PUROMINES, INC., petitioner, vs.

COURT OF APPEAL and PHILIPP

BROTHERS OCEANIC, INC., respondents. G.R. No. 91228. March 22,
1993

Facts: Puromines, Inc. and Makati Agro Trading, Inc. entered into a contract with
private respondents Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in
bulk. The Sales Contract provided, among others an arbitration clause which
states, thus:
"9. Arbitration - Any disputes arising under this contract shall be settled by
arbitration in London in accordance with the Arbitration Act 1950 and any
statutory amendment or modification thereof. XXXX"
The shipment covered by 3 bills of lading was loaded on MV Liliana Dimitrova with
Philipp Brothers as charterer of said vessel. When the shipment covered by Bill of
Lading 1 and 3 were discharged in Manila, it was found to be in bad order and
condition, caked, hardened and lumpy, discoloured and contaminated with rust
and dirt.
Puromines filed a complaint with the Trial Court for breach of contract of carriage
against Maritime, as ship-agent and Philipp Brothers, as charterer. Philipp filed a
motion to dismiss on the ground that Petitioner should comply with the arbitration
clause in the sales contract. Puromines opposed contending that the sales contract
does not include contract of carriage, therefore, the latter is not covered by the
agreement on arbitration.

Issue: Whether or not the arbitration clause in the sales contract covers claims for
violations of contract of carriage.

Held: Yes. The sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. Puromines derives its
right to the cargo from the bill of lading which is the contract of affreightment
together with the sales contract. Consequently, it is bound by the provisions and
terms of the said bill of lading and of the arbitration clause incorporated in the sales
contract.
Responsibility to third persons for goods shipped on board a vessel follows
the vessel's possession and employment. Assuming the cause of action is based
on contract of carriage, it must be first determined what kind of charter party had
with the ship owner to determine liability. If it is a contract of affreightment, the
charterer is not liable as possession is still with owner. If it is a charter of demise
or bareboat, then the charterer is liable as it is considered the owner and therefore
would be liable for damage or loss.

In any case, whether the liability of respondent should be based on the

same contract or that of the bill of lading, the parties are nevertheless obligated to
respect the arbitration provisions on the sales contract and/or the bill of lading.
Petitioner being a signatory and party to the sales contract cannot escape from his
obligation under the arbitration clause as stated therein.

Arbitration has been held valid and constitutional. 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 interfere with great reluctance to
anticipate or nullify the action of the arbitrator.
WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is
AFFIRMED.
 CRITIQUE

I agree with the ruling of the Supreme Court.

Philippine Law recognizes the validity, enforceability and irrevocability of arbitration
agreements. This is found in section 2 of Republic Act 876, otherwise known as The
Arbitration Law.
Section 2. Persons and matters subject to arbitration. - Two or more persons or parties
may submit to the arbitration of one or more arbitrators any controversy existing between
them at the time of the submission and which may be the subject of an action, or the
parties to any contract may in such contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or contract shall be valid, enforceable
and irrevocable, save upon such grounds as exist at law for the revocation of any contract.
In theory, parties agree to arbitration clauses because arbitration is faster than traditional
litigation, the proceedings are confidential and the parties are able to participate in the
selection of arbitrators. In the actual experience, foreign investors in the Philippines agree
to include arbitration clauses, not only to be spared from the unavoidable delay in
traditional litigation but, more importantly, to safeguard impartiality. (Autea, Arthur.
International Commercial Arbitration: The Philippine Experience 77 Philippine Law
Journal 143 (2002))
Nowadays, arbitration clauses are becoming a standard provision in contracts involving
cross-border transactions. Such agreement is important as it settles uncertainty arising
from conflicting laws of parties with different nationalities. Parties who are confronted with
a choice of law decision is given the freedom to submit themselves to arbitration, as the
case may be, in order to settle claims and issues before a neutral forum.
The Court in this case, citing Mindanao Portland Cement Corp. v. McDonough
Construction Company of Florida, said, this proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should proceed to arbitration or
not.
Contracts are governed by the stipulations of the parties. Hence, each must respect
whatever provisions agreed by them. There is even a constitutional guarantee on non-
impairment of contracts. Therefore, stipulation of parties are given utmost respect as long
as it is not contrary to morals, public welfare and public policy.