Puromines, Inc. vs. CA & Philipp Brothers Oceanic, Inc.

,
(G.R. No. 91228 (220 SCRA 281), March 22, 1993)

FACTS:

Petitioner along with another party entered into a contract with respondent brothers
for the bulk sale of fertilizers. The parties likewise agreed to input an arbitration clause in the
Sales contract whereby they stipulated to settle all disputes by arbitration in London & in
accordance with the Arbitration Act of 1950, to appoint their respective arbitrators who shall
be commercial men residing in London, and to forward their submission to the High Court of
Justice in England.

In May 1988, the fertilizers were shipped in 3 shipments covered by respective Bills of
Lading, to be discharged in Iloilo City and Manila. while the Iloilo shipment were received in
good condition, the Manila cargo were in bad order – damages were valued to at least P680k.
aggrieved, petitioner filed a complaint against respondent Brothers for breach of contract of
carriage. Brothers however contended that petitioner should first comply with their arbitration
clause.

The trial court granted petitioner’s complaint and held that since Brothers was not the
owner of the vessel, and that petitioner’s cause of action arose from a breach of contract of
carriage, the arbitration clause between petitioner & Brothers cannot be applied.

On appeal, the CA reversed the order and found the arbitration clause applicable since
the same contemplated potency in all disputes arising between the parties to the contract.
Considering that the respondent Brothers was one of the signatories to the sales contract . . . all
parties are obliged to respect the terms and conditions of the said sales contract, including the
provision thereof on arbitration.”

ISSUE:

Whether or not the phrase "any dispute arising under this contract" in the arbitration clause of
the sales contract covers a cargo claim against the vessel (owner and/or charterers) for breach
of contract of carriage.

HELD:

Yes, the sales contract is comprehensive enough to include claims for damages arising
from carriage and delivery of the goods, the dispute must first be referred to arbitration since
the arbitration clause in the bill of lading must be respected. The High Court held that whether
the liability of respondent should be based on the same contract or that of the bill of lading, the
parties are nevertheless obligated to respect the arbitration provisions on the sales contract
and/or the bill of lading.

Even before the enactment of Republic Act No. 876, this Court has countenanced the
settlement of disputes through arbitration. The rule now is that unless the agreement is such as
absolutely to close the doors of the courts against the parties, which agreement would be void,
the courts will look with favor upon such amicable arrangements and will only interfere with
great reluctance to anticipate or nullify the action of the arbitrator.

As pointed out in the case of Mindanao Portland Cement Corp. v. McDough

Construction Company of Florida 18 wherein the plaintiff sued defendant for damages arising
from a contract, the Court said: "Since there obtains herein a written provision for arbitration as
well as failure on respondent's part to comply therewith, the court a quo rightly ordered the
parties to proceed to their arbitration in accordance with the terms of their agreement (Sec. 6
Republic Act 876).

From the facts provided, since the arbitrations was held valid, petitioner being a
signatory and party to the sales contract cannot thus escape from his obligation under the
arbitration clause as stated therein. On the other hand, respondent's arguments touching upon
the merits of the dispute were improperly raised as these should have been addressed to the
arbitrators.

Petition to compel arbitration is merely a summary remedy to enforce the agreement to

arbitrate. The duty of the court in this case is not to resolve the merits of the parties' claims but
only to determine if they should proceed to arbitration or not. And although it has been ruled
that a frivolous or patently baseless claim should not be ordered to arbitration it is also
recognized that the mere fact that a defense exist against a claim does not make it frivolous or
baseless."