G.R. No.

L-21549             October 22, 1924

TEODORO VEGA, plaintiff-appellee,

vs.
THE SAN CARLOS MILLING CO., LTD., defendant-appellant.

Fisher, Dewitt, Perkins, & Brady, John R. McFie, Jr., Jesus Trinidad, and Powell & Hill for
appellant.
R. Nolan and Feria & La O for appellee.

ROMUALDEZ, J.:

This action is for the recovery of 32,959 kilos of centrifugal sugar, or its value, P6,252, plus the
payment of P500 damages and the costs.

The defendants filed an answer, and set up two special defenses, the first of which is at the same
time a counterclaim.

The Court of First Instance of Occidental Negros that tried the case, rendered judgment, the
dispositive part of which is as follows:

By virtue of these considerations, the court is of opinion that with respect to the
complaint, the plaintiff must be held to have a better right to the possession of the 32,959
kilos of centrifugal sugar manufactured in the defendants' central and the latter is
sentenced to deliver them to the plaintiff, and in default, the selling price thereof,
amounting to P5,981.06 deposited in the office of the clerk of the court. Plaintiff's claim
for damages is denied, because it has not been shown that the defendant caused the
plaintiff any damages. Plaintiff is absolved from defendant's counterclaim and declared
not bound to pay the such claimed therein. Plaintiff is also absolved from the
counterclaim of P1,000, for damages, it not having been proved that any damages were
caused and suffered by defendant, since the writ of attachment issued in this case was
legal and proper. Without pronouncement as to costs.

So ordered.

The defendant company appealed from this judgment, and alleges that the lower court erred in
having held itself with jurisdiction to take cognizance of and render judgment in the cause; in
holding that the defendant was bound to supply cars gratuitously to the plaintiff for the cane; in
not ordering the plaintiff to pay to the defendant the sum of P2,866 for the cars used by him, with
illegal interest on said sum from the filing of the counterclaim, and the costs, and that said
judgment is contrary to the weight of the evidence and the law.

The first assignment of error is based on clause 23 of the Mill's covenants and clause 14 of the
Planter's Covenant as they appear in Exhibit A, which is the same instrument as Exhibit 1.
Said clauses are as follows:

23. That it (the Mill — Party of the first part) will submit and all differences that may
arise between the Mill and the Planters to the decision of arbitrators, two of whom shall
be chosen by the Mill and two by the Planters, who in case of inability to agree shall
select a fifth arbitrator, and to respect and abide by the decision of said arbitrators, or any
three of them, as the case may be.

xxx     xxx     xxx

14. That they (the Planters--Parties of the second part) will submit any and all differences
that may arise between the parties of the first part and the parties of the second part of the
decision of arbitrators, two of whom shall be chosen by the said parties of the first part
and two by the said party of the second part, who in case of inability to agree, shall select
a fifth arbitrator, and will respect and abide by the decision of said arbitrators, or any
three of them, as the case may be.

It is an admitted fact that the differences which arose between the parties, and which are the
subject of the present litigation have not been submitted to the arbitration provided for in the
above quoted clauses.

Defendant contends that as such stipulations on arbitration are valid, they constitute a condition
precedent, to which the plaintiff should have resorted before applying to the courts, as he
prematurely did.

Issue: whether or not the covenant (mills covenanat and planters covenant) is a condition
precedent that must be satisfied first before going to courts:

Held: NO.

The defendant is right in contending that such covenants on arbitration are valid, but they are not
for the reason a bar to judicial action, in view of the way they are expressed:

An agreement to submit to arbitration, not consummated by an award, is no bar to suit at

law or in equity concerning the subject matter submitted. And the rule applies both in
respect of agreements to submit existing differences and agreements to submit
differences which may arise in the future. (5 C. J., 42.)

And in view of the terms in which the said covenants on arbitration are expressed, it cannot be
held that in agreeing on this point, the parties proposed to establish the arbitration as a condition
precedent to judicial action, because these clauses quoted do not create such a condition either
expressly or by necessary inference.

Submission as Condition Precedent to Suit. — Clauses in insurance and other contracts

providing for arbitration in case of disagreement are very similar, and the question
whether submission to arbitration is a condition precedent to a suit upon the contract
 depends upon the language employed in each particular stipulation. Where by the same
agreement which creates the liability, the ascertainment of certain facts by arbitrators is
expressly made a condition precedent to a right of action thereon, suit cannot be brought
until the award is made. But the courts generally will not construe an arbitration clause as
ousting them of their jurisdiction unless such construction is inevitable, and consequently
when the arbitration clause is not made a condition precedent by express words or
necessary implication, it will be construed as merely collateral to the liability clause, and
so no bar to an action in the courts without an award. (2 R. C. L., 362, 363.)

Neither does not reciprocal covenant No. 7 of said contract Exhibit A expressly or impliedly
establish the arbitration as a condition precedent. Said reciprocal covenant No. 7 reads:

7. Subject to the provisions as to arbitration, hereinbefore appearing, it is mutually agreed

that the courts of the City of Iloilo shall have jurisdiction of any and all judicial
proceedings that may arise out of the contractual relations herein between the party of the
first and the part is of the second part.

The expression "subject to the provisions as to arbitration, hereinbefore appearing" does not
declare such to be a condition precedent. This phrase does not read "subject to the arbitration,"
but "subject to the provisions as to arbitration hereinbefore appearing." And, which are these
"provisions as to arbitration hereinbefore appearing?" Undoubtedly clauses 23 and 14 quoted
above, which do not make arbitration a condition precedent.

We find no merit in the first assignment of error.

The second raises the most important question in this controversy, to wit:

Issue: #2 Whether or not the defendant was obliged to supply the plaintiff which cars
gratuitously for cane.

Held: Yes. Because of estoppel

The Central, of course, bound itself according to the contract exhibit A in clause 3 of the
"Covenant by Mill," as follows:

3. That it will construct and thereafter maintain and operate during the term of this
agreement a steam or motor railway, or both, for plantation use in transporting sugar
cane, sugar and fertilizer, as near the center of the can ands as to contour of the lands will
permit paying due attention to grades and curves; that it will also construct branch lines at
such points as may be necessary where the present plantations are of such shape that the
main line cannot run approximately through the center of said plantations, free of charge
to the Planters, and will properly equip said railway with locomotives or motors and cars,
and will further construct a branch line from the main railway line, mill and warehouses
to the before mentioned wharf and will further construct yard accomodations near the
sugar mill. All steam locomotives shall be provided which effective spark arresters. The
railway shall be constructed upon suitable and properly located right-of-way, through all
 plantations so as to give, as far as practicable, to each plantations equal benefit thereof;
said right-of-way to b two and one-half meters in width on either said from the center of
track on both main line and switches and branches.

By this covenant, the defendant, the defendant bound itself to construct branch lines of the
railway at such points on the estate as might be necessary, but said clause No. 3 can hardly be
construed to bind the defendant to gratuitously supply the plaintiff with cars to transport cane
from his fields to the branch lines agreed upon on its estate.

But on March 18, 1916, the defendant company, through its manager Mr. F. J. Bell, addressed
the following communication to the plaintiff:

DEAR SIR: In reply to yours of March 15th.

Yesterday I tried to come out to San Antonio to see you but the railway was full
of cars of San Jose and I could not get by with my car. I will try again as soon as I
finish shipping sugar. The steamer is expected today.

I had a switch built in the big cut on San Antonio for loading your cane near the
boundary of Santa Cruz. will not this sufficient? We have no another switch here
and I hope you can get along with the 3 you now have.

Some of the planters are now using short switches made of 16-lb. portable track.
These can be placed on the main line at any place and cars run off into the field
and loaded. I think one on your hacienda would repay you in one season.

The rain record can wait.

                              Sincerely yours,

SAN CARLOS MILLING CO., LTD.           (Sgd.) F.J. BELL         

"Manager"          

It is suggested to the plaintiff in this letter that he install a 16-lb. rail portable track switch, to be
used in connection with the main line, so the cars may run on it. It is not suggested that he
purchase cars, and the letter implies that the cars mentioned therein belong to the defendant.

As a result of this suggestion, the plaintiff bought a portable track which cost him about P10,000,
and after the track was laid, the defendant began to use it without comment or objection from the
latter, nor payment of any indemnity for over four years.

With this letter Exhibit D, and its conduct in regard to the same, the defendant deliberately and
intentionally induced the plaintiff to believe that by the latter purchasing the said portable track,
the defendant would allow the free use of its cars upon said track, thus inducing the plaintiff to
act in reliance on such belief, that is, to purchase such portable track, as in fact he did and laid it
and used it without payment, the cars belonging to the defendant.
This is an estoppel, and defendant cannot be permitted to gainsay its own acts and agreement.

The defendant cannot now demand payment of the plaintiff for such use of the cars. And this is
so, not because the fact of having supplied them was an act of pure liberality, to which having
once started it, the defendant was forever bound, which would be unreasonable, but because the
act of providing such cars was, under the circumstances of the case, of compliance of an
obligation to which defendant is bound on account of having induced the plaintiff to believe, and
to act and incur expenses on the strenght of this belief.

The question of whether or not the plaintiff was under the necessity of first showing a
cooperative spirit and conduct, does not affect the right which he thus acquired of using the cars
in question gratuitously.

We do not find sufficient reason to support the second assignment of error.

The point raised in the third assignment of error is a consequence of the second. If the plaintiff
was entitled, as we have said, to use the cars gratuitously, the defendant has no right to demand
any payment from him for the use of said cars.

The other assignments of error are consequences of the preceding ones.

We find nothing in the record to serve as a legal and sufficient bar to plaintiff's action against the
defendant for the delivery of the sugar in question, or its value. A discussion as to the retention
of this deposit to apply upon what is due by reason thereof made in the judgment appealed from,
is here necessary. The parties do not raise this question in the present instance. Furthermore, it
has not been proven that the plaintiff owes the defendant anything by reason of such deposit.

The judgment appealed from is hereby affirmed with the costs of this instance against the
appellant. So ordered.

Johnson, Street and Villamor, JJ., concur.

Separate Opinions

AVANCEÑA, J., concurring:

I concur in the majority opinion, but desire to state, however, that my vote on the first error is
based upon the fact that inasmuch as clause 23 of the Mill's Covenants, and clause 14 of the
Planter's Covenants provide that the parties should respect and abide by the decision of the
arbitrators, they bar judicial intervention and consequently are null and void in accordance with
the ruling of this court in the case of Wahl and Wahl vs. Donaldson, Sims & Co. (2 Phil., 301).
Clause 7 of the Mutual Covenants, naming the Court of First Instance of Iloilo as the one with
jurisdiction to try such cases as might arise from the parties' contractual relations, by the very
fact that it was made subject to the arbitration clauses previously mentioned, does not render
such arbitration merely a condition precedent to judicial action, nor does it change its scope, as
clearly indicated by its wording and the intention of the parties. Said clause 7 was doubtless
added in case it became necessary to resort to the courts for the purpose of compelling the parties
to accept the arbitrator's decision in accordance with the contract, and not in order to submit
anew to the courts what had already been decided by the arbitrators, whose decision the
contracting parties had bound themselves to abide by and respect.

MALCOLM, J., dissenting:

I join with Mr. Justice Ostrand in his dissent based on the proposition that the defendant is not
bound to furnish cars free of charge for use on the plaintiff's portable railway tracks, in relation
with its corollary, that the letter written by the manager of the defendant's mill on March 18,
1916, does not estop the defendant from demanding compensation for the future use of the cars. I
dissent also on another ground, which is, that the parties having formally agreed submit their
differences to arbitrators, while recognizing the jurisdiction of the courts, arbitration has been
made a condition precedent to litigation, and should be held valid and enforceable.

Lamentable, to say the least, is the chaotic condition which exists with reference to the efficacy
of arbitration agreements. While the variety of reasons advanced by the courts for refusing to
compel parties to abide by their arbitration contracts are not always convincing, and while
research discloses that the rules have mounted on antiquity rather than on reason, yet we presume
that, with or without reason, the general principles must be accepted. A light is, however,
breaking through the clouds of obscurity and courts which formerly showed hostility to
arbitration are now looking upon it with reluctant favor. The possibly inevitable jealousy of the
courts toward anything which deprives them of jurisdiction and the idea which once prevailed
that since there are courts, therefore everybody must go to the courts, is, as Federal Judge Hough
declares in the case of United States Asphalt Refining Co. vs. Trinidad Lake Petroleum Co.
([1915], 222 Fed., 1006), "A singular view of juridical sanctity."

In the Philippines fortunately, the attitude of the courts toward arbitration agreements is slowly
crystallizing into definite and workable form. The doctrine announced in Wahl and Wahl vs.
Donaldson, Sims & Co. ([1903], 2 Phil., 301), was that a clause in a contract providing that all
matters in dispute shall be referred to arbitrators and to them alone, is contrary to public policy
and cannot oust the courts of jurisdiction. But even this conservative expression of the doctrine
has been modernized by the subsequent cases of Chang vs. Royal Exchange Assurance
Corporation of London ([1907], 8 Phil., 399); Allen vs. Province of Tayabas ([1918], 38 Phil.,
356); and Chan Linte vs. Law Union and Rock Ins. Co. ([1921], 42 Phil., 548). The rule now is
that unless the agreement is such as absolutely to close the doors of the courts against the parties,
which agreement would be void, the courts will look with favor upon such amicable arrangement
and will only with great reluctance interfere to anticipate or nullify the action of the arbitrator.

The new point of the judiciary in the progressive jurisdiction of Pennsylvania, in England, and
under the Civil Law, is also worthy of our serious consideration. It is the rule in Pennsylvania
that when the persons making an executory contract stipulate in it that all disputes and
differences between them, present or prospective, in reference to such contract or any sum
payable under it, shall be submitted to the arbitrament of a named individual, or specifically
designated persons, they are effectually bound irrevocaby by that stipulation, and precluded from
seeking redress elsewhere until the arbiter or arbiters agreed upon have rendered an award or
otherwise been discharged. The courts there, however, make distinction between agreements for
a general reference to arbitration and designating a particular individual or tribunal to arbitrate.
The former may be waived or revoked, and is no obstacle to a suit or action for the same matter;
the latter is irrevocable and until the designated arbiter or arbiters have decided, no right of
action arises which can be enforced in law or in equity. (Snodgrass vs. Gavit [1857], 28 Pa., 221;
Commercial Union Assur. Co. vs. Hocking [1886], 115 Pa., 407; 2 Am St. Rep., 562; Page vs.
Vankirk, 1 Brewst. [Pa.], 282; 47 L. R. A. [N. S.], note, pp. 399, 400.)

In England, the view seems now to prevail that a contractual stipulation for a general arbitration,
constitutes a condition precedent to the institution of judicial proceedings for the enforcement of
the contract. (Compagnie de Commerce etc. vs. Hamburg Amerika etc. [1917], 36 Phil., 590,
635.) Law Watson in Hamlyn vs. Talisker Distillery ([1894], App. Cas., 202), said: "The rule
that a reference to arbiters not named cannot be enforced does not appear to me to rest upon any
essential considerations of public policy. Even if an opposite inference were deducible from the
authorities by which it was established, the rule has been so largely trenched upon by the
legislation of the last 50 years, . . . that I should hesitate to affirm that the policy upon which it
was originally based could now be regarded as of cardinal importance.

Finally, it is within our knowledge that the Spanish civil law wisely contains elaborate provisions
looking to the amicable adjustment of controversies out of court. Litigation by means of friendly
adjusters was formerly well known. The procedure in this kind of litigation was minutely
outlined in the Ley de Enjuiciamiento to Civil. Two articles of the Civil Code, namely articles
1820 and 1821, were given up to the subject of arbitration, and expressly confirmed this method
of settling differences. (See Cordoba vs. Conde [1903], 2 Phil., 445.)

Now, with all these legal views to the forefront, let us notice the facts to which they should be
applied. 1awph!l.net

Clause 23 of the Mill's Covenants, clause 14 of the Planter's Covenants, and clause 7 of the
Mutual Covenants, read as follows:

23. That it (the Mill — Party of the First Part) will submit any and all differences that
may arise between the Mill and the Planters to the decision of arbitrators, two of whom
shall be chosen by the Mill and two by Planters, who in case of inability to agree shall
select a fifth arbitrator, and to respect and abide by the decision of said arbitrators, or any
three of them, as the case may be.

xxx     xxx     xxx

14. That they (the Planters--Parties of the Second Part) will submit any and all
differences that may arise between the parties of the first part and the parties of the
 second part to the decision of arbitrators, two of whom shall be chosen by the said parties
of the first part and two by the said party of the second part, who in case of inability to
agree, shall select a fifth arbitrator, and will respect and abide by the decision of said
arbitrators, or any three of them, as the case may be.

xxx     xxx     xxx

7. Subject to the provisions as to arbitration, hereinbefore appearing, it is mutually agreed

that the courts of the City of Iloilo shall have jurisdiction of any all judicial proceedings
that may arise out of the contractual relations herein between the party of the first and the
parties of the second part.

It was plainly the solemn purpose of the parties to settle their controversies amicably if possible
before resorting to the courts. They provided for themselves by mutual consent a method which
was speedier and less expensive for all concerned and less likely to breed that ill-feeling which is
often the consequence of hotly contested litigation. All this was done by the Planters on the one
hand and by the Milling Company on the other, to the end that justice might guide them and
possible differences by quickly adjusted.

It is clear, by paragraph 7 of the Mutual Covenants, that these parties did not intend that the
decision of the arbitrators should prevent resort to the courts, for they expressly agreed to carry
litigation between them to the courts of Iloilo. Acting under legal rules, even in their most
restrictive form, disputes arising out of the contract, were to be referred to arbitration so that the
damages sustained by a breach of the contract, could be ascertained by specified arbitrators
before any right of action arose; but the matters in dispute were not to be referred to arbitrators
and to them alone, to the utter exclusion of the courts. It is exactly correct to state that the clauses
of the Covenants hereinbefore quoted, were meant as a condition precedent to litigation, which
accordingly should be given effect.

For the two reasons above explained, I vote for reversal.

OSTRAND, J., dissenting:

I must dissent from the conclusion of the court that the defendant is bound to furnish cars free of
charge for use on the plaintiff's portable railway tracks.

It is admitted that the written contract between the parties does not impose this obligation upon
the defendant, but it is argued that the letter of March 18, 1916, written by the manager of the
defendant's mill, taken in connection with the fact many of the defendant's patrons were
permitted to use its cars on their portable railroads, without charge, now estops the defendant
from demanding compensation for the future use of the cars.

That the court has here misapplied that doctrine of equitable estoppel or estoppel in pais seems
clear. The definitions of such estoppel may vary somewhat but all authorities agree that the party
invoking the doctrine must have been mislead to his prejudice. That is the final and, in reality,
most important of the elements of equitable estoppel. These elements are thus stated in 3 Words
and Phrases, 2498:

To constitute an estoppel, the following elements are essential: (1) There must be
conduct, acts, language, or silence amounting to a representation or a concealment of
material facts. (2) These facts must be known to the party estoppel at the time of his said
conduct, or, at least, the circumstances must be such that knowledge of them is
necessarily imputed to him. (3) The truth concerning these facts must be known to the
other part claiming the benefit of the estoppel at the time when such conduct was done,
and at the time when it was acted upon him. (4) The conduct must be done with the
intention, or, at east, with the expectation, that it will be acted upon by the other party, or
under such circumstances that it is both natural and probable that it will be so acted upon.
(5) The conduct must be relied upon by the other party, and, thus relying he must be led
to act upon it. (6) He must in fact act upon it in such a manner as to change his position
for the worse. (First Nat. Bank vs. Dean, 17 N. Y. Supp., 375, 377; 60 N. Y. Super. Ct.
299 [citing Pom. Eq. Jur.]; Grange vs. Palmer, 10 N. Y. Supp., 201, 204; 56 Hun., 481;
Roberts vs. Trammel, 40 N. E., 162; 15 Ind. App., 445; First Nat. Bank vs. Williams, 26
N. E., 75, 77; 126 IND., 423; Appeal of Crans [Pa.], 9 Atl., 282, 287, Brigham Young
Trust Co. vs. Wagener, 40 Pac., 764, 765; 12 Utah, 1; Blodgett vs. Perry, 10 S. W., 891,
892; 97 Mo. 263; 10 Am. St. Rep., 307; Gentry vs. Gentry, 26 S. W., 1090, 1095; 122
Mo., 202; Taylor vs. Zepp, 14 Mo., 482, 488; 55 Am. Dec., 113; Acton vs. Dooley, 74
Mo., 63, 67; De Berry vs. Wheeler, 30 S. W., 338, 339; 128 Mo., 84; 49 Am. St. Rep.,
538; Hall vs. Warren [Ariz.], 48 Pac., 214, 216, Smith vs. Brown [Ariz.], 42 Pac., 949,
950; Hampton vs. Alford [Tex.], 14 S. W., 1072, 1073; Long vs. Cude [Tex.], S. W.,
1000; Nichols — Steuart vs. Crosby, 29 s. w., 380, 381; 87 Tex., 443; Security Mortgage
& Trust Co. vs. Caruthers, 32 S. W., 837, 843; 11 Tex. Civ. App., 430; Chespeake & O.
R. CO. VS. Walker, 40 S. E., 633, 641; 100 VA., 69 [quoting 4 Am. & Eng. Dec. Eq.,
268]; Stevens vs. Denett, 51 N. H., 324, 333; Troy vs. Rogers, 20 South., 999, 1003; 113
Ala., 131; Griffth vs. Wright, 6 Colo., 248, 249.)

Bearing in mind the principles stated, let us now analyze the facts in the case. The letter of
March 18, 1916, is quoted in the decision. It contains a suggestions that the plaintiff install short
switches made of 16-lb. rail portable track on his hacienda and expresses the opinion that the
installation would pay for itself in one season. Nothing in said about cars. The plaintiff acted on
this advice and purchased and installed portable railroad tracks. He was allowed to use the
defendant's cars on the tracks free of charge for over four years. It is not suggested that
defendant's estimate of the saving to be effected through this installation of the portable railway
system was misleading as we can therefore assume that the system has paid for itself several
times over. If so, in what respect can it be said that the plaintiff has been mislead to his
prejudice? As we have seen, if he has not been so mislead the doctrine of equitable estoppel will
not apply. It is evident that in this case the doctrine is invoked for-positive gain, a purpose which
is entirely beyond the scope of the doctrine. In Lindsay vs. Cooper (94 Ala., 170), the court,
speaking of equitable estoppels, says: "Their operation should be limited to saving harmless, or
making whole, the person in whose they arise, and they should never be made the instrument of
gain or profit." (See also 10 R. C. L., 698 and the other authorities there cited.)
The principles stated are elementary and should become obvious to any lawyer upon a moment's
reflection. But I may, perhaps, suggest a homely illustration bearing on the application of these
principles: A advises his neighbor B to buy a saddle-horse. B has no saddle but, in view of their
good neighborly relations, expects to be able to borrow one from A. B buys the horse, borrows
A's saddle and keeps it for several years. He does not regret the purchase of the horse but asserts
that he would not have bought it but for the fact that the expected to use A's saddle and that this
expectation was justified by the further fact that A appeared to be an easy man to borrow from
and was in the habit of extending similar assistance to all of his neighbors. It seems to me that as
far as the principles involved are concerned, the example given is a close parallel to the present
case, but I hope that this court would not hold A estoppel from asserting his title to the saddle
and from demanding its return.

In the present case the relations between the parties are governed by contracts in writing which
are presumed to contain all the terms of their agreement. (Sec. 285, Code of Civ. Proc.) It is not
alleged that the written agreement fails to express the true intent and agreement of the parties.
Yet the court through what clearly is a misapplication of the doctrine of equitable estoppel in
effect varies that written agreement and proceeds to create a new contract between the parties.
The decision of the court upon this point is, as far as I can find, unique and I suppose that most
men who have occasion to enter into written business agreements will fervently hope that it will
so remain.
G.R. No. 96283 February 25, 1992

CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely: HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES
J.R. CHEN, TRISTAN A. CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA TERESA SOLIVEN and
VIRGILIO M. DEL ROSARIO, petitioners,

vs.

COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional Trail Court of Makati [Branch 57]) and ROBLECOR
PHILIPPINES, INC., respondents.

ROMERO, J.:

This is a special civil action for certiorari seeking to annul the Resolutions of the Court of Appeals* dated October 22, 1990 and December 3,
1990 upholding the Orders of July 31, 1990 and August 23, 1990 of the Regional Trial Court of Makati, Branch 57, in Civil Case No. 90-1335.
Respondent Court of Appeals affirmed the ruling of the trial court that herein petitioners, after submitting themselves for arbitration and
agreeing to the terms and conditions thereof, providing that the arbitration award shall be final and unappealable, are precluded from seeking
judicial review of subject arbitration award.

It appears that on May 17, 1989, petitioner Chung Fu Industries (Philippines) (Chung Fu for brevity) and private respondent Roblecor
Philippines, Inc. (Roblecor for short) forged a construction agreement 1 whereby respondent contractor committed to construct and finish on
December 31, 1989, petitioner corporation's industrial/factory complex in Tanawan, Tanza, Cavite for and in consideration of
P42,000,000.00. In the event of disputes arising from the performance of subject contract, it was stipulated therein that the issue(s) shall be
submitted for resolution before a single arbitrator chosen by both parties.

Apart from the aforesaid construction agreement, Chung Fu and Roblecor entered into two (2) other ancillary contracts, to wit: one dated
June 23, 1989, for the construction of a dormitory and support facilities with a contract price of P3,875,285.00, to be completed on or before
October 31, 1989; 2 and the other dated August 12, 1989, for the installation of electrical, water and hydrant systems at the plant site,
commanding a price of P12.1 million and requiring completion thereof one month after civil works have been finished. 3

However, respondent Roblecor failed to complete the work despite the extension of time allowed it by Chung Fu. Subsequently, the latter
had to take over the construction when it had become evident that Roblecor was not in a position to fulfill its obligation.

Claiming an unsatisfied account of P10,500,000.00 and unpaid progress billings of P2,370,179.23, Roblecor on May 18, 1990, filed a petition
for Compulsory Arbitration with prayer for Temporary Restraining Order before respondent Regional Trial Court, pursuant to the arbitration
clause in the construction agreement. Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining order.

Subsequent negotiations between the parties eventually led to the formulation of an arbitration agreement which, among others, provides:

2. The parties mutually agree that the arbitration shall proceed in accordance with the following terms and conditions:
—

x x x           x x x          x x x

d. The parties mutually agree that they will abide by the decision of the arbitrator including any
amount that may be awarded to either party as compensation, consequential damage and/or
interest thereon;

e. The parties mutually agree that the decision of the arbitrator shall be final and unappealable.
Therefore, there shall be no further judicial recourse if either party disagrees with the whole or
any part of the arbitrator's award.

f. As an exception to sub-paragraph (e) above, the parties mutually agree that either party is
entitled to seek judicial assistance for purposes of enforcing the arbitrator's award;

xxx xxx xxx 4

(Emphasis supplied)

Respondent Regional Trial Court approved the arbitration agreement thru its Order of May 30, 1990. Thereafter, Engr. Willardo Asuncion
was appointed as the sole arbitrator.
On June 30, 1990, Arbitrator Asuncion ordered petitioners to immediately pay respondent contractor, the sum of P16,108,801.00. He further
declared the award as final and unappealable, pursuant to the Arbitration Agreement precluding judicial review of the award.

Consequently, Roblecor moved for the confirmation of said award. On the other hand, Chung Fu moved to remand the case for further
hearing and asked for a reconsideration of the judgment award claiming that Arbitrator Asuncion committed twelve (12) instances of grave
error by disregarding the provisions of the parties' contract.

Respondent lower court denied Chung Fu's Motion to Remand thus compelling it to seek reconsideration therefrom but to no avail. The trial
court granted Roblecor's Motion for Confirmation of Award and accordingly, entered judgment in conformity therewith. Moreover, it granted
the motion for the issuance of a writ of execution filed by respondent.

Chung Fu elevated the case via a petition for certiorari to respondent Court of Appeals. On October 22,1990 the assailed resolution was
issued. The respondent appellate court concurred with the findings and conclusions of respondent trial court resolving that Chung Fu and its
officers, as signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for the finality of the award and
precluding any appeal therefrom.

A motion for reconsideration of said resolution was filed by petitioner, but it was similarly denied by respondent Court of Appeals thru its
questioned resolution of December 3, 1990.

Hence, the instant petition anchored on the following grounds:

First

Respondents Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as
well as denied due process and substantial justice to petitioners, — (a) by refusing to exercise their judicial authority
and legal duty to review the arbitration award, and (b) by declaring that petitioners are estopped from questioning the
arbitration award allegedly in view of the stipulations in the parties' arbitration agreement that "the decision of the
arbitrator shall be final and unappealable" and that "there shall be no further judicial recourse if either party disagrees
with the whole or any part of the arbitrator's award."

Second

Respondent Court of Appeals and trial Judge gravely abused their discretion and/or exceeded their jurisdiction, as well
as denied due process and substantial justice to petitioner, by not vacating and annulling the award dated 30 June
1990 of the Arbitrator, on the ground that the Arbitrator grossly departed from the terms of the parties' contracts and
misapplied the law, and thereby exceeded the authority and power delegated to him. (Rollo, p. 17)

Issue: whether or not the CA gravely erred in its decision when it affirmed the abitral agreement which states that the
decision of the Arbitrator is final and unappealable and the judicial courts are precluded from reviewing it.

Issue: whether or not the stipulation precluding the courts from reviewing the award of the arbitrator is a valid
stipulation.

Allow us to take a leaf from history and briefly trace the evolution of arbitration as a mode of dispute settlement.

Because conflict is inherent in human society, much effort has been expended by men and institutions in devising ways of resolving the
same. With the progress of civilization, physical combat has been ruled out and instead, more specific means have been evolved, such as
recourse to the good offices of a disinterested third party, whether this be a court or a private individual or individuals.

Legal history discloses that "the early judges called upon to solve private conflicts were primarily the arbiters, persons not specially trained
but in whose morality, probity and good sense the parties in conflict reposed full trust. Thus, in Republican Rome, arbiter and judge (judex)
were synonymous. The magistrate or praetor, after noting down the conflicting claims of litigants, and clarifying the issues, referred them for
decision to a private person designated by the parties, by common agreement, or selected by them from an apposite listing (the album
judicium) or else by having the arbiter chosen by lot. The judges proper, as specially trained state officials endowed with own power and
jurisdiction, and taking cognizance of litigations from beginning to end, only appeared under the Empire, by the so-called cognitio extra
ordinem." 5

Such means of referring a dispute to a third party has also long been an accepted alternative to litigation at common law. 6

Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it was nonetheless recognized in the
Spanish Civil Code; specifically, the provisions on compromises made applicable to arbitrations under Articles 1820 and 1821.7 Although
said provisions were repealed by implication with the repeal of the Spanish Law of Civil Procedure, 8 these and additional ones were
reinstated in the present Civil Code. 9
Arbitration found a fertile field in the resolution of labor-management disputes in the Philippines. Although early on, Commonwealth Act 103
(1936) provided for compulsory arbitration as the state policy to be administered by the Court of Industrial Relations, in time such a modality
gave way to voluntary arbitration. While not completely supplanting compulsory arbitration which until today is practiced by government
officials, the Industrial Peace Act which was passed in 1953 as Republic Act No. 875, favored the policy of free collective bargaining, in
general, and resort to grievance procedure, in particular, as the preferred mode of settling disputes in industry. It was accepted and
enunciated more explicitly in the Labor Code, which was passed on November 1, 1974 as Presidential Decree No. 442, with the
amendments later introduced by Republic Act No. 6715 (1989).

Whether utilized in business transactions or in employer-employee relations, arbitration was gaining wide acceptance. A consensual
process, it was preferred to orders imposed by government upon the disputants. Moreover, court litigations tended to be time-consuming,
costly, and inflexible due to their scrupulous observance of the due process of law doctrine and their strict adherence to rules of evidence.

As early as the 1920's, this Court declared:

In the Philippines fortunately, the attitude of the courts toward arbitration agreements is slowly crystallizing into definite
and workable form. . . . The rule now is that unless the agreement is such as absolutely to close the doors of the courts
against the parties, which agreement would be void, the courts will look with favor upon such amicable arrangements
and will only with great reluctance interfere to anticipate or nullify the action of the arbitrator. 10 (simply put, abitral
stiplations ousting the courts of their jurisdiction is void by reason of public policy.

That there was a growing need for a law regulating arbitration in general was acknowledged when Republic Act No. 876 (1953), otherwise
known as the Arbitration Law, was passed. "Said Act was obviously adopted to
supplement — not to supplant — the New Civil Code on arbitration. It expressly declares that "the provisions of chapters one and two, Title
XIV, Book IV of the Civil Code shall remain in force." 11

In recognition of the pressing need for an arbitral machinery for the early and expeditious settlement of disputes in the construction industry,
a Construction Industry Arbitration Commission (CIAC) was created by Executive Order No. 1008, enacted on February 4, 1985.

In practice nowadays, absent an agreement of the parties to resolve their disputes via a particular mode, it is the regular courts that remain
the fora to resolve such matters. However, the parties may opt for recourse to third parties, exercising their basic freedom to "establish such
stipulation, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public
order or public policy."

12 In such a case, resort to the arbitration process may be spelled out by them in a contract in anticipation of disputes that may arise
between them. Or this may be stipulated in a submission agreement when they are actually confronted by a dispute. Whatever be the case,
such recourse to an extrajudicial means of settlement is not intended to completely deprive the courts of jurisdiction. In fact, the early cases
on arbitration carefully spelled out the prevailing doctrine at the time, thus: ". . . a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of Jurisdiction."
13

But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing dispute to one is valid. Being part of a contract
between the parties, it is binding and enforceable in court in case one of them neglects, fails or refuses to arbitrate. Going a step further, in
the event that they declare their intention to refer their differences to arbitration first before taking court action, this constitutes a condition
precedent, such that where a suit has been instituted prematurely, the court shall suspend the same and the parties shall be directed
forthwith to proceed to arbitration. 14

A court action may likewise be proven where the arbitrator has not been selected by the parties. 15

Under present law, may the parties who agree to submit their disputes to arbitration further provide that the arbitrators' award shall be final,
unappealable and executory?

Held: YES.

Issue: whether or not an arbitral stipulation

Article 2044 of the Civil Code recognizes the validity of such stipulation, thus:

Any stipulation that the arbitrators' award or decision shall be final is valid, without prejudice to Articles 2038, 2039 and
2040.

Similarly, the Construction Industry Arbitration Law provides that the arbitral award "shall be final and inappealable except on questions of
law which shall be appealable to the Supreme Court." 16

Under the original Labor Code, voluntary arbitration awards or decisions were final, unappealable and executory. "However, voluntary
arbitration awards or decisions on money claims, involving an amount exceeding One Hundred Thousand Pesos (P100,000.00) or forty-
percent (40%) of the paid-up capital of the respondent employer, whichever is lower, maybe appealed to the National Labor Relations
Commission on any of the following grounds: (a) abuse of discretion; and (b) gross incompetence." 17 It is to be noted that the appeal in the
instances cited were to be made to the National Labor Relations Commission and not to the courts.

With the subsequent deletion of the above-cited provision from the Labor Code, the voluntary arbitrator is now mandated to render an award
or decision within twenty (20) calendar days from the date of submission of the dispute and such decision shall be final and executory after
ten (10) calendar days from receipt of the copy of the award or decision by the parties. 18

Where the parties agree that the decision of the arbitrator shall be final and unappealable as in the instant case, the pivotal inquiry is whether
subject arbitration award is indeed beyond the ambit of the court's power of judicial review.

Held: We rule in the negative

It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators' award is not absolute and without exceptions. Where
the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded. (meaning, pwedeng gawing final yung arbitral award kung may ganong stipulation pero kapag may
vices of consent, concealment, fraud, grave abuse of discretion, pwedeng I annul)

19 Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's
award. 20 Thus, if and when the factual circumstances referred to in the above-cited provisions are present, judicial review of the award is
properly warranted.

What if courts refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it is in accordance with law or
within the scope of his authority? How may the power of judicial review be invoked?

This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind, however, that this action
will lie only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly
shown. For "the writ of certiorari is an extra-ordinary remedy and that certiorari jurisdiction is not to be equated with appellate jurisdiction. In a
special civil action of certiorari, the Court will not engage in a review of the facts found nor even of the law as interpreted or applied by the
arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or
an exces de pouvoir on the part of the arbitrator." 21

Even decisions of administrative agencies which are declared "final" by law are not exempt from judicial review when so warranted. Thus, in
the case of Oceanic Bic Division (FFW), et al. v. Flerida Ruth P. Romero, et al., 22 this Court had occasion to rule that:

. . . Inspite of statutory provisions making "final" the decisions of certain administrative agencies, we have taken
cognizance of petitions questioning these decisions where want of jurisdiction, grave abuse of discretion, violation of
due process, denial of substantial justice or erroneous interpretation of the law were brought to our attention . . . 23
(Emphasis ours).

It should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity. 24 It stands to reason,
therefore, that their decisions should not be beyond the scope of the power of judicial review of this Court.

In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which allege error on the part of the arbitrator in
granting compensation for various items which apparently are disputed by said petitioners:

1. The Honorable Arbitrator committed grave error in failing to apply the terms and conditions of the Construction
Agreement, Dormitory Contract and Electrical Contract, and in using instead the "practices" in the construction industry;

2. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of productivity
due to adverse weather conditions;

3. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss due to delayed
payment of progress billings;

4. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for loss of productivity
due to the cement crisis;

5. The Honorable Arbitrator committed grave error in granting extra compensation to Roblecor for losses allegedly
sustained on account of the failed coup d'état;

6. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged unpaid
billings of Chung Fu;
 7. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing the alleged
extended overhead expenses;

8. The Honorable Arbitrator committed grave error in granting to Roblecor the amount representing expenses for
change order for site development outside the area of responsibility of Roblecor;

9. The Honorable Arbitrator committed grave error in granting to Roblecor the cost of warehouse No. 2;

10. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct change in
dimension;

11. The Honorable Arbitrator committed grave error in granting to Roblecor extra compensation for airduct plastering;
and

12. The Honorable Arbitrator committed grave error in awarding to Roblecor attorney's fees.

After closely studying the list of errors, as well as petitioners' discussion of the same in their Motion to Remand Case For Further Hearing
and Reconsideration and Opposition to Motion for Confirmation of Award, we find that petitioners have amply made out a case where the
voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of the law applicable as between
the parties, thus committing a grave abuse of discretion.

Furthermore, in granting unjustified extra compensation to respondent for several items, he exceeded his powers — all of which would have
constituted ground for vacating the award under Section 24 (d) of the Arbitration Law.

But the respondent trial court's refusal to look into the merits of the case, despite prima facie showing of the existence of grounds warranting
judicial review, effectively deprived petitioners of their opportunity to prove or substantiate their allegations. In so doing, the trial court itself
committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the petition, committed grave abuse of
discretion. Respondent courts should not shirk from exercising their power to review, where under the applicable laws and jurisprudence,
such power may be rightfully exercised; more so where the objections raised against an arbitration award may properly constitute grounds
for annulling, vacating or modifying said award under the laws on arbitration.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated October 22, 1990 and December 3, 1990 as well as
the Orders of respondent Regional Trial Court dated July 31, 1990 and August 23, 1990, including the writ of execution issued pursuant
thereto, are hereby SET ASIDE. Accordingly, this case is REMANDED to the court of origin for further hearing on this matter. All incidents
arising therefrom are reverted to the status quo ante until such time as the trial court shall have passed upon the merits of this case. No
costs.

SO ORDERED.

G.R. No. 143581             January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner,
vs.
HON. ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch 256 of
Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.

DECISION

VELASCO, JR., J.:

In our jurisdiction, the policy is to favor alternative methods of resolving disputes, particularly in
civil and commercial disputes. Arbitration along with mediation, conciliation, and negotiation,
being inexpensive, speedy and less hostile methods have long been favored by this Court. The
petition before us puts at issue an arbitration clause in a contract mutually agreed upon by the
parties stipulating that they would submit themselves to arbitration in a foreign country.
Regrettably, instead of hastening the resolution of their dispute, the parties wittingly or
unwittingly prolonged the controversy.

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 Contract1 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, 19972 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 plant’s 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 Lease3 with Worth Properties, Inc.
(Worth) for use of Worth’s 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 Certificate4 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 4,500,000.5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT
STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter6 to PGSMC threatening
criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same
date, the wife of PGSMC’s 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.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully funded but
the payments were stopped for reasons previously made known to KOGIES.7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract dated
March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of
the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and
transfer the machineries, equipment, and facilities installed in the Carmona plant. Five days later,
PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint for Estafa
docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President of KOGIES.

On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and equipment on
mere imagined violations by KOGIES. It also insisted that their disputes should be settled by
arbitration as agreed upon in Article 15, the arbitration clause of their contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1, 1998
letter threatening that the machineries, equipment, and facilities installed in the plant would be
dismantled and transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted an
Application for Arbitration before the Korean Commercial Arbitration Board (KCAB) in Seoul,
Korea pursuant to Art. 15 of the Contract as amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil Case
No. 98-1178 against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC
granted a temporary restraining order (TRO) on July 4, 1998, which was subsequently extended
until July 22, 1998. In its complaint, KOGIES alleged that PGSMC had initially admitted that the
checks that were stopped were not funded but later on claimed that it stopped payment of the
checks for the reason that "their value was not received" as the former allegedly breached their
contract by "altering the quantity and lowering the quality of the machinery and equipment"
installed in the plant and failed to make the plant operational although it earlier certified to the
contrary as shown in a January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC
violated Art. 15 of their Contract, as amended, by unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter threatened to do
on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled
to the TRO since Art. 15, the arbitration clause, was null and void for being against public policy
as it ousts the local courts of jurisdiction over the instant controversy. (issue)

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim9 asserting that it had
the full right to dismantle and transfer the machineries and equipment because it had paid for
them in full as stipulated in the contract; that KOGIES was not entitled to the PhP 9,000,000
covered by the checks for failing to completely install and make the plant operational; and that
KOGIES was liable for damages amounting to PhP 4,500,000 for altering the quantity and
lowering the quality of the machineries and equipment. Moreover, PGSMC averred that it has
already paid PhP 2,257,920 in rent (covering January to July 1998) to Worth and it was not
willing to further shoulder the cost of renting the premises of the plant considering that the LPG
cylinder manufacturing plant never became operational.

After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order denying
the application for a writ of preliminary injunction, reasoning that PGSMC had paid KOGIES
USD 1,224,000, the value of the machineries and equipment as shown in the contract such that
KOGIES no longer had proprietary rights over them. And finally, the RTC held that Art. 15 of
the Contract as amended was invalid as it tended to oust the trial court or any other court
jurisdiction over any dispute that may arise between the parties. KOGIES’ prayer for an
injunctive writ was denied.10 The dispositive portion of the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and so holds
that no cogent reason exists for this Court to grant the writ of preliminary injunction to
restrain and refrain defendant from dismantling the machineries and facilities at the lot
and building of Worth Properties, Incorporated at Carmona, Cavite and transfer the same
to another site: and therefore denies plaintiff’s application for a writ of preliminary
injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim.11 KOGIES
denied it had altered the quantity and lowered the quality of the machinery, equipment, and
facilities it delivered to the plant. It claimed that it had performed all the undertakings under the
contract and had already produced certified samples of LPG cylinders. It averred that whatever
was unfinished was PGSMC’s fault since it failed to procure raw materials due to lack of funds.
KOGIES, relying on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that the
arbitration clause was without question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss13 answering

PGSMC’s memorandum of July 22, 1998 and seeking dismissal of PGSMC’s counterclaims,
KOGIES, on August 4, 1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order
denying its application for an injunctive writ claiming that the contract was not merely for
machinery and facilities worth USD 1,224,000 but was for the sale of an "LPG manufacturing
plant" consisting of "supply of all the machinery and facilities" and "transfer of technology" for a
total contract price of USD 1,530,000 such that the dismantling and transfer of the machinery
and facilities would result in the dismantling and transfer of the very plant itself to the great
prejudice of KOGIES as the still unpaid owner/seller of the plant. Moreover, KOGIES points out
that the arbitration clause under Art. 15 of the Contract as amended was a valid arbitration
stipulation under Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries
(Phils.), Inc.15

In the meantime, PGSMC filed a Motion for Inspection of Things16 to determine whether there
was indeed alteration of the quantity and lowering of quality of the machineries and equipment,
and whether these were properly installed. KOGIES opposed the motion positing that the queries
and issues raised in the motion for inspection fell under the coverage of the arbitration clause in
their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC’s motion for
inspection; (2) denying KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order;
and (3) denying KOGIES’ motion to dismiss PGSMC’s compulsory counterclaims as these
counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration17 of the September 21,
1998 RTC Order granting inspection of the plant and denying dismissal of PGSMC’s
compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2, 1998
urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA) a petition for
certiorari18 docketed as CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and
September 21, 1998 RTC Orders and praying for the issuance of writs of prohibition, mandamus,
and preliminary injunction to enjoin the RTC and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in the Carmona plant, and to direct the RTC to
enforce the specific agreement on arbitration to resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES’ urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the machineries
and equipment in the plant on October 28, 1998.19

Thereafter, KOGIES filed a Supplement to the Petition20 in CA-G.R. SP No. 49249 informing
the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for the issuance of the
writs of prohibition, mandamus and preliminary injunction which was not acted upon by the CA.
KOGIES asserted that the Branch Sheriff did not have the technical expertise to ascertain
whether or not the machineries and equipment conformed to the specifications in the contract
and were properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriff’s Report21 finding that the
enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision22 affirming the RTC Orders and
dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC did not
gravely abuse its discretion in issuing the assailed July 23, 1998 and September 21, 1998 Orders.
Moreover, the CA reasoned that KOGIES’ contention that the total contract price for USD
1,530,000 was for the whole plant and had not been fully paid was contrary to the finding of the
RTC that PGSMC fully paid the price of USD 1,224,000, which was for all the machineries and
equipment. According to the CA, this determination by the RTC was a factual finding beyond
the ambit of a petition for certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court that an
arbitration clause which provided for a final determination of the legal rights of the parties to the
contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-forum

shopping by PGSMC, the CA held that the counterclaims of PGSMC were compulsory ones and
payment of docket fees was not required since the Answer with counterclaim was not an
initiatory pleading. For the same reason, the CA said a certificate of non-forum shopping was
also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since
KOGIES did not wait for the resolution of its urgent motion for reconsideration of the September
21, 1998 RTC Order which was the plain, speedy, and adequate remedy available. According to
the CA, the RTC must be given the opportunity to correct any alleged error it has committed, and
that since the assailed orders were interlocutory, these cannot be the subject of a petition for
certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE MACHINERY

AND FACILITIES AS "A QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR CORRECTION OF
ERRORS OF JURISDICTION OR GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING THAT THE
TRIAL COURT’S FINDING ON THE SAME QUESTION WAS IMPROPERLY
RAISED IN THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN ARTICLE

15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING "CONTRARY TO
PUBLIC POLICY" AND FOR OUSTING THE COURTS OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT’S COUNTERCLAIMS TO BE ALL

COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
 d. RULING THAT THE PETITION WAS FILED PREMATURELY WITHOUT
WAITING FOR THE RESOLUTION OF THE MOTION FOR RECONSIDERATION
OF THE ORDER DATED SEPTEMBER 21, 1998 OR WITHOUT GIVING THE
TRIAL COURT AN OPPORTUNITY TO CORRECT ITSELF;

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND SEPTEMBER 21,

1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE (SIC)

PETITION AND, INSTEAD, DISMISSING THE SAME FOR ALLEGEDLY
"WITHOUT MERIT."23

The Court’s Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims

and cross claims were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid docket
fees and filed a certificate of non-forum shopping, and that its failure to do so was a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule that was effective at the time the Answer with
Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim states, "A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer shall be
contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims against
KOGIES, it was not liable to pay filing fees for said counterclaims being compulsory in nature.
We stress, however, that effective August 16, 2004 under Sec. 7, Rule 141, as amended by A.M.
No. 04-2-04-SC, docket fees are now required to be paid in compulsory counterclaim or cross-
claims.

As to the failure to submit a certificate of forum shopping, PGSMC’s Answer is not an initiatory
pleading which requires a certification against forum shopping under Sec. 524 of Rule 7, 1997
Revised Rules of Civil Procedure. It is a responsive pleading, hence, the courts a quo did not
commit reversible error in denying KOGIES’ motion to dismiss PGSMC’s compulsory
counterclaims.
 Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and Prohibition are neither the
remedies to question the propriety of an interlocutory order of the trial court."26 The CA erred on
its reliance on Gamboa. Gamboa involved the denial of a motion to acquit in a criminal case
which was not assailable in an action for certiorari since the denial of a motion to quash required
the accused to plead and to continue with the trial, and whatever objections the accused had in
his motion to quash can then be used as part of his defense and subsequently can be raised as
errors on his appeal if the judgment of the trial court is adverse to him. The general rule is that
interlocutory orders cannot be challenged by an appeal.27 Thus, in Yamaoka v. Pescarich
Manufacturing Corporation, we held:

The proper remedy in such cases is an ordinary appeal from an adverse judgment on the
merits, incorporating in said appeal the grounds for assailing the interlocutory orders.
Allowing appeals from interlocutory orders would result in the ‘sorry spectacle’ of a case
being subject of a counterproductive ping-pong to and from the appellate court as often as
a trial court is perceived to have made an error in any of its interlocutory rulings.
However, where the assailed interlocutory order was issued with grave abuse of
discretion or patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief, the Court allows certiorari as a mode of redress.28

Also, appeals from interlocutory orders would open the floodgates to endless occasions for
dilatory motions. Thus, where the interlocutory order was issued without or in excess of
jurisdiction or with grave abuse of discretion, the remedy is certiorari.29

The alleged grave abuse of discretion of the respondent court equivalent to lack of jurisdiction in
the issuance of the two assailed orders coupled with the fact that there is no plain, speedy, and
adequate remedy in the ordinary course of law amply provides the basis for allowing the resort to
a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for
certiorari. Note that KOGIES’ motion for reconsideration of the July 23, 1998 RTC Order which
denied the issuance of the injunctive writ had already been denied. Thus, KOGIES’ only remedy
was to assail the RTC’s interlocutory order via a petition for certiorari under Rule 65.

While the October 2, 1998 motion for reconsideration of KOGIES of the September 21, 1998
RTC Order relating to the inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in this case would allow an exception
to the rule that before certiorari may be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first resolved by the court a quo. The reason
behind the rule is "to enable the lower court, in the first instance, to pass upon and correct its
mistakes without the intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant, equipment,
and facilities when he is not competent and knowledgeable on said matters is evidently flawed
and devoid of any legal support. Moreover, there is an urgent necessity to resolve the issue on
the dismantling of the facilities and any further delay would prejudice the interests of KOGIES.
Indeed, there is real and imminent threat of irreparable destruction or substantial damage to
KOGIES’ equipment and machineries. We find the resort to certiorari based on the gravely
abusive orders of the trial court sans the ruling on the October 2, 1998 motion for reconsideration
to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration clause. It
provides:

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

between the parties, out of or in relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the Korean Commercial Arbitration Board. The
award rendered by the arbitration(s) shall be final and binding upon both parties
concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and void.

Petitioner is correct.

Issue: Whether or not the arbitration clause indicated in the contract is valid

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." (Emphasis supplied.)

Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art. 2043,34 may be voided, rescinded, or annulled, but
these would not denigrate the finality of the arbitral award.

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 why the arbitration clause should not be respected and complied with by both
parties. In Gonzales v. Climax Mining Ltd.,35 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.36 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."37

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is
final and binding, is not contrary to public policy. This Court has sanctioned the validity of
arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion to rule that an arbitration clause to resolve
differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v.
Court of Appeals, we held that "[i]n this jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876, this Court
has countenanced the settlement of disputes through arbitration. Republic Act No. 876 was
adopted to supplement the New Civil Code’s provisions on arbitration."39 And in LM Power
Engineering Corporation v. Capitol Industrial Construction Groups, Inc., we declared that:

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

along with mediation, conciliation and negotiation––is encouraged by the Supreme Court.
Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the "wave of the future"
in international civil and commercial disputes. Brushing aside a contractual agreement
calling for arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute resolution

methods, courts should liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted dispute, an order to arbitrate
should be granted. Any doubt should be resolved in favor of arbitration.40

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.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes arising
from contractual relations. In case a foreign arbitral body is chosen by the parties, the arbitration
rules of our domestic arbitration bodies would not be applied. As signatory to the Arbitration
Rules of the UNCITRAL Model Law on International Commercial Arbitration 41 of the United
Nations Commission on International Trade Law (UNCITRAL) in the New York Convention on
June 21, 1985, the Philippines committed itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. (RA) 9285, otherwise known as the Alternative
Dispute Resolution Act of 2004 entitled An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4
of the Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.––

International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United Nations
Commission on International Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General Assembly in Resolution No.
40/72 approved on December 11, 1985, copy of which is hereto attached as Appendix
"A".

SEC. 20. Interpretation of Model Law.––In interpreting the Model Law, regard shall be
had to its international origin and to the need for uniformity in its interpretation and resort
may be made to the travaux preparatories and the report of the Secretary General of the
United Nations Commission on International Trade Law dated March 25, 1985 entitled,
"International Commercial Arbitration: Analytical Commentary on Draft Trade identified
by reference number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise, KOGIES filed its application for
arbitration before the KCAB on July 1, 1998 and it is still pending because no arbitral award has
yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-settled is the rule that
procedural laws are construed to be applicable to actions pending and undetermined at the time
of their passage, and are deemed retroactive in that sense and to that extent. As a general rule, the
retroactive application of procedural laws does not violate any personal rights because no vested
right has yet attached nor arisen from them.42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL Model
Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and mandates the referral to arbitration in such
cases, thus:

SEC. 24. Referral to Arbitration.––A court before which an action is brought in a matter
which is the subject matter of an arbitration agreement shall, if at least one party so
requests not later than the pre-trial conference, or upon the request of both parties
thereafter, refer the parties to arbitration unless it finds that the arbitration agreement is
null and void, inoperative or incapable of being performed.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause to be
final and binding are not immediately enforceable or cannot be implemented immediately. Sec.
3543 of the UNCITRAL Model Law stipulates the requirement for the arbitral award to be
recognized by a competent court for enforcement, which court under Sec. 36 of the UNCITRAL
Model Law may refuse recognition or enforcement on the grounds provided for. RA 9285
incorporated these provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention.––The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying
for its enforcement shall file with the court the original or authenticated copy of the
award and the arbitration agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified translation thereof into any of
such languages.

The applicant shall establish that the country in which foreign arbitration award was
made in party to the New York Convention.

xxxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not Covered by the
New York Convention.––The recognition and enforcement of foreign arbitral awards not
covered by the New York Convention shall be done in accordance with procedural rules
to be promulgated by the Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award as a convention award.

SEC. 44. Foreign Arbitral Award Not Foreign Judgment.––A foreign arbitral award
when confirmed by a court of a foreign country, shall be recognized and enforced as a
foreign arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be enforced
in the same manner as final and executory decisions of courts of law of the Philippines

xxxx

SEC. 47. Venue and Jurisdiction.––Proceedings for recognition and enforcement of an

arbitration agreement or for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration assistance and supervision
shall be deemed as special proceedings and shall be filed with the Regional Trial Court
(i) where arbitration proceedings are conducted; (ii) where the asset to be attached or
levied upon, or the act to be enjoined is located; (iii) where any of the parties to the
dispute resides or has his place of business; or (iv) in the National Judicial Capital
Region, at the option of the applicant.
 SEC. 48. Notice of Proceeding to Parties.––In a special proceeding for recognition and
enforcement of an arbitral award, the Court shall send notice to the parties at their address
of record in the arbitration, or if any part cannot be served notice at such address, at such
party’s last known address. The notice shall be sent al least fifteen (15) days before the
date set for the initial hearing of the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as a
judgment of a foreign court but as a foreign arbitral award, and when confirmed, are enforced as
final and executory decisions of our courts of law.

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.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific authority
and jurisdiction to set aside, reject, or vacate a foreign arbitral award on grounds provided under
Art. 34(2) of the UNCITRAL Model Law. Secs. 42 and 45 provide:

SEC. 42. Application of the New York Convention.––The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the Regional
Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party relying on the award or applying
for its enforcement shall file with the court the original or authenticated copy of the
award and the arbitration agreement. If the award or agreement is not made in any of the
official languages, the party shall supply a duly certified translation thereof into any of
such languages.

The applicant shall establish that the country in which foreign arbitration award was
made is party to the New York Convention.

If the application for rejection or suspension of enforcement of an award has been made,
the Regional Trial Court may, if it considers it proper, vacate its decision and may also,
on the application of the party claiming recognition or enforcement of the award, order
the party to provide appropriate security.

xxxx

SEC. 45. Rejection of a Foreign Arbitral Award.––A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral
 award in accordance with the procedures and rules to be promulgated by the Supreme
Court only on those grounds enumerated under Article V of the New York Convention.
Any other ground raised shall be disregarded by the Regional Trial Court.

Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually
agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the
RTC which can set aside, reject, or vacate it. In this sense, what this Court held in Chung Fu
Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of jurisdiction since these arbitral awards are
not absolute and without exceptions as they are still judicially reviewable. Chapter 7 of RA 9285
has made it clear that all arbitral awards, whether domestic or foreign, are subject to judicial
review on specific grounds provided for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral tribunal
and an award given by a local arbitral tribunal are the specific grounds or conditions that vest
jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC, the
grounds for setting aside, rejecting or vacating the award by the RTC are provided under Art.
34(2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to Sec. 23
of RA 87644 and shall be recognized as final and executory decisions of the RTC,45 they may
only be assailed before the RTC and vacated on the grounds provided under Sec. 25 of RA 876.46

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved party in
cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards.—A decision of the Regional
Trial Court confirming, vacating, setting aside, modifying or correcting an arbitral award
may be appealed to the Court of Appeals in accordance with the rules and procedure to be
promulgated by the Supreme Court.

The losing party who appeals from the judgment of the court confirming an arbitral
award shall be required by the appellate court to post a counterbond executed in favor of
the prevailing party equal to the amount of the award in accordance with the rules to be
promulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court through a
petition for review under Rule 45 of the Rules of Court.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings on the
foreign arbitration done in Korea by the KCAB, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC before it can be enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration clause,
stipulating that the arbitral award is final and binding, does not oust our courts of jurisdiction as
the international arbitral award, the award of which is not absolute and without exceptions, is
still judicially reviewable under certain conditions provided for by the UNCITRAL Model Law
on ICA as applied and incorporated in RA 9285.

Finally, it must be noted that there is nothing in the subject Contract which provides that the
parties may dispense with the arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the parties,
and not contrary to public policy; consequently, being bound to the contract of arbitration, a
party may not unilaterally rescind or terminate the contract for whatever cause without first
resorting to arbitration.

What this Court held in University of the Philippines v. De Los Angeles47 and reiterated in
succeeding cases,48 that the act of treating a contract as rescinded on account of infractions by the
other contracting party is valid albeit provisional as it can be judicially assailed, is not applicable
to the instant case on account of a valid stipulation on arbitration. Where an arbitration clause in
a contract is availing, neither of the parties can unilaterally treat the contract as rescinded since
whatever infractions or breaches by a party or differences arising from the contract must be
brought first and resolved by arbitration, and not through an extrajudicial rescission or judicial
action.

The issues arising from the contract between PGSMC and KOGIES on whether the equipment
and machineries delivered and installed were properly installed and operational in the plant in
Carmona, Cavite; the ownership of equipment and payment of the contract price; and whether
there was substantial compliance by KOGIES in the production of the samples, given the alleged
fact that PGSMC could not supply the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note that on July 1, 1998, KOGIES
instituted an Application for Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of
the Contract as amended. Thus, it is incumbent upon PGSMC to abide by its commitment to
arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC’s Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is under the
primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the
inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998, is of no
worth as said Sheriff is not technically competent to ascertain the actual status of the equipment
and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining to the
grant of the inspection of the equipment and machineries have to be recalled and nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total contract price
of USD 1,530,000 was for the whole plant and its installation is beyond the ambit of a Petition
for Certiorari.

Petitioner’s position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari.49 Whether or
not there was full payment for the machineries and equipment and installation is indeed a factual
issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC in
resolving the issue on the ownership of the plant when it is the arbitral body (KCAB) and not the
RTC which has jurisdiction and authority over the said issue. The RTC’s determination of such
factual issue constitutes grave abuse of discretion and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way for
PGSMC to dismantle and transfer the equipment and machineries, we find it to be in order
considering the factual milieu of the instant case.

Firstly, while the issue of the proper installation of the equipment and machineries might well be
under the primary jurisdiction of the arbitral body to decide, yet the RTC under Sec. 28 of RA
9285 has jurisdiction to hear and grant interim measures to protect vested rights of the parties.
Sec. 28 pertinently provides:

SEC. 28. Grant of interim Measure of Protection.—(a) It is not incompatible with an

arbitration agreement for a party to request, before constitution of the tribunal,
from a Court to grant such measure. After constitution of the arbitral tribunal and
during arbitral proceedings, a request for an interim measure of protection, or
modification thereof, may be made with the arbitral or to the extent that the arbitral
tribunal has no power to act or is unable to act effectivity, the request may be made
with the Court. The arbitral tribunal is deemed constituted when the sole arbitrator or
the third arbitrator, who has been nominated, has accepted the nomination and written
communication of said nomination and acceptance has been received by the party making
the request.
 (b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision of
security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted by

reasonable means to the Court or arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the precise relief, the party
against whom the relief is requested, the grounds for the relief, and the evidence
supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or enforcing an
interim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages resulting
from noncompliance, including all expenses, and reasonable attorney's fees, paid in
obtaining the order’s judicial enforcement. (Emphasis ours.)

Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim measure" of protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an award or in
another form, by which, at any time prior to the issuance of the award by which the
dispute is finally decided, the arbitral tribunal orders a party to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to cause,
current or imminent harm or prejudice to the arbitral process itself;
 (c) Provide a means of preserving assets out of which a subsequent award may be
satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to issue
interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to arbitration
proceedings, irrespective of whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise such power in accordance with
its own procedures in consideration of the specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we were
explicit that even "the pendency of an arbitral proceeding does not foreclose resort to the courts
for provisional reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose resort to
the courts for provisional reliefs. The Rules of the ICC, which governs the parties’
arbitral dispute, allows the application of a party to a judicial authority for interim or
conservatory measures. Likewise, Section 14 of Republic Act (R.A.) No. 876 (The
Arbitration Law) recognizes the rights of any party to petition the court to take measures
to safeguard and/or conserve any matter which is the subject of the dispute in arbitration.
In addition, R.A. 9285, otherwise known as the "Alternative Dispute Resolution Act of
2004," allows the filing of provisional or interim measures with the regular courts
whenever the arbitral tribunal has no power to act or to act effectively.50

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim measures of
protection.

Secondly, considering that the equipment and machineries are in the possession of PGSMC, it
has the right to protect and preserve the equipment and machineries in the best way it can.
Considering that the LPG plant was non-operational, PGSMC has the right to dismantle and
transfer the equipment and machineries either for their protection and preservation or for the
better way to make good use of them which is ineluctably within the management discretion of
PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and machineries in
Worth’s property is not to the best interest of PGSMC due to the prohibitive rent while the LPG
plant as set-up is not operational. PGSMC was losing PhP322,560 as monthly rentals or
PhP3.87M for 1998 alone without considering the 10% annual rent increment in maintaining the
plant.
Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the
preservation or transfer of the equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts of the arbitral clause, has accorded an
interim measure of protection to PGSMC which would otherwise been irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount based
on the contract. Moreover, KOGIES is amply protected by the arbitral action it has instituted
before the KCAB, the award of which can be enforced in our jurisdiction through the RTC.
Besides, by our decision, PGSMC is compelled to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the subject
equipment and machineries, it does not have the right to convey or dispose of the same
considering the pending arbitral proceedings to settle the differences of the parties. PGSMC
therefore must preserve and maintain the subject equipment and machineries with the diligence
of a good father of a family51 until final resolution of the arbitral proceedings and enforcement of
the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET
ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117 are
REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their dispute
and differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and machineries, if it
had not done so, and ORDERED to preserve and maintain them until the finality of whatever
arbitral award is given in the arbitration proceedings.

No pronouncement as to costs.
G.R. No. 114323 July 23, 1998

OIL AND NATURAL GAS COMMISSION, petitioner,

vs.

COURT OF APPEALS and PACIFIC CEMENT COMPANY, INC., respondents.

MARTINEZ, J.:

This proceeding involves the enforcement of a foreign judgment rendered by the Civil
Judge of Dehra Dun, India in favor of the petitioner, OIL AND NATURAL GAS
COMMISSION and against the private respondent, PACIFIC CEMENT COMPANY,
INCORPORATED.

The petitioner is a foreign corporation owned and controlled by the Government of India
while the private respondent is a private corporation duly organized and existing under
the laws of the Philippines.

The present conflict between the petitioner and the private respondent has its roots in a
contract entered into by and between both parties on February 26, 1983 whereby the
private respondent undertook to supply the petitioner FOUR THOUSAND THREE
HUNDRED (4,300) metric tons of oil well cement.

In consideration therefor, the petitioner bound itself to pay the private respondent the
amount of FOUR HUNDRED SEVENTY-SEVEN THOUSAND THREE HUNDRED U.S.
DOLLARS ($477,300.00) by opening an irrevocable, divisible, and confirmed letter of
credit in favor of the latter. The oil well cement was loaded on board the ship MV
SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay and
Calcutta, India. However, due to a dispute between the shipowner and the private
respondent, the cargo was held up in Bangkok and did not reach its point destination.

Notwithstanding the fact that the private respondent had already received payment and
despite several demands made by the petitioner, the private respondent failed to deliver
the oil well cement. Thereafter, negotiations ensued between the parties and they
agreed that the private respondent will replace the entire 4,300 metric tons of oil well
cement with Class "G" cement cost free at the petitioner's designated port. However,
upon inspection, the Class "G" cement did not conform to the petitioner's specifications.
The petitioner then informed the private respondent that it was referring its claim to an
arbitrator pursuant to Clause 16 of their contract which stipulates:
 Except where otherwise provided in the supply order/contract, all
questions and disputes, relating to the meaning of the specification
designs, drawings and instructions herein before mentioned and as to
quality of workmanship of the items ordered or as to any other question,
claim, right or thing whatsoever, in any way arising out of or relating to the
supply order/contract design, drawing, specification, instruction or these
conditions or otherwise concerning the materials or the execution or failure
to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of
the persons appointed by Member of the Commission at the time of
dispute.(IBP DAPAT)? It will be no objection to any such appointment that
the arbitrator so appointed is a Commission employer (sic) that he had to
deal with the matter to which the supply or contract relates and that in the
course of his duties as Commission's employee he had expressed views
on all or any of the matter in dispute or difference.

The arbitrator to whom the matter is originally referred being transferred or

vacating his office or being unable to act for any reason the Member of the
Commission shall appoint another person to act as arbitrator in
accordance with the terms of the contract/supply order. Such person shall
be entitled to proceed with reference from the stage at which it was left by
his predecessor. Subject as aforesaid the provisions of the Arbitration Act,
1940, or any Statutory modification or re-enactment thereof and the rules
made there under and for the time being in force shall apply to the
arbitration proceedings under this clause.

The arbitrator may with the consent of parties enlarge the time, from time
to time, to make and publish the award.

The venue for arbitration shall be at Dehra dun. 1*

On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in
petitioner's favor setting forth the arbitral award as follows:

NOW THEREFORE after considering all facts of the case, the evidence,
oral and documentarys adduced by the claimant and carefully examining
the various written statements, submissions, letters, telexes, etc. sent by
the respondent, and the oral arguments addressed by the counsel for the
claimants, I, N.N. Malhotra, Sole Arbitrator, appointed under clause 16 of
the supply order dated 26.2.1983, according to which the parties, i.e. M/S
Oil and Natural Gas Commission and the Pacific Cement Co., Inc. can
refer the dispute to the sole arbitration under the provision of the
Arbitration Act. 1940, do hereby award and direct as follows: —

The Respondent will pay the following to the claimant: —

 1. Amount received by the Respondent

against the letter of credit No. 11/19

dated 28.2.1983 US $ 477,300.00

2. Re-imbursement of expenditure incurred

by the claimant on the inspection team's

visit to Philippines in August 1985 US $ 3,881.00

3. L.C. Establishment charges incurred

by the claimant US $ 1,252.82

4. Loss of interest suffered by claimant

from 21.6.83 to 23.7.88 US $ 417,169.95

Total amount of award US $ 899,603.77

In addition to the above, the respondent would also be liable to pay to the
claimant the interest at the rate of 6% on the above amount, with effect
from 24.7.1988 up to the actual date of payment by the Respondent in full
settlement of the claim as awarded or the date of the decree, whichever is
earlier.

I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the

expenses on Arbitration, legal expenses, stamps duly incurred by the
claimant. The cost will be shared by the parties in equal proportion.

Pronounced at Dehra Dun to-day, the 23rd of July 1988. 2

To enable the petitioner to execute the above award in its favor, it filed a Petition
before the Court of the Civil Judge in Dehra Dun. India (hereinafter referred to as
the foreign court for brevity), praying that the decision of the arbitrator be made
"the Rule of Court" in India. The foreign court issued notices to the private
respondent for filing objections to the petition. The private respondent complied
and sent its objections dated January 16, 1989. Subsequently, the said court
directed the private respondent to pay the filing fees in order that the latter's
objections could be given consideration. Instead of paying the required filing
fees, the private respondent sent the following communication addressed to the
Civil judge of Dehra Dun:

The Civil Judge

 Dehra Dun (U.P.) India

Re: Misc. Case No. 5 of 1989

M/S Pacific Cement Co.,

Inc. vs. ONGC Case

Sir:

1. We received your letter dated 28 April 1989

only last 18 May 1989.

2. Please inform us how much is the court fee

to be paid. Your letter did not mention the
amount to be paid.

3. Kindly give us 15 days from receipt of your

letter advising us how much to pay to comply
with the same.

Thank you for your kind consideration.

Pacific Cement Co., Inc.

By:

Jose Cortes, Jr.

President 3

Without responding to the above communication, the foreign court refused to admit the
private respondent's objections for failure to pay the required filing fees, and thereafter
issued an Order on February 7, 1990, to wit:

ORDER

Since objections filed by defendant have been rejected through Misc. Suit
No. 5 on 7.2.90, therefore, award should be made Rule of the Court.

ORDER

Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the
basis of conditions of award decree is passed. Award Paper No. 3/B-1
shall be a part of the decree. The plaintiff shall also be entitled to get from
defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine thousand six
 hundred and three point seventy seven only) along with 9% interest per
annum till the last date of realisation. 4

Despite notice sent to the private respondent of the foregoing order and several
demands by the petitioner for compliance therewith, the private respondent refused to
pay the amount adjudged by the foreign court as owing to the petitioner.

Accordingly, the petitioner filed a complaint with Branch 30 of the Regional Trial Court
(RTC) of Surigao City for the enforcement of the aforementioned judgment of the
foreign court.

The private respondent moved to dismiss the complaint on the following grounds: (1)
plaintiffs lack of legal capacity to sue; (2) lack of cause of action; and (3) plaintiffs claim
or demand has been waived, abandoned, or otherwise extinguished. The petitioner filed
its opposition to the said motion to dismiss, and the private respondent, its rejoinder
thereto. On January 3, 1992, the RTC issued an order upholding the petitioner's legal
capacity to sue, albeit dismissing the complaint for lack of a valid cause of action. The
RTC held that the rule prohibiting foreign corporations transacting business in the
Philippines without a license from maintaining a suit in Philippine courts admits of an
exception, that is, when the foreign corporation is suing on an isolated transaction as in
this case. 5 Anent the issue of the sufficiency of the petitioner's cause of action,
however, the RTC found the referral of the dispute between the parties to the
arbitrator under Clause 16 of their contract erroneous. According to the RTC,

[a] perusal of the shove-quoted clause (Clause 16) readily shows that
the matter covered by its terms is limited to "ALL QUESTIONS AND
DISPUTES, RELATING TO THE MEANING OF THE SPECIFICATION,
DESIGNS, DRAWINGS AND INSTRUCTIONS HEREIN BEFORE
MENTIONED and as to the QUALITY OF WORKMANSHIP OF THE
ITEMS ORDERED or as to any other questions, claim, right or thing
whatsoever, but qualified to "IN ANY WAY ARISING OR RELATING
TO THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING,
SPECIFICATION, etc.," repeating the enumeration in the opening
sentence of the clause.

The court is inclined to go along with the observation of the

defendant that the breach, consisting of the non-delivery of the
purchased materials, should have been properly litigated before a
court of law, pursuant to Clause No. 15 of the Contract/Supply Order,
herein quoted, to wit:

"JURISDICTION

All questions, disputes and differences, arising under

out of or in connection with this supply order, shall be
subject to the EXCLUSIVE JURISDICTION OF THE
 COURT, within the local limits of whose jurisdiction and
the place from which this supply order is situated."6

The RTC characterized the erroneous submission of the dispute to the

arbitrator as a "mistake of law or fact amounting to want of jurisdiction".
Consequently, the proceedings had before the arbitrator were null and void
and the foreign court had therefore, adopted no legal award which could be
the source of an enforceable right. 7

The petitioner then appealed to the respondent Court of Appeals which affirmed
the dismissal of the complaint.

In its decision, the appellate court concurred with the RTC's ruling that the
arbitrator did not have jurisdiction over the dispute between the parties, thus, the
foreign court could not validly adopt the arbitrator's award. I

in addition, the appellate court observed that the full text of the judgment of the
foreign court contains the dispositive portion only and indicates no findings of
fact and law as basis for the award. Hence, the said judgment cannot be enforced
by any Philippine court as it would violate the constitutional provision that no
decision shall be rendered by any court without expressing therein clearly and
distinctly the facts and the law on which it is based. 8 The appellate court ruled
further that the dismissal of the private respondent's objections for non-payment
of the required legal fees, without the foreign court first replying to the private
respondent's query as to the amount of legal fees to be paid, constituted want of
notice or violation of due process. Lastly, it pointed out that the arbitration
proceeding was defective because the arbitrator was appointed solely by the
petitioner, and the fact that the arbitrator was a former employee of the latter
gives rise to a presumed bias on his part in favor of the petitioner. 9

A subsequent motion for reconsideration by the petitioner of the appellate court's

decision was denied, thus, this petition for review on certiorari citing the
following as grounds in support thereof:

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN

AFFIRMING THE LOWER COURT'S ORDER OF DISMISSAL SINCE:

A. THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY

COGNIZABLE BY THE PROVISIONS OF CLAUSE 16 OF THE
CONTRACT;

B. THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA

WAS AN AFFIRMATION OF THE FACTUAL AND LEGAL FINDINGS OF
THE ARBITRATOR AND THEREFORE ENFORCEABLE IN THIS
JURISDICTION;
 C. EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A
PRESUMPTIVE RIGHT UNDER A FOREIGN JUDGMENT. 10

Issue: whether or not the arbitrator had jurisdiction over the dispute between the
petitioner and the private respondent under Clause 16 of the contract. To
reiterate, Clause 16 provides as follows:

Held: NO!!

Except where otherwise provided in the supply order/contract all

questions and disputes, relating to the meaning of the specification
designs, drawings and instructions herein before mentioned and as
to quality of workmanship of the items ordered or as to any other
question, claim, right or thing whatsoever, in any way arising out of
or relating to the supply order/contract design, drawing,
specification, instruction or these conditions or otherwise
concerning the materials or the execution or failure to execute the
same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole
arbitration of the persons appointed by Member of the Commission
at the time of dispute. It will be no objection to any such appointment
that the arbitrator so appointed is a Commission employer (sic) that
he had to deal with the matter to which the supply or contract relates
and that in the course of his duties as Commission's employee he
had expressed views on all or any of the matter in dispute or
difference. 11

The dispute between the parties had its origin in the non-delivery of the 4,300
metric tons of oil well cement to the petitioner.

The primary question that may be posed, therefore, is whether or not the non-
delivery of the said cargo is a proper subject for arbitration under the above-
quoted Clause 16.

The petitioner contends that the same was a matter within the purview of Clause
16, particularly the phrase, ". . . or as to any other questions, claim, right or thing
whatsoever, in any way arising or relating to the supply order/contract, design,
drawing, specification, instruction . . .". 12

It is argued that the foregoing phrase allows considerable latitude so as to

include non-delivery of the cargo which was a "claim, right or thing relating to the
supply order/contract".

RULING
The contention is bereft of merit. First of all, the petitioner has misquoted the said
phrase, shrewdly inserting a comma between the words "supply order/contract"
and "design" where none actually exists. An accurate reproduction of the phrase
reads, ". . . or as to any other question, claim, right or thing whatsoever, in any
way arising out of or relating to the supply order/contract design, drawing,
specification, instruction or these conditions . . .".

The absence of a comma between the words "supply order/contract" and

"design" indicates that the former cannot be taken separately but should be
viewed in conjunction with the words "design, drawing, specification, instruction
or these conditions".

It is thus clear that to fall within the purview of this phrase, the "claim, right or
thing whatsoever" must arise out of or relate to the design, drawing,
specification, or instruction of the supply order/contract. The petitioner also
insists that the non-delivery of the cargo is not only covered by the foregoing
phrase but also by the phrase, ". . . or otherwise concerning the materials or the
execution or failure to execute the same during the stipulated/extended period or
after completion/abandonment thereof . . .".

The doctrine of noscitur a sociis, although a rule in the construction of statutes,

is equally applicable in the ascertainment of the meaning and scope of vague
contractual stipulations, such as the aforementioned phrase. According to the
maxim noscitur a sociis, where a particular word or phrase is ambiguous in itself
or is equally susceptible of various meanings, its correct construction may be
made clear and specific by considering the company of the words in which it is
found or with which it is associated, or stated differently, its obscurity or doubt
may be reviewed by reference to associated words. 13 A close examination of
Clause 16 reveals that it covers three matters which may be submitted to
arbitration namely,

(1) all questions and disputes, relating to the meaning of the specification
designs, drawings and instructions herein before mentioned and as to quality of
workmanship of the items ordered; or

(2) any other question, claim, right or thing whatsoever, in any way arising out of
or relating to the supply order/contract design, drawing, specification, instruction
or these conditions; or

(3) otherwise concerning the materials or the execution or failure to execute the
same during stipulated/extended period or after the completion/abandonment
thereof.

The first and second categories unmistakably refer to questions and disputes
relating to the design, drawing, instructions, specifications or quality of the
materials of the supply/order contract. In the third category, the clause,
"execution or failure to execute the same", may be read as "execution or failure to
execute the supply order/contract". But in accordance with the doctrine of
noscitur a sociis, this reference to the supply order/contract must be construed in
the light of the preceding words with which it is associated, meaning to say, as
being limited only to the design, drawing, instructions, specifications or quality of
the materials of the supply order/contract. The non-delivery of the oil well cement
is definitely not in the nature of a dispute arising from the failure to execute the
supply order/contract design, drawing, instructions, specifications or quality of
the materials. That Clause 16 should pertain only to matters involving the
technical aspects of the contract is but a logical inference considering that the
underlying purpose of a referral to arbitration is for such technical matters to be
deliberated upon by a person possessed with the required skill and expertise
which may be otherwise absent in the regular courts.

This Court agrees with the appellate court in its ruling that the non-delivery of the
oil well cement is a matter properly cognizable by the regular courts as stipulated
by the parties in Clause 15 of their contract:

All questions, disputes and differences, arising under out of or in

connection with this supply order, shall be subject to the exclusive
jurisdiction of the court, within the local limits of whose jurisdiction
and the place from which this supply order is situated. 14

The following fundamental principles in the interpretation of contracts and

other instruments served as our guide in arriving at the foregoing
conclusion:

Art. 1373. If some stipulation of any contract should admit of several

meanings, it shall be understood as bearing that import which is
most adequate to render it effectual. 15

Art. 1374. The various stipulations of a contract shall be interpreted

together, attributing the doubtful ones that sense which may result
from all of them taken jointly. 16

Sec. 11. Instrument construed so as to give effect to all provisions. In

the construction of an instrument, where there are several provisions
or particulars, such a construction is, if possible, to be adopted as
will give effect to all. 17

Thus, this Court has held that as in statutes, the provisions of a contract should
not be read in isolation from the rest of the instrument but, on the contrary,
interpreted in the light of the other related provisions. 18 The whole and every
part of a contract must be considered in fixing the meaning of any of its
harmonious whole. Equally applicable is the canon of construction that in
interpreting a statute (or a contract as in this case), care should be taken that
every part thereof be given effect, on the theory that it was enacted as an
integrated measure and not as a hodge-podge of conflicting provisions. The rule
is that a construction that would render a provision inoperative should be
avoided; instead, apparently inconsistent provisions should be reconciled
whenever possible as parts of a coordinated and harmonious whole. 19

The petitioner's interpretation that Clause 16 is of such latitude as to contemplate

even the non-delivery of the oil well cement would in effect render Clause 15 a
mere superfluity. A perusal of Clause 16 shows that the parties did not intend
arbitration to be the sole means of settling disputes. This is manifest from Clause
16 itself which is prefixed with the proviso, "Except where otherwise provided in
the supply order/contract . . .", thus indicating that the jurisdiction of the
arbitrator is not all encompassing, and admits of exceptions as may be provided
elsewhere in the supply order/contract. We believe that the correct interpretation
to give effect to both stipulations in the contract is for Clause 16 to be confined to
all claims or disputes arising from or relating to the design, drawing, instructions,
specifications or quality of the materials of the supply order/contract, and for
Clause 15 to cover all other claims or disputes.

The petitioner then asseverates that granting, for the sake of argument, that the
non-delivery of the oil well cement is not a proper subject for arbitration, the
failure of the replacement cement to conform to the specifications of the contract
is a matter clearly falling within the ambit of Clause 16. In this contention, we find
merit. When the 4,300 metric tons of oil well cement were not delivered to the
petitioner, an agreement was forged between the latter and the private
respondent that Class "G" cement would be delivered to the petitioner as
replacement. Upon inspection, however, the replacement cement was rejected as
it did not conform to the specifications of the contract. Only after this latter
circumstance was the matter brought before the arbitrator. Undoubtedly, what
was referred to arbitration was no longer the mere non-delivery of the cargo at
the first instance but also the failure of the replacement cargo to conform to the
specifications of the contract, a matter clearly within the coverage of Clause 16.

The private respondent posits that it was under no legal obligation to make
replacement and that it undertook the latter only "in the spirit of liberality and to
foster good business relationship". 20 Hence, the undertaking to deliver the
replacement cement and its subsequent failure to conform to specifications are
not anymore subject of the supply order/contract or any of the provisions thereof.
We disagree.

As per Clause 7 of the supply order/contract, the private respondent undertook to

deliver the 4,300 metric tons of oil well cement at "BOMBAY (INDIA) 2181 MT and
CALCUTTA 2119 MT". 21 The failure of the private respondent to deliver the cargo
to the designated places remains undisputed. Likewise, the fact that the
petitioner had already paid for the cost of the cement is not contested by the
private respondent. The private respondent claims, however, that it never
benefited from the transaction as it was not able to recover the cargo that was
unloaded at the port of Bangkok. 22 First of all, whether or not the private
respondent was able to recover the cargo is immaterial to its subsisting duty to
make good its promise to deliver the cargo at the stipulated place of delivery.
Secondly, we find it difficult to believe this representation. In its Memorandum
filed before this Court, the private respondent asserted that the Civil Court of
Bangkok had already ruled that the non-delivery of the cargo was due solely to
the fault of the carrier. 23 It is, therefore, but logical to assume that the necessary
consequence of this finding is the eventual recovery by the private respondent of
the cargo or the value thereof. What inspires credulity is not that the replacement
was done in the spirit of liberality but that it was undertaken precisely because of
the private respondent's recognition of its duty to do so under the supply
order/contract, Clause 16 of which remains in force and effect until the full
execution thereof.

We now go to the issue of whether or not the judgment of the foreign court is
enforceable in this jurisdiction in view of the private respondent's allegation that
it is bereft of any statement of facts and law upon which the award in favor of the
petitioner was based. The pertinent portion of the judgment of the foreign court
reads:

ORDER

Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On
the basis of conditions of award decree is passed. Award Paper No.
3/B-1 shall be a part of the decree. The plaintiff shall also be entitled
to get from defendant (US$ 899,603.77 (US$ Eight Lakhs ninety nine
thousand six hundred and three point seventy seven only) along with
9% interest per annum till the last date of realisation. 24

As specified in the order of the Civil Judge of Dehra Dun, "Award Paper No. 3/B-1
shall be a part of the decree". This is a categorical declaration that the foreign
court adopted the findings of facts and law of the arbitrator as contained in the
latter's Award Paper. Award Paper No. 3/B-1, contains an exhaustive discussion
of the respective claims and defenses of the parties, and the arbitrator's
evaluation of the same. Inasmuch as the foregoing is deemed to have been
incorporated into the foreign court's judgment the appellate court was in error
when it described the latter to be a "simplistic decision containing literally, only
the dispositive portion". 25

The constitutional mandate that no decision shall be rendered by any court

without expressing therein dearly and distinctly the facts and the law on which it
is based does not preclude the validity of "memorandum decisions" which adopt
by reference the findings of fact and conclusions of law contained in the
decisions of inferior tribunals. In Francisco v. Permskul, 26 this Court held that
the following memorandum decision of the Regional Trial Court of Makati did not
transgress the requirements of Section 14, Article VIII of the Constitution:

MEMORANDUM DECISION

After a careful perusal, evaluation and study of the records of this

case, this Court hereby adopts by reference the findings of fact and
conclusions of law contained in the decision of the Metropolitan Trial
Court of Makati, Metro Manila, Branch 63 and finds that there is no
cogent reason to disturb the same.

WHEREFORE, judgment appealed from is hereby affirmed in toto. 27

(Emphasis supplied.)

This Court had occasion to make a similar pronouncement in the earlier

case of Romero v. Court of Appeals, 28 where the assailed decision of the
Court of Appeals adopted the findings and disposition of the Court of
Agrarian Relations in this wise:

We have, therefore, carefully reviewed the evidence and made a re-

assessment of the same, and We are persuaded, nay compelled, to
affirm the correctness of the trial court's factual findings and the
soundness of its conclusion. For judicial convenience and
expediency, therefore, We hereby adopt by way of reference, the
findings of facts and conclusions of the court a quo spread in its
decision, as integral part of this Our decision. 29 (Emphasis
supplied)

Hence, even in this jurisdiction, incorporation by reference is allowed if

only to avoid the cumbersome reproduction of the decision of the lower
courts, or portions thereof, in the decision of the higher court. 30 This is
particularly true when the decision sought to be incorporated is a lengthy
and thorough discussion of the facts and conclusions arrived at, as in this
case, where Award Paper No. 3/B-1 consists of eighteen (18) single spaced
pages.

Furthermore, the recognition to be accorded a foreign judgment is not

necessarily affected by the fact that the procedure in the courts of the country in
which such judgment was rendered differs from that of the courts of the country
in which the judgment is relied on. 31 This Court has held that matters of remedy
and procedure are governed by the lex fori or the internal law of the forum. 32
Thus, if under the procedural rules of the Civil Court of Dehra Dun, India, a valid
judgment may be rendered by adopting the arbitrator's findings, then the same
must be accorded respect. In the same vein, if the procedure in the foreign court
mandates that an Order of the Court becomes final and executory upon failure to
pay the necessary docket fees, then the courts in this jurisdiction cannot
invalidate the order of the foreign court simply because our rules provide
otherwise.

The private respondent claims that its right to due process had been blatantly
violated, first by reason of the fact that the foreign court never answered its
queries as to the amount of docket fees to be paid then refused to admit its
objections for failure to pay the same, and second, because of the presumed bias
on the part of the arbitrator who was a former employee of the petitioner.

Time and again this Court has held that the essence of due process is to be found
in the reasonable opportunity to be heard and submit any evidence one may have
in support of one's defense 33 or stated otherwise, what is repugnant to due
process is the denial of opportunity to be heard. 34 Thus, there is no violation of
due process even if no hearing was conducted, where the party was given a
chance to explain his side of the controversy and he waived his right to do so. 35

In the instant case, the private respondent does not deny the fact that it was
notified by the foreign court to file its objections to the petition, and
subsequently, to pay legal fees in order for its objections to be given
consideration. Instead of paying the legal fees, however, the private respondent
sent a communication to the foreign court inquiring about the correct amount of
fees to be paid. On the pretext that it was yet awaiting the foreign court's reply,
almost a year passed without the private respondent paying the legal fees. Thus,
on February 2, 1990, the foreign court rejected the objections of the private
respondent and proceeded to adjudicate upon the petitioner's claims. We cannot
subscribe to the private respondent's claim that the foreign court violated its right
to due process when it failed to reply to its queries nor when the latter rejected its
objections for a clearly meritorious ground. The private respondent was afforded
sufficient opportunity to be heard. It was not incumbent upon the foreign court to
reply to the private respondent's written communication. On the contrary, a
genuine concern for its cause should have prompted the private respondent to
ascertain with all due diligence the correct amount of legal fees to be paid. The
private respondent did not act with prudence and diligence thus its plea that they
were not accorded the right to procedural due process cannot elicit either
approval or sympathy from this Court. 36

The private respondent bewails the presumed bias on the part of the arbitrator
who was a former employee of the petitioner. This point deserves scant
consideration in view of the following stipulation in the contract:

. . . . It will be no objection any such appointment that the arbitrator

so appointed is a Commission employer (sic) that he had to deal with
the matter to which the supply or contract relates and that in the
course of his duties as Commission's employee he had expressed
 views on all or any of the matter in dispute or difference. 37
(Emphasis supplied.)

Finally, we reiterate hereunder our pronouncement in the case of Northwest

Orient Airlines, Inc. v. Court of Appeals 38 that:

A foreign judgment is presumed to be valid and binding in the

country from which it comes, until the contrary is shown. It is also
proper to presume the regularity of the proceedings and the giving of
due notice therein.

Under Section 50, Rule 39 of the Rules of Court, a judgment in an

action in personam of a tribunal of a foreign country having
jurisdiction to pronounce the same is presumptive evidence of a
right as between the parties and their successors-in-interest by a
subsequent title. The judgment may, however, be assailed by
evidence of want of jurisdiction, want of notice to the party,
collusion, fraud, or clear mistake of law or fact. Also, under Section 3
of Rule 131, a court, whether of the Philippines or elsewhere, enjoys
the presumption that it was acting in the lawful exercise of
jurisdiction and has regularly performed its official duty. 39

Consequently, the party attacking a foreign judgment, the private

respondent herein, had the burden of overcoming the presumption of its
validity which it failed to do in the instant case.

The foreign judgment being valid, there is nothing else left to be done than to
order its enforcement, despite the fact that the petitioner merely prays for the
remand of the case to the RTC for further proceedings. As this Court has ruled on
the validity and enforceability of the said foreign judgment in this jurisdiction,
further proceedings in the RTC for the reception of evidence to prove otherwise
are no longer necessary.

WHEREFORE, the instant petition is GRANTED, and the assailed decision of the
Court of Appeals sustaining the trial court's dismissal of the OIL AND NATURAL
GAS COMMISSION's complaint in Civil Case No. 4006 before Branch 30 of the
RTC of Surigao City is REVERSED, and another in its stead is hereby rendered
ORDERING private respondent PACIFIC CEMENT COMPANY, INC. to pay to
petitioner the amounts adjudged in the foreign judgment subject of said case.

SO ORDERED.