General Insurance & Surety Corporation v. Union Insurance Society of Canton, Ltd.
REITERATIONFacts
The Antecedents: Private respondents, insurance corporations, filed two civil cases (Nos. 68558 and 68559) against petitioner, General Insurance & Surety Corporation, praying for a declaration that a dispute existed between them, subject to arbitration under their respective agreements. Civil Case No. 68558 involved a First Surplus Reinsurance Agreement executed in 1959, and Civil Case No. 68559 involved a Retrocession Quota Share Fire Pool Agreement executed in 1960. Both agreements contained arbitration clauses. The agreements terminated on December 31, 1961. Private respondents claimed that petitioner owed them specific amounts in pounds sterling under these agreements. Petitioner refused to pay in pounds sterling or its equivalent at the prevailing exchange rate, insisting on payment in Philippine pesos at an old official exchange rate. Private respondents made a formal demand for arbitration, appointing an arbitrator, but petitioner refused, contending no dispute existed. Procedural History: The two cases were consolidated and jointly tried. The trial court rendered a decision on November 21, 1968, declaring that a genuine controversy existed and ordering petitioner to comply with the arbitration clause. Petitioner's motion for reconsideration was denied on January 17, 1969. The Petition: Petitioner filed a petition for review on certiorari, raising several errors, including the trial court's failure to declare the arbitration provisions void for being contrary to public policy under Republic Act No. 529, the non-arbitrability of the dispute due to public interest, the expiration of the arbitration clauses after the termination of the agreements, and the existence of a prior agreement to pay in US dollars negating the need for arbitration.
Issue(s)
Whether a genuine controversy or dispute exists between the parties that is subject to arbitration. Whether the arbitration clauses in the reinsurance and retrocession agreements are still valid and enforceable after the termination of the said agreements. Whether Republic Act No. 529 renders the provisions for payment in foreign currency void and thus negates the existence of an arbitrable dispute. Whether a prior agreement to pay in US dollars precludes the enforcement of the arbitration clause for disputes regarding payment in pounds sterling.
Ruling
The petition is denied, and the decision of the trial court is affirmed. The Court ordered petitioner to comply with the terms and conditions of the arbitration clause in the agreements.
Ratio Decidendi
On the existence of a genuine controversy or dispute subject to arbitration: The Court found that a genuine controversy existed, as evidenced by the conflicting claims of the parties regarding the amount due and the currency of payment. Private respondents alleged an amount due in pounds sterling, while petitioner denied owing any amount and insisted on payment in Philippine pesos at a specific old rate. This direct contradiction in their claims clearly constitutes a dispute that the parties had expressly agreed to settle through arbitration. On the enforceability of arbitration clauses after agreement termination: The Court held that the arbitration clauses remained enforceable. The language of Article XII of the Reinsurance Agreement explicitly stated that disputes arising "at any time... whether before or after the termination" shall be referred to arbitration. Similarly, the retrocession agreement provided for arbitration of "all differences of whatever nature arising out of the Agreement" without any time restriction. Therefore, the termination of the main agreements did not extinguish the parties' obligation to arbitrate disputes arising from them. On the effect of Republic Act No. 529: The Court clarified that Republic Act No. 529, which declares provisions requiring payment in foreign currency as against public policy, does not invalidate the entire contract or the arbitration clause. It only renders the specific provision for payment in foreign currency void. The transaction or contract subsists, and the obligation can be discharged in Philippine currency. However, this does not negate the existence of a dispute regarding the amount or currency of payment, which remains arbitrable. The issue of the proper rate of exchange for payment in Philippine currency is a matter to be determined by the arbitrators. On the alleged prior agreement to pay in US dollars: The Court noted that the petitioner's invocation of Republic Act No. 529 was raised for the first time in its memorandum, which is generally considered a waiver of defenses not pleaded in the answer. Even if considered, the argument that a prior agreement to pay in US dollars negates the dispute over pounds sterling payment was not sufficiently established to override the explicit arbitration clauses. The Court emphasized that the duty of the court in such proceedings is not to resolve the merits of the claims but only to determine if arbitration should proceed.
Main Doctrine
A dispute arising from a reinsurance or retrocession agreement, even after the termination of the agreement, is a proper subject for arbitration if the arbitration clause explicitly states that disputes arising at any time, whether before or after termination, shall be settled by arbitration. The invocation of Republic Act No. 529 as a defense against payment in foreign currency does not invalidate the arbitration clause itself, but rather affects the manner of payment, which can be settled through arbitration.