Adr Digest Pool

3B 2019-2020 ADR DIGESTED CASES
1. DFA vs BCA, GR No 225051 and 210858
DFA v. BCA International Corp.

G.R. No. 225051 July 19, 2017
Peralta, J.
Facts:
DFA entered into an Amended-Built-Operate-Transfer (BOT) Agreement with BCA
International Corp. and awarded to the latter the Machine Readable Passport and Visa
Project (MRP/V Project). In the course of implementing the MRP/V Project, conflict arose
and DFA seek to terminate the agreement. BCA Int’l Corp. opposed the termination and
requested for arbitration, hence an Arbitral Tribunal was constituted.
The Arbitral issued Procedural Order No. 11, allowing BCA International Corp. to submit
its Amended Statement of Claims of actual damages amounting to 390,000,000 plus an
additional 10,000,000 for exemplary, temperate or nominal damages in order for the claim
to conform to the evidence presented by the respondent. Thereafter it issued Procedural
No. 12 which disallows the presentation of additional evidence by BCA International Corp.
to prove the increase in the amount of claim, and disallowed the taking of testimonial
evidence from any witness by any party. Procedural No. 12 denied DFA’s motion for
reconsideration of Procedural No. 11. Aggrieved, DFA filed a petition for Certiorari under
Rule 65 of the Rules of Court before the SC with application of a TRO and/or preliminary
injunction for the annulment of Procedural Nos. 11 and 12.
DFA avers that the amendment caused undue delay and prejudice to it; that the
amendment relied falls outside the scope of the arbitration clause and hence outside the
jurisdiction of the Ad Hoc Tribunal. Also, it contends that the parties in this case has
agreed to refer any dispute to arbitration under the 1976 UNCITRAL Arbitration Rules
and not by Alternative Dispute Resolution (ADR) Act of 2004 (R.A. 9285) for to do so
would amount to transgression of vested rights and vitiation of consent to arbitration
proceedings.
On the other hand, respondent contends that SC has no jurisdiction to intervene in private
arbitration, which is a special proceeding governed by the ADR Act of 2004 (R.A. 9285),
its IRR and Special ADR Rules; that the tribunal derives their authority to hear and resolve
cases from the contractual consent of the parties expressed in Sec. 19.02 of the
Agreement.
Issues:
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1. What law should govern the Arbitration Proceedings?
2. Is the petition filed before the SC proper?
Held:
1. Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, "the arbitral
tribunal shall apply the law designated by the parties as applicable to the substance of
the dispute. Failing such designation by the parties, the arbitral tribunal shall apply the
law determined by the conflict of laws rules which it considers applicable." Established in
this jurisdiction is the rule that the law of the place where the contract is made governs,
or lex loci contractus.As the parties did not designate the applicable law and the
Agreement was perfected in the Philippines, our Arbitration laws, particularly, RA No. 876,
RA No. 9285 and its IRR, and the Special ADR Rules apply. The IRR of RA No. 9285
provides that “the arbitral tribunal shall decide the dispute in accordance with such law as
is chosen by the parties. In the absence of such agreement, Philippine law shall apply."
Arbitration is deemed a special proceeding and governed by the special provisions of RA

9285, its IRR, and the Special ADR Rules. RA 9285 is the general law applicable to all
matters and controversies to be resolved through alternative dispute resolution methods.
While enacted only in 2004, we held that RA 9285 applies to pending arbitration
proceedings since it is a procedural law, which has retroactive effect.
The IRR of RA 9285 reiterate that RA 9285 is procedural in character and applicable to
all pending arbitration proceedings. Consistent with Article 2046 of the Civil Code, the
Special ADR Rules were formulated and were also applied to all pending arbitration
proceedings covered by RA 9285, provided no vested rights are impaired. Thus, contrary
to DFA's contention, RA 9285, its IRR, and the Special ADR Rules are applicable to the
present arbitration proceedings. The arbitration between the DFA and BCA is still
pending, since no arbitral award has yet been rendered. Moreover, DFA did not allege
any vested rights impaired by the application of those procedural rules.
2. No. Court intervention is allowed under R.A. No. 9285 in the following instances: (1)
when a party in the arbitration proceedings requests for an interim measure of
protection;(2) judicial review of arbitral awards by the Regional Trial Court (RTC); and (3)
appeal from the RTC decisions on arbitral awards to the Court of Appeals.
Under the Special ADR Rules, review by the Supreme Court of an appeal by certiorari is
not a matter of right, thus:
RULE 19.36. Review Discretionary. — A review by the Supreme Court is not a

matter of right, but of sound judicial discretion, which will be granted only for
serious and compelling reasons resulting in grave prejudice to the aggrieved party.
The following, while neither controlling nor fully measuring the court's discretion,
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indicate the serious and compelling, and necessarily, restrictive nature of the
grounds that will warrant the exercise of the Supreme Court's discretionary powers,
when the Court of Appeals:
a. Failed to apply the applicable standard or test for judicial review prescribed in
these Special ADR Rules in arriving at its decision resulting in substantial prejudice
to the aggrieved party;
b. Erred in upholding a final order or decision despite the lack of jurisdiction of the
court that rendered such final order or decision;
c. Failed to apply any provision, principle, policy or rule contained in these Special
ADR Rules resulting in substantial prejudice to the aggrieved party; and
d. Committed an error so egregious and harmful to a party as to amount to an

undeniable excess of jurisdiction.
In this case, the appeal by certiorari is not from a final Order of the Court of Appeals or
the Regional Trial Court, but from an interlocutory order of the Arbitral Tribunal; hence,
the petition must be dismissed.
2. Heirs of Salas vs Laperal Realty, GR No 135362
SALAS v. LAPERAL REALTY CORP.

G.R. No. 135362 December 13, 1999
De Leon, Jr. J.
Facts:
Augusto Salas, Jr. is the registered owner of the vast tract of Land in Lipa City, Batangas.
He entered into an Owner-Contractor Agreement with Laperal Realty Corp. to rendered
and provided complete construction services on his land. Salas Jr., executed a SPA in
favor of Laperal Realty to exercise general control, supervision, and management of the
sale of his land, for cash or on installment basis. Salas Jr. had been missing for more
than seven (7) years and was declared presumptively dead by the RTC of Makati upon
petition by her wife, Teresita Diaz.
Respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions
thereof to respondents Rockway Real Estate Corp. and South Ridge Village, Inc, and to
other respondent lot buyers.
The heirs of Salas, Jr. filed before the RTC of Lipa City a complaint for declaration of
nullity of sale, reconveyance, cancellation of contract and damages against respondents.
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Laperal filed a Motion to Dismiss on the ground that petitioners failed to submit their
grievance to arbitration as required under Art. VI of the Agreement.
ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER'S representative shall be
referred to the committee represented by:
a. One representative of the OWNER;  
b. One representative of the CONTRACTOR;  
c. One representative acceptable to both OWNER and CONTRACTOR.
RTC dismissed petitioner’s complaint for non-compliance with the foregoing arbitration
clause. Petitioners now assail that: 1) Their causes of action did not emanate from the
Owner-Contractor Agreement; 2) The petition for cancellation of contract and accounting
are covered by the exception under Arbitration law; 3) Failure to arbitrate is not a ground
for dismissal.
Issue:
Should the dispute be settled first in an arbitration as provided in the agreement before
seeking relief in court?
Held:
YES. 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
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 sin ce 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, respondents
Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami Development
Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante
dela Cruz and Jesus Vicente Capellan are not assignees of the rights of respondent
Laperall 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".
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Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of
Salas, Jr.'sland 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 be valid, enforceable
and irrevocable, save, upon such grounds as exist at law for the revocation of any
contract".
The petitioners' contention 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 latter's 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, 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.
3. Home Bankers Savings vs Court of Appeals, GR No 115412
[G.R. No. 115412. November 19, 1999.]
HOME BANKERS SAVINGS AND TRUST COMPANY, Petitioner, v. COURT OF

APPEALS and FAR EAST BANK & TRUST CO., INC., Respondents.
FACTS:
Victor Tancuan, one of the defendants issued Home Bankers Savings and Trust
Company (HBSTC) check for P25,250,000.00 while Eugene Arriesgado issued Far East
Bank and Trust Company (FEBTC) three checks amounting P8,600,000.00,
P8,500,000.00 and P8,100,000.00, with a total of P25,200,000.00. Tancuan and
Arriesgado exchanged each other’s checks and deposited them with their respective
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banks for collection. When FEBTC presented Tancuan’s HBSTC check for clearing,
HBSTC dishonored it for being "Drawn Against Insufficient Funds."
HBSTC sent Arriesgado’s three (3) FEBTC checks through the Philippine Clearing House
Corporation (PCHC) to FEBTC but was returned as "Drawn Against Insufficient Funds."
HBSTC received the notice of dishonor but refused to accept the checks and returned
them to FEBTC through the PCHC for the reason "Beyond Reglementary Period,"
implying that HBSTC already treated the three (3) FEBTC checks as cleared and allowed
the proceeds thereof to be withdrawn.
FEBTC demanded reimbursement for the returned checks and inquired from HBSTC
whether it had permitted any withdrawal of funds against the unfunded checks and if so,
on what date. HBSTC, however, refused to make any reimbursement and to provide
FEBTC with the needed information.
Thus, FEBTC submitted the dispute for arbitration before the PCHC Arbitration
Committee, under the PCHC’s Supplementary Rules on Regional Clearing to which
FEBTC and HBSTC are bound as participants in the regional clearing operations
administered by the PCHC. While the arbitration proceeding was still pending, FEBTC
filed an action for sum of money and damages with preliminary attachment against
HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with RTC Makati. HBSTC
moved to dismiss on the ground that there is no cause of action and because it seeks to
enforce an arbitral award which as yet does not exist. The trial court denied the motion to
dismiss and the motion for reconsideration. Petitioner then filed a petition for certiorari
with respondent CA to which it had dismissed
ISSUE: "WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN

ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE
CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY TO
OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE BANK THE
ADVERSE PARTY IN THE ARBITRATION PROCEEDING."
HELD:
We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the
Arbitration Law, allows any party to the arbitration proceeding to petition the court to take
measures to safeguard and/or conserve any matter which is the subject of the dispute in
arbitration, thus:
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SECTION 14. Subpoena and subpoena duces tecum. — Arbitrators shall have the power
to require any person to attend a hearing as a witness. They shall have the power to
subpoena witnesses and documents when the relevancy of the testimony and the
materiality thereof has been demonstrated to the arbitrators. Arbitrators may also require
the retirement of any witness during the testimony of any other witness. All of the
arbitrators appointed in any controversy must attend all the hearings in that matter and
hear all the allegations and proofs of the parties; but an award by the majority of them is
valid unless the concurrence of all of them is expressly required in the submission or
contract to arbitrate. The arbitrator or arbitrators shall have the power at any time, before
rendering the award, without prejudice to the rights of any party to petition the court to
take measures to safeguard and/or conserve any matter which is the subject of the
dispute in arbitration. (Emphasis supplied)
Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces
tecum at any time before rendering the award. The exercise of such power is without
prejudice to the right of a party to file a petition in court to safeguard any matter which is
the subject of the dispute in arbitration. In the case at bar, private respondent filed an
action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly,
such action involved the same subject matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from private respondent in what is known
in banking as a "kiting scheme." However, the civil action was not a simple case of a
money claim since private respondent has included a prayer for a writ of preliminary
attachment, which is sanctioned by section 14 of the Arbitration Law.
Simply put, participants in the regional clearing operations of the Philippine Clearing
House Corporation cannot bypass the arbitration process laid out by the body and seek
relief directly from the courts. In the case at bar, undeniably, private respondent has
initiated arbitration proceedings as required by the PCHC rules and regulations, and
pending arbitration has sought relief from the trial court for measures to safeguard and/or
conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the
Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and
regulations.
Additional note:
Likewise, in the case of Puromines, Inc. v. Court of Appeals, 49 we have ruled
that:jgc:chanrobles.com.ph
"In any case, whether the liability of respondent should be based on the sales contract or
that of the bill of lading, the parties are nevertheless obligated to respect the arbitration
provisions on the sales contract and/or bill of lading. Petitioner being a signatory and party
to the sales contract cannot escape from his obligation under the arbitration clause as
stated therein."cralaw virtua1aw library
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In Puromines, we found the arbitration clause stated in the sales contract to be valid and
applicable, thus, we ruled that the parties, being signatories to the sales contract, are
obligated to respect the arbitration provisions on the contract and cannot escape from
such obligation by filing an action for breach of contract in court without resorting first to
arbitration, as agreed upon by the parties.
At this point, we emphasize that arbitration, as an alternative method of dispute resolution,

is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens
solutions especially of commercial disputes. 50 The Court looks with favor upon such
amicable arrangement and will only interfere with great reluctance to anticipate or nullify
the action of the arbitrator. 51
4. LM Power Engineering Corp vs Capitol Industrial Construction Corp, GR No

141833
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation

and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve
their disputes amicably, they provide solutions that are less time-consuming, less tedious,
less confrontational, and more productive of goodwill and lasting relationships.
Facts
LM Power Engineering Corporation (Petitioner) and Capitol Industrial Construction

Groups (Respondent) entered into a Subcontract Agreement involving electrical work at
the Port of Zamboanga. Respondent then took over some of the work contracted to
Petitioner, It was alleged that the petitioner failed to finish it because of its inability to
procure materials.
Upon completion of the task, Petitioner billed the respondent the amount of
6,711,813.90 pesos. Respondent refused to pay and contested the accuracy of the
amount of advances and billable accomplishments listed by the petitioner. Respondent
also took refuge in the termination clause agreement which allowed it to set off the cost
of the work that petitioner had failed to undertake (due to termination of take over).
Because of the dispute, the Petitioner filed a complaint foe collection of the balance
due under the subcontract agreement. However, instead of filing an answer, the
respondent filed a Motion to Dismiss, alleging that the complaint was premature because
there was no prior recourse to arbitration. RTC denied the motion on the ground that the
dispute did not involve the interpretation or implementation of the agreement and was,
therefore, not covered by the arbitral clause. Also, the RTC ruled that the take over of
some work items by the respondent was not equivalent to termination but a mere
modification of the subcontract.
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Issues
A. Whether or not there exist[s] a controversy/dispute between petitioner and

respondent regarding the interpretation and implementation of the Sub-Contract
Agreement dated February 22, 1983 that requires prior recourse to voluntary arbitration;
B. In the affirmative, whether or not the requirements provided in Article III 1 of CIAC
Arbitration Rules regarding request for arbitration have been complied with
The Court’s Ruling
The Petition is unmeritorious.
A. Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect
the value of the services it rendered through an ordinary action for the collection of a sum
of money from respondent.
On the other hand, the latter contends that there is a need for prior arbitration as provided
in the Agreement. This is because there are some disparities between the parties’
positions regarding the extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by respondent in its take-over of
petitioner’s work.
We side with respondent. Essentially, the dispute arose from the parties’ congruent
positions on whether certain provisions of their Agreement could be applied to the facts.
The instant case involves technical discrepancies that are better left to an arbitral body
that has expertise in those areas. In any event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of jurisdiction to pass upon the findings of
arbitral bodies, because the awards are still judicially reviewable under certain conditions.
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x x."
Clearly, the resolution of the dispute between the parties herein requires a referral to the
provisions of their Agreement. Within the scope of the arbitration clause are discrepancies
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as to the amount of advances and billable accomplishments, the application of the
provision on termination, and the consequent set-off of expenses.
The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioner’s delay in
completing the work. Such delay was in violation of the provision in the Agreement as to
time schedule.
The issue as to the correct amount of petitioner’s advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent
to which they did it, and the expenses each of them incurred in connection therewith.
Arbitrators also need to look into the computation of foreign and local costs of materials,
foreign and local advances, retention fees and letters of credit, and taxes and duties as
set forth in the Agreement.
Being an inexpensive, speedy and amicable method of settling disputes, arbitration --

along with mediation, conciliation and negotiation -- is 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.
B. Prior Request for Arbitration
Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration
has dispensed with this requirement and recourse to the CIAC may now be availed of
whenever a contract "contains a clause for the submission of a future controversy to
arbitration," in this wise:
"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction

contract or a submission to arbitration of a construction dispute shall be deemed an
agreement to submit an existing or future controversy to CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such
contract or submission. When a contract contains a clause for the submission of a future
controversy to arbitration, it is not necessary for the parties to enter into a submission
agreement before the claimant may invoke the jurisdiction of CIAC."
Clearly, there is no more need to file a request with the CIAC in order to vest it with
jurisdiction to decide a construction dispute.
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Since petitioner has already filed a Complaint with the RTC without prior recourse to
arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request
the stay or suspension of such action, as provided under RA 876 [the Arbitration Law].u
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
5. Luzon vs Bridestone, GR No 220546
LUZON IRON DEVELOPMENT GROUP CORPORATION AND CONSOLIDATED IRON

SANDS, LTD., petitioners, vs. BRIDESTONE MINING AND DEVELOPMENT
CORPORATION and ANACONDA MINING AND DEVELOPMENT CORPORATION,
respondents.
The case is basically about the interpretation of TPAA. The Court ruled that paragraphs
14.8 and 15.1 of the TPAA should be harmonized in such a way that the arbitration clause
is given life.
Facts:
1. Respondents fi led separate complaints before the RTC against the petitioner.
Both complaints sought the rescission of the Tenement Partnership and
Acquisition Agreement (TPAA)entered into by Luzon Iron and Consolidated Iron,
on one hand, and Bridestone and Anaconda, on the other, for the assignment of
the Exploration Permit Applicationof the former in favor of the latter.
2. Luzon Ironfiled their Special Appearance with Motion to Dismiss, separately,

against both respondents, on similar ground, among others: the RTC had no
jurisdiction over the subject matter because of an arbitration clause in the TPAA.
3. RTC consolidated two cases and denied the motion to dismiss ruling that it had
jurisdiction over the subject matter because under clause 14.8[1]of the TPAA, the
parties could go directly to courts when a direct and/or blatant violation of the
provisions of the TPAA had been committed.
4. Luzon filed Petition for Review before CA.The CA also sustained the jurisdiction
of the RTC over the subject matter opining that the arbitration clause in the TPAA
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provided for an exception where parties could directly go to court. Thus, the
petition.
Petitioners:The trial court had no jurisdiction over the consolidated cases because of the
arbitration clause set forth in the TPAA. (Par. 15.1[2])
Respondents:The trial court had jurisdiction over the complaints because the TPAA itself
allowed a direct resort before the courts in exceptional circumstances.They cited
paragraph 14.8 thereof as basis explaining that when a direct and/or blatant violation of
the TPAA had been committed, a party could go directly to the courts. They faulted the
petitioners in not moving for the referral of the case for arbitration instead of merely filing
a motion to dismiss.
Petitioners’ Reply: Paragraph 14.8 of the TPAA should not be construed as an authority
to directly resort to court action in case of a direct and/or blatant violation of the TPAA
because such interpretation would render the arbitration clause nugatory.They contended
that, even for the sake of argument, the judicial action under the said provisions was
limited to issues or matters which were inexistent in the present case.
Issues:
1. Whether or not the controversy must be referred for arbitration — Yes.
2. Whether or not failure to refer the case for arbitration render the arbitration clause
inoperative. — No.
Held:
1. Controversy must be referred for arbitration.The state adopts a policy in favor
of arbitration (read Republic Act No. 9285 Sec. 2). Thus, consistent with the state
policy of favoring arbitration, the present TPAA must be construed in such a
manner that would give life to the arbitration clause rather than defeat it, if such
interpretation is permissible. With this in mind, the Court views the interpretation
forwarded by the petitioners as more in line with the state policy favoring
arbitration. Paragraphs 14.8 and 15.1 of the TPAA should be harmonized in
such a way that the arbitration clause is given life. The Court disagrees with
the respondents that Paragraph 14.8 of the TPAA should be construed as an
exception to the arbitration clause where direct court action may be resorted to in
case of direct and/or blatant violation of the TPAA occurs. Such construction is
anathema to the policy favoring arbitration.
2. As to formal request, the petitioners' failure to refer the case for arbitration,
however, does not render the arbitration clause in the TPAA inoperative.A
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formal request is not the sole means of invoking an arbitration clause in a pending
suit. Similar to the said case, the petitioners here made the RTC aware of the
existence of the arbitration clause in the TPAA as they repeatedly raised this as
an issue in all their motions to dismiss. As such, it was enough to activate the
arbitration clause and, thus, should have alerted the RTC in proceeding with the
case.
COUR’T RULING: Generally, the action of the court is stayed if the matter raised before
it is subject to arbitration. In the case at bench, however, the complaints fi led before the
RTC should have been dismissed considering that the petitioners were able to establish
the ground for their dismissal, that is, violating the prohibition on forum shopping. The
parties, nevertheless, are directed to initiate arbitration proceedings as provided
under Paragraph 15.1 of the TPAA.
Note:
ON JUDICIAL RESTRAINT:
RULE 2.4. Policy Implementing Competence-Competence Principle.— xxx When a

court is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral
tribunal in a dispute brought before it, either before or after the arbitral tribunal is
constituted, the court must exercise judicial restraint and defer to the competence or
jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the rst opportunity to
rule upon such issues.xxx Unless the court, pursuant to such prima facie determination,
concludes that the arbitration agreement is null and void, inoperative or incapable of being
performed, the court must suspend the action before it and refer the parties to arbitration
pursuant to the arbitration agreement.
[1]
Each Party agrees not to commence or procure the commencement of any challenge
or claim, action, judicial or legislative enquiry, review or other investigation into the
suf ciency, validity, legality or constitutionality of (i) the assignments of the Exploration
Permit Applications(s) (sic) to LIDGC, (ii) any other assignments contemplated by this
TPAA, and/or (iii) or(sic) any agreement to which the Exploration Permit Application(s)
may be converted, unless a direct and/or blatant violation of the provisions of the TPAA
has been committed.
[2]
If, for any reasonable reason, the Parties cannot resolve a material fact, material event
or any dispute arising out of or in connection with this TPAA, including any question
regarding its existence, validity or termination, within 90 days from its notice, shall be
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referred to and nally resolved by arbitration in Singapore in accordance with the
Arbitration Rules of the Singapore International Arbitration Centre ("SIAC Rules") for the
time being in force, which rules are deemed to be incorporated by reference in this clause
15.1.
6. Steamship vs Sulpicio Lines, GR No 196072
Doctrine:
An insured member may be compelled to arbitration pursuant to the Rules of the

Protection and Indemnity Club, which were incorporated in the insurance policy by
reference. Where there are multiple parties, the court must refer to arbitration by the
parties covered by the agreement while proceeding with the civil action against those who
were not bound by the arbitration agreement.
FACTS:
Steamship was a Bermuda-based Protection and Indemnity Club. It insures it members-

shipowners against “third party risks and liabilities” for claims arising from (a) death or
injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage from
collisions.
Sulpicio insured its fleet of inter-island vessels with Steamship for Protection and
Indemnity risks through local insurance agents, Pioneer Insurance and Surety
Corporation (Pioneer Insurance) or Seaboard-Eastern Insurance Co. Inc., (Seaboard-
Eastern) among which was the M/V Princess of the World which was gutted by fire while
on voyage from Ilolilo to Zamboanga City, resulting in total loss of its cargoes. The fire
incident was found by the DILG to be “accidental” in nature.
Sulpicion claimed indemnity from Steamship under the Protection & Indemnity insurance
policy but the latter denied the claim and subsequently rescinded the insurance coverage
of Sulpicio’s other vessels on the ground that “Sulpicio was grossly negligent in
conducting its business regarding safety, maintaining the seaworthiness of its vessels as
well as propert training of its crew.”
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Sulpicio filed a Complaint with the RTC of Makati City against Steamship; one (1) of its
directors, Gary Rynsard; and its local insurance agents Pioneer Insurance and Seaboard-
Eastern for specific performance and damages. Steamship filed its Motion to Dismiss
and/or Refer Case to Arbitration pursuant to Republic Act No. 9285 or the Alternative
Dispute Resolution Act of 2004 (ADR Law), and to Rule 47 of the 2005/2006 Club Rules,
which supposedly provided for arbitration in London of disputes between Steamship and
its members.
The RTC denied Steamship’s Motion to Dismiss holding that “arbitration [did] not appear
to be the most prudent action,... considering that the other defendants.. Ha[d] already
filed their [respective] [a]nswers.” The Court of Appeals affirmed the RTC decision.
ISSUE: Whether there is a valid and binding arbitration agreement between Steamship
and Sulpicio
RULING:
YES. The contract between Sulpicio and Steamship is more than a contract of insurance
between a marine insurer and a shipowner. By entering its vessels in Steamship, Sulpicio
not only obtains insurance coverage for its vessels but also becomes a member of
Steamship. A protection and indemnity club, like Steamship, is an association composed
of shipowners generally formed for the specific purpose of providing insurance cover
against third-party liabilities of its members.
Thus, a contract of insurance is perfected between the parties upon Steamship's issuance
of the Certificate of Entry and Acceptance.Title VI, Section 49 of Presidential Decree No.
612 or the Insurance Code defines an insurance policy as "the written instrument in which
a contract of insurance is set forth." Section 50 of this Code provides that the policy, which
is required to be in
printed form, "may contain blank spaces; and any word, phrase, clause, mark, sign,
symbol, signature, number, or word necessary to complete the contract of insurance shall
be written on the blank spaces." Any rider, clause, warranty, or endorsement attached
and referred to in the policy by its descriptive title or name is considered part of this policy
or contract of insurance and binds the insured.Section 51 of the Insurance Code
prescribes the information that must be stated in the policy, namely: the parties in the
insurance contract, amount insured, premium, property or life insured, risks insured
against, and period of insurance. However, there is nothing in the law that prohibits the
parties from agreeing to other terms and conditions that would govern their relationship,
in which case the general rules of theCivil Code regulating contracts will apply.
15
The Club Rules contain the terms and conditions of the relationship between the
Steamship and its members including the scope, nature, and extent of insurance
coverage of its members' vessels. The arbitration clause is found in Rule 47 of the
2005/2006 Club Rules. Under Rule 47, any dispute concerning the insurance afforded by
Steamship must first be brought by a claiming member to the Directors for adjudication.
If this member disagrees with the decision of the Director, the dispute must be referred to
arbitration in London. Despite the member's disagreement, the Managers of Steamship
may refer the dispute to arbitration without adjudication of the Directors. This procedure
must be complied with before the member can pursue legal proceedings against
Steamship. There is no ambiguity in the terms and clauses of the Certificate of Entry
Acceptance. Contrary to the ruling of the Court of Appeals, the Certificate clearly
incorporates the entire Club Rules — not only those provisions relating to cancellation
and alteration of the policy
7. DPWH vs CMC, GR No 179732
Doctrine:
As the administrative agency tasked with resolving issues pertaining to the construction
industry, the Construction Industry Arbitration Commission enjoys a wide latitude in
recognition of its technical expertise and experience. Its factual findings are, thus,
accorded respect and even finality, particularly when they are affirmed by an appellate
court.
FACTS:
Republic of the Philippines, through the Department of Public Works and Highways
(DPWH), and CMC/Monark/Pacific/Hi-Tri J.V. (the Joint Venture) executed "Contract
Agreement for the Construction of Contract Package 6MI-9, Pagadian-Buug Section,
Zamboanga del Sur, Sixth Road Project, Road Improvement Component Loan No. 1473-
PHI" (Contract) for a total contract amount of P713,330,885.28. DPWH hired BCEOM
French Engineering Consultants to oversee the project.
On October 23, 2002, or while the project was ongoing, the Joint Venture's truck and
equipment were set on fire. On March 11, 2003, a bomb exploded at Joint Venture's
16
hatching plant located at Brgy. West Boyogan, Kumalarang, Zamboanga del Sur.
According to reports, the bombing incident was caused by members of the Moro Islamic
Liberation Front.
Several demand letters were sent by The Joint Venture for the extension and payment of
the foreign component of the Contact. Only the foreign contract were up for negotiations.
Consequently, the Joint Venture filed a compliant against DPWH before the CIAC.
Meanwhile, on July 8, 2004, the Joint Venture sent a "Notice of Mutual Termination of
Contract", to DPWH requesting for a mutual termination of the contract subject of the
arbitration case. This is due to its diminished financial capability due to DPWH's late
payments, changes in the project involving payment terms, peace and order problems,
and previous agreement by the parties.
On July 16, 2004, then DPWH Acting Secretary Florante Soriquez accepted the Joint
Venture's request for mutual termination of the contract.
After hearing and submission of the parties' respective memoranda, CIAC promulgated
an Award16 on March 1, 2005, directing DPWH to pay the Joint Venture its money claims
plus legal interest. CIAC, however, denied the Joint Venture's claim for price adjustment
due to the delay in the issuance of a Notice to Proceed under Presidential Decree No.
1594 or the "Policies, Guidelines, Rules, and Regulations for Government Infrastructure
Contracts."
ISSUES:
1. WON the mutual termination of the contract renders the case moot and academic
2. WON the filing of claim before CIAC was premature for non compliance with the
doctrine of exhaustion of administrative remedies
HELD
No. The issues arising from the mutually terminated contract are not moot and academic.
As the Court of Appeals found, there are actual substantial reliefs that respondent is
entitled to. There is a practical use or value to decide on the issues raised by the parties
despite the mutual termination of the Contract between them. These issues include the
determination of amounts payable to respondent by virtue of the time extensions,
respondent's entitlement to price adjustments due to the delay of the issuance of the
Notice to Proceed, additional costs, actual damages, and interest on its claims. The
17
agreement to mutually terminate the Contract did not wipe out petitioner's obligation to
pay respondent on works done before the Contract's termination on October 27, 2004.
No. CIAC found and correctly ruled that respondent had duly complied with the
contractual obligation to exhaust administrative remedies provided for under sub-clause
67.1 of the Conditions of Contract before it brought the case before the tribunal. A total of
17 demand letters were sent to petitioner to no avail. To require respondent to wait for
the DPWH Secretary's response while respondent continued to suffer financially would
be to condone petitioner's avoidance of its obligations to respondent. Hence, even
assuming that sub-clause 67.1 was not applicable, the case would still fall within the
exceptions to the doctrine of exhaustion of administrative remedies since strict application
of the doctrine will be set aside when requiring it would only be unreasonable under the
circumstances.  
CIAC's specific purpose is the "early and expeditious settlement of disputes" in the
construction industry as a recognition of the industry's role in "the furtherance of national
development goals." CIAC's authority to arbitrate construction disputes was then
incorporated into the general statutory framework on alternative dispute resolution
through Republic Act No. 9285 As a general rule, findings of fact of CIAC, a quasi-judicial
tribunal which has expertise on matters regarding the construction industry, should be
respected and upheld.
WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated September
20, 2007 in CA-G.R. SP Nos. 88953 and 88911 is AFFIRMED with MODIFICATION as
follows: (1) that the order remanding the case to the Construction Industry Arbitration
Commission for proper disposition is REVERSED for being moot and academic; and (2)
that the legal interest rate is pegged at twelve percent (12%) per annum until June 30,
2013, and then at six percent (6%) per annum until full satisfaction.
8. BCDA vs DMCI, GR No 173137
An arbitration clause in a document of contract may extend to subsequent

documents of contract executed for the same purpose. Nominees of a party to and
beneficiaries of a contract containing an arbitration clause may become parties to
a proceeding initiated based on that arbitration clause.
18
FACTS: Bases Conversion Development Authority (BCDA) entered into a Joint Venture
Agreement (JVA) with Philippine National Railways and other foreign corporations for a
railroad project which included an arbitration clause. As part of the agreement, BCDA
established North Luzon Railways Corp. (Northrail). DM Consunji Inc. (DMCI) was invited
to be an additional investor of Northrail to contribute upon the latter’s increase in
authorized capital stocks.
The JVA was amended to include DMCI and/or its nominee as party. A Memorandum of
Agreement was entered into where DMCI’s share in the capital was set at P300M. Upon
BCDA and Northrail’s request, DMCI-PDI deposited such amount for “deposits for future
subscription. In letters dated April 4, 1997, D.M. Consunji, Inc. informed PNR and the
other parties that DMCI-PDI shall be its designated nominee for all the agreements it
entered and would enter with them in connection with the railroad project. However, the
increase in authorized capital stock did not materialize. Thus, DMCI-PDI demanded the
return of the P300Mdeposit.
BCDA and North rail refused to return the amount saying the amount was in the nature
of a contribution and DMCI must share in the profits and losses. DMCI-PDI served
demand for arbitration to BCDA and Northrail. Both failed to respond. DMCI-PDI filed a
Petition to Compel Arbitration in the RTC. BCDA countered saying DMCI-PDI has no
arbitration clause to enforce because it is not a party to the JVA which included said
clause. Northrail says it is not a party to the JVA, thus, is not subject to the jurisdiction of
the court.
RTC granted the Petition to Compel Arbitration, MR denied. It said that the 3 documents
must be read as 1 contract aiming to accomplish the single goal of implementing the
railroad project.
ISSUE: Whether or not DMCI-PDI may compel BCDA and Northrail to arbitration
HELD: Yes Each document was executed to achieve the single purpose of implementing
the railroad project, such that documents of agreement succeeding the original JVA
merely amended or supplemented its provisions. The three agreements must be read
together for a complete understanding of the parties' whole agreement. Hence, the
arbitration clause should extend to all the agreements and its parties DMCI and/or its
nominee became a party to the amended JVA. Nomination pertains to the act of naming
the party with whom it has a relationship of trust or agency.
Contrary to BCDA and Northrail’s position, therefore, the agreement’s prohibition against
transfers, conveyance, and assignment of rights without the consent of the other party
19
does not apply to nomination. DMCI-PDI is a party to all the agreements, including the
arbitration agreement. It may, thus, invoke the arbitration clause against all the parties.
DMCI in a letter formally designated DMCI-PDI as its nominee. Thus, DMCI-PDI is a party
to the contract. A beneficiary who communicated his or her acceptance to the terms of
the agreement before its revocation may be compelled to abide by the terms of an
agreement, including the arbitration clause. In this case, Northrail is deemed to have
communicated its acceptance of the terms of the agreements when it accepted DMCI's
funds. Hence, Northrail is also a party to the agreement
9. Fruehaf vs Technology, GR No 204197

Topic: Judicial Review over arbitral awards
FACTS:
Fruehaff leased land in Pasig City to Signetics Filipinas Corporation for 25 years.
Signetics constructed a semiconductor assembly factory on the land. When it ceased
operations, Team Holdings Limited (THL) bought Signetics. THL later changed its name
to Technology Electronics Assembly and Management Pacific Corp. (TEAM).
March 1987: Freuhaff filed an unlawful detainer case against TEAM. They executed a
MOA to settle the dispute and entered a 15 year lease contract. The contract included an
arbitration agreement stating that in case of disagreement between the parties, the
dispute will be referred to a 3 member arbitration committee (each party appointing one,
and the third member appointed by the two members). The contract also authorized
TEAM to sublease the property. TEAM subleased it to Capitol Publishing House.
May 2003: TEAM informed Freuhaff of its nonrenewal of license. Sublease between
TEAM and Capitol also expired but Capitol only vacated premises on March 2005.
June 2003: Lease between Freuhaff and TEAM expired.
March 2004: Freuhaff instituted SPProc No. 11449 to RTC (Submission of an Existing
Controversy for Arbitration” alleging that when the lease expired, the property suffered
from damages and TEAM failed to turn over the premises and pay rent.
RTC granted and directed parties to comply with the arbitration clause of the contract.
Arbitral Award: 8.2m as unpaid rent of TEAM, 46.8m as damages.

TEAM petitioned RTC to vacate or modify the award arguing that the tribunal failed to
properly appreciate the facts and the terms of the lease contract.
20
RTC found insufficient legal grounds under Sec 24 and 25 of Arbitration Law to modify or
vacate the award.
Grounds for vacating a domestic arbitral award (Sec 24 Arbitration Law):
(a) when the award is procured by corruption, fraud, or other undue means; or
(b) there was evident partiality or corruption in the arbitrators or any of them; or
(c) the arbitrators were guilty of misconduct that materially prejudiced the rights of
any party; or
(d) the arbitrators exceeded their powers, or so imperfectly executed them,that a
mutual, final and definite award upon the subject matter submitted to them was not
made.
TEAM filed a Notice of Appeal.

RTC Ruling: Confirmed the Arbitral Award using Sec 29 of the Arbitration Law:
Section 29. Appeals. - An appeal may be taken from an order made in a
proceeding under this Act, or from a judgment entered upon an award through
certiorari proceedings, but such appeals shall be limited to questions of law.
The proceedings upon such appeal, including the judgment thereon shall be
governed by the Rules of Court in so far as they are applicable.
CA Ruling: Reversed and set aside the arbitral award using Sec 46 of the Alternative
Dispute Resolution:
SEC. 46. Appeal from Court Decisions on Arbitral Awards. - A decision of the
regional trial court confirming, vacating, setting aside, modifying or correcting an
arbitral award may be appealed to the Court of Appeals in accordance with the
rules of procedure to be promulgated by the Supreme Court.
The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellant court to post counterbond executed in
favor of the prevailing party equal to the amount of the award in accordance with
the rules to be promulgated by the Supreme Court.
ISSUE AND SC RULING:
Can an arbitral award be vacated? (Generally, No.)

Conclusion: Fruehaff should be awarded. The general rule applies.
Whether we apply, Section 29 of the Arbitration Law, Section 46 of the ADR Law, or Rule
19.12 of the Special ADR Rules, there is no legal basis that an ordinary appeal (via notice
of appeal) is the correct remedy from an order confirming, vacating, or correcting an
arbitral award. Thus, there is no merit in the CA's ruling that the RTC gravely abused its
discretion when it refused to give due course to the notice of appeal.
21
None of the grounds to vacate an arbitral award are present in this case and as already
established, the merits of the award cannot be reviewed by the courts.
Arbitration is an alternative mode of dispute resolution outside of the regular court

system. Although adversarial in character, arbitration is technically not litigation. It is a
voluntary process in which one or more arbitrators - appointed according to the parties'
agreement or according to the applicable rules of the Alternative Dispute Resolution
(ADR) Law - resolve a dispute by rendering an award. While arbitration carries many
advantages over court litigation, in many ways these advantages also translate into its
disadvantages.
Resort to arbitration is voluntary. It requires consent from both parties in the form of an
arbitration clause that pre-existed the dispute or a subsequent submission
agreement. This written arbitration agreement is an independent and legally enforceable
contract that must be complied with in good faith. By entering into an arbitration
agreement, the parties agree to submit their dispute to an arbitrator (or tribunal) of their
own choosing and be bound by the latter's resolution.
The errors of an arbitral tribunal are not subject to correction by the judiciary. As a private
alternative to court proceedings, arbitration is meant to be an end, not the beginning,
of litigation. Thus, the arbitral award is final and binding on the parties by reason of their
contract - the arbitration agreement.
The right to an appeal is neither' a natural right nor an indispensable component of due
process; it is a mere statutory privilege that cannot be invoked in the absence of an
enabling statute. Neither the Arbitration Law nor the ADR Law allows a losing party to
appeal from the arbitral award. The statutory absence of an appeal mechanism reflects
the State's policy of upholding the autonomy of arbitration proceedings and their
corresponding arbitral awards.
Our refusal to review the award is not a simple matter of putting procedural technicalities
over the substantive merits of a case; it goes into the very legal substance of the issues.
There is no law granting the judiciary authority to review the merits of an arbitral award.
If we were to insist on reviewing the correctness of the award: (or consent to the CA's
doing so), it would be tantamount to expanding our jurisdiction without the benefit of
legislation. This translates to judicial legislation - a breach of the fundamental principle of
separation of powers.
Assuming arguendo that the tribunal's interpretation of the contract was incorrect, the
errors would have been simple errors of law. It was the tribunal - not the RTC or the CA
22
- that had jurisdiction and authority over the issue by virtue of the parties' submissions;
the CA's substitution of its own judgment for the arbitral award cannot be more compelling
than the overriding public policy to uphold the autonomy of arbitral awards. Courts are
precluded from disturbing an arbitral tribunal's factual findings and interpretations of law.
The CA's ruling is an unjustified judicial intrusion in excess of its jurisdiction - a judicial
overreach.
Upholding the CA's ruling would weaken our alternative dispute resolution mechanisms
by allowing the courts to "throw their weight around" whenever they disagree with the
results. It erodes the obligatory force of arbitration agreements by allowing the losing
parties to "forum shop" for a more favorable ruling from the judiciary.
Whether or not the arbitral tribunal correctly passed upon the issues is irrelevant.
Regardless of the amount, of the sum involved in a case, a simple error of law remains a
simple error of law. Courts are precluded from revising the award in a particular way,
revisiting the tribunal's findings of fact or conclusions of law, or otherwise encroaching
upon the independence of an arbitral tribunal.
Rule 19.10 of the Special ADR Rules: As a general rule, the court can only vacate
or set aside the decision of an arbitral tribunal upon a clear showing that the
award suffers from any of the infirmities or grounds for vacating an arbitral
award under Section 24 of Republic Act No. 876 or under Rule 34 of the Model
Law in a domestic arbitration, or for setting aside an award in an international
arbitration under Article 34 of the Model Law, or for such other grounds provided
under these Special Rules.
If the Regional Trial Court is asked to set aside an arbitral award in a domestic or
international arbitration on any ground other than those provided in the Special
ADR Rules, the court shall entertain such ground for the setting aside or non-
recognition of the arbitral award only if the same amounts to a violation of
public policy.
The court shall not set aside or vacate the award of the arbitral tribunal merely
on the ground that the arbitral tribunal committed errors of fact, or of law, or
of fact and law, as the court cannot substitute its judgment for that of the
arbitral tribunal.
TEAM agreed to submit their disputes to an arbitral tribunal. It understood all the risks -
including the absence of an appeal mechanism - and found that its benefits (both legal
and economic) outweighed the disadvantages. Without a showing that any of the grounds
to vacate the award exists or that the same amounts to a violation of an overriding public
policy, the award is subject to confirmation as a matter of course.
DISPOSITIVE PORTION:
23
WHEREFORE, we GRANT the petition. The CA's decision in CA-G. R. SP. No. 112384
is SET ASIDE and the RTC's order CONFIRMING the arbitral award in SP. Proc. No.
11449 is REINSTATED
10. Lanuza vs BF Corp, GR No 174938
CORPORATE REPRESENTATIVES MAY BE COMPELLED TO SUBMIT TO

ARBITRATION PROCEEDINGS PURSUANT TO A CONTRACT ENTERED INTO BY
THE CORPORATION THEY REPRESENT IF THERE ARE ALLEGATIONS OF BAD
FAITH OR MALICE IN THEIR ACTS REPRESENTING THE CORPORATION.
FACTS:
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against
Shangri-Laand the members of its board of directors.
BF Corporation alleged in its complaint that on December 11, 1989 and May 30, 1991, it
entered into agreements with Shangri-La wherein it undertook to construct for Shangri-
La a mall and a multilevel parking structure along EDSA. Shangri-La had been consistent
in paying BF Corporation in accordance with its progress billing statements. However, by
October 1991, Shangri-La started defaulting in payment.
BF Corporation alleged that Shangri-La induced BF Corporation to continue with the

construction of the buildings using its own funds and credit despite Shangri-La’s default.
BF Corporation eventually completed the construction of the buildings. Shangri-La
allegedly took possession of the buildings while still owing BF Corporation an outstanding
balance.
BF Corporation alleged that despite repeated demands, Shangri-La refused to pay the
balance owed to it. It also alleged that the Shangri-La’s directors were in bad faith in
directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable
with Shangri-La for its obligations as well as for the damages that BF Corporation incurred
as a result of Shangri-La’s default.
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco

III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF
Corporation’s failure to submit its dispute to arbitration, in accordance with the arbitration
clause provided in its contract, quoted in the motion as follows:
24
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the
submission of the dispute to arbitration.
Aggrieved by the Court of Appeals’ decision, BF Corporation filed a petition for review on
certiorari with this court. On March 27, 1998, this court affirmed the Court of Appeals’
decision, directing that the dispute be submitted for arbitration.
Another issue arose after BF Corporation had initiated arbitration proceedings. BF

Corporation and Shangri-La failed to agree as to the law that should govern the arbitration
proceedings. On October 27, 1998, the trial court issued the order directing the parties to
conduct the proceedings in accordance with Republic Act No. 876.
On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BF Corporation’s complaint.25 According to the trial
court, Shangri-La’s directors were interested parties who "must also be served with a
demand for arbitration to give them the opportunity to ventilate their side of the
controversy, safeguard their interest and fend off their respective positions." Petitioners’
motion for reconsideration of this order was denied by the trial court on January 19, 2005.
Petitioners filed a petition for certiorari with the Court of Appeals, alleging grave abuse of
discretion in the issuance of orders compelling them to submit to arbitration proceedings
despite being third parties to the contract between Shangri-La and BF Corporation.
In its May 11, 2006 decision,29 the Court of Appeals dismissed petitioners’ petition for
certiorari. The Court of Appeals ruled that ShangriLa’s directors were necessary parties
in the arbitration proceedings.30 According to the Court of Appeals:
[They were] deemed not third-parties tothe contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code,
and that as directors of the defendant corporation, [they], in accordance with Art. 1217 of
the Civil Code, stand to be benefited or injured by the result of the arbitration proceedings,
hence, being necessary parties, they must be joined in order to have complete
adjudication of the controversy.
The Court of Appeals further ruled that "excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy against multiplicity of suits."
ISSUE:
The issue in this case is whether petitioners should be made parties to the arbitration
proceedings, pursuant to the arbitration clause provided in the contract between BF
Corporation and Shangri-La.
25
HELD:
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations. The corporation is a separate being, and nothing justifies BF Corporation’s
allegation that they are solidarily liable with Shangri-La.
Petitioners also argue that they are third parties to the contract between BF Corporation
and Shangri-La. Provisions including arbitration stipulations should bind only the parties.
Based on our arbitration laws, parties who are strangers to an agreement cannot be
compelled to arbitrate.
Petitioners point out that our arbitration laws were enacted to promote the autonomy of
parties in resolving their disputes. Compelling them to submit to arbitration is against this
purpose and may be tantamount to stipulating for the parties.
We rule that petitioners may be compelled to submit to the arbitration proceedings in

accordance with Shangri-Laand BF Corporation’s agreement, in order to determine if the
distinction between Shangri-La’s personality and their personalities should be
disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the parties to
avoid litigation and settle disputes amicably and more expeditiously by themselves and
through their choice of arbitrators.
Thus, if there is an interpretation that would render effective an arbitration clause for
purposes of avoiding litigation and expediting resolution of the dispute, that interpretation
shall be adopted.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are separate
and distinct from Shangri-La.
A corporation’s representatives are generally not bound by the terms of the contract
executed by the corporation. They are not personally liable for obligations and liabilities
incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the parties’ autonomy in resolving
their disputes. An arbitration clause shall not apply to persons who were neither parties
to the contract nor assignees of previous parties, thus:
26
However, there are instances when the distinction between personalities of directors,
officers,and representatives, and of the corporation, are disregarded. We call this piercing
the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a corporation]
is used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, or to confuse legitimate issues."85 It
is also warranted in alter ego cases "where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation."
When corporate veil is pierced, the corporation and persons who are normally treated as
distinct from the corporation are treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they were the corporation.
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these persons
and the corporation should be treated as one.
It is because the personalities of petitioners and the corporation may later be found to be
indistinct that we rule that petitioners may be compelled to submit to arbitration.
11. Koppel v. Makati Rotary Club

G.R. No. 198075. September 4, 2013
PEREZ, J
FACTS: In 1975, Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning

products, bequeathed the subject land (exclusive of the improvements thereon) in favor
of herein respondent Makati Rotary Club Foundation, Incorporated by way of a
conditional donation. The respondent accepted the donation with all of its conditions.
The parties executed executed a Deed of Donation.
One of the conditions of the donation required the respondent to lease the subject land
back to FKI for a period of 25 years, renewable for another period of 25 years "upon
mutual agreement" of the parties. An Amended Deed of Donation was executed that
reiterated the provisions of the Deed of Donation.
27
Two (2) days before the expiration of the lease, or on 23 May 2000, FKI and respondent
executed another contract of lease (2000 Lease Contract) covering the subject land. In
this 2000 Lease Contract, the parties agreed on a new five-year lease with annual rents
ranging from P4,000,000 for the first year up to P4,900,000 for the fifth year.
The 2000 Lease Contract also contained an arbitration clause which provides that:
Any disagreement as to the interpretation, application or execution of this [2000
Lease Contract] shall be submitted to a board of three (3) arbitrators constituted in
accordance with the arbitration law of the Philippines. The decision of the majority
of the arbitrators shall be binding upon [FKI and respondent.
The lease contract was renewed for another 5 years. This new lease (2005 Lease
Contract) required FKI to pay an annual rent of P4,200,000. It also obligated FKI to make
a yearly "donation" of money to the respondent ranging from P3,000,000 for the first year
up to P3,900,000 for the fifth year. The contract contained an arbitration clause similar to
that in the 2000 Lease Contract.
From 2005 to 2008, FKI faithfully paid the rentals and "donations" due it. But in June of
2008, FKI sold all its rights and properties relative to its business in favor of herein
petitioner Koppel, Incorporated. FKI and petitioner executed an Assignment and
Assumption of Lease and Donation.
The following year, petitioner discontinued the payment of the rent and "donation" under
the 2005 Lease Contract. Petitioner contends that rental stipulations of the two lease
contracts cannot be given effect because they violated one of the "material conditions" of
the donation of the subject land.
Petitioner cites item 2 (g) of the Deed of Donation and Amended Deed of Donation that
supposedly limits the amount of rent for the lease over the second 25 years to only "three
percent (3%) of the fair market value of the subject land.
Two demand letters were sent to petitioner. Petitioner refused to comply with the
demands. Instead, petitioner filed a complaint for rescission or cancellation of the Deed
of Donation. This case is currently pending before the RTC.
Respondent, on the other hand, filed an unlawful detainer case against petitioner before
the MeTC. MeTC ruled in favor of petitioner. RTC reversed the decision of ordered the
eviction of petitioner. CA affirmed. Hence, this appeal.
28
ISSUE: Whether or not the 2005 lease contract is arbitrable.
HELD: Yes. Independently of the merits of the case, the MeTC, RTC and Court of
Appeals all erred in overlooking the significance of the arbitration clause incorporated in
the 2005 Lease Contract.
Present Dispute is Arbitrable Under the Arbitration Clause of the 2005 Lease
Agreement Contract
The dispute between the petitioner and respondent emanates from the rental stipulations
of the 2005 Lease Contract. The respondent insists upon the enforceability and validity
of such stipulations, whereas, petitioner, in substance, repudiates them. The dispute
between the petitioner and respondent arose from the application or execution of the 2005
Lease Contract. Undoubtedly, such kinds of dispute are covered by the arbitration clause
of the 2005 Lease Contract.
Challenges Against the Application of the Arbitration Clause of the 2005 Lease
Contract
1. Respondent maintains that the Supreme Court, in Gonzales v. Climax Mining, Ltd.,
held that "the validity of contract cannot be subject of arbitration proceedings" as such
questions are "legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.” While it may be conceded that in
the arbitration of the disagreement in the present case, the validity of the 2005 Lease
Contract, or at least, of such contract's rental stipulations would have to be determined,
the same would not render such disagreement non-arbitrable.
The Court in Gonzales did not simply base its rejection of the complaint for arbitration on
the ground that the issue raised therein, i.e., the validity of contracts, is per se non-
arbitrable. The real consideration behind the ruling was the limitation that was placed
by R.A. No. 7942 upon the jurisdiction of the PA-MGB as an arbitral body. Gonzales
rejected the complaint for arbitration because the issue raised therein is not a mining
dispute per R.A. No. 7942 and it is for this reason, and only for this reason, that such
issue is rendered non-arbitrable before the PA-MGB.
2. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract
notwithstanding the fact that it assails the validity of such contract. This is due to the
doctrine of separability.
29
Under the doctrine of separability, an arbitration agreement is considered as
independent of the main contract. Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or invalidity of the main
contract.
Legal Effect of the Application of the Arbitration Clause
It is clear that under the law, the instant unlawful detainer action should have been stayed;
the petitioner and the respondent should have been referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract. The MeTC, however, did not do so in
violation of the law — which violation was, in turn, affirmed by the RTC and Court of
Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos. 876 (to stay the action
or proceeding until an arbitration has been had in accordance with the terms of the
agreement) and 9285 (referral of the parties to arbitration) renders invalid all proceedings
it undertook in the ejectment case after the filing by petitioner of its Answer with
Counterclaim — the point when the petitioner and the respondent should have been
referred to arbitration. This case must, therefore, be remanded to the MeTC and be
suspended at said point. Inevitably, the decisions of the MeTC, RTC and the Court of
Appeals must all be vacated and set aside.
The petitioner and the respondent must then be referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.
11. Korea vs Lerma, GR No 143581
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 STEEL
MANUFACTURING CORPORATION, respondents.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is

engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation.
30
PGSMC and KOGIES executed a Contract whereby KOGIES would set up an LPG
Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the
Philippines Thereafter, the parties executed, in Korea, an Amendment for the contract
which amended the terms of payment. There was also a stipulation that KOGIES will ship
the machinery and facilities necessary for manufacturing LPG cylinders and it would
install and initiate the operation of the plant. The total contract price amounted to USD
1,530,000.
However, 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 their contract.
For the remaining balance for the installation and initial operation of the plant, PGSMC
issued two postdated check, however these were dishonored for the reason "PAYMENT
STOPPED. Kogies then sent a demand letter threatening criminal action for violation of
BP 22 in case of nonpayment.
PGSMC replied that the two checks it issued KOGIES were fully funded but the payments
were stopped since KOGIES had altered the quantity and lowered the quality of the
machineries and equipment it delivered to PGSMC. Consequently, PGSMC informed
KOGIES that the former was canceling their Contract.
KOGIES argued that PGSMC could not unilaterally rescind their contract. It also insisted
that their disputes should be settled by arbitration as agreed upon in Article 15, the
arbitration clause of their contract.
KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration
Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended.
KOGIES filed a Complaint for Specific Performance against PGSMC before the
Muntinlupa City RTC. The RTC also granted a TRO.
PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO
since Art. 15, the arbitration clause, was null and void for being against public policy as it
ousts the local courts of jurisdiction over the instant controversy.
31
RTC denied the application for a writ of preliminary injunction. It also held that Art. 15 of
the Contract as amended was invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the parties.
CA rendered the assailed Decision affirming the RTC Orders and dismissing the petition
for certiorari filed by KOGIES. It also 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.
ISSUES:
A. WON the arbitration clause in Article 15 of the parties’ contract is contrary to public
policy; and
B. WON the same is null and void for ousting the courts of jurisdiction.
RULING:
A. WON the arbitration clause in Article 15 of the parties’ contract is contrary

to public policy
Art 15 of the Contract, the arbitration clause provides.
Article 15. Arbitration.—All disputes, controversies, or differences which may arise

between the parties, out of or in relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The
award rendered by the arbitration(s) shall be final and binding upon both parties
concerned.
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
The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not
been shown to be contrary to any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties have not dealt with each other
32
on equal footing. We find no reason why the arbitration clause should not be respected
and complied with by both parties. In Gonzales v. Climax Mining Ltd. we held that
submission to arbitration is a contract and that a clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitration is a contract
Arbitration clause is not contrary to public policy
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.
Having said that the instant arbitration clause is not against public policy, we come to the
question on what governs an arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted in a foreign country and the
arbitration rules of the foreign country would govern and its award shall be final and
binding.
B. WON the arbitration clause is null and void for ousting the courts of
jurisdiction.
Petitioner is correct in its contention that an arbitration clause, stipulating that the arbitral
award is final and binding, does not oust our courts of jurisdiction as the international
arbitral award, the award of which is not absolute and without exceptions, is still judicially
reviewable under certain conditions provided for by the UNCITRAL Model Law as applied
and incorporated in RA 9285.
**ADDITIONAL NOTES IN CONNECTION WITH THE SECOND ISSUE:
RA 9285 incorporated the UNCITRAL Model law to which we are a signatory
For domestic arbitration proceedings, we have particular agencies to arbitrate disputes

arising from contractual relations. In case a foreign arbitral body is chosen by the parties,
the arbitration rules of our domestic arbitration bodies would not be applied.
As signatory to the Arbitration Rules of the UNCITRAL Model Law on International

Commercial Arbitration of the United Nations Commission on International Trade Law
(UNCITRAL) in the New York Convention, the Philippines committed itself to be bound
33
by the Model Law. We have even incorporated the Model Law in Republic Act No. (RA)
9285, otherwise known as the Alternative Dispute Resolution Act of 2004.
Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL
Model Law are the following:
(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the
subject of arbitration pursuant to an arbitration clause, and mandates the referral to
arbitration in such case.
(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to
be final and binding are not immediately enforceable or cannot be implemented
immediately. It is a requirement that the arbitral award be recognized by a competent
court for enforcement under Sec 35 of UNCITRAL Model Law.
Foreign arbitral awards when confirmed by the RTC are deemed not as a judgment of a
foreign court but as a foreign arbitral award, and when confirmed, are enforced as final
and executory decisions of our courts of law.
(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 vested the RTC with specific authority and
jurisdiction to set aside, reject, or vacate a foreign arbitral award. Thus, while the RTC
does not have jurisdiction over disputes governed by arbitration mutually agreed upon by
the parties, still the foreign arbitral award is subject to judicial review by the RTC which
can set aside, reject, or vacate it.
(4) Grounds for judicial review different in domestic and foreign arbitral awards
The differences between a final arbitral award from an international or foreign arbitral
tribunal and an award given by a local arbitral tribunal are the specific grounds or
conditions that vest jurisdiction over our courts to review the awards.
For foreign or international arbitral awards which must first be confirmed by the RTC, the
grounds for setting aside, rejecting or vacating the award by the RTC are provided under
Art. 34(2) of the UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the RTC pursuant to
Sec. 23 of RA 876 and shall be recognized as final and executory decisions of the RTC,
34
they may only be assailed before the RTC and vacated on the grounds provided under
Sec. 25 of RA 876.
Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings on
the foreign arbitration done in Korea, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.
12. Gonzalez vs Climax, GR No 161957
FACTS: This is a consolidation of two petitions rooted in the same disputed Addendum
Contract entered into by the parties.
In G.R. No. 161957, the Court denied the Rule 45 petition of petitioner Jorge Gonzales
and held that the DENR Panel of Arbitrators had no jurisdiction over the complaint for the
annulment of the Addendum Contract on grounds of fraud and violation of the Constitution
and that the action should have been brought before the regular courts as it involved
judicial issues. Both filed separate MR.
Gonzales avers that the Court erred in holding that the DENR Panel of Arbitrators was
bereft of jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panel’s authority.
Respondents Climax Mining Ltd., et al., seek reconsideration of that part of the Decision
holding that the case should not be brought for arbitration under Republic Act (R.A.) No.
876, also known as the Arbitration Law. Respondents, citing American jurisprudence and
the UNCITRAL Model Law, argue that the arbitration clause in the Addendum Contract
should be treated as an agreement independent of the other terms of the contract, and
that a claimed rescission of the main contract does not avoid the duty to arbitrate.
Respondents add that Gonzales’s argument relating to the alleged invalidity of the
Addendum Contract still has to be proven and adjudicated on in a proper proceeding; that
is, an action separate from the motion to compel arbitration. Pending judgment in such
separate action, the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the Decision that “the case
should not be brought under the ambit of the Arbitration Law” appears to be premised on
Gonzales’s having “impugned the existence or validity” of the addendum contract. If so,
it supposedly conveys the idea that Gonzales’s unilateral repudiation of the contract or
mere allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents
submit that the court’s holding that “the case should not be brought under the ambit of
35
the Arbitration Law” be understood or clarified as operative only where the challenge to
the arbitration agreement has been sustained by final judgment.
On the other hand, G.R. No. 167994 is a Rule 65 petition while the MR for G.R. No.
161957 was pending wherein Gonzales challenged the orders of RTC requiring him to
proceed with the arbitration proceedings as sought by Climax-Arimco Mining Corporation
(Climax-Arimco).
Gonzales questioned the validity of the Addendum Contract containing the arbitration
clause and alleged that it is void in view of Climax-Arimco’s acts of fraud, oppression and
violation of the Constitution. Thus, the arbitration clause, Clause 19.1, contained in the
Addendum Contract is also null and void ab initio and legally inexistent. Moreover,
Gonzales averred that referral of the parties to arbitration by Judge Pimentel despite the
timely and properly raised issue of nullity of the Addendum Contract was misplaced and
without legal basis. Both Sec 6 of R.A. No. 876 and Sec 24 of R.A. No. 9285 mandate
that any issue as to the nullity, inoperativeness, or incapability of performance of the
arbitration clause/agreement raised by one of the parties to the alleged arbitration
agreement must be determined by the court prior to referring them to arbitration.
Climax-Arimco points out that an application to compel arbitration under Sec. 6 of R.A.
No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction
solely to determine (a) whether or not the parties have a written contract to arbitrate, and
(b) if the defendant has failed to comply with that contract. Climax-Arimco argues that
R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and
that the court presented with an application to compel arbitration may order arbitration or
dismiss the same, depending solely on its finding as to those two limited issues.
ISSUE: W/N the question of validity of the Addendum Contract bears upon the
applicability or enforceability of the arbitration clause contained therein
RULING: NO. Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction. Disputes do not go to arbitration unless and
until the parties have agreed to abide by the arbitrator’s decision. Necessarily, a contract
is required for arbitration to take place and to be binding. R.A. No. 876 recognizes the
contractual nature of the arbitration agreement as stated in Sec. 2 : “Two or more persons
or parties may submit to the arbitration of one or more arbitrators any controversy existing,
between them at the time of the submission and which may be the subject of an action,
or the parties to any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or contract shall be valid,
enforceable and irrevocable, save upon such grounds as exist at law for the revocation
of any contract…” The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. The jurisdiction of the courts in
36
relation to Sec. 6 of R.A. No. 876 as well as the nature of the proceedings therein was
expounded upon in La Naval Drug Corporation v. Court of Appeals. There it was held that
R.A. No. 876 explicitly confines the court's authority only to the determination of whether
or not there is an agreement in writing providing for arbitration. In the affirmative, the
statute ordains that the court shall issue an order "summarily directing the parties to
proceed with the arbitration in accordance with the terms thereof." If the court, upon the
other hand, finds that no such agreement exists, "the proceeding shall be dismissed.” It
also stressed that the proceedings are summary in nature. Implicit in the summary nature
of the judicial proceedings is the separable or independent character of the arbitration
clause or agreement. The doctrine of separability, or severability, enunciates that an
arbitration agreement is independent of the main contract. The arbitration agreement is
to be treated as a separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is part comes to an end.
Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.
Gonzales’s argument that the Addendum Contract is null and void and, therefore the
arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition
for arbitration under R.A. No. 876 is limited only to the resolution of the question of
whether the arbitration agreement exists. Second, the separability of the arbitration clause
from the Addendum Contract means that validity or invalidity of the Addendum Contract
will not affect the enforceability of the agreement to arbitrate. Thus, Gonzales’s petition
for certiorari should be dismissed.
The adjudication of the petition in G.R. No. 167994 effectively modifies part of the
Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration does not affect
the applicability of the arbitration clause itself. A contrary ruling would suggest that a
party’s mere repudiation of the main contract is sufficient to avoid arbitration. That is
exactly the situation that the separability doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case should
not be brought for arbitration, it should be clarified that the case referred to is the case
actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the
nullification of the main contract on the ground of fraud, as it had already been determined
that the case should have been brought before the regular courts involving as it did judicial
issues.
13. Del Monte vs CA, GR No 136154
37
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS
and LUIS HIDALGO, petitioners,
vs.
COURT OF APPEALS, JUDGE BIENVENIDO L. REYES in his capacity as
Presiding Judge, RTC-Br. 74, Malabon, Metro Manila, MONTEBUENO
MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS, INC.,
respondents.
G.R. No. 136154; February 7, 2001
Facts:
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-

USA (DMC-USA) appointed private respondent Montebueno Marketing, Inc. (MMI)
as the sole and exclusive distributor of its Del Monte products in the Philippines for
a period of five (5) years, renewable for two (2) consecutive five (5) year periods
with the consent of the parties. The agreement provided, among others, for an
arbitration clause which states –
12. GOVERNING LAW AND ARBITRATION4

This Agreement shall be governed by the laws of the State of California and/or, if
applicable, the United States of America. All disputes arising out of or relating to
this Agreement or the parties' relationship, including the termination thereof, shall
be resolved by arbitration in the City of San Francisco, State of California, under
the Rules of the American Arbitration Association. The arbitration panel shall
consist of three members, one of whom shall be selected by DMC-USA, one of
whom shall be selected by MMI, and third of whom shall be selected by the other
two members and shall have relevant experience in the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products in the Philippines was published in
several newspapers in the country. Immediately after its appointment, private
respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMI's marketing arm to concentrate on its marketing and
selling function as well as to manage its critical relationship with the trade.
Private respondents MMI, SFI and MMI's Managing Director Liong Liong C. Sy
(LILY SY) filed a Complaint5 against petitioners DMC-USA, Paul E. Derby, Jr.,6
Daniel Collins7 and Luis Hidalgo,8 and Dewey Ltd.9before the Regional Trial Court
38
of Malabon, Metro Manila. Private respondents predicated their complaint on the
alleged violations by petitioners of Arts. 20,10 2111 and 2312 of the Civil Code.
According to private respondents, DMC-USA products continued to be brought into

the country by parallel importers despite the appointment of private respondent
MMI as the sole and exclusive distributor of Del Monte products thereby causing
them great embarrassment and substantial damage. They alleged that the
products brought into the country by these importers were aged, damaged, fake or
counterfeit, so that in March 1995 they had to cause, after prior consultation with
Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc.,
the publication of a "warning to the trade" paid advertisement in leading
newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with
the publication, instructed private respondent MMI to stop coordinating with
Antonio Ongpin and to communicate directly instead with petitioner DMC-USA
through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly and surreptitiously

continued to deal with the former in bad faith by involving disinterested third parties
and by proposing solutions which were entirely out of their control. Private
respondents claimed that they had exhausted all possible avenues for an amicable
resolution and settlement of their grievances; and that among other things, as a
result of the fraud, bad faith, malice and wanton attitude of petitioners, they should
be held responsible for all the actual expenses incurred by private respondents in
the delayed shipment of orders.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings13 invoking

the arbitration clause in their Agreement with private respondents.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial
court on the ground that it "will not serve the ends of justice and to allow said
suspension will only delay the determination of the issues, frustrate the quest of
the parties for a judicious determination of their respective claims, and/or deprive
and delay their rights to seek redress."
On appeal, the Court of appeals affirmed the decision of the trial court. It held that
the alleged damaging acts recited in the Complaint, constituting petitioners' causes
of action, required the interpretation of Art. 21 of the Civil Code16and that in
determining whether petitioners had violated it "would require a full blown trial"
making arbitration "out of the question."
39
Issue: Whether the dispute between the parties warrants an order compelling
them to submit to arbitration.
Ruling: No.
There is no doubt that arbitration is valid and constitutional in our

jurisdiction.21 Even before the enactment of RA 876, this Court has countenanced
the settlement of disputes through arbitration. Unless the agreement is such as
absolutely to close the doors of the courts against the parties, which agreement
would be void, the courts will look with favor upon such amicable arrangement and
will only interfere with great reluctance to anticipate or nullify the action of the
arbitrator.22 Moreover, as RA 876 expressly authorizes arbitration of domestic
disputes, foreign arbitration as a system of settling commercial disputes was
likewise recognized when the Philippines adhered to the United Nations
"Convention on the Recognition and the Enforcement of Foreign Arbitral Awards
of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving
reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting state.23
A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent
MMI is valid and the dispute between the parties is arbitrable. However, this Court
must deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is

a contract.The provision to submit to arbitration any dispute arising therefrom and
the relationship of the parties is part of that contract and is itself a contract. As a
rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs.
Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing
Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its
Managing Director LILY SY are bound by the Agreement and its arbitration clause,
as they are the only signatories thereto. Petitioners Daniel Collins and Luis
Hidalgo, and private respondent SFI, not parties to the Agreement and cannot
even be considered assigns or heirs of the parties, are not bound by the Agreement
and the arbitration clause therein. Consequently, referral to arbitration in the State
of California pursuant to the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending the return of the arbitral award
could be called for but only as to petitioners DMC-USA and Paul E. Derby, Jr., and
40
private respondents MMI and LILY SY, and not as to the other parties in this case.
This is consistent with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal
Realty Corporation, which superseded that of Toyota Motor Philippines Corp. v.
Court of Appeals.
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has
become dysfunctional because of the presence of third parties is untenable"
ratiocinating that "[c]ontracts are respected as the law between the contracting
parties" and that "[a]s such, the parties are thereby expected to abide with good
faith in their contractual commitments." However, in Salas, Jr., only parties to the
Agreement, their assigns or heirs have the right to arbitrate or could be
compelled to arbitrate.The Court went further by declaring that in recognizing the
right of the contracting parties to arbitrate or to compel arbitration, the splitting of
the proceedings to arbitration as to some of the parties on one hand and trial for
the others on the other hand, or the suspension of trial pending arbitration between
some of the parties, should not be allowed as it would, in effect, result in multiplicity
of suits, duplicitous procedure and unnecessary delay.
The object of arbitration is to allow the expeditious determination of a

dispute. Clearly, the issue before us could not be speedily and efficiently resolved
in its entirety if we allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the interest of justice would
only be served if the trial court hears and adjudicates the case in a single and
complete proceeding.
Petitioners’ contention:Petitioners contend that the subject matter of private

respondents' causes of action arises out of or relates to the Agreement between
petitioners and private respondents. Thus, considering that the arbitration clause
of the Agreement provides that all disputes arising out of or relating to the
Agreement or the parties' relationship, including the termination thereof, shall be
resolved by arbitration, they insist on the suspension of the proceedings in Civil
Case No. 2637-MN as mandated by Sec. 7 of RA 876 –
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue
arising out of an agreement providing for arbitration thereof, the court in which such
suit or proceeding is pending, upon being satisfied that the issue involved in such
suit or proceeding is referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the terms of the agreement.
41
Provided, That the applicant for the stay is not in default in proceeding with such
arbitration.
Private respondents contention:Private respondents claim, on the other hand,

that their causes of action are rooted in Arts. 20, 21 and 23 of the Civil Code, the
determination of which demands a full blown trial, as correctly held by the Court of
Appeals. Moreover, they claim that the issues before the trial court were not joined
so that the Honorable Judge was not given the opportunity to satisfy himself that
the issue involved in the case was referable to arbitration. They submit that,
apparently, petitioners filed a motion to suspend proceedings instead of sending a
written demand to private respondents to arbitrate because petitioners were not
sure whether the case could be a subject of arbitration. They maintain that had
petitioners done so and private respondents failed to answer the demand,
petitioners could have filed with the trial court their demand for arbitration that
would warrant a determination by the judge whether to refer the case to arbitration.
Accordingly, private respondents assert that arbitration is out of the question.
14. Sea-Land vs CA, GR No 126212
SEA-LAND SERVICE, INC., petitioner, vs . COURT OF APPEALS, A.P.

MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING
AGENCY (FILIPINAS), INC., respondents.
FACTS:
Petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk Line
(hereinafter referred to as "AMML") are carriers of cargo in containerships as well
as common carriers. They entered into a contract entitled, "Co-operation in the
Pacific", 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, either a principal carrier (with
a negotiable bill of lading or other contract of carriage with respect to cargo) or a
containership operator (owner, operator or charterer of containership on which the
cargo is carried).
42
Florex International, Inc. delivered to AMML cargo of various foodstuffs, with

Oakland, California as port of discharge and San Francisco as place of delivery. A
bill of lading was consequently issued to Florex. Pursuant to the Agreement, AMML
loaded the cargo on a vessel owned by Sea-Land. Therefore, in this particular
transaction, AMML was the principal carrier and Sea-Land was the containership
operator.
The consignee (di sinabi kung sino) refused to pay for the cargo, alleging that
delivery thereof was delayed. According to Florex, the cargo was received by the
consignee only on June 28, 1991 in Long Beach, California, instead of in Oakland,
California on June 5, 1991 as stipulated.
AMML filed its Answer alleging that even on the assumption that Florex was
entitled to reimbursement, it was petitioner who should be liable. Accordingly,
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, the amount of
damages not having been specified therein. Petitioner also prayed either for
dismissal or suspension of the Third Party Complaint on the ground that there
exists an arbitration agreement between it and AMML. Motion to Dismiss denied.
MR denied.
On appeal, petitioner filed a Petition for certiorari. PC denied by CA. Hence this
present petition.
ISSUE: WON an arbitration is a condition precedent to suit where such an

agreement to arbitrate exist.
HELD:
From the agreement of the parties, the following matters are clear:
First, disputes between the Principal Carrier and the Containership Operator
arising from contracts of carriage shall be governed by the provisions of the bills
of lading issued to the Principal Carrier by the Containership Operator.
Second, the Principal Carrier shall use its best efforts to defend or settle all suits
against it for loss of or damage to cargo pursuant to bills of lading issued by it.
43
Third, the Principal Carrier shall have the right to seek damages and/or indemnity
from the Containership Operator by arbitration, pursuant to Clause 32 of the
agreement.
Fourth, the Principal Carrier shall have the right to commence such arbitration any
time until one year after its liability has been finally determined by agreement,
arbitration award or judgment, provided that the Containership Operator was given
notice in writing by the Principal Carrier within three months of the Principal Carrier
receiving notice in writing of said claim.
The Court of Appeals ruled that the terms of the Agreement "explicitly required that
the principal carrier's claim against the containership operator first be finally
determined by, among others, a court judgment, before the right to arbitration
accrues." This is erroneous. In the light of the Agreement clauses, specifically
Clause 16. 3, it is clear that arbitration is the mode provided by which AMML as
Principal Carrier can seek damages and/or indemnity from petitioner, as
Containership Operator. Stated differently, AMML is barred from taking judicial
action against petitioner by the clear terms of their Agreement.
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.
This Court has previously held that arbitration is one of the alternative methods of
dispute resolution that is now rightfully vaunted as "the wave of the future" in
international relations, and is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties
would therefore be a step backward.
WHEREFORE, premises considered, the instant Petition for Review on

Certiorari is GRANTED. The decision of the Court of Appeals in CA-G.R. SP No.
35777 is REVERSED and SET ASIDE. The Regional Trial Court of Quezon City,
Branch 77, is ordered to DISMISS Respondent AMML's Third Party Complaint in
Civil Case No. Q-92-12593. No pronouncement as to costs.
15. Magellan Capital Management Corp. v. Zosa

GR No. 129916; March 26, 2001
Buena, J.
44
FACTS:
Under a management agreement, Magellan Capital Holdings Corporation
(MCHC) appointed Magellan Capital Management Corporation (MCMC) as
manager of its business and affairs. Pursuant thereto, MCHC, MCMC, and
private respondent Rolando Zosa entered into an "Employment Agreement"
designating Zosa as President and CEO of MCHC. Under the Employment
Agreement, the term of Zosa's employment shall be co-terminous with the
management agreement, unless sooner terminated.
After some time, the MCHC's Board of Directors decided not to re-elect Zosa
on account of loss of trust and confidence arising from alleged violation of
resolution of Board of Directors and of non-competition clause of Employment
Agreement. Nevertheless, Zosa was elected as MCHC's Vice
Chairman/Chairman for New Ventures Development.
Zosa resigned on the ground that said position had less responsibility and
scope than President and CEO. He demanded that he be given termination
benefits. MCHC did not accept Zosa's resignation, but instead, informed him that
the Employment Agreement is terminated for cause. He was further advised
that he shall have no further rights under the said Agreement or any claims
against the Manager or the Corporation except the right to receive benefits.
Disagreeing, Zosa invoked the arbitration clause of the Employment
Agreement. Nonetheless, he still filed an action for damages against petitioners
MCHC and MCMC before the RTC assailing the validity and legality of the
arbitration clause, among others.
Respondent Zosa contended that the composition of the panel of arbitrators sought
under the arbitration clause of the Employment Agreement is unfair on his part.
Under the arbitration clause, "[a]rbitration shall be effected by a panel of three
arbitrators. The Manager, Employee, and Corporation shall designate one (1)
arbitrator [...]."
Petitioners filed a motion to dismiss, arguing that the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be
resolved through arbitration. They further argued that in view of the fact that
there are three parties to the employment agreement, it is but proper that
each party be represented in the arbitration panel.
RTC favored respondent Zosa. Upon appeal, the CA gave due course to the
45
petition of MCHC and MCMC, but nonetheless directed the RTC to resolve the
issue on the validity or effectivity of the arbitration clause in the Employment
Agreement. Judgment is hereby rendered by RTC partially declaring the
arbitration clause of the Employment Agreement void and of no effect, only
insofar as it concerns the composition of the panel of arbitrators, and
directing the parties to proceed to arbitration in accordance with the
Employment Agreement under the panel of three (3) arbitrators, one for the
plaintiff, one for the defendants, and the third to be chosen by both the
plaintiff and defendants.
Hence, this petition.
ISSUES:
1.) WON the composition of the panel of arbitrators sought under the arbitration
clause rendered the same void and ineffectual
2.) WON Zosa is estopped from questioning the validity of the arbitration clause
RULING:
1.) YES. SC held that the petitioners MCMC and MCHC represent the same
interest. Both petitioners are entirely two different corporations. Also, a
corporation has a personality distinct and separate from its representative(s).
However, as the petitioners represent the same interest, it could never be
expected, in the arbitration proceedings, that they would not protect and
preserve their own interest, much less, would both or either favor the interest
of the Zosa.
Accordingly, the arbitration clause, insofar as the composition of the panel

of arbitrators is concerned should be declared void and of no effect, because
the law says, "[a]ny clause giving one of the parties power to choose more
arbitrators than the other is void and of no effect" (Article 2045, Civil Code).
The arbitration law, as all other laws, is intended for the good and welfare
of everybody. Any arrangement or scheme that would give undue advantage
to a party in the negotiating table is anathema to the very purpose of
arbitration and should, therefore, be resisted.
2.) NO. Firstly, well-settled is the rule that issues not raised below cannot be
resolved on review in higher courts. Secondly, employment agreements such
as the one at bar are usually contracts of adhesion. Any ambiguity in its
46
provisions is generally resolved against the party who drafted the document.
And, finally, respondent Zosa never submitted himself to arbitration
proceedings (as there was none yet) before bewailing the composition of
the panel of arbitrators. He lost no time in assailing the "arbitration clause"
upon realizing the inequities that may mar the arbitration proceedings if the
existing line-up of arbitrators remained unchecked.
WHEREFORE, petition is dismissed and decision of the trial court is

affirmed.
16. Del Monte Corporation-USA vs Court of Appeals, GR No 136154
17. Cargill vs San Fernando Regala, GR No 175404
Note: Doctrine of Separability
FACTS:
Respondent San Fernando Regala Trading filed with the RTC of Makati City a Complaint
for Rescission of Contract with Damages against petitioner Cargill. It alleged that it agreed
that it would purchase from Cargill 12,000 metric tons of Thailand origin cane blackstrap
molasses and that the payment would be by an Irrevocable Letter of Credit payable at
sight.
The parties agreed that the delivery would be made in April/May. Cargill failed to comply
with its obligations despite demands from respondent. The respondent then filed for
rescission of the contract.
The petitioner filed a Motion to Dismiss/Suspend proceeding, arguing that they must first
resort to arbitration as stated in their agreement before going to court:
"Any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled by arbitration in the City of New York before the
American Arbitration Association. The Arbitration Award shall be final and
binding on both parties."
The RTC ruled in favor of the respondent. The CA affirmed the RTC decision, adding that
the case cannot be brought under the Arbitration Law for the purpose of suspending the
47
proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings,
petitioner alleged, as one of the grounds thereof, that the subject contract between the
parties did not exist or it was invalid; that the said contract bearing the arbitration clause
was never consummated by the parties, thus, it was proper that such issue be first
resolved by the court through an appropriate trial; that the issue involved a question of
fact that the RTC should first resolve.
ISSUE:
WON this case cannot be brought under the arbitration law for the purpose of suspending
the proceedings in the RTC.
HELD:
The petition is meritorious. Arbitration, as an alternative mode of settling disputes, has

long been recognized and accepted in our jurisdiction. R.A. No. 876 authorizes arbitration
of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of
an international character, is likewise recognized. The enactment of R.A. No.9285 on April
2, 2004 further institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.
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. The validity of the contract containing the agreement to
submit to arbitration does not affect the applicability of the arbitration clause itself. A
contrary ruling would suggest that a party's mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation that the separability doctrine, as
well as jurisprudence applying it, seeks to avoid.
San Fernando Regala Trading filed a complaint for rescission of contract and damages
with the trial court. In so doing, it alleged that a contract existed. It was that contract which
provided for an arbitration clause which expressed the parties' intention that any dispute
to arise between them, as buyer and seller, should be referred to arbitration. It is for the
arbitrator and not the court to decide whether a contract between the parties exists or is
valid. Under the circumstances, the argument that rescission is judicial in nature is
misplaced.
18. RCBC vs BDO, GR No 196171
48
FACTS:
On May 2000, RCBC entered into a Share Purchase Agreement with Equitable PCI Bank
(now BDO), George Go and individual shareholders of Bankard for the sale to RCBC of
shares amounting to P1.7 Billion. RCBC rightfully paid. 3 years later, however, a dispute
between the parties arose. RCBC claims that there was an overstatement of the valuation
of accounts leading to their overpayment. No settlement was reached and the dispute
was brought to arbitration pursuant to the agreement of the Parties.
After the Arbitration Tribunal was constituted, the parties were instructed to pay equal
share of advance costs of the arbitration amounting to $350,000. The RCBC paid their
share but the respondent filed a request to fix separate advances on the basis of the
amount of their counterclaim. They alleged that to require them to pay equal share despite
their counterclaim being 40 times lower than that of the RCBC is unfair.
Because the respondent refused to pay in equal shares and in order to avoid the
suspension of the proceeding, RCBC assumed the payment of BDOs share. RCBC then
reiterated its plea that BDO be declared in default. In response to their plea, Chairman of
the Tribunal wrote a letter asking RCBC to confirm that it is their plea that the Tribunal
issue a partial award against the respondent in respect to their failure to pay the share in
the costs. The Chairman further advice that the parties refer to an article published in the
ICC regarding a party’s failure to pay their share in the cost. This letter was protested by
BDO claiming that it shows evident partiality on the part of the members of the Tribunal.
Nevertheless, the Tribunal released a final ruling against the respondent and ordering the
latter to pay sums of money.
BDO then filed a petition to vacate the final award on the ground of evident partiality. The
RTC ruled against the respondent and affirmed the Final Arbitral Award. The respondent
appealed to the CA and the latter reversed the decision of the RTC with respect to evident
partiality, ruling that the actuations of the Chairman of the Arbitration shows evident
partiality. RCBC then filed this case.
ISSUE: Whether there is a legal ground to vacate the award on the ground of evident
partiality?
HELD:
The Court affirms the ruling of the CA.
49
Under Rule 11.4 of the Special ADR Rules, the Arbitral Award may be vacated on the
ground that there was evident partiality or corruption in the Arbitral Tribunal or any of its
members. Under our Arbitration Law, evident partiality is not defined, but review of
decisions of the Supreme Court of the United States showed that there is partiality when
there is a manifest bias towards a particular party. Thus, the Court adopts the “reasonable
impression of partiality standard” which requires a showing that a reasonable person
would have concluded that an arbitrator was partial to the other party to the arbitration.
Such interest or bias must be direct, definite, and capable of demonstration rather than
remote, uncertain, or speculative.
Applying the foregoing standards, the SC found evident partiality over several acts of the
Chairman of the Tribunal particularly the act of furnishing the parties with copies of the
article regarding the remedies for non payment of the cost, which shows a strong
indication that such grant of RCBC will be affirmed. By furnishing the parties with copies
of the article, the Chairman practically armed RCBC with supporting legal argument under
the contractual approach which true enough, was adopted by RCBC. furthermore, that
the Chairman is predisposed to grant RCBC’s relief was shown by his act of interpreting
letter, which merely reiterated its plea to declare respondents in default as an application
to the Tribunal to issue partial award in respect of BDO’s failure to pay its advance costs.
The Court
19. BF Corp vs Court of Appeals, GR No 120105
FACTS
Petitioner and Shangri-la Properties SPI entered into an agreement whereby SPI
engaged the petitioner to construct the main structure of the EDS Plaza Project, a
shopping mall complex in Mandaluyong. The construction work was in progress when
SPI decided to expand the project by engaging the services of petitioner again. They
entered into an agreement for the main contract works after which construction work
began.
Delay was incurred by the petitioner in the construction work that SPI considered as
“serious and substantial. On the other hand, according to petitioner, the construction
works progressed in faithful compliance with the First Agreement until a fire broke out
damaging Phase 1 of the project. SPI proposed the re-negotiation of the agreement
between them.
50
The parties entered into an agreement, however petitioner failed to complete the
construction works and abandoned the project. This resulted in disagreements between
the parties as regards their respective liabilities under the contract. The parties’
representatives met in a conference but they failed to come to an agreement. After 2
days, petitioner field with the RTC of Pasig a complaint for collection of the balance due
under the construction agreement. Later on, SPI and its co-defendants field a motion to
suspend proceedings instead of filing an answer. The motion was anchored on
defendants’ allegation that the formal trade contract for the construct of the project
provided for a clause requiring prior resort to arbitration before judicial intervention could
be invoked in any dispute arising from the contract. The following day, SPI submitted a
copy of the conditions of the contract containing the arbitration clause that it failed to
append to its motion to suspend proceedings.
Petitioner on the other hand, opposed said motion since there was no formal contract
between the parties although they entered into an agreement defining their rights and
obligations undertaking the project. It emphasized that the agreement did not provide for
arbitration and therefore the court could not be deprived of jurisdiction conferred by ht law
by the mere allegation of the existence of an arbitration clause in the agreement between
the parties.The court sustained the Court of Appeals decision against petitioner, BF
Corporation.
ISSUE: WON the contract for the construction of the EDSA Plaza between petitioner BF
Corporation and respondent Shangri-la Properties, Inc. embodies an arbitration clause in
case of disagreement... between the parties in the implementation of contractual
provisions.
HELD:
Petitioner denies the existence of the arbitration clause primarily on the ground that the
representatives of the contracting corporations did not sign the "Conditions of Contract"
that contained the said clause. Its other contentions, specifically that... insinuating fraud
as regards the alleged insertion of the arbitration clause, are questions of fact that should
have been threshed out below.
This Court may as well proceed to determine whether the arbitration clause does exist in
the parties' contract. Republic Act No. 876 provides for the formal requisites of an
arbitration agreement as follows:
"Section 4. Form of arbitration agreement. A contract to arbitrate a controversy thereafter

arising between the parties, as well as a submission to arbitrate an existing controversy,
51
shall be in writing and subscribed by the party sought to be ... charged, or by his lawful
agent.
The making of a contract or submission for arbitration described in section two hereof,
providing for arbitration of any controversy, shall be deemed a consent of the parties of
the province or city where any of the parties resides, to enforce such contract of...
submission.”
The formal requirements of an agreement to arbitrate are therefore the following: (a) it
must be in writing and (b) it must be subscribed by the parties or their representatives.
There is no denying that the parties entered into a written contract that was submitted in...
evidence before the lower court. To "subscribe" means to write underneath, as one's
name; to sign at the end of a document.That word may sometimes be construed to mean
to give consent to or to... attes
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 therefor 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.[13] A contract may be encompassed in... several 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.
This Court likewise does not find that the Court of Appeals erred in ruling that private
respondents were not in default in invoking the provisions of the arbitration clause which
states that "(t)he demand for arbitration shall be made within a reasonable time after the...
dispute has arisen and attempts to settle amicably had failed." Under the factual milieu,
52
private respondent SPI should have paid its liabilities under the contract in accordance
with its terms. However, misunderstandings appeared to have cropped up between the
parties... ostensibly brought about by either delay in the completion of the construction
work or by force majeure or the fire that partially gutted the project. The almost two-year
delay in paying its liabilities may not therefore be wholly ascribed to private respondent
SPI.
Besides, private respondent SPI's initiative in calling for a conference between the parties
was a step towards the agreed resort to arbitration. However, petitioner posthaste filed
the complaint before the lower court. Thus, while private respondent SPI's request for...
arbitration on August 13, 1993 might appear an afterthought as it was made after it had
filed the motion to suspend proceedings, it was because petitioner also appeared to act
hastily in order to resolve the controversy through the courts.
The arbitration clause provides for a "reasonable time" within which the parties may avail
of the relief under that clause. "Reasonableness" is a relative term and the question of
whether the time within which an act has to be done is reasonable depends on attendant
circumstances This Court finds that under the circumstances obtaining in this case, a one-
month period from the time the parties held a conference on July 12, 1993 until private
respondent SPI notified petitioner that it was invoking the arbitration clause, is a
reasonable time. Indeed, petitioner may not be faulted for resorting to the court to claim
what was due it under the contract. However, we find its denial of the existence of the
arbitration clause as an attempt to cover up its misstep in hurriedly filing the complaint
before the lower court.
In this connection, it bears stressing that the lower court has not lost its jurisdiction over
the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only
been stayed. After the special proceeding of arbitration has been pursued and completed,
then the lower court may confirm the award made by the arbitrator.
It should be noted that in 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 Code's provisions on arbitration. Its
potentials as one of the alternative dispute resolution methods that are now rightfully
vaunted as "the wave of the future" in international relations, is recognized worldwide. To
brush aside a contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.
53
20. Steamship vs Sulpicio Lines, GR No 196072
21. Cargill vs Regala, GR No 175404
22. PEZA vs Bataan, GR No 179537
Petitioner Philippine Economic Zone Authority (PEZA) and Edison (Bataan) Cogeneration
Corporation (respondent) entered into a Power Supply and Purchase Agreement (PSPA
or agreement) for a 10-year period effective October 25, 1997 whereby respondent
undertook to construct, operate, and maintain a power plant which would sell, supply and
deliver electricity to PEZA for resale to business locators in the Bataan Economic
Processing Zone.
In the course of the discharge of its obligation, respondent requested from PEZA a tariff
increase with a mechanism for adjustment of the cost of fuel and lubricating oil.
PEZA did not respond to both requests, however, drawing respondent to write PEZA on
May 3, 2004. Citing a tariff increase which PEZA granted to the East Asia Utilities
Corporation (EAUC), another supplier of electricity in the Mactan Economic Zone,
respondent informed PEZA of a violation of its obligation under Clause 4.9 of the PSPA
not to give preferential treatment to other power suppliers.
After the lapse of 90 days, respondent terminated the PSPA, invoking its right thereunder,
and demanded ₱708,691,543.00 as pre-termination fee. PEZA disputed respondent’s
right to terminate the agreement and refused to pay the pre-termination fee, prompting
respondent to request PEZA to submit the dispute to arbitration pursuant to the arbitration
clause of the PSPA.
Petitioner refused to submit to arbitration, however, prompting respondent to file a

Complaint[1] against PEZA for specific performance before the Regional Trial Court
(RTC) of Pasay.
Petitioner submits that the plaintiffs Request for Arbitration dated October 20, 2004 is not
an arbitrable issue, considering that the provision on pre-termination fee in the Power
Sales and Purchase Agreement (PSPA), is gravely onerous, unconscionable, greatly
disadvantageous to the government, against public policy and therefore invalid and
unenforceable.
54
ISSUE: WHETHER OR NOT RESPONDENTS REQUEST FOR ARBITRATION

DESPITE THE FACT THAT THE ISSUE PRESENTED BY THE RESPONDENT IS NOT
AN ARBITRABLE ISSUE
HELD:
The petition fails.
The dispute raised by respondent calls for a proceeding under Section 6 of Republic Act
No. 876, "An Act to Authorize the Making of Arbitration and Submission Agreements, to
Provide for the Appointment of Arbitrators and the Procedure for Arbitration in Civil
Controversies, and for Other Purposes" which reads:
SECTION 6. Hearing by court. — A party aggrieved by the failure, neglect or refusal of

another to perform under an agreement in writing providing for arbitration may petition the
court for an order directing that such arbitration proceed in the manner provided for in
such agreement. Five days notice in writing of the hearing of such application shall be
served either personally or by registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making of the agreement or such failure
to comply therewith is not in issue, shall make an order directing the parties to proceed
to arbitration in accordance with the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed to summarily hear such issue. If
the finding be that no agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the
finding be that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the parties to proceed
with the arbitration in accordance with the terms thereof.
x x x x (Underscoring supplied)
R.A. No. 876 "explicitly confines the court’s authority only to the determination of whether
or not there is an agreement in writing providing for arbitration."15 Given petitioner’s
admission of the material allegations of respondent’s complaint including the existence of
a written agreement to resolve disputes through arbitration, the assailed appellate court’s
affirmance of the trial court’s grant of respondent’s Motion for Judgment on the Pleadings
is in order.
55
The doctrine of separability, or severability as other writers call it, enunciates that an
arbitration agreement is independent of the main contract. The arbitration agreement is
to be treated as a separate agreement and the arbitration agreement does not
automatically terminate when the contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the determination

of whether the invalidity of the main contract also nullifies the arbitration clause. Indeed,
the doctrine denotes that the invalidity of the main contract, also referred to as the
"container" contract, does not affect the validity of the arbitration agreement. Irrespective
of the fact that the main contract is invalid, the arbitration clause/agreement still remains
valid and enforceable.16 (Emphasis in the original; underscoring supplied)
Petitioner nevertheless contends that the legality of the pre-termination fee clause is not
arbitrable, citing Gonzales v. Climax Mining Ltd. 17 which declared that the therein
complaint should be brought before the regular courts, and not before an arbitral tribunal,
as it involved a judicial issue. Held the Court:
We agree that the case should not be brought under the ambit of the Arbitration Law xxx.
The question of validity of the contract containing the agreement to submit to arbitration
will affect the applicability of the arbitration clause itself. A party cannot rely on the contract
and claim rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions. As previously
discussed, the complaint should have been filed before the regular courts as it involved
issues which are judicial in nature.
In fine, the issues raised by respondent are subject to arbitration in accordance with the
arbitration clause in the parties agreement. WHEREFORE, the petition is DENIED. SO
ORDERED
23. Benguet vs DENR, GR No 163101

FACTS
Benguet Corporation (“Benguet”) and J.G. Realty and Mining (“J.G. Realty”) entered into
a Royalty Agreement with Option to Purchase (“RAWOP”), wherein J.G. Realty was
acknowledged as the owner of four mining claims covered by Mineral Production Sharing
Agreement (“MPSA”) Application No. APSA-V-0009 jointly filed by J.G. Realty as
claimowner and Benguet as operator. The RAWOP, among others, provide that “any
disputes x x x between Benguet and [J.G. Realty] with reference to anything whatsoever
pertaining to [the RAWOP] x x x shall not be cause of any action x x x in any court or
56
administrative agency but shall x x x be referred to a Board of Arbitrators consisting of
three (3) members, one to be selected by Benguet, another to be selected by [J.G. Realty]
and the third to be selected by the aforementioned two arbitrators so appointed.”
J.G. Realty subsequently informed Benguet that it was terminating the RAWOP by reason
of Benguet’s failure to comply with its obligations thereunder. J.G. Realty sought the
cancellation of the RAWOP, filing a petition for this purpose with the Panel of Arbitrators
(“POA”) having territorial jurisdiction over the mining area involved. In its Decision, the
POA declared the RAWOP cancelled. Benguet then filed a notice of appeal with the MAB.
The decision was affirmed on appeal to the Mines Adjudication Board (“MAB”).
Benguet contended that the issue raised by the J.G. Realty should have been raised first
with the arbitration before POA took cognizance of the case.
ISSUE
WON the controversy should have first been submitted to arbitration before the POA
HELD
YES. Sec. 2 of RA 876 elucidates the scope of arbitration:
Section 2. Persons and matters subject to arbitration.Two or more persons or parties may
submit to the arbitration of one or more arbitrators any controversy existing between them
at the time of the submission and which may be the subject of an action, or the parties to
any contract may in such contract agree to settle by arbitration a controversy thereafter
arising between them. Such submission or contract shall be valid, enforceable and
irrevocable, save upon such grounds as exist at law for the revocation of any contract.
In RA 9285 or the Alternative Dispute Resolution Act of 2004, the Congress reiterated the
efficacy of arbitration as an alternative mode of dispute resolution by stating in Sec. 32
thereof that domestic arbitration shall still be governed by RA 876. Clearly, a contractual
stipulation that requires prior resort to voluntary arbitration before the parties can go
directly to court is not illegal and is in fact promoted by the State.
Moreover, the contention that RA 7942 prevails over RA 876 presupposes a conflict
between the two laws. Such is not the case here. To reiterate, availment of voluntary
arbitration before resort is made to the courts or quasi-judicial agencies of the government
57
is a valid contractual stipulation that must be adhered to by the parties. As stated in Secs.
6 and 7 of RA 876:
Section 6. Hearing by court.--––A party aggrieved by the failure, neglect or refusal of

another to perform under an agreement in writing providing for arbitration may petition the
court for an order directing that such arbitration proceed in the manner provided for in
such agreement. XXX
If the finding be that a written provision for arbitration was made and there is a default in
proceeding thereunder, an order shall be made summarily directing the parties to proceed
with the arbitration in accordance with the terms thereof.
xxxx
Section 7. Stay of civil action.––If any suit or proceeding be brought upon an issue arising
out of an agreement providing for the arbitration thereof, the court in which such suit or
proceeding is pending, upon being satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the action or proceeding until an
arbitration has been had in accordance with the terms of the agreement: Provided, That
the applicant, for the stay is not in default in proceeding with such arbitration. (Emphasis
supplied.)
In other words, in the event a case that should properly be the subject of voluntary
arbitration is erroneously filed with the courts or quasi-judicial agencies, on motion of the
defendant, the court or quasi-judicial agency shall determine whether such contractual
provision for arbitration is sufficient and effective. If in affirmative, the court or quasi-
judicial agency shall then order the enforcement of said provision.
Besides, in BF Corporation v. Court of Appeals, we already ruled:
In this connection, it bears stressing that the lower court has not lost its jurisdiction over
the case. Section 7 of Republic Act No. 876 provides that proceedings therein have only
been stayed. After the special proceeding of arbitration has been pursued and completed,
then the lower court may confirm the award made by the arbitrator.
24. Bengson vs Chan, GR No L-27283
25. GI vs Union, GR No L-30475
26. Tuna Procesing vs Philippine Kingford, GR No 185582
58
27. Mabuhay Holding Corporation vs Sembcorp Logistics, GR No 212734
28. DFA vs BCA, GR No 225051 and 210858
29. Federal vs Airfreight, GR No 216600
30. Dale Strickland vs Ernst & Young LLP, GR No 193782
31. Cargill vs San Fernando Regala, GR No 175404
32. Aboitiz vs Gothong, GR No 198226
33. Home Bankers Savings vs Court of Appeals, GR No 115412
34. DFA vs BCA, GR No. 225015 and 210858
35. Transfield vs Luzon Hydro, GR No 146717
36. DFA vs BCA, GR No. 225015 and 210858
37. PSALM vs CIR, GR No 198146
38. PVID vs Velez, GR No 84295
59
39. Chavez vs Court of Appeals, GR No 159411
60

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3B 2019-2020 ADR DIGESTED CASES

1. DFA vs BCA, GR No 225051 and 210858

DFA v. BCA International Corp.

Arbitration is deemed a special proceeding and governed by the special provisions of RA

RULE 19.36. Review Discretionary. — A review by the Supreme Court is not a

d. Committed an error so egregious and harmful to a party as to amount to an

2. Heirs of Salas vs Laperal Realty, GR No 135362

SALAS v. LAPERAL REALTY CORP.

ARTICLE VI. ARBITRATION.

3. Home Bankers Savings vs Court of Appeals, GR No 115412

[G.R. No. 115412. November 19, 1999.]

HOME BANKERS SAVINGS AND TRUST COMPANY, Petitioner, v. COURT OF

ISSUE: "WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN

At this point, we emphasize that arbitration, as an alternative method of dispute resolution,

4. LM Power Engineering Corp vs Capitol Industrial Construction Corp, GR No

Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation

LM Power Engineering Corporation (Petitioner) and Capitol Industrial Construction

A. Whether or not there exist[s] a controversy/dispute between petitioner and

The Court’s Ruling

The Petition is unmeritorious.

A. Whether Dispute Is Arbitrable

Being an inexpensive, speedy and amicable method of settling disputes, arbitration --

B. Prior Request for Arbitration

"SECTION 1. Submission to CIAC Jurisdiction — An arbitration clause in a construction

5. Luzon vs Bridestone, GR No 220546

LUZON IRON DEVELOPMENT GROUP CORPORATION AND CONSOLIDATED IRON

2. Luzon Ironfiled their Special Appearance with Motion to Dismiss, separately,

RULE 2.4. Policy Implementing Competence-Competence Principle.— xxx When a

6. Steamship vs Sulpicio Lines, GR No 196072

An insured member may be compelled to arbitration pursuant to the Rules of the

Steamship was a Bermuda-based Protection and Indemnity Club. It insures it members-

7. DPWH vs CMC, GR No 179732

8. BCDA vs DMCI, GR No 173137

An arbitration clause in a document of contract may extend to subsequent

9. Fruehaf vs Technology, GR No 204197

June 2003: Lease between Freuhaff and TEAM expired.

Arbitral Award: 8.2m as unpaid rent of TEAM, 46.8m as damages.

TEAM filed a Notice of Appeal.

ISSUE AND SC RULING:

Can an arbitral award be vacated? (Generally, No.)

Arbitration is an alternative mode of dispute resolution outside of the regular court

10. Lanuza vs BF Corp, GR No 174938

CORPORATE REPRESENTATIVES MAY BE COMPELLED TO SUBMIT TO

BF Corporation alleged that Shangri-La induced BF Corporation to continue with the

On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco

Another issue arose after BF Corporation had initiated arbitration proceedings. BF

We rule that petitioners may be compelled to submit to the arbitration proceedings in

11. Koppel v. Makati Rotary Club

FACTS: In 1975, Fedders Koppel, Incorporated (FKI), a manufacturer of air-conditioning

Legal Effect of the Application of the Arbitration Clause

11. Korea vs Lerma, GR No 143581

KOREA TECHNOLOGIES CO., LTD., petitioner,

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is

A. WON the arbitration clause in Article 15 of the parties’ contract is contrary

Art 15 of the Contract, the arbitration clause provides.

Article 15. Arbitration.—All disputes, controversies, or differences which may arise

Arbitration clause is not contrary to public policy