusion and declared that MCI was in delay for 193 days based on the overall schedule of completion of the project and should incur liquidated damages in the amount of P24,125,000.00.

It is undisputed that the CIAC and the Court of Appeals found MCI liable for liquidated damages but on different premises. Based on the CIACs assessment, MCIs responsibility was anchored on its delay in the concreting milestone, while the Court of Appeals evaluation concentrated on MCIs delay in completing the project based on the overall schedule of work. The variance in the evaluation spells a staggering difference in the party who should ultimately be held liable and the net amount involved.

A study of the final computation of the net amount due in both the final disquisitions of the CIAC and the Court of Appeals shows that all the other figures therein are constant, save for the amount of liquidated damages for which MCI should be accountable. If this Court concurs with the CIACs conclusions, MCIs responsibility for liquidated damages is, as already stated, P3,062,498.78. Setting this off against CHATHAMs overall fiscal accountability would bring the latters total liability to MCI to P16,126,922.91. If the Court of Appeals is correct, MCI would be held liable for a much higher P24,125,000 liquidated damages. Setting this off against CHATHAMs monetary responsibilities, MCI would still have to pay CHATHAM P4,935,578.31.

After painstakingly combing through the voluminous records, we affirm the findings of the CIAC. The evidence taken as a whole or in their totality reveals that there was an implied takeover by CHATHAM on the completion of the project. The evidence that appears to accentuate the Court of Appeals decision ironically bolstered the CIACs conclusion. The testimonies of Engr. Kapunan, Engr. Bautista, Dr. Lai, and the letter of Engr. Ruiz, [31 acknowledging the temporary takeover by CHATHAM of the project, underscore the palpable fact that there was indeed a takeover. We confer particular credit to Dr. Lais testimony that as of 15 February 1995, MCI was relieved of full control of the construction operations, that it was relegated to a mere supplier of labor, materials and equipment, and that the alleged interim takeover actually extended through the completion of the project. Even CHATHAM admits the takeover but sugarcoated the same with words like interim and charging the costs to MCI. With these glaring admissions, we can even consider that the takeover was not implied but blatant.

Exhibits 4, 4-A, 4-C, 8A, 8, 4-D, 3, 3-I, 3-M, 3-N, 3-W-1, 3-X, 3-Y, 3-Z, 5,5-A, 5-B, 5-C 5-D, 5-E, 5-F, 5-O, C-7, E-9, etc., [32 relied upon by the Court of Appeals when considered by themselves and singly, seemingly and initially evince MCIs control over the project. However, they eventually lose evidentiary puissance to support the Court of Appeals conclusion when reckoned against the totality of the evidence that CHATHAM took

charge of the completion of the project, particularly, the fact that CHATHAM suspended all progress billing payments to MCI. The continued presence and participation of MCI in the project was, as found by the CIAC, a matter of mutual benefit to and convenience of the parties.

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the assailed 30 September 1999 decision of the Court of Appeals in CA-G.R. SP No. 49429 is hereby PARTIALLY MODIFIED by setting aside the order directing Metro Construction, Inc. to pay Chatham Properties, Inc. the amount of P4,935,578.31. The arbitral award of the Construction Industry Arbitration Commission in CIAC Case 10-98, promulgated on 19 October 1998, directing Chatham Properties, Inc. to pay Metro Construction, Inc. the sum of SIXTEEN MILLION ONE HUNDRED TWENTY-SIX THOUSAND NINE HUNDRED TWENTY-TWO & 91/100 (P16,126,922.91) PESOS, is accordingly REINSTATED.

No pronouncement as to costs.

SO ORDERED.

40




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 first moved 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.

41

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

42

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 assuming arguendo 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

43

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 Damages

Advance Downpayment[at] signing of Contractwhich is subject to 40%deduction every progressbilling (40% of Contract Price) P8,406,000.00

Progress Billings 5,582,585.55

Advances made to Lim Kim

a) prior to take-over 392,781.45b) after the take-over

Civil Works 1,158,513.88Materials 4,213,318.72

Labor 2,155,774.79Equipment Rental 1,448,208.90

———————

P8,974,816.45

Total Amount Paid for Construction 23,650,183.00Less: Contract Price (21,000,000.00)

IA Excess of amount paidover contract price 2,650,163.29

IB Other items due from LimKim Steel Builders

a. Amount not yet deductedfrom Downpayment dueto non-completion of Project(P24.1326%) 2,027,138.40

b. Due to Huey Commercialused for HSCI Project 51,110.40

IC Additional construction expenses

a. Increases in prices since Oct. 5,272,096.81

b. Cost of money of (a) 873,535.49

ID Installation of machinery

a. Foreign exchange loss 11,565,048.37

b. Cost of money (a) 2,871,987.01

I[E] Raw Materials

a. 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 561,195.25

IF Cost of money on holding to CRC INTY 3,319,609.63

Total Actual Damages 35,295,927.32

2. Liquidated Damages 2,436,000.00

3. 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.

44

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

SO ORDERED.

45

G.R. No. 74917 January 20, 1988

BANCO DE ORO SAVINGS AND MORTGAGE BANK, petitioner, vs.EQUITABLE BANKING CORPORATION, PHILIPPINE CLEARING HOUSE CORPORATION, AND REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH XCII (92), respondents.

GANCAYCO, J.:

This is a petition for review on certiorari of a decision of the Regional Trial Court of Quezon City promulgated on March 24, 1986 in Civil Case No. Q-46517 entitled Banco de Oro Savings and Mortgage Bank versus Equitable Banking Corporation and the Philippine Clearing House Corporation after a review of the Decision of the Board of Directors of the Philippine Clearing House Corporation (PCHC) in the case of Equitable Banking Corporation (EBC) vs. Banco de Oro Savings and Mortgage (BCO), ARBICOM Case No. 84033.

The undisputed facts are as follows:

It appears that some time in March, April, May and August 1983, plaintiff through its Visa Card Department, drew six crossed Manager's check (Exhibits "A" to "F", and herein referred to as Checks) having an aggregate amount of Forty Five Thousand Nine Hundred and Eighty Two & 23/100 (P45,982.23) Pesos and payable to certain member establishments of Visa Card. Subsequently, the Checks were deposited with the defendant to the credit of its depositor, a certain Aida Trencio.

Following normal procedures, and after stamping at the back of the Checks the usual endorsements. All prior and/or lack of endorsement guaranteed the defendant sent the checks for clearing through the Philippine Clearing House Corporation (PCHC). Accordingly, plaintiff paid the Checks; its clearing account was debited for the value of the Checks and defendant's clearing account was credited for the same amount,

Thereafter, plaintiff discovered that the endorsements appearing at the back of the Checks and purporting to be that of the payees were forged and/or unauthorized or otherwise belong to persons other than the payees.

Pursuant to the PCHC Clearing Rules and Regulations, plaintiff presented the Checks directly to the defendant for the purpose of claiming reimbursement from the latter. However, defendant refused to accept such direct presentation and to reimburse the plaintiff for the value of the Checks; hence, this case.

In its Complaint, plaintiff prays for judgment to require the defendant to pay the plaintiff the sum of P45,982.23 with interest at the rate of 12% per annum from the date of the complaint plus attorney's fees in the amount of P10,000.00 as well as the cost of the suit.

In accordance with Section 38 of the Clearing House Rules and Regulations, the dispute was presented

for Arbitration; and Atty. Ceasar Querubin was designated as the Arbitrator.

After an exhaustive investigation and hearing the Arbiter rendered a decision in favor of the plaintiff and against the defendant ordering the PCHC to debit the clearing account of the defendant, and to credit the clearing account of the plaintiff of the amount of P45,982.23 with interest at the rate of 12% per annum from date of the complaint and Attorney's fee in the amount of P5,000.00. No pronouncement as to cost was made. 1

In a motion for reconsideration filed by the petitioner, the Board of Directors of the PCHC affirmed the decision of the said Arbiter in this wise:

In view of all the foregoing, the decision of the Arbiter is confirmed; and the Philippine Clearing House Corporation is hereby ordered to debit the clearing account of the defendant and credit the clearing account of plaintiff the amount of Forty Five Thousand Nine Hundred Eighty Two & 23/100 (P45,982.23) Pesos with interest at the rate of 12% per annum from date of the complaint, and the Attorney's fee in the amount of Five Thousand (P5,000.00) Pesos.

Thus, a petition for review was filed with the Regional Trial Court of Quezon City, Branch XCII, wherein in due course a decision was rendered affirming in toto the decision of the PCHC.

Hence this petition.

The petition is focused on the following issues:

1. Did the PCHC have any jurisdiction to give due course to and adjudicate Arbicom Case No. 84033?

2. Were the subject checks non-negotiable and if not, does it fall under the ambit of the power of the PCHC?

3. Is the Negotiable Instrument Law, Act No. 2031 applicable in deciding controversies of this nature by the PCHC?

4. What law should govern in resolving controversies of this nature?

5. Was the petitioner bank negligent and thus responsible for any undue payment?

Petitioner maintains that the PCHC is not clothed with jurisdiction because the Clearing House Rules and Regulations of PCHC cover and apply only to checks that are genuinely negotiable. Emphasis is laid on the primary purpose of the PCHC in the Articles of Incorporation, which states:

To provide, maintain and render an effective, convenient, efficient, economical and relevant exchange and facilitate service limited to check processing and sorting by way of assisting member banks, entities in clearing checks and other clearing items as defined in existing and in future Central Bank of the Philippines circulars, memoranda, circular letters, rules and regulations and policies in pursuance to the provisions of Section 107 of R.A. 265. ...

and Section 107 of R.A. 265 which provides:

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The deposit reserves maintained by the banks in the Central Bank, in accordance with the provisions of Section 1000 shall serve as a basis for the clearing of checks, and the settlement of interbank balances ...

Petitioner argues that by law and common sense, the term check should be interpreted as one that fits the articles of incorporation of the PCHC, the Central Bank and the Clearing House Rules stating that it is a negotiable instrument citing the definition of a "check" as basically a "bill of exchange" under Section 185 of the NIL and that it should be payable to "order" or to "bearer" under Section 126 of game law. Petitioner alleges that with the cancellation of the printed words "or bearer from the face of the check, it becomes non-negotiable so the PCHC has no jurisdiction over the case.

The Regional Trial Court took exception to this stand and conclusion put forth by the herein petitioner as it held:

Petitioner's theory cannot be maintained. As will be noted, the PCHC makes no distinction as to the character or nature of the checks subject of its jurisdiction. The pertinent provisions quoted in petitioners memorandum simply refer to check(s). Where the law does not distinguish, we shall not distinguish.

In the case of Reyes vs. Chuanico (CA-G.R. No. 20813 R, Feb. 5, 1962) the Appellate Court categorically stated that there are four kinds of checks in this jurisdiction; the regular check; the cashier's check; the traveller's check; and the crossed check. The Court, further elucidated, that while the Negotiable Instruments Law does not contain any provision on crossed checks, it is coon practice in commercial and banking operations to issue checks of this character, obviously in accordance with Article 541 of the Code of Commerce. Attention is likewise called to Section 185 of the Negotiable Instruments Law:

Sec. 185. Check defined. — A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a check

and the provisions of Section 61 (supra) that the drawer may insert in the instrument an express stipulation negating or limiting his own liability to the holder. Consequently, it appears that the use of the term "check" in the Articles of Incorporation of PCHC is to be perceived as not limited to negotiable checks only, but to checks as is generally known in use in commercial or business transactions.

Anent Petitioner's liability on said instruments, this court is in full accord with the ruling of the PCHC Board of Directors that:

In presenting the Checks for clearing and for payment, the

defendant made an express guarantee on the validity of "all prior endorsements." Thus, stamped at the back of the checks are the defendant's clear warranty; ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. With. out such warranty, plaintiff would not have paid on the checks.

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.

The principle of estoppel, effectively prevents the defendant from denying liability for any damage sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of estoppel effectively prevents the defendant from denying the existence of the Checks. (Pp. 1011 Decision; pp. 4344, Rollo)

We agree.

As provided in the aforecited articles of incorporation of PCHC its operation extend to "clearing checks and other clearing items." No doubt transactions on non-negotiable checks are within the ambit of its jurisdiction.

In a previous case, this Court had occasion to rule: "Ubi lex non distinguish nec nos distinguere debemos." 2 It was enunciated in Loc Cham v. Ocampo, 77 Phil. 636 (1946):

The rule, founded on logic is a corollary of the principle that general words and phrases in a statute should ordinarily be accorded their natural and general significance. In other words, there should be no distinction in the application of a statute where none is indicated.

There should be no distinction in the application of a statute where none is indicated for courts are not authorized to distinguish where the law makes no distinction. They should instead administer the law not as they think it ought to be but as they find it and without regard to consequences. 3

The term check as used in the said Articles of Incorporation of PCHC can only connote checks in general use in commercial and business activities. It cannot be conceived to be limited to negotiable checks only.

Checks are used between banks and bankers and their customers, and are designed to facilitate banking operations. It is of the essence to be payable on demand, because the contract between the banker and the customer is that the money is needed on demand. 4

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The participation of the two banks, petitioner and private respondent, in the clearing operations of PCHC is a manifestation of their submission to its jurisdiction. Sec. 3 and 36.6 of the PCHC-CHRR clearing rules and regulations provide:

SEC. 3. AGREEMENT TO THESE RULES. — It is the general agreement and understanding that any participant in the Philippine Clearing House Corporation, MICR clearing operations by the mere fact of their participation, thereby manifests its agreement to these Rules and Regulations and its subsequent amendments."

Sec 36.6. (ARBITRATION) — The fact that a bank participates in the clearing operations of the PCHC shall be deemed its written and subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance with section 4 of the Republic Act No. 876, otherwise known as the Arbitration Law.

Further Section 2 of the Arbitration Law mandates:

Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing between them at the time of the submission and which may be the subject of an action, or the parties of any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid and irrevocable, save upon grounds as exist at law for the revocation of any contract.

Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be collateral, incidental, precedent or subsequent to any issue between the parties. ...

Sec. 21 of the same rules, says:

Items which have been the subject of material alteration or items bearing forged endorsement when such endorsement is necessary for negotiation shall be returned by direct presentation or demand to the Presenting Bank and not through the regular clearing house facilities within the period prescribed by law for the filing of a legal action by the returning bank/branch, institution or entity sending the same. (Emphasis supplied)

Viewing these provisions the conclusion is clear that the PCHC Rules and Regulations should not be interpreted to be applicable only to checks which are negotiable instruments but also to non-negotiable instruments and that the PCHC has jurisdiction over this case even as the checks subject of this litigation are admittedly non-negotiable.

Moreover, petitioner is estopped from raising the defense of non-negotiability of the checks in question. It stamped its guarantee on the back of the checks and subsequently presented these checks for clearing and it was on the basis of these endorsements by the petitioner that the proceeds were credited in its clearing account.

The petitioner by its own acts and representation can not now deny liability because it assumed the liabilities of an endorser by stamping its guarantee at the back of the checks.

The petitioner having stamped its guarantee of "all prior endorsements and/or lack of endorsements" (Exh. A-2 to F-2) is now estopped from claiming that the checks under consideration are not negotiable instruments. The checks were accepted for deposit by the petitioner stamping thereon its guarantee, in order that it can clear the said checks with the respondent bank. By such deliberate and positive attitude of the petitioner it has for all legal intents and purposes treated the said cheeks as negotiable instruments and accordingly assumed the warranty of the endorser when it stamped its guarantee of prior endorsements at the back of the checks. It led the said respondent to believe that it was acting as endorser of the checks and on the strength of this guarantee said respondent cleared the checks in question and credited the account of the petitioner. Petitioner is now barred from taking an opposite posture by claiming that the disputed checks are not negotiable instrument.

This Court enunciated in Philippine National Bank vs. Court of Appeals 5

a point relevant to the issue when it stated the doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice and its purpose is to forbid one to speak against his own act, representations or commitments to the injury of one to whom they were directed and who reasonably relied thereon.

A commercial bank cannot escape the liability of an endorser of a check and which may turn out to be a forged endorsement. Whenever any bank treats the signature at the back of the checks as endorsements and thus logically guarantees the same as such there can be no doubt said bank has considered the checks as negotiable.

Apropos the matter of forgery in endorsements, this Court has succinctly emphasized that the collecting bank or last endorser generally suffers the loss because it has the duty to ascertain the genuineness of all prior endorsements considering that the act of presenting the check for payment to the drawee is an assertion that the party making the presentment has done its duty to ascertain the genuineness of the endorsements. This is laid down in the case of PNB vs. National City Bank. 6 In another case, this court held that if the drawee-bank discovers that the signature of the payee was forged after it has paid the amount of the check to the holder thereof, it can recover the amount paid from the collecting bank. 7

A truism stated by this Court is that — "The doctrine of estoppel precludes a party from repudiating an obligation voluntarily assumed after having accepted benefits therefrom. To countenance such repudiation would be contrary to equity and put premium on fraud or misrepresentation". 8

We made clear in Our decision in Philippine National Bank vs. The National City Bank of NY & Motor Service Co. that:

Where a check is accepted or certified by the bank on which it is drawn, the bank is estopped to deny the genuineness of the drawers signature and his capacity to issue the instrument.

If a drawee bank pays a forged check which was previously accepted or certified by the said bank, it can not recover from a holder who did not participate in the forgery and did not have actual notice thereof.

The payment of a check does not include or imply its acceptance in the sense that this word is used in Section 62 of the Negotiable Instruments Act. 9

The point that comes uppermost is whether the drawee bank was negligent in failing to discover the alteration or the forgery. Very akin to

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the case at bar is one which involves a suit filed by the drawer of checks against the collecting bank and this came about in Farmers State Bank 10 where it was held:

A cause of action against the (collecting bank) in favor of the appellee (the drawer) accrued as a result of the bank breaching its implied warranty of the genuineness of the indorsements of the name of the payee by bringing about the presentation of the checks (to the drawee bank) and collecting the amounts thereof, the right to enforce that cause of action was not destroyed by the circumstance that another cause of action for the recovery of the amounts paid on the checks would have accrued in favor of the appellee against another or to others than the bank if when the checks were paid they have been indorsed by the payee. (United States vs. National Exchange Bank, 214 US, 302, 29 S CT665, 53 L. Ed 1006, 16 Am. Cas. 11 84; Onondaga County Savings Bank vs. United States (E.C.A.) 64 F 703)

Section 66 of the Negotiable Instruments ordains that:

Every indorser who indorsee without qualification, warrants to all subsequent holders in due course' (a) that the instrument is genuine and in all respects what it purports to be; (b) that he has good title to it; (c) that all prior parties have capacity to contract; and (d) that the instrument is at the time of his indorsement valid and subsisting. 11

It has been enunciated in an American case particularly in American Exchange National Bank vs. Yorkville Bank 12 that: "the drawer owes no duty of diligence to the collecting bank (one who had accepted an altered check and had paid over the proceeds to the depositor) except of seasonably discovering the alteration by a comparison of its returned checks and check stubs or other equivalent record, and to inform the drawee thereof." In this case it was further held that:

The real and underlying reasons why negligence of the drawer constitutes no defense to the collecting bank are that there is no privity between the drawer and the collecting bank (Corn Exchange Bank vs. Nassau Bank, 204 N.Y.S. 80) and the drawer owe to that bank no duty of vigilance (New York Produce Exchange Bank vs. Twelfth Ward Bank, 204 N.Y.S. 54) and no act of the collecting bank is induced by any act or representation or admission of the drawer (Seaboard National Bank vs. Bank of America (supra) and it follows that negligence on the part of the drawer cannot create any liability from it to the collecting bank, and the drawer thus is neither a necessary nor a proper party to an action by the drawee bank against such bank. It is quite true that depositors in banks are under the obligation of examining their passbooks and returned vouchers as a protection against the payment by the depository bank against forged checks, and negligence in the performance of that obligation may relieve that bank of liability for the repayment of amounts paid out on forged checks, which but for such negligence it would be bound to repay. A leading case on that subject is Morgan vs. United States Mortgage and Trust Col. 208 N.Y. 218,

101 N.E. 871 Amn. Cas. 1914D, 462, L.R.A. 1915D, 74.

Thus We hold that while the drawer generally owes no duty of diligence to the collecting bank, the law imposes a duty of diligence on the collecting bank to scrutinize checks deposited with it for the purpose of determining their genuineness and regularity. The collecting bank being primarily engaged in banking holds itself out to the public as the expert and the law holds it to a high standard of conduct.

And although the subject checks are non-negotiable the responsibility of petitioner as indorser thereof remains.

To countenance a repudiation by the petitioner of its obligation would be contrary to equity and would deal a negative blow to the whole banking system of this country.

The court reproduces with approval the following disquisition of the PCHC in its decision —

II. Payments To Persons Other

Than The Payees Are Not Valid

And Give Rise To An Obligation

To Return Amounts Received

Nothing is more clear than that neither the defendant's depositor nor the defendant is entitled to receive payment payable for the Checks. As the checks are not payable to defendant's depositor, payments to persons other than payees named therein, their successor-in-interest or any person authorized to receive payment are not valid. Article 1240, New Civil Code of the Philippines unequivocably provides that:

"Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successo-in-interest, or any person authorized to receive it. "

Considering that neither the defendant's depositor nor the defendant is entitled to receive payments for the Checks, payments to any of them give rise to an obligation to return the amounts received. Section 2154 of the New Civil Code mandates that:

Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

It is contended that plaintiff should be held responsible for issuing the Checks notwithstanding that the underlying transactions were fictitious This contention has no basis in our jurisprudence.

The nullity of the underlying transactions does not diminish, but in fact strengthens, plaintiffs right to recover from the defendant. Such nullity clearly emphasizes the obligation of the payees to return the proceeds of the Checks. If a failure of consideration is sufficient to warrant a finding that a payee is not entitled to payment or must return

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payment already made, with more reason the defendant, who is neither the payee nor the person authorized by the payee, should be compelled to surrender the proceeds of the Checks received by it. Defendant does not have any title to the Checks; neither can it claim any derivative title to them.

III. Having Violated Its Warranty

On Validity Of All Endorsements,

Collecting Bank Cannot Deny

liability To Those Who Relied

On Its Warranty

In presenting the Checks for clearing and for payment, the defendant made an express guarantee on the validity of "all prior endorsements." Thus, stamped at the bank of the checks are the defendant's clear warranty: ALL PRIOR ENDORSEMENTS AND/OR LACK OF ENDORSEMENTS GUARANTEED. Without such warranty, plaintiff would not have paid on the checks.

No amount of legal jargon can reverse the clear meaning of defendant's warranty. As the warranty has proven to be false and inaccurate, the defendant is liable for any damage arising out of the falsity of its representation.

The principle of estoppel effectively prevents the defendant from denying liability for any damages sustained by the plaintiff which, relying upon an action or declaration of the defendant, paid on the Checks. The same principle of estoppel effectively prevents the defendant from denying the existence of the Checks.

Whether the Checks have been issued for valuable considerations or not is of no serious moment to this case. These Checks have been made the subject of contracts of endorsement wherein the defendant made expressed warranties to induce payment by the drawer of the Checks; and the defendant cannot now refuse liability for breach of warranty as a consequence of such forged endorsements. The defendant has falsely warranted in favor of plaintiff the validity of all endorsements and the genuineness of the cheeks in all respects what they purport to be.

The damage that will result if judgment is not rendered for the plaintiff is irreparable. The collecting bank has privity with the depositor who is the principal culprit in this case. The defendant knows the depositor; her address and her history, Depositor is defendant's client. It has taken a risk on its depositor when it allowed her to collect on the crossed-checks.

Having accepted the crossed checks from persons other than the payees, the defendant is guilty of

negligence; the risk of wrongful payment has to be assumed by the defendant.

On the matter of the award of the interest and attorney's fees, the Board of Directors finds no reason to reverse the decision of the Arbiter. The defendant's failure to reimburse the plaintiff has constrained the plaintiff to regular the services of counsel in order to protect its interest notwithstanding that plaintiffs claim is plainly valid just and demandable. In addition, defendant's clear obligation is to reimburse plaintiff upon direct presentation of the checks; and it is undenied that up to this time the defendant has failed to make such reimbursement.

WHEREFORE, the petition is DISMISSED for lack of merit without pronouncement as to costs. The decision of the respondent court of 24 March 1986 and its order of 3 June 1986 are hereby declared to be immediately executory.

SO ORDERED.

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CASE DIGEST: G. R. No. 123793, June 29, 1998

Commercial Law, Corporation, Merger, Negotiable Instruments, Promissory Note

FACTS:

Associated Banking Corporation and Citizens Bank and Trust Company (CBTC) merged to form just one banking corporation known as Associated Citizens Bank (later renamed Associated Bank), the surviving bank. After the merger agreement had been signed, but before a certificate of merger was issued, respondent Lorenzo Sarmiento, Jr. executed in favor of Associated Bank a promissory note, promising to pay the bank P2.5 million on or before due date at 14% interest per annum, among other accessory dues. For failure to pay the amount due, Sarmiento was sued by Associated Bank.

Respondent argued that the plaintiff is not the proper party in interest because the promissory note was executed in favor of CBTC. Also, while respondent executed the promissory note in favor of CBTC, said note was a contract pour autrui, one in favor of a third person who may demand its fulfillment. Also, respondent claimed that he received no consideration for the promissory note and, in support thereof, cites petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned.

ISSUE:

1.) Whether or not Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed, but before a certificate of merger was issued?

2.) Whether or not the promissory note was a contract pour autrui and was issued without consideration?

HELD:


Associated Bank assumed all the rights of CBTC. Although absorbed corporations are dissolved, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. The merger, however, does not become effective upon the mere agreement of the constituent corporations. The Securities and Exchange Commission (SEC) and majority of the respective stockholders of the constituent corporations must have approved the merger. (Section 79, Corporation Code) It will be effective only upon the issuance by the SEC of a certificate of merger. Records do not show when the SEC approved the merger.

But assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. The agreement itself clearly provides that all contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Such must have been deliberately included in the agreement in order to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation. Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be

construed, under the very provisions of the merger agreement, as a reference to petitioner bank.

On the issue that the promissory note was a contract pour autrui and was issued without consideration, the Supreme Court held it was not. In a contract pour autrui, an incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. The "fairest test" in determining whether the third person's interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their contract. It did not indicate that a benefit or interest was created in favor of a third person. The instrument itself says nothing on the purpose of the loan, only the terms of payment and the penalties in case of failure to pay.

Private respondent also claims that he received no consideration for the promissory note, citing petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof. That he partially paid his obligation is itself an express acknowledgment of his obligation.

WHEREFORE, the petition is GRANTED.

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G.R. No. 123793 June 29, 1998

ASSOCIATED BANK, petitioner, vs.COURT OF APPEALS and LORENZO SARMIENTO JR., respondents.

PANGANIBAN, J.:

In a merger, does the surviving corporation have a right to enforce a contract entered into by the absorbed company subsequent to the date of the merger agreement, but prior to the issuance of a certificate of merger by the Securities and Exchange Commission?

The Case

This is a petition for review under Rule 45 of the Rules of Court, seeking to set aside the Decision 1 of the Court of Appeals 2 in CA-GR CV No. 26465 promulgated on January 30, 1996, which answered the above question in the negative. The challenged Decision reversed and set aside the October 17, 1986 Decision 3 in Civil Case No. 85-32243, promulgated by the Regional Trial Court of Manila, Branch 48, which disposed of the controversy in favor of herein petitioner as follows: 4

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Associated Bank. The defendant Lorenzo Sarmiento, Jr. is ordered to pay plaintiff:

1. The amount of P4,689,413.63 with interest thereon at 14% per annum until fully paid;

2. The amount of P200,000.00 as and for attorney's fees; and

3. The costs of suit.

On the other hand, the Court of Appeals resolved the case in this wise: 5

WHEREFORE, premises considered, the decision appealed from, dated October 17, 1986 is REVERSED and SET ASIDE and another judgment rendered DISMISSING plaintiff-appellee's complaint, docketed as Civil Case No. 85-32243. There is no pronouncement as to costs.

The Facts

The undisputed factual antecedents, as narrated by the trial court and adopted by public respondent, are as follows: 6

. . . [O]n or about September 16, 1975 Associated Banking Corporation and Citizens Bank and Trust Company merged to form just one banking corporation known as Associated Citizens Bank, the surviving bank. On or about March 10, 1981, the Associated Citizens Bank changed its corporate name to Associated Bank by virtue of the Amended Articles of Incorporation. On September 7, 1977, the defendant executed in favor of Associated Bank a promissory note whereby the former undertook to pay the latter the sum of P2,500,000.00 payable on or before March 6, 1978. As per said promissory note, the defendant agreed to pay interest at 14% per annum, 3% per annum in the form of liquidated damages, compounded interests, and attorney's fees, in case of litigation equivalent to 10% of the amount due. The defendant, to date, still owes plaintiff bank the amount of P2,250,000.00

exclusive of interest and other charges. Despite repeated demands the defendant failed to pay the amount due.

xxx xxx xxx

. . . [T]he defendant denied all the pertinent allegations in the complaint and alleged as affirmative and[/]or special defenses that the complaint states no valid cause of action; that the plaintiff is not the proper party in interest because the promissory note was executed in favor of Citizens Bank and Trust Company; that the promissory note does not accurately reflect the true intention and agreement of the parties; that terms and conditions of the promissory note are onerous and must be construed against the creditor-payee bank; that several partial payments made in the promissory note are not properly applied; that the present action is premature; that as compulsory counterclaim the defendant prays for attorney's fees, moral damages and expenses of litigation.

On May 22, 1986, the defendant was declared as if in default for failure to appear at the Pre-Trial Conference despite due notice.

A Motion to Lift Order of Default and/or Reconsideration of Order dated May 22, 1986 was filed by defendant's counsel which was denied by the Court in [an] order dated September 16, 1986 and the plaintiff was allowed to present its evidence before the Court ex-parte on October 16, 1986.

At the hearing before the Court ex-parte, Esteban C. Ocampo testified that . . . he is an accountant of the Loans and Discount Department of the plaintiff bank; that as such, he supervises the accounting section of the bank, he counterchecks all the transactions that transpired during the day and is responsible for all the accounts and records and other things that may[ ]be assigned to the Loans and Discount Department; that he knows the [D]efendant Lorenzo Sarmiento, Jr. because he has an outstanding loan with them as per their records; that Lorenzo Sarmiento, Jr. executed a promissory note No. TL-2649-77 dated September 7, 1977 in the amount of P2,500,000.00 (Exhibit A); that Associated Banking Corporation and the Citizens Bank and Trust Company merged to form one banking corporation known as the Associated Citizens Bank and is now known as Associated Bank by virtue of its Amended Articles of Incorporation; that there were partial payments made but not full; that the defendant has not paid his obligation as evidenced by the latest statement of account (Exh. B); that as per statement of account the outstanding obligation of the defendant is P5,689,413.63 less P1,000,000.00 or P4,689,413.63 (Exh. B, B-1); that a demand letter dated June 6, 1985 was sent by the bank thru its counsel (Exh. C) which was received by the defendant on November 12, 1985 (Exh. C, C-1, C-2, C-3); that the defendant

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paid only P1,000,000.00 which is reflected in the Exhibit C.

Based on the evidence presented by petitioner, the trial court ordered Respondent Sarmiento to pay the bank his remaining balance plus interests and attorney's fees. In his appeal, Sarmiento assigned to the trial court several errors, namely: 7

I The [trial court] erred in denying appellant's motion to dismiss appellee bank's complaint on the ground of lack of cause of action and for being barred by prescription and laches.

II The same lower court erred in admitting plaintiff-appellee bank's amended complaint while defendant-appellant's motion to dismiss appelle bank's original complaint and using/availing [itself of] the new additional allegations as bases in denial of said appellant's motion and in the interpretation and application of the agreement of merger and Section 80 of BP Blg. 68, Corporation Code of the Philippines.

III The [trial court] erred and gravely abuse[d] its discretion in rendering the two as if in default orders dated May 22, 1986 and September 16, 1986 and in not reconsidering the same upon technical grounds which in effect subvert the best primordial interest of substantial justice and equity.

IV The court a quo erred in issuing the orders dated May 22, 1986 and September 16, 1986 declaring appellant as if in default due to non-appearance of appellant's attending counsel who had resigned from the law firm and while the parties [were] negotiating for settlement of the case and after a one million peso payment had in fact been paid to appellee bank for appellant's account at the start of such negotiation on February 18, 1986 as act of earnest desire to settle the obligation in good faith by the interested parties.

V The lower court erred in according credence to appellee bank's Exhibit B statement of account which had been merely requested by its counsel during the trial and bearing date of September 30, 1986.

VI The lower court erred in accepting and giving credence to appellee bank's 27-year-old witness Esteban C. Ocampo as of the date he testified on October 16, 1986, and therefore, he was merely an eighteen-year-old minor when appellant supposedly incurred the foisted obligation under the subject PN No. TL-2649-77 dated September 7, 1977, Exhibit A of appellee bank.

VII The [trial court] erred in adopting appellee bank's Exhibit B dated September 30, 1986 in its decision given in open court on October 17, 1986 which exacted eighteen percent (18%) per annum on the foisted principal amount of P2.5 million when the subject PN, Exhibit A, stipulated only fourteen percent (14%) per annum and which was actually prayed for in appellee bank's original and amended complaints.

VIII The appealed decision of the lower court erred in not considering at all appellant's affirmative defenses that (1) the subject PN No. TL-2649-77 for P2.5 million dated September 7, 1977, is merely an accommodation pour autrui of any actual consideration to appellant himself and (2) the subject PN is a contract of adhesion, hence, [it] needs [to] be strictly construed against appellee bank — assuming for granted that it has the right to enforce and seek collection thereof.

IX The lower court should have at least allowed appellant the opportunity to present countervailing evidence considering the huge amounts claimed by appellee bank (principal sum of P2.5 million which including accrued interests, penalties and cost of litigation totaled P4,689,413.63) and appellant's affirmative defenses — pursuant to substantial justice and equity.

The appellate court, however, found no need to tackle all the assigned errors and limited itself to the question of "whether [herein petitioner had] established or proven a cause of action against [herein private respondent]." Accordingly, Respondent Court held that the Associated Bank had no cause of action against Lorenzo Sarmiento Jr., since said bank was not privy to the promissory note executed by Sarmiento in favor of Citizens Bank and Trust Company (CBTC). The court ruled that the earlier merger between the two banks could not have vested Associated Bank with any interest arising from the promissory note executed in favor of CBTC after such merger.

Thus, as earlier stated, Respondent Court set aside the decision of the trial court and dismissed the complaint. Petitioner now comes to us for a reversal of this ruling. 8

Issues

In its petition, petitioner cites the following "reasons": 9

I The Court of Appeals erred in reversing the decision of the trial court and in declaring that petitioner has no cause of action against respondent over the promissory note.

II The Court of Appeals also erred in declaring that, since the promissory note was executed in favor of Citizens Bank and Trust Company two years after the merger between Associated Banking Corporation and Citizens Bank and Trust Company, respondent is not liable to petitioner because there is no privity of contract between respondent and Associated Bank.

III The Court of Appeals erred when it ruled that petitioner, despite the merger between petitioner and Citizens Bank and Trust Company, is not a real party in interest insofar as the promissory note executed in favor of the merger.

In a nutshell, the main issue is whether Associated Bank, the surviving corporation, may enforce the promissory note made by private respondent in favor of CBTC, the absorbed company, after the merger agreement had been signed.

The Court's Ruling


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The Main Issue:Associated Bank AssumedAll Rights of CBTC

Ordinarily, in the merger of two or more existing corporations, one of the combining corporations survives and continues the combined business, while the rest are dissolved and all their rights, properties and liabilities are acquired by the surviving corporation. 10 Although there is a dissolution of the absorbed corporations, there is no winding up of their affairs or liquidation of their assets, because the surviving corporation automatically acquires all their rights, privileges and powers, as well as their liabilities. 11

The merger, however, does not become effective upon the mere agreement of the constituent corporations. The procedure to be followed is prescribed under the Corporation Code. 12 Section 79 of said Code requires the approval by the Securities and Exchange Commission (SEC) of the articles of merger which, in turn, must have been duly approved by a majority of the respective stockholders of the constituent corporations. The same provision further states that the merger shall be effective only upon the issuance by the SEC of a certificate of merger. The effectivity date of the merger is crucial for determining when the merged or absorbed corporation ceases to exist; and when its rights, privileges, properties as well as liabilities pass on to the surviving corporation.

Consistent with the aforementioned Section 79, the September 16, 1975 Agreement of Merger, 13 which Associated Banking Corporation (ABC) and Citizens Bank and Trust Company (CBTC) entered into, provided that its effectivity "shall, for all intents and purposes, be the date when the necessary papers to carry out this [m]erger shall have been approved by the Securities and Exchange Commission." 14 As to the transfer of the properties of CBTC to ABC, the agreement provides:

10. Upon effective date of the Merger, all rights, privileges, powers, immunities, franchises, assets and property of [CBTC], whether real, personal or mixed, and including [CBTC's] goodwill and tradename, and all debts due to [CBTC] on whatever act, and all other things in action belonging to [CBTC] as of the effective date of the [m]erger shall be vested in [ABC], the SURVIVING BANK, without need of further act or deed, unless by express requirements of law or of a government agency, any separate or specific deed of conveyance to legally effect the transfer or assignment of any kind of property [or] asset is required, in which case such document or deed shall be executed accordingly; and all property, rights, privileges, powers, immunities, franchises and all appointments, designations and nominations, and all other rights and interests of [CBTC] as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, trustee of estates of persons mentally ill and in every other fiduciary capacity, and all and every other interest of [CBTC] shall thereafter be effectually the property of [ABC] as they were of [CBTC], and title to any real estate, whether by deed or otherwise, vested in [CBTC] shall not revert or be in any way impaired by reason thereof; provided, however, that all rights of creditors and all liens upon any property of [CBTC] shall be preserved and unimpaired and all debts, liabilities,

obligations, duties and undertakings of [CBTC], whether contractual or otherwise, expressed or implied, actual or contingent, shall henceforth attach to [ABC] which shall be responsible therefor and may be enforced against [ABC] to the same extent as if the same debts liabilities, obligations, duties and undertakings have been originally incurred or contracted by [ABC], subject, however, to all rights, privileges, defenses, set-offs and counterclaims which [CBTC] has or might have and which shall pertain to [ABC]. 15

The records do not show when the SEC approved the merger. Private respondent's theory is that it took effect on the date of the execution of the agreement itself, which was September 16, 1975. Private respondent contends that, since he issued the promissory note to CBTC on September 7, 1977 — two years after the merger agreement had been executed — CBTC could not have conveyed or transferred to petitioner its interest in the said note, which was not yet in existence at the time of the merger. Therefore, petitioner, the surviving bank, has no right to enforce the promissory note on private respondent; such right properly pertains only to CBTC.

Assuming that the effectivity date of the merger was the date of its execution, we still cannot agree that petitioner no longer has any interest in the promissory note. A closer perusal of the merger agreement leads to a different conclusion. The provision quoted earlier has this other clause:

Upon the effective date of the [m]erger, all references to [CBTC] in any deed, documents, or other papers of whatever kind or nature and wherever found shall be deemed for all intents and purposes, references to [ABC], the SURVIVING BANK, as if such references were direct references to [ABC]. . . . 6 (Emphasis supplied)

Thus, the fact that the promissory note was executed after the effectivity date of the merger does not militate against petitioner. The agreement itself clearly provides that all contracts — irrespective of the date of execution — entered into in the name of CBTC shall be understood as pertaining to the surviving bank, herein petitioner. Since, in contrast to the earlier aforequoted provision, the latter clause no longer specifically refers only to contracts existing at the time of the merger, no distinction should be made. The clause must have been deliberately included in the agreement in order to protect the interests of the combining banks; specifically, to avoid giving the merger agreement a farcical interpretation aimed at evading fulfillment of a due obligation.

Thus, although the subject promissory note names CBTC as the payee, the reference to CBTC in the note shall be construed, under the very provisions of the merger agreement, as a reference to petitioner bank, "as if such reference [was a] direct reference to" the latter "for all intents and purposes."

No other construction can be given to the unequivocal stipulation. Being clear, plain and free of ambiguity, the provision must be given its literalmeaning 17 and applied without a convoluted interpretation. Verba lelegis non est recedendum. 18

In light of the foregoing, the Court holds that petitioner has a valid cause of action against private respondent. Clearly, the failure of private respondent to honor his obligation under the promissory note

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constitutes a violation of petitioner's right to collect the proceeds of the loan it extended to the former.

Secondary Issues:Prescription, Laches, ContractPour Autrui, Lack of Consideration

No Prescriptionor Laches

Private respondent's claim that the action has prescribed, pursuant to Article 1149 of the Civil Code, is legally untenable. Petitioner's suit for collection of a sum of money was based on a written contract and prescribes after ten years from the time its right of action arose. 19

Sarmiento's obligation under the promissory note became due and demandable on March 6, 1978. Petitioner's complaint was instituted on August 22, 1985, before the lapse of the ten-year prescriptive period. Definitely, petitioner still had every right to commence suit against the payor/obligor, the private respondent herein.

Neither is petitioner's action barred by laches. The principle of laches is a creation of equity, which is applied not to penalize neglect or failure to assert a right within a reasonable time, but rather to avoid recognizing a right when to do so would result in a clearly inequitable situation 20 or in an injustice. 21 To require private respondent to pay the remaining balance of his loan is certainly not inequitable or unjust. What would be manifestly unjust and inequitable is his contention that CBTC is the proper party to proceed against him despite the fact, which he himself asserts, that CBTC's corporate personality has been dissolved by virtue of its merger with petitioner. To hold that no payee/obligee exists and to let private respondent enjoy the fruits of his loan without liability is surely most unfair and unconscionable, amounting to unjust enrichment at the expense of petitioner. Besides, this Court has held that the doctrine of laches is inapplicable where the claim was filed within the prescriptive period set forth under the law. 22

No ContractPour Autrui

Private respondent, while not denying that he executed the promissory note in the amount of P2,500,000 in favor of CBTC, offers the alternative defense that said note was a contract pour autrui.

A stipulation pour autrui is one in favor of a third person who may demand its fulfillment, provided he communicated his acceptance to the obligor before its revocation. An incidental benefit or interest, which another person gains, is not sufficient. The contracting parties must have clearly and deliberately conferred a favor upon a third person. 23

Florentino vs. Encarnacion Sr. 24 enumerates the requisites for such contract: (1) the stipulation in favor of a third person must be a part of the contract, and not the contract itself; (2) the favorable stipulation should not be conditioned or compensated by any kind of obligation; and (3) neither of the contracting parties bears the legal representation or authorization of the third party. The "fairest test" in determining whether the third person's interest in a contract is a stipulation pour autrui or merely an incidental interest is to examine the intention of the parties as disclosed by their contract. 25

We carefully and thoroughly perused the promissory note, but found no stipulation at all that would even resemble a provision in consideration of a third person. The instrument itself does not disclose the purpose of the loan contract. It merely lays down the terms of payment and the penalties incurred for failure to pay upon maturity. It is patently devoid of any indication that a benefit or interest was thereby created in favor of a person other than the contracting parties.

In fact, in no part of the instrument is there any mention of a third party at all. Except for his barefaced statement, no evidence was proffered by private respondent to support his argument. Accordingly, his contention cannot be sustained. At any rate, if indeed the loan actually benefited a third person who undertook to repay the bank, private respondent could have availed himself of the legal remedy of a third-party complaint. 26 That he made no effort to implead such third person proves the hollowness of his arguments.

Consideration

Private respondent also claims that he received no consideration for the promissory note and, in support thereof, cites petitioner's failure to submit any proof of his loan application and of his actual receipt of the amount loaned. These arguments deserve no merit. Res ipsa loquitur. The instrument, bearing the signature of private respondent, speaks for itself. Respondent Sarmiento has not questioned the genuineness and due execution thereof. No further proof is necessary to show that he undertook to pay P2,500,000, plus interest, to petitioner bank on or before March 6, 1978. This he failed to do, as testified to by petitioner's accountant. The latter presented before the trial court private respondent's statement of account 27 as of September 30, 1986, showing an outstanding balance of P4,689,413.63 after deducting P1,000,000.00 paid seven months earlier. Furthermore, such partial payment is equivalent to an express acknowledgment of his obligation. Private respondent can no longer backtrack and deny his liability to petitioner bank. "A person cannot accept and reject the same instrument." 28

WHEREFORE, the petition is GRANTED. The assailed Decision is SET ASIDE and the Decision of RTC-Manila, Branch 48, in Civil Case No. 26465 is hereby REINSTATED.

SO ORDERED.

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