CASES FOR CHAPTER 1 – GENERAL CONCEPTS:

1. Chung Fu Industries Inc. vs. CA GR No. 96283

Facts:
Petitioner Chung Fu Industries (Philippines) and private respondent Roblecor Philippines, Inc. forged a construction agreement whereby
respondent contractor committed to construct and finish petitioner corporation’s industrial/factory complex. In the event of disputes arising from
the performance of subject contract, it was stipulated therein that the issue(s) shall be submitted for resolution before a single arbitrator chosen by
both parties. Roblecor filed a petition for Compulsory Arbitration with prayer for Temporary Restraining Order before respondent RTC to claim the
unsatisfied account and unpaid progress billings. Chung Fu moved to dismiss the petition and further prayed for the quashing of the restraining
order. Subsequent negotiations between the parties eventually led to the formulation of an arbitration agreement which, among others, provides:
The parties mutually agree that the decision of the arbitrator shall be final and unappealable. Therefore, there shall be no further judicial recourse if
either party disagrees with the whole or any part of the arbitrator’s award. Respondent RTC approved the arbitration agreement and thereafter,
Engr. Willardo Asuncion was appointed as the sole arbitrator. Arbitrator Asuncion ordered petitioner to immediately pay respondent contractor
and further declared the award as final and unappealable. Roblecor then moved for the confirmation of said award which was accordingly
confirmed and a writ of execution granted to it. Meanwhile, Chung Fu moved to remand the case for further hearing and asked for a
reconsideration of the judgment award claiming that Arbitrator Asuncion committed twelve (12) instances of grave error by disregarding the
provisions of the parties’ contract. Chung Fu’s Motion was denied and similarly its motion for reconsiderationn. Chung Fu elevated the case via a
petition for certiorari to respondent CA. The respondent appellate court concurred with the findings and conclusions of respondent trial court. A
motion for reconsideration of said resolution was filed by petitioner, but was similarly denied.
Issue:
Whether or not petitioners are estopped from questioning the arbitration award allegedly in view of the stipulations in the parties’ arbitration
agreement that “the decision of the arbitrator shall be final and unappealable” and that “there shall be no further judicial recourse if either party
disagrees with the whole or any part of the arbitrator’s award.”
Ruling:
We rule in the negative. It is stated explicitly under Art. 2044 of the Civil Code that the finality of the arbitrators’ award is not absolute and without
exceptions. 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. Additionally, under Sections 24 and 25 of the Arbitration Law, there are grounds for vacating,
modifying or rescinding an arbitrator’s award. Thus, if and when the factual circumstances referred to in the above-cited provisions are present,
judicial review of the award is properly warranted.
This is where the proper remedy is certiorari under Rule 65 of the Revised Rules of Court. It is to be borne in mind, however, that this action will lie
only where a grave abuse of discretion or an act without or in excess of jurisdiction on the part of the voluntary arbitrator is clearly shown. It
should be stressed, too, that voluntary arbitrators, by the nature of their functions, act in a quasi-judicial capacity. It stands to reason, therefore,
that their decisions should not be beyond the scope of the power of judicial review of this Court.
In the case at bar, petitioners assailed the arbitral award on the following grounds, most of which allege error on the part of the arbitrator in
granting compensation for various items which apparently are disputed by said petitioners. After closely studying the list of errors, as well as
petitioners’ discussion of the same in their Motion to Remand Case For Further Hearing and Reconsideration and Opposition to Motion for
Confirmation of Award, we find that petitioners have amply made out a case where the voluntary arbitrator failed to apply the terms and
provisions of the Construction Agreement which forms part of the law applicable as between the parties, thus committing a grave abuse of
discretion. Furthermore, in granting unjustified extra compensation to respondent for several items, he exceeded his powers — all of which would
have constituted ground for vacating the award under Section 24 (d) of the Arbitration Law.
Wherefore, the petition is granted. The Resolutions of the CA as well as the Orders of respondent RTC are hereby SET ASIDE. Accordingly, this case
is REMANDED to the court of origin for further hearing on this matter. All incidents arising therefrom are reverted to the status quo ante until such
time as the trial court shall have passed upon the merits of this case.

2. Korea Technologies Co. vs. Lerma GR No. 143581

Facts: Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is engaged in the supply and installation of Liquefied
Petroleum Gas (LPG) Cylinder manufacturing plants, while private respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a domestic
corporation. On March 5, 1997, PGSMC and KOGIES executed a Contract whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in
Carmona, Cavite. The contract was executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an Amendment for Contract No.
KLP-970301 dated March 5, 1997 amending the terms of payment. The contract and its amendment stipulated that KOGIES will ship the machinery
and facilities necessary for manufacturing LPG cylinders for which PGSMC would pay USD 1,224,000. KOGIES would install and initiate the
operation of the plant for which PGSMC bound itself to pay USD 306,000 upon the plants production of the 11-kg. LPG cylinder samples. Thus, the
total contract price amounted to USD 1,530,000. On October 14, 1997, PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth)
for use of Worths 5,079-square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. The monthly
rental was PhP 322,560 commencing on January 1, 1998 with a 10% annual increment clause. Subsequently, the machineries, equipment, and
facilities for the manufacture of LPG cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate executed by the parties on January 22, 1998, after the installation of the plant, the initial operation could
not be conducted as PGSMC encountered financial difficulties affecting the supply of materials, thus forcing the parties to agree that KOGIES would
be deemed to have completely complied with the terms and conditions of the March 5, 1997 contract. For the remaining balance of USD306,000
for the installation and initial operation of the plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January 30, 1998 for
PhP 4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000. When KOGIES deposited the checks, these were
dishonored for the reason PAYMENT STOPPED. Thus, on May 8, 1998, KOGIES sent a demand letter to PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in case of nonpayment. On the same date, the wife of PGSMCs President faxed a letter dated May 7, 1998 to
KOGIES President who was then staying at a Makati City hotel. She complained that not only did KOGIES deliver a different brand of hydraulic press
from that agreed upon but it had not delivered several equipment parts already paid for.

Issue: Whether or not the arbitration clause in the contract of the parties should govern.

Held: Yes. Established in this jurisdiction is the rule that the law of the place where the contract is made governs. Lex loci contractus. The contract
in this case was perfected here in the Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the
validity of mutually agreed arbitral clause or the finality and binding effect of an arbitral award. Art. 2044 provides, Any stipulation that the
arbitrators award or decision shall be final, is valid, without prejudice to Articles 2038, 2039 and 2040.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not been shown to be contrary to any law, or against morals,
good customs, public order, or public policy. There has been no showing that the parties have not dealt with each other on equal footing. We find
no reason why the arbitration clause should not be respected and complied with by both parties. In Gonzales v. Climax Mining Ltd., we held that
submission to arbitration is a contract and that a clause in a contract providing that all matters in dispute between the parties shall be referred to
arbitration is a contract. Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that [t]he provision to submit to arbitration any
dispute arising therefrom and the relationship of the parties is part of that contract and is itself a contract.

Having said that the instant arbitration clause is not against public policy, we come to the question on what governs an arbitration clause specifying
that in case of any dispute arising from the contract, an arbitral panel will be constituted in a foreign country and the arbitration rules of the foreign
country would govern and its award shall be final and binding.

Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to judgments or awards given by some of our quasi-judicial
bodies, like the National Labor Relations Commission and Mines Adjudication Board, whose final judgments are stipulated to be final and binding,
but not immediately executory in the sense that they may still be judicially reviewed, upon the instance of any party. Therefore, the final foreign
arbitral awards are similarly situated in that they need first to be confirmed by the RTC.

3. LM Power Engineering Corporation vs. Capitol Industrial Construction Groups, Inc. GR No. 141833

Facts :This is a Petition for Review on Certiorari filed by the petitioner LM Power against Respondent Capitol Industrial seeking to set aside the
decision of CA. Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial Construction Groups Inc. entered into a
Subcontract Agreement involving electrical work at the Third Port of Zamboanga. Due to the inability of the petitioner to procure materials, Capitol
Industial took over some of the work contracted to the former. After the completion of the contract, petitioner billed respondent in the amount of
P6, 711,813.90 but the respondent refused to pay. Petitioner filed with the RTC of Makati a Complaint for the collection of the amount
representing the alleged balance due it under the subcontract. Respondent filed a Motion to Dismiss, alleging that the Complaint was premature,
due to the absence of prior recourse to arbitration.

RTC denied the Motion on the ground that the dispute did not involve the interpretation or the implementation of the Agreement and was not
covered by the arbitral clause and ruled in favor of the petitioner. Respondent appealed to the

CA, the latter reversed the decision of the RTC and ordered the referral of the case to arbitration. Hence, this Petition.

ISSUE:WON there is a need for the prior arbitration before filing of the complaint with the court.

HELD:AFFIRMATIVE

SC ruled that in the case at hand it involves technical discrepancies that are better left to an arbitral body that has expertise in the subject matter.
Moreover, the agreement between the parties contains arbitral clause that “any dispute or conflict as regards to interpretation
and implementation of this agreement which cannot be settled between respondent and petitioner amicably shall be settled by means of
arbitration”. The resolution of the dispute between the parties herein requires a referral to the provisions of their agreement. Within the scope of
the arbitration clause are discrepancies as to the amount of advances and billable accomplishments, the application of the provision on
termination, and the consequent set-off of expenses. With respect to the disputes on the take-over/termination and the expenses incurred by
respondent in the take-over, the SC ruled that the agreement provides specific provisions that any delay, expenses and any other acts in violation
to such agreement, the respondent can terminate and can set off the amount it incurred in the completion of the contract.

SC tackled also that there’s no need for the prior request for arbitration by the parties with the Construction Industry Arbitration Commission
(CIAC) in order for it to acquire jurisdiction. Because pursuant to Section 1 of Article III of the new Rules of Procedure Governing Construction
Arbitration when a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter
into a submission agreement before the claimant may invoke the jurisdiction of CIAC. Furthermore, the arbitral clause in the agreement is a
commitment on the part of the parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to
abide by it in good faith. Since a complaint with the RTC has been filed without prior recourse to arbitration, under RA 876 (Arbitration Law) the
proper procedure is to request the stay or suspension of such action in order to settle the dispute with the CIAC
 4. Lanuza vs. BF Corporation GR No. 174938

Facts: In 1993, BF Corporation filed a collection complaint with the Regional Trial Court against Shangri-La and the members of its board of
directors: Alfredo C. Ramos, Rufo B.Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G. Licauco III, and Benjamin C. Ramos. BF Corporation
alleged in its complaint that on December 11, 1989 and May 30, 1991, it entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along EDSA.Shangri-La had been consistent in paying BF Corporation in
accordance with its progress billing statements. However, by October 1991, Shangri-La started defaulting in payment. BF Corporation alleged that
Shangri-La induced BF Corporation to continue with the construction of the buildings using its own funds and credit despite Shangri-La’s default.
According to BF Corporation, Shangri-La misrepresented that it had funds to pay for its obligations with BF Corporation, and the delay in payment
was simply a matter of delayed processing of BF Corporation’s progress billing statements. BF Corporation eventually completed the construction
of the buildings. Shangri-La allegedly took possession of the buildings while still owing BF Corporation an outstanding balance. BF Corporation
alleged that despite repeated demands, Shangri-La refused to pay the balance owed to it.It also alleged that the Shangri-La’s directors were in bad
faith in directing Shangri-La’s affairs. Therefore, they should be held jointly and severally liable with Shangri-La for its obligations as well as for the
damages that BF Corporation incurred as a result of Shangri-La’s default. On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo
G. Licauco III, and Benjamin C. Ramos filed a motion to suspend the proceedings in view of BF Corporation’s failure to submit its dispute to
arbitration, in accordance with the arbitration clause provided in its contract. Petitioners filed their comment on Shangri-La’s and BF Corporation’s
motions, praying that they be excluded from the arbitration proceedings for being non-parties to Shangri-La’s and BF Corporation’s agreement.

Issue: Whether or not petitioners as directors of Shangri-La is personally liable for the contractual obligations entered into by the corporation.

Held: No. Because a corporation’s existence is only by fiction of law, it can only exercise its rights and powers through its directors, officers, or
agents, who are all natural persons. A corporation cannot sue or enter into contracts without them.

A consequence of a corporation’s separate personality is that consent by a corporation through its representatives is not consent of the
representative, personally. Its obligations, incurred through official acts of its representatives, are its own. A stockholder, director, or
representative does not become a party to a contract just because a corporation executed a contract through that stockholder, director or
representative.

Hence, a corporation’s representatives are generally not bound by the terms of the contract executed by the corporation. They are not personally
liable for obligations and liabilities incurred on or in behalf of the corporation.

A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as
their assigns and heirs.

When there are allegations of bad faith or malice against corporate directors or representatives, it becomes the duty of courts or tribunals to
determine if these persons and the corporation should be treated as one. Without a trial, courts and tribunals have no basis for determining
whether the veil of corporate fiction should be pierced. Courts or tribunals do not have such prior knowledge. Thus, the courts or tribunals must
first determine whether circumstances exist towarrant the courts or tribunals to disregard the distinction between the corporation and the persons
representing it. The determination of these circumstances must be made by one tribunal or court in a proceeding participated in by all parties
involved, including current representatives of the corporation, and those persons whose personalities are impliedly the sameas the corporation.
This is because when the court or tribunal finds that circumstances exist warranting the piercing of the corporate veil, the corporate
representatives are treated as the corporation itself and should be held liable for corporate acts. The corporation’s distinct personality is
disregarded, and the corporation is seen as a mere aggregation of persons undertaking a business under the collective name of the corporation.

A corporation is an artificial entity created by fiction of law. This means that while it is not a person, naturally, the law gives it a distinct personality
and treats it as such. A corporation, in the legal sense, is an individual with a personality that is distinct and separate from other persons including
its stockholders, officers, directors, representatives, and other juridical entities. The law vests in corporations rights,powers, and attributes as if
they were natural persons with physical existence and capabilities to act on their own. For instance, they have the power to sue and enter into
transactions or contracts. Section 36 of the Corporation Code enumerates some of a corporation’s powers, thus:

Section 36. Corporate powers and capacity.– Every corporation incorporated under this Code has the power and capacity: 1. To sue and be sued in
its corporate name; 2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate
ofincorporation; 3. To adopt and use a corporate seal; 4. To amend its articles of incorporation in accordance with the provisions of this Code; 5. To
adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with this Code; 6. In case of stock
corporations, to issue or sell stocks to subscribers and to sell treasury stocks in accordance with the provisions of this Code; and to admit members
to the corporation if it be a non-stock corporation; 7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of the
corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution; 8. To enter into merger or
consolidation with other corporations as provided in this Code; 9. To make reasonable donations, including those for the public welfare or for
hospital, charitable, cultural, scientific, civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of
any political party or candidate or for purposes of partisan political activity; 10. To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and 11. To exercise such other powers as may be essential or necessary to carry out its purpose or
purposes as stated in its articles of incorporation.

5. Cargill Phils. Inc. vs. San Fernando Regala Trading, Inc. GR No. 175404

FACTS:
Respondent San Fernando Regala Trading filed with the RTC of Makati City a Complaint for Rescission of Contract with Damages
against petitioner Cargill. It alleged that it agreed that it would purchase from Cargill 12,000 metric tons of Thailand origin cane blackstrap molasses
and that the payment would be by an Irrevocable Letter of Credit payable at sight. The parties agreed that the delivery would be
made in April/May. Cargill failed to comply with its obligations despite demands from respondent. The respondent then filed for rescission. The
petitioner filed a Motion to Dismiss/Suspend proceeding, arguing that they must first resort to arbitration as stated in their agreement before going
to court. However, the RTC ruled in favor of the respondent.

The CA affirmed the RTC decision, adding that the case cannot be brought under the Arbitration Law for the purpose of suspending the
proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject
contract between the parties did not exist or it was invalid; that the said contract bearing the arbitration clause was never consummated by the
parties, thus, it was proper that such issue be first resolved by the court through an appropriate trial; that the issue involved a question of fact that
the RTC should first resolve.

ISSUE: Whether the CA erred in finding that this case cannot be brought under the arbitration law for the purpose of suspending
the proceedings in the RTC.

HELD: The petition is meritorious.

CIVIL LAW - Arbitration; alternative dispute resolution; contracts arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a
system of settling commercial disputes of an international character, is likewise recognized. The enactment of R.A. No. 9285 on April 2, 2004
further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes. 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. The validity of the contract containing the agreement to submit to arbitration does not affect the
applicability of the arbitration clause itself. 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. Petition is
GRANTED.

6. Jorge Gonzales vs. Climax Mining Ltd., GR No. 161957

Facts:

Gonzales as a claimowner of mineral deposit, entered into a joint-venture via Production-Sharing Letter-Agreement(First Contract) with Geophil Inc.

(Geo) and Inmex Ltd. (Inmex) giving Geo and Inmex 36 months (which was thereafter extended), to develop, operate, mine and exploit the mining

claims of Gonzales. Thereafter, Gonzales, Armico, Geo, Inmex and Aumex signed an Addendum Contract (Second Contract) allowing Armico to apply

for FTAA. Climax, Climax-Armico and Australasian then executed a Financial Accomodation Contract (Third Contract) and Assignment Accession

Agreement (Fourth Contract) between Climax-Armico and Australasian and Memorandum of Agreement (Fifth Contract) between Climax-Armico

and Australasian transferring the mining claim to Australasian. Gonzales sought the nullity of the the Second Contract, FTAA, Third Contract, Fourth

Contract, and Fifth Contract with preliminary injunction with the Mines and Geosciences Bureau-DENR (MGB-DENR).

Issue:

Whether or not MGB-DENR has jurisdiction over the case.

Ruling:

No, the case is not a dispute involving rights to a mining areas, nor a dispute involving claim holders or concessionaires. The issue involves a judicial

question, which involves the determination of what the law is and what are the legal rights of the parties with respect to the matter in controversy

and therefore, within the jurisdiction of regular courts.