conditioning manufacturer, owned a parcel of land located in Paranaque City. The land have buildings and improvements for the business of FKI.
• In 1975, FKI bequeath the land to Makati
Rotary Club Foundation (MRCF) by way of a Deed of Donation. • Conditions in the Deed of Donation executed
MRCF will lease back the land to FKI
Period of the lease – 25 years or until May 25, 2000 Amount of lease for the first 25 years – P40,126.00 per annum Lease is renewable for another 25 years subject of a mutual agreement of the parties; if they cannot agree, then it be submitted to a panel of 3 arbitrators • In October 1976, the parties executed an Amended Deed of Donation reiterating the provisions of the Deed of Donation, incorporating the provisions in the lease of the subject land. • May 23, 2000 – FKI and MRCF executed the 2000 Contract of Lease with the following conditions:
annual rents ranging from P4,000,000
(1st year) to P4,900,000 (5th year) contained arbitration clause in case of disagreement about the interpretation, application and execution of the lease. Board of 3 arbitrators in accordance of the arbitration laws of the Philippines. • After the expiration of the 2000 Lease Contract, parties agreed to renew the lease contract (2005 Lease Contract) with the following conditions: Fixed rent of P4,200,000 annually for 5 years
FKI must make an annual donation of
money to MRCF P3m (1st year) to P3.9m (5th year)
Contained arbitration clause in case of
disagreement about the interpretation, application and execution of the lease similar to the 2000 lease contract • June 2008 – FKI sold all rights and properties to Koppel, Incorporated, assigning all its interests and obligations under the Amended Deed of Donation and the 2005 Lease Contract.
• The following year Koppel refused to pay the
rent and donation under the 2005 lease contract because it violated the material conditions of the donation of the land in the donation and amended deed of donation. • Demand letters were sent to petitioner (Koppel) notifying of its default and the demand for the settlement of its obligation and failure to settle the same is given 7 days to vacate the premises.
• September 30, 2009 - Koppel refused to heed the
demand from MRCF and instead filed a case for rescission or cancellation of the Deed of Donation and Amended Deed of Donation.
• October 5, 2009 - MRCF filed an unlawful
detainer case against Koppel before the MeTC of Paranaque. Rulings of MeTC, RTC and CA MeTC – Dismissed the petition insufficiency of the respondent’s (MRCF) demand and the nullity of the 2005 Lease Contract.
RTC – reversed the MeTC and ordered the
eviction of the petitioner (Koppel) from the subject land and payment of lease, attorney’s fees and cost of suit.
CA – affirmed the decision of the RTC
ISSUE:
Whether or not the present
dispute is subject to arbitration. Arguments:
The disagreement between the Petitioner and
Respondent is non-arbitrable as it will inevitably touch upon the issue of the validity of the 2005 Lease Contract.
Petitioner cannot validly invoke the arbitration clause
of the 2005 Lease Contract while, at the same time, impugn such contract’s validity.
Petitioner did not file formal application before MeTC to
render such arbitration clause operational.
Underwent JDR proceedings before RTC, hence referral
to arbitration would only be circuitous. RULING:
Yes. The dispute between the petitioner and
respondent arose from the application or execution of the 2005 Lease Contract. Such kinds of dispute are covered by the arbitration clause of the 2005 Lease Contract. None of the above-mentioned arguments have any merit.
Petition is GRANTED. Referring the Petitioner and
Respondent to arbitration pursuant to Arbitration Clause of the 2005 Lease Contract repeatedly included in the 2000 Lease Contract and in 1976 Amended Deed of Donation. Ratio Decidendi:
The disagreement between the petitioner and
respondent falls within the all-encompassing terms of the arbitration clause of the 2005 Lease Contract. While it may be conceded that in the arbitration of such disagreement, the validity of the 2005 Lease Contract, or at least, of such contract’s rental stipulations would have to be determined, the same would not render such disagreement non-arbitrable. Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the fact that it assails the validity of such contract. This is due to the doctrine of separability.
An arbitration agreement is considered as
independent of the main contract. Being a separate contract in itself, the arbitration agreement may thus be invoked regardless of the possible nullity or invalidity of the main contract. The operation of the arbitration clause in this case is not at all defeated by the failure of the petitioner to file a formal “request” or application therefor with the MeTC.
Petitioner was not able to file a separate “request”
of arbitration before the MeTC. However, it is equally conceded that the petitioner had already apprised the MeTC of the existence of the arbitration clause in the 2005 Lease Contract and, more significantly, of its desire to have the same enforced in this case. This act of petitioner is enough valid invocation of his right to arbitrate. The fact that the petitioner and respondent already underwent through JDR proceedings before the RTC, will not make the subsequent conduct of arbitration between the parties unnecessary or circuitous. The JDR system is substantially different from arbitration proceedings. JDR judge lacks the authority to render a resolution of the dispute that is binding upon the parties in conflict. In arbitration, on the other hand, the dispute is submitted to an arbitrator/s—a neutral third person or a group of thereof—who shall have the authority to render a resolution binding upon the parties. The mere submission of a dispute to JDR proceedings would not necessarily render the subsequent conduct of arbitration a mere surplusage. The failure of the parties in conflict to reach an amicable settlement before the JDR may, in fact, be supplemented by their resort to arbitration where a binding resolution to the dispute could finally be achieved.