You are on page 1of 5

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
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 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.
3 October 1996 - MMI, SFI and MMIs Managing Director Liong Liong C. Sy (LILY SY) filed a Complaint
against DMC-USA, Managing Director of Del Monte Corporations Export Sales Department Paul E. Derby,
Jr., Regional Director of Del Monte Corporations 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 20
1
, 21
2
and
23
3
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.

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

2
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.

3
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.

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:
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, attorneys 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
attorneys 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 attorneys 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 Petitioners 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 Petitioners 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.