LA NAVAL DRUG CORPORATION, PETITIONER, VS. THE HONORABLE COURT OF APPEALS  AND WILSON C. YAO, RESPONDENTS.

In an effort to declog the courts of an increasing volume of work
load and, most importantly, in order to accord contending parties with
expeditious alternatives for settling disputes, the law authorizes, indeed
encourages, out of court settlements or adjudications. Compromises and arbitration are widely known
and used as such acceptable methods of resolving adversarial claims.

Arbitrations, in particular, is governed by a special law,
Republic Act 876, suppletory to which are laws and rules of general application. This case before us concerns the
jurisdiction of courts, in relation to the provisions of Section 6 of Republic
Act No. 876, and, in that respect, the applicability of the doctrine of
estoppel. The law (R.A. 876),
specifically Section 6 thereof, provides:

“SEC. 6. Hearing by
court. – A party aggrieved by the failure, neglect or refusal of another to
perform under an agreement in writing providing for arbitration may petition
the court for an order directing that such arbitration proceed in the manner
provided for in such agreement. Five
days notice in writing of the hearing of such application shall be served
either personally or by registered mail upon the party in default. The court shall hear the parties, and upon
being satisfied that the making of the agreement or such failure to comply
therewith is not in issue, shall make an order directing the parties to proceed
to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be
in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in
writing providing for arbitration was made, or that there is no default in the
proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision
for arbitration was made and there is a default in proceeding thereunder, an
order shall be made summarily directing the parties to proceed with the
arbitration in accordance with the terms thereof.

“The court shall decide all motions, petitions or application filed under the provisions of
this Act, within ten days after such motions, petitions, or applications have
been heard by it.”

In chronology, the events that have led to the case at bench are
detailed in the appealed decision of respondent appellate court, which we here
reproduce in toto.

“Original action for Certiorari and Prohibition for
Annulment of the Orders, dated April 26, 1990 and June 22, 1990, respectively,
of Branch LXI, Regional Trial Court, Angeles City, in Special Case No. 6024 for
Enforcement of ARBITRATION Agreement with Damages. Petitioner assails that portion of subject Order of April 26,
1990, stating as follows:

“`(1) Petitioner’s claim for damages predicated
on alleged tortuous acts of respondents La Naval Drug corporation such as their
alleged interference and dilatory tactics, etc. in the implementation of the
Arbitration Agreement in the Contract of Lease, thereby compelling among others
the petitioner to go to Court for redress; and respondent La Naval Drug
Corporation’s counterclaim for damages may be entertained by this Court in a
hearing – not summary – for the purpose, under the Rules of Court.

‘(2) a preliminary hearing of the special and
affirmative defense to show that Petitioner has no cause of action against respondent’s
claim for damages is denied; a resolution on this issue is deferred after the
trial of the case on the merits.’

And challenges the Order of June 22, 1990
denying its motion for reconsideration of the said earlier Order.

“From the petition below of respondent Yao, it appears that he
is the present owner of a commercial building a portion of which is leased to
petitioner under a contract of lease executed on December 23, 1983 with the
former owner thereof, La Proveedora, Inc., which contract expired on April 30,
1989. However, petitioner exercised its
option to lease the same building for another five years. But petitioner and respondent Yao disagreed
on the rental rate, and to resolve the controversy, the latter, thru written
notices to the former, expressed his intention to submit their disagreement to
arbitration, in accordance with Republic Act 876, otherwise known as the
Arbitration Law, and paragraph 7 of their lease contract, providing that:

“‘7. x x x Should the
parties fail to agree on the rate of rentals, the same shall be submitted to a
group of Arbitrators composed of three (3) members, one to be appointed by
LESSOR, another by LESSEE and the third one to be agreed upon by the two
arbitrators previously chosen and the parties hereto shall submit to the
decision of the arbitrators.’

“Thus, on May 6, 1989, respondent Yao appointed Domingo
Alamarez, Jr. as his arbitrator, while on June 5, 1989, petitioner chose Atty.
Casiano Sabile as its arbitrator. The
confirmation of the appointment of Aurelio Tupang, as third arbitrator, was
held in abeyance because petitioner instructed Atty. Sabile to defer the same
until its Board of Directors could convene and approve Tupang’s
appointment. Respondent Yao theorizes
that this was petitioner’s design to delay the arbitration proceedings, in
violation of the Arbitration Law, and the governing stipulations of their
contract of lease.

“On the basis of the aforesaid allegations, respondent Yao
prayed that after summary hearing pursuant to Section 6 of the Arbitration Law,
Atty. Casiano Sabile and Domingo Alamarez be directed to proceed with the
arbitration in accordance with Section 7 of subject Contract of Lease and the
applicable provisions of the Arbitration Law, by appointing and confirming the
appointment of the Third Arbitrator; and that the Board of Three Arbitrators be
ordered to immediately convene and resolve the controversy before it, pursuant
to Section 12 and the succeeding sections of the Arbitration Law. (Annex ‘A,’ Petition.)

“In its Answer with Counterclaim (Annex ‘C,’ Petition),
petitioner here specifically denied the averments of the petition below;
theorizing that such petition is premature since respondent Yao has not yet
formally required arbitrators Alamarez and Sabile to agree on the third
arbitrator, within ten (10) days from notice, and that the delay in the
arbitration was due to respondent Yao’s failure to perform what is incumbent
upon him, of notifying and thereafter, requiring both arbitrators to appoint
the third member of the Board of Arbitrators. According to petitioner, it actually gave arbitrators Sabile and
Alamarez a free hand in choosing the third arbitrator; and, therefore,
respondent Yao has no cause of action against it (petitioner). By way of Counterclaim, petitioner alleged
that it suffered actual damages of P100,000.00; and incurred attorney’s fees of
P50,000.00, plus P500.00 for every court appearance of its counsel.

“On October 20, 1989, respondent Yao filed an amended petition
for ‘Enforcement of Arbitration Agreement with Damages;’ praying that
petitioner be ordered to pay interest on the unpaid rents, at the prevailing
rate of interest in commercial banks, and exemplary damages of at least
P250,000.00.

“On October 24, 1989, despite petitioner’s opposition to the
motion to admit the amended petition, the respondent court admitted the same.

“On October 31, 1989, petitioner answered the amended
petition; contending, among others, that the amended petition should be
dismissed on the ground of non-­payment of the requisite filing fees therefor;
and it being in the nature of an ordinary civil action, a full blown and
regular trial is necessary; so that respondent Yao’s proposition for a summary
hearing of the arbitration issue and separate trial for his claim for damages
is procedurally untenable and implausible.

“Invoking Section 5, Rule 16 of the Rules of Court, petitioner
presented a ‘Motion to Set Case for Preliminary Hearing’ of its special and
affirmative defenses, which are grounds for a motion to dismiss.

“In its Order of November 14, 1989, the respondent court
announced that the two arbitrators chose Mrs. Eloisa R. Narciso as the third
arbitrator. And on November 21, 1989,
it ordered the parties to submit their position papers on the issue as to
whether or not respondent Yao’s claim for damages may be litigated upon in the
summary proceeding for enforcement of arbitration agreement. It likewise informed the parties that
petitioner’s ‘Motion to Set Case for Preliminary Hearing’ of Special and
Affirmative Defenses would be resolved together with the question of damages.

“On April 26, 1990, the aforequoted assailed Order
issued. In moving for reconsideration
of the said Order, petitioner argued that in Special Case No. 6024, the
respondent court sits as a special court exercising limited jurisdiction and is
not competent to act on respondent Yao’s claim for damages, which poses an
issue litigable in an ordinary civil action. But the respondent court was not persuaded by petitioner’s
submission. On June 22, 1990, it denied
the motion for reconsideration.” (Rollo, pp. 89-93).

While the appellate court has agreed with petitioner that, under
Section 6 of Republic Act No. 876, a court, acting within the limits of its special
jurisdiction, may in this case solely determine the issue of whether the
litigants should proceed or not to arbitration, it, however, considered
petitioner in estoppel from questioning the competence of the court to
additionally hear and decide in the summary proceedings private respondent’s
claim for damages, it (petitioner) having itself filed similarly its own
counterclaim with the court a quo.

It is hardly disputable that when a court is called upon to
exercise limited and special jurisdiction, that court cannot stray to matters
outside the area of its declared authority or beyond what has been expressly
invested by law (Elumbaring vs. Elumbaring, 12 Phil. 384, 387), particularly,
such as in this instance, where the proceedings are summary in nature.

Prefatorily, recalling the distinctions, pertinent to the case,
between the court’s lack of jurisdiction over the person of the
defendant, on the one hand, and its lack of jurisdiction over the subject
matter or the nature of the action, upon the other hand, should
be useful.

The lack of jurisdiction over the person of the defendant may be
waived either expressly or impliedly. When a defendant voluntarily appears, he is deemed to have submitted
himself to the jurisdiction of the court. If he so wishes not to waive this defense, he must do so seasonably by
motion for the purpose of objecting to the jurisdiction of the court;
otherwise, he shall be deemed to have submitted himself to that
jurisdiction. The decisions promulgated
heretofore by this Court would likewise seemingly apply estoppel to bar the
defendant from pursuing that defense by alleging in his answer any other issue
for dismissing the action.

A citation of a few of our decisions might be apropos.

In Wang Laboratories, Inc., vs. Mendoza (156 SCRA 44), this Court
has ruled that if the defendant, besides setting up in a motion to dismiss his
objection to the jurisdiction of the court, alleges at the same time any other
ground for dismissing the action, he is deemed to have submitted himself to the
jurisdiction of the court. In the
process, it has equated the matter to a situation where, such as in Immaculata
vs. Judge Navarro, et al. (146 SCRA 5), the defendant invokes an affirmative
relief against his opponent.

In De Midgely vs. Judge Ferandos (64 SCRA 23, 31), the Court
elaborated thusly:

“We are of the opinion that the lower court has acquired
jurisdiction over the person of Mrs. Midgely by reason of her voluntary
appearance. The reservation in her
motion to dismiss that she was making a special appearance to contest the
court’s jurisdiction over her person may be disregarded.

“It may be disregarded because it was nullified by the fact
that in her motion to dismiss she relied not only on the ground of lack of
jurisdiction over her person but also on the ground that there was no showing
that earnest efforts were exerted to compromise the case and because she prayed
‘for such other relief as’ may be deemed ‘appropriate and proper.’

“x x x                                                                                     x
x x                                                                                         x
x x.

“When the appearance is by motion for the purpose of objecting
to the jurisdiction of the court over the person, it must be for the sole and
separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose than
to object to the jurisdiction of the court over his person, he thereby submits
himself to the jurisdiction of the court. A special appearance by motion made for the purpose of objecting to the
jurisdiction of the court over the person will be held to be a general
appearance, if the party in said motion should, for example, ask for a
dismissal of the action upon the further ground that the court had no
jurisdiction over the subject matter. (Syllabus, Flores vs. Zurbito,
supra, at page 751. That rule was
followed in Ocampo vs. Mina and Arejola, 41 Phil. 308).”

The justification for the rule was
expressed in Republic vs. Ker and Company, Ltd. (18 SCRA 207, 213-­214), in
this wise:

“We observe that the
motion to dismiss filed on April 14, 1962, aside from disputing the
lower court’s jurisdiction over defendant’s person, prayed for dismissal of the
complaint on the ground that plaintiff’s cause of action has prescribed. By interposing
such second ground in its motion to dismiss, Ker & Co., Ltd. availed of an affirmative
defense on the basis of which it prayed the court to resolve controversy in its
favor. For the court to validly decide
the said plea of defendant Ker & Co.,
Ltd., it necessarily had to acquire jurisdiction upon the latter’s
person, who, being the proponent of the affirmative defense, should be deemed
to have abandoned its special appearance and voluntarily submitted itself to
the jurisdiction of the court.

“Voluntary appearance cures defects of summons, if any. Such defect, if any, was further cured when
defendant filed its answer to the complaint. A defendant can not be permitted to speculate upon the judgment of the
court by objecting to the court’s jurisdiction over its person if the judgment
is adverse to it, and acceding to jurisdiction over its person if and when the
judgment sustains its defenses.”

The doctrine of estoppel is predicated on, and has its origin in,
equity which, broadly defined, is justice according to natural law and
right. It is a principle intended to
avoid a clear case of injustice. The
term is hardly distinguishable from a waiver of right. Estoppel, like its said counterpart, must be
unequivocal and intentional for, when misapplied, it can easily become a most
convenient and effective means of injustice. Estoppel is not understood to be a principle that, as a rule, should
prevalently apply but, such as it
concededly is, as a mere exception from the standard legal norms of general
application that can be invoked only in highly exceptional and justifiable
cases.

Tested by the above criteria, the Court sees it propitious to
re-examine specifically the question of whether or not the submission of other
issues in a motion to dismiss, or of an
affirmative defense (as distinguished from an affirmative relief) in an answer,
would necessarily foreclose, and have the effect of a waiver of, the right of a
defendant to set up the court’s lack of jurisdiction over the person of the
defendant.

Not inevitably.

Section 1, Rule 16, of the Rules of Court, provides that a motion
to dismiss may be made on the following grounds:

“(a)    That the court has no
jurisdiction over the person of the defendant or over the subject of the action
or suit;

“(b)    That the court has no
jurisdiction over the nature of the action or suit;

“(c)    The venue is
improperly laid;

“(d)    That the plaintiff has
no legal capacity to sue;

“(e)    That there is another
action pending between the same parties for the same cause;

“(f)     That the cause of
action is barred by a prior judgment or by statute of limitations;

“(g)    That the complaint
states no cause of action;

“(h)    That the claim or
demand set forth in the plaintiff’s pleading has been paid, waived, abandoned,
or otherwise extinguished;

“(i)     That the claim on
which the action or suit is founded is unenforceable under the provisions of
the statute of frauds;

“(j)     That the suit is
between members of the same family and no earnest efforts towards a compromise
have been made.”

Any ground for dismissal in a motion to
dismiss, except improper venue, may, as further set forth in Section 5 of the same
rule, be pleaded as an affirmative defense and a preliminary hearing may be had
thereon as if a motion to dismiss had been filed. An answer itself contains the negative, as well as affirmative,
defenses upon which the defendant may rely (Section 4, Rule 6, Rules of
Court). A negative defense denies the
material facts averred in the complaint essential to establish the plaintiff’s
cause of action, while an affirmative defense is an allegation of a new matter
which, while admitting the material allegations of the complaint, would,
nevertheless, prevent or bar recovery by the plaintiff. Inclusive of these defenses are those
mentioned in Rule 16 of the Rules of Court which would permit the filing of a
motion to dismiss.

In the same manner that a plaintiff may assert two or more causes
of action in a court suit, a defendant is likewise expressly allowed, under
Section 2, Rule 8, of the Rules of Court, to put up his own defenses
alternatively or even hypothetically. Indeed, under Section 2, Rule 9, of the Rules of Court, defenses and
objections not pleaded either in a motion to dismiss or in an answer, except
for the failure to state a cause of action, are deemed waived. We take this to mean that a defendant may,
in fact, feel enjoined to set up, along with his objection to the court’s
jurisdiction over his person, all other possible defenses. It thus appears that it is not the
invocation of any of such defenses, but the failure to so raise them, that can
result in waiver or estoppel. By
defenses, of course, we refer to the grounds provided for in Rule 16 of the
Rules of Court that must be asserted in a motion to dismiss or by way of
affirmative defenses in an answer.

Mindful of the foregoing, in Signetics Corporation vs. Court of
Appeals and Freuhauf Electronics Phils., Inc. (225 SCRA 737, 738), we lately
ruled:

“This is not to say, however, that the petitioner’s right to
question the jurisdiction of the court over its person is now to be deemed a
foreclosed matter. If it is true, as
Signetics claims, that its only involvement in the Philippines was through a
passive investment in Sigfil, which it even later disposed of, and that TEAM
Pacific is not its agent, then it cannot really be said to be doing business in
the Philippines. It is a defense,
however, that requires the contravention of the allegations of the complaint,
as well as a full ventilation, in effect, of the main merits of the case, which
should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner
as to whether a foreign corporation which has done business in the country, but
which has ceased to do business at the time of the filing of a complaint, can
still be made to answer for a cause of action which accrued while it was doing
business, is another matter that would
yet have to await the reception and admission of evidence. Since these points have seasonably been
raised by the petitioner, there should be no real cause for what may
understandably be its apprehension, i.e., that by its participation during the
trial on the merits, it may, absent an invocation of separate or independent
reliefs of its own, be considered to have voluntarily submitted itself to the
court’s jurisdiction.”

Lack of jurisdiction over the subject matter of the suit is yet
another matter. Whenever it appears
that the court has no jurisdiction over the subject matter, the action shall be
dismissed (Section 2, Rule 9, Rules of Court). This defense may be interposed at any time, during appeal (Roxas vs.
Rafferty, 37 Phil. 957) or even after final judgment (Cruzcosa vs. Judge
Concepcion, et al., 101 Phil. 146). Such is understandable, as this kind of jurisdiction is conferred by law
and not within the courts, let alone the parties, to themselves determine or
conveniently set aside. In People vs.
Casiano (111 Phil. 73, 93?94), this Court, on the issue of estoppel,
held:

“The operation of the principle of estoppel on the question of
jurisdiction seemingly depends upon whether the lower court actually had
jurisdiction or not. If it had no
jurisdiction, but the case was tried and decided upon the theory that it had
jurisdiction, the parties are not barred, on appeal, from assailing such
jurisdiction, for the same ‘must exist as a matter of law, and may not be
conferred by consent of the parties or by estoppel’ (5 C.J.S., 861-863). However, if the lower court had
jurisdiction, and the case was heard and decided upon a given theory, such, for
instance, as that the court had no jurisdiction, the party who induced it to
adopt such theory will not be permitted, on appeal, to assume an inconsistent
position–that the lower court had jurisdiction. Here, the principle of estoppel applies. The rule that jurisdiction is conferred by
law, and does not depend upon the will of the parties, has no bearing
thereon.”

The rule was reiterated in Calimlim vs. Ramirez (118 SCRA 399,
406), and quite recently, in Southeast Asian Fisheries Development
Center-Aquaculture Department vs. National Labor Relations Commission (206 SCRA
283).

Jurisdiction over the nature of the action, in concept, differs
from jurisdiction over the subject matter. Illustrated, lack of jurisdiction over the nature of the action is the
situation that arises when a court, which ordinarily would have the authority
and competence to take a case, is rendered without it either because a special
law has limited the exercise of its normal jurisdiction on a particular matter
or because the type of action has been reposed by law in certain other courts
or quasi-judicial agencies for determination. Nevertheless, it can hardly be questioned
that the rules relating to the effects of want of jurisdiction over the subject
matter should apply with equal vigor to cases where the court is similarly bereft
of jurisdiction over the nature of the action.

In summary, it is our considered view, as we now so hereby
express, that –

(1)  
Jurisdiction over the person must be seasonably raised, i.e.,
that it is pleaded in a motion to dismiss or by way of an affirmative defense
in an answer. Voluntary appearance
shall be deemed a waiver of this defense. The assertion, however, of affirmative defenses shall not be construed
as an estoppel or as a waiver of such defense.

(2)  
Where the court itself clearly has no jurisdiction over the
subject matter or the nature of the action, the invocation of this defense may
be done at any time. It is neither for
the courts nor the parties to violate or disregard that rule, let alone to
confer that jurisdiction, this matter being legislative in character. Barring highly meritorious and exceptional
circumstances, such as hereinbefore exemplified, neither estoppel nor waiver
shall apply.

In the case at bench, the want of jurisdiction by the court is
indisputable, given the nature of the controversy. The arbitration law explicitly confines the court’s authority
only to pass upon the issue of whether there is or there is no agreement in
writing providing for arbitration. In
the affirmative, the statute ordains that the court shall issue an order
“summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof.” If the court, upon the other hand,
finds that no such agreement exists, “the proceeding shall be
dismissed.” The proceedings are summary in nature.

All considered, the court a quo must then
refrain from taking up the claims of the contending parties for damages, which,
upon the other hand, may be ventilated in separate regular proceedings at an
opportune time and venue. The
circumstances obtaining in this case are far, we hold, from justifying the
application of estoppel against either party.

WHEREFORE, the decision of the Court of Appeals and the
orders of the trial court in question are SET ASIDE. The court a quo, in the instant proceedings, is ordered
to DESIST from further hearing private respondent’s claim, as well as
petitioner’s counterclaim, for damages. No costs.

SO ORDERED.

Narvasa, C.J., Cruz, Padilla, Bidin, Regalado, Davide, Jr.,
Romero, Bellosillo, Melo, Quiason, Puno, Kapunan, and
Mendoza, JJ., concur.

Feliciano, J., concur except
that in respondent of penultimate paragraph in p. 17 and reserve his vote as to
compulsory counterclaims for damages.