355 SCRA 157 Facts: Under a management agreement Magellan Capital Holdings Corporation appointed petitioner Magellan Capital Management Corporation as manager for the operation of its business and affairs. Pursuant thereto respondent 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 respondent Zosa's employment shall be coterminous with the management agreement, or until March 1996, unless sooner terminated pursuant to the provisions of the Employment Agreement. The grounds for termination of employment are also provided in the Employment Agreement. On May 10, 1995, Zosa was demoted to MCHC's Vice-Chairman/Chairman for New Ventures Development 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. On the same year, respondent Zosa communicated his resignation for good reason from the position of ViceChairman under the Employment Agreement on the ground that said position had less responsibility and scope than President and Chief Executive Officer and demanded that he be given termination benefits.
MCHC communicated its nonacceptance of respondent Zosa's
resignation for good reason, but instead informed him that the Employment Agreement is terminated for cause on account of his breach of the Employment Agreement. Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration Clause of the Employment Agreement and designated his brother, Atty. Francis Zosa, as his representative in the arbitration panel. However, instead of submitting the dispute to arbitration, Zosa, on filed an action for damages against petitioners before the RTC of Cebu to enforce his benefits under the Employment Agreement. On July 3, 1996, petitioners filed a motion to dismiss arguing that (1) the trial court has no jurisdiction over the instant case since Zosa's claims should be resolved through arbitration pursuant to the Employment Agreement with petitioners; and (2) the venue is improperly laid since Zosa, like the petitioners, is a resident of Pasig City and thus, the venue of this case, granting without admitting that the respondent has a cause of action against the petitioners cognizable by the RTC, should be limited only to RTC-Pasig City. Issue: Whether or not the Arbitration Clause in the Employment Agreement can be enforced against Zosa? Held: No, petitioners attempt to put respondent in estoppel in assailing the arbitration clause must be struck down. The issue of estoppel, as noted
by the Court of Appeals, found its way
for the first time only on appeal. Wellsettled is the rule that issues not raised below cannot be resolved on review in higher courts. Secondly, employment agreements such as the one at bar are usually contracts of adhesion. Any ambiguity in its provisions is generally resolved against the party who drafted the document. Thus, in the case of Phil. Federation of Credit Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria Abril, the Court said that when a contract of employment, being a contract of adhesion, is ambiguous, any ambiguity therein should be construed strictly against the party who prepared it. In this case, Zosa never submitted himself to arbitration proceedings (as there was none yet) before bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing the arbitration clause upon realizing the inequities that may mar the arbitration proceedings if the existing line-up of arbitrators remained unchecked. The Court emphasizes that arbitration proceedings are designed to level the playing field among the parties in pursuit of a mutually acceptable solution to their conflicting claims. Any arrangement or scheme that would give undue advantage to a party in the negotiating table is anathema to the very purpose of arbitration and should, therefore, be resisted. Petition dismissed. Del Monte USA v. CA 351 SCRA 373
Facts: The appointment of
Montebueno Marketing as the sole and exclusive distributor of Del Monte products in the Philippines was published in several newspapers in the country. Immediately after its appointment, MMI appointed Sabrosa Foods, with the approval of DMC-USA, as MMIs marketing arm to concentrate on its marketing and selling function as well as to manage its critical relationship with the trade. MMI, SFI and MMIs Managing Director Lily Sy filed a Complaint against DMCUSA, Paul E. Derby, Jr.,Daniel Collins ,Luis Hidalgo, and Dewey Ltd. before the RTC of Malabon. Respondents predicated their complaint on the alleged violations by petitioners of Arts. 20, 21, and 23 of the Civil Code. According to respondents, DMC-USA products continued to be brought into the country by parallel importers despite the appointment of 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 were damaged amd/or fake, so that in March 1995 they had to cause, after consultation with Antonio Ongpin, Market Director for Special Markets of Del Monte Philippines, Inc., the publication of a "warning to the trade" paid advertisement in leading newspapers. DMC-USA and Derby, Jr., upset with the publication, instructed MMI to stop coordinating with Ongpin and to communicate directly instead with DMC-USA through Derby, Jr.
Respondents further averred that
petitioners knowingly continued to deal with the former in bad faith by involving disinterested third parties and by proposing solutions which were entirely out of their control. Respondents claimed that they had exhausted all possible avenues for an amicable resolution and settlement of their grievances; that as a result of the fraud, bad faith, malice and wanton attitude of petitioners, they should be held responsible for all the actual expenses incurred by respondents in the delayed shipment of orders. For the foregoing, respondents claimed, among other reliefs, the payment of actual damages, exemplary damages, attorneys fees and litigation expenses. On 21 October 1996 petitioners filed a Motion to Suspend Proceedings invoking the arbitration clause in their Agreement with private respondents. The Motion to Suspend Proceedings was ultimately denied by the trial court on the ground that it "will not serve the ends of justice and to allow said suspension will only delay the determination of the issues, frustrate the quest of the parties for a judicious determination of their respective claims, and/or deprive and delay their rights to seek redress." On appeal, the Court of Appeals affirmed the decision of the trial court. It held that the alleged damaging acts recited in the Complaint, constituting petitioners causes of action, required the interpretation of Art. 21 of the Civil Code and that in determining whether petitioners had violated it "would
require a full blown trial" making
arbitration "out of the question." Issue: Whether the dispute between the parties warrants an order compelling them to submit to arbitration? Held: No. Although the arbitration clause in the Distributorship Agreement between DMC-USA and MMI is valid and the dispute between the parties is arbitrable, the Court still denied the petition. The court reasoned that The Agreement between DMC-USA and 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 are bound by the Agreement and its arbitration clause as they are the only signatories thereto. Daniel Collins and Luis Hidalgo, and 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 DMC-USA and Paul E. Derby, Jr., and MMI and Lily Sy, and not as to the other parties in this case.
In Toyota Motor Philippines Corp. v.
Court of Appeals, the Court ruled that "the contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable ratiocinating that "contracts are respected as the law between the contracting parties" and that "as such, the parties are thereby expected to abide with good faith in their contractual commitments." However, in Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, only parties to the Agreement, their assigns or heirs have the right to arbitrate or could be compelled to arbitrate. The Court went further by declaring that in recognizing the right of the contracting parties to arbitrate or to compel arbitration, the splitting of the proceedings to arbitration as to some of the parties on one hand and trial for the others on the other hand, or the suspension of trial pending arbitration between some of the parties, should not be allowed as it would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay. Chavez v. CA 453 SCRA 483 Facts: Teodoro Chavez and Jacinto Trillana entered into a contract of lease whereby the former leased to the latter his fishpond at Bulacan, for a term of six (6) years commencing from October 23, 1994 to October 23, 2000. The rental for the whole term was two million two hundred forty thousand (P2,240,000.00) pesos, of which one million (P1,000,000.00) pesos was to
be paid upon signing of the contract.
Paragraph 5 of the contract further provided that respondent shall undertake all construction and preservation of improvements in the fishpond that may be destroyed during the period of the lease, at his expense, without reimbursement from petitioner. In August 1996, a powerful typhoon hit the country which damaged the subject fishpond. Respondent did not immediately undertake the necessary repairs as the water level was still high. 3 weeks later, respondent was informed by a barangay councilor that major repairs were being undertaken in the fishpond with the use of a crane. Respondent found out that the repairs were at the instance of petitioner who had grown impatient with his delay in commencing the work. Respondent then filed a complaint before the Office of the Barangay Captain. He complained about the unauthorized repairs undertaken by petitioner, the ouster of his personnel from the leased premises and its unlawful taking by petitioner despite their valid and subsisting lease contract. After conciliation proceedings, an agreement was reached. But alleging non-compliance by petitioner with their lease contract and the aforementioned agreement, respondent filed a complaint on the RTC of Valenzuela City. Petitioner filed his answer but failed to submit his pretrial brief and attend the pre-trial conference. Respondent was then allowed to present his evidence ex-
parte before the Acting Branch Clerk
of Court and on the basis thereof, a decision was rendered in favor of respondent. Petitioner appealed to the Court of Appeals which modified the decision of the trial court by deleting the award of P500,000.00 for unrealized profits for lack of basis, and by reducing the award for attorneys fees to P50,000.00. Petitioners motion for reconsideration was denied.
added that a compromise agreement
which is not contrary to law, public order, public policy, morals or good customs is a valid contract which is the law between the parties themselves. It has upon them the effect and authority of res judicata even if not judicially approved, and cannot be lightly set aside or disturbed except for vices of consent and forgery.
Petitioner now contends that the Court
of Appeals erred in ruling that the RTC of Valenzuela City had jurisdiction over the action filed by respondent considering that the subject matter thereof, his alleged violation of the lease contract with respondent, was already amicably settled before the Office of the Barangay Captain. Petitioner argued that respondent should have followed the procedure for enforcement of the amicable settlement as provided for in the Revised Katarungang Pambarangay Law.
However, in Heirs of Zari, et al. v.
Santos, the Court clarified that the broad precept enunciated in Art. 2037 is qualified by Art. 2041, both under the Civil Code. Before the onset of the new Civil Code, there was no right to rescind compromise agreements. Where a party violated the terms of a compromise agreement, the only recourse open to the other party was to enforce the terms thereof. When the new Civil Code came into being, Article 2041 created for the first time the right of rescission. That provision gives to the aggrieved party the right to either enforce the compromise or regard it as rescinded and insist upon his original demand. Article 2041 should obviously be deemed to qualify the broad precept enunciated in Article 2037 that a compromise has upon the parties the effect and authority of res judicata. In exercising the second option under Art. 2041, the aggrieved party may, if he chooses, bring the suit contemplated or involved in his original demand, as if there had never been any compromise agreement, without bringing an action for rescission. This is because he may regard the compromise as already
Issue: Whether the RTC of Valenzuela
had jurisdiction over the case despite the existence of an agreement between parties before the Office of the Barangay Captain? Held: Yes. The Court admits that the Revised Katarungang Pambarangay Lawprovides that an amicable settlement reached after barangay conciliation proceedings has the force and effect of a final judgment of a court if not repudiated or a petition to nullify the same is filed before the proper city or municipal court within ten (10) days from its date. It further
rescinded by the breach thereof of the
other party. In thepresent case, the Revised Katarungang Pambarangay Law provides for a two-tiered mode of enforcement of an amicable settlement, to wit: (a) by execution by the Punong Barangay which is quasijudicial and summary in nature on mere motion of the party entitled thereto; and (b) an action in regular form, which remedy is judicial. However, the mode of enforcement does not rule out the right of rescission under Art. 2041of the Civil Code. The availability of the right of rescission is apparent from the wording of Sec. 417 itself which provides that the amicable settlement may be enforced by execution by the lupon within six (6) months from its
date or by action in the appropriate
city or municipal court, if beyond that period. The use of the word may clearly makes the procedure provided in the Revised Katarungang Pambarangay Law directory or merely optional in nature. Thus, although the Kasunduan executed by petitioner and respondent before the Office of the Barangay Captain had the force and effect of a final judgment of a court, petitioners non-compliance paved the way for the application of Art. 2041 under which respondent may either enforce the compromise, following the procedure laid out in the Revised Katarungang Pambarangay Law, or regard it as rescinded and insist upon his original demand.