Magellan Capital Management Corporation v. Zosa (G.R. No. 129916)

Facts:

Under a management agreement entered into, MCHC appointed MCMC as manager for the operation of its business and affairs. Pursuant thereto, petitioners and private respondent Rolando Zosa entered into “Employment Agreement” designating the latter as President and CEO of MCHC. Respondent Zosa then was elected to a new position as MCHC’s Vice-Chairman/Chairman New Ventures Development to which he communicated his resignation on the ground that it had less responsibility and scope and demanded that he be given termination benefits as provided in the Employment Agreement. MCHC communicated its non-acceptance to the resignation and advised respondent that the agreement is terminated on account of the latter’s breach thereof. Respondent invoked the Arbitration Clause of the agreement and both parties designated their arbitrators in the panel. However, instead of submitting the dispute to arbitration, respondent filed an action for damages against petitioners before the RTC. Petitioners’s motion to dismiss was denied. Petitioners filed a petition for certiorari and prohibition in the CA to which it was given due course. The RTC in compliance with the decision, declared the arbitration clause in the agreement partially void and of no effect insofar as it concerns the composition of arbitrators. Petitioners then filed this petition for review on certiorari.

Issue:

Whether or not the arbitration clause in the Employment Agreement is partially void and of no effect.

Ruling:

We rule against the petitioners.

Even if procedural rules are disregarded, and a scrutiny of the merits of the case is undertaken, this Court finds the trial court’s observations on why the composition of the panel of arbitrators should be voided, incisively correct so as to merit our approval. Thus,

“From the memoranda of both sides, the Court is of the view that the defendants [petitioner] MCMC and MCHC represent the same interest. There is no quarrel that both defendants are entirely two different corporations with personalities distinct and separate from each other and that a corporation has a personality distinct and separate from those persons composing the corporation as well as from that of any other legal entity to which it may be related.  But as the defendants [herein petitioner] represent the same interest, it could never be expected, in the arbitration proceedings, that they would not protect and preserve their own interest, much less, would both or either favor the interest of the plaintiff. The arbitration law, as all other laws, is intended for the good and welfare of everybody. In fact, what is being challenged by the plaintiff herein is not the law itself but the provision of the Employment Agreement based on the said law, which is the arbitration clause but only as regards the composition of the panel of arbitrators.

“From the foregoing arbitration clause, it appears that the two (2) defendants [petitioners] (MCMC and MCHC) have one (1) arbitrator each to compose the panel of three (3) arbitrators. As the defendant MCMC is the Manager of defendant MCHC, its decision or vote in the arbitration proceeding would naturally and certainly be in favor of its employer and the defendant MCHC would have to protect and preserve its own interest; hence, the two (2) votes of both defendants (MCMC and MCHC) would certainly be against the lone arbitrator for the plaintiff [herein defendant]. Hence, apparently, plaintiff [defendant] would never get or receive justice and fairness in the arbitration proceedings from the panel of arbitrators as provided in the aforequoted arbitration clause. In fairness and justice to the plaintiff [defendant], the two defendants (MCMC and MCHC) [herein petitioners] which represent the same interest should be considered as one and should be entitled to only one arbitrator to represent them in the arbitration proceedings. Accordingly, the arbitration clause, insofar as the composition of the panel of arbitrators is concerned should be declared void and of no effect, because the law says, “Any clause giving one of the parties power to choose more arbitrators than the other is void and of no effect” (Article 2045, Civil Code).

“The dispute or controversy between the defendants (MCMC and MCHC) [herein petitioners] and the plaintiff [herein defendant] should be settled in the arbitration proceeding in accordance with the Employment Agreement, but under the panel of three (3) arbitrators, one (1) arbitrator to represent the plaintiff, one (1) arbitrator to represent both defendants (MCMC and MCHC) [herein petitioners] and the third arbitrator to be chosen by the plaintiff [defendant Zosa] and defendants [petitioners].

We need only to emphasize in closing that arbitration proceedings are designed to level the playing field among the parties in pursuit of a mutually acceptable solution to their conflicting claims. Any arrangement or scheme that would give undue advantage to a party in the negotiating table is anathema to the very purpose of arbitration and should, therefore, be resisted. Wherefore, premises considered, the petition is hereby dismissed and the decision of the trial court is affirmed.

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