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CARGILL PHILIPPINES, INC., vs. SAN FERNANDO REGALA TRADING, INC.

INC.
-

The validity of the contract containing the agreement to submit to

arbitration does not affect the applicability of the arbitration clause
itself.
The doctrine of separability enunciates that an arbitration agreement is independent of the main contract. The arbitration agreement is to be
treated as a separate agreement and the arbitration agreement does
not automatically terminate when the contract of which it is a part
comes to an end.
A contrary ruling would suggest that a party's mere repudiation of the
main contract is sufficient to avoid arbitration.

INSULAR
INSULAR SAVINGS BANK vs. FAR EAST BANK AND TRUST COMPANY
-

Alternative dispute resolution methods or ADRs like arbitration,

mediation, negotiation and conciliation are encouraged by the
Supreme Court. By enabling 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. It must be borne in mind that arbitration proceedings are
mainly governed by the Arbitration Law and suppletorily by the Rules of
Court.

Under the RA 876, a party has several judicial remedies available at its
disposal after the Arbitration Committee denied its MR:
(1.) It may petition the proper RTC to issue an order vacating the award
on the grounds provided for under Sec. 24 of the Arbitration Law.
(2.) Petitioner may file a petition for review under Rule 43 of the Rules
of Court with the CA on questions of fact, of law, or mixed questions
of fact and law.
(3.) Lastly, petitioner may file a petition for certiorari under Rule 65 of
the Rules of Court on the ground that the Arbitrator Committee
acted without or in excess of its jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction.

SHINRYO (PHILIPPINES) COMPANY, INC., vs. RRN INCORPORATED

-

Findings of fact of quasi-judicial bodies, which have acquired expertise

because their jurisdiction is confined to specific matters, are generally
accorded respect and finality, especially when affirmed by CA. In
particular, factual findings of construction arbitrators are final and
conclusive and not reviewable by this Court on appeal.
Exceptions when factual findings of construction arbitrators may be
reviewed by SC:
SC
(1) Award was procured by corruption, fraud or other undue means;
(2) Evident partiality or corruption of the arbitrators or any of them;
(3) Arbitrators were guilty of misconduct in refusing to hear evidence
pertinent and material to the controversy;
(4) One or more of the arbitrators were disqualified to act as such under
Sec. 9 of RA 876 and willfully refrained from disclosing such
disqualifications or of any other misbehavior by which the rights of any
party have been materially prejudiced;
(5) Arbitrators exceeded their powers, or so imperfectly executed them,
that a mutual, final and definite award upon the subject matter
submitted to them was not made.
(6) When there is a very clear showing of grave abuse of discretion
resulting in lack or loss of jurisdiction as when a party was deprived of a
fair opportunity to present its position before the Arbitral Tribunal or
when an award is obtained through fraud or the corruption of
arbitrators,
(7) When the findings of the CA are contrary to those of the CIAC, and
(8) When a party is deprived of administrative due process.

Recalibration of its evidence or findings of fact which had been

thoroughly studied by both the CIAC and the CA would result in negating
the objective of Executive Order No. 1008 in creating an arbitration
body--- to ensure the prompt and efficient settlement of disputes in the
construction industry

FIESTA WORLD MALL CORPORATION, vs. LINBERG PHILIPPINES,

PHILIPPINES, INC.,
-

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.

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CARGILL PHILIPPINES, INC., vs.

SAN FERNANDO REGALA TRADING, INC.
INC.
FACTS
Respondent (San Fernando) was engaged in buying and selling of
molasses while petitioner (Cargill) was one of its various sources from
whom it purchased molasses.
They entered into a contract where San Fernando would purchase
12,000 MT of Thailand origin cane blackstrap molasses at the price of
US$192/MT from Cargill; that the delivery of the molasses was to be
made in January/February 1997 and payment was to be made by
means of an Irrevocable Letter of Credit payable at sight, to be opened
by September 15, 1996
Sometime prior to September 15, 1996, the parties agreed that instead
of January/February 1997, the delivery would be made in April/May
1997 and that payment would be by an Irrevocable Letter of Credit
payable at sight, to be opened upon petitioner's advice.
Petitioner, as seller, failed to comply with its obligations under the
contract as a consequence of which San Fernando filed with the RTC a
Complaint for Rescission of Contract with Damages against petitioner
Petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer
Controversy to Voluntary Arbitration
Petitioner contended that the controversy between the parties was
whether or not the alleged contract between the parties was legally in
existence and the RTC was not the proper forum to ventilate such issue.
It claimed that the contract contained an arbitration clause1
Respondent filed an Opposition, wherein it argued that the RTC has
jurisdiction over the action for rescission of contract and could not be
changed by the subject arbitration clause.
RTC denied the Motion to Dismiss, on the grounds that the arbitration
clause did not comply with the Arbitration Law.
Petitioner filed a petition for certiorari with the CA
CA2: although found arbitration clause valid, the same may not be
enforced since petitioners allegation in the Motion to Dismiss was that

Any dispute which the Buyer and Seller may not be able to settle by mutual
agreement shall be settled by arbitration in the City of New York before the
American Arbitration Association. The Arbitration Award shall be final and binding
on both parties
2
CA cited Gonzales v. Climax Mining Ltd. prior to the decision of its MR:

the contract bearing the arbitration clause was never consummated.

Arbitration is not proper when one of the parties repudiated the
existence or validity of the contract. CA denied the petition and affirmed
the RTC Orders.
ISSUE: W/N an arbitration clause of a contract may still be enforced
notwithstanding the fact that the party enforcing the same alleges the nonexistence of the main contract
HELD:
Yes. A contract is required for arbitration to take place and to be binding.
Submission to arbitration is a contract and a clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitration 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.
Applying the modified decision of the Gonzales case3, the validity of the contract
containing the agreement to submit to arbitration does not affect the
applicability of the arbitration clause itself.

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. (The decision has been modified)
3

NOTE: In Gonzales v. Climax Mining Ltd,. the Panels' jurisdiction was held to be
limited only to those mining disputes which raised question of facts or matters
requiring the technical knowledge and experience of mining authorities.
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. 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.

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A contrary ruling would suggest that a party's mere repudiation of the main
contract is sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to avoid.
The doctrine of separability enunciates that an arbitration agreement is
independent of the main contract. The arbitration agreement is to be treated as
a separate agreement and the arbitration agreement does not automatically
terminate when the contract of which it is a part comes to an end.
The separability of the arbitration agreement is especially significant to the
determination of whether the invalidity of the main contract also nullifies the
arbitration clause.
The doctrine denotes that the invalidity of the main contract, also referred to as
the "container" contract, does not affect the validity of the arbitration agreement.
Irrespective of the fact that the main contract is invalid, the arbitration
clause/agreement still remains valid and enforceable.

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SHINRYO (PHILIPPINES) COMPANY, INC., vs.

RRN INCORPORATED
FACTS
In June 1996, Petitioner (Shinryo) and Respondent (RRN) executed an
Agreement and Conditions of Sub-contract where Respondent accepted
to perform for petitioner any of its projects, a part or the whole of the
works described in Conditions of Sub-Contract and other Sub-contract
documents.
In June 2002, the parties executed a "Supply of Manpower,
Tools/Equipment, Consumables for the Electrical Works-Power and
Equipment Supply, Bus Duct Installation" for the Phillip Morris Greenfield
Project (Project). It was agreed that RRN will perform variation orders in
the Project while Shinryo supplied manpower chargeable against
respondent.
Respondent was not able to finish the entire works with petitioner due to
financial difficulties.
Petitioner paid respondent a total amount of P26.5M
In June 2003, RRN, demanded for the payment of its unpaid balance
amounting to P5.275M from Shinryo, while the latter claimed material
back charges of P4M, only half of which is acknowledged by RRN.
In 2004, RRN sent another letter to petitioner regarding the cost of
equipment rental and the use of scaffolding. Petitioner sent a letter to
respondent denying any unpaid account and the failure in their
negotiations for amicable settlement.
RRN advised petitioner of their intention to submit the matter to
arbitration. Thereafter, their dispute was submitted to arbitration. During
the preliminary conference, the parties agreed in their Terms of
Reference to resolve eight issues4
The CIAC rendered a decision in favor of RRN and ordered Shinryo to pay
the sum of P3.7M plus legal interest of 6% and arbitration cost.
CA affirmed the decision of the CIAC, and denied petitioners MR.
Shinryo claims that CA and CIAC made a grave reversible error in
assessing the costs and values particularly in not appreciating the

Basis in evaluating the variation cost; charge of scaffoldings; basis in evaluating

the total cost of materials; total cost of materials supply; value of the remaining
works left undone; value inventory of excess materials; claim for overpayment;
claim for interest; cost of arbitration

charge of use of manlift services against RRN. Shinryo filed a Petition for
Review on Certiorari.
ISSUE:
(1) W/N CA made a grave reversible error as to entitle petitioner for
payment of manlift equipment and other charges against respondent, or
ultimately recalibrate evidence presented before CIAC
(2) W/N there was unjust enrichment in favor of RRN
HELD:
No. Findings of fact of quasi-judicial bodies, which have acquired
expertise because their jurisdiction is confined to specific matters, are generally
accorded respect and finality, especially when affirmed by CA. In particular,
factual findings of construction arbitrators are final and conclusive and not
reviewable by this Court on appeal.
Exceptions when factual findings of construction arbitrators may be reviewed by
SC:
SC
(1) Award was procured by corruption, fraud or other undue means;
(2) Evident partiality or corruption of the arbitrators or any of them;
(3) Arbitrators were guilty of misconduct in refusing to hear evidence
pertinent and material to the controversy;
(4) One or more of the arbitrators were disqualified to act as such under Sec.
9 of RA 876 and willfully refrained from disclosing such disqualifications
or of any other misbehavior by which the rights of any party have been
materially prejudiced;
(5) Arbitrators exceeded their powers, or so imperfectly executed them, that
a mutual, final and definite award upon the subject matter submitted to
them was not made.
(6) When there is a very clear showing of grave abuse of discretion resulting
in lack or loss of jurisdiction as when a party was deprived of a fair
opportunity to present its position before the Arbitral Tribunal or when an
award is obtained through fraud or the corruption of arbitrators,
(7) When the findings of the CA are contrary to those of the CIAC, and
(8) When a party is deprived of administrative due process.
Issues that are purely factual cannot be properly addressed in petition for review
on certiorari.
Mathematical computations, the propriety of arbitral awards, claims for
"other costs" and "abandonment" are factual questions. Where the
discussions of the CIAC and the CA in their respective Decisions show

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that its factual findings are supported by substantial evidence, there is

no reason why SC should not accord finality to said findings.
To accede to petitioner's request
request for a recalibration of its evidence,
which had been thoroughly studied by both the CIAC and the CA would
result in negating the objective of Executive Order No. 1008, which
created an arbitration body to ensure the prompt and efficient
settlement of disputes
disputes in the construction industry.
The Court will not permit the parties to relitigate before it the issues of
facts previously presented and argued before the Arbitral Tribunal, save
only where a clear showing is made that, in reaching its factual
conclusions, the Arbitral Tribunal committed an error so egregious and
hurtful to one party as to constitute a grave abuse of discretion resulting
in lack or loss of jurisdiction.

In the case at bar, none of the circumstances are present as to justify exception
from the general rule.
UNJUST ENRICHMENT
No unjust enrichment.
Unjust enrichment claims do not lie simply because one party benefits
from the efforts or obligations of others, but instead it must be shown that a
party was unjustly enriched in the sense that the term unjustly could mean
illegally or unlawfully.
To substantiate a claim for unjust enrichment, the claimant must
unequivocally prove that another party knowingly received something of value to
which he was not entitled and that the state of affairs are such that it would be
unjust for the person to keep the benefit. Unjust enrichment is a term used to
depict result or effect of failure to make remuneration of or for property or
benefits received under circumstances that give rise to legal or equitable
obligation to account for them; to be entitled to remuneration, one must confer
benefit by mistake, fraud, coercion, or request.
Under Art. 22 of the NCC:
Every person who, through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the
latter without just or legal ground, shall return the same to him.

In order that accion in rem verso may prosper, the essential elements must be
present: (1) that the defendant has been enriched, (2) that the plaintiff has
suffered a loss, (3) that the enrichment of the defendant is without just or legal
ground, and (4) that the plaintiff has no other action based on contract, quasicontract, crime or quasi-delict.
An accion in rem verso is considered merely an auxiliary action, available only
when there is no other remedy on contract, quasi-contract, crime, and quasidelict. If there is an obtainable action under any other institution of positive law,
that action must be resorted to, and the principle of accion in rem verso will not
lie.
Petitioner failed to prove that respondent's free use of the manlift was without
legal ground based on the provisions of their contract. Thus, the third requisite,
i.e., that the enrichment of respondent is without just or legal ground, is missing.
In addition, petitioner's claim is based on contract, hence, the fourth requisite
that the plaintiff has no other action based on contract, quasi-contract, crime or
quasi-delict is also absent. Clearly, the principle of unjust enrichment is not
applicable in this case.

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INSULAR
INSULAR SAVINGS BANK vs.
FAR EAST BANK AND TRUST COMPANY
FACTS
-

In December 1991, Far East Bank and Trust Company (Respondent)

filed a complaint against Home Bankers Trust and Company (HBTC) with
the Philippine Clearing House Corporations (PCHC) Arbitration
Committee
Respondent sought to recover from the HBTC, the sum of P25.2M
representing the total amount of the three checks drawn and debited
against its clearing account. HBTC sent these checks to respondent for
clearing by operation of the PCHC clearing system. Thereafter,
respondent dishonored the checks for insufficiency of funds and
returned the checks to HBTC.
However, the latter refused to accept them since the checks were
returned by respondent after the reglementary regional clearing period.
Before the termination of the arbitration proceedings, respondent filed
another complaint with RTC for Sum of Money and Damages with
Preliminary Attachment against HBTC, Robert Young, Eugene Arriesgado
and Victor Tancuan (Defendants), who were the president and
depositors of HBTC respectively.
RTC suspended the proceedings in the case against all the defendants
pending the decision of the Arbitration Committee, and amended the
same in October 1992 by allowing proceedings against individual
defendants to continue
PCHC Arbitration Committee rendered its decision in favor of
respondent.
To appeal the decision of the Arbitration Committee in, petitioner filed a
Petition for Review in the earlier civil case filed by respondent in the
RTC.
Respondent filed a Motion to Dismiss Petition for Review for Lack of
Jurisdiction
RTC dismissed the petition for lack of jurisdiction, treating the petition
for review as a separate and distinct case
Petitioner contends that the earlier civil case was merely suspended to
await the outcome of the arbitration case pending before the PCHC.
Thus, any petition questioning the decision of the Arbitration Committee
must be filed in the same civil case and should not be docketed as a
separate action.

ISSUE: W/N RTC has jurisdiction over the Petition for Review filed by petitioner as
an appeal on arbitrators decision
HELD
No. The Philippine Clearing House Corporation was created to facilitate the
clearing of checks of member banks. Among these member banks exists a
compromissoire or an arbitration agreement embedded in their contract wherein
they consent that any future dispute or controversy between its PCHC
participants involving any check would be submitted to the Arbitration Committee
for arbitration. Petitioner and respondent are members of PCHC, thus they
underwent arbitration proceedings.
The PCHC has its own Rules of Procedure for Arbitration (PCHC Rules), governed
by RA. 876, also known as The Arbitration Law and supplemented by the Rules of
Court.
As provided in the PCHC Rules, the findings of facts of the decision or award
rendered by the Arbitration Committee shall be final and conclusive upon all the
parties in said arbitration dispute.
Under Article 2044 of the New Civil Code, the validity of any stipulation on the
finality of the arbitrators award or decision is recognized. However, where the
conditions described in Articles 2038, 2039 and 2040 applicable to both
compromises and arbitrations are obtaining, the arbitrators award may be
annulled or rescinded. Consequently, the decision of the Arbitration Committee is
subject to judicial review.
Under the RA 876, Petitioner had several judicial remedies available at its
disposal after the Arbitration Committee denied its MR:
(1.) It may petition the proper RTC to issue an order vacating the award on
the grounds provided for under Sec. 24 of the Arbitration Law.
(2.) Petitioner may file a petition for review under Rule 43 of the Rules of
Court with the CA on questions of fact, of law, or mixed questions of fact
and law.
(3.) Lastly, petitioner may file a petition for certiorari under Rule 65 of the
Rules of Court on the ground that the Arbitrator Committee acted
without or in excess of its jurisdiction or with grave abuse of discretion
amounting to lack or excess of jurisdiction.
Since this case involves acts or omissions of a quasi-judicial agency, the petition
should be filed in and cognizable only by the CA.
In the case at bar, petitioner did not avail of any of the abovementioned
remedies available to it, instead it filed a petition for review with the RTC where

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Civil Case No. 92-145 is pending pursuant to Section 13 of the PCHC Rules to
sustain its action. Clearly, it erred in the procedure it chose for judicial review of
the arbitral award.
Jurisdiction over the subject matter is conferred by law and not by the consent or
acquiescence of any or all of the parties or by erroneous belief of the court that it
exists.
PCHC Rules came about only as a result of an agreement between and
among member banks of PCHC and not by law, it cannot confer jurisdiction to
the RTC. Thus, the portion of the PCHC Rules granting jurisdiction to the RTC to
review arbitral awards, only on questions of law, cannot be given effect.
In the case at bar, petitioner filed a petition for review with the RTC
when the same should have been filed with the Court of Appeals under Rule 43
of the Rules of Court. Thus, the RTC of Makati did not err in dismissing the
petition for review for lack of jurisdiction but not on the ground that petitioner
should have filed a separate case from Civil Case No. 92-145 but on the
necessity of filing the correct petition in the proper court.
It is immaterial whether petitioner filed the petition for review as an appeal of the
arbitral award or as a separate case in the RTC. RTC will only have jurisdiction
over an arbitral award in cases of motions to vacate the same.
Alternative dispute resolution methods or ADRs like arbitration,
mediation, negotiation and conciliation are encouraged by the Supreme Court.
By enabling 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. It must be borne in mind that arbitration
proceedings are mainly governed by the Arbitration Law and suppletorily by the
Rules of Court.

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FIESTA WORLD MALL CORPORATION, vs.

LINBERG PHILIPPINES,
PHILIPPINES, INC.,
FACTS
-

provides that disputes in billing shall be resolved by a panel of

Arbitrators.
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.
Respondents oppose on the ground that petitioner applied the wrong
stipulation as it was also provided that failure to resolve the conflict
amicably, the parties submit to the jurisdiction of RTC-Pasig City
RTC denied petitioners motion and MR for lack of merit.
CA affirmed RTCs orders.
Petition for Review on Certiorari was filed by Fiesta Worlds

Fiesta World Mall Corporation, petitioner, owns and operates Fiesta

World Mall located at Brgy. Maraouy, Lipa City; while Linberg Philippines,
Inc., respondent, is a corporation that builds and operates power plants.
In November 1997, petitioner and respondent executed a build-ownoperate agreement: Linberg will construct, at its own cost, and operate
as owner a power plant, and to supply Fiesta World 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
Schedule of the Contract5.
Respondent constructed the power plant in Lipa City at a cost of about
P130M and subsequently became operational and started supplying
power/electricity to petitioners shopping mall in Lipa City.
In December 1997, respondent started billing petitioner. As of May 21,
1999, petitioners unpaid obligation amounted to P15.241M, exclusive
of interest. Petitioner questioned the said amount and refused to pay
despite respondents repeated demands.
In January 2000, respondent Linberg filed with the RTC a Complaint for
Sum of Money against Fiesta World
Petitioner on the other hand, claims that respondent failed to fulfill its
obligations under the Contract by failing to supply all its power/fuel
needs; amount of energy fees specified in the billings made by
respondent was also disputed; computation of energy take-off level was
one-sided6
As a special affirmative defense in its answer, petitioner alleged that
respondents filing of the complaint is premature and should be
dismissed on the ground of non-compliance with of the Contract which

Yes. Part of the Contract mandates that should Fiesta World dispute any
amount of energy fees in the invoice and billings made by respondent, the same
shall be resolved by arbitration. 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.

The energy fees payable to LINBERG shall be on the basis of actual KWH generated
by the plant. However, if the actual KWH generated is less than the minimum
energy off-take level, the calculation of the energy fees shall be made as if LINBERG
has generated the minimum energy off-take level of 988,888 KWH/month.

Respondent cannot directly seek judicial recourse by filing an action

against petitioner simply because both failed to settle their differences amicably.
There is nothing in the Contract providing that the parties may dispense with the
arbitration clause.

Based on petitioners actual experience, it could not consume the energy pursuant
to the minimum off-take even if it kept open all its lights and operated all its
machinery and equipment for twenty-four hours a day for a month

ISSUE: W/N the filing with the trial court of respondents complaint is premature
HELD

In the case at bar, 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.
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
petitioners right to demand recourse to arbitration.

Moreover, issues of 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

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or ADRs like arbitration, mediation, negotiation and conciliation are

encouraged by SC.
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.

NOTES:
-

The proper procedure to enable an arbitration panel to resolve the

parties dispute pursuant to their Contract is for the trial court to stay the
proceedings. After the arbitration proceeding has been pursued and
completed, then the trial court may confirm the award made by the
arbitration panel

ARBITRATION LAW
-

The Arbitration Law (RA 876) was approved on June 19, 1953 and was
adopted to supplement the NCCs provisions on arbitration.
Prior to its approval, SC has countenanced the settlement of disputes
through arbitration.
Its potentials as one of the alternative dispute resolution methods that
are now rightfully vaunted as the wave of the future in international
relations
To brush aside such agreement providing for arbitration in case of
disputes between the parties would be a step backward.