Also read the following cases and submit a handwritten case digest for each:

A. On the arbitration agreement:

1. BF Corporation v. CA (288 SCRA 267) (1999)

Facts:

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered into an agreement whereby the latter
engaged the former to construct the main structure of the "EDSA Plaza Project,"

The construction work was in progress when SPI decided to expand the project by engaging the services
of petitioner again. Thus, the parties entered into an agreement for the main contract works after which
construction work began.
However, petitioner incurred delay that SPI considered as "serious and substantial." On the other hand,
according to petitioner, the construction works "progressed in faithful... compliance with the First
Agreement until a fire broke out on November 30, 1990 damaging Phase I" of the Project. Hence, SPI
proposed the re-negotiation of the agreement between them.
Barely two days later petitioner filed with the Regional Trial Court of Pasig a complaint for collection of
the balance due under the construction agreement. Named defendants therein were SPI and members
of its board of directors namely, Alfredo C. On August 3, 1993, SPI and its co-defendants filed a motion
to suspend proceedings instead of filing an answer.
The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was
"too late in the day for defendants to invoke arbitration." It quoted the following provision of the
arbitration clause:
"Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the
contract and a copy filed with the Project Manager. The demand for arbitration shall be made within a
reasonable time after the dispute has arisen and... attempts to settle amicably have failed; in no case,
however, shall the demand he made be later than the time of final payment except as otherwise
expressly stipulated in the contract."
Issues:
whether or not the contract for the construction of the EDSA Plaza between petitioner BF Corporation
and respondent Shangri-la Properties, Inc. embodies an arbitration clause in case of disagreement...
between the parties in the implementation of contractual provisions.

Ruling: The court sustained the Court of Appeals decision against petitioner, BF Corporation. The court
upheld the propriety of the filing of the special civil action of certiorari by respondent, reasoning that
what was in question was the alleged premature assumption of jurisdiction by the trial court. In settling
the issue, another had to be first determined: the existence of an ‘arbitration clause’.

As opposed to petitioner’s contention that there was no valid ‘Arbitration Clause’ in the contract with
respondent because said contract only contained initials of the former’s representatives and none of the
latter’s, the court held that failure of the respondents to affix their initial in the “Conditions of Contract”
containing the arbitration clause did not affect the compliance with the formal requirements (RA 876,
Sec4) for arbitration agreements. The Court held that the subject portion of the covenant between the
parties was included by reference in the Articles of Agreement.

The Court also noted the attempt of respondent in pursuing arbitration through the July 12-conference
and that the lapse of time from said conference to the day the respondent’s invoked the ‘arbitration
clause’ was ‘reasonable’. The Court therefore denied the petition for certiorari by BF Corporation.

2. Associated Bank v. CA (233 SCRA 137) (1994)

G.R. No. 107918 June 14, 1994

ASSOCIATED BANK, petitioner,
vs.
HON. COURT OF APPEALS, HON. MARINA L. BUZON, as Presiding Judge of RTC, Quezon City, MM, Br.
91, VISITACION SERRA FLORES RTC, Quezon City, MM, Br. 91, MA. ASUNCION FLORES, PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK & TRUST CO., SECURITY BANK & TRUST CO. and
CITYTRUST BANKING CORPORATION, respondents.

FACTS: In a complaint for Violation of the Negotiable Instrument Law and Damages, plaintiffs 1 seek the
recovery of the amount of P900,913.60 which defendant bank 2 charged against their current account by
virtue of the sixteen (16) checks drawn by them despite the apparent alterations therein with respect to
the name of the payee, that is, the name Filipinas Shell was erased and substituted with Ever Trading
and DBL Trading by their supervisor Jeremias Cabrera, without their knowledge and consent.

With leave of court, defendant bank filed a Third-Party Complaint against Philippine Commercial
International Bank, Far East Bank & Trust Company, Security Bank and Trust Company and Citytrust
Banking Corporation for reimbursement, contribution, indemnity from said third-party defendants for
being the collecting banks of the subject checks and by virtue of their bank guarantee for all checks sent
for clearing to the Philippine Clearing House Corporation (PCHC), as provided for in Section 17, (PCHC),
as provided for in Section 17, PCHC Clearing House Rules and Regulations.

A Motion To Dismiss was filed by Security Bank and Trust Company on the grounds that third-party
plaintiff failed to resort to arbitration as provided for in Section 36 of the Clearing House Rules and
Regulations of the Philippine Clearing House Corporation, and that it was released from any liability with
the acceptance by third-party plaintiff of the subject check.

Issue:

WHETHER OR NOT the mere act of participation of the parties concerned in its operations in effect
amounts to a manifestation of agreement by the parties to abide by its rules and regulations.
Ruling:

36.1 Any dispute or controversy between two or more clearing participants involving
any check/item cleared thru PCHC shall be submitted to the Arbitration Committee,
upon written complaint of any involved participant by filing the same with the PCHC
serving the same upon the other party or parties, who shall within fifteen (15) days after
receipt thereof, file with the Arbitration Committee its written answer to such written
complaint and also within the same period serve the same upon the complaining
participant. This period of fifteen (15) days may be extended by the Committee not
more than once for another period of fifteen (15) days, but upon agreement in writing
of the complaining party, said extension may be for such period as the latter may agree
to.

Section 36.6 is even more emphatic:

36.6 The fact that a bank participates in the clearing operations of PCHC shall be
deemed its written and subscribed consent to the binding effect of this arbitration
agreement as if it had done so in accordance with Section 4 of the Republic Act No. 876
otherwise known as the Arbitration Law.

Thus, not only do the parties manifest by mere participation their consent to these rules, but such
participation is deemed (their) written and subscribed consent to the binding effect of arbitration
agreements under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and
Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National Capital
Region where the head office of any of the parties is located only after a decision or award has been
rendered by the arbitration committee or arbitrator on questions of law. 10

Clearly therefore, petitioner Associated Bank, by its voluntary participation and its consent to the
arbitration rules cannot go directly to the Regional Trial Court when it finds it convenient to do so. The
jurisdiction of the PCHC under the rules and regulations is clear, undeniable and is particularly applicable
to all the parties in the third party complaint under their obligation to first seek redress of their disputes
and grievances with the PCHC before going to the trial court.

Finally, the contention that the third party complaint should not have been dismissed for being a
necessary and inseparable offshoot of the main case over which the court a quo had already exercised
jurisdiction misses the fundamental point about such pleading. A third party complaint is a mere
procedural device which under the Rules of Court is allowed only with the court’s permission. It is an
action "actually independent of, separate and distinct from the plaintiffs’ complaint" (s)uch that, were it
not for the Rules of Court, it would be necessary to file the action separately from the original complaint
by the defendant against the third party. 11
3. Korea Technologies Co., Ltd. v. Lerma (542 SCRA 1) (2008)

Korea Technologies Co. Ltd vs Lerma

GR No. 143581 January 7, 2008

Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the
supply and installation of Liquefied Petroleum Gas (LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic corporation. On March 5,
1997, PGSMC and KOGIES executed a Contract whereby KOGIES would set up an LPG Cylinder
Manufacturing Plant in Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997,
the parties executed, in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 1997
amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD
1,224,000. KOGIES would install and initiate the operation of the plant for which PGSMC bound itself to
pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder samples. Thus, the total contract
price amounted to USD 1,530,000. On October 14, 1997, PGSMC entered into a Contract of Lease with
Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square
meter warehouse building to house the LPG manufacturing plant. The monthly rental was PhP 322,560
commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries,
equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in
the Carmona plant. PGSMC paid KOGIES USD 1,224,000. However, gleaned from the Certificate executed
by the parties on January 22, 1998, after the installation of the plant, the initial operation could not be
conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the
parties to agree that KOGIES would be deemed to have completely complied with the terms and
conditions of the March 5, 1997 contract. For the remaining balance of USD306,000 for the installation
and initial operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated
January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP
4,500,000. When KOGIES deposited the checks, these were dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter to PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES President who was then staying at a Makati City
hotel. She complained that not only did KOGIES deliver a different brand of hydraulic press from that
agreed upon but it had not delivered several equipment parts already paid for.

Issue: Whether or not the arbitration clause in the contract of the parties should govern.

Held: Yes. Established in this jurisdiction is the rule that the law of the place where the contract is made
governs. Lex loci contractus. The contract in this case was perfected here in the Philippines. Therefore,
our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the validity of mutually
agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, Any
stipulation that the arbitrators award or decision shall be final, is valid, without prejudice to Articles
2038, 2039 and 2040.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown
to be contrary to any law, or against morals, good customs, public order, or public policy. There has
been no showing that the parties have not dealt with each other on equal footing. We find no reason
why the arbitration clause should not be respected and complied with by both parties. In Gonzales v.
Climax Mining Ltd., we held that submission to arbitration is a contract and that a clause in a contract
providing that all matters in dispute between the parties shall be referred to arbitration is a contract.
Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he provision to
submit to arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract.

Having said that the instant arbitration clause is not against public policy, we come to the question on
what governs an arbitration clause specifying that in case of any dispute arising from the contract, an
arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign country
would govern and its award shall be final and binding.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or
awards given by some of our quasi-judicial bodies, like the National Labor Relations Commission and
Mines Adjudication Board, whose final judgments are stipulated to be final and binding, but not
immediately executory in the sense that they may still be judicially reviewed, upon the instance of any
party. Therefore, the final foreign arbitral awards are similarly situated in that they need first to be
confirmed by the RTC.

B. On Appointment of Arbitrators

1. Magellan Capital Management Corp. v. Zosa (355 SCRA 157) (2001)

Magellan Capital Management Corp vs Zosa

FACTS:

Under a management agreement, Magellan Capital Holdings (MCHC) appointed Magellan

Capital Management Corp (MCMC) as manager for the operation of its business and affairs.

Pursant thereto, Zosa, MCHC and MCMC entered into an "EMPLOYMENT AGREEMENT" where
Zosa was designated as President and CEO of MCMC, and which provided that his term is co-terminous
w/ the management agreement (until March 1996) unless sooner terminated.

The dispute arose when Zosa was not re-elected by MCHC's Board of Directors on May 1995 for account
of loss of trust and confidence arising from alleged violation of the resolution issued by MCHC's board of
directors and of the non-competition clause of the Employment Agreement.

Nevertheless, respondent Zosa was elected to a new position as MCHC's Vice-

Chairman/Chairman for New Ventures Development.

-September 1995: Zosa resigned for good reason from VChair position under PAR7,

EMPLOYMENT AGREEMENT: position had less responsibility and scope than President and

Chief Executive Officer. Demanded that he be given termination benefits as provided in the
Employment Agreement. Instead, he was terminated for cause (breach of SECTION 12) and

was further advised that he shall have no further rights under the EMPLOYMENT

AGREEMENT. His demand for termination benefits were granted however.

RESORT TO ARBITRATION

Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration

Clause of the Employment Agreement, to wit:

"23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any

provisions of this Agreement, then the parties hereto agree to submit such dispute, controversy

or claim to arbitration as set forth in this Section and the determination to be made in such

arbitration shall be final and binding. Arbitration shall be effected by a panel of three arbitrators.

The Manager, Employee and Corporation shall designate one (1) arbitrator who shall, in turn,

nominate and elect who among them shall be the chairman of the committee. Any such

arbitration, including the rendering of an arbitration award, shall take place in Metro Manila. The

arbitrators shall interpret this Agreement in accordance with the substantive laws of the

Republic of the Philippines. The arbitrators shall have no power to add to, subtract from or

otherwise modify the terms of Agreement or to grant injunctive relief of any nature. Any

judgment upon the award of the arbitrators may be entered in any court having jurisdiction

thereof, with costs of the arbitration to be borne equally by the parties, except that each party shall pay
the fees and expenses of its own counsel in the arbitration."

-Zosa, MCMC and MCHC each designated their nominees for the arbitration panel BUT Zosa

ABANDONED RESORT TO ARBITRATION AND FILED AN ACTION FOR DAMAGES TO ENFORCE

BENEFITS UNDER THE EMPLOYMENT AGREEMENT before RTC Cebu.

-MTD:

a. RTC had no jurisdiction: should resort to Arbitration

b. Venue improperly laid: all the parties are residents of Pasig City so the proper venue

should be RTC Pasig, w/o admitting that Zosa had a COA.

*Zosa filed Amended Complaint

*RTC: MTD DISMISSED

a. Validity and legality of the arbitration provision can only be determined after trial on the

merits

b. Amount of damages claimed (P100k) falls w/n jurisdiction of RTC

MR DENIED. So MCMC and MCHC filed ANSWER AD CAUTELAM (w/ same arguments as

MTD).MCMC and MCHC still insisted that the dispute is arbitrable, thus the RTC shoul Dismiss

it. As the RTC denied their motions a nd wanted to proceed with trial on the merits, they filed a

R65 Petition for Certiorari before CA

*CA: RTC directed to resolve the issue on the validity or effectivity of the arbitration clause +

suspend trial on the merits until the validity of the arbitration clause is resolved. MCMC and

MCHC filed MOTIONS FOR PARTIAL RECON. Denied for lack of merit.

*RTC: rendered arbitration clause PARTIALLY VOID insofar as it concerns the composition

of the panel of arbitrators (each of the parties elect 1 arbitrator); directed the parties to proceed w/
arbitration with 3 arbitrators, 1 for Zosa, 1 for MCMC and MCHC, and the 3rd to be selected by both
parties.

-to appeal, MCMC and MCHC filed R45 Petition: RTC erred in ruling that the manner of

selection of the panel arbitrators is void insofar as MCMC and MCHC represent the same

interest and that Zosa is estopped from questioning the validity of the arbitration agreement as he
already designated his own arbitrator.

ISSUES:.

(1) WON the case should fall under SEC jurisdiction (apparently, this was raised as an issue

before the CA). NO.

(2) WON TC erred in voiding the arbitration clause as it would work injustice (in all
probability) to Zosa? NO.

(3) WON Zosa is estopped from assailing the validity of the arbitration clause? NO

RULING:

(1) The controversy does not in anyway involve the election/appointment of officers of petitioner

MCHC BUT THE ILLEGALITY OF THE ARBITRATION CLAUSE IN THE EMPLOYMENT

AGREEMENT.

IT FALLS UNDER RTC. Under Republic Act No. 876, otherwise known as the "Arbitration Law,"
it is the regional trial court which exercises jurisdiction over questions relating to arbitration.

Although the dispute stems from the validity of the termination of the service of a corporate

officer, the issue on the validity and effectivity of the arbitration clause is determinable by the regular
courts, and do not fall within the exclusive and original jurisdiction of the SEC.

LAW OF THE CASE DOCTRINE: a term applied to an established rule that when an appellate

court passes on a question and remands the cause to the lower court for further proceedings,

the question there settled becomes the law of the case upon subsequent appeal. MCMC and MCHC are
therefore barred from challenging anew the authority of the RTC to resolve the validity of the
arbitration clause, or else guilty of forum shopping.

(2) -R45 Petition is limited to reviewing errors of law.

-even if we review facts, RTC still correct:

*MCMC and MCHC represent the same interest. Though they are 2 corporations w/ distinct

personalities, they represent the same interest. Thus, it would be expected that they would

protect and preserve their own interest and neither would favor Zosa's interest during
arbitration. If the arbitration clause would be followed, MCMC would have 1 arbitrator, MCHC would
have another arbitrator, and Zosa would have 1. But MCMC is the manager of MCHC, MCHC would
naturally favor its employer. Thus, their 2 votes would win vs. Zosa's lone vote.

-A2045, NCC: "Any clause giving one of the parties power to choose more arbitrators than the other is
void and of no effect" (Article 2045, Civil Code).

(3) a. Issue of estoppel raised for the 1st time on appeal. Issues not raised in the pleadings

cannot be resolved on review in higher courts.

b. Employment agreements are contracts of adhesion. Any ambiguity in its provision is

generally resolved against the party who drafted the document.

CHA: But nothing is ambiguous in the arbitration clause. It may be unfair but it's not ambiguous.

c. Zosa never submitted himself to arbitration proceedings, immediately assailed the

arbitration clause upon realizing the inequities that may mar the arbitration proceedings...

DISPOSITION: DISMISS PETITION. RTC AFFIRMED

C. On referral to arbitration

1. Fiesta World Mall Corporation v. Linberg Phils. Inc (499 SCRA 332) (2006)
Facts:
Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located at Barangay
Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is a corporation that builds and operates
power plants.
On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a
Complaint for Sum of Money against petitioner
The complaint alleges that on November 12, 1997, petitioner and respondent executed a... build-own-
operate agreement, entitled "Contract Agreement for Power Supply Services, 3.8 MW Base Load Power
Plant"
Under this Contract, respondent will construct, at its own cost, and operate as owner a power plant, and
to supply... petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the other hand,
will pay respondent "energy fees" to be computed in accordance with the Seventh Schedule of the
Contract
In November 1997, the power plant became operational and started supplying power/electricity to
petitioner's shopping mall in Lipa City. In December 1997,... respondent started billing petitioner. As of
May 21, 1999, petitioner's unpaid obligation amounted to P15,241,747.58, exclusive of interest.
However, petitioner questioned the said amount and refused to pay despite respondent's repeated
demands
In its Answer with Compulsory Counterclaim, petitioner specifically denied the allegations in the
complaint, claiming that respondent failed to fulfill its obligations under the Contract by failing to supply
all its power/fuel needs.
While both parties had discussions on the questioned billings, however, "there were no earnest efforts
to resolve the differences in accordance with the arbitration clause provided for in the Contract."
Finally, as a special affirmative defense in its answer, petitioner alleged that respondent's filing of the
complaint is premature and should be dismissed on the ground of non-compliance with paragraph 7.4 of
the Contract which provides:
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the
provision applicable to this case; and that since the parties failed to settle their dispute, then respondent
may resort to court action
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the
provision applicable to this case; and that since the parties failed to settle their dispute, then respondent
may resort to court action pursuant to paragraph 17.2 of the same
Contract which provides:
17.2 Amicable Settlement... trial court denied petitioner's motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it was denied
Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari,... the
appellate court rendered its Decision dismissing the petition and affirming the challenged Orders of the
trial... court.
Petitioner's Motion for Reconsideration of the above Decision was likewise denied by the appellate
court in its Resolution
Hence, the instant Petition for Review on Certiorari.
that should petitioner dispute any amount of energy fees in the invoice and billings made by
respondent, the same "shall be resolved by arbitration of three (3) persons, one (1) by mutual choice,
while the other two
(2) to be each chosen by the parties themselves."
Issues:
whether the filing with the trial court of respondent's complaint is premature
Ruling:
The parties, in incorporating such agreement in their Contract, expressly intended that the said matter
in dispute must first be resolved by an arbitration panel before it reaches the court. They made such...
arbitration mandatory
It bears stressing that such arbitration agreement is the law between the parties. Since that agreement
is binding between them, they are expected to abide by it in good faith.
And because it covers the dispute between them in the present case, either of... them may compel the
other to arbitrate.[8] Thus, it is well within petitioner's right to demand recourse to arbitration
Moreover, we note that the computation of the energy fees disputed by petitioner also involves
technical matters that are better left to an arbitration panel who has expertise in those areas.
Alternative dispute resolution methods or ADRs like arbitration,... mediation, negotiation and
conciliation are encouraged by this Court.
After the arbitration proceeding has been pursued and completed, then the trial court may confirm the
award made by the arbitration panel.

2. Bengson v. Chan (78 SCRA 113) ( 1977)

G.R. No. L-27283 July 29, 1977

SOLEDAD F. BENGSON, Plaintiff-Appellant, v. MARIANO M. CHAN, UNIVERSAL CONSTRUCTION SUPPLY

and LEONCIO CHAN, both of San Fernando, La Union; MUTUAL SECURITY INSURANCE CORPORATION
and KRAUSE A. IGNACIO of Manila, defendants-appellees.

Jesus Z. Valenzuela and San Jose, Albino & Associates for appellant.chanrobles virtual law library

Bengzon, Villegas & Zarraga for appellees Mariano Chan and Leoncio Chan.chanrobles virtual law library

Jose C. Blanco for appellee Mutual Security Insurance Corporation.

 AQUINO, J.:

This is a case involving arbitration. On June 21, 1966 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 found herself to pay Chan, the contractor, the
sum of P352,000 for the materials, labor and construction
expenses.chanroblesvirtualawlibrarychanrobles virtual law library

It was stipulated inter alia that the construction would start on July 5, 1965; that the first and second
stories, together with the theater, should be completed and available for use within five months from
July 5, 1965, and that the construction should be finished within twelve calendar months from that date
in conformity with the plans and specifications signed by the parties. The contract contains the following
arbitration clause:

15. 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 for 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; that because the
contractor admitted at a conference on May 8, 1966 that he was unable to continue or complete the
construction, Soledad F. Bengson terminated the contract; that she suffered damages amounting to
P85,000 as a consequence of Chan's failure to construct the commercial building, and that Chan did not
comply with clauses 7 and 8 of the contract in not attending to his work and in not submitting periodic
reports of the work done as a basis for the payment of the laborers' wages. The damages claimed
totalled P183,800.chanroblesvirtualawlibrarychanrobles virtual law library

Mariano M. Chan and his sureties, Leoncio Chan (the owner of the Universal Construction Supply) and
Mutual Security Insurance Corporation, alleged in their answer that the contractor stopped the
construction use Soledad F. Bengson refused to pay for ninety percent of the work already
accomplished; that the construction actually started in February, 1966 because of the changes
requested by Bengson; that the demolition of the old building was effected from July to December,
1965, and that the stipulation for the construction of the first and second stories within five months was
novated b the parties.chanroblesvirtualawlibrarychanrobles virtual law library

The contractor and his sureties further alleged that Soledad F. Bengson had paid him P74,750 but
refused to pay on May 8, 1966 the additional sum of P31,450 as the balance of ninety percent of the
work already accomplished worth P118,000; that by reason of Bengson's failure to pay the balance,
Chan notified her that he would stop the construction, and that he actually stopped the construction on
May 30, 1966 when he was served with a copy of the complaint.chanroblesvirtualawlibrarychanrobles
virtual law library
Mariano M. Chan filed counterclaims for P45,223.23 as the balance due on the contract; P15,000 as the
value of the materials in the construction yard; P5,000 as reimbursement of the expenses for the
demolition of the old building, P5,000 as the value of his construction equipment under Bengson's
control and P35,000 as damages.chanroblesvirtualawlibrarychanrobles virtual law library

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
submit the controversy for arbitration as required in the aforequoted paragraph 15 of the construction
contract.chanroblesvirtualawlibrarychanrobles virtual law library

After holding a hearing, the trial court in its order of November 24, 1966 sustained that new defense and
dismissed the complaint. Bengson appealed.chanroblesvirtualawlibrarychanrobles virtual law library

Appellant Bengson's five assignments of errors may be reduced to the issues of whether the trial court
erred (1) in allowing the defendants to plead a new affirmative defense in their amended answer and (2)
in holding that the cause of action in plaintiff's complaint are embraced in the requirement for
arbitration as a condition precedent to a court action.chanroblesvirtualawlibrarychanrobles virtual law
library

(1) We hold that there is no merit in appellant Bengson's contention that the defendants waived the
defense of lack of cause of action. It is true that the defendants did not interpose as a defense in their
original answer Bengson's failure to resort to arbitration before going to court or the defense that her
complaint does not state a cause of action. The omission did not constitute a waiver of that defense
because section 2, Rule 9 of the Rules of Court explicitly provides that "defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived; except the failure to state a
cause of action which may be alleged in a later pleading, if one is
permitted".chanroblesvirtualawlibrarychanrobles virtual law library

(2) Appellant Bengson's other contention that her causes of action do not involve disputes relative to
the construction of the building and, consequently, should not be submitted for arbitration, is not well-
taken.chanroblesvirtualawlibrarychanrobles virtual law library

The trial court sensibly said that "all the causes of action alleged in the plaintiff's amended complaint are
based upon the supposed violations committed by the defendants of the 'Contract for the Construction
of a Building"' and that "the provisions of paragraph 15 hereof leave very little room for doubt that the
said causes of action are embraced within the phrase 'any and all questions, disputes or differences
between the parties hereto relative to the construction of the building', which must be determined by
arbitration of two persons and such determination by the arbitrators shall be 'final, conclusive and
binding upon both parties' unless they go to court, in which case the determination by arbitration is ' a
condition precedent for taking any court action'." chanrobles virtual law library

Appellant Bengson argues that paragraph 15 refers to disputes as to "the technical process of putting up
the building", meaning whether there was an adherence to the plans and specifications, and that her
causes of action for damages do not involve questions as to the construction of the building but refer to
disputes "based on violation of the contract for construction".
She points out that the contract for the construction of the building and the construction of the building
are different concepts, just as the Constitution and the formation of the government under the
Constitution are different concepts; that a dispute relating to the construction contract is not necessarily
a dispute relative to the construction of the building; that the parties did not have any dispute prior to
the filing of the complaint, and that it was only after the filing of the case that a dispute arose between
them.chanroblesvirtualawlibrarychanrobles virtual law library

Appellant Bengson alternatively argues that if arbitration is proper, then the trial court in conformity
with section 6 of the Arbitration Law, Republic Act No. 876, should have required the parties to proceed
to arbitration.chanroblesvirtualawlibrarychanrobles virtual law library

On the other hand, the defendants argue that the broad and inclusive terms of paragraph 15 embrace
all breaches of the contract regarding submission to arbitration of the contractor's request for
extensions shows that arbitration is not restricted to disputes relative to "the technical process of
putting up the building".chanroblesvirtualawlibrarychanrobles virtual law library

We hold 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.chanroblesvirtualawlibrarychanrobles virtual law library

Bengson's interpretation of paragraph 15 as being limited to controversies with respect "to the joining
together of stones, steel, wood and other material to put up a building" has a sophistical flavor. Her
superfine distinction between the contract for the construction of the building and the construction of
the building is specious but not convincing.chanroblesvirtualawlibrarychanrobles virtual law library

However, 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. We 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.chanroblesvirtualawlibrarychanrobles
virtual law library

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.chanroblesvirtualawlibrarychanrobles virtual law library
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 quit 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 p 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.chanroblesvirtualawlibrarychanrobles virtual law library

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.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, the trial court's order of dismissal is reversed and set aside. If the parties cannot reach an
amicable settlement at this late hour, then the trial court should give them at least sixty days from
notice within which to settle their disputes by arbitration and, if no settlement is finalized within that
period, it should hold a pre-trial and try the case. No costs.chanroblesvirtualawlibrarychanrobles virtual
law library

SO ORDERED.

D. On the arbitral award in Domestic Arbitration

1. Romago, Inc. v. Siemens Building Technologies, Inc. (602 SCRA 656) (2009)

Romago, Inc. (ROMAGO) appeals by certiorari the October 19, 2007 Decision[1] of the Court of Appeals
(CA) in CA-G.R. SP No. 99128 and the February 26, 2008 Resolution [2] denying its reconsideration.

On June 11, 1999, petitioner ROMAGO entered into a Consortium Agreement [3] with respondent
Siemens Building Technologies, Inc. (SBTl). Under the agreement, ROMAGO undertook to jointly bid with
SBTl for the Mechanical and Electrical Requirements of the Insular Life Corporate Center (the project) to
be constructed at the Corporate City in Alabang. SBTl would provide and supply the equipment
requirements and components of the project, while ROMAGO would supply and perform all the
technical service requirements of the project.

However, Insular Life Assurance Company, Ltd. (Insular Life), the project owner, was not keen on dealing
with a consortium of companies. Ultimately, only ROMAGO bidded and was awarded the Sub-contract
for the Building Services-Electrical Package of the project.
On December 3, 1999, ROMAGO entered into an Equipment Supply Sub-Contract Agreement (ESSA)
[4]
 with SBTL For the contract price of P100,000,000.00, SBTl undertook to deliver the needed electrical
equipment for the project.

SBTl made deliveries, but ROMAGO failed to pay in full. As of March 2001, ROMAGO's unpaid billings
amounted to P6,807,400.92. SBTl demanded payment, but the demand just fell on deaf ears, prompting
SBTl to withhold further deliveries of equipment to the jobsite. Consequently, ROMAGO took over all
the contractual activities of SBTl.

Later, however, SBTl resumed its deliveries under the ESSA. As of July 25, 2001, it had already delivered
99.81% of all the necessary equipment. ROMAGO, however, refused to pay for the deliveries which, by
then, already amounted to PI6,937,612.68, unless SBTI compensates ROMAGO for the total expenses it
allegedly incurred in taking over SBTTs contractual obligations. Demands to pay were made but were
not heeded.

Hence, on June 4, 2003, SBTI filed a Request for Arbitration [5] with the Philippine Dispute Resolution
Center, Inc. (PDRCI), docketed as PDRCI Case No. 20-2003/SSP.

On July 16, 2003, ROMAGO, through its Vice-President for Operations, Ramon Lorenzo R. Arel, Sr..
signed the Agreement to Submit Dispute to Arbitration. [6]

In its Answer[7] filed on May 4, 2004, ROMAGO admitted that the agreed  contract  price  was 
P67,734,457.27, but  averred that  it made substantial payments.  It further alleged that it had claims
against SBTI, which  should  be  deducted  from  the  former's liability.  Specifically, ROMAGO claimed
the cost of installation of transformer and temporary generator sets amounting to PI84,208.15 and
P5,040,408.44, respectively.'It added that it paid damages amounting to P3,627,226.37 to Insular Life
and to some of its tenants when the generator  sets supplied by SBTI malfunctioned on May 1, 2001.
ROMAGO further claimed payments for the miscellaneous items amounting to PI06,694.49, and for
liquidated damages of P3,493,223.72  for  SBTI's  delay in  the delivery of the equipment. According to
ROMAGO, these items and the  P300,000.00 cost of arbitration must be deducted from SBTI's claim,
thus, leaving a balance of only P2,127,471.97.

The parties then signed the Terms of Reference (TOR) [8] and, later, the Amended Terms of Reference.
[9]
 Signatories to the TOR and Amended TOR were SBTI's counsel, Atty. Cada E. Santamaria-Sena of
Siguion Reyna Montecillo & Ongsiako; ROMAGO's counsel, Atty. Melvin L. Villa of Villa Judan &
Associates; and Ramon Lorenzo R. Arel, Sr., ROMAGO's authorized representative.

ISSUE NO. 1

Whether or not ROMAGO is correct in contending that SBTI's claim arose from a construction contract.
As such, it is a construction dispute that falls within the jurisdiction of the CIAC. It, thus, insists on a new
trial before the CIAC.
Ruling

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and
workmanship; violation of the terms of agreement; interpretation and/or application of contractual
provisions; amount of damages and penalties; commencement time and delays; maintenance and
defects; payment default of employer or contractor and changes in contract cost.

Excluded from the coverage of this law are disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code of the Philippines.

By no stretch of the imagination can the ESSA be characterized as a construction contract. Crystal clear
from the provisions of the ESSA is that SBTI's role was merely to supply the needed equipment for the
Insular Life Corporate Center project. The ESSA is, therefore, a mere supply contract that does not fall
within the original and exclusive jurisdiction of CIAC.

We also note that the Consortium Agreement 35 between ROMAGO and SBTI contained an arbitration
clause, wherein the parties agreed to submit any dispute between them for arbitration under the
Philippine Chamber of Commerce and Industry (PCCI), 36 such as the PDRCI. It is well settled that the
arbitral clause in the agreement is a commitment by the parties to submit to arbitration the disputes
covered therein. Because that clause is binding, they are expected to abide by it in good faith. 37 The CA,
therefore, correctly rejected ROMAGO's assertion that the PDRCI had no jurisdiction over the suit in the
first instance.

Furthermore, the issue of jurisdiction was rendered moot by ROMAGO's active participation in the
proceedings before the PDRCI and the RTC.

E. On Foreign Arbitral Award

1. Tuna Processing, Inc. v. Philippine Kingford, Inc. (667 SCRA 287) (2012)

G.R. No. 185582 : February 29, 2012

TUNA PROCESSING, INC., Petitioner, v. PHILIPPINE KINGFORD, INC., Respondent.

PEREZ, J.:

FACTS:

Philippine Kingford, Inc. (Kingford) is a corporation duly organized and existing under the laws of the
Philippines while Tuna Processing, Inc. (TPI) is a foreign corporation not licensed to do business in the
Philippines. Due to circumstances not mentioned in the case, 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 a Petition for Confirmation, Recognition,
and Enforcement of Foreign Arbitral Award before the RTC of Makati City. The RTC dismissed the
petition on the ground that the petitioner lacked legal capacity to sue in the Philippines.

ISSUE: Can a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?

HELD: RTCs decision is reversed.

POLITICAL LAW: special vs. general law

The Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its title - An Act to
Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish
the Office for Alternative Dispute Resolution, and for Other Purposes - would suggest, is a law especially
enacted to actively promote party autonomy in the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes. It specifically provides exclusive grounds
available to the party opposing an application for recognition and enforcement of the arbitral award.
The Corporation Code is the general law providing for the formation, organization and regulation of
private corporations. As between a general and special law, the latter shall prevail generalia specialibus
non derogant.

The Special Rules of Court on Alternative Dispute Resolution provides that any party to a foreign
arbitration may petition the court to recognize and enforce a foreign arbitral award.Indeed, it is in the
best interest of justice that in the enforcement of a foreign arbitral award, the losing party can not avail
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.

GRANTED.

F. On Motion for Reconsideration, Appeal and Certiorari

1. Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc. (641 SCRA 31) (2011)

Facts
San Fernando Regala Trading filed before the trial court a complaint for rescission of contract with
damages against Cargill Philippines, Inc. In its complaint, San Fernando Regala Trading alleged that it was
engaged in buying and selling molasses and that Cargill was one of its suppliers. San Fernando Regala
Trading alleged that it purchased from Cargill, and the latter had agreed to sell, 12,000 tons of cane
blackstrap molasses originating from Thailand at the price of $192 per metric ton, and that delivery
would be made in April or May 1997. After San Fernando Regala Trading delivered the letter of credit, it
claimed that Cargill failed to comply with its obligations under the contract, which included an
arbitration clause as follows:

"Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled
by arbitration in the City of New York before the American Arbitration Association. The Arbitration
Award shall be final and binding on both parties."
Cargill moved to dismiss and/or suspend the court proceedings citing the arbitration clause. San
Fernando Regala Trading argued that since it was seeking rescission of the contract, it was in effect
repudiating the contract which included the arbitration clause. Further, it argued that rescission
constitutes a judicial issue, which requires the exercise of judicial function and cannot be the subject of
arbitration.

Decision

The Supreme Court held that the provision to submit to arbitration any dispute arising between the
parties is part of the contract and is itself a contract. The arbitration agreement is to be treated as a
separate agreement and does not automatically terminate when the contract of which it is a part comes
to an end. To reiterate 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 seeks
to avoid.

San Fernando Regala Trading filed a complaint for rescission of contract and damages with the trial
court. In so doing, it alleged that a contract existed. It was that contract which provided for an
arbitration clause which expressed the parties' intention that any dispute to arise between them, as
buyer and seller, should be referred to arbitration. It is for the arbitrator and not the court to decide
whether a contract between the parties exists or is valid. Under the circumstances, the argument that
rescission is judicial in nature is misplaced.