Almeda, George D.

2015-0113
Legal Counselling
Fridays, 5:30-7:30 PM

KOPPEL, INC. (formerly known as KPL AIRCON, INC.), petitioner, vs. MAKATI
ROTARY CLUB FOUNDATION, INC., respondent.

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

Facts:

In 1975, FKI bequeathed the subject property (exclusive of the improvements) in favor of Makati
Rotary Club by way of a conditional donation. The donation provides that the donee, Makati
Rotary Club, was required to lease the subject property to FKI under the terms specified in the
Deed of Donation. The stipulations in the donation provides: a. that the period of lease shall be
for 25 years (until May 25, 2000) and the annual rent for the first 25 years is P40,126 b. The
lease is subject to renewable for another 25 years upon mutual agreement of the donor and donee
c. In case of disagreement, the matter shall be referred to a Board of arbitrators (3- member)
appointed and with powers in accordance with the Arbitration Law of the Philippines (RA 878).
Before the lease contract was set to expire, FKI and Makati Rotary Club executed another
contract extending the lease for 5 years, with annual rents ranging from P4,000,000 for the 1st
year up to P4,900,00 for the 5th year. The 2000 Lease contract an arbitration clause worded as:
Any disagreement as to the interpretation, application or execution of the [2000 Lease] contract
shall be submitted to a board of 3 arbitrators constituted in accordance with the Arbitration Law
of the Philippines. The decision of the majority of the board shall be binding upon FKI and
respondent. After the 2000 Lease Contract expired, FKI and respondent agreed to renew their
lease for another 5 years at a fixed rate pf P4,200,000 per annum (2005 Lease Contract). In
addition, the contract also obligated FKI to make a yearly “donation” of money to respondent
ranging from P3 million for the 1st year up to P3.9 million for the 5th year. The lease contract
contained an arbitration clause similar to the 2000 lease contract. From 2005 to 2008, FKI paid
the rentals and “donations” due based on the 2005 Lease Contract. In Aug 2008, FKI assigned all
its interest and obligations in favor of petitioner Koppel Inc. The next year, Koppel discontinued
the payment of the rentals and “donations” under the 2005 Lease Contract. Koppel’s refusal to
pay was based on the premise that the subsequent lease contracts violated one of the material
conditions of the donation of the property, i.e. Item 2(g) of the Deed of Donation states that the
rent of the subject property over the second 25 years was limited to only 3% of the fair market
value of the subject property excluding the improvements. On June 1, 2009, Makati Rotary Club
sent a demand letter notifying Koppel of its default. Petitioner (Sept 22, 2009) sent a reply
expressing its disagreement over the rental stipulations of the 2005 Lease Contract and offered to
pay P80,502.79 instead of P8,394,000 as demanded by respondent. Respondent send a
subsequent demand letter (Sept 25, 2009) ordering Koppel Inc to vacate the premises should it
fail to pay its obligation within 7 days from receipt of letter. Petitioner Koppel refused to comply
with the demands of the respondent and instead, filed with RTC Paranaque a complaint for the
rescission or cancellation of the Deed of Donation. Thereafter, Makati Rotary Club filed an
unlawful detainer case against Koppel before MTC Paranaque. In the ejectment suit, Koppel
reiterated its objections over the rental stipulations of the 2005 Lease Contract and questioned
the jurisdiction of the MTC in view of the arbitration clause contained in the Lease Contract. In
the ejectment case, RTC ruled in favor of Koppel Inc. While it did not dismiss the action on the
Almeda, George D.
2015-0113
Legal Counselling
Fridays, 5:30-7:30 PM
ground of arbitration, MTC sided with petitioner with respect to the issues regarding the
insufficiency of the respondent’s demand and the nullity of the 2005 Lease contract.

Issue: Whether the dispute is subject to arbitration. Yes.

Ruling:

Petitioner may still invoke the arbitration clause of the 2005 Lease Contract notwithstanding the
fact that it assails the validity of such contract. Under the doctrine of separability, an arbitration
agreement is considered as independent of the main contract. Being a separate contract in itself,
the arbitration agreement may thus be invoked regardless of the possible nullity or invalidity of
the main contract. Once again instructive is Cargill, wherein this Court held that, as a further
consequence of the doctrine of separability, even the very party who repudiates the main contract
may invoke its arbitration clause.

The operation of the arbitration clause in this case is not defeated by Koppel’s failure to file a
formal “request” or application with the MTC. In using the word “may” to qualify the act of
filing a “request” under Sec 24 of RA 9285 (Special ADR Rues) clearly did not intend to limit
invocation of an arbitration agreement in a pending suit solely via such request. After all, non-
compliance with an arbitration agreement is a valid defense to any offending suit and, as such,
may even be raised in an answer as provided in our ordinary rules of procedure.

The JDR framework is based on the processes of mediation, conciliation or early neutral
evaluation which entails the submission of a dispute before a “JDR judge” who shall merely
“facilitate settlement” between the parties in conflict or make a “non-binding evaluation or
assessment of the chances of each party’s case.” Thus in JDR, the JDR judge lacks the authority
to render a resolution of the dispute that is binding upon the parties in conflict. In arbitration, on
the other hand, the dispute is submitted to an arbitrator/s — a neutral third person or a group of
thereof — who shall have the authority to render a resolution binding upon the parties.

A pivotal feature of arbitration as an alternative mode of dispute resolution is that it is, first and
foremost, a product of party autonomy or the freedom of the parties to “make their own
arrangements to resolve their own disputes.” Arbitration agreements manifest not only the desire
of the parties in conflict for an expeditious resolution of their dispute. They also represent, if not
more so, the parties’ mutual aspiration to achieve such resolution outside of judicial auspices, in
a more informal and less antagonistic environment under the terms of their choosing. Needless to
state, this critical feature can never be satisfied in an ejectment case no matter how summary it
may be.

It is clear that under the law, the instant unlawful detainer action should have been stayed; the
petitioner and the respondent should have been referred to arbitration pursuant to the arbitration
clause of the 2005 Lease Contract. The MeTC, however, did not do so in violation of the law —
which violation was, in turn, affirmed by the RTC and Court of Appeals on appeal.