In a recent case(1) the Supreme Court held that planters' associations had no legal basis to demand arbitration when it was their members – and not the associations themselves – which were the parties to milling contracts containing an arbitration clause. The court ruled that the fact that the associations were organised for the purpose of advancing the interests and welfare of their members did not necessarily mean that they had the right and authority to represent their members in arbitration proceedings.
Several sugar planters entered into milling contracts with sugar milling companies. The contracts stated that:
- 34% of the sugar and molasses produced from milling sugarcane belonged to the milling companies as compensation;
- 65% thereof would go to the planters; and
- the remaining 1% would go to the association to which the planters belonged. This 1% was to be used by the association for any purpose that it deemed fit for its members. However, if the planters were not members of any association, then the 1% would revert to the milling company.
The contracts also provided that the milling companies could not, during the life of the milling contract, execute any agreement that would provide additional or better benefits to a planter without the written consent of the association, except to planters whose plantations were situated in areas at least 30 kilometres beyond the mill. Any and all disputes arising between the parties concerning contracts had to be submitted to arbitration.
In 1999 the associations filed an application in court for arbitration without impleading their individual member planters. The associations claimed that the milling companies violated the milling contract when they gave the 1% share to independent planters who did not belong to any association instead of that share reverting to the milling companies. The associations contended that the milling companies accorded the independent planters additional benefits and thus asked that an order be issued directing the parties to commence arbitration.
The milling companies moved to dismiss because the associations had no milling contract – and therefore no arbitration agreement – with them. It was the individual planters, not the associations, which were the signatories to the milling contracts.
The key issue was whether planters' associations had legal standing to file suit against, or demand arbitration from, the milling companies.
Planters' associations are incorporated entities with judicial personalities that are separate and distinct from their members. Only the member planters – and not the associations – signed the milling contracts which contained the arbitration agreement. Not being parties to the milling contracts which contained the arbitration agreement, the planters' associations had no agreement to arbitrate with the milling companies.
It was argued that the associations could sue the milling companies and seek arbitration because even if they were not signatories to the milling contracts, they were representatives of the planters. However, there was no provision in the milling contracts stating that the planters had authorised their respective associations to represent them in a dispute. Moreover, under Philippine procedural rules, the associations could not initiate court action or arbitration proceedings in their own name, as they had done. Every action, rather had to be prosecuted in the name of the real party in interest.
The associations further argued that they could demand and sue for arbitration independent of the planters because the milling contracts were contracts pour autrui (ie, conferring a benefit on a third-party beneficiary). However, a reading of the pertinent provisions of the milling contracts indicated that even if the 1% was given to the associations, it did not redound to the benefit of the associations, but was intended to be used for their member planters. Besides, it was stipulated that the 1% would revert back to the milling companies if the contracting planters were not affiliated with any recognised association.
For further information on this topic please contact Eduardo de los Angeles at Romulo Mabanta Buenaventura Sayoc & De Los Angeles by telephone (+63 2 848 0114), fax (+63 2 815 3172) or email ([email protected]).
(1) Ormoc Sugarcane Planters' Association Inc v Court of Appeals, 596 SCRA 630.