CASE # 21

CARGILL PHILIPPINES, INC., petitioner, vs. SAN FERNANDO REGALA TRADING, INC., respondent.
G.R. No. 175404. January 31, 2011.
FACTS:
On June 18, 1998, San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of Makati City a
Complaint for Rescission of Contract with Damages against Cargill Philippines, Inc. Sometime prior to September
15, 1996, the parties agreed that instead of January/February 1997, the delivery would be made in April/May
1997 and that payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon
Cargill’s advice. Cargill, as seller, failed to comply with its obligations under the contract, despite demands from
San Fernando , thus, the latter prayed for rescission of the contract and payment of damages.  On July 24, 1998,
Cargill filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration. San
Fernando filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for rescission of
contract and could not be changed by the subject arbitration clause. The RTC denied the motion of Cargill, it
contended that 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. Petitioner filed its Motion for Reconsideration, which the
RTC denied in an Order10 dated November 25, 1998. On appeal to the Court of Appeals, 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, thus, it was proper that such issue be first resolved
by the court through an appropriate trial; that the issue involved a question of fact that the RTC should first
resolve. Arbitration is not proper when one of the parties repudiated the existence or validity of the contract.

ISSUE:
Whether the CA erred in finding that the case cannot be brought under the arbitration law for the purpose of
suspending the proceedings in the RTC.

HELD:
YES.
Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our
jurisdiction.16 R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling
commercial disputes of an international character, is likewise recognized. The enactment of R.A. No. 9285 on
April 2, 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration, in the
settlement of disputes.
The Court of Appeals’ reliance to the case of Gonzales v. Climax Mining Ltd, which held that the question of validity of
the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration clause
itself, a party cannot rely on the contract and claim rights or obligations under it and at the same time impugn
its existence or validity was wrong since the said ruling was modified by the Court. 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.
Thus, applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall
not be regarded as invalid or non-existent just because the main contract is invalid or did not come into
existence, since the arbitration agreement shall be treated as a separate agreement independent of the
main contract. To reiterate a contrary ruling would suggest that a party’s mere repudiation of the main
contract is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine
sought to avoid. Thus, we find that even the party who has repudiated the main contract is not
prevented from enforcing its arbitration clause.
It is worthy to note that San Fernando filed a complaint for rescission of contract and damages with the RTC. In
so doing, San Fernando alleged that a contract exists between San Fernando and Cargill. It is that contract which
provides for an arbitration clause which states that “any dispute which the Buyer and Seller may not be able to
settle by mutual agreement shall be settled before the City of New York by the American Arbitration Association.
The arbitration agreement clearly expressed the parties’ intention that any dispute between them as buyer and
seller should be referred to arbitration. It is for the arbitrator and not the courts to decide whether a contract
between the parties exists or is valid.
WHEREFORE, the petition is GRANTED. The parties are hereby ORDERED to SUBMIT themselves to the
arbitration of their dispute, pursuant to their July 11, 1996 agreement.

Page 1 of 29
CASE # 22

PHILIPPINE ECONOMIC ZONE AUTHORITY, petitioner, vs. EDISON (BATAAN) CORPORATION, respondent.
G.R. No. 179537. October 23, 2009.
FACTS:
Philippine Economic Zone Authority (PEZA) and (Bataan) Cogeneration Corporation (respondent) entered into a
Power Supply and Purchase Agreement (PSPA or agreement) for a 10-year period effective October 25, 1997
whereby Edison undertook to construct, operate, and maintain a power plant which would sell, supply and deliver
electricity to PEZA for resale to business locators in the Bataan Economic Processing Zone. In the course of the
discharge of its obligation, Edison requested from PEZA a tariff increase with a mechanism for adjustment of the
cost of fuel and lubricating oil, which request it reiterated on March 5, 2004. After the lapse of 90 days, Edison
terminated the PSPA, invoking its right thereunder, and demanded P708,691,543.00 as pre-termination fee. PEZA
disputed Edison’s right to terminate the agreement and refused to pay the pre-termination fee, prompting Edison
to request PEZA to submit the dispute to arbitration pursuant to the arbitration clause of the PSPA. PEZA refused to
submit to arbitration, however, prompting Edison to file a Complaint against PEZA for specific performance before
the Regional Trial Court (RTC) of Pasay, alleging that, inter alia: “x x x x 4. Under Clauses 14.1 and 14.2 of the
Agreement, the dispute shall be resolved through arbitration before an Arbitration Committee composed of one
representative of each party and a third member who shall be mutually acceptable to the parties: x x
By Order of April 5, 2005, Branch 118 of the Pasay City RTC granted respondent’s Motion to Render Judgment
on the Pleadings. On appeal, the Court of Appeals, by Decision of April 10, 2007, affirmed the RTC Order and
the Motion for Reconsideration was subsequently having denied.
ISSUE:
Whether CA erred when it affirmed the order of the Trial Court which referred Edison’s request for arbitration despite the
fact that the issue presented by Edison is not an arbitrable issue

HELD:
NO.
R.A. No. 876 “explicitly confines the court’s authority only to the determination of whether or not there is an
agreement in writing providing for arbitration.” Given PEZA’s admission of the material allegations of Edison’s
complaint including the existence of a written agreement to resolve disputes through arbitration, the assailed CA’s
affirmance of the trial court’s grant of Edison’s Motion for Judgment on the Pleadings is in order. PEZA argues that
it tendered an issue in its Answer as it disputed the legality of the pre-termination fee clause of the PSPA. Even
assuming arguendo that the clause is illegal, it would not affect the agreement between PEZA and Edison to
resolve their dispute by arbitration. “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.
It bears noting that Edison does not seek to nullify the main contract. It merely submits these issues for
resolution by the arbitration committee, viz.: a. Whether or not the interest of Claimant in the project or its economic
return in its investment was materially reduced as a result of any laws or regulations of the Philippine
Government or any agency or body under its control; b. Whether or not the parties failed to reach an agreement on
the amendments to the Agreement within 90 days from notice to respondent on May 3, 2004 of the material
reduction in claimant’s economic return under the Agreement; c. Whether or not as a result of (a) and (b) above,
Edison is entitled to terminate the Agreement; d. Whether or not Edison accorded preferential treatment to EAUC in
violation of the Agreement; e. f. g. Whether or not as a result of (d) above, Edison is entitled to terminate the
Agreement; Whether or not Edison is entitled to a termination fee equivalent to P708,691,543.00; and Who between
PEZA and Edison shall bear the cost and expenses of the arbitration, including arbitrator’s fees, administrative
expenses and legal fees. In fine, the issues raised by Edison are subject to arbitration in accordance with the
arbitration clause in the parties’ agreement.

Page 2 of 29
CASE # 23

BENGUET CORPORATION, petitioner, vs. DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES-

MINES ADJUDICATION BOARD and J.G. REALTY AND MINING CORPORATION, respondents.
G.R. No. 163101. February 13, 2008
FACTS:
On June 1, 1987, Benguet and J.G. Realty entered into a RAWOP, wherein J.G. Realty was acknowledged as
the owner of four mining claims respectively named as BonitoI, BonitoII, Bonito-III, and Bonito-IV, with a total
area of 288.8656 hectares, situated in Barangay Luklukam, Sitio Bagong Bayan, Municipality of Jose Panganiban,
Camarines Norte. The parties also executed a Supplemental Agreement dated June 1, 1987. The mining claims
were covered by MPSA Application No. APSA-V0009 jointly filed by J.G. Realty as claimowner and Benguet as
operator. In the RAWOP, Benguet obligated itself to perfect the rights to the mining claims and/or otherwise
acquire the mining rights to the mineral claims. Within 24 months from the execution of the RAWOP, Benguet
should also cause the examination of the mining claims for the purpose of determining whether or not they are
worth developing with reasonable probability of profitable production. On August 9, 1989, the Executive Vice-
President of Benguet, Antonio N. Tachuling, issued a letter informing J.G. Realty of its intention to develop the
mining claims. However, on February 9, 1999, J.G. Realty, through its President, Johnny L. Tan, then sent a
letter to the President of Benguet informing the latter that it was terminating the RAWOP. In response, Benguet’s
Manager for Legal Services, Reynaldo P. Mendoza, wrote J.G. Realty a letter dated March 8, 1999,therein
alleging that Benguet complied with its obligations under the RAWOP. Thus, Benguet posited that there was no
valid ground for the termination of the RAWOP. It also reminded J.G. Realty that it should submit the
disagreement to arbitration rather than unilaterally terminating the RAWOP. On June 7, 2000, J.G. Realty filed a
Petition for Declaration of Nullity/Cancellation of the RAWOP with the Legaspi City POA, Region V. The POA
rendered a decision that [RAWOP] and its Supplemental Agreement is hereby declared cancelled and without
effect. BENGUET is excluded from the joint MPSA Application over the mineral claims denominated as
“BONITO-I,” “BONITO-II,” “BONITO-III” and “BONITO-IV.” Therefrom, Benguet filed a Notice of Appeal with the
MAB on April 23, 2001, docketed as Mines Administrative Case No. R-M-2000-01.
ISSUE:
Whether the controversy should have first submitted to arbitration before the POA took cognizance of the case
HELD:
YES.
Secs. 11.01 and 11.02 of the RAWOP pertinently provide: Arbitration Any disputes, differences or disagreements
between BENGUET and the OWNER with reference to anything whatsoever pertaining to this Agreement that
cannot be amicably settled by them shall not be cause of any action of any kind whatsoever in any court or
administrative agency but shall, upon notice of one party to the other, be referred to a Board of Arbitrators
consisting of three (3) members, one to be selected by BENGUET, another to be selected by the OWNER and
the third to be selected by the aforementioned two arbitrators so appointed. x x x x 11.02 Court Action No
action shall be instituted in court as to any matter in dispute as hereinabove stated, except to enforce the
decision of the majority of the Arbitrators.
In RA 9285 or the “Alternative Dispute Resolution Act of 2004,” the Congress reiterated the efficacy of
arbitration as an alternative mode of dispute resolution by stating in Sec. 32 thereof that domestic arbitration
shall still be governed by RA 876. Clearly, a contractual stipulation that requires prior resort to voluntary
arbitration before the parties can go directly to court is not illegal and is in fact promoted by the State .
The availment of voluntary arbitration before resort is made to the courts or quasi-judicial agencies of the
government is a valid contractual stipulation that must be adhered to by the parties. In the event a case that
should properly be the subject of voluntary arbitration is erroneously filed with the courts or quasi-judicial
agencies, on motion of the defendant, the court or quasi-judicial agency shall determine whether such contractual
provision for arbitration is sufficient and effective. If in affirmative, the court or quasijudicial agency shall then
order the enforcement of said provision.
J.G. Realty’s contention, that prior resort to arbitration is unavailing in the instant case because the POA’s
mandate is to arbitrate disputes involving mineral agreements, is misplaced. A distinction must be made between
voluntary and compulsory arbitration. In Ludo and Luym Corporation v. Saordino, the Court had the occasion to
distinguish between the two types of arbitrations: compulsory arbitration has been defined both as “the process
of settlement of labor disputes by a government agency which has the authority to investigate and to
make an award which is binding on all the parties, and as a mode of arbitration where the parties are
compelled to accept the resolution of their dispute through arbitration by a third party.” While a
voluntary arbitrator is not part of the governmental unit or labor department’s personnel, said arbitrator renders
arbitration services provided for under labor laws. There is a clear distinction between compulsory and voluntary
arbitration. The arbitration provided by the POA is compulsory, while the nature of the arbitration provision in the
RAWOP is voluntary, not involving any government agency. There can be no quibbling that POA is a quasi-
judicial body which forms part of the DENR, an administrative agency. Hence, the provision on mandatory
resort to arbitration, freely entered into by the parties, must be held binding against them.
However, the Court find that Benguet is already estopped from questioning the POA’s jurisdiction. As it were,
when J.G. Realty filed DENR Case No. 2000-01, Benguet filed its answer and participated in the proceedings before
the POA, Region V. Secondly, when the adverse March 19, 2001 POA Decision was rendered, it filed an appeal
with the MAB in Mines Administrative Case No. R-M-2000-01 and again participated in the MAB proceedings.
When the adverse December 2, 2002 MAB Decision was promulgated, it filed a motion for reconsideration with
the MAB. When the adverse March 17, 2004 MAB Resolution was issued, Benguet filed a petition with this
Court pursuant to Sec. 79 of RA 7942 impliedly recognizing MAB’s jurisdiction. In this factual milieu, the Court
Page 3 of 29
rules that the jurisdiction of POA and that of MAB can no longer be questioned by Benguet at late hour. What
Benguet should have done was to immediately challenge the POA’s jurisdiction by a special civil action for
certiorari when POA ruled that it has jurisdiction over the dispute. To redo the proceedings fully participated in
by the parties after the lapse of seven years from date of institution of the original action with the POA would
be anathema to the speedy and efficient administration of justice.

Page 4 of 29
CASE # 24
SOLEDAD F. BENGSON, plaintiff-appellant, vs.MARIANO M CHAN. UNIVERSAL CONSTRUCTIONSUPPLY and
LEONCIO CHAN, both of San Fernando, LaUnion; MUTUAL SECURITY INSURANCECORPORATION and KRAUSE
A. IGNACIO of Manila,defendants-appellees.
No. L-27283. July 29, 1977
FACTS:
On June 21, 1965 Soledad F. Bengson and Mariano M. Chan entered into a contract for the construction of a
six-story building on Bengson’s lot located at Rizal Avenue, San Fernando, La Union. In that contract Soledad F.
Bengson bound herself to pay Chan, the contractor, the sum of P352,000 for the materials, labor and construction
expenses. The contract contains the following arbitration clause:
“ Any and all questions, disputes or differences arising between the parties hereto relative to the construction of
the BUILDING shall be determined by arbitration of two persons, each chosen by the parties themselves. The
determination of said arbitration shall be final, conclusive and binding upon both parties hereto, unless they
choose to go to court, in which case the determination by arbitration is a condition precedent for taking any
court action. The expenses of arbitration shall be borne by both parties equally.”
On May 24, 1966 Soledad F. Bengson filed an action tor damages against Mariano M. Chan and the sureties
on his performance bond. She alleged that Mariano M. Chan violated the contract by not constructing the first
and second stories within the stipulated five-month period. On November 16, 1966 the defendants filed an
amended answer wherein they alleged as an additional affirmative defense that the complaint states no cause of
action because Soledad F. Bengson did not first submit the controversy for arbitration as required in the
aforequoted paragraph 15 of the construction contract. After holding a hearing, the trial court in its order of
November 24, 1966 sustained that new defense and dismissed the complaint. Bengson appealed.
ISSUE:
Whether the trial court erred in holding that the cause of action in Bengson’s complaint are embraced in the
requirement for arbitration as a condition precedent to a court action.

HELD:
YES.
The Court held that the terms of paragraph 15 clearly express the intention of the parties that all disputes between them
should first be arbitrated before court action can be taken by the aggrieved party is not convincing. Although the causes of
action in Bengson’s complaint are covered by paragraph 15, her failure to resort to arbitration does not warrant the
dismissal of her complaint. The Court agree with her alternative contention that arbitration may be resorted to
during the pendency of the case. The Arbitration Law provides
SEC. 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 arbitration in accordance with the terms thereof. “The court shall decide all
motions, petitions or applications filed under the provisions of this Act, within ten days after such motions, petitions, or
applications have been heard by it.
“SEC. 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.”
Within the meaning of section 6, the failure of Soledad F.Bengson to resort to arbitration may be regarded as a refusal to
comply with the stipulation for arbitration. And defendants’ interposition of the defense that arbitration is a condition
precedent to the institution of a court action may be interpreted as a petition for an order that arbitration should proceed as
contemplated in section 15.Therefore, instead of dismissing the case, the proceedings therein should be suspended and
the parties should be directed to go through the motions of arbitration at least within a sixty-day period. With the consent
of the parties, the trial court may appoint a third arbitrator to prevent a deadlock between the two arbitrators. In the event
that the disputes between the parties could not be settled definitively by arbitration, then the hearing of the instant case
should be resumed.
WHEREFORE, the trial court’s order of dismissal is reversed and set aside.

Page 5 of 29
CASE NO. 25

GENERAL INSURANCE & SURETY CORPORATION Vs. UNION INSURANCE SOCIETY OF CANTON, LTD., THE
BRITISH OAK INSURANCE CO., LTD., BRITISH TRADERS’ INSURANCE CO., LTD., BEAVER INSURANCE CO., and
NORTH PACIFIC INSURANCE CO., LTD.,

FACTS :

The Union Insurance Society of Canton, Ltd. And the British Traders’ Insurance Co., Ltd. Are insurance corporations
organized and existing under the laws of Great Britain and licensed to do business in the Philippines with head offices in
Hong Kong and branch offices at Hong Kong Bank Building, No. 117 Juan Luna Street, Manila. The other petitioners are
also engaged in insurance business and are mere subsidiaries of the Union Insurance Society of Canton, Ltd. Of Hong
Kong.

In Civil Case No. 68558 Union Insurance Society (USS) and General Insurance & Surety Corporation (GI) entered into a
First Surplus Reinsurance Agreement which was executed by USS in London on January 28, 1959, and by GI in Manila
on June 3, 1959. The parties agreed on reciprocal reinsurance expressed and payable in pounds sterling between the
petitioners and respondent commencing on January 1st, 1959, and terminating on December 31st, 1961. In the said
reinsurance agreement, they expressly agreed to settle by arbitration all their differences of whatever nature or
controversy arising out of the contract, which agreement is embodied in Article XII of the reinsurance agreement.

The reinsurance agreement was terminated on December 31, 1961, on which date the USS claim that there was due from
GI under the treaties negotiated between the USS as ceding companies and the GI as reinsurer the sum of
pounds4,784.5.1 which GI should pay to USS in pounds sterling. However, while USS requested GI to pay the aforesaid
sum in pounds sterling or in Philippine pesos at the exchange rate prevailing on the date of payment so that the amount of
Philippine pesos to be paid by the respondent will purchase the amount of pounds 4,784.5.1 in which said obligation is
payable, GI refused to pay in pounds sterling and insisted that it should pay the said amount in Philippine pesos at the old
official exchange rate of P2.015 to $1.00. In view of GI’s refusal to pay in the manner demanded by USS, the latter made
a written formal demand upon GI to proceed with the arbitration of their controversy in the manner provided for in the
reinsurance agreement, which demand was received by GI on August 18, 1966. In the said communication, the USS
informed the GI that they had appointed Mr. T.B. Turvey of Victory Insurance Co., Ltd., 7316 King William St., London, E.
C. 4, as arbitrator in their behalf and requested GI to name its own arbitrator. GI, however, refused to proceed with the
arbitration, contending that there was no controversy or dispute existing between the parties so that there was no need for
arbitration. Hence, the filing of this case.

In Civil Case No. 68559 the USS and GI entered into a Retrocession Quota Share Fire Pool Agreement executed by the
USS in London on February 17, 1960, and by GI in Manila on April 11, 1960. In said agreement the parties agreed on
reciprocal reinsurance arrangements expressed and payable in pounds sterling which would commence on January 1 st,
1960, and would terminate on December 31st, 1961.

The retrocession agreement was terminated on December 31 st, 1961, and on the said date USS claim that there was due
from GI under the treaties negotiated between the USS as ceding companies and GI as reinsurer the sum of
pounds1,035.2.7. However, while USS requested GI to pay the aforesaid sum in pounds sterling or in Philippine pesos at
the exchange rate prevailing on the date of payment so that the amount of Philippine pesos to be paid by GI will purchase
the amount of poundsl,035.2.7 pounds sterling, GI refused to pay in pounds and insisted to pay the said amount in
Philippine pesos at the old official exchange rate of P2.015 to $1.00. Because of GI’s refusal to pay in the manner
demanded by USS, the latter made a formal written demand to proceed with the arbitration of their controversy in
accordance with their retrocession agreement, which demand was received by the GI on August 18, 1966. In the said
demand USS likewise notified the GI that they had appointed Mr. T.B. Turvey of Victory Insurance Co., Ltd. Of 7316 King
William St., London. E.C. 4 as arbitrator in their behalf and requested GI to name its own arbitrator. The said formal
demand and a supplemental letter were received by GI. However, the GI replied that there was no controversy or dispute
existing between the parties so that there was no need for arbitration.

After a joint trial, the Court ordered both parties to submit their respective memoranda. In its memorandum, GI, for the first
time, invoked RA 529 as its defense, however, was not considered by the trial court in its decision.

Judgment was then rendered by the trial court on declaring that a valid controversy existed and the herein petitioner was
ordered to submit to arbitration.

ISSUE:

whether or not a controversy or dispute exists under the circumstances to warrant an order compelling the parties to
submit to arbitration.

HELD:

YES, as regards the dispute on the amount the parties owe each other, the same is a proper subject of arbitration.

In an attempt to exclude this case from the coverage of their arbitration agreement, GI belatedly invoked R.A. 529 as a
defense. It contended that the agreement to pay in pounds sterling cannot be legally enforced. Republic Act 529 declares
as against public policy, and null and void, provisions in agreements which “purport(s) to give the obligee the right to
require payment in gold or in a particular kind of coin or currency other than Philippine Currency or in an amount of money
in the Philippines measured thereby.” Thus, GI continues that the agreement to pay in pounds sterling can be considered
as not in existence at all. There was then nothing to arbitrate. But, while GI seeks to evade its obligation to pay in pounds
sterling as being contrary to public policy, it manifested its willingness to pay in another foreign currency, U.S. dollars.

Page 6 of 29
As already stated, GI’s invocation of R.A. 529 as a defense was raised for the first time only in its memorandum. It is a
basic rule in procedure that defenses and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived, the only exceptions recognized under the rule being: 1) a failure to state a cause of action; and 2) lack of
jurisdiction (Sec. 2, Rule 9, Rules of Court).

As to what rate of exchange shall prevail has been settled in the case of Kalalo v. Luz,. It was held thus:

…, if the obligation was incurred prior to the enactment of the Act (R.A. 529) and require payment in a particular kind of
coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the
prevailing rate of exchange at the time the obligation was incurred. As We have adverted to, Republic Act 529 was
enacted on June 16, 1950. In the case now before Us, the obligation of appellant to pay appellee the 20% of $140,000.00,
or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of Republic Act 529. It follows that the
provision of Republic Act which requires payment at the prevailing rate of exchange when the obligation was incurred
cannot be applied. Republic Act 529 does not provide for the rate of exchange for the payment of obligation incurred after
the enactment of the said Act. The logical conclusion, therefore, is that the rate of exchange should be that prevailing at
the time of payment. upon the current rate of exchange, and not the par value of the particular money involved.

In this case, the obligation was incurred between the years 1958-1961, or after the enactment of R.A. 529 (June 16,
1950). Hence, the rate of exchange shall be that prevailing at the time of payment.

Finally, petitioner, while admitting the existence of the provision to refer to arbitration any dispute or controversy arising
from the reinsurance and the retrocession agreements, likewise contended that said provision can no longer be enforced
five (5) years after the termination of both contracts on December 31, 1961.

No restriction as to time was contemplated by the parties, Further, the provision on arbitration is the remedy by which the
parties may resort to for disputes arising from the agreements. While the two agreements have been terminated, the
provision requiting arbitration remains as a remedy to settle any dispute/controversy arising from the agreements.

WHEREFORE, the instant petition is denied. The questioned decision of the trial court is AFFIRMED.

Page 7 of 29
TUNA PROCESSING, INC.,  Vs. PHILIPPINE KINGFORD, INC., 

FACTS:

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the “licensor”), co-patentee of U.S. Patent No.
5,484,619, Philippine Letters Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the
“Yamaoka Patent”),6 and five (5) Philippine tuna processors, namely, Angel Seafood Corporation, East Asia Fish Co.,
Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford (collectively referred to as the
“sponsors”/”licensees”) entered into a Memorandum of Agreement (MOA), pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No. 31138,
and Indonesian Patent No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his
three aforementioned patents, granting licenses under those patents, and collecting royalties.
2.

The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those
patents in the United States, the Philippines, and Indonesia, enforce those patents and collect royalties in conjunction with
Licensor.

Xxx

3. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of Tuna Processors, Inc.
(“TPI”), a corporation established in the State of California, in order to implement the objectives of this Agreement.
4.
5. Bank account. TPI shall open and maintain bank accounts in the United States, which will be used exclusively to
deposit funds that it will collect and to disburse cash it will be obligated to spend in connection with the
implementation of this Agreement.
6.
7. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be assigned one share of TPI
for the purpose of being elected as member of the board of directors. The remaining shares of TPI shall be held
by the Sponsors according to their respective equity shares. 9
8.

Xxx

Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford, withdrew from
petitioner TPI and correspondingly reneged on their obligations. Petitioner submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California, United States and won the case against respondent

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation, Recognition, and Enforcement
of Foreign Arbitral Award before the RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo
M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss. After the court denied the motion for lack of merit,
respondent sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the
motion. Judge Alameda inhibited himself notwithstanding “[t]he unfounded allegations and unsubstantiated assertions in
the motion.”Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in turn, granted respondent’s Motion for
Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the
Philippines.

ISSUE:

whether or not the court a quo was correct in so dismissing the petition on the ground of petitioner’s lack of legal capacity
to sue.

HELD:

NO.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. – No foreign corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws.

It is pursuant to the aforequoted provision that the trial court dismissed the petition.c

TPI admits that it does not have a license to do business in the Philippines.

The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject foreign
arbitral award in accordance with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),

In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code of the
Philippines, a general law, viz-a-viz other special laws. As between a general and special law, the latter shall prevail—
generalia specialibus non derogant.

Page 8 of 29
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its
title –

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

Clearly, not one of those exclusive grounds touched on the capacity to sue of the party seeking the recognition and
enforcement of the award.

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

Rule 13.1 of the Special Rules provides that “[a]ny party to a foreign arbitration may petition the court to recognize and
enforce a foreign arbitral award.” The contents of such petition are enumerated in Rule 13.5.32 Capacity to sue is not
included.

Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny availment by the
losing party of the rule that bars foreign corporations not licensed to do business in the Philippines from maintaining a suit
in our courts. When a party enters into a contract containing a foreign arbitration clause and, as in this case, in fact
submits itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration, conceding
thereby the capacity of the other party to enter into the contract, participate in the arbitration and cause the
implementation of the result.

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

All considered, petitioner TPI, although a foreign corporation not licensed to do business in the Philippines, is not, for that
reason alone, precluded from filing the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before a Philippine court.

Page 9 of 29
MABUHAY HOLDINGS CORPORATION, VS. SEMBCORP LOGISTICS LIMITED

FACTS:

Petitioner Mabuhay Holdings Corporation (Mabuhay) and Infrastructure Development & Holdings, Inc. (IDHI) are
corporations duly organized and existing under the Philippine Laws.

Respondent Sembcorp Logistics Limited (Sembcorp), formerly known as Sembawang Maritime Limited, is a company
incorporated in the Republic of Singapore.

On January 23, 1996, Mabuhay and IDHI incorporated Water Jet Shipping Corporation (WJSC) in the Philippines to
engage in the venture of carrying passengers on a common carriage by inter-island fast ferry. On February 5, 1996, they
also incorporated Water Jet Netherlands Antilles, N.Y. (WJNA) in Curasao, Netherlands.

On September 16, 1996, Mabuhay, IDHI, and Sembcorp entered into a Shareholders’ Agreement (Agreement) setting out
the terms and conditions governing their relationship in connection with a planned business expansion of WJSC and
WJNA. Sembcorp decided to invest in the said corporations. As a result of Sembcorp’s acquisition of shares, Mabuhay
and IDHI’s shareholding percentage in the said corporations were reduced,

Pursuant to Article 13 of the Agreement, Mabuhay and IDHI voluntarily agreed to jointly guarantee that Sembcorp would
receive a minimum accounting return of US$929,875.50 (Guaranteed Return) at the end of the 24 th month following the
full disbursement of the Sembcorp’s equity investment in WJNA and WJSC. They further agreed that the Guaranteed
Return shall be paid three (3) months from the completion of the special audits of WJSC and WJNA as per Article 13.3 of
the Agreement.

The Agreement included an arbitration clause, 

On December 6, 1996, Sembcorp effected full payment of its equity investment. Special audits of WJNA and WJSC were
then carried out and completed on January 8, 1999. Said audits revealed that WJSC and WJNA both incurred losses.

On November 26, 1999, Sembcorp requested for the payment of its Guaranteed Return from Mabuhay and IDID.
Mabuhay admitted its liability but asserted that since the obligation is joint, it is only liable for fifty percent (50%) of the
claim or US$464,937.75.

On February 24, 2000, Sembcorp sent a Final Demand to Mabuhay to pay the Guaranteed Return. Mabuhay requested
for three (3) months to raise the necessary funds but still failed to pay any amount after the lapse of the said period.

(1) On December 4, 2000, Sembcorp filed a Request for Arbitration before the International Court of Arbitration of the
International Chamber of Commerce (ICC) in accordance with the Agreement

On April 20, 2004, a Final Award was rendered by Dr. Anan Chantara-Opakom (Dr. Chantara-Opakorn), the Sole
Arbitrator appointed by the ICC.

The Sole Arbitrator hereby decides that the Sole Arbitrator has jurisdiction over the parties’ dispute and directs [Mabuhay]
to make the payments to [Sembcorp]

Consequently, on April 14, 2005, Sembcorp filed a Petition for Recognition and Enforcement of a Foreign Arbitral Award
before the RTC ofMakati City, Branch 149.

Mabuhay argued that the dispute is an intra-corporate controversy, hence, excluded from the scope of the arbitration
clause in the Agreement. It alleged that on March 13, 1997, Sembcorp became the controlling stockholder of IDHI by
acquiring substantial shares of stocks through its nominee, Mr. Pablo N. Sare (Sare). Mabuhay thus claimed that it has
already been released from the joint obligation with IDHI as Sembcorp assumed the risk of loss when it acquired absolute
ownership over the aforesaid shares. Moreover, Mabuhay argued that the appointment of Dr. Chantara-Opakorn was not
in accordance with the arbitral clause as he did not have the expertise in the matter at issue, which involved application of
Philippine law. Finally, Mabuhay argued that the imposition of twelve percent (12%) interest from the date of the Final
Award was contrary to the Philippine law and jurisprudence.

Ruling of the RTC

the RTC dismissed the petition and ruled that the Final Award could not be enforced.

Ruling of the CA

the CA promulgated its Decision reversing and setting aside the RTC Decision.

ISSUE:

whether the RTC correctly refused to enforce the Final Award.

HELD:

No.

Our jurisdiction adopts a policy in favor of arbitration.The ADR Act and the Special ADR Rules both declare as a policy
that the State shall encourage and actively promote the use of alternative dispute resolution, such as arbitration, as an
important means to achieve speedy and impartial justice and declog court dockets.This pro-arbitration policy is further
evidenced by the rule on presumption in favor of enforcement of a foreign arbitral award under the Special ADR
Rules, viz:

Page 10 of 29
The court shall recognize and enforce a foreign arbitral award unless a ground to refuse recognition or enforcement of the
foreign arbitral award under this rule is fully established.

The decision of the court recognizing and enforcing a foreign arbitral award is immediately executory.

After a careful review of the case, We find that Mabuhay failed to establish any of the grounds for refusing enforcement
and recognition of a foreign arbitral award under Article V of the New York Convention and Section 36 of the Model Law
which are also incorporated in Article 4.36 Rule 6 of the IRR and Rule 13.45 of the Special ADR Rules.

The CA correctly applied the Kompetenz-Kompetenz principle expressly recognized under Rule 2.2 of the Special ADR
Rules, viz:

The Special ADR Rules recognize the principle of competence competence, which means that the arbitral tribunal may
initially rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration
agreement or any condition precedent to the filing of a request for arbitration.

The Special ADR Rules expounded on the implementation of the said principle:

Rule 2.4. Policy implementing competence-competence principle. The arbitral tribunal shall be accorded the first
opportunity or competence to rule on the issue of whether or not it has the competence or jurisdiction to decide a dispute
submitted to it for decision, including any objection with respect to the existence or validity of the arbitration agreement.
When a court is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral tribunal in a dispute
brought before it, either before or after the arbitral tribunal is constituted, the court must exercise judicial restraint and
defer to the competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule
upon such issues.

To recall, the Agreement provides that “(a)ny dispute, controversy or claim arising out of or relating to this Agreement, or
breach thereof, other than intra-corporate controversies, shall be finally settled by arbitration…”

Among the issues settled in the Final Award is whether the dispute is an intra-corporate controversy. Dr. Chantara-
Opakom ruled in the negative.

Again, the Special ADR Rules specifically provides that in resolving the petition for recognition and enforcement of a
foreign arbitral award, the court shall not disturb the arbitral tribunal’s determination of facts and/or interpretation of law.

On a final note, the Court implores the lower courts to apply the ADR Act and the Special ADR Rules accordingly.
Arbitration, as a mode of alternative dispute resolution, is undeniably one of the viable solutions to the longstanding
problem of clogged court dockets. International arbitration, as the preferred mode of dispute resolution for foreign
companies, would also attract foreign investors to do business in the country that would ultimately boost Our economy. In
this light, We uphold the policies of the State favoring arbitration and enforcement of arbitral awards, and have due regard
to the said policies in the interpretation of Our arbitration laws.

Page 11 of 29
G.R. No. 216600. November 21, 2016

FEDERAL EXPRESS CORPORATION and RHICKE S. JENNINGS, petitioners, vs. AIRFREIGHT 2100, INC. and
ALBERTO D. LINA, respondents.

FACTS:

FedEx is a foreign corporation doing business in the Philippines primarily engaged in international air carriage, logistics
and freight forwarding, while Jennings serves as its Managing Director for the Philippines and Indonesia.

Respondent Airfreight 2100 (Air21) is a domestic corporation likewise involved in the freight forwarding business, while
Alberto Lina (Lina) is the Chairman of its Board of Directors.

FedEx, having lost its International Freight Forwarder’s (IFF) license to engage in international freight forwarding in the
Philippines, executed various Global Service Program (GSP) contracts with Air21, an independent contractor, to primarily
undertake its delivery and pickup services within the country

In the implementation of these contracts, however, several issues relating to money remittance, value-added taxes,
dynamic fuel charge, trucking costs, interests, and penalties ensued between the parties.

In an effort to settle their commercial dispute, FedEx and Air21 agreed to submit themselves to arbitration before the
Philippine Dispute Resolution Center (PDRC)

As part of the arbitration proceedings, Jennings, John Lumley Holmes (Holmes), the Managing Director of SPAC Legal of
FedEx; and David John Ross (Ross), Senior Vice President of Operations, Middle East, India and Africa, executed their
respective statements5 as witnesses for FedEx. Ross and Holmes deposed that Federal Express Pacific, Inc., a
subsidiary of FedEx, used to have an IFF license to engage in the business of freight forwarding in the Philippines.

Feeling aggrieved by those statements, Lina for himself and on behalf of Air21, filed a complaint for grave slander against
Jennings

FedEx and Jennings (petitioners) filed their Petition for Issuance of a Confidentiality/Protective Order with Application for
Temporary Order of Protection and/or Preliminary Injunction before the RTC alleging that all information and documents
obtained in, or related to, the arbitration proceedings were confidential

RTC ruled in the negative

CA affirmed RTC ruling. In its assailed decision, the CA explained that the declarations by Jennings were not confidential
as they were not at all related to the subject of mediation as the arbitration proceedings revolved around the parties’
claims for sum of money.

ISSUE:

Whether the testimony of Jennings given during the arbitration proceedings falls within the ambit of confidential
information and, therefore, covered by the mantle of a confidentiality/protection order

HELD:

Yes. Section 3(h) of Republic Act (R. A.) No. 9285 or the Alternative Dispute Resolution of 2004 (ADR Act)
defines confidential information as follows:

“Confidential information” means any information, relative to the subject of mediation or arbitration, expressly intended by
the source not to be disclosed, or obtained under circumstances that would create a reasonable expectation on behalf of
the source that the information shall not be disclosed. It shall include (1) communication, oral or written, made in a dispute
resolution proceedings, including any memoranda, notes or work product of the neutral party or nonparty participant, as
defined in this Act; (2) an oral or written statement made or which occurs during mediation or for purposes of considering,
conducting, participating, initiating, continuing of reconvening mediation or retaining a mediator; and (3) pleadings,
motions manifestations, witness statements, reports filed or submitted in an arbitration or for expert evaluation.

The said list is not exclusive and may include other information as long as they satisfy the requirements of express
confidentiality or implied confidentiality.

Page 12 of 29
Plainly, Rule 10.1 of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute Resolution (Special ADR
Rules) allows “[a] party, counsel or witness who disclosed or who was compelled to disclose information relative to the
subject of ADR under circumstances that would create a reasonable expectation, on behalf of the source, that the
information shall be kept confidential x x x the right to prevent such information from being further disclosed without the
express written consent of the source or the party who made the disclosure.” Thus, the rules on confidentiality and
protective orders apply when:

1. An ADR proceeding is pending;

2. A party, counsel or witness disclosed information or was otherwise compelled to disclose information

3. The disclosure was made under circumstances that would create a reasonable expectation, on behalf of the
source, that the information shall be kept confidential;

4. The source of the information or the party who made the disclosure has the right to prevent such information
from being disclosed;

5. The source of the information or the party who made the disclosure has not given his express consent to any
disclosure; and

6. The applicant would be materially prejudiced by an unauthorized disclosure of the information obtained, or to
be obtained, during the ADR proceeding.

The witness statement of witnesses Ross, Holmes and Jennings, as well as the latter’s oral testimony in the April
25, 2013 arbitration hearing, both fall under Section 3(h)[1] and [3] of the ADR Act which states that “communication, oral
or written, made in a dispute resolution proceedings, including any memoranda, notes or work product of the neutral party
or nonparty participant, as defined in this Act; and (3) pleadings, motions, manifestations, witness statements, reports filed
or submitted in an arbitration or for expert valuation,” constitutes confidential information. Notably, both the parties and the
Arbitral Tribunal had agreed to the Terms of Reference (TOR) that “the arbitration proceedings should be kept strictly
confidential as provided in Section 23 of the ADR Act and Article 25-A19 of the PDRCI Arbitration Rules (Arbitration
Rules) and that they should all be bound by such confidentiality requirements.”

The provisions of the ADR Act and the Arbitration Rules repeatedly employ the word “shall” which, in statutory
construction, is one of mandatory character in common parlance and in ordinary signification. Thus, the general rule is
that information disclosed by a party or witness in an ADR proceeding is considered privileged and confidential.

In evaluating the merits of the petition, Rule 10.8 of the Special ADR Rules mandates that courts should be guided by the
principle that confidential information shall not be subject to discovery and shall be inadmissible in any adversarial
proceeding.

Article 5.42 of the Implementing Rules and Regulations (IRR) of the ADR Act likewise echoes that arbitration proceedings,
records, evidence and the arbitral award and other confidential information are privileged and confidential and shall not be
published except [i] with the consent of the parties; or [ii] for the limited purpose of disclosing to the court relevant
documents where resort to the court is allowed. Given that the witness statements of Ross

Holmes and Jennings, and the latter’s arbitration testimony, fall within the ambit of confidential information, they must, as
a general rule, remain confidential.

G.R. No. 193782, August 01, 2018

DALE STRICKLAND, PETITIONER, VS. PUNONGBAYAN & ARAULLO, RESPONDENT.

FACTS:

On March 26, 2002, National Home Mortgage Finance Corporation (NHMFC) and PA entered into a Financial Advisory
Services Agreement (FASA) for the liquidation of the NHMFC's Unified Home Lending Program (UHLP). At the time of the
engagement, PA was the Philippine member of respondent global company, EYLLP. In the March 26, 2002 letter[9] of PA
to NHMFC confirming their engagement as exclusive Financial Advisor for the UHLP Project, PA is designated as
P&A/Ernst & Young.

During this period, Strickland was a partner of EYLLP seconded to respondent Ernst & Young Asia Pacific Financial
Solutions (EYAPFS), who was listed in the FASA as member of the Engagement Team

By June 6, 2002, EYLLP wrote PA of the termination of its membership in EYLLP. Despite the termination, the working
relationship among the parties continued.

In an exchange of letters, notice was given to NHMFC of PA's intention to remove Strickland from the NHMFC
Engagement Team as a result of Strickland's resignation from EYLLP and/or EYAPFS effective on July 2, 2004.
Responding to NHMFC's concerns on the removal of Strickland from the UHLP Project and his replacement by Mark

Page 13 of 29
Grinis (Grinis), EYAPFS' Managing Director, EYLLP reiterated Grinis' qualifications and affirmed its team of professionals'
dedication of "all the time necessary to close this transaction and to make NHMFC [their team's, headed by Grinis,] first
priority.

Conflict on Strickland's actual participation and concurrent designation on the project arose among PA, NHMFC, and
Strickland as reflected in the proposed revisions to the "Draft Financial Advisory Services" initially prepared by PA.
Counsel for Strickland wrote PA asking for "equitable compensation for professional services" rendered to NHMFC on the
UHLP Project from the time of his separation from EYLLP and/or EYAPFS in July 2004.

On June 2, 2005, counsel for PA responded, categorically denying any contractual relationship with Strickland and his
assertion that he effectively substituted EYLLP and/or EYAPFS for the portion of the work he carried out in the UHLP
Project [Strickland] filed a Complaint, dated May 17, 2005, which included [EYAPFS], [PA] and NHMFC among the
defendants

The trial court admitted the Amended Complaint in its Order, dated December 6, 2006. Subsequently, it also issued an
Order, dated January 2, 2007, denying [EYAPFS'] Motion To Refer to Arbitration EYLLP and/or EYAPFS] sought
reconsideration of the aforequoted Order, which was also denied by the trial court, prompting it to file a Petition for
Certiorari before this Court

PA filed a motion for reconsideration which the RTC denied in its May 19, 2011 Order. Thus, PA filed a petition for
certiorari before the CA docketed as CA-G.R. SP No. 120897, alleging grave abuse of discretion in the RTC's Orders
denying its motion to suspend proceedings. The CA annulled March 11 and 19, 2011 orders.

ISSUE:

1) In G.R. No. 193782, whether the CA erred in referring the dispute between Strickland and EYLLP to arbitration
and ordering that EYLLP be dropped as defendant in Civil Case No. 05-692.

2) Whether or not the dispute between Strickland and EYLLP based on Strickland’s complaint is arbitrable.
3) Whether or not Strickland's causes of action against all the defendants are intricately intertwined such that the
separate causes of action against PA and the other impleaded defendants cannot independently proceed from the
arbitration between Strickland and EYLLP.

HELD:

1)

We are not persuaded. We do not find reversible error in the Decision of the CA in CA G.R. SP No. 102805.

Section 7, Rule 8 of the Rules of Court provides:

Sec. 7. Action or defense based on document. Whenever an action or defense is based upon a written instrument or
document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy
thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy
may with like effect be set forth in the pleading.

In this case, EYLLP initially only quoted the provisiOn of the Partnership Agreement on Dispute Resolution, including a
section on Arbitration, in its answer[37] dated February 15, 2006. Eventually, it submitted a copy of the Partnership
Agreement in a manifestation dated March 15, 2006. Thus, we agree with the holding of the CA that EYLLP substantially,
and ultimately, complied with the provision given that Strickland himself did, and does not even deny, the Partnership
Agreement nor the arbitration clause.
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 stillenforceable."
Plainly, considering that the arbitration clause is in itself a contract, the setting forth of arbitration, its provisions in EYLLP's
answer and in its motion to refer to coupled with the actual submission by EYLLP of the Partnership Agreement, complies
with the requirements of Section 7, Rule 8 of the Rules of Court which Strickland should have denied.

Thus, we agree with the CA's ruling on the nature of the contract between Strickland and EYLLP, and its application of our
commercial arbitration laws to this case:

"[T]he International Law doctrine of presumed identity approach or processual presumption comes into play. Where a
foreign law is not pleaded, or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours."

In this jurisdiction, one of the laws governing arbitration is the [Alternative Dispute Resolution (ADR)] Act.
Under this statute, international commercial arbitration shall be governed by the Model Law on International
Commercial Arbitration ("Model Law") adopted by the United Nations Commission on International Trade Law.
Page 14 of 29
 Meanwhile, domestic arbitration is governed by the Arbitration Law as amended by the ADR Act. To determine
the applicable law here, the nature of the arbitration sought to be undertaken must be looked at. The ADR Act
defines domestic arbitration negatively by stating that it is one that is not international as defined in the Model
Law[]. In turn, Article 1 (3) of the Model Law provides that an arbitration is international if: (a) the parties to an
arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different
States; or (b) one of the following places is situated outside the State in which the parties have their places of
business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; (ii) any place where
a substantial part of the obligations of the commercial relationship is to be performed or the place with which the
subject-matter of the dispute is most closely connected; or (c) the parties have expressly agreed that the subject-
matter of the arbitration agreement relates to more than one country." x x x

It is obvious then that the arbitration sought in the instant case is international for falling under Article 1(3)(b)(ii)
quoted above. The place of business of EYLLP is in the United States of America. x x x It is here [the Philippines] that the
services for which [Strickland] seeks remuneration were rendered.

For the Model Law to apply, however, the arbitration should also be commercial. The explanatory footnote to
Article 1(l) of the Model Law explains that "[t]he term 'commercial' should be given a wide interpretation so as to cover
matters arising from all relationships of a commercial nature, whether contractual or not." It also states that relationships
of a commercial nature include the following transactions among others:

"any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial
representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment;
financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or
business co-operation; carriage of goods or passengers by air, sea, rail or road."

The meaning attached to the term "commercial" by the Model Law is broad enough to cover a partnership. The
Civil Code x x x defines a partnership as a contract where "two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves." Hence, considering
that EYLLP and Strickland had a partnership relationship, which was not changed during his assignment [to] Manila for
the Project, the request for arbitration here has a commercial character. The dispute between the said parties relates to
Strickland's and EYLLP's association with each other.

2)

YES. Plainly, considering that the arbitration clause is in itself a contract, the setting forth of arbitration, its provisions in
EYLLP's answer and in its motion to refer to coupled with the actual submission by EYLLP of the Partnership Agreement,
complies with the requirements of Section 7, Rule 8 of the Rules of Court which Strickland should have denied.

We have consistently affirmed that commercial relationships covered by our arbitration laws are purely private and
contractual in nature. Article 1306 of the Civil Code provides for autonomy of contracts where the parties are free to
stipulate on such terms and conditions except for those which go against law, morals, and public policy.

In our jurisdiction, commercial arbitration is a purely private system of adjudication facilitated by private citizens which we
have consistently recognized as valid, binding, and enforceable.

"[T]he International Law doctrine of presumed-identity approach or processual presumption comes into play.
Where a foreign law is not pleaded, or, even if pleaded, is not proved, the presumption is that foreign law is the
same as ours."

To determine the applicable law here, the nature of the arbitration sought to be undertaken must be looked at. The ADR
Act defines domestic arbitration negatively by stating that it is one that is not international as defined in the Model Law[].
In turn, Article 1 (3) of the Model Law provides that an arbitration is international if:

“the parties to an arbitration agreement have, at the time of the

(a) conclusion of that agreement, their places of business in different States; or

b) one of the following places is situated outside the State in which the parties have their places of
business:

(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;

(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed
or the place with which the subject-matter of the dispute is most closely connected; or

(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one
country." x x x (Emphasis in the original; citations omitted.)

It is obvious then that the arbitration sought in the instant case is international for falling under Article 1(3)(b)(ii)
quoted above. The place of business of EYLLP is in the United States of America. x x x It is here [the
Philippines] that the services for which [Strickland] seeks remuneration were rendered.

Page 15 of 29
The following factors further militate against Strickland's insistence on Philippine courts to primarily adjudicate his claims
of tortious conduct, and not commercial arbitration, as stipulated in the Partnership Agreement:

1. From his complaint and amended complaint, Strickland's causes of action against EYLLP and PA hinge
primarily on contract, i.e., the Partnership Agreement, and the resulting transactions and working relationship among
the parties, where Strickland seeks to be paid.

2. The Partnership Agreement is bolstered by the assignment letter of EYLLP to Strickland confirming his
assignment to Manila as partner and which assignment letter contains a choice of law provision

3. The allegations in Strickland's complaint, specifically his narration of facts, admit that the entire controversy
stems from his working relationship with EYLLP as a partner

3)

Strickland's allegations in both the complaint and amended complaint are undoubtedly hinged, and unavoidably linked, to
his former contractual relationship with EYLLP to which the present controversy among all the parties can be traced:

(28)(23) It is likely that one of the reasons that P&A refused to compensate him was because of the influence of
[EYLLP]. It is believed that [EYLLP] sought to punish Mr. Strickland by trying to prevent him from receiving
compensation despite [EYLLP's] deliberate and reckless abandonment of its contractual responsibilities. NHMFC
appears to have refused to compensate [Strickland] because it was not contractually bound by the Agreement to
compensate him, although NHMFC believed it could oblige [Strickland] to complete the work because of [his]
designation as Project Manager.

(29)(24) [Strickland] is entitled to be compensated for his work. x x x

The designation in Strickland's amended complaint of "Additional Cause of Action Against [respondent EYLLP]"[62]
further demonstrates that the totality of his causes of action are actually anchored on the disintegration of his working
relationship with EYLLP whom he faults for his failure to receive compensation from the other defendants.

In a hodge podge of allegations, Strickland, without being a party to the FASA between NHMFC and PA/EYLLP, insists
on the continuation of his suit contending that his designation as "Lead Due Diligence Partner," forming part of the
Engagement Team, entitles him to equitable compensation. Thus, Strickland maintains that the proceedings in Civil Case
No. 05-692 should not have been suspended, and should then proceed independently of the arbitration between
Strickland and EYLLP.

We do not agree. We do not find the designation of Strickland in the Engagement Team of the FASA as a stipulation pour
atrui.

The following circumstances underscore the high probability of an expeditious resolution of the conflict with the
referral to arbitration of the dispute between EYLLP and Strickland and the succeeding suspension of the proceedings
before the RTC in Civil Case No. 05-692:

1. As previously stated, these cases comprise of a foreign element, involving foreign parties and international
transactions. While the parties have not questioned the jurisdiction of our courts, the RTC may still refuse to assume
jurisdiction.

2. As previously discussed, the causes of action cited by Strickland in his complaint (and amended complaint) all
undoubtedly relate to his Partnership Agreement with EYLLP which is subject to arbitration. This very same Partnership
Agreement is even reiterated in the November 15, 2002 Assignment Letter assigning Strickland to Manila.

3. Strickland himself admits that as Partner of EYLLP, he was assigned to various parts of Asia. He has also not
denied that he was seconded to EYAPFS because of certain tax consequences of his different assignments. In fact, in his
additional cause of action against EYLLP, Strickland alleged, among others, that EYLLP did not pay his correct taxes
making him liable for these. Evidently, the real dispute between Strickland and EYLLP falls within its Partnership
Agreement involving its own choice of law provision

Page 16 of 29
G.R. No. 175404. January 31, 2011

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 Damages3 against petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged that it was
engaged in buying and selling of molasses and petitioner was one of its various sources from whom it purchased
molasses. Respondent alleged that it entered into a contract dated July 11, 1996 with petitioner, wherein it was agreed
upon that respondent would purchase from petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at
the price of US$192 per metric ton; that the delivery of the molasses was to be made in January/February 1997 and
payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be opened by September 15,
1996; that sometime prior to September 15, 1996, the parties agreed that instead of January/February 1997, the delivery
would be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at sight, to be
opened upon petitioner’s advice. 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, wherein it
argued that the alleged contract between the parties.

The RTC found that the arbitration clause in question contravened these procedures, i.e., the arbitration clause
contemplated an arbitration proceeding.

Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order. CA rendered its assailed Decision
denying the petition and affirming the RTC Orders.

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.

HELD:

There is merit in the petition. Arbitration, as an alternative mode of settling disputes, has long been recognized and
accepted in our jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of
settling commercial disputes of an international character, is likewise recognized. The enactment of R.A. No.9285 on April
2, 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of
disputes.

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 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.

Page 17 of 29
G.R. No. 198226. July 18, 2014.

ABOITIZ TRANSPORT SYSTEM CORPORATION and ABOITIZ SHIPPING CORPORATION, petitioners, vs. CARLOS A.
GOTHONG LINES, INC. and VICTOR S.CHIONGBIAN, respondents.

G.R. No. 198228. July 18, 2014.*

ABOITIZ TRANSPORT SYSTEM CORPORATION, petitioner, vs. CARLOS A. GOTHONG LINES, INC. and VICTOR S.
CHIONGBIAN, respondents.

FACTS:

ASC, CAGLI, and William Lines, Inc. (WLI), principally owned by the Aboitiz, Gothong, and Chiongbian families,
respectively, entered into an Agreement dated January 8, 1996, 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. The parties likewise
agreed that WLI would run the merged shipping business and be renamed “WG&A, Inc.” Pertinently, Section 11.06 of the
Agreement provides that all disputes arising out of or in connection with the Agreement shall be finally settled by
arbitration in accordance with Republic Act No. (RA) 876, otherwise known as “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 dated January 8, 1996 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. In this relation, a valuation of CAGLI's inventory was conducted wherein it was shown that the
same amounted to P514 Million. Thereafter, WLI received inventory valued at P558.89 Million, but only paid CAGLI the
amount of P400 Million as agreed upon in the Agreement. 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.

Sometime in 2002, 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, or in 2008, CAGLI sent a letter dated February 14, 2008 to ATSC demanding that the latter pay the
excess inventory it delivered to WLI amounting to P158,399,700.00. 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. Thus, CAGLI was constrained to file a complaint before the RTC against Chiongbian, ATSC, ASC,
and AEV to compel them to submit to arbitration.

The RTC issued an Order dated July 6, 2011, denying ATSC's Motion for Reconsideration/To Exclude, holding that the
issue raised in the said motion has been rendered moot and academic in view of the confirmation of CAGLI's notice of
dismissal.

ISSUE:

1. Whether or not the RTC was correct in confirming CAGLI’s notice of dismissal and, consequently, dismissing the
case without prejudice;
2. Whether or not respondent Chiongbian should be excluded from the arbitration proceedings.

HELD:

1. 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.

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, viz.:

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

Page 18 of 29
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.

In the case of Gonzales v. Climax Mining, Ltd. (Gonzales), the Court had instructed that the special proceeding under the
above-quoted provision is the procedural mechanism for the enforcement of the contract to arbitrate. 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 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.

In the present case, the records show that the primary relief sought for in CAGLI's complaint, i.e., to compel the parties to
submit to arbitration, had already been granted by the RTC through its Order dated February 26, 2010. Undeniably, such
Order partakes of a judgment on the merits of the complaint for the enforcement of the arbitration agreement.

At this point, although no responsive pleading had been filed by ATSC, it is the rules on appeal, or other proceedings after
rendition of a judgment or final order no longer those on notice of dismissal that come into play. Verily, upon the rendition
of a judgment or final order, the period "before service of the answer or of a motion for summary judgment," mentioned in
Section 1 of Rule 17 of the Rules of Court when a notice of dismissal may be filed by the plaintiff, 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.

2. Section 2 of RA 876 specifies who may be subjected to arbitration, to wit:

Sec. 2. Persons and matters subject to arbitration.—Two or more persons or parties may submit to the arbitration of one
or more arbitrators any controversy existing between them at the time of the submission and which may be the subject of
an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising
between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist
at law for the revocation of any contract.

In Gonzales, the Court explained that "[d]isputes 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.” Furthermore,
in Del Monte Corporation USA v. Court of Appeals, the Court stated that "[t]he 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 Agreement and necessarily to the arbitration agreement embodied therein are: (a) ASC, (b)
CAGLI, and (c) WLI/WG&A/ATSC. Contracts, like the subject arbitration agreement, 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.

Page 19 of 29
CASES NO. 33-35

33. HOME BANKERS SAVINGS AND TRUST COMPANY vs. CA

GR No. 115412
November 19, 1999

FACTS:

Victor Tancuan, issued a Home Bankers Savings and Trust Company (HBSTC) check for 25.250 million
pesos while Eugene Arriesgado issued three Far East Bank and Trust Company (FEBTC) checks for 25.200
million pesos. 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. On October 15, 1991 HBSTC sent Arriesgado’s three
FEBTC checks through the Philippine Clearing House Corporation to FEBTC but was returned on October 18,
1991 for being drawn against insufficient funds. HBSTC received the notice of dishonor but refused to accept
the checks so it returned them to FEBTC for the reason of being beyond reglementary period implying that
HBSTC already treated the three checks as cleared and allowed the proceeds thereof to be withdrawn.
FEBTC demanded reimbursement for the returned checks and inquired from HBTSC whether it had permitted
any withdrawal of funds against the unfunded checks and if so, on what day. HBSTC, however, refused to
make any reimbursement and to provide FEBTC with the needed information. Thus, on December 12, 1991
FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee. While the arbitration
proceeding was still pending, FEBTC filed an action for sum of money and damages. HBSTC interposed the
dismissal of the case on the ground that the case states no cause of action as it seeks to enforce an arbitral
award which does not exist yet. RTC denied the motion to dismiss. On December 16, 1992, HBSTC filed a
petition for certiorari with the Court of Appeals. The Court of Appeals dismissed the petition for lack of merit.
Hence, this petition.

ISSUE:

Whether or not FEBTC may subsequently file a separate case in court over the same subject matter of
arbitration despite the pendency of that arbitration

HELD:

NO. Section 14 of Republic Act 876, otherwise known as 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, thus:

“Section 14. xxx The arbitrator shall have the power at any time, before rendering the award, without
prejudice to the rights of any party to petition the court to take measures 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,
FEBTC 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. However, the civil action was not a simple case
of money claim since FEBTC has included a prayer for a writ of preliminary attachment, which is sanctioned
by Section 14 of the Arbitration Law. Hence, participants in the regional clearing operations of the Philippine
Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly
from the courts. In the case at bar, FEBTC has initiated arbitration proceedings as required by the PCHC
rules and regulation, and pending arbitration has sought relief from the trial court for measures to safeguard
and/or conserve the subject of the dispute under arbitration, as sanctioned by Section 14 of the Arbitration
Law, and otherwise not shown to be contrary to the PCHC rules and regulations. It must be emphasized that
arbitration, as an alternative method of dispute resolution, is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, it also hastens solutions especially of commercial disputes. The Court looks with
favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the
action of the arbitrator.

34A. DFA vs. BCA International Corporation & Ad Hoc Arbitral Tribunal
GR No. 225051
July 19, 2017

FACTS:

In an Amended Built-Operate-Transfer Agreement dated April 5, 2002 DFA awarded the Machine Readable
Passport and Visa Project to BCA International Corporation. In the course of implementing the MRP/V Project,
conflict arose and DFA sought to terminate the agreement. BCA International opposed the termination and filed a
Request for Arbitration on April 20, 2006. The Arbitral Tribunal was constituted on June 29, 2009. In its Statement
Page 20 of 29
 of Claims, BCA sought the following reliefs: (a) a judgment nullifying and setting aside the Notice of Termination of
the DFA; (b) a judgment confirming the Notice of Default issued by BCA to the DFA and ordering DFA to perform
its obligation under the Amended BOT Agreement; (c) ordering DFA to pay damages to BCA estimated at 100
million pesos representing lost business opportunities and (d) other equitable relief. On October 5, 2013 BCA
manifested that it shall file an Amended Statement of Claims. DFA opposed. However, the tribunal gave BCA a
period of time within which to file. In the Amended Statement of Claims, BCA interposed the alternative relief that,
in the event specific performance by DFA was no longer possible, BCA prayed that the Tribunal order DFA to pay
1.6 billion pesos representing the net income BCA is expected and other damages. DFA opposed alleging due
process and that the Tribunal has no jurisdiction over alternative reliefs sought by BCA.

On August 6, 2014 BCA filed a Motion to Withdraw Amended Statement of Claims. However, on May 4, 2015,
BCA filed anew a Motion to Admit Attached Statement of Claims increasing the actual damages sought to 390
million pesos. DFA opposed. In Procedural Order No. 11, the Arbitral Tribunal granted BCA’s Amended Statement
of Claims on the premise that it would no longer present any additional evidence-in-chief. BCA filed a motion for
partial reconsideration of Procedural Order No. 11 and prayed for the admission of its Amended Statement of
Claims without denying its right to present evidence on the actual damages. Thereafter, the tribunal issued
Procedural Order No. 12 resolving BCA’s motion disallowing it to prove the increase of its claim as a limitation to
the tribunal’s decision. The tribunal allowed the amendment of the Statement of Claims conform to the evidence
that has already been presented. DFA then filed this petition for certiorari under Rule 65 of the Rules of Court
with application for issuance of a temporary restraining order and/or writ of preliminary injunction seeking to annul
Procedural Order nos. 11 and 12.

ISSUES:

1. Whether or not the UNCITRAL Arbitration Rules govern the arbitration proceedings;
2. Whether or not the petition filed before the Court is proper

HELD:

1. No. Under Article 33 of the UNCITRAL Arbitration Rules governing the parties, “the arbitral tribunal shall
apply the law designated by the parties as applicable to the substance of the dispute.” “Failing such
designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules
which it considers applicable.” Established in this jurisdiction is the rule that the law of the place where the
contract is made governs or lex loci contractus. As the parties did not designate the applicable law and the
Agreement was perfected in the Philippines, our arbitration laws, particularly RA 876, RA 9285 and its IRR and
the special ADR rules apply. The IRR of RA 9285 provides that the arbitral tribunal shall decide the dispute in
accordance with such law as is chosen by the parties. In the absence of such agreement, Philippine law shall
apply. In DFA vs. BCA International Corporation, GR 210858, the Supreme Court held that while enacted only in
2004, RA 9285 was made to apply in this case as it applies to pending arbitration proceedings since it is a
procedural law, which has retroactive effect.
2. NO. Court intervention in the Special ADR Rules is allowed through these remedies: (1) Specific Court Relief,
which includes Judicial Relief involving the issue of existence, validity and enforceability of the arbitral agreement,
interim measures of protection, challenge to the appointment of arbitrator, termination of mandate of arbitrator,
assistance in taking evidence, confidentiality/protective orders, confirmation, correction or vacation award in
domestic arbitration, all to be filed with the RTC; (2) a motion for reconsideration may be filed by a party with the
RTC on the grounds specified in rules 19.1; (3) an appeal to the Court of Appeals through a petition for review
under Rule 19.26; and (4) a petition for certiorari with the Supreme Court from a judgment or final order or
resolution of the court of appeals, raising only questions of law.

It is clear that an appeal by certiorari to the Supreme Court is from a judgment or final order or resolution of the
Court of Appeals and only questions of law may be raised. There have been instances when the Supreme Court
overlooked the rule on hierarchy of courts and took cognizance of a petition for certiorari alleging abuse of
discretion by the RTC when it granted interim relief to a party and issued an Order assailed by DFA, considering
the transcendental importance of the issue involved therein or to better serve the ends of justice when the case is
determined on the merits rather on technicality. However, in this case, the appeal by Certiorari is not from a final
order of the Court of Appeals or the RTC but from an interlocutory order of the Arbitral Tribunal; hence the petition
must be dismissed.

Page 21 of 29
34B. DFA vs. BCA INTERNATIONAL
GR NO. 210858
JUNE 29, 2016

FACTS:

This Petition for Review on Certiorari assails the Resolution dated September 2, 2013 and the Orders3 dated
October 11, 2013 and January 8, 2014 of Branch 146 of the Regional Trial Court of Makati City. The assailed judgments
allowed the issuance of a subpoena duces tecum and subpoena ad testificandum to compel the officers of the
Department of Foreign Affairs to testify and present documents to the Ad Hoc Arbitral Tribunal, which was constituted to
resolve the issues between the parties. On September 29, 2000, the Department of Foreign Affairs issued a Notice of
Award to BCA International Corporation to undertake its Machine Readable Passport and Visa Project (Project). In
compliance with the Notice of Award, BCA International Corporation incorporated Philippine Passport Corporation to
implement the Project. On February 8, 2001, the Department of Foreign Affairs and Philippine Passport Corporation
entered into a Build-Operate-Transfer Agreement. However, DOJ Opinion No. 10 dated March 4, 2002 stated that
Philippine Passport Corporation had no personality to enter into the BOT agreement hence, the DFA and BCA
International entered into an amended BOT agreement to replace BCA International Corporation as the party to the
Agreement. During the implementation of the Project, the DFA sought to terminate the agreement prompting to request for
arbitration before the Philippine Dispute Resolution Center invoking Section 19.02 of the agreement, to wit:

Section 19.02. Failure to Settle Amicably.—If the Dispute cannot be settled amicably within ninety (90) days by mutual
discussion as contemplated under Section 19.01 herein, the Dispute shall be settled with finality by an arbitrage tribunal
operating under International Law, hereinafter referred to as the “Tribunal,” under the UNCITRAL Arbitration Rules
contained in Resolution 31/98 adopted by the United Nations General Assembly on December15, 1976, and entitled
“Arbitration Rules on the United Nations Commission on the International Trade Law.” The DFA and the BCA undertake to
abide by and implement the arbitration award. The place of arbitration shall be Pasay City, Philippines, or such other
place as may mutually be agreed upon by both parties. The arbitration proceeding shall be conducted in the English
language. One June 29, 2009, the Ad Hoc Tribunal was constituted to resolve the dispute. On April 15, 2013, the ad hoc
tribunal granted BCA’s motion to apply for a subpoena to compel allegedly hostile witnesses. On May 15, 2013, BCA
International Corporation filed before Branch 146 of the Regional Trial Court of Makati City a Petition18 under Article
5.27(a) of the Implementing Rules and Regulations of Republic Act No. 9285. The Petition sought the issuance of a
subpoena ad testificandum and a subpoena duces tecum to certain officials of the DFA. The RTC granted the petition
pursuant to Rule 9.8 of the Special Rules of Court on Alternative dispute. It ruled that the information sought to be
produced was no longer protected by the deliberative process privilege. Hence, this petition.

ISSUE:

(1) Whether or not the 1976 UNCITRAL Arbitration Rules and the Rules of Court apply to the present arbitration
proceedings.
(2) Whether or not the witnesses presented during the hearing before the ad hoc tribunal are prohibited from
disclosing information on the basis of the deliberative process privilege

HELD:

1. NO. Arbitration is deemed a special proceeding13 and governed by the special provisions of RA 9285, its IRR,
and the Special ADR Rules. RA 9285 is the general law applicable to all matters and controversies to be resolved
through alternative dispute resolution methods. While enacted only in 2004, we held that RA 9285 applies to
pending arbitration proceedings since it is a procedural law, which has retroactive effect. The IRR of RA 9285
reiterate that RA 9285 is procedural in character and applicable to all pending arbitration proceedings. Consistent
with Article 2046 of the Civil Code, the Special ADR Rules were formulated and were also applied to all pending
arbitration proceedings covered by RA 9285, provided no vested rights are impaired. Thus, contrary to DFA’s
contention, RA 9285, its IRR and the Special ADR Rules are applicable to the present arbitration proceeding. The
arbitration between the DFA and BCA is still pending, since no arbitral award has yet been rendered. Moreover,
DFA did not allege any vested rights impaired by the application of those procedural rules. RA 9285, its IRR, and
the Special ADR Rules provide that any party to an arbitration, whether domestic or foreign, may request the court
to provide assistance in taking evidence such as the issuance of subpoena ad testificandum and subpoena duces
tecum. The Special ADR Rules specifically provide that they shall apply to assistance in taking evidence, and the
RTC order granting assistance in taking evidence shall be immediately executory and not subject to
reconsideration or appeal. An appeal with the Court of Appeals (CA) is only possible where the RTC denied a
petition for assistance in taking evidence. An appeal to the Supreme Court from the CA is allowed only under any
of the grounds specified in the Special ADR Rules. The Supreme Court therefore rules that the DFA failed to
follow the procedure and the hierarchy of courts provided in RA 9285, its IRR, and the Special ADR Rules, when
DRA directly appealed to the Supreme Court the RCT Resolution and orders granting assistance in taking
evidence.
2. NO. The deliberative process privilege can also be invoked in arbitration proceedings under RA No. 9285.
“Deliberative process privilege contains three (3) policy bases: first, the privilege protects candid discussions
within an agency; second, it prevents public confusion from premature disclosure of agency opinions before the
agency establishes final policy; and third, it protects the integrity of an agency’s decision; the public should not
judge officials based on information they considered prior to issuing their final decisions.” Stated differently, the
privilege serves “to assure that subordinates within an agency will feel free to provide the decision[-]maker with
their uninhibited opinions and recommendations without fear of later being subject to public ridicule or criticism; to
Page 22 of 29
 protect against premature disclosure of proposed policies before they have been finally formulated or adopted;
and to protect against confusing the issues and misleading the public by dissemination of documents suggesting
reasons and rationales for a course of action which were not in fact the ultimate reasons for the agency’s action.”
DFA did not waive the privilege in arbitration proceedings under the Agreement. The agreement does not provide
for the waiver of the deliberative process privilege by DFA. Section 20.03 of the agreement merely allows a
party, if it chooses, without the consent of the other party, to disclose to the tribunal privileged
information in such disclosing party’s possession. In short, a party can disclose privilege information in
its possession, even without the consent of the other party, if the disclosure is to a tribunal. However, a
party cannot be compelled by the other party to disclose privileged information to the tribunal, where
such privileged information is in its possession and not in the possession of the party seeking the
compulsory disclosure. Nothing in Section 20.03 mandates compulsory disclosure of privileged information.
Section 20.03 merely states that “the restrictions imposed in Section 20.02,”referring to the “consent other party,”
shall not apply to a disclosure of privilege information by a party in possession of a privileged information. This is
completely different from compelling a party to disclose privileged information in its possession against its own
will. As a qualified privilege, the burden falls upon the government agency asserting the deliberative process
privilege to prove that the information in question satisfies both requirements — predecisional and deliberative.
“The agency bears the burden of establishing the character of the decision, the deliberative process involved, and
the role played by the documents in the course of that process.” It may be overcome upon a showing that the
discoverant’s interests in disclosure of the materials outweigh the government’s interests in their confidentiality.
“The determination of need must be made flexibly on a case-by-case, ad hoc basis,” and the “factors relevant to
this balancing include: the relevance of the evidence, whether there is reason to believe the documents may shed
light on government misconduct, whether the information sought is available from other sources and can be
obtained without compromising the government’s deliberative processes, and the importance of the material to
the discoverant’s case.”

In this case, the parties are directed to specify their claims before the RTC and thereafter, the RTC shall
determine which evidence is covered by the deliberative process privilege, if there is any, based on the standards
provided in this decision. It is necessary to consider the circumstances surrounding the demand for the evidence
to determine whether or not its production is injurious to the consultative functions of government that the privilege
of nondisclosure protects.

35. TRANSFIELD PHILIPPINES vs. LUZON HYDRO CORPORATION

GR NO. 146717
November 22, 2004

FACTS:

On March 26, 1997, Transfield and Luzon Hydro entered into a Turnkey Contract whereby Transfield as Turnkey
contractor, undertook to construct, on a turnkey basis, a seventy-megawatt hydro-electric power station at the
Bakun River in Benguet and Ilocos Sur. Transfield was given the sole responsibility for the design, construction,
commissioning, testing and completion of the project. To secure performance of Transfield’s obligation on or
before the target completion date (June 1, 2000), it opened in favor of Luzon two standby letters of credit with the
local branch of Australia and New Zealand Banking Group Limited and with Security Bank. In the course of the
construction project, Transfield sought various extensions of time to complete the project allegedly due to several
factors. However, Luzon denied such requests. This gave rise to actions for a request for arbitration before the
Construction Industry Arbitration Commission and International Chamber of Commerce. In both proceedings, the
common issues presented where: (1) whether typhoon Zeb and any of its associated events constituted force
majure to justify the extension of time sought by Transfield; and (2) whether Luzon had the right to terminate the
Turnkey Contract. Asserting that Luzon had no right to call on the Security Banks, Transfield warned tem that any
transfer, release or disposition of the Securities in favor of Luzon would constrain it to hold the banks liable for
liquidated damages. As anticipated, Luzon sent notice to the banks pursuant to the Turnkey Contract and
declared Transfield in default in the performance of its obligation prompting Luzon to demand payment for each
day of delay and served notice on the banks that it would call on the securities for the payment of liquidated
damages for the delay. Transfield filed a complaint for injunction with prayer for temporary restraining order and
writ of preliminary injunction. RTC denied the application for writ of preliminary injunction as it had no legal right
and suffered no irreparable injury employing the principle of independent contract in letters of credit, the trial court
ruled that Luzon should be allowed to draw on the securities for liquidated damages. Court of Appeals affirmed.
Hence, this petition.

ISSUE:

Whether or not the dispute must be first resolved by the parties whether through negotiations or arbitration before
the beneficiary is entitled to call on the letter of credit

HELD:

NO. Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the
settlement of a dispute between the parties is not a prerequisite for the release of funds under the letter of credit. In other
words, the argument of Transfield’s argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration before the beneficiary is entitled to call on the letter of credit in essence would convert the letter
of credit into a mere guarantee is incompatible with the very nature of a letter of credit. If a letter of credit is drawable only
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after settlement of the dispute on the contract entered into by the applicant and the beneficiary, there would be no
practical and beneficial use for letters of credit in commercial transactions. While it is the bank which is bound to honor the
credit, it is the beneficiary who has the right to ask the bank to honor the credit by allowing him to draw thereon. The
situation itself emasculates petitioner’s posture that LHC cannot invoke the independence principle and highlights its
puerility, more so in this case where the banks concerned were impleaded as parties by petitioner itself. Respondent
banks had squarely raised the independence principle to justify their releases of the amounts due under the Securities.
Owing to the nature and purpose of the standby letters of credit, this Court rules that the Security banks were left with little
or no alternative but to honor the credit and both of them in fact submitted that it was “ministerial” for them to honor the
call for payment.

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CASE 36

DEPARTMENT OF FOREIGN AFFAIRS (DFA) VS. BCA INTERNATIONAL CORPORATION & AD HOC ARBITRAL
TRIBUNAL G.R. No. 225051 July 19, 2017

FACTS:

Department of Foreign Affairs (DFA) awarded the Machine Readable Passport and Visa Project (MRPV Project)
to BCA International Corporation (BCA) thru an Amended Build-Operate-Transfer Agreement which states that:

“Section 19.02. Failure to Settle Amicably – If the Dispute cannot be settled amicably within ninety (90) days by
mutual discussion as contemplated xxx herein, the Dispute shall be settled with finality by an arbitrage tribunal
operating under International Law xxx under the UNCITRAL Arbitration Rules contained in Resolution 31/98
adopted by the United Nations General Assembly on December 15, 1976 xxx. The DFA and the BCA undertake
to abide by and implement the arbitration award. The place of arbitration shall be Pasay City, Philippines, or such
other place as may be mutually agreed upon by both parties. The arbitration proceeding shall be conducted in the
English language”

However, during the implementation of the MRPV Project, DFA sought to terminate the Agreement. This was
opposed by BCA and filed a Request for Arbitration according to the above provision. An ad hoc tribunal was constituted.

BCA filed with RTC a Petition for Assistance in Taking Evidence pursuant to the Implementing Rules and
Regulations (IRR) of “The Alternative Dispute Resolution Act of 2004” or RA 9285, seeking the issuance of subpoena ad
testificandum and subpoena duces tecum against DFA. DFA filed its comment alleging that the subpoena ad
testificandum and subpoena duces tecum being sought by BCA is prohibited by law as it runs afoul from the 1976
UNCITRAL Arbitration Rules that they have agreed in the foregoing Agreement

ISSUE:

WON RA 9285 and the Special ADR Rules apply to the present arbitration proceedings

RULING:

YES. RA 9285, its IRR, and the Special ADR Rules provide that any party to an arbitration, whether domestic of
foreign, may request the court to provide assistance in taking evidence such as the issuance of subpoena ad
testificandum and subpoena duces tecum. Arbitration is deemed a special proceeding and governed by the special
provisions of RA 9285, its IRR, and the Special ADR Rules. RA 9285 is the general law applicable to all matters and
controversies to be resolved through alternative dispute resolution methods.

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it is a procedural law
which has a retroactive effect. As a general rule, the retroactive application of procedural laws does not violate any
personal rights because no vested right has yet attached nor arisen from them. Further, consistent with Article 2046 of the
Civil Code, the Special ADR Rules were formulated and were also applied to all pending arbitration proceedings covered
by RA 9285, provided no vested rights are impaired.

CASE 37

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, Petitioner,

vs. COMMISSIONER OF INTERNAL REVENUE, Respondent G.R. No. 198146 August 8, 2017

FACTS:

Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a government-owned and
controlled corporation created under RA 9136, also known as the Electric Power Industry Reform Act of 2001 (EPIRA) .
PSALM conducted public biddings for the privatization of the Pantabangan-Masiway Hydroelectric Power Plant and Magat
Hydroelectric Power Plant wherein the winning bidders were First Gen Hydropower Corporation and SN Aboitiz Power
Corporation, respectively. NPC received a letter from BIR demanding immediate payment of deficiency VAT for the sale of
the two hydroelectric plant. In compliance with the MOA executed among BIR, NPC, and PSALM, PSALM remitted under
protest to the BIR the total basic VAT due.

PSALM filed with the DOJ a petition for the adjudication of the dispute with the BIR to resolve the issue of whether the
sale of the power plants should be subject to VAT wherein DOJ ruled in favor of PSALM . BIR filed with the CA a petition
for certiorari, seeking to set aside the DOJ's decision for lack of jurisdiction. Citing Section 4 of the NIRC of 1997, as
amended by Section 3 of RA 8424 and Section 7 of RA 9282, the CA that the CIR is the proper body to resolve cases
involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation
thereto, or other matters arising under the NIRC or other laws administered by the BIR.

ISSUE:

WON the DOJ Secretary acted in according with the law in assuming jurisdiction and settling the dispute by and
between BIR and PSALM

RULING:

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 YES. This case involves a dispute between PSALM and NPC, which are both wholly government owned corporations,
and the BIR, a government office, over the imposition of VAT on the sale of the two power plants. There is no question
that original jurisdiction is with the CIR, who issues the preliminary and the final tax assessments. However, if the
government entity disputes the tax assessment, the dispute is already between the BIR (represented by the CIR) and
another government entity, in this case, the petitioner PSALM. Under PD 242, all disputes and claims solely between
government agencies and offices, including government-owned or controlled· corporations, shall be administratively
settled or adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel, depending
on the issues and government agencies involved.

It is only proper that intra-governmental disputes be settled administratively since the opposing government offices,
agencies and instrumentalities are all under the President's executive control and supervision. Section 17, Article VII of
the Constitution states unequivocally that: "The President shall have control of all the executive departments, bureaus and
offices. He shall ensure that the laws be faithfully executed."

Furthermore, under the doctrine of exhaustion of administrative remedies, it is mandated that where a remedy before
an administrative body is provided by statute, relief must be sought by exhausting this remedy prior to bringing an action
in court in order to give the administrative body every opportunity to decide a matter that comes within its jurisdiction.

Since the amount involved in this case is more than one million pesos, the DOJ Secretary's decision may be appealed
to the Office of the President in accordance with Section 70, Chapter 14, Book IV of EO 292 and Section 552 of PD 242. If
the appeal to the Office of the President is denied, the aggrieved party can still appeal to the Court of Appeals under
Section 1, Rule 43 of the 1997 Rules of Civil Procedure

WHEREFORE, PETITION IS GRANTED.

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CASE 38

PHILIPPINE VETERANS INVESTMENT DEVELOPMENT CORP. (PHIVIDEC) & PHIVIDEC INDUSTRIAL

AUTHORITY, petitioners, vs.HON. ALEJANDRO M. VELEZ, as Judge, RTC of Cagayan de Oro City, Branch 20, and
PHILIPPINE VETERANS ASSISTANCE COMMISSION (PVAC), respondents.

G.R. No. 84295             July 18, 1991

FACTS:

Respondent, Philippine Veterans Assistance Commission (PVAC), filed in the RTC a complaint for foreclosure of
mortgage against the petitioners –– the Philippine Veterans Investment Development Corporation (PHIVDEC) and
PHIVIDEC Industrial Authority (PIA). PHIVIDEC and PIA filed an answer with counterclaim. They alleged lack of
jurisdiction by the trial court over the case for it is allegedly covered by the arbitration powers of the Government
Corporate Counsel under PD 242 Sections 3-b and 6 of which prescribe the procedure for the administrative settlement
and adjudication of disputes, claims, and controversies between or among government offices, agencies and
instrumentalities, including government-owned or controlled corporations.

Judge Velez denied the motion to dismiss on the ground that P.D. No. 242 is "unconstitutional for being an act that
amounts to an emasculation and impairment of the judicial power of review of this court and of the Supreme Court under
the 1987 Constitution. Petitioners filed a motion for reconsideration of that order which PVAC opposed. In an order dated
June 13, 1988, respondent Judge denied the motion for reconsideration.

Petitioners filed in this Court a petition for certiorari and prohibition with a prayer for preliminary injunction.

ISSUE: WON PD 242 is unconstitutional

RULING:

NO. P.D. No. 242 does not diminish the jurisdiction of courts but only prescribes an  administrative procedure for the
settlement of certain types of disputes between or among departments, bureaus, offices, agencies, and instrumentalities
of the National Government, including government-owned or controlled corporations, so that they need not always repair
to the courts for the settlement of controversies arising from the interpretation and application of statutes, contracts or
agreements. The procedure is not much different, and no less desirable, than the arbitration procedures provided in RA
876 (Arbitration Law) and in Section 26, R.A. 6715 (The Labor Code). It is an alternative to, or a substitute for, traditional
litigation in court with the added advantage of avoiding the delays, vexations and expense of court proceedings. Or, as
P.D. No. 242 itself explains, its purpose is "the elimination of needless clogging of court dockets to prevent the waste of
time and energies not only of the government lawyers but also of the courts, and eliminates expenses incurred in the filing
and prosecution of judicial actions."

The notion that an administrative procedure such as is provided in P.D. No. 242, for the settlement of quarrels
between two administrative offices, departments, agencies, or government corporations, would "emasculate" the
jurisdiction of courts, is erroneous. In fact, Section 1, subpar. (a), Rule 20 of the Rules of Court makes a pre-
trial mandatory so that the parties to a suit may meet in conference to consider, among other matters, "the possibility
of . . . a submission to arbitration."

P.D. No. 242 is a valid law prescribing an administrative arbitration procedure for certain disputes among offices,
agencies and instrumentalities under the executive control and supervision of the President of the Philippines. Since
PVAC filed Civil Case No. 11157 against PHIVIDEC and PIA without first passing through the administrative channel, the
judicial action was premature for non-exhaustion of administrative remedies, hence, dismissible on that account (Chia vs.
Acting Collector of Customs).

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CASE 39

TEODORO I. CHAVEZ, Petitioners, vs. HON. COURT OF APPEALS and JACINTO S. TRILLANA, Respondents. G.R.
No. 159411. March 18, 2005

FACTS:

Petitioner Teodoro Chavez and respondent Jacinto Trillana entered into a contract of lease whereby the former
leased to the latter his fishpond at Sitio Pariahan, Taliptip, Bulacan, Bulacan, for a term of 6 years. Paragraph 5 of the
contract further provided that respondent shall undertake all construction and preservation of improvements in the
fishpond that may be destroyed during the period of the lease, at his expense, without reimbursement from petitioner.

A powerful typhoon hit the country which damaged the subject fishpond. Respondent filed a complaint before the
Office of the Barangay Captain of Taliptip, Bulacan, Bulacan. He complained about the unauthorized repairs undertaken
by petitioner, the ouster of his personnel from the leased premises and its unlawful taking by petitioner despite their valid
and subsisting lease contract. After conciliation proceedings, an agreement was reached.

Alleging non-compliance by petitioner with their lease contract and the "Kasunduan," respondent filed a complaint
against petitioner before RTC wherein the latter ruled in favor of respondent. CA modified the decision of the trial court by
deleting the award of ₱500,000.00 for unrealized profits for lack of basis, and by reducing the award for attorney’s fees to
₱50,000.00. Petitioner’s motion for reconsideration was denied.

ISSUE:

WON RTC had jurisdiction over the action filed by respondent considering that the subject matter thereof, his
alleged violation of the lease contract with respondent, was already amicably settled before the Office of
the Barangay Captain of Taliptip, Bulacan, Bulacan

RULING:

YES. Indeed, the Revised Katarungang Pambarangay Law provides that an amicable settlement reached after
barangay conciliation proceedings has the force and effect of a final judgment of a court if not repudiated or a petition to
nullify the same is filed before the proper city or municipal court within ten (10) days from its date. It further provides that
the settlement may be enforced by execution by the lupong tagapamayapa within six (6) months from its date, or by action
in the appropriate city or municipal court, if beyond the six-month period. This special provision follows the general
precept enunciated in Article 2037 of the Civil Code. However, in Heirs of Zari, et al. v. Santos Art. 2037 is qualified by Art.
2041 of the same Code: “If one of the parties fails or refuses to abide by the compromise, the other party may either
enforce the compromise or regard it as rescinded and insist upon his original demand”.

Thus, although the "Kasunduan" executed by petitioner and respondent before the Office of the Barangay
Captain had the force and effect of a final judgment of a court, petitioner’s non-compliance paved the way for the
application of Art. 2041 under which respondent may either enforce the compromise, following the procedure laid out in
the Revised Katarungang Pambarangay Law, or regard it as rescinded and insist upon his original demand. Respondent
chose the latter option when he instituted Civil Case for recovery of unrealized profits and reimbursement of advance
rentals, moral and exemplary damages, and attorney’s fees. Respondent was not limited to claiming ₱150,000.00
because although he agreed to the amount in the "Kasunduan," it is axiomatic that a compromise settlement is not an
admission of liability but merely a recognition that there is a dispute and an impending litigation which the parties hope to
prevent by making reciprocal concessions, adjusting their respective positions in the hope of gaining balanced by the
danger of losing. Under the "Kasunduan," respondent was only required to execute a waiver of all possible claims arising
from the lease contract if petitioner fully complies with his obligations thereunder. It is undisputed that herein petitioner did
not.

IN VIEW WHEREOF, the petition is PARTIALLY GRANTED. The assailed Decision of the Court of Appeals is
modified by deleting the award of ₱300,000.00 as reimbursement of advance rentals. The assailed Decision is
AFFIRMED in all other respects.

Page 28 of 29
CASE 40

CHINA CHANG JIANG ENERGY CORPORATION vs ROSAL INFRASTRUCTURE BUILDERS

G.R. No. 125706, September 30, 1996

FACTS:

Petitioner China Chang engaged the services of Rosal Infrastructure Builders for the construction of a Dam in Itogon,
Benguet. In this contract, the parties agreed to submit disputes arising therefrom to arbitration before the Arbitration of the
International Chamber of Commerce. When a dispute arose between the parties, Rosal filed a complaint before the
Construction Industry Arbitration Commission (CIAC) for arbitration. China Chang filed its answer with CIAC for
arbitration.

China Chang raised the issue of lack of jurisdiction with the CA which the CA dismissed. China Chang filed a Motion
for Reconsideration but was denied. China Chang now questions the validity of CIAC Resolution 3- 93 amending Section
1, Article III of CIAC Rules of Procedure Governing Construction Arbitration promulgated by the CIAC pursuant to its rule-
making power granted under Section 21 of Executive Order No. 1008, which pertinently provides as follows:

Article III Effect of the Agreement to Arbitrate. Section 1. Submission to CIAC Jurisdiction.

-An arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be
deemed an agreement to submit an existing or future controversy to the CIAC jurisdiction, notwithstanding the
reference to a different arbitral institution or arbitral body in such contract or submission

ISSUES:

1. WON CIAC has jurisdiction over the dispute

2. WON the parties in the case at bar can agree to submit to arbitration their construction dispute under the CIAC

RULING:

1. YES. The new rule, as amended merely implements the letter and the spirit of its enabling law, E.O. No. 1008,
which vests jurisdiction upon the CIAC:
Section 4: Jurisdiction - The CIAC shall have the original and exclusive jurisdiction over disputes arising from, or
connected with, contracts entered into by the parties involved in the construction in the Philippines, whether the
dispute arises before or after the completion of the contracts, or after the abandonment or breach thereof. These
disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration. What the law merely requires for a particular
construction contract to fall within the jurisdiction of CIAC is for the parties to agree to submit the same to
voluntary arbitration.

2. YES. Parties may continue to stipulate as regards their preferred forum in case of voluntary arbitration, but in so
doing, they may not divest the CIAC of jurisdiction as provided by law. Under the elementary principle on the law
on contracts that laws obtaining in a jurisdiction form part of all agreements, when the law provides that the Board
acquires jurisdiction when the parties to the contract agree to submit the same to voluntary arbitration, the law in
effect, automatically gives the parties an alternative forum before whom they may submit their disputes. That
alternative forum is the CIAC.

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