Korea Technologies vs.

Don Alberto Lerma

Facts:
Petitioner Korean Technologies is a
Korean Corporation engaged in the
supply and installation of LPG cylinder
manufacturing plants
Pacific General Steel Marketing is a
domestic Corporation
March 5, 1997- Kogies and PGSM
entered into 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 to the Contract amending
the terms of payment.
The contract and its amendment
stipulated that
o KOGIES will ship the machinery
and facilities necessary for
manufacturing LPG Cylinders for
which
PGSM
would
pay
$1,224,000
o Kogies would install and initiate
the operation of the plant for
which PGSM would pay $
306,000
upon
the
plants
production of the 11-kg LPG
cylinder samples
Thereafter, PGSM entered into a
contract of Lease with Worth Properties
for the use of a warehouse building to
house the LPG manufacturing plant.
o Monthly rental- Php 322,5660
plus 10% annual increment
clause
Subsequently,
the
machineries,
equipment, and facilities for the
manufacture of LPG cylinders were
shipped and delivered, and installed in
the Carmona Plant for which PGSM
paid the amount of $1,244,000.
However, gleamed 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 PGSM 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
contract
For the remaining balance, and initial
operation, the PGSM issued 2 postdated
checks.
However,
upon
presentment, the checks bounced by
reason of payment stopped.
Thus, Kogies sent a demand letter
threatening to file criminal action of BP
BLG. 22 in case of non-payment.
Later, PGSM (wife) complained that
o
Not only did Kogies deliver a
different brand of hydraulic
press from that agreed upon.
o Two checks were fully funded but
payment was stopped for reasons
previously
made
known
to
kogies.
o PGSM
was
cancelling
the
Contract on the ground that
Kogies had altered the quantity
and lowered the quality
o Dismantle the MEF
o 5 days later, ESTAFA
KOGIES- PGSM could not unilaterally
rescind the contract nor dismantle the
MEF on mere imagined violations by
Kogies. It insisted that their dispute
should be settled by arbitration as
agreed upon in Article 15, the
arbitration clause in their contract
o Specific performance
o TRO-granted
PGSM- TRO was not proper as the
arbitration clause violates public policy
as it ousts the local courts of
jurisdiction over the instant controversy
RTC- in favor of PGSM on dismantling
the MEF
PGSM-Motion to inspect-granted

Kogies opposed because such fell under

the coverage of the arbitration clause in
their contracts
CA affirmed

Issue: Article 15 of the Contract

SC Ruling:
Article 15- All disputes, controversies,
differences, which may arise between the
parties in relation to the contract, shall be
settled by arbitration in Seoul, Korea in
accordance with the Commercial Rules of
the Korean Commercial Arbitration Board.
The awards shall be final and binding upon
both parties.
Lex-Loci Contractus- law of the place
where the contract is made shall govern. In
this case, the Philippine law shall govern
as the contract was executed here on
March 5, 1997,
Article 2044 NCC provides that any
stipulation that the arbitrators award for
decision shall be final is valid subject to
certain provisions
-not contrary to public policy
Catena of cases where the SC ruled that
an arbitration clause to resolve differences
and breach of mutually agreed contractual
terms is valid
-RA 876- supplement NCC for laws on
arbitration- ADR, courts should liberally
construe arbitration clauses
-RA 9285- UNCITRAL model law. The Phil
bound itself to comply with this model,
ADR Act of 2004
-although in 2004, it is a procedural law,
which is retroactive and thus applies to
this case

Features of RA 9285 applying UNCITRAL

1. RTC must refer to arbitration in
proper cases
a. RTC has no jurisdiction over
cases that under the scope
of arbitration clauses
2. Foreign arbitral awards must be
confirmed by the RTC
a. Recognized by competent
courts
b. When confirmed final and
executory decisions of our
courts of law
3. Jurisdiction to review foreign
arbitral awards
a. Set aside, vacate, reject
b. Do not ousts Phil courts of
jurisdiction
4. Grounds for judicial review
5. RTC decision of assailed foreign
arbitral award appealable to the
Court of Appels
Thus, PGSM must submit to arbitration in
KCAB because it still has remedies to protect
its interests under our laws
-cannot unilaterally rescind the contract
without first proceeding with arbitration; not
by extrajudicial rescission or judicial action
RTC has interim jurisdiction to protect the
rights of parties- Sec. 28 of RA 9285- it is not
incompatible with an arbitration agreement for
a party to request, before constitution of the
tribunal from a court to grant such measure.
In order to prevent irreparable loss or injury
-even the pendency of an arbitral proceeding
does not foreclose resort to the courts for
provisional remedies.
-while PGSM has the right to dismantle it has
the obligation to preserve these MEF until
final resolution of the arbitral proceedings