Professional Documents
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1 Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, 3 Art. 23. Even when an act or event causing damage to another's property was not due to the
shall indemnify the latter for the same. fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or
2 Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary event he was benefited.
to morals, good customs or public policy shall compensate the latter for the damage.
recognition and allowing enforcement of international arbitration agreements would only be served if the trial court hears and adjudicates the case in a
between parties of different nationalities within a contracting state. single and complete proceeding.
A careful examination of the instant case shows that the arbitration clause in
the Distributorship Agreement between DMC-USA and MMI is valid and the Dispositive: Petition denied.
dispute between the parties is arbitrable. However, this Court must deny the
petition. La Naval Drug Corp. v CA
The Agreement between DMC-USA and MMI is a contract. The provision Facts: I n 1989, a conflict between La Naval Drug Corporation and a certain Wilson
to submit to arbitration any dispute arising therefrom and the relationship of Yao arose regarding a lease contract. Yao invoked a provision in the lease contract
the parties is part of that contract and is itself a contract. As a rule, contracts whereby pursuant to R.A. 876 (Arbitration Law), they should refer the matter to
are respected as the law between the contracting parties and produce effect arbitration. Hence, the parties agreed to refer the issue to three arbitrators however,
as between them, their assigns and heirs. certain complications arose when they were choosing a third arbitrator. This prompted
Clearly, only parties to the Agreement, i.e., DMC-USA and its Managing Yao to go to court to demand the arbitrators to proceed with the arbitration. Yao went
Director for Export Sales Paul E. Derby, Jr., and MMI and its Managing to the regional trial court (Angeles City) and the case was filed as a summary
Director LILY SY are bound by the Agreement and its arbitration clause as proceeding case under R.A. 876. Yao also prayed for an award for damages in his
they are the only signatories thereto. favor.
o Daniel Collins and Luis Hidalgo, and SFI, not parties to the Agreement
and cannot even be considered assigns or heirs of the parties, are not In its answer, La Naval asserted that the case should be dismissed as it was filed
bound by the Agreement and the arbitration clause therein. prematurely; La Naval questioned Yao’s claim for damages as it averred that the same
Consequently, referral to arbitration in the State of California pursuant to the should be litigated independently and not in the same summary proceeding case.
arbitration clause and the suspension of the proceedings in Civil Case No. However, La Naval also posed a counterclaim.
2637-MN pending the return of the arbitral award could be called for but
only as to DMC-USA and Paul E. Derby, Jr., and MMI and LILY SY, and The RTC resolved the matter regarding the arbitrators (it appointed a third arbitrator).
not as to the other parties in this case, in accordance with the recent case The RTC also ruled that La Naval is estopped from questioning Yao’s claim for
of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, which damages for being out of jurisdiction as La Naval itself filed a counterclaim for
superseded that of Toyota Motor Philippines Corp. v. Court of Appeals. damages.
o In Toyota, the Court ruled that "[t]he contention that the arbitration
clause has become dysfunctional because of the presence of third parties ISSUE: Whether or not the RTC has jurisdiction over the claims for damages between
is untenable ratiocinating that "[c]ontracts are respected as the law parties.
between the contracting parties" and that "[a]s such, the parties are
thereby expected to abide with good faith in their contractual HELD: No. R.A. 876 is clear that summary proceedings under said law shall only
commitments." involve the matter of arbitration. The parties’ claims for damages must be litigated in
o However, in Salas, Jr., only parties to the Agreement, their assigns or another civil case.
heirs have the right to arbitrate or could be compelled to arbitrate. The
Court went further by declaring that in recognizing the right of the The Supreme Court went on to discuss that where the court clearly has no jurisdiction
contracting parties to arbitrate or to compel arbitration, the splitting of over the subject matter, in this case the claim and counterclaim for damages, the court
the proceedings to arbitration as to some of the parties on one hand and must dismiss the case (in this case, the claim and counterclaim for damages). Lack of
trial for the others on the other hand, or the suspension of trial pending jurisdiction over the subject matter as a defense may be raised at any time. Failure to
arbitration between some of the parties, should not be allowed as it raise such defense shall not estop the defendant from raising such defense (as opposed
would, in effect, result in multiplicity of suits, duplicitous procedure and to the defense of lack of jurisdiction over the person which is deemed waived if the
unnecessary delay. defendant voluntarily appeared – if defendant voluntarily appeared, then he is estopped
The object of arbitration is to allow the expeditious determination of a from raising that defense).
dispute.
Clearly, the issue before us could not be speedily and efficiently resolved in Role of the 3 Branches of the Government in ADR
its entirety if we allow simultaneous arbitration proceedings and trial, or
suspension of trial pending arbitration. Accordingly, the interest of justice Salient Features of the ADR Act of 2004
Jurisdiction
Venue and Place of Arbitration the finality and binding effect of an arbitral award. Art. 2044 provides, Any stipulation
Specific Cases of Court Involvement that the arbitrators award or decision shall be final, is valid, without prejudice to
Articles 2038, 2039 and 2040.
Korea Technologies Co. Ltd. v Lerma
Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation The arbitration clause was mutually and voluntarily agreed upon by the parties. It has
which is engaged in the supply and installation of Liquefied Petroleum Gas (LPG) not been shown to be contrary to any law, or against morals, good customs, public
Cylinder manufacturing plants, while private respondent Pacific General Steel order, or public policy. There has been no showing that the parties have not dealt with
Manufacturing Corp. (PGSMC) is a domestic corporation. On March 5, 1997, PGSMC each other on equal footing. We find no reason why the arbitration clause should not
and KOGIES executed a Contract whereby KOGIES would set up an LPG Cylinder be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd.,
Manufacturing Plant in Carmona, Cavite. The contract was executed in the we held that submission to arbitration is a contract and that a clause in a contract
Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for providing that all matters in dispute between the parties shall be referred to arbitration
Contract No. KLP-970301 dated March 5, 1997 amending the terms of payment. The is a contract. Again in Del Monte Corporation-USA v. Court of Appeals, we likewise
contract and its amendment stipulated that KOGIES will ship the machinery and ruled that [t]he provision to submit to arbitration any dispute arising therefrom and the
facilities necessary for manufacturing LPG cylinders for which PGSMC would pay relationship of the parties is part of that contract and is itself a contract.
USD 1,224,000. KOGIES would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. Having said that the instant arbitration clause is not against public policy, we come to
LPG cylinder samples. Thus, the total contract price amounted to USD 1,530,000. On the question on what governs an arbitration clause specifying that in case of any
October 14, 1997, PGSMC entered into a Contract of Lease with Worth Properties, dispute arising from the contract, an arbitral panel will be constituted in a foreign
Inc. (Worth) for use of Worths 5,079-square meter property with a 4,032-square meter country and the arbitration rules of the foreign country would govern and its award
warehouse building to house the LPG manufacturing plant. The monthly rental was shall be final and binding.
PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause.
Subsequently, the machineries, equipment, and facilities for the manufacture of LPG Thus, it can be gleaned that the concept of a final and binding arbitral award is similar
cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid to judgments or awards given by some of our quasi-judicial bodies, like the National
KOGIES USD 1,224,000. However, gleaned from the Certificate executed by the Labor Relations Commission and Mines Adjudication Board, whose final judgments
parties on January 22, 1998, after the installation of the plant, the initial operation are stipulated to be final and binding, but not immediately executory in the sense that
could not be conducted as PGSMC encountered financial difficulties affecting the they may still be judicially reviewed, upon the instance of any party. Therefore, the
supply of materials, thus forcing the parties to agree that KOGIES would be deemed final foreign arbitral awards are similarly situated in that they need first to be
to have completely complied with the terms and conditions of the March 5, 1997 confirmed by the RTC.
contract. For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No.
0316412 dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413
dated March 30, 1998 for PhP 4,500,000. When KOGIES deposited the checks, these
were dishonored for the reason PAYMENT STOPPED. Thus, on May 8, 1998,
KOGIES sent a demand letter to PGSMC threatening criminal action for violation of
Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of
PGSMCs President faxed a letter dated May 7, 1998 to KOGIES President who was
then staying at a Makati City hotel. She complained that not only did KOGIES deliver
a different brand of hydraulic press from that agreed upon but it had not delivered
several equipment parts already paid for.
Issue: Whether or not the arbitration clause in the contract of the parties should govern.
Held: Yes. Established in this jurisdiction is the rule that the law of the place where
the contract is made governs. Lex loci contractus. The contract in this case was
perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless,
Art. 2044 of the Civil Code sanctions the validity of mutually agreed arbitral clause or