G.R. No. 211044 July 24, 2019
Jacques A. Dupasquier and Carlos S. Rufino, et al., (The Net Group), Petitioners vs. Ascendas (Philippines) Corporation, Respondent

FACTS

Petitioners (The Net Group) and respondent Ascendas entered into a Memorandum of Understanding (MOU) outlining Ascendas’s acquisition of shares in Net Group corporations. The MOU stipulated that definitive agreements (a MOA) would be executed later, superseding the MOU. A key provision required Ascendas to post a US$1,000,000 Due Diligence Letter of Credit (L/C). Clause 5 specified that if Ascendas failed to sign the MOA without justifiable reason after receiving a satisfactory due diligence report, The Net Group could draw on the L/C as liquidated damages. The MOU also contained an arbitration clause for disputes “arising out of or in connection with this MOU.”
Ascendas conducted due diligence but refused to sign the MOA by the deadline, claiming it discovered “Relevant Findings.” The Net Group, asserting there were no such findings justifying refusal, sought to draw on the L/C. Ascendas then initiated arbitration in Hong Kong pursuant to the MOU clause. The Net Group filed a Petition for Declaratory Relief with the RTC, seeking a declaration that they could not be compelled to arbitrate and were entitled to the L/C. The RTC granted summary judgment in favor of The Net Group. The CA reversed, holding that the arbitration clause was valid and the dispute over the L/C fell within its scope, compelling arbitration.

ISSUE

Whether the arbitration clause in the MOU remained valid and enforceable to compel arbitration for a dispute concerning the drawdown on the Due Diligence L/C after the MOU had terminated due to the non-execution of the superseding MOA.

RULING

The Supreme Court REVERSED the Court of Appeals and REINSTATED the RTC’s summary judgment. The arbitration clause did not survive the termination of the MOU. The legal logic is grounded in contract interpretation and the specific survivability provisions within the MOU itself. The MOU’s Clause 14 on “Effectivity” explicitly stated that upon termination or lapse, the MOU “shall cease to have any force and effect except for Clause 14(e) [Confidentiality], which shall survive.” The arbitration clause was in Clause 14(i). By expressly stating that only the confidentiality provision survived termination, the parties clearly intended that all other clauses, including arbitration, would not. The dispute regarding the drawdown on the L/C arose precisely because the MOU terminated without a superseding MOA being executed. Since the arbitration mechanism was part of the terminated agreement and was not a surviving obligation, it could no longer be invoked to compel the parties to arbitrate. The Court ruled that the issue was one of contract interpretation—determining the scope and lifespan of the arbitration clause—which was a judicial question properly resolved by the court, not an arbitrator. Consequently, Ascendas could not compel arbitration, and The Net Group’s right to seek judicial declaration on their entitlement to the L/C was proper.