G.R. No. 129916 ; March 26, 2001
Magellan Capital Management Corporation and Magellan Capital Holdings Corporation, petitioners, vs. Rolando M. Zosa and Hon. Jose P. Soberano, Jr., in his capacity as Presiding Judge of Branch 58 of the Regional Trial Court of Cebu, 7th Judicial Region, respondents.

FACTS

Magellan Capital Holdings Corporation (MCHC) appointed Magellan Capital Management Corporation (MCMC) as its manager. Subsequently, MCHC, MCMC, and Rolando M. Zosa entered into an Employment Agreement designating Zosa as President and CEO of MCHC. The agreement contained an arbitration clause (Section 23) requiring the parties to submit any dispute arising from the agreement to arbitration. In 1995, Zosa was not re-elected as President but was elected to a new position. He later resigned from this new position, demanding termination benefits. MCHC rejected his resignation, instead terminating him for cause. Zosa invoked the arbitration clause and even designated his arbitrator.
Despite initiating the arbitration process, Zosa filed an action for damages in the Regional Trial Court (RTC) of Cebu to enforce his claimed benefits. Petitioners moved to dismiss the complaint, arguing that the dispute must be resolved through arbitration as contractually agreed and that venue was improperly laid. The RTC denied the motion to dismiss, holding that the validity of the arbitration clause could only be determined after a trial on the merits. The Court of Appeals affirmed the RTC’s orders.

ISSUE

Whether the RTC should have dismissed the complaint and referred the dispute to arbitration pursuant to the Employment Agreement’s arbitration clause.

RULING

Yes. The Supreme Court reversed the decisions of the lower courts and ordered the dismissal of the complaint. The legal logic is anchored on the principle of contractual autonomy and the policy favoring arbitration. The arbitration clause in the Employment Agreement is valid, binding, and constitutes the parties’ mutual commitment to resolve disputes outside of judicial courts. By filing a court action instead of pursuing arbitration, Zosa reneged on this contractual obligation.
The Court clarified that the determination of whether a dispute falls within the scope of an arbitration agreement is a judicial function, but this is limited to a prima facie examination. The RTC erred in deferring this determination until a full trial. A plain reading of the arbitration clause shows it encompasses “any dispute, controversy or claim aris[ing] out of or under any provisions of this Agreement.” Zosa’s claim for damages based on the termination of his employment clearly arises from the Agreement and is thus covered. Consequently, the trial court should have enforced the arbitration clause and dismissed the civil action. The parties must abide by their contract and submit their dispute to the agreed arbitral tribunal.