G.R. No. 103200 August 31, 1994
LA NAVAL DRUG CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and WILSON C. YAO, respondents.

FACTS

Wilson C. Yao, the owner of a commercial building, leased a portion to La Naval Drug Corporation under a contract expiring on April 30, 1989. La Naval exercised its option to renew for another five years, but the parties disagreed on the rental rate. The lease contract contained an arbitration clause (paragraph 7) stating that if the parties fail to agree on the rental rate, the dispute shall be submitted to a group of three arbitrators. Yao appointed his arbitrator on May 6, 1989, and La Naval appointed its arbitrator on June 5, 1989. The confirmation of the third arbitrator was held in abeyance by La Naval. Yao filed a petition in the Regional Trial Court (RTC) for “Enforcement of Arbitration Agreement with Damages,” praying for an order to direct the arbitration to proceed and for damages. La Naval filed an Answer with Counterclaim, alleging actual damages and attorney’s fees. Yao later filed an amended petition, praying for interest on unpaid rents and exemplary damages. The RTC, in its orders dated April 26, 1990 and June 22, 1990, ruled that the claims for damages by both parties could be entertained in a hearing under the Rules of Court, not in a summary proceeding. La Naval challenged these orders, arguing that the RTC, in a special proceeding for enforcement of arbitration under Republic Act No. 876 (The Arbitration Law), had limited jurisdiction and could not hear the damage claims. The Court of Appeals upheld the RTC, applying estoppel against La Naval because it had itself filed a counterclaim for damages.

ISSUE

Whether the Regional Trial Court, in a special proceeding for the enforcement of an arbitration agreement under Section 6 of Republic Act No. 876 , has jurisdiction to hear and decide claims for damages filed by the parties.

RULING

No. The Supreme Court set aside the decision of the Court of Appeals and the orders of the RTC. The Court held that under Section 6 of Republic Act No. 876 , a court acting in a special proceeding for enforcement of an arbitration agreement has limited and special jurisdiction. Its authority is confined solely to determining whether there is a written arbitration agreement and whether there is a default in proceeding thereunder. If an agreement exists and there is a default, the court shall issue an order summarily directing the parties to proceed to arbitration. If no such agreement exists, the proceeding shall be dismissed. The proceedings are summary in nature. The court a quo, therefore, lacked jurisdiction over the subject matter or nature of the action to hear the separate claims for damages of the parties. The assertion of a counterclaim for damages by La Naval did not operate as estoppel or confer jurisdiction upon the court, as jurisdiction over the subject matter is conferred by law and cannot be waived or conferred by the parties. The claims for damages must be ventilated in separate regular proceedings. The RTC was ordered to desist from further hearing the claims for damages.