ADR LAW First Cases

8/10/2019 ADR LAW First Cases

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G.R. No. 132848-49 June 26, 2001

PHILROCK, INC., petitioner,vs.CONSTRUCTION INDUSTRY ARBITRATIONCOMMISSION and Spouses VICENTE and NELIA CID,respondents.

PANGANIBAN, J. :

Courts encourage the use of alternative methods of disputeresolution. When parties agree to settle their disputes arisingfrom or connected with construction contracts, theConstruction Industry Arbitration Commission (CIAC)acquires primary jurisdiction. It may resolve not only themerits of such controversies; when appropriate, it may alsoaward damages, interests, attorneys fees and expenses oflitigation.

The Case

Before us is a Petition for Review under Rule 45 of the Rules

of Court. The Petition seeks the reversal of the July 9, 1997Decision1and the February 24, 1998 Resolution of the Courtof Appeals (CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and 42443. The assailed Decisiondisposed as follows:

"WHEREFORE, judgment is hereby rendered DENYING thepetitions and, accordingly, AFFIRMING in toto the CIACsdecision. Costs against petitioner."2

The assailed Resolution ruled in this wise:

"Considering that the matters raised and discussed in themotion for reconsideration filed by appellants counsel aresubstantially the same arguments which the Court had

passed upon and resolved in the decision sought to bereconsidered, and there being no new issue raised, thesubject motion is hereby DENIED."3

The Facts

The undisputed facts of the consolidated cases aresummarized by the CA as follows:

"On September 14, 1992, the Cid spouses, herein privaterespondents, filed a Complaint for damages against Philrockand seven of its officers and engineers with the RegionalTrial Court of Quezon City, Branch 82.

"On December 7, 1993, the initial trial date, the trial court

issued an Order dismissing the case and referring the sameto the CIAC because the Cid spouses and Philrock had filedan Agreement to Arbitrate with the CIAC.

"Thereafter, preliminary conferences were held among theparties and their appointed arbitrators. At these conferences,disagreements arose as to whether moral and exemplarydamages and tort should be included as an issue along withbreach of contract, and whether the seven officers andengineers of Philrock who are not parties to the Agreementto Arbitrate should be included in the arbitration proceedings.

No common ground could be reached by the parties, hence,on April 2, 1994, both the Cid spouses and Philrockrequested that the case be remanded to the trial court. OnApril 13, 1994, the CIAC issued an Order stating, thus:

'x x x the Arbitral Tribunal hereby formally dismisses theabove-captioned case for referral to Branch 82 of theRegional Trial Court, Quezon City where it first originated.

SO ORDERED.'

"The Cid spouses then filed with said Branch of the RegionalTrial Court of Quezon City a Motion To Set Case for Hearingwhich motion was opposed by Philrock.

"On June 13, 1995, the trial court declared that it no longerhad jurisdiction over the case and ordered the records of thecase to be remanded anew to the CIAC for arbitralproceedings.

"Pursuant to the aforementioned Order of the Regional TrialC[o]urt of Quezon City, the CIAC resumed conducting

preliminary conferences. On August 21, 1995, herein[P]etitioner Philrock requested to suspend the proceedingsuntil the court clarified its ruling in the Order dated June 13,1995. Philrock argued that said Order was based on amistaken premise that 'the proceedings in the CIAC fellthrough because of the refusal of [Petitioner] Philrock toinclude the issue of damages therein,' whereas the truereason for the withdrawal of the case from the CIAC was dueto Philrock's opposition to the inclusion of its seven off icersand engineers, who did not give their consent to arbitration,as party defendants. On the other hand, private respondentNelia Cid manifested that she was willing to exclude theseven officers and engineers of Philrock as parties to thecase so as to facilitate or expedite the proceedings. Withsuch manifestation from the Cid spouses, the ArbitralTribunal denied Philrock's request for the suspension of theproceedings. Philrock's counsel agreed to the continuation of

the proceedings but reserved the right to file a pleadingelucidating the position he [had] raised regarding the Court'sOrder dated June 13, 1995. The parties then proceeded tofinalize, approve and sign the Terms of Reference. Philrock'scounsel and representative, Atty. Pericles C. Consunjiaffixed his signature to said Terms of Reference whichstated that 'the parties agree that their differences be settledby an Arbitral Tribunal x x x x' (p. 9, Terms of Reference, p.200, Rollo).

"On September 12, 1995, [P]etitioner Philrock filed its Motionto Dismiss, alleging therein that the CIAC had lostjurisdiction to hear the arbitration case due to the parties'withdrawal of their consent to arbitrate. The motion wasdenied by x x x CIAC per Order dated September 22, 1995.On November 8, public respondent ordered the parties to

appear before it on November 28, 1995 for the continuationof the arbitral proceedings, and on February 7, 1996, publicrespondent directed [P]etitioner Philrock to set two hearingdates in the month of February to present its evidence and topay all fees assessed by it, otherwise x x x Philrock would bedeemed to have waived its right to present evidence.

"Hence, petitioner instituted the petition for certiorari butwhile said petition was pending, the CIAC rendered itsDecision dated September 24, 1996, the dispositive portionof which reads, as follows:


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'WHEREFORE, judgment is hereby rendered in favor of theClaimant, directing Respondent to pay Claimant as follows:

1. P23,276.25 representing the excess cash payment formaterials ordered by the Claimants, (No. 7 of admitted facts)plus interests thereon at the rate of 6% per annum fromSeptember 26, 1995 to the date payment is made.2. P65,000.00 representing retrofitting costs.

3. P13,404.54 representing refund of the value of deliveredbut unworkable concrete mix that was laid to waste.4. P50,000.00 representing moral damages.5. P50,000.00 representing nominal damages.6. P50,000.00 representing attorney's fees and expenses oflitigation.7. P144,756.80 representing arbitration fees, minus suchamount that may already have been paid to CIAC byrespondent.

"Let a copy of this Decision be furnished the HonorableSalvador C. Ceguera, presiding judge, Branch 82 ofRegional Trial Court of Quezon City who referred this caseto the Construction Industry Arbitration Commission forarbitration and proper disposition.' (pp. 44-45, Rollo, CA-G.R. SP No. 42443) "4

Before the CA, petitioner filed a Petition for Review,docketed as CA-GR SP No. 42443, contesting thejurisdiction of the CIAC and assailing the propriety of themonetary awards in favor of respondent spouses. ThisPetition was consolidated by the CA with CA-GR SP No.39781, a Petition for Certiorari earlier elevated by petitionerquestioning the jurisdiction of the CIAC.

Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC5over the disputebetween petitioner and private respondent. Under ExecutiveOrder No. 1008, the CIAC acquires jurisdiction when theparties agree to submit their dispute to voluntary arbitration.

Thus, in the present case, its jurisdiction continued despiteits April 13, 1994 Order referring the case back to theRegional Trial Court (RTC) of Quezon City, Branch 82, thecourt of origin. The CIACs action was based on the principlethat once acquired, jurisdiction remains "until the fulltermination of the case unless a law provides the contrary."No such "full termination" of the case was evident in the saidOrder; nor did the CIAC or private respondents intend to putan end to the case.

Besides, according to Section 3 of the Rules of ProcedureGoverning Construction Arbitration, technical rules of law orprocedure are not applicable in a single arbitration or arbitraltribunal. Thus, the "dismissal" could not have divested theCIAC of jurisdiction to ascertain the facts of the case, arriveat a judicious resolution of the dispute and enforce its award

or decision.

Since the issues concerning the monetary awards werequestions of fact, the CA held that those awards wereinappropriate in a petition for certiorari. Such questions arefinal and not appealable according to Section 19 of EO 1008,which provides that "arbitral awards shall be x x x final and[u]nappealable except on questions of law which shall beappealable to the Supreme Court x x x." Nevertheless, theCA reviewed the records and found that the awards weresupported by substantial evidence. In matters falling under

the field of expertise of quasi-judicial bodies, their findings offact are accorded great respect when supported bysubstantial evidence.

Hence, this Petition.6

Issues

The petitioner, in its Memorandum, raises the followingissues:

"A.

Whether or not the CIAC could take jurisdiction over thecase of Respondent Cid spouses against Petitioner Philrockafter the case had been dismissed by both the RTC and the

CIAC.

"B.

Whether or not Respondent Cid spouses have a cause of

action against Petitioner Philrock.

"C.

Whether or not the awarding of the amount of P23,276.75 formaterials ordered by Respondent Spouses Cid plus interestthereon at the rate of 6% from 26 September 1995 is proper.

"D.

Whether or not the awarding of the amount of P65,000.00 asretrofitting costs is proper.

"E.

Whether or not the awarding of the amount of P1,340,454 forthe value of the delivered but the allegedly unworkableconcrete which was wasted is proper.

"F.

Whether or not the awarding o[f] moral and nominaldamages and attorney's fees and expenses of litigation infavor of respondents is proper.

"G.

Whether or not Petitioner Philrock should be held liable for

the payment of arbitration fees."7

In sum, petitioner imputes reversible error to the CA (1) forupholding the jurisdiction of the CIAC after the latter haddismissed the case and referred it to the regular court, (2) forruling that respondent spouses had a cause of action againstpetitioner, and (3) for sustaining the award of damages.

This Courts Ruling

The Petition has no merit.


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First Issue:

Jur isdict ion

Petitioner avers that the CIAC lost jurisdiction over thearbitration case after both parties had withdrawn theirconsent to arbitrate. The June 13, 1995 RTC Order

remanding the case to the CIAC for arbitration was allegedlyan invalid mode of referring a case for arbitration.

We disagree. Section 4 of Executive Order 1008 expresslyvests in the CIAC original and exclusive jurisdiction overdisputes arising from or connected with constructioncontracts entered into by parties that have agreed to submittheir dispute to voluntary arbitration.8

It is undisputed that the parties submitted themselves to thejurisdiction of the Commission by virtue of their Agreement toArbitrate dated November 24, 1993. Signatories to theAgreement were Atty. Ismael J. Andres and Perry Y. Uy(president of Philippine Rock Products, Inc.) for petitioner,and Nelia G. Cid and Atty. Esteban A. Bautista forrespondent spouses.9

Petitioner claims, on the other hand, that this Agreementwas withdrawn by respondents on April 8, 1994, because ofthe exclusion of the seven engineers of petitioners in thearbitration case. This withdrawal became the basis for theApril 13, 1994 CIAC Order dismissing the arbitration caseand referring the dispute back to the RTC. Consequently, theCIAC was divested of its jurisdiction to hear and decide thecase.

This contention is untenable. First, private respondentsremoved the obstacle to the continuation of the arbitration,precisely by withdrawing their objection to the exclusion ofthe seven engineers. Second, petitioner continuedparticipating in the arbitration even after the CIAC Order had

been issued. It even concluded and signed the Terms ofReference10on August 21, 1995, in which the partiesstipulated the circumstances leading to the dispute;summarized their respective positions, issues, and claims;and identified the composition of the tribunal of arbitrators.The document clearly confirms both parties intention andagreement to submit the dispute to voluntary arbitration. Inview of this fact, we fail to see how the CIAC could havebeen divested of its jurisdiction.

Finally, as pointed out by the solicitor general, petitionermaneuvered to avoid the RTCs final resolution of thedispute by arguing that the regular court also lost jurisdictionafter the arbitral tribunals April 13, 1994 Order referring thecase back to the RTC. In so doing, petitioner conceded andestopped itself from further questioning the jurisdiction of the

CIAC. The Court will not countenance the effort of any partyto subvert or defeat the objective of voluntary arbitration forits own private motives. After submitting itself to arbitrationproceedings and actively participating therein, petitioner isestopped from assailing the jurisdiction of the CIAC, merelybecause the latter rendered an adverse decision.11

Second Issue:

Cause of Act ion

Petitioner contends that respondent spouses were negligentin not engaging the services of an engineer or architect whoshould oversee their construction, in violation of Section 308of the National Building Code. It adds that even if theconcrete it delivered was defective, respondent spousesshould bear the loss arising from their illegal operation. Inshort, it alleges that they had no cause of action against it.

We disagree. Cause of action is defined as an act oromission by which a party violates the right of another.12Acomplaint is deemed to have stated a cause of actionprovided it has indicated the following: (1) the legal right ofthe plaintiff, (2) the correlative obligation of the defendant,and (3) the act or the omission of the defendant in violationof the said legal right.13The cause of action againstpetitioner was clearly established. Respondents werepurchasers of ready-mix concrete from petitioner. Theconcrete delivered by the latter turned out to be ofsubstandard quality. As a result, respondents sustaineddamages when the structures they built using such cementdeveloped cracks and honeycombs. Consequently, theconstruction of their residence had to be stopped.

Further, the CIAC Decision clearly spelled out respondents

cause of action against petitioner, as follows:

"Accordingly, this Tribunal finds that the mix was of the rightproportions at the time it left the plant. This, however, doesnot necessarily mean that all of the concrete mix deliveredhad remained workable when it reached the jobsite. It shouldbe noted that there is no evidence to show that all the transitmixers arrived at the site within the allowable time that wouldensure the workability of the concrete mix delivered.

"On the other hand, there is suff iciently strong evidence toshow that difficulties were encountered in the pouring ofconcrete mix from certain transit mixers necessitating the[addition] of water and physically pushing the mix, obviouslybecause the same [was] no longer workable. This Tribunal

holds that the unworkability of said concrete mix has beenfirmly established.

"There is no dispute, however, to the fact that there aredefects in some areas of the poured structures. In thisregard, this Tribunal holds that the only logical reason is thatthe unworkable concrete was the one that was poured in thedefective sections."14

Third Issue:

Monetary Awards

Petitioner assails the monetary awards given by the arbitraltribunal for alleged lack of basis in fact and in law. The

solicitor general counters that the basis for petitionersassigned errors with regard to the monetary awards is purelyfactual and beyond the review of this Court. Besides, Section19, EO 1008, expressly provides that monetary awards bythe CIAC are final and unappealable.

We disagree with the solicitor general. As pointed out earlier,factual findings of quasi-judicial bodies that have acquiredexpertise are generally accorded great respect and evenfinality, if they are supported by substantial evidence.15TheCourt, however, has consistently held that despite statutory


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provisions making the decisions of certain administrativeagencies "final," it still takes cognizance of petitions showingwant of jurisdiction, grave abuse of discretion, violation ofdue process, denial of substantial justice or erroneousinterpretation of the law.16Voluntary arbitrators, by thenature of their functions, act in a quasi-judicial capacity, suchthat their decisions are within the scope of judicial review.17

Petitioner protests the award to respondent spouses ofP23,276.25 as excess payment with six percent interestbeginning September 26, 1995. It alleges that this item wasneither raised as an issue by the parties during thearbitration case, nor was its justification discussed in theCIAC Decision. It further contends that it could not be heldliable for interest, because it had earlier tendered a check inthe same amount to respondent spouses, who refused toreceive it.

Petitioners contentions are completely untenable.Respondent Nelia G. Cid had already raised the issue ofoverpayment even prior to the formal arbitration. Inparagraph 9 of the Terms of Reference, she stated:

"9. Claimants were assured that the problem and herdemands had been the subject of several staff meetings andthat Arteche was very much aware of it, a memorandumhaving been submitted citing all the demands of [c]laimants.This assurance was made on July 31, 1992 whenRespondents Secillano, Martillano and Lomibao came to seeClaimant Nelia Cid and offered to refund P23,276.25, [t]hedifference between the billing by Philrocks MarketingDepartment in the amount of P125,586.25 and the amountcharged by Philrock's Batching Plant Department in theamount of only P102,586.25, which [c]laimant refused toaccept by saying, Saka na lang."18

The same issue was discussed during the hearing before thearbitration tribunal on December 19, 1995.19It was alsomentioned in that tribunals Decision dated September 24,

1996.

20

The payment of interest is based on Article 2209 of the CivilCode, which provides that if the obligation consists of thepayment of a sum of money, and the debtor incurs delay, theindemnity for damages shall be the payment of legal interestwhich is six per cent per annum, in the absence of astipulation of the rate.

Awards fo r Retrof i t t ing Costs, Wasted Unwork able

But Del ivered Conc rete, and Arbi t rat ion Fees

Petitioner maintains that the defects in the concrete structurewere due to respondent spouses failure to secure theservices of an engineer or architect to supervise their

project. Hence, it claims that the award for retrofitting costwas without legal basis. It also denies liability for the wastedunworkable but delivered concrete, for which the arbitralcourt awarded P13,404.54. Finally, it complains against theaward of litigation expenses, inasmuch as the case shouldnot have been instituted at all had respondents compliedwith the requirements of the National Building Code.

We are unconvinced. Not only did respondents disprove thecontention of petitioner; they also showed that theysustained damages due to the defective concrete it had

delivered. These were items of actual damages theysustained due to its breach of contract.

Moral and Nominal Damages, Attorneys Fees and Costs

Petitioner assails the award of moral damages, claiming nomalice or bad faith on its part.

We disagree. Respondents were deprived of the comfort andthe safety of a house and were exposed to the agony ofwitnessing the wastage and the decay of the structure formore than seven years. In her Memorandum, RespondentNelia G. Cid describes her familys sufferings arising fromthe unreasonable delay in the construction of theirresidence, as follows: "The family lives separately for lack ofspace to stay in. Mrs. Cid is staying in a small dingy bodega,while her son occupies another makeshift room. Their onlydaughter stayed with her aunt from 1992 until she gotmarried in 1996. x x x."21The Court also notes that duringthe pendency of the case, Respondent Vicente Cid diedwithout seeing the completion of their home.22Under thecircumstances, the award of moral damages is proper.

Petitioner also contends that nominal damages should nothave been granted, because it did not breach its obligationto respondent spouses.

Nominal damages are recoverable only if no actual orsubstantial damages resulted from the breach, or nodamage was or can be shown.23Since actual damages havebeen proven by private respondents for which they wereamply compensated, they are no longer entitled to nominaldamages.

Petitioner protests the grant of attorneys fees, arguing thatrespondent spouses did not engage the services of legalcounsel. Also, it contends that attorneys fees and litigationexpenses are awarded only if the opposing party acted in

gross and evident bad faith in refusing to satisfy plaintiffsvalid, just and demandable claim.

We disagree. The award is not only for attorneys fees, butalso for expenses of litigation. Hence, it does not matter ifrespondents represented themselves in court, because it isobvious that they incurred expenses in pursuing their actionbefore the CIAC, as well as the regular and the appellatecourts. We find no reason to disturb this award.1wphi1.nt

WHEREFORE, the Petition is DENIED and the assailedDecision AFFIRMED; however, the award of nominaldamages is DELETED for lack of legal basis. Costs againstpetitioner.

SO ORDERED.

G.R. No. 126619 December 20, 2006

UNIWIDE SALES REALTY AND RESOURCESCORPORATION,petitioner,vs.TITAN-IKEDA CONSTRUCTION AND DEVELOPMENTCORPORATION,respondent.


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This Petition for Review on Certiorari under Rule 45 seeksthe partial reversal of the 21 February 1996 Decision1of theCourt of Appeals Fifteenth Division in CA-G.R. SP No.37957 which modified the 17 April 1995 Decision2of theConstruction Industry Arbitration Commission (CIAC).

The case originated from an action for a sum of money filedby Titan-Ikeda Construction and Development Corporation

(Titan) against Uniwide Sales Realty and ResourcesCorporation (Uniwide) with the Regional Trial Court (RTC),Branch 119,3Pasay City arising from Uniwide's non-paymentof certain claims billed by Titan after completion of threeprojects covered by agreements they entered into with eachother. Upon Uniwide's motion to dismiss/suspendproceedings and Titan's open court manifestation agreeingto the suspension, Civil Case No. 98-0814 was suspendedfor it to undergo arbitration.4Titan's complaint was thus re-filed with the CIAC.5Before the CIAC, Uniwide filed ananswer which was later amended and re-amended, denyingthe material allegations of the complaint, with counterclaimsfor refund of overpayments, actual and exemplary damages,and attorney's fees. The agreements between Titan andUniwide are briefly described below.

PROJECT 1.6

The first agreement (Project 1) was a written "ConstructionContract" entered into by Titan and Uniwide sometime inMay 1991 whereby Titan undertook to construct Uniwide'sWarehouse Club and Administration Building in Libis,Quezon City for a fee of P120,936,591.50, payable inmonthly progress billings to be certified to by Uniwide'srepresentative.7The parties stipulated that the building shallbe completed not later than 30 November 1991. As found bythe CIAC, the building was eventually finished on 15February 19928and turned over to Uniwide.

PROJECT 2.

Sometime in July 1992, Titan and Uniwide entered into thesecond agreement (Project 2) whereby the former agreed toconstruct an additional floor and to renovate the latter'swarehouse located at the EDSA Central Market Area inMandaluyong City. There was no written contract executedbetween the parties for this project. Construction wasallegedly to be on the basis of drawings and specificationsprovided by Uniwide's structural engineers. The partiesproceeded on the basis of a cost estimate of P21,301,075.77inclusive of Titan's 20% mark-up. Titan conceded in itscomplaint to having received P15,000,000.00 of this amount.This project was completed in the latter part of October 1992and turned over to Uniwide.

PROJECT 3.9

The parties executed the third agreement (Project 3) in May1992. In a written "Construction Contract," Titan undertook toconstruct the Uniwide Sales Department Store Building inKalookan City for the price of P118,000,000.00 payable inprogress billings to be certified to by Uniwide'srepresentative.10It was stipulated that the project shall becompleted not later than 28 February 1993. The project wascompleted and turned over to Uniwide in June 1993.

Uniwide asserted in its petition that: (a) it overpaid Titan forunauthorized additional works in Project 1 and Project 3; (b)

it is not liable to pay the Value-Added Tax (VAT) for Project1; (c) it is entitled to liquidated damages for the delayincurred in constructing Project 1 and Project 3; and (d) itshould not have been found liable for deficiencies in thedefectively constructed Project 2.

An Arbitral Tribunal consisting of a chairman and twomembers was created in accordance with the CIAC Rules of

Procedure Governing Construction Arbitration. It conducteda preliminary conference with the parties and thereafterissued a Terms of Reference (TOR) which was signed bythe parties. The tribunal also conducted an ocular inspection,hearings, and received the evidence of the parties consistingof affidavits which were subject to cross-examination. On 17April 1995, after the parties submitted their respectivememoranda, the Arbitral Tribunal promulgated a Decision,11the decretal portion of which is as follows:

"WHEREFORE, judgment is hereby rendered as follows:

On Project 1Libis:

[Uniwide] is absolved of any liability for the claims made by

[Titan] on this Project.

Project 2Edsa Central:

[Uniwide] is absolved of any liability for VAT payment on thisproject, the same being for the account of the [Titan]. On theother hand, [Titan] is absolved of any liability on thecounterclaim for defective construction of this project.

[Uniwide] is held liable for the unpaid balance in the amountof P6,301,075.77 which is ordered to be paid to the [Titan]with 12% interest per annum commencing from 19December 1992 until the date of payment.

On Project 3Kalookan:

[Uniwide] is held liable for the unpaid balance in the amountof P5,158,364.63 which is ordered to be paid to the [Titan]with 12% interest per annum commencing from 08September 1993 until the date of payment.

[Uniwide] is held liable to pay in full the VAT on this project,in such amount as may be computed by the Bureau ofInternal Revenue to be paid directly thereto. The BIR ishereby notified that [Uniwide] Sales Realty and ResourcesCorporation has assumed responsibility and is held liable forVAT payment on this project. This accordingly exemptsClaimant Titan-Ikeda Construction and DevelopmentCorporation from this obligation.

Let a copy of this Decision be furnished the HonorableAurora P. Navarette Recina, Presiding Judge, Branch 119,Pasay City, in Civil Case No. 94-0814 entitled Titan-IkedaConstruction Development Corporation, PlaintiffversusUniwide Sales Realty and Resources Corporation,Defendant, pending before said court for information andproper action.

SO ORDERED."12
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Uniwide filed a motion for reconsideration of the 17 April1995 decision which was denied by the CIAC in itsResolution dated 6 July 1995. Uniwide accordingly filed apetition for review with the Court of Appeals,13whichrendered the assailed decision on 21 February 1996.Uniwide's motion for reconsideration was likewise denied bythe Court of Appeals in its assailed Resolution14dated 30September 1996.

Hence, Uniwide comes to this Court via a petition for reviewunder Rule 45. The issues submitted for resolution of thisCourt are as follows:15(1) Whether Uniwide is entitled to areturn of the amount it allegedly paid by mistake to Titan foradditional works done on Project 1; (2) Whether Uniwide isliable for the payment of the Value-Added Tax (VAT) onProject 1; (3) Whether Uniwide is entitled to liquidateddamages for Projects 1 and 3; and (4) Whether Uniwide isliable for deficiencies in Project 2.

As a rule, findings of fact of administrative agencies andquasi-judicial bodies, which have acquired expertisebecause their jurisdiction is confined to specific matters, aregenerally accorded not only respect, but also finality,especially when affirmed by the Court of Appeals.16In

particular, factual findings of construction arbitrators are finaland conclusive and not reviewable by this Court on appeal.17This rule, however admits of certain exceptions.

In David v. Construction Industry and ArbitrationCommission,

18we ruled that, as exceptions, factual findings

of construction arbitrators may be reviewed by this Courtwhen the petitioner proves affirmatively that: (1) the awardwas procured by corruption, fraud or other undue means; (2)there was evident partiality or corruption of the arbitrators orof any of them; (3) the arbitrators were guilty of misconductin refusing to hear evidence pertinent and material to thecontroversy; (4) one or more of the arbitrators weredisqualified to act as such under Section nine of RepublicAct No. 876 and willfully refrained from disclosing suchdisqualifications or of any other misbehavior by which the

rights of any party have been materially prejudiced; or (5) thearbitrators exceeded their powers, or so imperfectlyexecuted them, that a mutual, final and definite award uponthe subject matter submitted to them was not made.19

Other recognized exceptions are as follows: (1) when thereis a very clear showing of grave abuse of discretion20resulting in lack or loss of jurisdiction as when a party wasdeprived of a fair opportunity to present its position beforethe Arbitral Tribunal or when an award is obtained throughfraud or the corruption of arbitrators,21(2) when the findingsof the Court of Appeals are contrary to those of the CIAC,22and (3) when a party is deprived of administrative dueprocess.23

Thus, in Hi-Precision Steel Center, Inc. v. Lim Kim Builders,Inc.,24we refused to review the findings of fact of the CIACfor the reason that petitioner was requiring the Court to goover each individual claim and counterclaim submitted by theparties in the CIAC. A review of the CIAC's findings of factwould have had the effect of "setting at naught the basicobjective of a voluntary arbitration and would reducearbitration to a largely inutile institution." Further, petitionertherein failed to show any serious error of law amounting tograve abuse of discretion resulting in lack of jurisdiction onthe part of the Arbitral Tribunal, in either the methodsemployed or the results reached by the Arbitral Tribunal, in

disposing of the detailed claims of the respective parties. InMetro Construction, Inc. v. Chatham Properties, Inc.,25wereviewed the findings of fact of the Court of Appeals becauseits findings on the issue of whether petitioner therein was indelay were contrary to the findings of the CIAC. Finally, inMegaworld Globus Asia, Inc. v. DSM Construction andDevelopment Corporation,

26we declined to depart from thefindings of the Arbitral Tribunal considering that the

computations, as well as the propriety of the awards, areunquestionably factual issues that have been discussed bythe Arbitral Tribunal and affirmed by the Court of Appeals.

In the present case, only the first issue presented forresolution of this Court is a question of law while the rest arefactual in nature. However, we do not hesitate to inquire intothese factual issues for the reason that the CIAC and theCourt of Appeals, in some matters, differed in their findings.

We now proceed to discuss the issues in seriatim.

Payment by Mistake for Project 1

The first issue refers to the P5,823,481.75 paid by Uniwide

for additional works done on Project 1. Uniwide asserts thatTitan was not entitled to be paid this amount because theadditional works were without any written authorization.

It should be noted that the contracts do not containstipulations on "additional works," Uniwide's liability for"additional works," and prior approval as a requirementbefore Titan could perform "additional works."

Nonetheless, Uniwide cites Article (Art. ) 1724 of the NewCivil Code as basis for its claim that it is not liable to pay for"additional works" it did not authorize or agree upon inwriting. The provision states:

Art. 1724. The contractor who undertakes to build a structure

or any other work for a stipulated price, in conformity withplans and specifications agreed upon with the landowner,can neither withdraw from the contract nor demand anincrease in the price on account of the higher cost of labor ormaterials, save when there has been a change in the plansand specifications, provided:

(1) Such change has been authorized by the proprietor inwriting; and

(2) The additional price to be paid to the contractor has beendetermined in writing by both parties.

The Court of Appeals did take note of this provision, butdeemed it inapplicable to the case at bar because Uniwide

had already paid, albeit with unwritten reservations, for the"additional works." The provision would have been operativehad Uniwide refused to pay for the costs of the "additionalworks." Instead, the Court of Appeals applied Art. 142327ofthe New Civil Code and characterized Uniwide's payment ofthe said amount as a voluntary fulfillment of a naturalobligation. The situation was characterized as being akin toUniwide being a debtor who paid a debt even while it knewthat it was not legally compelled to do so. As such debtor,Uniwide could no longer demand the refund of the amountalready paid.
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Uniwide counters that Art. 1724 makes no distinction as towhether payment for the "additional works" had already beenmade. It claims that it had made the payments, subject toreservations, upon the false representation of Titan-Ikedathat the "additional works" were authorized in writing.Uniwide characterizes the payment as a "mistake," and not a"voluntary" fulfillment under Art. 1423 of the Civil Code.Hence, it urges the application, instead, of the principle of

solutio indebiti under Arts. 2154

28

and 2156

29

of the CivilCode.

To be certain, this Court has not been wont to give anexpansive construction of Art. 1724, denying, for example,claims that it applies to constructions made of ship vessels,30or that it can validly deny the claim for payment ofprofessional fees to the architect.31The present situationthough presents a thornier problem. Clearly, Art. 1724denies, as a matter of right, payment to the contractor foradditional works which were not authorized in writing by theproprietor, and the additional price of which was notdetermined in writing by the parties.

Yet the distinction pointed out by the Court of Appeals ismaterial. The issue is no longer centered on the right of the

contractor to demand payment for additional worksundertaken because payment, whether mistaken or not, wasalready made by Uniwide. Thus, it would not anymore beincumbent on Titan to establish that it had the right todemand or receive such payment.

But, even if the Court accepts Art. 1724 as applicable in thiscase, such recognition does not ipsofactoaccord Uniwidethe right to be reimbursed for payments already made, sinceArt. 1724 does not effect such right of reimbursement. It hasto be understood that Art. 1724 does not preclude thepayment to the contractor who performs additional workswithout any prior written authorization or agreement as to theprice for such works if the owner decides anyway to makesuch payment. What the provision does preclude is the rightof the contractor to insist upon payment for unauthorized

additional works.

Accordingly, Uniwide, as the owner who did pay thecontractor for such additional works even if they had notbeen authorized in writing, has to establish its own right toreimbursement not under Art. 1724, but under a differentprovision of law. Uniwide's burden of establishing its legalright to reimbursement becomes even more crucial in thelight of the general presumption contained in Section 3(f),Rule 131 of the Rules of Court that "money paid by one toanother was due to the latter."

Uniwide undertakes such a task before this Court, citing theprovisions on solutio indebiti under Arts. 2154 and 2156 ofthe Civil Code. However, it is not enough to prove that thepayments made by Uniwide to Titan were "not due" becausethere was no prior authorization or agreement with respect toadditional works. There is a further requirement that thepayment by the debtor was made either through mistake orunder a cloud of doubt. In short, for the provisions on solutioindebitito apply, there has to be evidence establishing theframe of mind of the payor at the time the payment wasmade.32

The CIAC refused to acknowledge that the additional workson Project 1 were indeed unauthorized by Uniwide. Neitherdid the Court of Appeals arrive at a contrary determination.

There would thus be some difficulty for this Court to agreewith this most basic premise submitted by Uniwide that it didnot authorize the additional works on Project 1 undertakenby Titan. Still, Uniwide does cite testimonial evidence fromthe record alluding to a concession by employees of Titanthat these additional works on Project 1 were eitherauthorized or documented.33

Yet even conceding that the additional works on Project 1were not authorized or committed into writing, theundisputed fact remains that Uniwide paid for theseadditional works. Thus, to claim a refund of payments madeunder the principle of solutio indebiti, Uniwide must be ableto establish that these payments were made throughmistake. Again, this is a factual matter that would haveacquired a mantle of invulnerability had it been determinedby both the CIAC and the Court of Appeals. However, bothbodies failed to arrive at such a conclusion. Moreover,Uniwide is unable to direct our attention to any pertinent partof the record that would indeed establish that the paymentswere made by reason of mistake.

We note that Uniwide alleged in its petition that the CIACaward in favor of Titan in the amount P5,158,364.63 as the

unpaid balance in Project 3 included claims for additionalworks of P1,087,214.18 for which no written authorizationwas presented. Unfortunately, this issue was not included inits memorandum as one of the issues submitted for theresolution of the Court.

Liability for the Value-Added Tax (VAT)

The second issue takes us into an inquiry on who, under thelaw, is liable for the payment of the VAT, in the absence of awritten stipulation on the matter. Uniwide claims that the VATwas already included in the contract price for Project 1.Citing Secs. 99 and 102 of the National Internal RevenueCode, Uniwide asserts that VAT, being an indirect tax, maybe shifted to the buyer by including it in the cash or selling

price and it is entirely up to the buyer to agree or not toagree to absorb the VAT.34Thus, Uniwide concludes, if thereis no provision in the contract as to who should pay the VAT,it is presumed that it would be the seller.35

The contract for Project 1 is silent on which party shouldshoulder the VAT while the contract for Project 3 contained aprovision to the effect that Uniwide is the party responsiblefor the payment of the VAT.36Thus, when Uniwide paid theamount of P2,400,000.00 as billed by Titan for VAT, itassumed that it was the VAT for Project 3. However, theCIAC and the Court of Appeals found that the same was forProject 1.

We agree with the conclusions of both the CIAC and theCourt of Appeals that the amount of P2,400,000.00 was paid

by Uniwide as VAT for Project 1. This conclusion was drawnfrom an Order of Payment37dated 7 October 1992 whereinTitan billed Uniwide the amount of P2,400,000.00 as "ValueAdded Tax based on P60,000,000.00 Contract," computedon the basis of 4% of P60,000,000.00. Said document whichwas approved by the President of Uniwide expresslyindicated that the project involved was the "UNIWIDESALES WAREHOUSE CLUB & ADMIN BLDG." located at"90 E. RODRIGUEZ JR. AVE., LIBIS, Q.C." The reducedbase for the computation of the tax, according to the Court ofAppeals, was an indication that the parties agreed to pass
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the VAT for Project 1 to Uniwide but based on a lowercontract price. Indeed, the CIAC found as follows:

Without any documentary evidence than Exhibit "H" to showthe extent of tax liability assumed by [Uniwide], the Tribunalholds that the parties is [sic] obliged to pay only a share ofthe VAT payment up to P60,000,000.00 out of the totalcontract price of P120,936,591.50. As explained by Jimmy

Gow, VAT is paid on labor only for constructioncontracts since VAT had already been paid on thematerials purchased. Since labor costs is [sic]proportionately placed at 60%-40% of the contract price,simplified accounting computes VAT at 4% of thecontract price. Whatever is the balance for VAT thatremains to be paid on Project 1Libis shall remain theobligation of [Titan]. (Emphasis supplied.)38

Liquidated Damages

On the third issue of liquidated damages, the CIAC rejectedsuch claim while the Court of Appeals held that the mattershould be left for determination in future proceedings wherethe issue has been made clear.

In rejecting Uniwide's claim for liquidated damages, theCIAC held that there is no legal basis for passing upon andresolving Uniwide's claim for the following reasons: (1) noclaim for liquidated damages arising from the alleged delaywas ever made by Uniwide at any time before thecommencement of Titan's complaint; (2) the claim forliquidated damages was not included in the counterclaimsstated in Uniwide's answer to Titan's complaint; (3) the claimwas not formulated as an issue to be resolved by the CIACin the TOR;39and (4) no attempt was made to modify theTOR to accommodate the same as an issue to be resolved.

Uniwide insists that the CIAC should have applied Section 5,Rule 10 of the Rules of Court.40On this matter, the Court ofAppeals held that the CIAC is an arbitration body, which is

not necessarily bound by the Rules of Court. Also, the Courtof Appeals found that the issue has never been madeconcrete enough to make Titan and the CIAC aware that itwill be an issue. In fact, Uniwide only introduced andquantified its claim for liquidated damages in itsMemorandum submitted to the CIAC at the end of thearbitration proceeding. The Court of Appeals also noted thatthe only evidence on record to prove delay in theconstruction of Project 1 is the testimony of Titan's engineerregarding the date of completion of the project while the onlyevidence of delay in the construction of Project 3 is theaffidavit of Uniwide's President.

According to Uniwide, the ruling of the Court of Appeals onthe issue of liquidated damages goes against theestablished judicial policy that a court should always strive to

settle in one proceeding the entire controversy leaving noroot or branch to bear the seeds of future litigations.41Uniwide claims that the required evidence for an affirmativeruling on its claim is already on the record. It cites thepertinent provisions of the written contracts which containeddeadlines for liquidated damages. Uniwide also noted thatthe evidence show that Project 1 was completed either on 15February 1992, as found by the CIAC, or 12 March 1992, asshown by Titan's own evidence, while Project 3, according toUniwide's President, was completed in June 1993.Furthermore, Uniwide asserts, the CIAC should have appliedprocedural rules such as Section 5, Rule 10 with more

liberality because it was an administrative tribunal free fromthe rigid technicalities of regular courts.42

On this point, the CIAC held:

The Rule of Procedure Governing Construction Arbitrationpromulgated by the CIAC contains no provision on the

application of the Rules of Court to arbitration proceedings,even in a suppletory capacity. Hypothetically admitting thatthere is such a provision, suppletory application is made onlyif it would not contravene a specific provision in thearbitration rules and the spirit thereof. The Tribunal holdsthat such importation of the Rules of Court provision onamendment to conform to evidence would contravenethe spirit, if not the letter of the CIAC rules. This is for thereason that the formulation of the Terms of Reference isdone with the active participation of the parties and theircounsel themselves. The TOR is further required to besigned by all the parties, their respective counsel and all themembers of the Arbitral Tribunal. Unless the issues thuscarefully formulated in the Terms of Reference wereexpressly showed [sic] to be amended, issues outsidethereof may not be resolved. As already noted in theDecision, "no attempt was ever made by the [Uniwide] to

modify the TOR in order to accommodate the issues relatedto its belated counterclaim" on this issue. (Emphasissupplied.)

Arbitration has been defined as "an arrangement for takingand abiding by the judgment of selected persons in somedisputed matter, instead of carrying it to established tribunalsof justice, and is intended to avoid the formalities, the delay,the expense and vexation of ordinary litigation."43Voluntaryarbitration, on the other hand, involves the reference of adispute to an impartial body, the members of which arechosen by the parties themselves, which parties freelyconsent in advance to abide by the arbitral award issuedafter proceedings where both parties had the opportunity tobe heard. The basic objective is to provide a speedy andinexpensive method of settling disputes by allowing the

parties to avoid the formalities, delay, expense andaggravation which commonly accompany ordinary litigation,especially litigation which goes through the entire hierarchyof courts.44As an arbitration body, the CIAC can only resolveissues brought before it by the parties through the TORwhich functions similarly as a pre-trial brief. Thus, ifUniwide's claim for liquidated damages was not raised as anissue in the TOR or in any modified or amended version of it,the CIAC cannot make a ruling on it. The Rules of Courtcannot be used to contravene the spirit of the CIAC rules,whose policy and objective is to "provide a fair andexpeditious settlement of construction disputes through anon-judicial process which ensures harmonious and friendlyrelations between or among the parties."45

Further, a party may not be deprived of due process of law

by an amendment of the complaint as provided in Section 5,Rule 10 of the Rules of Court. In this case, as noted by theCourt of Appeals, Uniwide only introduced and quantified itsclaim for liquidated damages in its memorandum submittedto the CIAC at the end of the arbitration proceeding. Verily,Titan was not given a chance to present evidence to counterUniwide's claim for liquidated damages.

Uniwide alludes to an alleged judicial admission made byEngr. Luzon Tablante wherein he stated that Project 1 wascompleted on 10 March 1992. It now claims that by virtue of
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Engr. Tablante's statement, Titan had admitted that it was indelay. We disagree. The testimony of Engr. Tablante wasoffered only to prove that Project 1 was indeed completed. Itwas not offered to prove the fact of delay. It must beremembered that the purpose for which evidence is offeredmust be specified because such evidence may beadmissible for several purposes under the doctrine ofmultiple admissibility, or may be admissible for one purpose

and not for another, otherwise the adverse party cannotinterpose the proper objection. Evidence submitted for onepurpose may not be considered for any other purpose.46Furthermore, even assuming, for the sake of argument, thatsaid testimony on the date of completion of Project 1 isadmitted, the establishment of the mere fact of delay is notsufficient for the imposition of liquidated damages. It mustfurther be shown that delay was attributable to the contractorif not otherwise justifiable. Contrarily, Uniwide's belated claimconstitutes an admission that the delay was justif ied andimplies a waiver of its right to such damages.

Project 2: "as-built" plans, overpricing, defective construction

To determine whether or not Uniwide is liable for the unpaidbalance of P6,301,075.77 for Project 2, we need to resolve

four sub-issues, namely: (1) whether or not it was necessaryfor Titan to submit "as-built" plans before it can be paid byUniwide; (2) whether or not there was overpricing of theproject; (3) whether or not the P15,000,000.00 paid byUniwide to Titan for Project 2 constitutes full payment; and(4) whether or not Titan can be held liable for defectiveconstruction of Project 2.

The CIAC, as affirmed by the Court of Appeals, held Uniwideliable for deficiency relating to Project 2 in the amount ofP6,301,075.77. It is nonetheless alleged by Uniwide thatTitan failed to submit any "as-built" plans for Project 2, suchplans allegedly serving as a condition precedent forpayment. Uniwide further claims that Titan had substantiallyovercharged Uniwide for Project 2, there beinguncontradicted expert testimony that the total cost of Project

2 did not exceed P7,812,123.60. Furthermore, Uniwidealleged that the works performed were structurally defective,as evidenced by the structural damage on four columns asobserved on ocular inspection by the CIAC and confirmed byTitan's project manager.

On the necessity of submitting "as-built" plans, this Courtrules that the submission of such plans is not a pre-requisitefor Titan to be paid by Uniwide. The argument that saidplans are required by Section 308 of Presidential Decree No.1098 (National Building Code) and by Section 2.11 of itsImplementing Rules before payment can be made isuntenable. The purpose of the law is "to safeguard life,health, property, and public welfare, consistent with theprinciples of sound environmental management and control."The submission of these plans is necessary only in

furtherance of the law's purpose by setting minimumstandards and requirements to control the "location, site,design, quality of materials, construction, use, occupancy,and maintenance" of buildings constructed and not as arequirement for payment to the contractor.47The testimonyof Engr. Tablante to the effect that the "as-built" plans arerequired before payment can be claimed by Titan is a merelegal conclusion which is not binding on this Court.

Uniwide claims that, according to one of its consultants, thetrue price for Project 2 is only P7,812,123.60. The CIAC and

the Court of Appeals, however, found the testimony of thisconsultant suspect and ruled that the total contract price forProject 2 is P21,301,075.77. The CIAC held:

The Cost Estimate for Architectural and Site DevelopmentWorks for the EDSA Central, Dau Branch Project (Exhibit "2-A" for [Uniwide] and made as a common exhibit by [Titan]who had it marked at [sic] its own Exhibit "U"), which was

admittedly prepared by Fermindoza and Associates,[Uniwide]'s own architects, shows that the amount ofP17,750,896.48 was arrived at. Together with the agreedupon mark-up of 20% on said amount, the total project costwas P21,301,075.77.

The Tribunal holds that the foregoing document is bindingupon the [Uniwide], it being the mode agreed upon by whichits liability for the project cost was to be determined.48(Emphasis supplied.)

Indeed, Uniwide is bound by the amount indicated in theabove document. Claims of connivance or fraudulentconspiracy between Titan and Uniwide's representativeswhich, it is alleged, grossly exaggerated the price may

properly be dismissed. As held by the CIAC:

The Tribunal holds that [Uniwide] has not introduced anyevidence to sustain its charge of fraudulent conspiracy. As amatter of fact, [Uniwide]'s own principal witness, Jimmy Gow,admitted on cross-examination that he does not have anydirect evidence to prove his charge of connivance orcomplicity between the [Titan] and his own representatives.He only made that conclusion by the process of his own"logical reasoning" arising from his consultation with othercontractors who gave him a much lower estimate for theconstruction of the Dau Project. There is thus no reason toinvalidate the binding character of Exhibit "2-A" which, it issignificant to point out, is [Uniwide]'s own evidence.49(Emphasis supplied.)

Accordingly, deducting the P15,000,000.00 already paid byUniwide from the total contract price of P21,301,075.77, theunpaid balance due for Project 2 is P6,301,075.77. This isthe same amount reflected in the Order of Paymentprepared by Uniwide's representative, Le Consultech, Inc.and signed by no less than four top officers and architects ofLe Consultech, Inc. endorsing for payment by Uniwide toTitan the amount of P6,301,075.77.50

Uniwide asserts that Titan should not have been allowed torecover on Project 2 because the said project was defectiveand would require repairs in the amount of P800,000.00. Itclaims that the CIAC and the Court of Appeals should haveapplied Nakpil and Sons v. Court of Appeals

51and Art. 1723of the New Civil Code holding a contractor responsible fordamages if the edifice constructed falls within fifteen years

from completion on account of defects in the construction orthe use of materials of inferior quality furnished by him ordue to any violation of the terms of the contract.

On this matter, the CIAC conducted an ocular inspection ofthe premises on 30 January 1995. What transpired in thesaid ocular inspection is described thus:

On 30 January 1995, an ocular inspection was conducted bythe Arbitral Tribunal as requested by [Uniwide]. Photographswere taken of the alleged construction defects, an actual
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ripping off of the plaster of a certain column to expose thealleged structural defect that is claimed to have resulted inits being "heavily damaged" was done, clarificatoryquestions were asked and manifestations on observationswere made by the parties and their respective counsels. Theentire proceedings were recorded on tape and subsequentlytranscribed. The photographs and transcript of the ocularinspection form part of the records and considered as

evidence.

52

And, according to these evidence, the CIAC concluded asfollows:

It is likewise the holding of this Tribunal that [Uniwide]'scounterclaim of defective construction has not beensufficiently proven. The credibility of Engr. Cruz, [Uniwide]'sprincipal witness on this issue, has been severely impaired.During the ocular inspection of the premises, he gave suchassurance of the soundness of his opinion as an expert thata certain column was heavily damaged judging from theexternal cracks that was readily apparent x x x

x x x x

On insistence of the Tribunal, the plaster was chipped offand revealed a structurally sound column x x x

Further, it turns out that what was being passed off as adefective construction by [Titan], was in fact an old column,as admitted by Mr. Gow himself x x x x53(Emphasissupplied.)

Uniwide had the burden of proving that there was defectiveconstruction in Project 2 but it failed to discharge thisburden. Even the credibility of its own witness was severelyimpaired. Further, it was found that the concrete slab placedby Titan was not attached to the old columns where crackswere discovered. The CIAC held that the post-tensioning of

the new concrete slab could not have caused any of thedefects manifested by the old columns. We are bound bythis finding of fact by the CIAC.

It is worthy to stress our ruling in Hi-Precision Steel Center,Inc. v. Lim Kim Steel Builders, Inc.

54which was reiterated inDavid v. Construction Industry and Arbitration Commission,

55

that:

x x x Executive Order No. 1008 created an arbitration facilityto which the construction industry in the Philippines can haverecourse. The Executive Order was enacted to encouragethe early and expeditious settlement of disputes in theconstruction industry, a public policy theimplementation of which is necessary and important forthe realization of national development goals.

Aware of the objective of voluntary arbitration in the laborfield, in the construction industry, and in any other area forthat matter, the Court will not assist one or the other or evenboth parties in any effort to subvert or defeat that objectivefor their private purposes. The Court will not review thefactual findings of an arbitral tribunal upon the artfulallegation that such body had "misapprehended facts" andwill not pass upon issues which are, at bottom, issues offact, no matter how cleverly disguised they might be as"legal questions." The parties here had recourse to

arbitration and chose the arbitrators themselves; they musthave had confidence in such arbitrators. The Court will not,therefore, permit the parties to relitigate before it the issuesof facts previously presented and argued before the ArbitralTribunal, save only where a clear showing is made that, inreaching its factual conclusions, the Arbitral Tribunalcommitted an error so egregious and hurtful to one party asto constitute a grave abuse of discretion resulting in lack or

loss of jurisdiction. Prototypical examples would be factualconclusions of the Tribunal which resulted in deprivation ofone or the other party of a fair opportunity to present itsposition before the Arbitral Tribunal, and an award obtainedthrough fraud or the corruption of arbitrators. Any other,more relaxed rule would result in setting at naught the basicobjective of a voluntary arbitration and would reducearbitration to a largely inutile institution. (Emphasis supplied.)

WHEREFORE, premises considered, the petition is DENIEDand the Decision of the Court of Appeals dated 21 February1996 in CA-G.R. SP No. 37957 is hereby AFFIRMED.

SO ORDERED.

G.R. No. 143581 January 7, 2008

KOREA TECHNOLOGIES CO., LTD.,petitioner,vs.HON. ALBERTO A. LERMA, in his capacity as PresidingJudge of Branch 256 of Regional Trial Court ofMuntinlupa City, and PACIFIC GENERAL STEELMANUFACTURING CORPORATION,respondents.

In our jurisdiction, the policy is to favor alternative methodsof resolving disputes, particularly in civil and commercialdisputes. Arbitration along with mediation, conciliation, andnegotiation, being inexpensive, speedy and less hostilemethods have long been favored by this Court. The petitionbefore us puts at issue an arbitration clause in a contractmutually agreed upon by the parties stipulating that they

would submit themselves to arbitration in a foreign country.Regrettably, instead of hastening the resolution of theirdispute, the parties wittingly or unwittingly prolonged thecontroversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is aKorean corporation which is engaged in the supply andinstallation of Liquefied Petroleum Gas (LPG) Cylindermanufacturing plants, while private respondent PacificGeneral Steel Manufacturing Corp. (PGSMC) is a domesticcorporation.

On March 5, 1997, PGSMC and KOGIES executed aContract1whereby KOGIES would set up an LPG CylinderManufacturing Plant in Carmona, Cavite. The contract was

executed in the Philippines. On April 7, 1997, the partiesexecuted, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 19972amending the terms ofpayment. The contract and its amendment stipulated thatKOGIES will ship the machinery and facilities necessary formanufacturing LPG cylinders for which PGSMC would payUSD 1,224,000. KOGIES would install and initiate theoperation of the plant for which PGSMC bound itself to payUSD 306,000 upon the plants production of the 11-kg. LPGcylinder samples. Thus, the total contract price amounted toUSD 1,530,000.
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On October 14, 1997, PGSMC entered into a Contract ofLease3with Worth Properties, Inc. (Worth) for use of Worths5,079-square meter property with a 4,032-square meterwarehouse building to house the LPG manufacturing plant.The monthly rental was PhP 322,560 commencing onJanuary 1, 1998 with a 10% annual increment clause.Subsequently, the machineries, equipment, and facilities forthe manufacture of LPG cylinders were shipped, delivered,

and installed in the Carmona plant. PGSMC paid KOGIESUSD 1,224,000.

However, gleaned from the Certificate4executed by theparties on January 22, 1998, after the installation of theplant, the initial operation could not be conducted asPGSMC encountered financial difficulties affecting thesupply of materials, thus forcing the parties to agree thatKOGIES would be deemed to have completely complied withthe terms and conditions of the March 5, 1997 contract.

For the remaining balance of USD306,000 for the installationand initial operation of the plant, PGSMC issued twopostdated checks: (1) BPI Check No. 0316412 datedJanuary 30, 1998 for PhP 4,500,000; and (2) BPI Check No.0316413 dated March 30, 1998 for PhP 4,500,000.5

When KOGIES deposited the checks, these weredishonored for the reason "PAYMENT STOPPED." Thus, onMay 8, 1998, KOGIES sent a demand letter6to PGSMCthreatening criminal action for violation of Batas PambansaBlg.22 in case of nonpayment. On the same date, the wifeof PGSMCs President faxed a letter dated May 7, 1998 toKOGIES President who was then staying at a Makati Cityhotel. She complained that not only did KOGIES deliver adifferent brand of hydraulic press from that agreed upon butit had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks itissued KOGIES were fully funded but the payments werestopped for reasons previously made known to KOGIES.7

On June 1, 1998, PGSMC informed KOGIES that PGSMCwas canceling their Contract dated March 5, 1997 on theground that KOGIES had altered the quantity and loweredthe quality of the machineries and equipment it delivered toPGSMC, and that PGSMC would dismantle and transfer themachineries, equipment, and facilities installed in theCarmona plant. Five days later, PGSMC filed before theOffice of the Public Prosecutor an Affidavit-Complaint forEstafa docketed as I.S. No. 98-03813 against Mr. Dae HyunKang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing thelatter that PGSMC could not unilaterally rescind theircontract nor dismantle and transfer the machineries andequipment on mere imagined violations by KOGIES. It also

insisted that their disputes should be settled by arbitration asagreed upon in Article 15, the arbitration clause of theircontract.

On June 23, 1998, PGSMC again wrote KOGIES reiteratingthe contents of its June 1, 1998 letter threatening that themachineries, equipment, and facilities installed in the plantwould be dismantled and transferred on July 4, 1998. Thus,on July 1, 1998, KOGIES instituted an Application forArbitration before the Korean Commercial Arbitration Board

(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contractas amended.

On July 3, 1998, KOGIES filed a Complaint for SpecificPerformance, docketed as Civil Case No. 98-1178againstPGSMC before the Muntinlupa City Regional Trial Court(RTC). The RTC granted a temporary restraining order(TRO) on July 4, 1998, which was subsequently extended

until July 22, 1998. In its complaint, KOGIES alleged thatPGSMC had initially admitted that the checks that werestopped were not funded but later on claimed that it stoppedpayment of the checks for the reason that "their value wasnot received" as the former allegedly breached their contractby "altering the quantity and lowering the quality of themachinery and equipment" installed in the plant and failed tomake the plant operational although it earlier certified to thecontrary as shown in a January 22, 1998 Certificate.Likewise, KOGIES averred that PGSMC violated Art. 15 oftheir Contract, as amended, by unilaterally rescinding thecontract without resorting to arbitration. KOGIES also askedthat PGSMC be restrained from dismantling and transferringthe machinery and equipment installed in the plant which thelatter threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TROarguing that KOGIES was not entitled to the TRO since Art.15, the arbitration clause, was null and void for being againstpublic policy as it ousts the local courts of jurisdiction overthe instant controversy.

On July 17, 1998, PGSMC filed its Answer with CompulsoryCounterclaim9asserting that it had the full right to dismantleand transfer the machineries and equipment because it hadpaid for them in full as stipulated in the contract; thatKOGIES was not entitled to the PhP 9,000,000 covered bythe checks for failing to completely install and make the plantoperational; and that KOGIES was liable for damagesamounting to PhP 4,500,000 for altering the quantity andlowering the quality of the machineries and equipment.Moreover, PGSMC averred that it has already paid PhP

2,257,920 in rent (covering January to July 1998) to Worthand it was not willing to further shoulder the cost of rentingthe premises of the plant considering that the LPG cylindermanufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23,1998, the RTC issued an Order denying the application for awrit of preliminary injunction, reasoning that PGSMC hadpaid KOGIES USD 1,224,000, the value of the machineriesand equipment as shown in the contract such that KOGIESno longer had proprietary rights over them. And finally, theRTC held that Art. 15 of the Contract as amended wasinvalid as it tended to oust the trial court or any other courtjurisdiction over any dispute that may arise between theparties. KOGIES prayer for an injunctive writ was denied.

10The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, thisCourt believes and so holds that no cogent reason exists forthis Court to grant the writ of preliminary injunction to restrainand refrain defendant from dismantling the machineries andfacilities at the lot and building of Worth Properties,Incorporated at Carmona, Cavite and transfer the same toanother site: and therefore denies plaintiffs application for awrit of preliminary injunction.
http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt3http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt3http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt3http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt4http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt4http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt4http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt5http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt5http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt5http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt6http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt6http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt6http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt7http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt7http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt7http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt8http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt8http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt8http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt9http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt9http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt10http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt10http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt10http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt10http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt9http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt8http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt7http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt6http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt5http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt4http://www.lawphil.net/judjuris/juri2008/jan2008/gr_143581_2008.html#fnt3


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On July 29, 1998, KOGIES filed its Reply to Answer andAnswer to Counterclaim.11KOGIES denied it had altered thequantity and lowered the quality of the machinery,equipment, and facilities it delivered to the plant. It claimedthat it had performed all the undertakings under the contractand had already produced certified samples of LPGcylinders. It averred that whatever was unfinished wasPGSMCs fault since it failed to procure raw materials due to

lack of funds. KOGIES, relying on Chung Fu Industries(Phils.), Inc. v. Court of Appeals,12insisted that thearbitration clause was without question valid.

After KOGIES filed a Supplemental Memorandum withMotion to Dismiss13answering PGSMCs memorandum ofJuly 22, 1998 and seeking dismissal of PGSMCscounterclaims, KOGIES, on August 4, 1998, filed its Motionfor Reconsideration14of the July 23, 1998 Order denying itsapplication for an injunctive writ claiming that the contractwas not merely for machinery and facilities worth USD1,224,000 but was for the sale of an "LPG manufacturingplant" consisting of "supply of all the machinery and facilities"and "transfer of technology" for a total contract price of USD1,530,000 such that the dismantling and transfer of themachinery and facilities would result in the dismantling and

transfer of the very plant itself to the great prejudice ofKOGIES as the still unpaid owner/seller of the plant.Moreover, KOGIES points out that the arbitration clauseunder Art. 15 of the Contract as amended was a validarbitration stipulation under Art. 2044 of the Civil Code andas held by this Court in Chung Fu Industries (Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection ofThings16to determine whether there was indeed alteration ofthe quantity and lowering of quality of the machineries andequipment, and whether these were properly installed.KOGIES opposed the motion positing that the queries andissues raised in the motion for inspection fell under thecoverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1)

granting PGSMCs motion for inspection; (2) denyingKOGIES motion for reconsideration of the July 23, 1998RTC Order; and (3) denying KOGIES motion to dismissPGSMCs compulsory counterclaims as these counterclaimsfell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion forReconsideration17of the September 21, 1998 RTC Ordergranting inspection of the plant and denying dismissal ofPGSMCs compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for theresolution of its October 2, 1998 urgent motion forr

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