Arbitration Cases1

FIESTA WORLD MALL CORP v. LINDBERG PHILS Inc. G.R 152471; August 18, 2006 Ponente: Sandoval-Guiterrez FACTS: Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located at Barangay Maraouy, Lipa City;while Linberg Philippines,Inc., respondent, is a corporation that builds and operates power plants. On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a Complaint for Sum of Money against petitioner. The complaint alleges that on November 12, 1997, petitioner and respondent executed a build-ownoperate agreement, entitled “Contract Agreement for Power Supply Services, 3.8 MW Base Load Power Plant” (the Contract). Under this Contract, respondent will construct, at its own cost, and operate as owner a power plant,and to supply petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the other hand, will pay respondent “energy fees” to be computed in accordance with the Seventh Schedule of the Contract The complaint further alleges that respondent constructed the power plant in Lipa City at a cost of about P130,000,000.00. In November 1997, the power plant became operational and started supplying power/electricity to petitioner’s shopping mall in Lipa City. In December 1997, respondent started billing petitioner. As of May 21, 1999, petitioner’s unpaid obligation amounted to P15,241,747.58, exclusive of interest. However, petitioner questioned the said amount and refused to pay despite respondent’s repeated demands. In its Answer with Compulsory Counterclaim, petitioner specifically denied the allegations in the complaint, claiming that respondent failed to fulfill its obligations under the Contract by failing to supply all its power/fuel needs. From November 10, 1998 until May 21, 1999, petitioner personally shouldered the cost of fuel. Petitioner also disputed the amount of energy fees specified in the billings made by respondent because the latter failed to monitor, measure, and record the quantities of electricity delivered by taking photographs of the electricity meter reading prior to the issuance of its invoices and billings, also in violation of the Contract. Moreover, in the computation of the electrical billings, the minimum off-take of energy (E2) was based solely on the projected consumption as computed by respondent. However, based onpetitioner’s actual experience, it could not consume the energy pursuant to the minimum off-take even if it kept open all its lights and operated all its machinery and equipment for twenty-four hours a day for a month. This fact was admitted by respondent. While both parties had

discussions on the questioned billings, however, “there were no earnest efforts to resolve the differences in accordance with the arbitration clause provided for in the Contract.” Finally, as a special affirmative defense in its answer, petitioner alleged that respondent’s filing of the complaint is premature and should be dismissed on the ground of non-compliance with paragraph 7.4 of the Contract which provides: 7.4 Disputes If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the undisputed amount on or before such date(s), and the disputed amount shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties themselves, within fourteen (14) days after the due date for such invoice and all or any part of the disputed amount paid to LINBERG shall be paid together with interest pursuant to Article XXV from the due date of the invoice. It is agreed, however, that both parties must resolve the disputes within thirty (30) days, otherwise any delay in payment resulting to loss to LINBERG when converted to $US as a result of depreciation of the Pesos shall be for the account of FIESTA WORLD. Corollarily, in case of erroneous billings, however, LINBERG shall be liable to pay FIESTA WORLD for the cost of such deterioration, plus interest computed pursuantto Art. XXV from the date FIESTA WORLD paid for the erroneous billing. (Underscoring supplied) Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground that respondent violated the arbitration clause provided in the Contract, thereby rendering its cause of action premature. This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the provision applicable to this case; and that since the parties failed to settle their dispute, then respondent may resort to court action pursuant to paragraph 17.2 of the same Contract which provides: 17.2 Amicable Settlement The parties hereto agree that in the event there is any dispute or difference between them arising out of this Agreement or in the interpretation of any of the provisions hereto, they shall endeavor to meet together in an effort to resolve such dispute by discussion between them but failing such resolution the Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve such dispute or difference and the joint decision of such shall be binding upon the parties hereto, and in the event that a settlement of any such dispute or difference is not reached, then the provisions of Article XXI shall apply. In its Order dated October 3, 2000, the trial court denied petitioner’s motion for lack of merit. Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated January 11, 2001. Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari. On December 12, 2001, the appellate court rendered its Decision dismissing the petition and affirming the challenged Orders of the trial court. Petitioner’s Motion for Reconsideration of the above Decision was likewise denied by the appellate. Hence, the instant Petition for Review on Certiorari. ISSUE: Whether the filing with the trial court of respondent’s complaint is premature

HELD: YES, the filing with the trial court of the complaint is premature. Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any amount of energy fees in the invoice and billings made by respondent, the same“shall be resolved by arbitration of three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties themselves.” The parties, in incorporating such agreement in their Contract, expressly intended that the said matter in dispute must first be resolved by an arbitration panel before it reaches the court. They made such arbitration mandatory. It is clear from the records that petitioner disputed the amount of energy fees demanded by respondent. However, respondent, without prior recourse to arbitration as required in the Contract, filed directly with the trial court its complaint, thus violating the arbitration clause in the Contract. It bears stressing that such arbitration agreement is the law between the parties. Since that agreement is binding between them, they are expected to abide by it in good faith. And because it covers the dispute between them in the present case, either of them may compel the other to arbitrate. Thus, it is well within petitioner’s right to demand recourse to arbitration. We cannot agree with respondent that it can directly seek judicial recourse by filing an action against petitioner simply because both failed to settle their differences amicably. Suffice it to state that there is nothing in the Contract providing that the parties may dispense with the arbitration clause. Article XXI on jurisdiction cited by respondent, i.e., that “the parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City” merely provides for the venue of any action arising out of or in connection with the stipulations of the parties in the Contract. Moreover, we note that the computation of the energy fees disputed by petitioner also involves technical matters that are better left to an arbitration panel who has expertise in those areas. Alternative dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation – are encouraged by this Court. By enabling the parties to resolve their disputes amicably, they provide solutions that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting relationships. BENGSON vs CHAN 1977 FACTS: Bengson and Chan entered into a contract for the construction of a 6-story building on Bengson’s lot. In that contract, Bengson found herself to pay Chan, the contractor, P352K for the materials labor and construction expenses. They stipulated that: a) Construction starts on July 5, 1955 b) 1st and 2nd stories, as well as the theater should be completed for use within 5 months c) Construction should be finished within 12 calendar months The arbitration clause provides that any disputes arising between the parties relative to the construction of the building shall be determined by arbitration of 2 persons, each chosen by the parties themse!ves. The determination of the arbitration shall be final, conclusive and binding upon the parties UNLESS they

choose to go to court in which case the determination by arbitration is a condition precedent for taking any court action. Expense shall be borne equally by the parties. Bengson filed an action for damages against Chan alleging that Chan violated the contract when it failed to finish the 1st and 2nd stories within the 5 month period. Chan and his sureties (Leoncio Chan -owner of Universal Construction Supply and Mutual Security Insurance Corp) alleged that a) they stopped the construction because Bengson refused to pay for the 90% of the work already accomplished b) Construction really started in Feb because of the changes requested by Bengson c) The 5 month period was novated by the parties They also alleged as an affirmative defense that complaint states no cause of actionn since Bengson did not submit the controversy for arbitration as stipulated in their contract. TC ruled that the COAs were embraced under the contract hence they should’ve brought it up to the arbitration first. TC dismissed, So P Bengson appealed. P Bengson argues that the contract refers to disputes as to the “technical process of putting up the building” and that her causes of action for damages do not involve question as to the construction but it is “based on violation of the contract for construction.” Bengson also argues that if arbitration is proper, TC should have required the parties to proceed to arbitration (not dismissal) R argues that it is not restricted to disputes relative to the technical process of putting up the building. ISSUES: WON the failure to resort to arbitration warrants the dismissal of a complaint – NO HELD: Bengson’s distinction between the contract for the construction of the building and the construction of the building is not convincing. So it’s still covered. SC ruled that although the causes of action in the complaint are covered by the clause, her fai!ure to resort to arbitration does not warrant the dismissal of her complaint. Arbitration may be resorted to during the pendency of the case. Arbitration Sec 6 provides that an aggrieved party by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing the such arbitration proceed in the manner agreed upon. Sec 7 provides that in any suit brought upon an issue arising out of an agreement providing for the arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit is referable to arbitration, shall stay the action or proceeding until an arbitrary has been had. Provided, that the applicant for the stay is not in default in proceeding with such arbitration. In this case, the failure of Bengson to resort to arbitration may be regarded as a refusal to comply with the stipulation for arbitration. defendants defense that arbitration is a condition precedent of a court action may be interpreted as a petition for an order that arbitration should proceed. Instead of dismissing the case, the proceedings should be suspended and parties should be directed to go through the motions of Arbitration at least within 60 days. With the consent of the parties, TC may appoint a 3rd arbitrator to prevent a deadlock between the 2 arbitrators. If the dispute should not be settled by such, then the hearing of the instant case should be resumed.

The Arbitration Law provides: SEC. 6. Hearing by court. = A party aggrieved by the failure, neglect or refusal of another to….

Home Bankers Savings and Trust Company v. CA (G.R. No. 115412) Date: June 3, 2016 Facts: Victor Tancuan issued Petitioner Home Bankers Savings and Trust Company a check while Eugene Arriesgado issued Private Respondent Far East Bank and Trust Company three checks; both checks totaling the amount of P25,250,000.00. Tancuan and Arriesgado exchanged each other’s checks and deposited them with their respective banks for collection. When FEBTC presented Tancuan’s HBSTC check for clearing, it was dishonored for being DAIF. Meanwhile, HBSTC sent Arriesgado’s 3 FEBTC checks through the Philippine Clearing House Corporation (PCHC) to FEBTC but was returned for being DAIF. HBSTC receive the notice of dishonor but refused to accept the checks and returned them to FEBTC through the PCHC for the reason it is Beyond Reglementary Period, i implying that HBSTC already treated the 3 checks as cleared and allowed the proceeds thereof to be withdrawn. FEBTC demanded reimbursement for the returned checks and inquired from HBSTC whether it had permitted any withdrawal of funds against the unfunded checks. HBSTC, however refused to make any reimbursement and to provide FEBTC with the needed information. Thus, FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee, under its Supplementary Rules on Regional Clearing to which FEBTC and HBSTC are bound as participants in the regional clearing operations administered by the PCHC. While the arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment against HBSTC. HBSTC moved to dismiss on the ground that there is no cause of action and because it seeks to enforce an arbitral award which as yet does not exist. The trial court denied the motion to dismiss and the motion for reconsideration. Petitioner then filed a petition for certiorari with respondent CA to which it had dismissed. Issue: Whether or not private respondent which commenced an arbitration proceeding under the auspices of the PCHC may subsequently file a separate case in court over the same subject matter despite the pendency of that arbitration, simply to obtain the provisional remedy of attachment against the adverse party in the arbitration proceeding. Ruling: We find no merit in the petition. Section 14 of Republic Act 876, otherwise known as the Arbitration Law, allows any party to the arbitration proceeding to petition the court to take measures to safeguard and/or conserve any matter which is the subject of the dispute in arbitration. Petitioner’s exposition of the foregoing provision deserves scant consideration. Section 14 simply grants an arbitrator the power to issue subpoena and subpoena duces tecum at any time before rendering the award. The exercise of such power is without prejudice to the right of a party to file a petition in court to safeguard any matter which is the subject of the dispute in arbitration. In the case at bar, private respondent filed an action for a sum of money with prayer for a writ of preliminary attachment. Undoubtedly, such action involved the same subject matter as that in arbitration, i.e., the sum of

P25,200,000.00 which was allegedly deprived from private respondent in what is known in banking as a marketing scheme. However, the civil action was not a simple case of a money claim since private respondent has included a prayer for a writ of preliminary attachment, which is sanctioned by section 14 of the Arbitration Law. Simply put, participants in the regional clearing operations of the Philippine Clearing House Corporation cannot bypass the arbitration process laid out by the body and seek relief directly from the courts. In the case at bar, undeniably, private respondent has initiated arbitration proceedings as required by the PCHC rules and regulations, and pending arbitration has sought relief from the trial court for measures to safeguard and/or conserve the subject of the dispute under arbitration, as sanctioned by section 14 of the Arbitration Law, and otherwise not shown to be contrary to the PCHC rules and regulations. At this point, we emphasize that arbitration, as an alternative method of dispute resolution, is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens solutions especially of commercial disputes. The Court looks with favor upon such amicable arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. Wherefore, premises considered, the petition is hereby dismissed and the decision of the court a quo is affirmed. G.R. No. 181969 October 2, 2009 ROMAGO, INC. vs SIEMENS BUILDING TECHNOLOGIES, INC. FACTS: Romago Inc. was awarded the Sub-contract for the Building Services-Electrical Package for the Insular Life Corporate center. Under the consortium agreement and Equipment Supply Sub-contract Agreement (ESSA), Siemens building Technologies Inc. undertook to deliver the needed electrical equipment for the project for Romago. SBTI made deliveries but ROMAGO failed to pay in full. The former made demands, but they were not paid. Romago refused to pay its obligation which amounted to P16,945,612.68, unless SBTI compensates ROMAGO for the total expenses it allegedly incurred in taking over SBTIks contractual obligations when the earlier demands to pay were unheeded. SBTI filed a Request for Arbitration with the Philippine Dispute Resolution center, Inc. (PDRCI) which was agreed to by Romago. After due proceedings, the arbitrator awarded to SBTI its claim of the amount above mentioned plus legal interest, attorney’s fees and costs. SBTI filed a petition for Confirmation of the Arbitrator’s Decision, and instead of fling a Motion to Vacate the Award, Romago filed an Answer. The RTC granted the petition, confirmed the award and issued a writ of Execution. This had become final and executory. Despite receipt of the Order on July 4, 2006, Romago did not interpose an appeal. It was only later on August 22, 2006 when Atty. Barrios withdrew his appearance and the law office of Mutia Veneda’s entered appearance that Romago sought for a petition for relief from judgment. Claiming that Atty. Barrios was sick for three weeks and only later were they aware of the orders of the court. SBTI opposed, and the RTC denied it. MR was denied. And upon petition for certiorari to the CA, Romago raised the issue that the PDRCI had no jurisdiction over the dispute since the contract with SBTI was a construction contract and was within the jurisdiction of the CIAC. However, the CA also denied this. Issue: Was the contract between the parties a construction contract that would place it in the jurisdiction of the CIAC? Ruling: No. It was a supply contract, thus, not within the jurisdiction of the CIAC. SBTI’s scope of work under the ESSA was?

1.01 to furnish all equipment in accordance with the equipment and delivery schedule 1.02 (to) supply and deliver the equipment in accordance with the Bill of Quantities and Cost Schedule (Attachment Nos. 1 & 2) and equipment delivery schedule (Attachment -3) to the jobsite /designated areas including unloading of equipment from the delivery truck. By no stretch of the imagination can the ESSA be characterized as a construction contract.crystal clear from the provisions of the ESSA is that SBTI’s role was merely to supply the needed equipment for the Insular Life Corporate Center project. The ESSA is, therefore, a mere supply contract that does not fall within the original and exclusive jurisdiction of CIAC. We also note that the Consortium Agreement between ROMAGO and SBTI contained an arbitration clause, wherein the parties agreed to submit any dispute between them for arbitration under the Philippine Chamber of Commerce and Industry (PCCI), such as the PDRCI. Furthermore, the issue of jurisdiction was rendered moot by ROMAGO’s active participation in the proceedings before the PDRCI and the RTC. In fact, during the proceedings for the confirmation of the Arbitrator’s award, ROMAGO’s opposition zeroed in on the alleged bias and partiality of the Arbitrator in rendering the decision. Even in its petition for relief from judgment filed with the RTC, the PDRCI’s alleged lack of Jurisdiction was never raised as an issue. It was only in its petition for certiorari with the CA, and after a writ of execution had been issued, that ROMAGO raised the issue of lack of jurisdiction. ROMAGO attempted to avoid this final and executory judgment by fling a petition for relief from judgment with the RTC. However, under the rules, the equitable remedy is allowed only under exceptional circumstances of fraud, accident, mistake or excusable negligence, which is not applicable in this case. Romago ascribes its failure to appeal due to the negligence of its counsel, Atty. Barrios, who had suffered from hypertension; but the court is not convinced since the….. APT vs. CA ET AL DIGEST DECEMBER 21, 2016 ~ VBDIAZ ASSET PRIVATIZATION TRUST vs. COURT OF APPEALS, ET. AL., G.R. No. 121171 / December 29, 1998 FACTS: Pursuant to a Mortgage Trust Agreement, the Development Bank of the Philippines and the Philippine National Bank foreclosed the assets of the Marinduque Mining and Industrial Corporation. The assets were sold to Philippine National Bank and later transferred to the Asset Privatization Trust (APT). In February 1985, Jesus Cabarrus, Sr., together with other stockholders of Marinduque Mining and Industrial Corporation, filed a derivative suit against Development Bank of the Philippines and Philippine National Bank before the Regional Trial Court of Makati for Annulment of Foreclosures, Specific Performance and Damages. In the course of the trial, Marinduque Mining and Industrial Corporation and Asset Privatization Trust as successor in interest of Development Bank of the Philippines and Philippine National Bank, agreed to submit the case to arbitration by entering into a Compromise and Arbitration Agreement. This agreement was approved by the trial court and the complaint was corollarily dismissed. Thereafter, the Arbitration Committee rendered a decision ordering Asset Privatization Trust to pay Marinduque Mining and Industrial Corporation damages and arbitration costs in the amount of P2.5 Billion, P13,000,000.00 of which is for moral and exemplary damages.

On motion of Cabarrus and the other stockholders of Marinduque Mining and Industrial Corporation, the trial court confirmed the Arbitration Committee’s award. Its motion for reconsideration having been denied, Asset Privatization Trust filed a special civil action for certiorari with the Court of Appeals. It was likewise denied. Hence, this petition for review on certiorari. ISSUE: Whether or not the Marinduque Mining and Industrial Corporation is entitled to moral damages? HELD: No. How could the MMIC be entitled to a big amount of moral damages when its credit reputation was not exactly something to be considered sound and wholesome. Under Article 2217 of the Civil Code, moral damages include besmirched reputation which a corporation may possibly suffer. A corporation whose overdue and unpaid debts to the Government alone reached a tremendous amount of P22 Billion Pesos cannot certainly have a solid business reputation to brag about. Besides, it is not yet a well settled jurisprudence that corporations are entitled to moral damages. While the Supreme Court may have awarded moral damages to a corporation for besmirched reputation in Mambulao vs. PNB, 22 SCRA 359, such ruling cannot find application in this case. It must be pointed out that when the supposed wrongful act of foreclosure was done, MMIC’s credit reputation was no longer a desirable one. The company then was already suffering from serious financial crisis which definitely projects an image not compatible with good and wholesome reputation. So it could not be said that there was a “reputation” besmirched by the act of foreclosure. As a rule, a corporation exercises its powers, including the power to enter into contracts, through its board of directors. While a corporation may appoint agents to enter into a contract in its behalf, the agent should not exceed his authority. 54 In the case at bar, there was no showing that the representatives of PNB and DBP in MMIC even had the requisite authority to enter into a debt-forequity swap. And if they had such authority, there was no showing that the banks, through their board of directors, had ratified the FRP. WHEREFORE, the petition is GRANTED.