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BF Corp v CA. Shangri-La Properties Inc (SPI)| Romero

G.R. No. 120105, March 27, 1998 | 288 SCRA 267

BF Corp and SPI entered into an agreement to where BF was to

construct the main structure of EDSA Plaza Project (Shangri-La
Mall). This was contained in the ARTICLES OF AGREEMENT.
BF incurred delay in the completion of the project, which SPI
considered to be serious and substantial while BF holds that it
was in faithful compliance with their FIRST AGREEMENT. Later,
Phase I of the project was gutted by fire (in Nov 1990) which
further exacerbated their situation. SPI proposed a renegotiation.
May 30 1991: BF and SPI entered into an Agreement
(Agreement for the Execution of Builders Work for Edsa Plaza
Project). This agreement covers the construction until its
eventual completion, set on October 31, 1991.
SPI said there was failure to complete the project, which
sparked disagreement between the parties
November 1991: BF billed SPI and demanded payment. Instead
of paying, SPI counterclaimed P220M for the delay in the
construction (pursuant to penalty clause of the agreement:
Php80K for every day of delay from Nov. 1 1991 up to 5% of the
contract price)
July 12, 1993: SPI initiated a conference but they failed to
agree.
July 14, 1993: BF filed a complaint to collection of the balance
due (110, 883, 101.52).
August 3, 1993: SPI filed motion to suspend proceedings
(instead of filing an answer) claiming that their agreement
contained an arbitration clause(that there should be prior
resort to arbitration before resorting to judicial proceedings). BF
opposed this motion claiming:
o there was no formal contract to arbitrate because the
CONDITIONS OF THE CONTRACT which contained the
arbitration clause did not comply with the formal
requisites of an arbitration contract pursuant to Sec 4 of
RA876 (this instrument did not bear the signature of
representative of SPI and Bayani Fernando, Pres. of BF
Corp only initialed it), hence there is no arbitration
clause to speak of.
TC: denied the motion to suspend proceedings. It also said that
assuming there was an arbitration clause, demand to arbitrate
was not reasonably made because SPI failed to file a written
demand to arbitrate for 1 year and 8 mos already (counted from

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the time BF billed them to pay until the filing of collection

complaint)
SPI filed a petition for certiorari under R65 to the CA.
CA: granted the petition and set aside the orders of the TC,
hence this Petition for Review on Certiorari

ISSUES & ARGUMENTS

Whether the ARBITRATION CLAUSE EXISTS?

Does the CA have the jurisdiction to determine this issue even if
on its face , the existence of an arbitration clause is a factual
matter?

HOLDING & RATIO DECIDENDI

ARBITRATION CLAUSE EXISTS. The CA have jurisdiction. Although
on its face, the existence of an arbitration clause is a factual
matter, in this case, the existence of the arbitration clause depends
upon the interpretation of Sec 4 of RA 876 (Formal Requisite of an
Arbitration Clause) which is a question of law. It became the proper
subject of a petition for certiorari because the CA had to determine
(by settling the question of law) whether the TC prematurely
assumed jurisdiction over the case.

(ARBITRATION PART) The Court finds that, upon a scrutiny of the

records of this case, these requisites were complied with in the
contract in question. The Articles of Agreement, which
incorporates all the other contracts and agreements between
the parties, was signed by representatives of both parties and
duly notarized. The failure of the private respondent's
representative to initial the "Conditions of Contract" would
therefore not affect compliance with the formal requirements
for arbitration agreements because that particular portion of the
covenants between the parties was included by reference in the
Articles of Agreement.
Petitioner's contention that there was no arbitration clause
because the contract incorporating said provision is part of a
"hodge-podge" document, is therefore untenable. 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. A contract may be encompassed in several

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instruments even though every instrument is not signed by the

parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed
instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is
binding on both to the same extent as though there had been
only one copy of the agreement and both had signed it.
Court also ruled that reasonable time is relative. In this case,
the 1-mo period from the time they held a conference (July 12,
1993) that SPI invoked the arbitration clause is within a
reasonable time.
Court highlighted: that arbitration is the wave of the future
and that this is recognized worldwide. To brush aside the
contractual agreement between the parties calling for
arbitration in case of disagreement between the parties would
therefore be a step backward.
(REMEDIAL PART) Where a rigid application of the rule that
certiorari cannot be a substitute for appeal will result in a
manifest failure or miscarriage of justice, the provisions of the
Rules of Court which are technical rules may be relaxed. As we
shall show hereunder, had the CA dismissed the petition for
certiorari, the issue of whether or not an arbitration clause
exists in the contract would not have been resolved in
accordance with evidence extant in the record of the case.
Consequently, this would have resulted in a judicial rejection of
a contractual provision agreed by the parties to the contract. In
the same vein, this Court holds that the question of the
existence of the arbitration clause in the contract between
petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.
WHEREFORE, premises considered, the instant petition is
DENIED. The Decisions of the CA is AFFIRMED.

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filed with the RTC of Makati City a verified Petition for the
Declaration of Presumptive Death, which Petition was granted.
In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City
a Complaint for Declaration of Nullity of Sale, Reconveyance,
Cancellation of Contract, Accounting and Damages against
Respondents.

SALAS vs. LAPERAL

G.R. NO. 135362 (December 13, 1999)
DE LEON, JR., J.:
FACTS: Augusto Salas, Jr. was the registered owner of a vast tract
of land in Lipa City, Batangas. He entered into an Owner-Contractor
Agreement with Respondent Laperal Realty Corporation to render
and provide complete (horizontal) construction services on his land.
Said agreement contains an arbitration clause, to wit:
ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNERS
representative shall be referred to the committee represented by:
1. One representative of the OWNER;
2. One representative of the CONTRACTOR;
3. One representative acceptable to both OWNER and
CONTRACTOR."
Salas, Jr. then executed a Special Power of Attorney in favor of
Respondent Laperal Realty to exercise general control, supervision
and management of the sale of his land, for cash or on installment
basis. By virtue thereof, Respondent Laperal Realty subdivided said
land and sold portions thereof to Respondents Rockway Real Estate
Corporation and South Ridge Village, Inc. in 1990; to Respondent
spouses Abrajano and Lava and Oscar Dacillo in 1991; and to
Respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capalan in 1996 (Respondent Lot Buyers hereinafter).
Back in 1989, Salas, Jr. left his home in the morning for a business
trip to Nueva Ecija. He, however, never returned on that unfaithful
morning. Seven years later or in 1996, his wife, Teresita Diaz-Salas

Respondent Laperal Realty filed a Motion to Dismiss on the ground

that Petitioners failed to submit their grievance to arbitration as
required under Article VI of the Owner-Contractor Agreement.
Respondent spouses Abrajano and Lava and Respondent Dacillo
filed a Joint Answer with Counterclaim and Crossclaim praying for
dismissal of Petitioners Complaint for the same reason.
The RTC then issued the herein assailed Order dismissing
Petitioners Complaint for non-compliance with the foregoing
arbitration clause.
Hence the present Petition for Review on Certiorari under Rule 45.
ISSUE: WON the arbitration clause under Article VI of the
Owner-Contractor
Agreement
is binding
upon
the Respondent Lot Buyers? NO.
ARGUMENTS: Petitioners argue that (1) their causes of action did
not emanate from the Owner-Contractor Agreement, (2) that their
causes of action for cancellation of contract and accounting are
covered by the exception under the Arbitration Law, and (3) that
failure to arbitrate is not a ground for dismissal.
Petitioners claim that they suffered lesion of more than one-fourth
(1/4) of the value of Salas, Jr.s land when Respondent Laperal
Realty subdivided it and sold portions thereof to Respondent Lot
Buyers. Thus, they instituted action against both Respondent
Laperal Realty and Respondent Lot Buyers for rescission of the sale
transactions and reconveyance to them of the subdivided lots.
They argue that rescission, being their cause of action, falls under
the exception clause in Sec. 2 of Republic Act No. 876 which
provides that such submission [to] or contract [of arbitration] shall

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be valid, enforceable and irrevocable, save upon such grounds as

exist at law for the revocation of any contract.
RULING: NO. Respondent Lot Buyers are neither parties to the
Agreement nor the latters assigns or heirs. Consequently, the
right to arbitrate as provided in Article VI of the Agreement was
never vested in Respondent Lot Buyers.
Respondent Laperal Realty, on the other hand, as a contracting
party to the Agreement, has the right to compel Petitioners to first
arbitrate before seeking judicial relief. However, to split the
proceedings into arbitration for Respondent Laperal Realty and trial
for the Respondent Lot Buyers, or to hold trial in abeyance pending
arbitration between Petitioners and Respondent Laperal Realty,
would in effect result in multiplicity of suits, duplicitous procedure
and unnecessary delay. On the other hand, it would be in the
interest of justice if the trial court hears the complaint against all
herein Respondents and adjudicates Petitioners rights as against
theirs in a single and complete proceeding.
Petition is GRANTED. The assailed Order of RTC of Lipa City is
NULLIFIED and SET ASIDE.
RATIO DECIDENDI: In a catena of cases inspired by Justice
Malcolms provocative dissent in Vega v. San Carlos Milling Co.
[1924], the SC has recognized arbitration agreements as valid,
binding, enforceable and not contrary to public policy so much so
that when there obtains a written provision for arbitration which is
not complied with, the trial court should suspend the proceedings
and order the parties to proceed to arbitration in accordance with
the terms of their agreement. Arbitration is the wave of the future
in dispute resolution. To brush aside a contractual agreement
calling for arbitration in case of disagreement between parties
would be a step backward.
A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto,
as well as their assigns and heirs. But only they. Petitioners, as
heirs of Salas, Jr., and Respondent Laperal Realty are certainly

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bound by the Agreement. If Respondent Laperal Realty, had

assigned its rights under the Agreement to a third party, making
the former, the assignor, and the latter, the assignee, such
assignee would also be bound by the arbitration provision since
assignment involves such transfer of rights as to vest in the
assignee the power to enforce them to the same extent as the
assignor could have enforced them against the debtor or, in this
case, against the heirs of the original party to the Agreement.
However, Respondent Lot Buyers are NOT assignees of the rights of
Respondent Laperal Realty under the Agreement to develop Salas,
Jr.s land and sell the same. They are, rather, buyers of the land
that Respondent Laperal Realty was given the authority to develop
and sell under the Agreement. As such, they are NOT assigns
contemplated in Art. 1311 of the New Civil Code which provides
that contracts take effect only between the parties, their assigns
and heirs
In the same vein, Petitioners contention that rescission, being their
cause of action, falls under the exception clause in Sec. 2
of Republic Act No. 876 is without merit. For while rescission, as a
general rule, is an arbitrable issue, they impleaded in the suit for
rescission the Respondent Lot Buyers who are neither parties to the
Agreement nor the latters assigns or heirs. Consequently, the
right to arbitrate as provided in Article VI of the Agreement was
never vested in Respondent Lot Buyers.

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Arbitration with prayer for TRO before RTC. Chung Fu moved to

dismiss the petition and further prayed for the quashing of the
restraining order.
The parties entered into an arbitration agreement providing that:
The parties mutually agree that the decision of the
arbitrator shall be final and unappealable. Therefore, there
shall be no further judicial recourse if either party disagrees
with the whole or any part of the arbitrator's award.
f. As an exception to sub-paragraph (e) above, the parties
mutually agree that either party is entitled to seek judicial
assistance for purposes of enforcing the arbitrator's award;
When the arbitrator ordered petitioners to pay respondent
contractor P16M and declared the award as final and unappealable
pursuant to the Arbitration Agreement, which precluded judicial
review of the award, Chung Fu moved to remand the case for
further hearing claiming (12) instances of grave error by
disregarding the provisions of the parties' contract.
CA concurred with the RTC resolving that Chung Fu and its officers,
as signatories to the Arbitration Agreement are bound to observe
the stipulations thereof providing for the finality of the award and
precluding any appeal therefrom. Hence, the instant petition for
certiorari to the SC.
CHUNG FU INDUSTRIES v. CA
G.R. No. 96283 February 25, 1992

Issue: Is the award beyond the power of judicial review on the

basis of a stipulation that the award is final and unapppealable?
Held: NO.

Facts: Chung Fu and private respondent Roblecor forged a

construction agreement 1 whereby respondent contractor
committed to construct Chung Fu COrps industrial/factory complex
in Cavite for P42M. Two other construction contracts were enetered
into. In the event of disputes arising from the performance of the
contract, it was stipulated that the issue(s) shall be submitted for
resolution before an arbitrator chosen by both parties. Roblecor
failed to complete the work despite the extension of time and so
Chung Fu took over the construction when it had become evident
that Roblecor was not in a position to fulfill its obligation.
Claiming an unsatisfied account of P10.5M and unpaid progress
billings of P2.3 M, Roblecor filed a petition for Compulsory

Pertinent topic:
settlement.

Evolution of arbitration as a mode of dispute

Legal history discloses that "the early judges called upon to solve
private conflicts were primarily the arbiters, persons not specially
trained but in whose morality, probity and good sense the parties in
conflict reposed full trust. Thus, in Republican Rome, arbiter and
judge (judex) were synonymous. The magistrate or praetor, after
noting down the conflicting claims of litigants, and clarifying the
issues, referred them for decision to a private person designated by
the parties, by common agreement, or selected by them from an
apposite listing (the album judicium) or else by having the arbiter

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chosen by lot. The judges proper, as specially trained state officials

endowed with own power and jurisdiction, and taking cognizance of
litigations from beginning to end, only appeared under the Empire,
by the so-called cognitio extra ordinem." 5
Sparse though the law and jurisprudence may be on the subject of
arbitration in the Philippines, it was nonetheless recognized in the
Spanish Civil Code and now reinstated in the present Civil Code. 9
Although early on, CA No. 103 (1936) provided for compulsory
arbitration administered by the CIR in case of labor-mgt disputes,
such was converted to voluntary arbitration. The Industrial Peace
Act which was passed in 1953 favoring the policy of free collective
bargaining, and resort to grievance procedure. It was accepted and
enunciated more explicitly in the present Labor Code.
RA No. 876 (1953) the Arbitration Law, was passed to regulate the
arbitration process. "Said Act was obviously adopted to supplement
not to supplant the New Civil Code on arbitration. It expressly
declares that "the provisions of chapters one and two, Title XIV,
Book IV of the Civil Code shall remain in force." 11
In recognition of the pressing need for an arbitral machinery in the
construction industry, a Construction Industry Arbitration
Commission (CIAC) was created by Executive Order No. 1008,
enacted on February 4, 1985.
Recourse to an extrajudicial means of settlement is not intended to
completely deprive the courts of jurisdiction. In fact, the early cases
on arbitration carefully spelled out the prevailing doctrine at the
time, thus: ". . . a clause in a contract providing that all matters in
dispute between the parties shall be referred to arbitrators and to
them alone is contrary to public policy and cannot oust the courts
of Jurisdiction." But certainly, the stipulation to refer all future
disputes to an arbitrator or to submit an ongoing dispute to one is
valid. Being part of a contract between the parties, it is binding and
enforceable in court in case one of them neglects, fails or refuses to
arbitrate. In case of a declaration to refer their differences to
arbitration first before taking court action, this constitutes a
condition precedent, such that where a suit has been instituted
prematurely, the court shall suspend the same and the parties shall
be directed forthwith to proceed to arbitration.
Is the subject arbitration award indeed beyond the ambit of the

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court's power of judicial review? NO.

Where the conditions described in Articles 2038, 2039 and 2040
applicable to both compromises and arbitrations are obtaining, the
arbitrators' award may be annulled or rescinded. 19 Additionally,
under Sections 24 and 25 of the Arbitration Law, there are grounds
for vacating, modifying or rescinding an arbitrator's award. 20
Similarly, the Construction Industry Arbitration Law provides that
the arbitral award "shall be final and inappealable except on
questions of law which shall be appealable to the Supreme Court."
16

If courts (such as RTC in this case) refuse or neglect to inquire into

the factual milieu of an arbitrator's award to determine whether it
is in accordance with law or within the scope of his authority,
judicial review be invoked through Rule 65 certiorari. However, the
Court will not engage in a review of the facts found nor even of the
law as interpreted or applied by the arbitrator unless the supposed
errors of fact or of law are so patent and gross and prejudicial as to
amount to a grave abuse of discretion or an exces de pouvoir on
the part of the arbitrator." 21
The SC after closely studying the list of errors finds that petitioners
have amply made out a case where the voluntary arbitrator failed
to apply the terms and provisions of the Construction Agreement
which forms part of the law applicable as between the parties, thus
committing a grave abuse of discretion in granting unjustified extra
compensation to respondent for several items, he exceeded his
powers all of which would have constituted ground for vacating
the award under Section 24 (d) of the Arbitration Law.
But the respondent trial court's refusal to look into the merits of the
case, despite prima facie showing of the existence of grounds
warranting judicial review, effectively deprived petitioners of their
opportunity to prove or substantiate their allegations. In so doing,
the trial court itself committed grave abuse of discretion. Likewise,
the appellate court, in not giving due course to the petition,
committed grave abuse of discretion.
WHEREFORE, the petition is GRANTED. Accordingly, this case is
REMANDED to the court of origin for further hearing on this matter.

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buy from the former, all Cavendish bananas of required

specifications to be planted on the land owned by SEARBEMCO.
Part of the agreement states that SEARBEMCO shall exclusively sell
to the BUYER all bananas produced from the subject plantation,
except those rejected by the BUYER for failure to meet the
specifications and conditions. In the case of any such rejected
bananas, the SELLER shall have the right to sell such rejected
bananas to third parties, for domestic non-export consumption.
Their contract also had an arbitration clause, stating that all
disputes arising in connection with their agreement shall be finally
settled under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce by three (3) Arbitrators
appointed in accordance with said Rules.
On December 11, 2000, DOLE filed a complaint with RTC against
SEARBEMCO, the spouses Elly and Myrna Abujos (spouses Abujos),
and Oribanex Services, Inc. (Oribanex) for specific performance and
damages, with a prayer for the issuance of a writ of preliminary
injunction and of a temporary restraining order. DOLE alleged that
SEARBEMCO sold and delivered to Oribanex, through the spouses
Abujos, the bananas rejected by DOLE, stating that Oribanex is an
exporter of bananas.
SEARBEMCO responded with a motion to dismiss, stating that it was
the DARAB that had proper jurisdiction, that they sold to third party
buyers and not exporters, and for the prematurity of the complaint
for not being arbitrated.
The RTC and CA both ruled against SEARBEMCO, stating that the
matter was not an agrarian contract and that For DARAB to have
jurisdiction over a case, there must exist a tenancy relationship
between the parties. Further, as there were necessary parties
impleaded that werent in the initial deal between SEARBEMCO and
Dole, the arbitration clause would be invalid. SEARBEMCO now
raises these issues to the SC.
Stanfilco v. Dole GR 154048
Facts: On January 29, 1998, SEARBEMCO, as seller, and
respondent DOLE Philippines, as buyer, entered into a Banana
Production and Purchase Agreement4 (BPPA). The BPPA provided
that SEARBEMCO shall sell exclusively to DOLE, and the latter shall

Issues not related to subject: W/N DARB had jurisdiction

and w/n there was a valid cause of action.
Held: The SC held that the parties in the present case have no
tenurial, leasehold, or any other agrarian relationship that could
bring their controversy within the ambit of agrarian reform laws and
within the jurisdiction of the DARAB. Tenancy relations cannot be

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presumed. The elements of tenancy must first be proved by

substantial evidence which can be shown through records,
documents, and written agreements between the parties. The
Court declared that when the question involves the rights and
obligations of persons engaged in the management, cultivation,
and use of an agricultural land covered by CARP, the case falls
squarely within the jurisdictional ambit of the DAR.
The action of [DOLE] involves and calls for the application of the
New Civil Code, in tandem with the terms and conditions of the
[BPPA] of [SEARBEMCO] and [DOLE].
Hence, the RTCs jurisdiction was proper.
The SC also stated that there was a valid cause of action, as
hypothetically admitting the allegations in DOLEs complaint that
SEARBEMCO sold the rejected bananas to Oribanex, a competitor of
DOLE and also an exporter of bananas, through the spouses Abujos,
a valid judgment may be rendered by the RTC holding SEARBEMCO
liable for breach of contract.
Main issue for arbit: W/N the parties should resort to
arbitration first
The SC agrees with the CA ruling that the BPPA arbitration clause
does not apply to the present case since third parties are involved.
Any judgment or ruling to be rendered by the panel of arbitrators
will be useless if third parties are included in the case, since the
arbitral ruling will not bind them; they are not parties to the
arbitration agreement. In the present case, DOLE included as
parties the spouses Abujos and Oribanex since they are necessary
parties,i.e., they were directly involved in the BPPA violation DOLE
alleged, and their participation are indispensable for a complete
resolution of the dispute. To require the spouses Abujos and
Oribanex to submit themselves to arbitration and to abide by
whatever judgment or ruling the panel of arbitrators shall make is
legally untenable; no law and no agreement made with their
participation can compel them to submit to arbitration.
The object of arbitration is to allow the expeditious determination
of a dispute. Clearly, the issue could not be speedily and efficiently
resolved in its entirety if there was simultaneous arbitration
proceedings and trial, or suspension of trial pending arbitration.
Accordingly, the interest of justice would only be served if the trial

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court hears and adjudicates the case in a single and complete

proceeding.
Super short summary: SEARBEMCO is trying to dismiss Doles
action against them for supposed breach of contract as they have
not initiated arbitration proceedings as stated in their contract. The
SC held that a direct trial was proper since third parties were
involved.

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Tuna Processing vs Phil Support

G.R. No. 185582 (February 29, 2012)
FACTS: Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine
Letters Patent, and an Indonesian Patent, entered into a
Memorandum of Agreement (MOA) with five Philippine tuna
processors including Respondent Philippine Kingford, Inc.
(KINGFORD).
The MOA provides for the enforcing of the
abovementioned patents, granting licenses under the same, and
collecting royalties, and for the establishment of herein Petitioner
Tuna Processors, Inc. (TPI).
Due to a series of events not mentioned in the Petition, the tuna
processors, including Respondent KINGFORD, withdrew from
Petitioner TPI and correspondingly reneged on their obligations.
Petitioner TPI submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of
California, United States and won the case against Respondent
KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation,
Recognition, and Enforcement of Foreign Arbitral Award before the
RTC of Makati City. Respondent KINGFORD filed a Motion to Dismiss,
which the RTC denied for lack of merit. Respondent KINGFORD then
sought for the inhibition of the RTC judge, Judge Alameda, and
moved for the reconsideration of the order denying the Motion.
Judge Alameda inhibited himself notwithstanding [t]he unfounded
allegations and unsubstantiated assertions in the motion. Judge
Ruiz, to which the case was re-raffled, in turn, granted Respondent
KINGFORDSs Motion for Reconsideration and dismissed the Petition
on the ground that Petitioner TPI lacked legal capacity to sue in the
Philippines. Petitioner TPI is a corporation established in the State
of California and not licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.
ISSUE: Whether or not a foreign corporation not licensed to
do business in the Philippines, but which collects royalties
from entities in the Philippines, sue here to enforce a
foreign arbitral award?
ARGUMENT: Petitioner TPI contends that it is entitled to seek for
the recognition and enforcement of the subject foreign arbitral

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award in accordance with RA No. 9285 (Alternative Dispute

Resolution Act of 2004), the Convention on the Recognition and
Enforcement of Foreign Arbitral Awards drafted during the United
Nations Conference on International Commercial Arbitration in 1958
(New York Convention), and the UNCITRAL Model Law on
International Commercial Arbitration (Model Law), as none of these
specifically requires that the party seeking for the enforcement
should have legal capacity to sue.
RULING: YES. Petitioner TPI, although not licensed to do business
in the Philippines, may seek recognition and enforcement of the
foreign arbitral award in accordance with the provisions of the
Alternative Dispute Resolution Act of 2004. A foreign corporations
capacity to sue in the Philippines is not material insofar as the
recognition and enforcement of a foreign arbitral award is
concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.
RATIO DECIDENDI: Sec. 45 of the Alternative Dispute Resolution
Act of 2004 provides that the opposing party in an application for
recognition and enforcement of the arbitral award may raise only
those grounds that were enumerated under Article V of the New
York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at
the request of the party against whom it is invoked, only if that
party furnishes to the competent authority where the recognition
and enforcement is sought, proof that:
a. The parties to the agreement referred to in Article II were, under
the law applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties have
subjected it or, failing any indication thereon, under the law of the
country where the award was made;
b. The party against whom the award is invoked was not given
proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present his
case;
c. The award deals with a difference not contemplated by or not
falling within the terms of the submission to arbitration, or it

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contains decisions on matters beyond the scope of the submission

to arbitration, provided that, if the decisions on matters submitted
to arbitration can be separated from those not so submitted, that
part of the award which contains decisions on matters submitted to
arbitration may be recognized and enforced;
d. The composition of the arbitral authority or the arbitral
procedure was not in accordance with the agreement of the parties,
or, failing such agreement, was not in accordance with the law of
the country where the arbitration took place; or
e. The award has not yet become binding on the parties, or has
been set aside or suspended by a competent authority of the
country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be
refused if the competent authority in the country where recognition
and enforcement is sought finds that:
a. The subject matter of the difference is not capable of settlement
by arbitration under the law of that country; or
b. The recognition or enforcement of the award would be contrary
to the public policy of that country.
Not one of the abovementioned exclusive grounds touched on the
capacity to sue of the party seeking the recognition and
enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative
Dispute Resolution, which was promulgated by the Supreme Court,
likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a
foreign arbitration may petition the court to recognize and enforce
a foreign arbitral award.
The contents of such petition are
enumerated in Rule 13.5.
Capacity to sue is not included.
Oppositely, in the rule on local arbitral awards or arbitrations in
instances where the place of arbitration is in the Philippines, it is
specifically required that a petition to determine any question
concerning the existence, validity and enforceability of such
arbitration agreement available to the parties before the
commencement of arbitration and/or a petition for judicial relief
from the ruling of the arbitral tribunal on a preliminary question
upholding or declining its jurisdiction after arbitration has already

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commenced should state [t]he facts showing that the persons

named as petitioner or respondent have legal capacity to sue or be
sued.
Indeed, it is in the best interest of justice that in the enforcement
of a foreign arbitral award, the Court deny availment by the
losing party of the rule that bars foreign corporations not licensed
to do business in the Philippines from maintaining a suit in
Philippine courts. When a party enters into a contract containing
a foreign arbitration clause and, as in this case, in fact submits
itself to arbitration, it
becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the
capacity of the other party to enter into the contract, participate
in the arbitration and cause the implementation of the result.
Although not on all fours with the instant case, also worthy to
consider is the wisdom of then Associate Justice Flerida Ruth P.
Romero in her Dissenting Opinion in Asset Privatization Trust v.
Court of Appeals [1998], to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining
adherents in legal and judicial circles here and abroad. If its tested
mechanism can simply be ignored by an aggrieved party, one who,
it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the
very essence of mutuality inherent in consensual contracts.
Clearly, on the matter of capacity to sue, a foreign arbitral award
should be respected not because it is favored over domestic laws
and procedures, but because Republic Act No. 9285 has certainly
erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the RTC
correctly observed that the Model Law, not the New York
Convention, governs the subject arbitral award, Petitioner TPI may
still seek recognition and enforcement of the award in Philippine
court, since the Model Law prescribes substantially identical
exclusive grounds for refusing recognition or enforcement.

Philrock Inc vs Construction Industry Arbitration

Commission (2001)
Facts:
-

Spouses Cid filed a complaint for damages against Philrock

and seven of its officers and engineers with the RTC. But the
complaint was dimissed and referred to the CIAC because of
an Agreement to Arbitrate with the CIAC.
During the CIAC conferences, disagreements arose as to
whether moral and exemplary damages and tort should be
included as an issue along with breach of contract, and
whether the seven officers and engineers of Philrock who
are not parties to the Agreement to Arbitrate should be
included in the arbitration proceedings. Thus, by the parties
agreement, the case was dismissed by the CIAC and the
case was remanded to the trial court.
The Cid spouses then filed with said Branch of the Regional
Trial Court of Quezon City a Motion To Set Case for Hearing
which motion was opposed by Philrock. On June 13, 1995,
the trial court declared that it no longer had jurisdiction over
the case and ordered the records of the case to be
remanded anew to the CIAC for arbitral proceedings.
Thus,
the
CIAC
resumed
conducting
preliminary
conferences. But Philrock requested suspension of the
proceedings until the RTC clarified its June 13, 1995 order,
saying that the RTCs order was based on the mistaken

02

premise e that 'the proceedings in the CIAC fell through

because of the refusal of [Petitioner] Philrock to include the
issue of damages therein,' whereas the true reason for the
withdrawal of the case from the CIAC was due to Philrock's
opposition to the inclusion of its seven officers and
engineers, who did not give their consent to arbitration, as
party defendants. On the other hand, Spouses Cid said they
were willing to exclude the seven officers and engineers of
Philrock as parties to the case if only to facilitate the
proceedings.
Philrock's counsel agreed to the continuation of the
proceedings but reserved the right to file a pleading
elucidating the position he [had] raised regarding the
Court's Order dated June 13, 1995.
Later on, petitioner Philrock filed a motion to dismiss,
alleging that the CIAC had lost jurisdiction to hear the
arbitration case due to the parties withdrawal of their
consent to arbitrate. CIAC denied the motion. And
eventualy, the CIAC rendered a decision favorable to the Cid
spouses.
Thus, this petition for certiorari by petitioner Philrock.

Issue: Whether or not the CIAC could take jurisdiction over

the case of Respondent Cid spouses against Petitioner
Philrock after the case had been dismissed by both the RTC
and the CIAC.
Held: Yes. Petitioner avers that the CIAC lost jurisdiction over the
arbitration case after both parties had withdrawn their consent to
arbitrate. The June 13, 1995 RTC Order remanding the case to the
CIAC for arbitration was allegedly an invalid mode of referring a
case for arbitration.
We disagree. Section 4 of Executive Order 1008 expressly vests in
the CIAC original and exclusive jurisdiction over disputes arising
from or connected with construction contracts entered into by
parties that have agreed to submit their dispute to voluntary
arbitration.
It is undisputed that the parties submitted themselves to the
jurisdiction of the Commission by virtue of their Agreement to
Arbitrate dated November 24, 1993. Signatories to the Agreement
were Atty. Ismael J. Andres and Perry Y. Uy (president of Philippine

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Rock Products, Inc.) for petitioner, and Nelia G. Cid and Atty.
Esteban A. Bautista for respondent spouses.
Petitioner claims, on the other hand, that this Agreement was
withdrawn by respondents on April 8, 1994, because of the
exclusion of the seven engineers of petitioners in the arbitration
case. This withdrawal became the basis for the April 13, 1994 CIAC
Order dismissing the arbitration case and referring the dispute back
to the RTC. Consequently, the CIAC was divested of its jurisdiction
to hear and decide the case.
This contention is untenable. First, private respondents removed
the obstacle to the continuation of the arbitration, precisely by
withdrawing their objection to the exclusion of the seven engineers.
Second, petitioner continued participating in the arbitration even
after the CIAC Order had been issued. It even concluded and signed
the Terms of Reference on August 21, 1995, in which the parties
stipulated 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 and agreement to submit the
dispute to voluntary arbitration. In view of this fact, we fail to see
how the CIAC could have been divested of its jurisdiction.
Finally, as pointed out by the solicitor general, petitioner
maneuvered to avoid the RTCs final resolution of the dispute by
arguing that the regular court also lost jurisdiction after the arbitral
tribunals April 13, 1994 Order referring the case back to the RTC. In
so doing, petitioner conceded and estopped itself from further
questioning the jurisdiction of the CIAC. The Court will not
countenance the effort of any party to subvert or defeat the
objective of voluntary arbitration for its own private motives. After
submitting itself to arbitration proceedings and actively
participating therein, petitioner is estopped from assailing the
jurisdiction of the CIAC, merely because the latter rendered an
adverse decision.

02

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Respondent filed a Request for Adjudication with public respondent

Construction Industry Adjudication Commission (CIAC). Respondent
sought for the payment of the unpaid progress buildings, unearned
profits and other receivables. Petitioner on the other hand claimed
actual and liquidated damages including attorneys fees. CIAC
formed Arbitral Tribunal composed of three members. And they
come up with a decision in favor of the Respondent.
Petitioner filed a petition to the Supreme Court that sought to
reverse the decision of the CIAC for it committed grave abused of
discretion in not properly implementing paragraph 1 and 2 of
Article 1191 of the Civil Code, in not applying the doctrine of
estoppels and failure of the arbitral tribunal to uphold the
supremacy of the law between the parties and enforce it against
private respondent.
ISSUE: Whether or not the Arbitral Tribunal Committed
grave abused of discretion.

HI-PRECISION STEEL CENTER, INC vs. LIM KIM STEEL

BUILDERS, INC.
G.R. No. 110434
December 13, 1993
(228 SCRA 397)
FACTS: Petitioner Hi-Precision Steel Center Inc. entered into a
contract with Respondent Lim Kim Steel Builders for the latter to
complete a P21 Million construction project owned by the former for
a period of 153 days. On the last day of the construction of the
project, respondent only accomplished 75.8674% of the project.
The respondent alleged that it was the fault of the petitioner
because of issuance of change orders. On the other hand petitioner
alleged that it was due to the fault of the respondent because it
incurred delays.

HELD: Section 19 of Executive Order 1008 as amended provides

that The Arbitral award shall be binding upon the parties. It shall
be final and inappealable except on QUESTION OF LAW which shall
be appealable to the Supreme Court. The allegations raised by the
Hi-Precision Steel Center, Inc. are all question of facts. The
Petitioner make it appear that the issues involve are questions of
law but in truth it is only a question of fact. The Supreme Court in a
long line of cases is not a trier of facts; hence, the decision of the
CIAC is binding and enforceable.

Cargill Philippines, Inc. vs San Fernando Regala Trading

(2011)
Facts:
-

Respondent San Fernando Regala Trading Inc filed with the

RTC a complaint for resicssion of contract with damages
against petitioner Cargill. In its Complaint, respondent
alleged that it was engaged in buying and selling of
molasses and petitioner was one of its various sources from
whom it purchased molasses. Petitioner, as seller, failed to
comply with its obligations under the contract, despite

02

demands from respondent, thus, the latter prayed for

rescission of the contract and payment of damages.
Thereafter, petitioner filed a motion to dismiss/suspend
proceedings and to refer the controversy to voluntary
arbitration, wherein it argued that the alleged contract
between the parties, dated July 11, 1996, was never
consummated because respondent never returned the
proposed agreement bearing its written acceptance or
conformity nor did respondent open the Irrevocable Letter of
Credit at sight. Petitioner contended that the controversy
between the parties was whether or not the alleged contract
between the parties was legally in existence and the RTC
was not the proper forum to ventilate such issue. It claimed
that the contract contained an arbitration clause, which
provides that any dispute shall be settled by arbitration in
New York before the American Arbitration Association.
Respondent refuted petitioners claim for arbitration, saying
that the arbitration clause is void for being contrary to
public policy since it provided that the arbitration award
shall be final and binding on both parties, thus, ousting the
courts of jurisdiction.
The RTC refused to dismiss/suspend the proceedings. The
CA, while recognizing the validity of the arbitration clause,
said that an arbitration cannot be order, based on the
contract, because the petitioner itself is assailing the validity
of the contract. Hence, this petition.

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is sufficient to avoid arbitration and that is exactly the situation

that the separability doctrine sought to avoid. Thus, we find that
even the party who has repudiated the main contract is not
prevented from enforcing its arbitration clause.
In the case of Gonzales vs Climax Mining Ltd, the Supreme Court
said: Arbitration before the Panel of Arbitrators is proper only when
there is a disagreement between the parties as to some provisions
of the contract between them, which needs the interpretation and
the application of that particular knowledge and expertise
possessed by members of that Panel. It is not proper when one of
the parties repudiates the existence or validity of such contract or
agreement on the ground of fraud or oppression as in this case. The
validity of the contract cannot be subject of arbitration
proceedings. Allegations of fraud and duress in the execution of a
contract are matters within the jurisdiction of the ordinary courts of
law. These questions are legal in nature and require the application
and interpretation of laws and jurisprudence which is necessarily a
judicial function.

Issue: Whether or not the arbitration clause here is valid.

Held: Yes. A contract is required for arbitration to take place and
to be binding. Submission to arbitration is a contract and a clause
in a contract providing that all matters in dispute between the
parties shall be referred to arbitration is a contract. The provision to
submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of the contract and is itself a
contract.
An arbitration agreement which forms part of the main contract
shall not be regarded as invalid or non-existent just because the
main contract is invalid or did not come into existence, since the
arbitration agreement shall be treated as a separate agreement
independent of the main contract. To reiterate. a contrary ruling
would suggest that a party's mere repudiation of the main contract

Transfield Philippines Inc vs Luzon Hydro Corporation

(2004)

02

Facts:
-

Transfield Philippines (Transfield) entered into a turn-key

contract with Luzon Hydro Corp. (LHC).Under the contract,
Transfield were to construct a hydro-electric plants in
Benguet and Ilocos. Transfield was given the sole
responsibility for the design, construction, commissioning,
testing and completion of the Project. The contract provides
for a period for which the project is to be completed and
also allows for the extension of the period provided that the
extension is based on justifiable grounds such as fortuitous
event.
In order to guarantee performance by Transfield, two standby letters of credit were required to be opened. During the
construction of the plant, Transfield requested for extension
of time citing typhoon and various disputes delaying the
construction. LHC did not give due course to the extension
of the period prayed for but referred the matter to
arbitration committee.
Because of the delay in the construction of the plant, LHC
called on the stand-by letters of credit because of default.
However, the demand was objected by Transfield on the
ground that there is still pending arbitration on their request
for extension of time.

Issue: Whether or not LHC can collect from the letters of

credit despite the pending arbitration case.
Held: No.
Letters of credit are employed by the parties desiring to enter into
commercial transactions, not for the benefit of the issuing bank but
mainly for the benefit of the parties to the original transactions.
With the letter of credit from the issuing bank, the party who
applied for and obtained it may confidently present the letter of
credit to the beneficiary as a security to convince the beneficiary to
enter into the business transaction. On the other hand, the other
party to the business transaction, i.e., the beneficiary of the letter
of credit, can be rest assured of being empowered to call on the
letter of credit as a security in case the commercial transaction
does not push through, or the applicant fails to perform his part of
the transaction. It is for this reason that the party who is entitled to
the proceeds of the letter of credit is appropriately called
beneficiary.

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Transfields argument that any dispute must first be resolved by the

parties, whether through negotiations or arbitration, before the
beneficiary is entitled to call on the letter of credit in essence would
convert the letter of credit into a mere guarantee.
The independent nature of the letter of credit may be: (a)
independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the underlying
agreement like for instance a typical standby; or (b) independence
may be only as to the justification aspect like in a commercial letter
of credit or repayment standby, which is identical with the same
obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit
the payment of the credit would constitute fraudulent abuse of the
credit.
Jurisprudence has laid down a clear distinction between a letter of
credit and a guarantee in that the settlement of a dispute between
the parties is not a pre-requisite for the release of funds under a
letter of credit. In other words, the argument is incompatible with
the very nature of the letter of credit. If a letter of credit is
drawable only after settlement of the dispute on the contract
entered into by the applicant and the beneficiary, there would be
no practical and beneficial use for letters of credit in commercial
transactions.

02

SEA-LAND SERVICE, INC. vs. COURT OF APPEALS, A.P.

MOLLER/ MAERSK LINE
G.R. No. 126212
March 2, 2000
FACTS: Petitioner Sea-Land Services and private respondent A.P.
Moller/ Maersk Line (AMML), both carriers of cargo in containerships
as well as common carriers, entered into a contract entitled, "Cooperation in the Pacific" (Agreement), a vessel sharing agreement
whereby they mutually agreed to purchase, share and exchange
needed space for cargo in their respective containerships. Under
the Agreement, they could be, depending on the occasion, either a
principal carrier or a containership operator.
During the lifetime of the said Agreement, Florex International, Inc.
(Florex) delivered to AMML cargo of various foodstuffs, with
Oakland, California as port of discharge and San Francisco as place
of delivery. The corresponding Bill of Lading No. MAEU MNL110263
was issued to Florex by respondent AMML. Pursuant to the
Agreement, respondent AMML loaded the subject cargo on MS
Sealand Pacer, a vessel owned by petitioner. Under this
arrangement, therefore, respondent AMML was the principal carrier
while petitioner was the containership operator.
Consignee refused to pay for the cargo, alleging that delivery
thereof was delayed. Thus, Florex filed a complaint against
respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for
reimbursement of the value of the cargo and other charges.
According to Florex, the cargo was received by the consignee only
on June 28, 1991, since it was discharged in Long Beach, California,
instead of in Oakland, California on June 5, 1991 as stipulated.
AMML in its Answer alleges that even on the assumption that Florex
was entitled to reimbursement; it was petitioner who should be
liable. Accordingly, respondent AMML filed a Third Party Complaint
against petitioner, averring that whatever damages sustained by
Florex were caused by petitioner, which actually received and
transported Florex's cargo on its vessels and unloaded them.
Petitioner filed a Motion to Dismiss the Third Party Complaint on the
ground of failure to state a cause of action and lack of jurisdiction.
Petitioner also prayed either for dismissal or suspension of the
Third Party Complaint on the ground that there exists an arbitration

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agreement between it and respondent AMML. The lower court

issued an Order denying petitioner's Motion to Dismiss. Petitioner's
Motion for Reconsideration was likewise denied.
Undaunted, petitioner filed a petition for certiorari with the Court of
Appeals. Meanwhile, petitioner also filed its Answer to the Third
Party Complaint in the trial court. Court of Appeals rendered the
assailed Decision dismissing the petition for certiorari.
ISSUE: Whether or not the Court of Appeals erred in
denying petitioner's prayer for arbitration.
HELD: Court of Appeals erred in denying petitioner's prayer for
arbitration.
For respondent Court of Appeals to say that the terms of the
contract do not require arbitration as a condition precedent to
judicial action is erroneous. In the light of the Agreement clauses, it
is clear that arbitration is the mode provided by which respondent
AMML as Principal Carrier can seek damages and/or indemnity from
petitioner, as Containership Operator.
As the Principal Carrier with which Florex directly dealt with, AMML
can and should be held accountable by Florex in the event that it
has a valid claim against the former. Pursuant to the Agreement,
AMML, when faced with such a suit "shall use all reasonable
endeavours to defend" itself or "settle such suits for as low a figure
as reasonably possible". In turn, respondent AMML can seek
damages and/or indemnity from petitioner as Containership
Operator for whatever final judgment may be adjudged against it
under the Complaint of Florex. The crucial point is that collection of
said damages and/or indemnity from petitioner should be by
arbitration.
Thus, when the text of a contract is explicit and leaves no doubt as
to its intention, the court may not read into it any other intention
that would contradict its plain import. Arbitration being the mode of
settlement between the parties expressly provided for by their
Agreement, the Third Party Complaint should have been dismissed.

02

G.R. No. 143581

KOREA TECHNOLOGIES CO., LTD., Petitioner
v.
HON. ALBERTO A. LERMA, inhis capacity as Presiding Judge
of Branch 256 of Regional Trial Court of Muntinlupa City,
and PACIFIC GENERAL STEEL MANUFACTURING
CORPORATION, Respondents.
FACTS: PGSMC and KOGIES executed a Contract i whereby KOGIES
would set up an LPG Cylinder Manufacturing Plant in Carmona,
Cavite. The contract was executed in the Philippines. On April 7,
1997, the parties executed, in Korea, an Amendment for Contract
No. KLP-970301 dated March 5, 1997 amending the terms of
payment. The contract and its amendment stipulated that KOGIES
will ship the machinery and facilities necessary for manufacturing
LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES
would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the plants
production of the 11-kg. Later PGSMC entered into a Contract of
Lease with Worth Properties, Inc. (Worth) for use of Worths 5,079square meter property with a 4,032-square meter warehouse
building to house the LPG manufacturing plant. after the
installation of the plant, the initial operation could not be
conducted as PGSMC encountered financial difficulties affecting the
supply of materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the terms and
conditions of the March 5, 1997 contract. PGSMC informed KOGIES
that PGSMC was canceling their Contract dated March 5, 1997 on
the ground that KOGIES had altered the quantity and lowered the
quality of the machineries and equipment it delivered to PGSMC,
and that PGSMC would dismantle and transfer the machineries,
equipment, and facilities installed in the Carmona plant. KOGIES
filed a Complaint for Specific Performance against PGSMC before
the Muntinlupa City Regional Trial Court (RTC).
On May 30, 2000, the CA rendered the assailed Decision ii affirming
the RTC Orders and dismissing the petition for certiorari filed by

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KOGIES. The CA found that the RTC did not gravely abuse its
discretion in issuing the assailed July 23, 1998 and September 21,
1998 Orders. Moreover, the CA reasoned that KOGIES contention
that the total contract price for USD 1,530,000 was for the whole
plant and had not been fully paid was contrary to the finding of the
RTC that PGSMC fully paid the price of USD 1,224,000, which was
for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of
a petition for certiorari.
On the issue of the validity of the arbitration clause, the CA
agreed with the lower court that an arbitration clause which
provided for a final determination of the legal rights of the parties
to the contract by arbitration was against public policy.
ISSUE: W/N the Arbitration clause is contrary to public policy.
RULING:
The arbitration clause which stipulates that the
arbitration must be done in Seoul, Korea in accordance with the
Commercial Arbitration Rules of the KCAB, and that the arbitral
award is final and binding, is not contrary to public policy. This
Court has sanctioned the validity of arbitration clauses in a catena
of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,iii this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of mutually
agreed contractual terms is valid. In BF Corporation v. Court of
Appeals, we held that [i]n this jurisdiction, arbitration has been
held valid and constitutional. Even before the approval on June 19,
1953 of Republic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. Republic Act No. 876
was adopted to supplement the New Civil Codes provisions on
arbitration. And in LM Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we declared that:
Being an inexpensive, speedy and amicable
method of settling disputes, arbitrationalong with
mediation,
conciliation
and
negotiationis
encouraged by the Supreme Court.
Aside from
unclogging judicial dockets, arbitration also hastens
the resolution of disputes, especially of the
commercial kind. It is thus regarded as the wave of
the future in international civil and commercial
disputes. Brushing aside a contractual agreement
calling for arbitration between the parties would be a
step backward.

i
ii
iii