Case Brief: Chung Fu vs.

 CA

JULY 18, 2018JEFF REY

G.R. No. 96283   February 25, 1992
CHUNG FU INDUSTRIES (PHILIPPINES) INC., its Directors and Officers
namely: HUANG KUO-CHANG, HUANG AN-CHUNG, JAMES J.R. CHEN,
TRISTAN A. CATINDIG, VICENTE B. AMADOR, ROCK A.C. HUANG, JEM
S.C. HUANG, MARIA TERESA SOLIVEN and VIRGILIO M. DEL
ROSARIO, petitioners,
vs.
COURT OF APPEALS, HON. FRANCISCO X. VELEZ (Presiding Judge,
Regional Trail Court of Makati [Branch 57]) and ROBLECOR
PHILIPPINES, INC., respondents.
 

Facts:
Petitioner Chung Fu entered into a construction agreement with Roblecor
Phil. Inc. for the corporation’s industrial factory with a total consideration of
P42,000,000.00. Also, said companies entered into 2 other ancillary
construction contracts amounting to P3,875,285.00 and P12,100,000.00. The
said construction agreement contained a stipulation that in the event of
disputes arising from the performance of the contract, such issue shall be
submitted for resolution before a single arbitrator chosen by the parties.
However, Roblecor failed to complete the work despite the extension of time
provided by Chung Fu, which later on had to take over the said construction.
Roblecor then claimed for the unsatisfied account of P10,500,000 and unpaid
progress billings of P2,370,179.23 and filed a petition for the compulsory
arbitration with a prayer for a TRO, while Chung Fu prayed for the dismissal
of such petition. The RTC approved the arbitration agreement and Engr.
Asuncion was latter appointed as the sole arbitrator. He then ordered the
petitioners to pay the respondent contractor P16,108,801.00 and declared
such award as final and unappealable. Chung Fu moved to remand the case
for further hearing but the lower court denied the motion and granted the
Confirmation of the award in favour of Roblecor. Chung Fu elevated the case
to the CA via a petition for certiorari but the CA only assailed the resolution
of the lower court assailing that the signatories of the Arbitration Agreement
are bound to observe the stipulations thereof for the finality of the award.
Issue:
Whether or not the decision of the arbitrator shall be deemed final and
unappealable and beyond the ambit of the court’s power of judicial review.
Held:
No. As per Art 2044 of the Civil Code, the finality of the arbitrators award is
not absolute and without exceptions. It is also stated in Sections 24, 25 of
the Arbitration Law (R.A. 876, year 1953) that there are grounds for
vacating, modifying or rescinding an arbitrator’s award. Thus, if there are
factual circumstances which are referred to in the said provisions be present,
judicial review of the award is properly warranted. Also, even decisions of an
administrative agency which are declared as “final” are not exempt from
judicial review when so warranted. That is why a voluntary arbitrator, by the
very nature of their function, acts in a quasi-judicial capacity in deciding such
cases, is not to be construed as beyond the scope of the power of judicial
review. The Court then provided that the lower court committed grave abuse
of discretion by not looking into the merits of the case despite a prima facie
showing of the existence of grounds warranting judicial review. Finally, the
case was remanded back to the court of origin for further hearing.

Case Digest GONZALES vs.CLIMAX MINING LTD G.R. No. 161957 February 28,
2005
. JORGE GONZALES and PANEL OF ARBITRATORS, vs.CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING
INC.,
G.R. No. 161957             February 28, 2005
Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the
Addendum Area of Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya,
entered into a co-production, joint venture and/or production-sharing letter-agreement
designated as the May 14, 1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd.
Under the agreement, petitioner, as claimowner, granted to Geophilippines, Inc. and
Inmex Ltd. collectively, the exclusive right to explore and survey the mining claims for a
period of thirty-six (36) months within which the latter could decide to take an operating
agreement on the mining claims and/or develop, operate, mine and otherwise exploit
the mining claims and market any and all minerals that may be derived therefrom.
On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the
same into the February 28, 1989 Agreement whereby the exploration of the mining
claims was extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc.,
Inmex Ltd., and Aumex Philippines, Inc. signed a document designated as
the Addendum to the May 14, 1987 Letter of Intent and February 28, 1989 Agreement
with Express Adhesion Thereto (hereafter, the Addendum Contract).1 Under
the Addendum Contract, Arimco Mining Corporation would apply to the Government of
the Philippines for permission to mine the claims as the Government’s contractor under
a Financial and Technical Assistance Agreement (FTAA). On 20 June 1994, Arimco
Mining Corporation obtained the FTAA2 and carried out work under the FTAA.
Respondents executed the Operating and Financial Accommodation Contract 3 (between
Climax-Arimco Mining Corporation and Climax Mining Ltd., as first parties, and
Australasian Philippines Mining Inc., as second party) dated 23 December 1996
and Assignment, Accession Agreement4 (between Climax-Arimco Mining Corporation
and Australasian Philippines Mining Inc.) dated 3 December 1996. Respondent Climax
Mining Corporation (Climax) and respondent Australasian Philippines Mining Inc.
(APMI) entered into a Memorandum of Agreement5 dated 1 June 1991 whereby the
former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region
II, Mines and Geosciences Bureau of the Department of Environment and Natural
Resources, against respondents Climax-Arimco Mining Corporation (Climax-Arimco),
Climax, and APMI,6 a Complaint7 seeking the declaration of nullity or termination of
the Addendum Contract, the FTAA, the Operating and Financial Accommodation
Contract, the Assignment, Accession Agreement, and the Memorandum of
Agreement. Petitioner Gonzales prayed for an unspecified amount of actual and
exemplary damages plus attorney’s fees and for the issuance of a temporary restraining
order and/or writ of preliminary injunction to restrain or enjoin respondents from further
implementing the questioned agreements. He sought said releifs on the grounds of
"FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the
CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and
confederating with one another and with each other…."8
Issues:
(c) Whether the complaint filed by petitioner raises a mining dispute over which the
Panel of Arbitrators has jurisdiction, or a judicial question which should properly be
brought before the regular courts.
(d) Whether the dispute between the parties should be brought for arbitration under
Rep. Act No. 876.

Ruling:
A judicial question is a question that is proper for determination by the courts, as
opposed to a moot question or one properly decided by the executive or legislative
branch.18 A judicial question is raised when the determination of the question involves
the exercise of a judicial function; that is, the question involves the determination of
what the law is and what the legal rights of the parties are with respect to the matter in
controversy.19 
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b)
mineral agreements, FTAAs, or permits, and (c) surface owners, occupants and
claimholders/concessionaires.20 Under Republic Act No. 7942 (otherwise known as the
Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original
jurisdiction to hear and decide these mining disputes.21 The Court of Appeals, in its
questioned decision, correctly stated that the Panel’s jurisdiction is limited only to those
mining disputes which raise questions of fact or matters requiring the application of
technological knowledge and experience.22
In Pearson v. Intermediate Appellate Court, 23 this Court observed that the trend has
been to make the adjudication of mining cases a purely administrative
matter.24 Decisions25 of the Supreme Court on mining disputes have recognized a
distinction between (1) the primary powers granted by pertinent provisions of law to the
then Secretary of Agriculture and Natural Resources (and the bureau directors) of an
executive or administrative nature, such as granting of license, permits, lease and
contracts, or approving, rejecting, reinstating or canceling applications, or deciding
conflicting applications, and (2) controversies or disagreements of civil or contractual
nature between litigants which are questions of a judicial nature that may be adjudicated
only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942.
The Complaint charged respondents with disregarding and ignoring the provisions of
the Addendum Contract, violating the purpose and spirit of the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement, and acting in a fraudulent and oppressive
manner against petitioner and practicing fraud and deception against the
Government.26 Petitioner alleged in his Complaint that under the original agreements
(the May 14, 1987 Letter of Intent and February 28, 1989 Agreement) respondent
Climax-Arimco had committed to complete the Bankable Feasibility Study by 28
February 1992, but the same was not accomplished. Instead, respondent Climax-
Arimco, through false and insidious representations and machinations by alleging
technical and financial capacity, induced petitioner to enter into the Addendum
Contract and the FTAA in order to repeatedly extend the option period within which to
conduct the feasibility study. In essence, petitioner alleges that respondents, conspiring
and confederating with one another, misrepresented under the Addendum Contract and
FTAA that respondent Climax-Arimco possessed financial and technical capacity to put
the project into commercial production, when in truth it had no such qualification
whatsoever to do so. By so doing, respondents have allegedly caused damage not only
to petitioner but also to the Republic of the Philippines.27
It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed
by petitioner. The basic issue in petitioner’s Complaint is the presence of fraud or
misrepresentation allegedly attendant to the execution of the Addendum
Contract and the other contracts emanating from it, such that the contracts are
rendered invalid and not binding upon the parties. It avers that petitioner was
misled by respondents into agreeing to the Addendum Contract. This constitutes
fraud which vitiated petitioner’s consent, and under Article 1390 of the Civil Code,
is one of the grounds for the annulment of a voidable contract. Voidable or
annullable contracts, before they are set aside, are existent, valid, and binding,
and are effective and obligatory between the parties.28 They can be ratified.29
-whether the case involves void or voidable contracts is still a judicial question. It
may, in some instances, involve questions of fact especially with regard to the
determination of the circumstances of the execution of the contracts. But the
resolution of the validity or voidness of the contracts remains a legal or judicial
question as it requires the exercise of judicial function. It requires the
ascertainment of what laws are applicable to the dispute, the interpretation and
application of those laws, and the rendering of a judgment based thereon.
Clearly, the dispute is not a mining conflict. It is essentially judicial. The
complaint was not merely for the determination of rights under the mining
contracts since the very validity of those contracts is put in issue.
The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute
involving claimholders or concessionaires. The main question raised was the validity of
the Addendum Contract, the FTAA and the subsequent contracts. The question as to
the rights of petitioner or respondents to the mining area pursuant to these contracts, as
well as the question of whether or not petitioner had ceded his mining claims in favor of
respondents by way of execution of the questioned contracts, is merely corollary to the
main issue, and may not be resolved without first determining the main issue.
The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the
dispute should involve FTAAs. The Complaint is not exclusively within the jurisdiction of
the Panel of Arbitrators just because, or for as long as, the dispute involves an FTAA.
The Complaint raised the issue of the constitutionality of the FTAA, which is definitely a
judicial question. The question of constitutionality is exclusively within the jurisdiction of
the courts to resolve as this would clearly involve the exercise of judicial power. The
Panel of Arbitrators does not have jurisdiction over such an issue since it does not
involve the application of technical knowledge and expertise relating to mining. This the
Panel of Arbitrators has even conceded in its Orders dated 18 October 2001 and 25
June 2002. At this juncture, it is worthy of note that in a case,31 which was resolved only
on 1 December 2004, this Court upheld the validity of the FTAA entered into by the
Republic of the Philippines and WMC (Philippines), Inc. and constitutionality of Rep. Act
No. 7942 and DENR Administrative Order 96-40.32 In fact, the Court took the case on an
original petition, recognizing "the exceptional character of the situation and the
paramount public interest involved, as well as the necessity for a ruling to put an end to
the uncertainties plaguing the mining industry and the affected communities as a result
of doubts case upon the constitutionality and validity of the Mining Act, the subject
FTAA and future FTAAs, and the need to avert a multiplicity of suits."33
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement
between the parties as to some provisions of the contract between them, which needs
the interpretation and the application of that particular knowledge and expertise
possessed by members of that Panel. It is not proper when one of the parties
repudiates the existence or validity of such contract or agreement on the ground of
fraud or oppression as in this case. The validity of the contract cannot be subject of
arbitration proceedings. Allegations of fraud and duress in the execution of a contract
are matters within the jurisdiction of the ordinary courts of law. These questions are
legal in nature and require the application and interpretation of laws and jurisprudence
which is necessarily a judicial function.
-We agree that the case should not be brought under the ambit of the Arbitration Law,
but for a different reason. The question of validity of the contract containing the
agreement to submit to arbitration will affect the applicability of the arbitration clause
itself. A party cannot rely on the contract and claim rights or obligations under it and at
the same time impugn its existence or validity. Indeed, litigants are enjoined from taking
inconsistent positions. As previously discussed, the complaint should have been filed
before the regular courts as it involved issues which are judicial in nature.

WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under

Rule 45 is DENIED. The Orders dated 18 October 2001 and 25 June 2002 of the Panel
of Arbitrators are SET ASIDE. Costs against petitioner Jorge Gonzales.

Meralco vs. Pasay Transportation Company Case Digest

acebook   

The Members of the Supreme Court and of other courts established by law shall not be designa
performing quasi-judicial or administrative functions. (Sec. 12, Art. VIII, 1987 Constitution)
Facts: 

Act No. 1446 was passed. Section 11 of the Act provides: "Whenever
any franchise or right of way is granted to any other person or
corporation, now or hereafter in existence, over portions of the lines
and tracks of the grantee herein, the terms on which said other person
or corporation shall use such right of way, and the compensation to be
paid to the grantee herein by such other person or corporation for said
use, shall be fixed by the members of the Supreme Court, sitting as
a board of arbitrators, the decision of a majority of whom shall be
final."

Pursuant to said Act, Meralco filed a petition requesting the members

of the Supreme Court, sitting as a board of arbitrators, to fix the
terms upon which certain transportation companies shall be permitted
to use the Pasig bridge of the Manila Electric Company and the
compensation to be paid to the Manila Electric Company by such
transportation companies.

Copies of the petition were directed to be sent to transportation

companies affected by the petition. Opposition was entered to the
petition by a number of public utility operators.

Issue:

Can the members of the Supreme Court sit as arbitrators and fix the
terms and compensation as is asked of them in this case?

Held:

The Supreme Court of the Philippine Islands represents one of the

three divisions of power in our government. It is judicial power
and judicial power only which is exercised by the Supreme Court.
Just as the Supreme Court, as the guardian of constitutional rights,
should not sanction usurpations by any other department of the
government, so should it as strictly confine its own sphere
of influence to the powers expressly or by implication conferred on
it. The Supreme Court and its members should not and cannot be
required to exercise any power or to perform any trust or to assume
any duty not pertaining to or connected with the administering
of judicial functions.

Section 11 of Act No. 1446 contravenes the maxims which guide the
operation of a democratic government constitutionally established,
and that it would be improper and illegal for the members of the
Supreme Court, sitting as a board of arbitrators, the decision of a
majority of whom shall be final, to act on the petition of the Manila
Electric Company. (Meralco vs. Pasay Transportation Company, G.R. No. L-37878,
November 25, 1932)

EASTBOARD NAVIGATION v. JUAN YSMAEL CO., INC.

G.R. No. L-9090 | September 1, 1957

Doctrine: The law of the forum governs procedural matters (such as notice requirements). The
law of the state where a foreign judgment is sought to be enforced cannot be invoked to
impugn the validity of the proceedings where the foreign judgment was made. Also, a foreign
corporation has capacity to sue even without a license to transact business if it is not engaged
in business in the Philippines.

Facts: Juan Ysmael Co., Inc (Philippine corporation), through K. H. Hemady (its president and
general manager), chartered Eastboard Navigation’s (Canadian corporation) vessel to load a
cargo of scrap iron in the Philippines for Buenos Aires. The charter party agreement contained a
typewritten clause providing for compulsory arbitration in the state of New York, in case of any
disputes that may arise based on their agreement.

A dispute arose regarding the liability of Ysmael Co., Inc. for the payment of freight and
demurrage. An arbitration agreement was eventually executed in New York between the 2
parties. The arbitration agreement was then presented by Eastboard = to the U.S. District Court
in New York for confirmation where said Court confirmed and issued an Order and Final Decree.

Eastboard then brought this action in the Philippines to enforce the “Order and Final Decree”.
Ysmael Co. however argues that since Eastboard Navigation is a foreign corporation without a
license to do business in the Philippines, it has no capacity to sue in this jurisdiction. Note that
the stipulation of facts of the parties stated that this transaction was the first business
undertaken by Eastboard Navigation in the Philippines.

Issues: (1) Whether Eastboard has capacity to sue in the Philippines? - YES
(2) Whether the court may enforce the Decree issued by the New York District Court. -
YES

Held: (1) While Eastboard is a foreign corporation without license to transact business in the
Philippines, it does not follow that it has no capacity to bring the present action. Such license is
not necessary because it is not engaged in business in the Philippines. In fact, the transaction
herein involved is the first business undertaken by Eastboard in the Philippines, although on a
previous occasion Eastboard's vessel was chartered by the National Rice and Corn Corporation
to carry rice cargo from abroad to the Philippines. These 2 isolated transactions do not
constitute engaging in business in the Philippines within the purview of Sections 68 and 69 of
the Corporation Law so as to bar Eastboard from seeking redress in our courts.

(2) The defense of Ysmael Co. that the Decree may not be enforced in the Philippines is
predicated on the alleged fact that it was never served with notice, summons, or process
relative to the submission of the award of the arbitrators to New York court, invoking the U.S.
Arbitration Act. The law invoked, however, does not sustain Ysmael Co. pretense since the
Arbitration Act does not necessarily require that service of notice of the application for
confirmation be made on the adverse party himself (in case of a non-resident), it being
sufficient that it be made upon his attorney. In this case, a copy of notice of submission of the
award to the District Court of New York was served upon Ysmael Co.’s counsel who in due time
made of record their appearance and actually appeared when the case was heard. It is also
significant that Ysmael Co.’s counsel never impugned the jurisdiction of the court over
defendant nor did they ever plead before it that they were bereft of authority to represent
Ysmael Co. It cannot therefore defeat the effect of this decision by alleging want of jurisdiction,
or want of notice.

C A S E D I G E S T: B F C O R P O R A T I O N V S . C A
8:45 AM
G.R. No. 120105 March 27, 1998
BF CORPORATION vs. COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC.,
RUFO B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III and
BENJAMIN C. RAMOS

RULING:

The court sustained the Court of Appeals decision against petitioner, BF Corporation.
The court upheld the propriety of the filing of the special civil action of certiorari by
respondent, reasoning that what was in question was the alleged premature assumption
of jurisdiction by the trial court. In settling the issue, another had to be first determined:
the existence of an ‘arbitration clause’.

As opposed to petitioner’s contention that there was no valid ‘Arbitration Clause’ in the
contract with respondent because said contract only contained initials of the former’s
representatives and none of the latter’s, the court held that failure of the respondents to
affix their initial in the “Conditions of Contract” containing the arbitration clause did not
affect the compliance with the formal requirements (RA 876, Sec4) for arbitration
agreements. The Court held that the subject portion of the covenant between the parties
was included by reference in the Articles of Agreement.
The Court also noted the attempt of respondent in pursuing arbitration through the July
12-conference and that the lapse of time from said conference to the day the
respondent’s invoked the ‘arbitration clause’ was ‘reasonable’.

The Court therefore denied the petition for certiorari by BF Corporation.

LM POWER vs. CAPITOL INDUSTRIAL

Facts:
This is a Petition for Review on Certiorari filed by the petitioner LM Power against
Respondent Capitol Industrial seeking to set aside the decision of CA.
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. Due to the inability of the petitioner to procure
materials, Capitol Industial took over some of the work contracted to the former. After
the completion of the contract, petitioner billed respondent in the amount of P6,
711,813.90 but the respondent refused to pay.

Petitioner filed with the RTC of Makati a Complaint for the collection of the amount
representing the alleged balance due it under the subcontract. Respondent filed a
Motion to Dismiss, alleging that the Complaint was premature, due to the absence of
prior recourse to arbitration.

RTC denied the Motion on the ground that the dispute did not involve the interpretation
or the implementation of the Agreement and was not covered by the arbitral clause and
ruled in favor of the petitioner.
Respondent appealed to the CA, the latter reversed the decision of the RTC and
ordered the referral of the case to arbitration.

Hence, this Petition.

ISSUE:
WON there is a need for the prior arbitration before filing of the complaint with the court.

HELD:
AFFIRMATIVE.
SC ruled that in the case at hand it involves technical discrepancies that are better left
to an arbitral body that has expertise in the subject matter. Moreover, the agreement
between the parties contains arbitral clause 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”. 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.
With respect to the disputes on the take-over/termination and the expenses incurred by
respondent in the take-over, the SC ruled that the agreement provides specific
provisions that any delay, expenses and any other acts in violation to such agreement,
the respondent can terminate and can set off the amount it incurred in the completion of
the contract.

SC tackled also that there’s no need for the prior request for arbitration by the parties
with the Construction Industry Arbitration Commission (CIAC) in order for it to acquire
jurisdiction. Because pursuant to Section 1 of Article III of the new Rules of
Procedure Governing Construction Arbitration, 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. Furthermore, 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.
Since a complaint with the RTC has been filed without prior recourse to arbitration,
under RA 876 (Arbitration Law) the proper procedure is to request the stay or
suspension of such action in order to settle the dispute with the CIAC.

Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov 22, 2004

MARCH 15, 2014LEAVE A COMMENT
The independent nature of the letter of credit may be: (a)
independence in toto where the credit is independent from the
justification aspect and is a separate obligation from the underlying
agreement like for instance a typical standby; or (b) independence
may be only as to the justification aspect like in a commercial letter
of credit or repayment standby, which is identical with the same
obligations under the underlying agreement.  In both cases the
payment may be enjoined if in the light of the purpose of the credit
the payment of the credit would constitute fraudulent abuse of the
credit.
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with
Luzon Hydro Corp. (LHC).Under the contract, Transfield were to construct a
hydro-electric plants in Benguet and Ilocos. Transfield was given the sole
responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the
project is to be completed and also allows for the extension of the period
provided that the extension is based on justifiable grounds such as fortuitous
event. In order to guarantee performance by Transfield, two stand-by letters
of credit were required to be opened. During the construction of the plant,
Transfield requested for extension of time citing typhoon and various
disputes delaying the construction. LHC did not give due course to the
extension of the period prayed for but referred the matter to arbitration
committee. Because of the delay in the construction of the plant, LHC called
on the stand-by letters of credit because of default. However, the demand
was objected by Transfield on the ground that there is still pending
arbitration on their request for extension of time.

Issue: Whether or not LHC can collect from the letters of credit despite the
pending arbitration case

Held: Transfield’s argument that any dispute must first be resolved by the
parties, whether through negotiations or arbitration, before the beneficiary is
entitled to call on the letter of credit in essence would convert the letter of
credit into a mere guarantee.

The independent nature of the letter of credit may be: (a) independence in
toto where the credit is independent from the justification aspect and is a
separate obligation from the underlying agreement like for instance a typical
standby; or (b) independence may be only as to the justification aspect like
in a commercial letter of credit or repayment standby, which is identical with
the same obligations under the underlying agreement. In both cases the
payment may be enjoined if in the light of the purpose of the credit the
payment of the credit would constitute fraudulent abuse of the credit.

Jurisprudence has laid down a clear distinction between a letter of credit and
a guarantee in that the settlement of a dispute between the parties is not a
pre-requisite for the release of funds under a letter of credit. In other words,
the argument is incompatible with the very nature of the letter of credit. If a
letter of credit is drawable only after settlement of the dispute on the
contract entered into by the applicant and the beneficiary, there would be no
practical and beneficial use for letters of credit in commercial transactions.

The engagement of the issuing bank is to pay the seller or beneficiary of the
credit once the draft and the required documents are presented to it. The so-
called “independence principle” assures the seller or the beneficiary of
prompt payment independent of any breach of the main contract and
precludes the issuing bank from determining whether the main contract is
actually accomplished or not. Under this principle, banks assume no liability
or responsibility for the form, sufficiency, accuracy, genuineness, falsification
or legal effect of any documents, or for the general and/or particular
conditions stipulated in the documents or superimposed thereon, nor do they
assume any liability or responsibility for the description, quantity, weight,
quality, condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts and/or
omissions, solvency, performance or standing of the consignor, the carriers,
or the insurers of the goods, or any other person whomsoever.

DEL MONTE v. CA
FACTS:
 Del Monte Corporation-USA (DMC-USA) entered into a Distributorship Agreement with 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. The Agreement provided for an arbitration clause which states:

12. GOVERNING LAW AND ARBITRATION

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 the third of whom shall be selected by the other two
members and shall have relevant experience in the industry x x x x
 MMI appointed Sabrosa Foods, Inc. (SFI), with the approval of DMC-USA, as MMI’s marketing arm.

 SFI and MMI’s Managing Director Liong Liong C. Sy filed a Complaint against DMC-USA alleging that
the latter’s products were being brought in the country by other importers despite its agreement that
MMI will be the sole and exclusive distributor of its products.

 DMC-USA filed a Motion to Suspend Proceedings invoking the arbitration clause in their Agreement
with MMI.

ISSUE:
1. Whether or not the dispute between the parties may be a subject of arbitration. YES, but only in
so far as MMI is concerned; SFI not included.

2. Whether or not the suspension of the court proceedings is warranted pending arbitration. NO

RULING:
1. ON ARBITRATION AS A CONTRACT
The Agreement between DMC-USA and MMI is a contract. The provision to submit to arbitration any
dispute arising therefrom and the relationship of the parties is part of the 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. Clearly, only parties to the Agreement, i.e. DMC-USA and MMI
are bound by the Agreement and its arbitration clause as they are the only signatories thereto. SFI, not a
party to the Agreement and cannot be considered assigns or heirs of the parties, are not bound by the
Agreement and arbitration clause therein.
2. ON SUSPENSION OF TRIAL PENDING ARBITRATION
While the court recognizes 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 parties, should not be allowed
as it would, in effect, resort in multiplicity of suits, duplicitous procedure and unnecessary delay.
The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issues at hand
could not be speedily and efficiently resolved in its entirety if simultaneous arbitration proceedings and
trial, or suspension of trial pending arbitration is to be allowed. The interest of justice would only be
served if the trial court hears and adjudicates the case in a single and complete proceeding.

# 20. Puromines, Inc. vs. Court of Appeals and Philipp Brothers

Oceanic, Inc.
Puromines, Inc. (Puromines for brevity) and Makati Agro Trading, Inc. (not a
party in this case) entered into
a contract with private respondents Philipp Brothers Oceanic, Inc. for the sale
of prilled Urea in bulk.
The sales contract contains an arbitration clause which states,
"9. Arbitration. Any disputes arising under this contract shall be settled by
arbitration in
London in accordance with the Arbitration Act 1950 and any statutory
amendment or modification thereof.
Each party is to appoint an Arbitrator, and should they be unable to agree,
the decision of an Umpire appointed by them to be final. The Arbitrators
and Umpire are all to be commercial men and resident in London. This
submission may be made a rule of the High Court of Justice in England by
either party."
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on
board at Yuzhny, USSR a
shipment of 15,500 metric tons prilled Urea in bulk complete and in good
order and condition for transport
to Iloilo and Manila, to be delivered to petitioner.
Three bills of lading were issued by the ship-agent in the Philippines,
Maritime Factors Inc. The
shipment covered by Bill of Lading No. 2 was discharged in Iloilo City
complete and in good order and
condition. However, the shipments covered by Bill of Lading Nos. 1 and 3
were discharged in Manila in bad
order and condition.
Consequently, petitioner filed a complaint for breach of contract of carriage
against Maritime Factors
Inc., while private respondent, Philipp Brothers Oceanic Inc., was impleaded
as charterer of the said vessel
and proper party to accord petitioner complete relief.
Respondent contends that Petitioner should have complied with the
Arbitration Clause first before filing
a complaint, whereas, Petitioner argues that the sales contract does not
include the contract of carriage
which is a different contract entered into by the carrier with the cargo
owners.
ISSUE:
Whether the phrase "any dispute arising under this contract" in the
arbitration clause of the sales
contract covers a cargo claim against the vessel (owner and/or charterers)
for breach of contract of carriage,
rendering the complaint of petitioner prematurely filed?
RULING:
We agree with the court a quo that the sales contract is comprehensive
enough to include claims for
damages arising from carriage and delivery of the goods.
As a general rule, the seller has the obligation to transmit the goods to the
buyer, and concomitant
thereto, the contracting of a carrier to deliver the same.
American jurisprudence defines charter party as a contract by which an
entire ship or some principal
part thereof is let by the owner to another person for a specified time or use.
Charter or charter parties are of two kinds which are the Charter of demise
or bareboat and contracts of
affreightment.

KOREA TECHNOLOGIES CO. LTD VS LERMA (GR NO. 143581

JANUARY 7, 2008)
Korea Technologies Co. Ltd vs Lerma
GR No. 143581 January 7, 2008

Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is

engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation. On March 5, 1997, PGSMC and KOGIES executed a
Contract whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona,
Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed,
in Korea, an Amendment for Contract No. KLP-970301 dated March 5, 1997 amending the
terms of payment. The contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC would
pay USD 1,224,000. KOGIES would install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG
cylinder samples. Thus, the total contract price amounted to USD 1,530,000. On October 14,
1997, PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of
Worths 5,079-square meter property with a 4,032-square meter warehouse building to
house the LPG manufacturing plant. The monthly rental was PhP 322,560 commencing on
January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries,
equipment, and facilities for the manufacture of LPG cylinders were shipped, delivered, and
installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000. However, gleaned from
the Certificate executed by the parties on January 22, 1998, after the installation of the
plant, the initial operation could not be conducted as PGSMC encountered financial
difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the terms and conditions of the March
5, 1997 contract. For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412
dated January 30, 1998 for PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30,
1998 for PhP 4,500,000. When KOGIES deposited the checks, these were dishonored for the
reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter to PGSMC
threatening criminal action for violation of Batas Pambansa Blg. 22 in case of nonpayment.
On the same date, the wife of PGSMCs President faxed a letter dated May 7, 1998 to KOGIES
President who was then staying at a Makati City hotel. She complained that not only did
KOGIES deliver a different brand of hydraulic press from that agreed upon but it had not
delivered several equipment parts already paid for.

Issue: Whether or not the arbitration clause in the contract of the parties should govern.

Held: Yes. Established in this jurisdiction is the rule that the law of the place where the
contract is made governs. Lex loci contractus. The contract in this case was perfected here
in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil
Code sanctions the validity of mutually agreed arbitral clause or the finality and binding
effect of an arbitral award. Art. 2044 provides, Any stipulation that the arbitrators award or
decision shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not
been shown to be contrary to any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties have not dealt with each other on
equal footing. We find no reason why the arbitration clause should not be respected and
complied with by both parties. In Gonzales v. Climax Mining Ltd., we held that submission to
arbitration is a contract and that a clause in a contract providing that all matters in dispute
between the parties shall be referred to arbitration is a contract. Again in Del Monte
Corporation-USA v. Court of Appeals, we likewise ruled that [t]he provision to submit to
arbitration any dispute arising therefrom and the relationship of the parties is part of that
contract and is itself a contract.

Having said that the instant arbitration clause is not against public policy, we come to the
question on what governs an arbitration clause specifying that in case of any dispute arising
from the contract, an arbitral panel will be constituted in a foreign country and the
arbitration rules of the foreign country would govern and its award shall be final and binding.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose final judgments are stipulated
to be final and binding, but not immediately executory in the sense that they may still be
judicially reviewed, upon the instance of any party. Therefore, the final foreign arbitral
awards are similarly situated in that they need first to be confirmed by the RTC.