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Marcos, Ailene S.

Vega v. San Carlos Milling Co. Ltd, 51 Phil 908 (1924)

Plaintiff filed an action for the recovery of 32,959 kilos of centrifugal sugar, or its
value, P6,252, plus the payment of P500 damages and the costs.
The lower court decided in favor of the plaintiff.
Defendant-appellant contends that Sec. 23 of the Mills covenant and Sec. 14 of the
Planters covenant, as such stipulations on arbitration are valid, and constitute a
condition precedent, to which the plaintiff should have resorted before applying to
the courts, as he prematurely did. This, more so, if these two provisions are read
with the reciprocal covnenant in Sec. 7 of the Mills covenant.
Defendant also contended that the lower court erred in having held itself with
jurisdiction to take cognizance of and render judgment in the case.
WON the lower court erred in having held itself with jurisdiction to take cognizance
of and render judgment in the cause
Held: NO.
The defendant is right in contending that clause 23 of the Mill's covenant and
clause 14 of the Planter's Covenant on arbitration are valid, but they are not for that
reason a bar to judicial action, in view of the way they are expressed:
"An agreement to submit to arbitration, not consummated by an award, is no bar to
a suit at law or in equity concerning the subject matter submitted. And the rule
applies both in respect of agreements to submit existing differences and
agreements to submit differences which may arise in the future." (5 C. J., 42.)
And in view of the terms in which the said covenants on arbitration are expressed, it
cannot be held that in agreeing on this point, the parties proposed to establish the
arbitration as a condition precedent to judicial action, because these clauses quoted
do not create such a condition either expressly or by necessary inference.
"Submission as Condition Precedent to Suit. Clauses in insurance and other
contracts providing for arbitration in case of disagreement are very dissimilar, and
the question whether submission to arbitration is a condition precedent to a suit
upon the contract depends upon the language employed in each particular
stipulation. Where by the same agreement which creates the liability, the
ascertainment of certain facts by arbitrators is expressly made a condition
precedent to a right of action thereon, suit cannot be brought until the award is
made. But the courts generally will not construe an arbitration clause as ousting
them of their jurisdiction unless such construction is inevitable, and consequently
when the arbitration clause is not made a condition precedent by express words or
necessary implication, it will be construed as merely collateral to the liability clause,
and so no bar to an action in the courts without an award." (2 R. C. L., 362, 363.)
Neither does the reciprocal covenant No. 7 of the Mills covenant expressly or
impliedly establish the arbitration as a condition precedent.
The expression "subject to the provisions as to arbitration, hereinbefore appearing"
does not declare such to be a condition precedent. This phrase does not read
"subject to the arbitration," but "subject to the provisions as to arbitration
hereinbefore appearing." And, which are these "provisions as to arbitration
hereinbefore appearing?" Undoubtedly clauses 23 and 14 quoted above, which do
not make arbitration a condition precedent.

Disposition. Affirmed.

California & Hawaiian Sugar Co. v. Pioneer Insurance & Surety Corp., 346
SCRA 214 (2000)
On November 27, 1990, the vessel MV SUGAR ISLANDER arrived at the port of
Manila carrying a cargo of soybean meal in bulk consigned to several consignees,
one of which was the Metro Manila Feed Millers Association. Discharging of cargo
from vessel to barges commenced. From the barges, the cargo was allegedly
offloaded, rebagged and reloaded on consignees delivery trucks.
Respondent, however, claims that when the cargo was weighed on a licensed truck
scale a shortage of 255.051 metric tons valued at P1,621,171.16 was discovered.
The shipment was insured with Pioneer against all risk in the amount of
Due to the alleged refusal of petitioners to settle their respective liabilities,
respondent, as insurer, paid the consignee Metro Manila Feed Millers Association.
Pioneer filed a complaint for damages against petitioners. Petitioners filed a Motion
to Dismiss the complaint on the ground that respondents claim is premature, the
same being arbitrable.
The RTC ordered to defer the hearing of the MTD and directed petitioners to file
their Answer.
Petitioners filed their answer with counterclaim and crossclaim alleging that Pioneer
did not comply with the arbitration clause.
Petitioners filed a Motion to Defer Pre-Trial and Motion to Set for Preliminary Hearing
the Affirmative Defense of Lack of Cause of Action for Failure to comply with
Arbitration Clause, respectively.
The RTC denied.
The CA affirmed. It ruled that petitioner cannot set the case for preliminary hearing
as an MTD was filed. Also, the arbitration clause in the charter party did not bind
Pioneer. The right of Pioneer to file a complaint against petitioners is not dependent
upon the charter party, nor does it grow out of any privity contract. It accrues
simply upon payment.
Citing Pan Malayan Insurance Corporation v. CA, the CA ruled that the right of
respondent insurance company as subrogee was not based on the charter party or
any other contract; rather, it accrued upon the payment of the insurance claim by
private respondent to the insured consignee.
Issue: WON the arbitration clause was binding upon Pioneer
Held: YES
Ratio: The CA erred when it held that the arbitration clause was not binding on
There was nothing in Pan Malayan, however, that prohibited the applicability of the
arbitration clause to the subrogee. That case merely discussed, inter alia, the
accrual of the right of subrogation and the legal basis therefor. This issue is
completely different from that of the consequences of such subrogation; that is, the
rights that the insurer acquires from the insured upon payment of the indemnity.
(Pan Malayan: The right of subrogation is not dependent upon, nor does it grow out
of, any privity of contract or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer.)

As to the preliminary hearing: True, Section 6, Rule 16 specifically provides that a

preliminary hearing on the affirmative defenses may be allowed only when no
motion to dismiss has been filed. Section 6, however, must be viewed in the light of
Section 3 which requires courts to resolve a motion to dismiss and prohibits them
from deferring its resolution on the ground of indubitability. Section 6 disallows a
preliminary hearing of affirmative defenses once a motion to dismiss has been filed
because such defense should have already been resolved. In the present case,
however, the trial court did not categorically resolve petitioners Motion to Dismiss,
but merely deferred resolution thereof.
Associated Bank v. CA, 233 SCRA 137 (1994)
In a complaint for Violation of the NIL and Damages, Visitacion and Asuncion Flores
seek the recovery of the amount of P900,913.60 which petitioner charged against
their current account by virtue of the 16 checks drawn by them despite the
apparent alterations therein with respect to the name of the payee, that is, the
name Filipinas Shell was erased and substituted with Ever Trading and DBL Trading
by their supervisor Jeremias Cabrera, without their knowledge and consent.
Petitioner claimed that the subject checks appeared to have been regularly issued
and free from any irregularity which would excite or arouse any suspicion or warrant
their dishonor when the same were negotiated and honored by it.
Petitioner filed a TPC against PCIB, Far East Bank and City Trust for reimbursement,
contribution, indemnity for being the collecting banks of the subject checks and by
virtue of their bank guarantee for all checks sent for clearing to the Philippine
Clearing House Corporation (PCHC), as provided for in Section 17, (PCHC), as
provided for in Section 17, PCHC Clearing House Rules and Regulations.
Citytrust and PCIB claimed that the checks were complete and regular on their face.
A Motion To Dismiss was filed by Security Bank on the grounds that petitioner failed
to resort to arbitration as provided for in Section 36 of the Clearing House Rules and
Regulations of the Philippine Clearing House Corporation.
Petitioner maintains that this Court has jurisdiction over the suit as the provisions of
the Clearing House Rules and Regulations are applicable only if the suit or action is
between participating member banks, whereas the Floreses are private persons and
the third-party complaint between participating member banks is only a
consequence of the original action initiated by the plaintiffs.
The trial court dismissed the TPC for lack of jurisdiction citing Section 36 of the
Clearing House Rules and Regulations of the PCHC providing for settlement of
disputes and controversies involving any check or item cleared through the body
with the PCHC. It ruled citing the Arbitration Rules of Procedure that the
decision or award of the PCHC through its arbitration committee/arbitrator is
appealable only on questions of law to any of the Regional Trial Courts in the
National Capital Region where the head office of any of the parties is located. The
CA affirmed
Issue: WON the case should be dismissed for failure to arbitrate
Held: Yes
Ratio: The Clearing House Rules and Regulations on Arbitration of the Philippine
Clearing House Corporation are clearly applicable to petitioner and private
respondents. Petitioners third party complaint in the trial court was one for
reimbursement, contribution and indemnity against PCIB, FarEast, Security Bank,

and CityTrust, in connection with petitioners having honored sixteen checks which
said banks supposedly endorsed to the former for collection in 1989.
Under the rules and regulations of the PCHC, the mere act of participation of the
parties concerned in its operations in effect amounts to a manifestation of
agreement by the parties to abide by its rules and regulations. As a consequence of
such participation, a party cannot invoke the jurisdiction of the courts over disputes
and controversies which fall under the PCHC Rules and Regulations without first
going through the arbitration processes laid out by the body. Since claims relating to
the regularity of checks cleared by banking institutions are among those claims
which should first be submitted for resolution by the PCHCs Arbitration Committee,
petitioner, having voluntarily bound itself to abide by such rules and regulations, is
estopped from seeking relief from the RTC on the coattails of a private claim and in
the guise of a third party complaint without first having obtained a decision adverse
to its claim from the said body. It cannot bypass the arbitration process on the basis
of its averment that its third party complaint is inextricably linked to the original
complaint in the RTC.
Pursuant to PCHCs function involving the clearing of checks and other clearing
items, the PCHC has adopted rules and regulations designed to provide member
banks with a procedure whereby disputes involving the clearance of checks and
other negotiable instruments undergo a process of arbitration prior to submission to
the courts below. This procedure (1) ensures a uniformity of rulings relating to
factual disputes involving checks and other negotiable instruments (2) provides a
mechanism for settling minor disputes among participating and member banks
which would otherwise go directly to the trial courts.
While the PCHC Rules and Regulations allow appeal to the Regional Trial Courts only
on questions of law, this does not preclude our lower courts from dealing with
questions of fact already decided by the PCHC arbitration when warranted and
In Banco de Oro Savings and Mortgage Banks vs. Equitable Banking Corporation this
Court had the occasion to rule on the validity of these rules as well as the
jurisdiction of the PCHC as a forum for resolving disputes and controversies
involving checks and other clearing items when it held that "the participation of two
banks. . . in the Clearing Operations of the PCHC (was) a manifestation of its
submission to its jurisdiction."
Under the PCHC Rules and Regulations, not only do the parties manifest by mere
participation their consent to these rules, but such participation is deemed (their)
written and subscribed consent to the binding effect of arbitration agreements
under the PCHC rules. Moreover, a participant subject to the Clearing House Rules
and Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in
the National Capital Region where the head office of any of the parties is located
only after a decision or award has been rendered by the arbitration committee or
arbitrator on questions of law.
Clearly therefore, petitioner, by its voluntary participation and its consent to the
arbitration rules cannot go directly to the RTC when it finds it convenient to do so.
The jurisdiction of the PCHC under the rules and regulations is clear, undeniable and
is particularly applicable to all the parties in the third party complaint under their
obligation to first seek redress of their disputes and grievances with the PCHC
before going to the trial court.
Finally, the contention that the third party complaint should not have been
dismissed for being a necessary and inseparable offshoot of the main case over

which the court a quo had already exercised jurisdiction misses the fundamental
point about such pleading. A third party complaint is a mere procedural device
which under the Rules of Court is allowed only with the courts permission. It is an
action "actually independent of, separate and distinct from the plaintiffs complaint"
(s)uch that, were it not for the Rules of Court, it would be necessary to file the
action separately from the original complaint by the defendant against the third
Bloomfield Academy v. CA, 237 SCRA 43 (1994)
The petition originated in a complaint for injunction filed on April 6, 1990 by private
respondent, the association of parents and guardians of students enrolled in
petitioner. One of the defendants in the case is petitioner which is a non-stock, nonprofit educational institution. What is being disputed before the court is the increase
in tuition fee. The petitioners contend that the increase is essential due to the
increase of the minimum wage under RA 6727.
Private respondents alleged that the 21.22% increase was made without prior
consultation with the parents required by law and that, in any case, the approved
increase was exorbitant (at 21.22%).
They sent a letter to the DECS Secretary complaining that the tuition fee increase
was without valid basis already, after both parties agreed on 50% of the increase
which was implemented and paid by the students during the school year with the
clear understanding that the other 50% is waived by the defendant.
Petitioners, on their part, contended that the parties did, in fact, hold consultations
at which the wage increase for teachers mandated by RA6727 and the resulting
increase in tuition fees allowed by RA 6728 were discussed at length.
The DECS however affirmed the tuition fee increase.
The court issued an order enjoining petitioners and Secretary Cario and/or their
agents, representatives or persons acting in their behalf from implementing the
increase in tuition fees, and not withholding their release of the report cards and/or
other papers necessary for the students desiring to transfer to other schools until
further orders from the court. The application for injunction was set for hearing on
April 19, 1990 at 2:00 p.m.
Answer to the complaint was filed by petitioners on April 19, 1990. On the same
date, the court conducted the first hearing on the application for a writ of
preliminary injunction which hearing was followed by settings on April 25, 26 and
27, 1990.
The court thereafter issued an order granting the writ of preliminary injunction.
On certiorai, the CA affirmed and ruled that the grant or denial of an injunction rests
upon the sound discretion of the court.
Issue: WON the court erred in granting the injunction

Ratio: The pertinent provisions RA 6728, also commonly known as "An Act Providing
Government Assistance to Students and Teachers in Private Education, And
Appropriating Funds Therefor," provide:
Sec. 9. Further Assistance To Students in Private Colleges and Universities. . . . .
(b) For students enrolled in schools charging above one thousand five hundred
pesos (P1,500.00) per year in tuition and other fees during the school year 19881989 or such amount in subsequent years as may be determined from time to time
by the State Assistance Council, no assistance for tuition fees shall be granted by
the Government: Provided, however, That the schools concerned may raise their
tuition fees subject to Section 10 hereof.
xxx xxx xxx
Sec. 10. Consultation. In any proposed increase in the rate of tuition fee, there
shall be appropriate consultations conducted by the school administration with the
duly organized parents and teachers associations and faculty associations with
respect to secondary schools, and with students governments or councils, alumni
and faculty associations with respect to colleges. For this purpose, audited financial
statements shall be made available to authorized representatives of these sectors.
Every effort shall be exerted to reconcile possible differences. In case of
disagreement, the alumni association of the school or any other impartial body of
their choosing shall act as arbitrator.
xxx xxx xxx
Sec. 14. Program Administration/Rules and Regulations. The State Assistance
Council shall be responsible for policy guidance and direction, monitoring and
evaluation of new and existing programs, and the promulgation of rules and
regulations, while the Department of Education, Culture and Sports shall be
responsible for the day to day administration and program implementation.
Likewise, it may engage the services and support of any qualified government or
private entity for its implementation.
The judicial action initiated by private respondent before the court appears to us to
be an inappropriate recourse. It remains undisputed that the DECS Secretary has, in
fact, taken cognizance of the case for the tuition fee increase and has accordingly
acted thereon. We can only assume that in so doing the DECS Secretary has duly
passed upon the relevant legal and factual issues dealing on the propriety of the
matter. In the decision process, the DECS Secretary has verily acted in a quasijudicial capacity.
The remedy from that decision is an appeal. Conformably with BP 129, the exclusive
appellate jurisdiction to question that administrative action lies with the CA, not
with the court a quo. If we were to consider, upon the other hand, the case for
injunction filed with the court a quo to be a ordinary action solely against herein
petitioner (with DECS being then deemed to be merely a nominal party), it would
have meant the court's taking cognizance over the case in disregard of the doctrine
of primary jurisdiction.
Neither can we treat the case as a special civil action for certiorari or prohibition as
the complaint filed by private respondent with the court a quo, contains no
allegation of lack, or grave abuse in the exercise, of jurisdiction on the part of DECS
nor has there been any finding made to that effect by either the court a quo or the
appellate court that could warrant the extraordinary remedy. A special civil action,
either for certiorari or prohibition, can be grounded only on either lack of jurisdiction
or grave abuse of discretion.

In passing, we also observe that the parties have both remained silent on the
provisions of Republic Act No. 6728 to the effect that in case of disagreement on
tuition fee increases (in this instance by herein private parties), the issue should be
resolved through arbitration. Although the matter has not been raised by the
parties, it is an aspect, nevertheless, in our view, that could have well been
explored by them instead of immediately invoking, such as they apparently did, the
administrative and judicial relief to resolve the controversy.
All told, we hold that the court a quo has been bereft of jurisdiction in taking
cognizance of private respondent's complaint. We see no real justification, on the
basis of the factual and case settings here obtaining, to permit a deviation from the
long standing rule that the issue of jurisdiction may be raised at any time even on
Mindanao Portland Cement Corporation v. McDonough Construction Co. of
Florida, 90 SCRA 808 (1967)
Petitioner and respondent McDonough executed a contract for the construction by
the respondent for the petitioner of a dry portland, cement plant at Iligan City. In a
separate contract, Turnbull, Inc. the "engineer" was engaged to design and
manage the construction of the plant, supervise the construction, schedule
deliveries and the construction work as well as check and certify ill contractors'
progress and fiscal requests for payment.
Alterations in the plans and specifications were subsequently made during the
progress of the construction. Due to this and to other causes deemed sufficient by
Turnbull, Inc., extensions of time for the termination of the project, initially agreed to
be finished on December 17, 1961, were granted.
Respondent finally completed the project on October 22, 1962. Differences later
Petitioner claimed from respondent damages in the amount of more than
P2,000,000 allegedly occasioned by the delay in the project's completion.
Respondent in turn asked for more than P450,000 from petitioner for alleged losses
due to cost of extra work and overhead as of April 1962.
A conference was held between petitioner and Turnbull, Inc., on one hand, and
respondent on the other, to settle the differences, but no satisfactory results were
Petitioner sent respondent written invitations to arbitrate, invoking a provision in
their contract regarding arbitration of disputes. Instead of answering said
invitations, respondent, with Turnbull's approval, submitted to petitioner for
payment its final statement of work accomplished, asking for P403,700 as unpaid
balance of the consideration of the contract.
Petitioner filed the present action in the CFI of Manila to compel respondent to
arbitrate with it concerning alleged disputes arising from their contract. It averred
inter alia that deletions and additions to the plans and specifications were agreed
upon during the progress of the construction; that disagreement arose between
them as to the cost of the additional or extra work done, and respondent's deviation
from some agreed specifications; that petitioner claims having overpaid respondent
by P33,810.81; that petitioner further claims to have suffered damages due to
respondent's delay in finishing the project; that respondent, on the other hand, still

claims an unpaid balance of about P403,700; that these matters fall under the
general arbitration clause of their contract; and that respondent has failed to
proceed to arbitration despite several requests therefor.
The court ruled that the matter should be submitted to arbitration.
Issue: WON the dispute should be submitted to arbitration
Respondent, contends that:
There is no showing of disagreement; and
If there is, the same falls under the exception, to be resolved by the engineer.
As to the first point, the fact of disagreement has been determined by the
court below upon the stipulation of facts and documentary evidence submitted. In
this appeal involving pure questions of law, the above finding should not be
disturbed. Furthermore, the existence of disagreement is plainly shown in the
record. Respondent admits the existence of petitioner's claim but denies its merit. It
likewise admits that petitioner has refused to pay its claim for the unpaid balance of
the price of the contract. Paragraph 8 of the stipulation of facts shows the dispute
of the parties regarding their mutual claims and that said dispute remained
Regarding the second point, the parties agreed by way of exception that
disagreements with respect to the following matters shall be finally resolved by the
engineer, instead of being submitted to arbitration: (1) The interpretation of plans
and specifications; (2) sufficiency of materials; and (3) the time, sequence and
method of performing the work.
The disputes involved here, on the other hand, are on (1) the proper computation of
the total contract price, including the cost of additional or extra work; and (2) the
liability for alleged delay in completing the project and for alleged losses due to
change in the plans and specifications.
Now from the contract itself We can determine the scope of the exceptions
Thus, pars. 19 to 22 of its General Conditions deal with the subject "Interpretation of
Plans and Specifications". And thereunder, the engineer is empowered to correct all
discrepancies, errors or omissions in the plans and specifications; to explain all
doubts that may arise thereon; and to furnish further plans and specifications as
may be required. No mention is made therein as to the cost of the project; this
matter is covered by the engineering contract, under which Turnbull, Inc.'s function
is limited to making estimates of costs only.
"Sufficiency of materials" and "method of performing the work" under the second
and third exceptions above-mentioned are treated in pars. 2 to 6 of the General
Conditions under the heading "QUALITY OF WORKS AND MATERIALS". Turnbull, Inc.,
is therein empowered to determine the land fitness of the several kinds of work and
materials furnished and to reject or condemn many of them which, in its opinions,
does not fully conform to the terms of the contract. In the present case, the dispute
is not as to the quality of the materials or of the kind of work done.
"Time" and "Sequence of Work" are covered by pars. 9 to 17 of the General
Conditions under the heading "SCHEDULING." Neither would the disputes fall under
these exceptions. Turnbull, Inc.'s power here is to schedule the deliveries and
construction work and expedite the same so that the project can be finished on
time. It is also authorized, under par. 15, to determine whether any eventuality is

sufficient enough to warrant in extension of time and if so, to determine the period
of such extension. The delay envisioned here is one that occurs during the progress
of the work which disturbs the pre-scheduling plan, thus necessitating an extension
of the over-all deadline precisely to prevent respondent from going beyond the
same. Turnbull, Inc.'s function goes no further than to calculate and fix the period of
extension. But the delay petitioner alleged is different; it is delay beyond the last
date of extension fixed by Turnbull, Inc. Clearly, the question of liability therefor, is
not embraced in the exception.
To none of the exceptions then do the disagreements in question belong, the rule of
arbitration therefore applies. The parties in fact also stipulated in their contract,
under "EXTRA WORK", that the cost of extra work to be paid shall be subject to
negotiations. This negates the proposition that Turnbull, Inc.'s cost estimates
appearing in Addenda 2, 3 and 7 are final and conclusive.
The reason, moreover, for the exceptions interpretation of plans and
specifications; sufficiency of materials; sequence, time and method of performing
the work is the need to decide these matters immediately, since the progress of
the work would await their determination. The same is not true as to matters
relating to the liability for delay in the project's completion; these are questions that
the engineer does not have to resolve before the project can go on. Consequently,
We view that it is not included in the exceptions, as indeed the related provisions of
their agreement indicate.
Since there obtains herein a written provision for arbitration as well as failure on
respondent's part to comply therewith, the court a quo rightly ordered the parties to
proceed to arbitration in accordance with the terms of their agreement (Sec. 6,
Republic Act 876). Respondent's arguments touching upon the merits of the dispute
are improperly raised herein. They should be addressed to the arbitrators. This
proceeding is merely a summary remedy to enforce the agreement to arbitrate. The
duty of the court in this case is not to resolve the merits of the parties' claims but
only to determine if they should proceed to arbitration or not. And although it has
been ruled that a frivolous or patently baseless claim should not be ordered to
arbitration, it is also recognized that the mere fact that a defense exists against a
claim does not make it frivolous or baseless.