Case Digest Adr

DEL MONTE CORP. USA vs. CA GR No. 136154 | Feb 7, 2001 | Petition for Review on Certiorari | Bellosillo Petitioners: Del Monte Corp. USA, Paul Derby Jr., Daniel Collins & Luis Hidalgo Respondents: CA, Malabon RTC Branch 74 Judge Bienvenido Reyes, Montebueno Marketing, Inc., Liong Liong C. Sy and Sabrosa Fodds, Inc. Facts:

 1 July 1994 - in a Distributorship Agreement, Del Monte Corporation-USA (DMC-USA) appointed

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Montebueno Marketing, Inc. (MMI) as the sole and exclusive distributor of its Del Monte products in the Philippines for a period of five (5) years, renewable for two (2) consecutive five (5) year periods with the consent of the parties. Said agreement provided for an arbitration clause, which states: This Agreement shall be governed by the laws of the State of California and/or, if applicable, the United States of America. All disputes arising out of or relating to this Agreement or the parties’ relationship, including the termination thereof, shall be resolved by arbitration in the City of San Francisco, State of California, under the Rules of the American Arbitration Association. The arbitration panel shall consist of three members, one of whom shall be selected by DMC-USA, one of whom shall be selected by MMI, and third of whom shall be selected by the other two members and shall have relevant experience in the industry October 1994 - appointment of MMI 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, Inc. (SFI), with the approval of DMCUSA, as MMI’s marketing arm to concentrate on its marketing and selling function as well as to manage its critical relationship with the trade. 3 October 1996 - MMI, SFI and MMI’s Managing Director Liong Liong C. Sy (LILY SY) filed a Complaint against DMC-USA, Managing Director of Del Monte Corporation’s Export Sales Department Paul E. Derby, Jr., Regional Director of Del Monte Corporation’s Export Sales Department Daniel Collins, Head of Credit Services Department of Del Monte Corporation Luis Hidalgo and Dewey Ltd. before Malabon RTC. MMI et al. predicated their complaint on the alleged violations by Del Monte et al. of Articles 201, 212 and 233 of the Civil Code. According to them, 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 importers were aged, damaged, fake or counterfeit, so that in March 1995 they had to cause, after prior 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 Paul E. Derby, Jr., apparently upset with the publication, instructed private respondent MMI to stop coordinating with Antonio Ongpin and to communicate directly instead with DMC-USA through Paul E. Derby, Jr. MMI et al. further averred that: 1. DMC-USA et al. knowingly and surreptitiously 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 2. they had exhausted all possible avenues for an amicable resolution and settlement of their grievances 3. as a result of the fraud, bad faith, malice and wanton attitude of DMC-USA et al., they should be held responsible for all the actual expenses incurred by MMI et al. in the delayed shipment of orders which resulted in the extra handling thereof, the actual expenses and cost of money for the unused Letters of Credit (LCs) and the substantial opportunity losses due to created out-of-stock situations and unauthorized shipments of Del Monte-USA products to the Philippine Duty Free Area and Economic Zone 4. the bad faith, fraudulent acts and willful negligence of DMC-USA et al., motivated by their determination to squeeze MMI et al. out of the outstanding and on-going Distributorship Agreement in favor of another party, had placed Lily Sy on tenterhooks since then 5. the shrewd and subtle manner with which DMC-USA et al. concocted imaginary violations by MMI of the Distributorship Agreement in order to justify the untimely termination thereof was a subterfuge 21 October 1996 – DMC-USA et al. filed a Motion to Suspend Proceedings, invoking the arbitration clause. RTC: deferred consideration of DMC-USA et al.’s Motion to Suspend Proceedings as the grounds alleged therein did not constitute the suspension of the proceedings considering that the action was for damages with prayer for the issuance of Writ of Preliminary Attachment and not on the Distributorship Agreement DMC-USA et al. filed a MR to which MMI et al. filed their comment/opposition. DMC-USA et al. filed a reply. They later on filed a Motion to Admit Supplemental Pleading.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same. 1

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. 2

Art. 23. Even when an act or event causing damage to another's property was not due to the fault or negligence of the defendant, the latter shall be liable for indemnity if through the act or event he was benefited. 3

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Said motion was admitted. As a result of the admission of the Supplemental Complaint, DMC-USA et al. filed on 22 July 1997 a Manifestation adopting their Motion to Suspend Proceedings of 17 October 1996 and Motion for Reconsideration of 14 January 1997. 11 November 1997 - the Motion to Suspend Proceedings was 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 CA affirmed the RTC decision. Hence, this petition.

Issue: WON the dispute between the parties warrants an order compelling them to submit to arbitration [NO] Ratio: 

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There is no doubt that arbitration is valid and constitutional in our jurisdiction. Even before the enactment of RA 876, this Court has countenanced the settlement of disputes through arbitration. 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 arrangement and will only interfere with great reluctance to anticipate or nullify the action of the arbitrator. Moreover, as RA 876 expressly authorizes arbitration of domestic disputes, foreign arbitration as a system of settling commercial disputes was likewise recognized when the Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a contracting state. A careful examination of the instant case shows that the arbitration clause in the Distributorship Agreement between DMC-USA and MMI is valid and the dispute between the parties is arbitrable. However, this Court must deny the petition. 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, i.e., DMC-USA and its Managing Director for Export Sales Paul E. Derby, Jr., and MMI and its Managing Director LILY SY are bound by the Agreement and its arbitration clause as they are the only signatories thereto. o 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 accordance with the recent case of Heirs of Augusto L. Salas, Jr. v. Laperal Realty Corporation, which superseded that of Toyota Motor Philippines Corp. v. Court of Appeals. o In Toyota, the Court ruled that "[t]he contention that the arbitration clause has become dysfunctional because of the presence of third parties is untenable ratiocinating that "[c]ontracts are respected as the law between the contracting parties" and that "[a]s such, the parties are thereby expected to abide with good faith in their contractual commitments." o However, in Salas, Jr., 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. The object of arbitration is to allow the expeditious determination of a dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration. Accordingly, the interest of justice would only be served if the trial court hears and adjudicates the case in a single and complete proceeding.

Dispositive: Petition denied.

MORAL DAMAGES IN ARBITRAL AWARDS In “Philrock, Inc. vs. Construction Industry Arbitration Commission (CIAC) and Spouses Vicente and Nelia Cid” (S.C. G.R. 132848-49, June 26, 2001), the Supreme Court declared: “(W)hen parties agree to settle their disputes arising from or connected

with construction contracts, the CIAC acquires primary jurisdiction. It may resolve not only the merits of such controversies; when appropriate, it may also award damages, interests, attorney’s fees and expenses of litigation.” The spouses Vicente and Nelia Cid purchased ready mix concrete from petitioner Philrock. The concrete delivered turned out to be of substandard quality. As a result, respondents sustained damages when the structures they built using such ready mix concrete developed cracks and honeycombs. Initially, the spouse Cid filed suit for damages against Philrock and seven of its officers and engineers with the Regional Trial Court. The Regional Trial Court dismissed the case and referred the case to the CIAC because the Cid spouses and Philrock had executed an Agreement to Arbitrate with the CIAC. At the CIAC, however, Philrock questioned the jurisdiction of CIAC over the 7 Philrock officers and engineers arguing they were not signatories to the agreement to arbitrate. The CIAC referred back the case to the RTC which, however, refused to reassume jurisdiction. To break the impasse, the spouses Cid opted to exclude the seven officers and engineers to pave the way for the resumption of jurisdiction by the CIAC. The CIAC subsequently rendered judgment in favor of the Spouses Cid directing the respondent Philrock to reimburse/refund the payments made and awarded the Spouses Cid P50,000 as moral damages, P50,000 as nominal damages, P50,000 as attorney’s fees. Philrock elevated the CIAC decision to the Court of Appeals contesting the jurisdiction of the CIAC and assailing the propriety of the monetary awards in favor of the Spouses Cid. The Court of Appeals sustained the CIAC decision. Respondent filed a petition for review with the Supreme Court. The Supreme Court ruled that “Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitrary. IT ruled that after submitting itself to arbitration proceedings and actively participating therein, petitioner is estopped from assailing the

jurisdiction of the CIAC. Interestingly, the Supreme Court sustained the award of actual damages. However, since actual damages were proven and respondents were amply compensated, the Supreme Court withdrew the award for nominal damages. It also sustained the award of attorney’s fees even if the respondents represented themselves before the CIA because they purportedly incurred litigation expenses in pursuing their action before the CIAC, the Court of Appeals and also at the Supreme Court. PHILROCK, INC. vs. CONSTRUCTION INDUSTRY ARBITRATION COMMISSION G.R. No. 132848-49 June 26, 2001 FACTS: Private respondent Cid spouses filed a complaint for damages against Philrock and its officers. At the initial trial date, both parties agreed to refer the matter to the Construction Industry Arbitration Commission (CIAC). A preliminary conference was held among the parties and their appointed arbitrators. At these conferences, disagreements arose as to whether moral and exemplary damages and tort should be included as an issue along with breach of contract, and whether the seven officers and engineers of Philrock who are not parties to the Agreement to Arbitrate should be included in the arbitration proceedings. No common ground could be reached by the parties; hence, both the Cid spouses and Philrock requested that the case be remanded to the trial court. The Court ordered that it no longer had jurisdiction over the case and remanded the same to CIAC for arbitral proceeding. The parties proceeded to finalize, approve and sign the Terms of Reference which stated that the parties agree that their differences be settled by an Arbitral Tribunal. Thereafter, the petitioner filed a Motion to dismiss alleging that the CIAC has lost jurisdiction over the case. ISSUE: Whether or not the Construction Industry Arbitration Commission (CIAC) has jurisdiction over the case. HELD: The petition has no merit. Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration. It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by virtue of their Agreement to Arbitrate Petitioner’s contention is untenable because first, private respondents removed the obstacle to the continuation of the arbitration, precisely by withdrawing their objection to the exclusion of the seven engineers. Second, petitioner continued participating in the arbitration even after the CIAC Order had been issued. It even concluded and signed the Terms of Reference in which the parties stipulated the circumstances leading to the dispute; summarized their respective positions, issues, and claims; and identified the composition of the tribunal of arbitrators. The document clearly confirms both parties’ intention and agreement to submit the dispute to voluntary arbitration. In view of this fact, we fail to see how the CIAC could have been divested of its jurisdiction. The Court will not countenance the effort of any party to subvert or defeat the objective of voluntary arbitration for its own private motives. After submitting itself to arbitration proceedings and actively participating therein, petitioner is estopped from assailing the jurisdiction of the CIAC, merely because the latter rendered an adverse decision.

PHILROCK, INC. vs. CONSTRUCTION INDUSTRY ARBITRATION COMMISSION G.R. No. 132848-49 June 26, 2001 FACTS: Private respondent Cid spouses filed a complaint for damages against Philrock and its officers. At the initial trial date, both parties agreed to refer the matter to the Construction Industry Arbitration Commission (CIAC). A preliminary conference was held among the parties and their appointed arbitrators. At these conferences, disagreements arose as to whether moral and exemplary damages and tort should be included as an issue along with breach of contract, and whether the seven officers and engineers of Philrock who are not parties to the Agreement to Arbitrate should be included in the arbitration proceedings. No common ground could be reached by the parties; hence, both the Cid spouses and Philrock requested that the case be remanded to the trial court. The Court ordered that it no longer had jurisdiction over the case and remanded the same to CIAC for arbitral proceeding. The parties proceeded to finalize, approve and sign the Terms of Reference which stated that the parties agree that their differences be settled by an Arbitral Tribunal. Thereafter, the petitioner filed a Motion to dismiss alleging that the CIAC has lost jurisdiction over the case. ISSUE: Whether or not the Construction Industry Arbitration Commission (CIAC) has jurisdiction over the case. HELD: The petition has no merit. Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration. It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by virtue of their Agreement to Arbitrate Petitioner’s contention is untenable because first, private respondents removed the obstacle to the continuation of the arbitration, precisely by withdrawing their objection to the exclusion of the seven engineers. Second, petitioner continued participating in the arbitration even after the CIAC Order had been issued. It even concluded and signed the Terms of Reference in which the parties stipulated the circumstances leading to the dispute; summarized their respective positions, issues, and claims; and identified the composition of the tribunal of arbitrators. The document clearly confirms both parties’ intention and agreement to submit the dispute to voluntary arbitration. In view of this fact, we fail to see how the CIAC could have been divested of its jurisdiction. The Court will not countenance the effort of any party to subvert or defeat the objective of voluntary arbitration for its own private motives. After submitting itself to arbitration proceedings and actively participating therein, petitioner is estopped from assailing the jurisdiction of the CIAC, merely because the latter rendered an adverse decision.