PUROMINES, INC., petitioner, vs.

COURT OF APPEAL and PHILIPP

BROTHERS OCEANIC, INC., respondents. G.R. No. 91228. March 22,
1993

Facts: Puromines, Inc. and Makati Agro Trading, Inc. entered into a contract with
private respondents Philipp Brothers Oceanic, Inc. for the sale of prilled Urea in
bulk. The Sales Contract 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. XXXX"
The shipment covered by 3 bills of lading was loaded on MV Liliana Dimitrova with
Philipp Brothers as charterer of said vessel. When the shipment covered by Bill of
Lading 1 and 3 were discharged in Manila, it was found to be in bad order and
condition, caked, hardened and lumpy, discoloured and contaminated with rust
and dirt.
Puromines filed a complaint with the Trial Court for breach of contract of carriage
against Maritime, as ship-agent and Philipp Brothers, as charterer. Philipp filed a
motion to dismiss on the ground that Petitioner should comply with the arbitration
clause in the sales contract. Puromines opposed contending that the sales contract
does not include contract of carriage, therefore, the latter is not covered by the
agreement on arbitration.

Issue: Whether or not the arbitration clause in the sales contract covers claims for
violations of contract of carriage.

Held: Yes. The sales contract is comprehensive enough to include claims for
damages arising from carriage and delivery of the goods. Puromines derives its
right to the cargo from the bill of lading which is the contract of affreightment
together with the sales contract. Consequently, it is bound by the provisions and
terms of the said bill of lading and of the arbitration clause incorporated in the sales
contract.
Responsibility to third persons for goods shipped on board a vessel follows
the vessel's possession and employment. Assuming the cause of action is based
on contract of carriage, it must be first determined what kind of charter party had
with the ship owner to determine liability. If it is a contract of affreightment, the
charterer is not liable as possession is still with owner. If it is a charter of demise
or bareboat, then the charterer is liable as it is considered the owner and therefore
would be liable for damage or loss.

In any case, whether the liability of respondent should be based on the

same 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.

Arbitration has been held valid and constitutional. 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.
WHEREFORE, petition is hereby DISMISSED and decision of the court a quo is
AFFIRMED.