KOREA TECHNOLOGIES CO., LTD. vs.

HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch

256 of Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL
STEEL MANUFACTURING CORPORATION
G.R. No. 143581, January 7, 2008

FACTS:

Korea Technologies Co., Ltd. is a Korean corporation which is engaged in

the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while Pacific General Steel Manufacturing Corp. is a
domestic corporation. The parties executed a contract whereby Korea
Technologies would set up an LPG Cylinder Manufacturing Plant in Cavite. The
contract was executed in the Philippines.

Later, the parties executed, in Korea, an amendment to the contract. The

contract and its amendment stipulated that Korea Technologies will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which
Pacific General would pay. Korea Technologies would install and initiate the
operation of the plant for which Pacific General bound itself to pay upon the
plants’ production of cylinder samples. Pacific General then entered into a
Contract of Lease with Worth Properties, Inc. Subsequently, the machineries,
equipment, and facilities for the manufacture of LPG cylinders were shipped,
delivered, and installed in the Carmona plant. Pacific General paid Korea
Technologies.

However, gleaned from the Certificate executed by the parties, after the
installation of the plant, the initial operation could not be conducted as Pacific
General 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. Korea
Technologies sent a demand letter to Pacific General threatening criminal action.

ISSUE

Whether or not the arbitration clause in the contract of the parties should
govern.

RULING:

Yes. Established in this jurisdiction is the rule that the law of the place
where the contract is made governs. Lex loci contractus. The contract in this case
was perfected here in the Philippines. Therefore, our laws ought to govern.
Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually agreed
arbitral clause or the finality and binding effect of an arbitral award. Art. 2044
provides, Any stipulation that the arbitrators award or decision shall be final, is
valid, without prejudice to Articles 2038, 2039 and 2040.