upon the award of the arbitrators may be entered in any court having jurisdiction thereof, with
SECOND DIVISION costs of the arbitration to be borne equally by the parties, except that each party shall pay the
[G.R. No. 129916. March 26, 2001]
MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL
HOLDINGS CORPORATION, petitioners, vs. ROLANDO M. ZOSA and HON. JOSE
P. SOBERANO, JR., in his capacity as Presiding Judge of Branch 58 of the
Regional Trial Court Of Cebu, 7th Judicial Region, respondents.
DECISION
BUENA, J.:
Under a management agreement entered into on March 18, 1994, Magellan Capital
Holdings Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as
manager for the operation of its business and affairs. [1] Pursuant thereto, on the same month,
MCHC, MCMC, and private respondent Rolando M. Zosa entered into an "Employment
Agreement" designating Zosa as President and Chief Executive Officer of MCHC.
Under the "Employment Agreement", the term of respondent Zosa's employment shall be
co-terminous with the management agreement, or until March 1996, [2] unless sooner terminated
pursuant to the provisions of the Employment Agreement. [3] The grounds for termination of
employment are also provided in the Employment Agreement.
On May 10, 1995, the majority of MCHCs Board of Directors decided not to re-elect
respondent Zosa as President and Chief Executive Officer of MCHC on account of loss of trust
and confidence[4]arising from alleged violation of the resolution issued by MCHC's board of
directors and of the non-competition clause of the Employment Agreement.[5] Nevertheless,
respondent Zosa was elected to a new position as MCHC's Vice-Chairman/Chairman for New
Ventures Development.[6]
On September 26, 1995, respondent Zosa communicated his resignation for good reason
from the position of Vice-Chairman under paragraph 7 of the Employment Agreement on the
ground that said position had less responsibility and scope than President and Chief Executive
Officer. He demanded that he be given termination benefits as provided for in Section 8 (c) (i) (ii)
and (iii) of the Employment Agreement.[7]
In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent
Zosa's resignation for good reason, but instead informed him that the Employment Agreement is
terminated for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the
said agreement, on account of his breach of Section 12 thereof. Respondent Zosa was further
advised that he shall have no further rights under the said Agreement or any claims against the
Manager or the Corporation except the right to receive within thirty (30) days from November 19,
1995, the amounts stated in Section 8 (a) (i) (ii) of the Agreement.[8]
Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration
Clause of the Employment Agreement, to wit:
23. Arbitration. In the event that any dispute, controversy or claim arises out of or under any
provisions of this Agreement, then the parties hereto agree to submit such dispute, controversy
or claim to arbitration as set forth in this Section and the determination to be made in such
arbitration shall be final and binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee and Corporation shall designate one (1) arbitrator who
shall, in turn, nominate and elect who among them shall be the chairman of the committee. Any
such arbitration, including the rendering of an arbitration award, shall take place in Metro
Manila. The arbitrators shall interpret this Agreement in accordance with the substantive laws of
the Republic of the Philippines. The arbitrators shall have no power to add to, subtract from or
otherwise modify the terms of Agreement or to grant injunctive relief of any nature. Any judgment
fees and expenses of its own counsel in the arbitration.
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panel[9] while MCHC designated Atty. Inigo S. Fojas[10] and MCMC
nominated Atty. Enrique I. Quiason[11] as their respective representatives in the arbitration
panel. However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17,
1996, filed an action for damages against petitioners before the Regional Trial Court of Cebu[12] to
enforce his benefits under the Employment Agreement.
On July 3, 1996, petitioners filed a motion to dismiss [13] arguing that (1) the trial court has
no jurisdiction over the instant case since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the
venue is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and
thus, the venue of this case, granting without admitting that the respondent has a cause of action
against the petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.[14]
Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.
On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners
motion to dismiss upon the findings that (1) the validity and legality of the arbitration provision can
only be determined after trial on the merits; and (2) the amount of damages claimed, which is over
P100,000.00, falls within the jurisdiction of the RTC. [15] Petitioners filed a motion for
reconsideration which was denied by the RTC in an order dated September 5, 1996.[16]
In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer Ad
Cautelamwith counterclaim reiterating their position that the dispute should be settled through
arbitration and the court had no jurisdiction over the nature of the action. [17]
On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage
terminated and setting the case for hearing. The order states:
ISSUES:
The Court will only resolve one issue in so far as this case is concerned, to wit:
Whether or not the Arbitration Clause contained in Sec.23 of the Employment Agreement is void
and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled to
damages in accordance with his complaint and the defendants in accordance with their
counterclaim.
It is understood, that in the event the arbitration clause is valid and binding between the parties,
the parties shall submit their respective claim to the Arbitration Committee in accordance with
the said arbitration clause, in which event, this case shall be deemed dismissed.[18]
On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction,
Addition and Clarification of the Pre-trial Order dated November 15 1996,[19] which was denied by
the court in an order dated November 28, 1996.[20]
Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file
their Memoranda to support their respective stand on the issue of the validity of the arbitration
clause contained in the Employment Agreement. In an order dated December 13, 1996, the trial
court denied the motion of petitioners MCMC and MCHC.
 On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and
prohibition under Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial
court orders dated August 1, 1996, September 5, 1996, and December 13, 1996.[21]
On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the
petition, the decretal portion of which reads:
WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to
resolve the issue on the validity or effectivity of the arbitration clause in the Employment
Agreement, and to suspend further proceedings in the trial on the merits until the said issue is
resolved. The questioned orders are set aside insofar as they contravene this Courts resolution
of the issues raised as herein pronounced.
The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5) days
from notice.
SO ORDERED.[22]
Petitioners filed a motion for partial reconsideration of the CA decision praying (1) for the
dismissal of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the parties
be directed to submit their dispute to arbitration in accordance with the Employment
Agreement dated March 1994. The CA, in a resolution promulgated on June 20, 1997, denied the
motion for partial reconsideration for lack of merit.
In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision
declaring the arbitration clause in the Employment Agreement partially void and of no effect. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered partially declaring the
arbitration clause of the Employment Agreement void and of no effect, only insofar as it
concerns the composition of the panel of arbitrators, and directing the parties to proceed to
arbitration in accordance with the Employment Agreement under the panel of three (3)
arbitrators, one for the plaintiff, one for the defendants, and the third to be chosen by both the
plaintiff and defendants. The other terms, conditions and stipulations in the arbitration clause
remain in force and effect."[23]
In view of the trial courts decision, petitioners filed this petition for review on certiorari, under
Rule 45 of the Rules of Court, assigning the following errors for the Courts resolution:
I. The trial court gravely erred when it ruled that the arbitration clause under the employment
agreement is partially void and of no effect, considering that:
A. The arbitration clause in the employment agreement dated March 1994 between
respondent Zosa and defendants MCHC and MCMC is valid and binding upon
the parties thereto.
B. In view of the fact that there are three parties to the employment agreement, it is
but proper that each party be represented in the arbitration panel.
C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC
represent the same interest.
D. Respondent Zosa is estopped from questioning the validity of the arbitration
clause, including the right of petitioner MCMC to nominate its own arbitrator,
which he himself has invoked.
II. In any event, the trial court acted without jurisdiction in hearing the case below, considering
that it has no jurisdiction over the nature of the action or suit since controversies in the election
or appointment of officers or managers of a corporation, such as the action brought by
respondent Zosa, fall within the original and exclusive jurisdiction of the Securities and
Exchange Commission.
III. Contrary to respondent Zosas allegation, the issue of the trial courts jurisdiction over the case
below has not yet been resolved with finality considering that petitioners have expressly
reserved their right to raise said issue in the instant petition. Moreover, the principle of the law of
the case is not applicable in the instant case.
IV. Contrary to respondent Zosas allegation, petitioners MCMC and MCHC are not guilty of
forum shopping.
V. Contrary to respondent Zosas allegation, the instant petition for review involves only
questions of law and not of fact.[24]
We rule against the petitioners.
It is error for the petitioners to claim that the case should fall under the jurisdiction of the
Securities and Exchange Commission [SEC, for brevity]. The controversy does not in anyway
involve the election/appointment of officers of petitioner MCHC, as claimed by petitioners in their
assignment of errors. Respondent Zosas amended complaint focuses heavily on the illegality of
the Employment Agreements Arbitration Clause initially invoked by him in seeking his termination
benefits under Section 8 of the employment contract. And under Republic Act No. 876, otherwise
known as the Arbitration Law, it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. We thus advert to the following discussions made by the Court of
Appeals, speaking thru Justice Minerva P. Gonzaga-Reyes,[25] in C.A.-G.R. S.P. No. 43059, viz:
As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is raised
for the first time in this petition, suffice it to state that the Amended Complaint squarely put in
issue the question whether the Arbitration Clause is valid and effective between the
parties. Although the controversy which spawned the action concerns the validity of the
termination of the service of a corporate officer, the issue on the validity and effectivity of the
arbitration clause is determinable by the regular courts, and do not fall within the exclusive and
original jurisdiction of the SEC.
The determination and validity of the agreement is not a matter intrinsically connected with the
regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs.
SEC, 169 SCRA 121); it is rather an ordinary case to be decided in accordance with the general
laws, and do not require any particular expertise or training to interpret and apply (Viray vs. CA,
191 SCRA 308).[26]
Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the
trial courts assumption of jurisdiction over the case has become the law of the case which now
binds the petitioners. The law of the case doctrine has been defined as a term applied to an
established rule that when an appellate court passes on a question and remands the cause to the
lower court for further proceedings, the question there settled becomes the law of the case upon
subsequent appeal.[27] To note, the CAs decision in CA-G.R. SP No. 43059 has already attained
finality as evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:
ENTRY OF JUDGMENT
This is to certify that on September 8, 1997 a decision/resolution rendered in the above-entitled
case was filed in this Office, the dispositive part of which reads as follows:
G.R. No. 129615 (Magellan Capital Management Corporation, et al. vs. Court of Appeals,
Rolando Zosa, et al.).- Considering the petitioners manifestation dated August 11, 1997 and
withdrawal of intention to file petition for review on certiorari, the Court Resolved to DECLARE
THIS CASE TERMINATED and DIRECT the Clerk of Court to INFORM the parties that the
judgment sought to be reviewed has become final and executory, no appeal therefore having
been timely perfected.
and that the same has, on September 17, 1997, become final and executory and is hereby
recorded in the Book of Entries of Judgments. [28]
Petitioners, therefore, are barred from challenging anew, through another remedial measure and
in any other forum, the authority of the regional trial court to resolve the validity of the arbitration
clause, lest they be truly guilty of forum-shopping which the courts consistently consider as a
contumacious practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of
the factual findings made by the trial court that the composition of the panel of arbitrators would,
in all probability, work injustice to respondent Zosa. We have repeatedly stressed that the
jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of
Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained
of are devoid of support by the evidence on record, or the assailed judgment is based on
misapprehension of facts.[29]
Even if procedural rules are disregarded, and a scrutiny of the merits of the case is
undertaken, this Court finds the trial courts observations on why the composition of the panel of
arbitrators should be voided, incisively correct so as to merit our approval. Thus,
From the memoranda of both sides, the Court is of the view that the defendants [petitioner]
MCMC and MCHC represent the same interest. There is no quarrel that both defendants are
entirely two different corporations with personalities distinct and separate from each other and
that a corporation has a personality distinct and separate from those persons composing the
corporation as well as from that of any other legal entity to which it may be related.
But as the defendants [herein petitioner] represent the same interest, it could never be expected,
in the arbitration proceedings, that they would not protect and preserve their own interest, much
less, would both or either favor the interest of the plaintiff. The arbitration law, as all other laws,
is intended for the good and welfare of everybody. In fact, what is being challenged by the
plaintiff herein is not the law itself but the provision of the Employment Agreement based on the
said law, which is the arbitration clause but only as regards the composition of the panel of
arbitrators. The arbitration clause in question provides, thus:
In the event that any dispute, controversy or claim arise out of or under any provisions of this
Agreement, then the parties hereto agree to submit such dispute, controversy or claim to
arbitration as set forth in this Section and the determination to be made in such arbitration shall
be final and binding. Arbitration shall be effected by a panel of three
arbitrators. The Manager, Employee, and Corporation shall designate one (1) arbitrator who
shall, in turn, nominate and elect as who among them shall be the chairman of the
committee. Any such arbitration, including the rendering of an arbitration award, shall take place
in Metro Manila. The arbitrators shall interpret this Agreement in accordance with the substantive
laws of the Republic of the Philippines. The arbitrators shall have no power to add to, subtract
from or otherwise modify the terms of this Agreement or to grant injunctive relief of any
nature. Any judgment upon the award of the arbitrators may be entered in any court having
jurisdiction thereof, with costs of the arbitration to be borne equally by the parties, except that
each party shall pay the fees and expenses of its own counsel in the arbitration. (Emphasis
supplied).
From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners] (MCMC
and MCHC) have one (1) arbitrator each to compose the panel of three (3) arbitrators. As the
defendant MCMC is the Manager of defendant MCHC, its decision or vote in the arbitration
proceeding would naturally and certainly be in favor of its employer and the defendant MCHC
would have to protect and preserve its own interest; hence, the two (2) votes of both defendants
(MCMC and MCHC) would certainly be against the lone arbitrator for the plaintiff [herein
defendant]. Hence, apparently, plaintiff [defendant] would never get or receive justice and
fairness in the arbitration proceedings from the panel of arbitrators as provided in the
aforequoted arbitration clause. In fairness and justice to the plaintiff [defendant], the two
defendants (MCMC and MCHC)[herein petitioners] which represent the same interest should be
considered as one and should be entitled to only one arbitrator to represent them in the
arbitration proceedings. Accordingly, the arbitration clause, insofar as the composition of the
panel of arbitrators is concerned should be declared void and of no effect, because the law says,
Any clause giving one of the parties power to choose more arbitrators than the other is void and
of no effect (Article 2045, Civil Code).
The dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners] and
the plaintiff [herein defendant] should be settled in the arbitration proceeding in accordance with
the Employment Agreement, but under the panel of three (3) arbitrators, one (1) arbitrator to
represent the plaintiff, one (1) arbitrator to represent both defendants (MCMC and MCHC)[herein
petitioners] and the third arbitrator to be chosen by the plaintiff [defendant Zosa] and defendants
[petitioners].
x x x x x x x x x[30]
In this connection, petitioners attempt to put respondent in estoppel in assailing the
arbitration clause must be struck down. For one, this issue of estoppel, as likewise noted by the
Court of Appeals, found its way for the first time only on appeal. Well-settled is the rule that issues
not raised below cannot be resolved on review in higher courts.[31] Secondly, employment
agreements such as the one at bar are usually contracts of adhesion. Any ambiguity in its
provisions is generally resolved against the party who drafted the document. Thus, in the relatively
recent case of Phil. Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto
Jayoma vs. NLRC and Victoria Abril,[32] we had the occasion to stress that where a contract of
employment, being a contract of adhesion, is ambiguous, any ambiguity therein should be
construed strictly against the party who prepared it. And, finally, respondent Zosa never submitted
himself to arbitration proceedings (as there was none yet) before bewailing the composition of the
panel of arbitrators. He in fact, lost no time in assailing the arbitration clause upon realizing the
inequities that may mar the arbitration proceedings if the existing line-up of arbitrators remained
unchecked.
We need only to emphasize in closing that arbitration proceedings are designed to level the
playing field among the parties in pursuit of a mutually acceptable solution to their conflicting
claims. Any arrangement or scheme that would give undue advantage to a party in the negotiating
table is anathema to the very purpose of arbitration and should, therefore, be resisted.
WHEREFORE, premises considered, the petition is hereby DISMISSED and the decision
of the trial court dated July 18, 1997 is AFFIRMED.
SO ORDERED.
 SECOND DIVISION
[G.R. No. 114323. July 23, 1998]
OIL AND NATURAL GAS COMMISSION, petitioner, vs. COURT OF APPEALS and PACIFIC
CEMENT COMPANY, INC. respondents.
DECISION
MARTINEZ, J.:
This proceeding involves the enforcement of a foreign judgment rendered by the Civil Judge
of Dehra Dun, India in favor of the petitioner, OIL AND NATURAL GAS COMMISSION and against
the private respondent, PACIFIC CEMENT COMPANY, INCORPORATED.
The petitioner is a foreign corporation owned and controlled by the Government of India
while the private respondent is a private corporation duly organized and existing under the laws
of the Philippines. The present conflict between the petitioner and the private respondent has its
roots in a contract entered into by and between both parties on February 26, 1983 whereby the
private respondent undertook to supply the petitioner FOUR THOUSAND THREE HUNDRED
(4,300) metric tons of oil well cement. In consideration therefor, the petitioner bound itself to pay
the private respondent the amount of FOUR HUNDRED SEVENTY-SEVEN THOUSAND THREE
HUNDRED U.S. DOLLARS ($477,300.00) by opening an irrevocable, divisible, and confirmed
letter of credit in favor of the latter. The oil well cement was loaded on board the ship MV
SURUTANA NAVA at the port of Surigao City, Philippines for delivery at Bombay and Calcutta,
India. However, due to a dispute between the shipowner and the private respondent, the cargo
was held up in Bangkok and did not reach its point of destination. Notwithstanding the fact that
the private respondent had already received payment and despite several demands made by the
petitioner, the private respondent failed to deliver the oil well cement. Thereafter, negotiations
ensued between the parties and they agreed that the private respondent will replace the entire
4,300 metric tons of oil well cement with Class G cement cost free at the petitioners designated
port. However, upon inspection, the Class G cement did not conform to the petitioners
specifications. The petitioner then informed the private respondent that it was referring its claim to
an arbitrator pursuant to Clause 16 of their contract which stipulates:
Except where otherwise provided in the supply order/contract all questions and disputes, relating
to the meaning of the specification designs, drawings and instructions herein before mentioned
and as to quality of workmanship of the items ordered or as to any other question, claim, right or
thing whatsoever, in any way arising out of or relating to the supply order/contract design,
drawing, specification, instruction or these conditions or otherwise concerning the materials or
the execution or failure to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of the persons
appointed by Member of the Commission at the time of dispute. It will be no objection to any
such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to
deal with the matter to which the supply or contract relates and that in the course of his duties as
Commissions employee he had expressed views on all or any of the matter in dispute or
difference.
The arbitrator to whom the matter is originally referred being transferred or vacating his office or
being unable to act for any reason the Member of the Commission shall appoint another person
to act as arbitrator in acordance with the terms of the contract/supply order. Such person shall
be entitled to proceed with reference from the stage at which it was left by his predecessor.
Subject as aforesaid the provisions of the Arbitration Act, 1940, or any Statutary modification or
re-enactment there of and the rules made there under and for the time being in force shall apply
to the arbitration proceedings under this clause.
The arbitrator may with the consent of parties enlarge the time, from time to time, to make and
publish the award.
The venue for arbitration shall be at Dehra dun.[1]
On July 23, 1988, the chosen arbitrator, one Shri N.N. Malhotra, resolved the dispute in
petitioners favor setting forth the arbitral award as follows:
NOW THEREFORE after considering all facts of the case, the evidence, oral and documentarys
adduced by the claimant and carefully examining the various written statements, submissions,
letters, telexes, etc. sent by the respondent, and the oral arguments addressed by the counsel
for the claimants, I, N.N. Malhotra, Sole Arbitrator, appointed under clause 16 of the supply order
dated 26.2.1983, according to which the parties, i.e. M/S Oil and Natural Gas Commission and
the Pacific Cement Co., Inc. can refer the dispute to the sole arbitration under the provision of
the Arbitration Act. 1940, do hereby award and direct as follows:-
The Respondent will pay the following to the claimant :-
1. Amount received by the Respondent
against the letter of credit No. 11/19
dated 28.2.1983 - - - US $ 477,300.00
2. Re-imbursement of expenditure incurred
by the claimant on the inspection teams
visit to Philippines in August 1985 - - - US$ 3,881.00
3. L. C. Establishment charges incurred
by the claimant - - - US $ 1,252.82
4. Loss of interest suffered by claimant
from 21.6.83 to 23.7.88 - - - US $ 417,169.95
Total amount of award - - - US $ 899,603.77
In addition to the above, the respondent would also be liable to pay to the claimant the interest
at the rate of 6% on the above amount, with effect from 24.7.1988 upto the actual date of
payment by the Respondent in full settlement of the claim as awarded or the date of the decree,
whichever is earlier.
I determine the cost at Rs. 70,000/- equivalent to US $5,000 towards the expenses on
Arbitration, legal expenses, stamps duly incurred by the claimant. The cost will be shared by the
parties in equal proportion.
Pronounced at Dehra Dun to-day, the 23rd of July 1988.[2]
To enable the petitioner to execute the above award in its favor, it filed a Petition before the Court
of the Civil Judge in Dehra Dun, India (hereinafter referred to as the foreign court for brevity),
praying that the decision of the arbitrator be made the Rule of Court in India. The foreign court
issued notices to the private respondent for filing objections to the petition. The private respondent
complied and sent its objections dated January 16, 1989. Subsequently, the said court directed
the private respondent to pay the filing fees in order that the latters objections could be given
consideration. Instead of paying the required filing fees, the private respondent sent the following
communication addressed to the Civil Judge of Dehra Dun:
The Civil Judge
Dehra Dun (U.P.) India
Re: Misc. Case No. 5 of 1989
M/S Pacific Cement Co.,
Inc. vs. ONGC Case
Sir:
1. We received your letter dated 28 April 1989 only last 18 May 1989.
2. Please inform us how much is the court fee to be paid. Your letter did not mention the
amount to be paid.
3. Kindly give us 15 days from receipt of your letter advising us how much to pay to
comply with the same.
Thank you for your kind consideration.
Pacific Cement Co., Inc.
By:
Jose Cortes, Jr.
President"[3]
Without responding to the above communication, the foreign court refused to admit the
private respondents objections for failure to pay the required filing fees, and thereafter issued an
Order on February 7, 1990, to wit:
ORDER
Since objections filed by defendant have been rejected through Misc. Suit No. 5 on 7.2.90,
therefore, award should be made Rule of the Court.
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of
award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall
also be entitled to get from defendant (US$ 899, 603.77 (US$ Eight Lakhs ninety nine thousand
six hundred and three point seventy seven only) alongwith 9% interest per annum till the last
date of realisation.[4]
Despite notice sent to the private respondent of the foregoing order and several demands
by the petitioner for compliance therewith, the private respondent refused to pay the amount
adjudged by the foreign court as owing to the petitioner. Accordingly, the petitioner filed a
complaint with Branch 30 of the Regional Trial Court (RTC) of Surigao City for the enforcement of
the aforementioned judgment of the foreign court. The private respondent moved to dismiss the
complaint on the following grounds: (1) plaintiffs lack of legal capacity to sue; (2) lack of cause of
action; and (3) plaintiffs claim or demand has been waived, abandoned, or otherwise extinguished.
The petitioner filed its opposition to the said motion to dismiss, and the private respondent, its
rejoinder thereto. On January 3, 1992, the RTC issued an order upholding the petitioners legal
capacity to sue, albeit dismissing the complaint for lack of a valid cause of action. The RTC held
that the rule prohibiting foreign corporations transacting business in the Philippines without a
license from maintaining a suit in Philippine courts admits of an exception, that is, when the foreign
corporation is suing on an isolated transaction as in this case.[5] Anent the issue of the sufficiency
of the petitioners cause of action, however, the RTC found the referral of the dispute between the
parties to the arbitrator under Clause 16 of their contract erroneous. According to the RTC,
[a] perusal of the above-quoted clause (Clause 16) readily shows that the matter covered by its
terms is limited to ALL QUESTIONS AND DISPUTES, RELATING TO THE MEANING OF THE
SPECIFICATION, DESIGNS, DRAWINGS AND INSTRUCTIONS HEREIN BEFORE
MENTIONED and as to the QUALITY OF WORKMANSHIP OF THE ITEMS ORDERED or as to
any other questions, claim, right or thing whatsoever, but qualified to IN ANY WAY ARISING OR
RELATING TO THE SUPPLY ORDER/CONTRACT, DESIGN, DRAWING, SPECIFICATION,
etc., repeating the enumeration in the opening sentence of the clause.
The court is inclined to go along with the observation of the defendant that the breach, consisting
of the non-delivery of the purchased materials, should have been properly litigated before a
court of law, pursuant to Clause No. 15 of the Contract/Supply Order, herein quoted, to wit:
JURISDICTION
All questions, disputes and differences, arising under out of or in connection with this supply
order, shall be subject to the EXCLUSIVE JURISDICTION OF THE COURT, within the local
limits of whose jurisdiction and the place from which this supply order is situated. [6]
The RTC characterized the erroneous submission of the dispute to the arbitrator as a mistake of
law or fact amounting to want of jurisdiction. Consequently, the proceedings had before the
arbitrator were null and void and the foreign court had therefore, adopted no legal award which
could be the source of an enforceable right.[7]
The petitioner then appealed to the respondent Court of Appeals which affirmed the
dismissal of the complaint. In its decision, the appellate court concurred with the RTCs ruling that
the arbitrator did not have jurisdiction over the dispute between the parties, thus, the foreign court
could not validly adopt the arbitrators award. In addition, the appellate court observed that the full
text of the judgment of the foreign court contains the dispositive portion only and indicates no
findings of fact and law as basis for the award. Hence, the said judgment cannot be enforced by
any Philippine court as it would violate the constitutional provision that no decision shall be
rendered by any court without expressing therein clearly and distinctly the facts and the law on
which it is based.[8] The appellate court ruled further that the dismissal of the private respondents
objections for non-payment of the required legal fees, without the foreign court first replying to the
private respondents query as to the amount of legal fees to be paid, constituted want of notice or
violation of due process. Lastly, it pointed out that the arbitration proceeding was defective
because the arbitrator was appointed solely by the petitioner, and the fact that the arbitrator was
a former employee of the latter gives rise to a presumed bias on his part in favor of the petitioner.[9]
A subsequent motion for reconsideration by the petitioner of the appellate courts decision
was denied, thus, this petition for review on certiorari citing the following as grounds in support
thereof:
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE LOWER
COURTS ORDER OF DISMISSAL SINCE:
 A. THE NON-DELIVERY OF THE CARGO WAS A MATTER PROPERLY COGNIZABLE
BY THE PROVISIONS OF CLAUSE 16 OF THE CONTRACT;
B. THE JUDGMENT OF THE CIVIL COURT OF DEHRADUN, INDIA WAS AN
AFFIRMATION OF THE FACTUAL AND LEGAL FINDINGS OF THE ARBITRATOR
AND THEREFORE ENFORCEABLE IN THIS JURISDICTION;
C. EVIDENCE MUST BE RECEIVED TO REPEL THE EFFECT OF A PRESUMPTIVE
RIGHT UNDER A FOREIGN JUDGMENT.[10]
The threshold issue is whether or not the arbitrator had jurisdiction over the dispute between
the petitioner and the private respondent under Clause 16 of the contract. To reiterate, Clause 16
provides as follows:
Except where otherwise provided in the supply order/contract all questions and disputes, relating
to the meaning of the specification designs, drawings and instructions herein before mentioned
and as to quality of workmanship of the items ordered or as to any other question, claim, right or
thing whatsoever, in any way arising out of or relating to the supply order/contract design,
drawing, specification, instruction or these conditions or otherwise concerning the materials or
the execution or failure to execute the same during stipulated/extended period or after the
completion/abandonment thereof shall be referred to the sole arbitration of the persons
appointed by Member of the Commission at the time of dispute. It will be no objection to any
such appointment that the arbitrator so appointed is a Commission employer (sic) that he had to
deal with the matter to which the supply or contract relates and that in the course of his duties as
Commissions employee he had expressed views on all or any of the matter in dispute or
difference.[11]
The dispute between the parties had its origin in the non-delivery of the 4,300 metric tons
of oil well cement to the petitioner. The primary question that may be posed, therefore, is whether
or not the non-delivery of the said cargo is a proper subject for arbitration under the above-quoted
Clause 16. The petitioner contends that the same was a matter within the purview of Clause 16,
particularly the phrase, x x x or as to any other questions, claim, right or thing whatsoever, in any
way arising or relating to the supply order/contract, design, drawing, specification, instruction x x
x.[12] It is argued that the foregoing phrase allows considerable latitude so as to include non-
delivery of the cargo which was a claim, right or thing relating to the supply order/contract. The
contention is bereft of merit. First of all, the petitioner has misquoted the said phrase, shrewdly
inserting a comma between the words supply order/contract and design where none actually
exists. An accurate reproduction of the phrase reads, x x x or as to any other question, claim, right
or thing whatsoever, in any way arising out of or relating to the supply order/contract design,
drawing, specification, instruction or these conditions x x x. The absence of a comma between the
words supply order/contract and design indicates that the former cannot be taken separately but
should be viewed in conjunction with the words design, drawing, specification, instruction or these
conditions. It is thus clear that to fall within the purview of this phrase, the claim, right or thing
whatsoever must arise out of or relate to the design, drawing, specification, or instruction of the
supply order/contract. The petitioner also insists that the non-delivery of the cargo is not only
covered by the foregoing phrase but also by the phrase, x x x or otherwise concerning the
materials or the execution or failure to execute the same during the stipulated/extended period or
after completion/abandonment thereof x x x.
The doctrine of noscitur a sociis, although a rule in the construction of statutes, is equally
applicable in the ascertainment of the meaning and scope of vague contractual stipulations, such
as the aforementioned phrase. According to the maxim noscitur a sociis, where a particular word
or phrase is ambiguous in itself or is equally susceptible of various meanings, its correct
construction may be made clear and specific by considering the company of the words in which it
is found or with which it is associated, or stated differently, its obscurity or doubt may be reviewed
by reference to associated words.[13] A close examination of Clause 16 reveals that it covers three
matters which may be submitted to arbitration namely,
(1) all questions and disputes, relating to the meaning of the specification designs,
drawings and instructions herein before mentioned and as to quality of
workmanship of the items ordered; or
(2) any other question, claim, right or thing whatsoever, in any way arising out of or
relating to the supply order/contract design, drawing, specification, instruction or
these conditions; or
(3) otherwise concerning the materials or the execution or failure to execute the same
during stipulated/extended period or after the completion/abandonment thereof.
The first and second categories unmistakably refer to questions and disputes relating to the
design, drawing, instructions, specifications or quality of the materials of the supply/order contract.
In the third category, the clause, execution or failure to execute the same, may be read as
execution or failure to execute the supply order/contract. But in accordance with the doctrine
of noscitur a sociis, this reference to the supply order/contract must be construed in the light of
the preceding words with which it is associated, meaning to say, as being limited only to the
design, drawing, instructions, specifications or quality of the materials of the supply order/contract.
The non-delivery of the oil well cement is definitely not in the nature of a dispute arising from the
failure to execute the supply order/contract design, drawing, instructions, specifications or quality
of the materials. That Clause 16 should pertain only to matters involving the technical aspects of
the contract is but a logical inference considering that the underlying purpose of a referral to
arbitration is for such technical matters to be deliberated upon by a person possessed with the
required skill and expertise which may be otherwise absent in the regular courts.
This Court agrees with the appellate court in its ruling that the non-delivery of the oil well
cement is a matter properly cognizable by the regular courts as stipulated by the parties in Clause
15 of their contract:
All questions, disputes and differences, arising under out of or in connection with this supply
order, shall be subject to the exclusive jurisdiction of the court, within the local limits of whose
jurisdiction and the place from which this supply order is situated. [14]
The following fundamental principles in the interpretation of contracts and other instruments
served as our guide in arriving at the foregoing conclusion:
"ART. 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual."[15]
ART. 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly. [16]
Sec. 11. Instrument construed so as to give effect to all provisions. In the construction of an
instrument, where there are several provisions or particulars, such a construction is, if possible,
to be adopted as will give effect to all.[17]
Thus, this Court has held that as in statutes, the provisions of a contract should not be read
in isolation from the rest of the instrument but, on the contrary, interpreted in the light of the other
related provisions.[18] The whole and every part of a contract must be considered in fixing the
meaning of any of its parts and in order to produce a harmonious whole. Equally applicable is the
canon of construction that in interpreting a statute (or a contract as in this case), care should be
taken that every part thereof be given effect, on the theory that it was enacted as an integrated
measure and not as a hodge-podge of conflicting provisions. The rule is that a construction that
would render a provision inoperative should be avoided; instead, apparently inconsistent
provisions should be reconciled whenever possible as parts of a coordinated and harmonious
whole.[19]
 The petitioners interpretation that Clause 16 is of such latitude as to contemplate even the
non-delivery of the oil well cement would in effect render Clause 15 a mere superfluity. A perusal
of Clause 16 shows that the parties did not intend arbitration to be the sole means of settling
disputes. This is manifest from Clause 16 itself which is prefixed with the proviso, Except where
otherwise provided in the supply order/contract x x x, thus indicating that the jurisdiction of the
arbitrator is not all encompassing, and admits of exceptions as may be provided elsewhere in the
supply order/contract. We believe that the correct interpretation to give effect to both stipulations
in the contract is for Clause 16 to be confined to all claims or disputes arising from or relating to
the design, drawing, instructions, specifications or quality of the materials of the supply
order/contract, and for Clause 15 to cover all other claims or disputes.
The petitioner then asseverates that granting, for the sake of argument, that the non-delivery
of the oil well cement is not a proper subject for arbitration, the failure of the replacement cement
to conform to the specifications of the contract is a matter clearly falling within the ambit of Clause
16. In this contention, we find merit. When the 4,300 metric tons of oil well cement were not
delivered to the petitioner, an agreement was forged between the latter and the private respondent
that Class G cement would be delivered to the petitioner as replacement. Upon inspection,
however, the replacement cement was rejected as it did not conform to the specifications of the
contract. Only after this latter circumstance was the matter brought before the arbitrator.
Undoubtedly, what was referred to arbitration was no longer the mere non-delivery of the cargo at
the first instance but also the failure of the replacement cargo to conform to the specifications of
the contract, a matter clearly within the coverage of Clause 16.
The private respondent posits that it was under no legal obligation to make replacement and
that it undertook the latter only in the spirit of liberality and to foster good business
relationship.[20] Hence, the undertaking to deliver the replacement cement and its subsequent
failure to conform to specifications are not anymore subject of the supply order/contract or any of
the provisions thereof. We disagree.
As per Clause 7 of the supply order/contract, the private respondent undertook to deliver
the 4,300 metric tons of oil well cement at BOMBAY (INDIA) 2181 MT and CALCUTTA 2119
[21]
MT. The failure of the private respondent to deliver the cargo to the designated places remains
undisputed. Likewise, the fact that the petitioner had already paid for the cost of the cement is not
contested by the private respondent. The private respondent claims, however, that it never
benefited from the transaction as it was not able to recover the cargo that was unloaded at the
port of Bangkok.[22] First of all, whether or not the private respondent was able to recover the cargo
is immaterial to its subsisting duty to make good its promise to deliver the cargo at the stipulated
place of delivery. Secondly, we find it difficult to believe this representation. In its Memorandum
filed before this Court, the private respondent asserted that the Civil Court of Bangkok had already
ruled that the non-delivery of the cargo was due solely to the fault of the carrier.[23] It is, therefore,
but logical to assume that the necessary consequence of this finding is the eventual recovery by
the private respondent of the cargo or the value thereof. What inspires credulity is not that the
replacement was done in the spirit of liberality but that it was undertaken precisely because of the
private respondents recognition of its duty to do so under the supply order/contract, Clause 16 of
which remains in force and effect until the full execution thereof.
We now go to the issue of whether or not the judgment of the foreign court is enforceable in
this jurisdiction in view of the private respondents allegation that it is bereft of any statement of
facts and law upon which the award in favor of the petitioner was based. The pertinent portion of
the judgment of the foreign court reads:
ORDER
Award dated 23.7.88, Paper No. 3/B-1 is made Rule of the Court. On the basis of conditions of
award decree is passed. Award Paper No. 3/B-1 shall be a part of the decree. The plaintiff shall
also be entitled to get from defendant ( US$ 899, 603.77 (US$ Eight Lakhs ninety nine thousand
six hundred and three point seventy seven only) alongwith 9% interest per annum till the last
date of realisation.[24]
As specified in the order of the Civil Judge of Dehra Dun, Award Paper No. 3/B-1 shall be a
part of the decree. This is a categorical declaration that the foreign court adopted the findings of
facts and law of the arbitrator as contained in the latters Award Paper. Award Paper No. 3/B-1,
contains an exhaustive discussion of the respective claims and defenses of the parties, and the
arbitrators evaluation of the same. Inasmuch as the foregoing is deemed to have been
incorporated into the foreign courts judgment the appellate court was in error when it described
the latter to be a simplistic decision containing literally, only the dispositive portion.[25]
The constitutional mandate that no decision shall be rendered by any court without
expressing therein clearly and distinctly the facts and the law on which it is based does not
preclude the validity of memorandum decisions which adopt by reference the findings of fact and
conclusions of law contained in the decisions of inferior tribunals. In Francisco v. Permskul,[26] this
Court held that the following memorandum decision of the Regional Trial Court of Makati did not
transgress the requirements of Section 14, Article VIII of the Constitution:
MEMORANDUM DECISION
After a careful perusal, evaluation and study of the records of this case, this Court hereby adopts
by reference the findings of fact and conclusions of law contained in the decision of the
Metropolitan Trial Court of Makati, Metro Manila, Branch 63 and finds that there is no cogent
reason to disturb the same.
WHEREFORE, judgment appealed from is hereby affirmed in toto.[27] (Underscoring supplied.)
This Court had occasion to make a similar pronouncement in the earlier case of Romero v. Court
of Appeals,[28] where the assailed decision of the Court of Appeals adopted the findings and
disposition of the Court of Agrarian Relations in this wise:
We have, therefore, carefully reviewed the evidence and made a re-assessment of the same,
and We are persuaded, nay compelled, to affirm the correctness of the trial courts factual
findings and the soundness of its conclusion. For judicial convenience and expediency,
therefore, We hereby adopt by way of reference, the findings of facts and conclusions of the
court a quo spread in its decision, as integral part of this Our decision.[29] (Underscoring supplied)
Hence, even in this jurisdiction, incorporation by reference is allowed if only to avoid the
cumbersome reproduction of the decision of the lower courts, or portions thereof, in the decision
of the higher court.[30] This is particularly true when the decision sought to be incorporated is a
lengthy and thorough discussion of the facts and conclusions arrived at, as in this case, where
Award Paper No. 3/B-1 consists of eighteen (18) single spaced pages.
Furthermore, the recognition to be accorded a foreign judgment is not necessarily affected
by the fact that the procedure in the courts of the country in which such judgment was rendered
differs from that of the courts of the country in which the judgment is relied on. [31] This Court has
held that matters of remedy and procedure are governed by the lex fori or the internal law of the
forum.[32] Thus, if under the procedural rules of the Civil Court of Dehra Dun, India, a valid judgment
may be rendered by adopting the arbitrators findings, then the same must be accorded respect. In
the same vein, if the procedure in the foreign court mandates that an Order of the Court becomes
final and executory upon failure to pay the necessary docket fees, then the courts in this jurisdiction
cannot invalidate the order of the foreign court simply because our rules provide otherwise.
The private respondent claims that its right to due process had been blatantly violated, first
by reason of the fact that the foreign court never answered its queries as to the amount of docket
fees to be paid then refused to admit its objections for failure to pay the same, and second,
because of the presumed bias on the part of the arbitrator who was a former employee of the
petitioner.
 Time and again this Court has held that the essence of due process is to be found in the complaint in Civil Case No. 4006 before Branch 30 of the RTC of Surigao City is REVERSED, and
reasonable opportunity to be heard and submit any evidence one may have in support of ones another in its stead is hereby rendered ORDERING private respondent PACIFIC CEMENT
defense[33] or stated otherwise, what is repugnant to due process is the denial of opportunity to be COMPANY, INC. to pay to petitioner the amounts adjudged in the foreign judgment subject of said
heard.[34] Thus, there is no violation of due process even if no hearing was conducted, where the case.
party was given a chance to explain his side of the controversy and he waived his right to do so.[35]
SO ORDERED.
In the instant case, the private respondent does not deny the fact that it was notified by the
foreign court to file its objections to the petition, and subsequently, to pay legal fees in order for its
objections to be given consideration. Instead of paying the legal fees, however, the private SECOND DIVISION
respondent sent a communication to the foreign court inquiring about the correct amount of fees
to be paid. On the pretext that it was yet awaiting the foreign courts reply, almost a year passed FIESTA WORLD MALL CORPORATION, G.R. NO. 152471
without the private respondent paying the legal fees. Thus, on February 2, 1990, the foreign court Petitioner,
rejected the objections of the private respondent and proceeded to adjudicate upon the petitioners Present:
claims. We cannot subscribe to the private respondents claim that the foreign court violated its - versus -
right to due process when it failed to reply to its queries nor when the latter rejected its objections PUNO, J., Chairperson,
for a clearly meritorious ground. The private respondent was afforded sufficient opportunity to be SANDOVAL-GUTIERREZ,
heard. It was not incumbent upon the foreign court to reply to the private respondents written CORONA,
*
communication. On the contrary, a genuine concern for its cause should have prompted the LINBERG PHILIPPINES, INC., AZCUNA, and
private respondent to ascertain with all due diligence the correct amount of legal fees to be paid. Respondent. GARCIA, JJ.
The private respondent did not act with prudence and diligence thus its plea that they were not
accorded the right to procedural due process cannot elicit either approval or sympathy from this
Court.[36] Promulgated:

The private respondent bewails the presumed bias on the part of the arbitrator who was a August 18, 2006
former employee of the petitioner. This point deserves scant consideration in view of the following
stipulation in the contract:

x x x. It will be no objection to any such appointment that the arbitrator so appointed is a x---------------------------------------------------------------------------------------------x
Commission employer (sic) that he had to deal with the matter to which the supply or contract
relates and that in the course of his duties as Commissions employee he had expressed views on
all or any of the matter in dispute or difference.[37] (Underscoring supplied.) DECISION
Finally, we reiterate hereunder our pronouncement in the case of Northwest Orient Airlines,
Inc. v. Court of Appeals[38] that: SANDOVAL-GUTIERREZ, J.:

A foreign judgment is presumed to be valid and binding in the country from which it comes, until For our resolution is the instant Petition for Review on Certiorari[1] assailing the
the contrary is shown. It is also proper to presume the regularity of the proceedings and the Decision[2] dated December 12, 2001 and Resolution[3] dated February 28, 2002 rendered by the
giving of due notice therein. Court of Appeals in CA-G.R. SP No. 63671, entitled Fiesta World Mall Corporation, petitioner,
versus Hon. Florito S. Macalino, Presiding Judge
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a of the Regional Trial Court (RTC), Branch 267, Pasig City, and Linberg Philippines,
tribunal of a foreign country having jurisdiction to pronounce the same is presumptive evidence Inc., respondents.
of a right as between the parties and their successors-in-interest by a subsequent title. The
judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the The facts of this case are:
party, collusion, fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court,
whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful
exercise of jurisdiction and has regularly performed its official duty.[39]
Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located
at Barangay Maraouy, Lipa City; while Linberg Philippines,
Consequently, the party attacking a foreign judgment, the private respondent herein, had the Inc., respondent, is a corporation that builds and operates power plants.
burden of overcoming the presumption of its validity which it failed to do in the instant case.
On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch
The foreign judgment being valid, there is nothing else left to be done than to order its 267, Pasig City, a Complaint for Sum of Money against petitioner, docketed as Civil Case No.
enforcement, despite the fact that the petitioner merely prays for the remand of the case to the 67755. The complaint alleges that on November 12, 1997, petitioner and
RTC for further proceedings. As this Court has ruled on the validity and enforceability of the said respondent executed a build-own-operate agreement, entitled Contract Agreement for Power
[4]
foreign judgment in this jurisdiction, further proceedings in the RTC for the reception of evidence Supply Services, 3.8 MW Base Load Power Plant (the Contract). Under
to prove otherwise are no longer necessary. this Contract, respondent will construct, at its own cost, and operate as owner a power plant, and
to supply petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the other
WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of hand, will pay respondent energy fees to be computed in accordance with the Seventh Schedule
Appeals sustaining the trial courts dismissal of the OIL AND NATURAL GAS COMMISSIONs of the Contract, the pertinent portions of which provide:
 2.1 x x x
E1 988,888 kw-hr x BER
E2 (ED-988,888) x BER
Where:
E1 & E2 Energy fees in pesos for the billing period. Where E1 is
based on the minimum energy off-take of
988,888 kw-hrs. per month and E2 is based on
the actual meter reading less the minimum off-
take.
BER Base energy rate at Ps 2.30/Kw-Hr billing rate based on the
exchange rate of Ps 26.20 to the US dollar,
and with fuel oil to be supplied by LINBERG
at its own cost. The base energy rate is
subject to exchange rate adjustment
accordingly to the formula as follows:
BER 0.6426 + 0.3224 Pn + 1.345 Fn
26.40 4.00
WHERE:
Pn is defined as the average of the Bangko Sentral ng
Pilipinas published dealing rates for thirty (30)
trading days immediately prior to the new billing
rate.
Fn Weighted average of fuel price per liter based on the average
of the last three (3) purchases made by
LINBERG as evidenced by purchase invoices.
ED Energy delivered in kw-hrs per meter reading.
3. Minimum Energy Off-Take
The energy fees payable to LINBERG shall be on the basis of actual KWH
generated by the plant. However, if the actual KWH generated is
less than the minimum energy off-take level, the calculation of the
energy fees shall be made as if LINBERG has generated the
minimum energy off-take level of 988,888 KW-HR per month.
The complaint further alleges that respondent constructed the power plant
in Lipa City at a cost of about P130,000,000.00. In November 1997, the power plant became
operational and started supplying power/electricity to petitioners shopping mall in Lipa City. In
December 1997, respondent started billing petitioner. As of May 21, 1999, petitioners unpaid
obligation amounted to P15,241,747.58, exclusive of interest. However, petitioner questioned the
said amount and refused to pay despite respondents repeated demands.
In its Answer with Compulsory Counterclaim, petitioner specifically denied the
allegations in the complaint, claiming that respondent failed to fulfill its obligations under the
Contract by failing to supply all its power/fuel needs. From November 10, 1998 until May 21, 1999,
petitioner personally shouldered the cost of fuel. Petitioner also disputed the amount of energy
fees specified in the billings made by respondent because the latter failed to monitor,
measure, and record the quantities of electricity delivered by taking photographs of the
electricity meter reading prior to the issuance of its invoices and billings, also in violation
of the Contract.[5] Moreover, in the computation of the electrical billings, the minimum off-take of
energy (E2) was based solely on the projected consumption as computed by
respondent. However, based on petitioners actual experience, it could not consume the
energy pursuant to the minimum off-take even if it kept open all its lights and operated all
its machinery and equipment for twenty-four hours a day for a month. This fact was
admitted by respondent. While both parties had discussions on the questioned billings, however,
there were no earnest efforts to resolve the differences in accordance with the arbitration clause
provided for in the Contract.
Finally, as a special affirmative defense in its answer, petitioner alleged that respondents
filing of the complaint is premature and should be dismissed on the ground of non-compliance
with paragraph 7.4 of the Contract which provides:
7.4 Disputes
If FIESTA WORLD disputes the amount specified by any invoice, it shall
pay the undisputed amount on or before such date(s), and the disputed
amount shall be resolved by arbitration of three (3) persons, one (1) by
mutual choice, while the other two (2) to be each chosen by the parties
themselves, within fourteen (14) days after the due date for such invoice and
all or any part of the disputed amount paid to LINBERG shall be paid together
with interest pursuant to Article XXV from the due date of the invoice. It is
agreed, however, that both parties must resolve the disputes within thirty (30)
days, otherwise any delay in payment resulting to loss to LINBERG when
converted to $US as a result of depreciation of the Pesos shall be for the
account of FIESTA WORLD. Corollarily, in case of erroneous billings,
however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such
deterioration, plus interest computed pursuant to Art. XXV from the date
FIESTA WORLD paid for the erroneous billing. (Underscoring supplied)
Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground
that respondent violated the arbitration clause provided in the Contract, thereby rendering its
cause of action premature.
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on
arbitration is not the provision applicable to this case; and that since the parties failed to settle their
dispute, then respondent may resort to court action pursuant to paragraph 17.2 of
the same Contract which provides:
17.2 Amicable Settlement
The parties hereto agree that in the event there is any dispute or difference
between them arising out of this Agreement or in the interpretation of
any of the provisions hereto, they shall endeavor to meet together in an
effort to resolve such dispute by discussion between them but failing
such resolution the Chief Executives of LINBERG and FIESTA WORLD
shall meet to resolve such dispute or difference and the joint decision of
such shall be binding upon the parties hereto, and in the event that a
settlement of any such dispute or difference is not reached, then the
provisions of Article XXI shall apply.
Article XXI, referred to in paragraph 17.2 above, reads:
 ARTICLE XXI
JURISDICTION
The parties hereto submit to the exclusive jurisdiction of the proper courts
of Pasig City, Republic of the Philippines for the hearing and
determination of any action or proceeding arising out of or in connection
with this Agreement.
In its Order dated October 3, 2000, the trial court denied petitioners motion for lack of
merit.
Petitioner then filed a Motion for Reconsideration but it was denied in an Order
dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for
Certiorari, docketed as CA-G.R. SP No. 63671. On December 12, 2001, the appellate court
rendered its Decision dismissing the petition and affirming the challenged Orders of the trial court.
Petitioners Motion for Reconsideration of the above Decision was likewise denied by
the appellate court in its Resolution[6] dated February 28, 2002.
Hence, the instant Petition for Review on Certiorari.
The sole issue for our resolution is whether the filing with the trial court of respondents
complaint is premature.
Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute
any amount of energy fees in the invoice and billings made by respondent, the same shall be
resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two
(2) to be each chosen by the parties themselves. The parties, in incorporating such agreement
in their Contract, expressly intended that the said matter in dispute must first be resolved by an
arbitration panel before it reaches the court.They made such arbitration mandatory.
It is clear from the records that petitioner disputed the amount of energy fees demanded
by respondent. However, respondent, without prior recourse to arbitration as required in the
Contract, filed directly with the trial court its complaint, thus violating the arbitration clause in the
Contract.
It bears stressing that such arbitration agreement is the law between the parties. Since
that agreement is binding between them, they are expected to abide by it in good faith. [7] And
because it covers the dispute between them in the present case, either of them may compel the
other to arbitrate.[8] Thus, it is well within petitioners right to demand recourse to arbitration.
We cannot agree with respondent that it can directly seek judicial recourse by filing an
action against petitioner simply because both failed to settle their differences amicably. Suffice it
to state that there is nothing in the Contract providing that the parties may dispense with
the arbitration clause. Article XXI on jurisdiction cited by respondent, i.e., that the parties
hereto submit to the exclusive jurisdiction of the proper courts of Pasig City merely
provides for the venue of any action arising out of or in connection with the stipulations of the
parties in the Contract.
Moreover, we note that the computation of the energy fees disputed by
petitioner also involves technical matters that are better left to an arbitration panel who has
expertise in those areas. Alternative dispute resolution methods or ADRs like arbitration,
mediation, negotiation and conciliation are encouraged by this Court. By enabling the 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.[9] To brush aside
such agreement providing for arbitration in case of disputes between the parties would be a step
backward. As we held in BF Corporation v. Court of Appeals,[10]
It should be noted that in this jurisdiction, arbitration has been held
valid and constitutional. Even before the approval on June 19, 1953 of
Republic Act No. 876 (The Arbitration Law), this Court has countenanced the
settlement of disputes through arbitration (Puromines, Inc. v. Court of
Appeals, G.R. No. 91228, March 22, 1993, 220 SCRA 281-290). Republic Act
No. 876 was adopted to supplement the New Civil Codes provisions on
arbitration (Chung Fu Industries Phils., Inc. v. Court of Appeals, G.R. No.
92683, February 25, 1992, 206 SCRA 545, 551). Its potentials as one of the
alternative dispute resolution methods that are now rightfully vaunted as the
wave of the future in international relations, is recognized worldwide. To brush
aside a contractual agreement calling for arbitration in case of disagreement
between the parties would therefore be a step backward.
In this connection, since respondent has already filed a complaint with the trial court without prior
recourse to arbitration, the proper procedure to enable an arbitration panel to resolve the parties
dispute pursuant to their Contract is for the trial court to stay the proceedings.[11] After the
arbitration proceeding has been pursued and completed, then thetrial court may confirm the award
made by the arbitration panel.[12]
In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause in the parties
Contract.
WHEREFORE, we GRANT the instant petition. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 63671 are REVERSED. The parties are ordered to submit
their controversy to the arbitration panel pursuant to paragraph 7.4 of the Contract. The Regional
Trial Court, Branch 267, Pasig City is directed to suspend the proceedings in Civil Case No. 67755
until after the Arbitration Panel shall have resolved the controversy and submitted its report to the
trial court. Costs against respondent.
SO ORDERED.
PROMISES INC vs CA (????)
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-27283 July 29, 1977
SOLEDAD F. BENGSON, plaintiff-appellant,
vs.
MARIANO M. CHAN, UNIVERSAL CONSTRUCTION SUPPLY and LEONCIO CHAN, both of
San Fernando, La Union; MUTUAL SECURITY INSURANCE CORPORATION and KRAUSE
A. IGNACIO of Manila, defendants-appellees.
Jesus Z. Valenzuela and San Jose, Albino & Associates for appellant.
Bengzon, Villegas & Zarraga for appellees Mariano Chan and Leoncio Chan.
Jose C. Blanco for appellee Mutual Security Insurance Corporation.
AQUINO, J.:
This is a case involving arbitration. On June 21, 1966 Soledad F. Bengson and Mariano M. Chan
entered into a contract for the construction of a six-story building on Bengson's lot located at
Rizal Avenue, San Fernando, La Union. In that contract Soledad F. Bengson found herself to
pay Chan, the contractor, the sum of P352,000 for the materials, labor and construction
expenses.
It was stipulated inter alia that the construction would start on July 5, 1965; that the first and
second stories, together with the theater, should be completed and available for use within five
months from July 5, 1965, and that the construction should be finished within twelve calendar
months from that date in conformity with the plans and specifications signed by the parties. The
contract contains the following arbitration clause:
15. Any and all questions, disputes or differences arising between the
parties hereto relative to the construction of the BUILDING shall be
determined by arbitration of two persons, each chosen by the parties
themselves. The determination of said arbitration shall be final, conclusive
and binding upon both parties hereto, unless they choose to go to court, in
which case the determination by arbitration is a condition precedent for
taking any court action. The expenses of arbitration shall be borne by both
parties equally.
On May 24, 1966 Soledad F. Bengson filed an action for damages against Mariano M. Chan and
the sureties on his performance bond. She alleged that Mariano M. Chan violated the contract
by not constructing the first and second stories within the stipulated five- month period; that
because the contractor admitted at a conference on May 8, 1966 that he was unable to continue
or complete the construction, Soledad F. Bengson terminated the contract; that she suffered
damages amounting to P85,000 as a consequence of Chan's failure to construct the commercial
building, and that Chan did not comply with clauses 7 and 8 of the contract in not attending to his
work and in not submitting periodic reports of the work done as a basis for the payment of the
laborers' wages. The damages claimed totalled P183,800.
Mariano M. Chan and his sureties, Leoncio Chan (the owner of the Universal Construction
Supply) and Mutual Security Insurance Corporation, alleged in their answer that the contractor
stopped the construction use Soledad F. Bengson refused to pay for ninety percent of the work
already accomplished; that the construction actually started in February, 1966 because of the
changes requested by Bengson; that the demolition of the old building was effected from July to
December, 1965, and that the stipulation for the construction of the first and second stories
within five months was novated b the parties.
The contractor and his sureties further alleged that Soledad F. Bengson had paid him P74,750
but refused to pay on May 8, 1966 the additional sum of P31,450 as the balance of ninety
percent of the work already accomplished worth P118,000; that by reason of Bengson's failure
to pay the balance, Chan notified her that he would stop the construction, and that he actually
stopped the construction on May 30, 1966 when he was served with a copy of the complaint.
Mariano M. Chan filed counterclaims for P45,223.23 as the balance due on the contract;
P15,000 as the value of the materials in the construction yard; P5,000 as reimbursement of the
expenses for the demolition of the old building, P5,000 as the value of his construction
equipment under Bengson's control and P35,000 as damages.
On November 16, 1966 the defendants filed an amended answer wherein they alleged as an
additional affirmative defense that the complaint states no cause of action because Soledad F.
Bengson did not submit the controversy for arbitration as required in the aforequoted paragraph
15 of the construction contract.
After holding a hearing, the trial court in its order of November 24, 1966 sustained that new
defense and dismissed the complaint. Bengson appealed.
Appellant Bengson's five assignments of errors may be reduced to the issues of whether the trial
court erred (1) in allowing the defendants to plead a new affirmative defense in their amended
answer and (2) in holding that the cause of action in plaintiff's complaint are embraced in the
requirement for arbitration as a condition precedent to a court action.
(1) We hold that there is no merit in appellant Bengson's contention that the defendants waived
the defense of lack of cause of action. It is true that the defendants did not interpose as a
defense in their original answer Bengson's failure to resort to arbitration before going to court or
the defense that her complaint does not state a cause of action. The omission did not constitute
a waiver of that defense because section 2, Rule 9 of the Rules of Court explicitly provides that
"defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived; except the failure to state a cause of action which may be alleged in a later pleading, if
one is permitted".
(2) Appellant Bengson's other contention that her causes of action do not involve disputes
relative to the construction of the building and, consequently, should not be submitted for
arbitration, is not well-taken.
The trial court sensibly said that "all the causes of action alleged in the plaintiff's amended
complaint are based upon the supposed violations committed by the defendants of the 'Contract
for the Construction of a Building"' and that "the provisions of paragraph 15 hereof leave very
little room for doubt that the said causes of action are embraced within the phrase 'any and all
questions, disputes or differences between the parties hereto relative to the construction of the
building', which must be determined by arbitration of two persons and such determination by the
arbitrators shall be 'final, conclusive and binding upon both parties' unless they go to court, in
which case the determination by arbitration is ' a condition precedent for taking any court
action'."
Appellant Bengson argues that paragraph 15 refers to disputes as to "the technical process of
putting up the building", meaning whether there was an adherence to the plans and
specifications, and that her causes of action for damages do not involve questions as to the
construction of the building but refer to disputes "based on violation of the contract for
construction".
She points out that the contract for the construction of the building and the construction of the
building are different concepts, just as the Constitution and the formation of the government
under the Constitution are different concepts; that a dispute relating to the construction contract
is not necessarily a dispute relative to the construction of the building; that the parties did not
have any dispute prior to the filing of the complaint, and that it was only after the filing of the
case that a dispute arose between them.
Appellant Bengson alternatively argues that if arbitration is proper, then the trial court in
conformity with section 6 of the Arbitration Law, Republic Act No. 876, should have required the
parties to proceed to arbitration.
On the other hand, the defendants argue that the broad and inclusive terms of paragraph 15
embrace all breaches of the contract regarding submission to arbitration of the contractor's
request for extensions shows that arbitration is not restricted to disputes relative to "the technical
process of putting up the building".
SEC. 7. Stay of civil action. — If any suit or proceeding be brought upon an
issue arising out of an agreement providing for the arbitration thereof, the
court in which such quit or proceeding is pending, upon being satisfied that
the issue involved in such suit or proceeding is referable to arbitration, shall
stay the action or proceeding until an arbitration has been had in
accordance with the terms of the agreement: Provided, That the applicant
for the stay is not in default in proceeding with such arbitration.
Within the meaning of section 6, the failure of Soledad F. Bengson to resort to arbitration may be
regarded as a refusal to comply with the stipulation for arbitration. And defendants p interposition
of the defense that arbitration is a condition precedent to the institution of a court action may be
interpreted as a petition for an order that arbitration should proceed as contemplated in section
15.
Therefore, instead of dismissing the case, the proceedings therein should be suspended and the
parties should be directed to go through the motions of arbitration at least within a sixty-day
period. With the consent of the parties, the trial court may appoint a third arbitrator to prevent a
deadlock between the two arbitrators. In the event that the disputes between the parties could
not be settled definitively by arbitration, then the hearing of the instant case should be resumed.

WHEREFORE, the trial court's order of dismissal is reversed and set aside. If the parties cannot
We hold that the terms of paragraph 15 clearly express the intention of the parties that all
reach an amicable settlement at this late hour, then the trial court should give them at least sixty
disputes between them should first be arbitrated before court action can be taken by the
days from notice within which to settle their disputes by arbitration and, if no settlement is
aggrieved party.
finalized within that period, it should hold a pre-trial and try the case. No costs.

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

[G.R. No. 141833. March 26, 2003]

However, although the causes of action in Bengson's complaint are covered by paragraph 15,
her failure to resort to arbitration does not warrant the dismissal of her complaint. We agree with LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL
her alternative contention that arbitration may be resorted to during the pendency of the case. CONSTRUCTION GROUPS, INC., respondent.
The Arbitration Law provides:

DECISION
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 PANGANIBAN, J.:
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 Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation
by registered mail upon the party in default. The court shall hear the parties, and conciliation -- are encouraged by the Supreme Court. By enabling parties to resolve their
and upon being satisfied that the making of the agreement or such failure to disputes amicably, they provide solutions that are less time-consuming, less tedious, less
comply therewith is not in issue, shall make an order directing the parties to confrontational, and more productive of goodwill and lasting relationships.[1]
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 The Case
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 Before us is a Petition for Review on Certiorari[2] under Rule 45 of the Rules of Court,
parties to proceed with arbitration in accordance with the terms thereof. seeking to set aside the January 28, 2000 Decision of the Court of Appeals[3] (CA) in CA-GR CV
No. 54232. The dispositive portion of the Decision reads as follows:
The court shall decide all motions, petitions or applications filed under the
provisions of this Act, within ten days after such motions, petitions, or
applications have been heard by it.
WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are
ORDERED to present their dispute to arbitration in accordance with their Sub-contract
Agreement. The surety bond posted by [respondent] is [d]ischarged.[4]
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent
Capitol Industrial Construction Groups Inc. entered into a Subcontract Agreement involving
electrical work at the Third Port of Zamboanga.[5]
On April 25, 1985, respondent took over some of the work contracted to
petitioner.[6] Allegedly, the latter had failed to finish it because of its inability to procure materials. [7]
Upon completing its task under the Contract, petitioner billed respondent in the amount
of P6,711,813.90.[8] Contesting the accuracy of the amount of advances and billable
accomplishments listed by the former, the latter refused to pay. Respondent also took refuge in
the termination clause of the Agreement.[9] That clause allowed it to set off the cost of the work
that petitioner had failed to undertake -- due to termination or take-over -- against the amount it
owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch
141) a Complaint[10] for the collection of the amount representing the alleged balance due it under
the Subcontract. Instead of submitting an Answer, respondent filed a Motion to Dismiss,[11] alleging
that the Complaint was premature, because there was no prior recourse to arbitration.
In its Order[12] dated September 15, 1987, the RTC denied the Motion on the ground that
the dispute did not involve the interpretation or the implementation of the Agreement and was,
therefore, not covered by the arbitral clause.[13]
After trial on the merits, the RTC[14] ruled that the take-over of some work items by
respondent was not equivalent to a termination, but a mere modification, of the Subcontract. The
latter was ordered to give full payment for the work completed by petitioner.
Ruling of the Court of Appeals
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 respondents take-over of some work items
had been intended to be a termination of the original contract under Letter K of the Subcontract. It
ruled likewise 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.[16]
The Issues
In its Memorandum, petitioner raises the following issues for the Courts consideration:
A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding
the interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983
that requires prior recourse to voluntary arbitration;
B
In the affirmative, whether or not the requirements provided in Article III [1] of CIAC Arbitration
Rules regarding request for arbitration ha[ve] been complied with[.] [17]
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation
of the Agreement. Thus, without having to resort to prior arbitration, it is entitled to collect the value
of the services it rendered through an ordinary action for the collection of a sum of money from
respondent. On the other hand, the latter contends that there is a need for prior arbitration as
provided in the Agreement. This is because there are some disparities between the parties
positions regarding the extent of the work done, the amount of advances and billable
accomplishments, and the set off of expenses incurred by respondent in its take-over of petitioners
work.
We side with respondent. Essentially, the dispute arose from the parties ncongruent
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. [18]
In the case before us, the Subcontract has the following arbitral clause:
6. The Parties hereto agree that any dispute or conflict as regards to interpretation
and implementation of this Agreement which cannot be settled between [respondent]
and [petitioner] amicably shall be settled by means of arbitration x x x.[19]
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.
A review of the factual allegations of the parties reveals that they differ on the following
questions: (1) Did a take-over/termination occur? (2) May the expenses incurred by respondent in
the take-over be set off against the amounts it owed petitioner? (3) How much were the advances
and billable accomplishments?
 The resolution of the foregoing issues lies in the interpretation of the provisions of the
Agreement. According to respondent, the take-over was caused by petitioners delay in completing
the work. Such delay was in violation of the provision in the Agreement as to time schedule:
G. TIME SCHEDULE
[Petitioner] shall adhere strictly to the schedule related to the WORK and complete
the WORK within the period set forth in Annex C hereof. NO time extension shall be
granted by [respondent] to [petitioner] unless a corresponding time extension is
granted by [the Ministry of Public Works and Highways] to the CONSORTIUM. [20]
Because of the delay, respondent alleges that it took over some of the work contracted to
petitioner, pursuant to the following provision in the Agreement:
K. TERMINATION OF AGREEMENT
[Respondent] has the right to terminate and/or take over this Agreement for any of
the following causes:
xxxxxxxxx
6. If despite previous warnings by [respondent], [petitioner] does not execute
the WORK in accordance with this Agreement, or persistently or flagrantly
neglects to carry out [its] obligations under this Agreement.[21]
Supposedly, as a result of the take-over, respondent incurred expenses in excess of the
contracted price. It sought to set off those expenses against the amount claimed by petitioner for
the work the latter accomplished, pursuant to the following provision:
If the total direct and indirect cost of completing the remaining part of the WORK exceed the
sum which would have been payable to [petitioner] had it completed the WORK, the amount of
such excess [may be] claimed by [respondent] from either of the following:
1. Any amount due [petitioner] from [respondent] at the time of the termination of this
Agreement.[22]
The issue as to the correct amount of petitioners advances and billable accomplishments
involves an evaluation of the manner in which the parties completed the work, the extent to which
they did it, and the expenses each of them incurred in connection therewith. Arbitrators also need
to look into the computation of foreign and local costs of materials, foreign and local advances,
retention fees and letters of credit, and taxes and duties as set forth in the Agreement. These data
can be gathered from a review of the Agreement, pertinent portions of which are reproduced
hereunder:
C. CONTRACT PRICE AND TERMS OF PAYMENT
xxxxxxxxx
All progress payments to be made by [respondent] to [petitioner] shall be subject to
a retention sum of ten percent (10%) of the value of the approved quantities. Any
claims by [respondent] on [petitioner] may be deducted by [respondent] from the
progress payments and/or retained amount. Any excess from the retained amount
after deducting [respondents] claims shall be released by [respondent] to [petitioner]
after the issuance of [the Ministry of Public Works and Highways] of the Certificate of
Completion and final acceptance of the WORK by [the Ministry of Public Works and
Highways].
xxxxxxxxx
D. IMPORTED MATERIALS AND EQUIPMENT
[Respondent shall open the letters of credit for the importation of equipment and
materials listed in Annex E hereof after the drawings, brochures, and other
technical data of each items in the list have been formally approved by [the Ministry
of Public Works and Highways]. However, petitioner will still be fully responsible for
all imported materials and equipment.
All expenses incurred by [respondent], both in foreign and local currencies in
connection with the opening of the letters of credit shall be deducted from the
Contract Prices.
xxxxxxxxx
N. OTHER CONDITIONS
xxxxxxxxx
2. All customs duties, import duties, contractors taxes, income taxes, and other
taxes that may be required by any government agencies in connection with this
Agreement shall be for the sole account of [petitioner].[23]
Being an inexpensive, speedy and amicable method of settling disputes,[24] 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.[25] It is thus regarded as the wave of the future in international civil and
commercial disputes.[26] Brushing aside a contractual agreement calling for arbitration between
the parties would be a step backward.[27]
Consistent with the above-mentioned 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.[28] Any doubt should be resolved in favor of arbitration.[29]
Second Issue:
Prior Request for Arbitration
According to petitioner, assuming arguendo that the dispute is arbitrable, the failure to file a
formal request for arbitration with the Construction Industry Arbitration Commission (CIAC)
precluded the latter from acquiring jurisdiction over the question. To bolster its position, petitioner
even cites our ruling in Tesco Services Incorporated v. Vera.[30] We are not persuaded.
 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 foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and
3-93.[31]
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.[34]
Clearly, 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.[35] And because it covers the dispute between the parties in the present
case, either of them may compel the other to arbitrate.[36]
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].[37]
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
TOYOTA MOTOR PHILS Co. vs CA (DIGEST)
Facts:
This case involves a boundary dispute between petitioner Toyota Motor Phil. Corporation
(Toyota) and private respondent Sun Valley Manufacturing and Development Corporation (Sun
Valley). Both Toyota and Sun Valley are the registered owners of two (2) adjoining parcels of
land which they purchased from the Asset Privatization Trust (APT). The properties in question
formerly belonged to Delta Motors Corporation (DMC) which were foreclosed by the Philippine
National Bank (PNB) and later transferred to the national government through the APT for
disposition. APT then proceeded to classify the DMC properties, called the GC III-Delta Motors
Corporation, and divided into Delta I, Delta II, and Delta III. Further subdivisions for the separate
catalogues were made for each division e.g. Delta I into Lots 1, 2 and 3. After this classification,
APT parcelled out and catalogued the properties for bidding and sale.
Part of the duly parcelled Delta I property (Lot 2) was sold to Toyota through public bidding. After
its purchase, Toyota constructed a concrete hollow block (CHB) perimeter fence around its
alleged property. Another part of the parcelled Delta I (Lot 1) was purchased by Sun Valley from
APT. Petitioner then filed a case against APT for the reformation of the Deed of Sale executed
between them alleging that the instrument failed to reflect the true intention of the parties as the
title failed to include 723 square meters strip of land. On the other hand, Sun Valley, filed a case
for recovery of possession of the disputed 723 square meters relying upon the title description of
its property and the surveys it has commissioned. Through legal maneuverings, the parties have
succeeded in muddling up the vital issues of the case and getting the lower courts embroiled in
numerous appeals over technicalities. Hence, the three appellate decisions/resolutions before
the Court for review and conflicting orders issued by lower courts as a result of the separate
cases filed by the parties.
Issue:
Whether or not Judge Tensuan had jurisdiction to take cognizance of the case for reformation of
instrument.
Ruling:
Attention must first be brought to the fact that the contract of sale executed between APT and
Toyota provides an arbitration clause which states that:
5. In case of disagreement or conflict arising out of this Contract, the parties hereby
undertake to submit the matter for determination by a committee of experts, acting as
arbitrators, the composition of which shall be as follows: a) One member to be
appointed by the VENDOR; b) One member to be appointed by the VENDEE; c) One
member, who shall be a lawyer, to be appointed by both of the aforesaid parties;
The contention that the arbitration clause has become dysfunctional because of the presence of
third parties is untenable.
Toyota filed an action for reformation of its contract with APT, the purpose of which is to look into
the real intentions/agreement of the parties to the contract and to determine if there was really a
mistake in the designation of the boundaries of the property as alleged by Toyota. Such
questions can only be answered by the parties to the contract themselves. This is a controversy
which clearly arose from the contract entered into by APT and Toyota. Inasmuch as this
concerns more importantly the parties APT and Toyota themselves, the arbitration committee is
therefore the proper and convenient forum to settle the matter as clearly provided in the deed of
sale. Having been apprised of the presence of the arbitration clause in the motion to dismiss
filed by APT, Judge Tensuan should have at least suspended the proceedings and directed the
parties to settle their dispute by arbitration. Judge Tensuan should have not taken cognizance of
the case.
In view of all the foregoing, the petition is hereby dismissed for failure to show reversible error,
much less grave abuse of discretion, on the part of the respondent court.
SECOND DIVISION
[G.R. NO. 135362. December 13, 1999]
HEIRS OF AUGUSTO L. SALAS, JR., namely: TERESITA D. SALAS for herself and as legal
guardian of the minor FABRICE CYRILL D. SALAS, MA. CRISTINA S. LESACA,
and KARINA TERESA D. SALAS, petitioners, vs. LAPERAL REALTY
CORPORATION, ROCKWAY REAL ESTATE CORPORATION, SOUTH RIDGE
VILLAGE, INC., MAHARAMI DEVELOPMENT CORPORATION, Spouses THELMA
D. ABRAJANO and GREGORIO ABRAJANO, OSCAR DACILLO, Spouses
VIRGINIA D. LAVA and RODEL LAVA, EDUARDO A. VACUNA, FLORANTE DE LA
CRUZ, JESUS VICENTE B. CAPELLAN, and the REGISTER OF DEEDS FOR LIPA
CITY, respondents.
DECISION
DE LEON, JR., J.:
[1]
Before us is a petition for review on certiorari of the Order of Branch 85 of the Regional
Trial Court of Lipa City[2] dismissing petitioners complaint[3] for rescission of several sale
transactions involving land owned by Augusto L. Salas, Jr., their predecessor-in-interest, on the
ground that they failed to first resort to arbitration.
Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas spanning
1,484,354 square meters.
On May 15, 1987, he entered into an Owner-Contractor Agreement[4] (hereinafter referred
to as the Agreement) with respondent Laperal Realty Corporation (hereinafter referred to as
Laperal Realty) to render and provide complete (horizontal) construction services on his land.
On September 23, 1988, Salas, Jr. executed a Special Power of Attorney in favor of
respondent Laperal Realty to exercise general control, supervision and management of the sale
of his land, for cash or on installment basis.
On June 10, 1989, Salas, Jr. left his home in the morning for a business trip to Nueva
Ecija. He never returned.
On August 6, 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a
verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then
been missing for more than seven (7) years. It was granted on December 12, 1996.[5]
Meantime, respondent Laperal Realty subdivided the land of Salas, Jr. and sold subdivided
portions thereof to respondents Rockway Real Estate Corporation and South Ridge Village, Inc.
on February 22, 1990; to respondent spouses Abrajano and Lava and Oscar Dacillo on June 27,
1991; and to respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan on
June 4, 1996 (all of whom are hereinafter referred to as respondent lot buyers).
On February 3, 1998, petitioners as heirs of Salas, Jr. filed in the Regional Trial Court of
Lipa City a Complaint[6] for declaration of nullity of sale, reconveyance, cancellation of contract,
accounting and damages against herein respondents which was docketed as Civil Case No. 98-
0047.
On April 24, 1998, respondent Laperal Realty filed a Motion to Dismiss[7]on the ground that
petitioners failed to submit their grievance to arbitration as required under Article VI of the
Agreement which provides:
ARTICLE VI. ARBITRATION.
All cases of dispute between CONTRACTOR and OWNERS representative shall be referred to
the committee represented by:
a. One representative of the OWNER;
b. One representative of the CONTRACTOR;
c. One representative acceptable to both OWNER and CONTRACTOR. [8]
On May 5, 1998, respondent spouses Abrajano and Lava and respondent Dacillo filed a
Joint Answer with Counterclaim and Crossclaim[9] praying for dismissal of petitioners Complaint
for the same reason.
On August 9, 1998, the trial court issued the herein assailed Order dismissing petitioners
Complaint for non-compliance with the foregoing arbitration clause.
Hence this petition.
Petitioners argue, thus:
The petitioners causes of action did not emanate from the Owner-Contractor Agreement.
The petitioners causes of action for cancellation of contract and accounting are covered by the
exception under the Arbitration Law.
Failure to arbitrate is not a ground for dismissal.[10]
In a catena of cases[11] inspired by Justice Malcolms provocative dissent in Vega v. San
Carlos Milling Co.[12], this Court has recognized arbitration agreements as valid, binding,
enforceable and not contrary to public policy so much so that when there obtains a written
provision for arbitration which is not complied with, the trial court should suspend the proceedings
and order the parties to proceed to arbitration in accordance with the terms of their
agreement[13] Arbitration is the wave of the future in dispute resolution. [14] To brush aside a
contractual agreement calling for arbitration in case of disagreement between parties would be a
step backward.[15]
Nonetheless, we grant the petition.
A submission to arbitration is a contract.[16] As such, the Agreement, containing the
stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs.[17] But only
they. Petitioners, as heirs of Salas, Jr., and respondent Laperal Realty are certainly bound by the
Agreement. If respondent Laperal Realty, had assigned its rights under the Agreement to a third
party, making the former, the assignor, and the latter, the assignee, such assignee would also be
bound by the arbitration provision since assignment involves such transfer of rights as to vest in
the assignee the power to enforce them to the same extent as the assignor could have enforced
them against the debtor[18] or in this case, against the heirs of the original party to the
Agreement. However, respondents Rockway Real Estate Corporation, South Ridge Village, Inc.,
Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo
Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights of
respondent Laperal Realty under the Agreement to develop Salas, Jr.s land and sell the
same. They are, rather, buyers of the land that respondent Laperal Realty was given the authority
to develop and sell under the Agreement. As such, they are not assigns contemplated in Art. 1311
of the New Civil Code which provides that contracts take effect only between the parties, their
assigns and heirs.
 Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas,
Jr.s land when respondent Laperal Realty subdivided it and sold portions thereof to respondent
lot buyers.Thus, they instituted action[19]against both respondent Laperal Realty and respondent
lot buyers for rescission of the sale transactions and reconveyance to them of the subdivided
lots. They argue that rescission, being their cause of action, falls under the exception clause in
Sec. 2 of Republic Act No. 876 which provides that such submission [to] or contract [of arbitration]
shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the
revocation of any contract.
The petitioners contention is without merit. For while rescission, as a general rule, is an
arbitrable issue,[20] they impleaded in the suit for rescission the respondent lot buyers who are
neither parties to the Agreement nor the latters assigns or heirs. Consequently, the right to
arbitrate as provided in Article VI of the Agreement was never vested in respondent lot buyers.
Respondent Laperal Realty, as a contracting party to the Agreement, has the right to compel
petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into
arbitration for respondent Laperal Realty and trial for the respondent lot buyers, or to hold trial in
abeyance pending arbitration between petitioners and respondent Laperal Realty, would in effect
result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it
would be in the interest of justice if the trial court hears the complaint against all herein
respondents and adjudicates petitioners rights as against theirs in a single and complete
proceeding.
WHEREFORE, the instant petition is hereby GRANTED. The Order dated August 19, 1998
of Branch 85 of the Regional Trial Court of Lipa City is hereby NULLIFIED and SET ASIDE. Said
court is hereby ordered to proceed with the hearing of Civil Case No. 98-0047.
Costs against private respondents.
SO ORDERED.
SECOND DIVISION
[G.R. No. 136154. February 7, 2001]
DEL MONTE CORPORATION-USA, PAUL E. DERBY, JR., DANIEL COLLINS and LUIS
HIDALGO, petitioners, vs. COURT OF APPEALS, JUDGE BIENVENIDO L. REYES
in his capacity as Presiding Judge, RTC-Br. 74, Malabon, Metro Manila,
MONTEBUENO MARKETING, INC., LIONG LIONG C. SY and SABROSA FOODS,
INC., respondents.
DECISION
BELLOSILLO, J.:
This Petition for Review on certiorari assails the 17 July 1998 Decision[1] of the Court of
Appeals affirming the 11 November 1997 Order[2] of the Regional Trial Court which denied
petitioners Motion to Suspend Proceedings in Civil Case No. 2637-MN. It also questions the
appellate courts Resolution[3] of 30 October 1998 which denied petitioners Motion for
Reconsideration.
On 1 July 1994, in a Distributorship Agreement, petitioner Del Monte Corporation-USA
(DMC-USA) appointed private respondent Montebueno Marketing, Inc. (MMI) as the sole and
exclusive distributor of its Del Monte products in the Philippines for a period of five (5) years,
renewable for two (2) consecutive five (5) year periods with the consent of the parties. The
Agreement provided, among others, for an arbitration clause which states -
12. GOVERNING LAW AND ARBITRATION[4]
This Agreement shall be governed by the laws of the State of California and/or, if applicable, the
United States of America. All disputes arising out of or relating to this Agreement or the parties
relationship, including the termination thereof, shall be resolved by arbitration in the City of San
Francisco, State of California, under the Rules of the American Arbitration Association. The
arbitration panel shall consist of three members, one of whom shall be selected by DMC-USA,
one of whom shall be selected by MMI, and third of whom shall be selected by the other two
members and shall have relevant experience in the industry x x x x
In October 1994 the appointment of private respondent MMI as the sole and exclusive
distributor of Del Monte products in the Philippines was published in several newspapers in the
country.Immediately after its appointment, private respondent MMI appointed Sabrosa Foods, Inc.
(SFI), with the approval of petitioner DMC-USA, as MMIs marketing arm to concentrate on its
marketing and selling function as well as to manage its critical relationship with the trade.
On 3 October 1996 private respondents MMI, SFI and MMIs Managing Director Liong Liong
C. Sy (LILY SY) filed a Complaint[5] against petitioners DMC-USA, Paul E. Derby, Jr.,[6] Daniel
Collins[7]and Luis Hidalgo,[8] and Dewey Ltd.[9] before the Regional Trial Court of Malabon, Metro
Manila. Private respondents predicated their complaint on the alleged violations by petitioners of
Arts. 20,[10] 21[11]and 23[12] of the Civil Code. According to private respondents, DMC-USA products
continued to be brought into the country by parallel importers despite the appointment of private
respondent MMI as the sole and exclusive distributor of Del Monte products thereby causing them
great embarrassment and substantial damage. They alleged that the products brought into the
country by these importers were aged, damaged, fake or counterfeit, so that in March 1995 they
had to cause, after prior consultation with Antonio Ongpin, Market Director for Special Markets of
Del Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in
leading newspapers. Petitioners DMC-USA and Paul E. Derby, Jr., apparently upset with the
publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and to
communicate directly instead with petitioner DMC-USA through Paul E. Derby, Jr.
Private respondents further averred that petitioners knowingly and surreptitiously continued
to deal with the former in bad faith by involving disinterested third parties and by proposing
solutions which were entirely out of their control. Private respondents claimed that they had
exhausted all possible avenues for an amicable resolution and settlement of their grievances; that
as a result of the fraud, bad faith, malice and wanton attitude of petitioners, they should be held
responsible for all the actual expenses incurred by private respondents in the delayed shipment
of orders which resulted in the extra handling thereof, the actual expenses and cost of money for
the unused Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-
stock situations and unauthorized shipments of Del Monte-USA products to the Philippine Duty
Free Area and Economic Zone; that the bad faith, fraudulent acts and willful negligence of
petitioners, motivated by their determination to squeeze private respondents out of the outstanding
and ongoing Distributorship Agreement in favor of another party, had placed private respondent
LILY SY on tenterhooks since then; and, that the shrewd and subtle manner with which petitioners
concocted imaginary violations by private respondent MMI of the Distributorship Agreement in
order to justify the untimely termination thereof was a subterfuge. For the foregoing, private
respondents claimed, among other reliefs, the payment of actual damages, exemplary damages,
attorneys fees and litigation expenses.
On 21 October 1996 petitioners filed a Motion to Suspend Proceedings[13] invoking the
arbitration clause in their Agreement with private respondents.
In a Resolution[14] dated 23 December 1996 the trial court deferred consideration of
petitioners Motion to Suspend Proceedings as the grounds alleged therein did not constitute the
suspension of the proceedings considering that the action was for damages with prayer for the
issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement.
On 15 January 1997 petitioners filed a Motion for Reconsideration to which private
respondents filed their Comment/Opposition. On 31 January 1997 petitioners filed
their Reply. Subsequently, private respondents filed an Urgent Motion for Leave to Admit
Supplemental Pleading dated 2 April 1997. This Motion was admitted, over petitioners opposition,
in an Order of the trial court dated 27 June 1997.
As a result of the admission of the Supplemental Complaint, petitioners filed on 22 July 1997
a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for
Reconsideration of 14 January 1997.
On 11 November 1997 the Motion to Suspend Proceedings was denied by the trial court on
the ground that it "will not serve the ends of justice and to allow said suspension will only delay
the determination of the issues, frustrate the quest of the parties for a judicious determination of
their respective claims, and/or deprive and delay their rights to seek redress."[15]
On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the
alleged damaging acts recited in the Complaint, constituting petitioners causes of action, required
the interpretation of Art. 21 of the Civil Code[16] and that in determining whether petitioners had
violated it "would require a full blown trial" making arbitration "out of the
question."[17] Petitioners Motion for Reconsiderationof the affirmation was denied. Hence,
this Petition for Review.
The crux of the controversy boils down to whether the dispute between the parties warrants
an order compelling them to submit to arbitration.
Petitioners contend that the subject matter of private respondents causes of action arises
out of or relates to the Agreement between petitioners and private respondents. Thus, considering
that the arbitration clause of the Agreement provides that all disputes arising out of or relating to
the Agreement or the parties relationship, including the termination thereof, shall be resolved by
arbitration, they insist on the suspension of the proceedings in Civil Case No. 2637-MN as
mandated by Sec. 7 of RA 876[18] -
Sec. 7. Stay of Civil Action. If any suit or proceeding be brought upon an issue arising out of an
agreement providing for arbitration thereof, the court in which such suit or proceeding is pending,
upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration,
shall stay the action or proceeding until an arbitration has been had in accordance with the terms
of the agreement.Provided, That the applicant for the stay is not in default in proceeding with
such arbitration.
Private respondents claim, on the other hand, that their causes of action are rooted in Arts.
20, 21 and 23 of the Civil Code,[19] the determination of which demands a full blown trial, as
correctly held by the Court of Appeals. Moreover, they claim that the issues before the trial court
were not joined so that the Honorable Judge was not given the opportunity to satisfy himself that
the issue involved in the case was referable to arbitration. They submit that, apparently, petitioners
filed a motion to suspend proceedings instead of sending a written demand to private respondents
to arbitrate because petitioners were not sure whether the case could be a subject of
arbitration. They maintain that had petitioners done so and private respondents failed to answer
the demand, petitioners could have filed with the trial court their demand for arbitration that would
warrant a determination by the judge whether to refer the case to arbitration. Accordingly, private
respondents assert that arbitration is out of the question.
Private respondents further contend that the arbitration clause centers more on venue rather
than on arbitration. They finally allege that petitioners filed their motion for extension of time to file
this petition on the same date[20] petitioner DMC-USA filed a petition to compel private respondent
MMI to arbitrate before the United States District Court in Northern California, docketed as Case
No. C-98-4446. They insist that the filing of the petition to compel arbitration in the United States
made the petition filed before this Court an alternative remedy and, in a way, an abandonment of
the cause they are fighting for here in the Philippines, thus warranting the dismissal of the present
petition before this Court.
There is no doubt that arbitration is valid and constitutional in our jurisdiction.[21] Even before
the enactment of RA 876, this Court has countenanced the settlement of disputes through
arbitration. 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
arrangement and will only interfere with great reluctance to anticipate or nullify the action of the
arbitrator.[22] Moreover, as RA 876 expressly authorizes arbitration of domestic disputes, foreign
arbitration as a system of settling commercial disputes was likewise recognized when the
Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement
of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine
Senate, giving reciprocal recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting state.[23]
A careful examination of the instant case shows that the arbitration clause in the
Distributorship Agreement between petitioner DMC-USA and private respondent MMI is valid and
the dispute between the parties is arbitrable. However, this Court must deny the petition.
The Agreement between petitioner DMC-USA and private respondent MMI is a
contract. The 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. As a rule, contracts are respected as
the law between the contracting parties and produce effect as between them, their assigns and
heirs.[24] Clearly, only parties to the Agreement, i.e., petitioners DMC-USA and its Managing
Director for Export Sales Paul E. Derby, Jr., and private respondents MMI and its Managing
Director LILY SY are bound by the Agreement and its arbitration clause as they are the only
signatories thereto. Petitioners Daniel Collins and Luis Hidalgo, and private respondent SFI, not
parties to the Agreement and cannot even be considered assigns or heirs of the parties, are not
bound by the Agreement and the arbitration clause therein. Consequently, referral to arbitration in
the State of California pursuant to the arbitration clause and the suspension of the proceedings in
Civil Case No. 2637-MN pending the return of the arbitral award could be called for[25] but only as
to petitioners DMC-USA and Paul E. Derby, Jr., and private respondents MMI and LILY SY, and
not as to the other parties in this case, in accordance with the recent case of Heirs of Augusto L.
Salas, Jr. v. Laperal Realty Corporation,[26] which superseded that of Toyota Motor Philippines
Corp. v. Court of Appeals.[27]
In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become
dysfunctional because of the presence of third parties is untenable ratiocinating that "[c]ontracts
are respected as the law between the contracting parties"[28] and that "[a]s such, the parties are
thereby expected to abide with good faith in their contractual commitments."[29] However, in Salas,
Jr., only parties to the Agreement, their assigns or 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
contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration
as to some of the parties on one hand and trial for the others on the other hand, or the suspension
of trial pending arbitration between some of the parties, should not be allowed as it would, in effect,
result in multiplicity of suits, duplicitous procedure and unnecessary delay. [30]
The object of arbitration is to allow the expeditious determination of a dispute.[31] Clearly, the
issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous
arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the
interest of justice would only be served if the trial court hears and adjudicates the case in a single
and complete proceeding.[32]
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals affirming the
Order of the Regional Trial Court of Malabon, Metro Manila, in Civil Case No. 2637-MN, which
denied petitioners Motion to Suspend Proceedings, is AFFIRMED. The Regional Trial Court
concerned is directed to proceed with the hearing of Civil Case No. 2637-MN with dispatch. No
costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. 159586. July 26, 2004]
EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J.
WENCESLAO, petitioners, vs. INGENIEUBURO BIRKHAHN + NOLTE,
Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT GMBH &
CO., respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this Petition for Review under Rule 45 of the Rules of Court is the Decision[1] of
the Court of Appeals dated May 15, 2003, which sustained the Order of the Regional Trial Court
of Angeles City, Branch 61, dated June 28, 2001, and its subsequent Resolution dated August 3,
2003 denying petitioners motion for reconsideration.
European Resources and Technologies Inc. (hereinafter ERTI), a corporation organized
and existing under the laws of the Republic of the Philippines, is joined by Delfin J. Wenceslao as
petitioner in this case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers &
Brockstedt Gmbh & Co. are German corporations who are respondents in this case and shall be
collectively referred to as the German Consortium.
The German Consortium tendered and submitted its bid to the Clark Development
Corporation (CDC) to construct, operate and manage
the Integrated Waste Management Center at the Clark Special Economic Zone (CSEZ). CDC
accepted the German Consortiums bid and awarded the contract to it. On October 6, 1999, CDC
and the German Consortium executed the Contract for Services[2] which embodies the terms and
conditions of their agreement.
The Contract for Services provides that the German Consortium shall be empowered to
enter into a contract or agreement for the use of the integrated waste management center by
corporations, local government units, entities, and persons not only within the CSEZ but also
outside. For waste collected within the CSEZ, the German Consortium may impose a tipping fee
per ton of waste collected from locators and residents of the CSEZ, which fees shall be subject to
the schedule agreed upon by the parties and specified in the Contract for Services.For its
operations outside of the CSEZ, the German Consortium shall pay CDC US$1.50 per ton of non-
hazardous solid waste collected.[3] The CDC shall guarantee that nineteen thousand eighteen
hundred (19,800) tons per year of solid waste volume shall be collected from inside and outside
the CSEZ.[4] The contract has a term of twenty-five (25) years,[5] during which time the German
Consortium shall operate the waste management center on a day-to-day basis.[6]
Article VIII, Section 7 of the Contract for Services provides that the German Consortium
shall undertake to organize a local corporation as its representative for this project. On April 18,
2000, the German Consortium entered into a Joint Venture with D.M. Wenceslao and Associates,
Inc. (DMWAI) and Ma. Elena B. Villarama (doing business as LBV and Associates), embodied in
a Memorandum of Understanding[7] (MOU) signed by the parties. Under the MOU, the parties
agreed to jointly form a local corporation to which the German Consortium shall assign its rights
under the Contract for Services. Pursuant to this agreement, petitioner European Resources and
Technologies, Inc. was incorporated. The parties likewise agreed to prepare and finalize a
Shareholders Agreement within one (1) month from the execution of the MOU, which shall provide
that the German Consortium shall own fifteen percent (15%) of the equity in the joint venture
corporation, DMWAI shall own seventy percent (70%) and LBV&A shall own fifteen percent
(15%). In the event that the parties fail to execute the Shareholders Agreement, the MOU shall be
considered null and void.[8]
On August 1, 2000, without the Shareholders Agreement having been executed, the
German Consortium and petitioner ERTI entered into a Memorandum of Agreement
(MOA)[9]whereby the German Consortium ceded its rights and obligations under the Contract for
Services in favor of ERTI and assigned unto ERTI, among others, its license from CDC to engage
in the business of providing environmental services needed in the CSEZ in connection with the
waste management within the CSEZ and other areas.[10] Likewise, the parties agreed that should
there be a disagreement between or among them relative to the interpretation or implementation
of the MOA and the collateral documents including but not limited to the Contract for Services
between the German Consortium and CDC, the dispute shall be referred to a panel of
arbitrators.[11]
On December 11, 2000, ERTI received a letter from BN Consultants Philippines, Inc., signed
by Mr. Holger Holst for and on behalf of the German Consortium, [12] stating that the German
Consortiums contract with DMWAI, LBV&A and ERTI has been terminated or extinguished on the
following grounds: (a) the CDC did not give its approval to the Consortiums request for the
approval of the assignment or transfer by the German Consortium in favor of ERTI of its rights and
interests under the Contract for Services; (b) the parties failed to prepare and finalize the
Shareholders Agreement pursuant to the provision of the MOU; (c) there is no more factual or
legal basis for the joint venture to continue; and (d) with the termination of the MOU, the MOA is
also deemed terminated or extinguished.
Attached to the letter was a copy of the letter of the CDC, [13] stating that the German
Consortiums assignment of an eighty-five percent (85%) majority interest to another party violated
its representation to undertake both the financial and technical aspects of the project. The dilution
of the Consortiums interest in ERTI is a substantial modification of the Consortiums
representations which were used as bases for the award of the project to it.
On February 20, 2001, petitioner ERTI, through counsel, sent a letter to CDC requesting for
the reconsideration of its disapproval of the agreement between ERTI and the German
Consortium.
Before CDC could act upon petitioner ERTIs letter, the German Consortium filed a complaint
for injunction against herein petitioners before the Regional Trial Court of Angeles City, Branch
61, docketed as Civil Case No. 10049. The German Consortium claimed that petitioner ERTIs
continued misrepresentation as to their right to accept solid wastes from third parties for
processing at the waste management center will cause irreparable damage to the Consortium and
its exclusive right to operate the waste management center at the CSEZ. Moreover, petitioner
ERTIs acts destroy the Consortiums credibility and undermine customer confidence in it. Hence,
the German Consortium prayed that a writ of temporary restraining order be issued against
petitioner ERTI and, after hearing, a writ of preliminary injunction be likewise issued ordering
petitioner ERTI to cease and desist from misrepresenting to third parties or the public that it has
any right or interest in the waste management center at CSEZ.[14]
Petitioners filed their Opposition to the application for preliminary injunction on February 7,
2001. The following day, February 8, 2001, petitioners sent respondents, through Mr. Holger
Holst, a letter demanding that the parties proceed to arbitration in accordance with Section 17 of
the MOA. At the hearings on the application for injunction, petitioners objected to the presentation
of evidence on the ground that the trial court had no jurisdiction over the case since the German
Consortium was composed of foreign corporations doing business in the country without a
license. Moreover, the MOA between the parties provides that the dispute should be referred to
arbitration.
The trial court overruled the objection and proceeded with the hearing. On June 28, 2001,
the trial court issued an Order granting the writ of preliminary injunction. [15] Petitioners filed a
motion for reconsideration, which was denied in a Resolution dated November 21, 2001.
On January 17, 2002, petitioners filed a petition for certiorari and prohibition under Rule 65
of the Rules of Court before the Court of Appeals, assailing the trial courts Orders dated June 28,
2001 and November 21, 2001.
Meanwhile, on February 11, 2002, the temporary restraining order issued was lifted in view
of respondents failure to file sufficient bond.[16] On September 6, 2002, all proceedings in Civil
Case No. 10049 were suspended until the petition for certiorari pending before the Court of
Appeals shall have been resolved.[17]
On May 15, 2003, the Court of Appeals dismissed the petition for certiorari. Petitioners
Motion for Reconsideration was denied in a Resolution dated August 25, 2003.
Hence, this petition arguing that the Court of Appeals committed reversible error in:
(a) Ruling that petitioners are estopped from assailing the capacity of the respondents to
institute the suit for injunction
(b) Ruling that respondents are entitled to an injunctive writ.
(c) Not holding that the dispute is covered by the arbitration clause in the memorandum
of agreement.
(d) Issuing the writ of preliminary injunction that is tantamount to a decision of the case
on the merits.[18]
The petition is partly meritorious.
There is no general rule or governing principle laid down as to what constitutes doing or
engaging in or transacting business in the Philippines. Thus, it has often been held that a single
act or transaction may be considered as doing business when a corporation performs acts for
which it was created or exercises some of the functions for which it was organized. [19] We have
held that the act of participating in a bidding process constitutes doing business because it shows
the foreign corporations intention to engage in business in the Philippines. In this regard, it is the
performance by a foreign corporation of the acts for which it was created, regardless of volume of
business, that determines whether a foreign corporation needs a license or not.[20]
Consequently, the German Consortium is doing business in the Philippines without the
appropriate license as required by our laws. By participating in the bidding conducted by the CDC
for the operation of the waste management center, the German Consortium exhibited its intent to
transact business in the Philippines. Although the Contract for Services provided for the
establishment of a local corporation to serve as respondents representative, it is clear from the
other provisions of the Contract for Services as well as the letter by the CDC containing the
disapproval that it will be the German Consortium which shall manage and conduct the operations
of the waste management center for at least twenty-five years. Moreover, the German Consortium
was allowed to transact with other entities outside the CSEZ for solid waste collection. Thus, it is
clear that the local corporation to be established will merely act as a conduit or extension of the
German Consortium.
As a general rule, unlicensed foreign non-resident corporations cannot file suits in
the Philippines. Section 133 of the Corporation Code specifically provides:
SECTION 133. No foreign corporation transacting business in the Philippines without a license,
or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines, but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
A corporation has legal status only within the state or territory in which it was organized. For
this reason, a corporation organized in another country has no personality to file suits in
the Philippines. In order to subject a foreign corporation doing business in the country to the
jurisdiction of our courts, it must acquire a license from the Securities and Exchange Commission
(SEC) and appoint an agent for service of process. Without such license, it cannot institute a suit
in the Philippines.[21]
However, there are exceptions to this rule. In a number of cases,[22] we have declared a
party estopped from challenging or questioning the capacity of an unlicensed foreign corporation
from initiating a suit in our courts. In the case of Communication Materials and Design, Inc. v.
Court of Appeals,[23] a foreign corporation instituted an action before our courts seeking to enjoin
a local corporation, with whom it had a Representative Agreement, from using its corporate name,
letter heads, envelopes, sign boards and business dealings as well as the foreign corporations
trademark. The case arose when the foreign corporation discovered that the local corporation has
violated certain contractual commitments as stipulated in their agreement. In said case, we held
that a foreign corporation doing business in the Philippines without license may sue in Philippine
Courts a Philippine citizen or entity that had contracted with and benefited from it.
Hence, the party is estopped from questioning the capacity of a foreign corporation to
institute an action in our courts where it had obtained benefits from its dealings with such foreign
corporation and thereafter committed a breach of or sought to renege on its obligations. The rule
relating to estoppel is deeply rooted in the axiom of commodum ex injuria sua non habere debetno
person ought to derive any advantage from his own wrong.
In the case at bar, petitioners have clearly not received any benefit from its transactions with
the German Consortium. In fact, there is no question that petitioners were the ones who have
expended a considerable amount of money and effort preparatory to the implementation of the
MOA. Neither do petitioners seek to back out from their obligations under both the MOU and the
MOA by challenging respondents capacity to sue. The reverse could not be any more
accurate. Petitioners are insisting on the full validity and implementation of their agreements with
the German Consortium.
To rule that the German Consortium has the capacity to institute an action against
petitioners even when the latter have not committed any breach of its obligation would be
tantamount to an unlicensed foreign corporation gaining access to our courts for protection and
redress. We cannot allow this without violating the very rationale for the law prohibiting a foreign
corporation not licensed to do business in the Philippines from suing or maintaining an action in
Philippine courts. The object of requiring a license is not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring domicile for the purpose of business without
taking the steps necessary to render it amenable to suits in the local courts. [24] In other words, the
foreign corporation is merely prevented from being in a position where it takes the good without
accepting the bad.
On the issue of whether the respondents were entitled to the injunctive writ, the petitioners
claim that respondents right is not in esse but is rather a future right which is contingent upon a
judicial declaration that the MOA has been validly rescinded. The Court of Appeals, in its decision,
held that the MOA should be deemed subject to a suspensive condition, that is, that CDCs prior
written consent must be obtained for the validity of the assignment.
This issue must be resolved in a separate proceeding. It must be noted that the hearing
conducted in the trial court was merely a preliminary hearing relating to the issuance of the
injunctive writ. In order to fully appreciate the facts of this case and the surrounding circumstances
relating to the agreements and contract involved, further proof should be presented for
consideration of the court. Likewise, corollary matters, such as whether either of the parties is
liable for damages and to what extent, cannot be resolved with absolute certainty, thus rendering
any decision we might make incomplete as to fully dispose of this case.
More importantly, it is evident that CDC must be made a proper party in any case which
seeks to resolve the effectivity or ineffectivity of its disapproval of the assignment made between
petitioners and respondent German Consortium. Where, as in the instant case, CDC is not
impleaded as a party, any decision of the court which will inevitably affect or involve CDC cannot
be deemed binding on it.
 For the same reason, petitioners assertion that the instant case should be referred to Thus, it is clear that for the issuance of the writ of preliminary injunction to be proper, it must
arbitration pursuant to the provision of the MOA is untenable. be shown that the invasion of the right sought to be protected is material and substantial, that the
right of complainant is clear and unmistakable and that there is an urgent and paramount necessity
We have ruled in several cases that arbitration agreements are valid, binding, enforceable for the writ to prevent serious damage.[31] At the time of its application for an injunctive writ,
and not contrary to public policy such that when there obtains a written provision for arbitration respondents right to operate and manage the waste management center, to the exclusion of or
which is not complied with, the trial court should suspend the proceedings and order the parties without any participation by petitioner ERTI, cannot be said to be clear and unmistakable. The
to proceed to arbitration in accordance with the terms of their agreement. [25] In the case at bar, the MOA executed between respondents and petitioner ERTI has not yet been judicially declared as
MOA between petitioner ERTI and respondent German Consortium provided: rescinded when the complaint was lodged in court. [32] Hence, a cloud of doubt exists over
respondent German Consortiums exclusive right relating to the waste management center.
17. Should there be a disagreement between or among the Parties relative to the interpretation
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923 dated May
or implementation of this Agreement and the collateral documents including but not limited to the
15, 2003 is REVERSED and SET ASIDE. The Orders of the trial court dated June 28,
Contract for Services between GERMAN CONSORTIUM and CDC and the Parties cannot
2001and November 21, 2001 are ANNULLED and SET ASIDE and Civil Case No. 10049 is
resolve the same by themselves, the same shall be endorsed to a panel of arbitrators which
DISMISSED for lack of legal capacity of respondents to institute the action. Costs against
shall be convened in accordance with the process ordained under the Arbitration Law of the
respondents.
Republic of the Philippines.[26]
SO ORDERED.
Indeed, to brush aside a contractual agreement calling for arbitration in case of
disagreement between parties would be a step backward.[27] But there are exceptions to this
rule. Even if there is an arbitration clause, there are instances when referral to arbitration does not
appear to be the most prudent action. The object of arbitration is to allow the expeditious
determination of a dispute. Clearly, the issue before us could not be speedily and efficiently
resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of
trial pending arbitration.[28]

As discussed earlier, the dispute between respondent German Consortium and petitioners
involves the disapproval by the CDC of the assignment by the German Consortium of its rights
under the Contract for Services to petitioner ERTI. Admittedly, the arbitration clause is contained
in the MOA to which only the German Consortium and petitioner ERTI were parties.Even if the
case is brought before an arbitration panel, the decision will not be binding upon CDC who is a
non-party to the arbitration agreement. What is more, the arbitration panel will not be able to
completely dispose of all the issues of this case without including CDC in its
proceedings. Accordingly, the interest of justice would only be served if the trial court hears and
adjudicates the case in a single and complete proceeding.

Lastly, petitioners question the propriety of the issuance of writ of preliminary injunction
claiming that such is already tantamount to granting the main prayer of respondents complaint
without the benefit of a trial. Petitioners point out that the purpose of a preliminary injunction is to
prevent threatened or continuous irremediable injury to some of the parties before their claims can
be thoroughly studied and decided. It cannot be used to railroad the main case and seek a
judgment without a full-blown trial as in the instant case.

The Court of Appeals ruled that since petitioners did not raise this issue during the hearing
on the application for preliminary injunction before the trial court, the same cannot be raised for
the first time on appeal and even in special civil actions for certiorari as in this case.

At the outset, it must be noted that with the finding that the German Consortium is without
any personality to file the petition with the trial court, the propriety of the injunction writ issued is
already moot and academic. Even assuming for the sake of argument that respondents have the
capacity to file the petition, we find merit in the issue raised by petitioners against the injunction
writ issued.

Before an injunctive writ can be issued, it is essential that the following requisites are
present: (1) there must be a right in esse or the existence of a right to be protected; and (2) the
act against which injunction to be directed is a violation of such right. [29] The onus probandi is on
movant to show that there exists a right to be protected, which is directly threatened by the act
sought to be enjoined. Further, there must be a showing that the invasion of the right is material
and substantial and that there is an urgent and paramount necessity for the writ to prevent a
serious damage.[30]