La Naval Drug Corporation vs CA

Facts: Yao leased a commercial building to La Naval Drug Co. But later they had disagreement on the
rental rate, to resolve the controversy, the parties agreed to submit it to arbitration. Yao appointed his
arbitrator, while La Naval chose its arbitrator. The confirmation of the appointment of third arbitrator
(Tupang), was held in abeyance because La Naval instructed its lawyer to defer the same until its Board
of Directors could convene and approve Tupang's appointment. Yao believed that La Naval intended to
delay the arbitration proceedings hence, he filed Special Case No. 6024 for Enforcement of Arbitration
with Damages.

The RTC ordered the parties to submit their position papers on the issue as to whether or not Yao's
claim for damages may be litigated upon in the summary proceeding for enforcement of arbitration
agreement. In moving for reconsideration of the said Order, La Naval argued that in Special Case No.
6024, the RTC sits as a special court exercising limited jurisdiction and is not competent to act on Yao's
claim for damages, which poses an issue litigable in an ordinary civil action. But the RTC was not
persuaded by La Naval's submission. It denied the motion for reconsideration. While the appellate court
has agreed with La Naval 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.

Issue: Whether or not the RTC has jurisdiction rule of the subject matter (claim for damages)?

Held: NO. Where the court has no jurisdiction over the subject matter, the action shall be dismissed. This
defense may be interposed at any time, during appeal or even after final judgment. This kind of
jurisdiction is conferred by law and not within the courts, let alone the parties, to themselves determine
or conveniently set aside. (legislative in nature)
The arbitration law explicitly confines the court's authority and to only rule upon the issue “whether or
not there is an agreement in writing providing for arbitration?”
If yes, the court shall "summarily directing the parties to proceed with the arbitration in accordance with
the terms thereof.“ If no, "the proceeding shall be dismissed.“ The proceedings are summary in nature.
It was error on the part of the RTC to rule upon the claim of damages of Yao. The arbitration law
explicitly limited its jurisdiction as to only determine the existence of an agreement to enter into
arbitration. This subject matter, the claim for damages, may be ventilated in separate regular
proceedings called for the purpose.