BF Corporation vs. Court of Appeals

The Court held that an arbitration clause contained in an unsigned document is valid and binding if it is clearly identified or referred to and made part of a signed principal agreement, as the subscription of the principal agreement effectively covers the other documents incorporated by reference. Furthermore, the Court held that when a trial court prematurely assumes jurisdiction over a dispute subject to a valid arbitration agreement, such action constitutes grave abuse of discretion correctible by certiorari.

Petitioner BF Corporation and respondent Shangri-La Properties, Inc. (SPI) entered into an agreement for the construction of the EDSA Plaza Project. Disputes arose regarding construction delays, which SPI considered substantial and BF Corporation attributed to a fire. After a failed conference to settle their disagreements, BF Corporation filed a collection suit. SPI moved to suspend the court proceedings, invoking an arbitration clause in their contract.

• The Construction Agreement: Petitioner and respondent SPI entered into an "Agreement for the Execution of Builder's Work for the EDSA Plaza Project" dated May 30, 1991. The agreement provided that the "Contract Documents" listed therein "shall be deemed an integral part of this Agreement." One such document was the "Conditions of Contract," which contained Clause 35, the arbitration clause. The Articles of Agreement was signed by the presidents of both corporations and notarized on November 15, 1991. However, the "Conditions of Contract" itself bore only the initials of BF Corporation's representatives and lacked the initials or signatures of SPI's representatives.
• The Dispute: BF Corporation incurred delays, which SPI considered serious and substantial, while BF Corporation attributed the delays to a fire. SPI claimed BF Corporation abandoned the project. A conference held on July 12, 1993, to settle the dispute proved futile.
• Judicial Action: On July 14, 1993, BF Corporation filed a collection complaint with the RTC of Pasig. On August 3, 1993, SPI filed a motion to suspend proceedings based on the arbitration clause. On August 13, 1993, SPI wrote to BF Corporation requesting arbitration.

Petitioner argued that the Court of Appeals erred in issuing certiorari because the remedy of appeal was available to the respondents. On the substantive issue, Petitioner maintained that no valid arbitration agreement existed because the "Conditions of Contract" containing the clause was not signed by the parties. Petitioner asserted that the documents submitted by SPI were a "hodge-podge" of photocopies not constituting a formal trade contract, and the notarial certification only covered the Articles of Agreement. Alternatively, Petitioner argued that SPI was in default for invoking arbitration beyond a reasonable time and after the time of final payment.

Respondent SPI countered that the notarized Articles of Agreement expressly incorporated the "Conditions of Contract" by reference, making the arbitration clause binding. SPI argued that the lack of initials on the Conditions of Contract did not affect its effectivity since the principal agreement was signed. SPI also contended that it was not in default, as its request for arbitration on August 13, 1993, was within a reasonable time after the failed conference on July 12, 1993. Finally, SPI argued that certiorari was proper to correct the trial court's grave abuse of discretion in prematurely assuming jurisdiction.

• Procedural Issues: Whether the Court of Appeals erred in taking cognizance of the petition for certiorari under Rule 65 instead of leaving petitioner to the remedy of ordinary appeal.
• Substantive Issues: Whether the contract between the parties contains a valid and binding arbitration clause. Whether private respondents are in default in invoking the arbitration clause.

• Procedural: The Court held that certiorari was the proper remedy. While certiorari is not a substitute for appeal, a trial court's premature assumption of jurisdiction over a dispute subject to arbitration constitutes grave abuse of discretion amounting to lack or excess of jurisdiction. Furthermore, the existence of the arbitration clause, which determines jurisdiction, presented a mixed question of fact and law that the Court of Appeals correctly resolved. Relaxing the rule against substituting certiorari for appeal was also justified to prevent a miscarriage of justice that would result in the judicial rejection of a valid contractual provision.
• Substantive: The Court held that the arbitration clause is valid and binding. Under Section 4 of Republic Act No. 876, an arbitration agreement must be in writing and subscribed by the party sought to be charged. The signed and notarized Articles of Agreement expressly incorporated the "Conditions of Contract" by reference. A contract need not be contained in a single writing; it may be collected from several different writings. The subscription of the principal agreement effectively covered the other documents incorporated by reference. Therefore, the lack of signatures on the "Conditions of Contract" itself did not invalidate the arbitration clause. Regarding the issue of default, the Court found that SPI was not in default. The arbitration clause provided for a demand within a "reasonable time" after the dispute arose. The one-month period from the failed conference on July 12, 1993, to the request for arbitration on August 13, 1993, was reasonable under the circumstances.

• Incorporation by Reference in Arbitration Agreements — A contract need not be contained in a single writing; it may be collected from several different writings which do not conflict with each other. An arbitration clause contained in an unsigned document is valid and binding if it is clearly identified or referred to and made part of a signed principal agreement. The subscription of the principal agreement effectively covers the other documents incorporated by reference therein.
• Certiorari as a Remedy to Enforce Arbitration — When a trial court prematurely assumes jurisdiction over a dispute that is subject to a valid arbitration agreement, such action constitutes grave abuse of discretion amounting to lack or excess of jurisdiction. Certiorari under Rule 65 is the proper remedy to annul such orders, not an ordinary appeal. Moreover, the rigid application of the rule that certiorari cannot substitute for appeal may be relaxed when it would result in a manifest failure or miscarriage of justice, such as the judicial rejection of a valid arbitration clause.

• "A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence."
• "The subscription of the principal agreement effectively covered the other documents incorporated by reference therein."
• "To brush aside a contractual agreement calling for arbitration in case of disagreement between the parties would therefore be a step backward."

• Ongsitco v. Court of Appeals, 325 Phil. 1069 (1996) — Cited for the rule that certiorari will not lie where appeal is the proper remedy, but distinguished in the present case where the trial court prematurely assumed jurisdiction over an arbitrable dispute.
• Sps. Mejares v. Hon. Reyes, 324 Phil. 710 (1996) — Cited to support the relaxation of technical rules when rigid application results in a manifest failure or miscarriage of justice.
• Commissioner of Internal Revenue v. Court of Appeals, 327 Phil. 1 (1996) — Cited for the principle that certiorari is not a remedy for errors of judgment but for errors of jurisdiction.

• Section 4, Republic Act No. 876 (Arbitration Law) — Provides the formal requisites of an arbitration agreement: it must be in writing and subscribed by the party sought to be charged or by his lawful agent. The Court held that the subscription of the principal agreement, which incorporated the conditions of contract by reference, satisfied this requirement.
• Section 7, Republic Act No. 876 — Provides that proceedings in court are stayed pending arbitration. The Court noted that the lower court had not lost jurisdiction over the case but merely stayed proceedings.

Narvasa, C.J., Kapunan, and Purisima, JJ.