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1.

G.R. No. 198075; September 4, 2013


1
KOPPEL, INC. (formerly known as KPL AIRCON, INC.)
vs.
MAKATI ROTARY CLUB FOUNDATION, INC.

2.

G.R. No. 199650; June 26, 2013


J PLUS ASIA DEVELOPMENT CORPORATION
vs.
UTILITY ASSURANCE CORPORATION

3.

G.R. No. 91228; March 22, 1993.


PUROMINES, INC.,
vs. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC, INC.,

4.

G.R. No. 96283 February 25, 1992


CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely:
HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A.
CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG,
MARIA TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO,
vs. COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional
Trail Court of Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC.,

5.

[G.R. No. 139273. November 28, 2000]


CALIFORNIA AND HAWAIIAN SUGAR COMPANY; PACIFIC GULF MARINE,
INC.; and C.F. SHARP & COMPANY, petitioners,
vs. PIONEER INSURANCE AND SURETY CORPORATION, respondent.

Submitted to:

Atty. Waren Morales


March 5, 2018

ALTERNATIVE DISPUTE RESOLUTION


1.

G.R. No. 198075 September 4, 2013

KOPPEL, INC. (formerly known as KPL AIRCON, INC.)


vs.
MAKATI ROTARY CLUB FOUNDATION, INC.

Reporters: Sheena Marie Erasmo & Cyril Jed Martel 2

FACTS: Fedders Koppel Inc (FKI) owned a parcel of land in Paranaque. Within the subject
property are buildings and other improvements dedicated to the business of FKI1.In 1975,
FKI bequeathed the subject property (exclusive of the improvements) infavor of Makati
Rotary Club by way of a conditional donation

The donation provides that the donee, Makati Rotary Club, was required to lease the subject
property to FKI under the terms specified in the Deed of Donation.

The stipulations in the donation provides:

(a) that the period of lease shall be for 25 years (until May 25, 2000) and the annual rent
for the first 25 years is P40,126
(b) The lease is subject to renewable for another 25 years upon mutual agreement of the
donor and done
(c) In case of disagreement, the matter shall be referred to a Board of arbitrators (3-
member) appointed and with powers in accordance with the Arbitration Law of the
Philippines (RA 878)

Before the lease contract was set to expire, FKI and Makati Rotary Club executed another
contract extending the lease for 5 years, with annual rents ranging fromP4,000,000 for the 1st
year up to P4,900,00 for the 5th year. The 2000 Lease contract an arbitration clause worded
as: Any disagreement as to the interpretation, application or execution of the [2000Lease]
contract shall be submitted to a board of 3 arbitrators constituted in accordance
with the Arbitration Law of the Philippines. The decision of the majority of the board shall be
binding upon FKI and respondent

After the 2000 Lease Contract expired, FKI and respondent agreed to renew their lease for
another 5 years at a fixed rate pf P4,200,000 per annum (2005 Lease Contract). In addition,
the contract also obligated FKI to make a yearly “donation” of money to respondent ranging
from P3 million for the 1st year up to P3.9 million for the5th year. The lease contract
contained an arbitration clause similar to the 2000 lease contract. From 2005 to 2008, FKI
paid the rentals and “donations” due based on the2005 Lease Contract.

In Aug 2008, FKI assigned all its interest and obligations in favor of petitioner Koppel Inc.
The next year, Koppel discontinued the payment of the rentals and “donations” under the
2005 Lease Contract. Koppel’s refusal to pay was based on the premise that the subsequent
lease contracts violated one of the material conditions of the donation of the property, i.e.
Item 2(g) of the Deed of Donation states that the rent of the subject property over the second
25 years was limited to only 3% of the fair market value of the subject property excluding the
improvements

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On June 1, 2009, Makati Rotary Club sent a demand letter notifying Koppel of its default.
Petitioner (Sept 22, 2009) sent a reply expressing its disagreement over the rental stipulations
of the 2005 Lease Contract and offered to pay P80,502.79 instead of P8,394,000 as demanded
by respondent

Respondent send a subsequent demand letter (Sept 25, 2009) ordering Koppel Inc. to vacate
the premises should it fail to pay its obligation within 7 days from receipt of letter.

Petitioner Koppel refused to comply with the demands of the respondent and instead, filed 3
with RTC Paranaque a complaint for the rescission or cancellation of the Deed of Donation

Thereafter, Makati Rotary Club filed an unlawful detainer case against Koppel before MTC
Paranaque. In the ejectment suit, Koppel reiterated its objections over the rental stipulations of
the 2005 Lease Contract and questioned the jurisdiction of the MTC in view of the arbitration
clause contained in the Lease Contract

In the ejectment case, RTC ruled in favor of Koppel Inc. While it did not dismiss the action
on the ground of arbitration, MTC sided with petitioner with respect to the issues regarding
the insufficiency of the respondent’s demand and the nullity of the2005 Lease contract

On appeal, RTC reversed the MTC decision and ordered Koppel to vacate the subject
property. As to the existing improvements, RTC held that the same were built in good faith
subject to the provisions under Art 1678 NCC. CA affirmed

Arguments against arbitration: The dispute between petitioner and respondent involves the
validity of the 2005Lease Contract. Citing Gonzales v. Climax Mining: The validity of
contract cannot be subject the arbitration proceedings as such questions are legal in nature and
require the application of interpretation of laws and jurisprudence which is
necessarily a judicial function Petitioner cannot validly invoke the arbitration clause while at
the same time, impugn such contract’s validity Petitioner did not file a formal application
before the MTC so as to render the arbitration clause operational.

The parties underwent Judicial Dispute Resolution (JDR); further referral of the dispute to
arbitration would only be circuitous

ISSUE #1: Whether Or Not the present dispute is subject to arbitration

HELD: Yes.

Respondent took the ruling in the Gonzales case out of context. PA-MGB was devoid of any
jurisdiction to take cognizance of the complaint for arbitration because RA7942 (Mining Act
of 1995) grants PA-MGB with exclusive original jurisdiction only over mining disputes.
Since the complaint for arbitration in the Gonzales case did not raise mining disputes as
contemplated under RA 7942, the SC held such complaint could not arbitrated before the PA-
MGB. The Court in Gonzales did not simply reject the complaint on the ground that the issue
of validity of contracts per se is non-arbitrable.

The real consideration bind the ruling was the limitation that was placed by RA 7942 upon the
jurisdiction of PA-MGB as an arbitral body. Petitioner may still invoke the arbitration clause
of the 2005 Lease Contract notwithstanding the fact that it assails the validity of such
contract. This is due to the doctrine of separability.

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Under said doctrine, 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. The operation of the
arbitration clause in this case is not defeated by Koppel’s failure to file a formal “request” or
application with the MTC.

In using the word “may” to qualify the act of filing a “request” under Sec 24 of RA 9285
(Special ADR Rues) clearly did not intend to limit invocation of an arbitration agreement in a
pending suit solely via such request. After all, non-compliance with an arbitration agreement 4

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.

CAB: As early as in its answer with counterclaim, Koppel had already apprised MTC of the
existence of the arbitration clause in the 2005 Lease Contract; such act is enough valid
invocation of his right to arbitrate. The fact that petitioner and respondent already underwent
through JDR proceedings before the RTC, will not make the subsequent 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.

ISSUE #2: What is the nature of an arbitration proceeding?

HELD: 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.

ISSUE #3: What are the legal effects of the arbitration clause?

HELD: Since there really are no legal impediments to the application of the arbitration clause
of the2005 Contract of Lease in this case, the unlawful detainer action was instituted in
violation of such clause. Under Sec 7, RA 9285, 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 the2005 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 MTC 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

ALTERNATIVE DISPUTE RESOLUTION


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.

2.

G.R. No. 199650 June 26, 2013


5
J PLUS ASIA DEVELOPMENT CORPORATION
vs.
UTILITY ASSURANCE CORPORATION

Reporter: Erwin Funa

FACTS: Martin Mabunay entered into a construction agreement with petitioner J Plus
Corporation to build a 72-room condominium/hotel. Respondent Utility assurance
Corporation acted as a surety by providing a Performance Bond equivalent to 20% down
payment.

However, upon inspection, only 31.39% the project was completed from this, Chairman Lee
of J Plus Corporation terminated the contract and filed for arbitration with damages. Mabunay
contended however that the delay was caused by the retrofitting and other works ordered by
Mr.Lee.

The Construction Industry Arbitrary Commission held respondent and Mabunay jointly and
severally liable.

The CA overturned said decision holding that Mabunay has not at all incurred delay, pointing
out that the obligation to perform or complete the project was not yet demandable when
petitioner terminated the contract on the account that the agreed completion date was still
more than one month away. Since the parties contemplated delay in the completion of the
entire project, the CA concluded that the failure of the contractor to catch up with the
schedule of work facilities did not constitute delay giving rise to the contractor’s liability for
damages.

ISSUES:

1. Whether or Not Mabunay was in delay when Mr.Lee terminated the contract.

2. Whether or not Respondent Utility Assurance Corporation can be made liable for
Mabunay’s delay.

HELD:

1.Yes. Mabunay was already in delay when Mr. Lee terminated the contract. The Court did
not sustain the CA’s interpretation as it is inconsistent with the terms of the Construction
Agreement Article 1374 of the Civil Code requires that the various stipulations of a contract

ALTERNATIVE DISPUTE RESOLUTION


shall be interpreted together, attributing to the doubtful ones that sense which may result
from all of them taken jointly.

2.Yes. Respondent Utility Assurance Corporation is liable for the delay caused by Mabunay.

As ruled, the Performance Bond guaranteed the full and faithful compliance of Mabunay’s
obligations under the Construction Agreement, and that nowhere in law or jurisprudence does
it state that the obligation or undertaking by a surety may be apportioned.
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ALTERNATIVE DISPUTE RESOLUTION


3.

G.R. No. 91228. March 22, 1993.

PUROMINES, INC., vs. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC, INC.,

Reporter: Sarah Gretchen A. Adeva

FACTS: Pursuant to a contract of sale executed between Puromines Inc (petitioner) and 7
Philipp Brothers Oceanic, Inc., (private respondent) as charterer of M/V Liliana Dimitrova, 3
Bills of Lading were executed bound for the Iloilo and Manila of 15,000 metric tons of prilled
urea.

However, upon reaching the port of Manila it was found out that the shipment (urea) were
already contaminated with rust and dirt.

This prompted petitioner to file an action for breach of contract of carriage against Maritime
Factors, Inc as ship agent here in the Philippines for the owners of M/V Liliana in the
complaint moreover private respondent Philipp Brothers Oceanic Inc., was impleaded as
charterer of the said vessel.

Private respondent, Philipp Brothers, instead of filing its answer filed a motion to dismiss on
the ground of no cause of action. Private respondent also avers that Puromines Inc. should
comply with the arbitration clause provided for in the sales contract.

Facts show that the sales contract executed between Puromines Inc., and Philipp Brothers
Oceanic, Inc., provides for an arbitration clause wherein it states that:

“Any disputes arising under this contract shall be settled by arbitration in London in
accordance with the Arbitration Act 1950 and any statutory amendment or modification
thereof. Each party is to appoint an Arbitrator, and should they be unable to agree, the
decision of an Umpire appointed by the them be final. The Arbitrators and Umpire are all to
be commercial men and resident in London. This submission may be made a rule of the High
Court of Justice in England by either party.”

Petitioner moved to oppose the said motion to dismiss alleging that the arbitration
clause is not applicable on the case because the complaint did not arise from the violation of
the terms and conditions of the sales contract but rather for claims of cargo agreement.

The trial court ruled in favor of the petitioner. On appeal, the CA reversed the decision
of the trial court and found that the arbitration clause is applicable.

Hence this petition.

ISSUE: Whether Or Not petitioner is bound by the arbitration clause in the sales contract.

HELD: Yes, petitioner is bound by the arbitration clause provided for in the contract.
Arbitration has been held valid and constitutional. Even before the enactment of RA no. 876,
the Supreme Court has countenanced the settlement of disputes through arbitration. The rule
now is that unless the agreement is such absolutely close the doors of the courts against the

ALTERNATIVE DISPUTE RESOLUTION


parties, which agreement would be void, the courts will look with favor upon such amicable
arrangements and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator.

At the case at bar, the sales contract is comprehensive enough to include claims for damages
arising from carriage and delivery of the goods. Puromines, Inc/. derived his right to the cargo
from the bill of lading which is the contract of affreihtment together with the sales contract.
Consequently, Puromines is bound by the provisions and terms of the bill of lading and of the
arbitration clause. 8

Moreover the court also ruled that, whether the liability of respondent should be based on the
sales contract or that of the bill of lading, the parties are nevertheless obligated to respect the
arbitration provisions on sales contract and/or the bill of lading. Petitioner being a signatory
and party to the sales contract cannot escape from his obligation under the arbitration clause
as stated therein.

As pointed out in the case of Mindanao Portland Cement Corp. vs Mc Donough Construction
Company of Florida the court ruled:

“With a written provision for arbitration as well as failure on respondent's part to comply,
parties must proceed to their arbitration in accordance with the terms of their agreement (Sec.
6, RA 876). Proceeding in court is merely a summary remedy to enforce the agreement to
arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims
but only to determine if they should proceed to arbitration or not . And although it has been
ruled that a frivolous or patently baseless claim should not be ordered to arbitration it is also
recognized that the mere fact that a defense exist against a claim does not make it frivolous or
baseless.

WHEREFORE, the decision of the CA is affirmed, petition is dismissed.

ALTERNATIVE DISPUTE RESOLUTION


4.

G.R. No. 96283 February 25, 1992

CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers namely:


HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN, TRISTAN A.
CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM S.C. HUANG, MARIA
TERESA SOLIVEN and VIRGILIO M. DEL ROSARIO,
9
vs. COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge, Regional
Trail Court of Makati [Branch 57]) and ROBLECOR PHILIPPINES, INC.,

Reporter: Hazel D. Mapandi

FACTS: Petitioner Chung Fu Industries (Philippines) and private respondent Roblecor


Philippines, Inc. forged a construction agreement whereby respondent contractor committed
to construct and finish petitioner corporation’s industrial/factory complex. In the event of
disputes arising from the performance of subject contract, it was stipulated therein that the
issue(s) shall be submitted for resolution before a single arbitrator chosen by both parties.
Roblecor filed a petition for Compulsory Arbitration with prayer for Temporary Restraining
Order before respondent RTC to claim the unsatisfied account and unpaid progress billings.
Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining
order. Subsequent negotiations between the parties eventually led to the formulation of an
arbitration agreement which, among others, provides: The parties mutually agree that the
decision of the arbitrator shall be final and unappealable. Therefore, there shall be no further
judicial recourse if either party disagrees with the whole or any part of the arbitrator’s award.
Respondent RTC approved the arbitration agreement and thereafter, Engr. Willardo Asuncion
was appointed as the sole arbitrator. Arbitrator Asuncion ordered petitioner to immediately
pay respondent contractor and further declared the award as final and unappealable. Roblecor
then moved for the confirmation of said award which was accordingly confirmed and a writ of
execution granted to it. Meanwhile, Chung Fu moved to remand the case for further hearing
and asked for a reconsideration of the judgment award claiming that Arbitrator Asuncion
committed twelve (12) instances of grave error by disregarding the provisions of the parties’
contract. Chung Fu’s Motion was denied and similarly its motion for reconsideration. Chung
Fu elevated the case via a petition for certiorari to respondent CA. The respondent appellate
court concurred with the findings and conclusions of respondent trial court. A motion for
reconsideration of said resolution was filed by petitioner, but was similarly denied.

ISSUE: Whether or not petitioners are estopped from questioning the arbitration award
allegedly in view of the stipulations in the parties’ arbitration agreement that “the decision of
the arbitrator shall be final and unappealable” and that “there shall be no further judicial
recourse if either party disagrees with the whole or any part of the arbitrator’s award.”

HELD: We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that
the finality of the arbitrators’ award is not absolute and without exceptions. Where the
conditions described in Articles 2038, 2039 and 2040 applicable to both compromises and
arbitrations are obtaining, the arbitrators’ award may be annulled or rescinded. Additionally,

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

This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It
is to be borne in mind, however, that this action will lie only where a grave abuse of
discretion or an act without or in excess of jurisdiction on the part of the voluntary arbitrator 10
is clearly shown. It should be stressed, too, that voluntary arbitrators, by the nature of their
functions, act in a quasi-judicial capacity. It stands to reason, therefore, that their decisions
should not be beyond the scope of the power of judicial review of this Court.

ALTERNATIVE DISPUTE RESOLUTION


5.

[G.R. No. 139273. November 28, 2000]

CALIFORNIA AND HAWAIIAN SUGAR COMPANY; PACIFIC GULF MARINE, INC.;


and C.F. SHARP & COMPANY, petitioners, vs. PIONEER INSURANCE AND SURETY
CORPORATION, respondent. 11

Reporter: Erik Sherwin Sivestre Espino

FACTS: On November 27, 1990, the vessel MV “SUGAR ISLANDER” arrived at the port
of Manila carrying a cargo of soybean meal in bulk consigned to several consignees, one of
which was the Metro Manila Feed Millers Association. Discharging of cargo from vessel to
barges commenced. From the barges, the cargo was allegedly offloaded, rebagged and
reloaded on consignee’s delivery trucks.

Respondent, however, claims that when the cargo was weighed on a licensed truck scale a
shortage of 255.051 metric tons valued at P1,621,171.16 was discovered. The shipment was
insured with Pioneer against all risk in the amount of P19,976,404.00.

Due to the alleged refusal of petitioners to settle their respective liabilities, respondent, as
insurer, paid the consignee Metro Manila Feed Miller’s Association.

Pioneer filed a complaint for damages against petitioners. Petitioners filed a Motion to
Dismiss the complaint on the ground that respondent’s claim is premature, the same being
arbitrable.

The RTC ordered to defer the hearing of the MTD and directed petitioners to file their
Answer.

Petitioners filed their answer with counterclaim and crossclaim alleging that Pioneer did not
comply with the arbitration clause.

Petitioners filed a Motion to Defer Pre-Trial and Motion to Set for Preliminary Hearing
the Affirmative Defense of

Lack of Cause of Action for Failure to comply with Arbitration Clause, respectively. The
RTC denied.

The CA affirmed. It ruled that petitioner cannot set the case for preliminary hearing as an
MTD was filed. Also, the arbitration clause in the charter party did not bind Pioneer. The
right of Pioneer to file a upon the charter party, nor does it grow out of any privity
contract. It accrues simply upon payment.

Citing Pan Malayan Insurance Corporation v. CA, the CA ruled that the right of respondent
insurance company as subrogee was not based on the charter party or any other contract;
rather, it accrued upon the payment of the insurance claim by private respondent to the
insured consignee.

ISSUE: WON the arbitration clause was binding upon Pioneer

ALTERNATIVE DISPUTE RESOLUTION


HELD: YES. The CA erred when it held that the arbitration clause was not binding on
Pioneer.

There was nothing in Pan Malayan, however, that prohibited the applicability of the
arbitration clause to the subrogee. That case merely discussed, inter alia, the accrual of the
right of subrogation and the legal basis therefor. This issue is completely different from
that of the consequences of such subrogation; that is, the rights that the insurer acquires
from the insured upon payment of the indemnity.
12
(Pan Malayan: The right of subrogation is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.)

As to the preliminary hearing: True, Section 6, Rule 16 specifically provides that a


preliminary hearing on the affirmative defenses may be allowed only when no motion to
dismiss has been filed.

Section 6, however, must be viewed in the light of Section 3 which requires courts to resolve
a motion to dismiss and prohibits them from deferring its resolution on the ground of
indubitability. Section 6 disallows a preliminary hearing of affirmative defenses once a
motion to dismiss has been filed because such defense should have already been resolved. In
the present case, however, the trial court did not categorically resolve petitioners’ Motion to
Dismiss, but merely deferred resolution thereof

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