Chung Fu industries vs.
CA party as compensation, consequential damage
Facts: Chung Fu Industries and Roblecor
Industries forged a construction agreement
whereby, Roblecor committed to construct and
finish on December 31, 1989, Chung Fu’s
ndustrial/factory complex in Tanawan, Tanza,
Cavite for and in consideration of
P42,000,000.00. In the event of disputes arising
from the performance of subject contract, it
was stipulated therein that the issue(s) shall be
submitted for resolution before a single
arbitrator chosen by both parties.
Apart from the aforesaid construction
agreement, Chung Fu and Roblecor entered into
two (2) other ancillary contracts, to wit: for the
construction of a dormitory and support
facilities; and for the installation of electrical,
water and hydrant systems at the plant site.
However, respondent Roblecor failed to
complete the work despite the extension of
time allowed it by Chung Fu. Subsequently, the
latter had to take over the construction when it
had become evident that Roblecor was not in a
position to fulfill its obligation.
Claiming an unsatisfied account of
P10,500,000.00 and unpaid progress billings of
P2,370,179.23, Roblecor filed a petition for
Compulsory Arbitration with prayer for
Temporary Restraining Order before the RTC
pursuant to the arbitration clause in the
construction agreement. Chung Fu moved to
dismiss the petition and further prayed for the
quashing of the restraining order.
Subsequent negotiations between the parties
eventually led to the formulation of an
arbitration agreement which, among others,
provides:
2. The parties mutually agree that the
arbitration shall proceed in accordance with the
following terms and conditions: —
d. The parties mutually agree that they will
abide by the decision of the arbitrator including
any amount that may be awarded to either
and/or interest thereon;
e. The parties mutually agree that the decision
of the arbitrator shall be final and
unappealable. Therefore, there shall be no
further judicial recourse if either party disagrees
with the whole or any part of the arbitrator's
award.
f. As an exception to sub-paragraph (e) above,
the parties mutually agree that either party is
entitled to seek judicial assistance for purposes
of enforcing the arbitrator's award;
Respondent Regional Trial Court approved the
arbitration agreement hereafter, Engr. Willardo
Asuncion was appointed as the sole arbitrator.
Arbitrator Asuncion ordered petitioners to
immediately pay respondent contractor, the
sum of P16,108,801.00. He further declared the
award as final and unappealable, pursuant to
the Arbitration Agreement precluding judicial
review of the award.
Roblecor moved for the confirmation of said
award. On the other hand, Chung Fu moved to
remand the case for further hearing and asked
for a reconsideration of the judgment award
claiming that Arbitrator Asuncion committed
twelve (12) instances of grave error by
disregarding the provisions of the parties'
contract. However the court denied it.
The trial court granted Roblecor's Motion for
Confirmation of Award and accordingly, entered
judgment in conformity therewith. Moreover, it
granted the motion for the issuance of a writ of
execution filed by respondent.
Chung Fu elevated the case via a petition
for certiorari to respondent Court of Appeals.
However the CA affirmed the decision of RTC. It
held that Chung Fu and its officers, as
signatories to the Arbitration Agreement are
bound to observe the stipulations thereof
providing for the finality of the award and
precluding any appeal therefrom.
Issue: WON the subject arbitration award is
indeed beyond the ambit of the court's power
of judicial review.
Ruling: No.
It is stated explicitly under Art. 2044 of the Civil
Code that the finality of the arbitrators' award is
not absolute and without exceptions. Where
the conditions described in Articles 2038, 2039
and 2040 applicable to both compromises and
arbitrations are obtaining, the arbitrators'
award may be annulled or rescinded.  The PCHC Arbitration Committee rendered its
Additionally, under Sections 24 and 25 of the
Arbitration Law, there are grounds for vacating,
modifying or rescinding an arbitrator's award.
Thus, if and when the factual circumstances
referred to in the above-cited provisions are
present, judicial review of the award is properly
warranted.
INSULAR SAVINGS BANK v. FEBTC
Facts:
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, 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.
decision in favor of respondent sentencing
HBTC to pay.
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 an order, 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. Respondent
(FEBTC) filed a Motion to Dismiss Petition for
Review for Lack of Jurisdiction, which was
opposed by the petitioner. Respondent then
filed its Reply to the opposition, to which
petitioner filed a Rejoinder. Respondent
submitted its Surrejoinder.
RTC rendered the assailed Order which held,
thus:
Acting on plaintiff Far East Bank and Trust
Company's "Motion To Dismiss Petition For
Review For Lack Of Jurisdiction", considering
that the Petition for Review is a separate and
distinct case, the same must comply with all the
requirements for filing initiatory pleadings for
civil actions before this Court so that since the
commencement of the subject petition lacks the
mandatory requirements provided for, except
the payment of docket fees, for lack of
jurisdiction, the Petition for Review is hereby
dismissed.
The RTC denied petitioner's motion for
reconsideration.
Issue:
Whether or not the RTC erred in dismissing the
petition of petitioner for lack of jurisdiction on
the ground that it should have been docketed
as a separate case.
Ruling:
No. Jurisdiction is the authority to hear and
determine a cause - the right to act in a case.
Jurisdiction over the subject matter is the power
to hear and determine the general class to
which the proceedings in question belong.
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. In the case at bar,
petitioner filed a Petition for Review with the
RTC when the same should have been filed with
the Court of Appeals under Rule 43 of the Rules
of Court. Thus, the RTC of Makati did not err in
dismissing the Petition for Review for lack of
jurisdiction but not on the ground that
petitioner should have filed a separate case
from Civil Case No. 92-145 but on the necessity
of filing the correct petition in the proper court.
It is immaterial whether petitioner filed the
Petition for Review in Civil Case No. 92-145 as
an appeal of the arbitral award or whether it
filed a separate case in the RTC, considering
that the RTC will only have jurisdiction over an
arbitral award in cases of motions to vacate the
same. Otherwise, as elucidated herein, the
Court of Appeals retains jurisdiction in petitions
for review or in petitions for certiorari .
Consequently, petitioner's arguments, with
respect to the filing of separate action from Civil
Case No. 92-145 resulting in a multiplicity of
suits, cannot be given due course.
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.
LM POWER ENGINEERING CORP vs CAPITOL
INDUSTRIAL CONSTRUCTION GROUPS INC.
Facts:
In 183, LM Power and Capital Industrial
Construction entered into a “Subcontract
Agreement” involving electrical work at Third
Port of Zamboanga. Later on, Capitol took over
some of the contract works to LM Power. It was
alleged that LM Power had failed to finish the
work because of its inability to procure
materials. Upon completion of the work, LM
Power billed Capitol, but the latter refused to
pay. Capitol then took refuge in the termination
clause of the Subcontract Agreement.
 This prompted LM Power to file a
complaint for the collection of the amount of
money representing the alleged balance due.
Instead of submitting an Answer, Capitol filed a
Motion to Dismiss on the ground that the
complaint filed against them was premature,
because there was no prior arbitration that
happened.
The RTC denied the motion, on the
ground that the dispute did not involve the
interpretation or the implementation of the
Agreement, therefor not covered by the arbitral
clause. The CA reversed the trial court’s ruling
and ordered the referral of the case to
arbitration.
Issue: Whether or not the dispute is arbitrable
Ruling: No.
Essentially, the dispute arose from the
parties’ congruent positions on whether certain
provisions of their Agreement could be applied
to the facts. The instant case involves technical
discrepancies that are better left to an arbitral
body that has expertise in those areas. In any
event, the inclusion of an arbitration clause in a
contract does not ipso facto divest the courts of
jurisdiction to pass upon the findings of arbitral
bodies, because the awards are still judicially
reviewable under certain conditions. Clearly,
the resolution of the dispute between the
parties herein requires a referral to the
provisions of their Agreement. 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 of expenses. 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].
the amount of advances and billable
accomplishments, the application of the
provision on termination, and the consequent
set-off of expenses. 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].
Equitable vs. RCBC
Facts:
Petitioners Equitable PCI Bank, Inc. (EPCIB) and
the individual shareholders of Bankard, Inc., as
sellers, and respondentRCBC Capital
Corporation (RCBC), as buyer, executed a Share
Purchase Agreement (SPA) for the purchase of
petitioners’ interests in Bankard, representing
226,460,000 shares, for the price of PhP
1,786,769,400.
To expedite thepurchase, RCBC agreed to
dispense with the conduct of a due diligence
audit on the financial status of Bankard. On
June 2, 2000, RCBC deposited the stipulated
downpayment amount in an escrow account
after which it was given full management and
operational control of Bankard. June 2, 2000 is
also considered by the parties as the Closing
Date referred to in the SPA.
Sometime in September 2000, RCBC had
Bankard’s accounts audited, creating for the
purpose an audit team and the conclusion was
that the warranty, as contained in Section 5(h)
of the SPA (simply Sec. 5[h] hereinafter), was
correct. RCBC paid the balance of the contract
price. The corresponding deeds of sale for the
shares in question were executed in January
2001. Thereafter RCBC informed petitioners of
its having overpaid the purchase price of the
subject shares, claiming that there was an
overstatement of valuation of accounts
amounting to PhP 478 million, resulting in the
overpayment of over PhP 616 million. Thus,
RCBC claimed that petitioners violated their
warranty, as sellers, embodied inSec. 5(g) of the
SPA (Sec. 5[g] hereinafter).
RCBC, in accordance with Sec. 10 of the SPA,
filed a
Request for Arbitration dated May 12, 2004
with the ICC-ICA. In the request, RCBC charged
Bankard with deviating from, contravening and
not following generally accepted accounting
principles and practices in maintaining their
books. Arbitration in the ICC-ICA proceeded
after the formation of the arbitration tribunal
consisting of retired Justice Santiago
M.Kapunan, nominated by petitioners; Neil
Kaplan, RCBC’s nominee; and Sir Ian Barker,
appointed by the ICC-ICA. After drawn out
proceedings with each party alleging deviation
and non-compliance by the other
with arbitration rules, the tribunal, with Justice
Kapunan dissenting, rendered a Partial Award .
On the matter of prescription, the tribunal held
that
RCBC’s claim is not time-barred, the claim
properly falling under the contemplation of Sec.
5(g) and not Sec. 5(h). As such, the tribunal
concluded, RCBC’s claim was filed within the
three (3)-year period under Sec. 5(g) and that
the six (6)-month period under Sec. 5(h) did not
apply.
The tribunal also exonerated RCBC from laches,
the latter having sought relief within the three
(3)-year period prescribed in the SPA. Notably,
the tribunal considered the rescission of the
SPA and ASPA as impracticable and "totally out
of the question.
RCBC filed with the RTC a Motion to Confirm
Partial Award. The RTC issued the first assailed
order confirming the Partial Award and denying
the adverted separate motions to vacate and to
suspend and inhibit. From this order, petitioners
sought reconsideration, but their motion was
denied by the RTC.
Issue: WON there is manifest disregard of the
law by the ICC-ICA
Held: None.
As earlier recited, the ICC-ICA’s Partial Award
dated September 27, 2007 was confirmed by
the RTC in its first assailed order of January 8,
2008. Thereafter, the RTC, by order of March
17, 2008, denied petitioners’ motion for
reconsideration. Therefrom, petitioners came
directly to this Court on a petition for review
under Rule 45 of the Rules of Court.
This is a procedural miscue for petitioners who
erroneously bypassed the Court of Appeals (CA)
in pursuit of its appeal. While this procedural
gaffe has not been raised by RCBC, still we
would be remiss in not pointing out the proper
mode of appeal from a decision of the RTC
confirming, vacating, setting aside, modifying,
or correcting an arbitral award.
Rule 45 is not the remedy available to
petitioners as the proper mode of appeal
assailing the decision of the RTC confirming as
arbitral award is an appeal before the CA
pursuant to Sec. 46 of Republic Act No. (RA)
9285, otherwise known as the Alternative
Dispute Resolution Act of 2004, or completely,
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, promulgated on April 2, 2004 and
became effective on April 28, 2004 after its
publication on April 13, 2004.
It is clear from the factual antecedents that RA
9285 applies to the instant case. This law was
already effective at the time the arbitral
proceedings were commenced by RCBC through
a request for arbitration filed before the ICC-ICA
on May 12, 2004. Besides, the assailed
confirmation order of the RTC was issued on
March 17, 2008. Thus, petitioners clearly took
the wrong mode of appeal and the instant
petition can be outright rejected and dismissed.
KOREA TECHNOLOGIES V. LERMA
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.
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. The
parties executed, in Korea, an Amendment for
Contract No. KLP-970301 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 plant’s
production of the 11-kg. LPG cylinder samples.
Thus, the total contract price amounted to USD
1,530,000.
PGSMC entered into a Contract of Lease with
Worth Properties, Inc. (Worth) for use of
Worth’s 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 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, 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
PGSMC’s President faxed a letter 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.
PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments
were stopped for reasons previously made
known to KOGIES.
PGSMC informed KOGIES that PGSMC was
canceling their Contract on the ground that
KOGIES had altered the quantity and lowered
the quality of the machineries and equipment it
delivered to PGSMC, and that PGSMC would
dismantle and transfer the machineries,
equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed
before the Office of the Public Prosecutor an
Affidavit-Complaint for Estafa against Mr. Dae
Hyun Kang, President of KOGIES.
KOGIES wrote PGSMC informing the latter that
PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the
machineries and equipment on mere imagined
violations by KOGIES. It also insisted that their
disputes should be settled by arbitration as
agreed upon in Article 15, the arbitration clause
of their contract.
PGSMC again wrote KOGIES reiterating the
contents of its letter threatening that the
machineries, equipment, and facilities installed
in the plant would be dismantled and
transferred. Thus, KOGIES instituted an
Application for Arbitration before the Korean
Commercial Arbitration Board (KCAB) in Seoul,
Korea pursuant to Art. 15 of the Contract as
amended.
KOGIES filed a Complaint for Specific
Performance against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The
RTC granted a temporary restraining order
(TRO) which was subsequently extended. In its
complaint, KOGIES alleged that PGSMC had
initially admitted that the checks that were
stopped were not funded but later on claimed
that it stopped payment of the checks for the
reason that "their value was not received" as
the former allegedly breached their contract by
"altering the quantity and lowering the quality
of the machinery and equipment" installed in
the plant and failed to make the plant
operational although it earlier certified to the
contrary as shown in a Certificate. Likewise,
KOGIES averred that PGSMC violated Art. 15 of
their Contract, as amended, by unilaterally
rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be
restrained from dismantling and transferring
the machinery and equipment installed in the
plant which the latter threatened to do.
PGSMC filed an opposition to the TRO arguing
that KOGIES was not entitled to the TRO since
Art. 15, the arbitration clause, was null and void
for being against public policy as it ousts the
local courts of jurisdiction over the instant
controversy.
PGSMC filed its Answer with Compulsory
Counterclaim asserting that it had the full right
to dismantle and transfer the machineries and
equipment because it had paid for them in full
as stipulated in the contract; that KOGIES was
not entitled to the PhP 9,000,000 covered by
the checks for failing to completely install and
make the plant operational; and that KOGIES
was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering
the quality of the machineries and equipment.
Moreover, PGSMC averred that it has already
paid PhP 2,257,920 in rent (covering January to
July 1998) to Worth and it was not willing to
further shoulder the cost of renting the
premises of the plant considering that the LPG
cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda,
the RTC issued an Order denying the application
for a writ of preliminary injunction, reasoning
that PGSMC had paid KOGIES USD 1,224,000,
the value of the machineries and equipment as
shown in the contract such that KOGIES no
longer had proprietary rights over them. And
finally, the RTC held that Art. 15 of the Contract
as amended was invalid as it tended to oust the
trial court or any other court jurisdiction over
any dispute that may arise between the parties.
KOGIES’ prayer for an injunctive writ was
denied.
KOGIES filed its Reply to Answer and Answer to
Counterclaim. KOGIES denied it had altered the
quantity and lowered the quality of the
machinery, equipment, and facilities it delivered
to the plant. It averred that whatever was
unfinished was PGSMC’s fault since it failed to
procure raw materials due to lack of funds.
KOGIES, relying on Chung Fu Industries (Phils.),
Inc. v. Court of Appeals, insisted that the
arbitration clause was without question valid.
After KOGIES filed a Supplemental
Memorandum with Motion to Dismiss
answering PGSMC’s memorandum and seeking
dismissal of PGSMC’s counterclaims, KOGIES
filed its Motion for Reconsideration of the Order
denying its application for an injunctive writ
claiming that the contract was not merely for
machinery and facilities worth USD 1,224,000
but was for the sale of an "LPG manufacturing
plant" consisting of "supply of all the machinery
and facilities" and "transfer of technology" for a
total contract price of USD 1,530,000 such that
the dismantling and transfer of the machinery
and facilities would result in the dismantling
and transfer of the very plant itself to the great
prejudice of KOGIES as the still unpaid
owner/seller of the plant.
In the meantime, PGSMC filed a Motion for
Inspection of Things to determine whether
there was indeed alteration of the quantity and
lowering of quality of the machineries and
equipment, and whether these were properly
installed. KOGIES opposed the motion positing
that the queries and issues raised in the motion
for inspection fell under the coverage of the
arbitration clause in their contract.
The trial court issued an Order (1) granting
PGSMC’s motion for inspection; (2) denying
KOGIES’ motion for reconsideration of the RTC
Order; and (3) denying KOGIES’ motion to
dismiss PGSMC’s compulsory counterclaims as
these counterclaims fell within the requisites of
compulsory counterclaims.
KOGIES filed an Urgent Motion for
Reconsideration of the RTC Order granting
inspection of the plant and denying dismissal of
PGSMC’s compulsory counterclaims.
Ten days after, without waiting for the
resolution of its urgent motion for
reconsideration, KOGIES filed before the Court
of Appeals (CA) a petition for certiorari, seeking
annulment of the RTC Orders and praying for
the issuance of writs of prohibition, mandamus,
and preliminary injunction to enjoin the RTC
and PGSMC from inspecting, dismantling, and
transferring the machineries and equipment in
the Carmona plant, and to direct the RTC to
enforce the specific agreement on arbitration to
resolve the dispute.
In the meantime, the RTC denied KOGIES’
urgent motion for reconsideration and directed
the Branch Sheriff to proceed with the
inspection of the machineries and equipment in
the plant.
Thereafter, KOGIES filed a Supplement to the
Petition informing the CA about the RTC Order.
It also reiterated its prayer for the issuance of
the writs of prohibition, mandamus and
preliminary injunction which was not acted
upon by the CA. KOGIES asserted that the
Branch Sheriff did not have the technical
expertise to ascertain whether or not the
machineries and equipment conformed to the
specifications in the contract and were properly
installed.
The Branch Sheriff filed his Sheriff’s Report
finding that the enumerated machineries and
equipment were not fully and properly
installed.
The Court of Appeals affirmed the trial court
and declared the arbitration clause against
public policy.
Issue:
Whether or not the arbitration clause in Article
15 of their contract for being contrary to public
policy and for ousting the courts of jurisdiction
is null and void.
Ruling:
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of
Art. 15 of the Contract, the arbitration clause. It
provides:
Article 15. Arbitration.—All disputes,
controversies, or differences which may
arise between the parties, out of or in
relation to or in connection with this
Contract or for the breach thereof, shall
finally be settled by arbitration in Seoul,
Korea in accordance with the
Commercial Arbitration Rules of the
Korean Commercial Arbitration
Board. The award rendered by the
arbitration(s) shall be final and
binding upon both parties concerned.
(Emphasis supplied.)
Petitioner claims the RTC and the CA erred in
ruling that the arbitration clause is null and
void.
Petitioner is correct.
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."
(Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer
to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art.
2043,34 may be voided, rescinded, or annulled,
but these would not denigrate the finality of the
arbitral award.
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.,35 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.36 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."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the
arbitration must be done in Seoul, Korea in
accordance with the Commercial Arbitration
Rules of the KCAB, and that the arbitral award is
final and binding, is not contrary to public
policy. This Court has sanctioned the validity of
arbitration clauses in a catena of cases. In the
1957 case of Eastboard Navigation Ltd. v. Juan
Ysmael and Co., Inc.,38 this Court had occasion
to rule that an arbitration clause to resolve
differences and breaches of mutually agreed
contractual terms is valid. In BF Corporation v.
Court of Appeals, we held that "[i]n this
jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on
June 19, 1953 of Republic Act No. 876, this
Court has countenanced the settlement of
disputes through arbitration. Republic Act No.
876 was adopted to supplement the New Civil
Code’s provisions on arbitration." 39 And in LM
Power Engineering Corporation v. Capitol
Industrial Construction Groups, Inc., we
declared that:
Being an inexpensive, speedy and
amicable method of settling
disputes, arbitration––along with
mediation, conciliation and
 negotiation––is encouraged by the clause, stipulating that the arbitral award is final
Supreme Court. Aside from unclogging and binding, does not oust our courts of
judicial dockets, arbitration also hastens jurisdiction as the international arbitral award,
the resolution of disputes, especially of the award of which is not absolute and without
the commercial kind. It is thus regarded exceptions, is still judicially reviewable under
as the "wave of the future" in certain conditions provided for by the
international civil and commercial UNCITRAL Model Law on ICA as applied and
disputes. Brushing aside a contractual incorporated in RA 9285.
agreement calling for arbitration
between the parties would be a step Finally, it must be noted that there is nothing in
backward. the subject Contract which provides that the
parties may dispense with the arbitration
Consistent with the above-mentioned clause.
policy of encouraging alternative
dispute resolution methods, courts
should liberally construe arbitration
clauses. Provided such clause is
susceptible of an interpretation that
covers the asserted dispute, an order to
arbitrate should be granted. Any doubt
should be resolved in favor of
arbitration.40

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.

PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA

9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject
contract. While it 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.

With our disquisition above, petitioner is

correct in its contention that an arbitration