GR 156660; (August, 2009) (Digest)
G.R. No. 156660; August 24, 2009
ORMOC SUGARCANE PLANTERS’ ASSOCIATION, INC. (OSPA), ET AL., Petitioners, vs. THE COURT OF APPEALS, HIDECO SUGAR MILLING CO., INC., and ORMOC SUGAR MILLING CO., INC., Respondents.
FACTS
Petitioners are associations of individual sugar planters. Respondents are sugar centrals. The relationship between the centrals and the individual planters is governed by milling contracts. These contracts contain an arbitration clause and stipulate that 1% of the produced sugar and molasses shall be given as aid to the planter’s association; if a planter is not a member, this 1% reverts to the centrals. Petitioners filed petitions for arbitration against respondents, alleging a violation of the milling contracts. They claimed respondents gave the 1% share to independent planters instead of reverting it to the centrals, thereby granting these planters an undue benefit.
Respondents moved to dismiss, arguing petitioners lacked cause of action and legal personality to demand arbitration. They contended that the milling contracts were executed only between the centrals and the individual planters, making the planters, not the associations, the proper parties to invoke the arbitration clause. The Regional Trial Court denied the motion, upheld petitioners’ right to sue on behalf of their members, and directed respondents to nominate arbitrators. The Court of Appeals reversed this, holding that petitioners were not parties to the milling contracts and thus had no legal standing to compel arbitration.
ISSUE
Whether the petitioner associations have the legal personality to compel respondents to submit to arbitration under the milling contracts executed between the respondents and the individual planters.
RULING
The Supreme Court denied the petition, affirming the Court of Appeals. The legal logic is anchored on the principle of relativity of contracts under Article 1311 of the Civil Code, which provides that contracts take effect only between the parties, their assigns, and heirs. Petitioners were not signatories to the milling contracts; the contracting parties were the individual planters and the respondent centrals. Consequently, petitioners cannot invoke the arbitration clause as they are not privy to the agreements.
The Court rejected the argument that the associations were third-party beneficiaries with a right to demand performance. For a stipulation to be considered pour autrui, the contracting parties must have clearly and deliberately conferred a favor upon a third person. The 1% aid provision was merely an incidental benefit designed to support the associations in aiding their members, not a direct grant of a cause of action to the associations themselves. The associations’ interest is derivative and incidental to protecting their members’ welfare. Furthermore, the power to submit a controversy to arbitration requires a special power of attorney, which petitioners did not possess from their individual members. Therefore, lacking contractual privity and proper authorization, petitioners had no legal standing to initiate the arbitration proceeding. The Court found no grave abuse of discretion in the appellate court’s decision.