G.R. No. 103200 - La Naval Drug Corp. vs. Court of Appeals

Petitioner: La Naval Drug Corporation (Lessee)
Respondent: Wilson C. Yao (Lessor and owner of commercial building)
The lease contract, originally between petitioner and the former owner La Proveedora, Inc., was executed on December 23, 1983, and expired on April 30, 1989.
Petitioner exercised an option to extend the lease for another five years, but parties disagreed on the rental rate.

The contract contained an arbitration clause (Paragraph 7) providing that rental rate disagreements shall be settled by a Board of Arbitrators composed of three members: one appointed by lessor, one by lessee, and a third arbitrator agreed upon by the first two.
Respondent Yao appointed Domingo Alamarez, Jr. as arbitrator on May 6, 1989.
Petitioner appointed Atty. Casiano Sabile as arbitrator on June 5, 1989.
The appointment of the third arbitrator, Aurelio Tupang, was delayed at petitioner’s instruction until its Board of Directors could approve such appointment.
Respondent alleged that petitioner’s instruction was a deliberate delay tactic violating Republic Act No. 876 (Arbitration Law) and the lease contract.

Respondent Yao filed a petition pursuant to Section 6 of Republic Act No. 876 to direct arbitration to proceed and to compel the parties to appoint and confirm the third arbitrator and proceed with arbitration.
Petitioner denied allegations, claiming the petition was premature because respondent failed to formally require the two arbitrators to appoint the third arbitrator within the required period.
Petitioner counterclaimed for damages suffered from the delays and costs of the suit.
Respondent amended the petition to include claims for unpaid rents with interest and exemplary damages.
The trial court admitted the amended petition and ordered the two arbitrators to choose the third arbitrator, who was eventually selected.
The trial court ruled that respondent’s claim for damages and petitioner’s counterclaim could be heard by it in a regular hearing apart from the summary proceeding on arbitration enforcement.
Petitioner’s motion for reconsideration was denied.

The Court of Appeals agreed with petitioner that under Republic Act No. 876, Section 6, the court has limited jurisdiction to only determine whether the agreement to arbitrate exists and to compel arbitration.
However, the appellate court applied the doctrine of estoppel, finding petitioner barred from questioning court jurisdiction over damages since petitioner filed its own counterclaim for damages in the same proceedings.
The appellate court upheld that the court could try the damage claims despite the limited jurisdiction under the Arbitration Law.

Whether the trial court, under Section 6 of Republic Act No. 876 (Arbitration Law), has jurisdiction to entertain and decide claims for damages in a summary proceeding for enforcement of arbitration.

Whether the petitioner is estopped from raising objection to the trial court’s jurisdiction over respondent’s claim for damages by virtue of having filed a counterclaim for damages in the same proceeding.

The proper application and limits of the doctrine of estoppel regarding objections to court jurisdiction over the person and subject matter in summary arbitration enforcement proceedings.