G.R. No. L-51996 November 23, 1988
WESTERN MINOLCO CORPORATION, petitioner, vs. COURT OF APPEALS and GREGORIAN MINING COMPANY, respondents.

FACTS

Petitioner Western Minolco Corporation and respondent Gregorian Mining Company entered into a series of contracts for the operation of Gregorian’s mining claims. Their agreements contained an arbitration clause (Article XII) stipulating that disputes regarding the “meaning, application or effect” of the contracts or concerning the “computation of royalties, deductions, or other item of expense” must be submitted to arbitration. The clause further stated that no court action could be instituted unless the dispute was first submitted to arbitration, and any such action must be “based upon the award as obtained,” with venue in Manila. Subsequently, Western Minolco executed an agreement with Dreamers Mining Association to validate 36 mineral claims. Gregorian alleged these claims conflicted with and were superimposed on its own claims covered by its contracts with Western Minolco.
Consequently, Gregorian filed a complaint for rescission of contracts and damages against Western Minolco in the Court of First Instance of Baguio and Benguet. Western Minolco moved to dismiss, arguing improper venue per the arbitration clause and failure to state a cause of action since the dispute was allegedly arbitrable. The trial court denied the motion. While seeking reconsideration, Western Minolco also filed a separate petition in the Manila CFI to compel arbitration. The Manila court granted this petition, but Gregorian did not pursue an appeal. Meanwhile, Western Minolco challenged the Baguio court’s orders via a certiorari petition in the Court of Appeals, which dismissed the petition. Western Minolco elevated the case to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in upholding the Baguio court’s refusal to dismiss Gregorian’s complaint, specifically regarding: (1) the propriety of venue in Baguio, and (2) the necessity of prior arbitration before court action.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The arbitration clause was clear and unambiguous, covering only two specific classes of disputes: those on the interpretation/application of the contract terms and those on the computation of royalties or expenses. The controversy in Gregorian’s complaint—alleging breach of faith and double-dealing by Western Minolco for validating conflicting claims in favor of a third party—did not fall under either category. It was a dispute on the breach of contractual obligations, not on the contract’s meaning or a computational matter. Therefore, the dispute was not arbitrable under the parties’ agreement, and Gregorian was not required to submit it to arbitration before filing a court action.
Since the dispute was not arbitrable, the ancillary stipulation on venue in Manila—which was expressly tied to actions “based upon the award as obtained”—did not apply. The general rules on venue under the Rules of Court governed, making the filing in Baguio proper. The Court also noted that contractual venue stipulations are generally construed as permissive, not restrictive, and do not supersede the general venue rules. Thus, the Baguio court correctly assumed jurisdiction, and the Court of Appeals committed no error.