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Magellan Capital Management

Corporation v. Rolando Zosa

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
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
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
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
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

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
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
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

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