G.R. No.

129916 March 26, 2001

MAGELLAN CAPITAL MANAGEMENT CORPORATION and MAGELLAN CAPITAL HOLDINGS

BUENA, J.:

Under a management agreement entered into on March 18, 1994, Magellan Capital Holdings
Corporation [MCHC] appointed Magellan Capital Management Corporation [MCMC] as manager for
the operation of its business and affairs.1 Pursuant thereto, on the same month, MCHC, MCMC, and
private respondent Rolando M. Zosa entered into an "Employment Agreement" designating Zosa as
President and Chief Executive Officer of MCHC.

Under the "Employment Agreement", the term of respondent Zosa's employment shall be co-
terminous with the management agreement, or until March 1996,2 unless sooner terminated
pursuant to the provisions of the Employment Agreement.3 The grounds for termination of
employment are also provided in the Employment Agreement.

On May 10, 1995, the majority of MCHC's Board of Directors decided not to re-elect respondent Zosa
as President and Chief Executive Officer of MCHC on account of loss of trust and confidence4 arising
from alleged violation of the resolution issued by MCHC's board of directors and of the non-
competition clause of the Employment Agreement.5 Nevertheless, respondent Zosa was elected to a
new position as MCHC's Vice-Chairman/Chairman for New Ventures Development.6

On September 26, 1995, respondent Zosa communicated his resignation for good reason from the
position of Vice-Chairman under paragraph 7 of the Employment Agreement on the ground that said
position had less responsibility and scope than President and Chief Executive Officer. He demanded
that he be given termination benefits as provided for in Section 8 (c) (i) (ii) and (iii) of the Employment
Agreement.7

In a letter dated October 20, 1995, MCHC communicated its non-acceptance of respondent Zosa's
resignation for good reason, but instead informed him that the Employment Agreement is terminated
for cause, effective November 19, 1995, in accordance with Section 7 (a) (v) of the said agreement, on
account of his breach of Section 12 thereof. Respondent Zosa was further advised that he shall have
no further rights under the said Agreement or any claims against the Manager or the Corporation
except the right to receive within thirty (30) days from November 19, 1995, the amounts stated in
Section 8 (a) (i) (ii) of the Agreement.8

Disagreeing with the position taken by petitioners, respondent Zosa invoked the Arbitration Clause of
the Employment 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."
On November 10, 1995, respondent Zosa designated his brother, Atty. Francis Zosa, as his
representative in the arbitration panel9 while MCHC designated Atty. Inigo S. Fojas10 and MCMC
nominated Atty. Enrique I. Quiason11 as their respective representatives in the arbitration panel.
However, instead of submitting the dispute to arbitration, respondent Zosa, on April 17, 1996, filed an
action for damages against petitioners before the Regional Trial Court of Cebu12 to enforce his
benefits under the Employment Agreement.

On July 3, 1996, petitioners filed a motion to dismiss13 arguing that (1) the trial court has no
jurisdiction over the instant case since respondent Zosa's claims should be resolved through
arbitration pursuant to Section 23 of the Employment Agreement with petitioners; and (2) the venue
is improperly laid since respondent Zosa, like the petitioners, is a resident of Pasig City and thus, the
venue of this case, granting without admitting that the respondent has a cause of action against the
petitioners cognizable by the RTC, should be limited only to RTC-Pasig City.14

Meanwhile, respondent Zosa filed an amended complaint dated July 5, 1996.

On August 1, 1996, the RTC Branch 58 of Cebu City issued an Order denying petitioners motion to
dismiss upon the findings that (1) the validity and legality of the arbitration provision can only be
determined after trial on the merits; and (2) the amount of damages claimed, which is over
P100,000.00, falls within the jurisdiction of the RTC.15 Petitioners filed a motion for reconsideration
which was denied by the RTC in an order dated September 5, 1996.16

In the interim, on August 22, 1996, in compliance with the earlier order of the court directing
petitioners to file responsive pleading to the amended complaint, petitioners filed their Answer Ad
Cautelam with counterclaim reiterating their position that the dispute should be settled through
arbitration and the court had no jurisdiction over the nature of the action.17

On October 21, 1996, the trial court issued its pre-trial order declaring the pre-trial stage terminated
and setting the case for hearing. The order states:

"ISSUES:

"The Court will only resolve one issue in so far as this case is concerned, to wit:

"Whether or not the Arbitration Clause contained in Sec. 23 of the Employment Agreement is void
and of no effect: and, if it is void and of no effect, whether or not the plaintiff is entitled to damages in
accordance with his complaint and the defendants in accordance with their counterclaim.

"It is understood, that in the event the arbitration clause is valid and binding between the parties, the
parties shall submit their respective claim to the Arbitration Committee in accordance with the said
arbitration clause, in which event, this case shall be deemed dismissed."18

On November 18, 1996, petitioners filed their Motion Ad Cautelam for the Correction, Addition and
Clarification of the Pre-trial Order dated November 15, 1996,19 which was denied by the court in an
order dated November 28, 1996.20

Thereafter, petitioners MCMC and MCHC filed a Motion Ad Cautelam for the parties to file their
Memoranda to support their respective stand on the issue of the validity of the "arbitration clause"
contained in the Employment Agreement. In an order dated December 13, 1996, the trial court
denied the motion of petitioners MCMC and MCHC.

On January 17, 1997, petitioners MCMC and MCHC filed a petition for certiorari and prohibition under
Rule 65 of the Rules of Court with the Court of Appeals, questioning the trial court orders dated
August 1, 1996, September 5, 1996, and December 13, 1996.21

On March 21, 1997, the Court of Appeals rendered a decision, giving due course to the petition, the
decretal portion of which reads:
"WHEREFORE, the petition is GIVEN DUE COURSE. The respondent court is directed to resolve the
issue on the validity or effectivity of the arbitration clause in the Employment Agreement, and to
suspend further proceedings in the trial on the merits until the said issue is resolved. The questioned
orders are set aside insofar as they contravene this Court's resolution of the issues raised as herein
pronounced.

"The petitioner is required to remit to this Court the sum of P81.80 for cost within five (5) days from
notice.

"SO ORDERED."22

Petitioners filed a motions for partial reconsideration of the CA decision praying (1) for the dismissal
of the case in the trial court, on the ground of lack of jurisdiction, and (2) that the parties be directed
to submit their dispute to arbitration in accordance with the Employment Agreement dated March
1994. The CA, in a resolution promulgated on June 20, 1997, denied the motion for partial
reconsideration for lack of merit.

In compliance with the CA decision, the trial court, on July 18, 1997, rendered a decision declaring the
"arbitration clause" in the Employment Agreement partially void and of no effect. The dispositive
portion of the decision reads:

"WHEREFORE, premises considered, judgment is hereby rendered partially declaring the arbitration
clause of the Employment Agreement void and of no effect, only insofar as it concerns the
composition of the panel of arbitrators, and directing the parties to proceed to arbitration in
accordance with the Employment Agreement under the panel of three (3) arbitrators, one for the
plaintiff, one for the defendants, and the third to be chosen by both the plaintiff and defendants. The
other terms, conditions and stipulations in the arbitration clause remain in force and effect."23

In view of the trial court's decision, petitioners filed this petition for review on certiorari, under Rule
45 of the Rules of Court, assigning the following errors for the Court's resolution:

"I. The trial court gravely erred when it ruled that the arbitration clause under the employment
agreement is partially void and of no effect, considering that:

"A. The arbitration clause in the employment agreement dated March 1994 between respondent Zosa
and defendants MCHC and MCMC is valid and binding upon the parties thereto.

"B. In view of the fact that there are three parties to the employment agreement, it is but proper that
each party be represented in the arbitration panel.

"C. The trial court grievously erred in its conclusion that petitioners MCMC and MCHC represent the
same interest.

"D. Respondent Zosa is estopped from questioning the validity of the arbitration clause, including the
right of petitioner MCMC to nominate its own arbitrator, which he himself has invoked.

"II. In any event, the trial court acted without jurisdiction in hearing the case below, considering that
it has no jurisdiction over the nature of the action or suit since controversies in the election or
appointment of officers or managers of a corporation, such as the action brought by respondent Zosa,
fall within the original and exclusive jurisdiction of the Securities and Exchange Commission.

"III. Contrary to respondent Zosa's allegation, the issue of the trial court's jurisdiction over the case
below has not yet been resolved with finality considering that petitioners have expressly reserved
their right to raise said issue in the instant petition. Moreover, the principle of the law of the case is
not applicable in the instant case.
"IV. Contrary to respondent Zosa's allegation, petitioners MCMC and MCHC are not guilty of forum
shopping.

"V. Contrary to respondent Zosa's allegation, the instant petition for review involves only questions of
law and not of fact."24

We rule against the petitioners.

It is error for the petitioners to claim that the case should fall under the jurisdiction of the Securities
and Exchange Commission [SEC, for brevity]. The controversy does not in anyway involve the
election/appointment of officers of petitioner MCHC, as claimed by petitioners in their assignment of
errors. Respondent Zosa's amended complaint focuses heavily on the illegality of the Employment
Agreement's "Arbitration Clause" initially invoked by him in seeking his termination benefits under
Section 8 of the employment contract. And 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. We thus advert to the following discussions made by the Court of Appeals, speaking thru
Justice Minerva P. Gonzaga-Reyes,25 in C.A.-G.R. S.P. No. 43059, viz.

"As regards the fourth assigned error, asserting that jurisdiction lies with the SEC, which is raised for
the first time in this petition, suffice it to state that the Amended Complaint squarely put in issue the
question whether the Arbitration Clause is valid and effective between the parties. Although the
controversy which spawned the action concerns 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.

"The determination and validity of the agreement is not a matter intrinsically connected with the
regulation and internal affairs of corporations (see Pereyra vs. IAC, 181 SCRA 244; Sales vs. SEC, 169
SCRA 121); it is rather an ordinary case to be decided in accordance with the general laws, and do not
require any particular expertise or training to interpret and apply (Viray vs. CA, 191 SCRA 308)."26

Furthermore, the decision of the Court of Appeals in CA-G.R. SP No. 43059 affirming the trial court's
assumption of jurisdiction over the case has become the "law of the case" which now binds the
petitioners. The "law of the case" doctrine has been defined as "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."27 To note, the CA's decision in CA-G.R. SP No. 43059 has already attained finality as
evidenced by a Resolution of this Court ordering entry of judgment of said case, to wit:

"ENTRY OF JUDGMENT

This is to certify that on September 8, 1997 a decision/resolution rendered in the above-entitled case
was filed in this Office, the dispositive part of which reads as follows:

'G.R. No. 129615. (Magellan Capital Management Corporation, et al. vs. Court of Appeals, Rolando
Zosa, et al.). Considering the petitioner's manifestation dated August 11, 1997 and withdrawal of
intention to file petition for review on certiorari, the Court Resolved to DECLARE THIS CASE
TERMINATED and DIRECT the Clerk of Court to INFORM the parties that the judgment sought to be
reviewed has become final and executory, no appeal therefore having been timely perfected.'

and that the same has, on September 17, 1997, become final and executory and is hereby recorded in
the Book of Entries of Judgments."28

Petitioners, therefore, are barred from challenging anew, through another remedial measure and in
any other forum, the authority of the regional trial court to resolve the validity of the arbitration
clause, lest they be truly guilty of forum-shopping which the courts consistently consider as a
contumacious practice that derails the orderly administration of justice.
Equally unavailing for the petitioners is the review by this Court, via the instant petition, of the factual
findings made by the trial court that the composition of the panel of arbitrators would, in all
probability, work injustice to respondent Zosa. We have repeatedly stressed that the jurisdiction of
this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited
to reviewing only errors of law, not of fact, unless the factual findings complained of are devoid of
support by the evidence on record, or the assailed judgment is based on misapprehension of facts.29

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. The
arbitration clause in question provides, thus:

'In the event that any dispute, controversy or claim arise 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 as 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 this 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.'
(Emphasis supplied).

"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].

"xxx xxx xxx"30

In this connection, petitioners' attempt to put respondent in estoppel in assailing the arbitration
clause must be struck down. For one, this issue of estoppel, as likewise noted by the Court of Appeals,
found its way for the first time only on appeal. Well-settled is the rule that issues not raised below
cannot be resolved on review in higher courts.31 Secondly, employment agreements such as the one
at bar are usually contracts of adhesion. Any ambiguity in its provisions is generally resolved against
the party who drafted the document. Thus, in the relatively recent case of Phil. Federation of Credit
Cooperatives, Inc. (PFCCI) and Fr. Benedicto Jayoma vs. NLRC and Victoria Abril,32 we had the
occasion to stress that "where a contract of employment, being a contract of adhesion, is ambiguous,
any ambiguity therein should be construed strictly against the party who prepared it." And, finally,
respondent Zosa never submitted himself to arbitration proceedings (as there was none yet) before
bewailing the composition of the panel of arbitrators. He in fact, lost no time in assailing the
"arbitration clause" upon realizing the inequities that may mar the arbitration proceedings if the
existing line-up of arbitrators remained unchecked.

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 dated July 18, 1997 is AFFIRMED.

SO ORDERED.