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175404
CARGILL PHILIPPINES, INC., Petitioner,
v.
SAN FERNANDO REGALA TRADING, INC., Respondent.
FACTS:
Cargill Philippines, Inc. and Regala Trading, Inc. entered into a contract and agreed upon that San Fernando Regala Trading,
Inc. would purchase from Cargill a Thailand origin cane blackstrap molasses and the delivery was to be made in January or February
however, the delivery was moved to April or May and the payment would be by an Irrevocable Letter of Credit Payable at Sight. Cargill
failed to comply with the obligation and Regala Trading filed a complaint with the RTC for the Rescission of the Contract with Damages
against Cargill. Cargill filed a Motion to Dismiss / Suspend Proceedings and refer controversy to Voluntary Arbitration, it argued that the
contract between the parties was never consummated because Regala Trading did not return the proposed agreement bearing its
written acceptance.
ISSUE:
Whether or not the validity and enforceability of the contract containing the arbitration agreement violate any provision of the
Arbitration Law.
HELD:
Applying the Gonzales ruling, an arbitration agreement which forms part of the main contract shall not be regarded as invalid
or non-existent just because the main contract is invalid or did not come into existence, since the arbitration agreement shall be treated
as a separate agreement independent of the main contract. A contrary ruling would suggest that a party's mere repudiation of the main
contract is sufficient to avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus, we find that
even the party who has repudiated the main contract is not prevented from enforcing its arbitration clause.
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. Indeed, 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.
Licomcen Incorporated v. Foundation Specialists, Inc. (G.R. No. 167022, 4 April 2011)
Foundation Specialists, Inc., v. Licomcen incorporated (G.R. No. 169678, 4 April 2011)
FACTS: In March 1997, the City Government of Legaspi awarded to LICOMCEN a lease contract over a lot located in the central
business district of the city. LICOMCEN was to finance the construction of a commercial complex/mall to be known as the LCC Citimall
(Citimall), operate and manage the same for 50 years, and, thereafter, turn over the ownership and operation to the City Government.
LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its engineering consultant.
LICOMCEN contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works, specifically, the construction and
installation of bored piles foundation.
On 16 December 1997, LICOMCEN sent word to FSI that it was considering major design revisions and the suspension of work on the
Citimall project. FSI expressed concern over the revisions and the suspension, as it had fully mobilized its manpower and equipment,
and had ordered the delivery of steel bars. FSI also asked for the payment of accomplished work amounting to P3,627,818.00.
ESCA wrote FSI stating that the revised design necessitated a change in the bored piles requirement and a substantial reduction in the
number of piles. ESCA proposed to FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to
Manila. Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January 14, 1998.
On January 15, 1998, LICOMCEN instructed FSI to hold all construction activities on the project, in view of a pending administrative
case against the officials of the City Government of Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622). On
January 19, 1998, ESCA formalized the suspension of construction activities and ordered the constructions demobilization until the
case was resolved. In response, FSI sent ESCA a letter requesting payment of costs incurred on account of the suspension which
totaled P22,667,026.97.
FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on 2 October 2002, docketed as CIAC
Case No. 37-2002.
During the preliminary conference, LICOMCEN reiterated its objections to the CIACs jurisdiction, which the arbitrators simply noted.
Both FSI and LICOMCEN then proceeded to draft the Terms of Reference.
On 4 February 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad CautelaOmnibus Motion, insisting that FSIs
petition before the CIAC should be dismissed for lack of jurisdiction; thus, it prayed for the suspension of the arbitration proceedings
until the issue of jurisdiction was finally settled. The CIAC denied LICOMCENs motion in its February 20, 2003 order,finding that the
question of jurisdiction depends on certain factual conditions that have yet to be established by ample evidence. As the CIACs
February 20, 2003 order stood uncontested, the arbitration proceedings continued, with both parties actively participating.
The CIAC issued its decision on July 7, 2003, ruling in favor of FSI.
LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November 23, 2004, the CA upheld the CIACs
decision, modifying only the amounts awarded.
Hence, the parties filed their own petition for review on certiorari before the Court.
Ruling:
1. The CIAC has jurisdiction. The arbitration clause which provides for arbitration of disputes in connection with or arising out of
execution of the works include contractual money claims.
LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs claims are non-arbitrable. In support of its
position, LICOMCEN cites GC-61 of the GCC:
FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian Patent, entered into aMemorandum 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 theAlternative 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
Finally, even assuming, only for the sake of argument, that the RTC correctly observed that the Model 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.
ISSUES:
I. Whether or not Manila Insurance can be held liable as surety of Aegean?
II. Whether or not the RTC has jurisdiction over the dispute?
HELD:
CIVIL LAW: suretys liability
FIRST ISSUE: Manila Insurance is liable as surety.
A contract of suretyship is defined as an agreement whereby a party, called the surety, guarantees the performance by another party,
called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee.
The Court has consistently held that a suretys liability is joint and several, limited to the amount of the bond, and determined strictly by
the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee.It bears stressing, however,
that although the contract of suretyship is secondary to the principal contract, the suretys liability to the obligee is nevertheless direct,
primary, and absolute. But while there is a cause of action against Manila Insurance, the complaint must still be dismissed for lack of
jurisdiction.
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 Bondissued 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 Arbitration before 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 thePerformance
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 the Performance
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 cross-claim against Mabunay who executed in its
favor anIndemnity 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 Reviewunder 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 the1997 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 by EO 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.