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Warning: TT: undefined function: 32 Heirs of Salas v. Laperal Realty, Corp.Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas. He entered into an Owner- Contractor Agreement with Realty Corporation to render and provide complete horizontal construction service...

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Heirs of Salas v. Laperal Realty, Corp. Augusto Salas, Jr. was the registered owner of a vast tract of land in Lipa City, Batangas. He entered into an OwnerContractor Agreement with Realty Corporation to render and provide complete horizontal construction services on his land. Salas, Jr. executed a Special Power of Attorney in favor of Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He never returned. In 1996, Teresita Diaz Salas filed with the Regional Trial Court of Makati City a verified petition for the declaration of presumptive death of her husband, Salas, Jr., who had then been missing for more than seven (7) years. Meantime, Laperal Realty subdivided the land of Salas, Jr. and sold subdivided portions thereof to Rockway Real Estate Corporation and South Ridge Village, Inc., to spouses Abrajano and Lava and Oscar Dacillo and to Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan. The heirs of Salas Jr. filed a complaint before the RTC of Lipa City for declaration of nullity of sale, reconveyance, cancellation of contract, accounting and damages against Laperal Realty and the buyers, alleging that they suffered suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.'s land. Laperal Realty filed a Motion to Dismiss on the ground that heirs failed to submit their grievance to arbitration as required under Article VI of the Agreement. Issue: Whether or not the complaint shall be dismissed for failure to submit the grievance first to arbitration. Held: No. A submission to arbitration is a contract. As such, the Agreement, containing the stipulation on arbitration, binds the parties thereto, as well as their assigns and heirs. But only they, petitioners, as heirs of Salas, Jr., and Laperal Realty are certainly bound by the Agreement. If Laperal Realty had assigned its rights under the Agreement to a third party, making the former, the assignor, and the latter, the assignee, such assignee would also be bound by the arbitration provision since assignment involves such transfer of rights as to vest in the assignee the power to enforce them to the same extent as the assignor could have enforced them against the debtor or in this case, against the heirs of the original party to the Agreement. However, Rockway Real Estate Corporation, South Ridge Village, Inc., Maharami Development Corporation, spouses Abrajano, spouses Lava, Oscar Dacillo, Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capellan are not assignees of the rights of Laperal Realty under the Agreement to develop Salas, Jr.'s land and sell the same. They are, rather, buyers of the land that Laperal Realty was given the authority to develop and sell under the Agreement. As such, they are not "assigns" contemplated in Art. 1311 of the New Civil

Code which provides that "contracts take effect only between the parties, their assigns and heirs". While rescission, as a general rule, is an arbitrable issue, they impleaded in the suit for rescission the lot buyers who are neither parties to the Agreement nor the latter's assigns or heirs. Consequently, the right to arbitrate as provided in Article VI of the Agreement was never vested in the lot buyers. Laperal Realty, as a contracting party to the Agreement, has the right to compel the heirs to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for Laperal Realty and trial for the lot buyers, or to hold trial in abeyance pending arbitration, would in effect result in multiplicity of suits, duplicitous procedure and unnecessary delay. On the other hand, it would be in the interest of justice if the trial court hears the complaint against all herein respondents and adjudicates petitioners' rights as against theirs in a single and complete proceeding. Home Bankers Savings and Trust Co. v. CA Facts: Victor Tancuan issued a Home Bankers Savings and Trust Company check worth P25,250,000.00 while Eugene Arriesgado issued three Far East Bank and Trust Company 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." HBSTC sent Arriesgado's three FEBTC checks through the Philippine Clearing House Corporation to FEBTC but was returned as "Drawn Against Insufficient Funds." HBSTC received the notice of dishonor but refused to accept the checks and returned them to FEBTC through the PCHC for the reason "Beyond Reglementary Period," implying that HBSTC already treated the three FEBTC checks as cleared and allowed the proceeds thereof to be withdrawn. 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. FEBTC submitted the dispute for arbitration before the PCHC Arbitration Committee. While the arbitration proceeding was still pending, FEBTC filed an action for sum of money and damages with preliminary attachment against HBSTC, Robert Young, Victor Tancuan and Eugene Arriesgado with the RTC of Makati. 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." RTC denied the motion to

dismiss. CA dismissed HBSTC’s petition for certiorari stating that a party to a pending arbitral proceeding may go to court to obtain conservatory reliefs in connection with his cause of action although the disposal of that action on the merits cannot as yet be obtained.

Subcontract. Instead of submitting an Answer, Capitol filed a Motion to Dismiss, alleging that the Complaint was premature, because there was no prior recourse to arbitration. The Subcontract has the following arbitral clause:

Issue: Whether or not FEBTC which commenced an arbitration proceeding under the auspices of the Philippine Clearing House Corporation 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

"6.The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of this Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be settled by means of arbitration . . ."

Held: Yes. 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. 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 this case, FEBTC 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 FEBTC in what is known in banking as a "kiting scheme." However, the civil action was not a simple case of a money claim since FEBTC has included a prayer for a writ of preliminary attachment, which is sanctioned by Section 14 of the Arbitration Law. LM Power Engineering Corp. v. Capitol Industrial Construction Groups Facts: LM Power Engineering Corporation and Capitol Industrial Construction Groups Inc. entered into a "Subcontract Agreement" involving electrical work at the Third Port of Zamboanga . Capitol took over some of the work contracted to LM Power Engineering which the latter had failed to finish it because of its inability to procure materials. Upon completing its task under the Contract, LM Power Engineering billed Capitol in the amount of P6,711,813.90. Contesting the accuracy of the amount of advances and billable accomplishments listed by LM, Capitol refused to pay and also took refuge in the termination clause of their Agreement which allowed Capitol to set off the cost of the work that LM Power Engineering had failed to undertake — due to termination or take-over — against the amount it owed the LM Power Engineering. Because of the dispute, LM filed with the RTC of Makati a complaint for the collection of the amount representing the alleged balance due it under the

RTC denied the Motion on the ground that the dispute did not involve the interpretation or the implementation of the Agreement and was, therefore, not covered by the arbitral clause. RTC ruled that the take-over of some work items by Capitol was not equivalent to a termination, but a mere modification, of the Subcontract. Hence, Capitol was ordered to give full payment for the work completed by LM Power Engineering. CA reversed the RTC decision and ordered the referral of the case to arbitration. In its Petition for review on Certiorari before the SC, LM Power Engineering argued that there is no conflict regarding the interpretation or the implementation of the Agreement, hence arbitration is not required and that the failure to file a formal request for arbitration with the Construction Industry Arbitration Commission (CIAC) precluded the latter from acquiring jurisdiction over the question. Issue: Whether or not CIAC has jurisdiction to conduct arbitration Held: Yes. Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of advances and billable accomplishments, the application of the provision on termination, and the consequent set-off of expenses. 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 abovementioned 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. Section 1 of Article II of the old Rules of Procedure Governing Construction Arbitration indeed required the

submission of a request for arbitration. On the other hand, Section 1 of Article III of the new Rules of Procedure Governing Construction Arbitration has dispensed with this requirement and recourse to the CIAC may now be availed of whenever a contract "contains a clause for the submission of a future controversy to arbitration. The foregoing amendments in the Rules were formalized by CIAC Resolution Nos. 2-91 and 3-93. The difference in the two provisions was clearly explained in

China Chang Jiang Energy Corporation (Philippines) v. Rosal Infrastructure Builders et al. quoted thus: "Under the present Rules of Procedure, for a particular construction contract to fall within the jurisdiction of CIAC, it is merely required that the parties agree to submit the same to voluntary arbitration. Unlike in the original version of Section 1, as applied in the Tesco case, the law as it now stands does not provide that the parties should agree to submit disputes arising from their agreement specifically to the CIAC for the latter to acquire jurisdiction over the same. Rather, it is plain and clear that as long as the parties agree to submit to voluntary arbitration, regardless of what forum they may choose, their agreement will fall within the jurisdiction of the CIAC, such that, even if they specifically choose another forum, the parties will not be precluded from electing to submit their dispute before the CIAC because this right has been vested upon each party by law, i.e., E.O. No. 1008." Clearly, there is no more need to file a request with the CIAC in order to vest it with jurisdiction to decide a construction dispute. The arbitral clause in the Agreement is a commitment on the part of the parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith. And because it covers the dispute between theparties in the present case, either of them may compel the other to arbitrate. Since LM Power Engineering has already filed a Complaint with the RTC without prior recourse to arbitration, the proper procedure to enable the CIAC to decide on the dispute is to request the stay or suspension of such action, as provided under RA 876 or the Arbitration Law. Sea Land Service, Inc. v. CA Facts: Sea-Land Services, Inc. and A.P. Moller/Maersk Line, both carriers of cargo in containerships as well as common carriers, entered into a contract entitled, "Cooperation in the Pacific," a vessel sharing agreement whereby they mutually agreed to purchase, share and exchange needed space for cargo in their respective containerships. Under the Agreement, they could be, depending on the occasion, either a principal carrier (with a negotiable bill of lading or other contract of carriage with respect to cargo) or a containership operator (owner, operator or charterer of containership on which the cargo

is carried). During the lifetime of the said Agreement, Florex International, Inc. delivered to AMML cargo of various foodstuffs, with Oakland, California as port of discharge and San Francisco as place of delivery. Under this arrangement, AMML was the principal carrier while Sea Land was the containership operator. The consignee refused to pay for the cargo, alleging that delivery thereof was delayed. Thus, Florex filed a complaint against Maersk-Tabacalera Shipping Agency (Filipinas) Inc., for reimbursement of the value of the cargo and other charges. According to Florex, the cargo was delayed since it was discharged in Long Beach, California, instead of in Oakland, California as stipulated. AMML filed its Answer alleging that even on the assumption that Florex was entitled to reimbursement, it was Sea Land who should be liable. Accordingly, AMML filed a Third Party Complaint against Sea Land which actually received and transported Florex's cargo on its vessels and unloaded them. Sea Land prayed either for dismissal or suspension of the Third Party Complaint on the ground that there exists an arbitration agreement between it and AMML. Both the trial court and the Court of Appeals denied Sea Land’s prayer for arbitration. Issue: Whether or not the Third Party Complaint should proceed without arbitration Held: No. AMML's Third Party Claim against Sea Land to proceed would be in violation of Clause 16.2 of the Agreement. As summarized, the clause provides that whatever dispute there may be between the Principal Carrier and the Containership Operator arising from contracts of carriage shall be governed by the provisions of the bills of lading deemed issued to the Principal Carrier by the Containership Operator. To sustain the Third Party Complaint would be to allow AMML to hold Sea Land liable under the provisions of the bill of lading issued by AMML as Principal Carrier to Florex, under which Florex is suing in its Complaint, not under the bill of lading Sea Land, as containership operator, issued to respondent AMML, as Principal Carrier, contrary to what is contemplated in Clause 16.2. Arbitration is the mode by which the liability of the Containership Operator may be finally determined. This is clear from the mandate of Clause 16.3 that "(T)he Principal Carrier shall have the right to seek damages and/or an indemnity from the Containership Operator by arbitration" and that it "shall be entitled to commence such arbitration at any time until one year after its liability has been finally determined by agreement, arbitration award or judgment." Pursuant to Clause 16.3 of the Agreement, respondent AMML, when faced with such a suit "shall use all reasonable endeavours to defend" itself or "settle such suits for as low a figure as reasonably possible." In turn, AMML can seek damages and/or

indemnity from Sea Land as Containership Operator for whatever final judgment may be adjudged against it under the Complaint of Florex. The crucial point is that collection of said damages and/or indemnity from Sea Land should be by arbitration. Magellan Capital Management, Corp. v. Zosa Facts: Under a management agreement, Magellan Capital Holdings Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as manager for the operation of its business and affairs. Pursuant thereto, MCHC, MCMC, and Rolando M. Zosa entered into an "Employment Agreement" designating Zosa as President and Chief Executive Officer of MCHC. Under the "Employment Agreement", the term of Zosa's employment shall be co-terminous with the management agreement, or until March 1996, unless sooner terminated pursuant to the provisions of the Employment Agreement. On May 10, 1995, the majority of MCHC's Board of Directors decided not to re-elect Zosa as President and Chief Executive Officer of MCHC on account of loss of trust and confidence arising from alleged violation of the resolution issued by MCHC's board of directors and of the non-competition clause of the Employment Agreement. Nevertheless, Zosa was elected to a new position as MCHC's Vice-Chairman/Chairman for New Ventures Development. Later, Zosa communicated his resignation for good reason from the position of Vice-Chairman under the Employment Agreement on the ground that said position had less responsibility and scope than President and Chief Executive Officer. He demanded that he be given termination benefits as provided for in the Employment Agreement. MCHC communicated its nonacceptance of Zosa's resignation for good reason, but instead informed him that the Employment Agreement is terminated for cause, and advised Zosa that he shall have no further rights under the said Agreement or any claims against the Manager or the Corporation except the right to receive his termination benefits. Disagreeing with the position taken by MCHC, Zosa invoked the Arbitration Clause of the Employment Agreement. However, instead of submitting the dispute to arbitration, Zosa, filed an action for damages against MCHC before the RTC of Cebu to enforce his benefits under the Employment Agreement. MCHC filed a motion to dismiss arguing that the trial court has no jurisdiction over the instant case since Zosa's claims should be resolved through arbitration pursuant to Section 23 of their Employment Agreement. The RTC denied the motion to dismiss and in its judgment, declared the arbitration clause partially void insofar as it concerns the composition of the panel of arbitrators. It appears that MCMC and MCHC have one (1) arbitrator each to compose the panel of three arbitrators. As MCMC is the Manager of MCHC, its decision or vote in the arbitration proceeding would naturally and certainly be in

favor of its employer and the MCHC would have to protect and preserve its own interest; hence, the two (2) votes would certainly be against the lone arbitrator of Zosa. Issue: Whether or not the arbitration clause is properly declared partially void Held: Yes. The Supreme Court finds the trial court's observations on why the composition of the panel of arbitrators should be voided, incisively correct. First, it is error for MCHC and MCMC to claim that the case should fall under the jurisdiction of the Securities and Exchange Commiss...