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FIRST DIVISION

JACQUES A. DUPASQUIER and G.R. No. 211044

CARLOS S. RUFINO for
themselves and on behalf of THE Present:
NET GROUP, composed of 19-1
REALTY CORPORATION, 18-2 BERSAMIN, CJ, Chairperson,
PROPERTY HOLDINGS, INC., 6- DEL CASTILLO,* Working Chairperson,
3 PROPERTY HOLDINGS INC., JARDELEZA, **
ADD LAND, INC., REMEDIOS A. Acting Working Chairperson
DUPASQUIER, PIERRE GESMUNDO, and
DUPASQUIER, ANNA MARIE J. REYES, JR., *** JJ.
MORRONGIELLO, DELRUF
REALTY & DEVELOPMENT, Promulgated:
INC., VAR BUILDINGS, INC.,
MARILEX REALTY, ARESAR JUL 2 It 2019
REALTY, SUNVAR, INC.,
MACARIO S. RUFINO,
REMIGIO TAN, JR., MA.
AUXILIO R. PRIETO, MA. PAZ
R. TANJANCO, RAMON D.
RUFINO, PAOLO R. PRIETO,
VICENTE L. RUFINO, THERESA
P. VALDES, ALEXANDRA P.
ROMUALDEZ, TERESA R. TAN,
JAVIER VICENTE RUFINO,
CARLO D. RUFINO, LUIS
CARLO R. LAUREL, MA.
ASUNCION L. UICHICO, MA.
PAZ FARAH L. IMPERIAL, MA.
ISABEL L. BARANDIARAN,
ALFREDO PARUNGAO, AND
ALOYSIUS B. COLA YCO,
Petitioners,
- versus -
ASCENDAS (PHILIPPINES)
CORPORATION,
Respondent.

• On official leave.
•· Designated as Acting Working Chairpason of the r•irst Division per Special Order No. 2680 dated
July 12, 2019.
... Designated r s · ditional Member per Raffle dated June 3, 2019 in lieu of Associate Justice Rosmari
D. Carandang.
Decision 2 G.R. No. 211044

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari 1 under Rule 45 of the Rules

3
of Court assailing the Decision 2 dated April 3, 2012 and Resolution dated
January 27, 2014 of the Court of Appeals (CA) in CA-G.R. CV No. 90835.
The CA set aside the Order4 dated December 14, 2007 of Branch 59 of the
Regional Trial Court (RTC) in Makati City, in Civil Case No. 07-860, which
declared, on summary judgment, that petitioners cannot be compelled to
arbitrate and petitioners are entitled to the Due Diligence L/C in the amount
of US$1,000,000.00.

Petitioners Jacques A. Dupasquier and Carlos S. Rufino, for

themselves and on behalf of The Net Group, composed of 19-1 Realty
Corporation, 18-2 Property Holdings, Inc., 6-3 Property Holdings, Inc., Add
Land, Inc., Remedios A. Dupasquier, Pierre Dupasquier, Anna Marie
Morrongiello, Delruf Realty & Development, Inc., VAR Buildings, Inc.,
Marilex Realty, Aresar Realty, Sunvar, Inc., Macario S. Rufino, Remigio
Tan, Jr., Ma. Auxilio R. Prieto, Ma. Paz R. Tanjanco, Ramon D. Rufino,
Paolo R. Prieto, Vicente L. Rufino, Theresa P. Valdes, Alexandra P.
Romualdez, Teresa R. Tan, Javier Vicente Rufino, Carlo D. Rufino, Luis
Carlo R. Laurel, Ma. Asuncion L. Uichico, Ma. Paz Farah L. Imperial, Ma.
Isabel L. Barandiaran, Alfredo Parungao, and Aloysius B. Colayco
(collectively referred to as The Net Group) are corporations and individuals
who grouped together to engage in business as developer and operator of
Philippine Economic Zone Authority (PEZA)-accredited office buildings. 5

Ascendas (Philippines) Corporation (Ascendas) is a corporation duly

organized and existing under Philippine laws. 6 It is engaged in the real estate
industry, providing business space solutions in Singapore, Philippines, and
other Asian countries. 7

On January 18, 2007, The Net Group and Ascendas entered into a
Memorandum of Understanding (MOU), 8 wherein the parties agreed in
principle to Ascendas' acquisition of the entire issued and outstanding shares
of stock of the Net Corporations. The parties agreed that the details of the
contractual framework of their transaction will be contained in the Definitive
Agreements to be executed by the parties subsequent to the signing of the

Rollo, pp. 3-44-A.

Id. at 87-109. Penned by Associate Justice Rosmari D. Carandang (now a Member of this Court),
concurred in by Associate Justices Ricardo R. Rosario and Danton Q. Bueser.
Id. at 111-141. Penned by Associate Justice Rosmari D. Carandang, concurred in by Associate Justices
Fernanda Lampas Peralta and Jane Aurora C. Lantion; dissented by Associate Justices Ricardo R.
Rosario and Danton Q. Bueser.
4
Id. at 348-356.
6

7
Id. at 3, 88.
Id. at 170.
Id. at 88.
f
Id. at 170-202.
 Decision 3 G.R. No. 211044

MOU. 9 The parties stipulated that the Closing Date of the MOU shall be
defined as "two calendar weeks after the signing of the Memorandum of
10
Agreement (MOA) but not later than March 31, 2017." The MOA is
defined as the Memorandum of Agreement to be signed by the parties on or
before March 15, 2007, or such other date as may be subsequently agreed
upon by the parties in writing, and which, when signed, will supersede the
MOU. 11

By way of security for full compliance with the provisions of the

MOU, the parties stipulated in Clause 5 that:

a. Within five (5) business days upon signing of this

MOU, Ascendas shall deliver to The Net Group the
Due Diligence L/C in the amount of US$1,000,000.00,
in the form acceptable to The Net Group, to be issued
by a reputable bank duly licensed to conduct business
within the Philippines and acceptable to The Net
Group.

1. If Ascendas fails or refuses to sign the MOA

without any justifiable reason, including but not
limited to an instance when: (1) it is given a Due
Diligence report showing no Relevant Findings; or
(2) in case there are Relevant Findings in the Due
Diligence report and The Net Group issues a
certification that it shall cure and/or remedy all such
Relevant Findings in accordance with Clause 4(b)
and/or as agreed upon by the Parties, then The Net
Group shall be authorized to draw upon the Due
Diligence L/C upon signing of the MOA or on
March 31, 2007, whichever comes earlier: provided,
however, that The Net Group submits a certification
to the issuing bank that it is willing to execute the
MOA upon submission by Ascendas to The Net
Group of the Transaction Price L/C, without need of
presenting or submitting a copy of the MOA to the
said issuing bank. The amount so drawn by The Net
Group shall serve as liquidated damages in its favor.

11. If The Net Group fails or refuses to execute the

MOA by March 31, 2007 without any justifiable
reason, then The Net Group shall not be authorized
to draw down on the Due Diligence L/C and will be
considered in breach of this MOU.

iii. If the MOA is executed by the Parties on or before

March 15, 2007, The Net Group shall be authorized
to draw upon the Due Diligence L/C on the date of

9
Id. at 170, 173.
Id. at 172. ✓
10

II /d.at)75.tJ
Decision 4 G.R. No. 211044

signing of the MOA and the amount so drawn shall

12
form part of the Transaction Price.

The MOU likewise provided an Arbitration clause, as part of Clause

14 entitled "Miscellaneous Provision," which reads:

1. Arbitration. In case of any dispute arising out of or in

connection with this MOU, the Parties agree to
negotiate in good faith within a period of thirty (30)
days after written notice by one Party to the other Party
of the existence of such dispute, failing which the said
dispute shall be referred to and finally resolved by
arbitration under the Rules of the United Nations
Commission of International Trade Law, which Rules
are deemed to be incorporated by reference into this
Clause. The arbitration shall be held in Hong Kong.
The language to be used in the arbitration shall be
English. 13 (Emphasis in the original.)

Likewise in Clause 14 of the MOU, the parties incorporated the

effectivity of the MOU in the following manner:

I. Ejfectivity. This MOU shall take effect upon the

signing thereof and shall continue to have force and
effect unless earlier terminated pursuant to Clause 11
[Execution of Definitive Agreements] or until this is
superseded by the execution of the Definitive
Agreements. Upon the termination or lapse of this
MOU, the MOU shall cease to have any force and
effect except for Clause 14(e) [Confidentiality], which
shall survive and remain effective and enforceable. 14

The parties appended, as Annex "C" of the MOU, a Transaction

Timeline, to wit:

Particulars
Day 1 Signing of MOU
No later than Day 5 Delivery of Due Diligence UC
No later than Day 7 Delivery of Ascendas of list of documents
subject of Due Diligence
No later than Day 14 Compilation and preparation of The Net
Group of requested documents
Day 1 to Day 42 Due Diligence Period

Negotiation on MOA

Negotiation on Definitive Agreements

No later than Day 45 Presentation of Due Diligence Findings to
The Net Group

r
No later than Day 52 Discussion on Relevant Findings

12 Id. at 186.
11 Id. at 194- I 9 ·
14 Id. at 195.
 Decision 5 G.R. No. 211044

The Net Group to decide whether to remedy

or cure Relevant Findings
Day 52 to 97 The Net Group to effect remedy or cure to
(~c) Relevant Findings
Within Day 45 to March Signing of MOA and
15,2007
Drawdown on Due Diligence L/C
No later than March 31, Delivery of Transaction Price L/C
2007
Signing of Project Development and
Management Agreement

Signing of Asset Management Agreement

Signing of Property Management

Agreement

Signing of Executive Marketing Agreement

Signing of Lease Contract between The Net

Group and Ascendas

Signing of Deeds of Absolute Sale of Shares

of Stock Net One and/or Net Square]

Payment of Full Purchase Price of Net One

and Net Square and Initial Payment of Net
Cube, Net Quad and Net Five, if applicable

Drawdown on Due Diligence L/C (in case

no MOA is signed)
15
After March 15, 2007 / Payment of Balance Payments
March 31, 2007

In accordance with the MOU and the Transaction Timeline, Ascendas

delivered to The Net Group an irrevocable Letter of Credit (L/C) in the
amount of US$1,000,000.00 or the Due Diligence L/C specified in the
MOU. 16 Thereafter, Ascendas began its due diligence investigation on The
Net Group. 17

During the first quarter of 2007, Ascendas' Mr. Edwin Kung Wee
Tack (Mr. Tack) sent an electronic mail to The Net Group's Vice-President,
Mr. Raymond Rufino (Mr. Rufino), stating that Ascendas_could not execute
the MOA by the Closing Date because the projected completion date of the
due diligence is after March 31, 2007. Mr. Rufino replied that the request for
extension is unwarranted because the remaining items are minor and can be
resolved quickly. He, instead, offered to meet with Ascendas'

15
16
ld.,t
199- 00.
Id. a .
11 Id.
 Decision 6 G.R. No. 211044

representatives in order to address the outstanding issues so the original

18
timetable could be observed.

By March 31, 2007, the parties were not able to execute a MOA and
Definitive Agreements. They did not agree in writing to an extension of the
19
Closing Date or a revision of the Timetable.

The Net Group informed Ascendas that they deemed the MOU as
lapsed as of April 1, 2007. The Net Group, however, manifested their
willingness to continue negotiations with Ascendas on purely voluntary and
. b as1s.
non-exc 1us1ve . 20

2
In its letters dated June 11, 2007, 21 July 26, 200?2 and August 28,
2007, 23 Ascendas informed The Net Group of its position that the MOU did
not expire. Ascendas also attributed the delay in the execution of the MOA
to The Net Group. According to Ascendas, The Net Group committed lapses
in providing the information and documentation necessary to complete its
due diligence audit, and it failed to provide Ascendas with a credible party
nominated for representations and warranties on behalf of the Dupasquier
family.

On September 14, 2007, Ascendas wrote another letter to The Net

Group specifying that the parties have until September 28, 2007 to resolve
the disputes between them, otherwise, Ascendas will refer the dispute to
. , 24
ar b1trat10n.
25
On September 18, 2007, The Net Group filed a petition for
declaratory relief with an application for preliminary injunction/temporary
restraining order (TRO) before the RTC in Makati City. This was docketed
as Civil Case No. 07-860. In its petition, The Net Group alleged that
Ascendas' demand to arbitrate is baseless. According to its interpretation of
the MOU, the Arbitration Clause would not survive the lapse of the MOU on
March 31, 2007 because the parties agreed that only the confidentiality
clause will survive the termination or lapse of the MOU. Hence, The Net
Group pleaded for a judicial declaration that the arbitration agreement
contained in the MOU be declared ineffective and that Ascendas can no
longer compel The Net Group to submit to arbitration pursuant to the
relevant clause. 26 In addition, The Net Group sought for a judicial
declaration that it is already entitled to the Due Diligence L/C on the basis of

18 Id.
19
Rollo, pp. I 0-11.
20
Id. at 11.
21
Id. at 222-223.
22
Id. at 224-225.
23
Id. at 226.
24
Id. at 12.
25
26
Id. at227-242.✓
Id. at 235-236.0
 Decision 7 G.R. No. 211044

the MOU. 27 The case was raffled to Branch 59 of the RTC in Makati City. 28

On September 25, 2007, the RTC granted The Net Group's prayer for
the issuance of a TRO. 29

Ascendas filed an urgent omnibus motion to: (a) defer further

proceedings, including the hearing of petitioners' application for the
issuance of a writ of preliminary injunction pending the resolution of the
omnibus motion; (b) dismiss the petition; and (c) reconsider the issuance of
the TRO. 30 The RTC denied the omnibus motion and set the hearing for the
application of preliminary injunction on October 9 and 10, 2007. Ascendas
filed a petition for certiorari before the CA, but the CA upheld the RTC's
Orders. 31

On October 17, 2007, Ascendas filed its answer ex abudanti ad

cautelam with compulsory counterclaim. 32 Ascendas claimed that the
petition failed to state a cause of action because petitioners' prayer that they
be entitled to the cash equivalent of the Due Diligence L/C requires a
determination of whether a breach of the MOU was committed is improper
in a petition for declaratory relief. Also, it vehemently argued that the MOU
had not lapsed and assuming it had lapsed, the Arbitration Clause therein
survived and thus, the condition precedent, which is the referral to
arbitration, for filing the claim was not complied with. 33

The Net Group filed a motion for summary judgment3 4 with the RTC
alleging that Ascendas' defenses were purely legal in nature.

On December 14, 2007, the R TC promulgated its Decision35 granting

The Net Group's motion for summary judgment, thefallo reads:

WHEREFORE, premises considered, summary

judgment is hereby rendered in favor of the petitioners and
against the respondent in the following manner:

a) Declaring that respondent cannot compel

petitioners to proceed to arbitration on the basis
of said arbitration clause;

b) Declaring that petitioners are entitled to the Due

Diligence L/C in the amount of US 1,000,000.00;

27
Id. at 237.
28
Id. at 12.
29
Id. at 323-325.
30
Id. at 12.
31
Id. at 13.
32
Id. at 357-368.
33
34
Id. at 364-365.(
Id. at 387-411.
35
Supra note 4.
 Decision 8 G.R. No. 211044

c) Denying respondent's compulsory counter claim,

prayer for attorney's fees and litigation expenses
for lack of merit; and

d) Making the injunction permanent.

SO ORDERED. 36

Ascendas then filed a notice of appeal.

In the assailed Decision 37 dated April 3, 2012, the CA unanimously

set aside the RTC's Order dated December 14, 2007. It ruled that
considering the separability doctrine wherein the Arbitration Clause remains
operative despite the termination of the contract, the RTC cannot exercise
jurisdiction over the dispute because the parties should have referred the
matter to arbitration. It likewise ruled that The Net Group's prayer to be
declared entitled to liquidated damages in their petition should have
forewarned the RTC that there has been a breach of the MOU, in which
case, a petition for declaratory relief is a procedural mistake.

Acting on The Net Group's motion for reconsideration, the members

of the CA split their votes: three in favor of the denial of the motion for
reconsideration and two dissenting. 38

Hence, this petition wherein The Net Group poses the following
arguments:

THE COURT OF APPEALS COMMITTED GRAVE

AND SERIOUS ERROR IN THE ASSAILED
DECISION AND RESOLUTION CONSIDERING
THAT:

I. THE EXPIRATION OF THE MOU ALSO

TERMINATED THE EFFECTIVITY OF THE
SUBJECT ARBITRATION CLAUSE;

II. THE PETITION FOR DECLARATORY RELIEF

IN CIVIL CASE NO. 07-860 IS PROPER AS
THERE WAS NO BREACH OF THE MOU
WHICH WAS THE SUBJECT THEREOF; AND

III. THE SUMMARY JUDGMENT IN THE CIVIL

CASE NO. 07-860 IS PROPER CONSIDERING
THAT THERE WAS NO GENUINE ISSUE OF
FACT BEFORE THE RTC. 39 (Emphasis in the
original.)

We grant the petition.

16

,7
1R
Id. at 355-356.
Supra note 2.
Supra note 3.
f
19 Rollo, pp. 16-17.
 Decision 9 G.R. No. 211044

I.

The Net Group argues that the Arbitration Clause was time-limited,
there being no express reservation as to its continued applicability. It claims
that the parties agreed to an express termination date of the MOU including
all the provisions thereof, except the Confidentiality Clause 14(e). It alleges
that such an agreement is not prohibited by law and the courts are not free to
substitute their own discretion.

Ascendas, on the other hand, claims that the CA correctly found that
the parties did not intend that the Arbitration Clause would end together with
the MOU. Rather, the parties intended to submit to arbitration any dispute
arising out of or in connection with the MOU. It states that the MOU's
wordings are broad enough as to cover the issue of whether the MOU had
lapsed since it involves the interpretation and application of the provisions of
the contract.

Article 13 70 of the Civil Code on the interpretation of contracts

mandates that the literal meaning of the stipulations shall prevail if the
contract's terms are clear and leave no doubt as to the intention of the
contracting parties. If, however, the words of the contract are contrary to the
evident intention of the parties, the intention of the parties shall be
controlling. Thus:

Art. 1370. If the terms of a contract are clear and leave

no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.

If the words appear to be contrary to the evident

intention of the parties, the latter shall prevail over the
former.

The foregoing rule was thoroughly discussed in Abad v. Goldloop

. l nc.: 4o
Propertzes,

The cardinal rule in the interpretation of contracts is

embodied in the first paragraph of Article 13 70 of the Civil
Code: "[i}f the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control". This
provision is akin to the "plain meaning rule" applied by
Pennsylvania courts, which assumes that the intent of
the parties to an instrument is "embodied in the writing
itself, and when the words are clear and unambiguous
· the intent is to be discovered only from the express
language of the agreement." It also resembles the "four
comers" rule, a principle which allows courts in some cases
to search beneath the semantic surface for clues to
meaning. A court's purpose in examining a contract is to

'" G.R. No. 168108, Apdl 13, 2007, 521 SCRA 13(
 Decision 10 G.R. No. 211044

interpret the intent of the contracting parties, as objectively

manifested by them. The process of interpreting a contract
requires the court to make a preliminary inquiry as to
whether the contract before it is ambiguous. A contract
provision is ambiguous if it is susceptible of two reasonable
alternative interpretations. Where the written terms of the
contract are not ambiguous and can only be read one way,
the court will interpret the contract as a matter of law. If the
contract is determined to be ambiguous, then the
interpretation of the contract is left to the court, to resolve
the ambiguity in the light of the intrinsic evidence. 41
(Emphasis supplied; italics in the original; citations
omitted.)

Thus, in interpreting a contract, the primary function of the court is to

determine whether its wordings are clear and unambiguous. If so, the court
is bound to apply the literal meaning of the contract because the manifest
intention of the parties is apparent. If the wordings, however, are ambiguous
and may lead to different interpretations, the court should determine the
actual intention of the contracting parties.

In the present case, while there is no doubt that the parties intended
that disputes be referred to arbitration, the parties, nonetheless, are in
conflict as to whether the Arbitration Clause is time-limited.

A.

It must be remembered that arbitration is a matter of contract and the

parties cannot be obliged to submit any dispute to arbitration, in the absence
of their consent to submit thereto. 42 The parties may lay their rights and
liabilities in relation to the parties' resort to arbitration in the contract. As
any other agreements, the parties have freedom to establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order
and public policy. 43 The parties may, therefore, agree as to the submission
of the disputes to arbitration, the forum of arbitration, the subject of
arbitration and the termination of their arbitration agreement.

It is thus proper that a review of the following provisions of Clause

14 of the MOU be conducted to determine the intention of the parties:

1. Arbitration. In case of any dispute arising out of or in

connection with this MOU, the Parties agree to
negotiate in good faith within a period of thirty (30)
days after written notice by one Party to the other Party
of the existence of such dispute, failing which the said
dispute shall be referred to and finally resolved by
arbitration under the Rules of the United Nations
41
/d.atl43-144.
:: See Gonzales v. Clim:~ng Ltd., G.R. No. 161957, January 22, 2007, 152 SCRA 148, 167.
CIVIL CODF,, Art. 13061)
 Decision 11 G.R. No. 211044

Commission of International Trade Law, which Rules

are deemed to be incorporated by reference into this
Clause. The arbitration shall be held in Hong Kong.
The language to be used in the arbitration shall be
English.

xxxx

1. Effectivity. This MOU shall take effect upon the

signing thereof and shall continue to have force and
effect unless earlier terminated pursuant to Clause 11
[Execution of Definitive Agreements] or until this is
superseded by the execution of the Definitive
Agreements. Upon the termination or lapse of this
MOU, this MOU shall cease to have any force and
effect except for Clause 14(e) [Confidentiality], which
shall survive and remain effective and enforceable. 44
(Emphasis in the original.)

Using the guidelines for interpreting a contract, the literal meaning of

Clause 14(e) of the MOU is that the lapse of the MOU shall have an effect
of making all its provisions, except Clause 14(e) on Confidentiality,
ineffectual. The MOU itself provides that its "Closing Date" shall be two
calendar weeks after the signing of the MOA, but not later than March 31,
2007. Since no MOA was signed by the parties, the MOU lapsed on March
31, 2007 by operation of the provisions of the MOU. Reading Clause 14(e)
in relation to the MOU's definition of "Closing Date", the MOU's
provisions, including the Arbitration Clause, shall be of no effect as of
March 31, 2007. This is the manifest intent of the contracting parties.

B.

The complexity arose with Ascendas' application of the doctrine of

separability in the interpretation of the entire MOU. The doctrine of
separability or severability enunciates that an arbitration agreement is
independent of the main contract. It denotes that the invalidity of the main
contract does not affect the validity of the arbitration agreement. 45 Ascendas
espouses an argument that the Arbitration Clause remained valid despite the
lapse of the MOU.

We have to balance the application of this doctrine with the manifest

intention of the contracting parties. To our mind, this doctrine is relevant in
the absence of the parties' specific stipulation as to the Arbitration Clause's
term of effectivity.

Indeed, We have adopted the doctrine of separability and ruled on its

application as recognition that arbitration may serve as an effective
alternative mode of settling disputes.

44

"
Rollo, pp. 194-195.
Gonza/e,v. CUmax M;nfog Ltd, sup,o note
o.X
42 17u
at
 Decision 12 G.R. No. 211044

In Gonzales v. Climax Mining Ltd., respondent therein argued that the

case should not be brought to arbitration since it was claiming that the
contract should be rescinded. There, we held that "the validity of the
contract containing the agreement to submit to arbitration does not affect the
46
applicability of the arbitration clause itself."
47
In Cargill Philippines, Inc. v. San Fernando Rega/a Trading, lnc.,
we applied our ruling in Gonzales by elaborating that an "arbitration
agreement which forms part of the main contract shall not be regarded as
invalid or non-existent just because the main contract is invalid or did not
come into existence, since the arbitration agreement shall be treated as a
48
separate agreement independent of the main contract. "
49
Lastly, in Koppel, Inc. v. Makati Rotary Club Foundation, Inc. we
acknowledged therein petitioner's right to invoke the arbitration clause of its
lease contract even if it was assailing the validity of that contract. so

A review of those cases, however, reveals that one of the respective

parties therein, impugned the validity of the contract or unilaterally invoked
the non-existence of the "container contract" or the contract containing the
arbitration clause. In stark contrast to the present case, there was no
agreement among the parties in the above-mentioned cases to terminate the
arbitration clause.

On this point, we note the Rhode Island Supreme Court's ruling in

Radiation Oncology Associates, Inc. v. Roger Williams Hospital. 51 In that
case, the Court resolved the issue of whether the parties intended to submit a
dispute concerning the duration of their service agreement to arbitrate. The
agreement provided that it shall commence on October 1, 2001 and shall
terminate on December 31, 2004. It added that if an extension or substitute
contract is not signed by the parties prior to December 31, 2004, the
agreement shall be null and of no further effect. The Court held that the
parties did not intend to submit dispute to arbitration after the expiration of
the service agreement, thus:

Our review of the services agreement leads us to

conclude that the parties did not intend to submit to
arbitration disputes over the duration of their services
agreement because the terms of their agreement included a
date certain tc)r expiration. The final sentence to
paragraph 22(a) of the services agreement reads: "If an
extension or substitute contract is not signed by the
parties prior to December 31, 2004, this Agreement
46
Id. at 173.
47
G.R. No. 175404, January 31, 20 I L 641 SCRA 31.
18
' Id. at 47.
49
G.R. No. 198075, September,2013, I05 SCRA 142.
50
Id. at 162.
1
' No. 2005-218-appeal (2006).
 Decision 13 G.R. No. 211044

shall be null and void and of no further effect." As a

matter of contract construction, the strong and specific
language of this expiration provision limited the reach of
the noticeably nonspecific language of the arbitration
clause that "all disputes" arising under the agreement "shall
be settled by arbitration." See Crouch, 808 A.2d at 1079
(interpreting the broad language of arbitration provisions in
a collective bargaining agreement to be superseded by the
more explicit provisions of a statute incorporated into the
agreement); accord Antonio Marcaccio, Inc. v. Santurri, 51
R.I. 440, 442, 155 A. 571, 572 (1931) (applying the rule
that more specific contract provisions govern more general
ones in a dispute over a broker's commission); cf 11
Samuel Williston, A Treatise on the Law of Contracts §
32:15 at 509-10 (Richard A. Lord ed., West Group 4th ed.
1999) (indicating that, when interpreting a contract that
contains contradictory clauses, courts will typically give
preference to the more specific of the two clauses).

It is true that this Court has voiced a preference in favor

of arbitration as a particularly efficacious alternative
method of dispute resolution. See, e.g., Crouch, 808 A.2d
at 1078; Brown v. Amaral, 460 A.2d 7, 10 (R.1.1983);
School Committee of Pawtucket v. Pawtucket Teachers
Alliance, 120 R.l. 810, 815, 390 A.2d 386, 389 (1978).
But we do not see our holding today as an affront to that
principle, particularly in cases, such as that under review,
involving a challenge to the duration of a contract the terms
of which include an express expiration date. We observe
that federal circuit courts similarly have discounted the
import of any "presumption" in favor of arbitration when
called upon to determine the arbitrability of duration
disputes concerning contracts containing a date certain for
expiration. See Virginia Carolina Tools, Inc., 984 F.2d at
118 (holding that an intent to arbitrate a duration dispute
could not be inferred from an agreement that contained a
nonspecific arbitration clause and an express termination
date provision); National Railroad Passenger Corp. v.
Boston and Maine Corp., 850 F.2d 756, 763-64
(D.C.Cir.1988) (holding that a party could overcome a
broad arbitration clause by showing an unambiguous
expiration date); cf Municipality of San Juan v.
Corporacion Para el Fomento Economico de la Ciudad
Capital, 415 F.3d 145, 150 & n. 8 (1st Cir.2005)
(distinguishing Virginia Carolina Tools, Inc. because, in
that case, the contract at issue contained a more specific
termination date). 52 (Emphasis supplied; italics in the
original.)

The language used in the subject service agreement of Radiation

Oncology is somehow identical with the MOU of the present case. In both
cases, the parties incorporated a time-limit to the agreement which gave rise
to the eventual ineffectivity of the contract and its provision. In no uncertain

"
_L
Id. at 514-51 t
Decision 14 G.R. No. 211044

way that this time-limit refers to the non-signing of extension or substitute

contract before the expiration of a date certain. It is thus wise to rule that
the parties intended that the happening of the date certain would give no
effect to all parts of the MOU, including the Arbitration Clause. This ruling,
however, should not be understood as abandoning the doctrine of
separability, but merely giving way to the manifest intention of the
contracting parties.

Moreover, the parties agreed to exempt the Confidentiality Clause in

the effects of the Closing Date is an indication of their intent. To our mind,
this exception bolsters the manifest intent of the parties to terminate the
Arbitration Clause. The parties expressly specified the provision of the
contract that is not time-limited. Since the Arbitration Clause is not one
mentioned as an item to survive upon the termination or lapse of the MOU,
the only conclusion is that said provision has been deliberately included to
be time-limited. There is more reason for us to conclude that the parties
manifested that the Arbitration Clause should cease to effect simply because
they incorporated a phrase which would not be affected by the lapse of the
period. If the parties intended the Arbitration Clause to survive, there is no
reason why they would not have so stated it expressly.

To reiterate, where a contract is clear and unambiguous as to the

intent of the parties, it is the court's obligation to enforce its wordings
accordingly. Thus, the Arbitration Clause of the MOU ceased to have an
effect by March 31, 2007 and should not be considered a condition
precedent prior to the filing of an appropriate case before our courts.

II.

We now proceed to discuss whether a declaratory relief is a proper

recourse of the parties in this case.

Declaratory relief is defined as an action by a person interested under

a deed, will, contract, or other written instrument whose rights are affected
by a statute, executive order or regulation, ordinance, or any other
governmental regulation may, before breach or violation thereof, bring an
action in the appropriate Regional Trial Court to determine any question or
construction or validity arising, and for a declaration of his rights or duties,
53
thereunder.

The requisites of an action for declaratory relief are: (i) the subject
matter of the controversy must be a deed, will, contract or other written
instrument, statute, executive order or regulation, or ordinance; (ii) the tenns
of said documents and the validity thereof are doubtful and require judicial
construction; (iii) there must have been no breach or the "ripening seeds" of

II
one between persons whose interests are adverse; (iv) there must be an

" Rur.cs 01' COURT. R"le 63, Sec.

 Decision 15 G.R. No. 211044

actual controversy or the "ripening seeds" of one between persons whose

interests are adverse; (v) the issue must be ripe for judicial detennination;
and (vi) adequate relief is not available through other means or other forms
of action or proceeding. 54

The CA viewed that The Net Group's petition for declaratory relief is
improper on the ground that petitioners' purported claim for Due Diligence
L/C is a claim for "liquidation damages," which presupposes that a breach of
the MOU has already been committed. The CA stated that the court cannot
take cognizance of a case for declaratory relief after a breach of the subject
contract has already been committed. 55

The Net Group belies the CA' s conclusion by asserting that it never
claimed liquidated damages in the context of the Civil Code and that it only
sought for the interpretation of the MOU's provision on Due Diligence L/C.

We reverse the findings of the CA on this matter.

Jurisdiction over the subject matter is conferred by the Constitution or

by law, and is determined by the allegations of the complaint and the relief
prayed for, regardless of whether the plaintiff is entitled to recover all or
some of the claims. Jurisdiction is not dependent on defendant's answer or
motion to dismiss. 56

Certainly, Rule 63 vests with the RTC the jurisdiction to hear petitions
for declaratory relief. The question now for our determination is whether the
allegations in the initiatory pleading and the character of the reliefs prayed
for contemplate an action for declaratory relief. It also requires us to resolve
whether the initiatory pleading connotes a breach of contract which removed
the subject matter from the jurisdiction of the RTC over declaratory relief. It
is imperative, therefore, to examine the pertinent allegations in the petition:

Factual Antecedents

3. On 18 January 2007, THE NET GROUP and

Ascendas entered into a Memorandum of Understanding
where the parties agreed in principle to A[s]cendas'
acquisition, either directly or indirectly through qualified
entities, of the entire issued and outstanding shares of stock
of THE NET GROUP companies.xx x

4. As stated in Section 1 of the MOU, the "Closing

Date" was defined "two (2) weeks after the signing of the
MOA but not later than March 31, 2007." Section 11 of the
MOU provides:

54

55
56
l
Republic v. Roque, G.R. No. 204603, September 24, 2013, 706 SCRA 273, 283.
Rollo, pp. 96-98.
Presidential Commission
2015, 765 SCRA 524, 551.
01 Good Governance (PCGG) v. Dumayas, G.R. No. 209447, August 11,
Decision 16 G.R. No. 211044

xxxx

5. The MOU further provides that:

5. Security. By way of security for full compliance

by both Parties with the provisions of this MOU and/or
the Definitive Agreements, each Party agrees to issue or
grant the following security to the other Party:

a. Within five (5) business days upon signing of this

MOU, Ascendas shall deliver to The Net Group
the Due Diligence L/C in the amount of
US$1,000,000.00, in the form to The Net Group,
to be issued by a reputable bank duly licensed to
conduct business within the Philippines and
acceptable to The Net Group.

i. If Ascendas fails or refuses to sign the MOA

without any justifiable reason, including but
not limited to an instance when: (1) it is given a
Due Diligence report showing no Relevant
Findings; or (2) in case there are Relevant
Findings in accordance with Clause 4(b) and/or
as agreed upon by the Parties, then The Net
Group shall be authorized to draw upon the
Due Diligence L/C upon the signing of the
MOA or on March 31, 2007, whichever comes
earlier; provided, however, the The Net Group
submits a certification to the issuing bank that
it is willing to execute the MOA upon
submission by Ascendas to The Net Group of
the Transaction Price L/C, without need of
presenting or submitting a copy of the MOA to
the said issuing bank. The amount so drawn by
The Net Group shall serve as liquidated
damages in its favor.

xxxx

14(i) Arbitration. In case of any dispute arising out

of or in connection with this MOU, the Parties
agree to negotiate in good faith within a
period of thirty (30) days after written notice
by one Party to the other Party of the existence
of such dispute, failing which the said dispute
shall be referred to and finally resolved by
arbitration under the Rules of the United
Nations Commission of International Trade
Law, which Rules are deemed to be
incorporated by reference into this Clause.
The arbitrations shall be held in Hong Kong.
The language used in the arbitration shall be
English.

14(1) Effectivity. This MOU shall take effect upon/

the signing thereof and shall continue to have
Decision 17 G.R. No. 211044

force and effect unless earlier terminated

pursuant to Clause 11 or until this is
superseded by the execution of the Definitive
Agreements. Upon the termination or lapse of
this MOU, this MOU shall cease to have any
force and effect except for Clause 14(e),
which shall survive and remain effective and
enforceable.

6. As of 31 March 2007, the parties failed to enter into

any Definitive Agreement, or agreements to implement the
MOU. In a letter dated 21 May 2007, THE NET GROUP
informed respondent that due to the delay in the original
timetable agreed upon, it deemed the MOU to have lapsed
as of 1 April 2007. THE NET GROUP, however, stated
that it would continue to negotiate with respondent, no
longer under the MOU, but on purely voluntary and non-
exclusive basis.

7. A meeting thereafter ensued between petitioner

Carlos S. Rufino, Mr. Nonoy Colayco and respondent's Mr.
Beng Khoeong Ong ("Mr. Ong"), the latter purporting to be
respondent's authorized representative in the signing
negotiation and execution of the MOU. Mr. Ong was also
accompanied by respondent's Atty. Joel Cruz. At said
meeting, the parties already agreed to the release of a joint
press statement to inform the public that negotiations
between the parties will no longer continue.

8. Thereafter, respondent's representatives requested

THE NET GROUP to draft the joint press statement and to
process the release of the due diligence fund. Respondent
further asked THE NET GROUP to draft an agreement to
be executed by the parties to confirm the lapse of the MOU.

9. It was to THE NET GROUP's shock and surprise

that in letters dated 11 and 25 June 2007, and 28 August
2007, respondent, through Mr. Ong, suddenly took the
position that the MOU did not lapse, and that the delays
were caused by THE NET GROUP. Respondent further
demanded that THE NET GROUP inhibit itself from
negotiating with other parties and finalize the MOU's
implementing agreements. Worse, in its letter dated 25 July
2007, respondent sent THE NET GROUP its "final offer"
for the purchase of the shares of THE NET GROUP
companies, with a threat that if THE NET GROUP would
not accept respondent's offer, the latter would bring the
matter to arbitration.

Ground for Declaratory Relief

THE EFFECTIVITY OF THE MOU BETWEEN

THE PARTIES LAPSED ON 31 MARCH 2007, AND
THE PARTIES EXPRESSLY AGREED THAT EVEN .
THE ARBITRATION CLAUSE WOULD NO~ ✓
SURVIVE THE MOU. HENCE, RESPONDENT CAN()
Decision 18 G.R. No. 211044

NO LONGER RELY ON SAID ARBITRATION

CLAUSE AND CANNOT COMPEL THE NET
GROUP TO ARBITRATE.

THE NET GROUP IS ENTITLED TO THE FULL

AMOUNT OF THE DUE DILIGENCE L/C.

Discussion

Tlte Ejfectivity of the

Arbitration Clause has
lapsed. Thus, respondent
cannot compel THE NET
GROUP to arbitrate.

xxxx

THE NET GROUP is

entitled to the f u/1 amount of
the Due Diligence L/C.

18. The language of the MOU does not expressly and

categorically deem the Due Diligence L/C forfeited in favor
of THE NET GROUP. It appears, however, that Section
5(a)(i) of the MOU entitles THE NET GROUP to the Due
Diligence L/C as liquidated damages, in the event that
respondent fails to sign the MOA on 31 March 2007.

19. But respondent, at the time it initially confirmed the

MOU to have lapsed, requested for the return of the amount
of the Due Diligence L/C. Respondent informed THE NET
GROUP that a return of the amount was necessary since the
Due Diligence L/C, for all intents and purposes, vested
upon THE NET GROUP.

20. THE NET GROUP, however, believes that

respondent, under the MOU, is not entitled to the return of
the monetary equivalent of the Due Diligence L/C. For
THE NET GROUP, the term used in the MOU, "Due
Diligence L/C," describes its true intention, it is
respondent's payment to THE NET GROUP for gaining the
right to look into, evaluate, study a competitor's books,
trade information and secrets. This is further supported by
the parties' intention to consider the Due Diligence L/C to
represent liquidated damages due to THE NET GROUP in
the event no implementing agreement is signed by 31
March 2007.

21. Yet the ambivalent language of the MOU causes

THE NET GROUP to be cautious as it is exposed to
charges of misappropriation in the event that THE NET
GROUP's interpretation of the MOU is mistaken. TI-IE
NET GROUP is even willing to consign the amount of
P48,000,000.00 (US$ l ,OOO,OOO.OO) with this Honorable
Court until the matter is finally resolved. Accordingly, TH~ ✓
NET GROUP also comes to this Honorable Court for a
0
 Decision 19 G.R. No. 211044

judicial declaration that it is already entitled to the Due

Diligence L/C. 57 (Citations omitted; emphasis in the
original.)

It is apparent in the petition that The Net Group is merely seeking for
the interpretation of the MOU on two counts: (i) the applicability of the
Arbitration Clause vis-a-vis the Effectivity Clause; and (ii) the nature of the
Due Diligence L/C - whether The Net Group may automatically appropriate
it under the tenor of the MOU. There is nothing in the petition which
connotes breach of contract. In so far as the wordings of the petition are
concerned, its allegations properly fall within the RTC's jurisdiction over a
petition for declaratory relief.

At any rate, the interpretation as to the actual meaning of the Due

Diligence L/C in the MOU falls within the ambit of declaratory relief,
regardless of whether the ruling may be granted in favor of The Net Group.

III.

The actual nature of the "Due Diligence L/C" may be determined in

the wordings of the MOU.

The Net Group's prayer to be declared entitled to Due Diligence L/C

is founded on Clause 5 in relation to Clause 4 and the Transaction Timeline
allowing the "drawdown of the Due Diligence L/C (in case no MOA is
signed)" no later than March 31, 2007. The doubtful provisions of Clauses 4
and 5 of the MOU state:

4. Due Diligence. Ascendas, through its authorized

representatives, shall conduct the Due Diligence
Audit during the Due Diligence Period provided in
Annex "C" of this MOU. Upon commencement of the
Due Diligence Period and subject to the presentation
by Ascendas of the Due Diligence L/C to The Net
Group, The Net Group shall make available to
Ascendas all relevant information and data as may be
requested by Ascendas from time to time during the
Due Diligence Audit concerning the Assets for the
purpose of confirming all information contained in
the Declaration Statement and other relevant records
of the concerned Net Corporation.xx x

xxxx

5. Security. By way of security for full compliance by

both Parties with the provisions of this MOU and/or
the Definitive Agreements, each Party agrees to issue
or grant the following security to the other Party:

57
Rollo, pp.231-237.
 Decision 20 G.R. No. 211044

a. Within five (5) business days upon signing of this

MOU, Ascendas shall deliver to The Net Group
the Due Diligence L/C in the amount of
US$1,000,000.00, in the form acceptable to The
Net Group, to be issued by a reputable bank duly
licensed to conduct business within the
Philippines and acceptable to The Net Group.

1. If Ascendas fails or refuses to sign the MOA

without any justifiable reason, including but
not limited to an instance when: ( 1) it is given a
Due Diligence report showing no Relevant
Findings; or (2) in case there are Relevant
Findings in the Due Diligence report and The
Net Group issues a certification that it shall
cure and/or remedy all such Relevant Findings
in accordance with Clause 4(b) and/or as
agreed upon by the Parties, then The Net
Group shall be authorized to draw upon the
Due Diligence L/C upon the signing of the
MOA or on March 31, 2007, whichever comes
earlier; provided, however, that The Net Group
submits a certification to the issuing bank that
it is willing to execute the MOA upon
submission by Ascendas to The Net Group of
the Transaction Price L/C, without need of
presenting or submitting a copy of the MOA to
the said issuing bank. The amount so drawn by
The Net Group shall serve as liquidated
damages in its favor. 58 (Emphasis in the
original.)

Also settled in this jurisdiction is the contract interpretation rule that

"[the contract's] provisions should not be read in isolation but in relation to
each other and in their entirety so as to render them effective, having in mind
the intention of the parties and the purpose to be achieved. The various
stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly." 59
Instead of resorting to extrinsic factors to determine the intent of the parties,
the court should first examine the contract in its entirety.

A reading of Clause 5 the MOU allows two interpretations: (i) The

Net Group will only be entitled to draw on the Due Diligence L/C should
Ascendas fail or refuse to sign the MOA without any justifiable reason: in
which case the Due Diligence L/C servef. as a penalty for Ascendas' breach;
and (ii) Ascendas has the option not to sign the MOA, regardless of its
reasons, provided that The Net Group will be allowed to draw on the Due
Diligence L/C, in which case Ascendas is not in breach but is merely
exercising its option to perform another prestation by paying the Due

·'
59
8
Rollo,ppr! 83 86.
Juico v. ' · a Banking Corporatio11. <,.R. Nr, l 87f,78, April 10, 2013, 695 SCRA 520, 538. Citation
omitted.
 Decision 21 G.R. No. 211044

Diligence L/C instead of proceeding with the execution of the MOA. If

Clause 5 will be read together with Clause 4 and the Transaction Timeline,
the actual intention of the parties will be revealed.

Clause 4 of the MOU states the purpose for which the Due Diligence
L/C: this serves as remuneration for The Net Group for allowing Ascendas
to audit its business records. The RTC's observation on this matter is
convmcmg:

On the entitlement to and as to the true nature of the

US$1,000,000.00, this Court so holds that the said amount
is in the nature of a fee given to petitioners for giving the
respondent the right to look into and evaluate their books,
trade information and secrets, and not liquidated damages.

From the name given to it, "Due Diligence L/C," it is

descriptive of the parties' intention to treat the same as
payment to petitioners to conduct due diligence. As
stipulated by the parties, "Due Diligence L/C," under the
definition of terms in their MOU, has reference to section
5(a), which provides that the said amount shall be given to
petitioners within 5 days from the signing of the MOU. The
obligation of respondent to give the amount to petitioners
within 5 days from the signing of the MOU shows the
intent of the parties to treat it as payment to petitioners for
the conduct of due diligence, and not as a penalty in the
fom1 of liquidated damages.

x x x Since petitioners are already given the Due

Diligence L/C upon the signing of the MOU and because
they are entitled to a drawdown no later than March 31,
2007 in case no MOA is signed, entitlement to the amount
is not dependent on whether a breach of contract
occurred. 60

The Due Diligence L/C under Section 5(a) serves as an "exit" clause
which allows the parties to terminate the deal. 61 In mergers and acquisitions,
this concept is commonly referred to as break-up or walk-away fees, if it is
the seller who terminated the deal, or reverse break-up fees, if it is the buyer
who failed to proceed with the agreement. The clause on break-up fees
allows the buyer to recoup some of its expenses if the seller walks away or
terminates the deal because of change in circumstances or the desire to
accept a better offer from another buyer. On the other hand, the reciprocal
clause, or the clause on reverse break--up fees, protects the seller by covering
the latter's expenses should the buyer walk away or default on a preliminary
obligation or condition to closing. 62

60
Rollo, pp. 354-355.
61
Yves Quintin, M & (and) A Contracts in th<! A:nerican Financial Maelstrom: HavtRev rse Break-up
Fees and Mac Clauses Turned Them into Aferc Options, 2008 lnt'I Bus. L.J. 275 (2008)
62
Andrew J. Sherman, Mergers & Acq111s1tions From A Iv Z, 52 & 57, 3rd Ed.(2010).
 Decision 22 G.R. No. 211044

To our mind, the RTC's interpretation is thus, more in consonance

with the parties' intention as to the real nature of the Due Diligence L/C. It is
a remuneration to The Net Group for the expenses it incurred when it opened
its business to Ascendas' audit should the latter opt out by not signing the
MOA.

IV.

Lastly, we agree with the RTC that the conflict between the parties
may be addressed in a summary judgment pursuant to Rule 35 of the Rules
of Court, to wit:

Sec. 1. Summary .Judgment for claimant. - A party

seeking to recover upon a claim, counterclaim, or cross-
claim or to obtain a declaratory relief may, at any time after
the pleading in answer thereto has been served, move with
supporting affidavits, depositions or admissions for
a summary judgment in his favor upon all or any part
thereof.

Under this prov1s10n, a summary judgment may be used to

expedite the proceedings and to avoid useless delays, when the pleadings,
depositions, affidavits or admissions on file show that there exists no
genuine question or issue of fact in the case, and the moving party is
entitled to a judgment as a matter oflaw. 63

Here, the parties merely presented issues as to the interpretation of

the MOU. There was therefore no genuine question or issue of fact that
must be resolved using the presentation of evidence. At most, the Court
may rule on the interpretation of the contract by simply reviewing its
terms.

WHEREFORE, the petition is GRANTED. The assailed

Decision dated April 3, 2012 and Resolution dated January 27, 2014 of
the Court of Appeals are hereby SET ASIDE.

The Order of the R TC dated December 14, 2007 on the summary

judgment in favor of petitioners is RETNSTA TED. No costs.

SO ORDERED.

~
FRANCIS H. .JARDELEZA
Acting fVorking Chairperson
Associate Justice

6
' Mortel v. Brundige, G.R. No. 190236, Jurx 15, ~1 ( 1 15, 757 SCRA 432, 438.
 Decision 23 G.R. No. 211044

WE CONCUR:

Chairperson

(On Official Leave)

MARIANO C. DEL CASTILLO
Associate Justice

/L~-~
VA!!ciate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I hereby

certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court's Division.