PUROMINES, INC., petitioner, v. COURT OF APPEAL and PHILIPP BROTHERS OCEANIC, INC.

,
respondents.
G.R. No. 91228. March 22, 1993

FACTS:
Puromines, Inc. and Makati Agro Trading, Inc. entered into a contract with private respondents Philipp
Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract provided, among others an
arbitration clause which states, thus:
"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. XXXX"
The shipment covered by 3 bills of lading was loaded on MV Liliana Dimitrova with Philipp Brothers as
charterer of said vessel. When the shipment covered by Bill of Lading 1 and 3 were discharged in Manila,
it was found to be in bad order and condition, caked, hardened and lumpy, discoloured and contaminated
with rust and dirt.
Puromines filed a complaint with the Trial Court for breach of contract of carriage against Maritime, as
ship-agent and Philipp Brothers, as charterer. Philipp filed a motion to dismiss on the ground that
Petitioner should comply with the arbitration clause in the sales contract. Puromines opposed contending
that the sales contract does not include contract of carriage, therefore, the latter is not covered by the
agreement on arbitration.

ISSUE:
Whether or not the phrase “any dispute arising under this contract” in the arbitration clause of the
sales contract covers a cargo claims against the vessel for breach of contract of carriage.

RULING:
Yes. The sales contract is comprehensive enough to include claims for damages arising from
carriage and delivery of the goods. Puromines derives its right to the cargo from the bill of lading which
is the contract of affreightment together with the sales contract. Consequently, it is bound by the provisions
and terms of the said bill of lading and of the arbitration clause incorporated in the sales contract.
Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession
and employment. Assuming the cause of action is based on contract of carriage, it must be first determined
what kind of charter party had with the ship owner to determine liability. If it is a contract of affreightment,
the charterer is not liable as possession is still with owner. If it is a charter of demise or bareboat, then the
charterer is liable as it is considered the owner and therefore would be liable for damage or loss.

In any case, whether the liability of respondent should be based on the same contract or that of the
bill of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales
contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot escape
from his obligation under the arbitration clause as stated therein.

Arbitration has been held valid and constitutional. The rule now is that unless the agreement is
such as absolutely to close the doors of the courts against the parties, which agreement would be void, the
courts will look with favor upon such amicable arrangements and will only interfere with great reluctance
to anticipate or nullify the action of the arbitrator.
WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is AFFIRMED.

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2-A
ALTERNATIVE DISPUTE RESOLUTION

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 Chung Fu Industries (Phils) vs. Court of Appeals
GR No. 96283, February 25, 1992

FACTS:
On May 17, 1989, petitioner Chung Fu Industries and private respondents Roblecor Philippines
forged a construction agreement wherein Roblecor committed to construct and finish on Dec. 31, 1989,
Chung Fu’s industrial/factory complex in Tanawan, Cavite in consideration of P42M. It was stipulated
also that in the event of disputes, the parties will be subjected to an arbitration resolution, wherein the
arbitrator will be chosen by both parties. Apart from the construction agreement, the parties also entered
into ancillary contracts for the construction of a dormitory and support facilities with a contract price of
3, 875, 285.00 to be completed on or before October 31, 1989 and the other dated Aug. 12, 1989 for the
installation of electrical, water and hydrant systems at the plant site, priced at 12.1M and requiring
completion thereof one month after civil works have been finished. However, Roblecor failed to complete
the work despite the extension allowed by Chung Fu. Subsequently, Chung Fu had to take over the
construction when it had become evident that Roblecor was not in a position to fulfill the obligation.
Claiming an unsatisfied account of P10, 500, 000 and unpaid progress billings of P 2, 370, 179.23,
Roblecor filed a petition for Compulsory Arbitration with prayer for TRO before respondent RTC ,
pursuant to the arbitration clause in the construction agreement. Chung Fu moved to dismiss the petition
and further prayed for the quashing of the restraining order. Subsequent negotiations between the parties
eventually led to the formulation of an arbitration agreement which includes that the “decision of the
arbitrator shall be final and unappealable, therefore, there shall be no further judicial recourse if either
party disagrees with the whole or any part of the arbitrator’s award”. RTC approved the arbitration
agreement with a sole arbitrator. The arbitrator ordered petitioners to immediately pay respondent
contractor the sum of P16,108,801.00 and declared the award as final and unappealable pursuant to the
Arbitration Agreement precluding judicial review of the award. Roblecor moved for the confirmation of
said award. On the other hand, Chung Fu moved to remand the case for further hearing and asked for a
reconsideration of the judgment award claiming that the arbitrator committed several instances of grave
error by disregarding the provisions of the parties’ contract. The RTC denied Chung Fu’s Motion to
Remand and approved Roblecor’s Motion for Confirmation of Award. Chung Fu elevated the case to CA
which denied the petition.
ISSUE:
Whether or not the subject arbitration award is beyond the ambit of the court’s power of judicial review
RULING:
No. It’s stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrator’s award is not
absolute and without exceptions. Where the conditions described in Arts. 2038, 2039 and 2040 applicable
to both compromises and arbitrations are obtaining, the arbitrators’ award may be annulled or rescinded.
Additionally, Sections 24 and 25 of the Arbitration Law provide grounds for vacating, Modifying or
rescinding an arbitrator’s award. Even decisions of administrative agencies which are declared “final” by
law are not exempt from judicial review when so warranted. The SC finds that Chung Fu has amply made
out a case where the voluntary arbitrator failed to apply the terms and provisions of the Construction
Agreement which forms part of the law applicable as between the parties, thus committing a grave abuse
of discretion. Furthermore, in granting unjustified extra compensation to responded for several items, he
exceeded his powers – all of which would have constituted ground for vacating the award under Section
24(d) of the Arbitration Law

WHEREFORE, the petition is granted.The Case remanded to the court of origin for further hearing.

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 CALIFORNIA AND HAWAIIAN SUGAR vs. PIONEER INSURANCE
GR No. 139273 Nov 28, 2000

FACTS:
The vessel MV “SUGAR ISLANDER” arrived at the port of Manila carrying a cargo of soybean
meal in bulk consigned to several consignees, one of which was the Metro Manila Feed Millers
Association. Afterwards, the discharging of cargo from vessel to barges commenced. From the barges,
the cargo was allegedly offloaded, rebagged and reloaded on consignee’s delivery trucks. Pioneer
Insurance, however, claims that when the cargo was weighed on a licensed truck scale a shortage of
255.051 metric tons valued at P1,621,171.16. The above-mentioned shipment was insured with Pioneer
Insurance against all risk in the amount of P19,976,404.00. Due to the alleged refusal of California and
Hawaiian et al. to settle their respective liabilities, Pioneer, as insurer, paid the consignee Metro Manila
Feed Miller’s Association. As alleged subrogee of Metro, Pioneer filed a complaint for damages against
California and Hawaiian et al. Petitioners filed a Motion to Dismiss the complaint on the ground that
Pioneer’s claim is premature, the same being arbitrable. The RTC issued an Order deferring the hearing
on the Motion to Dismiss until the trial and directing petitioners to file their Answer. California and
Hawaiian et al. then moved to reconsider said Order which was, however, denied by the RTC on the
ground that the reason relied upon by California and Hawaiian et al. in its Motion to Dismiss and Motion
for Reconsideration was a matter of defense which they must prove with their evidence. California and
Hawaiian et al. filed their Answer with Counterclaim and Cross-claim alleging therein that Pioneer did
not comply with the arbitration clause of the charter party; hence, the complaint was allegedly prematurely
filed. The California and Hawaiian et al. filed a Motion to Defer Pre-Trial and Motion to Set for
Preliminary Hearing the Affirmative Defense of Lack of Cause of Action for Failure to comply with
Arbitration Clause, respectively. Pioneer did not file an Opposition to the said Motion to Set for
Preliminary Hearing and Motion for reconsideration of the same was denied by the RTC. California and
Hawaiian et al. filed a petition for certiorari with the CA. The CA then ruled that the arbitration clause did
not bind Pioneer Insurance, which is a mere subrogee of Metro Manila Feed Millers Association, citing
Pan Malayan Insurance Corp. vs CA.
ISSUE:
Whether or not the motion to dismiss should be granted on the ground that a condition precedent has not
been complied with, based on the arbitration clause incorporated in the bill of lading.
RULING:
There was nothing in Pan Malayan, however, that prohibited the applicability of the arbitration clause to
the subrogee. That case merely discussed, inter alia, the accrual of the right of subrogation and the legal
basis therefor. This issue is completely different from that of the consequences of such subrogation; that
is, the rights that the insurer acquires from the insured upon payment of the indemnity.

WHEREFORE, the Petition is granted, and the CA’s decision reversed. Case remanded to the RTC for
preliminary hearing of California and Hawaiian et al.’s affirmative defense.

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 J PLUS ASIA DEVELOPMENT CORPORATION V. UTILITY ASSURANCE CORPORATION
GR NO. 199650 JUNE 26, 2013

FACTS:
J Plus Asia, and Martin Mabunay, entered into a CONSTRUCTION AGREEMENT whereby Mabunay
undertook to build the former’s Condominium/hotel in Boracay. The project was to be completed within
1 yr from the siigning of the NOTICE OF AWARD and receipt of 20% down payment (8.4 milllion) The
down payment was fully paid on January 14, 2008. Per the agreed work schedule, the completion date
of the project was December 31, 2008. Mabunay also submitted the required Performance Bond issued by
Utility Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or P8.4
million.
Mabunay commenced work on January 7, 2008. However, as evidenced by the Joint Construction
Evaluation Result and Status, signed by both parties, the project was only 31.39 % complete as of
November 14, 2008. Thus, J PLUS ASIA terminated the contract and sent demand letters to Mabunay and
the surety. J Plus Asia filed a request for arbitration before the Construction Industry Arbitration
Commission (CIAC) and prayed that MAbunay and Surety be ordered to pay 8.9 Million as liquidated
damages and 2.3 Million to the unrecouped down payment or overpayment made to Mabunay.
Mabunay’s answer alleged that the delay was caused by retrofitting and other revision works ordered by
Joo Han Lee. The surety on the other hand filed a MTD for lack of cause of action. The surety argued
that the performance bond merely guaranteed the 20% down payment and not the entire obligation of
Mabunay. THE CIAC ruled in favor of JPLUS ASIA. THE CA ruled that Mabunay has not yet incurred
delay and that obligation was not yet demandable because the contract was terminated prior to completion
date.

ISSUES:
1. Whether or not the CA erred in not holding that the ADR Act and the special rules on ADR have
stripped the CA of jurisdiction to review arbitral awards.
2. Whether or not CA erred in reversing the arbitral award due to the issue that it was not raised in
the answer, not identified in the terms of reference, not assigned as an error, and not argued in any of the
pleadings filed before the court.
3. Whether or not the CA erred in relying on the case which has nothing to do with construction
agreements.

On the procedural matters, petitioner’s contention has no merit that with the institutionalization of ADR
under RA 9285, the CA was divested of jurisdiction to review the decisions or awards of the CIAC. RA
9285 did not confer on RTC jurisdiction to review awards and decisions of the CIA in construction
disputes. On the contrary, Section 40 thereof expressly declares that confirmation by the RTC is not
required. Since RA 9285 explicitly excluded CIAC awards from domestic arbitration awards that need to
be confirmed to be executory, said awards are therefore not covered by Rule 11 of the Special ADR Rules,
as they continue to be governed by EO 1008.
With regards to the alleged error committed by the CA in deciding the case upon an issue not
raised or litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred
delay in the performance of his obligations under the Construction Agreement was the very first issue
stipulated in the Terms of Reference, which is distinct form the issue of the extent of respondent’s liability
under the Performance Bond. Default or mora on the part of the debtor is the delay in the fulfillment of

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 the prestation by reason of a cause imputable to the former, it is the non-fulfillment of an obligation with
respect to time.
It was shown that four months after Mabunay commence work activities, the project was already
behind schedule for reasons not attributable to petitioner. In the succeeding months, Mabunay was still
unable to catch up with his accomplishment even as petitioner constantly advised him of the delays, as
can be gleaned from the notices of delay sent by the petitioner’s engineer and construction manager.
Mabunay was clearly in default considering the dismal percentage of accomplishment of the work he
contracted on the account of delays in executing the scheduled work of activities and repeated failure to
provide sufficient manpower to expedite construction works. The plain and unambiguous terms of the
Construction Agreement authorize petitioner to confiscate the Performance Bond to answer for all kinds
of damages it may suffer as a result of the contractor’s failure to complete the building.
The appellate court correctly rejected the theory of respondent when it ruled that the Performance
Bond guaranteed the full and faithful compliance of Mabunay’s obligations under the Construction
Agreement, and that nowhere in law or jurisprudence does it state that the obligation or undertaking by a
surety may be apportioned. The recitals in the bond unequivocally declare that it secures the full and
faithful performance of Mabunay’s obligations under the Construction Agreement with petitioner.
The SC reversed the ruling of the CA and reinstated and upheld the decision of the CIAC.

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 KOPPEL, INC., Petitioner v. MAKATI ROTARY CLUB FOUNDATION, INC., Respondent
G.R. NO. 198075, SEPTEMBER 04, 2013

FACTS:
Fedders Koppel, Inc. was a registered owner of a parcel of land, where some of their buildings
dedicated to business are located. FKI bequeathed the subject land to respondent Makati Rotary Club
Foundation, Incorporated by way of conditional donations. One of the conditions of the donation required
the respondent to lease the subject land back to FKI for a period a period of 25 years of until 25th May
2000, and renewable for another 25 years upon mutual agreement of the parties. In which case, the amount
of rent shall be determined in accordance with item 2(g) of the Deed of Donation, where in case
disagreement the matter shall be referred to a Board of 3 Arbitrators in accordance with the Arbitration
Law of the Philippines.
2 days before the expiration of the contract, FKI and respondents executed another contract of
lease (2000 Lease Contract) covering the subject land. They agreed on a new 5-year lease with annual
rents ranging from 4,000,000 Php for the 1st year up to P4,900,000 for the 5th year. It also contained an
arbitration clause enforceable in the event the parties come into disagreement about the “interpretation,
application, and execution” of the lease.
After the expiration of 2000 Lease Contract, another contract was agreed between the parties where
it required FKI to pay a fixed annual rent of P4.2M. It also obligated the FKI to make a yearly donation
to the respondent ranging from P3.0M for the 1st year up to 3.9M for the 5th year. It also contained the
arbitration clause similar to the previous contract.
On June 2008, FKI sold all its rights and properties relative to its business in favor of petitioner
Koppel, Inc. FKI and petitioner executed an Assignment and Assumption of Lease and Donation –
wherein FKI, with the conformity of the respondent, formally assigned all of its interests and obligations
under the Amended Deed of Donation and the 2005 Lease Contract in favor of petitioner. Petitioner
discontinued the payment of the rent and donation under the 2005 Lease Contract. Petitioner’s refusal to
pay such rent and donation emanated from its belief that the rental stipulation under the 2005 Lease
Contracts cannot be given effect because they violated one the of the “material conditions” of the donation
of the subject land.
Respondent sent demand letters to the petitioner notifying the latter of its default and demanding
for the settlement of the rent and donation due for 2019. Petitioner sent a reply to respondent expressing
its disagreement over the rental stipulations of the 2005 Lease Contract it being severely disproportionate,
unconscionable, and in clear violation to the nominal rentals mandated by the Amended Deed of Donation.
Petitioner refused to comply with the demands of the respondents and filed with the RTC of Paranaque
City a complaint for the rescission or cancellation of the Deed of Donation and Amended Deed of
Donation against the respondent. Respondent also filed with the MeTC of Paranaque City an unlawful
detainer case against the petitioner. Petitioner filed an answer with a compulsory counterclaims, and
interposed defenses such as the lack of court jurisdiction because of insufficiency of the respondent’s
demand, and the contract having arbitration clause must be submitted for arbitration.
MeTC refused to dismiss the action on the ground that the dispite is subject to arbitration and
rendered judgment in favor of the petitioner with respect to the issues regarding the insufficiency of the
respondent’s demand. On its appeal to RTC, it was reversed and ordered the eviction of the petitioner
from the subject land. The CA affirmed the decision of the RTC.

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 ISSUE:
Whether or not MeTC, RTC and CA rendered a valid judgment of dispute despite having an
arbitration clause the contract between the parties.

RULING:
The MeTC, RTC, and CA all erred in overlooking the significance of the arbitration clause
incorporated in the 2005 Lease Contracts. As the Court sees it, that is a fatal mistake
The arbitration clause of the 2005 Lease Contract stipulates that “any disagreement” as to the
“interpretation, application or execution” of the 2005 Lease Contract ought to be submitted to arbitration.
Such stipulation is clear and comprehensive enough so as to include virtually any kind of conflict or
dispute that may arise from the 2005 Lease Contract including the one that presently besets petitioner and
respondent.
Since there really are no legal impediments to the application of the arbitration clause of the 2005 Lease
Contract, the instant unlawful detainer action was instituted in violation of such clause. The petitioner and
the respondent should have been referred to arbitration pursuant to the arbitration clause of the 2005 Lease
Contract. The MeTC, did not do so in violation of the law – which violation was, in turn, affirmed by the
RTC and CA. The violation by the MeTC of the clear directives under RA 876 and 9285 renders invalid
all proceedings it undertook in the ejectment case after the filing by petitioner of its Answer with
Counterclaim – the point when the petitioner and respondent should have been referred to arbitration.
The decisions of the CA, RTC and MeTC were set aside, and the case was referred for arbitration pursuant
to the arbitration clause of the 2005 Lease Contract, repeatedly included in the 2000 Lease Contracts and
in the 1976 Amended Deed of Donation.

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