ADR CASES (DIGESTS OF CASES 1-33)
#1-7(LADY)
1. Purefoods Corporation vs Court of Appeals
and Far East Mills Supply Corporation
NOTA BENE: di ko alam bakit kasali ang case na
ito. Wala gi discussed ang adr aside sa introductory
topic.-LADY
This is a simple case for specific
performance with damages which could have been
resolved through mediation and conciliation during
its infancy stage had the parties been earnest in
expediting the disposal of this case. They opted
however, to resort to full court proceedings and
denied themselves the benefits of Alternative
Dispute Resolution, thus making the process
arduous and long drawn.
FACTS: In 1992, there was a power crisis in the
country. Purefoods decided to install two 1500KW
generators in its food processing plant in Marikina
in order to remedy and curtail further losses. A
bidding was held. Out of 8, 3 bidders FEMSCO,
MONARK and ADVANCE Power submitted the
performance bond of 1.8M and contractor’s all risk
insurance policy which Purefoods through its
president acknowledged.
Thereafter, Purefoods unilaterally cancelled the
award as “significant factors” were uncovered.
FEMSCO protested the cancellation. Before the
matted could be resolve, Purefoods allegedly
awarded the project with Jardine, which was one
of the bidders. Femsco write to respondent to
honor its contracts an to Jardine to cease and
desist. When it was unheeded, trial ensued.
The TC ruled in favour of FEMSC which was
affirmed by the court of Appeals. Petitioner
contended that there was a misapprehension of
facts and no binding contract as there was only a
qualified acceptance which is a counter offer.
ISSUE: WON THERE EXISTED A PERFECT
CONTRACT BETWEEN PUREFOODS AND FEMSCO?
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RULING: YES.
A contract is defined as a “juridical
convention manifested in legal form, by virtue of
which one or more persons bind themselves in
favour of another or others, or reciprocally, to the
fulfilment of a prestation to give, to do, or not to
do.” There can be no contract unless the following
requisites concur : (a) consent of the contracting
parties, (b) object certain which is the subject
matter of the contract; and, (c) cause of the
obligation which is established. A contract binds
both contracting parties and has the force of law
between them.
It is perfected by mere consent, upon the
acceptance of the offeree of the offer made by the
offeror. From that moment, the parties are bound
not only to the fulfilment of what has been
expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and law.
The acceptance must not qualify the terms of the
offer. It may be accepted expressly or impliedly
and must be known to the offereor.
The letter of Purefoods to FEMSCO
constituted acceptance of the latter’s offer as
contemplated by law.It is categoricaland while the
same letter contains “basic terms and conditions”,
these conditions were imposed on the performance
of the obligation rather than on the perfection of
the contract. Furthermore, FEMSCO’s submission
of the performance bond and contractor’s all- risk
insurance was an implied acceptance.
The unilateral cancellation of the contract,
the defendant(PUREFOODS) had acted in bad faith
and this further aggravated by the subsequent
inking of a contract between Purefoods and
erstwhile co defendant Jardine.
2. MAGBANUA vs UY
FACTS: As a final consequence of the final and
executory decision of the SC in a labor case
conducted by the NLRC in determining the amount
of wage differentials due to 8 complainants
amounting to P1, 487, 312.69 pesos. Petitioners
filed a motion for Issuance of Writ of Execution.
Respondent (Uy), on the other hand, filed a
manifestation that the cases be terminated and
closed stating that the judgement has been
complied with to the satisfaction of petitioners
(Magbanua et al). This was signed by the 8
petitioners together with an affidavit attesting to
the receipt of payment amounting to P40 thousand
pesos each as well as waiving all other benefits due
them.
The Labor Arbiter denied the Motion for
issuance of writ of execution and considered the
cases closed and terminated. It was however,
reversed by the CA holding that compromise
agreements may be entered into even after final
judgment. Thus, petitioners validly released
respondent from any claims.
ISSUE: WON THE FINAL AND EXECUTORY
JUDGMENT OF THE SC COULD BE SUBJECT TO A
COMPROMISE?
RULING: NO
Validity of the Compromise Agreement
A compromise agreement is a contract whereby
the parties make reciprocal concessions in order to
resolve their differences and thus avoid or put an
end to a lawsuit. They adjust their difficulties in the
manner they have agreed upon, disregarding the
possible gain in litigation and keeping in mind that
such gain is balanced by the danger of losing.
Verily, the compromise may be either extrajudicial
(to prevent litigation) or judicial (to end a
litigation).
A compromise must not be contrary to law, morals,
good customs and public policy; and must have
been freely and intelligently executed by and
between the parties. To have the force of law
between the parties, it must comply with the
requisites and principles of contract. Upon the
parties, it has the effect and authority of res
judicata, once entered into.
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When a compromise agreement is given judicial
approval, it becomes more than a contract binding
upon the parties. Having been sanctioned by the
court, it is entered as a determination of a
controversy and has a force and judgment. It is
immediately executory and not appealable,
except for vices of consent or forgery. The
nonfulfillment of its terms and conditions justifies
the issuance of a writ of execution; in such an
instance, execution becomes a ministerial duty of
the court.
Following these basic principles, apparently
unnecessary is a compromise agreement
after final judgment has been entered.
Indeed, once the case is terminated by final
judgment, the rights of the parties are
settled. There are no more disputes that can
be compromised.
Compromise Agreements after Final Judgment
The court is tasked, to determine the legality of a
compromise agreement after final judgment. It
was argued by petitioners that a compromise
agreement of a final judgment is invalid under
Article 2040 of the CC,which we quote:
“Art. 2040. If after litigation has been decided by
a final judgment, a compromise should be agreed
upon, either or both parties being unaware of the
existence of the final judgment, the compromise
may be rescinded. “ignorance of a judgment which
may be revoked or set aside is not a valid ground
for attacking a compromise”.
The first paragraph of Art 2040 refers to a scenario
in which either or both of the parties are unaware
of a court’s final judgment at the time they agree
on a compromise. In this case, the law allows
either of them to rescind the compromise
agreement. It is evident from the quoted
paragraph that such an agreement is not
prohibited or void or voidable. The law allows a
party to rescind a compromise agreement, because
it could have been entered into in ignorance
of the fact that there was already a final
judgment. Knowledge of a decision’s finality
may affect the resolve to enter into a
compromise agreement.
The second paragraph, though irrelevant to the
present case, refers to the instance when the
court’s decision is still appealable or otherwise
subject to modification. Under this, ignorance of
the decision is not a ground to rescind a
compromise agreement because the parties are
still unsure of the outcome of the case at this time.
Petitioner’s argument, therefore, fails to convince.
The article does not refer to the validity of a
compromise agreement after final
judgment. Lack of knowledge is wanting in
this case.
Furthermore, there is no justification to disallow a
compromise agreement, soley because it was
entered into after final judgment. The validity is
determined by compliance with the requisites and
principles of contracts and not by when it was
entered into. As provided by the law on contracts,
a valid compromise must have the following
elements:
a.the consent of the parties to the
compromise
b. an object certain that is the subject
matter of the compromise
c. the cause of the obligation that is
established.
In the present case, compliance with the elements
is not an issue. They do not challenge the factual
finding that they entered into a compromise
agreement with respondent. There are no
allegations of vitiated consent nor there is any
proof that the agreement was defective or could
be characterize as rescissible, voidable,
unenforceable, or void. Instead, they base their
argument on the sole fact that the agreement was
executed despite a final judgment, which the rules
had previously ruled to be allowed by law.
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Petitioners voluntarily entered into the
compromise, as shown by the following facts:
1. They signed the Manifeststion that the judgment
award had been satisfied.
2. They executed a join affidavit attesting to the
receipt of payment and the waiver of all other
benefits due them.
3. 6 of the 8 petitioners filed a manifestation
requesting that the cases be terminated because
of their receipt of payment in full satisfaction of
their claims.
Having alreadt benefitted from the agreement,
estoppels bars petitioners from challenging it.
ADDENDUM: (di na kasali sa issue pero about
Advantages of Compromise)
A reciprocal concession inherent in a compromise
agreement assures benefits for the contracting
parties. For the defeated litigant, obvious is the
advantage of a compromise after final judgment.
Liability arising from the judgments may be
reduced. As to the prevailing party, a compromise
agreement assures receipt of payment. Litigants
are sometimes deprived of their winnings because
of unscrupulous mechanisms meant to delay or
evade the execution of final judgment.
The advantages of a compromise agreement
appear to be recognized by the NLRC in its Rules
of Procedure. As part of the proceedings in
executing a final judgment, litigants are required
to attend a pre0 execution conference to thresh
out matters relevant to the execution. In the
conference, any agreement that would settle the
final judgment in a particular manner is necessarily
a compromise.
3. LM POWER ENGINEERING CORPORATION
VS CAPITOL INDUSTRIAL CONSTRUCTION
GROUPS, INC.
Alternative Dispute Resolution Methods like
arbitration, mediation, negotiation and conciliation
are encouraged by the Supreme Court. By enabling
parties to resolve their disputes amicably, they
provide solutions that are less time- consuming,
less tedious, less confrontational, and more
productive of goodwill and lasting relationships.
FACTS:
On 1983, petitioner and respondent entered into a
Subcontract Agreement involving electrical work at
the Third port of Zamboanga. Respondent took
over some of the work contracted to petitioner.
Allegedly, the latter had failed to finish it because
of its inability to procure materials.
After completing the task, petitioner billed
respondent. However, the latter refused to pay by
contesting the accuracy of the amount advances
and billable accomplishments. It took refuge to the
termination clause of the contract allowing set off
the cost of the work that petitioner had failed to
undertake due to termination or take -over against
the amount it owed to the latter.
A collection of the amount has been filed by
petitioner. Instead of filing an Answer, respondent
filed a Motion to Dismiss alleging that the
complaint was premature because there was no
prior recourse to arbitration.
RTC denied the motion on the ground that the
dispute did not involve the interpretation or
implementation of the agreement, hence, not
covered by the arbitral clause.
CA reversed and ordered referral to arbitration.
ISSUE: 1. WON THE DISPUTE REQUIRES PRIOR
RECOURSE TO VOLUNTARY ARBITRATION?
RULING: YES.
The dispute arose from the parties incongruent
positions on whether certain provisions of their
Agreement could be applied to the facts. The
instant case involves technical discrepancies
that are better left to an arbitrary body that
has expertise in those areas. In any event, the
inclusion of an arbitration clause in a contract does
not ipso facto divest the courts of jurisdiction to
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pass upon the findings of arbitral bodies, because
the awards are still judicially reviewable under
certain conditions.
The party’s Arbitral Clause indicates that the
parties agree that any dispute or conflict as
regards to interpretation and
implementation of this Agreement which
cannot be settled between them amicably
shall be settled by means of arbitration.
Clearly, the resolution of the dispute between the
parties herein requires a referral to the provisions
of their Agreement. Within the scope of the
Arbitration clause are discrepancies as to the
amount of advances and billable accomplishments,
the application of the provision on termination, and
the consequent set-off of expenses.
Being an inexpensive, speedy and amicable
method of settling disputes,arbitration along with
mediation, conciliation and negotiation, is
encouraged by the Supreme Court. Aside from
unclogging judicial dockets, it also hastens the
resolution of disputes, especially of the commercial
kind. It is thus regarded as the wave of the future
in international civil and commercial disputes.
Brushing aside a contractual agreement calling for
arbitration between the parties would be a step
backward.
Consistent with the above policy of encouraging
adr methods, courts should liberally construe
arbitration clauses. Provided that such is
susceptible of an interpretation that covers the
asserted dispute, an order to arbitrate should be
granted. Any doubt should be resolved in favour of
arbitration.
ISSUE 2. WON RULES REGARDING REQUEST FOR
ARBITRATION HAVE BEEN COMPLIED WITH?
RULING: YES.
Under the present Rules of Procedure
(Construction Industry Arbitration Commission
Resolution Nos. 2-91 and 3-93), for a particular
construction contract to fall within the jurisdiction
of CIAC, it is merely required that the parties
agree to submit the same to voluntary
arbitration unlike in the original version of
Section 1, the law as it now stands does not
provide that then parties should agree to
submit disputes arising from their
agreement for the latter to acquire
jurisdiction over the same. It is plain and clear
that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum
they may choose, their agreement will fall within
the jurisdiction of the CIAC. The parties will not be
precluded from electing to submit their dispute
because this right has been vested upon each party
by law.
There is no more need to file a request with the
CIAC in order to vest it with jurisdiction. The
arbitral clause is a commitment on the part of the
parties. It is binding so they must abide by it in
good faith.
4. JULIA de la Merced vs ROMAN CATHOLIC
FacTS:
This involves a Representative suit initiated by the
petitioners against the respondents. They claimed
to be representing numerous lessees of a parcel of
land in Paco, Manila belonging to the Archbishop
as corporation sole and allege that they had
occupied the leased premises for many years under
oral agreements for indefinite terms and had
introduced improvements therein.
The parties, thereafter, executed and submitted to
the TC a compromise agreement. Such agreement
provides that the parties through their respective
counsel manifest that they have compromised this
case and that they are submitting to the sound
discretion of the court the determination of the
length of time with which the plaintiffs may remain
on the land. After which, they shall voluntarily
vacate the land and remove whatever
improvements they may have thereon. Failure on
their part shall authorize the defendants to
immediately apply for writ of execution and an
order for forcible ejectment. They submit that the
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said period should be from 6months to one yr from
date of judgment and that they shall pay rentals in
arrears.
Six months thereafter, defendants moved for the
execution averring that plaintiffs failed to pay the
stipulated rentals. Plaintiffs opposed claiming that
the compromised had not been authorized by them
as there are no special authority given to their
counsel and that they would not have agreed to it
had they been informed of its terms and prayed
that the judgment be set aside.
ISSUE: WON THE PARTIES IN SETTLING THE
DISPUTE ENTERED INTO A COMPROMISE?
RULING: NO.
A review of the decision and agreement reveal that
the contention of the appellants was not wholly
a result of the pretended compromise. The
length of time that the appellants should be
allowed to stay was not settled by the parties at
all, but only submitted by them to the discretion of
the court. There was an independent
judgment in the exercise of the court’s
power under ART 1687 of the CC and it
became final for lack of appeal. No reason why it
should not be executed. Their stay on the premises
was the maximum period demanded by them.
Neither does the removal nor the forfeiture of the
improvements in case of failure to do so constitute
concession or a compromise. Art 1678 of the CC
provides that when a lessee fails to remove his
improvements despite being authorized to do so
and failure of the lessor to pay one- half of their
value, the only legal conclusion is that he abandons
them and that the lessor may deal withn them as
he chooses.
The requirement of paying rentals was their
legal obligation as lessees and did not
originate from the compromise. It was the
consideration for the use of land. The rentals in
arrears which was said to be subject to future
negotiations settles nothing by itself and can in no
way be deemed a compromise waiver of their
rights.
Thus, the compromise agreement submitted
to the court and incorporated in its decision
contained nothing more than a recognition
of the obligations of the lessess under the
facts disclosed in the pleadings, in
conformity with existing law. It was not a true
compromise, the essence of which resides in
reciprocal concessions, since it has been shown
that any concessions here were solely on the part
of the lessor. Consequently, the rules invoked by
the appellants as to the necessity of special
authority for an attorney to effectuate a
compromise are not opposite and are totally
inapplicable. That the stipulation was labelled
“compromise” does not make it one in fact.
5. REPUBLIC vs ESTENZO
FACTS:
On 1961, the Land Tenure Administration,
representing the Republic initiated and prosecuted
expropriation proceedings for the acquisition of
some 591, 0654 hectares of private agricultural
lands in Leyte and owned by respondents
Espeletas, Martinezes and Pachecos, for resale to
tenants pursuant to RA 1400.
The said land was condemned for P411,
995.78pesos. Republic had already paid partial
sums of money. An interest of 6% on the unpaid
balance was ordered. Dissenting, Republic
commence an appeal which was later on
withdrawn upon reaching a compromise
agreement reducing the price to P350,000.00. The
Republic failed to pay the balance resulting for the
respondents to file an action annulling the
amended agreement on the ground that the
compromise agreement was secured through
fraud.
The parties, upon reaching the Supreme Court,
entered anew into another compromise agreement
on August 5, 1964. The Republic covenanted to
satisfy on or before 31 August 1964 the balance
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plus 6% per annum interest from 22 August 1962.
Landowners, agreed to renounce any and all
further claims against the former which has been
recognized earlier by the lower court. SC approved
the amicable settlement and dismissed the
petition.
Unfortunately, Republic failed again to pay the
balance. Hence, this present action.
ISSUE: WHICH OF THE TWO COMPROMISE
AGREEMENTS ARE BINDING BETWEEN THE
PARTIES?
RULING: THE COMPROMISE AGREEMENT
ENTERED ON AUGUST 5,1964 ( Second one)
The second compromise agreement
superseded all the agreements and
proceedings that had been previously taken
place and was the final and definitive
settlement of the controversies by and
between the parties. From the time it was
entered into it became the source of their rights
and obligations, the purpose of a compromise
being precisely to replace and terminate the
controverted claims (ART 2028, CC). As entered
into, that settlement had the force of res judicata
as to them, and was enforceable by execution
upon approval by the court.
It thus follows that all resort to the original decision
14 June 1962 and its amendment of 28 July 1962
or to the first compromise on 24 August 1962, was
improper, since all such orders and decisions have
been nullified by the second one. Whatever writ of
execution could be issued by the respondent judge
must necessarily be predicated on the second
compromise, and conform to the terms thereof.
6. LANDOIL RESOURCES CORPORATION VS
JUSTICE TENSUAN
FACTS:
In 1983, Landoil through its insurance brokers
obtained from Outhwaite and Company
(respondents) insurance coverage in the amount
of US $50,000,000.00 for its operation and those
of its affiliates and subsidiaries against certain
political risks outside the Phil. Upon full payment of
the premium, it had issued a policy to Landoil.
In the same year, insurance claim for its
construction project in Middle east was made by
pet but the claim was denied on the allege grounds
of non- disclosure and misrepresentation. Hence
an action for enforcement of insurance claims and
for compensatory and exemplary damages was
filed.
In 1986, Outwaite commenced arbitration
proceedings against petitioners in the London
Court of Arbitration pursuant to the arbitration
clause contained in the policy. The parties
thereafter entered into an amicable settlement
which was approved by the CA on March 1987. This
was questioned by the petitioners arguing that
Motion to Approve Amicable Settlement must be
filed with the trial court.
ISSUE: WON THE MOTION TO APPROVE
AMICABLE SETTLEMENT IS WITHIN THE
JURISDICTION OF THE COURT OF APPEALS?
RULING: YES.
The Court of Appeals acquired jurisdiction
over the case when the Petition for
Certiorari/ prohibition was filed and the
petitioners filed their comment. Having
acquired jurisdiction, the same cannot be lost on
the basis of an intervening event, such as the
amicable settlement of the parties. Jurisdiction
once acquired by a court remains with it until the
full termination of the case, unless the law provides
the contrary. Accordingly, all matters related
thereto may properly be filled before the CA,
especially so if the purpose thereof is to
terminate once and for all the controversy
between the parties. To require the\at the
motion must be filed with the trail court
would only unduly delay the case, since,
proceedings in the trial court would
necessarily be held in abeyance.
Clap clap powerful!!!!
In fact, jurisprudence in a lone line of decisions has
established without question that compromise
agreements reached by the parties in a case and
filed before either the Court Of Appeals or the
Supreme Court, have been approved and/or
sustained by this court.
ADDENDUM: There is also a contention that the
Motion to Approve Amicable Settlement should
require the presentation of evidence to prove and
establish the allegations in the motion.
Such contention has no merit. The parties
who signed and executed the compromise willingly
and voluntarily should be bound by its terms. Thus,
a person cannot repudiate the effects of his
voluntary acts simply because it does not fit him or
because the judge before whom he executed the
act, did not have jurisdiction of the case. The
absence of the signature has no effect for the only
elements necessary to valid agreement are the
reality of the claim made and the bonafides of the
compromise. Hence, if a binding oral compromise
agreement has been entered into, the mere fact
that a written agreement is subsequently drawn to
evidence, does not detract from the validity of the
oral agreement, even though the written evidence
thereof is not signed.
7. REFORMIST UNION VS NLRC
FACTS:
Petitioner Union filed a notice of strike on 13 Nov
1989 because of alleged acts of unfair labor
practice committed by respondents. AS the parties
failed to reach an agreement, R.B. liner thereafter
petitioned then Sec Drilon of the DOLE to assume
jurisdiction over the dispute or to certify it to the
NLRC for compulsory arbitration and issued a
return-to-work order. This was granted. The
certified case was also dismissed after the union
and the company reached an agreement.
A certification election was held where the union
won as the collective bargaining agent of the rank-
and-file employees. They presented the proposal
for a CBA but the respondents refused to bargain.
An action was thereafter filed by the union for
Unfair Labor Practuce. This was countered by the
respondents by filing a case seeking to declare as
illegal the union’s NOV 13, 1989 strike as well as
the work stoppage.
ISSUE: WON THE LEGALITY OF THE STRIKE CAN
STILL BE CONTESTED EVEN AFTER THE PARTIES
ENTERED INTO COMPULSORY ARBITRATION?
RULING: NO.
The respondent company can no longer
contest the legality of the strike held by the
union on 13 December 1989, as the company
themselves sought compulsory arbitration in
order to resolve that very issue, this was
evidenced by their letter to the Labor Secretary.
The dispute was settled when the company and
the union entered into an agreement on 19
January 1990 where the private respondents
agreed to accept all employees who by then, had
not yet returned to work. By acceding to the
peaceful settlement brokered by NLRC, the
company waived the issue of the illegality of the
strike.
The very nature of compulsory arbitration makes
the settlement binding upon the respondents, for
compulsory arbitration has been defined as “the
process of settlement of labor disputes by a
government agency which has the authority to
investigate and to make an award which is binding
on all parties,” and as a mode of arbitration where
the parties are “compelled to accept the resolution
of their dispute through arbitration by a third
party.”
Clearly, the legality of the strike could no longer be
reviewed by the LA, much less by the NLRC, as this
had been resolved. The case was dismissed after
the union and the company drew up the agreement
mentioned earlier. This conclusively disposed of
the strike issue.
The Labor code provides that the decision in
compulsory arbitration proceedings shall be final
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and executor 10 calendar days after receipt by the
parties. The parties was informed of the dismissal
and while nothing in the record indicates when the
said letter was received, it is reasonable to infer
that more than 10 days elapsed, hence, NLRC
decision had already become final and executor
and no longer susceptible to change, revision,
amendment, or reversal.
#8-14 (FRITZ)
8. Republic of the Philippines vs Garay
FACTS:
This is an ordinary action for the recovery by the
Government of several sums of money allegedly
due from defendant Marcelo B. Garay by way of
deficiency income tax for the years 1946, 1948 and
1949. Garay filed a pleading stating substantially
that Commissioner of Internal Revenue —
demanded from him (defendant) the payment, by
way of deficiency income tax for said years, of the
aggregate amount of P14,843.22.
Garay agreed to pay said sum but requested that
he be allowed to settle his obligation in twelve (12)
equal monthly instalments. The Commissioner had
acquiesced to this request.
Soon thereafter, the Government filed a motion
stating that, "due to an oversight," the lower court
had "failed to provide for the surcharges and
interests which defendant became liable under his
admission, as ... the taxes involved were to be paid
on instalments, and prayed for a modified amount.
This was denied upon the ground that the
aforementioned judgment was "based upon a
compromise agreement of the parties" and that the
"suppose surcharges and other penalties now
being claimed by the Government must have been
taken into consideration" when said agreement
was entered into and filed with the court.
ISSUE: WON there is a compromise agreement
RULING: YES
Article 2028 of the Civil Code of the Philippines
provides:
A compromise is a contract whereby the
parties, by making reciprocal concessions,
 avoid a litigation or put an end to one
already commenced.
It is obvious that the entitled "Confession of
Judgment," filed by Garay, and bearing, not only
the signature of his counsel, but, also, that of
counsel for the Commissioner, partook of the
nature of a compromise, for, in consideration of
Garay's recognition of his obligation to, and the
Commissioner's willingness to allow its payment on
installments, both had agreed to put an end to the
present litigation, thru the rendition of a specific
request for "a sort of compromise agreement,"
which was expressly "granted," in the letter of the
Commissioner. Then, also, the Government
derived from said agreement the advantage of
collecting P2,843.22, upon receipt of said letter by
Garay, aside from putting an end to the litigation
and the assurance of monthly collections of P1,000
for one year. Again, although the motion captioned
"Confession of Judgment" was not signed by the
Commissioner, his letter, annexed to said motion,
and, accordingly, forming part thereof, bears his
signature.
9. GR L-21416
Dasalla, Sr. vs. Court of First Instance
FACTS:
The complaint sought to recover damages
sustained for the death of Dasalla's son who died
when the passenger jeepney driven and owned by
Sumangil figured in an accident. The complaint
prayed for payment of P30,000.00 moral damages;
exemplary damages in an amount left to the
discretion of the court, attorney's fees of P5,000.00
and costs.
In his answer, Sumangil prayed for the dismissal of
the complaint. He denied the allegations of the
complaint and alleged that this civil obligations to
Dasalla was already settled; and that the latter
executed an affidavit condoning, waiving and
forgiving all others damages he may be entitled to
after receipt of P6,000.00 from the former. The
complaint was dismissed.
ISSUE: WON it is allowed in this jurisdiction to
compromise or waive the criminal aspect of the case
RULING: No, only the civil aspect.
Clap clap powerful!!!!
There is no law which prohibits a person who has
incurred damages by reason of the act of another
from waiving whatever' rights he may have against
the latter. If the act causing damage to another also
constitutes a crime, the civil liability arising from the
criminal act may also be validly waived.
What is not allowed in this jurisdiction is to
compromise or to waive the criminal aspect of a
case.1âwphi1 The reason or principle underlying
the difference between rights which may be waived
and rights which may not be waived is that those
rights which may be waived are personal, while
those rights which may not be waived involve
public interest which may be affected.
In a compromise or a waiver of the civil aspect of
the case, the restriction imposed by law is that it
must be entered into before or during litigation,
never after final judgment (Romero v. Amparo, 91
Phil., 228). A compromise on the civil aspect of a
case is valid even if it turns out to be unsatisfactory
to either or both of the parties (Castro v. Castro, 97
Phil., 705). The case of Balite v. People, (L-21475,
Sept. 30, 1966, 18 SCRA 280, 290) enumerated
the reasons to support the conclusion that civil
liability may be waived or condoned:
. . ., express condonation by the offended
party has the effect of waiving civil liability
with regard to the interest of the injured
party (Article 23, Revised Penal Code).
For, civil liability arising from an offense is
extinguished in the same manner as other
obligations, in accordance with the
provisions of the civil law (Art. 112,
Revised Penal Code. See also Article
2034, Civil Code which reads: "There may
be a compromise upon the civil liability
arising from an offense; but such
compromise shall not extinguish the public
action for the imposition of the legal
penalty").
For reasons stated in the "Sinumpaang Salaysay,"
Dasalla voluntarily released the private respondent
from his civil obligations. The affidavit executed by
Dasalla, releasing Sumangil from additional civil
liability arising from the death of the former's son,
is legal. It is not contrary to law, morals, good
customs, public policy or public order.
Consequently, he can no longer institute a
complaint to recover damages arising from the
same incident subject of the affidavit.
A party to the settlement cannot be allowed to
renege on his undertaking therein after receiving
the benefits thereof. As long as the parties entered
into the settlement voluntarily and intelligently, the
courts are bound to respect the agreement.
10. 39 S 446
11. GR L-39669
International Hotel Coporation vs Lacerna
FACTS:
Petitioners had started the construction of an hotel
on their own land, herein involved, which, however,
was mortgaged to two banks, the Philippine
Commercial and Industrial Bank and the
Commercial & Trust Company. In that
construction, they utilized materials purchased
from the Reparations Commission on terms.
The Reparations Commission sued the petitioners
and the two banks alleging that notwithstanding
that the purchase price of its materials bought from
it by petitioners had not yet been paid, the two
banks were already taking over the land of
petitioners, with the improvements thereon, by
virtue of the mortgages. It further alleged that the
mortgages were null and void, since under the law,
the materials purchased by petitioners remained to
be properties of the Commission until fully paid. It
asked the court to recognize and give effect to its
preferential position as creditor as against the
banks.
It turned out, however, that the banks had already
actually consolidated petitioners' land and
improvements and had, in fact, subsequently sold
them, to respondent Pacific Hotel Corporation,
among whose stockholders are herein
respondents Basilio Lirag, Manuel M. Sison and
Danilo Lacerna, who are also stockholders of
petitioner International Hotel Corporation. Upon
learning of this sale, petitioners filed a third-party
complaint against private respondents charging
them and the banks, against whom the
corresponding cross-claims were also filed, with
having connived and conspired against them in
bad faith and to their prejudice in entering into such
transaction. A compromise appears to have been
arrived at between herein petitioners and private
respondents, albeit without the participation of the
banks and without the said banks being parties
thereto.
Francisco G. Joaquin, Jr. and Rafael Suarez filed
a motion to intervene as well as for reconsideration
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of the same decision, alleging that as stockholders
and creditors having substantial interest in
petitioner corporation, International Hotel
Corporation, they consider the compromise
agreement to be contrary to law and public policy,
since it provides for the return or refund to private
individual respondents herein their contributions to
the capital stock, thereby impairing the capital of
the company without regard to and to the prejudice
of its creditors, apart from the fact that the person
who signed the said compromise did not have due
authority to do so.
ISSUE: WON the compromise judgment became final
RULING: NO
The compromise judgment was not yet final then.
Respondent court had virtually included in the
compromise agreement something substantial, as
far as petitioners are concerned, without the prior
consent of either said petitioners or even the
respondents. While the dispositive part of the
decision simply says that "decision is hereby
rendered in accordance with the terms and
conditions of said Compromise Agreement", it
must be borne in mind that in referring to the cross-
claims against the banks, the decision states that
their being moot and academic is "according to the
parties," which readily implies concordance among
them. With this circumstance in view, an ambiguity
has arisen as to what the judge meant by "said
Compromise Agreement." It was the inescapable
duty of the court to clarify that ambiguity without
loss of time, and since it failed to do so, petitioners
are entitled to relief.
The writ of possession in issue here was illegally
and invalidly issued, the compromise judgment not
having become final yet, precisely because of the
failure of the respondent court to act on petitioners'
motion for modification, and consequently, in
seeking the issuance and taking advantage of said
writ, respondents did so at their own risk, specially
because no counterclaim has been alleged by
them against petitioners in this case.
12. 43 Phil 65
13. GR L-5603 (wrong gr no.?)
14. 73 Phil 74
#15-21 (Michelle)
15. GR. No. L-13994 April 29, 1961
VALERIO P. TRIA, in substitution of MARIANO B.
DELGADO vs. WENCESLAO A. LIRAG
FACTS: Mariano B. Delgado, acting through his wife,
and defendant Wenceslao A. Lirag executed a deed
whereby Delgado sold to Lirag a parcel of land for a
specified price, payable in the manner therein
stipulated. Alleging that Lirag had violated the terms of
the agreement, on July 12, 1954, Delgado instituted
this action, in said court, for the recovery of P8,000,
plus attorney's fees and costs. After the filing of Lirag's
answer, the parties submitted to the court the
following compromise agreement:
1. That the parties hereby agree to rescind the deed of
sale marked Annex "A" to the complaint, dated June 19,
1946, subject to the conditions stated below;
2. That the plaintiff will pay to the defendant the sum
of P13,500.00 on or before December 31, 1955, in full
payment and satisfaction of all sums of money received
by the plaintiff from the defendant as well as expenses
incurred by the latter. Upon full payment of this
amount, the defendant will deliver to the plaintiff the
land which is the subject-matter of the said deed of sale
of June 19, 1946;
3. That the parties mutually relinquish their claims for
damages and attorney's fees against one another;
4. That the plaintiff may sell, mortgage, or otherwise
dispose of the land subject-matter of the sale dated
June 19, 1946, or any part thereof in order to raise such
sum as may be necessary to pay the afore-mentioned
amount of P13,500.00 to the defendant, provided
however, that no sale, mortgage or disposition made
by the plaintiff shall be valid unless made with the
consent of the defendant; and that in case of
disagreement the matter shall be settled by the Court.
On 1955, Delgado conveyed all his rights in and to the
aforementioned property to one Valerie P. Tria who,
with Lirag's conformity, subsequently, substitute
Delgado as plaintiff in this case. On February 29, 1956
Lirag filed a "motion for execution", upon the ground
that Tria had not paid the sum of P13,500.00 on or
before December 31, 1955, in violation of the
compromise agreement and the decision. Over Tria's
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objection, the motion was granted by an order dated
June 5, 1956. No appeal having been taken therefrom,
the corresponding writ of execution was issued on
October 25, 1956. For reasons not stated in the record,
said writ was not enforced. Hence, on motion of Lirag,
an alias writ of execution was issued on January 29,
1958. Soon thereafter, or on February 18, 1958, Tria
filed a "motion to lift alias writ of execution", which was
denied by an order dated March 1, 1958. Hence, this
appeal by Tria.
ISSUE: WON the compromise agreement was merely a
contract.
RULING: NO. In this case, notice of Lirao's motion for
execution of the decision was duly served upon Tria,
who filed a written opposition thereto. Yet, when the
lower court issued its order, overruling this opposition
and granting said motion, Tria did not appeal from said
order and thus allowed it to become final executory. He
did not question its propriety until a the issuance of an
alias writ of execution on January 1958, or more than a
year and a half later. It is now too late, therefore, to
invoke the alleged breach of the compromise
agreement by Lirag as a ground to bar the execution of
the decision in this case. He could have, and shall have,
taken it up on appeal from the order of June 1956.
Tria insists that the compromise agreement was merely
a contract, which may be enforced by ordinary action
specific performance, not by writ of execution. Said
compromise agreement is, however, more than a
contract. It had been submitted to the court for
approval with request that judgment be rendered in
accordance therewith, and was accordingly approved
by the court and incorporation into its decision, which
was "rendered in conformity there with." In other
words, it was part and parcel of the judgment and may,
therefore, be enforced, as such, by writ execution. (Art.
2037, Civil Code of the Philippines.)
16. G.R. No. 105409 March 1, 1993 219 SCRA 321
MASTER TOURS and TRAVEL CORPORATION vs. HON.
COURT OF APPEALS
ID.; CIVIL PROCEDURE; JUDGMENT RENDERED IN
ACCORDANCE WITH COMPROMISE AGREEMENT; AS A
GENERAL RULE, IMMEDIATELY EXECUTORY;
EXCEPTION. — MASTER TOURS and TRAVEL
CORPORATION raises the issue of the permissibility of
withdrawing a compromise agreement which has not
been approved by the court. The rule is that a judgment
rendered in accordance with a compromise agreement
is immediately executory unless a motion is filed to set
aside the agreement on the ground of fraud, mistake or
duress in which case an appeal may be taken against
the order denying the motion. (Arkoncel, Jr. v.
Lagamon, G.R. No. 50526, December 4, 1991, 204 SCRA
560)
FACTS:
On February 1991, summons together with a copy of
the complaint for sum of money filed by the private
respondent Cathay Pacific Airways Ltd. (Cathay) and an
Order of Attachment dated 21 February 1991 were
served upon and received by the petitioner MASTER
TOURS and TRAVEL CORPORATION. Pursuant to the
Order of Attachment, the sheriff immediately levied
upon properties of the petitioner, with value
equivalent to Cathay's claim.
On 25 March 1991, petitioner moved to set aside the
order of attachment. The trial court issued an order
denying the petitioner's motion to set aside or
discharge the attachment writ; petitioner thereupon
moved for reconsideration. However, pending
resolution of the incident, the respondent sheriff and
Cathay's counsel, allegedly thru coercion and
harassment, compelled the MASTER TOURS and
TRAVEL CORPORATION , thru its counsel and vice-
president, to enter into a compromise agreement.
Petitioner subsequently moved to withdraw the said
compromise agreement before the trial court could
approve the same. On 7 June 1991, petitioner's
aforesaid motion for reconsideration and motion to
withdraw compromise agreement were jointly heard
and later submitted for resolution. Pending said
resolution, respondent sheriff and Cathay's counsel
allegedly continued to harass the petitioner and were
able to effect garnishment of certain bank deposits of
petitioner.
ISSUE: WON the petitioner is permitted of withdrawing
a compromise agreement which has not been
approved by the court.
RULING: NO. The rule is that a judgment rendered in
accordance with a compromise agreement is
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immediately executory unless a motion is filed to set
aside the agreement on the ground of fraud, mistake or
duress in which case an appeal may be taken against
the order denying the motion. (Arkoncel, Jr. v.
Lagamon, G.R. No. 50526, December 4, 1991, 204 SCRA
560).
"The Court does not believe, so to speak, that the
Executive Vice President, who signed the compromise
agreement cannot bind the defendant for if it were
otherwise, the defendant corporation's board as
portrayed above, would have been on guard. The
compromise agreement, to say the least, in the
contemplation of the law, is a valid document binding
not only on the Executive Vice President, but also on
the defendant corporation itself. It is not vitiated by
what the Executive Vice President of the defendant
corporation and the lawyer representing both call —
lack of authority and threat and intimidation — that
compelled them (Executive Vice President and counsel)
to sign it. This protestation, is amply refuted in the
plaintiff's opposition . . . ." The propriety or improriety
of withdrawing the compromise agreement is more a
question of fact than of law in this particular case.
17. G.R. No. L-23098, February 28, 1967
DOMINGO T. JACINTO vs. HON. AGUSTIN P.
MONTESA, in his capacity as Judge of the Court of First
Instance of Manila, THE SHERIFF OF MANILA, ALPHA
INVESTMENTS AND FINANCE CORPORATION and
PASTOR D. AGO
FACTS: On 23 April, 1959, Alpha Investments filed a suit
in the Court of First Instance of Manila to recover
P26,000.00 plus 10% attorney's fees and court costs
from Pastor D. Ago and from Domingo T. Jacinto, who
had guaranteed Ago's solvency in a separate
document.
Subsequently, on 15 November 1960, a pleading
entitled "Stipulation of Facts and Compromise
Agreement" was executed wherein Pastor Ago
admitted joint and several liability with Domingo
Jacinto, for the principal sum of P25,654.00 with 12%
from 16 March 1960 until fully paid, to be paid at the
rate of P5,000.00 every two months from 1 December
1960. This stipulation was signed in the following
manner:
ALPHA INVESTMENTS & FINANCE CORPORATION
Plaintiff
By (Sgd.) L.L. Reyes
L.L .REYES
Corporate Secretary & Counsel
XX
On 18 November 1960, the trial court, rendered that
the stipulation of facts and compromise agreement
quoted above is hereby approved.
Upon being served with said writ of execution,
defendant Jacinto alleged that the judgment based on
the compromise is not binding or enforceable against
him since he was not a party nor has he unauthorized
his codefendant Ago or his counsel to represent him in
said compromise agreement; and that having been
previously declared in default plaintiff, nevertheless,
failed to adduce evidence against him; hence, no
judgment could have been validly rendered against
him; and that he was not notified of the above-stated
compromise agreement nor of the judgment and
plaintiff's motion for execution.
ISSUE: WON Jacinto is a party to the compromise
agreement.
RULING: No. We are inclined to believe herein
petitioner Jacinto's claim that he has not authorized
Ago and his counsel, Atty. Jose M. Luison, or even
engaged the services of the latter, to represent him in
said compromise agreement. Ago and Luison
corroborated this claim. It appears from the record of
this case that Jacinto is not a signatory party to said
agreement, and nothing therein shows that Ago and
Luison had any special authority to compromise the
case in behalf of herein petitioner, which requirement
of special authority is mandatory under the law
(Section 23, Rule 138, Revised Rules of Court).
SEC. 23. Authority of attorneys to bind clients. —
Attorneys have authority to bind their clients in any
case by any agreement in relation thereto made in
writing, and in taking appeals, and in all matters of
ordinary judicial procedure. But they cannot, without
special authority, compromise their client's litigation,
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or receive anything in discharge of a client's claim but
the full amount in cash.
It is not disputed that Jacinto was declared in default in
the lower court and that plaintiff did not adduce
evidence to prove his cause of action against him.
Under the circumstances prevailing in the case at bar,
it is clear that no valid judgment was rendered against
Jacinto that may be enforced by execution. As this
Court ruled in a case with facts practically identical to
the case at bar, a judgment based upon a compromise
entered by an attorney without specific authority from
the client is null and void, and such judgment may be
impugned, and its execution restrained, in any
proceeding by the party against whom it is sought to be
enforced.
18. G.R. No. L-29838 March 18, 1983
FERMIN BOBIS and EMILIA GUADALUPEvs.
THE PROVINCIAL SHERIFF OF CAMARINES NORTE and
ZOSIMO RIVERA
FACTS: It appears that Rufina Camino and Pastor Eco
were the registered owners of a parcel of land, with an
area of 10.7791 hectares, covered by Transfer
Certificate of Title No. T-398. The said parcel of land
was cultivated by the spouses Fermin Bobis and Emilia
Guadalupe. On July 25, 1950, one Alfonso Ortega filed
a complaint against Rufina Camino, Pastor Eco, Emilia
Guadalupe, and Fermin Bobis with the CFI, for the
recovery of possession of one-half (1/2) of the cleared
and planted portion of the land, or the payment of the
amount of P1,650.00, the value of the improvements
introduced by him on the parcel of land in question.
On August 16, 1950, the parties executed a
compromise agreement whereby they agreed:
1. The defendants Rufina Camino and Pastor Eco shall
pay the plaintiff the sum of One Hundred Forty Pesos
(P 140.00) Philippine Currency, as full payment for all
the improvements (coconuts and bananas) introduced
by the plaintiff in the land in question, payable on
February 28, 1951;
2. That plaintiff has no other claim against the
defendants except for the improvements;
3. That hereafter, the plaintiff shall recognize and
respect the absolute and exclusive ownership of the
land in question; and
4. That plaintiff in consideration of this amicable
settlement renounces his claim for damages.
On August 1950, Rufina Camino and Pastor Eco sold the
parcel of land to their co-defendants, spouses Fermin
Bobis and Emilia Guadalupe. The parties submitted the
compromise agreement to the court which the court
approved. The defendants Rufina Camino and Pastor
Eco, however, only paid the amount of P50.00 to
Alfonso Ortega when the obligation became due on
February 28, 1951. As a result, a writ of execution was
issued commanding the Provincial Sheriff of Camarines
Norte that the goods and chattels of the defendants
Rufina Camino, Pastor Eco, Emilia Guadalupe, and
Fermin Bobis be caused to be made the sum of
P140.00. Consequently, the Sheriff levied upon the
land which Rufina Camino and Pastor Eco had sold to
Fermin Bobis and Emilia Guadalupe. Upon learning of
the levy on execution, Emilia Guadalupe and Fermin
Bobis filed a motion seeking the modification of the
writ of execution to exclude them therefrom because
under the judgment sought to be executed only the
defendants Rufina Camino and Pastor Eco were
obligated to pay the plaintiff Alfonso Ortega. But, the
trial court denied the motion. Subsequently, the
Provincial Sheriff sold the parcel of land in question at
an execution sale to Zosimo Rivera, the highest bidder.
On March 4,1960, Fermin Bobis and Emilia Guadalupe
filed the instant action against the Provincial Sheriff of
Camarines Norte and Zosimo Rivera for the annulment
of the sheriff's deed of sale and for damages, upon the
ground that the writ of execution was not in conformity
with the judgment rendered therein and therefore,
void and of no legal effect.
ISSUE: WON the writ of execution is null and void.
RULING: YES. As will be seen, only Rufina Camino and
Pastor Eco were adjudged to pay Alfonso Ortega the
amount of P140.00 on February 28, 1951. Although
they were included as party defendants, the spouses
Fermin Bobis and Emilia Guadalupe were not ordered
to pay Alfonso Ortega. Obviously, they were absolved
from liability. Accordingly, as to them, there was
nothing to execute since they have been absolved from
liability. When, therefore, the lower court, in issuing
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the writ of execution of the judgment, commanded the
Provincial Sheriff that the goods and chattels of the
defendants Rufina Camino and Pastor Eco, Emilia
Guadalupe and Fermin Bobis be caused to be made the
sum of P140.00 whereby making the spouses Fermin
Bobis and Emilia Guadalupe equally liable for the
judgment debt of the spouses Rufina Camino and
Pastor Eco, adding to the judgment sought to be
executed a new relief, it acted in excess of jurisdiction,
if not abuse of authority. As the late Chief Justice
Moran says in his Comments on the Rules of Court,
"The writ of execution must conform to the judgment
which is to be executed, as it may not vary the terms of
the judgment it seeks to enforce. Nor may it go beyond
the terms of the judgment sought to be executed.
Where the execution is not in harmony with the
judgment which gives it life and exceeds it, it has pro
tanto no validity. To maintain otherwise would be to
ignore the constitutional provision against depriving a
person of his property without due process of law."
Besides, the judgment rendered was based upon a
compromise agreement of the parties.
In the case of Yboleon vs. Sison, this Court ruled that "a
judge or court, which sets aside a judgment rendered
upon consent of the parties and based on a
compromise entered into by them, which is converted
into such judgment, cannot amend or set it aside
without the consent of said parties, or without first
having declared in an incidental preliminary hearing
that such compromise is vitiated by any of the grounds
for nullity enumerated in Article 1817 (now Art. 2038)
of the Civil Code." Since the modification and
amendment of the judgment was made unilaterally in
the writ of execution, without any preliminary hearing,
it was unjustified.
It results that the writ of execution is null and void and
of no legal effect with respect to the spouses Fermin
Bobis and Emilia Guadalupe. The annulment of the writ
of execution carries with it the annulment of the sale
made by the sheriff pursuant to the said writ, as well as
the order of the court approving the sale. The limbs
cannot survive after the trunk has perished. Since the
right of Zosimo Rivera over the land in question is
derived from a void execution sale, he acquired no title
therein.

19. 92 Phil 426 - MISSING. CANNOT BE FOUND :c
20. G.R. No. L-14541, March 30, 1960, 107 PHIL 587
CONSUELO VELAYO, Petitioner, v. COURT OF APPEALS
and RODOLFO VELAYO, Respondents.
should not be punished for contempt and placed under
confinement until he has paid in full the amounts due
to petitioner and their children. In the CA, respondent
filed a motion to dismiss the case on the ground that it
had been terminated by an amicable settlement he
entered into with petitioner, but failed.

ISSUE: WON the invalid provisions render void the

CONTRACTS; INVALID STIPULATIONS; IF TERMS ARE whole agreement.
SEPARABLE, AGREEMENT IS ENFORCEABLE AS TO THE
LAWFUL ONES. — In a contract, the invalid stipulations
which are independent of the rest of the terms of the
RULING: No. The invalid stipulations are independent
agreement, and which can easily be separated
of the rest of the terms of the agreement and can easily
therefrom without doing violence to the manifest
be separated therefrom without doing violence to the
intention of the parties, do not render void the whole
manifest intention of the parties. This being so, the
agreement. This being so, the legal terms of the
legal terms of the contract can be enforced (Article
contract can be enforced. (Article 1420, New Civil
1420, New Civil Code).
Code).

Baseless is petitioner’s claim that said agreement

FACTS: Petitioner Consuelo Velayo filed against her
should be considered as totally rescinded because
husband, respondent Rodolfo Velayo. CFI granted
respondent failed to comply with his undertaking
them a period of ten days within which to submit to it
therein. Respondent had given petitioner several sums
for approval an agreement under which separation of
of money as partial consideration of their amicable
property would be adjudged. The parties having
settlement. She received from him P500.00 on August
submitted the required agreement, the court
27, 1958 and P200.00 on November 14, 1958. In
promulgated its decision on May 30, 1953, approving
addition, respondent executed a deed of assignment in
the agreement and ordering the parties to comply with
which he ceded to their three children one-third of all
the terms thereof. Upon motion of petitioner, a writ of
his rights and participation in the Mastercraft Jewelry
execution was issued against respondent for the sums
Store as well as one-third of all his present and future
due from him as support for petitioner and their
properties. Respondent, therefore, had fulfilled his
children and as her share of the conjugal properties.
obligations under the agreement. Nevertheless,
Because execution could not be satisfied, petitioner
outright dismissal of the whole case was not proper.
moved that respondent be ordered to appear in court
The compromise agreement constitutes a waiver of
so he could be examined under the provisions of
petitioner’s claim for support under this case, but it did
Section 34, Rule 39 of the Rules of Court.
not express or even intimate of a waiver of her share of
the conjugal properties. Under these circumstances, it
is the appeal that should have been dismissed, so that
The court ordered respondent to appear in court on petitioner can still have the order of the Juvenile and
August 29, 1953 so he may be examined respecting his Domestic Relations Court executed, in so far as her
properties and income, but this order could not be right to share in the conjugal properties is concerned.
served on respondent because his counsel had
withdrawn his appearance and respondent had failed 21. 91 Phil 238 - MISSING. CANNOT BE FOUND :c
to inform the court of his address. Petitioner filed on
#22-28-JONI
March 9, 1956 a "petition to cite the defendant for
contempt of court", praying that defendant be 22. G.R. No. 86760 April 30, 1991
required to appear in court to show cause why he

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CITY OF ZAMBOANGA, VITALIANO D. AGAN,
EFREN S. MARIANO and PEDRO A. PACIO,
petitioners,
vs.
HON. PELAGIO S. MANDI Presiding Judge of
Regional Trial Court, Branch 12, AURELIO
JULIAN and BENITA LEDESMA JULIAN,
respondents.
The main issue in this controversy is the validity and
enforceability of the Compromise Agreement entered
into between the parties, which petitioners assail as
without binding force and effect by reason of lack of the
SC’s approval.
Facts:
A Complaint for Eminent Domain was lodged before
the RTC by Zamboanga City against the Julian spouses.
In a decision, the lower court gave the City the authority
to enter, take and retain possession of the property
sought to be expropriated upon payment of just
compensation fixed at P0.18 per sq.m. That Decision
was affirmed in toto by the CA.
Consequently, the Julians filed a "Notice of Appeal" to
the SC.
Later, the Julians wrote a letter to the then OIC Mayor,
stating, that pending appeal that they are accepting the
offer of Zamboanga city to buy their lot at P3.00 per
square meter, and should Zamboanga City agrees, they
will move for the dismissal of the appeal on the ground
of amicable settlement.
The City then received a copy of the Entry of Judgment
of the Appellate Court Decision, showing that it had
become final and executory in 1987. Significantly,
however, the Entry of Judgment was made only in 1988.
Later, however, the City decides to back out on the
Compromise Agreement. This prompted the Julians
before the RTC a Petition for mandamus praying that
the City be made to comply with said Agreement,
"particularly to pay the Julians P3.00 per sq. m. for the
purchase their lot.
In its Answer, the City contended that the Julians had no
cause of action against it since the SC’s approval of the
Compromise Agreement was never obtained because of
the abandonment of the appeal, consequently, said
Agreement never became operative and enforceable.
Moreover, according to the City, citing Article 2040 of
the Civil Code, a final judgment may not be the subject
of a compromise agreement, which must be entered into
before or during litigation and not after final judgment,
the reason being that there being no more controversy,
a compromise is useless.
Issue: W/N the the compromise agreement is valid.
Clap clap powerful!!!!
Ruling: Yes.
1.
It is true that in its resolution No. 260, the City had
authorized the execution of the Compromise Agreement
and the Deed of Sale "subject to the approval of the
Supreme Court." However, the subsequent acts of the
parties clearly show that the City was no longer insisting
on that suspensive condition. Thus, as stated in
Respondent Judge's Decision, "immediately after the
filing of notice of appeal to the Supreme Court, the OIC
Mayor negotiated for the purchase of the subject
property at P 3.00 per sq.m." "to prevent a lengthy
litigation at the Supreme Court and respondent city was
also paying the same price of P3.00 per square meter to
other adjoining lot owners." The Julians accepted the
City offer. Further, the subsequent Sangguniang
Panglunsod Resolution No. 7 did away with that
condition. And to cap it all, the Deed of Sale was signed
and finalized by the parties fully cognizant that such
approval had not been obtained. By virtue of the
settlement thus arrived at, the Julians abandoned their
appeal to this Court and withdrew from a pending
litigation. All these developments transpired before the
entry of the Appellate Court judgment was made in
1988.
To all intents and purposes, therefore, new rights and
obligations as between the parties had been created of
their own volition. There was clear proof of an animus
novandi and an obvious intent to supersede the previous
judgment in the Eminent Domain Case. With this patent
manifestation of will, that Decision must be deemed to
have been novated by the parties, with the result that
said original Decision had lost force and effect.
The finality of the Appellate Court Decision, therefore,
which was unknown to the parties at the time of
settlement, neither produced any legal effect since the
appeal had effectively been withdrawn. There was no
longer any lower Court Decision that could be the
subject of an appeal.
2.
The City maintains, however, that it was not aware of
the abandonment of the appeal for which reason it
entered into the compromise. This is not entirely
accurate, however, since it was made known that the
dismissal of the appeal was being made as a reciprocal
concession for the settlement. Besides, as provided for
by Article 2038 of the Civil Code, "one of the parties
can not set up a mistake of fact as against the other if the
latter, by virtue of the compromise has withdrawn from
a litigation already commenced," as in this case, where
the Julians had desisted from pursuing their appeal.
It may be conceded that the City was unaware that the
judgment in the Eminent Domain Case had attained
finality. Ignorance of a judgment, however, is not a valid
ground for attacking a compromise. The course of
action should have been an action for rescission which,
in this case, has not been availed of.
Article 2040 of the Civil Code explicitly provides:
If after a litigation has been decided by a final
judgment, a compromise should be agree upon,
either or both parties being unaware of the
existence of the final judgment, the
compromise may be rescinded.
Ignorance of a judgment which maybe revoked
or set aside is not a valid ground for attacking
a compromise.
The Julians were well within their rights in seeking the
enforcement of the compromise through a Petition for
Mandamus on the strength of Article 2041 of the Civil
Code, providing that:
If one of the parties fails or refuses to abide by
the compromise, the other party may either
enforce the compromise or regard it as
rescinded and insist upon his original
demand.
23. ERLINDA BARRERAS with her husband and
DOLORES MILLAN, petitioners,
vs.
HON. GREGORIO N. GARCIA, Presiding Judge,
City Court of Manila, Branch I, FORTUNATO G.
TIMAN, and SHERIFF OF MANILA, respondents.
Facts:
Respondents Fortunato G. Timan and his spouse, Lydia
Timan, filed complaints for illegal detainer against the
petitioners Erlinda Barreras together with her husband
and Dolores Millan.
The complaints allege that the private respondent and
his spouse are the lawful owners of a house leased by
petitioner Erlinda Barreras with her husband and
Dolores Millan, respectively. Both petitioners were
informed that their lease would expire. The petitioners
raised no objection but requested for an extension free
of charge. However, for failure of the petitioners to
comply with the verbal agreement to vacate the leased
premises as promised, the respondents sent the
petitioners two demand letters to vacate. Again, the
petitioners failed to comply.
At the hearing of these cases, two identical
Compromise Agreements were submitted by the
parties, and approved by the respondent judge.
Clap clap powerful!!!!
The Compromise Agreements read:
1. That the plaintiffs hereby allow the defendants to
continue to occupy the premises described in the
complaint until May 31, 1976;
2. That in consideration of this Compromise Agreement
defendant will pay the plaintiffs the amount of P250.00
a month beginning the month of September, 1975 as
monthly rent for the reasonable use of the same, payable
on or before the 10th day of each month;
3. That defendants will vacate the premises described in
the complaint on May 31, 1976 and restore possession
thereof to the plaintiffs;
4. That any violation of this agreement will entitle the
plaintiffs to ask the Court for a writ of execution.
Accordingly, the judge approved the Compromise
Agreements and directed the parties to comply strictly
and faithfully with all the terms and conditions therein
set forth.
After almost a year petitioners filed their identical
Amended Motions for Reconsideration alleging that
"such agreement and the resulting Decision thereof, is
null and void in the beginning and the Court should have
disallowed the same as the basis of the Decision, for it
violates Section 4 of P.D. No. 20 which suspends the
right of the lessor to judicially eject the lessee or tenant,
under Art. 1673, N.C.C." They further contended that
"the Compromise Agreement is false because it was
consummated under duress and undue influence on the
defendant herein just to ease out and railroad the
termination of her case of ejectment."
Issue: W/N the compromise agreements are void.
Ruling: NO. We dismiss the petition.
1.
A compromise agreement is a valid contract between the
parties thereto. Under Article 2028 of the Civil Code, it
is a contract in which the parties in interest, by making
reciprocal concessions, avoid a litigation or terminate
one already commenced. When it is not contrary to law,
morals, or public policy, the same may be approved by
the court and a judgment be rendered in accordance
therewith. The parties are thereby enjoined to comply
faithfully with its terms and conditions. The approval of
the compromise agreement by the court dismisses the
case, or considers it closed.
The law, however, anticipates situations wherein the
parties refuse to comply with the terms of a compromise
agreement like in the herein cases. Clearly therefore,
when a party fails or refuses to abide by the
compromise, the other party may either enforce the
compromise by a writ of execution, or regard it as
rescinded and insist upon his original demand. Non-
fulfillment of the terms of the compromise justifies
execution.
Indeed, the petitioners failed to comply with the term of
the compromise, leaving the private respondent with no
other recourse except to apply for the writ of execution.
2.
Invoking Section 4 of Presidential Decree No. 20, the
petitioners would want the Compromise Agreements
declared null and void as being contrary to law.
The ground posited has no legal basis. In Sinclair vs.
Court of Appeals 2 we stated:
It is evident, the Court of First Instance applied the
provisions of P.D. 20 in favor of petitioner mindless of
the inequity produced thereby against the property
owner whose right as such remains entitled to the
guarantee or protection of the Constitution over which
P.D. 20 cannot prevail.
xxx xxx xxx
It should also be stressed that P.D. 20 respects
obligations of contract in obedience to the constitutional
mandate that no law shall be enacted which would
impair such obligations. It therefore places no legal
obstacle to the enforcement of an existing agreement
validly entered into by the parties herein as the decision
appealed from seeks to do, which in no way runs counter
to the socialistic intent and humanitarian spirit of the
decree.
xxx xxx xxx
3.
Judicial ejectment lies when the lease is for a definite
period or when the fixed or definite period agreed upon
has expired, as in these cases. Petitioners ascribe ill
motive to the private respondent for their ejectment. We
find this of no moment. Lawful ejectment of the lessee
from the premises may be enforced regardless of the
lessor's motive or intent.
While it is true that a party to a compromise agreement
may move to set it aside on the ground of fraud, mistake,
or duress in which case an appeal may be taken from the
order denying the motion, the motion to suspend the
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compromise agreement should meet the essential
requirements of Section 3 of Rule 38. It reads:
A petition provided for in either of the preceding
sections of this rule must be verified, filed within sixty
(60) days after the petitioner learns of the judgment,
order, or other proceeding to be set aside, and not more
than six (6) months after such judgment or order was
entered, or such proceeding was taken, and must be
accompanied with affidavits showing the fraud,
accident, mistake, or excusable negligence relied upon,
and the facts constituting the petitioners good and
substantial cause of action or defense, as the case may
be.
24. G.R. No. L-14220 April 29, 1961
DOMINGO E. LEONOR, plaintiff-appellee,
vs.
FRANCISCO SYCIP, defendant-appellant.
Facts:
Domingo E. Leonor and defendant Francisco Sycip
entered into a contract, whereby the former leased to the
latter a two-story building for a period of two years.
From July to October, 1956, Sycip failed to pay the
corresponding rentals in view of which, Leonor
instituted against him a case for unlawful detainer. As
Sycip kept on defaulting in the payment of rentals,
Leonor requested to cause the personal property subject
to said chattel mortgage to be foreclosed extrajudicially,
as stipulated in the contract, but this provision thereof
could not be enforced because Sycip refused to
surrender' said property to the sheriff.
MTC ruled against Sycip and ordered him to vacate and
pay rentals.
Sycip argued that Leonor’s action cannot be taken to
mean as a rescission of their compromise agreement.
His theory is to the effect that Leonor’s complaint in the
present case contains no allegations to warrant
rescission of their compromise agreement.
Issue: Whether Leonor can regard their compromise
agreement as rescinded.
Ruling: Yes.
Owing to the breach of the compromise agreement
between the parties, resulting, not only from defendant's
refusal to deliver the mortgaged property to the sheriff,
but, also, from his failure to pay, the plaintiff has, under
Article 2041 of the Civil Code of the Philippines, the
right to "enforce the compromise or regard it as
rescinded a insist upon his original demand."
It is worthy of notice, in this connection, that, unlike
Article 2039 of the same Code, which speaks of "a
cause of annulment or rescission of the compromise"
and provides that "the compromise may be annulled or
rescinded" for the cause therein specified, thus
suggesting an action for annulment or rescission, said
Article 2041 confers up the party concerned, not a
"cause" for rescission, or t right to "demand" the
rescission, of a compromise, but the authority, not only
to "regard it as rescinded", but, also, to "insist upon his
original demand".
The language this Article 2041, particularly when
contrasted with that of Article 2039, denotes that no
action for rescission is required in said Article 2041, and
that the party aggrieved by the breach of a compromise
agreement may, if he choose 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 thereof. He need not seek a judicial
declaration of rescission, he may "regard" the
compromise agreement already rescinded".
In other words, an action for rescission is unnecessary.
25. Missing
26. G.R. No. L-23390 April 24, 1967
MINDANAO PORTLAND CEMENT
CORPORATION, petitioner-appellee,
vs.
McDONOUGH CONSTRUCTION COMPANY OF
FLORIDA, respondent-appellant.
Facts:
Mindanao Portland Cement Corporation and respondent
McDonough Construction Company of Florida
executed a contract for the construction by the
respondent for the petitioner of a dry portland, cement
plant. In a separate contract, Turnbull, Inc. — the
"engineer" referred to in the construction contract —
was engaged to design and manage the construction of
the plant.
Differences later arose. Petitioner claimed from
respondent damages occasioned by the delay in the
project's completion. Respondent in turn asked for a
sum of money from petitioner for alleged losses due to
cost of extra work. A conference was held between
petitioner and Turnbull, Inc. to settle the differences
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aforementioned, but no satisfactory results were
reached.
Petitioner sent respondent written invitations to
arbitrate, invoking a provision in their contract
regarding arbitration of disputes.
Instead of answering said invitations, respondent, with
Turnbull, Inc.'s approval, submitted to petitioner for
payment its final statement of work accomplished,
asking for P403,700 as unpaid balance of the
consideration of the contract.
Petitioner filed the present action in the Court of First
Instance to compel respondent to arbitrate with it
concerning alleged disputes arising from their contract.
Respondent denied the alleged existence of
disagreement between the parties. And as special
defense, it alleged that its claim for P403,700 was not
disputed and that the respective claims for damages
should be resolved by Turnbull, Inc., pursuant to the
exception in the arbitration clause of the construction
contract.
The court rendered its decision, finding that dispute or
disagreement obtained between the parties with respect
to their rights and obligations under their contract and
that the same should be submitted to arbitration pursuant
to par. 39 of said contract — the arbitration clause —
and to Republic Act 876 — the Arbitration Law. And
thus it ordered petitioner and respondent to proceed to
arbitration in accordance with the terms of their
contract.
Issue: W/N the parties should proceed to arbitration.
Ruling: YES.
Since there obtains herein a written provision for
arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the
parties to proceed to arbitration in accordance with the
terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the
dispute are improperly raised herein. They should be
addressed to the arbitrators. This proceeding is merely a
summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they
should proceed to arbitration or not. And although it has
been ruled that a frivolous or patently baseless claim
should not be ordered to arbitration, it is also recognized
that the mere fact that a defense exists against a claim
does not make it frivolous or baseless.
27. G.R. No. L-27283 July 29, 1977
SOLEDAD F. BENGSON, plaintiff-appellant,
vs.
MARIANO M. CHAN, UNIVERSAL
CONSTRUCTION SUPPLY and LEONCIO
CHAN, both of San Fernando, La Union; MUTUAL
SECURITY INSURANCE CORPORATION and
KRAUSE A. IGNACIO of Manila, defendants-
appellees.
Facts:
This is a case involving arbitration. Soledad F. Bengson
and Mariano M. Chan entered into a contract for the
construction of a six-story building on Bengson's lot. In
that contract Bengson bound herself to pay Chan, the
contractor for the materials, labor and construction
expenses.
It was stipulated that the construction would start on
July 5, 1965; that the first and second stories, together
with the theater, should be completed and available for
use within five months from July 5, 1965, and that the
construction should be finished within twelve calendar
months from that date in conformity with the plans and
specifications signed by the parties. The contract
contains the following arbitration clause:
15. Any and all questions, disputes or differences
arising between the parties hereto relative to the
construction of the BUILDING shall be determined by
arbitration of two persons, each chosen by the parties
themselves. The determination of said arbitration shall
be final, conclusive and binding upon both parties
hereto, unless they choose to go to court, in which case
the determination by arbitration is a condition
precedent for taking any court action. The expenses of
arbitration shall be borne by both parties equally.
Later, Bengson filed an action for damages against Chan
and the sureties on his performance bond. She alleged
that Chan violated the contract by not constructing the
first and second stories within the stipulated five- month
period.
Chan and his sureties alleged in their answer that the
contractor stopped the construction because Bengson
refused to pay for ninety percent of the work already
accomplished…
On November 16, 1966 the defendants filed an amended
answer wherein they alleged as an additional affirmative
defense that the complaint states no cause of action
because Soledad F. Bengson did not submit the
controversy for arbitration as required in the
aforequoted paragraph 15 of the construction contract.
Clap clap powerful!!!!
Issue: W/N Bengson’s causes of action should be
submitted for arbitration.
Ruling: Yes.
1.
Appellant Bengson's contention that her causes of action
do not involve disputes relative to the construction of
the building and, consequently, should not be submitted
for arbitration, is not well-taken.
The trial court sensibly said that "all the causes of action
alleged in the plaintiff's amended complaint are based
upon the supposed violations committed by the
defendants of the 'Contract for the Construction of a
Building"' and that "the provisions of paragraph 15
hereof leave very little room for doubt that the said
causes of action are embraced within the phrase 'any and
all questions, disputes or differences between the parties
hereto relative to the construction of the building', which
must be determined by arbitration of two persons and
such determination by the arbitrators shall be 'final,
conclusive and binding upon both parties' unless they go
to court, in which case the determination by arbitration
is ' a condition precedent for taking any court action'."
2.
Appellant Bengson alternatively argues that if
arbitration is proper, then the trial court in conformity
with section 6 of the Arbitration Law, Republic Act No.
876, should have required the parties to proceed to
arbitration.
The SC holds that the terms of paragraph 15 clearly
express the intention of the parties that all disputes
between them should first be arbitrated before court
action can be taken by the aggrieved party.
However, although the causes of action in Bengson's
complaint are covered by paragraph 15, her failure to
resort to arbitration does not warrant the dismissal of her
complaint. The SC agrees with her alternative
contention that arbitration may be resorted to during the
pendency of the case. The Arbitration Law provides:
SEC. 6. Hearing by court. — A party aggrieved by the
failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may
petition the court for an order directing that such
arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of
such application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the
making of the agreement or such failure to comply
therewith is not in issue, shall make an order directing
the parties to proceed to arbitration in accordance with
the terms of the agreement. If the making of the
agreement or default be in issue the court shall proceed
to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was
made, or that there is no default in the proceeding
thereunder, the proceeding shall be dismissed. If the
finding be that a written provision for arbitration was
made and there is a default in proceeding thereunder,
an order shall be made summarily directing the parties
to proceed with arbitration in accordance with the terms
thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act,
within ten days after such motions, petitions, or
applications have been heard by it.
SEC. 7. Stay of civil action. — If any suit or proceeding
be brought upon an issue arising out of an agreement
providing for the arbitration thereof, the court in which
such quit or proceeding is pending, upon being satisfied
that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in
accordance with the terms of the agreement: Provided,
That the applicant for the stay is not in default in
proceeding with such arbitration.
Within the meaning of section 6, the failure of Soledad
F. Bengson to resort to arbitration may be regarded
as a refusal to comply with the stipulation for
arbitration. And defendants interposition of the
defense that arbitration is a condition precedent to the
institution of a court action may be interpreted as a
petition for an order that arbitration should proceed as
contemplated in section 15.
Therefore, instead of dismissing the case, the
proceedings therein should be suspended and the parties
should be directed to go through the motions of
arbitration at least within a sixty-day period. With the
consent of the parties, the trial court may appoint a third
arbitrator to prevent a deadlock between the two
arbitrators. In the event that the disputes between the
parties could not be settled definitively by arbitration,
then the hearing of the instant case should be resumed
28. G.R. No. 123871 August 31, 1998
ALLIED BANKING CORPORATION, petitioner,
vs.
Clap clap powerful!!!!
COURT OF APPEALS and BANK OF THE
PHILIPPINE ISLANDS, INC., respondents.
As a general rule, a trial court that has established
jurisdiction over the main action also acquires
jurisdiction over a third-party complaint, even if it could
not have done so had the latter been filed as an
independent action. This rule, however, does not apply
to banks that have agreed to submit their disputes over
check clearings to arbitration under the rules of the
Philippine Clearing House Corporation. In that event,
primary recourse should be to the PCHC Arbitration
Committee, without prejudice to an appeal to the trial
courts. In other words, without first resorting to the
PCHC, the third-party complaint would be premature.
Facts:
Hyatt Terraces Baguio issued two crossed checks drawn
against Allied Banking Corp. in favor of appellee
Meszellen Commodities Services, Inc.
Later, the payee, MESZELLEN, sued the drawee,
ALLIED BANK, for damages which it allegedly
suffered when the values of the checks were paid not to
it but to some other person.
10 years later, Allied filed a third party complaint
against BPI as successor-in-interest of COMTRUST,
for reimbursement in the event that it would be adjudged
liable in the main case to pay plaintiff, MESZELLEN.
BPI filed a motion to dismiss said third party complaint
based on the ground that the cause of action of the third
party plaintiff had already prescribed.
The Issues
Petitioner raises the following issues:
I. The Respondent Honorable Court of Appeals erred in
holding that the cause of action of the third-party
complaint ha[d] already prescribed.
II. The Respondent Honorable Court of Appeals erred
in holding that the filing of the third party complaint
should be disallowed as it would only delay the
resolution of the case.
On the other hand, private respondent argues that the
trial court had no authority to admit a third-party claim
that was filed by one bank against another and involved
a check cleared through the Philippine Clearing House
Corporation (PCHC). To the mind of the Court, this is
the critical issue.
The Court's Ruling

The petition is bereft of merit.
Critical Issue: Mandatory Recourse to PCHC
To buttress its claim, private respondent contends that
petitioner's remedy rests with the PCHC, of which both
Allied and BPI are members, in consonance with the
Clearing House Rules and Regulations which, in part,
states:
Sec. 38 — Arbitration
Any dispute or controversy between two or more
clearing participants involving any check/item cleared
thru PCHC shall be submitted to the Arbitration
Committee, upon written complaint of any involved
participant by filing the same with the PCHC serving
the same upon the other party or parties, who shall
within fifteen (15) days after receipt thereof file with the
Arbitration Committee its written answer to such
written complaint and also within the same period serve
the same upon the complaining participant, . . . .
A third-party complaint of one bank against another
involving a check cleared through the PCHC is
unavailing, unless the third-party claimant has first
exhausted the arbitral authority of the PCHC Arbitration
Committee and obtained a decision from said body
adverse to its claim.
"Pursuant to its function involving the clearing of
checks and other clearing items, the PCHC has adopted
rules and regulations designed to provide member banks
with a procedure whereby disputes involving the
clearance of checks and other negotiable instruments
undergo a process of arbitration prior to submission to
the courts below. This procedure not only ensures a
uniformity of rulings relating to factual disputes
involving checks and other negotiable instruments but
also provides a mechanism for settling minor disputes
among participating and member banks which would
otherwise go directly to the trial courts."
We defer to the primary authority of PCHC over the
present dispute, because its technical expertise in this
field enables it to better resolve questions of this nature.
This is not prejudicial to the interest of any party, since
primary recourse to the PCHC does not preclude an
appeal to the regional trial courts on questions of law.
Section 13 of the PCHC Rules reads:
Sec. 13. The findings of facts of the decision or award
rendered by the Arbitration Committee or by the sole
Arbitrator as the case may be shall be final and
conclusive upon all the parties in said arbitration
Clap clap powerful!!!!
dispute. The decision or award of the Arbitration
Committee or of the Sole Arbitrator shall be appealable
only on questions of law to any of the Regional Trial
Courts in the National Capital Judicial Region where
the Head Office of any of the parties is located. The
appellant shall perfect his appeal by filing a notice of
appeal to the Arbitration Secretariat and filing a
Petition with the Regional Trial Court of the National
Capital Region . . . .
Furthermore, when the error is so patent, gross and
prejudicial as to constitute grave abuse of discretion,
courts may address questions of fact already decided by
the arbitrator.
We are not unaware of the rule that a trial court, which
has jurisdiction over the main action, also has
jurisdiction over the third-party complaint, even if the
said court would have had no jurisdiction over it had it
been filed as an independent action. However, this
doctrine does not apply in the case of banks, which have
given written and subscribed consent to arbitration
under the auspices of the PCHC.
By participating in the clearing operations of the PCHC,
petitioner agreed to submit disputes of this nature to
arbitration. Accordingly, it cannot invoke the
jurisdiction of the trial courts without a prior recourse to
the PCHC Arbitration Committee. Having given its free
and voluntary consent to the arbitration clause,
petitioner cannot unilaterally take it back according to
its whim. In the world of commerce, especially in the
field of banking, the promised word is crucial. Once
given, it may no longer be broken.
Upon the other hand, arbitration as an alternative
method of dispute resolution is encouraged by this
Court. Aside from unclogging judicial dockets, it also
hastens solutions especially of commercial disputes.
#29-33-ADA
29. 335 S 386 (missing)
30. BENGUET CORPORATION v DENR-MAB
G.R. No. 163101
February 13, 2008
FACTS:
Benguet and J.G. Realty entered into a Royalty
Agreement With Option to Purchase (RAWOP,),
wherein J.G. Realty was acknowledged as the
owner of four mining claims respectively named as
Bonito-I, Bonito-II, Bonito-III, and Bonito-IV, with a
total area of 288.8656 hectares, situated in
Panganiban, Camarines Norte.
Thus, the Executive Vice-President of Benguet,
Antonio N. Tachuling, issued a letter informing J.G.
Realty of its intention to develop the mining claims.
However, J.G. Realty, through its President,
Johnny L. Tan, then sent a letter to the President
of Benguet informing the latter that it was
terminating the RAWOP on the following grounds:
a.The fact that your company has failed to perform
the obligations set forth in the RAWOP, i.e., to
undertake development works within 2 years from
the execution of the Agreement;
b.Violation of the Contract by allowing high graders
to operate on our claim.
c. No stipulation was provided with respect to the
term limit of the RAWOP.
d. Non-payment of the royalties thereon as
provided in the RAWOP.
J.G. Realty filed a Petition for Declaration of
Nullity/Cancellation of the RAWOP with the
Legaspi City POA.
ISSUES: WON the controversy should have first
been submitted to arbitration before the POA took
cognizance of the case.
HELD:
YES, the case should have first been brought to
voluntary arbitration before the POA.
Secs. 11.01 and 11.02 of the RAWOP pertinently
provide:
11.01 Arbitration
Any disputes, differences or disagreements
between BENGUET and the OWNER with
reference to anything whatsoever pertaining to this
Agreement that cannot be amicably settled by
them shall not be cause of any action of any kind
whatsoever in any court or administrative agency
but shall, upon notice of one party to the other, be
referred to a Board of Arbitrators consisting of
three (3) members, one to be selected by
BENGUET, another to be selected by the OWNER
and the third to be selected by the aforementioned
two arbitrators so appointed.
xxxx
11.02 Court Action
Clap clap powerful!!!!
No action shall be instituted in court as to any
matter in dispute as hereinabove stated, except to
enforce the decision of the majority of the
Arbitrators
A contractual stipulation that requires prior resort
to voluntary arbitration before the parties can go
directly to court is not illegal and is in fact promoted
by the State.
To reiterate, availment of voluntary arbitration
before resort is made to the courts or quasi-judicial
agencies of the government is a valid contractual
stipulation that must be adhered to by the parties.
In other words, in the event a case that should
properly be the subject of voluntary arbitration is
erroneously filed with the courts or quasi-judicial
agencies, on motion of the defendant, the court or
quasi-judicial agency shall determine whether such
contractual provision for arbitration is sufficient and
effective. If in affirmative, the court or quasi-judicial
agency shall then order the enforcement of said
provision.
In sum, on the issue of whether POA should have
referred the case to voluntary arbitration, we find
that, indeed, POA has no jurisdiction over the
dispute which is governed by RA 876, the
arbitration law.
HOWEVER, ESTOPPEL APPLIES. The Court
rules that the jurisdiction of POA and that of MAB
can no longer be questioned by Benguet at this late
hour. What Benguet should have done was to
immediately challenge the POA's jurisdiction by a
special civil action for certiorari when POA ruled
that it has jurisdiction over the dispute. To redo the
proceedings fully participated in by the parties after
the lapse of seven years from date of institution of
the original action with the POA would be
anathema to the speedy and efficient
administration of justice.
OBITER DICTA:
(1) Difference between compulsory & voluntary
arbitration --
In Reformist Union of R.B. Liner, Inc. vs. NLRC,
compulsory arbitration has been defined both as
“the process of settlement of labor disputes by a
government agency which has the authority to
investigate and to make an award which is binding
on all the parties, and as a mode of arbitration
where the parties are compelled to accept the
resolution of their dispute through arbitration by a
third party.” While a voluntary arbitrator is not part
of the governmental unit or labor department's
personnel, said arbitrator renders arbitration
services provided for under labor laws.
There is a clear distinction between compulsory
and voluntary arbitration. The arbitration provided
by the POA is compulsory, while the nature of the
arbitration provision in the RAWOP is voluntary,
not involving any government agency.
Posted by Victor Morvis
31. JORGE GONZALES v. CLIMAX MINING
LTD., CLIMAX-ARIMCO MINING CORP.,
Facts:
Jorge Gonzales, as claimowner of mineral
deposits, entered into a co-production, joint
venture and/or production-sharing letter-
agreement with Geophilippines, Inc, and Inmex
Ltd. Under the agreement, petitioner granted to
Geophilippines, Inc. and Inmex Ltd.
Collectively, the exclusive right to explore and
survey the mining claims for a period of 36 months
within which the latter could decide to take an
operating agreement on the mining claims and/or
develop, operate, mine and otherwise exploit the
mining claims and market any and all minerals that
may be derived therefrom. The eexploration of the
mining claims extended for another period of three
years. Gonzales, Arimco Mining Corporation,
Geophilippines Inc., Inmex Ltd., and Aumex
Philippines, Inc. signed a document designated as
the Addendum to the May 14, 1987 Letter of Intent
and February 28, 1989 Agreement with Express
Adhesion Thereto (hereafter, the Addendum
Contract).
Under the Addendum Contract, Arimco Mining
Corporation would apply to the Government of the
Philippines for permission to mine the claims as the
Governmentâs contractor under a Financial and
Technical Assistance Agreement (FTAA). Arimco
Mining Corporation obtained the FTAA and carried
out work under the FTAA.
Gonzales filed before the Panel of Arbitrators,
Region II, Mines and Geosciences Bureau of the
DENR, against respondents Climax-Arimco Mining
Corporation (Climax-Arimco), Climax, and APMI, a
Complaint seeking the declaration of nullity or
termination of the Addendum Contract, the FTAA,
the Operating and Financial Accommodation
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Contract, the Assignment, Accession Agreement,
and the Memorandum of Agreement.
Petitioner Gonzales prayed for an unspecified
amount of actual and exemplary damages plus
attorneyâs fees and for the issuance of a
temporary restraining order and/or writ of
preliminary injunction to restrain or enjoin
respondents from further implementing the
questioned agreements. He sought said releifs on
the grounds of "FRAUD, OPPRESSION and/or
VIOLATION of Section 2, Article XII of the
CONSTITUTION perpetrated by these foreign
RESPONDENTS, conspiring and confederating
with one another and with each other. The Panel of
Arbitrators dismissed the Complaint for lack of
jurisdiction.
Petitioner moved for reconsideration and this was
granted, the Panel believing that the case involved
a dispute involving rights to mining areas and a
dispute involving surface owners, occupants and
claim owners/concessionaires. According to the
Panel, although the issue raised in the Complaint
appeared to be purely civil in nature and should be
within the jurisdiction of the regular courts, a ruling
on the validity of the assailed contracts would
result to the grant or denial of mining rights over
the properties; therefore, the question on the
validity of the contract amounts to a mining conflict
or dispute. Hence, the Panel granted the Motion for
Reconsideration with regard to the issues of nullity,
termination, withdrawal or damages, but with
regard to the constitutionality of the Addendum
Agreement and FTAA, it held that it had no
jurisdiction. Respondents assailed the orders of
the Panel of Arbitrators via a petition for certiorari
before the Court of Appeals. the Court of Appeals
granted the petition, declaring that the Panel of
Arbitrators did not have jurisdiction over the
complaint filed by petitioner. The jurisdiction of the
Panel of Arbitrators, said the Court of Appeals, is
limited only to the resolution of mining disputes,
defined as those which raise a question of fact or
matter requiring the technical knowledge and
experience of mining authorities. It was found that
the complaint alleged fraud, oppression and
violation of the Constitution, which called for the
interpretation and application of laws, and did not
involve any mining dispute. The Court of Appeals
also observed that there were no averments
relating to particular acts constituting fraud and
oppression. Also, the Court of Appeals noted that
fraud and duress only make a contract voidable,
not inexistent, hence the contract remains valid
until annulled. The Court of Appeals was of the
opinion that the petition should have been settled
through arbitration under Republic Act No. 876
(The Arbitration Law) as stated in the Addendum
Contract. Petitioner filed this Petition for Review on
Certiorari Under Rule 45 assailing the decision and
resolution of the Court of Appeals.
ISSUE: WON the dispute between the parties
should be brought for arbitration under Rep. Act
No. 876.
HELD:
No. Arbitration before the Panel of Arbitrators is
proper only when there is a disagreement between
the parties as to some provisions of the contract
between them, which needs the interpretation and
the application of that particular knowledge and
expertise possessed by members of that Panel.
It is not proper when one of the parties repudiates
the existence or validity of such contract or
agreement on the ground of fraud or oppression as
in this case. The validity of the contract cannot be
subject of arbitration proceedings. Allegations of
fraud and duress in the execution of a contract are
matters within the jurisdiction of the ordinary courts
of law. These questions are legal in nature and
require the application and interpretation of laws
and jurisprudence which is necessarily a judicial
function. the case should not be brought under the
ambit of the Arbitration Law. The question of
validity of the contract containing the agreement to
submit to arbitration will affect the applicability of
the arbitration clause itself. A party cannot rely on
the contract and claim rights or obligations under it
and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking
inconsistent positions. As previously discussed,
the complaint should have been filed before the
regular courts as it involved issues which are
judicial in nature.
32. Brown, et al. v. MHN Government Services,
Inc., et al., No. 87953-2 (Aug. 15, 2013)
Validity of Arbitration Agreements
( CALIFORNIA CASE-wala jud ko kasabot kay
foreign kaayo ni ang fulltex. Haha. May digest sa
baba after this from the internet)
FACTS AND PROCEDURAL HISTORY
whether a particular arbitration agreement is
enforceable.
The underlying action concerns, in part, Brown and
Hiett's claims under the Washington Minimum
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Wage Act. Specifically, they allege that they were
unlawfully misclassified as independent
contractors and thus were not paid the appropriate
overtime rate for all hours worked.
Brown and Hiett are two mental health
professionals who were recruited by MHN to take
short term positions providing counseling for
military personnel and their families. In mid-2008,
MHN individually mailed Brown and Hiett letters
inviting each to apply for a military and family life
consultant position. Each filled out and submitted
the paperwork that requested general background
information. Brown and Hiett were then sent
contracts in the mail labeled "Provider Services
Task Order Agreement" (PSTOA). Clerk's Papers
(CP) at 33-34, 53-54. Each then signed and
returned the PSTOA. CP at 43-52, 63-71. The
PSTOA contains a "Mandatory Arbitration"
provision, the enforceability of which is at issue
before the court.
Brown and Hiett filed a complaint in Pierce County
Superior Court, alleging state law wage claims on
behalf of themselves and a proposed class.
Several motions were made before Judge Edmund
MURPHY in superior court. MHN moved to compel
arbitration and stay the proceedings, and Brown
and Hiett moved to quash the demand for
arbitration. Brown and Hiett claimed that five
specific provisions of the arbitration agreement are
unconscionable: the forum selection, statute of
limitations, arbitrator selection, fee shifting, and
punitive damages provisions. Judge MURPHY
denied the motion to compel arbitration and
granted the motion to quash the demand for
arbitration.
ISSUE: WON the the demand for arbitration should
be quashed based in unconscionability.
HELD:
This ruling was based on a finding of both
procedural unconscionability (VRP at 40) and that
all five contested provisions of the arbitration
agreement are substantively unconscionable (VRP
at 41-44).
The court decided against severing the provisions
it found unconscionable. VRP at 43.
The party opposing arbitration bears the burden of
showing that the agreement is not enforceable. It
is proper to decline to sever unconscionable
provisions if the agreement is permeated with
unconscionability. Armendariz v. Found. Health
Psychcare Servs., Inc., 24 Cal. 4th 83, 124, 6 P.3d
669, 99 Cal. Rptr. 2d 745 (2000) (holding that the
trial court did not abuse its discretion in concluding
that the arbitration agreement was permeated by
an unlawful purpose when there were two
unconscionable provisions). Such permeation can
be indicated when there is no single provision a
court can strike to remove the unconscionable
taint. Id. at 124-25.
ANALYSIS
A threshold dispute as to whether an arbitration
agreement is unconscionable is ordinarily a
decision for the court and not the arbitrator. Hartley
v. Superior Court, 196 Cal. App. 4th 1249, 1253-
56, 127 Cal. Rptr. 3d 174 (2011) (holding that an
arbitration provision in a contract was not clear and
unmistakable in stating that the question of
arbitrability was subject to arbitration, so the court
could not compel arbitration on the threshold issue
of the agreement's unconscionability). Here, the
issue of arbitrability has not been clearly and
unmistakably delegated to the arbitrator on the
face of the contract. Therefore, it is proper for us to
determine the enforceability of the arbitration
agreement.
The parties disagree about the application of
AT&T Mobility LLC v. Concepcion, ___ U.S. ___,
131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011), to the
general contract defense of unconscionability
under state law. In Concepcion, customers brought
a putative class action against AT&T, alleging that
the company's offer of a free phone to anyone who
signed up for cell phone service was fraudulent
because the company charged sales tax on the
retail value of the phone. The United States
Supreme Court held that the Federal Arbitration
Act (FAA), 9 U.S.C. $ 2, preempts California's
judicial rule concerning the unconscionability of
class action arbitration waivers in consumer
contracts. Concepcion, 131 S. Ct. at 1753.
Although the California Supreme Court has not
specifically addressed the application of
Concepcion to its unconscionability law, we note
that review has been granted in Sanchez v.
Valencia Holding Co. in which the court may clarify
this issue. 201 Cal. App. 4th 74, 135 Cal. Rptr. 3d
19 (2011), superseded by 272 P.3d 976, 139 Cal.
Rptr. 3d 2 (2012).
11 MHN argues for a broad reading of Concepcion,
asserting that courts cannot rely on general
unconscionability principles if they interfere with
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the fundamental attributes of arbitration such as its
informality and speed. Brown and Hiett advocate
for a narrower reading that would not impair the
power of state courts to refuse enforcement of
agreements under generally applicable
unconscionability principles. We agree with this
narrower reading of Concepcion.
[8] 12 In Concepcion, the United States Supreme
Court interpreted the FAA's savings clause «2» to
mean that arbitration agreements can be
invalidated by "'generally applicable contract
defenses, such as fraud, duress, or
unconscionability,' but not by defenses that apply
only to arbitration or that derive their meaning from
the fact that an agreement to arbitrate is at issue."
Consepcion 131 S. Ct. at 1746 (quoting Doctor's
Assocs. v. Casarotto, 517 U.S. 681, 687, 116 S. Ct.
1652, 134 L. Ed. 2d 902 (1996)). Accordingly, state
rules specific to arbitration that interfere with the
purposes of the FAA are preempted. Because
California's unconscionability principles relevant to
this case apply equally to litigation and arbitration,
we apply them to the five contested provisions of
the PSTOA.
«2» The validity of the arbitration agreement in
Concepcion turned on the FAA's savings clause. 9
U.S.C. $ 2 states:
A written provision in any maritime transaction or a
contract evidencing a transaction involving
commerce to settle by arbitration a controversy
thereafter arising out of such contract or
transaction, or the refusal to perform the whole or
any part thereof, or an agreement in writing to
submit to arbitration an existing controversy arising
out of such a contract, transaction, or refusal, shall
be valid, irrevocable, and enforceable, save upon
such grounds as exist at law or in equity for the
revocation of any contract.
(Emphasis added.)»
A. California's Unconscionability Standard
[9] 13 Under California law, courts may choose not
to enforce any contract found "'to have been
unconscionable at the time it was made,' or may
'limit the application of any unconscionable
clause.'" Id. at 1746 (quoting CAL. CIV. CODE
ANN. $ 1670.5(a)). Unconscionability requires both
a procedural and substantive element, "but 'they
need not be present in the same degree' and are
evaluated on '"a sliding scale."'" Pinnacle Museum
Tower Ass'n v. Pinnacle Mkt. Dev., LLC, 55 Cal.
4th 223, 282 P.3d 1217, 1232, 145 Cal. Rptr. 3d
514 (2012) (quoting Armendariz, 24 Cal. 4th at 114
(quoting 15 WILLISTON ON CONTRACTS (3d ed.
1972))). The procedural element concerns the
manner in which the contract was negotiated,
focusing on oppression or surprise. Procedural
oppression generally concerns an inequality of
bargaining power and an absence of real
negotiation or meaningful choice. Morris v.
Redwood Empire Bancorp, 128 Cal. App. 4th
1305, 1319, 27 Cal. Rptr. 3d 797 (2005).
Procedural surprise generally relates to whether
the challenged term is hidden in a standardized
form or beyond the reasonable expectations of the
weaker party. Id. at 1321. Substantive
unconscionability concerns overly harsh or one-
sided results. Armendariz, 24 Cal. 4th at 114.
B. Procedural Unconscionability
[10] 14 The arbitration agreement at issue is
procedurally unconscionable. While there does not
appear to be procedural oppression, ambiguity
concerning which set of American Arbitration
Association (AAA) rules applies presents
procedural surprise.
15 The arbitration agreement lacks procedural
oppression. The arbitration provision was in the
same typeface, font, and size as the rest of the
PSTOA and had a bold, underlined heading
labeled "Mandatory Arbitration." Brown and Hiett
had time to read and consider the agreement
before signing. Both are sophisticated bargaining
parties. Brown is a licensed clinical social worker
and a sole proprietor of her business. CP at 99.
Likewise, Hiett represents herself as a marriage
family therapist. CP at 109. They are highly
educated professionals who voluntarily entered
into an agreement to arbitrate.
16 However, the arbitration agreement contains
procedural surprise due to its lack of clarity
regarding which set of AAA rules would govern the
arbitration. The arbitration agreement provides, in
part, "The parties agree that any controversy or
claim arising out of or relating to this Agreement . .
. or the breach thereof, whether involving a claim
in tort, contract or otherwise, shall be settled by
final and binding arbitration in accordance with the
provisions of the American Arbitration
Association." CP at 49. The AAA has upward of 20
sets of both industry-specific and general
categories of rules. Generally, arbitration
agreements specify which rules will apply or the
parties agree on a set of rules if the case clearly
fits in one category or another. Here, it is unclear
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whether the parties would arbitrate under the
employment rules or commercial rules, particularly
given Brown and Hiett's underlying claim that they
were employees misclassified as independent
contractors.
17 MHN has changed its position several times
regarding which set of AAA rules is appropriate.
This further supports Brown and Hiett's argument
that the ambiguity in the arbitration agreement has
resulted in procedural surprise. In the opposition to
plaintiffs' motion to quash arbitration, MHN cites
specifically to the employment rules. CP at 141.
However, in the appellate briefing, MHN contends
that "it is evident" that the commercial rules, not the
employment rules, should apply. Br. of Appellants
at 7 n.1. Where MHN, the drafter of the agreement,
has failed to maintain a consistent interpretation of
the agreement's terms, we recognize that the
ambiguity concerning the AAA rules has presented
procedural surprise for Brown and Hiett.
18 This finding is supported by California case law
that suggests that procedural unconscionability
can be present where rules are referenced in an
arbitration agreement but not attached. See, e.g.,
Harper v. Ultimo, 113 Cal. App. 4th 1402, 1406, 7
Cal. Rptr. 3d 418 (2003) (holding that it was
oppressive to reference the Better Business
Bureau rules but not attach them to the agreement
because the customer must go to another source
to determine the impact of what he is signing). The
California Supreme Court has granted review on
two cases that found arbitration agreements
unconscionable in part because they did not attach
copies of the applicable AAA rules. Wisdom v.
AccentCare, Inc., 202 Cal. App. 4th 591, 136 Cal.
Rptr. 3d 188, superseded by 273 P.3d 513, 139
Cal. Rptr. 3d 315 (2012); Mayers v. Volt Mgmt.
Corp., 203 Cal. App. 4th 1194, 137 Cal. Rptr. 3d
657, superseded by 278 P.3d 1167, 137 Cal. Rptr.
3d 657 (2012).
C. Substantive Unconscionability
1. Forum Selection Provision
19 The arbitration agreement provides, in part,
"The arbitration shall be conducted in San
Francisco, California." CP at 49. Brown and Hiett
argue that this provision is substantively
unconscionable because anybody wishing to
arbitrate a claim against MHN would have to locate
local counsel and travel to California at great
personal expense. They claim that this provision is
one-sided in that those signing the agreements
would be less likely to have resources to travel and
obtain local counsel than MHN. We disagree and
find that the forum selection provision is not
substantively unconscionable.
[11] 20 Forum selection provisions in arbitration
agreements are evaluated for whether the term is
"unduly oppressive." Bolter v. Superior Court, 87
Cal. App. 4th 900, 909, 104 Cal. Rptr. 2d 888
(2001). In Bolter, the court severed an
unconscionable arbitration agreement clause
selecting Utah as the forum. After reviewing
extensive declarations from the parties concerning
their financial circumstances, family situations, and
business arrangements, the court recognized that
"[u]nder the circumstances, the 'place and manner'
terms are unduly oppressive." Id. Here, the record
is devoid of similar declarations concerning the
parties' circumstances. Brown and Hiett have not
alleged similar facts concerning the hardship of
arbitrating in California. We accordingly find that
the forum selection provision is not substantively
unconscionable.
2. Punitive Damages Provision
21 The arbitration agreement provides, in part,
"The arbitrator shall have no authority to make
material errors of law or to award punitive damages
or to add to, modify or refuse to enforce any
agreements between the parties." CP at 49. Brown
and Hiett claim that the provision limiting punitive
damages deprives them of their right to statutory
double damages under RCW 49.52.070. «3»
Under that provision, employees can be awarded
statutory double damages from an employer who
willingly and intentionally paid them less than is
required by law. Following the United States
Supreme Court's lead in PacifiCare Health
Systems, Inc. v. Book, 538 U.S. 401, 123 S. Ct.
1531, 155 L. Ed. 2d 578 (2003), we find that the
punitive damages provision is not substantively
unconscionable.
«3» While the construction of the PSTOA is
controlled by California law, Brown and Hiett have
asserted state law claims under Washington law.»
22 In PacifiCare, the Court was asked to decide
whether a party could be compelled to arbitrate
claims arising under the Racketeer Influenced and
Corrupt Organizations Act (RICO), 18 U.S.C. $
1961, even though the arbitration agreement's
limitation on punitive damages could be construed
to limit the arbitrator's authority to award statutory
treble damages. 538 U.S. at 402. The Court
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ultimately concluded that addressing the question
of whether the arbitration agreement would
preclude RICO treble damages would be
premature. Id. at 404.
23 The Court noted that "[o]ur cases have placed
different statutory treble-damages provisions on
different points along the spectrum between purely
compensatory and strictly punitive awards." Id. at
405. The Court further recognized that
[i]n light of our case law's treatment of statutory
treble damages, and given the uncertainty
surrounding the parties' intent with respect to the
contractual term "punitive," the application of the
disputed language to respondents' RICO claims is,
to say the least, in doubt. And Vimar instructs that
we should not, on the basis of "mere speculation"
that an arbitrator might interpret these ambiguous
agreements in a manner that casts their
enforceability into doubt, take upon ourselves the
authority to decide the antecedent question of how
the ambiguity is to be resolved.
Washington law is similarly unclear with respect to
where RCW 49.52.070 lies on the spectrum
between purely remedial and purely punitive. See
RCW 49.52.070 (referring to the damages as
"exemplary"); Schilling v. Radio Holdings, Inc., 136
Wn.2d 152, 158, 961 P.2d 371 (1998) (also noting
the "exemplary" nature of the double damages
provision); Morgan v. Kingen, 141 Wn. App. 143,
161-62, 169 P.3d 487 (2007) ("[T]he [RCW
49.52.070] damages are exemplary damages, not
merely compensatory. As exemplary damages,
they are intended to punish and deter blameworthy
conduct." (emphasis added) (footnote omitted)).
We follow the lead of the United States Supreme
Court in PacifiCare and note that it would be
premature to determine at this stage whether the
punitive damages provision would limit Brown and
Hiett's ability to collect statutory double damages
under RCW 49.52.070. Accordingly, we find that
the punitive damages provision is not substantively
unconscionable.
3. Statute of Limitations Provision
The arbitration agreement states, in part,
"Arbitration must be initiated within 6 months after
the alleged controversy or claim occurred by
submitting a written demand to the other party. The
failure to initiate arbitration within that period
constitutes an absolute bar to the institution of any
proceedings." CP at 49. Under the Washington
Minimum Wage Act, parties have three years to
bring a claim. Seattle Prof'l Eng'g Emps. Ass'n v.
Boeing Co., 139 Wn.2d 824, 837, 991 P.2d 1126,
1 P.3d 578 (2000). Brown and Hiett assert that
requiring parties to initiate arbitration within six
months is substantively unconscionable because it
limits their right to damages for violations occurring
up to three years prior to their complaint. We agree
and find that the statute of limitations provision is
substantively unconscionable.
California authority suggests that a six-month
statute of limitations clause in an arbitration
agreement is substantively unconscionable where
the underlying statute (here, the Washington
Minimum Wage Act) provides a much longer
period of time within which to assert a claim. Brown
and Hiett cite to Cuadra v. Millan «4» in support of
their argument that the statute of limitations
provision would limit their recovery to the past six
months' worth of wage claims:
A cause of action for unpaid wages accrues when
the wages first become legally due, i.e., on the
regular payday for the pay period in which the
employee performed the work; when the work is
continuing and the employee is therefore paid
periodically (e.g., weekly or monthly) a separate
and distinct cause of action accrues on each
payday, triggering on each occasion the running of
a new period of limitations.
It follows that such an action is timely as to all
paydays falling within the relevant limitations
period. For the same reason, in calculating the
amount of unpaid wages due in such an action the
court will count back from the filing of the complaint
to the beginning of the limitations period . . . and
will award all unpaid wages earned during that
period.
Id. at 707 (citation omitted).
The California Supreme Court's recitation of how a
court should calculate back pay in a cause of action
for unpaid wages is persuasive. It appears that the
statute of limitations provision in this case would,
in fact, limit the amount of available damages.
Under California law, a statute of limitations
provision is substantively unconscionable if it
severely limits the time available to bring a
statutory claim. See Martinez v. Master Prot. Corp.,
118 Cal. App. 4th 107, 117, 12 Cal. Rptr. 3d 663
(2004) (holding that an employment arbitration
agreement's six-month statute of limitations
unlawfully restricted employee's ability to vindicate
his rights and was therefore substantively
Clap clap powerful!!!!
unconscionable where the applicable statutes
provide significantly longer periods within which to
assert a claim). We accordingly find the statute of
limitations provision substantively unconscionable.
4. Arbitrator Selection Provision
The arbitration agreement provides, in part, "A
single, neutral arbitrator who is licensed to practice
law shall conduct the arbitration. . . . MHN shall
provide Provider with a list of three neutral
arbitrators from which Provider shall select its
choice of arbitrator for the arbitration." CP at 49.
MHN suggests that because the AAA rules are
incorporated by reference into the agreement,
some hybrid between what is written in the
agreement and the AAA rules will be used to select
an arbitrator. See Br. of Appellant at 31-33.
Although the agreement allows MHN to select any
three neutral arbitrators, MHN claims that they are
bound to select from a list provided by the AAA.
This is not the case. Under both the commercial
and employment rules, if the arbitration agreement
provides its own method for arbitrator selection,
that method is used and the AAA does not provide
a list of neutral arbitrators.
[14, 15] 30 Substantive unconscionability concerns
overly harsh or one-sided results. Armendariz, 24
Cal. 4th at 114. On its face, this arbitrator selection
provision is substantively unconscionable. It allows
MHN to select any three arbitrators whom it
purports to be neutral, from which Brown and Hiett
are bound to select the final arbitrator. Because the
provision is both overly harsh and one-sided in
favor of MHN, we find the arbitrator selection
provision substantively unconscionable.
5. Fee shifting Provision
The arbitration agreement provides, in part, "The
prevailing party, or substantially prevailing party's
costs of arbitration, are to be borne by the other
party, including reasonable attorney's fees." CP at
49. Brown and Hiett claim that this provision is
substantively unconscionable because under the
Washington Minimum Wage Act, attorney fees can
be recovered only by a prevailing employee, not an
employer. RCW 49.48.030. We agree and find the
fee shifting provision substantively
unconscionable.
Here, some of the underlying claims fall under the
Washington Minimum Wage Act. Despite the
choice of law provision, it is proper to consider
Washington cases that have evaluated fee shifting
provisions in the context of the underlying statutory
claims.
In Walters, Division One of the Court of Appeals
held that mandatory fee shifting provisions in
arbitration agreements are unconscionable where
the Washington Minimum Wage Act provides that
only a prevailing employee would be entitled to
recover costs and fees. The risk of having to pay
the employer's expenses and fees was a
significant deterrent to employees contemplating
initiating an action to vindicate their rights. Walters
v. A.A.A. Waterproofing, Inc., 151 Wn. App. 316,
321-22, 211 P.3d 454 (2009). Furthermore, the
language in this agreement is mandatory, requiring
that costs "are to be borne by the other party." «6»
CP at 49 (emphasis added); cf. Zuver v. Airtouch
Commc'ns, Inc., 153 Wn.2d 293, 310-11, 103 P.3d
753 (2004) (holding that an arbitration agreement's
fee shifting provision was not substantively
unconscionable where the language of the
agreement is permissive rather than mandatory).
Due to the mandatory nature of this language, we
decline to apply the reasoning in PacifiCare in this
context. An arbitrator would not have discretion to
enforce the fee shifting provision. This is distinct
from the punitive damages context where the
arbitrator would have some discretion to construe
the punitive damages provision in light of the
applicable statutory damages provisions.»
Mandatory fee shifting provisions in arbitration
agreements are substantively unconscionable
where the Washington Minimum Wage Act
provides that only a prevailing employee would be
entitled to recover costs and fees. We find the fee
shifting provision substantively unconscionable.
D. Severability
35 The trial judge found the agreement
procedurally unconscionable and that all five
contested provisions are substantively
unconscionable. VRP at 40-42. The PSTOA
contains a severability provision which reads, "In
the event that any provision of this Agreement is
rendered invalid or unenforceable by any valid law
or regulation of the State of California or of the
United States, or declared void by any tribunal of
competent jurisdiction, the remaining provisions of
this Agreement shall remain in full force and
effect." CP at 48. The trial court declined to sever
the unconscionable provisions, finding that the
agreement was permeated with unconscionabililty
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and that MHN set up the arbitration provision to put
itself at an advantage. VRP at 43-44.
Under California law, the trial court's ruling on
severability is reviewed for an abuse of discretion
Facter, 212 Cal. App. 4th at 985; Samaniego v.
Empire Today, LLC, 205 Cal. App. 4th 1138, 1144,
140 Cal. Rptr. 3d 492 (2012). It is proper to decline
to sever unconscionable provisions if the
agreement is permeated with unconscionability.
Armendariz, 24 Cal. 4th at 124. Such permeation
can be indicated when there is no single provision
a court can strike to remove the unconscionable
taint. Id. at 124-25.
Here, the trial court did not abuse its discretion in
choosing not to sever the unconscionable
provisions. Even where three provisions are found
unconscionable rather than five, the agreement is
permeated with unconscionability and cannot be
cured through severance. Notably, one of the
agreement's greatest defects--which set of AAA
rules governs--cannot be cured by severance
alone.
CONCLUSION
We find that the arbitration agreement is
procedurally unconscionable. We also find that the
forum selection and punitive damages provisions
are not substantively unconscionable while the
arbitrator selection, statute of limitations, and fee
shifting provisions are. We hold that the agreement
is unconscionable and the trial court did not abuse
its discretion in choosing not to sever. We
accordingly affirm the trial court.
Another digest
FACTS: (kani nalang irecit. Diko masabtan ang
fulltext kay very foreign)
This case involved an agreement, labeled
“Provider Services Task Order Agreement,”
between two mental health professionals and their
employer. The agreement contained, among other
things, a “Mandatory Arbitration” provision and was
governed by California law.
After several years of working for MHN
Government Services, Inc. (“MHN”), plaintiffs filed
a complaint in Pierce County Superior Court
alleging state law wage claims on behalf of
themselves and a proposed class. In response,
MHN filed a motion to compel arbitration and stay
the proceedings. Plaintiffs, in response, moved to
quash the demand for arbitration, claiming that that
the following five provisions were unconscionable
(1) the forum selection clause; (2) the contractual
statute of limitations; (3) the arbitrator selection
provision; (4) the fee-shifting provision; and (5) the
punitive damages exclusion. The superior court
denied the motion to compel arbitration. MHN
appealed and the case was ultimately transferred
to the Supreme Court, pursuant to RCW 2.06.030.
HELD:
Procedural Unconscionability:
The arbitration agreement was procedurally
unconscionable because the agreement’s general
reference that the American Arbitration Association
(AAA) rules would apply to any arbitration involved
“procedural surprise” because it did not specify
which set of AAA rules would govern the
arbitration.
Substantive Unconscionability:
The agreement’s statute-of-limitations provision
was substantively unconscionable because it
required that by arbitration be “initiated within 6
months.” The court found that because the statute
plaintiffs relied on required lawsuits to be brought
in 3 years, any shortening of that time period was
substantively unconscionable.
The agreement’s arbitrator-selection provision,
which provided that “[a] single, neutral arbitrator
who is licensed to practice law shall conduct the
arbitration . . . MHN shall provide [Plaintiffs] with a
list of three neutral arbitrators from which
[Plaintiffs] shall select its choice of arbitrator for the
arbitration,” was substantively unconscionable.
The court reasoned that this provision was “overly
harsh and one-sided in favor of MHN” because
MHN had sole authority to select the three potential
“neutral” arbitrators.
The agreement’s fee-shifting provision is
substantively unconscionable. The provision at
issue was effectively a prevailing-party fee-shifting
provision. Despite this fact, the court held it
unconscionable because it contradicted the
Washington Minimum Wage Act, which allows only
a prevailing employee to recover his or her fees.
The agreement’s forum-selection provision and
punitive damages provision were upheld by the
court.
Clap clap powerful!!!!
Additionally, the court held that agreement was so
permeated with unconscionability that the
offending provisions could not be severed from the
agreement. Therefore, the court held, the trial court
did not err in refusing to order arbitration.
33. G.R. No. 91228. March 22, 1993.
PUROMINES, INC., petitioner, vs. COURT OF
APPEAL and PHILIPP BROTHERS OCEANIC,
INC., respondents.
SYLLABUS
6. ID.; ID.; ID.; ID.; BILLS OF LADING;
ARBITRATION PROVISION THEREOF,
CONSIDERED AND RESPECTED. — Whether
the liability of respondent should be based on the
same contract or that of the bill of lading, the
parties are nevertheless obligated to respect the
arbitration provisions on the sales contract and/or
the bill of lading. Petitioner being a signatory and
party to the sales contract cannot escape from his
obligation under the arbitration clause as stated
therein. Arbitration has been held valid and
constitutional. Even before the enactment of
Republic Act No. 876, this Court has countenanced
the settlement of disputes through arbitration. The
rule now is that 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
arrangements and will only interfere with great
reluctance to anticipate or nullify the action of the
arbitrator. As pointed out in the case of Mindanao
Portland Cement Corp. v. McDough Construction
Company of Florida 18 wherein the plaintiff sued
defendant for damages arising from a contract, the
Court said: "Since there obtains herein a written
provision for arbitration as well as failure on
respondent's part to comply therewith, the court a
quo rightly ordered the parties to proceed to their
arbitration in accordance with the terms of their
agreement (Sec. 6 Republic Act 876).
Respondent's arguments touching upon the merits
of the dispute are improperly raised herein. They
should be addressed to the arbitrators. This
proceeding is merely a summary remedy to
enforce the agreement to arbitrate. The duty of the
court in this case is not to resolve the merits of the
parties' claims but only to determine if they should
proceed to arbitration or not. And although it has
been ruled that a privolous or patently baseless
claim should not be ordered to arbitration it is also
recognized that the mere fact that a defense exist
against a claim does not make it frivolous or
baseless."
FACTS:
Puromines, Inc. (Puromines for brevity) and Makati
Agro Trading, Inc. (not a party in this case) entered
into a contract with private respondents Philipp
Brothers Oceanic, Inc. for the sale of prilled Urea
in bulk. The Sales Contract No. S151.8.01018
provided, among others an arbitration clause which
states, thus:
"9. Arbitration
"Any disputes arising under this contract shall be
settled by arbitration in London in accordance with
the Arbitration Act 1950 and any statutory
amendment or modification thereof. Each party is
to appoint an Arbitrator, and should they be unable
to agree, the decision of an Umpire appointed by
them to be final. The Arbitrators and Umpire are all
to be commercial men and resident in London. This
submission may be made a rule of the High Court
of Justice in England by either party."
The vessel M/V "Liliana Dimitrova" loaded on
board at Yuzhny, USSR a shipment of 15,500
metric tons prilled Urea in bulk complete and in
good order and condition for transport to Iloilo and
Manila, to be delivered to petitioner. Three bills of
lading were issued by the ship-agent in the
Philippines, Maritime Factors Inc., namely: Bill of
Lading No. dated May 12, 1988 covering 10,000
metric tons for discharge Manila; Bill of Lading No.
2 of even date covering 4,000 metric tons for
unloading in Iloilo City; and Bill of Lading No. 3,
also dated May 12, 1988, covering 1,500 metric
tons likewise for discharged in Manila
The shipment covered by Bill of Lading No. 2 was
discharged in Iloilo City complete and in good order
and condition. However, the shipments covered by
Bill of Lading Nos. 1 and 3 were discharged in
Manila in bad order and condition, caked,
hardened and lumpy, discolored and contaminated
with rust and dirt. Damages were valued at P683,
056. 29 including additional discharging expenses.
Puromines filed a complaint with the trial court for
breach of contract of carriage against Maritime
Factors Inc. (which was not included as
respondent in this petition) as ship-agent in the
Philippines for the owners of the vessel MV "Liliana
Dimitrova," while private respondent, Philipp
Brothers Oceanic Inc., was impleaded as charterer
Clap clap powerful!!!!
of the said vessel and proper party to accord
petitioner complete relief. Maritime Factors, Inc.
filed its Answer to the complaint, while private
respondent filed a motion to dismiss, on the
grounds that the complaint states no cause of
action; that it was prematurely filed; and that
petitioner should comply with the arbitration clause
in the sales contract.
The motion to dismiss was opposed by petitioner
contending the inapplicability of the arbitration
clause inasmuch as the cause of action did not
arise from a violation of the terms of the sales
contract but rather for claims of cargo damages
where there is no arbitration agreement.
ISSUE: Whether the phrase "any dispute arising
under this contract" in the arbitration clause of the
sales contract covers a cargo claim against the
vessel (owner and/or charterers) for breach of
contract of carriage.
HELD:
In the present petition, petitioner argues that the
sales contract does not include the contract of
carriage which is a different contract entered into
by the carrier with the cargo owners. That it was an
error for the respondent court to touch upon the
arbitration provision of the bills lading in its decision
inasmuch as the same was not raised as an issue
by private respondent who was not a party in the
bills of lading (emphasis Ours). Petitioner
contradicts itself.
The sales contract is comprehensive enough to
include claims for damages arising from carriage
and delivery of the goods. As a general rule, the
seller has the obligation to transmit the goods to
the buyer, and concomitant thereto, the contracting
of a carrier to deliver the same. Art. 1523 of the
Civil Code provides:
"Art. 1523. Where in pursuance of a contract
of sale, the seller in authorized or required to send
the goods to the buyer, delivery of the goods to a
carrier, whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to
be a delivery of the goods to the buyer, except in
the cases provided for in article 1503, first, second
and third paragraphs, or unless a contrary intent
appear.
"Unless otherwise authorized by the buyer, the
seller must take such contract with the carrier on
behalf of the buyer as may be reasonable, having
regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to
do, and the goods are lost or damaged in course of
transit, the buyer may decline to treat the delivery
to the carrier as a delivery to himself,, or may hold
the seller responsible in damages."

xxx xxx xxx

The disputed sales contact provides for conditions

relative to the delivery of goods, such as date of
shipment, demurrage, weight as determined by the
bill of lading at load port.."

As argued by respondent on its motion to dismiss,

"the (petitioner) derives his right to the cargo from
the bill of lading which is the contract of
affreightment together with the sales contract.
Consequently, the (petitioner) is bound by the
provisions and terms of said bill of lading and of the
arbitration clause incorporated in the sales
contract."

In any case, whether the liability of respondent

should be based on the same contract or that of
the bill of lading, the parties are nevertheless
obligated to respect the arbitration provisions on
the sales contract and/or the bill of lading.
Petitioner being a signatory and party to the sales
contract cannot escape from his obligation under
the arbitration clause as stated therein.

Neither can petitioner contend that the arbitration

provision in the bills of lading should not have been
discussed as an issue in the decision of the Court
of Appeals since it was not raised as a special or
affirmative defense. The three bills of lading were
attached to the complaint as Annexes "A," "B," and
"C," and are therefore parts thereof and may be
considered as evidence although not introduced as
such. 16 Hence, it was then proper for the court a
quo to discuss the contents of the bills of lading,
having been made part of the record.

Going back to the main subject of this case,

arbitration has been held valid and constitutional.
Even before the enactment of Republic Act No.
876, this Court has countenanced the settlement of
disputes through arbitration. The rule now is that
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 arrangements and
will only interfere with great reluctance to anticipate
or nullify the action of the arbitrator.

Clap clap powerful!!!!