G.R. No. 144302 . May 27, 2004.
PHILIPPINE GEOTHERMAL INC., petitioner, vs. NATIONAL POWER CORPORATION, respondent.

FACTS

The National Power Corporation (NPC) and Philippine Geothermal, Inc. (PGI) entered into a 25-year Service Contract in 1971 for geothermal resource exploration, renewable for another 25 years at PGI’s option. As the contract neared its 1996 expiration, NPC questioned the constitutionality of the renewal clause under Section 2, Article XII of the 1987 Constitution , which requires Filipino citizen or at least 60% Filipino-owned corporate participation in natural resource agreements. PGI, invoking the contract’s arbitral clause, initiated arbitration before the International Court of Arbitration.
NPC subsequently filed a Petition for Declaratory Relief before the Regional Trial Court (RTC) of Quezon City, seeking a judicial declaration on the constitutionality of the renewal provision. PGI moved to dismiss the RTC petition, arguing lack of jurisdiction due to the pending arbitration. The RTC denied the motion, ruling that constitutional issues are for regular courts. The Court of Appeals affirmed the RTC’s denial. PGI elevated the case to the Supreme Court via a petition for review on certiorari.

ISSUE

Whether the Regional Trial Court correctly assumed jurisdiction over NPC’s Petition for Declaratory Relief concerning the constitutionality of a contract provision, notwithstanding a pending arbitration proceeding between the same parties arising from the same contract.

RULING

The Supreme Court granted the parties’ Joint Motion to Dismiss, thereby dismissing the petition. The Court did not rule on the substantive jurisdictional conflict between arbitration and judicial relief. During the pendency of the appeal, PGI and NPC negotiated and submitted a Compromise Agreement to the Court, seeking its approval and the dismissal of the case. The Compromise Agreement stipulated the termination of the original Service Contract and its replacement with new agreements designed to comply with constitutional requirements on foreign ownership.
The Court noted that the sole issue presented in the petition was the RTC’s jurisdiction over the declaratory relief action. Consequently, it held that it was beyond its jurisdiction to review and approve the substantive terms of the Compromise Agreement, as this would involve evaluating a new set of contracts not originally in dispute. However, in light of the parties’ mutual desire to settle and their joint motion to dismiss based on the compromise, the Court found the Motion to Dismiss to be well-taken. The dismissal rendered academic the underlying question of whether the RTC could properly take cognizance of the case despite the arbitration clause.