Toyota Motor Philippines Corporation vs.

CA, & Sun Valley Manufacturing & Development

Corp.
(G.R. No. 102881 (216 SCRA 236), December 7, 1992)

FACTS:

In a Sept. 11, 1991 complaint filed by petitioner Toyota for the reformation of the Deed
of Sale entered into by it with respondent Sun and Asset Privatization Trust (APT). Respondent
Sun & APT moved to dismiss the same since petitioner failed to first resort to arbitration as
provided for in the provisions of their Deed of Sale.

Respondents moreover averred that the complaint for reformation states no cause of
action against it since an action for reformation is basically one strictly between the parties to
the contract itself. Third persons who are not parties to the contract cannot and should not be
involved. Thus, Sun Valley contends that it should not have been impleaded as a defendant.

ISSUE:

Whether or not the arbitration clause becomes inapplicable in the presence of a third-party.

HELD:

No, the contention that the arbitration clause has become dysfunctional because of the
presence of third parties is untenable. The High Court held that contracts are respected as the
law between the contracting parties. As such, the parties are thereby expected to abide with
good faith in their contractual commitments.

From the facts provided, petitioner Toyota filed an action for reformation of its contract with
APT, the purpose of which is to look into the real intentions/agreement of the parties to the
contract and to determine if there was really a mistake in the designation of the boundaries of
the property as alleged by Toyota. Such questions can only be answered by the parties to the
contract themselves. This is a controversy which clearly arose from the contract entered into by
APT and Toyota. Inasmuch as this concerns more importantly the parties APT and Toyota
themselves, the arbitration committee is therefore the proper and convenient forum to settle
the matter as clearly provided in the deed of sale. Therefore, since the RTC judge failed to at
least suspended the proceedings in view of the Arbitration Clause, the parties are directed to
settle their dispute by arbitration.