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Magellan Capital Management Corp vs Zosa

FACTS:
Under a management agreement, Magellan Capital Holdings (MCHC) appointed
Magellan Capital Management Corp (MCMC) as manager for the operation of its
business and affairs. Pursant thereto, Zosa, MCHC and MCMC entered into an
"EMPLOYMENT AGREEMENT" where Zosa was designated as President and CEO of
MCMC, and which provided that his term is co-terminous w/ the management
agreement (until March 1996) unless sooner terminated.
The dispute arose when Zosa was not re-elected by MCHC's Board of Directors on
May 1995 for account of loss of trust and confidence arising from alleged violation
of the resolution issued by MCHC's board of directors and of the non-competition
clause of the Employment Agreement. Nevertheless, respondent Zosa was elected
to a new position as MCHC's Vice-Chairman/Chairman for New Ventures
Development.
-September 1995: Zosa resigned for good reason from VChair position under PAR7,
EMPLOYMENT AGREEMENT: position had less responsibility and scope than President
and Chief Executive Officer. Demanded that he be given termination benefits as
provided in the Employment Agreement. Instead, he was terminated for cause
(breach of SECTION 12) and was further advised that he shall have no further rights
under the EMPLOYMENT AGREEMENT. His demand for termination benefits were
granted however.
RESORT TO ARBITRATION
Disagreeing with the position taken by petitioners, respondent Zosa invoked the
Arbitration Clause of theEmployment Agreement, to wit:
"23. Arbitration. In the event that any dispute, controversy or claim arises out of or
under any provisions of this Agreement, then the parties hereto agree to submit
such dispute, controversy or claim to arbitration as set forth in this Section and the
determination to be made in such arbitration shall be final and binding. Arbitration
shall be effected by a panel of three arbitrators. The Manager, Employee and
Corporation shall designate one (1) arbitrator who shall, in turn, nominate and elect
who among them shall be the chairman of the committee. Any such arbitration,
including the rendering of an arbitration award, shall take place in Metro Manila.
The arbitrators shall interpret this Agreement in accordance with the substantive
laws of the Republic of the Philippines. The arbitrators shall have no power to add
to, subtract from or otherwise modify the terms of Agreement or to grant injunctive
relief of any nature. Any judgment upon the award of the arbitrators may be
entered in any court having jurisdiction thereof, with costs of the arbitration to be

borne equally by the parties, except that each party shall pay the fees and
expenses of its own counsel in the arbitration."
-Zosa, MCMC and MCHC each designated their nominees for the arbitration panel
BUT Zosa ABANDONED RESORT TO ARBITRATION AND FILED AN ACTION FOR
DAMAGES TO ENFORCE BENEFITS UNDER THE EMPLOYMENT AGREEMENT before RTC
Cebu.
-MTD:
a.

RTC had no jurisdiction: should resort to Arbitration

b.
Venue improperly laid: all the parties are residents of Pasig City so the proper
venue should be RTC Pasig, w/o admitting that Zosa had a COA.
*Zosa filed Amended Complaint
*RTC: MTD DISMISSED
a.
Validity and legality of the arbitration provision can only be determined after
trial on the merits
b.

Amount of damages claimed (P100k) falls w/n jurisdiction of RTC

MR DENIED. So MCMC and MCHC filed ANSWER AD CAUTELAM (w/ same arguments
as MTD).MCMC and MCHC still insisted that the dispute is arbitrable, thus the RTC
shoul Dismiss it. As the RTC denied their motions a nd wanted to proceed with trial
on the merits, they filed a R65 Petition for Certiorari before CA
*CA: RTC directed to resolve the issue on the validity or effectivity of the arbitration
clause + suspend trial on the merits until the validity of the arbitration clause is
resolved. MCMC and MCHC filed MOTIONS FOR PARTIAL RECON. Denied for lack of
merit.
*RTC: rendered arbitration clause PARTIALLY VOID insofar as it concerns the
composition of the panel of arbitrators (each of the parties elect 1 arbitrator);
directed the parties to proceed w/ arbitration with 3 arbitrators, 1 for Zosa, 1 for
MCMC and MCHC, and the 3rd to be selected by both parties.
-to appeal, MCMC and MCHC filed R45 Petition: RTC erred in ruling that the manner
of selection of the panel arbitrators is void insofar as MCMC and MCHC represent the
same interest and that Zosa is estopped from questioning the validity of the
arbitration agreement as he already designated his own arbitrator.

ISSUES:.

(1)WON the case should fall under SEC jurisdiction (apparently, this was raised
as an issue before the CA). NO.
(2) WON TC erred in voiding the arbitration clause as it would work injustice (in
all probability) to Zosa? NO.
(3) WON Zosa is estopped from assailing the validity of the arbitration clause?
NO
RULING:
(1) The controversy does not in anyway involve the election/appointment of officers
of petitioner MCHC BUT THE ILLEGALITY OF THE ARBITRATION CLAUSE IN THE
EMPLOYMENT AGREEMENT.
IT FALLS UNDER RTC. Under Republic Act No. 876, otherwise known as the
"Arbitration Law," it is the regional trial court which exercises jurisdiction over
questions relating to arbitration. Although the dispute stems from the validity of the
termination of the service of a corporate officer, the issue on the validity and
effectivity of the arbitration clause is determinable by the regular courts, and do not
fall within the exclusive and original jurisdiction of the SEC.
LAW OF THE CASE DOCTRINE: a term applied to an established rule that when an
appellate court passes on a question and remands the cause to the lower court for
further proceedings, the question there settled becomes the law of the case upon
subsequent appeal. MCMC and MCHC are therefore barred from challenging anew
the authority of the RTC to resolve the validity of the arbitration clause, or else
guilty of forum shopping.

(2) -R45 Petition is limited to reviewing errors of law.


-even if we review facts, RTC still correct:
*MCMC and MCHC represent the same interest. Though they are 2 corporations w/
distinct personalities, they represent the same interest. Thus, it would be expected
that they would protect and preserve their own interest and neither would favor
Zosa's interest during arbitration. If the arbitration clause would be followed, MCMC
would have 1 arbitrator, MCHC would have another arbitrator, and Zosa would have
1. But MCMC is the manager of MCHC, MCHC would naturally favor its employer.
Thus, their 2 votes would win vs. Zosa's lone vote.
-A2045, NCC: "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).
(3)

a.
Issue of estoppel raised for the 1st time on appeal. Issues not raised in the
pleadings cannot be resolved on review in higher courts.
b.
Employment agreements are contracts of adhesion. Any ambiguity in its
provision is generally resolved against the party who drafted the document.
CHA: But nothing is ambiguous in the arbitration clause. It may be unfair but it's not
ambiguous.
c.
Zosa never submitted himself to arbitration proceedings, immediately
assailed the arbitration clause upon realizing the inequities that may mar the
arbitration proceedings...

DISPOSITION: DISMISS PETITION. RTC AFFIRMED