MEMORANDUM FOR RESPONDENT

ON BEHALF OF
ABC Medical Group, Inc.
General Luna St.,
Iloilo City, Iloilo
5000 Philippines
AGAINST
GE Philippines, Inc.
8th Floor.Net Cube
3rd Avenue corner 30th Street
E-Square Crescent Park West
Bonifacio Global City 1634
Taguig City, Philippines

RESPONDENT CLAIMANT

Bryan Eric Cerebo • Val Justin Deatras • Sharmaine Nuevaespaña • Leonel Ocana

Victoria Padilla • Rey Paja • Jillen Suan

March 3, 2018
 TABLE OF CONTENTS

Index of Authorities …………………………………………………………………….. ii

Index of Cases ………………………………………………………………………….. iii

List of Abbreviations …………………………………………………………………… iv

Statement of Facts ………………………………………………………………........... 1

Summary of Arguments ……………………………………………………………….. 4

Arguments ………………………………………………………………………………. 5

I. CLAIMANT cannot claim liability against respondent ……………………… 5

A. RESPONDENT is not liable to pay purchase price …………........... 5

B. RESPONDENT is not liable to pay damages ……………………….. 7

II. RESPONDENT is not liable to pay the Value Added Tax (VAT) ……….. 8

Counterclaim …………………………………………………………………………….. 9

Points at issue ……………………………………………………………………. 9

Legal Grounds or Arguments …………………………………………………… 9

I. CLAIMANT is liable for its non-fulfillment of its reciprocal

obligations under the contract to sell ………………………………….. 9

II. RESPONDENT can claim damages against claimant ……………… 10

Value of claims and amounts involved ………………………………………………….. 11

Relief sought and damages claimed ………………………………………………………. 12

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 INDEX OF AUTHORITIES

International Bar Association Rules on the Taking of Evidence in Par. 26

International Arbitration [IBA Rules]

New Civil Code of the Philippines [New Civil Code] Par. 31, 44, 46, 47

Value Added Tax Act of 2014 Par. 40

Arbitration Rules of Philippine Dispute Resolution Center, Inc.

[PDRCI Rules]

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 INDEX OF CASES

Philippines

Ayala Life Assurance, Inc. v. Ray Burton Dev. Par. 18, 22

Corp., G.R. No. 163075, January 23, 2006, 479
SCRA 462

Darrel Cordero et al vs F.S. Management & Par. 21

Development Corporation, G.R. No. 167213 (2006)

Raymundo S. De Leon vs Benita T. Ong, G.R. No. Par. 23

170405 (2010)

Santos Ventura Hocorma Foundation Inc. vs Ernesto Par. 33

V. Santos and Riverland Inc., G.R. No. 153004
(2004)

Coronel vs CA, 263 SCRA 29 Par. 35

Australia

W & K Holdings (NSW) Pty Ltd v Mayo [2013] Par. 39

NSWSC 1063

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 LIST OF ABBREVIATIONS

ABC ABC Medical Group, Inc.

Ave. Avenue

BMD Bone Mineral Densitometry

Demand Demand for Arbitration

Equipment Prodigy PRO Bone Densitometry System

Flr. Floor

GE General Electric Philippines , Inc.

GSO General Services Office

New Civil Code The New Civil Code of the Philippines

Par. Paragraph

PDRCI Rules Arbitration Rules of Philippine Dispute Resolution Center, Inc.

Response Response to the demand for arbitration

Service Engineers GE Factory-trained Service Engineers

Terms and Conditions General Electric Healthcare Terms and Conditions of Sale

Tribunal Arbitral Tribunal

VAT Value Added Tax

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 STATEMENT OF FACTS

1. RESPONDENT has been known as a leading health services provider/hospital in terms

of having state-of-the-art facilities and medical equipment, which significantly impact
excellent clinical outcomes, treatment, and care of its patients. RESPONDENT has
always been committed to bringing innovative equipment for its caliber health services,
and has remained true to its vision of the continuity of such topnotch services.

2. On July 14, 2017, the ABC-Laboratory Department expressed its urgent need to
purchase a Prodigy PRO Bone Densitometry System to the Department Head of ABC-
General Services Office (Respondent’s Exhibit R 2) because of imminent possibility that
the present equipment will cease on functioning soon. After due deliberation,
RESPONDENT issued a board resolution for the purchase of the said equipment dated
July 18, 2017 (Respondent’s Exhibit R 3).

3. On July 21, 2017, a bidding process ensued in which CLAIMANT was one of the
companies that expressed intent to supply the equipment. The CLAIMANT was the
winning bidder, to which a Notice of Award dated August 2, 2017 was given
(Respondent’s Exhibit R 4).

4. On August 4, 2017, RESPONDENT sent notice to proceed with the supply of the
equipment (Respondent’s Exhibit R 5).

5. On August 10, 2017 a proposal to sell and supply was presented by CLAIMANT to
RESPONDENT (Respondent’s Exhibit R 6), in which both parties agreed to, and signed
on August 18, 2017. RESPONDENT expressed during the bidding process that the
equipment should be fully functional by September 26, 2017 (Respondent’s Exhibit R
4), to ensure that the new equipment will be ready by the time the old one would no
longer be usable.

6. On the date of the signing of the contract, a purchase order was also signed by both
parties (Respondent’s Exhibit R 7) and an acknowledgement receipt (Respondent’s
Exhibit R 8) was then issued by CLAIMANT to RESPONDENT upon the issuance of a
dated cheque amounting to P500,000.00 as down payment.

7. On August 31 2017, RESPONDENT notified CLAIMANT that the site was ready for
inspection (Respondent’s Exhibit R 9). Thereafter, on September 5, 2017 GE site
inspector issued a certificate of inspection (Respondent’s Exhibit R 10), certifying that
the site has already been inspected and ready for installation.
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8. The equipment was delivered on September 6, 2017 as evidenced by delivery receipt
issued by RESPONDENT (Respondent’s Exhibits R 11) and inspection and acceptance
certificate issued by RESPONDENT (Respondent’s Exhibits R 12).

9. The installation of the equipment started at 9:00 A.M. on September 7, 2017. However,
at 3:00 P.M. installation was stopped due to a damage caused by the GE factory-trained
Service Engineers (Service Engineers). Immediately thereafter, RESPONDENT issued
an incident report to CLAIMANT (Respondent’s Exhibit R 13).

10. On the 2nd day of the supposed installation of the equipment, on September 8, 2017 the
Service Engineers did not show up. This prompted RESPONDENT to notify
CLAIMANT in writing (Respondent’s Exhibit R 14).

11. On September 12, 2017, Service Engineers were sent to fix the damage, however, they
informed RESPONDENT that they cannot repair the damage (Respondent’s Exhibit R
15). The following day, the Service Engineers did not return.

12. Due to this, RESPONDENT issued 2nd and 3rd notices dated September 14 and 21,
2017 respectively (Respondent’s Exhibits R 15 and R 16) stating that the Service
Engineers cannot repair the damage and that RESPONDENT demands urgent action.

13. Through a letter dated September 18, 2017, CLAIMANT replied that they will make
necessary actions. However, up to this date GE failed to take action (Respondent’s
Exhibit R 17).

14. Despite several notices issued to CLAIMANT, they still failed to make necessary
actions, thus, prompting RESPONDENT to issue notice dated September 26, 2017
(Respondent’s Exhibit R 18) expressing RESPONDENT’s intention not to proceed with
the contract to sell. The notice also expressed RESPONDENT’s intention to return the
equipment voluntarily, demand for refund of the down payment amounting to
P500,000.00, and for the damages incurred.

15. On December 6, 20, and 26, 2017, RESPONDENT received demand letters from
CLAIMANT, demanding the payment of the remaining balance amounting to
P2,000,000.00. In response to the demand letters, on December 27, 2017,
RESPONDENT replied stating that after seeking legal advice, RESPONDENT is not
bound to the specific performance of the payment of the remaining balance considering

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 that the contract entered into by parties is that of a contract to sell (Respondent’s Exhibit
R 19).

16. Due to the failure to resolve the controversy by themselves, both parties submitted the
issue for arbitration on December 29, 2017.

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 SUMMARY OF ARGUMENTS

I. RESPONDENT is not liable to pay the contract price because of CLAIMANT’S failure
to fulfill its reciprocal obligation in the contract to sell. The CLAIMANT was negligent in the
performance of its obligation which caused damage of the equipment. The equipment remains
non-functional up to the date of arbitration. Hence it is contrary to justice and equity for the
CLAIMANT to demand payment as it would constitute unjust enrichment. (ISSUE 1)

II. Since there was no perfected sale, it follows that the liability to pay the Value Added Tax
(VAT) did not arise. Furthermore, granting arguendo that RESPONDENT is liable to pay the
VAT, the same should be deemed included in the price of the equipment (Php 2,500,000.00)
because the handwritten statements in the contract provides for the same. (ISSUE 2)

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 ARGUMENTS

I. CLAIMANT CANNOT CLAIM LIABILITY AGAINST RESPONDENT

A. RESPONDENT is not liable to pay purchase price

17. CLAIMANT alleges that RESPONDENT is liable to pay the unpaid purchase price of
the Prodigy Pro Bone Densitometry System. The CLAIMANT however, failed to
articulate that the nature of the contract the parties entered into was that of a contract to
sell, by which limited remedies are allowed by law. Since it is a contract to sell, the
liabilities that the CLAIMANT is asserting are devoid of merit.

18. RESPONDENT objects to the contention that it should be held liable to pay
CLAIMANT the unpaid purchase price of the Prodigy Pro Bone Densitometry System
because in a contract to sell, a cause of action for specific performance demanding
payment of remaining unpaid balance does not arise (Ayala Life Assurance, Inc. v. Ray
Burton Dev. Corp., G.R. No. 163075, January 23, 2006, 479 SCRA 462).

19. There is no dispute that the contract entered into by parties was that of a contract to sell
as alleged by CLAIMANT in its Demand.

20. The General Electric Healthcare Terms and Conditions of Sale (Terms and Conditions)
clause 6.1 provides that “full title to the Goods and Equipment shall pass to the Buyer on
full payment” (Respondent’s Exhibit R 20).

21. In Darrel Cordero et al vs F.S. Management & Development Corporation, G.R. No.
167213 (2006), it was held that when the seller retains title to the thing to be sold until
the purchaser fully pays the agreed purchase price, the contract entered into was a
contract to sell.

22. The law is clear in Ayala Life Assurance, Inc. v. Ray Burton Dev. Corp. that the full
payment is a positive suspensive condition, the non-fulfillment of which is not a breach
of contract but merely an event that prevents the seller from conveying title to the
purchaser. The non-payment of the purchase price renders the contract to sell ineffective
and without force and effect.

23. Further, in Raymundo S. De Leon vs Benita T. Ong, G.R. No. 170405 (2010), it was
held that the buyer does not acquire ownership of the property until he fully pays the

5
 purchase price. For this reason, if the buyer defaults in the payment thereof, the seller
can only sue for damages.

24. Hence, CLAIMANT could not hold RESPONDENT liable to pay the remaining balance
of the contract price because specific performance is not a proper remedy when the
buyer refuses to deliver complete payment in a mere contract to sell.

25. Further, it was CLAIMANT who caused the damage to the equipment as evidenced by
the Incident Report signed by one of the employees authorized by the CLAIMANT
(Respondent’s Exhibit R 13). Contrary to what the CLAIMANT asserts, the
RESPONDENT did not in any way contribute to the damage as the RESPONDENT was
absent at the point of installation when the damage occurred.

26. It is also notable that the expert witness presented by the CLAIMANT lacked credibility
under the International Bar Association Rules on the Taking of Evidence in International
Arbitration (IBA Rules). Article 5(b) of the IBA Rules provides that an expert witness
shall be “independent from the Parties, their legal advisors and the Arbitral Tribunal.”
However, it was later revealed that the witness presented during the direct testimony was
an employee of the CLAIMANT. Hence, pursuant to the IBA Rules, the witness could
not be considered an independent witness, making his testimony biased and lacking of
credibility.

27. Granting arguendo that his testimony will be taken, such could not be given merit
because it could be considered hearsay evidence which lacks legal effect between
parties. It should be noted that the witness testified that he was not the Service Engineer
specifically assigned to the installation of the equipment and he was not present at the
point that the damage actually occurred. He was merely informed by another person as
to how the damage occurred. Absent clear showing of the incidents that took place, it
could not be said that the CLAIMANT successfully established a prima facie case as to
how the damage occurred.

28. Granting further, without admitting that the testimony will be taken, CLAIMANT’s
witness testifying that a power surge occurred is bereft of truth because if it is true that
indeed a power surge occurred, then, the other equipment of the RESPONDENT should
have been damaged as well, but no such thing occurred.

29. Hence, considering the circumstances, it would be unjust and inequitable to make the
RESPONDENT pay for the purchase price of a non-functional equipment. It was the
CLAIMANT who caused the damage to the equipment and the RESPONDENT took no

6
 part in the installation because it is the obligation of the CLAIMANT to perform
installation under the terms of the contract. Therefore, as an effect of a contract to sell
where payment is a positive suspensive condition, the notification of the
RESPONDENT not to proceed with the contract would legally result to the reversion of
the parties to the situation before they entered to the contract to sell. An action for
specific performance to pay is not the proper remedy and it is unjust enrichment on the
part of the CLAIMANT to make the RESPONDENT pay.

B. RESPONDENT is not liable to pay damages

30. RESPONDENT is not liable to pay damages as asserted by CLAIMANT because

contrary to CLAIMANT’S allegations, there was no delay to speak of.

31. Article 1169, New Civil Code provides that “those obliged to deliver or to do something
incur in delay from the time the obligee judicially or extra-judicially demands from them
the fulfillment of their obligation. In reciprocal obligations, neither party incurs in delay
if the other does not comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligations, delay by the other begins.”

32. Invoking the above stated law, CLAIMANT could not legally claim delay as against
RESPONDENT because the CLAIMANT itself failed to comply in a proper manner
with what is incumbent upon him. CLAIMANT failed to perform its obligation under
the terms of the contract to carry out services with reasonable care and skill under Terms
and Conditions clause 9.5; to install the equipment and conduct operators training under
clauses D and E of the contract to sell; and to ensure that functional equipment is
available to ABC.

33. In Santos Ventura Hocorma Foundation Inc. vs Ernesto V. Santos and Riverland Inc.,
G.R. No. 153004 (2004), it was held that in order for the debtor to be in delay, it is
necessary that the following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially. It was further noted that in
reciprocal obligations, the moment one party is ready to comply with his obligation,
delay by the other begins and there is no need for demand from either party.

34. Absent the first requisite, since the obligation to pay was not demandable being that
specific performance is not the proper remedy of the seller, the delay alleged by the GE
did not arise.

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35. Article 1479 provides that “a promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.” In Coronel vs CA, 263 SCRA 29, a contract to sell
was defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full payment of the
purchase price.

36. Hence, assuming arguendo that payment is demandable, there being reciprocal
obligations, delay still did not arise because CLAIMANT was not ready to comply with
its obligations on services, installation, training and on providing functional equipment.

II. RESPONDENT IS NOT LIABLE TO PAY THE VALUE ADDED TAX (VAT)

37. CLAIMANT asserts in its Demand that the VAT is not yet included in the selling price
of Php 2,500,000.00. CLAIMANT further argues that RESPONDENT is liable to pay
for the VAT, which is 12% of the price, amounting to Php 300,000.00.

38. VAT is a sales tax, in which the liability to pay the same arises only when a sale is
perfected. In this case no sale was perfected since the positive suspensive condition of
the contract to sell entered into by the parties was not fulfilled. Hence, the liability to
pay VAT did not arise.

39. Granting arguendo that RESPONDENT is liable to pay the VAT, the same should be
deemed included in the price of the equipment (Php 2,500,000.00) because the
handwritten statements in the contract provides for the same. In the case of W & K
Holdings (NSW) Pty Ltd v Mayo [2013] NSWSC 1063, it was held that where there is
an inconsistency in a contract between printed clauses and handwritten clauses, more
weight should be given to the hand-written components as these required the particular
attention of the drafter. Hence, the handwritten statement in the contract regarding VAT
is controlling.

40. Further, granting without admitting that the handwritten statement is not controlling,
VAT should still be considered as included in the selling price because the Value Added
Tax Act of 2014 states that the price charged by a person registered for VAT is deemed
to include the tax whether or not the vendor has included the tax in their price . Hence,
in the amount of Php 2,500,000.00, it should be deemed that Php 2,232,142.86 is the
amount of the equipment, while Php 267,857.14 is the VAT (12%).

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 COUNTERCLAIM

A. Points at issue

i. Whether or not CLAIMANT is liable for its non-fulfillment of its reciprocal obligations
under the contract to sell

ii. Whether or not RESPONDENT can claim damages against CLAIMANT

B. Legal Grounds or Arguments

I. CLAIMANT IS LIABLE FOR ITS NON-FULFILLMENT OF ITS RECIPROCAL

OBLIGATIONS UNDER THE CONTRACT TO SELL

41. Under the contract to sell entered into by the parties, CLAIMANT, through its Service
Engineers, is under the obligation to install, test and certify the operation of the Prodigy
PRO Bone Density; and to provide an on-site applications and operators training for
Radiological technologists duly employed and endorsed by RESPONDENT as provided
in Clauses D and E, respectively.

42. Since September 7, 2017, the date when one of the service engineers of CLAIMANT
reported that the equipment was damaged (Respondent’s Exhibit R 13), CLAIMANT
has not yet made any further actions to fulfill its obligations under Clause D and E of the
contract despite repeated demands from RESPONDENT. Further, despite knowledge of
the urgency to have the equipment fully functional on or before September 26, 2017
(Respondent’s Exhibit R 4), CLAIMANT has failed to make the necessary repairs at the
earliest possible time. It is evident from the circumstances that CLAIMANT has been
negligent and non-responsive in carrying out the provisions of the contract.

43. Further, Terms and Conditions clause 9.1 provides that “GE warrants that all services
will be carried out with reasonable care and skill.” The fact that the equipment has been
damaged at point of installation while being handled by qualified factory-trained service
engineers of CLAIMANT, shows that CLAIMANT failed to fulfill its obligation to
carry out its services with reasonable care and skill.

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II. RESPONDENT CAN CLAIM DAMAGES AGAINST CLAIMANT

44. Under Article 1170 of the New Civil Code of the Philippines: “those who in the
performance of their obligations are guilty of fraud, negligence, or delay, and those who
in any manner contravene the tenor thereof, are liable for damages.”

45. RESPONDENT has suffered unrealized profits from the supposed services that could
have been rendered to patients, had the equipment been operational at the date
stipulated, September 26, 2017, as a result of CLAIMANT’s failure to comply with all
its obligations under the aforementioned provisions of the contract to sell and the Terms
and Conditions. The unrealized profits is estimated at Php 983,250.00 covering only
from the date when the equipment is agreed to be fully functional (September 26, 2017)
until the date that the parties submitted the dispute for arbitration (December 29, 2017)
(Respondent’s Exhibit R 21).

46. Article 2199 of the New Civil Code of the Philippines provides that “Except as provided
by law or stipulation, one is entitled to an adequate compensation only for such
pecuniary loss suffered by him as he has duly proved. Such compensation is referred to
as actual or compensatory damages.” and Article 2200 provides that “Indemnification
for damages shall comprehend not only the value for the loss suffered, but also that of
the profits which the obligee failed to obtain.” Applying the two aforementioned
Articles from the New Civil Code, RESPONDENT is entitled to recover actual or
compensatory damages for the unrealized profits of the corporation from the supposedly
services that it could have rendered to its patients had there been no issues with the
equipment. While at present the exact amount of actual or compensatory damages
cannot be ascertained yet, it will be at least Php 983,250.00 (Respondent’s Exhibit R
21), subject to increase when during the arbitration such amount can reasonably be
determined.

47. Pursuant to Article 2224 of New Civil Code of the Philippines, RESPONDENT also
seeks to recover temperate or moderate damages should the court find that
RESPONDENT has suffered pecuniary loss but the amount cannot, from the nature of
the case, be proved with certainty. Likewise, RESPONDENT seeks to recover
exemplary or corrective damages provided under Article 2229, should the Arbitral
Tribunal find it appropriate under the circumstances.

48. RESPONDENT further claims for damages against CLAIMANT that the Arbitral
Tribunal may deem appropriate in the circumstances herein.

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 VALUE OF CLAIMS AND AMOUNTS INVOLVED

49. The amount involved in this case is the downpayment paid to CLAIMANT amounting
to Php 500,000.00, which RESPONDENT seeks to be returned. RESPONDENT also
claims actual and compensatory damages for unrealized profits of at least Php
983,250.00. RESPONDENT further claims temperate or moderate damages, and
exemplary or corrective damages for the pecuniary loss suffered in the amount that the
Arbitral Tribunal deems appropriate. Proceedings also involve RESPONDENT’s
attorney’s fees, costs of arbitration, legal interests for all money claims, and such other
awards as the Tribunal deems fit.

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 RELIEF SOUGHT AND DAMAGES CLAIMED

50. For the foregoing reasons, RESPONDENT respectfully requests that this tribunal render
an award:

a. dismissing all of CLAIMANT’S claims in entirety and with prejudice;

b. declaring that CLAIMANT has violated its reciprocal obligations and is liable under the
contract to sell;
c. ordering CLAIMANT to compensate RESPONDENT for the damages and losses
suffered as a result of CLAIMANT’s conduct;
d. ordering CLAIMANT to pay all arbitration costs, including RESPONDENT’s counsel’s
costs and expenses;
e. ordering payment by CLAIMANT of interest at a rate of 12% per annum on all the above
amounts as of the date these amounts were due, until the date of their effective payment;
f. ordering any further and/or additional relief as the Tribunal may deem appropriate.

51. RESPONDENT reserves its right to further develop its arguments and the amount of
relief it is seeking.

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