Magellan Capital v.

Zosa
[G.R. No. 129916. March 26, 2001]
Buena, J.

Facts:
Magellan Capital Holdings Corporation [MCHC], Magellan Capital Management Corporation
[MCMC], and private respondent Rolando M. Zosa entered into an "Employment Agreement"
designating Zosa as President and Chief Executive Officer of MCHC.
The term of respondent Zosa's employment shall be co-terminous with the management
agreement, unless sooner terminated pursuant to the provisions of the Employment
Agreement.
Later on, the majority of MCHCs Board of Directors decided not to re-elect respondent Zosa on
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.
Zosa resigned as the Vice-and demanded that he be given termination benefits as provided for
in the Employment Agreement. MCHC did not accept Zosas resignation on account of his
breach of the agreement. Zosa then invoked the arbitration clause of the agreement.
The parties (Zosa, MCHC, and MCMC) designated their respective representatives in the
arbitration panel. However, instead of submitting the dispute to arbitration, respondent Zosa,
filed an action for damages against petitioners before the RTC Cebu to enforce his benefits
under the EA.
Petitioners filed a motion to dismiss arguing that the trial court has no jurisdiction over the
instant case since respondent Zosa's claims should be resolved through arbitration pursuant to
the EA; 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.
RTC denied petitioners motion to dismiss upon the findings that the validity and legality of the
arbitration provision can only be determined after trial on the merits. MR denied.
CA rendered a decision declaring the arbitration clause in the EA partially void and of no effect
only insofar as it concerns the composition of the panel of arbitrators.

Issue: Whether the arbitration clause regarding the composition of the panel of arbitrators should be
voided.

Held: Yes. Petition dismissed.
From the memoranda of both sides, the Court is of the view that the defendants [petitioner]
MCMC and MCHC 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.
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].