Magellan Capital Management reason, but instead informed him that the
Corporation v. Rolando Zosa Employment Agreement is terminated for
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 co-
terminous 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 Agreement.
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 Vice-
Chairman 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 non-acceptance of
respondent Zosa's resignation for good
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. Well-settled is the
rule that issues not raised below cannot be USA, as MMI’s marketing arm to
resolved on review in higher courts. concentrate on its marketing and selling
Secondly, employment agreements such as function as well as to manage its critical
the one at bar are usually contracts of relationship with the trade.
adhesion. Any ambiguity in its provisions is
generally resolved against the party who
drafted the document. Thus, in the case of
MMI, SFI and MM’Is Managing Director Lily
Phil. Federation of Credit Cooperatives,
Sy filed a Complaint against DMC-USA, Paul
Inc. (PFCCI) and Fr. Benedicto Jayoma vs.
E. Derby, Jr.,Daniel Collins ,Luis Hidalgo,
NLRC and Victoria Abril, the Court said that
and Dewey Ltd. before the RTC of Malabon.
when a contract of employment, being a
Respondents predicated their complaint on
contract of adhesion, is ambiguous, any
the alleged violations by petitioners of
ambiguity therein should be construed
Arts. 20, 21, and 23 of the Civil Code.
strictly against the party who prepared it.
According to respondents, DMC-USA
In this case, Zosa never submitted himself
products continued to be brought into the
to arbitration proceedings (as there was
country by parallel importers despite the
none yet) before bewailing the composition
appointment of MMI as the sole and
of the panel of arbitrators. He in fact, lost
exclusive distributor of Del Monte products
no time in assailing the arbitration clause
thereby causing them great embarrassment
upon realizing the inequities that may mar
and substantial damage. They alleged that
the arbitration proceedings if the existing
the products brought into the country by
line-up of arbitrators remained unchecked.
these were damaged amd/or fake, so that
The Court emphasizes that arbitration
in March 1995 they had to cause, after
proceedings are designed to level the
consultation with Antonio Ongpin, Market
playing field among the parties in pursuit
Director for Special Markets of Del Monte
of a mutually acceptable solution to their
Philippines, Inc., the publication of a
conflicting claims. Any arrangement or
"warning to the trade" paid advertisement
scheme that would give undue advantage
in leading newspapers. DMC-USA and Derby,
to a party in the negotiating table is
Jr., upset with the publication, instructed
anathema to the very purpose of
MMI to stop coordinating with Ongpin and
arbitration and should, therefore, be
to communicate directly instead with DMC-
resisted. Petition dismissed.
USA through Derby, Jr.

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-
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, attorney’s fees and litigation
expenses.
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 arbitration?
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 case.
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 petitioner.
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 work.
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 pre-trial 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.
Petitioner’s motion for reconsideration was
denied.
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 Law.
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 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.
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 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
quasi-judicial 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
demand.