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BF Corp v CA. Shangri-La Properties Inc (SPI)| RomeroG.R. No. 120105, March 27, 1998 | 288 SCRA 267

BF Corp and SPI entered into an agreement to where BF was to construct the main structure of EDSA Plaza Project (Shangri-La Mall). This was contained in the ARTICLES OF AGREEMENT.

BF incurred delay in the completion of the project, which SPI considered to be serious and substantial while BF holds that it was in faithful compliance with their FIRST AGREEMENT. Later, Phase I of the project was gutted by fire (in Nov 1990) which further exacerbated their situation. SPI proposed a re-negotiation.

May 30 1991: BF and SPI entered into an Agreement (Agreement for the Execution of Builder’s Work for Edsa Plaza Project). This agreement covers the construction until it’s eventual completion, set on October 31, 1991.

SPI said there was failure to complete the project, which sparked disagreement between the parties

November 1991: BF billed SPI and demanded payment. Instead of paying, SPI counterclaimed P220M for the delay in the construction (pursuant to penalty clause of the agreement: Php80K for every day of delay from Nov. 1 1991 up to 5% of the contract price)

July 12, 1993: SPI initiated a conference but they failed to agree. July 14, 1993: BF filed a complaint to collection of the balance due (110, 883,

101.52). August 3, 1993: SPI filed motion to suspend proceedings (instead of filing an

answer) claiming that their agreement contained an arbitration clause—(that there should be prior resort to arbitration before resorting to judicial proceedings). BF opposed this motion claiming:

o there was no formal contract to arbitrate because the CONDITIONS OF THE CONTRACT which contained the arbitration clause did not comply with the formal requisites of an arbitration contract pursuant to Sec 4 of RA876 (this instrument did not bear the signature of representative of SPI and Bayani Fernando, Pres. of BF Corp only initialed it), hence there is no arbitration clause to speak of.

TC: denied the motion to suspend proceedings. It also said that assuming there was an arbitration clause, demand to arbitrate was not reasonably made because SPI failed to file a written demand to arbitrate for 1 year and 8 mos already (counted from the time BF billed them to pay until the filing of collection complaint)

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

for Review on Certiorari

ISSUES & ARGUMENTS

Whether the ARBITRATION CLAUSE EXISTS? Does the CA have the jurisdiction to determine this issue even if on it’s face ,

the existence of an arbitration clause is a factual matter?

HOLDING & RATIO DECIDENDI

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

(ARBITRATION PART) The Court finds that, upon a scrutiny of the records of this case, these requisites were complied with in the contract in question. The Articles of Agreement, which incorporates all the other contracts and agreements between the parties, was signed by representatives of both parties and duly notarized. The failure of the private respondent's representative to initial the "Conditions of Contract" would therefore not affect compliance with the formal requirements for arbitration agreements because that particular portion of the covenants between the parties was included by reference in the Articles of Agreement.

Petitioner's contention that there was no arbitration clause because the contract incorporating said provision is part of a "hodge-podge" document, is therefore untenable. A contract need not be contained in a single writing. It may be collected from several different writings which do not conflict with each other and which, when connected, show the parties, subject matter, terms and consideration, as in contracts entered into by correspondence. A contract may be encompassed in several instruments even though every instrument is not signed by the parties, since it is sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is binding on both to the same extent as though there had been only one copy of the agreement and both had signed it.

Court also ruled that reasonable time is relative. In this case, the 1-mo period from the time they held a conference (July 12, 1993) that SPI invoked the arbitration clause is within a reasonable time.

Court highlighted: that arbitration is “the wave of the future” and that this is recognized worldwide. To brush aside the contractual agreement between the parties calling for arbitration in case of disagreement between the parties would therefore be a step backward.

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(REMEDIAL PART) Where a rigid application of the rule that certiorari cannot be a substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may be relaxed. As we shall show hereunder, had the CA dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been resolved in accordance with evidence extant in the record of the case. Consequently, this would have resulted in a judicial rejection of a contractual provision agreed by the parties to the contract. In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract between petitioner and private respondents is a legal issue that must be determined in this petition for review on certiorari.

WHEREFORE, premises considered, the instant petition is DENIED. The Decisions of the CA is AFFIRMED.

SALAS vs. LAPERALG.R. NO. 135362 (December 13, 1999)

DE LEON, JR., J.:

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FACTS: Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas. He entered into an Owner-Contractor Agreement with Respondent Laperal Realty Corporation to render and provide complete (horizontal) construction services on his land. Said agreement contains an arbitration clause, to wit:“ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER’S representative shall be referred to the committee represented by:

1. One representative of the OWNER;2. One representative of the CONTRACTOR;3. One representative acceptable to both OWNER and CONTRACTOR."

Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. By virtue thereof, Respondent Laperal Realty subdivided said land and sold portions thereof to Respondents Rockway Real Estate Corporation and South Ridge Village, Inc. in 1990; to Respondent spouses Abrajano and Lava and Oscar Dacillo in 1991; and to Respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan in 1996 (Respondent Lot Buyers hereinafter).

Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He, however, never returned on that unfaithful morning. Seven years later or in 1996, his wife, Teresita Diaz-Salas filed with the RTC of Makati City a verified Petition for the Declaration of Presumptive Death, which Petition was granted.

In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for Declaration of Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and Damages against Respondents.

Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners failed to submit their grievance to arbitration as required under Article VI of the Owner-Contractor Agreement. Respondent spouses Abrajano and Lava and Respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of Petitioners’ Complaint for the same reason.

The RTC then issued the herein assailed Order dismissing Petitioners’ Complaint for non-compliance with the foregoing arbitration clause.Hence the present Petition for Review on Certiorari under Rule 45.

ISSUE: WON the arbitration clause under Article VI of the Owner-Contractor Agreement is binding upon the Respondent Lot Buyers? NO.

ARGUMENTS: Petitioners argue that (1) their causes of action did not emanate from the Owner-Contractor Agreement, (2) that their causes of action for cancellation of contract and accounting are covered by the exception under the Arbitration Law, and (3) that failure to arbitrate is not a ground for dismissal.

Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.’s land when Respondent Laperal Realty subdivided it and sold portions thereof to Respondent Lot Buyers. Thus, they instituted action against both Respondent Laperal Realty and Respondent Lot Buyers for rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which provides that “such submission [to] or contract [of arbitration] shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract”.

RULING: NO. Respondent Lot Buyers are neither parties to the Agreement nor the latter’s assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in Respondent Lot Buyers.

Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement, has the right to compel Petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for Respondent Laperal Realty and trial for the Respondent Lot Buyers, or to hold trial in abeyance pending arbitration between Petitioners and Respondent Laperal Realty, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein Respondents and adjudicates Petitioners’ rights as against theirs in a single and complete proceeding.

Petition is GRANTED. The assailed Order of RTC of Lipa City is NULLIFIED and SET ASIDE.

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RATIO DECIDENDI: In a catena of cases inspired by Justice Malcolm’s provocative dissent in Vega v. San Carlos Milling Co. [1924], the SC has recognized arbitration agreements as valid, binding, enforceable and not contrary to public policy so much so that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their agreement. Arbitration is the “wave of the future” in dispute resolution. To brush aside a contractual agreement calling for arbitration in case of disagreement between parties would be a step backward.

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But only they. Petitioners, as heirs of Salas, Jr., and Respondent Laperal Realty are certainly bound by the Agreement. If Respondent Laperal Realty, had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor or, in this case, against the heirs of the original party to the Agreement. However, Respondent Lot Buyers are NOT assignees of the rights of Respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land and sell the same. They are, rather, buyers of the land that Respondent Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are NOT “assigns” contemplated in Art. 1311 of the New Civil Code which provides that “contracts take effect only between the parties, their assigns and heirs”

In the same vein, Petitioners’ contention that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 is without merit. For while rescission, as a general rule, is an arbitrable issue, they impleaded in the suit for rescission the Respondent Lot Buyers who are neither parties to the Agreement nor the latter’s assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in Respondent Lot Buyers.

CHUNG FU INDUSTRIES v. CAG.R. No. 96283 February 25, 1992

Facts: Chung Fu and private respondent Roblecor forged a construction agreement 1

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whereby respondent contractor committed to construct Chung Fu COrp’s industrial/factory complex in Cavite for P42M. Two other construction contracts were enetered into. In the event of disputes arising from the performance of the contract, it was stipulated that the issue(s) shall be submitted for resolution before an arbitrator chosen by both parties. Roblecor failed to complete the work despite the extension of time and so Chung Fu took over the construction when it had become evident that Roblecor was not in a position to fulfill its obligation.

Claiming an unsatisfied account of P10.5M and unpaid progress billings of P2.3 M, Roblecor filed a petition for Compulsory Arbitration with prayer for TRO before RTC. Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining order.

The parties entered into an arbitration agreement providing that:

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

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

When the arbitrator ordered petitioners to pay respondent contractor P16M and declared the award as final and unappealable pursuant to the Arbitration Agreement, which precluded judicial review of the award, Chung Fu moved to remand the case for further hearing claiming (12) instances of grave error by disregarding the provisions of the parties' contract.

CA concurred with the RTC resolving that Chung Fu and its officers, as signatories to the Arbitration Agreement are bound to observe the stipulations thereof providing for the finality of the award and precluding any appeal therefrom. Hence, the instant petition for certiorari to the SC.

Issue: Is the award beyond the power of judicial review on the basis of a stipulation that the award is final and unapppealable?

Held: NO.

Pertinent topic: Evolution of arbitration as a mode of dispute settlement.

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

Sparse though the law and jurisprudence may be on the subject of arbitration in the Philippines, it was nonetheless recognized in the Spanish Civil Code and now reinstated in the present Civil Code. 9

Although early on, CA No. 103 (1936) provided for compulsory arbitration administered by the CIR in case of labor-mgt disputes, such was converted to voluntary arbitration. The Industrial Peace Act which was passed in 1953 favoring the policy of free collective bargaining, and resort to grievance procedure. It was accepted and enunciated more explicitly in the present Labor Code.

RA No. 876 (1953) the Arbitration Law, was passed to regulate the arbitration process. "Said Act was obviously adopted to supplement — not to supplant — the New Civil Code on arbitration. It expressly declares that "the provisions of chapters one and two, Title XIV, Book IV of the Civil Code shall remain in force." 11

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

Recourse to an extrajudicial means of settlement is not intended to completely deprive the courts of jurisdiction. In fact, the early cases on arbitration carefully spelled out the prevailing doctrine at the time, thus: ". . . a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitrators and to them alone is contrary to public policy and cannot oust the courts of Jurisdiction." But certainly, the stipulation to refer all future disputes to an arbitrator or to submit an ongoing dispute to one is valid. Being part of a contract between the parties, it is binding and enforceable in court in case one of them neglects, fails or refuses to arbitrate. In case of a declaration to refer their differences to arbitration first before taking court action, this constitutes a condition precedent, such that where a suit has been instituted prematurely, the court shall suspend the same and the parties shall be directed forthwith to proceed to arbitration.

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Is the subject arbitration award indeed beyond the ambit of the court's power of judicial review? NO.

Where the conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and arbitrations are obtaining, the arbitrators' award may be annulled or rescinded. 19 Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating, modifying or rescinding an arbitrator's award. 20

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

If courts (such as RTC in this case) refuse or neglect to inquire into the factual milieu of an arbitrator's award to determine whether it is in accordance with law or within the scope of his authority, judicial review be invoked through Rule 65 certiorari. However, the Court will not engage in a review of the facts found nor even of the law as interpreted or applied by the arbitrator unless the supposed errors of fact or of law are so patent and gross and prejudicial as to amount to a grave abuse of discretion or an exces de pouvoir on the part of the arbitrator." 21

The SC after closely studying the list of errors finds that petitioners have amply made out a case where the voluntary arbitrator failed to apply the terms and provisions of the Construction Agreement which forms part of the law applicable as between the parties, thus committing a grave abuse of discretion in granting unjustified extra compensation to respondent for several items, he exceeded his powers — all of which would have constituted ground for vacating the award under Section 24 (d) of the Arbitration Law.

But the respondent trial court's refusal to look into the merits of the case, despite prima facie showing of the existence of grounds warranting judicial review, effectively deprived petitioners of their opportunity to prove or substantiate their allegations. In so doing, the trial court itself committed grave abuse of discretion. Likewise, the appellate court, in not giving due course to the petition, committed grave abuse of discretion.

WHEREFORE, the petition is GRANTED. Accordingly, this case is REMANDED to the court of origin for further hearing on this matter.

Stanfilco v. Dole GR 154048

Facts: On January 29, 1998, SEARBEMCO, as seller, and respondent DOLE Philippines, as buyer, entered into a Banana Production and Purchase Agreement4 (BPPA). The BPPA provided that SEARBEMCO shall sell exclusively to DOLE, and the latter shall buy from the former, all Cavendish bananas of required specifications to be planted on the land owned by SEARBEMCO.

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Part of the agreement states that SEARBEMCO shall exclusively sell to the BUYER all bananas produced from the subject plantation, except those rejected by the BUYER for failure to meet the specifications and conditions. In the case of any such rejected bananas, the SELLER shall have the right to sell such rejected bananas to third parties, for domestic non-export consumption.

Their contract also had an arbitration clause, stating that all disputes arising in connection with their agreement shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by three (3) Arbitrators appointed in accordance with said Rules.

On December 11, 2000, DOLE filed a complaint with RTC against SEARBEMCO, the spouses Elly and Myrna Abujos (spouses Abujos), and Oribanex Services, Inc. (Oribanex) for specific performance and damages, with a prayer for the issuance of a writ of preliminary injunction and of a temporary restraining order. DOLE alleged that SEARBEMCO sold and delivered to Oribanex, through the spouses Abujos, the bananas rejected by DOLE, stating that Oribanex is an exporter of bananas.

SEARBEMCO responded with a motion to dismiss, stating that it was the DARAB that had proper jurisdiction, that they sold to third party buyers and not exporters, and for the prematurity of the complaint for not being arbitrated.

The RTC and CA both ruled against SEARBEMCO, stating that the matter was not an agrarian contract and that For DARAB to have jurisdiction over a case, there must exist a tenancy relationship between the parties. Further, as there were necessary parties impleaded that weren’t in the initial deal between SEARBEMCO and Dole, the arbitration clause would be invalid. SEARBEMCO now raises these issues to the SC.

Issues not related to subject: W/N DARB had jurisdiction and w/n there was a valid cause of action.

Held: The SC held that the parties in the present case have no tenurial, leasehold, or any other agrarian relationship that could bring their controversy within the ambit of agrarian reform laws and within the jurisdiction of the DARAB. Tenancy relations cannot be presumed. The elements of tenancy must first be proved by substantial evidence which can be shown through records, documents, and written agreements between the parties. The Court declared that when the question involves the rights and obligations of persons engaged in the management, cultivation, and use of an agricultural land covered by CARP, the case falls squarely within the jurisdictional ambit of the DAR.

The action of [DOLE] involves and calls for the application of the New Civil Code, in tandem with the terms and conditions of the [BPPA] of [SEARBEMCO] and [DOLE].

Hence, the RTC’s jurisdiction was proper.

The SC also stated that there was a valid cause of action, as hypothetically admitting the allegations in DOLE’s complaint that SEARBEMCO sold the rejected bananas to Oribanex, a competitor of DOLE and also an exporter of bananas, through the spouses Abujos, a valid judgment may be rendered by the RTC holding SEARBEMCO liable for breach of contract.

Main issue for arbit: W/N the parties should resort to arbitration first

The SC agrees with the CA ruling that the BPPA arbitration clause does not apply to the present case since third parties are involved. Any judgment or ruling to be rendered by the panel of arbitrators will be useless if third parties are included in the case, since the arbitral ruling will not bind them; they are not parties to the arbitration agreement. In the present case, DOLE included as parties the spouses Abujos and Oribanex since they are necessary parties,i.e., they were directly involved in the BPPA violation DOLE alleged, and their participation are indispensable for a complete resolution of the dispute. To require the spouses Abujos and Oribanex to submit themselves to arbitration and to abide by whatever judgment or ruling the panel of arbitrators shall make is legally untenable; no law and no agreement made with their participation can compel them to submit to arbitration.

The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue could not be speedily and efficiently resolved in its entirety if there was simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.

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

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Tuna Processing vs Phil SupportG.R. No. 185582 (February 29, 2012)

FACTS: Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian Patent, entered into a Memorandum of Agreement (MOA) with five Philippine tuna processors including Respondent Philippine Kingford, Inc. (KINGFORD). The MOA provides for the enforcing of the abovementioned patents,

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granting licenses under the same, and collecting royalties, and for the establishment of herein Petitioner Tuna Processors, Inc. (TPI).

Due to a series of events not mentioned in the Petition, the tuna processors, including Respondent KINGFORD, withdrew from Petitioner TPI and correspondingly reneged on their obligations. Petitioner TPI submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California, United States and won the case against Respondent KINGFORD.

To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City. Respondent KINGFORD filed a Motion to Dismiss, which the RTC denied for lack of merit. Respondent KINGFORD then sought for the inhibition of the RTC judge, Judge Alameda, and moved for the reconsideration of the order denying the Motion. Judge Alameda inhibited himself notwithstanding “[t]he unfounded allegations and unsubstantiated assertions in the motion.” Judge Ruiz, to which the case was re-raffled, in turn, granted Respondent KINGFORDS’s Motion for Reconsideration and dismissed the Petition on the ground that Petitioner TPI lacked legal capacity to sue in the Philippines. Petitioner TPI is a corporation established in the State of California and not licensed to do business in the Philippines.

Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE: Whether or not a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?

ARGUMENT: Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance with RA No. 9285 (Alternative Dispute Resolution Act of 2004), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on International Commercial Arbitration (Model Law), as none of these specifically requires that the party seeking for the enforcement should have legal capacity to sue.

RULING: YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004. A foreign corporation’s capacity to sue in the Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award is concerned.

The Resolution of the RTC is REVERSED and SET ASIDE.

RATIO DECIDENDI: Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and enforcement of the arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

a. The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made;

b. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;

c. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced;

d. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where the arbitration took place; or

e. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds that:

a. The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or

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b. The recognition or enforcement of the award would be contrary to the public policy of that country.

Not one of the abovementioned exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution, which was promulgated by the Supreme Court, likewise support this position.

Rule 13.1 of the Special Rules provides that “[a]ny party to a foreign arbitration may petition the court to recognize and enforce a foreign arbitral award.” The contents of such petition are enumerated in Rule 13.5. Capacity to sue is not included. Oppositely, in the rule on local arbitral awards or arbitrations in instances where “the place of arbitration is in the Philippines,” it is specifically required that a petition “to determine any question concerning the existence, validity and enforceability of such arbitration agreement” available to the parties before the commencement of arbitration and/or a petition for “judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its jurisdiction” after arbitration has already commenced should state “[t]he facts showing that the persons named as petitioner or respondent have legal capacity to sue or be sued.”

Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral award, the Court deny availment by the losing party of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in Philippine courts. When a party enters into a contract containing a foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration, conceding thereby the capacity of the other party to enter into the contract, participate in the arbitration and cause the implementation of the result. Although not on all fours with the instant case, also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of Appeals [1998], to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested mechanism can simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and actively participated in the arbitration proceedings from the very beginning, it will destroy the very essence of mutuality inherent in consensual contracts.

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws and procedures, but because Republic Act No. 9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the RTC correctly observed that the Model Law, not the New York Convention, governs the subject arbitral award, Petitioner TPI may still seek recognition and enforcement of the award in Philippine court, since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement.

Philrock Inc vs Construction Industry Arbitration Commission (2001)

Facts:

- Spouses Cid filed a complaint for damages against Philrock and seven of its officers and engineers with the RTC. But the complaint was dimissed and referred to the CIAC because of an Agreement to Arbitrate with the CIAC.

- During the CIAC conferences, disagreements arose as to whether moral and exemplary damages and tort should be included as an issue along with

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breach of contract, and whether the seven officers and engineers of Philrock who are not parties to the Agreement to Arbitrate should be included in the arbitration proceedings. Thus, by the parties’ agreement, the case was dismissed by the CIAC and the case was remanded to the trial court.

- The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City a Motion To Set Case for Hearing which motion was opposed by Philrock. On June 13, 1995, the trial court declared that it no longer had jurisdiction over the case and ordered the records of the case to be remanded anew to the CIAC for arbitral proceedings.

- Thus, the CIAC resumed conducting preliminary conferences. But Philrock requested suspension of the proceedings until the RTC clarified its June 13, 1995 order, saying that the RTC’s order was based on the mistaken premise e that 'the proceedings in the CIAC fell through because of the refusal of [Petitioner] Philrock to include the issue of damages therein,' whereas the true reason for the withdrawal of the case from the CIAC was due to Philrock's opposition to the inclusion of its seven officers and engineers, who did not give their consent to arbitration, as party defendants. On the other hand, Spouses Cid said they were willing to exclude the seven officers and engineers of Philrock as parties to the case if only to facilitate the proceedings.

- Philrock's counsel agreed to the continuation of the proceedings but reserved the right to file a pleading elucidating the position he [had] raised regarding the Court's Order dated June 13, 1995.

- Later on, petitioner Philrock filed a motion to dismiss, alleging that the CIAC had lost jurisdiction to hear the arbitration case due to the parties’ withdrawal of their consent to arbitrate. CIAC denied the motion. And eventualy, the CIAC rendered a decision favorable to the Cid spouses.

- Thus, this petition for certiorari by petitioner Philrock.

Issue: Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses against Petitioner Philrock after the case had been dismissed by both the RTC and the CIAC.

Held: Yes. Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had withdrawn their consent to arbitrate. The June 13, 1995 RTC Order remanding the case to the CIAC for arbitration was allegedly an invalid mode of referring a case for arbitration.

We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction

contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration.

It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by virtue of their Agreement to Arbitrate dated November 24, 1993. Signatories to the Agreement were Atty. Ismael J. Andres and Perry Y. Uy (president of Philippine Rock Products, Inc.) for petitioner, and Nelia G. Cid and Atty. Esteban A. Bautista for respondent spouses.

Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on April 8, 1994, because of the exclusion of the seven engineers of petitioners in the arbitration case. This withdrawal became the basis for the April 13, 1994 CIAC Order dismissing the arbitration case and referring the dispute back to the RTC. Consequently, the CIAC was divested of its jurisdiction to hear and decide the case.

This contention is untenable. First, private respondents removed the obstacle to the continuation of the arbitration, precisely by withdrawing their objection to the exclusion of the seven engineers. Second, petitioner continued participating in the arbitration even after the CIAC Order had been issued. It even concluded and signed the Terms of Reference on August 21, 1995, in which the parties stipulated the circumstances leading to the dispute; summarized their respective positions, issues, and claims; and identified the composition of the tribunal of arbitrators. The document clearly confirms both parties’ intention and agreement to submit the dispute to voluntary arbitration. In view of this fact, we fail to see how the CIAC could have been divested of its jurisdiction.

Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC’s final resolution of the dispute by arguing that the regular court also lost jurisdiction after the arbitral tribunal’s April 13, 1994 Order referring the case back to the RTC. In so doing, petitioner conceded and estopped itself from further questioning the jurisdiction of the CIAC. The Court will not countenance the effort of any party to subvert or defeat the objective of voluntary arbitration for its own private motives. After submitting itself to arbitration proceedings and actively participating therein, petitioner is estopped from assailing the jurisdiction of the CIAC, merely because the latter rendered an adverse decision.

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HI-PRECISION STEEL CENTER, INC vs. LIM KIM STEEL BUILDERS, INC.G.R. No. 110434

December 13, 1993(228 SCRA 397)

FACTS: Petitioner Hi-Precision Steel Center Inc. entered into a contract with Respondent Lim Kim Steel Builders for the latter to complete a P21 Million construction project owned by the former for a period of 153 days. On the last day of the construction of the project, respondent only accomplished 75.8674% of the project. The respondent alleged that it was the fault of the petitioner because of issuance of change orders. On the other hand petitioner alleged that it was due to the fault of the respondent because it incurred delays.

Respondent filed a Request for Adjudication with public respondent Construction Industry Adjudication Commission (CIAC). Respondent sought for the payment of the unpaid progress buildings, unearned profits and other receivables. Petitioner on the other hand claimed actual and liquidated damages including attorneys’ fees. CIAC formed Arbitral Tribunal composed of three members. And they come up with a decision in favor of the Respondent.

Petitioner filed a petition to the Supreme Court that sought to reverse the decision of the CIAC for it committed grave abused of discretion in not properly implementing paragraph 1 and 2 of Article 1191 of the Civil Code, in not applying the doctrine of estoppels and failure of the arbitral tribunal to uphold the supremacy of the law between the parties and enforce it against private respondent.

ISSUE: Whether or not the Arbitral Tribunal Committed grave abused of discretion.

HELD: Section 19 of Executive Order 1008 as amended provides that “The Arbitral award shall be binding upon the parties. It shall be final and inappealable except on QUESTION OF LAW which shall be appealable to the Supreme Court.” The allegations raised by the Hi-Precision Steel Center, Inc. are all question of facts. The Petitioner make it appear that the issues involve are questions of law but in truth it is only a question of fact. The Supreme Court in a long line of cases is not a trier of facts; hence, the decision of the CIAC is binding and enforceable.

Cargill Philippines, Inc. vs San Fernando Regala Trading (2011)

Facts:

- Respondent San Fernando Regala Trading Inc filed with the RTC a complaint for resicssion of contract with damages against petitioner Cargill. In its Complaint, respondent alleged that it was engaged in buying and selling of molasses and petitioner was one of its various sources from whom it purchased molasses. Petitioner, as seller, failed to comply with its obligations under the contract, despite demands from respondent, thus, the latter prayed for rescission of the contract and payment of damages.

- Thereafter, petitioner filed a motion to dismiss/suspend proceedings and to refer the controversy to voluntary arbitration, wherein it argued that

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the alleged contract between the parties, dated July 11, 1996, was never consummated because respondent never returned the proposed agreement bearing its written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight. Petitioner contended that the controversy between the parties was whether or not the alleged contract between the parties was legally in existence and the RTC was not the proper forum to ventilate such issue. It claimed that the contract contained an arbitration clause, which provides that any dispute shall be settled by arbitration in New York before the American Arbitration Association.

- Respondent refuted petitioner’s claim for arbitration, saying that the arbitration clause is void for being contrary to public policy since it provided that the arbitration award shall be final and binding on both parties, thus, ousting the courts of jurisdiction.

- The RTC refused to dismiss/suspend the proceedings. The CA, while recognizing the validity of the arbitration clause, said that an arbitration cannot be order, based on the contract, because the petitioner itself is assailing the validity of the contract. Hence, this petition.

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

Held: Yes. A contract is required for arbitration to take place and to be binding. Submission to arbitration is a contract and a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract. The provision to submit to arbitration any dispute arising therefrom and the relationship of the parties is part of the contract and is itself a contract.

An arbitration agreement which forms part of the main contract shall not be regarded as invalid or non-existent just because the main contract is invalid or did not come into existence, since the arbitration agreement shall be treated as a separate agreement independent of the main contract. To reiterate. a contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the party who has repudiated the main contract is not prevented from enforcing its arbitration clause.

In the case of Gonzales vs Climax Mining Ltd, the Supreme Court said: “Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the contract between them, which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel. It is not proper when one of the

parties repudiates the existence or validity of such contract or agreement on the ground of fraud or oppression as in this case. The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function.”

Transfield Philippines Inc vs Luzon Hydro Corporation (2004)

Facts:

- Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos. Transfield was given the sole responsibility for the design, construction, commissioning, testing and completion of the Project. The contract provides for a period for which the project is to be completed and also allows for the extension of the period provided that the extension is based on justifiable grounds such as fortuitous event.

- In order to guarantee performance by Transfield, two stand-by letters of credit were required to be opened. During the construction of the plant,

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Transfield requested for extension of time citing typhoon and various disputes delaying the construction. LHC did not give due course to the extension of the period prayed for but referred the matter to arbitration committee.

- Because of the delay in the construction of the plant, LHC called on the stand-by letters of credit because of default. However, the demand was objected by Transfield on the ground that there is still pending arbitration on their request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the pending arbitration case.

Held: No.

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

Transfield’s argument that any dispute must first be resolved by the parties, whether through negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence would convert the letter of credit into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in toto where the credit is independent from the justification aspect and is a separate obligation from the underlying agreement like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a commercial letter of credit or repayment standby, which is identical with the same obligations under the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the credit the payment of the credit would constitute fraudulent abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the settlement of a dispute between the parties is not a pre-

requisite for the release of funds under a letter of credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a letter of credit is drawable only after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in commercial transactions.

SEA-LAND SERVICE, INC. vs. COURT OF APPEALS, A.P. MOLLER/ MAERSK LINEG.R. No. 126212March 2, 2000

FACTS: Petitioner Sea-Land Services and private respondent A.P. Moller/ Maersk Line (AMML), both carriers of cargo in containerships as well as common carriers, entered into a contract entitled, "Co-operation in the Pacific" (Agreement), a vessel sharing agreement whereby they mutually agreed to purchase, share and exchange needed space for cargo in their respective containerships. Under the Agreement, they could be, depending on the occasion, either a principal carrier or a containership operator.

During the lifetime of the said Agreement, Florex International, Inc. (Florex) delivered to AMML cargo of various foodstuffs, with Oakland, California as port of discharge and San Francisco as place of delivery. The corresponding Bill of Lading No. MAEU MNL110263 was issued to Florex by respondent AMML. Pursuant to the

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Agreement, respondent AMML loaded the subject cargo on MS Sealand Pacer, a vessel owned by petitioner. Under this arrangement, therefore, respondent AMML was the principal carrier while petitioner was the containership operator.

Consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, Florex filed a complaint against respondent Maersk-Tabacalera Shipping Agency (Filipinas), Inc. for reimbursement of the value of the cargo and other charges. According to Florex, the cargo was received by the consignee only on June 28, 1991, since it was discharged in Long Beach, California, instead of in Oakland, California on June 5, 1991 as stipulated.

AMML in its Answer alleges that even on the assumption that Florex was entitled to reimbursement; it was petitioner who should be liable. Accordingly, respondent AMML filed a Third Party Complaint against petitioner, averring that whatever damages sustained by Florex were caused by petitioner, which actually received and transported Florex's cargo on its vessels and unloaded them.

Petitioner filed a Motion to Dismiss the Third Party Complaint on the ground of failure to state a cause of action and lack of jurisdiction. Petitioner also prayed either for dismissal or suspension of the Third Party Complaint on the ground that there exists an arbitration agreement between it and respondent AMML. The lower court issued an Order denying petitioner's Motion to Dismiss. Petitioner's Motion for Reconsideration was likewise denied.

Undaunted, petitioner filed a petition for certiorari with the Court of Appeals. Meanwhile, petitioner also filed its Answer to the Third Party Complaint in the trial court. Court of Appeals rendered the assailed Decision dismissing the petition for certiorari.

ISSUE: Whether or not the Court of Appeals erred in denying petitioner's prayer for arbitration.

HELD: Court of Appeals erred in denying petitioner's prayer for arbitration.

For respondent Court of Appeals to say that the terms of the contract do not require arbitration as a condition precedent to judicial action is erroneous. In the light of the Agreement clauses, it is clear that arbitration is the mode provided by which respondent AMML as Principal Carrier can seek damages and/or indemnity from petitioner, as Containership Operator.

As the Principal Carrier with which Florex directly dealt with, AMML can and should be held accountable by Florex in the event that it has a valid claim against the former. Pursuant to the Agreement, AMML, when faced with such a suit "shall use

all reasonable endeavours to defend" itself or "settle such suits for as low a figure as reasonably possible". In turn, respondent AMML can seek damages and/or indemnity from petitioner as Containership Operator for whatever final judgment may be adjudged against it under the Complaint of Florex. The crucial point is that collection of said damages and/or indemnity from petitioner should be by arbitration.

Thus, when the text of a contract is explicit and leaves no doubt as to its intention, the court may not read into it any other intention that would contradict its plain import. Arbitration being the mode of settlement between the parties expressly provided for by their Agreement, the Third Party Complaint should have been dismissed.

G.R. No. 143581KOREA TECHNOLOGIES CO., LTD., Petitioner

v.HON. ALBERTO A. LERMA, inhis capacity as Presiding Judge of Branch 256 of

Regional Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL MANUFACTURING CORPORATION, Respondents.

FACTS: PGSMC and KOGIES executed a Contract i whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 1997 amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to pay USD 306,000 upon the plant’s production of the 11-kg. Later PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of Worth’s 5,079-square meter property with a 4,032-square meter

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warehouse building to house the LPG manufacturing plant. after the installation of the plant, the initial operation could not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would be deemed to have completely complied with the terms and conditions of the March 5, 1997 contract. PGSMC informed KOGIES that PGSMC was canceling their Contract dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered the quality of the machineries and equipment it delivered to PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment, and facilities installed in the Carmona plant. KOGIES filed a Complaint for Specific Performance against PGSMC before the Muntinlupa City Regional Trial Court (RTC).

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

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

ISSUE: W/N the Arbitration clause is contrary to public policy.

RULING: The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral award is final and binding, is not contrary to public policy. This Court has sanctioned the validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,iii this Court had occasion to rule that an arbitration clause to resolve differences and breaches of mutually agreed contractual terms is valid. In BF Corporation v. Court of Appeals, we held that “[i]n this jurisdiction, arbitration has been held valid and constitutional. Even before the approval on June 19, 1953 of Republic Act No. 876,

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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.” 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.