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predicated their complaint on the

GR No. 136154 | Feb 7, 2001 | Petition for alleged violations by Del Monte et al. of
Review on Certiorari | Bellosillo Articles 201, 212 and 233 of the Civil Code.
Petitioners: Del Monte Corp. USA, Paul Derby According to them, DMC-USA products
Jr., Daniel Collins & Luis Hidalgo continued to be brought into the country by
Respondents: CA, Malabon RTC Branch parallel importers despite the appointment
74 Judge Bienvenido Reyes, of MMI as the sole and exclusive distributor
MontebuenoMarketing, Inc., LiongLiong C. of Del Monte products thereby causing them
Sy and SabrosaFodds, Inc. great embarrassment and substantial
damage. They alleged that the products
Facts: brought into the country by these importers
1 July 1994 - in a Distributorship Agreement, were aged, damaged, fake or counterfeit, so
Del Monte Corporation-USA (DMC-USA) that in March 1995 they had to cause, after
appointed Montebueno Marketing, Inc. (MMI) prior consultation with Antonio Ongpin,
as the sole and exclusive distributor of its Market Director for Special Markets of Del
Del Monte products in the Philippines for a Monte Philippines, Inc., the publication of a
period of five (5) years, renewable for two "warning to the trade" paid advertisement in
(2) consecutive five (5) year periods with the leading newspapers. DMC-USA and Paul E.
consent of the parties. Derby, Jr., apparently upset with the
Said agreement provided for an arbitration publication, instructed private respondent
clause, which states: MMI to stop coordinating with Antonio
This Agreement shall be governed by the Ongpin and to communicate directly instead
laws of the State of California and/or, if with DMC-USA through Paul E. Derby, Jr.
applicable, the United States of America. All MMI et al. further averred that:
disputes arising out of or relating to this 1. DMC-USA et al. knowingly and
Agreement or the parties relationship, surreptitiously continued to deal with the
including the termination thereof, shall be former in bad faith by involving
resolved by arbitration in the City of San disinterested third parties and by
Francisco, State of California, under the proposing solutions which were entirely
Rules of the American Arbitration out of their control
Association. The arbitration panel shall 2. they had exhausted all possible avenues
consist of three members, one of whom shall for an amicable resolution and
be selected by DMC-USA, one of whom shall settlement of their grievances
be selected by MMI, and third of whom shall 3. as a result of the fraud, bad faith, malice
be selected by the other two members and and wanton attitude of DMC-USA et al.,
shall have relevant experience in the they should be held responsible for all
industry the actual expenses incurred by MMI et
October 1994 - appointment of MMI as the al. in the delayed shipment of orders
sole and exclusive distributor of Del Monte which resulted in the extra handling
products in the Philippines was published in thereof, the actual expenses and cost of
several newspapers in the country. money for the unused Letters of Credit
Immediately after its appointment, MMI (LCs) and the substantial opportunity
appointed Sabrosa Foods, Inc. (SFI), with the losses due to created out-of-stock
approval of DMC-USA, as MMIs marketing situations and unauthorized shipments of
arm to concentrate on its marketing and Del Monte-USA products to the Philippine
selling function as well as to manage its Duty Free Area and Economic Zone
critical relationship with the trade. 4. the bad faith, fraudulent acts and willful
3 October 1996 - MMI, SFI and MMIs negligence of DMC-USA et al., motivated
Managing Director LiongLiong C. Sy (LILY SY) by their determination to squeeze MMI et
filed a Complaint against DMC-USA, 1
Managing Director of Del Monte Art. 20. Every person who, contrary to law, wilfully or
Corporations Export Sales DepartmentPaul negligently causes damage to another, shall indemnify
E. Derby, Jr.,Regional Director of Del Monte the latter for the same.
Corporations Export Sales 2
DepartmentDaniel Collins, Head of Credit Art. 21. Any person who wilfully causes loss or injury
Services Department of Del Monte to another in a manner that is contrary to morals, good
Corporation Luis Hidalgo and Dewey Ltd. customs or public policy shall compensate the latter for
before Malabon RTC. the damage.

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
al. out of the outstanding and on-going authorizes arbitration of domestic disputes,
Distributorship Agreement in favor of foreign arbitration as a system of settling
another party, had placed Lily Sy on commercial disputes was likewise recognized
tenterhooks since then when the Philippines adhered to the United
5. the shrewd and subtle manner with Nations "Convention on the Recognition and
which DMC-USA et al. concocted the Enforcement of Foreign Arbitral Awards
imaginary violations by MMI of the of 1958" under the 10 May 1965 Resolution
Distributorship Agreement in order to No. 71 of the Philippine Senate, giving
justify the untimely termination thereof reciprocal recognition and allowing
was a subterfuge enforcement of international arbitration
21 October 1996 DMC-USA et al. filed agreements between parties of different
a Motion to Suspend Proceedings, invoking nationalities within a contracting state.
the arbitration clause. A careful examination of the instant case
RTC: deferred consideration of DMC-USA et shows that the arbitration clause in the
al.s Motion to Suspend Proceedings as the Distributorship Agreement between DMC-
grounds alleged therein did not constitute USA and MMI is valid and the dispute
the suspension of the proceedings between the parties is arbitrable. However,
considering that the action was for damages this Court must deny the petition.
with prayer for the issuance of Writ of The Agreement between DMC-USA and
Preliminary Attachment and not on the MMI is a contract. The provision to
Distributorship Agreement submit to arbitration any dispute
DMC-USA et al. filed a MR to which MMI et arising therefrom and the relationship
al. filed their comment/opposition. of the parties is part of that contract
DMC-USA et al. filed a reply. They later on and is itself a contract. As a rule,
filed a Motion to Admit Supplemental contracts are respected as the law between
Pleading. the contracting parties and produce effect as
Said motion was admitted. between them, their assigns and heirs.
As a result of the admission of Clearly, only parties to the Agreement, i.e.,
the Supplemental Complaint, DMC-USA et al. DMC-USA and its Managing Director for
filed on 22 July 1997 Export Sales Paul E. Derby, Jr., and MMI and
a Manifestation adopting their Motion to its Managing Director LILY SY are bound by
Suspend Proceedings of 17 October 1996 the Agreement and its arbitration clause as
and Motion for Reconsiderationof 14 January they are the only signatories thereto.
1997. o Daniel Collins and Luis Hidalgo, and SFI,
11 November 1997 - the Motion to Suspend not parties to the Agreement and cannot
Proceedings was denied by the trial court on even be considered assigns or heirs of
the ground that it "will not serve the ends of the parties, are not bound by the
justice and to allow said suspension will only Agreement and the arbitration clause
delay the determination of the issues, therein.
frustrate the quest of the parties for a Consequently, referral to arbitration in
judicious determination of their respective the State of California pursuant to the
claims, and/or deprive and delay their rights arbitration clause and the suspension
to seek redress. of the proceedings in Civil Case No.
On appeal, the CA affirmed the RTC decision. 2637-MN pending the return of the
arbitral award could be called for but
Hence, this petition.
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
WON the disputebetween the parties warrants an
accordance with the recent case of Heirs of
order compelling them to submit to arbitration [NO]
Augusto L. Salas, Jr. v. Laperal Realty
Corporation, which superseded that
of Toyota Motor Philippines Corp. v. Court of
There is no doubt that arbitration is valid and Appeals.
constitutional in our jurisdiction.Even before o In Toyota, the Court ruled that "[t]he
the enactment of RA 876, this Court has contention that the arbitration clause
countenanced the settlement of disputes has become dysfunctional because of
through arbitration. Unless the agreement is the presence of third parties is untenable
such as absolutely to close the doors of the ratiocinating that "[c]ontracts are
courts against the parties, which agreement respected as the law between the
would be void, the courts will look with favor contracting parties"and that "[a]s such,
upon such amicable arrangement and will the parties are thereby expected to
only interfere with great reluctance to abide with good faith in their contractual
anticipate or nullify the action of the commitments."
arbitrator. Moreover, as RA 876 expressly
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.