DEL MONTE CORPORATION-USA, PAUL E.

DERBY,
JR., DANIEL COLLINS and LUIS HIDALGO,
petitioners, vs. COURT OF APPEALS, JUDGE
BIENVENIDO L. REYES in his capacity as
Presiding Judge, RTC-Br. 74, Malabon, Metro
Manila, MONTEBUENO MARKETING, INC., LIONG
LIONG C. SY and SABROSA FOODS, INC.,
respondents.
FACTS:
On 1 July 1994, in a Distributorship Agreement,
petitioner Del Monte Corporation-USA (DMC-USA)
appointed private respondent Montebueno Marketing,
Inc. (MMI) as the sole and exclusive distributor of its
Del Monte products in the Philippines for a period of
five (5) years, renewable for two (2) consecutive five
(5) year periods with the consent of the parties. The
agreement provided, among others, for an arbitration
clause which states

clause of the Agreement provides that all disputes

arising out of or relating to the Agreement or the
parties' relationship, including the termination thereof,
shall be resolved by arbitration, they insist on the
suspension of the proceedings in Civil Case No. 2637MN as mandated by Sec. 7 of RA 876
Sec. 7. Stay of Civil Action. If any suit or proceeding be
brought upon an issue arising out of an agreement
providing for arbitration thereof, the court in which
such suit or proceeding is pending, upon being
satisfied that the issue involved in such suit or
proceeding is referable to arbitration, shall stay the
action or proceeding until an arbitration has been had
in accordance with the terms of the agreement.
Provided, That the applicant for the stay is not in
default in proceeding with such arbitration.
ISSUE: The crux of the controversy boils down to
whether the dispute between the parties warrants an
order compelling them to submit to arbitration.

12. GOVERNING LAW AND ARBITRATION

RULING:
This Agreement shall be governed by the laws of the
State of California and/or, if applicable, the United
States of America. All disputes arising out of or relating
to this Agreement or the parties' relationship, including
the termination thereof, shall be resolved by arbitration
in the City of San Francisco, State of California, under
the Rules of the American Arbitration Association. The
arbitration panel shall consist of three members, one of
whom shall be selected by DMC-USA, one of whom
shall be selected by MMI, and third of whom shall be
selected by the other two members and shall have
relevant experience in the industry x x x x
On 3 October 1996 private respondents MMI, SFI and
MMI's Managing Director Liong Liong C. Sy (LILY SY)
filed a Complaint against petitioners DMC-USA, Paul E.
Derby, Jr.,6 Daniel Collins and Luis Hidalgo, and Dewey
Ltd. before the Regional Trial Court of Malabon, Metro
Manila. Private respondents predicated their complaint
on the alleged violations by petitioners of Arts. 20,10
2111 and 2312 of the Civil Code. According to private
respondents, DMC-USA products continued to be
brought into the country by parallel importers despite
the appointment of private respondent MMI as the sole
and exclusive distributor of Del Monte products thereby
causing them great embarrassment and substantial
damage. They alleged that the products brought into
the country by these importers were aged.
On 21 October 1996 petitioners filed a Motion to
Suspend Proceedings invoking the arbitration clause in
their Agreement with private respondents. Petitioners
contend that the subject matter of private
respondents' causes of action arises out of or relates to
the Agreement between petitioners and private
respondents. Thus, considering that the arbitration

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There is no doubt that arbitration is valid and

constitutional in our jurisdiction. Even before the
enactment of RA 876, this Court has countenanced the
settlement of disputes through arbitration. 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 arrangement and will only interfere with
great reluctance to anticipate or nullify the action of
the arbitrator. Moreover, as RA 876 expressly
authorizes arbitration of domestic disputes, foreign
arbitration as a system of settling commercial disputes
was likewise recognized when the Philippines adhered
to the United Nations "Convention on the Recognition
and the Enforcement of Foreign Arbitral Awards 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 different nationalities
within a contracting state.
A careful examination of the instant case shows that
the arbitration clause in the Distributorship Agreement
between petitioner DMC-USA and private respondent
MMI is valid and the dispute between the parties is
arbitrable. However, this Court must deny the petition.
The Agreement between petitioner DMC-USA and
private respondent MMI is a contract. The 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. As a rule, contracts are
respected as the law between the contracting parties
and produce effect as between them, their assigns and
heirs. Clearly, only parties to the Agreement, i.e.,

petitioners DMC-USA and its Managing Director for

Export Sales Paul E. Derby, Jr., and private respondents
MMI and its Managing Director LILY SY are bound by the
Agreement and its arbitration clause as they are the
only signatories thereto. Petitioners Daniel Collins and
Luis Hidalgo, and private respondent SFI, not parties to
the Agreement and cannot even be considered assigns
or heirs of the parties, are not bound by the Agreement
and the arbitration clause therein. Consequently,
referral to arbitration in the State of California pursuant
to the arbitration clause and the suspension of the
proceedings in Civil Case No. 2637-MN pending the
return of the arbitral award could be called for but only
as to petitioners DMC-USA and Paul E. Derby, Jr., and
private respondents MMI and LILY SY, and not as to the
other parties in this case.
WHEREFORE, the petition is DENIED. The Decision of
the Court of Appeals affirming the denied petitioners'
Motion to Suspend Proceedings, is AFFIRMED. The
Regional Trial Court concerned is directed to proceed
with the hearing of Civil Case No. 2637-MN with
dispatch. No costs.
HOME BANKERS SAVINGS AND TRUST COMPANY,
petitioner vs. COURT OF APPEALS and FAR EAST
BANK & TRUST COMPANY, respondents
FACTS:
Victor Tancuan, one of the defendants in Civil Case No.
92-145, 0issued Home Bankers Savings and Trust
Company
(HBSTC)
check
No.
193498
for
P25,250,000.00 while Eugene Arriesgado issued Far
East Bank and Trust Company (FEBTC) check Nos.
464264, 464272 and 464271 for P8,600,000.00,
P8,500,000.00 and P8,100,000.00, respectively, the
three checks amounting to P25,200,000.00. Tancuan
and Arriesgado exchanged each other's checks and
deposited them with their respective banks for
collection. When FEBTC presented Tancuan's HBSTC
check for clearing, HBSTC dishonored it for being
"Drawn Against Insufficient Funds." On October 15,
1991, HBSTC sent Arriesgado's three (3) FEBTC checks
through the Philippine Clearing House Corporation
(PCHC) to FEBTC but was returned on October 18, 1991
as "Drawn Against Insufficient Funds." HBSTC received
the notice of dishonor on October 21, 1991 but refused
to accept the checks and on October 22, 1991,
returned them to FEBTC through the PCHC for the
reason "Beyond Reglementary Period," implying that
HBSTC already treated the three (3) FEBTC checks as
cleared and allowed the proceeds thereof to be
withdrawn.[4] FEBTC demanded reimbursement for the
returned checks and inquired from HBSTC whether it
had permitted any withdrawal of funds against the
unfunded checks and if so, on what date. HBSTC,
however, refused to make any reimbursement and to
provide FEBTC with the needed information.

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Thus, on December 12, 1991, FEBTC submitted the

dispute for arbitration before the PCHC Arbitration
Committee, under the PCHC's Supplementary Rules on
Regional Clearing to which FEBTC and HBSTC are
bound as participants in the regional clearing
operations administered by the PCHC.
On January 17, 1992, while the arbitration proceedings
was still pending, FEBTC filed an action for sum of
money and damages with preliminary attachment[7]
against HBSTC, Robert Young, Victor Tancuan and
Eugene Arriesgado with the Regional Trial Court of
Makati, Branch 133. A motion to dismiss was filed by
HBSTC claiming that the complaint stated no cause of
action and accordingly should be dismissed because
it seeks to enforce an arbitral award which as yet does
not exist.[8] The trial court issued an omnibus order
dated April 30, 1992 denying the motion to dismiss and
an order dated October 1, 1992 denying the motion for
reconsideration.
ISSUE: Whether or not private respondent which
commenced an arbitration proceeding under the
auspices of the philippine clearing house corporation
(pchc) may subsequently file a separate case in court
over the same subject matter of arbitration despite the
pendency of that arbitration, simply to obtain the
provisional remedy of attachment against the bank,
the adverse party in the arbitration proceedings."
RULING:
We find no merit in the petition. Section 14 of Republic
Act 876, otherwise known as the Arbitration Law,
allows any party to the arbitration proceeding to
petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute
in arbitration, thus:
Section 14. Subpoena and subpoena duces tecum. Arbitrators shall have the power to require any person
to attend a hearing as a witness. They shall have the
power to subpoena witnesses and documents when the
relevancy of the testimony and the materiality thereof
has been demonstrated to the arbitrators. Arbitrators
may also require the retirement of any witness during
the testimony of any other witness. All of the
arbitrators appointed in any controversy must attend
all the hearings in that matter and hear all the
allegations and proofs of the parties; but an award by
the majority of them is valid unless the concurrence of
all of them is expressly required in the submission or
contract to arbitrate. The arbitrator or arbitrators shall
have the power at any time, before rendering the
award, without prejudice to the rights of any party to
petition the court to take measures to safeguard and/or
conserve any matter which is the subject of the dispute
in arbitration.

Petitioner's exposition of the foregoing provision

deserves scant consideration. Section 14 simply grants
an arbitrator the power to issue subpoena and
subpoena duces tecum at any time before rendering
the award. The exercise of such power is without
prejudice to the right of a party to file a petition in
court to safeguard any matter which is the subject of
the dispute in arbitration. In the case at bar, private
respondent filed an action for a sum of money with
prayer for a writ of preliminary attachment.
Undoubtedly, such action involved the same subject
matter as that in arbitration, i.e., the sum of
P25,200,000.00 which was allegedly deprived from
private respondent in what is known in banking as a
"kiting scheme." However, the civil action was not a
simple case of a money claim since private respondent
has included a prayer for a writ of preliminary
attachment, which is sanctioned by section 14 of the
Arbitration Law.
"xxx xxx. Under the rules and regulations of the
Philippine Clearing House Corporation (PCHC), the

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mere act of participation of the parties concerned in its

operations in effect amounts to a manifestation of
agreement by the parties to abide by its rules and
regulations. As a consequence of such participation, a
party cannot invoke the jurisdiction of the courts over
disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the
arbitration processes laid out by the body." (emphasis
supplied)
At this point, we emphasize that arbitration, as an
alternative method of dispute resolution, is encouraged
by this Court. Aside from unclogging judicial dockets, it
also hastens solutions especially of commercial
disputes.The Court looks with favor upon such
amicable arrangement and will only interfere with
great reluctance to anticipate or nullify the action of
the arbitrator.
WHEREFORE, premises considered, the petition is
hereby DISMISSED and the decision of the court a quo
is AFFIRMED.

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When Surety Bound and When Party Estopped to

Assail CIAC Jurisdiction:

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Prudential Guarantee and Assurance, Inc. Vs.

Equinox Land Corporation
G.R. Nos. 152505-06

September 13, 2007

FACTS:
In
1996,
Equinox
Land
Corporation
(Equinox),
respondent, decided to construct five (5) additional
floors to its existing building. It then sent invitations to
bid to various building contractors. Four (4) building
contractors,
including
JMarc
Construction
&
Development Corporation (JMarc), responded. Finding
the bid of JMarc to be the most advantageous, Equinox
offered the construction project to it, JMarc accepted the
offer. Two days later, Equinox formally awarded to JMarc
the contract to build the extension. On February 24,
1997, JMarc submitted to Equinox two (2) bonds,
namely: (1) a surety bond issued by Prudential
Guarantee and Assurance, Inc. (Prudential), herein
petitioner, in the amount of P9,250,000.00 to guarantee
the unliquidated portion of the advance payment
payable to JMarc; and (2) a performance bond likewise
issued by Prudential in the amount of P7,400,000.00 to
guarantee JMarcs faithful performance of its obligations
under the construction agreement. Under the terms of
the contract, JMarc would supply all the labor, materials,
tools, equipment, and supervision required to complete
the project. JMarc did not adhere to the terms of the
contract. It failed to submit the required monthly
progress billings for the months of March and April 1997.
Its workers neglected to cover the drainpipes, hence,
they were clogged by wet cement. This delayed the work
on the project. In the following months, JMarc requested
unscheduled cash advances, and later on submitted
their progress billings of which Equinox would pay the
consideration of the accomplished works. Faced with the
problem of delay, Equinox formally gave JMarc one final
chance to take remedial steps in order to finish the
project on time. However, JMarc failed to undertake any
corrective measure. Consequently, on July 10, 1997,
Equinox terminated its contract with JMarc and took
over the project. On the same date, Equinox sent
Prudential a letter claiming relief from JMarcs violations
of the contract. On July 11, 1997, the work on the project
stopped. The personnel of both Equinox and JMarc
jointly conducted an inventory of all materials, tools,
equipment, and supplies at the construction site. They
also measured and recorded the amount of work actually
accomplished. It was shown that compared to the
accomplished work of JMarc, Equinox have overpaid
JMarc. In addition, Equinox also paid the wages of
JMarcs laborers, the billings for unpaid supplies, and the
amounts owing to subcontractors of JMarc On August
25, 1997, Equinox filed a complaint for sum of money
and damages against JMarc and Prudential. Equinox
prayed that JMarc be ordered to reimburse the amounts
corresponding to its (Equinox) advanced payments and
unliquidated portion of its downpayment; and to pay
damages. Equinox also prayed that Prudential be
ordered to pay its liability under the bonds. In its answer,
JMarc alleged that Equinox has no valid ground for
terminating their contract. For its part, Prudential denied
Equinoxs claims and instituted a cross-claim against
JMarc for any judgment that might be rendered against
its bonds. During the hearing, Prudential filed a motion
to dismiss the complaint on the ground that pursuant to
Executive Order No. 1008, it is the CIAC which has
jurisdiction over it. On February 12, 1999, the trial court
granted Prudentials motion and dismissed the case. On
May 19, 1999, Equinox filed with the CIAC a request for

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arbitration, docketed as CIAC Case No. 17-99. Prudential

submitted a position paper contending that the CIAC has
no jurisdiction over it since it is not a privy to the
construction contract between Equinox and JMarc; and
that its surety and performance bonds are not
construction agreements, thus, any action thereon lies
exclusively with the proper court. On December 21,
1999, the CIAC rendered its Decision in favor of Equinox
and against JMarc and Prudential.
ISSUE: Whether the Court of Appeals erred in upholding
the jurisdiction of the CIAC over the case.
HELD:
Basic is the rule that administrative agencies are
tribunals of limited jurisdiction and as such, can only
wield such powers as are specifically granted to them by
their enabling statutes. Section 4 of Executive Order No.
1008,[3] provides: SEC. 4. Jurisdiction. The CIAC shall
have original and exclusive jurisdiction over disputes
arising from, or connected with contracts entered into by
parties involved in construction in the Philippines,
whether the dispute arises before or after the completion
of the contract, or after the abandonment or breach
thereof. These disputes may involve government or
private contracts. For the Board to acquire jurisdiction,
the parties to a dispute must agree to submit the same
to voluntary arbitration. The jurisdiction of the CIAC may
include but is not limited to violation of specifications for
materials and workmanship, violation of the terms of
agreement,
interpretation
and/or
application
of
contractual time and delays, maintenance and defects,
payment, default of employer or contractor and changes
in contract cost. Excluded from the coverage of the law
are
disputes
arising
from
employer-employee
relationships which continue to be covered by the Labor
Code of the Philippines. In David v. Construction Industry
and Arbitration Commission,[4] we ruled that Section 4
vests upon the CIAC original and exclusive jurisdiction
over disputes arising from or connected with
construction contracts entered into by parties who have
agreed to submit their case for voluntary arbitration. As
earlier mentioned, when Equinox lodged with the RTC its
complaint for a sum of money against JMarc and
Prudential, the latter filed a motion to dismiss on the
ground of lack of jurisdiction, contending that since the
case involves a construction dispute, jurisdiction lies
with CIAC. Prudentials motion was granted. However,
after the CIAC assumed jurisdiction over the case,
Prudential again moved for its dismissal, alleging that it
is not a party to the construction contract between
Equinox and JMarc; and that the surety and performance
bonds it issued are not construction agreements. After
having voluntarily invoked before the RTC the jurisdiction
of CIAC, Prudential is estopped to question its
jurisdiction. As we held in Lapanday Agricultural &
Development Corporation v. Estita,[5] the active
participation of a party in a case pending against him
before a court or a quasi-judicial body is tantamount to a
recognition of that courts or quasi-judicial bodys
jurisdiction and a willingness to abide by the resolution
of the case and will bar said party from later on
impugning the courts or quasi-judicial bodys
jurisdiction. Moreover, in its Reply to Equinoxs
Opposition to the Motion to Dismiss before the RTC,
Prudential, citing Philippine National Bank v. Pineda[6]
and Finman General Assurance Corporation v. Salik,[7]
argued that as a surety, it is considered under the law to

be the same party as the obligor in relation to whatever

is adjudged regarding the latters obligation. Therefore,
it is the CIAC which has jurisdiction over the case
involving a construction contract between Equinox and
JMarc. Such an admission by Prudential binds it and it
cannot now claim otherwise.

hearing of the case on the merits as the grounds cited

by NIA did not seem to be indubitable. NIA filed a
motion for reconsideration of the aforesaid Order. CIAC in
denying the motion for reconsideration ruled that it has
jurisdiction over the HYDROs claim over NIA pursuant to
E.O 1008 and that the hearing should proceed as
scheduled.[10] On 26 May 1996, NIA filed with the Court
of Appeals an original action of certiorari and prohibition
with prayer for restraining order and/or injunction,
seeking to annul the Orders of the CIAC for having been
issued without or in excess of jurisdiction.

Retroactive Application:
National Irrigation Administration vs. Court of
Appeals

ISSUE: WON respondent CIAC has no authority or

juridiction to hear and try this dispute between the
herein parties as E.O. no. 1008 had no retroactive effect.

17 November 1999
318 S 255
FACTS:

HELD:

Records show that in a competitive bidding held by NIA

in
August
1978,
Hydro
Resources
Contractors
Corporation (hereafter HYDRO) was awarded Contract
MPI-C-2 for the construction of the main civil works of
the Magat River Multi-Purpose Project. HYDRO
substantially completed the works under the contract in
1982 and final acceptance by NIA was made in 1984.
HYDRO thereafter determined that it still had an account
receivable from NIA. After unsuccessfully pursuing its
case with NIA, HYDRO, on 7 December 1994, filed with
the CIAC a Request for Adjudication of the aforesaid
claim. After reaching an accord on the issues to be
considered by the arbitration panel, the parties
scheduled the dates of hearings and of submission of
simultaneous memoranda. On 13 March 1995, NIA filed a
Motion to Dismiss[7]alleging lack of jurisdiction over the
disputes. NIA contended that there was no agreement
with HYDRO to submit the dispute to CIAC for arbitration
considering that the construction contract was executed
in 1978 and the project completed in 1982, whereas the
Construction Industry Arbitration Law creating CIAC was
signed only in 1985; and that while they have agreed to
arbitration as a mode of settlement of disputes, they
could not have contemplated submission of their
disputes to CIAC. On 11 April 1995, the arbitral body
issued an order[9] which deferred the determination of
the motion to dismiss and resolved to proceed with the

The complaint of HYDRO against NIA on the basis of the

contract executed between them was filed on 7
December 1994, during the effectivity of E.O. No. 1008.
Hence, it is well within the jurisdiction of CIAC. The
jurisdiction of a court is determined by the law in force at
the time of the commencement of the action.[29] NIAs
argument that CIAC had no jurisdiction to arbitrate on
contract which preceded its existence is untenable. E.O.
1008 is clear that the CIAC has jurisdiction over all
disputes arising from or connected with construction
contract whether the dispute arises before or after the
completion of the contract. Thus, the date the parties
entered into a contract and the date of completion of the
same, even if these occurred before the constitution of
the CIAC, did not automatically divest the CIAC of
jurisdiction as long as the dispute submitted for
arbitration arose after the constitution of the CIAC.
Stated differently, the jurisdiction of CIAC is over the
dispute, not the contract; and the instant dispute having
arisen when CIAC was already constituted, the arbitral
board was actually exercising current, not retroactive,
jurisdiction. As such, there is no need to pass upon the
issue of whether E.O. No. 1008 is a substantive or
procedural statute.

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