alternative dispute resolution compiled cases

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ALTERNATIVE DISPUTE

RESOLUTION COMPILED

CASES

THIRD DIVISION

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

PHILROCK, INC., petitioner,vs.

CONSTRUCTION INDUSTRY ARBITRATION

COMMISSION 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 of

litigation.

The Case

Before us is a Petition for Review under Rule 45 of the Rulesof 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-GRSP Nos. 39781 and 42443. The assailed Decision disposed asfollows:

"WHEREFORE, judgment is hereby renderedDENYING the petitions and, accordingly,AFFIRMING in toto the CIACs decision. Costsagainst petitioner."2

The assailed Resolution ruled in this wise:

"Considering that the matters raised and discussed inthe motion for reconsideration filed by appellants

counsel are substantially the same arguments whichthe Court had passed upon and resolved in thedecision sought to be reconsidered, and there beingno new issue raised, the subject motion is herebyDENIED."3

The Facts

The undisputed facts of the consolidated cases are summarizedby the CA as follows:

"On September 14, 1992, the Cid spouses, hereinprivate respondents, filed a Complaint for damagesagainst Philrock and seven of its officers andengineers with the Regional Trial Court of QuezonCity, Branch 82.

"On December 7, 1993, the initial trial date, the trialcourt issued an Order dismissing the case andreferring the same to the CIAC because the Cidspouses and Philrock had filed an Agreement toArbitrate with the CIAC.

"Thereafter, preliminary conferences were heldamong the parties and their appointed arbitrators. Atthese conferences, disagreements arose as to whethermoral and exemplary damages and tort should beincluded as an issue along with breach of contract,and whether the seven officers and engineers ofPhilrock who are not parties to the Agreement toArbitrate should be included in the arbitrationproceedings. No common ground could be reachedby the parties, hence, on April 2, 1994, both the Cidspouses and Philrock requested that the case beremanded to the trial court. On April 13, 1994, theCIAC issued an Order stating, thus:

'x x x the Arbitral Tribunal hereby formallydismisses the above-captioned case forreferral to Branch 82 of the Regional TrialCourt, Quezon City where it first originated.

SO ORDERED.'

"The Cid spouses then filed with said Branch of the

Regional Trial Court of Quezon City a Motion To SetCase for Hearing which motion was opposed byPhilrock.

"On June 13, 1995, the trial court declared that it nolonger had jurisdiction over the case and ordered therecords of the case to be remanded anew to the CIACfor arbitral proceedings.

"Pursuant to the aforementioned Order of theRegional Trial C[o]urt of Quezon City, the CIACresumed conducting preliminary conferences. OnAugust 21, 1995, herein [P]etitioner Philrock

requested to suspend the proceedings until the courtclarified its ruling in the Order dated June 13, 1995.Philrock argued that said Order was based on amistaken premise that 'the proceedings in the CIACfell through because of the refusal of [Petitioner]Philrock to include the issue of damages therein,'whereas the true reason for the withdrawal of the casefrom the CIAC was due to Philrock's opposition tothe inclusion of its seven officers and engineers, whodid not give their consent to arbitration, as partydefendants. On the other hand, private respondentNelia Cid manifested that she was willing to excludethe seven officers and engineers of Philrock as parties

to the case so as to facilitate or expedite theproceedings. With such manifestation from the Cidspouses, the Arbitral Tribunal denied Philrock'srequest for the suspension of the proceedings.Philrock's counsel agreed to the continuation of theproceedings but reserved the right to file a pleadingelucidating the position he [had] raised regarding theCourt's Order dated June 13, 1995. The parties thenproceeded to finalize, approve and sign the Terms ofReference. Philrock's counsel and representative,Atty. Pericles C. Consunji affixed his signature tosaid Terms of Reference which stated that 'the partiesagree that their differences be settled by an ArbitralTribunal x x x x' (p. 9, Terms of Reference, p. 200,

Rollo).

"On September 12, 1995, [P]etitioner Philrock filedits Motion to Dismiss, alleging therein that the CIAChad lost jurisdiction to hear the arbitration case due tothe parties' withdrawal of their consent to arbitrate.The motion was denied by x x x CIAC per Orderdated September 22, 1995. On November 8, publicrespondent ordered the parties to appear before it onNovember 28, 1995 for the continuation of thearbitral proceedings, and on February 7, 1996, public


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respondent directed [P]etitioner Philrock to set twohearing dates in the month of February to present itsevidence and to pay all fees assessed by it, otherwisex x x Philrock would be deemed to have waived itsright to present evidence.

"Hence, petitioner instituted the petition for certioraribut while said petition was pending, the CIACrendered its Decision dated September 24, 1996, the

dispositive portion of which reads, as follows:

'WHEREFORE, judgment is hereby rendered in favorof the Claimant, directing Respondent to payClaimant as follows:

1. P23,276.25 representing the excess cashpayment for materials ordered by theClaimants, (No. 7 of admitted facts) plusinterests thereon at the rate of 6% per annumfrom September 26, 1995 to the datepayment is made.

2. P65,000.00 representing retrofitting costs.

3. P13,404.54 representing refund of thevalue of delivered but unworkable concretemix that was laid to waste.

4. P50,000.00 representing moral damages.

5. P50,000.00 representing nominaldamages.

6. P50,000.00 representing attorney's feesand expenses of litigation.

7. P144,756.80 representing arbitration fees,minus such amount that may already havebeen paid to CIAC by respondent.

"Let a copy of this Decision be furnished theHonorable Salvador C. Ceguera, presiding judge,Branch 82 of Regional Trial Court of Quezon Citywho referred this case to the Construction IndustryArbitration Commission for arbitration and properdisposition.' (pp. 44-45, Rollo, CA-G.R. SP No.42443) "4

Before the CA, petitioner filed a Petition for Review, docketedas CA-GR SP No. 42443, contesting the jurisdiction of theCIAC and assailing the propriety of the monetary awards infavor of respondent spouses. This Petition was consolidated bythe CA with CA-GR SP No. 39781, a Petition for Certiorariearlier elevated by petitioner questioning the jurisdiction ofthe CIAC.

Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC5over the disputebetween petitioner and private respondent. Under Executive

Order No. 1008, the CIAC acquires jurisdiction when theparties agree to submit their dispute to voluntary arbitration.Thus, in the present case, its jurisdiction continued despite itsApril 13, 1994 Order referring the case back to the RegionalTrial Court (RTC) of Quezon City, Branch 82, the court oforigin. The CIACs action was based on the principle that

once acquired, jurisdiction remains "until the full terminationof the case unless a law provides the contrary." No such "fulltermination" of the case was evident in the said Order; nor didthe CIAC or private respondents intend to put an end to thecase.

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, arrive ata judicious resolution of the dispute and enforce its award ordecision.

Since the issues concerning the monetary awards were

questions 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, the CAreviewed the records and found that the awards weresupported by substantial evidence. In matters falling under thefield of expertise of quasi-judicial bodies, their findings of factare accorded great respect when supported by substantialevidence.

Hence, this Petition.6

Issues

The petitioner, in its Memorandum, raises the followingissues:

"A.

Whether or not the CIAC could take jurisdiction over the caseof Respondent Cid spouses against Petitioner Philrock afterthe case had been dismissed by both the RTC and the CIAC.

"B.

Whether or not Respondent Cid spouses have a cause of actionagainst 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 nominal damages

and attorney's fees and expenses of litigation in favor ofrespondents is proper.

"G.

Whether or not Petitioner Philrock should be held liable forthe 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) for


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ruling 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.

First Issue:

Jurisdiction

Petitioner avers that the CIAC lost jurisdiction over thearbitration case after both parties had withdrawn their consentto arbitrate. The June 13, 1995 RTC Order remanding the caseto the CIAC for arbitration was allegedly an invalid mode ofreferring 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 construction contractsentered into by parties that have agreed to submit their disputeto 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 for respondentspouses.9

Petitioner claims, on the other hand, that this Agreement waswithdrawn by respondents on April 8, 1994, because of theexclusion of the seven engineers of petitioners in thearbitration case. This withdrawal became the basis for theApril 13, 1994 CIAC Order dismissing the arbitration case andreferring 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 continued participatingin the arbitration even after the CIAC Order had been issued.It even concluded and signed the Terms of Reference10onAugust 21, 1995, in which the parties stipulated thecircumstances leading to the dispute; summarized theirrespective positions, issues, and claims; and identified thecomposition of the tribunal of arbitrators. The documentclearly confirms both parties intention and agreement tosubmit the dispute to voluntary arbitration. In view of this fact,we fail to see how the CIAC could have been divested of itsjurisdiction.

Finally, as pointed out by the solicitor general, petitionermaneuvered to avoid the RTCs final resolution of the disputeby arguing that the regular court also lost jurisdiction after thearbitral tribunals April 13, 1994 Order referring the case back

to the RTC. In so doing, petitioner conceded and estoppeditself from further questioning the jurisdiction of the CIAC.The Court will not countenance the effort of any party tosubvert or defeat the objective of voluntary arbitration for itsown 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 Action

Petitioner contends that respondent spouses were negligent innot 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 the concreteit delivered was defective, respondent spouses should bear theloss arising from their illegal operation. In short, it alleges thatthey had no cause of action against it.

We disagree. Cause of action is defined as an act or omission

by which a party violates the right of another.

12

A complaint isdeemed to have stated a cause of action provided it hasindicated the following: (1) the legal right of the plaintiff, (2)the correlative obligation of the defendant, and (3) the act orthe omission of the defendant in violation of the said legalright.13The cause of action against petitioner was clearlyestablished. Respondents were purchasers of ready-mixconcrete from petitioner. The concrete delivered by the latterturned out to be of substandard quality. As a result,respondents sustained damages when the structures they builtusing such cement developed cracks and honeycombs.Consequently, the construction of their residence had to bestopped.

Further, the CIAC Decision clearly spelled out respondents

cause of action against petitioner, as follows:

"Accordingly, this Tribunal finds that the mix was ofthe right proportions at the time it left the plant. This,however, does not necessarily mean that all of theconcrete mix delivered had remained workable whenit reached the jobsite. It should be noted that there isno evidence to show that all the transit mixers arrivedat the site within the allowable time that wouldensure the workability of the concrete mix delivered.

"On the other hand, there is sufficiently strongevidence to show that difficulties were encounteredin the pouring of concrete mix from certain transitmixers necessitating the [addition] of water andphysically pushing the mix, obviously because thesame [was] no longer workable. This Tribunal holdsthat the unworkability of said concrete mix has beenfirmly established.

"There is no dispute, however, to the fact that thereare defects in some areas of the poured structures. Inthis regard, this Tribunal holds that the only logicalreason is that the unworkable concrete was the one

that was poured in the defective sections."

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Third Issue:

Monetary Awards

Petitioner assails the monetary awards given by the arbitraltribunal for alleged lack of basis in fact and in law. Thesolicitor general counters that the basis for petitioners

assigned 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 by theCIAC 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 statutoryprovisions making the decisions of certain administrativeagencies "final," it still takes cognizance of petitions showingwant of jurisdiction, grave abuse of discretion, violation of dueprocess, denial of substantial justice or erroneousinterpretation of the law.16Voluntary arbitrators, by the nature


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of their functions, act in a quasi-judicial capacity, such thattheir 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 the arbitrationcase, nor was its justification discussed in the CIAC Decision.It further contends that it could not be held liable for interest,

because it had earlier tendered a check in the same amount torespondent spouses, who refused to receive it.

Petitioners contentions are completely untenable. Respondent

Nelia G. Cid had already raised the issue of overpayment evenprior to the formal arbitration. In paragraph 9 of the Terms ofReference, she stated:

"9. Claimants were assured that the problem and herdemands had been the subject of several staffmeetings and that Arteche was very much aware of it,a memorandum having been submitted citing all thedemands of [c]laimants. This assurance was made on

July 31, 1992 when Respondents Secillano,Martillano and Lomibao came to see Claimant NeliaCid and offered to refund P23,276.25, [t]hedifference between the billing by Philrocks

Marketing Department in the amount of P125,586.25and the amount charged by Philrock's Batching PlantDepartment in the amount of only P102,586.25,which [c]laimant refused to accept 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 a stipulationof the rate.

Awards for Retrof itti ng Costs, Wasted Unworkable

But Delivered Concrete, and Ar bitration F ees

Petitioner maintains that the defects in the concrete structure

were due to respondent spouses failure to secure the servicesof an engineer or architect to supervise their project. Hence, itclaims that the award for retrofitting cost was without legalbasis. It also denies liability for the wasted unworkable butdelivered concrete, for which the arbitral court awardedP13,404.54. Finally, it complains against the award oflitigation expenses, inasmuch as the case should not have beeninstituted at all had respondents complied with therequirements of the National Building Code.

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

were items of actual damages they sustained due to its breachof 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 for more

than seven years. In her Memorandum, Respondent Nelia G.Cid describes her familys sufferings arising from theunreasonable delay in the construction of their residence, asfollows: "The family lives separately for lack of space to stayin. Mrs. Cid is staying in a small dingy bodega, while her sonoccupies another makeshift room. Their only daughter stayedwith her aunt from 1992 until she got married in 1996. x xx."21The Court also notes that during the pendency of thecase, Respondent Vicente Cid died without seeing thecompletion of their home.22Under the circumstances, theaward of moral damages is proper.

Petitioner also contends that nominal damages should not havebeen granted, because it did not breach its obligation torespondent spouses.

Nominal damages are recoverable only if no actual orsubstantial damages resulted from the breach, or no damagewas or can be shown.23Since actual damages have beenproven by private respondents for which they were amplycompensated, they are no longer entitled to nominal damages.

Petitioner protests the grant of attorneys fees, arguing thatrespondent spouses did not engage the services of legalcounsel. Also, it contends that attorneys fees and litigation

expenses are awarded only if the opposing party acted in grossand evident bad faith in refusing to satisfy plaintiffs valid,

just and demandable claim.

We disagree. The award is not only for attorneys fees, but

also 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 RESOURCES

CORPORATION,petitioner,vs.TITAN-IKEDA CONSTRUCTION AND

DEVELOPMENT CORPORATION,respondent.

D E C I S I O N

TINGA, J.:

This Petition for Review on Certiorari under Rule 45 seeks thepartial reversal of the 21 February 1996 Decision1of the Courtof Appeals Fifteenth Division in CA-G.R. SP No. 37957which 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
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(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/suspend proceedingsand Titan's open court manifestation agreeing to thesuspension, Civil Case No. 98-0814 was suspended for it toundergo arbitration.4Titan's complaint was thus re-filed withthe CIAC.5Before the CIAC, Uniwide filed an answer whichwas later amended and re-amended, denying the materialallegations of the complaint, with counterclaims for refund ofoverpayments, actual and exemplary damages, and attorney'sfees. The agreements between Titan and Uniwide are brieflydescribed below.

PROJECT 1.6

The first agreement (Project 1) was a written "ConstructionContract" entered into by Titan and Uniwide sometime in May1991 whereby Titan undertook to construct Uniwide'sWarehouse Club and Administration Building in Libis,Quezon City for a fee of P120,936,591.50, payable in monthlyprogress billings to be certified to by Uniwide'srepresentative.7The parties stipulated that the building shall becompleted not later than 30 November 1991. As found by theCIAC, the building was eventually finished on 15 February19928and 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 in

Mandaluyong 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 May

1992. 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) itis not liable to pay the Value-Added Tax (VAT) for Project 1;(c) it is entitled to liquidated damages for the delay incurred inconstructing Project 1 and Project 3; and (d) it should not have

been found liable for deficiencies in the defectivelyconstructed Project 2.

An Arbitral Tribunal consisting of a chairman and twomembers was created in accordance with the CIAC Rules ofProcedure Governing Construction Arbitration. It conducted apreliminary conference with the parties and thereafter issued aTerms of Reference (TOR) which was signed by the parties.The tribunal also conducted an ocular inspection, hearings,and received the evidence of the parties consisting ofaffidavits which were subject to cross-examination. On 17April 1995, after the parties submitted their respective

memoranda, the Arbitral Tribunal promulgated a Decision,11the decretal portion of which is as follows:

"WHEREFORE, judgment is hereby rendered asfollows:

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 VATpayment on this project, the same being for theaccount of the [Titan]. On the other hand, [Titan] isabsolved of any liability on the counterclaim fordefective construction of this project.

[Uniwide] is held liable for the unpaid balance in theamount of P6,301,075.77 which is ordered to be paidto the [Titan] with 12% interest per annumcommencing from 19 December 1992 until the dateof payment.

On Project 3Kalookan:

[Uniwide] is held liable for the unpaid balance in theamount of P5,158,364.63 which is ordered to be paidto the [Titan] with 12% interest per annumcommencing from 08 September 1993 until the dateof payment.

[Uniwide] is held liable to pay in full the VAT on this

project, in such amount as may be computed by theBureau of Internal Revenue to be paid directlythereto. The BIR is hereby notified that [Uniwide]Sales Realty and Resources Corporation has assumedresponsibility and is held liable for VAT payment onthis project. This accordingly exempts ClaimantTitan-Ikeda Construction and DevelopmentCorporation from this obligation.

Let a copy of this Decision be furnished theHonorable Aurora P. Navarette Recina, PresidingJudge, Branch 119, Pasay City, in Civil Case No. 94-0814 entitled Titan-Ikeda Construction Development

Corporation, PlaintiffversusUniwide SalesRealty and Resources Corporation, Defendant,pending before said court for information and properaction.

SO ORDERED."12

Uniwide filed a motion for reconsideration of the 17 April1995 decision which was denied by the CIAC in its Resolutiondated 6 July 1995. Uniwide accordingly filed a petition forreview with the Court of Appeals,13which rendered theassailed decision on 21 February 1996. Uniwide's motion forreconsideration was likewise denied by the Court of Appeals

in its assailed Resolution14

dated 30 September 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.
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As a rule, findings of fact of administrative agencies andquasi-judicial bodies, which have acquired expertise becausetheir jurisdiction is confined to specific matters, are generallyaccorded not only respect, but also finality, especially whenaffirmed by the Court of Appeals.16In particular, factualfindings of construction arbitrators are final and conclusiveand not reviewable by this Court on appeal.17This rule,however admits of certain exceptions.

InDavid v. Construction Industry and ArbitrationCommission,18we ruled that, as exceptions, factual findings ofconstruction arbitrators may be reviewed by this Court whenthe petitioner proves affirmatively that: (1) the award wasprocured by corruption, fraud or other undue means; (2) therewas evident partiality or corruption of the arbitrators or of anyof them; (3) the arbitrators were guilty of misconduct inrefusing to hear evidence pertinent and material to thecontroversy; (4) one or more of the arbitrators weredisqualified to act as such under Section nine of Republic ActNo. 876 and willfully refrained from disclosing suchdisqualifications or of any other misbehavior by which therights of any party have been materially prejudiced; or (5) thearbitrators exceeded their powers, or so imperfectly executed

them, that a mutual, final and definite award upon the subjectmatter submitted to them was not made.19

Other recognized exceptions are as follows: (1) when there isa very clear showing of grave abuse of discretion20resulting inlack or loss of jurisdiction as when a party was deprived of afair opportunity to present its position before the ArbitralTribunal or when an award is obtained through fraud or thecorruption of arbitrators,21(2) when the findings of the Courtof Appeals are contrary to those of the CIAC,22and (3) when aparty is deprived of administrative due process.23

Thus, inHi-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, indisposing of the detailed claims of the respective parties. InMetro Construction, Inc. v. Chatham Properties, Inc.,25we

reviewed 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 and

Development Corporation,26we declined to depart from thefindings of the Arbitral Tribunal considering that thecomputations, as well as the propriety of the awards, areunquestionably factual issues that have been discussed by theArbitral Tribunal and affirmed by the Court of Appeals.

In the present case, only the first issue presented for resolutionof this Court is a question of law while the rest are factual innature. However, we do not hesitate to inquire into these

factual issues for the reason that the CIAC and the Court ofAppeals, 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 foradditional works done on Project 1. Uniwide asserts that Titanwas not entitled to be paid this amount because the additionalworks were without any written authorization.

It should be noted that the contracts do not contain stipulationson "additional works," Uniwide's liability for "additionalworks," and prior approval as a requirement before Titancould 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 astructure or any other work for a stipulated price, inconformity with plans and specifications agreed uponwith the landowner, can neither withdraw from thecontract nor demand an increase in the price onaccount of the higher cost of labor or materials, savewhen there has been a change in the plans andspecifications, provided:

(1) Such change has been authorized by theproprietor in writing; and

(2) The additional price to be paid to the contractorhas been determined 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 hadalready 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 knew

that it was not legally compelled to do so. As such debtor,Uniwide could no longer demand the refund of the amountalready paid.

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-Ikeda thatthe "additional works" were authorized in writing. Uniwidecharacterizes 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 ofsolutio indebiti under Arts. 215428and 215629of the Civil

Code.

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. 1724 denies,as a matter of right, payment to the contractor for additionalworks which were not authorized in writing by the proprietor,and the additional price of which was not determined inwriting by the parties.

Yet the distinction pointed out by the Court of Appeals ismaterial. The issue is no longer centered on the right of thecontractor 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 to demandor receive such payment.

But, even if the Court accepts Art. 1724 as applicable in thiscase, such recognition does not ipsofactoaccord Uniwide theright to be reimbursed for payments already made, since Art.1724 does not effect such right of reimbursement. It has to be
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understood that Art. 1724 does not preclude the payment tothe contractor who performs additional works without anyprior written authorization or agreement as to the price forsuch works if the owner decides anyway to make suchpayment. What the provision does preclude is the right of thecontractor to insist upon payment for unauthorized additionalworks.

Accordingly, Uniwide, as the owner who did pay the

contractor for such additional works even if they had not beenauthorized 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 the lightof the general presumption contained in Section 3(f), Rule 131of the Rules of Court that "money paid by one to another wasdue to the latter."

Uniwide undertakes such a task before this Court, citing theprovisions onsolutio indebiti under Arts. 2154 and 2156 of theCivil 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 onsolutioindebitito 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 undertaken byTitan. Still, Uniwide does cite testimonial evidence from therecord alluding to a concession by employees of Titan thatthese additional works on Project 1 were either authorized ordocumented.33

Yet even conceding that the additional works on Project 1were not authorized or committed into writing, the undisputedfact remains that Uniwide paid for these additional works.Thus, to claim a refund of payments made under the principleofsolutio indebiti, Uniwide must be able to establish that thesepayments were made through mistake. Again, this is a factualmatter that would have acquired a mantle of invulnerabilityhad it been determined by both the CIAC and the Court ofAppeals. However, both bodies failed to arrive at such aconclusion. Moreover, Uniwide is unable to direct ourattention to any pertinent part of the record that would indeedestablish that the payments were 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 theunpaid 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 in itsmemorandum as one of the issues submitted for the resolutionof 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. CitingSecs. 99 and 102 of the National Internal Revenue Code,Uniwide asserts that VAT, being an indirect tax, may beshifted to the buyer by including it in the cash or selling priceand it is entirely up to the buyer to agree or not to agree toabsorb the VAT.34Thus, Uniwide concludes, if there is no

provision in the contract as to who should pay the VAT, it ispresumed 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 responsible forthe 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, the

CIAC and the Court of Appeals found that the same was forProject 1.

We agree with the conclusions of both the CIAC and the Courtof Appeals that the amount of P2,400,000.00 was paid byUniwide 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," computed onthe basis of 4% of P60,000,000.00. Said document which wasapproved by the President of Uniwide expressly indicated thatthe project involved was the "UNIWIDE SALESWAREHOUSE CLUB & ADMIN BLDG." located at "90 E.RODRIGUEZ JR. AVE., LIBIS, Q.C." The reduced base forthe computation of the tax, according to the Court of Appeals,was an indication that the parties agreed to pass the VAT forProject 1 to Uniwide but based on a lower contract price.Indeed, the CIAC found as follows:

Without any documentary evidence than Exhibit "H"to show the extent of tax liability assumed by[Uniwide], the Tribunal holds that the parties is [sic]obliged to pay only a share of the VAT payment upto P60,000,000.00 out of the total contract price ofP120,936,591.50. As explained by Jimmy Gow,

VAT is paid on labor only for construction

contracts since VAT had already been paid on the

materials purchased. Since labor costs is [sic]

proportionately placed at 60%-40% of the

contract price, simplified accounting computes

VAT at 4% of the contract price. Whatever is thebalance for VAT that remains to be paid on Project 1Libis shall remain the obligation 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 matter

should be left for determination in future proceedings wherethe issue has been made clear.

In rejecting Uniwide's claim for liquidated damages, the CIACheld that there is no legal basis for passing upon and resolvingUniwide's claim for the following reasons: (1) no claim forliquidated damages arising from the alleged delay was evermade by Uniwide at any time before the commencement ofTitan's complaint; (2) the claim for liquidated damages wasnot included in the counterclaims stated in Uniwide's answerto Titan's complaint; (3) the claim was not formulated as anissue to be resolved by the CIAC in the TOR;39and (4) noattempt was made to modify the TOR to accommodate thesame 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 isnot necessarily bound by the Rules of Court. Also, the Courtof Appeals found that the issue has never been made concreteenough to make Titan and the CIAC aware that it will be anissue. In fact, Uniwide only introduced and quantified itsclaim for liquidated damages in its Memorandum submitted tothe CIAC at the end of the arbitration proceeding. The Courtof Appeals also noted that the only evidence on record to
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prove delay in the construction of Project 1 is the testimony ofTitan's engineer regarding the date of completion of theproject while the only evidence of delay in the construction ofProject 3 is the affidavit of Uniwide's President.

According to Uniwide, the ruling of the Court of Appeals onthe issue of liquidated damages goes against the establishedjudicial policy that a court should always strive to settle in oneproceeding the entire controversy leaving no root or branch to

bear the seeds of future litigations.

41

Uniwide claims that therequired evidence for an affirmative ruling on its claim isalready on the record. It cites the pertinent provisions of thewritten contracts which contained deadlines for liquidateddamages. Uniwide also noted that the evidence show thatProject 1 was completed either on 15 February 1992, as foundby the CIAC, or 12 March 1992, as shown by Titan's ownevidence, while Project 3, according to Uniwide's President,was completed in June 1993. Furthermore, Uniwide asserts,the CIAC should have applied procedural rules such asSection 5, Rule 10 with more liberality because it was anadministrative tribunal free from the rigid technicalities ofregular courts.42

On this point, the CIAC held:

The Rule of Procedure Governing ConstructionArbitration promulgated by the CIAC contains noprovision on the application of the Rules of Court toarbitration proceedings, even in a suppletorycapacity. Hypothetically admitting that there is such aprovision, suppletory application is made only if itwould not contravene a specific provision in thearbitration rules and the spirit thereof. The Tribunalholds that such importation of the Rules of Court

provision on amendment to conform to evidence

would contravene the spirit, if not the letter of the

CIAC rules. This is for the reason that theformulation of the Terms of Reference is done withthe active participation of the parties and theircounsel themselves. The TOR is further required tobe signed by all the parties, their respective counseland all the members of the Arbitral Tribunal. Unlessthe issues thus carefully formulated in the Terms ofReference were expressly showed [sic] to beamended, issues outside thereof may not be resolved.As already noted in the Decision, "no attempt wasever made by the [Uniwide] to modify the TOR inorder to accommodate the issues related to its belatedcounterclaim" on this issue. (Emphasis supplied.)

Arbitration has been defined as "an arrangement for taking andabiding by the judgment of selected persons in some disputedmatter, instead of carrying it to established tribunals of justice,and is intended to avoid the formalities, the delay, the expenseand vexation of ordinary litigation."43Voluntary arbitration,on the other hand, involves the reference of a dispute to animpartial body, the members of which are chosen by theparties themselves, which parties freely consent in advance toabide by the arbitral award issued after proceedings whereboth parties had the opportunity to be heard. The basicobjective is to provide a speedy and inexpensive method ofsettling disputes by allowing the parties to avoid the

formalities, delay, expense and aggravation which commonlyaccompany ordinary litigation, especially litigation which goesthrough the entire hierarchy of courts.44As an arbitrationbody, the CIAC can only resolve issues brought before it bythe parties through the TOR which functions similarly as apre-trial brief. Thus, if Uniwide's claim for liquidated damageswas not raised as an issue in the TOR or in any modified oramended version of it, the CIAC cannot make a ruling on it.The Rules of Court cannot be used to contravene the spirit ofthe CIAC rules, whose policy and objective is to "provide afair and expeditious settlement of construction disputes

through a non-judicial process which ensures harmonious andfriendly relations between or among the parties."45

Further, a party may not be deprived of due process of law byan amendment of the complaint as provided in Section 5, Rule10 of the Rules of Court. In this case, as noted by the Court ofAppeals, Uniwide only introduced and quantified its claim forliquidated damages in its memorandum submitted to the CIACat the end of the arbitration proceeding. Verily, Titan was not

given a chance to present evidence to counter Uniwide's claimfor 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 ofEngr. 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 be admissiblefor several purposes under the doctrine of multipleadmissibility, or may be admissible for one purpose and notfor another, otherwise the adverse party cannot interpose theproper objection. Evidence submitted for one purpose may notbe considered for any other purpose.46Furthermore, evenassuming, for the sake of argument, that said testimony on thedate of completion of Project 1 is admitted, the establishmentof the mere fact of delay is not sufficient for the imposition ofliquidated damages. It must further be shown that delay wasattributable to the contractor if not otherwise justifiable.Contrarily, Uniwide's belated claim constitutes an admissionthat the delay was justified and implies a waiver of its right tosuch 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 resolvefour 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 Uniwide

liable for deficiency relating to Project 2 in the amount ofP6,301,075.77. It is nonetheless alleged by Uniwide that Titanfailed to submit any "as-built" plans for Project 2, such plansallegedly serving as a condition precedent for payment.Uniwide further claims that Titan had substantiallyovercharged Uniwide for Project 2, there being uncontradictedexpert testimony that the total cost of Project 2 did not exceedP7,812,123.60. Furthermore, Uniwide alleged that the worksperformed were structurally defective, as evidenced by thestructural damage on four columns as observed on ocularinspection by the CIAC and confirmed by Titan's projectmanager.

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 said plansare 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 is untenable.The purpose of the law is "to safeguard life, health, property,and public welfare, consistent with the principles of soundenvironmental management and control." The submission ofthese plans is necessary only in furtherance of the law'spurpose by setting minimum standards and requirements tocontrol the "location, site, design, quality of materials,
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construction, use, occupancy, and maintenance" of buildingsconstructed and not as a requirement for payment to thecontractor.47The testimony of Engr. Tablante to the effect thatthe "as-built" plans are required before payment can beclaimed by Titan is a mere legal conclusion which is notbinding 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 SiteDevelopment Works for the EDSA Central, DauBranch Project (Exhibit "2-A" for [Uniwide] andmade as a common exhibit by [Titan] who had itmarked at [sic] its own Exhibit "U"), which wasadmittedly prepared by Fermindoza and Associates,[Uniwide]'s own architects, shows that the amount ofP17,750,896.48 was arrived at. Together with theagreed upon mark-up of 20% on said amount, thetotal project cost was P21,301,075.77.

The Tribunal holds that the foregoing document isbinding upon the [Uniwide], it being the mode agreedupon by which its liability for the project cost was tobe 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 mayproperly be dismissed. As held by the CIAC:

The Tribunal holds that [Uniwide] has not introducedany evidence to sustain its charge of fraudulentconspiracy. As a matter of fact, [Uniwide]'s ownprincipal witness, Jimmy Gow, admitted on cross-examination that he does not have any directevidence to prove his charge of connivance orcomplicity between the [Titan] and his ownrepresentatives. He only made that conclusion by theprocess of his own "logical reasoning" arising fromhis consultation with other contractors who gave hima much lower estimate for the construction of the DauProject. There is thus no reason to invalidate thebinding character of Exhibit "2-A" which, it is

significant to point out, is [Uniwide]'s ownevidence.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 is thesame amount reflected in the Order of Payment prepared byUniwide's representative, Le Consultech, Inc. and signed byno less than four top officers and architects of Le Consultech,Inc. endorsing for payment by Uniwide to Titan the amount ofP6,301,075.77.50

Uniwide asserts that Titan should not have been allowed to

recover 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 haveappliedNakpil and Sons v. Court of Appeals51and Art. 1723of the New Civil Code holding a contractor responsible fordamages if the edifice constructed falls within fifteen yearsfrom completion on account of defects in the construction orthe use of materials of inferior quality furnished by him or dueto 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 the saidocular inspection is described thus:

On 30 January 1995, an ocular inspection wasconducted by the Arbitral Tribunal as requested by[Uniwide]. Photographs were taken of the allegedconstruction defects, an actual ripping off of theplaster of a certain column to expose the alleged

structural defect that is claimed to have resulted in itsbeing "heavily damaged" was done, clarificatoryquestions were asked and manifestations onobservations were made by the parties and theirrespective counsels. The entire proceedings wererecorded on tape and subsequently transcribed. Thephotographs and transcript of the ocular inspectionform 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]'s counterclaim of defective constructionhas not been sufficiently proven. The credibility ofEngr. Cruz, [Uniwide]'s principal witness on thisissue, has been severely impaired. During the ocularinspection of the premises, he gave such assurance ofthe soundness of his opinion as an expert that acertain column was heavily damaged judging fromthe external cracks that was readily apparent x x x

x x x x

On insistence of the Tribunal, the plaster was chippedoff and revealed a structurally sound column x x x

Further, it turns out that what was being passed off asa defective construction by [Titan], was in fact an oldcolumn, as admitted by Mr. Gow himself x x x x53(Emphasis supplied.)

Uniwide had the burden of proving that there was defectiveconstruction in Project 2 but it failed to discharge this burden.Even the credibility of its own witness was severely impaired.Further, it was found that the concrete slab placed by Titanwas not attached to the old columns where cracks werediscovered. The CIAC held that the post-tensioning of the newconcrete slab could not have caused any of the defects

manifested by the old columns. We are bound by this findingof fact by the CIAC.

It is worthy to stress our ruling inHi-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 arbitrationfacility to which the construction industry in thePhilippines can have recourse. The Executive Order

was enacted to encourage the early and

expeditious settlement of disputes in the

construction industry, a public policy theimplementation of which is necessary and

important for the realization of national

development goals.

Aware of the objective of voluntary arbitration in thelabor field, in the construction industry, and in anyother area for that matter, the Court will not assistone or the other or even both parties in any effort tosubvert or defeat that objective for their privatepurposes. The Court will not review the factual
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findings of an arbitral tribunal upon the artfulallegation that such body had "misapprehended facts"and will not pass upon issues which are, at bottom,issues of fact, no matter how cleverly disguised theymight be as "legal questions." The parties here hadrecourse to arbitration and chose the arbitratorsthemselves; they must have had confidence in sucharbitrators. The Court will not, therefore, permit theparties to relitigate before it the issues of factspreviously presented and argued before the ArbitralTribunal, save only where a clear showing is madethat, in reaching its factual conclusions, the ArbitralTribunal committed an error so egregious and hurtfulto one party as to constitute a grave abuse ofdiscretion resulting in lack or loss of jurisdiction.Prototypical examples would be factual conclusionsof the Tribunal which resulted in deprivation of oneor the other party of a fair opportunity to present itsposition before the Arbitral Tribunal, and an awardobtained through fraud or the corruption ofarbitrators. Any other, more relaxed rule would resultin setting at naught the basic objective of a voluntaryarbitration and would reduce arbitration 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 Presiding

Judge of Branch 256 of Regional Trial Court of

Muntinlupa City, and PACIFIC GENERAL STEELMANUFACTURING CORPORATION,respondents.

D E C I S I O N

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods ofresolving 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 theywould 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 wasexecuted in the Philippines. On April 7, 1997, the partiesexecuted, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 19972amending the terms of payment.The contract and its amendment stipulated that KOGIES will

ship the machinery and facilities necessary for manufacturingLPG cylinders for which PGSMC would pay USD 1,224,000.KOGIES would install and initiate the operation of the plantfor which PGSMC bound itself to pay USD 306,000 upon theplants production of the 11-kg. LPG cylinder samples. Thus,the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract ofLease3with Worth Properties, Inc. (Worth) for use of Worths

5,079-square meter property with a 4,032-square meterwarehouse building to house the LPG manufacturing plant.The monthly rental was PhP 322,560 commencing on January1, 1998 with a 10% annual increment clause. Subsequently,the machineries, equipment, and facilities for the manufactureof LPG cylinders were shipped, delivered, and installed in theCarmona plant. PGSMC paid KOGIES USD 1,224,000.

However, gleaned from the Certificate4executed by the partieson January 22, 1998, after the installation of the plant, theinitial operation could not be conducted as PGSMCencountered financial difficulties affecting the supply ofmaterials, thus forcing the parties to agree that KOGIESwould be deemed to have completely complied with the termsand 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 dated January30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413dated March 30, 1998 for PhP 4,500,000.5

When KOGIES deposited the checks, these were dishonoredfor the reason "PAYMENT STOPPED." Thus, on May 8,1998, KOGIES sent a demand letter6to PGSMC threateningcriminal action for violation ofBatas Pambansa Blg.22 in

case of nonpayment. On the same date, the wife of PGSMCsPresident faxed a letter dated May 7, 1998 to KOGIES

President who was then staying at a Makati City hotel. Shecomplained that not only did KOGIES deliver a differentbrand of hydraulic press from that agreed upon but it had notdelivered 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 the

ground that KOGIES had altered the quantity and lowered thequality 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 their contractnor dismantle and transfer the machineries and equipment onmere imagined violations by KOGIES. It also insisted that

their disputes should be settled by arbitration as agreed uponin Article 15, the arbitration clause of their contract.

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, onJuly 1, 1998, KOGIES instituted an Application forArbitration before the Korean Commercial Arbitration Board(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract asamended.
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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 July22, 1998. In its complaint, KOGIES alleged that PGSMC hadinitially admitted that the checks that were stopped were notfunded but later on claimed that it stopped payment of thechecks for the reason that "their value was not received" as theformer allegedly breached their contract by "altering thequantity and lowering the quality of the machinery andequipment" installed in the plant and failed to make the plantoperational although it earlier certified to the contrary asshown in a January 22, 1998 Certificate. Likewise, KOGIESaverred that PGSMC violated Art. 15 of their Contract, asamended, by unilaterally rescinding the contract withoutresorting to arbitration. KOGIES also asked that PGSMC berestrained from dismantling and transferring the machineryand equipment installed in the plant which the latter threatenedto 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 over theinstant 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; that KOGIESwas not entitled to the PhP 9,000,000 covered by the checksfor 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 PhP2,257,920 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 KOGIES nolonger had proprietary rights over them. And finally, the RTCheld that Art. 15 of the Contract as amended was invalid as it

tended to oust the trial court or any other court jurisdictionover any dispute that may arise between the parties. KOGIES

prayer for an injunctive writ was denied.10The dispositiveportion of the Order stated:

WHEREFORE, in view of the foregoingconsideration, this Court believes and so holds thatno cogent reason exists for this Court to grant thewrit of preliminary injunction to restrain and refraindefendant from dismantling the machineries andfacilities at the lot and building of Worth Properties,Incorporated at Carmona, Cavite and transfer thesame to another site: and therefore denies plaintiffs

application for a writ of preliminary injunction.

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 claimed that it hadperformed all the undertakings under the contract and hadalready produced certified samples of LPG cylinders. Itaverred that whatever was unfinished was PGSMCs 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 the arbitration clause waswithout question valid.

After KOGIES filed a Supplemental Memorandum withMotion to Dismiss13answering PGSMCs memorandum ofJuly 22, 1998 and seeking dismissal of PGSMCs

counterclaims, KOGIES, on August 4, 1998, filed its Motionfor Reconsideration14of the July 23, 1998 Order denying itsapplication for an injunctive writ claiming that the contract

was 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 andtransfer 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 and asheld 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) denying

KOGIES motion for reconsideration of the July 23, 1998

RTC Order; and (3) denying KOGIES motion to dismiss

PGSMCs compulsory counterclaims as these counterclaims

fell 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 forreconsideration, KOGIES filed before the Court of Appeals(CA) a petition for certiorari18docketed as CA-G.R. SP No.49249, seeking annulment of the July 23, 1998 and September21, 1998 RTC Orders and praying for the issuance of writs of

prohibition, mandamus, and preliminary injunction to enjointhe RTC and PGSMC from inspecting, dismantling, andtransferring the machineries and equipment in the Carmonaplant, and to direct the RTC to enforce the specific agreementon arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC deniedKOGIES urgent motion for reconsidera

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