LA NAVAL DRUG CORPORATION vs COURT OF APPEALS and WILSON C. YAO, respondents.

G. R. No. 103200 August 31, 1994

The arbitration issue and separate trial for his claim for damages is procedurally untenable and implausible.

TOPIC: Courts and their jurisdiction

Invoking Section 5, Rule 16 of the Rules of Court, petitioner presented a "Motion to Set Case for Preliminary
Hearing" of its special and affirmative defenses, which are grounds for a motion to dismiss.

FACTS: PETITION for review of a decision of the Court of Appeals.

Arbitrations, in particular, is governed by a special law, Republic Act 876, suppletory to which are laws and rules
of general application. This case before us concerns the jurisdiction of courts, in relation to the provisions of
Section 6 of Republic Act No. 876, and, in that respect, the applicability of the doctrine of estoppel. The law (R.A.
876), specifically Section 6 thereof, 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 the arbitration in accordance with the terms thereof. “The court shall decide all motions,
petitions or application filed under the provisions of this Act, within ten days after such motions, petitions, or applications
have been heard by it.”

Respondent Yao is the present owner of a commercial building a portion of which is leased to petitioner under a
contract of lease executed on December 23, 1983 with the former owner thereof, La Proveedora, Inc., which
contract expired on April 30, 1989. Petitioner exercised its option to lease the same building for another five
years. But petitioner and respondent disagreed on the rental rate, and to resolve the controversy they agreed to
resolve it in accordance with Republic Act 876, (Arbitration Law) and paragraph 7 of their lease contract,
providing that:

“ ‘7. x x x Should the parties fail to agree on the rate of rentals, the same shall be submitted to a group of Arbitrators
composed of three (3) members, one to be appointed by LESSOR, another by LESSEE and the third one to be agreed upon by
the two arbitrators previously chosen and the parties hereto shall submit to the decision of the arbitrators.’

On May 6, 1989, respondent Yao appointed Domingo Alamarez, Jr. as his arbitrator. Petitioner chose Atty.
Casiano Sabile on June 5, 1989. The confirmation of the appointment of Aurelio Tupang, as third arbitrator, was
held in abeyance because petitioner instructed Atty. Sabile to defer the same until its Board of Directors could
convene and approve Tupang's appointment. Respondent Yao theorizes that this was petitioner's design to delay
the arbitration proceedings, in violation of the Arbitration Law, and the governing stipulation of their contract of
lease. On the basis of the allegations, Yao prayed that after summary hearing pursuant to Section 6 of the
Arbitration Law, Atty. Casiano Sabile and Domingo Alamarez be directed to proceed with the arbitration in
accordance with Section 7 of subject Contract of Lease and the applicable provisions of the Arbitration law, by
appointing and confirming the appointment of the Third Arbitrator; and that the Board of Three Arbitrators be
ordered to immediately convene and resolve the controversy. Petitioner denied the averments of the petition
theorizing that such petition is premature since Yao has not yet formally required arbitrators Alamarez and Sabile
to agree on the third arbitrator, within ten days from notice, and that the delay was due to Yao's failure to notify
and require both arbitrators to appoint the third member. According to petitioner, it actually gave arbitrators
Sabile and Alamarez a free hand in choosing the third arbitrator; therefore respondent Yao has no cause of action
against petitioner.

The respondent court announced that the two arbitrators chose Mrs. Eloisa R. Narciso as the third arbitrator. And
ordered the parties to submit their position papers on the issue as to whether or not respondent Yao's claim for
damages may be litigated upon in the summary proceeding for enforcement of arbitration agreement. In moving
for reconsideration of the said Order, petitioner argued that in Special Case No. 6024, the respondent court sits
as a special court exercising limited jurisdiction and is not competent to act on respondent Yao's claim for
damages, which poses an issue litigable in an ordinary civil action. But the respondent court was not persuaded
by petitioner's submission. It denied the motion for reconsideration. While the appellate court has agreed with
petitioner that, under Section 6 of Republic Act No. 876, a court, acting within the limits of its special jurisdiction,
may in this case solely determine the issue of whether the litigants should proceed or not to arbitration, it,
however, considered petitioner in estoppel from questioning the competence of the court to additionally hear
and decide in the summary proceedings private respondent's claim for damages, it (petitioner) having itself filed
similarly its own counterclaim with the court a quo. In moving for reconsideration, petitioner argued that in
Special Case No. 6024, the respondent court sits as a special court exercising limited jurisdiction and is not
competent to act on respondent Yao's claim for damages, which poses an issue litigable in an ordinary civil
action. But the respondent court was not persuaded by petitioner's submission.

ISSUES: 1. Whether or not the court it has jurisdiction over the person
2. Whether or not the court a quo has jurisdiction over the subject matter.

Yao filed an amended petition for "Enforcement of Arbitration Agreement with Damages;" Petitioner answered
contending that the amended petition should be dismissed on the ground of non-payment of the requisite filing
fees and it being in the nature of an ordinary civil action, a full blown and regular trial, is necessary; so that
respondent Yao's proposition for a summary hearing of

RATIO:
1. The lack of jurisdiction over the person of the defendant may be waived either expressly or impliedly. When a
defendant voluntarily appears, he is deemed to have submitted himself to the jurisdiction of the court. If he so
wishes not to waive this defense, he must do so seasonably by motion for the purpose of objecting to the
jurisdiction of the court; otherwise, he shall be deemed to have submitted himself to that jurisdiction. The
decisions promulgated heretofore by this Court would likewise seemingly apply estoppel to bar the defendant
from pursuing that defense by alleging in his answer any other issue for dismissing the action. Any ground for
dismissal in a motion to dismiss, except improper venue, may, as further set forth in Section 5 of the same rule,
be pleaded as an affirmative defense and a preliminary hearing may be had thereon as if a motion to dismiss had
been filed. An answer itself contains the negative, as well as affirmative, defenses upon which the defendant may
rely (Section 4, Rule 6, Rules of Court). A negative defense denies the material facts averred in the complaint
essential to establish the plaintiff's cause of action, while an affirmative defense in an allegation of a new matter
which, while admitting the material allegations of the complaint, would, nevertheless, prevent or bar recovery by
the plaintiff. Inclusive of these defenses are those mentioned in Rule 16 of the Rules of Court which would permit
the filing of a motion to dismiss. In the same manner that the plaintiff may assert two or more causes of action in
a court suit, a defendant is likewise expressly allowed, under Section 2, Rule 8, of the Rules of Court, to put up his
own defenses alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses
and objections not pleaded either in a motion to dismiss or in an answer, except for the failure to state a cause
of action, are deemed waived. We take this to mean that a defendant may, in fact, feel enjoined to set up, along
with his objection to the court's jurisdiction over his person, all other possible defenses. It thus appears that it is
not the invocation of any of such defenses, but the failure to so raise them, that can result in waiver or estoppel.
By defenses, of course, we refer to the grounds provided for in Rule 16 of the Rules of Court that must be
asserted in a motion to dismiss or by way of affirmative defenses in an answer.

2. Lack of jurisdiction over the subject matter of the suit is yet another matter. Whenever it appears that the court
has no jurisdiction over the subject matter, the action shall be dismissed (Section 2, Rule 9, Rules of Court). This
defense may be interposed at any time, during appeal or even after final judgment. Such is understandable, as
this kind of jurisdiction is conferred by law and not within the courts, let alone the parties, to themselves
determine or conveniently set aside. Jurisdiction over the nature of the action, in concept, differs from jurisdiction
over the subject matter. Illustrated, lack of jurisdiction over the nature of the action is the situation that arises
when a court, which ordinarily would have the authority and competence to take a case, is rendered without it
either because a special law has limited the exercise of its normal jurisdiction on a particular matter or because
the type of action has been reposed by law in certain other courts or quasi-judicial agencies for determination.
Nevertheless, it can hardly be questioned that the rules relating to the effects of want of jurisdiction over the
subject matter should apply with equal vigor to cases where the court is similarly bereft of jurisdiction over the
nature of the action. In summary, it is our considered view, as we now so hereby express, that — (1) Jurisdiction
over the person must be seasonably raised, i.e., that it is pleaded in a motion to dismiss or by way of an
affirmative defense in an answer. Voluntary appearance shall be deemed a waiver of this defense. The assertion,
however, of affirmative defenses shall not be constructed as an estoppel or as a waiver of such defense. (2)
Where the court itself clearly has no jurisdiction over the subject matter or the nature of the action, the
invocation of this defense may be done at any time. It is neither for the courts nor the parties to violate or
disregard that rule, let alone to confer that jurisdiction, this matter being legislative in character. Barring highly
meritorious and exceptional circumstances, such as hereinbefore exemplified, neither estoppel nor waiver shall
apply. In the case at bench, the want of jurisdiction by the court is indisputable, given the nature of the
controversy. The arbitration law 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. In the affirmative, the statute ordains that
the court shall issue an order "summarily directing the parties to proceed with the arbitration in accordance with
the terms thereof." If the court, upon the other hand, finds that no such agreement exists, "the proceeding shall
be dismissed." The proceedings are summary in nature.

WHEREFORE, the decision of the Court of Appeals and the orders of the trial court in question are SET ASIDE. The
court a quo, in the instant proceedings, is ordered to DESIST from further hearing private respondent’s claim, as
well as petitioner’s counterclaim, for damages. No costs.
INSULAR SAVINGS BANK v. FAR EAST BANK AND TRUST COMPANY
G.R No. 141818; June 22, 2006
Ponente: J. Ynares-Santiago

FACTS: PETITION for review on certiorari of the decision and resolution of the Court of Appeals.

On December 11, 1991, Far East Bank and Trust Company (Respondent) filed a complaint against Home Bankers
Trust and Company (HBTC) with the Philippine Clearing House Corporation’s (PCHC) Arbitration Committee.

Respondent sought to recover from the petitioner, the sum of P25,200,000.00 representing the total amount of
the three checks drawn and debited against its clearing account.  HBTC sent these checks to respondent for
clearing by operation of the PCHC clearing system.  Thereafter, respondent dishonored the checks for
insufficiency of funds and returned the checks to HBTC.  However, the latter refused to accept them since the
checks were returned by respondent after the reglementary regional clearing period.

Meanwhile, on January 17, 1992, before the termination of the arbitration proceedings, respondent filed another
complaint but this time with the Regional Trial Court (RTC) in Makati City for Sum of Money and Damages with
Preliminary Attachment.  

The complaint was filed not only against HBTC but also against Robert Young, Eugene Arriesgado and Victor
Tancuan (collectively known as Defendants), who were the president and depositors of HBTC respectively. Aware
of the arbitration proceedings between respondent and petitioner, the RTC, in an Omnibus Order suspended the
proceedings in the case against all the defendants pending the decision of the Arbitration Committee
      
On February 2, 1998, the PCHC Arbitration Committee rendered its decision in favor of respondent. The motion
for reconsideration filed by petitioner was denied by the Arbitration Committee. 

Consequently, to appeal the decision of the Arbitration Committee, petitioner filed a petition for review in the
earlier case filed by respondent in Branch 135 of the RTC of Makati. 

In an order dated January 20, 1999, the RTC directed both petitioner and respondent to file their respective
memoranda, after which, said petition would be deemed submitted for resolution.
Both parties filed several pleadings.  On February 8, 1999, respondent filed a Motion to Dismiss Petition for
Review for Lack of Jurisdiction, which was opposed by the petitioner.   

On November 9, 1999, the RTC dismissed the petition for review.

The RTC denied petitioner’s motion for reconsideration, hence, this petition.

ISSUE: Whether the Regional Trial Court erred in dismissing the Petition of Petitioner for lack of jurisdiction on
the ground that it should have been docketed as a separate case.

HELD: No, As provided in the PCHC Rules, the findings of facts of the decision or award rendered by the
Arbitration Committee shall be final and conclusive upon all the parties in said arbitration dispute.  Under Article
2044 of the New Civil Code, the validity of any stipulation on the finality of the arbitrators’ award or decision is
recognized. However, where the conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrators’ award may be annulled or rescinded.  Consequently,
the decision of the Arbitration Committee is subject to judicial review.
Furthermore, petitioner had several judicial remedies available at its disposal after the Arbitration Committee
denied its Motion for Reconsideration.  

It may petition the proper RTC to issue an order vacating the award 
• Invoking the grounds provided for under Section 24 of the Arbitration Law;  
• Filing a petition for review under Rule 43 of the Rules of Court with the Court of Appeals  on questions of fact,
of law, or mixed questions of fact and law; and   Lastly, 
• Petitioner may file a petition for certiorari under Rule 65 of the Rules of Court on the  ground that the
Arbitrator Committee acted without or in excess of its jurisdiction or with grave abuse of discretion amounting to
lack or excess of jurisdiction.  

Since this case involves acts or omissions of a quasi-judicial agency, the petition should be filed in and cognizable
only by the Court of Appeals.

In this instance, petitioner did not avail of any of the abovementioned remedies available to it.  Instead it filed a
petition for review with the RTC where Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC
Rules to sustain its action.  Clearly, it erred in the procedure it chose for judicial review of the arbitral award.

Jurisdiction over the subject matter is conferred by law and not by the consent or acquiescence of any or all of
the parties or by erroneous belief of the court that it exists. 

In the instant case, petitioner and respondent have agreed that the PCHC Rules would govern in case of
controversy.  However, since the PCHC Rules came about only as a result of an agreement between and among
member banks of PCHC and not by law, it cannot confer jurisdiction to the RTC.  Thus, the portion of the PCHC
Rules granting jurisdiction to the RTC to review arbitral awards, only on questions of law, cannot be given effect. 

Consequently, the proper recourse of petitioner from the denial of its motion for reconsideration by the
Arbitration Committee is to file either a motion to vacate the arbitral award with the RTC, a petition for review
with the Court of Appeals under Rule 43 of the 
Rules of Court, or a petition for certiorari under Rule 65 of the Rules of Court.

Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation – are
encouraged by the Supreme Court.  By enabling parties to resolve their disputes amicably, they provide solutions
that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting
relationships. It must be borne in mind that arbitration proceedings are mainly governed by the Arbitration Law
and suppletorily by the Rules of Court
Reyes v, Balde II
G.R. No. 168384. August 7, 2006.

FACTS: On October 20, 2002, respondent-spouses Cesar and Carmelita Esquig entered into a Design-Build
Construction Agreement with petitioner Charles Bernard H. Reyes, doing business under the name and style of
CBH Reyes Architects, for the architectural design and construction of a 2-storey residence in Tahanan Village,
Parañaque City. In accordance with the contract, spouses Esquig paid the amount of P1,050,000 as down
payment. Thereafter, construction commenced. mmenced. The relationship between petitioner and respondent
spouses went on smoothly until sometime in January 2003 when the latter left for the United States and
designated their co-respondent, Rosemarie Papas, as their representative. According to petitioner, Papas meddled
with the construction works by demanding changes and additional works which entailed additional cost. Papas
also refused to pay petitioner’s progress billing and the salary of the laborers. Petitioner thereafter prepared an
accounting report of all the additional works and their corresponding costs, however, Papas denied all the items
in the list and refused to pay the same. Thus, on May 26, 2003, petitioner filed a complaint for Accounting,
Collection of Sum of Money, Rescission of Contract with Damages against spouses Esquig and Rosemarie Papas
with the Regional Trial Court of Muntinlupa City which was docketed as Civil Case No. 03110. On July 15, 2003,
respondents filed a motion to dismiss Civil Case No. 03-110 on the ground that the court has no jurisdiction over
the subject matter of the case. They claimed that the Design-Build Construction Agreement contained an
arbitration clause, thus any dispute arising therefrom should be brought before the CIAC (Construction Industry
Arbitration Commission)
On even date, respondents also filed a complaint before the CIAC against the petitioner, docketed as CIAC Case
No. 13-2003. Respondents alleged that petitioner unreasonably delayed the construction and refused to finish the
project. Thus, they prayed that petitioner be ordered to finish the project or, in the alternative, to pay the cost to
finish the same; to reimburse the overpayments made by respondents; and to pay liquidated damages, attorney’s
fees and costs of the suit. Petitioner filed a motion to dismiss on the ground of lack of jurisdiction and that there
is an existing case filed before RTC, however CIAC denied the prayer of petitioner. Petitioner filed a motion for
reconsideration which was denied by CIAC. Thus, petitioner filed his Answer Ad Cautelam. Thereafter, CIAC
constituted the Arbitral Tribunal and directed the same to carry on with the arbitration proceedings in accordance
with CIAC Rules.Meanwhile, on February 27, 2004, the Regional Trial Court of Muntinlupa City, Branch 203 issued
an Order denying the motion to dismiss filed by respondents. The trial court held that it has jurisdiction over the
complaint for accounting, rescission of contract and damages. CA affirmed the decision of CIAC that it validly
acquire jurisidiction to hear the case

ISSUE: Whether CIAC has jurisdiction to hear the case

RULING: YES, CIAC has jurisdiction to hear the case. E.O. No. 1008 entitled, “Construction Industry Arbitration
Law” 11 provided for an arbitration mechanism for the speedy resolution of construction disputes other than by
court litigation. It recognized the role of the construction industry in the country’s economic progress as it utilizes
a large segment of the labor force and contributes substantially to the gross national product of the country.

It provides: SECTION 4. Jurisdiction.—The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the
dispute arises before or after the completion of the contract, 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.

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.

In the case of Philrock, Inc. v. Construction Industry Arbitration Commission,13 the Court has ruled that CIAC has
original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered
into by parties that have agreed to submit their dispute to voluntary arbitration. Section 1, Article III of the CIAC
Rules of Procedure Governing Construction Arbitration likewise provides that recourse to the CIAC may be availed
of whenever a contract contains a clause for the submission of a future controversy to arbitration

Clearly, the presence of the arbitration clause in the parties’ contract vests jurisdiction on the CIAC on all
controversies arising from such contract. 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. Where the jurisdiction of CIAC is properly invoked, the failure or refusal of herein petitioner to
arbitrate shall not affect the proceedings. Arbitration proceedings shall continue notwithstanding the absence or
lack of participation of petitioner, and the award shall be made after receiving the evidence of the claimant.

With respect to petitioner’s contention that the action is purely civil in nature hence, jurisdiction rests with the
Regional Trial Court, the same must fail. Since the action is rooted on alleged violations of the agreement, it is
embraced by the term “construction dispute.” As CIAC aptly ruled: cursory perusal of the claims in civil case
would show that such fall within the scope of CIAC jurisdiction, to wit: (1) accounting of all payments made for
the purchase of construction materials; (2) cost of additional work; (3) balance on the contract price; (4) interest;
(5) rescission of contract; (6) moral damages; (7) exemplary damages; and (8) cost of suit.”

It bears to stress that being an inexpensive, speedy and amicable method of settling disputes, arbitration—along
with mediation, conciliation and negotiation—is encouraged by the Supreme Court. Aside from unclogging
judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus
regarded as the “wave of the future” in international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.

The instant petition is denied.

BF Corporation v. Court of Appeals, SHANGRI-LA PROPERTIES, INC., RUFO B. COLAYCO, ALFREDO C.
RAMOS, MAXIMO G. LICAUCO III and BENJAMIN C. RAMOS.
GR No. 120105 March 27, 1998
ROMERO, J.

FACTS: - BF Corporation and respondent Shangri-La Properties, Inc. entered into the 1st agreement whereby
Shang engaged BF to construct the main structure of the EDSA Plaza Project – the EDSA Shangri-La Mall – in
Mandaluyong City. While the construction work was in progress, SPI again hired BF for the expansion of the
project, the 2nd agreement. But BF incurred delay in the construction work that SPI considered as serious and
substantial. BF contended that they had faithfully complied with the first agreement until a fire broke out on Nov
30, 1990 damaging phase 1 of the project so SPI proposed the renegotiation of the agreement between them.

On May 30, 1991, Parties entered into another agreement named “Agreement for the Execution of Builders Work
for the EDSA Plaza Project” (3rd agreement) that would cover the construction work on said project as of May 1,
1991 until its completion.
According to SPI, petitioner “failed to complete the construction works and abandoned the project.” So it resulted
in disagreements between the parties as regards their respective liabilities under the contract. On July 12, 1993,
upon SPI’s initiative, the parties’ respective representatives met in conference but they failed to come to an
agreement.

Two days after, BF filed with the RTC of Pasig a complaint for the collection of the balance due under the
construction agreement. Named Defendants therein were Shang and members of its board of directors – A.
Ramos, Colayco, Obles, Lanuza Jr., Licauco & B.Ramos.
On Aug 3, 1993, Shang and its co-defendants filed a motion to suspend proceedings instead of filing an answer.
o Motion was anchored on the defendants allegation that the formal trade contract of the the construction
project provided for a clause requiring prior resort to arbitration before judicial intervention.
On Aug 4, 1993, Shang submitted a copy of the condition of the contract containing arbitration clause that it
failed to attach its motion to suspend proceedings. Petitioner opposed said motion stating that there was no
formal contract between the parties although they entered into an agreement. They emphasized that the
agreement did not provide for an arbitration thus cannot deprive the court of its jurisdiction but Shang insisted
that there was an arbitration clause in the existing contract between them. It alleged that the suspension would
not deprive the court of its jurisdiction and would expedite the settlement proceedings rather than delay it. - In a
rejoinder, BF reiterated that there was no arbitration clause in the contract bewtween the parties. It averred that if
there was an arbitration clause, suspension of the proceedings was no longer proper and that defendants should
be declared in default for failure to answer within the reglementary period. - In its sur-rejoinder, Shang pointed
out the significance of the petitioners admission of the due execution of the Articles of Agreement. It was shown
that the Signature of Colayco (Shang President) and Bayani Fernando (BF President) was in such agreement and
was duly notarized.

The RTC found that the arbitration clause did exist, however the lower court denied motion to suspend
proceedings and ruled in favor of BF
o This was because despite the fact there was an arbitration agreement, the Conditions of Contract only the
initials of Bayani Fernando was present, while no signature on the part of Shang.
o There were no singed documents to prove Shang’s claims thus there is serious doubt to the validity of the
arbitration clause found in the Conditions of Contract
o Assuming that the arbitration clause was valid and binding, it was too late for Shang to invoke arbitration
because: the demand should have been made before the time of final payment except as otherwise expressly
stipulated in the contract.

The court found that the project was to be completed on October 31, 1991 and any delays would incur 80K for
each day of delay from November 1,1991 with liquefied damages up to a maximum of 5% of the total contract
price. The court found out that the project was completed in accordance with the agreement and Shang had took
possession and started operations thereof by opening the same to the public in November 1911. BF billed Shang
the total amount of P110,883,101.52 contained in a demand letter sent on Feb 17, 1993. Instead of paying the
amound demanded, SPI set up its own claim of P220,000,000.00 and scheduled a conference on that claim for
July 12, 1993. The conference took place but was futile. Shang filed a motion for reconsideration but was denied
because of lack of merit and directed the other defendants to file their responsive pleading within the
reglementary period. Instead of filing an answer to the complaint, SPI filed a petition for Certiorari under Rule 65
before the Court of appeals. The Court of Appeals granted the petition and annulled and set aside the orders and
stayed the proceedings in the lower court. o According to the contract the project manager and the contractor
should coordinate with the owner, should there be failure to resolve differences, dispute shall be submitted for
arbitration. o Although it was only the initials of Bayani Fernando and De La Cruz present and none from Shang,
it does not affect its effectivity. BF admitted that the document is the agreement bewtween the parties, the initial
signature of BF representative to signify conformity to arbitration is no longer necessary. The parties should be
allowed to submit their dispute to arbitration in accordance with their agreement. o Demand for arbitration was
made within a reasonable time after the dispute has arisen and attempts to settle amicably has failed. This was
evidenced by the fact that such demands were acted upon only months. Jul 12 conference > Jul 14 Shang
complaint against BF > Aug 13 Request for arbitration.
Hence the petition before the Supreme Court.

ISSUE: WON the parties entered into an arbitrary agreement (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)

HELD: Yes, according to Sec 4 of R.A. 876 a contract to arbitrate a controversy thereafter arising between the
parties, as well as a submission to arbitrate an existing controversy, shall be in writing and subscribed by the
party sought to be charged, or by his lawful agent. The making of a contract or submission for arbitration
described in section two hereof, providing for arbitration of any controversy, shall be deemed a consent of the
parties of the province or city where any of the parties resides, to enforce such contract of submission. The
formal requirements of an agreement to arbitrate are therefore the following: (a) it must be in writing and (b) it
must be subscribed by the parties or their representatives. There is no denying that the parties entered into a
written contract that was submitted in evidence before the lower court. To subscribe means to write underneath,
as ones name; to sign at the end of a document. That word may sometimes be construed to mean to give
consent to or to attest. The Court finds that, upon a scrutiny of the records of this case, these requisites were
complied with in the contract in question. The Articles of Agreement, which incorporates all the other contracts
and agreements between the parties, was signed by representatives of both parties and duly notarized. The
failure of the private respondents representative to initial the `Conditions of Contract would therefore not affect
compliance with the formal requirements for arbitration agreements because that particular portion of the
covenants between the parties was included by reference in the Articles of Agreement. Petitioners contention that
there was no arbitration clause because the contract incorporating said provision is part of a hodge-podge
document, is therefore untenable. A contract need not be contained in a single writing. It may be collected from
several different writings which do not conflict with each other and which, when connected, show the parties,
subject matter, terms and consideration, as in contracts entered into by correspondence. A contract may be
encompassed in several instruments even though every instrument is not signed by the parties, since it is
sufficient if the unsigned instruments are clearly identified or referred to and made part of the signed instrument
or instruments. Similarly, a written agreement of which there are two copies, one signed by each of the parties, is
binding on both to the same extent as though there had been only one copy of the agreement and both had
signed it.

WHEREFORE, the Decision of the Court of Appeals is AFFIRMED and the petition for certiorari DENIED.
KOPPEL INC V. MAKATI ROTARY CLUB FOUNDATION INC.
GR NO 198075 September 4, 2013
Perez, J.

FACTS:

1. Fedders Koppel Inc (FKI) owned a parcel of land in Paranaque. Within the subject property are buildings and
other improvements dedicated to the business of FKI

2. In 1975, FKI bequeathed the subject property (exclusive of the improvements) in favor of Makati Rotary Club by
way of a conditional donation.

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

4. The stipulations in the donation provides: a. that the period of lease shall be for 25 years (until May 25, 2000)
and the annual rent for the first 25 years is P40,126 b. The lease is subject to renewable for another 25 years
upon mutual agreement of the donor and donee c. In case of disagreement, the matter shall be referred to a
Board of arbitrators (3- member) appointed and with powers in accordance with the Arbitration Law of the
Philippines (RA 878) 4.

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

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

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

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

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

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

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

12. In the ejectment case, RTC ruled in favor of Koppel Inc. While it did not dismiss the action on the ground of
arbitration, MTC sided with petitioner with respect to the issues regarding the insufficiency of the respondent’s
demand and the nullity of the 2005 Lease contract

13. On appeal, RTC reversed the MTC decision and ordered Koppel to vacate the subject property. As to the
existing improvements, RTC held that the same were built in good faith subject to the provisions under Art 1678
NCC. CA affirmed 14. Arguments against arbitration: a. The dispute between petitioner and respondent involves
the validity of the 2005 Lease Contract. Citing Gonzales v. Climax Mining: The validity of contract cannot be
subject the arbitration proceedings as such questions are legal in nature and require the application of
interpretation of laws and jurisprudence which is necessarily a judicial function b. Petitioner cannot validly invoke
the arbitration clause while at the same time, impugn such contract’s validity c. Petitioner did not file a formal
application before the MTC so as to render the arbitration clause operational d. The parties underwent Judicial
Dispute Resolution (JDR); further referral of the dispute to arbitration would only be circuitous

ISSUES:
(1) WON the present dispute is subject to arbitration
(2) What is the nature of an arbitration proceeding?
(3) What are the legal effects of the arbitration clause?

HELD:

(1) W/N the present dispute is subject to arbitration and W/N the petitioner can invoke the arbitration clause in
the 2005 lease agreement, and at the same time assail its validity Yes. Respondent took the ruling in the
Gonzales case out of context. PA-MGB was devoid of any jurisdiction to take cognizance of the complaint for
arbitration because RA 7942 (Mining Act of 1995) grants PA-MGB with exclusive original jurisdiction only over
mining disputes. Since the complaint for arbitration in the Gonzales case did not raise mining disputes as
contemplated under RA 7942, the SC held such complaint could not arbitrated before the PA-MGB. The Court in
Gonzales did not simply reject the complaint on the ground that the issue of validity of contracts per se is non-
arbitrable. The real consideration bind the ruling was the limitation that was placed by RA 7942 upon the
jurisdiction of PA-MGB as an arbitral body. Petitioner may still invoke the arbitration clause of the 2005 Lease
Contract notwithstanding the fact that it assails the validity of such contract. This is due to the doctrine of
separability. Under said doctrine, an arbitration agreement is considered as independent of the main contract.
Being a separate contract in itself, the arbitration agreement may thus be invoked regardless of the possible
nullity or invalidity of the main contract. The operation of the arbitration clause in this case is not defeated by
Koppel’s failure to file a formal “request” or application with the MTC. In using the word “may” to qualify the act
of filing a “request” under Sec 24 of RA 9285 (Special ADR Rues) clearly did not intend to limit invocation of an
arbitration agreement in a pending suit solely via such request. After all, non-compliance with an arbitration
agreement is a valid defense to any offending suit and, as such, may even be raised in an answer as provided in
our ordinary rules of procedure. CAB: As early as in its answer with counterclaim, Koppel had already apprised
MTC of the existence of the arbitration clause in the 2005 Lease Contract; such act is enough valid invocation of
his right to arbitrate.

The fact that petitioner and respondent already underwent through JDR proceedings before the RTC, will not
make the subsequent arbitration between the parties unnecessary or circuitous. The JDR system is substantially
different from arbitration proceedings. The JDR framework is based on the processes of mediation, conciliation or
early neutral evaluation which entails the submission of a dispute before a “JDR judge” who shall merely
“facilitate settlement” between the parties in conflict or make a “non-binding evaluation or assessment of the
chances of each party’s case.” Thus in JDR, the JDR judge lacks the authority to render a resolution of the dispute
that is binding upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to an
arbitrator/s—a neutral third person or a group of thereof—who shall have the authority to render a resolution
binding upon the parties.

(2) What is the nature of an arbitration proceeding? A pivotal feature of arbitration as an alternative mode of
dispute resolution is that it is, first and foremost, a product of party autonomy or the freedom of the parties to
“make their own arrangements to resolve their own disputes.” Arbitration agreements manifest not only the
desire of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not more so,
the parties’ mutual aspiration to achieve such resolution outside of judicial auspices, in a more informal and less
antagonistic environment under the terms of their choosing. Needless to state, this critical feature can never be
satisfied in an ejectment case no matter how summary it may be.
(3) What are the legal effects of the arbitration clause? Since there really are no legal impediments to the
application of the arbitration clause of the 2005 Contract of Lease in this case, the unlawful detainer action was
instituted in violation of such clause. Under Sec 7, RA 9285, the instant unlawful detainer action should have been
stayed; the petitioner and the respondent should have been referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract. The MeTC, however, did not do so in violation of the law—which violation
was, in turn, affirmed by the RTC and Court of Appeals on appeal. The violation by the MTC of the clear
directives under R.A. Nos. 876 and 9285 renders invalid all proceedings it undertook in the ejectment case after
the filing by petitioner of its Answer with Counterclaim—the point when the petitioner and the respondent
should have been referred to arbitration. This case must, therefore, be remanded to the MeTC and be suspended
at said point. Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated and set
aside.
Korea Technologies Co., Ltd. v. Hon. Alberto A. Lerma and Pacific General Steel Manufacturing Corporation,
G.R. No. 143581, Jan. 7, 2008.

Facts: Korea Technologies Co., Ltd. [Korea Tech], a Korean corporation, entered into a contract with Pacific
General Steel Manufacturing Corporation [Pacific General], a domestic corporation, whereby Korea Tech
undertook to ship and install in Pacific General’s site in Carmona, Cavite the machinery and facilities necessary for
manufacturing LPG cylinders, and to initially operate the plant after it is installed. The plant, after completion of
installation, could not be operated by Pacific General due to its financial difficulties affecting the supply of
materials. The last payments made by Pacific General to Korea Tech consisted of postdated checks which were
dishonored upon presentment. According to Pacific General, it stopped payment because Korea Tech had
delivered a hydraulic press which was different in kind and of lower quality than that agreed upon. Korea Tech
also failed to deliver equipment parts already paid for by it. It threatened to cancel the contract with Korea Tech
and dismantle the Carmona plant. Finally, Pacific General filed before the Office of the Prosecutor a
ComplaintAffidavit for estafa against Mr. Dae Hyun Kang, President of Korea Tech. Korea Tech informed PGSMC
that it could not unilaterally rescind the contract. Of greater importance to the present article, KOGIES also
insisted that their dispute be settled by arbitration as provided by Article 15 of their contract — the arbitration
clause. Korea Tech initiated arbitration before the Korea Commercial Arbitration Board [KCAB] in Seoul, Korea
and, at the same time, commenced a civil action before the Regional Trial Court [the “trial court”] where it prayed
that Pacific General be restrained from dismantling the plant and equipment. Pacific General opposed the
application and argued that the arbitration clause was null and void, being contrary to public policy as it ousts
the local court of jurisdiction. The trial court denied the application for preliminary injunction and declared the
arbitration agreement null and void. Korea Tech moved to dismiss the counterclaims for damages. Korea Tech
filed a petition for certiorari before the Court of Appeals [CA]. The court dismissed the petition and held that an
arbitration clause which

provided for a final determination of the legal rights of the parties to the contract by arbitration was against
public policy. Further appeal was made to the Supreme Court by way of a petition for review.

Ruling: The Supreme Court (the “Court”) held:

1. Re: The validity of the arbitration clause. “The arbitration clause is valid. It has not been shown to be contrary
to any law, or against morals, good customs, public order or public policy. The arbitration clause stipulates that
the arbitration must be done in Seoul, Korea in accordance with the Commercial Arbitration Rules of the KCAB,
and that the award is final and binding. This is not contrary to public policy. We find no reason why the
arbitration clause should not be respected and complied with by both parties.” This ruling, the Court said, is
consonant with the declared policy in Section 2 of the ADR Act that “the State (shall) actively promote party
autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to resolve
their disputes.” Citing Section 24 of the ADR Act, the Court said the trial court does not have jurisdiction over
disputes that are properly the subject of arbitration pursuant to an arbitration clause. In the earlier case of BF
Corporation v. Court of Appeals and Shangri-la Properties, Inc., where the trial court refused to refer the parties
to arbitration notwithstanding the existence of an arbitration agreement between them, the Supreme Court said
the trial court had prematurely exercised its jurisdiction over the case. The Court further emphasized that a
submission to arbitration is a contract. As a rule, contracts are respected as the law between the contracting
parties and produce effect between them, their assigns and heirs.8 Courts should liberally review arbitration
clauses. Any doubt should be resolved in favor of arbitration. 2. Re: Enforcement of award in a domestic or
international arbitration An arbitral award in a domestic or international arbitration is subject to enforcement by a
court upon application of the prevailing party for the confirmation or recognition and enforcement of an award.
Under Section 42 of the ADR Act, “The recognition and enforcement of such (foreign) arbitral awards shall be
filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme
Court.” An arbitral

award is immediately executory upon the lapse of the period provided by law. For an award rendered in domestic
or non-international arbitration, unless a petition to vacate the award is filed within thirty (30) days from the date
of serve upon the latter, the award is subject to confirmation by the court. For an award rendered in a domestic,
international arbitration, the period for filing an application to set it aside is not later than three (3) months from
the date the applicant received the award, otherwise the court shall recognize and enforce it. 3.
Re: Enforcement of foreign arbitral award

In an attempt to allay the fear by Pacific General of submitting its dispute to arbitration in Seoul, South Korea
under the rules of the Korea Commercial Arbitration Board, the Supreme Court said in obiter dictum: In case a
foreign arbitral body is chosen by the parties, the arbitral rules of our domestic arbitration bodies would not be
applied. As signatory to the Arbitration Rules of the UNCITRAL Model Law on International Commercial
Arbitration of the United Nations Commission on International Trade Law [UNCITRAL] in the New York
Convention on June 21, 1985, the Philippine committed itself to be bound by the Model Law. We have even
incorporated the Model Law in Republic Act No. 9285, otherwise known as the Alternative Dispute Resolution Act
of 2004.” xxxxxx “Thus, while the RTC does not have jurisdiction over disputes governed by arbitration mutually
agreed upon by the parties, still the foreign arbitral award is subject to judicial review by the RTC which can set
aside, reject or vacate it.”…. Chapter 7 of RA 9285 has made it clear that all arbitral awards, whether domestic or
foreign, are subject to judicial review on specific grounds provided for.” The Supreme Court finally held: “While it
(Pacific General) may have misgivings on the foreign arbitration done in Korea by the KCAB, it has available
remedies under RA 9285. Its interests are duly protected by the law which requires that the arbitral award that
may be rendered by KCAB must be confirmed here by the RTC before it can be enforced.”
Aboitiz Transport System Corp. v. Carlos A. Gothong Lines, Inc.
PERLAS-BERNABE, J.

FACTS: PETITIONS for review on certiorari

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

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 or The Arbitration Law, and
that each of the parties shall appoint one arbitrator, and the three arbitrators would then appoint the fourth
arbitrator who shall act as Chairman.

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

In 2002, the Chiongbian and Gothong families decided to sell their respective interests in WLI/WG&A to the
Aboitiz family and it resulted in the execution of a Share Purchase Agreement where Aboitiz Equity Ventures
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.

In 2008, CAGLI sent a letter dated February 14, 2008 to ATSC demanding that they pay the excess inventory it
delivered to WLI that amounted to P158,399,700.00. CAGLI also demanded that AEV and Chiongbian should refer
their dispute to arbitration. AEV responsed 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.[15]
Thus, CAGLI was constrained to file a complaint before the RTC against Chiongbian, ATSC, ASC, and AEV to
compel them to submit to arbitration. ATSC and AEV moved for the dismissal of the case and contended that
CAGLI did not have a cause of action for arbitration since its claim had already been paid or otherwise,
extinguished, and, in any event, said action had already prescribed.

On December 4, 2009, the RTC dismissed the complaint only with respect to AEV for lack of cause of action but
not with the other defendants. Then the RTC issued an Order dated February 26, 2010, directing CAGLI,
respondent Chiongbian, ATSC, and ASC to proceed to arbitration, and accordingly, the parties appointed their
respective arbitrators, with ATSC and ASC doing so only on an ad cautelam basis.

Separately, the RTC issued an Orderdated 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. Hence, the instant petitions.

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

RULING: The petition is meritorious.

As for the first issue, the Court notes that the nature of the complaint filed by CAGLI before the RTC is for the
enforcement of an arbitration agreement, governed by Section 6 of RA 876.

Section 6. Hearing by court.—A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally
or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of
the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to
arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court
shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made,
or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written
provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily
directing the parties to proceed with the arbitration in accordance with the terms thereof.

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 confines the court’s authority 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; 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, it shows 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. In view of the foregoing, it was an
error on the part of the RTC to have confirmed the notice of dismissal and to have dismissed the complaint
without prejudice.

For the second issue,

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.”[40] 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.

In the present case, Section 11.06 of the Agreement, which embodies the Arbitration Agreement among the
parties, provides:

All disputes arising out of or in connection with this Agreement including any issue as to this Agreement’s validity or
enforceability, which cannot be settled amicably among the parties, shall be finally settled by arbitration in accordance with
the Arbitration Law (Republic Act No. 876) by an arbitration tribunal composed of four (4) arbitrators. Each of the parties shall
appoint one (1) arbitrator, the three (3) to appoint the fourth arbitrator who shall act as Chairman. Any award by the
arbitration tribunal shall be final and binding upon the parties and shall be enforced by judgment of the Courts of Cebu or
Metro Manila
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.

WHEREFORE, the petitions are GRANTED. The Orders dated August 13, 2010, April 15, 2011, and July 6, 2011 of
the Regional Trial Court of Cebu City, Branch 20 (RTC) in Civil Case No. CEB34951 are hereby REVERSED and SET
ASIDE. The Order dated February 26, 2010 of the RTC is REINSTATED with MODIFICATION excluding Victor S.
Chiongbian from the arbitration proceedings.
LM POWER ENGINEERING COPORATION v CAPITOL INDUSTRIAL CONSTRUCTION GROUPS
GR No. 141833 March 26 2003

FACTS: This is PETITION for review on certiorari of a decision of the Court of Appeals. LM Power Engineering
Corporation (Petitioner) and Capitol Industrial Construction Groups (Respondent) entered into a Subcontract
Agreement involving electrical work at the Port of Zamboanga. Respondent then took over some of the work
contracted to Petitioner and it was alleged that the petitioner failed to finish it because of its inability to procure
materials. Upon completion of the task, Petitioner billed the respondent the amount of 6,711,813.90pesos.
Respondent refused to pay and contested the accuracy of the amount of advances and billable accomplishments
listed by the petitioner. Respondent also took refuge in the termination clause agreement which allowed it to set
off the cost of the work that petitioner had failed to undertake (due to termination of take over). Because of the
dispute, the Petitioner filed a complaint for collection of the balance due under the subcontract agreement.
However, instead of filing an answer, the respondent filed a Motion to Dismiss, alleging that the complaint was
premature because there was no prior recourse to arbitration.

RTC denied the motion on the ground that the dispute did not involve the interpretation or implementation of
the agreement and was, therefore, not covered by the arbitral clause. Also, the RTC ruled that the take over of
some work items by the respondent was not equivalent to termination but a mere modification of the
subcontract. The latter was ordered to give full payment for the work completed by petitioner.

On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held
as arbitrable the issue of whether respondent’s take-over of some work items had been intended to be a
termination of the original contract under Letter “K” of the Subcontract. It also ruled on two other issues: whether
petitioner was liable under the warranty clause of the Agreement, and whether it should reimburse respondent
for the work the latter had taken over. 15 Hence, this Petition

ISSUES:
1. Whether or not there exists a dispute between petitioner and respondent regarding the interpretation and
implementation of the Sub-Contract Agreement that requires prior recourse to voluntary arbitration.
2. Whether or not the requirements provided in Article III [1] of CIAC Arbitration Rules regarding request for
arbitration ha[ve] been complied with

RULING: The Petition is unmeritorious.

As for the first issue, the instant case involves technical discrepancies that are better left to an arbitral body that
has expertise on those areas. The Subcontract has the Arbitral clause stating that the parties agree that “Any
dispute or conflict as regards to interpretation and implementation of this agreement which cannot be settled
between the parties amicably shall be settled by means of arbitration.” Within the scope of the Arbitration clause
are discrepancies as to the amount of advances and billable accomplishments, the application of the provision on
termination, and the consequent set-off expenses. Also, there is no need for prior request for arbitration. As long
as the parties agre to submit to voluntary arbitration, regardless of what forum they may choose, their agreement
will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties
will not be precluded form electing to submit their dispute before the CIAC because this right has been vested
upon each party by the law.

As for the second issue,

Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the
submission of a request for arbitration, as follows:

“SECTION 1. Submission to Arbitration.—Any party to a construction contract wishing to have recourse to arbitration by the
Construction Industry Arbitration Commission (CIAC) shall submit its Request for Arbitration in sufficient copies to the
Secretariat of the CIAC; PROVIDED, that in the case of government construction contracts, all administrative remedies available
to the parties must have been exhausted within 90 days from the time the dispute arose.”

Tesco was promulgated by this Court, using the foregoing provision as reference.
On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has
dispensed with this requirement and recourse to the CIAC may now be availed of whenever a contract “contains
a clause for the submission of a future controversy to arbitration,” in this wise:

“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 CIAC jurisdiction,
notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a
contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant may invoke the jurisdiction of CIAC.”

The difference in the two provisions was clearly explained in China Chang Jiang Energy Corporation (Philippines)
v. Rosal Infrastructure Builders, et al. 32 (an extended unsigned Resolution) and reiterated in National Irrigation
Administration v. Court of Appeals, 33 from which we quote thus:

“Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely
required that the parties agree to submit the same to voluntary arbitration Unlike in the original version of Section 1, as
applied in the Tesco case, the law as it now stands does not provide that the parties should agree to submit disputes arising
from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is plain and clear
that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their
agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will
not be precluded from electing to submit their dispute before the CIAC because this right has been vested upon each party
by law, i.e., E.O. No. 1008.”

It is clear that there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide
a construction dispute.

The arbitral clause in the Agreement is a commitment on the part of 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. And
because it covers the dispute between the parties in the present case, either of them may compel the other to
arbitrate.

Since petitioner has already filed a Complaint with the RTC without prior recourse to arbitration, the proper
procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action, as
provided under RA 876 [the Arbitration Law].

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.