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G.R. No. 198075, September 4, 2013


• Fedders Koppel, Incorporated (FKI), an air-

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

 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

 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

 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

• 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
Rulings of MeTC, RTC and CA
 MeTC – Dismissed the petition
insufficiency of the respondent’s (MRCF)
demand and the nullity of the 2005 Lease

 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


Whether or not the present

dispute is subject to arbitration.

 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

 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.

 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
 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
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.