Republic of the Philippines BER – Base energy rate at Ps 2.30/Kw-Hr billing rate based on the exchange rate of Ps 26.

ng rate based on the exchange rate of Ps 26.20 to the US

SUPREME COURT dollar, and with fuel oil to be supplied by LINBERG at its own cost. The base energy rate is subject to
Manila exchange rate adjustment accordingly to the formula as follows:

SECOND DIVISION BER – 0.6426 + 0.3224 Pn + 1.345 Fn

G.R. NO. 152471 August 18, 2006 26.40 4.00

FIESTA WORLD MALL CORPORATION, Petitioner, WHERE:

vs.
LINBERG PHILIPPINES, INC., Respondent.
Pn – is defined as the average of the Bangko Sentral ng Pilipinas’ published dealing rates for thirty (30)
trading days immediately prior to the new billing rate.
DECISION
Fn – Weighted average of fuel price per liter based on the average of the last three (3) purchases made
SANDOVAL-GUTIERREZ, J.: by LINBERG as evidenced by purchase invoices.

For our resolution is the instant Petition for Review on Certiorari1 assailing the Decision2 dated December
12, 2001 and Resolution3 dated February 28, 2002 rendered by the Court of Appeals in CA-G.R. SP No.
63671, entitled "Fiesta World Mall Corporation, petitioner, versus Hon. Florito S. Macalino, Presiding
Judge of the Regional Trial Court (RTC), Branch 267, Pasig City, and Linberg Philippines, Inc.,
respondents."
The facts of this case are:
Fiesta World Mall Corporation, petitioner, owns and operates Fiesta World Mall located at Barangay
Maraouy, Lipa City; while Linberg Philippines, Inc., respondent, is a corporation that builds and operates
power plants.
On January 19, 2000, respondent filed with the Regional Trial Court (RTC), Branch 267, Pasig City, a
Complaint for Sum of Money against petitioner, docketed as Civil Case No. 67755. The complaint alleges
that on November 12, 1997, petitioner and respondent executed a build-own-operate agreement,
entitled "Contract Agreement for Power Supply Services, 3.8 MW Base Load Power Plant" 4 (the
Contract). Under this Contract, respondent will construct, at its own cost, and operate as owner a power
plant, and to supply petitioner power/electricity at its shopping mall in Lipa City. Petitioner, on the other
hand, will pay respondent "energy fees" to be computed in accordance with the Seventh Schedule of the
Contract, the pertinent portions of which provide:
2.1 x x x
E1 – 988,888 kw-hr x BER
E2 – (ED-988,888) x BER
Where:
ED – Energy delivered in kw-hrs per meter reading.
3. Minimum Energy Off-Take
The energy fees payable to LINBERG shall be on the basis of actual KWH generated by the plant.
However, if the actual KWH generated is less than the minimum energy off-take level, the calculation of
the energy fees shall be made as if LINBERG has generated the minimum energy off-take level of 988,888
KW-HR per month.
The complaint further alleges that respondent constructed the power plant in Lipa City at a cost of about
P130,000,000.00. In November 1997, the power plant became operational and started supplying
power/electricity to petitioner’s shopping mall in Lipa City. In December 1997, respondent started billing
petitioner. As of May 21, 1999, petitioner’s unpaid obligation amounted to P15,241,747.58, exclusive of
interest. However, petitioner questioned the said amount and refused to pay despite respondent’s
repeated demands.
In its Answer with Compulsory Counterclaim, petitioner specifically denied the allegations in the
complaint, claiming that respondent failed to fulfill its obligations under the Contract by failing to supply
all its power/fuel needs. From November 10, 1998 until May 21, 1999, petitioner personally shouldered
the cost of fuel. Petitioner also disputed the amount of energy fees specified in the billings made by
respondent because the latter failed to monitor, measure, and record the quantities of electricity
delivered by taking photographs of the electricity meter reading prior to the issuance of its invoices and
billings, also in violation of the Contract.5 Moreover, in the computation of the electrical billings, the
minimum off-take of energy (E2) was based solely on the projected consumption as computed by
respondent. However, based on petitioner’s actual experience, it could not consume the energy
pursuant to the minimum off-take even if it kept open all its lights and operated all its machinery and
equipment for twenty-four hours a day for a month. This fact was admitted by respondent. While both
parties had discussions on the questioned billings, however, "there were no earnest efforts to resolve
the differences in accordance with the arbitration clause provided for in the Contract."

E1 & E2 – Energy fees in pesos for the billing period. Where E1 is based on the minimum energy off-take Finally, as a special affirmative defense in its answer, petitioner alleged that respondent’s filing of the
of 988,888 kw-hrs. per month and E2 is based on the actual meter reading less the minimum off-take. complaint is premature and should be dismissed on the ground of non-compliance with paragraph 7.4 of
the Contract which provides:
7.4 Disputes
If FIESTA WORLD disputes the amount specified by any invoice, it shall pay the undisputed amount on or
before such date(s), and the disputed amount shall be resolved by arbitration of three (3) persons, one
(1) by mutual choice, while the other two (2) to be each chosen by the parties themselves, within
fourteen (14) days after the due date for such invoice and all or any part of the disputed amount paid to
LINBERG shall be paid together with interest pursuant to Article XXV from the due date of the invoice. It
is agreed, however, that both parties must resolve the disputes within thirty (30) days, otherwise any
delay in payment resulting to loss to LINBERG when converted to $US as a result of depreciation of the
Pesos shall be for the account of FIESTA WORLD. Corollarily, in case of erroneous billings, however,
LINBERG shall be liable to pay FIESTA WORLD for the cost of such deterioration, plus interest computed
pursuant to Art. XXV from the date FIESTA WORLD paid for the erroneous billing. (Underscoring supplied)
Thereafter, petitioner filed a Motion to Set Case for Preliminary Hearing on the ground that respondent
violated the arbitration clause provided in the Contract, thereby rendering its cause of action premature.
This was opposed by respondent, claiming that paragraph 7.4 of the Contract on arbitration is not the
provision applicable to this case; and that since the parties failed to settle their dispute, then respondent
may resort to court action pursuant to paragraph 17.2 of the same Contract which provides:
17.2 Amicable Settlement
The parties hereto agree that in the event there is any dispute or difference between them arising out of
this Agreement or in the interpretation of any of the provisions hereto, they shall endeavor to meet
together in an effort to resolve such dispute by discussion between them but failing such resolution the
Chief Executives of LINBERG and FIESTA WORLD shall meet to resolve such dispute or difference and the
joint decision of such shall be binding upon the parties hereto, and in the event that a settlement of any
such dispute or difference is not reached, then the provisions of Article XXI shall apply.
Article XXI, referred to in paragraph 17.2 above, reads:
ARTICLE XXI
JURISDICTION
The parties hereto submit to the exclusive jurisdiction of the proper courts of Pasig City, Republic of the
Philippines for the hearing and determination of any action or proceeding arising out of or in connection
with this Agreement.
In its Order dated October 3, 2000, the trial court denied petitioner’s motion for lack of merit.
Petitioner then filed a Motion for Reconsideration but it was denied in an Order dated January 11, 2001.
Dissatisfied, petitioner elevated the matter to the Court of Appeals via a Petition for Certiorari, docketed
as CA-G.R. SP No. 63671. On December 12, 2001, the appellate court rendered its Decision dismissing the
petition and affirming the challenged Orders of the trial court.
Petitioner’s Motion for Reconsideration of the above Decision was likewise denied by the appellate court
in its Resolution6 dated February 28, 2002.
Hence, the instant Petition for Review on Certiorari.
The sole issue for our resolution is whether the filing with the trial court of respondent’s complaint is
premature.
Paragraph 7.4 of the Contract, quoted earlier, mandates that should petitioner dispute any amount of
energy fees in the invoice and billings made by respondent, the same "shall be resolved by arbitration of
three (3) persons, one (1) by mutual choice, while the other two (2) to be each chosen by the parties
themselves." The parties, in incorporating such agreement in their Contract, expressly intended that the
said matter in dispute must first be resolved by an arbitration panel before it reaches the court. They
made such arbitration mandatory.
It is clear from the records that petitioner disputed the amount of energy fees demanded by respondent.
However, respondent, without prior recourse to arbitration as required in the Contract, filed directly
with the trial court its complaint, thus violating the arbitration clause in the Contract.
It bears stressing that such arbitration agreement is the law between the parties. Since that agreement is
binding between them, they are expected to abide by it in good faith. 7 And because it covers the dispute
between them in the present case, either of them may compel the other to arbitrate. 8 Thus, it is well
within petitioner’s right to demand recourse to arbitration.
We cannot agree with respondent that it can directly seek judicial recourse by filing an action against
petitioner simply because both failed to settle their differences amicably. Suffice it to state that there is
nothing in the Contract providing that the parties may dispense with the arbitration clause. Article XXI on
jurisdiction cited by respondent, i.e., that "the parties hereto submit to the exclusive jurisdiction of the
proper courts of Pasig City" merely provides for the venue of any action arising out of or in connection
with the stipulations of the parties in the Contract.
Moreover, we note that the computation of the energy fees disputed by petitioner also involves
technical matters that are better left to an arbitration panel who has expertise in those areas. Alternative
dispute resolution methods or ADRs – like arbitration, mediation, negotiation and conciliation – are
encouraged by this Court. By enabling the parties to resolve their disputes amicably, they provide
solutions that are less time-consuming, less tedious, less confrontational, and more productive of
goodwill and lasting relationships.9 To brush aside such agreement providing for arbitration in case of
disputes between the parties would be a step backward. As we held in BF Corporation v. Court of
Appeals,10
It should be noted that in this jurisdiction, arbitration has been held valid and constitutional. Even before
the approval on June 19, 1953 of Republic Act No. 876 (The Arbitration Law), this Court has
countenanced the settlement of disputes through arbitration (Puromines, Inc. v. Court of Appeals, G.R.
No. 91228, March 22, 1993, 220 SCRA 281-290). Republic Act No. 876 was adopted to supplement the
New Civil Code’s provisions on arbitration (Chung Fu Industries Phils., Inc. v. Court of Appeals, G.R. No.
92683, February 25, 1992, 206 SCRA 545, 551). Its potentials as one of the alternative dispute resolution
methods that are now rightfully vaunted as ‘the wave of the future’ in international relations, is
recognized worldwide. To brush aside a contractual agreement calling for arbitration in case of
disagreement between the parties would therefore be a step backward.
In this connection, since respondent has already filed a complaint with the trial court without prior
recourse to arbitration, the proper procedure to enable an arbitration panel to resolve the parties’
dispute pursuant to their Contract is for the trial court to stay the proceedings.11 After the arbitration
proceeding has been pursued and completed, then the trial court may confirm the award made by the
arbitration panel.12

In sum, we hold that the Court of Appeals erred in disregarding the arbitration clause in the parties’
Contract.

WHEREFORE, we GRANT the instant petition. The assailed Decision and Resolution of the Court of
Appeals in CA-G.R. SP No. 63671 are REVERSED. The parties are ordered to submit their controversy to
the arbitration panel pursuant to paragraph 7.4 of the Contract. The Regional Trial Court, Branch 267,
Pasig City is directed to suspend the proceedings in Civil Case No. 67755 until after the Arbitration Panel
shall have resolved the controversy and submitted its report to the trial court. Costs against respondent.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 87958 April 26, 1990
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, PA/AMERICAN INTERNATIONAL
UNDERWRITER (PHIL.) INC., petitioners,
vs.
STOLT-NIELSEN PHILIPPINES, INC. and COURT OF APPEALS, respondents.
Fajardo Law Offices for petitioners.
Sycip, Salazar, Hernandez & Gatmaitan for Stolt-Nielsen Phil., Inc.
MELENCIO-HERRERA, J.:
We uphold the ruling of respondent Court of Appeals that the claim or dispute herein is arbitrable.
On 9 January 1985, United Coconut Chemicals, Inc. (hereinafter referred to as SHIPPER) shipped 404.774
metric tons of distilled C6-C18 fatty acid on board MT "Stolt Sceptre," a tanker owned by Stolt-Nielsen
Philippines Inc. (hereinafter referred to as CARRIER), from Bauan, Batangas, Philippines, consigned to
"Nieuwe Matex" at Rotterdam, Netherlands, covered by Tanker Bill of Lading BL No. BAT-1. The shipment
was insured under a marine cargo policy with Petitioner National Union Fire Insurance Company of
Pittsburg (hereinafter referred to as INSURER), a non-life American insurance corporation, through its
settling agent in the Philippines, the American International Underwriters (Philippines), Inc., the other
petitioner herein.
It appears that the Bill of Lading issued by the CARRIER contained a general statement of incorporation
of the terms of a Charter Party between the SHIPPER and Parcel Tankers, Inc., entered into in Greenwich,
Connecticut, U.S.A.
Upon receipt of the cargo by the CONSIGNEE in the Netherlands, it was found to be discolored and
totally contaminated. The claim filed by the SHIPPER-ASSURED with the CARRIER having been denied, the
INSURER indemnified the SHIPPER pursuant to the stipulation in the marine cargo policy covering said
shipment.
On 21 April 1986, as subrogee of the SHIPPER-ASSURED, the INSURER filed suit against the CARRIER,
before the Regional Trial Court of Makati, Branch 58 (RTC), for recovery of the sum of P1,619,469.21,
with interest, representing the amount the INSURER had paid the SHIPPER-ASSURED. The CARRIER
moved to dismiss/suspend the proceedings on the ground that the RTC had no jurisdiction over the claim
the same being an arbitrable one; that as subrogee of the SHIPPER-ASSURED, the INSURER is subject to
the provisions of the Bill of Lading, which includes a provision that the shipment is carried under and
pursuant to the terms of the Charter Party, dated 21 December 1984, between the SHIPPER-ASSURED
and Parcel Tankers, Inc. providing for arbitration.
The INSURER opposed the dismissal/suspension of the proceedings on the ground that it was not legally
bound to submit the claim for arbitration inasmuch as the arbitration clause provided in the Charter
Party was not incorporated into the Bill of Lading, and that the arbitration clause is void for being
unreasonable and unjust. On 28 July 1987, the RTC 1 denied the Motion, but subsequently reconsidered
its action on 19 November 1987, and deferred resolution on the Motion to Dismiss/Suspend Proceedings
until trial on the merits "since the ground alleged in said motion does not appear to be indubitable."
The CARRIER then resorted to a Petition for Certiorari and Prohibition with prayer for Preliminary
Injunction and/or Temporary Restraining Order before the respondent Appellate Court seeking the
annulment of the 19 November 1987 RTC Order. On 12 April 1989, the respondent Court 2 promulgated
the Decision now under review, with the following dispositive tenor:
WHEREFORE', the order of respondent Judge dated November 19, 1987 deferring
resolution on petitioner Stolt-Nielsen's Motion to Dismiss/Suspend Proceedings is
hereby SET ASIDE; private respondent NUFIC (the INSURER) is ordered to refer its
claims for arbitration; and respondent Judge is directed to suspend the
proceedings in Civil case No. 13498 pending the return of the corresponding
arbitral award.
On 21 August 1989, we resolved to give due course and required the parties to submit their respective
Memoranda, which they have done, the last filed having been Noted on 23 October 1989.
First, herein petitioner-INSURER alleges that the RTC Order deferring resolution of the CARRIER's Motion
to Dismiss constitutes an interlocutory order, which can not be the subject of a special civil action on
certiorari and prohibition.
Generally, this would be true. However, the case before us falls under the exception. While a Court
Order deferring action on a motion to dismiss until the trial is interlocutory and cannot be challenged
until final judgment, still, where it clearly appears that the trial Judge or Court is proceeding in excess or
outside of its jurisdiction, the remedy of prohibition would lie since it would be useless and a waste of
time to go ahead with the proceedings (University of Sto. Tomas vs. Villanueva, 106 Phil. 439, [1959]
citing Philippine International Fair, Inc., et al., vs. Ibanez, et al., 94 Phil. 424 [1954]; Enrique vs.
Macadaeg, et al., 84 Phil. 674 [1949]; San Beda College vs. CIR, 97 Phil. 787 [1955]). Even a cursory
reading of the subject Bill of Lading, in relation to the Charter Party, reveals the Court's patent lack of
jurisdiction to hear and decide the claim.
We proceed to the second but more crucial issue: Are the terms of the Charter Party, particularly the
provision on arbitration, binding on the INSURER?
The INSURER postulates that it cannot be bound by the Charter Party because, as insurer, it is subrogee
only with respect to the Bill of Lading; that only the Bill of Lading should regulate the relation among the
INSURER, the holder of the Bill of Lading, and the CARRIER; and that in order to bind it, the arbitral clause
in the Charter Party should have been incorporated into the Bill of Lading.
We rule against that submission.
The pertinent portion of the Bill of Lading in issue provides in part:
This shipment is carried under and pursuant to the terms of the Charter dated
December 21st 1984 at Greenwich, Connecticut, U.S.A. between Parcel Tankers.
Inc. and United Coconut Chemicals, Ind. as Charterer and all the terms whatsoever
 of the said Charter except the rate and payment of freight specified therein apply Stated otherwise, as the subrogee of the SHIPPER, the INSURER is contractually bound by the terms of
to and govern the rights of the parties concerned in this shipment. Copy of the the Charter party. Any claim of inconvenience or additional expense on its part should not render the
Charter may be obtained from the Shipper or Charterer. (Emphasis supplied) arbitration clause unenforceable.

While the provision on arbitration in the Charter Party reads: Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our
jurisdiction (Chapter 2, Title XIV, Book IV, Civil Code). Republic Act No. 876 (The Arbitration Law) also
expressly authorizes arbitration of domestic disputes. Foreign arbitration as a system of settling
H. Special Provisions.
commercial disputes of an international character was likewise recognized when the Philippines adhered
to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards
xxx xxx xxx of 1958," under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal
recognition and allowing enforcement of international arbitration agreements between parties of
4. Arbitration. Any dispute arising from the making, performance or termination of different nationalities within a contracting state. Thus, it pertinently provides:
this Charter Party shall be settled in New York, Owner and Charterer each
appointing an arbitrator, who shall be a merchant, broker or individual 1. Each Contracting State shall recognize an agreement in writing under which the
experienced in the shipping business; the two thus chosen, if they cannot agree, parties undertake to submit to arbitration all or any differences which have arisen
shall nominate a third arbitrator who shall be an admiralty lawyer. Such arbitration or which may arise between them in respect of a defined legal relationship,
shall be conducted in conformity with the provisions and procedure of the United whether contractual or not, concerning a subject matter capable of settlement by
States arbitration act, and a judgment of the court shall be entered upon any arbitration.
award made by said arbitrator. Nothing in this clause shall be deemed to waive
Owner's right to lien on the cargo for freight, deed of freight, or demurrage.
2. The term "agreement in writing" shall include an arbitral clause in a contract or
an arbitration agreement, signed by the parties or contained in an exchange of
Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party. It is settled law that letters or telegrams.
the charter may be made part of the contract under which the goods are carried by an appropriate
reference in the Bill of Lading (Wharton Poor, Charter Parties and Ocean Bills of Lading (5th ed., p. 71).
3. The court of a Contracting State, when seized of an action in a matter in respect
This should include the provision on arbitration even without a specific stipulation to that effect. The
of which the parties have made an agreement within the meaning of this article,
entire contract must be read together and its clauses interpreted in relation to one another and not by
shall, at the request of one of the parties, refer the parties to arbitration, unless it
parts. Moreover, in cases where a Bill of Lading has been issued by a carrier covering goods shipped
finds that the said agreement is null and void, inoperative or incapable of being
aboard a vessel under a charter party, and the charterer is also the holder of the bill of lading, "the bill of
performed.
lading operates as the receipt for the goods, and as document of title passing the property of the goods,
but not as varying the contract between the charterer and the shipowner" (In re Marine Sulphur Queen,
460 F 2d 89, 103 [2d Cir. 1972]; Ministry of Commerce vs. Marine Tankers Corp. 194 F. Supp 161, 163 It has not been shown that the arbitral clause in question is null and void, inoperative, or incapable of
[S.D.N.Y. 1960]; Greenstone Shipping Co., S.A. vs. Transworld Oil, Ltd., 588 F Supp [D.El. 1984]). The Bill being performed. Nor has any conflict been pointed out between the Charter Party and the Bill of Lading.
of Lading becomes, therefore, only a receipt and not the contract of carriage in a charter of the entire
vessel, for the contract is the Charter Party (Shell Oil Co. vs. M/T Gilda, 790 F 2d 1209, 1212 [5th Cir.
In fine, referral to arbitration in New York pursuant to the arbitration clause, and suspension of the
1986]; Home Insurance Co. vs. American Steamship Agencies, Inc., G.R. No. L-25599, 4 April 1968, 23
proceedings in Civil Case No. 13498 below, pending the return of the arbitral award, is, indeed called for.
SCRA 24), and is the law between the parties who are bound by its terms and condition provided that
these are not contrary to law, morals, good customs, public order and public policy (Article 1306, Civil
Code). WHEREFORE, finding no reversible error in respondent Appellate Court's 12 April 1989 Decision, the
instant Petition for Review on certiorari is DENIED and the said judgment is hereby AFFIRMED. Costs
against petitioners.
As the respondent Appellate Court found, the INSURER "cannot feign ignorance of the arbitration clause
since it was already charged with notice of the existence of the charter party due to an appropriate
reference thereof in the bill of lading and, by the exercise of ordinary diligence, it could have easily SO ORDERED.
obtained a copy thereof either from the shipper or the charterer.

We hold, therefore, that the INSURER cannot avoid the binding effect of the arbitration clause. By
subrogation, it became privy to the Charter Party as fully as the SHIPPER before the latter was
indemnified, because as subrogee it stepped into the shoes of the SHIPPER-ASSURED and is subrogated
merely to the latter's rights. It can recover only the amount that is recoverable by the assured. And since
the right of action of the SHIPPER-ASSURED is governed by the provisions of the Bill of Lading, which
includes by reference the terms of the Charter Party, necessarily, a suit by the INSURER is subject to the
same agreements (see St. Paul Fire and Marine Insurance Co. vs. Macondray, G.R. No. L-27796, 25 March
1976, 70 SCRA 122).
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 91228 March 22, 1993
PUROMINES, INC., petitioner,
vs.
COURT OF APPEALS and PHILIPP BROTHERS OCEANIC, INC., respondents.
Fajardo Law Offices for petitioner.
Del Rosario & Del Rosario for private respondent.
NOCON, J.:
This is a special civil action for certiorari and prohibition to annul and set aside the Decision of the
respondent Court of Appeals dated November 16, 1989 1 reversing the order of the trial court and
dismissing petitioner's complaint in Civil Case No. 89-47403, entitled Puromines, Inc. v. Maritime Factors,
Inc. and Philipp Brothers Oceanic, Inc.
Culled from the records of this case, the facts show that petitioner, Puromines, Inc. (Puromines for
brevity) and Makati Agro Trading, Inc. (not a party in this case) entered into a contract with private
respondent Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in bulk. The Sales Contract No.
S151.8.01018 provided, among others an arbitration clause which states, thus:
9. Arbitration
Any disputes arising under this contract shall be settled by arbitration in London in
accordance with the Arbitration Act 1950 and any statutory amendment or
modification thereof. Each party is to appoint an Arbitrator, and should they be
unable to agree, the decision of an Umpire appointed by them to be final. The
Arbitrators and Umpire are all to be commercial men and resident in London. This
submission may be made a rule of the High Court of Justice in England by either
party. 2
On or about May 22, 1988, the vessel M/V "Liliana Dimitrova" loaded on board at Yuzhny, USSR a
shipment of 15,500 metric tons prilled Urea in bulk complete and in good order and condition for
transport to Iloilo and Manila, to be delivered to petitioner. Three bills of lading were issued by the ship-
agent in the Philippines, Maritime Factors Inc., namely: Bill of Lading No. 1 dated May 12, 1988 covering
10,000 metric tons for discharge in Manila; Bill of Lading No. 2 of even date covering 4,000 metric tons
for unloading in Iloilo City; and Bill of Lading No. 3, also dated May 12, 1988, covering 1,500 metric tons
likewise for discharge in Manila.
The shipment covered by Bill of Lading No. 2 was discharged in Iloilo City complete and in good order
and condition. However, the shipments covered by Bill of Lading Nos. 1 and 3 were discharged in Manila
in bad order and condition, caked, hardened and lumpy, discolored and contaminated with rust and dirt.
Damages were valued at P683,056.29 including additional discharging expenses.
Consequently, petitioner filed a complaint 3 with the trial court 4 for breach of contract of carriage against
Maritime Factors, Inc. (which was not included as respondent in this petition) as ship-agent in the
Philippines for the owners of the vessel MV "Liliana Dimitrova," while private respondent, Philipp
Brothers Oceanic, Inc., was impleaded as charterer of the said vessel and proper party to accord
petitioner complete relief. Maritime Factors, Inc. filed its Answer 5 to the complaint, while private
respondent filed a motion to dismiss, dated February 9, 1989, on the grounds that the complaint states
no cause of action; that it was prematurely filed; and that petitioner should comply with the arbitration
clause in the sales contract. 6
The motion to dismiss was opposed by petitioner contending the inapplicability of the arbitration clause
inasmuch as the cause of action did not arise from a violation of the terms of the sales contract but
rather for claims of cargo damages where there is no arbitration agreement. On April 26, 1989, the trial
court denied respondent's motion to dismiss in this wise:
The sales contract in question states in part:
Any disputes arising under this contract shall be settled by
arbitration . . . (emphasis supplied)
A perusal of the facts alleged in the complaint upon which the question of
sufficiency of the cause of action is to be determined shows quite clearly that the
cause of action of the complaint arose from a breach of contract of carriage by the
vessel chartered by the defendant Philipp Brothers Oceanic, Inc. Thus, the
aforementioned arbitration clause cannot apply to the dispute in the present
action which concerns plaintiff's claim for cargo loss/damage arising from breach
of contract of carriage.
That the defendant is not the ship owner or common carrier and therefore plaintiff
does not have a legal right against it since every action must be brought against
the real party in interest has no merit either for by the allegations in the complaint
the defendant herein has been impleaded as charterer of the vessel, hence, a
proper party. 7
Elevating the matter to the Court of Appeals, petitioner's complaint was dismissed. The appellate court
found that the arbitration provision in the sales contract and/or the bills of lading is applicable in the
present case. Said the court:
An examination of the sales contract No. S151.8.01018 shows that it is broad
enough to include the claim for damages arising from the carriage and delivery of
the goods subject-matter thereof.
It is also noted that the bills of lading attached as Annexes "A", "B" and "C" to the
complaint state, in part, "any dispute arising under this Bill of Lading shall be
referred to arbitration of the Maritime Arbitration Commission at the USSR
Chamber of Commerce and Industry, 6 Kuibyshevskaia Str., Moscow, USSR, in
accordance with the rules of procedure of said commission."
 Considering that the private respondent was one of the signatories to the sales The disputed sales contract provides for conditions relative to the delivery of goods, such as date of
contract . . . all parties are obliged to respect the terms and conditions of the said shipment, demurrage, weight as determined by the bill of lading at load port and more particularly the
sales contract, including the provision thereof on "arbitration." following provisions:

Hence, this petition. 3. Intention is to ship in one bottom, approximately 5,000 metric tons to
Puromines and approximately 15,000 metric tons to Makati Agro. However, Sellers
to have right to ship material as partial shipment or co-shipment in addition to
The issue raised is: Whether the phrase "any dispute arising under this contract" in the arbitration clause
above. In the event of co-shipment to a third party within Philippines same to be
of the sales contract covers a cargo claim against the vessel (owners and/or charterers) for breach of
discussed with and acceptable to both Puromines and Makati Agro.
contract of carriage.

4. Sellers to appoint neutral survey for Seller's account to conduct initial draft
Petitioner states in its complaint that Philipp Brothers "was the charterer of the vessel MV "Liliana
survey at first discharge port and final survey at last discharge port. Surveyors
Dimitrova" which transported the shipment from Yuzhny USSR to Manila." Petitioner further alleged that
results to be binding and final. In the event draft survey results show a quantity
the caking and hardening, wetting and melting, and contamination by rust and dirt of the damaged
less than the combined Bills of Lading quantity for both Puromines and Makati
portions of the shipment were due to the improper ventilation and inadequate storage facilities of the
Agro, Sellers to refund the difference. In the event that draft survey results show a
vessel; that the wetting of the cargo was attributable to the failure of the crew to close the hatches
quantity in excess of combined Bills of Lading quantity of both Puromines and
before and when it rained while the shipment was being unloaded in the Port of Manila; and that as a
Makati Agro then Buyers to refund the difference.
direct and natural consequence of the unseaworthiness and negligence of the vessel (sic), petitioner
suffered damages in the total amount of P683,056.29 Philippine currency." 8 (emphasis supplied).
5. It is expressly and mutually agreed that neither Sellers nor vessel's Owners have
any liability to separate cargo or to deliver cargo separately or to deliver
Moreover, in its Opposition to the Motion to Dismiss, petitioner said that "[t]he cause of action of the
minimum/maximum quantities stated on individual Bills of Lading. At each port
complaint arose from breach of contract of carriage by the vessel that was chartered by defendant
vessel is to discharge in accordance with Buyers local requirements and it is
Philipp Brothers." 9
Buyer's responsibility to separate individual quantities required by each of them at
each port during or after discharge.
In the present petition, petitioner argues that the sales contract does not include the contract of carriage
which is a different contract entered into by the carrier with the cargo owners. That it was an error for
As argued by respondent on its motion to dismiss, "the (petitioner) derives his right to the cargo from
the respondent court to touch upon the arbitration provision of the bills of lading in its decision
the bill of lading which is the contract of affreightment together with the sales contract. Consequently,
inasmuch as the same was not raised as an issue by private respondent who was not a party in the bills
the (petitioner) is bound by the provisions and terms of said bill of lading and of the arbitration clause
of lading (emphasis Ours). Petitioner contradicts itself.
incorporated in the sales contract."

We agree with the court a quo that the sales contract is comprehensive enough to include claims for
Assuming arguendo that the liability of respondent is not based on the sales contract, but rather on the
damages arising from carriage and delivery of the goods. As a general rule, the seller has the obligation
contract of carriage, being the charterer of the vessel MV "Liliana Dimitrova," it would, therefore, be
to transmit the goods to the buyer, and concomitant thereto, the contracting of a carrier to deliver the
material to show what kind of charter party the respondent had with the shipowner to determine
same. Art. 1523 of the Civil Code provides:
respondent's liability.

Art. 1523. Where in pursuance of a contract of sale, the seller is authorized or

American jurisprudence defines charter party as a contract by which an entire ship or some principal part
required to send the goods to the buyer, delivery of the goods to a carrier,
thereof is let by the owner to another person for a specified time or use. 10 Charter or charter parties are
whether named by the buyer or not, for the purpose of transmission to the buyer
of two kinds. Charter of demise or bareboat and contracts of affreightment.
is deemed to be a delivery of the goods to the buyer, except in the cases provided
for in article 1503, first, second and third paragraphs, or unless a contrary intent
appears. Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner
for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. 11 To
Unless otherwise authorized by the buyer, the seller must make such contract with
create a demise the owner of a vessel must completely and exclusively relinquish possession, command
the carrier on behalf of the buyer as may be reasonable, having regard to the
and navigation thereof to the charterer; anything short of such a complete transfer is a contract of
nature of the goods and the other circumstances of the case. If the seller omit so
affreightment (time or voyage charter party) or not a charter party at all.
to do, and the goods are lost or damaged in course of transit, the buyer may
decline to treat the delivery to the carrier as a delivery to himself, or may hold the
seller responsible in damages. On the other hand, a contract of affreightment is one in which the owner of the vessel leases part or all
of its space to haul goods for others. It is a contract for a special service to be rendered by the owner of
the vessel 12 and under such contract the general owner retains the possession, command and navigation
xxx xxx xxx
of the ship, the charterer or freighter merely having use of the space in the vessel in return for his
payment of the charter hire. 13 If the charter is a contract of affreightment, which leaves the general
owner in possession of the ship as owner for the voyage, the rights, responsibilities of ownership rest on In the case of Bengson v. Chan, 20 We upheld the provision of a contract which required the parties to
the owner and the charterer is usually free from liability to third persons in respect of the ship. 14 submit their disputes to arbitration and We held as follows:

Responsibility to third persons for goods shipped on board a vessel follows the vessel's possession and
employment; and if possession is transferred to the charterer by virtue of a demise, the charterer, and
not the owner, is liable as carrier on the contract of affreightment made by himself or by the master with
third persons, and is answerable for loss, damage or nondelivery of goods received for transportation. An
owner who retains possession of the ship, though the hold is the property of the charterer, remains
liable as carrier and must answer for any breach of duty as to the care, loading or unloading of the
cargo. 15
Assuming that in the present case, the charter party is a demise or bareboat charter, then Philipp
Brothers is liable to Puromines, Inc., subject to the terms and conditions of the sales contract. On the
other hand, if the contract between respondent and the owner of the vessel MV "Liliana Dimitrova" was
merely that of affreightment, then it cannot be held liable for the damages caused by the breach of
contract of carriage, the evidence of which is the bills of lading.
In any case, whether the liability of respondent should be based on the sales contract or that of the bill
of lading, the parties are nevertheless obligated to respect the arbitration provisions on the sales
contract and/or the bill of lading. Petitioner being a signatory and party to the sales contract cannot
escape from his obligation under the arbitration clause as stated therein.
Neither can petitioner contend that the arbitration provision in the bills of lading should not have been
discussed as an issue in the decision of the Court of Appeals since it was not raised as a special or
affirmative defense. The three bills of lading were attached to the complaint as Annexes "A," "B," and
"C," and are therefore parts thereof and may be considered as evidence although not introduced as
such. 16 Hence, it was then proper for the court a quo to discuss the contents of the bills of lading, having
been made part of the record.
The trial court sensibly said that "all the causes of action alleged in the plaintiff's
amended complaint are based upon the supposed violations committed by the
defendants of the "Contract of Construction of a Building" and that "the provisions
of paragraph 15 hereof leave a very little room for doubt that the said causes of
action are embraced within the phrase "any and all questions, disputes or
differences between the parties hereto relative to the construction of the
building," which must be determined by arbitration of two persons and such
determination by the arbitrators shall be "final, conclusive and binding upon both
parties" unless they go to court, in which the case the determination by arbitration
is a condition precedent "for taking any court action."
xxx xxx xxx
We hold that the terms of paragraph 15 clearly express the intention of the parties
that all disputes between them should first be arbitrated before court action can
be taken by the aggrieved party. 21
Premises considered, We uphold the validity and applicability of the arbitration clause as stated in Sales
Contract No. S151.8.01018 to the present dispute.
WHEREFORE, petition is hereby DISMISSED and the decision of the court a quo is AFFIRMED.
SO ORDERED.

Going back to the main subject of this case, arbitration has been held valid and constitutional. Even
before the enactment of Republic Act No. 876, this Court has countenanced the settlement of disputes
through arbitration. The rule now is that unless the agreement is such as absolutely to close the doors of
the courts against the parties, which agreement would be void, the courts will look with favor upon such
amicable arrangements and will only interfere with great reluctance to anticipate or nullify the action of
the arbitrator. 17

As pointed out in the case of Mindanao Portland Cement Corp. v. McDonough Construction Company of
Florida 18 wherein the plaintiff sued defendant for damages arising from a contract, the Court said:

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 their 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. 19
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 168384 August 18, 2006
CHARLES BERNARD H. REYES doing business under the name and style CBH REYES ARCHITECTS,
Petitioner,
vs.
ANTONIO YULO BALDE II, PAULINO M. NOTO and ERNESTO J. BATTAD, SR., in their capacities as
Arbitrators of the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, SPOUSES CESAR and
CARMELITA ESQUIG and ROSEMARIE PAPAS, Respondents.
 
RESOLUTION
YNARES-SANTIAGO, J.:
Before the Court is a "Motion to Inhibit the Honorable Chief Justice and Motion to Refer Case to the
Court En Banc," dated August 4, 2006, filed by Atty. Francisco I. Chavez.
I.
According to the movant, the Motion to Inhibit the Chief Justice "is not an accusation of wrongdoing on
the part of the Honorable Chief Justice. Rather it is impelled by Atty. Chavez’s perception that in this
case, the Honorable Chief Justice has not acted in an objective, impartial and neutral manner in disposing
of incidental issues and motions presented by the parties."
The movant adds that "the dizzying pace by which private respondents’ motions have been received and
favorably acted upon in record time supports Atty. Chavez’s perception that private respondents’
motions – without as much as requiring petitioner to respond thereto – have been granted special
attention and favor by the Honorable Chief Justice." (bold types in original)
Atty. Chavez’s perception about the alleged "closeness and the good relationship between Atty. Ordoñez
and the Chief Justice" to impair the latter’s objectivity and impartiality has no basis, for the following
reasons:
(1) The actions taken on the various motions and incidents enumerated by the movant were made by the
entire membership of the First Division. Not being the ponente, the Chief Justice did not initiate or
propose any of the actions and rulings made by the Court. Like the three other Division members, he
merely concurred with the actions/rulings proposed by the ponente. While some orders and actions,
especially temporary restraining orders, are issued in the name of the Division chairman (who in this case
is the Chief Justice), they are really collective actions of the entire Division, not merely those of the Chair.
This is the normal procedure in all Divisions, not just in the First.
(2) The alleged "unpleasant interaction these past 19 years between Atty. Chavez and Atty. Sedfrey
Ordoñez with whom Chief Justice worked either as associate or partner sometime ago" has nothing to do
at all with the concurrences made by the Chief Justice on this case. These concurrences were given on
the basis only of legal merit, and on nothing else.
(3) True, the Chief Justice was an associate (not a partner) in 1961 to 1963 in the Salonga, Ordoñez and
Associates, which incidentally had been dissolved in 1987. True also, he has had a close personal and
professional relationship with the principal partner in that law firm, Sen. Jovito R. Salonga. That is the
reason the Chief Justice has inhibited himself from cases in which Sen. Salonga was/is a party or a
counsel. 1
However, he had no similar closeness with Atty. Ordoñez. That is why he has not inhibited himself from
cases involving Atty. Ordoñez. In fact, he has not hesitated, on several occasions, to vote against
parties/causes represented by the former Secretary of Justice.
(4) In fairness to all concerned, Atty. Ordoñez has never spoken, directly or indirectly, with the Chief
Justice on any matter pending in the Supreme Court and in any other court. He has never attempted,
directly or indirectly, personally or through others, to influence the Chief Justice in any manner
whatsoever. In fact, the Chief Justice understands that Atty. Ordoñez has been seriously ill, going in and
out of the hospital, over the past several months. And yet the Chief Justice has not even visited or
spoken with him during such period.
(5) On the other hand, the Chief Justice, when so warranted by the facts and law, has voted in favor of
causes and parties represented by Atty. Chavez. One outstanding example is Chavez v. PCGG (360 Phil.
133, December 9, 1998; 366 Phil. 863, May 19, 1999), which was written by then Associate Justice
Artemio V. Panganiban. Atty. Chavez knows that he has won the vote of the Chief Justice without his
having to speak with or influence him in any manner.
(6) Movant’s perception "that Atty. Ordoñez’s concern for and interest in upholding the CIAC jurisdiction
must have somehow been relayed to the Honorable Chief Justice" is completely baseless. As already
stated, there had been no conversation or communication, directly or indirectly, personally or through
others, between the Chief Justice and Atty. Ordoñez (or anyone representing him) about any matter
related to any case in this, or any other, court. Neither is the Chief Justice aware of any alleged personal
interest of Atty. Ordoñez to uphold the CIAC.
(7) In a few months, the incumbent Chief Justice is scheduled to retire from the judiciary. It is totally
inconceivable that he will smear his eleven year record of integrity, independence and ethical conduct in
the Supreme Court with any action that is less than "objective, impartial and neutral." On the other
hand, he assures movant (and all concerned) that he will continue with his vow "to lead a judiciary
characterized by four Ins: independence, integrity, industry and intelligence."
II.
Following his misperception of "closeness and bonding between Atty. Ordoñez and the Chief Justice," the
movant assailed certain "proceedings in this Honorable Court’s First Division." However, these
proceedings can easily be explained, thus:
(1) Respondents’ Motion to Include Hon. Pedro Sabundayo, Jr., Presiding Judge, Regional Trial Court of
Muntinlupa City, Branch 203, as public respondent was denied because Section 4, Rule 45 of the Rules of
Court provides that in a petition for review on certiorari to the Supreme Court, there is no need to
implead the lower courts or judges thereof either as petitioners or respondents. There is no irregularity
when the Resolution denying respondents’ motion was issued when the Chief Justice was on official Case No. 03-110, then, whatever judgment that would be rendered in the instant case would be
leave. The remaining Members of the Division can proceed with official business despite the absence of rendered nugatory. In view of the above circumstances, respondents clearly established that they are
the Chief Justice as long as the required majority is present. This is in accordance with Section 4(3), entitled to the issuance of a TRO.
Article VIII of the Constitution which provides that "cases or matters heard by a division shall be decided
or resolved with the concurrence of a majority of the Members who actually took part in the
Thus on July 12, 2006, the Court issued a Resolution that reads:
deliberations on the issues in the case and voted thereon, and in no case, without the concurrence of at
least three of such Members."
Acting on the prayer for issuance of a temporary restraining order/injunction, the Court further resolves
to issue a TEMPORARY RESTRAINING ORDER enjoining the Presiding Judge, Regional Trial Court, Branch
(2) The issuance of a TRO enjoining the Presiding Judge of Muntinlupa City, Branch 203 from continuing
203, Muntinlupa City, from continuing with any of the proceedings in Civil Case No. 03-110 entitled
with any of the proceedings in Civil Case No. 03-110 and from enforcing the Order of the trial court dated
"Charles Bernard H. Reyes, doing business under the name and style of ‘CBH Reyes Architects’ vs.
June 29, 2006 ordering the sheriff to implement the writ of execution dated May 17, 2006, is in order.
Spouses Mely and Cesar Esquig, et al." [subject matter of the assailed Court of Appeals decision and
Respondents satisfactorily established that they are entitled to the injunction.
resolution dated February 18, 2005 and May 20, 2005, respectively, in CA-G.R. SP No. 83816 entitled
"Charles Bernard H. Reyes, doing business under the name and style CBH REYES ARCHITECTS vs. Antonio
It appears from the records that petitioner filed a complaint against respondents with the Regional Trial Yulo Balde II, et al"] and from enforcing the Order dated June 29, 2006 ordering the designated sheriff to
Court of Muntinlupa City which was docketed as Civil Case No. 03-110 praying that an accounting be implement the writ of execution dated May 17, 2006 to enforce the decision dated July 29, 2005 in Civil
rendered to determine the cost of the materials purchased by respondent Papas; that respondents be Case No. 03-110, upon the private respondents’ filing of a bond in the amount of Three Hundred
ordered to pay the cost of the additional works done on the property; that the Design-Build Construction Thousand Pesos (P300,000.00) within a period of five (5) days from notice hereof x x x.
Agreement be ordered rescinded because respondents breach the same; and that respondents be
ordered to pay moral and exemplary damages. Based on the same Design-Build Construction Agreement,
(3) Thereafter, respondents filed an Urgent Motion for Clarification of the above resolution. Accordingly,
respondents filed with the Construction Industry Arbitration Commission (CIAC) a complaint praying that
on July 19, 2006, we issued a resolution which is a clarification of the TRO issued on July 12, 2006. Both
petitioner be ordered to finish the project or, in the alternative, to pay the cost to finish the same; to
the July 12, 2006 and July 19, 2006 Resolutions are covered by the same bond in the amount of
reimburse the overpayments made by respondents; and to pay liquidated damages, attorney’s fees and
P300,000.00.
costs of the suit.

On June 8, 2005, 2 the CIAC rendered a decision on the merits of the case awarding in favor of
respondents the sum of P4,419,094.98. The case is presently on appeal with the Court of Appeals 3
docketed as CA-G.R. SP No. 90136. 4
Meanwhile, on July 29, 2005, the trial court rendered judgment in Civil Case No. 03-110 in favor of
petitioner ordering the respondents to pay P840,300.00 representing the cost of the additional works;
P296,658.95 representing the balance of the contract price; P500,000.00 by way of moral damages;
P500,000.00 as exemplary damages; P500,000.00 as attorney’s fees and costs of the suit. In an Order
dated May 17, 2006, Judge Sabundayo, Jr. directed Sheriff Melvin T. Bagabaldo to implement the writ of
execution by causing the respondents to "render an accounting of all the construction materials they
bought for the construction of the project x x x; to levy the goods and chattels of the [respondents] x x x
and to make the sale thereof x x x." 5
In their Second Manifestation with Prayer for Issuance of a Temporary Restraining Order/Injunction 6
filed with this Court on July 10, 2006, respondents averred that from July 7, 2006 until 4 o’clock in the
morning of July 8, 2006, Sheriff Bagabaldo went to the residence of respondent Papas and levied several
of her personal properties. 7 Respondents bewailed that despite the pronouncement of the Court of
Appeals that the CIAC, not the Regional Trial Court, which has jurisdiction over the case, and despite the
pendency of the instant case before us, the Regional Trial Court still proceeded with the implementation
of the writ.
(4) A petition review under Rule 45 of the Rules of Court is not a matter of right but of sound judicial
discretion. 8 For purposes of determining whether the petition should be dismissed or denied, or where
the petition is given due course, the Supreme Court may require or allow the filing of such pleadings,
briefs, memoranda or documents as it may deem necessary within such periods and under such
conditions as it may consider appropriate, and impose the corresponding sanctions in case of non-filing
or unauthorized filing of such pleadings and documents or non-compliance with the conditions therefor.
9
This Court exercised its discretion when it did not require petitioner to file comment on respondents’
Manifestation with Urgent Motion to Resolve with Prayer for Injunction, Second Manifestation with
Prayer for Issuance of a Temporary Restraining Order/Injunction, Urgent Motion for Clarification, and
Compliance.
(5) The Court did not exceed its jurisdiction; neither did it encroach on the jurisdiction of the Court of
Appeals or of the lower court when it issued the Resolution dated July 12, 2006. As discussed, there is
compelling reason to issue a TRO as the respondents satisfactorily established they are entitled to the
relief demanded. It may further be said that the issuance of a TRO on July 12, 2006 is not a final
determination of the matter. It was a remedy intended to avoid any irreparable injury that might be
caused to the parties. It may be recalled that the CIAC and the trial court each asserted its jurisdiction
over the controversy to the exclusion of the other.
(6) There is no truth or basis to the allegation that the case has been given "special attention." All actions
on the motions and incidents have been performed regularly.

It is important to mention that in both cases, the parties insist that the other breached their obligation
WHEREFORE, the Motion to Inhibit the Honorable Chief Justice is DENIED. The Motion to Refer Case to
under the Design-Build Construction Agreement. Petitioner however argues that the Regional Trial Court
the Court En Banc is GRANTED.
properly took cognizance of the case while respondents claim that CIAC has the exclusive and original
jurisdiction on the subject matter. Otherwise stated, if we rule in the instant case that CIAC has
jurisdiction over the controversy, then it would necessarily follow that the Regional Trial Court does not SO ORDERED.
have jurisdiction. Since it did not acquire jurisdiction over the controversy, then the writ of execution
that it issued was void. If we allow the RTC Judge and the Sheriff to continue with the proceedings in Civil