Korea Technologies Co., Ltd. Vs. Hon. Albert A. Lerma, et al.

Korea Technologies Co., Ltd. Vs. Hon. Albert A. Lerma, et al. , G.R. No. 143581. January
7, 2008
FACTS: Petitioner KOGIES and respondent PGSMC executed a Contract whereby KOGIES
would set up an LPG Cylinder Manufacturing Plant for respondent. Respondent unilaterally
cancelled the contract on the ground that petitioner had altered the quantity and lowered the
quality of the machineries and equipment it delivered. Petitioner opposed informing the latter
that PGSMC could not unilaterally rescind their contract nor dismantle and transfer the
machineries and equipment on mere imagined violations by petitioner. Petitioner then filed a
Complaint for Specific Performance against respondent before the RTC. Respondent filed its
Answer with Compulsory Counterclaim asserting that it had the full right to dismantle and
transfer the machineries and equipment because it had paid for them in full as stipulated in the
contract. KOGIES filed a motion to dismiss respondents counterclaims arguing that when
PGSMC filed the counterclaims, it should have paid docket fees and filed a certificate of nonforum shopping, and that its failure to do so was a fatal defect. The RTC dismissed the
petitioners motion to dismiss respondents counterclaims as these counterclaims fell within the
requisites of compulsory counterclaims.
ISSUE: WON payment of docket fees and certificate of non-forum shopping were required in the
respondents Answer with counterclaim?
HELD: NO. The counterclaims of PGSMC were incorporated in its Answer with Compulsory
Counterclaim in accordance with Section 8 of Rule 11, 1997 Revised Rules of Civil Procedure,
the rule that was effective at the time the Answer with Counterclaim was filed. Sec. 8 on existing
counterclaim or cross-claim states, A compulsory counterclaim or a cross-claim that a
defending party has at the time he files his answer shall be contained therein. As to the failure
to submit a certificate of forum shopping, PGSMCs Answer is not an initiatory pleading which
requires a certification against forum shopping under Sec. 524 of Rule 7, 1997 Revised Rules of
Civil Procedure. It is a responsive pleading, hence, the courts a quo did not commit reversible
error in denying KOGIES motion to dismiss PGSMCs compulsory counterclaims. At the time
PGSMC filed its Answer incorporating its counterclaims against KOGIES, it was not liable to pay
filing fees for said counterclaims being compulsory in nature. We stress, however, that effective
August 16, 2004 under Sec. 7, Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are
now required to be paid in compulsory counterclaim or cross-claims.

Koppel, Inc. vs. Makati Rotary Club Foundation, Inc. [2013]

G.R. No. 198075 (September 04, 2013)
PEREZ, J.:
FACTS:
In 1975, Fedders Koppel, Incorporated (FKI) bequeathed a parcel of land exclusive of
improvements thereon in favor of Respondent Makati Rotary Club Foundation, Inc. by way of
aconditional donation. Respondent accepted the donation with all of its conditions. On 26 May
1975, FKI and the Respondent executed a Deed of Donation evidencing their consensus. One
of the conditions of the donation required the Respondent to lease the subject land back to FKI
under terms specified in their Deed of Donation. With the Respondents acceptance of the
donation, a lease agreement between them was, therefore, effectively incorporated in the Deed
of Donation.

Pertinent terms of such lease agreement, as provided in the Deed of Donation, were as follows:
1. The period of the lease is for twenty-five (25) years, or until the 25 th of May 2000;
2. The amount of rent to be paid by FKI for the first twenty-five (25) years is P40,126.00
perannum.

The Deed of Donation also stipulated that the lease over the subject property is renewable for
another period of twenty-five (25) years upon mutual agreement of FKI and the Respondent. In
which case, the amount of rent shall be determined in accordance with item 2(g) of the Deed of
Donation.

In October 1976, FKI and the Respondent executed an Amended Deed of Donation that
reiterated the provisions of the Deed of Donation, including those relating to the lease of the
subject land.

Verily, by virtue of the lease agreement contained in the Deed of Donation and Amended Deed
of Donation, FKI was able to continue in its possession and use of the subject land.
Two (2) days before the lease incorporated in the Deed of Donation and Amended Deed of
Donation was set to expire, or on 23 May 2000, FKI and Respondent executed another contract
of lease (2000 Lease Contract) covering the subject land. In this 2000 Lease Contract, FKI and
Respondent agreed on a new five-year lease to take effect on the 26 th of May 2000, with annual
rents ranging from P4M for the first year up to P4.9M for the fifth year.

The 2000 Lease Contract also contained an arbitration clause enforceable in the event the
parties come to disagreement about the interpretation, application and execution of the lease.

After the 2000 Lease Contract expired, FKI and Respondent agreed to renew their lease for
another five (5) years. This new lease (2005 Lease Contract) required FKI to pay a fixed annual
rent of P4.2M.In addition to paying the fixed rent, however, the 2005 Lease Contract also
obligated FKI to make a yearly donation of money to the Respondent. Such donations ranged
from P3M for the first year up to P3.9M for the fifth year.

Notably, the 2005 Lease Contract contained an arbitration clause similar to that in the 2000
Lease Contract, to wit:
19. Governing Law The provisions of this [2005 Lease Contract] shall be governed,
interpreted and construed in all aspects in accordance with the laws of the Republic of the
Philippines.

Any disagreement as to the interpretation, application or execution of this [2005 Lease Contract]
shall be submitted to a board of three (3) arbitrators constituted in accordance with the
arbitration law of the Philippines. The decision of the majority of the arbitrators shall be binding
upon [FKI and Respondent]. (Emphasis supplied)

From 2005 to 2008, FKI faithfully paid the rentals and donations due it per the 2005 Lease
Contract. But in June of 2008, FKI sold all its rights and properties relative to its business in
favor of herein Petitioner Koppel, Incorporated.

On 29 August 2008, FKI and Petitioner executed an Assignment and Assumption of Lease and
Donationwherein 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.

The following year, Petitioner discontinued the payment of the rent and donation under the
2005Lease Contract.

Petitioners refusal to pay such rent and donation emanated from its belief that the rental
stipulations of the 2005 Lease Contract, and even of the 2000 Lease Contract, cannot be given
effect because they violated one of the material conditions of the donation of the subject land,
as stated in the Deed of Donation and Amended Deed of Donation.

According to Petitioner, the Deed of Donation and Amended Deed of Donation actually
established not only one but two (2) lease agreements between FKI and Respondent, i.e., one
lease for the first twenty-five (25) years or from 1975 to 2000, and another lease for the next
twenty-five (25) years thereafter or from 2000 to 2025. Both leases are material conditions of
the donation of the subject land.

Petitioner points out that while a definite amount of rent for the second twenty-five (25) year
lease was not fixed in the Deed of Donation and Amended Deed of Donation, both deeds
nevertheless prescribed rules and limitations by which the same may be determined. Such rules
and limitations ought to be observed in any succeeding lease agreements between Petitioner
and Respondent for they are, in themselves, material conditions of the donation of the subject
land.

In this connection, Petitioner cites item 2(g) of the Deed of Donation and Amended Deed of
Donation that supposedly limits the amount of rent for the lease over the second twenty-five (25)
years to only three percent (3%) of the fair market value of the [subject] land excluding the
improvements.

For Petitioner then, the rental stipulations of both the 2000 Lease Contract and 2005 Lease
Contract cannot be enforced as they are clearly, in view of their exorbitant exactions, in violation
of the aforementioned threshold in item 2(g) of the Deed of Donation and Amended Deed of
Donation. Consequently, Petitioner insists that the amount of rent it has to pay thereon is and
must still be governed by the limitations prescribed in the Deed of Donation and Amended Deed
of Donation.
Respondent then sent Demand Letters to Petitioners notifying the latter of its default,
demanding for the settlement of the rent and donations due for the year 2009. Respondent
intimated of cancelling the 2005 Lease Contract should Petitioner fail to settle the said
obligations. In its last sent Demand Letter, Respondent demand Petitioner to immediately
vacate the leased premises should it fail to pay such obligations within seven (7) days from its
receipt of the letter.
Petitioner refused to comply with the demands of the Respondent. Instead, on 30 September
2009, Petitioner filed with the RTC of Paraaque City a Complaint for the Rescission or
Cancellation of the Deed of Donation and Amended Deed of Donation against the Respondent.
On 5 October 2009, Respondent filed an Unlawful Detainer case against the Petitioner before
the MeTC of Paraaque City.

On 4 November 2009, Petitioner filed an Answer with Compulsory Counterclaim.In it, Petitioner
reiterated its objection over the rental stipulations of the 2005 Lease Contract for being violative
of the material conditions of the Deed of Donation and Amended Deed of Donation.

On 27 April 2010, the MeTC rendered judgment in favor of the Petitioner. While the MeTC
refused to dismiss the action on the ground that the dispute is subject to arbitration, it
nonetheless sided with the Petitioner with respect to the issues regarding the insufficiency of the
Respondents demand and the nullity of the 2005 Lease Contract.

The Respondent appealed to the RTC which reversed the MeTCs decision.

Aggrieved, the Petitioner appealed to the CA which affirmed the decision of the RTC.
Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:

Whether or not the present dispute is arbitrable under the Arbitration Clause of the 2005 Lease
Agreement Contract?

ARGUMENTS:

At different points in the proceedings of this case, the following arguments were offered against
the application of the arbitration clause of the 2005 Lease Contract:
1. The disagreement between the Petitioner and Respondent is non-arbitrable as it will
inevitably touch upon the issue of the validity of the 2005 Lease Contract. It was
submitted that one of the reasons offered by the Petitioner in justifying its failure to pay
under the 2005 Lease Contract was the nullity of such contract for being contrary to law
and public policy. The Supreme Court, in Gonzales v. Climax Mining, Ltd. [2005], held
that the validity of contract cannot be subject of arbitration proceedings as such
questions are legal in nature and require the application and interpretation of laws and
jurisprudence which is necessarily a judicial function.

2. The Petitioner cannot validly invoke the arbitration clause of the 2005 Lease
Contract while, at the same time, impugn such contracts validity.

3. Even assuming that it can invoke the arbitration clause whilst denying the validity of
the2005 Lease Contract, Petitioner still did not file a formal application before the MeTC
so as to render such arbitration clause operational. Section 24 of Republic Act No. 9285
requires the party seeking arbitration to first file a request or an application therefor
with the courtnot later than the preliminary conference.

4. Petitioner and Respondent already underwent JDR proceedings before the RTC. Hence,
a further referral of the dispute to arbitration would only be circuitous. Moreover, an
ejectment case, in view of its summary nature, already fulfills the prime purpose of
arbitration, i.e., to provide parties in conflict with an expedient method for the resolution
of their dispute. Arbitration then would no longer be necessary in this case.

RULING:

YES. None of the above-mentioned arguments have any merit. The MeTC, RTC and CA all
erred in overlooking the significance of the arbitration clause incorporated in the 2005 Lease
Contract. As the SC sees it, that is a fatal mistake.

Hence, the Petition is GRANTED and thus referring the Petitioner and the Respondent to
arbitration pursuant to the arbitration clause of the 2005 Lease Contract, repeatedly included in
the 2000 Lease Contract and in the 1976 Amended Deed of Donation.

RATIO DECIDENDI:

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. To the mind of the Court, such stipulation is clear and is comprehensive enough so
as to include virtually any kind of conflict or dispute that may arise from the 2005 Lease
Contractincluding the one that presently besets Petitioner and Respondent.

First. The disagreement between the Petitioner and Respondent falls within the allencompassing terms of the arbitration clause of the 2005 Lease Contract. While it may be
conceded that in the arbitration of such disagreement, the validity of the 2005 Lease Contract,
or at least, of such contracts rental stipulations would have to be determined, the same would
not render such disagreement non-arbitrable. The quotation from Gonzales case that was used
to justify the contrary position was taken out of context.

The pivotal issue that confronted the Court in the Gonzales case was whether the complaint for
arbitration raises arbitrable issues that the Panel of Arbitrators of the Mines and Geosciences
Bureau (PA-MGB) can take cognizance of.
Gonzales decided the issue in the negative. In holding that the PA-MGB was devoid of any
jurisdiction to take cognizance of the complaint for arbitration, this Court pointed out to the
provisions of R.A. No. 7942, or the Mining Act of 1995, which granted the PA-MGB with
exclusive original jurisdiction only over mining disputes, i.e., disputes involving rights to mining
areas, mineral agreements or permits, and surface owners, occupants, claimholders or
concessionaires requiring the technical knowledge and experience of mining authorities in
order to be resolved. Accordingly, since the complaint for arbitration in Gonzales did not
raise mining disputes as contemplated under R.A. No. 7942 but only issues relating to the
validity of certain mining related agreements, SC held that such complaint could not be
arbitrated before the PA-MGB. It is in this context that SC made the pronouncement now in
discussion:

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. (Emphasis supplied)

SC in Gonzales did not simply base its rejection of the complaint for arbitration on the ground
that the issue raised therein, i.e., the validity of contracts, is per se non-arbitrable. The real
consideration behind the ruling was the limitation that was placed by R.A. No. 7942 upon the
jurisdiction of the PA-MGB as an arbitral body. Gonzales rejected the complaint for arbitration
because the issue raised therein is not a mining dispute per R.A. No. 7942 and it is for this
reason, and only for this reason, that such issue is rendered non-arbitrable before the PA-MGB.
As stated beforehand, R.A. No. 7942 clearly limited the jurisdiction of the PA-MGB only
tomining disputes.
Much more instructive for our purposes, on the other hand, is the recent case of Cargill
Philippines, Inc. v. San Fernando Regal Trading, Inc [2011]. In Cargill, SC answered the
question of whether issues involving the rescission of a contract are arbitrable. The respondent
in Cargill argued against arbitrability, also citing therein Gonzales. After dissecting Gonzales, SC
ruled in favor of arbitrability. Thus, SC held:

Respondent contends that assuming that the existence of the contract and the arbitration clause
is conceded, the CAs decision declining referral of the parties dispute to arbitration is still
correct. It claims that its complaint in the RTC presents the issue of whether under the facts
alleged, it is entitled to rescind the contract with damages; and that issue constitutes a judicial
question or one that requires the exercise of judicial function and cannot be the subject of an
arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we held that a panel of
arbitrator is bereft of jurisdiction over the complaint for declaration of nullity/or termination of the
subject contracts on the grounds of fraud and oppression attendant to the execution of the
addendum contract and the other contracts emanating from it, and that the complaint should
have been filed with the regular courts as it involved issues which are judicial in nature.

Such argument is misplaced and respondent cannot rely on the Gonzales case to support its
argument. (Emphasis ours)

Second. Petitioner may still invoke the arbitration clause of the 2005 Lease
Contractnotwithstanding the fact that it assails the validity of such contract. This is due to
the doctrine of separability.

Under the doctrine of separability, an arbitration agreement is considered as independent of the

main contract. Being a separate contract in itself, the arbitration agreement may thus be invoked
regardless of the possible nullity or invalidity of the main contract.

Once again instructive is Cargill, wherein SC held that, as a further consequence of the doctrine
of separability, even the very party who repudiates the main contract may invoke its arbitration
clause.
Third. The operation of the arbitration clause in this case is not at all defeated by the failure of
the Petitioner to file a formal request or application therefor with the MeTC. SC finds that the
filing of a request pursuant to Section 24 of R.A. No. 9285 is not the sole means by which an
arbitration clause may be validly invoked in a pending suit.
Section 24 of R.A. No. 9285 reads:

SEC. 24. Referral to Arbitration. A court before which an action is brought in a matter which is
the subject matter of an arbitration agreement shall, if at least one party so requestsnot later
that the pre-trial conference, or upon the request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable
of being performed. [Emphasis ours; italics original]
The request referred to in the above provision is, in turn, implemented by Rules 4.1 to 4.3
of A.M. No. 07-11-08-SC or the Special Rules of Court on Alternative Dispute
Resolution (Special ADR Rules):

RULE 4: REFERRAL TO ADR

Rule 4.1. Who makes the request. A party to a pending action filed in violation of the
arbitration agreement, whether contained in an arbitration clause or in a submission
agreement, may request the court to refer the parties to arbitration in accordance with such
agreement.

Rule 4.2. When to make request. (A) Where the arbitration agreement exists before the action
is filed. The request for referral shall be made not later than the pre-trial conference. After the
pre-trial conference, the court will only act upon the request for referral if it is made with the
agreement of all parties to the case.

(B) Submission agreement. If there is no existing arbitration agreement at the time the case is
filed but the parties subsequently enter into an arbitration agreement, they may request the
court to refer their dispute to arbitration at any time during the proceedings.

Rule 4.3. Contents of request. The request for referral shall be in the form of a motion, which
shall state that the dispute is covered by an arbitration agreement.

Apart from other submissions, the movant shall attach to his motion an authentic copy of the
arbitration agreement.

The request shall contain a notice of hearing addressed to all parties specifying the date and
time when it would be heard. The party making the request shall serve it upon the respondent to
give him the opportunity to file a comment or opposition as provided in the immediately
succeeding Rule before the hearing. [Emphasis ours; italics original]

Attention must be paid, however, to the salient wordings of Rule 4.1. It reads: [a] party to a
pending action filed in violation of the arbitration agreement x x x may request the court to refer
the parties to arbitration in accordance with such agreement.
In using the word may to qualify the act of filing a request under Section 24 of R.A. No. 9285,
the Special ADR Rules clearly did not intend to limit the invocation of an arbitration agreement in
a pending suit solely via such request. After all, non-compliance with an arbitration agreement
is a valid defense to any offending suit and, as such, may even be raised in an answer as
provided in our ordinary rules of procedure.

In this case, it is conceded that Petitioner was not able to file a separate request of arbitration
before the MeTC. However, it is equally conceded that the Petitioner, as early as in its Answer
with Counterclaim, had already apprised the MeTC of the existence of the arbitration clause in
the 2005 Lease Contract and, more significantly, of its desire to have the same enforced in this
case. This act of Petitioner is enough valid invocation of his right to arbitrate.

Fourth. The fact that the Petitioner and Respondent already underwent through JDR
proceedings before the RTC, will not make the subsequent conduct of arbitration between the
parties unnecessary or circuitous. The JDR system is substantially different from arbitration
proceedings.

The JDR framework is based on the processes of mediation, conciliation or early neutral
evaluation which entails the submission of a dispute before a JDR judge who shall merely
facilitate settlement between the parties in conflict or make a non-binding evaluation or
assessment of the chances of each partys case. Thus in JDR, the JDR judge lacks the
authority to render a resolution of the dispute that is binding upon the parties in conflict. In
arbitration, on the other hand, the dispute is submitted to an arbitrator/sa neutral third person
or a group of thereofwho shall have the authority to render a resolution binding upon the
parties.

Clearly, the mere submission of a dispute to JDR proceedings would not necessarily render the
subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict to
reach an amicable settlement before the JDR may, in fact, be supplemented by their resort to
arbitration where a binding resolution to the dispute could finally be achieved. This situation
precisely finds application to the case at bench.

Neither would the summary nature of ejectment cases be a valid reason to disregard the
enforcement of the arbitration clause of the 2005 Lease Contract. Notwithstanding the summary
nature of ejectment cases, arbitration still remains relevant as it aims not only to afford the
parties an expeditious method of resolving their dispute.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom of the parties to make their own
arrangements to resolve their own disputes. Arbitration agreements manifest not only the
desire of the parties in conflict for an expeditious resolution of their dispute. They also represent,
if not more so, the parties mutual aspiration to achieve such resolution outside of judicial
auspices, in a more informal and less antagonistic environment under the terms of their
choosing. Needless to state, this critical feature can never be satisfied in an ejectment case no
matter how summary it may be.

Legal Effect of the Application of the Arbitration Clause

Since there really are no legal impediments to the application of the arbitration clause of
the 2005 Contract of Lease in this case, We find that the instant unlawful detainer action was
instituted in violation of such clause. The Law, therefore, should have governed the fate of the
parties and this suit:
R.A. No. 876

Section 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 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. [Emphasis supplied]
R.A. No. 9285

Section 24. Referral to Arbitration. A court before which an action is brought in a matter which
is the subject matter of an arbitration agreement shall, if at least one party so requests not later
that the pre-trial conference, or upon the request of both parties thereafter, refer the parties to
arbitration unless it finds that the arbitration agreement is null and void, inoperative or incapable
of being performed. [Emphasis supplied]

It is clear that under the law, the instant unlawful detainer action should have been stayed; the
Petitioner and the Respondent should have been referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract. The MeTC, however, did not do so in violation of
the lawwhich violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.
The violation by the MeTC of the clear directives under R.A. Nos. 876 and 9285 renders invalid
all proceedings it undertook in the ejectment case after the filing by Petitioner of its Answer with
Counterclaimthe point when the Petitioner and the Respondent should have been referred to
arbitration. This case must, therefore, be remanded to the MeTC and be suspended at said
point. Inevitably, the decisions of the MeTC, RTC and the Court of Appeals must all be vacated
and set aside.

The Petitioner and the Respondent must then be referred to arbitration pursuant to the
arbitration clause of the 2005 Lease Contract.

Jurisprudence: J Plus Asia Development Corporation vs. Utility Assurance Corporation [2013]
Juan Knows / December 2, 2013

G.R. No. 199650 (June 26, 2013)

VILLARAMA, JR., J.:

FACTS:
Petitioner J Plus Asia Development Corporation and Martin E. Mabunay entered into
aConstruction Agreement on December 24, 2007 whereby the latter undertook to build the
formers 72-room condominium/hotel located in Boracay Island.
The project, costing P42M, was to be completed within one year or 365 days reckoned from the
first calendar day after signing of the Notice of Award and Notice to Proceed and receipt of
down payment (20% of contract price). The P8.4M down payment was fully paid on January 14,
2008. Payment of the balance of the contract price will be based on actual work finished within
15 days from receipt of the monthly progress billings. Per the agreed work schedule, the
completion date of the project was December 2008. Mabunay also submitted the
required Performance Bond issued by Respondent Utility Assurance Corporation in the amount
equivalent to 20% down payment or P8.4M.

Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th
monthly progress billing sent by Mabunay. As of September 16, 2008, Petitioner had paid the
total amount of P15.98M inclusive of the 20% down payment. However, as of said date,
Mabunay had accomplished only 27.5% of the project. It was later found out by the joint
inspection and evaluation by the Petitioner and Mabunay that, as of November 14, 2008, the
project was only 31.39% complete and that the uncompleted portion was 68.61%.
On November 19, 2008, Petitioner terminated the contract and sent Demand Letters to
Mabunay and Respondent surety. As its demands went unheeded, Petitioner filed a Request
for Arbitrationbefore the Construction Industry Arbitration Commission (CIAC).
In his Answer, Mabunay claimed that the delay was caused by retrofitting and other revision
works ordered by Petitioner. He asserted that he actually had until April 30, 2009 to finish the
project since the 365 days period of completion started only on May 2, 2008 after clearing the
retrofitted old structure. Hence, the termination of the contract by Petitioner was premature and
the filing of the Complaint against him was baseless, malicious and in bad faith.
Respondent, on the other hand, filed a Motion to Dismiss on the ground that Petitioner has no
cause of action and the complaint states no cause of action against it. The CIAC denied
the Motion to Dismiss.
In its Answer Ex Abundante Ad Cautelam with Compulsory Counterclaims and Cross-claims,
Respondent argued that the Performance Bond merely guaranteed the 20% down payment and
not the entire obligation of Mabunay under the Construction Agreement. Since the value of the
projects accomplishment already exceeded the said amount, Respondents obligation under
thePerformance Bond had been fully extinguished. As to the claim for alleged overpayment to
Mabunay, Respondent contended that it should not be credited against the 20% down payment
which was already exhausted and such application by Petitioner is tantamount to reviving an
obligation that had been legally extinguished by payment. Respondent also set up a crossclaim against Mabunay who executed in its favor an Indemnity Agreement whereby Mabunay
undertook to indemnify Respondent for whatever amounts it may be adjudged liable to pay
Petitioner under the surety bond.

On February 2, 2010, CIAC rendered its Decision and made Awards in favor of Petitioner.
CIAC ruled that Mabunay had incurred delay which entitled Petitioner to the stipulated liquidated
damages and unrecouped down payment.
Dissatisfied, Respondent filed in the CA a Petition for Review under Rule 43 of the 1997 Rules
of Civil Procedure, as amended, which reversed the CIACs ruling.
Hence, the present Petition for Review on Certiorari under Rule 45 seeking to reverse the CA
insofar as it denied its claims under the Performance Bond and to reinstate in its entirety the
February 2, 2010 CIAC Decision.

ISSUE:
Whether or not the Alternative Dispute Resolution Act of 2004 and the Special ADR Rules have
stripped the CA of jurisdiction to review arbitral awards?

ARGUMENT:
Petitioner contends that that with the institutionalization of alternative dispute resolution
under RA No. 9285, otherwise known as the Alternative Dispute Resolution Act of 2004, the CA
was divested of jurisdiction to review the decisions or awards of the CIAC.

RULING:
NO. The Petitioners contention is without merit. Petitioner erroneously relied on the provision
in RA No. 9285 allowing any party to a domestic arbitration to file in the RTC a petition either to
confirm, correct or vacate a domestic arbitral award.

The Petition is GRANTED. The assailed decision of the CA is REVERSED and SET ASIDE. The
Award made in the Decision rendered by CIAC dated February 2, 2010 is REINSTATED with
MODIFICATIONS.

RATIO DECIDENDI:
SC holds that RA No. 9285 did not confer on RTCs jurisdiction to review awards or decisions of
the CIAC in construction disputes. On the contrary, Section 40 thereof expressly declares that
confirmation by the RTC is NOT required, thus:

SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be
governed by Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court.

The confirmation of a domestic award shall be made by the regional trial court in accordance
with the Rules of Procedure to be promulgated by the Supreme Court.

A CIAC arbitral award need not be confirmed by the regional trial court to be executory as
provided under E.O. No. 1008. (Emphasis supplied.)
EO No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from,
or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award
of the CIAC is final and unappealable, except on questions of law, which are appealable to the
Supreme Court. With the amendments introduced by RA No. 7902 and promulgation of
the 1997 Rules of Civil Procedure, as amended, the CIAC was included in the enumeration of
quasi- judicial agencies whose decisions or awards may be appealed to the CA in a Petition for
Review under Rule 43. Such review of the CIAC award may involve either questions of fact, of
law, or of fact and law.
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by
the SC and which took effect on October 30, 2009. Since RA No. 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 byEO No. 1008, as amended and the rules of procedure of the CIAC. The CIAC
Revised Rules of Procedure Governing Construction Arbitration provide for the manner and
mode of appeal from CIAC decisions or awards in Section 18 thereof, which reads:

SECTION 18.2 Petition for review. A petition for review from a final award may be taken by
any of the parties within fifteen (15) days from receipt thereof in accordance with the provisions
of Rule 43 of the Rules of Court.

Jurisprudence: Tuna Processing, Inc. vs. Philippine Kingford, Inc. [2012]

Juan Knows / December 11, 2013

May a foreign corporation not licensed to do business in the Philippines, but which collects
royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?
G.R. No. 185582 (February 29, 2012)
PEREZ, J.:

FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian
Patent, entered into a Memorandum of Agreement (MOA) with five Philippine tuna processors
including Respondent Philippine Kingford, Inc. (KINGFORD). The MOA provides for the
enforcing of the abovementioned patents, granting licenses under the same, and collecting
royalties, and for the establishment of herein Petitioner Tuna Processors, Inc. (TPI).

Due to a series of events not mentioned in the Petition, the tuna processors, including
Respondent KINGFORD, withdrew from Petitioner TPI and correspondingly reneged on their
obligations. Petitioner TPI submitted the dispute for arbitration before the International Centre
for Dispute Resolution in the State of California, United States and won the case against
Respondent KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and
Enforcement of Foreign Arbitral Award before the RTC of Makati City. Respondent KINGFORD
filed a Motion to Dismiss, which the RTC denied for lack of merit. Respondent KINGFORD then
sought for the inhibition of the RTC judge, Judge Alameda, and moved for the reconsideration of
the order denying the Motion. Judge Alameda inhibited himself notwithstanding [t]he unfounded
allegations and unsubstantiated assertions in the motion. Judge Ruiz, to which the case was
re-raffled, in turn, granted Respondent KINGFORDSs Motion for Reconsideration and
dismissed the Petition on the ground that Petitioner TPI lacked legal capacity to sue in the
Philippines. Petitioner TPI is a corporation established in the State of California and not licensed
to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.

ISSUE:

Whether or not a foreign corporation not licensed to do business in the Philippines, but which
collects royalties from entities in the Philippines, sue here to enforce a foreign arbitral award?

ARGUMENT:

Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of the
subject foreign arbitral award in accordance with RA No. 9285 (Alternative Dispute Resolution
Act of 2004), the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards drafted during the United Nations Conference on International Commercial Arbitration in
1958 (New York Convention), and the UNCITRAL Model Law on International Commercial
Arbitration (Model Law), as none of these specifically requires that the party seeking for the
enforcement should have legal capacity to sue.

RULING:
YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek
recognition and enforcement of the foreign arbitral award in accordance with the provisions of
the Alternative Dispute Resolution Act of 2004. A foreign corporations capacity to sue in the
Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award
is concerned.

The Resolution of the RTC is REVERSED and SET ASIDE.

RATIO DECIDENDI:
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an
application for recognition and enforcement of the arbitral award may raise only those grounds
that were enumerated under Article V of the New York Convention, to wit:

Article V

1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where the
recognition and enforcement is sought, proof that:

a. The parties to the agreement referred to in Article II were, under the law applicable to them,
under some incapacity, or the said agreement is not valid under the law to which the parties
have subjected it or, failing any indication thereon, under the law of the country where the award
was made;

b. The party against whom the award is invoked was not given proper notice of the appointment
of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case;

c. The award deals with a difference not contemplated by or not falling within the terms of the
submission to arbitration, or it contains decisions on matters beyond the scope of the
submission to arbitration, provided that, if the decisions on matters submitted to arbitration can
be separated from those not so submitted, that part of the award which contains decisions on
matters submitted to arbitration may be recognized and enforced;

d. The composition of the arbitral authority or the arbitral procedure was not in accordance with
the agreement of the parties, or, failing such agreement, was not in accordance with the law of
the country where the arbitration took place; or

e. The award has not yet become binding on the parties, or has been set aside or suspended by
a competent authority of the country in which, or under the law of which, that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that:

a. The subject matter of the difference is not capable of settlement by arbitration under the law
of that country; or

b. The recognition or enforcement of the award would be contrary to the public policy of that
country.

Not one of the abovementioned exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution, which was
promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the
court to recognize and enforce a foreign arbitral award. The contents of such petition are
enumerated in Rule 13.5. Capacity to sue is not included. Oppositely, in the rule on local
arbitral awards or arbitrations in instances where the place of arbitration is in the Philippines, it
is specifically required that a petition to determine any question concerning the existence,
validity and enforceability of such arbitration agreement available to the parties before the
commencement of arbitration and/or a petition for judicial relief from the ruling of the arbitral
tribunal on a preliminary question upholding or declining its jurisdiction after arbitration has
already commenced should state [t]he facts showing that the persons named as petitioner or
respondent have legal capacity to sue or be sued.

Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral award,
the Court deny availment by the losing party of the rule that bars foreign corporations not
licensed to do business in the Philippines from maintaining a suit in Philippine courts. When
a party enters into a contract containing a foreign arbitration clause and, as in this case, in
fact submits itself to arbitration, it becomes bound by the contract, by the arbitration and by
the result of arbitration, conceding thereby the capacity of the other party to enter into the
contract, participate in the arbitration and cause the implementation of the result. Although not
on all fours with the instant case, also worthy to consider is the wisdom of then Associate
Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of
Appeals [1998], to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial
circles here and abroad. If its tested mechanism can simply be ignored by an aggrieved party,
one who, it must be stressed, voluntarily and actively participated in the arbitration proceedings
from the very beginning, it will destroy the very essence of mutuality inherent in consensual
contracts.
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No.
9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the RTC correctly observed that
theModel Law, not the New York Convention, governs the subject arbitral award, Petitioner TPI
may still seek recognition and enforcement of the award in Philippine court, since the Model
Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement.