ALTERNATIVE DISPUTE RESOLUTION

CASE DIGESTS

Submitted by:

Celine Anne A. Purificacion

2018400068

Submitted to:

Atty. Anna Rosa-lia Resurreccion

Contents
Fruehaulf Electronics Philippines Corporation v. Technology Electronics Assembly and Management
Pacific Corporation......................................................................................................................................3
Koppel, Inc. v. Makati Rotary Club Foundation, Inc.....................................................................................5
Equitable PCI Banking Corporation v. RCBC Capital Corporation.................................................................7
Werr Corporation International vs Highlands Prime Inc..............................................................................8
Steamship Mutual Underwriting Association Limited vs Sulpicio Lines.....................................................10
Luzon Iron Development Group vs Bridestone Mining and Development Corp........................................12
Lanuza, Jr. vs BF Corporation.....................................................................................................................14
Korea Technologies Co., Ltd. v. Lerma.......................................................................................................16
Umbao v. Yap............................................................................................................................................18
ABS-CBN Broadcasting Corp. v. World Interactive Network Systems Japan Co., Ltd.................................20
Magellan Capital Management Corporation v. Zosa.................................................................................21
Romago, Inc. v. Siemens Building Technologies, Inc..................................................................................23
Malayan Insurance Co., Inc. v. St. Francis Square Realty...........................................................................25
Bases Conversion Development Authority, et al., v. DMCI Project Developers, Inc., et al........................27
Transfield Phils., Inc. v. Luzon Hydro Corp.................................................................................................29
Gonzales v. Climax Mining Ltd...................................................................................................................31
MCC Industrial Sales Corp. v. Ssangyong Corp...........................................................................................33
RCBC Capital Corp. v. Banco de Oro Unibank, Inc......................................................................................35
Department of Foreign Affairs v. BCA International Corp..........................................................................37

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Fruehaulf Electronics Philippines Corporation v. Technology
Electronics Assembly and Management Pacific Corporation
G.R. No. 204197, November 23, 2016

FACTS:
Fruehauf Electronics Philippines Corp. (Fruehauf) leased several parcels of land in Pasig City to Signetics
Filipinas Corporation (Signetics) for a period of 25 years (until May 28, 2003). Signetics ceased its
operations and was bought by Team Holdings Limited (THL), which then changed its name to Technology
Electronics Assembly and Management Pacific Corp. (TEAM).

Fruehauf filed an unlawful detainer case against TEAM. In an effort to amicably settle the dispute, both
parties executed a Memorandum of Agreement (MOA). Under the MOA, TEAM undertook to pay
Fruehauf 14.7 million pesos as unpaid rent. They also entered a 15-year lease contract (expiring on June
9, 2003) that was renewable for another 25 years upon mutual agreement. The contract included an
arbitration agreement. The contract also authorized TEAM to sublease the property. TEAM subleased
the property to Capitol Publishing House (Capitol) on December 2, 1996 after notifying Fruehauf. TEAM
informed Fruehauf that it would not be renewing the lease. The sublease between TEAM and Capitol
expired. However, Capitol only vacated the premises on March 5, 2005. In the meantime, the master
lease between TEAM and Fruehauf expired on June 9, 2003.

Fruehauf instituted SP Proc. No. 11449 before the Regional Trial Court (RTC) for "Submission of an
Existing Controversy for Arbitration." It alleged: (1) that when the lease expired, the property suffered
from damage that required extensive renovation; (2) that when the lease expired, TEAM failed to turn
over the premises and pay rent; and (3) that TEAM did not restore the property to its original condition
as required in the contract. Accordingly, the parties are obliged to submit the dispute to arbitration
pursuant to the stipulation in the lease contract.

The RTC granted the petition and directed the parties to comply with the arbitration clause of the
contract.

The arbitral tribunal ruled that TEAM's obligation was to vacate the leased property and deliver to
Fruehauf the buildings, improvements, and installations (including the machineries and equipment
existing thereon) in the same condition as when the lease commenced, save for what had been lost or
impaired by the lapse of time, ordinary wear and tear, or any other inevitable cause.

TEAM petitioned the RTC to partially vacate or modify the arbitral award. It argued that the tribunal
failed to properly appreciate the facts and the terms of the lease contract.

The RTC found insufficient legal grounds under Sections 24 and 25 of the Arbitration Law to modify or
vacate the award. It denied the petition and CONFIRMED the arbitral award. TEAM filed a Notice of
Appeal.

The CA REVERSED AND SET ASIDE the arbitral award and DISMISSED the arbitral complaint for lack of
merit.

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ISSUE: Whether or not the arbitral tribunal err in awarding Fruehauf damages for the repairs of the
building and rental fees from the expiration of the lease

HELD:
The Supreme Court ruled that passing upon the merits of the arbitral award is improper. 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. 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.

The CA reversed the arbitral award — an action that it has no power to do — because it disagreed with
the tribunal's factual findings and application of the law. However, the alleged incorrectness of the
award is insufficient cause to vacate the award, given the State's policy of upholding the autonomy of
arbitral awards.

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. The Court
emphasized Rule 19.10 of the Special ADR Rules:

Rule 19.10. Rule on judicial review on arbitration in the Philippines. — 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.

In other words, simple errors of fact, of law, or of fact and law committed by the arbitral tribunal are
not justiciable errors in this jurisdiction.

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.

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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.

5
Koppel, Inc. v. Makati Rotary Club Foundation, Inc
G.R. No. 198075, September 4, 2013

FACTS:
Fedders Koppel, Incorporated (FKI) was the registered owner of a parcel of the subject land. Within the
subject land are buildings and other improvements dedicated to the business of FKI.

In 1975, FKI bequeathed the subject land (exclusive of the improvements thereon) in favor of
respondent Makati Rotary Club Foundation, Incorporated by way of a conditional donation. The
respondent accepted the donation with all of its conditions, including the condition to lease the subject
land back to FKI under terms specified in their Deed of Donation. With the respondent's acceptance of
the donation, a lease agreement between FKI and the respondent was, therefore, effectively
incorporated in the Deed of Donation. The Deed of Donation also stipulated that the lease over the
subject property is renewable for another period of twenty-five (25) years "upon mutual agreement" of
FKI and the respondent.

The lease was then renewed for another 5 years in the year 2000 and 2005. In the 2005 Lease Contract
required FKI to pay a fixed annual rent and obligated FKI to make a yearly "donation" of money to the
respondent.

In June of 2008, FKI sold all its rights and properties relative to its business in favor of herein petitioner
Koppel, Incorporated and executed an Assignment and Assumption of Lease and Donation — wherein
FKI, with the conformity of the respondent, formally assigned all of its interests and obligations under
the Amended Deed of Donation and the 2005 Lease Contract in favor of petitioner.

The following year, petitioner discontinued the payment of the rent and "donation" under the 2005
Lease Contract.

Petitioner refused to comply with the demands of the respondent. Thereafter, on 30 September 2009,
petitioner filed with the Regional Trial Court (RTC) of Parañaque City a complaint for the rescission or
cancellation of the Deed of Donation and Amended Deed of Donation against the respondent.

Respondent filed an unlawful detainer case against the petitioner before the Metropolitan Trial Court
(MeTC) of Parañaque City. Petitioner filed an answer and interposed the defense that assuming that the
MeTC was able to acquire jurisdiction, it may not exercise the same until the disagreement between the
parties is first referred to arbitration pursuant to the arbitration clause of the 2005 Lease Contract.

ISSUE: Whether or not the dispute can be subject to arbitration

HELD:
Yes. The disagreement between the petitioner and respondent falls within the all-encompassing terms
of the arbitration clause of the 2005 Lease Contract. While it may be conceded that in the arbitration of
such disagreement, 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.

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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. 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.

The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner
to file a formal "request" or application therefor with the MeTC. We find that the filing of a "request"
pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an arbitration clause may be
validly invoked in a pending suit.

The fact that the petitioner and respondent already underwent through JDR proceedings before the
RTC, will not make the subsequent conduct of arbitration between the parties unnecessary or circuitous.
The failure of the parties in conflict to reach an amicable settlement before the JDR may, in fact, be
supplemented by their resort to arbitration where a binding resolution to the dispute could finally be
achieved. This situation precisely finds application to the case at bench. Neither would the summary
nature of ejectment cases be a valid reason to disregard the enforcement of the arbitration clause of the
2005 Lease Contract. Notwithstanding the summary nature of ejectment cases, arbitration still remains
relevant as it aims not only to afford the parties an expeditious method of resolving their dispute.

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Equitable PCI Banking Corporation v. RCBC Capital Corporation
574 SCRA 858 [2008]

FACTS:
Equitable PCI, as seller and RCBC as buyer executed a Share Purchase Agreement for the purchase of
Equitable PCI’s interest in Bankard. After three years from the execution of the deed of sale, RCBC
however informed Equitable PCI of overpayment of over P616M for the purchase price of the shares.
RCBC claimed that Equitable PCI violated their warranty as sellers.

Following the unsuccessful attempts for settlement, RCBC filed a request for Arbitration on May 12,
2004 with the International Chamber of Commerce – International Court of Arbitration (ICC- ICA).

In its Answer, Equitable PCI denied RCBC’s averments, claimed that the period for filing the claim has
already lapsed, was guilty of laches and was not entitled to rescission having had ample opportunity and
reasonable time to file a claim against Equitable PCI.

The Arbitral Tribunal rendered a Partial Award holding that RCBC’s claim is not time-barred as it was
filed within the 3 year period. It also exonerated RCBC from laches and it considered impracticable the
rescission of the Agreements.

RCBC field with the RTC a Motion to Confirm Partial Award. Equitable PCI countered through a Motion to
Vacate the Partial Award.

RTC ordered confirming the Partial Award. Equitable PCI sought reconsideration but RTC denied.

Thus, Equitable PCI filed a Petition for Review with the Supreme Court under Rule 45 of the Rules of
Court.

ISSUE: Whether or not the proper remedy is the filing of a petition for review under Rule 45 of the Rules
of Court.

HELD:
No. Rule 45 is not the remedy available to petitioners as the proper mode of appeal assailing the
decision of the RTC confirming as arbitral award is an appeal before the CA pursuant to Sec. 46 of
Republic Act No. (RA) 9285.

In Korea Technologies Co., Ltd. v. Lerma, the Court explained that the RTC decision of an assailed arbitral
award is appealable to the CA and may further be appealed to this Court.

It is clear from the factual antecedents that RA 9285 applies to the instant case. This law was already
effective at the time the arbitral proceedings were commenced by RCBC through a request for
arbitration filed before the ICC-ICA on May 12, 2004. Besides, the assailed confirmation order of the RTC
was issued on March 17, 2008. Thus, petitioners clearly took the wrong mode of appeal and the instant
petition can be outright rejected and dismissed.

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Werr Corporation International vs Highlands Prime Inc.
G.R. No. 187543 and 187580 Feb 8 2017

FACTS:
Highlands Prime, Inc. (HPI) and Werr Corporation International (Werr) are domestic corporations
engaged in property development and construction, respectively. For the construction of 54 residential
units contained in three clusters of five-storey condominium structures, known as "The Horizon-
Westridge Project," in Tagaytay Midlands Complex, Talisay, Batangas, the project owner, HPI, issued a
Notice of Award/Notice to Proceed to its chosen contractor, Werr, on July 22, 2005. Thereafter, the
parties executed a General Building Agreement (Agreement) on November 17, 2005. Under the
Agreement, Werr had the obligation to complete the project within 210 calendar days from receipt of
the Notice of Award/Notice to Proceed on July 22, 2005, or until February 19, 2006. For the completion
of the project, HPI undertook to pay Werr a lump sum contract price of P271,797,900.00 inclusive of
applicable taxes, supply and transportation of materials, and labor.

Upon HPI's payment of the stipulated 20% downpayment, Werr commenced with the construction of
the project. The contract price was paid and the retention money was deducted, both in the progress
billings. The project, however, was not completed on the initial completion date of February 19, 2006,
which led HPI to grant several extensions and a final extension until October 15, 2006. The project was
not completed on the last extension given. Thus, HPI terminated its contract with Werr on November
28, 2006, which the latter accepted on November 30, 2006.

On October 3, 2007, Werr demanded from HPI payment of the balance of the contract price as reflected
in its financial status report. HPI informed Werr that based on their records, the amount due to the
latter as of December 31, 2006 is P14,834,926.71. This amount was confirmed by Werr. Not having
received any payment, Werr filed a Complaint for arbitration against HPI before the CIAC to recover the
P14,834,926.71 representing the balance of its retention money. In its Answer, HPI countered that it
does not owe Werr because the balance of the retention money answered for the payments made to
suppliers and for the additional costs and expenses incurred after termination of the contract. By way of
counterclaim, HPI prayed for the payment of liquidated damages, for actual damages, for attorney's fees
and litigation expenses.

After due proceedings, the CIAC rendered its Decision where it granted Werr's claim for the balance of
the retention money and arbitration costs. It also granted HPI's claim for liquidated damages but denied
its counterclaim for damages, attorney's fees, and litigation expenses. Since the liquidated damages did
not exhaust the balance of the retention money, the CIAC likewise denied the claim for actual damages.

The CA affirmed the CIAC’s findings on the allowable charges against the retention money, and on the
attorney's fees and litigation expenses. It, however, disagreed with the CIAC decision as to the amount
of liquidated damages and arbitration costs. As to the arbitration costs, it ruled that it is more equitable
that it be borne equally by the parties since the claims of both were considered and partially granted.

ISSUE: Whether the cost of arbitration should be shouldered by both parties.

HELD:

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Yes. Courts are allowed to adjudge which party may bear the cost of the suit depending on the
circumstances of the case. Considering the CA's findings that both parties were able to recover their
claims, and neither was guilty of bad faith, we do not find that the CA erred in dividing the arbitration
costs between the parties.

We also do not find the need to disturb the findings as to attorney's fees and expenses of litigation, both
the CIAC and the CA having found that there is no basis for the award of attorney's fees and litigation
expenses.

10
Steamship Mutual Underwriting Association Limited vs Sulpicio
Lines
G.R. Nos. 196072 and 208603 Sept. 20 2017

FACTS:
Steamship was a Bermuda-based Protection and Indemnity Club, managed outside London, England. It
insures its 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. One (1) of these vessels was the M/V Princess of
the World, evidenced by a Certificate of Entry and Acceptance issued by Steamship. The certificate
incorporated by reference an arbitration agreement set forth in its Club Rules. In July 7, 2005, M/V
Princess of the World was gutted by fire while on voyage from Iloilo to Zamboanga City, resulting in total
loss of its cargoes. Sulpicio claimed indemnity from Steamship. Steamship denied the claim and
subsequently rescinded the insurance coverage on the ground that "Sulpicio was grossly negligent in
conducting its business regarding safety, maintaining the seaworthiness of its vessels as well as proper
training of its crew."

Sulpicio filed a Complaint with the RTC of Makati City. Steamship filed its Motion to Dismiss and/or to
Refer Case to Arbitration pursuant to RA No. 9285, or the ADR Act of 2004, and to Rule 4716 of the
2005/2006 Club Rules, which supposedly provided for arbitration in London of disputes between
Steamship and its members. The other defendants filed separate Motion to Dismiss.

RTC denied the motions to dismiss. It held that "arbitration [did] not appear to be the most prudent
action, . . . considering that the other defendants . . . ha[d] already filed their [respective] [a]nswers."

CA also dismissed the petition and found no grave abuse of discretion on the part of the RTC in denying
Steamship's Motion to Dismiss and/or to Refer Case to Arbitration or any convincing evidence to show
that a valid arbitration agreement existed between the parties.

ISSUE: Whether or not there is a valid and binding arbitration agreement between the parties.

HELD:
Yes. In domestic arbitration, the formal requirements of an arbitration agreement are that it must "be in
writing and subscribed by the party sought to be charged, or by his lawful agent." In international
commercial arbitration, it is likewise required that the arbitration agreement must be in writing.

An arbitration agreement is in writing if it is contained (1) in a document signed by the parties, (2) in an
exchange of letters, telex, telegrams or other means of telecommunication which provide a record of
the agreement, or (3) in an exchange of statements of claim and defense in which the existence of an
agreement is alleged by a party and not denied by another. The reference in a contract to a document
containing an arbitration clause constitutes an arbitration agreement provided that the contract is in
writing and the reference is such as to make that clause part of the contract.

Thus, an arbitration agreement that was not embodied in the main agreement but set forth in another
document is binding upon the parties, where the document was incorporated by reference to the main

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agreement. The arbitration agreement contained in the Club Rules, which in turn was referred to in the
Certificate of Entry and Acceptance, is binding upon Sulpicio even though there was no specific
stipulation on dispute resolution in this Certificate.

Furthermore, as stated earlier, Sulpicio became a member of Steamship by the very act of making a
contract of insurance with it. The Certificate of Entry and Acceptance issued by Steamship states that
"[its] name has been entered in the Register of Members of the Club as a Member." Sulpicio admits its
membership and the entry of its vessels to Steamship.

Sulpicio's agreement to abide by Steamship's Club Rules, including its arbitration clause, can be
reasonably inferred from its submission of an application for entry of its vessels to Steamship "subject to
the Rules, receipt of which we acknowledge."

In this case, by its act of entering its fleet of vessels to Steamship and accepting without objection the
Certificate of Entry and Acceptance covering its vessels, Sulpicio manifests its consent to be bound by
the Club Rules. The contract between Sulpicio and Steamship gives rise to reciprocal rights and
obligations. Steamship undertakes to provide protection and indemnity cover to Sulpicio's fleet. On the
other hand, Sulpicio, as a member, agrees to observe Steamship's rules and regulations, including its
provisions on arbitration.

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Luzon Iron Development Group vs Bridestone Mining and
Development Corp
G.R. No. 220546 December 7, 2016

FACTS:
Respondents Bridestone Mining and Development Corporation (Bridestone) and Anaconda Mining and
Development Corporation (Anaconda) filed separate complaints before the RTC for rescission of
contract and damages against petitioners Luzon Iron Development Group Corporation (Luzon Iron) and
Consolidated Iron Sands, Ltd. (Consolidated Iron). 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 Application of the former in favor of the latter. The complaints also sought the return of the
Exploration Permits to Bridestone and Anaconda.

Thereafter, Luzon Iron and Consolidated Iron filed their Special Appearance with Motion to Dismiss
separately against Bridestone's complaint and Anaconda's complaint. Both motions to dismiss presented
similar grounds for dismissal. They contended that the RTC could not acquire jurisdiction over
Consolidated Iron because it was a foreign corporation that had never transacted business in the
Philippines. Likewise, they argued that the RTC had no jurisdiction over the subject matter because of an
arbitration clause in the TPAA.

RTC ordered the consolidation of the two cases. Subsequently, Luzon Iron and Consolidated Iron filed
their Special Appearance and Supplement to Motions to Dismiss, seeking the dismissal of the
consolidated cases. The petitioners alleged that Bridestone and Anaconda were guilty of forum shopping
because they filed similar complaints before the Department of Environment and Natural Resources
(DENR), Mines and Geosciences Bureau, Regional Panel of Arbitrators against Luzon Iron.

RTC ruled that it had jurisdiction over the subject matter because under clause 14.8 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.

The CA also sustained the jurisdiction of the RTC over the subject matter opining that the arbitration
clause in the TPAA provided for an exception where parties could directly go to court.

ISSUE: Whether the Court of Appeals erred in ruling that the trial court has jurisdiction over the subject
matter of the consolidated cases

HELD:
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, especially since such construction is possible in the case at bench. A synchronized reading of

13
the abovementioned TPAA provisions will show that a claim or action raising the sufficiency, validity,
legality or constitutionality of: (a) the assignments of the EP to Luzon Iron; (b) any other assignments
contemplated by the TPAA; or (c) any agreement to which the EPs may be converted, may be instituted
only when there is a direct and/or blatant violation of the TPAA. In turn, the said action or claim is
commenced by proceeding with arbitration, as espoused in the TPAA.

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. If such interpretation is to be espoused, the arbitration clause
would be rendered inutile as practically all matters may be directly brought before the courts. Such
construction is anathema to the policy favoring arbitration.

A closer perusal of the TPAA will also reveal that paragraph 14 and all its sub-paragraphs are general
provisions, whereas paragraphs 15 and all its sub-clauses specifically refer to arbitration. When general
and specific provisions are inconsistent, the specific provision shall be paramount and govern the
general provision.

The petitioners' failure to refer the case for arbitration, however, does not render the arbitration clause
in the TPAA inoperative.

It is undisputed that the petitioners Luzon Iron and Consolidated Iron never made any formal request for
arbitration. As expounded in Koppel, however, a 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.

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 filed 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.

The parties, however, are ORDERED to commence arbitration proceedings pursuant to Paragraph 15.1
of the Tenement Partnership and Acquisition Agreement.

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Lanuza, Jr. vs BF Corporation
G.R. No. 174938, October 1, 2014

FACTS:
In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-La and
the members of its board of directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo
Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos. 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. According to BF Corporation, Shangri-La misrepresented that it
had funds to pay for its obligations with BF Corporation, and the delay in payment was simply a matter
of delayed processing of BF Corporation’s progress billing statements. 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. Petitioners filed their comment on Shangri-La’s and BF Corporation’s motions,
praying that they be excluded from the arbitration proceedings for being non-parties to Shangri-La’s and
BF Corporation’s agreement.

ISSUE: Whether or not the corporate representatives may be compelled to submit to arbitration
proceedings pursuant to a contract entered into by the corporation they represent

HELD:
Yes. 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.

As a general rule, a corporation's representative who did not personally bind himself or herself to an
arbitration agreement cannot be forced to participate in arbitration proceedings made pursuant to an
agreement entered into by the corporation. He or she is generally not considered a party to that
agreement.

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

15
treated as one. Without a trial, courts and tribunals have no basis for determining whether the veil of
corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the
courts or tribunals must first determine whether circumstances exist to warrant the courts or tribunals
to disregard the distinction between the corporation and the persons representing it. The determination
of these circumstances must be made by one tribunal or court in a proceeding participated in by all
parties involved, including current representatives of the corporation, and those persons whose
personalities are impliedly the same as the corporation. This is because when the court or tribunal finds
that circumstances exist warranting the piercing of the corporate veil, the corporate representatives are
treated as the corporation itself and should be held liable for corporate acts. The corporation's distinct
personality is disregarded, and the corporation is seen as a mere aggregation of persons undertaking a
business under the collective name of the corporation.

Hence, when the directors, as in this case, are impleaded in a case against a corporation, alleging malice
or bad faith on their part in directing the affairs of the corporation, complainants are effectively alleging
that the directors and the corporation are not acting as separate entities. They are alleging that the acts
or omissions by the corporation that violated their rights are also the directors' acts or omissions. They
are alleging that contracts executed by the corporation are contracts executed by the directors.
Complainants effectively pray that the corporate veil be pierced because the cause of action between
the corporation and the directors is the same.

In that case, complainants have no choice but to institute only one proceeding against the parties.

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.

Hence, the issue of whether the corporation's acts in violation of complainant's rights, and the incidental
issue of whether piercing of the corporate veil is warranted, should be determined in a single
proceeding. Such finding would determine if the corporation is merely an aggregation of persons whose
liabilities must be treated as one with the corporation.

However, when the courts disregard the corporation's distinct and separate personality from its
directors or officers, the courts do not say that the corporation, in all instances and for all purposes, is
the same as its directors, stockholders, officers, and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or representing it. Courts merely discount
the distinction and treat them as one, in relation to a specific act, in order to extend the terms of the
contract and the liabilities for all damages to erring corporate officials who participated in the
corporation's illegal acts. This is done so that the legal fiction cannot be used to perpetrate illegalities
and injustices.

Thus, in cases alleging solidary liability with the corporation or praying for the piercing of the corporate
veil, parties who are normally treated as distinct individuals should be made to participate in the
arbitration proceedings in order to determine if such distinction should indeed be disregarded and, if so,
to determine the extent of their liabilities.

In this case, the Arbitral Tribunal rendered a decision, finding that BF Corporation failed to prove the
existence of circumstances that render petitioners and the other directors solidarily liable. It ruled that
petitioners and Shangri-La's other directors were not liable for the contractual obligations of Shangri-La
to BF Corporation. The Arbitral Tribunal's decision was made with the participation of petitioners, albeit

16
with their continuing objection. In view of our discussion above, we rule that petitioners are bound by
such decision.

17
Korea Technologies Co., Ltd. v. Lerma
542 SCRA 1 (2008)

FACTS:
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. On March 5,
1997, 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. On April 7, 1997,
the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 1997
amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to
pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder samples. Thus, the total contract
price amounted to USD 1,530,000. On October 14, 1997, PGSMC entered into a Contract of Lease with
Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square
meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP 322,560
commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries,
equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in
the Carmona plant. PGSMC paid KOGIES USD 1,224,000. However, gleaned from the Certificate executed
by the parties on January 22, 1998, after the installation of the plant, the initial operation could not be
conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the
parties to agree that KOGIES would be deemed to have completely complied with the terms and
conditions of the March 5, 1997 contract. For the remaining balance of USD306,000 for the installation
and initial operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated
January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP
4,500,000. When KOGIES deposited the checks, these were dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter to PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a Makati City
hotel. She complained that not only did KOGIES deliver a different brand of hydraulic press from that
agreed upon but it had not delivered several equipment parts already paid for.

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

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

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 on equal footing. We find no reason

18
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.
Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he 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.

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.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or
awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and
Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed, upon the instance of any
party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be
confirmed by the RTC.

19
Umbao v. Yap
G.R. No. L-8933, 28 February 1957

FACTS:
Petitioner Umbao and respondent Yap both had agreed in writing to “submit their case to the Wage
Administration Service for investigation” and “to abide by whatever decision (said) office may render on
the case” which “they recognized . . . to be final and conclusive.” After proper investigation had been
conducted by Severo Puncan of the same Service, who after hearing the parties and considering their
evidence, declared in a written report, respondent Yap to be liable for unpaid wages; that the award had
been approved by Ruben Santos, Acting Chief of the Service; and that respondent had refused to abide
by and comply with it. Respondent’s answer did not deny the existence of the covenant and of the
award but questioned the enforceability of both, contending mainly that the Service had no legal
authority to act as arbitrator, that the procedural requirements of Republic Act No. 602 had not been
followed, and that the provisions of Republic Act No. 876 known as the Arbitration Law had been
disregarded. Petitioner then asked for judgment on the pleadings. The Court, noting non-observance of
the procedure outlined in Republic Act No. 876, gave judgment for defendant. However upon motion to
reconsider, the judge seeing differently, held the arbitration agreements to be a contract obligatory on
the parties under the provisions of the New Civil Code. Consequently, he rendered judgment against
defendant. Hence this appeal.

ISSUE: Whether or not the arbitration by the Service conformed with the Act.

HELD:
The argument evidently assumes that a compromise agreement is the same as an arbitration
agreement. Such assumption is error: one is different from the other; they are treated in two separate
chapters of the Code.

No rules have been promulgated by this Court. However the Legislature adopted such rules in Republic
Act No. 876 known as “The Arbitration Law’ effective December 1953. Said act was obviously adopted to
supplement-not to supplant-the New Civil Code on arbitration. It expressly declares that “the provisions
of chapters one and two, Title XIV, Book of the Civil Code the parties may select the arbitrator without
court intervention. And section 8 of the Act impliedly permits them to do so. There is nothing in Republic
Act 876 requiring court permission of knowledge or intervention before the arbitrator selected by the
parties may perform his assigned work. The section does not mean there can be no arbitration without a
previous court actuation.

The case between herein litigants has not required court intervention from the beginning, because they
had named the arbitrator: the Administration Service and necessarily the proper officer, thereof, Severo
Puncan. And this defendant should not be permitted to question the authority of said officer now,
because he voluntarily submitted his evidence to him; and he only turned around to deny such authority
when the resultant verdict adversely affected his pocket. He even appealed to the Secretary of Labor,
and without questioning Puncan’s authority, pleaded for exoneration on the merits.

As to the arbitration proceedings, Republic Act No. 876 contains provisions about the procedure to be
adopted by arbitrators, their oath, the hearings, and the form and content of the award. Even so, herein
appellant asserted no prejudicial departure therefrom. As already stated, Republic Act No. 876 did not

20
require court intervention (in the case at bar) prior to the award of the arbitrator, no ground for it
having arisen, as the parties voluntarily took steps to carry out the settlement process down to the
arbiter’s decision. It was only after such award, when defendant refused to comply that judicial action
became necessary, thru the means afforded by the statute: confirmation of award and judgment.

These provisions, we believe, apply whether or not the court intervened from the very beginning. Now
then, examining the complaint and the judgment entered herein in the light of the above directions, we
find substantial conformity therewith; so much so that defendant raised no issue on the same.

Wherefore, the judgment should be, and is hereby affirmed.

21
ABS-CBN Broadcasting Corp. v. World Interactive Network
Systems Japan Co., Ltd.
G.R. No. 169332, 11 February 2008

FACTS:
Petitioner ABS-CBN entered into an agreement with respondent World Interactive Network Systems
(WINS). Under the agreement, respondent was granted the exclusive license to distribute and sublicense
the distribution of the television service known as "The Filipino Channel" (TFC) in Japan. A dispute arose
when petitioner accused respondent of inserting nine episodes of WINS WEEKLY, into the TFC
programming from March to May 2002, claiming that such insertions were unauthorized thus
constituting a material breach of their agreement. As a result, petitioner notified respondent of its
intention to terminate their licensing agreement.

Thereafter, respondent filed an arbitration suit pursuant to the arbitration clause of its agreement with
petitioner and contended that the airing of WINS WEEKLY was made with petitioner's prior approval. It
also alleged that petitioner only threatened to terminate their agreement because it wanted to
renegotiate the terms thereof to allow it to demand higher fees. Respondent also prayed for damages
for petitioner's alleged grant of an exclusive distribution license to another entity, NHK (Japan
Broadcasting Corporation). The parties appointed a sole arbitrator in the person of Professor Alfredo F.
Tadiar and the latter reached a decision in favor of respondent.

Petitioner filed in the CA a petition for review under Rule 43 of the Rules of Court or, in the alternative, a
petition for certiorari under Rule 65 of the same Rules, with application for temporary restraining order
and writ of preliminary injunction. The CA rendered the assailed decision dismissing ABS-CBN’s petition
for lack of jurisdiction. It ruled that it is the RTC which has jurisdiction over questions relating to
arbitration. It held that the only instance it can exercise jurisdiction over an arbitral award is an appeal
from the trial court's decision confirming, vacating or modifying the arbitral award. It further stated that
a petition for certiorari under Rule 65 of the Rules of Court is proper in arbitration cases only if the
courts refuse or neglect to inquire into the facts of an arbitrator's award.

ISSUE: Whether or not an aggrieved party in a voluntary arbitration dispute may avail of, directly in the
CA, a petition for review under Rule 43 or a petition for certiorari under Rule 65 of the Rules of Court,
instead of filing a petition to vacate the award in the.

HELD:
The CA’s decision is sound. A petition for review under Rule 43 or a petition for certiorari under Rule 65
directly in the CA is NOT the proper remedy. RA 876 itself mandates that it is the Court of First Instance,
now the RTC, which has jurisdiction over questions relating to arbitration, such as a petition to vacate an
arbitral award.

As RA 876 did not expressly provide that errors of fact and/or law and grave abuse of discretion, which is
the proper grounds for a petition for review under Rule 43 and a petition for certiorari under Rule 65,
This means that such ground is not acceptable for maintaining a petition to vacate an arbitral award in
the RTC. Thus, it follows that a party may not avail of the remedies under Rule 43 and Rule 65 on the
grounds of errors of fact and/or law or grave abuse of discretion to overturn an arbitral award.

22
23
Magellan Capital Management Corporation v. Zosa
355 SCRA 157 (2008)

FACTS:
Under a management agreement entered into, MCHC appointed MCMC as manager for the operation of
its business and affairs. Pursuant thereto, petitioners and private respondent Rolando Zosa entered into
“Employment Agreement” designating the latter as President and CEO of MCHC. Respondent Zosa then
was elected to a new position as MCHC’s Vice-Chairman/Chairman New Ventures Development to which
he communicated his resignation on the ground that it had less responsibility and scope and demanded
that he be given termination benefits as provided in the Employment Agreement. MCHC communicated
its non-acceptance to the resignation and advised respondent that the agreement is terminated on
account of the latter’s breach thereof. Respondent invoked the Arbitration Clause of the agreement and
both parties designated their arbitrators in the panel. However, instead of submitting the dispute to
arbitration, respondent filed an action for damages against petitioners before the RTC. Petitioners’s
motion to dismiss was denied. Petitioners filed a petition for certiorari and prohibition in the CA to
which it was given due course. The RTC in compliance with the decision, declared the arbitration clause
in the agreement partially void and of no effect insofar as it concerns the composition of arbitrators.
Petitioners then filed this petition for review on certiorari.

ISSUE: Whether or not the arbitration clause in the Employment Agreement is partially void and of no
effect.

HELD:
We rule against the petitioners.

Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken, this
Court finds the trial court’s observations on why the composition of the panel of arbitrators should be
voided, incisively correct so as to merit our approval. Thus,

From the memoranda of both sides, the Court is of the view that the defendants [petitioner]
MCMC and MCHC represent the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct and separate from each other and
that a corporation has a personality distinct and separate from those persons composing the
corporation as well as from that of any other legal entity to which it may be related.

But as the defendants [herein petitioner] 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 plaintiff. The arbitration law,
as all other laws, is intended for the good and welfare of everybody. In fact, what is being
challenged by the plaintiff herein is not the law itself but the provision of the Employment
Agreement based on the said law, which is the arbitration clause but only as regards the
composition of the panel of arbitrators.

X X X it appears that the two (2) defendants [petitioners] (MCMC and MCHC) have one (1)
arbitrator each to compose the panel of three (3) arbitrators. As the defendant MCMC is the
Manager of defendant MCHC, its decision or vote in the arbitration proceeding would naturally

24
 and certainly be in favor of its employer and the defendant MCHC would have to protect and
preserve its own interest; hence, the two (2) votes of both defendants (MCMC and MCHC)
would certainly be against the lone arbitrator for the plaintiff [herein defendant]. Hence,
apparently, plaintiff [defendant] would never get or receive justice and fairness in the
arbitration proceedings from the panel of arbitrators as provided in the aforequoted arbitration
clause. In fairness and justice to the plaintiff [defendant], the two defendants (MCMC and
MCHC) [herein petitioners] which represent the same interest should be considered as one and
should be entitled to only one arbitrator to represent them in the arbitration proceedings.
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, “Any 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 dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners] and
the plaintiff [herein defendant] should be settled in the arbitration proceeding in accordance
with the Employment Agreement, but under the panel of three (3) arbitrators, one (1) arbitrator
to represent the plaintiff, one (1) arbitrator to represent both defendants (MCMC and MCHC)
[herein petitioners] and the third arbitrator to be chosen by the plaintiff [defendant Zosa] and
defendants [petitioners].

We need only to emphasize in closing that arbitration proceedings are designed to level the playing field
among the parties in pursuit of a mutually acceptable solution to their conflicting claims. 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. Wherefore, premises
considered, the petition is hereby dismissed and the decision of the trial court is affirmed.

25
Romago, Inc. v. Siemens Building Technologies, Inc.
602 SCRA 656 (2009)

FACTS:
Romago Inc. was awarded the Sub-contract for the Building Services-Electrical Package for the Insular
Life Corporate Center. Under the consortium agreement and Equipment Supply Sub-Contract
Agreement (ESSA), Siemens Building Technologies Inc. undertook to deliver the needed electrical
equipment for the project for Romago. SBTI made deliveries but ROMAGO failed to pay in full. The
former made demands, but they were not paid. Romago refused to pay its obligation which amounted
to P16,937,612.68, unless SBTI compensates ROMAGO for the total expenses it allegedly incurred in
taking over SBTI’s contractual obligations when the earlier demands to pay were unheeded.

SBTI filed a Request for Arbitration with the Philippine Dispute Resolution Center, Inc. (PDRCI) which was
agreed to by Romago. After due proceedings, the arbitrator awarded to SBTI its claim of the amount
above mentioned plus legal interest, attorney’s fees and costs. SBTI filed a petition for Confirmation of
the Arbitrator’s Decision, and instead of filing a Motion to Vacate the Award, Romago filed an Answer.
The RTC granted the petition, confirmed the award and issued a Writ of Execution. This had become
final and executory. Despite receipt of the Order on July 3, 2006, Romago did not interpose an appeal. It
was only later on August 22, 2006 when Atty. Barrios withdrew his appearance and the law office of
Mutia Venadas entered appearance that Romago sought for a petition for relief from judgment.
Claiming that Atty. Barrios was sick for three weeks and only later were they aware of the orders of the
court. SBTI opposed, and the RTC denied it. MR was denied. And upon petition for certiorari to the
CA,Romago raised the issue that the PDRCI had no jurisdiction over the dispute since the contract with
SBTI was a construction contract and was within the jurisdiction of the CIAC. However, the CA also
denied this.

ISSUE: Was the contract between the parties a construction contract that would place it in the
jurisdiction of the CIAC?

HELD:
No. It was a supply contract, thus, not within the jurisdiction of the CIAC.

SBTI’s scope of work under the ESSA was:

1.01 x x x to furnish all equipment in accordance with the equipment and delivery schedule x x x
1.02 [to] supply and deliver the equipment in accordance with the Bill of Quantities and Cost
Schedule (Attachment Nos. 1 &2) and equipment delivery schedule (Attachment -3) to the
jobsite/designated areas including unloading of equipment from the delivery truck.xxxx

By no stretch of the imagination can the ESSA be characterized as a construction contract. Crystal clear
from the provisions of the ESSA is that SBTI’s role was merely to supply the needed equipment for the
Insular Life Corporate Center project. The ESSA is, therefore, a mere supply contract that does not fall
within the original and exclusive jurisdiction of CIAC.

We also note that the Consortium Agreement between ROMAGO and SBTI contained an arbitration
clause, wherein the parties agreed to submit any dispute between them for arbitration under the
Philippine Chamber of Commerce and Industry (PCCI), such as the PDRCI.

26
Furthermore, the issue of jurisdiction was rendered moot by ROMAGO's active participation in the
proceedings before the PDRCI and the RTC. In fact, during the proceedings for the confirmation of the
Arbitrator’s award, ROMAGO’s opposition zeroed in on the alleged bias and partiality of the Arbitrator in
rendering the decision. Even in its petition for relief from judgment filed with the RTC, the PDRCI’s
alleged lack of jurisdiction was never raised as an issue. It was only in its petition for certiorari with the
CA, and after a writ of execution had been issued, that ROMAGO raised the issue of lack of jurisdiction.
ROMAGO attempted to avoid this final and executory judgment by filing a petition for relief from
judgment with the RTC. However, under the rules, the equitable remedy is allowed only under
exceptional circumstances of fraud, accident , mistake or excusable negligence, which is not applicable
in this case. Romago ascribes its failure to appeal due to the negligence of its counsel, Atty. Barrios, who
had suffered from hypertension; but the court is not convinced since the affidavit it submit to prove
such allegations was filled with blanks of the name of the physician and hospital who attended the
lawyer. As such, It is settled that clients are bound by the mistakes, negligence and omission of their
counsel. While, exceptionally, the client may be excused from the failure of counsel, the circumstances
obtaining in the present case do not persuade this Court to take exception.

27
Malayan Insurance Co., Inc. v. St. Francis Square Realty
G.R Nos. 198916-17, 198920-21, 11 January 2016

FACTS:
Malayan Insurance Company, Inc. (Malayan) is a duly-organized domestic corporation engaged in
insurance business. Formerly known as ASB Realty Corporation (ASB), St. Francis Square Realty
Corporation (St. Francis) is a duly-organized domestic corporation engaged in real estate development.

St. Francis filed with the CIAC a Complaint with Prayer for Interim Relief against Malayan. St. Francis
alleged that in August 2006, it secured a copy of a document entitled "cost to complete" from Malayan
which fixed the Actual Remaining Construction Cost (ARCC) at P614,593,565.96. It disputed several cost
items in the ARCC, amounting to P145,487,496.42, and argued that their exclusion would entitle it to
some reserved units.

Malayan filed a Verified Answer (With Grounds for Immediate Dismissal), claiming that St. Francis failed
to state a cause of action because the ARCC had already reached P635,018,369.05 as of November 30,
2008, thereby exceeding the Remaining Construction Cost (RCC) [P452,424,849.00] by more than the
aggregate value of the reserved units [P175,856,323.05]; hence, St. Francis is no longer entitled to any of
such units.

A preliminary conference was held where the parties stipulated on facts, formulated issues, and drafted
and signed the Terms of Reference (TOR) which would govern the proceedings of the case.

Trial ensued during which the witnesses of St. Francis and Malayan testified. Both parties likewise
submitted Lists of Exhibits. After trial, the parties simultaneously filed their respective Memoranda in
the form of Draft Decisions. FOR BOTH CLAIMANT [St. Francis] and RESPONDENT [Malayan], all their
Claims and Counterclaims for Attorney's Fees are DENIED. Arbitration costs are maintained according to
the pro rata sharing that they had initially shared.

Dissatisfied with the CIAC Award, both parties filed with the Court of Appeals (CA) their respective
Petitions for Review under Rule 43 of the Rules of Court. The CA affirmed with modifications. Aggrieved
by the CA decision, both parties filed their respective motions for reconsideration, which were denied.
Hence, the present petitions of both parties.

ISSUE: Whether or not the factual findings of construction arbitrators are final and conclusive and not
reviewable by the Court on appeal.

HELD:
The Court is guided by the rule that findings of fact of quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters, are generally accorded not only
respect, but also finality, especially when affirmed by the CA. In particular, factual findings of
construction arbitrators are final and conclusive and not reviewable by this Court on appeal.

As exceptions, however, factual findings of construction arbitrators may be reviewed by the Court when
the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue
means; (2) there was evident partiality or corruption of the arbitrators or any of them; (3) the arbitrators

28
were guilty of misconduct in refusing to hear evidence pertinent and material to the controversy; (4)
one or more of the arbitrators were disqualified to act as such under Section Nine of Republic Act No.
876 and willfully refrained from disclosing such disqualifications or of any other misbehavior by which
the rights of any party have been materially prejudiced; or (5) 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; (6) when there is a very clear showing of grave abuse of discretion
resulting in lack or loss of jurisdiction as when a party was deprived of a fair opportunity to present its
position before the Arbitral Tribunal or when an award is obtained through fraud or the corruption of
arbitrators; (7) when the findings of the CA are contrary to those of the CIAC, and (8) when a party is
deprived of administrative due process. Apart from conflicting findings of fact of the CA and the CIAC as
to the propriety of some arbitral awards, mathematical computations, and entitlement to claim certain
costs as part of the amount necessary to complete the project, none of the other exceptions above was
shown to obtain in this case. Hence, the Court will not disturb those findings where the CA and the CIAC
are consistent with each other, but will review their findings which are inconsistent and cannot be
reconciled.

29
Bases Conversion Development Authority, et al., v. DMCI Project
Developers, Inc., et al.
G.R. No. 173137, 11 January 2016

FACTS:
On 10 June 1995, Bases Conversion Development Authority (BDCA) entered into a Joint Venture
Agreement (JVA) with the Philippine National Railways (PNR) and other foreign corporations.

Under the Joint Venture Agreement, the parties agreed to construct a railroad system from Manila to
Clark with possible extensions to Subic Bay and La Union and later, possibly to Ilocos Norte and Nueva
Ecija. BCDA shall establish North Luzon Railways Corporation (Northrail) for purposes of constructing,
operating, and managing the railroad system. The JVA contained an arbitration clause where the parties
agreed that any dispute arising under the agreement that cannot be settled by mutual accord shall be
referred to arbitration “in accordance with the Philippine Arbitration Law (Republic Act No 876)
supplemented by the Rules of Conciliation and Arbitration of the International Chamber of Commerce.

On February 8, 1996, the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or
its nominee as party. On February 8, 1996, BCDA and the other parties to the Joint Venture Agreement,
including D.M. Consunji, Inc. and/or its nominee, entered into a Memorandum of Agreement.

On September 27, 2000, DMCI-PDI started demanding from BCDA and Northrail the return of its P300
million deposit. DMCI-PDI cited Northrail's failure to increase its authorized capital stock as reason for
the demand.

On August 17, 2005, DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing the
arbitration clause in the June 10, 1995 Joint Venture Agreement. BCDA and Northrail failed to respond.
DMCI-PDI filed before the Regional Trial Court of Makati a Petition to Compel Arbitration against BCDA
and Northrail, pursuant to the alleged arbitration clause in the Joint Venture Agreement. DMCI-PDI
prayed for "an order directing the parties to proceed to arbitration in accordance with the terms and
conditions of the agreement."

In the Decision dated February 9, 2006, the trial court denied BCDA's and Northrail's Motions to Dismiss
and granted DMCI-PDI's Petition to Compel Arbitration ruling that even though DMCI-PDI was not a
signatory to the Joint Venture Agreement and the Memorandum of Agreement, it was an assignee of
D.M. Consunji, Inc.'s rights. Therefore, it could invoke the arbitration clause in the Joint Venture
Agreement.

ISSUE: Whether or not the trial court is correct in ruling that DMCI-PDI could invoke the arbitration
clause in the Joint Venture Agreement.

HELD:
Yes.

Three documents — (a) Joint Venture Agreement, (b) amended Joint Venture Agreement, and (c)
Memorandum of Agreement — represent the agreement between BCDA, Northrail, and D.M. Consunji,

30
Inc. Among the three documents, only the Joint Venture Agreement contains the arbitration clause.
DMCI-PDI was allegedly not a party to the Joint Venture Agreement.

There is no rule that a contract should be contained in a single document. A whole contract may be
contained in several documents that are consistent with one other. Moreover, at any time during the
lifetime of an agreement, circumstances may arise that may cause the parties to change or add to the
terms they previously agreed upon. Thus, amendments or supplements to the agreement may be
executed by contracting parties to address the circumstances or issues that arise while a contract
subsists.

When an agreement is amended, some provisions are changed. Certain parts or provisions may be
added, removed, or corrected. These changes may cause effects that are inconsistent with the wordings
of the contract before the changes were applied. In that case, the old provisions shall be deemed to
have lost their force and effect, while the changes shall be deemed to have taken effect. Provisions that
are not affected by the changes usually remain effective.

When a contract is supplemented, new provisions that are not inconsistent with the old provisions are
added. The nature, scope, and terms and conditions are expanded. In that case, the old and the new
provisions form part of the contract.

A reading of all the documents of agreement shows that they were executed by the same parties.
Initially, the Joint Venture Agreement was executed only by BCD A, PNR, and the foreign corporations.
When the Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or its nominee,
D.M. Consunji, Inc. and/or its nominee were deemed to have been also a party to the original Joint
Venture Agreement executed by BCDA, PNR, and the foreign corporations. D.M. Consunji, Inc. and/or its
nominee became bound to the terms of both the Joint Venture Agreement and its amendment.

Moreover, each document was executed to achieve the single purpose of implementing the railroad
project, such that documents of agreement succeeding the original Joint Venture Agreement merely
amended or supplemented the provisions of the original Joint Venture Agreement.

In other words, each document of agreement represents a step toward the implementation of the
project, such that the three agreements must be read together for a complete understanding of the
parties' whole agreement. The Joint Venture Agreement, the amended Joint Venture Agreement, and
the Memorandum of Agreement should be treated as one contract because they all form part of a
whole agreement.

Hence, the arbitration clause in the Joint Venture Agreement should not be interpreted as applicable
only to the Joint Venture Agreement's original parties. The succeeding agreements are deemed part of
or a continuation of the Joint Venture Agreement. The arbitration clause should extend to all the
agreements and its parties since it is still consistent with all the terms and conditions of the
amendments and supplements.

Contrary to BCDA and Northrail's position, the agreement's prohibition against transfers, conveyance,
and assignment of rights without the consent of the other party 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.

31
32
Transfield Phils., Inc. v. Luzon Hydro Corp.
G.R. No. 146717, May 19, 2006

FACTS:
On 26 March 1997, petitioner and respondent Luzon Hydro Corporation (hereinafter, LHC) entered into
a Turnkey Contract whereby petitioner, as Turnkey Contractor, undertook to construct, on a turnkey
basis, a seventy (70)-Megawatt hydro-electric power station at the Bakun River in the provinces of
Benguet and Ilocos Sur (hereinafter, the Project). Petitioner was given the sole responsibility for the
design, construction, commissioning, testing and completion of the Project. To secure performance of
petitioner's obligation on or before the target completion date, or such time for completion as may be
determined by the parties' agreement, petitioner opened in favor of LHC two (2) standby letters of
credit both dated 20 March 2000 (hereinafter referred to as "the Securities").

In the course of the construction of the project, petitioner sought various EOT to complete the Project.
The extensions were requested allegedly due to several factors which prevented the completion of the
Project on target date, such as force majeure occasioned by typhoon Zeb, barricades and
demonstrations. LHC denied the requests, however. This gave rise to a series of legal actions between
the parties which culminated in the instant petition. The first of the actions was a Request for
Arbitration which LHC filed before the Construction Industry Arbitration Commission (CIAC) which was
followed by another Request for Arbitration, this time filed by petitioner before the International
Chamber of Commerce (ICC).

Meanwhile, foreseeing that LHC would call on the Securities pursuant to the pertinent provisions of the
Turnkey Contract, petitioner in two separate letters advised respondent banks of the arbitration
proceedings already pending before the CIAC and ICC in connection with its alleged default in the
performance of its obligations. Asserting that LHC had no right to call on the Securities until the
resolution of disputes before the arbitral tribunals, petitioner warned respondent banks that any
transfer, release, or disposition of the Securities in favor of LHC or any person claiming under LHC would
constrain it to hold respondent banks liable for liquidated damages.

On 27 June 2000, LHC sent notice to petitioner that pursuant to Clause 8.214 of the Turnkey Contract, it
failed to comply with its obligation to complete the Project. Despite the letters of petitioner, however,
both banks informed petitioner that they would pay on the Securities if and when LHC calls on them.

LHC declared petitioner in default/delay in the performance of its obligations under the Turnkey
Contract and demanded from petitioner the payment for each day of delay beginning 28 June 2000 until
actual completion of the Project. At the same time, LHC served notice that it would call on the securities
for the payment of liquidated damages for the delay.

Petitioner sought to restrain respondent LHC from calling on the Securities and respondent banks from
transferring, paying on, or in any manner disposing of the Securities or any renewals or substitutes
thereof.

The RTC denied petitioner's application for a writ of preliminary injunction.

33
ISSUE: Whether or not the petitioner is correct in the argument that any dispute must first be resolved
by the parties, whether through negotiations or arbitration, before the beneficiary is entitled to call on
the letter of credit

HELD:
Letters of credit are employed by the parties desiring to enter into commercial transactions, not for the
benefit of the issuing bank but mainly for the benefit of the parties to the original transactions. With the
letter of credit from the issuing bank, the party who applied for and obtained it may confidently present
the letter of credit to the beneficiary as a security to convince the beneficiary to enter into the business
transaction. On the other hand, the other party to the business transaction, i.e., the beneficiary of the
letter of credit, can be rest assured of being empowered to call on the letter of credit as a security in
case the commercial transaction does not push through, or the applicant fails to perform his part of the
transaction. It is for this reason that the party who is entitled to the proceeds of the letter of credit is
appropriately called "beneficiary."

Petitioner's argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence
would convert the letter of credit into a mere guarantee. Jurisprudence has laid down a clear distinction
between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not
a pre-requisite for the release of funds under a letter of credit. In other words, the argument is
incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after
settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would
be no practical and beneficial use for letters of credit in commercial transactions.

The pendency of the arbitration proceedings would not per se make LHC's draws on the Securities
wrongful or fraudulent for there was nothing in the Contract which would indicate that the parties
intended that all disputes regarding delay should first be settled through arbitration before LHC would
be allowed to call upon the Securities. It is therefore premature and absurd to conclude that the draws
on the Securities were outright fraudulent given the fact that the ICC and CIAC have not ruled with
finality on the existence of default.

Nowhere in its complaint before the trial court or in its pleadings filed before the appellate court, did
petitioner invoke the fraud exception rule as a ground to justify the issuance of an injunction. What
petitioner did assert before the courts below was the fact that LHC's draws on the Securities would be
premature and without basis in view of the pending disputes between them. Petitioner should not be
allowed in this instance to bring into play the fraud exception rule to sustain its claim for the issuance of
an injunctive relief. Matters, theories or arguments not brought out in the proceedings below will
ordinarily not be considered by a reviewing court as they cannot be raised for the first time on appeal.
The lower courts could thus not be faulted for not applying the fraud exception rule not only because
the existence of fraud was fundamentally interwoven with the issue of default still pending before the
arbitral tribunals, but more so, because petitioner never raised it as an issue in its pleadings filed in the
courts below. At any rate, petitioner utterly failed to show that it had a clear and unmistakable right to
prevent LHC's call upon the Securities.

Of course, prudence should have impelled LHC to await resolution of the pending issues before the
arbitral tribunals prior to taking action to enforce the Securities. But, as earlier stated, the Turnkey
Contract did not require LHC to do so and, therefore, it was merely enforcing its rights in accordance

34
with the tenor thereof. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.

35
Gonzales v. Climax Mining Ltd.
512 SCRA 148 [2007]; 452 SCRA 607 [2005]

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 in its Decision of 28 February 2005 denied the Rule 45 petition
of petitioner Jorge Gonzales (Gonzales). It 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 parties filed separate motions for reconsideration. Gonzales avers in his Motion for
Reconsideration 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 Panels authority. Gonzales adds that the Court failed to rule on other issues he raised
relating to the sufficiency of his complaint before the DENR Panel of Arbitrators and the timeliness of its
filing. Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial
Reconsideration and/or Clarification seeking 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 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 having impugn[ed] the existence or validity of the
addendum contract. If so, it supposedly conveys the idea that Gonzales unilateral repudiation of the
contract or mere allegation of its invalidity is all it takes to avoid arbitration. Hence, respondents submit
that the courts holding that the case should not be brought under the ambit of the Arbitration Law be
understood or clarified as operative only where the challenge to the arbitration agreement has been
sustained by final judgment.

ISSUE: Whether or not it was proper for the RTC, in the proceeding to compel arbitration under R.A. No.
876, to order the parties to arbitrate even though the defendant therein has raised the twin issues of
validity and nullity of the Addendum Contract and, consequently, of the arbitration clause therein as
well

HELD:
Yes. Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrators
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.

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 part comes to an end.

36
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.

The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art.
21(2) of the UNCITRAL Arbitration Rules.

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 petition for certiorari should be
dismissed.

This brings us back to G.R. No. 161957. 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 parties 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.

37
MCC Industrial Sales Corp. v. Ssangyong Corp.
G.R. No. 170633, October 17, 2007

FACTS:
Petitioner MCC Industrial Sales (MCC), a domestic corporation with office at Binondo, Manila, is engaged
in the business of importing and wholesaling stainless steel products. One of its suppliers is the
Ssangyong Corporation (Ssangyong), an international trading company with head office in Seoul, South
Korea and regional headquarters in Makati City, Philippines. The two corporations conducted business
through telephone calls and facsimile or telecopy transmissions. Ssangyong would send the pro forma
invoices containing the details of the steel product order to MCC; if the latter conforms thereto, its
representative affixes his signature on the faxed copy and sends it back to Ssangyong, again by fax.

Following the failure of MCC to open a letters of credit to facilitate the payment of imported stainless
steel products, Ssangyong through counsel wrote a letter to MCC, on September 11, 2000, canceling the
sales contract under ST2-POSTS0401-1 /ST2-POSTS0401-2, and demanding payment of US$97,317.37
representing losses, warehousing expenses, interests and charges.

Ssangyong then filed, on November 16, 2001, a civil action for damages due to breach of contract
against defendants MCC, Sanyo Seiki and Gregory Chan before the Regional Trial Court of Makati City. In
its complaint, Ssangyong alleged that defendants breached their contract when they refused to open
the L/C in the amount of US$170,000.00 for the remaining 100MT of steel under Pro Forma Invoice Nos.
ST2-POSTS0401-1 and ST2-POSTS0401-2.

After Ssangyong rested its case, defendants filed a Demurrer to Evidence alleging that Ssangyong failed
to present the original copies of the pro forma invoices on which the civil action was based. In an Order
dated April 24, 2003, the court denied the demurrer, ruling that the documentary evidence presented
had already been admitted in the December 16, 2002 Orde and their admissibility finds support in
Republic Act (R.A.) No. 8792, otherwise known as the Electronic Commerce Act of 2000. According to
the aforesaid Order, considering that both testimonial and documentary evidence tended to
substantiate the material allegations in the complaint, Ssangyong's evidence sufficed for purposes of a
prima facie case.

ISSUE: Whether the print-out and/or photocopies of facsimile transmissions are electronic evidence and
admissible in evidence

HELD:
when the Senate consequently voted to adopt the term "electronic data message," it was consonant
with the explanation of Senator Miriam Defensor-Santiago that it would not apply "to telexes or faxes,
except computer-generated faxes, unlike the United Nations model law on electronic commerce." In
explaining the term "electronic record" patterned after the E-Commerce Law of Canada, Senator
Defensor-Santiago had in mind the term "electronic data message." This term then, while maintaining
part of the UNCITRAL Model Law's terminology of "data message," has assumed a different context, this
time, consonant with the term "electronic record" in the law of Canada. It accounts for the addition of
the word "electronic" and the deletion of the phrase "but not limited to, electronic data interchange
(EDI), electronic mail, telegram, telex or telecopy."

38
There is no question then that when Congress formulated the term "electronic data message," it
intended the same meaning as the term "electronic record" in the Canada law. This construction of the
term "electronic data message," which excludes telexes or faxes, except computer-generated faxes, is in
harmony with the Electronic Commerce Law's focus on "paperless" communications and the "functional
equivalent approach" that it espouses.

Accordingly, in an ordinary facsimile transmission, there exists an original paper-based information or

data that is scanned, sent through a phone line, and re-printed at the receiving end. Be it noted that in
enacting the Electronic Commerce Act of 2000, Congress intended virtual or paperless writings to be the
functional equivalent and to have the same legal function as paper-based documents. Further, in a
virtual or paperless environment, technically, there is no original copy to speak of, as all direct printouts
of the virtual reality are the same, in all respects, and are considered as originals. Ineluctably, the law's
definition of "electronic data message," which, as aforesaid, is interchangeable with "electronic
document," could not have included facsimile transmissions, which have an original paper-based copy as
sent and a paper-based facsimile copy as received. These two copies are distinct from each other, and
have different legal effects. While Congress anticipated future developments in communications and
computer technology when it drafted the law, it excluded the early forms of technology, like telegraph,
telex and telecopy (except computer-generated faxes, which is a newer development as compared to
the ordinary fax machine to fax machine transmission), when it defined the term "electronic data
message."

Clearly then, the IRR went beyond the parameters of the law when it adopted verbatim the UNCITRAL
Model Law's definition of "data message," without considering the intention of Congress when the latter
deleted the phrase "but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex
or telecopy." The inclusion of this phrase in the IRR offends a basic tenet in the exercise of the rule-
making power of administrative agencies. After all, the power of administrative officials to promulgate
rules in the implementation of a statute is necessarily limited to what is found in the legislative
enactment itself. The implementing rules and regulations of a law cannot extend the law or expand its
coverage, as the power to amend or repeal a statute is vested in the Legislature. Thus, if a discrepancy
occurs between the basic law and an implementing rule or regulation, it is the former that prevails,
because the law cannot be broadened by a mere administrative issuance an administrative agency
certainly cannot amend an act of Congress. Had the Legislature really wanted ordinary fax transmissions
to be covered by the mantle of the Electronic Commerce Act of 2000, it could have easily lifted without a
bit of tatter the entire wordings of the UNCITRAL Model Law.

39
RCBC Capital Corp. v. Banco de Oro Unibank, Inc.
G.R. No. 196171, 199238, December 10, 2012

FACTS:
On May 24, 2000, RCBC entered into a Share Purchase Agreement (SPA) with Equitable-PCI Bank, Inc.
(EPCIB), George L. Go and the individual shareholders6 of Bankard, Inc. (Bankard) for the sale to RCBC of
226,460,000 shares (Subject Shares) of Bankard, constituting 67% of the latter’s capital stock. After
completing payment of the contract price, the corresponding deeds of sale over the subject shares were
executed in January 2001.

The dispute between the parties arose sometime in May 2003 when RCBC informed EPCIB and the other
selling shareholders of an overpayment of the subject shares, claiming there was an overstatement of
valuation of accounts amounting to ₱478 million and that the sellers violated their warranty

As no settlement was reached, RCBC commenced arbitration proceedings with the ICC-ICA. The
arbitration clause provides that should there be any dispute arising between the parties relating to their
agreement including the interpretation or performance which cannot be resolved by agreement of the
parties within fifteen (15) days after written notice by a party to another, such matter shall be finally
settled by arbitration under the Rules of Conciliation and Arbitration of the International Chamber of
Commerce in force as of the time of arbitration, by three arbitrators appointed and their decision shall
be final and binding upon the parties.

ICC asked them to advance cost of $350K. RCBC paid. But respondent did not pay assailing
disproportionate share because RCBC has way greater claim. RCBC paid the share of BDO in the cost.

RCBC filed an Application for Reimbursement of Advance on Costs Paid, praying for the issuance of a
partial award directing the Respondents to reimburse its payment in the amount of US$290,000
representing Respondents’ share in the Advance on Costs and to consider Respondents’ counterclaim
for actual damages in the amount of US$300,000, and moral and exemplary damages as withdrawn for
their failure to pay their equal share in the advance on costs.

BDO Opposed on the ground that the Arbitration Tribunal has lost its objectivity in an unnecessary
litigation over the payment of Respondents’ share in the advance costs. They pointed out that RCBC’s
letter merely asked that Respondents be declared as in default for their failure to pay advance costs as
that RCBC had no intention of litigating for the advance costs.

Respondents reiterated their position that Article 30(3) envisions a situation whereby a party would
refuse to pay its share on the advance on costs and provides a remedy therefor – the other party "shall
be free to pay the whole of the advance on costs." Such party’s reimbursement for payments of the
defaulting party’s share depends on the final arbitral award where the party liable for costs would be
determined.

Arbitration Tribunal rendered the second partial award. EPCIB filed a Motion to Vacate Second Partial
Award and RCBC filed in the same court a Motion to Confirm Second Partial Award. Makati City RTC
confirmed the Second Partial Award and denied EPCIB’s motion to vacate the same. EPCIB appealed to
CA.

40
Acting on a petition for certiorari, the Court of Appeals reversed the order of the lower court and set
aside the second partial award.

ISSUE: Whether there is legal ground to vacate the second partial award.

HELD:
YES. The Supreme Court upheld the Court of Appeals' ruling that in treating the letter of the claimant as
an application for a partial award and in furnishing the parties with a copy of Secomb's article - which
favoured the claimant by advancing its cause - the chairman acted with partiality.

SEC. 41. Vacation Award. – A party to a domestic arbitration may question the arbitral award
with the appropriate regional trial court in accordance with the rules of procedure to be
promulgated by the Supreme Court only on those grounds enumerated in Section 25 of Republic
Act No. 876. Any other ground raised against a domestic arbitral award shall be disregarded by
the regional trial court.”

Rule 11.4 of the Special ADR Rules sets forth the grounds for vacating an arbitral award:

Rule 11.4. Grounds.—(A) To vacate an arbitral award. – The arbitral award may be vacated on the
following grounds:
a. The arbitral award was procured through corruption, fraud or other undue means;
b. There was evident partiality or corruption in the arbitral tribunal or any of its members;
c. The arbitral tribunal was guilty of misconduct or any form of misbehavior that has materially
prejudiced the rights of any party such as refusing to postpone a hearing upon sufficient
cause shown or to hear evidence pertinent and material to the controversy;
d. One or more of the arbitrators was disqualified to act as such under the law and willfully
refrained from disclosing such disqualification; or
e. The arbitral tribunal exceeded its powers, or so imperfectly executed them, such that a
complete, final and definite award upon the subject matter submitted to them was not
made.

The award may also be vacated on any or all of the following grounds:
a. The arbitration agreement did not exist, or is invalid for any ground for the revocation of a
contract or is otherwise unenforceable; or
b. A party to arbitration is a minor or a person judicially declared to be incompetent.

In deciding the petition to vacate the arbitral award, the court shall disregard any other ground than
those enumerated above. (Emphasis supplied)

Although RCBC had repeatedly asked for reimbursement and the withdrawal of BDO’s counterclaims
prior to Chairman Barker’s December 18, 2007 letter, it is baffling why it is only in the said letter that
RCBC’s prayer was given a complexion of being an application for a partial award. To the Court, the said
letter signaled a preconceived course of action that the relief prayed for by RCBC will be granted.

That there was an action to be taken beforehand is confirmed by Chairman Barker’s furnishing the
parties with a copy of the Secomb article. This article ultimately favored RCBC by advancing its cause.

41
Chairman Barker makes it appear that he intended good to be done in doing so but due process dictates
the cold neutrality of impartiality.

42
Department of Foreign Affairs v. BCA International Corp.
G.R. No. 210858, June 29, 2016

FACTS:
In an Amended Build-Operate-Transfer Agreement dated 5 April 2002 (Agreement), petitioner
Department of Foreign Affairs (DFA) awarded the Machine Readable Passport and Visa Project (MRPN
Project) to respondent BCA International Corporation (BCA), a domestic corporation. During the
implementation of the MRPN Project, DFA sought to terminate the Agreement. However, BCA opposed
the termination and filed a Request for Arbitration, according to the provision in the Agreement which
states that if the dispute cannot be settled amicably within ninety (90) days by mutual discussion, the
Dispute shall be settled with finality by an arbitrage tribunal operating under International Law, under
the UNCITRAL Arbitration Rules contained in Resolution 31/98 adopted by the United Nations General
Assembly on December 15, 1976, and entitled "Arbitration Rules on the United Nations Commission on
the International Trade Law".

The arbitral tribunal approved BCA's request to apply in court for the issuance of subpoena, subject to
the conditions that the application will not affect its proceedings and the hearing set in October 2013
will proceed whether the witnesses attend or not.

BCA sought the issuance of subpoena ad testificandum and subpoena duces tecum to the Secretary of
Foreign Affairs, Secretary of Finance, Chairman of COA, Executive Director of DTI Build-Operate-Transfer
Center, and Chairman of the DFA MRP/V Advisory Board, and the documents in their custody.

DFA filed its comment, alleging that the presentation of the witnesses and documents was prohibited by
law and protected by the deliberative process privilege.

RTC ruled in favor of BCA and held that the evidence sought to be produced was no longer covered by
the deliberative process privilege. RTC issued the subpoena due es tecum and subpoena ad
testificandum and denied the motion to quash filed by DFA.

Undersecretary Franklin M. Ebdalin (Usec. Ebdalin), Atty. Voltaire Mauricio (Atty. Mauricio), and Luisi to
Ucab (Mr. Ucab) testified before the arbitral tribunal pursuant to the subpoena.

RTC denied the motion for reconsideration filed by DFA. The RTC ruled that the motion became moot
with the appearance of the witnesses during the arbitration hearings. Hence, DFA filed this petition with
an urgent prayer for the issuance of a temporary restraining order and/or a writ of preliminary
injunction.

ISSUE: Whether or not the 1976 UNCITRAL Arbitration Rules and the Rules of Court apply to the present
arbitration proceedings, not RA 9285 and the Special ADR Rules

HELD:
RA 9285, its IRR, and the Special ADR Rules provide that any party to an arbitration, whether domestic
or foreign, may request the court to provide assistance in taking evidence such as the issuance of
subpoena ad testificandum and subpoena duces tecum. The Special ADR Rules specifically provide that
they shall apply to assistance in taking evidence, and the RTC order granting assistance in taking

43
evidence shall be immediately executory and not subject to reconsideration or appeal. An appeal with
the Court of Appeals (CA) is only possible where the RTC denied a petition for assistance in taking
evidence. An appeal to the Supreme Court from the CA is allowed only under any of the grounds
specified in the Special ADR Rules. We rule that the DFA failed to follow the procedure and the hierarchy
of courts provided in RA 9285, its IRR, and the Special ADR Rules, when DFA directly appealed before
this Court the RTC Resolution and Orders granting assistance in taking evidence.

DFA contends that the RTC issued the subpoenas on the premise that RA 9285 and the Special ADR
Rules apply to this case. However, we find that even without applying RA 9285 and the Special ADR
Rules, the RTC still has the authority to issue the subpoenas to assist the parties in taking evidence.

The 1976 UNCITRAL Arbitration Rules, agreed upon by the parties to govern them, state that 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. Since there is no law
designated by the parties as applicable and the Agreement was perfected in the Philippines, "The
Arbitration Law," or Republic Act No. 876 (RA 876), applies.

44