Korea Technologies Co

Korea Technologies Co.
Ltd
vs. Lerma
GR No. 143581 January 7, 2008
Velasco, Jr., J.:
PAGULAYAN, MARIBEL
ADR – JD 3-1
PARTIES:
Petitioner Respondents
PACIFIC GENERAL STEEL
KOREA TECHNOLOGIES MANUFACTURING CORPORATION
CO., LTD (PGSMC)
HON. ALBERTO A. LERMA
Presiding Judge
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 to house the LPG manufacturing plant
 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, 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
contract.
 For the remaining balance of USD306,000 for the installation and initial operation of the plant,
PGSMC issued two postdated checks but these were dishonored for the reason PAYMENT STOPPED.
 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. PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments were stopped for reasons previously made known to
KOGIES
 PGSMC informed KOGIES that PGSMC was canceling their Contract on the ground that KOGIES had
altered the quantity and lowered the quality of the machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle and transfer the machineries, equipment, and facilities
installed in the Carmona plant.
 Five days later, PGSMC filed before the Office of the Public Prosecutor an Affidavit-Complaint
for Estafa against Mr. Dae Hyun Kang, President of KOGIES.
 KOGIES wrote PGSMC informing the latter that PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the machineries and equipment on mere imagined violations
by KOGIES. It also insisted that their disputes should be settled by arbitration as agreed upon in
Article 15, the arbitration clause of their contract.
 KOGIES instituted an Application for Arbitration before the Korean Commercial Arbitration Board
(KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as amended. It also filed a Complaint
for Specific Performance against PGSMC before the Muntinlupa City Regional Trial Court (RTC).
The RTC granted a temporary restraining order (TRO).
 PGSMC filed an opposition to the TRO arguing that KOGIES was not entitled to the TRO since
Art. 15, the arbitration clause, was null and void for being against public policy as it
ousts the local courts of jurisdiction over the instant controversy. RTC ruled in favor
PGSMC which was affirmed by CA. Thus, the case reached the Supreme Court via petition for
review on certiorari under Rule 65.
ISSUE:
Whether the arbitration clause in the case at

bar is against public policy?
RULING:
 No. The Arbitration clause is not against public policy.
Article 15. Arbitration.—All disputes, controversies, or differences

which may arise between the parties, out of or in relation to or in connection
with this Contract or for the breach thereof, shall finally be settled by
arbitration in Seoul, Korea in accordance with the Commercial Arbitration
Rules of the Korean Commercial Arbitration Board. The award rendered by
the arbitration(s) shall be final and binding upon both parties concerned.
 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..
 The arbitration clause which stipulates that the arbitration must be done in Seoul,
Korea in accordance with the Commercial Arbitration Rules of the KCAB, and that
the arbitral award is final and binding, is not contrary to public policy
 This Court has sanctioned the validity of arbitration clauses in a catena of cases. In
the 1957 case of Eastboard Navigation Ltd. v. Juan Ysmael and Co., Inc.,
this Court had occasion to rule that an arbitration clause to resolve differences and
breaches of mutually agreed contractual terms is valid.
 In BF Corporation v. Court of Appeals, we held that "[i]n this jurisdiction,
arbitration has been held valid and constitutional.
 In LM Power Engineering Corporation v. Capitol Industrial Construction
Groups, Inc., we declared that:
 Being an inexpensive, speedy and amicable method of settling disputes, arbitration

along with mediation, conciliation and negotiation is encouraged by the Supreme
Court.
 Aside from unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the "wave of the
future" in international civil and commercial disputes. Brushing aside a contractual
agreement calling for arbitration between the parties would be a step backward.
 Consistent with the above-mentioned policy of encouraging alternative dispute
resolution methods, courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration.
 WHEREFORE, this petition is PARTLY GRANTED. The RTC and CA’s

decision is REVERSED and SET ASIDE; So Ordered.

Korea Technologies Co

Uploaded by

Copyright:

Available Formats

Korea Technologies Co

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Korea Technologies Co

Uploaded by

Copyright:

Available Formats

Korea Technologies Co.

 Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is

Whether the arbitration clause in the case at

 No. The Arbitration clause is not against public policy.

Article 15. Arbitration.—All disputes, controversies, or differences

 Being an inexpensive, speedy and amicable method of settling disputes, arbitration

 WHEREFORE, this petition is PARTLY GRANTED. The RTC and CA’s

You might also like