DFA v. BCA International Corp. G.R. No. 225051 July 19, 2017 Peralta, J.

SALAS v. LAPERAL REALTY CORP. G.R. No. 135362 December 13, 1999 De
Leon, Jr. J.
HOME BANKERS SAVINGS AND TRUST COMPANY, Petitioner, v. CA
LM Power Engineering Corp vs Capitol Industrial Construction Corp, GR No
141833
LUZON IRON DEVELOPMENT GROUP CORPORATION AND vs.
BRIDESTONE MINING AND DEVELOPMENT CORP
Steamship vs Sulpicio Lines, GR No 19
DPWH vs CMC, GR No 179732
BCDA vs DMCI, GR No 173137
Fruehaf vs Technology, GR No 204197
Lanuza vs BF Corp, GR No 174938
Koppel v. Makati Rotary Club G.R. No. 198075. September 4, 2013
KOREA TECHNOLOGIES CO., LTD., petitioner, vs. HON. ALBERTO A. LERMA
Gonzalez vs Climax, GR No 161957
Del Monte vs CA, GR No 136154
Sea-Land vs CA, GR No 126212
Magellan Capital Management Corp. v. Zosa GR No. 129916; March 26, 2001
Del Monte Corporation-USA vs Court of Appeals, GR No 136154
Cargill vs San Fernando Regala, GR No 175404
RCBC vs BDO, GR No 196171
BF Corp vs Court of Appeals, GR No 120105
Steamship vs Sulpicio Lines, GR No 196072
Cargill vs Regala, GR No 175404
PEZA vs Bataan, GR No 179537
Benguet vs DENR, GR No 163101
Bengson vs Chan, GR No L-27283
GI vs Union, GR No L-30475
Tuna Procesing vs Philippine Kingford, GR No 185582
Mabuhay Holding Corporation vs Sembcorp Logistics, GR No 212734
DFA vs BCA, GR No 225051 and 210858
Federal vs Airfreight, GR No 216600
Dale Strickland vs Ernst & Young LLP, GR No 193782
Cargill vs San Fernando Regala, GR No 175404
Aboitiz vs Gothong, GR No 198226
Transfield vs Luzon Hydro
Home Bankers Savings vs Court of Appeals, GR No 115412

KOREA TECHNOLOGIES CO., LTD., petitioner, vs. HON. ALBERTO A.

LERMA
G.R. NO. 143581, January 7, 2008
VELASCO, JR., J.:

DOCTRINE

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.

FACTS

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation

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.

PGSMC and KOGIES executed a Contract whereby KOGIES would set up an

LPG Cylinder Manufacturing Plant in Carmona, Cavite. The total contract price
amounted to USD 1,530,000.

PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) to
house the LPG manufacturing plant. 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,
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 contract. For the remaining balance of USD306,000 for the
installation and initial operation of the plant, PGSMC issued two postdated
checks. When KOGIES deposited the checks, these were dishonored for the
reason "PAYMENT STOPPED."

PGSMC informed KOGIES that it was canceling their contract. KOGIES wrote
PGSMC informing the latter it 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.

PGSMC then filed before the Office of the Public Prosecutor an Affidavit-
Complaint for Estafa the President of KOGIES.

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.

KOGIES filed a Complaint for Specific Performance, against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). 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" by "altering the quantity and lowering the
quality of the machinery and equipment" installed. 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.

The RTC granted a temporary restraining order (TRO).

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.

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 filed before the Court of Appeals (CA) a petition for certiorari seeking
annulment of the RTC Orders and to direct the RTC to enforce the specific
agreement on arbitration to resolve the dispute.

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

Whether or not the CA erred in 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

RULING

Yes. The arbitration clause in the contract 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.”

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."

Arts. 2038,2039, and 2040 above cited 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 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."

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.

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.

RA 9285 incorporated the UNCITRAL Model law to which we are a signatory

As to what governs foreign arbitration, 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, the Philippines
committed itself to be bound by the United Nations Commission on International
Trade Law or the UNCITRAL Model Law which is also incorporated in Republic
Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act of
2004.

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

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.

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.

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.

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

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

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, they may only be assailed before the RTC and vacated on
the grounds provided under Sec. 25 of RA 876.

(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. 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.
Del Monte Corporation -USA vs. Court of Appeals
GR NO. 136154, February 7, 2001
Bellosillo, J

DOCTRINES:

a. There is no doubt that arbitration is valid and constitutional in our

jurisdiction… Moreover, as RA 876 expressly authorizes arbitration of
domestic disputes, foreign arbitration as a system of settling commercial
disputes was likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral
Awards of 1958 " under the 10 May 1965 Resolution No. 71 of the Philippine
Senate, giving reciprocal recognition and allowing enforcement of international
arbitration agreements between parties of different nationalities within a
contracting state. 23

b. The 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. As a rule,
contracts are respected as the law between the contracting parties and produce
effect as between them, their assigns and heirs. 24 Clearly, only parties to the
Agreement… are bound by the Agreement and its arbitration clause as they
are the only signatories thereto.

c. The object of arbitration is to allow the expeditious determination of a

dispute.

d. In the case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty

Corporation, only parties to the Agreement, their assigns or heirs have the right
to arbitrate or could be compelled to arbitrate. The Court went further by
declaring that in recognizing the right of the contracting parties to arbitrate
or to compel arbitration, the splitting of the proceedings to arbitration as to
some of the parties on one hand and trial for the others on the other hand,
or the suspension of trial pending arbitration between some of the parties,
should not be allowed as it would, in effect, result in multiplicity of suits,
duplicitous procedure and unnecessary delay.

FACTS:
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte
Corporation-USA (DMC-USA) appointed private respondent Montebueno
Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte
products in the Philippines for a period of five (5) years, renewable for two (2)
consecutive five (5) year periods with the consent of the parties. The Agreement
provided, among others, for an arbitration clause which states:

12. GOVERNING LAW AND ARBITRATION 4

This Agreement shall be governed by the laws of the State of California

and/or, if applicable, the United States of America. All disputes arising out
of or relating to this Agreement or the parties' relationship, including the
termination thereof, shall be resolved by arbitration in the City of San
Francisco, State of California, under the Rules of the American Arbitration
Association. The arbitration panel shall consist of three members, one of
whom shall be selected by DMC-USA, one of whom shall be selected by
MMI, and third of whom shall be selected by the other two members and
shall have relevant experience in the industry . . . .

In October 1994 the appointment of private respondent MMI as the sole and
exclusive distributor of Del Monte products in the Philippines was published in
several newspapers in the country. Immediately after its appointment, private
respondent MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of
petitioner DMC-USA, as MMI's marketing arm to concentrate on its
marketing and selling function as well as to manage its critical relationship
with the trade.

On 3 October 1996 private respondents MMI, SFI and MMI's Managing Director
Liong Liong C. Sy (LILY SY) filed a Complaint against petitioners DMC-USA,
Paul E. Derby, Jr., 6 Daniel Collins 7 and Luis Hidalgo, 8 and Dewey Ltd. 9
before the Regional Trial Court of Malabon, Metro Manila. Private respondents
predicated their complaint on the alleged violations by petitioners of Arts. 20, 10
2 1 11 and 2 3 12 of the Civil Code.

According to private respondents, DMC-USA products continued to be

brought into the country by parallel importers despite the appointment of
private respondent MMI as the sole and exclusive distributor of Del Monte
products thereby causing them great embarrassment and substantial
damage. They alleged that the products brought into the country by these
importers were aged, damaged, fake or counterfeit, so that in March 1995 they
had to cause, after prior consultation with Antonio Ongpin, Market Director for
Special Markets of Del Monte Philippines, Inc., the publication of a "warning to
the trade" paid advertisement in leading newspapers.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings
invoking the arbitration clause in their Agreement with private
respondents.

Petitioners contend that the subject matter of private respondents' causes

of action arises out of or relates to the Agreement between petitioners and
private respondents. Thus, considering that the arbitration clause of the
Agreement provides that all disputes arising out of or relating to the
Agreement or the parties' relationship, including the termination thereof,
shall be resolved by arbitration, they insist on the suspension of the
proceedings in Civil Case No. 2637-MN as mandated by Sec. 7 of RA 876 18 —

SECTION 7. Stay of Civil Action. If any suit or proceeding be brought upon

an issue arising out of an agreement providing for arbitration thereof, the
court in which such suit or proceeding is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration,
shall stay the action or proceeding until an arbitration has been had in
accordance with the terms of the agreement. Provided, That the applicant
for the stay is not in default in proceeding with such arbitration.

In a Resolution 14 dated 23 December 1996 the trial court deferred

consideration of petitioners' Motion to Suspend Proceedings as the grounds
alleged therein did not constitute the suspension of the proceedings considering
that the action was for damages with prayer for the issuance of Writ of
Preliminary Attachment and not on the Distributorship Agreement.

On 15 January 1997 petitioners filed a Motion for Reconsideration to which

private respondents filed their Comment/Opposition. On 31 January 1997
petitioners filed their Reply.

Private respondents claim, on the other hand, that their causes of action are
rooted in Arts. 20, 21 and 23 of the Civil Code, 19 the determination of
which demands a full blown trial, (as correctly held by the Court of Appeals.)

Subsequently, private respondents filed an Urgent Motion for Leave to Admit

Supplemental Pleading dated 2 April 1997. This Motion was admitted, over
petitioners' opposition, in an Order of the trial court dated 27 June 1997.

As a result of the admission of the Supplemental Complaint, petitioners filed on

22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings of
17 October 1996 and Motion for Reconsideration of 14 January 1997.

On 11 November 1997 the Motion to Suspend Proceedings was denied by the

trial court on the ground that it "will not serve the ends of justice and to allow
said suspension will only delay the determination of the issues, frustrate
the quest of the parties for a judicious determination of their respective
claims, and/or deprive and delay their rights to seek redress." 15
On appeal, the Court of Appeals affirmed the decision of the trial court. Hence,
this petition for review on certiorari.

ISSUE:

Whether or not the dispute between the parties warrants an order compelling
them to submit to arbitration.

RULING:

No. The petition is denied.

There is no doubt that arbitration is valid and constitutional in our jurisdiction. 21

Even before the enactment of RA 876, this Court has countenanced the
settlement of disputes through arbitration. 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 interfere with great reluctance to anticipate or nullify the action of the
arbitrator. 22 Moreover, as RA 876 expressly authorizes arbitration of domestic
disputes, foreign arbitration as a system of settling commercial disputes was
likewise recognized when the Philippines adhered to the United Nations
"Convention on the Recognition and the Enforcement of Foreign Arbitral Awards
of 1958 " under the 10 May 1965 Resolution No. 71 of the Philippine Senate,
giving reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting state.

A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent
MMI is valid and the dispute between the parties is arbitrable. However, this
Court must deny the petition.

The Agreement between petitioner DMC-USA and private respondent MMI

is a contract. The 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.
As a rule, contracts are respected as the law between the contracting parties and
produce effect as between them, their assigns and heirs. 24 Clearly, only
parties to the Agreement, i.e., petitioners DMC-USA and its Managing
Director for Export Sales Paul E. Derby, Jr., and private respondents MMI
and its Managing Director LILY SY are bound by the Agreement and its
arbitration clause as they are the only signatories thereto. Petitioners
Daniel Collins and Luis Hidalgo, and private respondent SFI, not parties to
the Agreement and cannot even be considered assigns or heirs of the
parties, are not bound by the Agreement and the arbitration clause therein.
Consequently, referral to arbitration in the State of California pursuant to the
arbitration clause and the suspension of the proceedings in Civil Case No. 2637-
MN pending the return of the arbitral award could be called for 25 but only as to
petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and
LILY SY, and not as to the other parties in this case, in accordance with the
recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation,
26 which superseded that of Toyota Motor Philippines Corp . v. Court of
Appeals. 27

I n Toyota, the Court ruled that "[t]he contention that the arbitration clause
has become dysfunctional because of the presence of third parties is
untenable ratiocinating that [c]ontracts are respected as the law between
the contracting parties" 28 and that "[a]s such, the parties are thereby
expected to abide with good faith in their contractual commitments." 29

However, in Salas, Jr., only parties to the Agreement, their assigns or

heirs have the right to arbitrate or could be compelled to arbitrate.
The Court went further by declaring that in recognizing the right of the
contracting parties to arbitrate or to compel arbitration, the splitting
of the proceedings to arbitration as to some of the parties on one
hand and trial for the others on the other hand, or the suspension of
trial pending arbitration between some of the parties, should not be
allowed as it would, in effect, result in multiplicity of suits,
duplicitous procedure and unnecessary delay. 30

The object of arbitration is to allow the expeditious determination of a dispute. 31

Clearly, the issue before us could not be speedily and efficiently resolved in
its entirety if we allow 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.

Case No. 31 (Tubon, Lois Renee)

Aboitiz vs Gothong
G.R. No. 198226, July 18, 2014
PERLAS-BERNABE, J.
DOCTRINE
a. RA 876 explicitly confines the court’s authority only to pass upon the issue
of whether there is or there is no agreement in writing providing for
arbitration. If there is such an agreement, the court shall issue an order
summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof; otherwise, the proceeding shall be
dismissed

b. Disputes do not go to arbitration unless and until the parties have agreed
to abide by the arbitrator’s decision. Necessarily, a contract is required for
arbitration to take place and to be binding. The provision to submit to
 arbitration any dispute arising therefrom and the relationship of the parties
is part of that contract.

FACTS

ASC, CAGLI, and William Lines, Inc. (WLI), owned by the Aboitiz, Gothong, and
Chiongbian families, respectively, entered into an Agreement, which was signed
by Jon Ramon Aboitiz for ASC, Benjamin D. Gothong (Gothong) for CAGLI, and
respondent Chiongbian for WLI. In the said Agreement, ASC and CAGLI agreed
to transfer their shipping assets to WLI in exchange for the latter’s shares of
capital stock and that WLI would run the merged shipping business and be
renamed “WG&A, Inc.”

The Agreement also provides that all disputes arising out of or in connection with
the Agreement shall be finally settled by arbitration in The Arbitration Law and
that each of the parties shall appoint one arbitrator, and the three arbitrators
would then appoint the fourth arbitrator who shall act as Chairman.

Among the attachments to the Agreement was a letter written by respondent

Chiongbian and addressed to Gothong, stating that WLI committed to acquire
from CAGLI’s inventory certain spare parts and materials not exceeding P400
Million. WLI received inventory valued at P558.89 Million, but only paid CAGLI
the amount of P400 Million as agreed upon. Dissatisfied, CAGLI sent to WLI
various letters in 2001, demanding that the latter pay or return the inventory that
it received in excess of P400 Million.

The Chiongbian and Gothong families decided to sell their respective interests in
WLI/WG&A to the Aboitiz family. This resulted in the execution of a Share
Purchase Agreement whereby Aboitiz Equity Ventures (AEV) agreed to purchase
and acquire the WLI/WG&A shares of the Chiongbian and Gothong families.
Thereafter, the corporate name of WLI/WG&A was changed to ATSC.

Six (6) years later, CAGLI sent a letter to ATSC demanding that the latter pay the
excess inventory it delivered to WLI. CAGLI likewise demanded AEV and
respondent Chiongbian that they refer their dispute to arbitration. In response,
AEV countered that the excess inventory had already been returned to CAGLI
and that it should not be included in the dispute, considering that it is an entity
separate and distinct from ATSC. CAGLI was constrained to file a complaint
before the RTC to compel them to submit to arbitration. ATSC and AEV moved
for the dismissal of the case, contending that CAGLI did not have a cause of
action for arbitration since its claim had already been paid or extinguished, and
said action had already prescribed.

The RTC dismissed the complaint only with respect to AEV for lack of cause of
action, but not as to the other defendants. Meanwhile, ATSC filed a Motion for
Reconsideration/To Exclude praying that respondent Chiongbian be excluded
from the arbitration proceedings since the latter was not a party to the
Agreement. Pending resolution of the said motion, CAGLI filed a Notice of
Dismissal, averring that it has decided to withdraw its complaint in view of the
fact that the opposing parties had not filed their respective responsive pleadings.

ISSUE/S
a. whether or not the RTC was correct in confirming CAGLI’s notice of
dismissal and, consequently, dismissing the case without prejudice; and
b. whether or not respondent Chiongbian should be excluded from the
arbitration proceedings.

RULING/S
A. Propriety of CAGLI’s Notice of Dismissal.

At the outset, the Court notes that the nature of the complaint filed by CAGLI
before the RTC is for the enforcement of an arbitration agreement, governed by
Section 6 of RA 876:

Section 6. Hearing by court. – A party aggrieved by the failure, neglect or

refusal of another to perform under an agreement in writing providing for
arbitration may petition the court for an order directing that such arbitration
proceed in the manner provided for in such agreement. Five days notice in
writing of the hearing of such application shall be served either personally
or by registered mail upon the party in default. The court shall hear the
parties, and upon being satisfied that the making of the agreement or such
failure to comply therewith is not in issue, shall make an order directing
the parties to proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in issue the court
shall proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall be dismissed. If
the finding be that a written provision for arbitration was made and there is
a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the
terms thereof.

RA 876 explicitly confines the court’s authority only to pass upon the issue of
whether there is or there is no agreement in writing providing for arbitration. If
there is such an agreement, the court shall issue an order summarily directing
the parties to proceed with the arbitration in accordance with the terms thereof;
otherwise, the proceeding shall be dismissed. To stress, such proceeding is
merely a summary remedy to enforce the agreement to arbitrate and the duty of
the court is not to resolve the merits of the parties’ claims but only to determine if
they should proceed to arbitration or not.
The records show that the primary relief sought for in CAGLI’s complaint had
already been granted by the RTC through its order. Undeniably, such Order
partakes of a judgment on the merits of the complaint for the enforcement of the
arbitration agreement.

Upon the rendition of a judgment or final order,the period “before service of the
answer or of a motion for summary judgment,” no longer applies. As a
consequence, a notice of dismissal filed by the plaintiff at such judgment stage
should no longer be entertained or confirmed. In view of the foregoing, it was an
error on the part of the RTC to have confirmed the notice of dismissal and to
have dismissed the complaint without prejudice.

B. Parties covered by Arbitration Proceedings.

Disputes do not go to arbitration unless and until the parties have agreed to
abide by the arbitrator’s decision. Necessarily, a contract is required for
arbitration to take place and to be binding. The provision to submit to arbitration
any dispute arising therefrom and the relationship of the parties is part of that
contract. As a rule, contracts are respected as the law between the contracting
parties and produce effect as between them, their assigns and heirs. Succinctly
put, only those parties who have agreed to submit a controversy to arbitration
who, as against each other, may be compelled to submit to arbitration.

The three parties to the arbitration agreement embodied therein are: (a) ASC, (b)
CAGLI, and (c) WLI/WG&A/ATSC. Contracts take effect only between the
parties, their assigns and heirs. Respondent Chiongbian, having merely
physically signed the Agreement as a representative of WLI, is not a party
thereto and to the arbitration agreement contained therein. Neither is he an
assignee or an heir of any of the parties to the arbitration agreement. Hence,
respondent Chiongbian cannot be included in the arbitration proceedings.

HOME BANKERS SAVINGS AND TRUST COMPANY, petitioner, vs. COURT

OF APPEALS and FAR EAST BANK & TRUST CO., INC.,

FACTS

Victor Tancuan, issued to Home Bankers Savings and Trust Company (HBSTC)
a check for P25,250,000.00 while Eugene Arriesgado issued Far East Bank and
Trust Company (FEBTC) three checks totaling P25,200,000.00. Tancuan and
Arriesgado exchanged each other's checks and deposited them with their
respective banks for collection. When FEBTC presented Tancuan's HBSTC
check for clearing, HBSTC dishonored it for being "Drawn Against Insufficient
Funds." HBSTC sent Arriesgado's three (3) FEBTC checks through the
Philippine Clearing House Corporation (PCHC) to FEBTC but was returned as
"Drawn Against Insufficient Funds." HBSTC received the notice of dishonor but
refused to accept the checks and, returned them to FEBTC through the PCHC
for the reason "Beyond Reglementary Period," implying that HBSTC already
treated the three (3) FEBTC (Arriesgado’s) checks as cleared and allowed the
proceeds thereof to be withdrawn. (Tancuan daw nagkapera). FEBTC demanded
reimbursement for the returned checks which HBSTC paid out. HBSTC,
however, refused to make any reimbursement and to provide FEBTC with the
needed information.

FEBTC submitted the dispute for arbitration before the PCHC Arbitration
Committee, under the PCHC's Supplementary Rules on Regional Clearing to
which FEBTC and HBSTC are bound as participants in the regional clearing
operations administered by the PCHC.

While the arbitration proceeding was still pending, FEBTC filed an action for sum
of money and damages with preliminary attachment against HBSTC, Robert
Young, Victor Tancuan and Eugene Arriesgado with the Regional Trial Court of
Makati.

A motion to dismiss was filed by HBSTC claiming that the complaint stated no
cause of action and accordingly ". . . should be dismissed because it seeks to
enforce an arbitral award which as yet does not exist." Trial court denied.

HBSTC filed a petition for certiorari with the respondent Court of Appeals
contending that the trial court acted with grave abuse of discretion amounting to
lack of jurisdiction in denying the motion to dismiss filed by HBSTC.

In the instant petition, petitioner contends that first, "no party litigant can file a
non-existent complaint," arguing that ". . . one cannot file a complaint in court
over a subject that is undergoing arbitration." Second, petitioner submits that
"[s]ince arbitration is a special proceeding by a clear provision of law, the civil
suit filed below is, without a shadow of doubt, barred by litis pendentia and
should be dismissed de plano insofar as HBSTC is concerned." Third, petitioner
insists that "[w]hen arbitration is agreed upon and suit is filed without arbitration
having been held and terminated, the case that is filed should be dismissed,"

ISSUE

"WHETHER OR NOT PRIVATE RESPONDENT WHICH COMMENCED AN

ARBITRATION PROCEEDING UNDER THE AUSPICES OF THE PHILIPPINE
CLEARING HOUSE CORPORATION (PCHC) MAY SUBSEQUENTLY FILE A
SEPARATE CASE IN COURT OVER THE SAME SUBJECT MATTER OF
ARBITRATION DESPITE THE PENDENCY OF THAT ARBITRATION, SIMPLY
TO OBTAIN THE PROVISIONAL REMEDY OF ATTACHMENT AGAINST THE
BANK, THE ADVERSE PARTY IN THE ARBITRATION PROCEEDING."

RULING
Yes. the Arbitration Law, allows any party to the arbitration proceeding to petition
the court to take measures to safeguard and/or conserve any matter which is the
subject of the dispute in arbitration. Section 14 simply grants an arbitrator the
power to issue subpoena and subpoena duces tecum at any time before
rendering the award. The exercise of such power is without prejudice to the right
of a party to file a petition in court to safeguard any matter which is the subject of
the dispute in arbitration. In the case at bar, private respondent filed an action for
a sum of money with prayer for a writ of preliminary attachment. Undoubtedly,
such action involved the same subject matter as that in arbitration,i.e., the sum of
P25,200,000.00 which was allegedly deprived from private respondent in what is
known in banking as a "kiting scheme." However, the civil action was not a
simple case of a money claim since private respondent has included a prayer for
a writ of preliminary attachment, which is sanctioned by Section 14 of the
Arbitration Law.

SEA-LAND SERVICE, INC., petitioner, vs.COURT OF APPEALS, A.P.

MOLLER/MAERSK LINE and MAERSK-TABACALERA SHIPPING AGENCY
(FILIPINAS), INC., respondents.

FACTS

Petitioner Sea-Land Services, Inc. and private respondent A.P. Moller/Maersk

Line (hereinafter referred to as "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 mutually agreed to purchase,
share and exchange needed space for cargo in their respective containerships.

During the lifetime of the said Agreement, Florex International, Inc. delivered to
private respondent AMML cargo of various foodstuffs, with Oakland, California as
port of discharge and San Francisco as place of delivery. 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.

The consignee refused to pay for the cargo, alleging that delivery thereof was
delayed. Florex filed a complaint against respondent Maersk- Tabacalera
Shipping Agency (Filipinas), Inc. for reimbursement of the value of the cargo and
other charges.

Respondent AMML filed its Answer alleging 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 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.

ISSUE

THE COURT OF APPEALS DISREGARDED AN AGREEMENT TO ARBITRATE

IN VIOLATION OF STATUTE AND SUPREME COURT DECISIONS HOLDING
THAT ARBITRATION IS A CONDITION PRECEDENT TO SUIT WHERE SUCH
AN AGREEMENT TO ARBITRATE EXISTS

RULING

We find that both the trial court and the 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 aforequoted, 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. Stated differently,
respondent AMML is barred from taking judicial action against petitioner by the
clear terms of their Agreement.

As the Principal Carrier with which Florex directly dealt with, respondent AMML
can and should be held accountable by Florex in the event that it has a valid
claim against the former. Pursuant to Clause 16.3 of the Agreement, respondent
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.

This Court has previously held that arbitration is one of the alternative methods of
dispute resolution that is now rightfully vaunted as "the wave of the future" in
international relations, and is recognized worldwide. To brush aside a contractual
agreement calling for arbitration in case of disagreement between the parties
would therefore be a step backward.
JORGE GONZALES and PANEL OF ARBITRATORS, petitioners, vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and
AUSTRALASIAN PHILIPPINES MINING INC., respondents.

FACTS

Jorge Gonzales, as claimowner of mineral deposits located within Quirino and

Nueva Vizcaya, entered into a co-production, joint venture and/or production-
sharing letter-agreement with Geophilippines, Inc, and Inmex Ltd. the exclusive
right to explore and survey the mining claims for a period of thirty-six (36) months
within which the latter could decide to take an operating agreement on the mining
claims and/or develop, operate, mine and otherwise exploit the mining claims
and market any and all minerals that may be derived therefrom. the exploration
of the mining claims was extended for another period of three years.

Petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex Ltd.,

and Aumex Philippines, Inc. signed a document. Under the Addendum Contract,
Arimco Mining Corporation would apply to the Government of the Philippines for
permission to mine the claims as the Government's contractor under a Financial
and Technical Assistance Agreement (FTAA). Arimco Mining Corporation
obtained the FTAA and carried out work under the FTAA. Respondents executed
the Operating and Financial Accommodation Contract (between Climax-Arimco
Mining Corporation and Climax Mining Ltd., as first parties, and Australasian
Philippines Mining Inc., as second party) and Assignment, Accession Agreement
(between Climax-Arimco Mining Corporation and Australasian Philippines Mining
Inc.). Respondent Climax Mining Corporation (Climax) and respondent
Australasian Philippines Mining Inc. (APMI) entered into a Memorandum of
Agreement whereby the former transferred its FTAA to the latter.

Gonzales filed before the Panel of Arbitrators in Mines and Geosciences Bureau
of the DENR, against respondents Climax-Arimco Mining Corporation (Climax-
Arimco), Climax, and APMI, a Complaint seeking the declaration of nullity or
termination of the Addendum Contract, the FTAA, the Operating and Financial
Accommodation Contract, the Assignment, Accession Agreement, and the
Memorandum of Agreement. Petitioner Gonzales prayed for an unspecified
amount of actual and exemplary damages plus attorney's fees and for the
issuance of a temporary restraining order and/or writ of preliminary injunction to
restrain or enjoin respondents from further implementing the questioned
agreements. He sought said reliefs on the grounds of "FRAUD, OPPRESSION
and/or VIOLATION of Section 2, Article XII of the CONSTITUTION perpetrated
by these foreign RESPONDENTS, conspiring and confederating with one
another and with each other...."

According to the Panel, although the issue raised in the Complaint appeared to
be purely civil in nature and should be within the jurisdiction of the regular courts,
a ruling on the validity of the assailed contracts would result to the grant or denial
of mining rights over the properties; therefore, the question on the validity of the
contract amounts to a mining conflict or dispute.

Court of Appeals granted the petition, declaring that the Panel of Arbitrators did
not have jurisdiction over the complaint filed by petitioner. The jurisdiction of the
Panel of Arbitrators, said the Court of Appeals, is limited only to the resolution of
mining disputes, defined as those which raise a question of fact or matter
requiring the technical knowledge and experience of mining authorities. It was
found that the complaint alleged fraud, oppression and violation of the
Constitution, which called for the interpretation and application of laws, and did
not involve any mining dispute.
The Court of Appeals was of the opinion that the petition should have been
settled through arbitration under Republic Act No. 876 (The Arbitration Law) as
stated in Clause 19.1 of the Addendum Contract. The Court of Appeals therefore
declared as invalid the orders dated 18 October 2001 and 25 June 2002 issued
by the Panel of Arbitrators. On 28 January 2004, the Court of Appeals denied
petitioner's motion for reconsideration for lack of merit.

ISSUE

Does the Panel of Arbitrators have jurisdiction over the complaint for declaration
of nullity and/or termination of the subject contracts on the ground of fraud,
oppression and violation of the Constitution? This issue may be distilled into the
more basic question of whether the Complaint raises a mining dispute or a
judicial question.

RULING

In the Philippine Mining Act, the Panel of Arbitrators has exclusive and original
jurisdiction to hear and decide these mining disputes. In essence, petitioner
alleges that respondents, conspiring and confederating with one another,
misrepresented under the Addendum Contract and FTAA that respondent
Climax-Arimco possessed financial and technical capacity to put the project into
commercial production, when in truth it had no such qualification whatsoever to
do so. By so doing, respondents have allegedly caused damage not only to
petitioner but also to the Republic of the Philippines. It is apparent that the Panel
of Arbitrators is bereft of jurisdiction over the Complaint filed by petitioner.
Clearly, the dispute is not a mining confiict. It is essentially judicial. However,
whether the case involves void or voidable contracts is still a judicial question.
The complaint was not merely for the determination of rights under the mining
contracts since the very validity of those contracts is put in issue. 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.
LUZON IRON DEVELOPMENT GROUP CORPORATION AND
CONSOLIDATED IRON SANDS, LTD., petitioners, vs. BRIDESTONE MINING
AND DEVELOPMENT CORPORATION and ANACONDA MINING AND
DEVELOPMENT CORPORATION, respondents.

FACTS

Bridestone Mining and Development Corporation(Bridestone) and Anaconda

Mining and Development Corporation (Anaconda) filed separate complaints
before the RTC for rescission of contract and damages against petitioners Luzon
Iron Development Group Corporation (Luzon Iron) and Consolidated Iron Sands,
Ltd. (Consolidated Iron). Both complaints sought the rescission of the Tenement
Partnership and Acquisition Agreement (TPAA) 4 entered into by Luzon Iron and
Consolidated Iron, on one hand, and Bridestone and Anaconda, on the other, for
the assignment of the Exploration Permit Application of the former in favor of the
latter. The complaints also sought the return of the Exploration Permits to
Bridestone and Anaconda.

Luzon Iron and Consolidated Iron filed their Special Appearance with Motion to
Dismiss separately contending that they were foreign corporations that had never
transacted business in the Philippines. Likewise, they argued that the RTC had
no jurisdiction over the subject matter because of an arbitration clause in the
TPAA.

The RTC Orders

RTC denied the motions to dismiss. The RTC ruled that it had jurisdiction over
the subject matter because under clause 14.8 of the TPAA, the parties could go
directly to courts when a direct and/or blatant violation of the provisions of the
TPAA had been committed.

The CA Ruling

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

ISSUE

WHETHER THE COURT OF APPEALS ERRED IN RULING THAT THE TRIAL

COURT HAS JURISDICTION OVER THE SUBJECT MATTER OF
THE CONSOLIDATED CASES;
RULING

Controversy must be referred for arbitration. The petitioners insisted that the RTC
had no jurisdiction over the subject matter because under Paragraph 15.1 of the
TPAA, any dispute out of or in connection with the TPAA must be resolved by
arbitration. The RTC, as the CA agreed, countered that Paragraph 14.8 of the
TPAA allowed the parties to directly resort to courts in case of a direct and/or
blatant violation of the provisions of the TPAA.

“The State shall encourage and actively promote the use of Alternative Dispute
Resolution (ADR) as an important means to achieve speedy and impartial justice
and declog court dockets. As such, the State shall provide means for the use of
ADR as an efficient tool and an alternative procedure for the resolution of
appropriate cases.”

Thus, consistent with the state policy of favoring arbitration, the present TPAA
must be construed in such a manner that would give life to the arbitration clause
rather than defeat it, if such interpretation is permissible. With this in mind, the
Court views the interpretation forwarded by the petitioners as more in line with
the state policy favoring arbitration.

It is undisputed that the petitioners Luzon Iron and Consolidated Iron never made
any formal request for arbitration. As expounded in Koppel, however, a formal
request is not the sole means of invoking an arbitration clause in a pending suit.
Similar to the said case, the petitioners here made the RTC aware of the
existence of the arbitration clause in the TPAA as they repeatedly raised this as
an issue in all their motions to dismiss. As such, it was enough to activate the
arbitration clause and, thus, should have alerted the RTC in proceeding with the
case.

Generally, the action of the court is stayed if the matter raised before it is subject
to arbitration. In the case at bench, however, the complaints 􏰅led before the RTC
should have been dismissed considering that the petitioners were able to
establish the ground for their dismissal, that is, violating the prohibition on forum
shopping. The parties, nevertheless, are directed to initiate arbitration
proceedings as provided under Paragraph 15.1 of the TPAA.
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN
CAPITAL HOLDINGS CORPORATION , petitioners, vs. ROLANDO M. ZOSA
and HON. JOSE P. SOBERANO, JR., in his capacity as Presiding Judge of
Branch 58 of the Regional Trial Court of Cebu, 7th Judicial Region,
respondents

FACTS

Under a management agreement entered into Magellan Capital Holdings

Corporation [MCHC] appointed Magellan Capital Management Corporation
[MCMC] as manager for the operation of its business and affairs. Private
respondent Rolando M. Zosa entered into an "Employment Agreement"
designating Zosa as President and Chief Executive Officer of MCHC. Under the
"Employment Agreement", the term of respondent Zosa's employment shall be
co-terminous with the management agreement unless sooner terminated
pursuant to the provisions of the Employment Agreement. The grounds for
termination of employment are also provided in the Employment Agreement.

MCHC's Board of Directors decided not to re-elect respondent Zosa as President

on account of loss of trust and confidence. Zosa was elected to a new position as
MCHC's Vice- Chairman/Chairman for New Ventures Development. Zosa
communicated his resignation for good reason from the position of Vice-
Chairman. He demanded that he be given termination benefits. MCHC
communicated its non-acceptance of respondent Zosa's resignation for good
reason, but instead informed him that the Employment Agreement is terminated
for cause and he shall have no further rights under the said Agreement or any
claims against the Manager or the Corporation except the right to receive the
amounts stated in Section 8 (a) (i) (ii) of the Agreement. Disagreeing with the
position taken by petitioners, respondent Zosa invoked the Arbitration Clause of
the Employment Agreement. MCMC MCHC and Zosa each designated their
lawyers for the arbitration. However, instead of submitting the dispute to
arbitration, respondent Zosa, filed an action for damages against petitioners
before the RTC of Cebu to enforce his benefits under the Employment
Agreement.

Petitioners filed motion to dismiss arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be
resolved through arbitration.

RTC Branch 58 of Cebu City issued an Order denying petitioners motion to

dismiss upon the findings that (1) the validity and legality of the arbitration
provision can only be determined after trial on the merits.
ISSUE

The trial court gravely erred when it ruled that the arbitration clause under the
employment agreement is partially void and of no effect

RULING

No. We rule against the petitioners.

The issue on the validity and effectivity of the arbitration clause is determinable
by the regular courts, and do not fall within the exclusive and original jurisdiction
of the SEC. "The determination and validity of the agreement is not a matter
intrinsically connected with the regulation and internal affairs of corporations, it is
rather an ordinary case to be decided in accordance with the general laws, and
do not require any particular expertise or training to interpret and apply.

This Court finds the trial court's observations on why the composition of the panel
of arbitrators should be voided, incisively correct so as to merit our approval. The
Court is of the view that the defendants [petitioner] MCMC and MCHC represent
the same interest. "From the foregoing arbitration clause, it appears that the two
(2) defendants [petitioners] (MCMC and MCHC) have one (1) arbitrator each to
compose the panel of three (3) arbitrators. As the defendant MCMC is the
Manager of defendant MCHC, its decision or vote in the arbitration proceeding
would naturally and certainly be in favor of its employer and the defendant MCHC
would have to protect and preserve its own interest; hence, the two (2) votes of
both defendants (MCMC and MCHC) would certainly be against the lone
arbitrator for the plaintiff [herein defendant]. Hence, apparently, plaintiff
[defendant] would never get or receive justice and fairness in the arbitration
proceedings from the panel of arbitrators as provided in the aforequoted
arbitration clause.

We need only to emphasize in closing that arbitration proceedings are designed

to level the playing field among the parties in pursuit of a mutually acceptable
solution to their conflicting claims. Any arrangement or scheme that would give
undue advantage to a party in the negotiating table is anathema to the very
purpose of arbitration and should, therefore, be resisted.

CARGILL PHILIPPINES, INC., petitioner, vs. SAN FERNANDO REGALA

TRADING, INC., respondent.

FACTS

San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of
Makati City a Complaint for Rescission of Contract with Damages against
petitioner Cargill Philippines, Inc. 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. It was agreed upon that respondent would
purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap
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.

Petitioner filed a Motion to Dismiss/Suspend Proceedings and to Refer

Controversy to Voluntary Arbitration. 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. that
respondent must 􏰅rst comply with the arbitration clause before resorting to court,
thus, the RTC must either dismiss the case or suspend the proceedings and
direct the parties to proceed with arbitration, pursuant to Sections 6 6 and 7 7 of
Republic Act (R.A.) No. 876, or the Arbitration Law.

RTC rendered an Order denying petitioner. the RTC found that there was no
clear basis for petitioner's plea to dismiss the case, pursuant to Section 7 of the
Arbitration Law. The RTC said that the provision directed the court concerned
only to stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the sanction of
dismissal. However, the RTC did not find the suspension of the proceedings
warranted, since the Arbitration Law contemplates an arbitration proceeding that
must be conducted in the Philippines under the jurisdiction and control of the
RTC; and before an arbitrator who resides in the country; and that the arbitral
award is subject to court approval, disapproval and modification, and that there
must be an appeal from the judgment of the RTC. The RTC found that the
arbitration clause in question contravened these procedures, i.e., the arbitration
clause contemplated an arbitration proceeding in New York before a non-
resident arbitrator (American Arbitration Association); that the arbitral award shall
be final and binding on both parties. The RTC said that to apply Section 7 of the
Arbitration Law to such an agreement would result in disregarding the other
sections of the same law and rendered them useless and mere surplusages.

The CA rendered its assailed Decision denying the petition and affirming the
RTC Orders.

The CA found that stipulation providing for arbitration in contractual obligation is

both valid and constitutional; that arbitration as an alternative mode of dispute
resolution has long been accepted in our jurisdiction. The CA found that there
was nothing in the Civil Code, or R.A. No. 876, that require that arbitration
proceedings must be conducted only in the Philippines and the arbitrators should
be Philippine residents. Notwithstanding such findings, the CA still held that the
case cannot be brought under the Arbitration Law for the purpose of suspending
the proceedings before the RTC, since in its Motion to Dismiss/Suspend
proceedings, petitioner alleged, as one of the grounds thereof, that the subject
contract between the parties did not exist or it was invalid; that the said contract
bearing the arbitration clause was never consummated by the parties.

ISSUE:

whether the CA erred in finding that this case cannot be brought under the
arbitration law for the purpose of suspending the proceedings in the RTC

RULING

We find merit in the petition.

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.

The CA ruled that arbitration cannot be ordered in this case, since petitioner
alleged that the contract between the parties did not exist or was invalid and
arbitration is not proper when one of the parties repudiates the existence or
validity of the contract. “Arbitration is not proper when one of the parties
repudiates the existence or validity of the contract - Gonzales v. Climax Mining
Ltd.” Consequently, the petitioner herein cannot claim that the contract was never
consummated and, at the same time, invokes the arbitration clause provided for
under the contract which it alleges to be non-existent or invalid. However, the
Gonzales case, 25 which the CA relied upon for not ordering arbitration, had
been modified upon a motion for reconsideration in this wise:
. . . The adjudication of the petition in G.R. No. 167994 effectively modifies part of
the Decision dated 28 February 2005 in G.R. No. 161957. Hence, we now hold
that the validity of the contract containing the agreement to submit to arbitration
does not affect the applicability of the arbitration clause itself. A contrary ruling
would suggest that a party's mere repudiation of the main contract is sufficient to
avoid arbitration. That is exactly the situation that the separability doctrine, as
well as jurisprudence applying it, seeks to avoid.

In so ruling that the validity of the contract containing the arbitration agreement
does not affect the applicability of the arbitration clause itself, we then applied the
doctrine of separability, thus:

The doctrine of separability, or severability as other writers call it, enunciates that
an arbitration agreement is independent of the main contract. The arbitration
agreement is to be treated as a separate agreement and the arbitration
agreement does not automatically terminate when the contract of which it is a
part comes to an end. The separability of the arbitration agreement is especially
significant to the determination of whether the invalidity of the main contract also
nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of
the main contract, also referred to as the "container" contract, does not affect the
validity of the arbitration agreement. Irrespective of the fact that the main contract
is invalid, the arbitration clause/agreement still remains valid and enforceable.

“we now hold that the validity of the contract containing the agreement to submit
to arbitration does not affect the applicability of the arbitration clause itself.” A
contrary ruling would suggest that a party's mere repudiation of the main contract
is sufficient to avoid arbitration. That is exactly the situation that the separability
doctrine, as well as jurisprudence applying it, seeks to avoid.

BASES CONVERSION DEVELOPMENT AUTHORITY, petitioner, vs. DMCI

PROJECT DEVELOPERS, INC., respondent.

FACTS

An arbitration clause in a document of contract may extend to subsequent

documents of contract executed for the same purpose. Nominees of a party to
and beneficiaries of a contract containing an arbitration clause may become
parties to a proceeding initiated based on that arbitration clause.

Bases Conversion Development Authority (BCDA) entered into a Joint Venture

Agreement with Philippine National Railways (PNR) and other foreign
corporations. Under the Joint Venture Agreement, the parties agreed to construct
a railroad system from Manila to Clark with possible extensions to Subic Bay and
La Union and later, possibly to Ilocos Norte and Nueva Ecija. BCDA shall
establish North Luzon Railways Corporation (Northrail) for purposes of
constructing, operating, and managing the railroad system. The JVA contained
an arbitration clause. The Joint Venture Agreement was amended to include
D.M. Consunji, Inc. and/or its nominee as party. In letters 22 dated April 4, 1997,
D.M. Consunji, Inc. informed PNR and the other parties that DMCI-PDI shall be
its designated nominee for all the agreements it entered and would enter with
them in connection with the railroad project. (Project Developers, Inc.) Later,
Northrail withdrew from the Securities and Exchange Commission its application
for increased authorized capital stock. DMCI-PDI started demanding from BCDA
and Northrail the return of its P300 million deposit which the latter refused.

DMCI-PDI served a demand for arbitration to BCDA and Northrail, citing the
arbitration clause in the Joint Venture Agreement. 37 BCDA and Northrail failed
to respond.

DMCI-PDI filed before the Regional Trial Court of Makati a Petition to Compel
Arbitration against BCDA and Northrail, pursuant to the alleged arbitration clause
in the Joint Venture Agreement.
BCDA filed a Motion to Dismiss on the ground that there was no arbitration
clause that DMCI-PDI could enforce since DMCI-PDI was not a party to the Joint
Venture Agreement containing the arbitration clause.

RTC granted the petition.

ISSUE

Whether DMCI-PDI may compel BCDA and Northrail to submit to arbitration

RULING

The prayer is essentially for this court to determine the scope of an arbitration
clause. Arbitration is a mode of settling disputes between parties. Like many
alternative dispute resolution processes, it is a product of the meeting of minds of
parties submitting a pre-defined set of disputes. They agree among themselves
to a process of dispute resolution that avoids extended litigation. The state has a
policy in favor of arbitration.

BCDA and Northrail assail DMCI-PDI's right to compel them to submit to

arbitration based on the assumption that DMCI-PDI was not a party to the
agreement containing the arbitration clause. Three documents — (a) Joint
Venture Agreement, (b) amended Joint Venture Agreement, and (c)
Memorandum of Agreement — represent the agreement between BCDA,
Northrail, and D.M. Consunji, Inc. Among the three documents, only the Joint
Venture Agreement contains the arbitration clause. DMCI-PDI was allegedly not
a party to the Joint Venture Agreement.

The Joint Venture Agreement was amended to include D.M. Consunji, Inc. and/or
its nominee as party. There is no rule that a contract should be contained in a
single document. A whole contract may be contained in several documents that
are consistent with one other. Thus, amendments or supplements to the
agreement may be executed by contracting parties to address the circumstances
or issues that arise while a contract subsists. D.M. Consunji, Inc. and/or its
nominee became bound to the terms of both the Joint Venture Agreement and its
amendment. Moreover, each document was executed to achieve the single
purpose of implementing the railroad project.

Hence, the arbitration clause in the Joint Venture Agreement should not be
interpreted as applicable only to the Joint Venture Agreement's original parties.
The succeeding agreements are deemed part of or a continuation of the Joint
Venture Agreement. The arbitration clause should extend to all the agreements
and its parties since it is still consistent with all the terms and conditions of the
amendments and supplements.
STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION LIMITED v. SULPICIO
LINES, GR No. 196072, 2017-09-20

Facts:

An insured member may be compelled to arbitration pursuant to the Rules of the

Protection and Indemnity Club, which were incorporated in the insurance policy
by reference. Where there are multiple parties, the court must refer to arbitration
the parties covered by the agreement while proceeding with the civil action
against those who were not bound by the arbitration agreement.

Steamship was a Bermuda-based Protection and Indemnity Club, managed

outside London, England. 6 It insures its members-shipowners against "third
party risks and liabilities" for claims arising from (a) death or injury to passengers;
(b) loss or damage to cargoes; and (c) loss or damage from collisions.

Sulpicio insured its fleet of inter-island vessels with Steamship for Protection &
Indemnity risks through local insurance agents, Pioneer Insurance and Surety
Corporation (Pioneer Insurance) or Seaboard-Eastern Insurance Co., Inc.
(Seaboard- Eastern). 8 One (1) of these vessels was the M/V Princess of the
World, evidenced by a Certificate of Entry and Acceptance issued by Steamship.

On July 7, 2005, M/V Princess of the World was gutted by fire while on voyage
from Iloilo to Zamboanga City, resulting in total loss of its cargoes. The fire
incident was found by the Department of the Interior and Local Government to be
"accidental" in nature.

Sulpicio claimed indemnity from Steamship under the Protection & Indemnity
insurance policy, Steamship denied the claim and subsequently rescinded the
insurance coverage of Sulpicio's other vessels on the ground that "Sulpicio was
grossly negligent in conducting its business regarding safety, maintaining the
seaworthiness of its vessels as well as proper training of its crew."

Sulpicio filed a Complaint for specific performance and damages. Steamship filed
its Motion to Dismiss and/or to Refer Case to Arbitration 15 pursuant to Republic
Act No. 9285, or the Alternative Dispute Resolution Act of 2004 (ADR Law), and
to Rule 47 16 of the 2005/2006 Club Rules, which supposedly provided for
arbitration in London of disputes between Steamship and its members. 17 The
other defendants filed separate motions to dismiss.

RTC denied. Petition to CA was dismissed.

Sulpicio accuses Steamship of indirect contempt for its "improper conduct
tending directly, or indirectly, to impede, obstruct, or degrade the administration
of justice" consisting of the following acts:

(a) Without Sulpicio's knowledge or consent, Steamship initiated and "concluded"

during the pendency of this case an alleged "arbitration proceeding" in London
for the "Arbitrator" there to "resolve" the very dispute involved in this case;

(b) Without Sulpicio's knowledge or consent, Steamship proclaimed itself the

"victor" entitled to arbitration costs from Sulpicio;

(c) Without Sulpicio's knowledge or consent, Steamship unceremoniously

deducted from the refund due to Sulpicio in the separate "Unabia Case" the huge
amount of U.S.$69,570.99 despite the fact that: (a) Said "Unabia Case" is
unrelated to the instant case; (b) The propriety of a London arbitration is still to
be resolved in this case by this Honorable Court; (c) Steamship "enforced" by
itself said "arbitration costs" against Sulpicio without the courtesy of even
informing this Honorable Court about it[; and]

(d) Without Sulpicio's knowledge or consent, and more importantly, without the
prior approval of this Honorable Court, Steamship initiated and "concluded" said
London "arbitration" during the pendency of this G.R. No. 196072 and before this
Honorable Court could render its ruling or decision. 38 (Emphasis in the original)

ISSUE

Whether or not there was a valid arbitration agreement between the parties and
whether or not referral to arbitration was imperative.

RULING

It is the State's policy to promote party autonomy in the mode of resolving

disputes. Under the freedom of contract principle, parties to a contract may
stipulate on a particular method of settling any conflict between them. Arbitration
and other alternative dispute resolution methods like mediation, negotiation, and
conciliation are favored over court action.

Sulpicio contends that there was no valid arbitration agreement between them,
and if there were, it was not aware of it.

This Court rules against Sulpicio's submission.

The contract between Sulpicio and Steamship is more than a contract of

insurance between a marine insurer and a shipowner. By entering its vessels in
Steamship, Sulpicio not only obtains insurance coverage for its vessels but also
becomes a member of Steamship.
A protection and indemnity club, like Steamship, is an association composed of
shipowners generally formed for the specific purpose of providing insurance
cover against third-party liabilities of its members.

Sulpicio's acceptance of the Certificate of Entry and Acceptance manifests its

acquiescence to all its provisions. There is no showing in the records or in
Sulpicio's contentions that it objected to any of the terms in this Certificate. Its
acceptance, likewise, operated as an acceptance of the entire provisions of the
Club Rules.

When a contract is embodied in two (2) or more writings, the writings of the
parties should be read and interpreted together in such a way as to render their
intention effective.

Under Rule 47, any dispute concerning the insurance afforded by Steamship
must first be brought by a claiming member to the Directors for adjudication. If
this member disagrees with the decision of the Director, the dispute must be
referred to arbitration in London. Despite the member's disagreement, the
Managers of Steamship may refer the dispute to arbitration without adjudication
of the Directors. This procedure must be complied with before the member can
pursue legal proceedings against Steamship.

There is no ambiguity in the terms and clauses of the Certificate of Entry

Acceptance. Contrary to the ruling of the Court of Appeals, the Certificate clearly
incorporates the entire Club Rules — not only those provisions relating to
cancellation and alteration of the policy.

"[W]hen 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." The incorporation of the Club Rules in the insurance policy is without any
qualification. This includes the arbitration clause even if not particularly
stipulated. A basic rule in construction is that the entire contract, and each and all
of its parts, must be read together and given effect, with all its clauses and
provisions harmonized with one another.

The Court of Appeals ruled that the arbitration agreement in the 2005/2006 Club
Rules is not valid because it was not signed by the parties.

In domestic arbitration, the formal requirements of an arbitration agreement are

that it must "be in writing and subscribed by the party sought to be charged, or by
his lawful agent." 151 In international commercial arbitration, 152 it is likewise
required that the arbitration agreement must be in writing.
An arbitration agreement is in writing if it is contained (1) in a document signed
by the parties, (2) in an exchange of letters, telex, telegrams or other means of
telecommunication which provide a record of the agreement, or (3) in an
exchange of statements of claim and defense in which the existence of an
agreement is alleged by a party and not denied by another. The reference in a
contract to a document containing an arbitration clause constitutes an arbitration
agreement provided that the contract is in writing and the reference is such as to
make that clause part of the contract.

Thus, an arbitration agreement that was not embodied in the main agreement but
set forth in another document is binding upon the parties, where the document
was incorporated by reference to the main agreement. The arbitration agreement
contained in the Club Rules, which in turn was referred to in the Certificate of
Entry and Acceptance, is binding upon Sulpicio even though there was no
specific stipulation on dispute resolution in this Certificate.

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

The Regional Trial Court should suspend proceedings to give way to arbitration.
Even if there are other defendants who are not parties to the arbitration
agreement, arbitration is still proper.

HEIRS OF AUGUSTO L. SALAS v. LAPERAL REALTY CORPORATION, GR NO. 135362,

1999-12-13
Facts:
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning
1,484,354 square meters.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva
Ecija. He never returned.
respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions
thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc. on
February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June
27,... 1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente
Capalan on June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers).
ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNER'S representative shall be referred
to the committee represented by:... a. One represe... representative of the OWNER;...
b. One representative of the CONTRACTOR;... c. One representative acceptable to both
OWNER and CONTRACTOR."[8]
Petitioners argue, thus:
"The petitioners' causes of action did not emanate from the Owner-Contractor
Agreement."
"The petitioners' causes of action for cancellation of contract and accounting are covered
by the exception under the Arbitration Law."
"Failure to arbitrate is not a ground for dismissal."[... 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[13]
Arbitration is the "wave of the future" in dispute resolution.[
But only they. Petitioners, as heirs of Salas,... Jr., and respondent Laperal Realty are
certainly bound by the Agreement
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".
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[19]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".
Issues:
On May 15, 1987, he entered into an Owner-Contractor Agreement[4] (hereinafter referred
to as the Agreement) with respondent Laperal Realty Corporation (hereinafter referred to
as Laperal Realty) to render and provide complete (horizontal) construction... services on
his land.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a
verified petition for the declaration of presumptive death of her husband, Salas, Jr., who
had then been missing for more than seven (7) years. It was granted on December 12,...
1996.[5]
Ruling:
On September 23, 1988, Salas, Jr. 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
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of Lipa
City a Complaint[6] for declaration of nullity of sale, reconveyance, cancellation of contract,
accounting and damages against herein respondents which was... docketed as Civil Case
No. 98-0047... we grant the petition.
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[18] or in this case, against the heirs of the... original
party to the Agreement.
while rescission, as a general rule, is an arbitrable issue,[20] 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.
Principles:
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss[7]on the ground
that petitioners failed to submit their grievance to arbitration as required under Article VI of
the Agreement which provides:
On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners'
Complaint for non-compliance with the foregoing arbitration clause.
A submission to arbitration is a contract.[1... the Agreement, containing the stipulation on
arbitration, binds the parties thereto, as well as their assigns and heirs.[1
However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo,
Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not... assignees of the
rights of respondent Laperal Realty under the Agreement to develop Salas, Jr.'s land and
sell the same... not... assignees
The petitioners' contention is without merit.
Respondent Laperal Realty, 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.
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.
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.
the instant petition is hereby GRANTED. The Order dated August 19, 1998 of Branch 85 of
the Regional Trial Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said court is
hereby ordered to proceed with the hearing of Civil Case No.
98-0047.

LM POWER ENGINEERING CORPORATION v. CAPITOL INDUSTRIAL CONSTRUCTION

GROUPS, GR No. 141833, 2003-03-26
Facts:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are
ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged."[4]
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent
Capitol Industrial Construction Groups Inc. entered into a "Subcontract Agreement"
involving electrical work at the Third Port of Zamboanga
Upon completing its task under the Contract, petitioner billed respondent in the amount of
P6,711,813.90.[... took refuge in the termination clause of the Agreement.[... allowed it to
set off the cost of the work that petitioner had failed to undertake -- due to termination or
take-over -- against the amount it owed the latter.
respondent... filed a Motion to Dismiss,[11] alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
the RTC[14] ruled that the take-over of some work items by respondent was not equivalent
to a termination, but a mere modification, of the Subcontract. The latter was ordered to
give full payment for the work completed by... petitioner.
arbitrable the issue of whether respondent's take-over of some work items had been
intended to be a termination of the original contract under Letter "K" of the
Subcontract.
the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and
implementation of this Agreement which cannot be settled between [respondent] and
[petitioner] amicably shall be settled by means of arbitration x x x."[1
Issues:
respondent took over some of the work contracted to petitioner.[6] Allegedly, the latter
had failed to finish it because of its inability to procure materials.
accuracy of the amount of advances and billable accomplishments listed by the former,...
refused to pay.
petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint[10]
for the collection of the amount representing the alleged balance due it under the
Subcontract.
the RTC denied the Motion on the ground that the dispute did not involve the
interpretation or the implementation of the Agreement and was, therefore, not covered by
the arbitral clause.[... the CA reversed the RTC and ordered the referral of the case to
arbitration.
Whether or not there exist[s] a controversy/dispute between petitioner and respondent
regarding the interpretation and implementation of the Sub-Contract Agreement dated
February 22, 1983 that requires prior recourse to voluntary arbitration;
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC
Arbitration Rules regarding request for arbitration ha[ve] been complied with[.]"[17]
First Issue:
Whether Dispute Is Arbitrable
Ruling:
whether petitioner was liable under the warranty clause of the Agreement,... The Petition is
unmeritorious.
We side with respondent
The instant case involves technical discrepancies that are better left to an arbitral body that
has... expertise in those areas.
the inclusion of an arbitration clause in a contract does not ipso facto divest the courts of
jurisdiction to pass upon the findings of arbitral bodies, because the awards are still
judicially reviewable under certain... conditions.[18]... the resolution of the dispute
between the parties herein requires a referral to the provisions of their Agreement.
discrepancies as to the amount of advances and billable accomplishments... the application
of the provision on... termination, and the consequent set-off of expenses.
Principles:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation
and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve
their disputes amicably, they provide solutions that are less time-consuming,... less
tedious, less confrontational, and more productive of goodwill and lasting relationships.[...
whether it should reimburse respondent for the work the latter had taken over.[15]...
awards are still judicially reviewable under certain... conditions.[18]

Koppel, Inc. v. Makati Rotary Club Foundation, Inc. G.R. No.

198075
September 4, 2013
PEREZ, J.:

FACTS:
- Fedders Koppel, Incorporatied (FKI), an air-
conditioning 
manufacturer, owned a parcel of land located in
Paranaque City which 
housed buildings and improvements
dedicated to the business of FKI. 


- 1975 – FKI left the land to Makati Rotary Club

Foundation (MRCF) 
by way of a conditional donation; MRCF
accepted all the conditions 

- [May 26, 1975] FKI and MRCF executed a deed of
donation evidencing 
their consensus. 
Conditions of the Donation:

Respondent would lease the land back to FKI under the terms of the
donation 


o Period of lease is for 25 years or until May 25, 2000; renewable for

another 25 years upon mutual agreement
o Rent paid by FKI for the 1st 25 years
is P40,126 per annum.
o Rental for the 2nd 25 years shall be the subject of a
mutual agreement; if

cannot agree, then it be submitted to a panel of 3 arbitrators in accordance to

arbitration law in the Philippines.

Fair market value should not exceed beyod 25% of the original value

Rental for the 2nd 25 years shall not exceed 3% of the fair market value of the
land

- [Oct 1976] FKI and MRCF executed an amended deed of

donation that reiterated the provisions of the deed of donation. 


- By virtue of the lease agreement as stipulated in the deed of

donation and the amended one, FKI continued to possess and use
the land. 
2000 Lease Contract 

- 2 days prior to the expiration of the deed of donation and the
amended one, FKI and MRCF executed another contract of lease 


- Parties agreed with conditions of this contract 


o a new 5 year contract

o annual rents ranging from P4,000,000 (1st year) to P4,900,000 (5th year) o
contained arbitration clause in case of disagreement about the

interpretation, application and execution of the lease.
o Board of 3 arbitrators in

accordance of the arbitration laws of the

Philippines.
o Governed by laws of the Philippines

2005 Lease Contract

Created after the expiration of the 2000 lease contract o Fixed rent of P4,200,000
annually for 5 years

o FKI must make an annual donation of money to MRCF P3m (1st year) to P3.9m
(5th year)

o Contained arbitration clause in case of disagreement about the interpretation,

application and execution of the lease.

o Board of 3 arbitrators in accordance of the arbitration laws of the Philippines.

o Governed by laws of the Philippines

The Assingment and Koppel’s Refusal to Pay

- FKI faithfully complied and paid rentals and the donations
for 3 years in the 2005 lease contract, but in [June 2008] FKI sold
its rights and properties to Koppel, Inc. (Koppel). 

- FKI and MRCF executed an assignment and assumption of
lease and donation where KFI formally assigned all of its interests
and obligations in favor of Koppel. 

- The following year Koppel refused to pay the rent and
donation under the 2005 lease contract because it violated the
material conditions of the donation of the land in the donation and
amended deed of donation; clearly the rents in 2000 & 2005 lease
contract were exorbitant 

o The two 25 years were the only material conditions of the donation of
the subject land
o While the lease for the 2nd 25 year was not fixed in the deed of donation
and the amended one, both deeds nevertheless prescribed rules and
limitations which should be complied with – what is referred here is the
3% max increase
Demand Letters

- [June 1, 2009] MRCF sent the 1st demand letter notifying

petitioner of its default and the demand for its settlement (P8.394m)
, failure to comply would mean the termination of the 2005
contract; letter was received on the next day 


- [Sept 22, 2009] Koppel sent a reply expressing

disagreement over the rental stipulations since there were excessive
and against the mandated deed of donation and the amended one;
the offered to pay only P80,502.79 

- [Sept 25, 2009] MRCF sent the 2nd demand letter which
reiterated the demand to pay obligations, added that the failure to
do so within 7 days Koppel is demanded to vacate the premises less
MRCF take legal steps. 


- [Sept 30, 2009] Koppel refused to comply with the demand

and instead filed a case before the RTC of Paranaque a complaint
for the rescission or cancellation of the deed of donation and
amended deed of donation against the respondent. 
The Ejectment
Suit 

- [Oct 5, 2009] MRCF filed an unlawful detainer case against Koppel
before the MeTC of Paranaque.

- [Nov 4, 2000] Koppel filed an answer with compulsory counterclaim

and reiterated its objection to the stipulations in the 2005 contract for
being violative of material conditions of the deed of donation and
amended deed of donation

o Used the defense that MeTC had no jurisdiction because the 1st demand
letter had no demand to vacate the premises and therefore refusal to
comply does not give rise to an action for unlawful detainer

o Even if the MeTC was able to acquire jurisdiction, it may not exercise
the sane until the disagreement between the parties is 1st referred to
arbitration

o Furthermore, there can be no ejectment since the 2005 lease contract is

null and void.
Rulings of MeTC, RTC, and CA
MeTC

- Ruled in favor of Koppel 


- Refused to dismiss the action on the ground that dispute
was still subject 
to arbitration 


- Found merit on the issues by Koppel – insufficiency in

demand, and the 
nullity of the 2005 lease contract 
RTC –
MRCF appealed to this court 


- Reversed the decisions of the MeTC and ordered the

eviction of Koppel 
from the land, pay P9,362,436, penalties and
net of 5% withholding tax, 
atty’s fees and costs of suit 

- Ratio: 


o Respondent has complied with the requirement of demand, in essence

the 1st demand also deemed that they had to vacate since failure to comply
would mean the termination of the 2005 lease contract which meant they
had to lease; either way the 2nd demand letter has complied with the
requirement of demand.

o Petitioner cannot invoke the arbitration clause and at the same time
question the validity of the contract.

o 2005 lease contract must be sustained since there was no evidence

submitted to prove its invalidity.
CA – Koppel appealed here
- Affirmed the decision of the RTC. 

- [Sept 5, 2011] SC issued a TRO staying the immediate
implementation of the decision of the CA 
ISSUE: 
WON the
2005 Lease Contract is arbitratble 


HELD:

YES, all of the arguments are bereft of merit for they have erred in
overlooking the significance of the arbitration clause incorporated in the
2005 lease contract.

The arbitration clause of the 2005 Lease Contract stipulates that "any
disagreement" as to the " interpretation, application or execution " of the
2005 Lease Contract ought to be submitted to arbitration.70 To the mind of
this Court, such stipulation is clear and is comprehensive enough so as to
include virtually any kind of conflict or dispute that may arise from the
2005 Lease Contract including the one that presently besets petitioner and
respondent.
The application of the arbitration clause of the 2005 Lease Contract in this
case carries with it certain legal effects. However, before discussing what
these legal effects are, We shall first deal with the challenges posed
against the application of such arbitration clause.

FIRST. While the validity of the contract may still be in question, the
2005 lease agreement would not be rendered non-arbitrable.

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.
SECOND. Petitioner may still invoke the arbitration clause of the2005
Lease Contract notwithstanding the fact that it assails the validity of such
contract. This is due to the doctrine of separability. Under the doctrine of
separability, an arbitration agreement is considered as independent of the
main contract. Being a separate contract in itself, the arbitration
agreement may thus be invoked regardless of the possible nullity or
invalidity of the main contract.
THIRD. The operation of the arbitration clause in this case is not at all
defeated by the failure of the Petitioner to file a formal “request” or
application

therefor with the MeTC. SC finds that the filing of a “request” pursuant to
Section 24 of R.A. No. 9285 is notthe sole means by which an arbitration
clause may be validly invoked in a pending suit.
Section 24 of R.A. No.
9285 reads:
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 that 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. [Emphasis ours; italics
original]

The “request” referred to in the above provision is, in turn, implemented

by Rules 4.1 to 4.3 of A.M. No. 07-11-08-SC or theSpecial Rules of Court
on Alternative Dispute Resolution (Special ADR Rules):
RULE 4:
REFERRAL TO ADR

Rule 4.1. Who makes the request. – A party to a pending action filed in violation
of the arbitration agreement, whether contained in an arbitration clause or in a
submission agreement, may request the court to refer the parties to arbitration in
accordance with such agreement.

Rule 4.2. When to make request. – (A) Where the arbitration agreement exists
before the action is filed. – The request for referral shall be made not later than the
pre-trial conference. After the pre-trial conference, the court will only act upon the
request for referral if it is made with the agreement of all parties to the case.

(B) Submission agreement. – If there is no existing arbitration agreement at the

time the case is filed but the parties subsequently enter into an arbitration
agreement, they may request the court to refer their dispute to arbitration at any
time during the proceedings.

Rule 4.3. Contents of request. – The request for referral shall be in the form of a
motion, which shall state that the dispute is covered by an arbitration agreement.

Apart from other submissions, the movant shall attach to his motion an
authentic copy of the arbitration agreement.
The request shall contain a notice of hearing addressed to all parties
specifying the date and time when it would be heard. The party making
the request shall serve it upon the respondent to give him the opportunity
to file a comment or opposition as provided in the immediately
succeeding Rule before the hearing. [Emphasis ours; italics original]
Attention must be paid, however, to the salient wordings of Rule 4.1. It
reads: “[a] party to a pending action filed in violation of the arbitration
agreement x x x may request the court to refer the parties to arbitration in
accordance with such agreement.”
In using the word “may” to qualify the act of filing a “request” under
Section 24 of R.A. No. 9285, the Special ADR Rules clearly did not
intend to limit the invocation of an arbitration agreement in a pending suit
solely via such “request.” After all, non-compliance with an arbitration
agreement is a valid defense to any offending suit and, as such, may even
be raised in an answer as provided in our ordinary rules of procedure.
In this case, it is conceded that Petitioner was not able to file a separate
“request” of arbitration before the MeTC. However, it is equally
conceded that the Petitioner, as early as in its Answer with Counterclaim,
had already apprised the MeTC of the existence of the arbitration clause
in the 2005 Lease Contractand, more significantly, of its desire to have
the same enforced in this case. This act of Petitioner is enough valid
invocation of his right to arbitrate.

Fourth. The fact that the Petitioner and Respondent already underwent
through JDR proceedings before the RTC, will not make the subsequent
conduct of arbitration between the parties unnecessary or circuitous. The
JDR system is substantially different from arbitration proceedings.
The JDR framework is based on the processes of mediation, conciliation
or early neutral evaluation which entails the submission of a dispute
before a “JDR judge” who shall merely “facilitate settlement” between
the parties in conflict or make a “non-binding evaluation or assessment of
the chances of each party’s case.” Thus in JDR, the JDR judge lacks the
authority to render a resolution of the dispute that is binding upon the
parties in conflict. In arbitration, on the other hand, the dispute is
submitted to an arbitrator/s—a neutral third person or a group of
thereof—who shall have the authority to render a resolution binding upon
the parties.
Clearly, the mere submission of a dispute to JDR proceedings would not
necessarily render the subsequent conduct of arbitration a mere
surplusage. The failure of the parties in conflict to reach an amicable
settlement before the JDR may, in fact, be supplemented by their resort to
arbitration where a binding resolution to the dispute could finally be
achieved. This situation precisely finds application to the case at bench.
Neither would the summary nature of ejectment cases be a valid reason to
disregard the enforcement of the arbitration clause of the 2005 Lease
Contract. Notwithstanding the summary nature of ejectment cases,
arbitration still remains relevant as it aims not only to afford the parties an
expeditious method of resolving their dispute.
A pivotal feature of arbitration as an alternative mode of dispute
resolution is that it is, first and foremost, a product of party autonomy or
the freedom of the parties to “make their own arrangements to resolve
their own disputes.” Arbitration agreements manifest not only the desire
of the parties in conflict for an expeditious resolution of their dispute.
They also represent, if not more so, the parties’ mutual aspiration to
achieve such resolution outside of judicial

auspices, in a more informal and less antagonistic environment under the

terms of their choosing. Needless to state, this critical feature can never be
satisfied in an ejectment case no matter how summary it may be.
Legal Effect of the Application of the Arbitration Clause

Since there really are no legal impediments to the application of the

arbitration clause of the 2005 Contract of Lease in this case, We find that
the instant unlawful detainer action was instituted in violation of such
clause. The Law, therefore, should have governed the fate of the parties
and this suit:
R.A. No. 876

Section 7. Stay of civil action. – If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration,shall stay the action or
proceeding until an arbitration has been had in accordance with the terms of
the agreement: Provided, That the applicant for the stay is not in default in
proceeding with such arbitration.

R.A. No. 9285

Section 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 that 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.

It is clear that under the law, the instant unlawful detainer action should
have been stayed; the Petitioner and the Respondent should have been
referred to arbitration pursuant to the arbitration clause of the 2005 Lease
Contract. The MeTC, however, did not do so in violation of the law—
which violation was, in turn, affirmed by the RTC and Court of Appeals
on appeal.
The violation by the MeTC of the clear directives under R.A. Nos. 876
and 9285 renders invalid all proceedings it undertook in the ejectment
case after the filing by Petitioner of its Answer with Counterclaim—the
point when the Petitioner and the Respondent should have been referred
to arbitration. This case must, therefore, be remanded to the MeTC and be
suspended at said point. Inevitably, the decisions of the MeTC, RTC and
the Court of Appeals must all be vacated and set aside.

The Petitioner and the Respondent must then be referred to arbitration

pursuant to the arbitration clause of the 2005 Lease Contract.

FRUEHAUF ELECTRONICS PHILIPPINES CORPORATION, Petitioner,

vs.
TECHNOLOGY ELECTRONICS ASSEMBLY AND MANAGEMENT PACIFIC
CORPORATION, Respondent.

FACTS:

In 1978, Fruehauf Electronics Philippines Corp. (Fruehauf) leased several

parcels of land in Pasig City to Signetics Filipinas Corporation (Signetics) for a
period of 25 years (until May 28, 2003). Signetics constructed a semiconductor
assembly factory on the land on its own account.

In 1983, Signetics ceased its operations and in 1986, Team Holdings Limited
(THL) bought Signetics. THL later changed its name to Technology Electronics
Assembly and Management Pacific Corp. (TEAM)

In March 1987, Fruehauf filed an unlawful detainer case against TEAM. In an

effort to amicably settle the dispute, both parties executed a Memorandum of
Agreement (MOA) where TEAM undertook to pay Fruehauf 14.7 million pesos as
unpaid rent (for the period of December 1986 to June 1988).

They also entered a 15-year lease contract4 (expiring on June 9, 2003) that was
renewable for another 25 years upon mutual agreement. The contract included
an arbitration agreement:5

TEAM subleased the property to Capitol Publishing House (Capitol) on

December 2, 1996 after notifying Fruehauf.
On May 2003, TEAM informed Fruehauf that it would not be renewing the lease.
On May 31, 2003, the sublease between TEAM and Capitol expired. However,
Capitol only vacated the premises on March 5, 2005. In the meantime, the
master lease between TEAM and Fruehauf expired on June 9, 2003.

Fruehauf instituted SPProc. No. 11449 before the Regional Trial Court (RTC) for
"Submission of an Existing Controversy for Arbitration”. The RTC granted the
petition and directed the parties to comply with the arbitration clause of the
contract.

On December 3, 2008, the arbitral tribunal awarded Fruehauf: (1) 8.2 million
pesos as (the balance of) unpaid rent from June 9, 2003 until March 5, 2005; and
(2) 46.8 million pesos as damages.

TEAM moved for reconsideration which the tribunal denied. Thus, TEAM
petitioned the RTC to partially vacate or modify the arbitral award. It argued that
the tribunal failed to properly appreciate the facts and the terms of the lease
contract.

On April 29, 2009, the RTC found insufficient legal grounds under Sections 24
and 25 of the Arbitration Law to modify or vacate the award. It denied the petition
and CONFIRMED, the arbitral award. TEAM filed a Notice of Appeal.
The CA reversed and set aside the arbitral award and dismissed the arbitral
complaint for lack of merit.

ISSUE:

Whether or not an arbitral award is appealable or be subject for a petition for

certiorari.

RULING:

NO.

The right to an appeal is neither' a natural right nor an indispensable component

of due process; it is a mere statutory privilege that cannot be invoked in the
absence of an enabling statute. Neither the Arbitration Law nor the ADR Law
allows a losing party to appeal from the arbitral award. The statutory absence of
an appeal mechanism reflects the State's policy of upholding the autonomy of
arbitration proceedings and their corresponding arbitral awards.

(Rule 19.7. No appeal or certiorari on the merits of an arbitral award - An

agreement to refer a dispute to arbitration shall mean that the arbitral award shall
be final and binding. Consequently, a party to an arbitration is precluded from
filing an appeal or a petition for certiorari questioning the merits of an arbitral
award. )
More than a decade earlier in Asset Privatization Trust v. Court of Appeals, we
likewise defended the autonomy of arbitral awards through our policy of non-
intervention on their substantive merits:

As a rule, the award of an arbitrator cannot be set aside for mere errors of
judgment either as to the law or as to the facts. Courts are without power to
amend or overrule merely because of disagreement with matters of law or facts
determined by the arbitrators. They will not review the findings of law and fact
contained in an award, and will not undertake to substitute their judgment for that
of the arbitrators, since any other rule would make an award the commencement,
not the end, of litigation. Errors of law and fact, or an erroneous decision of
matters submitted to the judgment of the arbitrators, are insufficient to invalidate
an award fairly and honestly made. Judicial review of an arbitration is, thus, more
limited than judicial review of a trial.

Nonetheless, an arbitral award is not absolute. Rule 19.10 of the Special ADR
Rules - by referring to Section 24 of the Arbitration Law and Article 34 of the
1985 United Nations Commission on International Trade Law (UNCITRAL) Model
Law - recognizes the very limited exceptions to the autonomy of arbitral awards.

(Rule 19.10. Rule on judicial review on arbitration in the Philippines. - As a

general rule, the court can only vacate or set aside the decision of an arbitral
tribunal upon a clear showing' that the award suffers from any of the infirmities or
grounds for vacating an arbitral award under Section 24 of Republic Act No. 876
or under Rule 34 of the Model Law in a domestic arbitration, or for setting aside
an award in an international arbitration under Article 34 of the Model Law, or for
such other grounds provided under these Special Rules.)

If the Regional Trial Court is asked to set aside an arbitral award in a domestic or
international arbitration on any ground other than those provided in the Special
ADR Rules, the court shall entertain such ground for the setting aside or non-
recognition of the arbitral award only if the same amounts to a violation of public
policy.

The court shall not set aside or vacate the award of the arbitral tribunal merely on
the ground that the arbitral tribunal committed errors of fact, or of law, or of fact
and law, as the court cannot substitute its judgment for that of the arbitral
tribunal.

LIABILITIES OF DIRECTORS, TRUSTEES OR OFFICERS

GERARDO LANUZA, JR. AND ANTONIO O. OLBES v. BF CORPORATION,
SHANGRI-LA PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B. COLAYCO,
MAXIMO G. LICAUCO III, AND BENJAMIN C. RAMOS
G.R. No. 174938, October 01, 2014
Leonen, J.
Facts:

Gerardo Lanuza, Jr and Antonio Olbes are members of the Board of Directors of
Shangri-La.

This is an Appeal on Certiorari, assailing the CA's decision and resolution that
affirmed the trial court's decision holding that petitioners, as directors, should
submit themselves as parties to the arbitration proceedings between BF
Corporation and Shangri-La Properties, Inc. (Shangri-La).

BF Corporation alleged that it entered into agreements with Shangri-La wherein it

undertook to construct for Shangri-La a mall and a multilevel parking structure
along EDSA.

Construction eventually was completed but despite demands, Shangri-La refused

to pay the balance. BF also alleged that Shangri-La’s directors were in bad faith
so they should be held jointly and severally liable with Shangri-La. Shangri-La
and respondent board members filed a motion to suspend the proceedings in
view of BF’s failure to submit its dispute to arbitration. RTC denied the motion,
however. Petitioners filed an answer saying they are resigned members of the
board since July 15, 1991. Shangri-La and respondents then filed certiorari with
CA which granted their petition and ordered submission to arbitration.

Issue:
Should petitioners be made parties to the arbitration proceedings, pursuant to the
arbitration clause provided in the contract between BF Corporation and Shangri-
La?

Held:

Yes. Petitioners point out, their personalities as directors of Shangri-La are

separate and distinct from Shangri-La. Because a corporation's existence is only
by fiction of law, it can only exercise its rights and powers through its directors,
officers, or agents, who are all natural persons. A corporation cannot sue or enter
into contracts without them. A consequence of a corporation's separate
personality is that consent by a corporation through its representatives is not
consent of the representative, personally. Its obligations, incurred through official
acts of its representatives, are its own. A stockholder, director, or representative
does not become a party to a contract. However, when there are allegations of
bad faith or malice against corporate directors or representatives, it becomes the
duty of courts or tribunals to determine if these persons and the corporation
should be treated as one.

Shangri-La had been consistent in paying BF Corp in accordance with its

progress billing statements. However, Shangri-La started defaulting in payment.
BF Corp filed a complaint against Shangri-La and its board of directors. BF Corp
alleged that Shangri-La misrepresented it had funds to pay and that it was simply
a matter of delayed processing of BF’s progress billing statements.

Section 31 of the Corporation Code provides the instances

when directors, trustees, or officers may become solidarily liable for corporate
acts:
a) The director or trustee willfully and knowingly voted for or assented to a
patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence or bad faith in directing
corporate affairs; and
c) The director or trustee acquired personal or pecuniary interest in conflict with
his or her duties as director or trustee.

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

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

Hence, the issue of whether the corporation's acts in violation of complainant's

rights, and the incidental issue of whether piercing of the corporate veil is
warranted, should be determined in a single proceeding.

G.R. No. 196171 January 15, 2014

RCBC CAPITAL CORPORATION, Petitioner,

vs.
BANCO DE ORO UNIBANK, INC. (now BDO UNIBANK, INC.), Respondent.

x-----------------------x

G.R. No. 199238

BANCO DE ORO UNIBANK, INC., Petitioner,
vs.
COURT OF APPEALS and RCBC CAPITAL CORPORATION, Respondents.

x-----------------------x

G.R. No. 200213

BANCO DE ORO UNIBANK, INC., Petitioner,

vs.
RCBC CAPITAL CORPORATION and THE ARBITRAL TRIBUNAL IN ICC
ARBITRATION REF. NO. 13290/MS/JEM AND/OR RICHARD IAN BARKER, NEIL
KAPLAN AND SANTIAGO KAPUNAN, in their official capacity as Members
of THE ARBITRATION TRIBUNAL, Respondents.

FACTS:

All three petitions emanated from arbitration proceedings commenced

by RCBC Capital pursuant to the arbitration clause under its Share
Purchase Agreement (SPA) with EPCIB involving the latter’s shares in
Bankard, Inc. In the course of arbitration conducted by the Tribunal
constituted and administered by the International Chamber of
Commerce-International Commercial Arbitration (ICC-ICA), EPCIB was
merged with BDO which assumed all its liabilities and obligations.

RCBC entered into a Share Purchase Agreement (SPA) with Equitable-PCI

Bank, Inc. (EPCIB), George L. Go and the individual shareholders of
Bankard, Inc. (Bankard) for the sale to RCBC of 226,460,000 shares
(Subject Shares) of Bankard.
RCBC informed EPCIB and the other selling shareholders of an overpayment of
the subject shares, claiming there was an overstatement of valuation of
accounts amounting to P478 million and that the sellers violated their warranty.

RCBC commenced arbitration proceedings with the ICC-ICA in accordance

with Section 10 of the SPA.

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

RCBC filed an Application for Reimbursement of Advance on Costs Paid, praying

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

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

Respondents reiterated their position that Article 30(3) envisions a situation

whereby a party would refuse to pay its share on the advance on costs and
provides a remedy therefor – the other party "shall be free to pay the whole of
the advance on costs." Such party’s reimbursement for payments of the
defaulting party’s share depends on the final arbitral award where the party
liable for costs would be determined. This is the only remedy provided by the ICC
Rules

Arbitration Tribunal rendered the Second Partial Award

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

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

ISSUE:

WHETHER THERE IS LEGAL GROUND TO VACATE THE SECOND PARTIAL AWARD?

RULING:

YES.

The Supreme Court upheld the Court of Appeals' ruling that in treating the
letter of the claimant as an application for a partial award and in
furnishing the parties with a copy of Secomb's article1 - which favoured
the claimant by advancing its cause - the chairman acted with partiality.

1 Secomb's article, "Awards and Orders Dealing with the Advance on Costs in ICC Arbitration: Theoretical Questions and
Practical Problems", states:
"As we can see, the Rules have certain mechanisms to deal with defaulting parties. Occasionally, however, parties have sought
to use other methods to tackle the problem of a party refusing to pay its part of the advance on costs. These have included
seeking an order or award from the arbitral tribunal condemning the defaulting party to pay its share of the advance on costs.
Such applications are the subject of this article."
“SEC. 41. Vacation Award. – A party to a domestic arbitration may question the
arbitral award with the appropriate regional trial court in accordance with the
rules of procedure to be promulgated by the Supreme Court only on those
grounds enumerated in Section 25 of Republic Act No. 876. Any other ground
raised against a domestic arbitral award shall be disregarded by the regional
trial court.”

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

Rule 11.4. Grounds.—(A) To vacate an arbitral award. – The arbitral award may
be vacated on the following grounds:

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

The award may also be vacated on any or all of the following grounds:
a. The arbitration agreement did not exist, or is invalid for any ground for the
revocation of a contract or is otherwise unenforceable; or
b. A party to arbitration is a minor or a person judicially declared to be
incompetent.
In deciding the petition to vacate the arbitral award, the court shall disregard
any other ground than those enumerated above. (Emphasis supplied)

Evident partiality in its common definition thus implies "the existence of signs and
indications that must lead to an identification or inference" of partiality

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

That there was an action to be taken beforehand is confirmed by Chairman

Barker’s furnishing the parties with a copy of the Secomb article. This article
ultimately favored RCBC by advancing its cause. Chairman Barker makes it
appear that he intended good to be done in doing so but due process dictates
the cold neutrality of impartiality.