Dupasquier v. Ascendas (Philippines) Corp.
G.R. No. 211044, 24 July 2019
FACTS:
The Net Group, represented by petitioners Jacques A. Dupasquier and Carlos S. Rufino,
and respondent Ascendas (Philippines) Corp. entered into a Memorandum of Understanding
(MOU), for the acquisition of the entire issued and outstanding shares of stock of the Net
Corporations. The parties stipulated that the Closing Date of the MOU shall be after 2 calendar
weeks from the signing of the Memorandum of Agreement (MOA) but not later than 31 March
2007. The MOU provided an arbitration clause, as part of Clause 14 , wherein any dispute
arising out of or in connection with the MOU shall be referred to and finally resolved by
arbitration. Likewise in Clause 14 of the MOU, the parties provided that upon the termination
or lapse of the MOU, the MOU shall cease to have any force and effect except for Clause 14(e)
[Confidentiality].
Because of Ascendas’s failure to execute the MOA by the Closing Date, the Net Group
informed Ascendas that they deemed the MOU as lapsed as of 1 April 2007. In turn, Ascendas
wrote a letter to the Net Group specifying that the parties have until 28 September 2007 to
resolve the disputes between them, otherwise, Ascendas will refer the dispute to arbitration.
The Net Group filed a petition for declaratory relief, pleading for a judicial declaration
that the arbitration agreement contained in the MOU be declared ineffective and that Net Group
can no longer be compelled to submit to arbitration because the Arbitration Clause would not
survive the lapse of the MOU on 31 March 2007 since the parties agreed that only the
confidentiality clause would survive the termination or lapse of the MOU. In its answer,
Ascendas argued that Arbitration Clause in the MOU survived. The Net Group filed a motion
for summary judgment alleging that Ascendas' defenses were purely legal in nature. The RTC
granted the Net Group's motion for summary judgment, declaring that respondent cannot
compel petitioners to proceed to arbitration on the basis of said arbitration clause.
Ascendas then filed a notice of appeal. The CA reversed the RTC decision, ruling that
considering the separability doctrine wherein the Arbitration Clause remains operative despite
the termination of the MOU, the RTC cannot exercise jurisdiction over the dispute because the
parties should have referred the matter to arbitration. Hence, this instant petition for review
on certiorari under Rule 45 of the Rules of Court.
ISSUES:
1. Whether the expiration of the MOU terminated the effectivity of the arbitration clause
stated therein;
2. Whether the petition for declaratory relief is proper considering that there was no
breach of the MOU which was the subject thereof; and
3. Whether the summary judgment was proper considering that the issue to be resolved
is only as to the interpretation of the MOU.
HELD:
1. YES. Arbitration is a matter of contract and the parties cannot be obliged to submit
any dispute to arbitration, in the absence of their consent to submit thereto.
Using the guidelines for interpreting a contract, the literal meaning of Clause 14(e) of the
MOU is that the lapse of the MOU shall have an effect of making all its provisions, except
Clause 14 (e) on Confidentiality, ineffectual. Since no MOA was signed by the parties, the MOU
lapsed on 31 March 2007 by operation of the provisions of the MOU. Reading Clause 14(e) in
relation to the MOU's definition of "Closing Date," the MOU's provisions, including the
Arbitration Clause, shall be of no effect as of 31 March 2007.
The complexity arose with Ascendas' application of the doctrine of separability in the
interpretation of the entire MOU. The doctrine of separability or severability enunciates that an
arbitration agreement is independent of the main contract, and the invalidity of the main
contract does not affect the validity of the arbitration agreement. This doctrine is relevant in the
absence of the parties' specific stipulation as to the Arbitration Clause's term of effectivity.
In Gonzales v. Climax Mining Ltd., respondent therein argued that the case should not be
brought to arbitration since it was claiming that the contract should be rescinded. There, we
held that "the validity of the contract containing the agreement to submit to arbitration does not
affect the applicability of the arbitration clause itself." In Cargill Philippines, Inc. v. San Fernando
Regala Trading, Inc., we applied our ruling in Gonzales by elaborating that an "arbitration
agreement which forms part of the main contract shall not be regarded as invalid or non-
existent just because the main contract is invalid or did not come into existence, since the
arbitration agreement shall be treated as a separate agreement independent of the main
contract." Lastly, in Koppel, Inc. v. Makati Rotary Club Foundation, Inc. we acknowledged therein
petitioner's right to invoke the arbitration clause of its lease contract even if it was assailing the
validity of that contract.
A review of those cases, however, reveals that one of the respective parties therein,
impugned the validity of the contract or unilaterally invoked the non-existence of the "container
contract" or the contract containing the arbitration clause. In stark contrast to the present case,
there was no agreement among the parties in the above-mentioned cases to terminate the
arbitration clause.
We note the Rhode Island Supreme Court's ruling in Radiation Oncology Associates, Inc. v.
Roger Williams Hospital, which held that the parties did not intend to submit dispute to
arbitration after the expiration of the service agreement. In both Radiation Oncology Associates
case and this case, the parties incorporated a time-limit to the agreement which gave rise to the
eventual ineffectivity of the contract and its provision. In no uncertain way that this time-limit
refers to the non-signing of extension or substitute contract before the expiration of a date
certain. It is thus wise to rule that the parties intended that the happening of the date certain
would give no effect to all parts of the MOU, including the Arbitration Clause. This ruling,
however, should not be understood as abandoning the doctrine of separability, but merely
giving way to the manifest intention of the contracting parties.
Moreover, the parties agreed to exempt the Confidentiality Clause in the effects of the
Closing Date is an indication of their intent. To our mind, this exception bolsters the manifest
intent of the parties to terminate the Arbitration Clause. The parties expressly specified the
provision of the contract that is not time-limited. Since the Arbitration Clause is not one
mentioned as an item to survive upon the termination or lapse of the MOU, the only conclusion
is that said provision has been deliberately included to be time-limited. There is more reason for
us to conclude that the parties manifested that the Arbitration Clause should cease to effect
simply because they incorporated a phrase which would not be affected by the lapse of the
period. If the parties intended the Arbitration Clause to survive, there is no reason why they
would not have so stated it expressly.
2. YES. Declaratory relief is defined as an action by a person interested under a deed,
will, contract, or other written instrument whose rights are affected by a statute, executive order
or regulation, ordinance, or any other governmental regulation may, before breach or violation
thereof, bring an action in the appropriate Regional Trial Court to determine any question or
construction or validity arising, and for a declaration of his rights or duties, thereunder.
The requisites of an action for declaratory relief are: (i) the subject matter of the
controversy must be a deed, will, contract or other written instrument, statute, executive order
or regulation, or ordinance; (ii) the terms of said documents and the validity thereof are
doubtful and require judicial construction; (iii) there must have been no breach or the "ripening
seeds" of one between persons whose interests are adverse; (iv) there must be an actual
controversy or the "ripening seeds" of one between persons whose interests are adverse; (v) the
issue must be ripe for judicial determination; and (vi) adequate relief is not available through
other means or other forms of action or proceeding.
In the petition, it is clear that The Net Group is merely seeking for the interpretation of
the MOU on two counts: (i) the applicability of the Arbitration Clause vis-à-vis the Effectivity
Clause; and (ii) the nature of the Due Diligence L/C — whether The Net Group may
automatically appropriate it under the tenor of the MOU. There is nothing in the petition which
connotes breach of contract. In so far as the wordings of the petition are concerned, its
allegations properly fall within the RTC's jurisdiction over a petition for declaratory relief.
3. YES. The conflict between the parties may be addressed in a summary judgment
pursuant to Rule 35 of the Rules of Court, to wit:
Sec. 1. Summary Judgment for claimant. — A party seeking to recover upon a
claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after
the pleading in answer thereto has been served, move with supporting affidavits,
depositions or admissions for a summary judgment in his favor upon all or any part
thereof.
Under this provision, a summary judgment may be used to expedite the proceedings
and to avoid useless delays, when the pleadings, depositions, affidavits or admissions on file
show that there exists no genuine question or issue of fact in the case, and the moving party is
entitled to a judgment as a matter of law.
Here, the parties merely presented issues as to the interpretation of the MOU. There was
therefore no genuine question or issue of fact that must be resolved using the presentation of
evidence. At most, the Court may rule on the interpretation of the contract by simply reviewing
its terms.
