Chung Fu Industries v. CA (G.R. 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.

Korea Technologies Co. Ltd vs Lerma

GR No. 143581 January 7, 2008

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.

LM POWER vs. CAPITOL INDUSTRIALFacts

:This is a
Petition for Review on Certiorari
filed by the petitioner LM Poweragainst Respondent Capitol Industrial seeking to set
aside the decision ofCA.Petitioner LM Power Engineering Corporation and Respondent
CapitolIndustrial Construction Groups Inc. entered into a Subcontract
Agreementinvolving electrical work at the Third Port of Zamboanga. Due to the
inabilityof the petitioner to procure materials, Capitol Industial took over some of
thework contracted to the former. After the completion of the contract, petitionerbilled
respondent in the amount of P6, 711,813.90 but the respondentrefused to pay.Petitioner
filed with the RTC of Makati a Complaint for the collection of theamount representing
the alleged balance due it under the subcontract.Respondent filed a Motion to Dismiss,
alleging that the Complaint waspremature, due to the absence of prior recourse to
arbitration.
RTC
denied the Motion on the ground that the dispute did not involve theinterpretation or the
implementation of the Agreement and was not coveredby the arbitral clause and ruled in
favor of the petitioner.Respondent appealed to the
CA,
the latter

reversed the decision of the RTCand 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 complaintwith the court.
HELD
:
AFFIRMATIVE
.
SC
ruled that in the case at hand it involves technical discrepancies that arebetter 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 reg
ards to interpretation and implementation of thisagreement 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 oftheir
agreement. Within the scope of the arbitration clause are discrepanciesas to the amount
of advances and billable accomplishments, the applicationof the provision on
termination, and the consequent set-off of expenses.With respect to the disputes on the
take-over/termination and the expensesincurred by respondent in the take-over, the SC
ruled that the agreementprovides specific provisions that any delay, expenses and any
other acts inviolation to such agreement, the respondent can terminate and can set
offthe 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)
inorder for it to acquire jurisdiction. Because pursuant to
Section 1 of ArticleIII of the new Rules of Procedure Governing Construction
Arbitration
,when a contract contains a clause for the submission of a future controversyto
arbitration, it is not necessary for the parties to enter into a submissionagreement before
the claimant may invoke the jurisdiction of CIAC.Furthermore, the arbitral clause in the
agreement is a commitment on thepart 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
toarbitration, under RA 876 (Arbitration Law) the proper procedure is to requestthe stay
or suspension of such action in order to settle the dispute with theCIAC

GERARDO LANUZA v. BF CORPORATION, GR No. 174938, 2014-10-01

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... 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 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.
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
BF Corporation opposed the motion to suspend proceedings
In the November 18, 1993 order, the Regional Trial Court denied the motion to suspend
proceedings.
On December 8, 1993, petitioners filed an answer to BF Corporation's complaint, with
compulsory counterclaim against BF Corporation and cross-claim against Shangri-La.
They alleged that they had resigned as members of Shangri-La's board of directors as... of
July 15, 1991.
After the Regional Trial Court denied... the motion for reconsideration
Alfredo C. Ramos, Rufo B. Colayco, Maximo G. Licauco III, and Benjamin Ramos filed a
petition for certiorari with the Court of
Appeals.
On April 28, 1995, the Court of Appeals granted the petition for certiorari and ordered the
submission of the dispute to arbitration.
Another issue arose after BF Corporation had initiated arbitration proceedings. BF
Corporation and Shangri-La failed to agree as to the law that should govern the arbitration
proceedings.
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for clarification,
both seeking to clarify the term, "parties," and whether Shangri-La's directors should be
included in the arbitration proceedings and served with separate demands for... arbitration.
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.[
The Court of Appeals ruled that Shangri-La's directors were necessary parties in the
arbitration proceedings.
They were] deemed not third-parties to the contract as they [were] sued for their acts in
representation of the party to the contract pursuant to Art. 31 of the Corporation Code, and
that as directors of the defendant corporation, [they], in accordance with Art.
1217 of the Civil Code, stand to be benefited or injured by the result of the arbitration
proceedings, hence, being necessary parties, they must be joined in order to have complete
adjudication of the controversy.
The Court of Appeals further ruled that "excluding petitioners in the arbitration proceedings .
. . would be contrary to the policy against multiplicity of suits."
Issues:
whether petitioners should be made parties to the arbitration proceedings, pursuant to the
arbitration clause provided in the contract between BF Corporation and Shangri-La.
Ruling:
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.
As a general rule, therefore, a corporation's representative who did not personally bind
himself or herself to an arbitration agreement cannot be forced to participate in arbitration
proceedings made pursuant to an agreement entered into by the corporation. He or she is...
generally not considered a party to that agreement.
However, there are instances when the distinction between personalities of directors,
officers, and representatives, and of the corporation, are disregarded. We call this piercing
the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a corporation] is
used as a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate... issues."
It is also warranted in alter ego cases "where a corporation is merely a farce since it is a
mere alter ego or business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it... merely an instrumentality,
agency, conduit or adjunct of another corporation."
When corporate veil is pierced, the corporation and persons who are normally treated as
distinct from the corporation are treated as one person, such that when the corporation is
adjudged liable, these persons, too, become liable as if they were the corporation.
Among the persons who may be treated as the corporation itself under certain
circumstances are its directors and officers.
Principles:
Corporate representatives may be compelled to submit to arbitration proceedings pursuant
to a contract entered into by the corporation they represent if there are allegations of bad
faith or malice in their acts representing the corporation.
G.R. No. 175404, January 31, 2011 CARGILL PHILIPPINES, INC., petitioner, vs. SAN
FERNANDO REGALA
TRADING, INC., respondent. PERALTA, J.:
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.

JORGE GONZALES and PANEL OF ARBITRATORS, vs.CLIMAX MINING LTD., CLIMAX-

ARIMCO MINING CORP., and AUSTRALASIAN PHILIPPINES MINING INC.,
G.R. No. 161957 February 28, 2005
Petitioner Jorge Gonzales, as claimowner of mineral deposits located within the Addendum
Area of Influence in Didipio, in the provinces of Quirino and Nueva Vizcaya, entered into a co-
production, joint venture and/or production-sharing letter-agreement designated as the May 14,
1987 Letter of Intent with Geophilippines, Inc, and Inmex Ltd. Under the agreement, petitioner,
as claimowner, granted to Geophilippines, Inc. and Inmex Ltd. collectively, the exclusive right to
explore and survey the mining claims for a period of thirty-six (36) months within which the latter
could decide to take an operating agreement on the mining claims and/or develop, operate,
mine and otherwise exploit the mining claims and market any and all minerals that may be
derived therefrom.
On 28 February 1989, the parties to the May 14, 1987 Letter of Intent renegotiated the same
into the February 28, 1989 Agreement whereby the exploration of the mining claims was
extended for another period of three years.
On 9 March 1991, petitioner Gonzales, Arimco Mining Corporation, Geophilippines Inc., Inmex
Ltd., and Aumex Philippines, Inc. signed a document designated as the Addendum to the May
14, 1987 Letter of Intent and February 28, 1989 Agreement with Express Adhesion
Thereto (hereafter, the Addendum Contract).1 Under the Addendum Contract, Arimco Mining
Corporation would apply to the Government of the Philippines for permission to mine the claims
as the Government’s contractor under a Financial and Technical Assistance Agreement (FTAA).
On 20 June 1994, Arimco Mining Corporation obtained the FTAA2 and carried out work under
the FTAA.
Respondents executed the Operating and Financial Accommodation Contract3 (between
Climax-Arimco Mining Corporation and Climax Mining Ltd., as first parties, and Australasian
Philippines Mining Inc., as second party) dated 23 December 1996 and Assignment, Accession
Agreement4 (between Climax-Arimco Mining Corporation and Australasian Philippines Mining
Inc.) dated 3 December 1996. Respondent Climax Mining Corporation (Climax) and respondent
Australasian Philippines Mining Inc. (APMI) entered into a Memorandum of Agreement5 dated 1
June 1991 whereby the former transferred its FTAA to the latter.
On 8 November 1999, petitioner Gonzales filed before the Panel of Arbitrators, Region II, Mines
and Geosciences Bureau of the Department of Environment and Natural Resources, against
respondents Climax-Arimco Mining Corporation (Climax-Arimco), Climax, and
APMI,6 a Complaint7 seeking the declaration of nullity or termination of the Addendum
Contract, the FTAA, the Operating and Financial Accommodation Contract, the Assignment,
Accession Agreement, and the Memorandum of Agreement. Petitioner Gonzales prayed for an
unspecified amount of actual and exemplary damages plus attorney’s fees and for the issuance
of a temporary restraining order and/or writ of preliminary injunction to restrain or enjoin
respondents from further implementing the questioned agreements. He sought said releifs on
the grounds of "FRAUD, OPPRESSION and/or VIOLATION of Section 2, Article XII of the
CONSTITUTION perpetrated by these foreign RESPONDENTS, conspiring and confederating
with one another and with each other…."8
Issues:
(c) Whether the complaint filed by petitioner raises a mining dispute over which the Panel of
Arbitrators has jurisdiction, or a judicial question which should properly be brought before the
regular courts.
(d) Whether the dispute between the parties should be brought for arbitration under Rep. Act
No. 876.
Ruling:
A judicial question is a question that is proper for determination by the courts, as opposed to a
moot question or one properly decided by the executive or legislative branch.18 A judicial
question is raised when the determination of the question involves the exercise of a judicial
function; that is, the question involves the determination of what the law is and what the legal
rights of the parties are with respect to the matter in controversy.19
On the other hand, a mining dispute is a dispute involving (a) rights to mining areas, (b) mineral
agreements, FTAAs, or permits, and (c) surface owners, occupants and
claimholders/concessionaires.20 Under Republic Act No. 7942 (otherwise known as the
Philippine Mining Act of 1995), the Panel of Arbitrators has exclusive and original jurisdiction to
hear and decide these mining disputes.21 The Court of Appeals, in its questioned decision,
correctly stated that the Panel’s jurisdiction is limited only to those mining disputes which raise
questions of fact or matters requiring the application of technological knowledge and
experience.22
In Pearson v. Intermediate Appellate Court,23 this Court observed that the trend has been to
make the adjudication of mining cases a purely administrative matter.24 Decisions25 of the
Supreme Court on mining disputes have recognized a distinction between (1) the primary
powers granted by pertinent provisions of law to the then Secretary of Agriculture and Natural
Resources (and the bureau directors) of an executive or administrative nature, such as granting
of license, permits, lease and contracts, or approving, rejecting, reinstating or canceling
applications, or deciding conflicting applications, and (2) controversies or disagreements of civil
or contractual nature between litigants which are questions of a judicial nature that may be
adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No.
7942.
The Complaint charged respondents with disregarding and ignoring the provisions of
the Addendum Contract, violating the purpose and spirit of the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement, and acting in a fraudulent and oppressive manner
against petitioner and practicing fraud and deception against the Government.26 Petitioner
alleged in his Complaint that under the original agreements (the May 14, 1987 Letter of
Intent and February 28, 1989 Agreement) respondent Climax-Arimco had committed to
complete the Bankable Feasibility Study by 28 February 1992, but the same was not
accomplished. Instead, respondent Climax-Arimco, through false and insidious representations
and machinations by alleging technical and financial capacity, induced petitioner to enter into
the Addendum Contract and the FTAA in order to repeatedly extend the option period within
which to conduct the feasibility study. In essence, petitioner alleges that respondents, conspiring
and confederating with one another, misrepresented under the Addendum Contract and FTAA
that respondent Climax-Arimco possessed financial and technical capacity to put the project into
commercial production, when in truth it had no such qualification whatsoever to do so. By so
doing, respondents have allegedly caused damage not only to petitioner but also to the
Republic of the Philippines.27
It is apparent that the Panel of Arbitrators is bereft of jurisdiction over the Complaint filed by
petitioner. The basic issue in petitioner’s Complaint is the presence of fraud or
misrepresentation allegedly attendant to the execution of the Addendum Contract and
the other contracts emanating from it, such that the contracts are rendered invalid and
not binding upon the parties. It avers that petitioner was misled by respondents into
agreeing to the Addendum Contract. This constitutes fraud which vitiated petitioner’s
consent, and under Article 1390 of the Civil Code, is one of the grounds for the
annulment of a voidable contract. Voidable or annullable contracts, before they are set
aside, are existent, valid, and binding, and are effective and obligatory between the
parties.28 They can be ratified.29
-whether the case involves void or voidable contracts is still a judicial question. It may, in
some instances, involve questions of fact especially with regard to the determination of
the circumstances of the execution of the contracts. But the resolution of the validity or
voidness of the contracts remains a legal or judicial question as it requires the exercise
of judicial function. It requires the ascertainment of what laws are applicable to the
dispute, the interpretation and application of those laws, and the rendering of a judgment
based thereon. Clearly, the dispute is not a mining conflict. It is essentially judicial. The
complaint was not merely for the determination of rights under the mining contracts
since the very validity of those contracts is put in issue.
The Complaint is not about a dispute involving rights to mining areas, nor is it a dispute
involving claimholders or concessionaires. The main question raised was the validity of
the Addendum Contract, the FTAA and the subsequent contracts. The question as to the rights
of petitioner or respondents to the mining area pursuant to these contracts, as well as the
question of whether or not petitioner had ceded his mining claims in favor of respondents by
way of execution of the questioned contracts, is merely corollary to the main issue, and may not
be resolved without first determining the main issue.
The Complaint is also not what is contemplated by Rep. Act No. 7942 when it says the dispute
should involve FTAAs. The Complaint is not exclusively within the jurisdiction of the Panel of
Arbitrators just because, or for as long as, the dispute involves an FTAA. The Complaint raised
the issue of the constitutionality of the FTAA, which is definitely a judicial question. The question
of constitutionality is exclusively within the jurisdiction of the courts to resolve as this would
clearly involve the exercise of judicial power. The Panel of Arbitrators does not have jurisdiction
over such an issue since it does not involve the application of technical knowledge and
expertise relating to mining. This the Panel of Arbitrators has even conceded in its Orders dated
18 October 2001 and 25 June 2002. At this juncture, it is worthy of note that in a case,31 which
was resolved only on 1 December 2004, this Court upheld the validity of the FTAA entered into
by the Republic of the Philippines and WMC (Philippines), Inc. and constitutionality of Rep. Act
No. 7942 and DENR Administrative Order 96-40.32 In fact, the Court took the case on an original
petition, recognizing "the exceptional character of the situation and the paramount public
interest involved, as well as the necessity for a ruling to put an end to the uncertainties plaguing
the mining industry and the affected communities as a result of doubts case upon the
constitutionality and validity of the Mining Act, the subject FTAA and future FTAAs, and the
need to avert a multiplicity of suits."33
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 as in this case. 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.
-We agree that the case should not be brought under the ambit of the Arbitration Law, but for a
different reason. 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. As previously
discussed, the complaint should have been filed before the regular courts as it involved issues
which are judicial in nature.

WHEREFORE, in view of the foregoing, the Petition for Review on Certiorari Under Rule 45 is
DENIED. The Orders dated 18 October 2001 and 25 June 2002 of the Panel of Arbitrators are
SET ASIDE. Costs against petitioner Jorge Gonzales.