G.R. No. 175048 - Excellent Quality Apparel, Inc. vs. Win Multi Rich Builders, Inc.

Case Summary (G.R. No. 175048)

Key Dates

Contract executed: 26 March 1996.
Factory completion: 27 November 1996.
Win incorporation: 20 February 1997.
Complaint filed by Win: 26 January 2004.
Writ of Attachment issued: 10 February 2004.
Court of Appeals Decision: 14 March 2006.
Supreme Court Decision (subject case): 10 February 2009.

Applicable Law and Procedural Authorities

Constitutional framework: 1987 Philippine Constitution (applicable given decision date).
Statutory and rule authorities cited in the proceedings: Section 2, Rule 3 of the Rules of Court (real party in interest), Executive Order No. 1008 (creating Construction Industry Arbitration Commission, CIAC), Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004), and jurisprudence on corporate and sole proprietorship legal personality and succession.

Contractual Provision at Issue

The construction contract (26 March 1996) contained an arbitration clause (Article XIX) providing for a three-member Arbitration Committee whose decision would be final and binding; it expressly stated arbitration shall be governed by the Arbitration Law (cited as R.A. No. 876) and that arbitration costs would be borne 50-50 by contractor and owner.

Facts Relating to the Writ of Attachment and Deposit

Win filed a complaint for collection of P8,634,448.20 on 26 January 2004 and sought a writ of attachment; a surety bond was issued and the RTC of Manila (Branch 32) issued the writ on 10 February 2004. Sheriff service prompted petitioner to issue a check for the exact amount as a guarantee to prevent seizure. The garnished funds were later deposited with the court and, according to petitioner’s supplemental filings, were released to Win.

Petitioner’s Jurisdictional and Standing Objections

Petitioner consistently contested: (1) Win’s legal personality to sue based on the fact the contract was with Multi-Rich (a sole proprietorship), not Win (a corporation incorporated later), and (2) the trial court’s jurisdiction because the contract contained an arbitration clause and construction disputes fall within CIAC jurisdiction under E.O. No. 1008 and relevant ADR law. Petitioner obtained an SEC certificate of non-registration for “Multi-Rich Builders, Inc.” to demonstrate variance and the absence of corporate identity at contract execution.

Trial Court and Court of Appeals Rulings

The RTC denied petitioner’s motion to dismiss on the ground that the issues required a full trial and later allowed deposit of the garnished amount. The Court of Appeals annulled two RTC orders but held the RTC had jurisdiction over the collection action. Petitioner sought review by the Supreme Court via Rule 45.

Legal Standard: Real Party in Interest

Under Section 2, Rule 3 of the Rules of Court, the real party in interest is the party entitled to the avails of the suit and is the proper party to institute an action. A sole proprietorship is not a juridical entity distinct from its owner and therefore lacks separate legal personality to sue; only the proprietor may bring suit unless there is legal succession by assignment or corporate assumption of assets and liabilities.

Analysis: Win Lacked Standing to Sue on Behalf of Multi‑Rich

Win admitted the contract was with Multi-Rich, a sole proprietorship existing at the time of contract execution, and that Win was incorporated only later. Win sought to change the plaintiff’s name in litigation to Multi-Rich despite the original plaintiff being the corporation Win. The Supreme Court applied established law that a sole proprietorship has no separate juridical personality and cannot be substituted as the plaintiff in place of a corporation. Win did not prove it was the legal successor of the sole proprietorship—there was no deed of assignment, assumption agreement, or other documentary proof that assets, liabilities, and receivables were transferred to Win nor evidence that the corporation was merely an alter ego or successor-in-interest that assumed the debts. Given the failure to present such proof despite opportunity to do so, Win could not be presumed to be the real party in interest entitled to bring the collection action.

Analysis: Jurisdiction—CIAC Arbitration Clause Controlled

Separately, and assuming arguendo Win had legal personality, the Court found the RTC should not have assumed jurisdiction because of the arbitration clause. Under Section 4 of E.O. No. 1008, CIAC has original and exclusive jurisdiction over disputes arising from or connected with construction contracts, and such jurisdiction vests when parties agree to submit disputes to arbitration. The Court reiterated that CIAC’s jurisdiction is not limited by the nature of the remedies sought (e.g., payment of money) and that parties cannot divest CIAC of jurisdiction by merely stipulating a preferred forum inconsistent with the statute. The Alternative Dispute Resolution Act (R.A. No. 9285) further contemplates dismissal by a trial court, upon awareness of an arbitration agreement, and referra

Case Syllabus (G.R. No. 175048)

Case Citation and Panel

Decision rendered by the Supreme Court, Second Division, reported at 598 Phil. 94, G.R. No. 175048, dated February 10, 2009.
Opinion penned by Justice Tinga.
Chief Justice Quisumbing (Chairperson), and Justices Carpio Morales, Velasco, Jr., and Biron concurred.

Nature of the Case

A Rule 45 petition seeking reversal of the Court of Appeals Decision and Resolution in CA-G.R. SP No. 84640 that had annulled two Regional Trial Court (RTC), Branch 32, Manila orders in Civil Case No. 04-108940.
Underlying controversy: a claim for a sum of money arising from a construction dispute between the contracting parties.

Parties and Representatives

Petitioner: Excellent Quality Apparel, Inc. (hereafter “petitioner”), then represented by Max L.F. Ying, Vice-President for Productions, and Alfiero R. Orden, Treasurer.
Respondent/plaintiff below: Win Multi-Rich Builders, Inc. (hereafter “Win”), represented by its President and General Manager, Wilson G. Chua.
Note on plaintiff name variance: counsel for Win moved in the lower court to change plaintiff’s name from “Win Multi-Rich Builders, Inc.” to “Multi-Rich Builders, Inc.” — a fact that alerted petitioner to an alleged variance in the plaintiff’s name and corporate identity.

Relevant Dates and Chronology of Events (Fact Timeline)

26 March 1996: Contract entered into between petitioner (Excellent Quality Apparel, Inc.) and Multi-Rich Builders (then a sole proprietorship).
27 November 1996: Construction of the factory building completed.
20 February 1997: Win Multi-Rich Builders, Inc. incorporated with the Securities and Exchange Commission (SEC); Wilson G. Chua as President and General Manager.
26 January 2004: Win filed a complaint for a sum of money (P8,634,448.20) against petitioner and Mr. Ying and prayed for issuance of a writ of attachment.
10 February 2004: RTC issued the writ of attachment.
16 February 2004: Sheriff Salvador D. Dacumos served the writ of attachment, summons and complaint at petitioner’s office in the Cavite PEZA; petitioner issued Equitable PCIBank (PEZA Branch) Check No. 160149, dated 16 February 2004, for P8,634,448.20 payable to the Clerk of Court as guarantee.
17 February 2004: Petitioner filed an Omnibus Motion contesting allegations and jurisdiction and asserting arbitration clause.
11 March 2004: Petitioner filed Reply moving to dismiss due to plaintiff’s lack of legal personality; attached Certificate of Non-Registration of “Multi-Rich Builders, Inc.” from SEC.
22 March 2004: Win filed a Rejoinder; admitted incorporation date and that at contract execution Multi-Rich was a registered sole proprietorship with a business permit from the Office of the Mayor of Manila.
12 April 2004: RTC issued an Order denying petitioner’s motion to dismiss and indicating issues could be answered at trial.
20 April 2004: RTC issued Order granting Win’s motion to deposit the garnished amount to court.
22 April 2004: Petitioner filed its Answer; Win later moved for release of garnished amount, which petitioner opposed.
17 June 2004: Petitioner filed a Rule 65 petition (petition for review on certiorari) with the Court of Appeals challenging jurisdiction and the RTC orders and seeking TRO and preliminary injunction.
14 March 2006: Court of Appeals Decision annulling the 12 April and 20 April 2004 orders of the RTC; further ruled RTC had jurisdiction over collection suit.
Motion for reconsideration to the Court of Appeals denied in a Resolution dated 11 October 2006.
Supreme Court Decision dated 10 February 2009 disposing of the Rule 45 petition.

Contractual Instrument and Arbitration Clause

The contract (dated 26 March 1996) specified construction of a garment factory in the Cavite Philippine Economic Zone Authority for maximum five (5) months or 150 consecutive calendar days.
Article XIX — Arbitration Clause (verbatim as provided in source):
- Any dispute, controversy or difference arising out of the contract that may not be resolved by the parties shall be submitted to an Arbitration Committee of three members: one chosen by the OWNER, one chosen by the CONTRACTOR, and the Chairman chosen by the two members.
- The Arbitration Committee’s decision shall be final and binding on both parties.
- The Arbitration shall be governed by the Arbitration Law (R.A. 876).
- Cost of arbitration to be borne jointly by CONTRACTOR and OWNER on a 50-50 basis.
Petitioner invoked the arbitration clause and asserted that the case should be referred to the Construction Industry Arbitration Commission (CIAC) pursuant to Executive Order No. 1008.

Plaintiff’s Claim and Writ of Attachment

Win’s complaint sought P8,634,448.20.
Win prayed for writ of attachment alleging Mr. Ying was about to abscond and petitioner about to close.
Win obtained a surety bond issued by Visayan Surety & Insurance Corporation as a condition for the writ of attachment.
Petitioner issued a bank check payable to the Clerk of Court as guarantee to prevent seizure.

Petitioner’s Procedural and Substantive Defenses in Lower Court

Petitioner filed an Omnibus Motion contesting the writ, denying indebtedness, asserting payments had been made, and challenging RTC jurisdiction due to arbitration clause.
Petitioner filed a Reply moving to dismiss on grounds Win was not the contractor and was not a party to the contract; attached Certificate