ARBIT CASES 1. BF Corporation v. CA, 288 SCRA

267 (1998)

Facts: Petitioner and respondent Shangri-la

Properties, Inc. entered into an agreement whereby the latter engaged the former to construct the main structure of the "EDSA Plaza Project," a shopping mall complex in Mandaluyong. Petitioner incurred delay in the construction work that SPI considered as "serious and substantial." On the other hand, according to petitioner, the construction works "progressed in faithful compliance with the First Agreement until a fire broke out damaging Phase I" of the Project. Hence, SPI proposed the re-negotiation of the agreement between them.Petitioner and SPI entered into a written agreement denominated as "Agreement for the Execution of Builder's Work for the EDSA Plaza Project." Said agreement would cover the construction work on said project as of May 1, 1991 until its eventual completion. According to SPI, petitioner "failed to complete the construction works and abandoned the project." This resulted in disagreements between the parties as regards their respective liabilities under the contract.

Petitioner filed with the RTC of Pasig a complaint for collection of the balance due under the construction agreement. SPI and its co-defendants filed a motion to suspend proceedings instead of filing an answer. The motion was anchored on defendants' allegation that the formal trade contract for the construction of the project provided for a clause requiring prior resort to arbitration before judicial intervention could be invoked in any dispute arising from the contract. Petitioner opposed said motion claiming that there was no formal contract between the parties although they entered into an agreement defining their rights and obligations in undertaking the project.

Thereafter, upon a finding that an arbitration clause indeed exists, the lower

court denied the motion to suspend proceedings as the Conditions of Contract was not duly executed or signed by the parties, and the failure of the defendants to submit any signed copy of the said document,.

The lower court then ruled that, assuming that the arbitration clause was valid and binding, still, it was "too late in the day for defendants to invoke arbitration. Considering the fact that under the supposed Arbitration Clause invoked by defendants, it is required that "Notice of the demand for arbitration of a dispute shall be filed in writing with the other party . . . . in no case . . . . later than the time of final payment . . . "which apparently, had elapsed because defendants have failed to file any written notice of any demand for arbitration during the said long period of one year and eight months. The CA annulled the orders of the RTC.

Issue: WON a petition for certiorari is proper

Held:

Yes. The rule that the special civil action of certiorari may not be invoked as a substitute for the remedy of appeal. The Court has likewise ruled that "certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari."

The question of jurisdiction, which is a question of law depends on the determination of the existence of the arbitration clause, which is a question of fact. In the instant case, the lower court found that there exists an arbitration clause. However, it ruled that in contemplation of law, said arbitration clause does not exist. It is that mode of appeal taken by private

respondents before the CA that is being questioned by the petitioners before this Court. But at the heart of said issue is the question of whether there exists an Arbitration Clause because if an Arbitration Clause does not exist, then private respondents took the wrong mode of appeal before the CA.

For this Court to be able to resolve the question of whether private respondents took the proper mode of appeal, which, incidentally, is a question of law, then it has to answer the core issue of whether there exists an Arbitration Clause which, admittedly, is a question of fact.

Moreover, where a rigid application of the rule that certiorari cannot be a substitute for appeal will result in a manifest failure or miscarriage of justice, the provisions of the Rules of Court which are technical rules may be relaxed. As we shall show hereunder, had the CA dismissed the petition for certiorari, the issue of whether or not an arbitration clause exists in the contract would not have been resolved in accordance with evidence extant in the record of the case. Consequently, this would have resulted in a judicial rejection of a contractual provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the existence of the arbitration clause in the contract between petitioner and private respondents is a legal issue that must be determined in this petition for review on certiorari.

2. Heirs of Augusto Salas Jr. Vs Laperal Realty Corporation

G.R. NO. 135362 (December 13, 1999)

DE LEON, JR., J.:

FACTS:

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 Respondent Laperal Realty Corporation to render and provide complete (horizontal) construction services on his land. Said agreement contains an arbitration clause, to wit:

“ARTICLE VI. ARBITRATION.

All cases of dispute between CONTRACTOR and OWNER’S representative shall be referred to the committee represented by:

1. One representative of the OWNER;2. One representative of the CONTRACTOR;3. One representative acceptable to both OWNER and CONTRACTOR.”

Salas, Jr. then executed a Special Power of Attorney in favor of Respondent Laperal Realty to exercise general control, supervision and management of the sale of his land, for cash or on installment basis. By virtue thereof, Respondent Laperal Realty subdivided said land and sold portions thereof to Respondents Rockway Real Estate Corporation and South Ridge Village, Inc. in 1990; to Respondent spouses Abrajano and Lava and Oscar Dacillo in 1991; and to Respondents Eduardo Vacuna, Florante de la Cruz and Jesus Vicente Capalan in 1996 (Respondent Lot Buyers hereinafter).

Back in 1989, Salas, Jr. left his home in the morning for a business trip to Nueva Ecija. He, however, never returned on that unfaithful morning. Seven years later or in 1996, his wife, Teresita Diaz-Salas filed with the RTC of Makati City a verified Petition for the Declaration of Presumptive Death, which Petition was granted.

In 1998, Petitioners, as heirs of Salas, Jr. filed in the RTC of Lipa City a Complaint for Declaration of Nullity of Sale, Reconveyance, Cancellation of Contract, Accounting and Damages against Respondents.

Respondent Laperal Realty filed a Motion to Dismiss on the ground that Petitioners failed to submit their grievance to arbitration as required under Article VI of the Owner-Contractor Agreement. Respondent spouses Abrajano and Lava and Respondent Dacillo filed a Joint Answer with Counterclaim and Crossclaim praying for dismissal of Petitioners’ Complaint for the same reason.

The RTC then issued the herein assailed Order dismissing Petitioners’ Complaint for non-compliance with the foregoing arbitration clause.

Hence the present Petition for Review on Certiorari under Rule 45.

ISSUE:

Whether or not the arbitration clause under Article VI of the Owner-Contractor Agreement is binding upon the Respondent Lot Buyers?

ARGUMENTS:

Petitioners argue that (1) their causes of action did not emanate from the Owner-Contractor Agreement, (2) that their causes of action for cancellation of contract and accounting are covered by the exception under the Arbitration Law, and (3) that failure to arbitrate is not a ground for dismissal.

Petitioners claim that they suffered lesion of more than one-fourth (1/4) of the value of Salas, Jr.’s land when Respondent Laperal Realty subdivided it and sold portions thereof to Respondent Lot Buyers. Thus, they instituted action against both Respondent Laperal Realty and Respondent Lot Buyers for rescission of the sale transactions and reconveyance to them of the subdivided lots. They argue that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 which provides that

“such submission [to] or contract [of arbitration] shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract”.

RULING:

NO. Respondent Lot Buyers 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 Respondent Lot Buyers.

Respondent Laperal Realty, on the other hand, as a contracting party to the Agreement, has the right to compel Petitioners to first arbitrate before seeking judicial relief. However, to split the proceedings into arbitration for Respondent Laperal Realty and trial for the Respondent Lot Buyers, or to hold trial in abeyance pending arbitration between Petitioners and Respondent Laperal Realty, 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.

Petition is GRANTED. The assailed Order of RTC of Lipa City is NULLIFIED and SET ASIDE.

RATIO DECIDENDI:

In a catena of cases inspired by Justice Malcolm’s provocative dissent in Vega v. San Carlos Milling Co. [1924], the SC has recognized arbitration agreements as valid, binding, enforceable and not contrary to public policy so much so that when there obtains a written provision for arbitration which is not complied with, the trial court should suspend the proceedings and order the parties to proceed to arbitration in accordance with the terms of their agreement. Arbitration is the “wave of the

future” in dispute resolution. To brush aside a contractual agreement calling for arbitration in case of disagreement between parties would be a step backward.

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 Respondent Laperal Realty are certainly bound by the Agreement. If Respondent 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, Respondent Lot Buyers are NOT assignees of the rights of Respondent Laperal Realty under the Agreement to develop Salas, Jr.’s land and sell the same. They are, rather, buyers of the land that Respondent 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”.

In the same vein, Petitioners’ contention that rescission, being their cause of action, falls under the exception clause in Sec. 2 of Republic Act No. 876 is without merit. For while rescission, as a general rule, is an arbitrable issue, they impleaded in the suit for rescission the Respondent 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 Respondent Lot Buyers.

3. Sea Land Services Inc Vs CA

4.