G.R. No.

185582

February 29, 2012

TUNA PROCESSING, INC., Petitioner,

vs.
PHILIPPINE KINGFORD, INC., Respondent.
DECISION
PEREZ, J.:
Can a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the Philippines, sue here to
enforce a foreign arbitral award?
In this Petition for Review on Certiorari under Rule 45,1 petitioner Tuna Processing, Inc. (TPI), a foreign corporation not licensed to do business in
the Philippines, prays that the Resolution2 dated 21 November 2008 of the Regional Trial Court (RTC) of Makati City be declared void and the case
be remanded to the RTC for further proceedings. In the assailed Resolution, the RTC dismissed petitioners Petition for Confirmation, Recognition,
and Enforcement of Foreign Arbitral Award3 against respondent Philippine Kingford, Inc. (Kingford), a corporation duly organized and existing
under the laws of the Philippines,4 on the ground that petitioner lacked legal capacity to sue. 5
The Antecedents
On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the "licensor"), co-patentee of U.S. Patent No. 5,484,619, Philippine Letters
Patent No. 31138, and Indonesian Patent No. ID0003911 (collectively referred to as the "Yamaoka Patent"), 6 and five (5) Philippine tuna processors,
namely, Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc., and respondent Kingford
(collectively referred to as the "sponsors"/"licensees") 7 entered into a Memorandum of Agreement (MOA),8pertinent provisions of which read:
1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619, Philippine Patent No. 31138, and Indonesian Patent
No. ID0003911 xxx wishes to form an alliance with Sponsors for purposes of enforcing his three aforementioned patents, granting licenses
under those patents, and collecting royalties.
The Sponsors wish to be licensed under the aforementioned patents in order to practice the processes claimed in those patents in the United
States, the Philippines, and Indonesia, enforce those patents and collect royalties in conjunction with Licensor.
xxx
4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of Tuna Processors, Inc. ("TPI"), a corporation
established in the State of California, in order to implement the objectives of this Agreement.
5. Bank account. TPI shall open and maintain bank accounts in the United States, which will be used exclusively to deposit funds that it
will collect and to disburse cash it will be obligated to spend in connection with the implementation of this Agreement.
6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be assigned one share of TPI for the purpose of
being elected as member of the board of directors. The remaining shares of TPI shall be held by the Sponsors according to their respective
equity shares. 9
xxx
The parties likewise executed a Supplemental Memorandum of Agreement 10 dated 15 January 2003 and an Agreement to Amend Memorandum of
Agreement11 dated 14 July 2003.
Due to a series of events not mentioned in the petition, the licensees, including respondent Kingford, withdrew from petitioner TPI and
correspondingly reneged on their obligations.12 Petitioner submitted the dispute for arbitration before the International Centre for Dispute Resolution
in the State of California, United States and won the case against respondent. 13 Pertinent portions of the award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties, pursuant to the terms of this award, the total sum to be paid
by RESPONDENT KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT
HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).
(A) For breach of the MOA by not paying past due assessments, RESPONDENT KINGFORD shall payCLAIMANT the total sum
of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]
(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of theMOA, RESPONDENT
KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY
DOLLARS AND TWENTY CENTS ($271,490.20)[;]14 and
(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT, RESPONDENT KINGFORD shall
pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS
($1,250,000.00). xxx
xxx15
To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before the RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo M. Alameda.
At Branch 150, respondent Kingford filed a Motion to Dismiss. 16 After the court denied the motion for lack of merit, 17 respondent sought for the
inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion. 18 Judge Alameda inhibited himself notwithstanding
"[t]he unfounded allegations and unsubstantiated assertions in the motion."19 Judge Cedrick O. Ruiz of Branch 61, to which the case was re-raffled, in
turn, granted respondents Motion for Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the
Philippines.20
Petitioner TPI now seeks to nullify, in this instant Petition for Review on Certiorari under Rule 45, the order of the trial court dismissing its Petition
for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.
Issue
The core issue in this case is whether or not the court a quo was correct in so dismissing the petition on the ground of petitioners lack of legal
capacity to sue.
Our Ruling
The petition is impressed with merit.
The Corporation Code of the Philippines expressly provides:
Sec. 133. Doing business without a license. - No foreign corporation transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.
It is pursuant to the aforequoted provision that the court a quo dismissed the petition. Thus:
Herein plaintiff TPIs "Petition, etc." acknowledges that it "is a foreign corporation established in the State of California" and "was given the
exclusive right to license or sublicense the Yamaoka Patent" and "was assigned the exclusive right to enforce the said patent and collect
corresponding royalties" in the Philippines. TPI likewise admits that it does not have a license to do business in the Philippines.
There is no doubt, therefore, in the mind of this Court that TPI has been doing business in the Philippines, but sans a license to do so issued by the
concerned government agency of the Republic of the Philippines, when it collected royalties from "five (5) Philippine tuna processors[,] namely[,]
Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford,

Inc." This being the real situation, TPI cannot be permitted to maintain or intervene in any action, suit or proceedings in any court or administrative
agency of the Philippines." A priori, the "Petition, etc." extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue
in the Philippines.21
The petitioner counters, however, that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance
with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),22the Convention on the Recognition and Enforcement of Foreign Arbitral
Awards drafted during the United Nations Conference on International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL
Model Law on International Commercial Arbitration (Model Law),23 as none of these specifically requires that the party seeking for the enforcement
should have legal capacity to sue. It anchors its argument on the following:
In the present case, enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution Act of 2004], New York
Convention, or Model Law. It is for this reason that TPI has brought this matter before this most Honorable Court, as it [i]s imperative to clarify
whether the Philippines international obligations and State policy to strengthen arbitration as a means of dispute resolution may be defeated by
misplaced technical considerations not found in the relevant laws. 24
Simply put, how do we reconcile the provisions of the Corporation Code of the Philippines on one hand, and theAlternative Dispute Resolution Act
of 2004, the New York Convention and the Model Law on the other?
In several cases, this Court had the occasion to discuss the nature and applicability of the Corporation Code of the Philippines, a general law, viz-aviz other special laws. Thus, in Koruga v. Arcenas, Jr.,25 this Court rejected the application of the Corporation Code and applied the New Central
Bank Act. It ratiocinated:
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case with similar antecedents, we ruled that:
"The Corporation Code, however, is a general law applying to all types of corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation thereof. As between a general and special law, the latter shall prevail
generalia specialibus non derogant." (Emphasis supplied)26
Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential Agrarian Reform Council, 27 this Court held:
Without doubt, the Corporation Code is the general law providing for the formation, organization and regulation of private corporations. On the other
hand, RA 6657 is the special law on agrarian reform. As between a general and special law, the latter shall prevailgeneralia specialibus non
derogant.28
Following the same principle, the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act, as its title - An Act to Institutionalize
the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution, and for Other
Purposes - would suggest, is a law especially enacted "to actively promote party autonomy in the resolution of disputes or the freedom of the party to
make their own arrangements to resolve their disputes."29 It specifically provides exclusive grounds available to the party opposing an application for
recognition and enforcement of the arbitral award. 30
Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal law, applies in the instant petition, we do not see the need to discuss
compliance with international obligations under the New York Convention and theModel Law. After all, both already form part of the law.
In particular, the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically providing:
SEC. 42. Application of the New York Convention. - The New York Convention shall govern the recognition and enforcement of arbitral awards
covered by the said Convention.
xxx
SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration proceeding may oppose an application for recognition and
enforcement of the arbitral award in accordance with the procedural rules to be promulgated by the Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any other ground raised shall be disregarded by the regional trial court.
It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial Arbitration. International commercial arbitration shall be governed by the Model
Law on International Commercial Arbitration (the "Model Law") adopted by the United Nations Commission on International Trade Law on June 21,
1985 xxx."
Now, does a foreign corporation not licensed to do business in the Philippines have legal capacity to sue under the provisions of the Alternative
Dispute Resolution Act of 2004? We answer in the affirmative.
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and enforcement of the
arbitral award may raise only those grounds that were enumerated under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party
furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said
agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the
country where the award was made; or
(b) The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the
arbitration proceedings or was otherwise unable to present his case; or
(c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it
contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters
submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters
submitted to arbitration may be recognized and enforced; or
(d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or,
failing such agreement, was not in accordance with the law of the country where the arbitration took place; or
(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the
country in which, or under the law of which, that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and
enforcement is sought finds that:
(a) The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
(b) The recognition or enforcement of the award would be contrary to the public policy of that country.
Clearly, not one of these exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution,31 which was promulgated by the Supreme Court, likewise
support this position.
Rule 13.1 of the Special Rules provides that "[a]ny party to a foreign arbitration may petition the court to recognize and enforce a foreign arbitral
award." The contents of such petition are enumerated in Rule 13.5. 32 Capacity to sue is not included. Oppositely, in the Rule on local arbitral awards
or arbitrations in instances where "the place of arbitration is in the Philippines," 33 it is specifically required that a petition "to determine any question
concerning the existence, validity and enforceability of such arbitration agreement" 34 available to the parties before the commencement of arbitration
and/or a petition for "judicial relief from the ruling of the arbitral tribunal on a preliminary question upholding or declining its jurisdiction" 35 after
arbitration has already commenced should state "[t]he facts showing that the persons named as petitioner or respondent have legal capacity to sue or
be sued."36
Indeed, it is in the best interest of justice that in the enforecement of a foreign arbitral award, we deny availment by the losing party of the rule that
bars foreign corporations not licensed to do business in the Philippines from maintaining a suit in our courts. When a party enters into a contract

containing a foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the contract, by the arbitration and
by the result of arbitration, conceding thereby the capacity of the other party to enter into the contract, participate in the arbitration and cause the
implementation of the result. Although not on all fours with the instant case, also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset Privatization Trust v. Court of Appeals,37 to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested mechanism can
simply be ignored by an aggrieved party, one who, it must be stressed, voluntarily and actively participated in the arbitration proceedings from the
very beginning, it will destroy the very essence of mutuality inherent in consensual contracts. 38
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws and procedures,
but because Republic Act No. 9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that the Model Law, not the New York Convention,
governs the subject arbitral award,39 petitioner may still seek recognition and enforcement of the award in Philippine court, since the Model
Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement. 40
Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and enforcement of the foreign
arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004.
II
The remaining arguments of respondent Kingford are likewise unmeritorious.
First. There is no need to consider respondents contention that petitioner TPI improperly raised a question of fact when it posited that its act of
entering into a MOA should not be considered "doing business" in the Philippines for the purpose of determining capacity to sue. We reiterate that the
foreign corporations capacity to sue in the Philippines is not material insofar as the recognition and enforcement of a foreign arbitral award is
concerned.
Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21 November 2008 dismissing
the case. We have, time and again, ruled that the prior filing of a motion for reconsideration is not required in certiorari under Rule 45.41
Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which, under ordinary circumstances, warrants the outright
dismissal of the case,42 we opt to relax the rules following the pronouncement in Chua v. Ang,43 to wit:
[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving conflicting factual allegations. Cases which
depend on disputed facts for decision cannot be brought immediately before us as we are not triers of facts. 44 A strict application of this rule may be
excused when the reason behind the rule is not present in a case, as in the present case, where the issues are not factual but purely legal.1wphi1 In
these types of questions, this Court has the ultimate say so that we merely abbreviate the review process if we, because of the unique circumstances
of a case, choose to hear and decide the legal issues outright. 45
Moreover, the novelty and the paramount importance of the issue herein raised should be seriously considered. 46Surely, there is a need to take
cognizance of the case not only to guide the bench and the bar, but if only to strengthen arbitration as a means of dispute resolution, and uphold the
policy of the State embodied in theAlternative Dispute Resolution Act of 2004, to wit:
Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to actively promote party autonomy in the resolution of disputes or the
freedom of the party to make their own arrangements to resolve their disputes. Towards this end, the State shall encourage and actively promote the
use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial justice and declog court dockets. xxx
Fourth. As regards the issue on the validity and enforceability of the foreign arbitral award, we leave its determination to the court a quo where its
recognition and enforcement is being sought.
Fifth. Respondent claims that petitioner failed to furnish the court of origin a copy of the motion for time to file petition for review
on certiorari before the petition was filed with this Court.47 We, however, find petitioners reply in order. Thus:

26. Admittedly, reference to "Branch 67" in petitioner TPIs "Motion for Time to File a Petition for Review on Certiorari under Rule 45" is a
typographical error. As correctly pointed out by respondent Kingford, the order sought to be assailed originated from Regional Trial Court, Makati
City, Branch 61.
27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a copy of petitioner TPIs motion was received by the
Metropolitan Trial Court, Makati City, Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial Court, Makati City, Branch
61.48
All considered, petitioner TPI, although a foreign corporation not licensed to do business in the Philippines, is not, for that reason alone, precluded
from filing the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before a Philippine court.
WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial Court, Branch 61, Makati City in Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further proceedings.
SO ORDERED.

FACTS:
Kanemitsu Yamaoka, co-patentee of a US Patent, Philippine Letters Patent, and an Indonesian Patent, entered into aMemorandum of Agreement (MOA) with five
Philippine tuna processors including Respondent Philippine Kingford, Inc. (KINGFORD). The MOA provides for the enforcing of the abovementioned patents,
granting licenses under the same, and collecting royalties, and for the establishment of herein Petitioner Tuna Processors, Inc. (TPI).
Due to a series of events not mentioned in the Petition, the tuna processors, including Respondent KINGFORD, withdrew from Petitioner TPI and correspondingly
reneged on their obligations. Petitioner TPI submitted the dispute for arbitration before the International Centre for Dispute Resolution in the State of California, United
States and won the case against Respondent KINGFORD.
To enforce the award, Petitioner TPI filed a Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the RTC of Makati City.
Respondent KINGFORD filed a Motion to Dismiss, which the RTC denied for lack of merit. Respondent KINGFORD then sought for the inhibition of the RTC judge,
Judge Alameda, and moved for the reconsideration of the order denying the Motion. Judge Alameda inhibited himself notwithstanding [t]he unfounded allegations and
unsubstantiated assertions in the motion. Judge Ruiz, to which the case was re-raffled, in turn, granted Respondent KINGFORDSs Motion for Reconsideration and
dismissed the Petition on the ground that Petitioner TPI lacked legal capacity to sue in the Philippines. Petitioner TPI is a corporation established in the State of
California and not licensed to do business in the Philippines.
Hence, the present Petition for Review on Certiorari under Rule 45.
ISSUE:
Whether or not a foreign corporation not licensed to do business in the Philippines, but which collects royalties from entities in the Philippines, sue here to enforce a
foreign arbitral award?
ARGUMENT:
Petitioner TPI contends that it is entitled to seek for the recognition and enforcement of the subject foreign arbitral award in accordance with RA No. 9285 (Alternative
Dispute Resolution Act of 2004), the Convention on the Recognition and Enforcement of Foreign Arbitral Awards drafted during the United Nations Conference on
International Commercial Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on International Commercial Arbitration ( Model Law), as none
of these specifically requires that the party seeking for the enforcement should have legal capacity to sue.
RULING:
YES. Petitioner TPI, although not licensed to do business in the Philippines, may seek recognition and enforcement of the foreign arbitral award in accordance with the
provisions of theAlternative Dispute Resolution Act of 2004. A foreign corporations capacity to sue in the Philippines is not material insofar as the recognition and
enforcement of a foreign arbitral award is concerned.
The Resolution of the RTC is REVERSED and SET ASIDE.
RATIO DECIDENDI:
Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the opposing party in an application for recognition and enforcement of the arbitral award may
raise only those grounds that were enumerated under Article V of the New York Convention, to wit:
Article V
1. Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent
authority where the recognition and enforcement is sought, proof that:
a. The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to
which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made;
b. The party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise
unable to present his case;
c. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the
scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the
award which contains decisions on matters submitted to arbitration may be recognized and enforced;
d. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or
e. The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which,
that award was made.
2. Recognition and enforcement of an arbitral award may also be refused if the competent authority in the country where recognition and enforcement is sought finds
that:
a. The subject matter of the difference is not capable of settlement by arbitration under the law of that country; or
b. The recognition or enforcement of the award would be contrary to the public policy of that country.
Not one of the abovementioned exclusive grounds touched on the capacity to sue of the party seeking the recognition and enforcement of the award.
Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution, which was promulgated by the Supreme Court, likewise support this position.
Rule 13.1 of the Special Rules provides that [a]ny party to a foreign arbitration may petition the court to recognize and enforce a foreign arbitral award. The contents
of such petition are enumerated in Rule 13.5. Capacity to sue is not included. Oppositely, in the rule on local arbitral awards or arbitrations in instances where the

place of arbitration is in the Philippines, it is specifically required that a petition to determine any question concerning the existence, validity and enforceability of
such arbitration agreement available to the parties before the commencement of arbitration and/or a petition for judicial relief from the ruling of the arbitral tribunal
on a preliminary question upholding or declining its jurisdiction after arbitration has already commenced should state [t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued.
Indeed, it is in the best interest of justice that in the enforcement of a foreign arbitral award, the Court deny availment by the losing party of the rule that bars
foreign corporations not licensed to do business in the Philippines from maintaining a suit in Philippine courts. When a party enters into a contract containing a
foreign arbitration clause and, as in this case, in fact submits itself to arbitration, it becomes bound by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party to enter into the contract, participate in the arbitration and cause the implementation of the result.
Although not on all fours with the instant case, also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion
in Asset Privatization Trust v. Court of Appeals [1998], to wit:
xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial circles here and abroad. If its tested mechanism can simply be ignored
by an aggrieved party, one who, it must be stressed, voluntarily and actively participated in the arbitration proceedings from the very beginning, it will destroy the very
essence of mutuality inherent in consensual contracts.
Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not because it is favored over domestic laws and procedures, but because Republic
Act No. 9285 has certainly erased any conflict of law question.
Finally, even assuming, only for the sake of argument, that the RTC correctly observed that the Model Law, not the New York Convention, governs the subject arbitral
award, Petitioner TPI may still seek recognition and enforcement of the award in Philippine court, since the Model Law prescribes substantially identical exclusive
grounds for refusing recognition or enforcement.

G.R. No. 175404

January 31, 2011

CARGILL PHILIPPINES, INC., Petitioner,

vs.
SAN FERNANDO REGALA TRADING, INC., Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside the Decision1 dated July 31, 2006 and the Resolution2 dated November
13, 2006 of the Court of Appeals (CA) in CA G.R. SP No. 50304.
The factual antecedents are as follows:
On June 18, 1998, respondent San Fernando Regala Trading, Inc. filed with the Regional Trial Court (RTC) of Makati City a Complaint for
Rescission of Contract with Damages3 against petitioner Cargill Philippines, Inc. In its Complaint, respondent alleged that it was engaged in buying
and selling of molasses and petitioner was one of its various sources from whom it purchased molasses. Respondent alleged that it entered into a
contract dated July 11, 1996 with petitioner, wherein it was agreed upon that respondent would purchase from petitioner 12,000 metric tons of
Thailand origin cane blackstrap molasses at the price of US$192 per metric ton; that the delivery of the molasses was to be made in January/February
1997 and payment was to be made by means of an Irrevocable Letter of Credit payable at sight, to be opened by September 15, 1996; that sometime
prior to September 15, 1996, the parties agreed that instead of January/February 1997, the delivery would be made in April/May 1997 and that
payment would be by an Irrevocable Letter of Credit payable at sight, to be opened upon petitioner's advice. Petitioner, as seller, failed to comply
with its obligations under the contract, despite demands from respondent, thus, the latter prayed for rescission of the contract and payment of
damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration, 4 wherein it argued
that the alleged contract between the parties, dated July 11, 1996, was never consummated because respondent never returned the proposed
agreement bearing its written acceptance or conformity nor did respondent open the Irrevocable Letter of Credit at sight. Petitioner contended that the
controversy between the parties was whether or not the alleged contract between the parties was legally in existence and the RTC was not the proper
forum to ventilate such issue. It claimed that the contract contained an arbitration clause, to wit:
ARBITRATION

Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of New York before
the American Arbitration Association. The Arbitration Award shall be final and binding on both parties. 5
that respondent must first comply with the arbitration clause before resorting to court, thus, the RTC must either dismiss the case or suspend the
proceedings and direct the parties to proceed with arbitration, pursuant to Sections 6 6 and 77 of Republic Act (R.A.) No. 876, or the Arbitration Law.
Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction over the action for rescission of contract and could not be changed by
the subject arbitration clause. It cited cases wherein arbitration clauses, such as the subject clause in the contract, had been struck down as void for
being contrary to public policy since it provided that the arbitration award shall be final and binding on both parties, thus, ousting the courts of
jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already inapplicable, having been rendered prior to the effectivity of the New Civil
Code in 1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by petitioner is invalid and unenforceable, considering that the requirements
imposed by the provisions of the Arbitration Law had not been complied with.
By way of Sur-Rejoinder, petitioner contended that respondent had even clarified that the issue boiled down to whether the arbitration clause
contained in the contract subject of the complaint is valid and enforceable; that the arbitration clause did not violate any of the cited provisions of the
Arbitration Law.
On September 17, 1998, the RTC rendered an Order,8 the dispositive portion of which reads:
Premises considered, defendant's "Motion To Dismiss/Suspend Proceedings and To Refer Controversy To Voluntary Arbitration" is hereby DENIED.
Defendant is directed to file its answer within ten (10) days from receipt of a copy of this order.9
In denying the motion, the RTC found that there was no clear basis for petitioner's plea to dismiss the case, pursuant to Section 7 of the Arbitration
Law. The RTC said that the provision directed the court concerned only to stay the action or proceeding brought upon an issue arising out of an
agreement providing for the arbitration thereof, but did not impose the sanction of dismissal. However, the RTC did not find the suspension of the
proceedings warranted, since the Arbitration Law contemplates an arbitration proceeding that must be conducted in the Philippines under the
jurisdiction and control of the RTC; and before an arbitrator who resides in the country; and that the arbitral award is subject to court approval,
disapproval and modification, and that there must be an appeal from the judgment of the RTC. The RTC found that the arbitration clause in question
contravened these procedures, i.e., the arbitration clause contemplated an arbitration proceeding in New York before a non-resident arbitrator
(American Arbitration Association); that the arbitral award shall be final and binding on both parties. The RTC said that to apply Section 7 of the
Arbitration Law to such an agreement would result in disregarding the other sections of the same law and rendered them useless and mere
surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an Order 10 dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue that the RTC acted in excess of jurisdiction or with grave abuse of
discretion in refusing to dismiss or at least suspend the proceedings a quo, despite the fact that the party's agreement to arbitrate had not been
complied with.
Respondent filed its Comment and Reply. The parties were then required to file their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition and affirming the RTC Orders.
In denying the petition, the CA found that stipulation providing for arbitration in contractual obligation is both valid and constitutional; that
arbitration as an alternative mode of dispute resolution has long been accepted in our jurisdiction and expressly provided for in the Civil Code; that
R.A. No. 876 (the Arbitration Law) also expressly authorized the arbitration of domestic disputes. The CA found error in the RTC's holding that
Section 7 of R.A. No. 876 was inapplicable to arbitration clause simply because the clause failed to comply with the requirements prescribed by the
law. The CA found that there was nothing in the Civil Code, or R.A. No. 876, that require that arbitration proceedings must be conducted only in the
Philippines and the arbitrators should be Philippine residents. It also found that the RTC ruling effectively invalidated not only the disputed
arbitration clause, but all other agreements which provide for foreign arbitration. The CA did not find illegal or against public policy the arbitration
clause so as to render it null and void or ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the Arbitration Law for the purpose of suspending the
proceedings before the RTC, since in its Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the subject
contract between the parties did not exist or it was invalid; that the said contract bearing the arbitration clause was never consummated by the parties,
thus, it was proper that such issue be first resolved by the court through an appropriate trial; that the issue involved a question of fact that the RTC
should first resolve. Arbitration is not proper when one of the parties repudiated the existence or validity of the contract.
Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.
Hence, this petition.
Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed despite the fact that: (a) it had ruled, in its assailed
decision, that the arbitration clause is valid, enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.11 is inapplicable
here; (c) parties are generally allowed, under the Rules of Court, to adopt several defenses, alternatively or hypothetically, even if such
defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial court is premature.
Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause between the parties as valid and enforceable and yet
in the same breath decreed that the arbitration cannot proceed because petitioner assailed the existence of the entire agreement containing the
arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005, because in the present case, it was respondent who
had filed the complaint for rescission and damages with the RTC, which based its cause of action against petitioner on the alleged agreement dated
July 11, 2006 between the parties; and that the same agreement contained the arbitration clause sought to be enforced by petitioner in this case. Thus,
whether petitioner assails the genuineness and due execution of the agreement, the fact remains that the agreement sued upon provides for an
arbitration clause; that respondent cannot use the provisions favorable to him and completely disregard those that are unfavorable, such as the
arbitration clause.
Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e., the parties had not entered into any agreement upon
which respondent as plaintiff can sue upon; and, assuming that such agreement existed, there was an arbitration clause that should be enforced, thus,
the dispute must first be submitted to arbitration before an action can be instituted in court. Petitioner argues that under Section 1(j) of Rule 16 of the
Rules of Court, included as a ground to dismiss a complaint is when a condition precedent for filing the complaint has not been complied with; and
that submission to arbitration when such has been agreed upon is one such condition precedent. Petitioner submits that the proceedings in the RTC
must be dismissed, or at least suspended, and the parties be ordered to proceed with arbitration.
On March 12, 2007, petitioner filed a Manifestation12 saying that the CA's rationale in declining to order arbitration based on the
2005 Gonzales ruling had been modified upon a motion for reconsideration decided in 2007; that the CA decision lost its legal basis, because it had
been ruled that the arbitration agreement can be implemented notwithstanding that one of the parties thereto repudiated the contract which contained
such agreement based on the doctrine of separability.
In its Comment, respondent argues that certiorari under Rule 65 is not the remedy against an order denying a Motion to Dismiss/Suspend
Proceedings and To Refer Controversy to Voluntary Arbitration. It claims that the Arbitration Law which petitioner invoked as basis for its Motion
prescribed, under its Section 29, a remedy, i.e., appeal by a petition for review on certiorari under Rule 45. Respondent contends that
the Gonzales case, which was decided in 2007, is inapplicable in this case, especially as to the doctrine of separability enunciated therein. Respondent
argues that even if the existence of the contract and the arbitration clause is conceded, the decisions of the RTC and the CA declining referral of the
dispute between the parties to arbitration would still be correct. This is so because respondent's complaint filed in Civil Case No. 98-1376 presents
the principal issue of whether under the facts alleged in the complaint, respondent is entitled to rescind its contract with petitioner and for the latter to
pay damages; that such issue constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of
arbitration.
Respondent contends that Section 8 of the Rules of Court, which allowed a defendant to adopt in the same action several defenses, alternatively or
hypothetically, even if such defenses are inconsistent with each other refers to allegations in the pleadings, such as complaint, counterclaim, crossclaim, third-party complaint, answer, but not to a motion to dismiss. Finally, respondent claims that petitioner's argument is premised on the existence
of a contract with respondent containing a provision for arbitration. However, its reliance on the contract, which it repudiates, is inappropriate.
In its Reply, petitioner insists that respondent filed an action for rescission and damages on the basis of the contract, thus, respondent admitted the
existence of all the provisions contained thereunder, including the arbitration clause; that if respondent relies on said contract for its cause of action
against petitioner, it must also consider itself bound by the rest of the terms and conditions contained thereunder notwithstanding that respondent may
find some provisions to be adverse to its position; that respondents citation of the Gonzalescase, decided in 2005, to show that the validity of the

contract cannot be the subject of the arbitration proceeding and that it is the RTC which has the jurisdiction to resolve the situation between the
parties herein, is not correct since in the resolution of the Gonzales' motion for reconsideration in 2007, it had been ruled that an arbitration
agreement is effective notwithstanding the fact that one of the parties thereto repudiated the main contract which contained it.
We first address the procedural issue raised by respondent that petitioners petition for certiorari under Rule 65 filed in the CA against an RTC Order
denying a Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration was a wrong remedy invoking Section 29 of
R.A. No. 876, which provides:
Section 29.
x x x An appeal may be taken from an order made in a proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to question of law. x x x.
To support its argument, respondent cites the case of Gonzales v. Climax Mining Ltd.13 (Gonzales case), wherein we ruled the impropriety of a
petition for certiorari under Rule 65 as a mode of appeal from an RTC Order directing the parties to arbitration.
We find the cited case not in point.
In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R.A. No. 876, pursuant to the arbitration
clause found in the Addendum Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration
proceedings. Gonzales filed a petition for certiorari with Us contending that Judge Pimentel acted with grave abuse of discretion in immediately
ordering the parties to proceed with arbitration despite the proper, valid and timely raised argument in his Answer with counterclaim that the
Addendum Contract containing the arbitration clause was null and void. Climax-Arimco assailed the mode of review availed of by Gonzales, citing
Section 29 of R.A. No. 876 contending that certiorariunder Rule 65 can be availed of only if there was no appeal or any adequate remedy in the
ordinary course of law; that R.A. No. 876 provides for an appeal from such order. We then ruled that Gonzales' petition for certiorarishould be
dismissed as it was filed in lieu of an appeal by certiorari which was the prescribed remedy under R.A. No. 876 and the petition was filed far beyond
the reglementary period.
We found that Gonzales petition for certiorari raises a question of law, but not a question of jurisdiction; that Judge Pimentel acted in accordance
with the procedure prescribed in R.A. No. 876 when he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator after making the
determination that there was indeed an arbitration agreement. It had been held that as long as a court acts within its jurisdiction and does not gravely
abuse its discretion in the exercise thereof, any supposed error committed by it will amount to nothing more than an error of judgment reviewable by
a timely appeal and not assailable by a special civil action of certiorari.14
In this case, petitioner raises before the CA the issue that the respondent Judge acted in excess of jurisdiction or with grave abuse of discretion in
refusing to dismiss, or at least suspend, the proceedings a quo, despite the fact that the partys agreement to arbitrate had not been complied with.
Notably, the RTC found the existence of the arbitration clause, since it said in its decision that "hardly disputed is the fact that the arbitration clause in
question contravenes several provisions of the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an agreement would result
in the disregard of the afore-cited sections of the Arbitration Law and render them useless and mere surplusages." However, notwithstanding the
finding that an arbitration agreement existed, the RTC denied petitioner's motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,15 it was held that R.A. No. 876 explicitly confines the courts authority only to the determination
of whether or not there is an 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 proceedings shall be dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC
went beyond its authority of determining only the issue of whether or not there is an agreement in writing providing for arbitration by directing
petitioner to file an answer, instead of ordering the parties to proceed to arbitration. In so doing, it acted in excess of its jurisdiction and since there is
no plain, speedy, and adequate remedy in the ordinary course of law, petitioners resort to a petition for certiorari is the proper remedy.
We now proceed to the substantive issue of whether the CA erred in finding that this case cannot be brought under the arbitration law for the purpose
of suspending the proceedings in the RTC.
We find merit in the petition.

10

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. 16 R.A. No. 87617 authorizes
arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international character, is likewise
recognized.18 The enactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.19
A contract is required for arbitration to take place and to be binding. 20 Submission to arbitration is a contract 21and a clause in a contract providing
that all matters in dispute between the parties shall be referred to arbitration is a contract. 22 The provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of the contract and is itself a contract. 23
In this case, the contract sued upon by respondent provides for an arbitration clause, to wit:
ARBITRATION
Any dispute which the Buyer and Seller may not be able to settle by mutual agreement shall be settled by arbitration in the City of New York before
the American Arbitration Association, The Arbitration Award shall be final and binding on both parties.
The CA ruled that arbitration cannot be ordered in this case, since petitioner alleged that the contract between the parties did not exist or was invalid
and arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Thus, said the CA:
Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for foreign arbitration, it is our considered
opinion that the case at bench still cannot be brought under the Arbitration Law for the purpose of suspending the proceedings before the trial court.
We note that in its Motion to Dismiss/Suspend Proceedings, etc, petitioner Cargill alleged, as one of the grounds thereof, that the alleged contract
between the parties do not legally exist or is invalid. As posited by petitioner, it is their contention that the said contract, bearing the arbitration
clause, was never consummated by the parties. That being the case, it is but proper that such issue be first resolved by the court through an
appropriate trial. The issue involves a question of fact that the trial court should first resolve.
Arbitration is not proper when one of the parties repudiates the existence or validity of the contract. Apropos is Gonzales v. Climax Mining Ltd., 452
SCRA 607, (G.R.No.161957), where the Supreme Court held that:
The question of validity of the contract containing the agreement to submit to arbitration will affect the applicability of the arbitration
clause itself. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions....
Consequently, the petitioner herein cannot claim that the contract was never consummated and, at the same time, invokes the arbitration clause
provided for under the contract which it alleges to be non-existent or invalid. Petitioner claims that private respondent's complaint lacks a cause of
action due to the absence of any valid contract between the parties. Apparently, the arbitration clause is being invoked merely as a fallback position.
The petitioner must first adduce evidence in support of its claim that there is no valid contract between them and should the court a quo find the claim
to be meritorious, the parties may then be spared the rigors and expenses that arbitration in a foreign land would surely entail. 24
However, the Gonzales case,25 which the CA relied upon for not ordering arbitration, had been modified upon a motion for reconsideration in this
wise:
x x x The adjudication of the petition in G.R. No. 167994 effectively modifies part of the Decision dated 28 February 2005 in G.R. No.
161957. Hence, we now hold that the validity of the contract containing the agreement to submit to arbitration does not affect the
applicability of the arbitration clause itself. A contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient
to avoid arbitration. That is exactly the situation that the separability doctrine, as well as jurisprudence applying it, seeks to avoid. We add
that when it was declared in G.R. No. 161957 that the case should not be brought for arbitration, it should be clarified that the case referred to is the
case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for the nullification of the main contract on the ground of fraud, as
it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues. 26
In so ruling that the validity of the contract containing the arbitration agreement does not affect the applicability of the arbitration clause itself, we
then applied the doctrine of separability, thus:
The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main contract. The
arbitration agreement is to be treated as a separate agreement and the arbitration agreement does not automatically terminate when the contract of
which it is a part comes to an end.

11

The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies
the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the "container" contract, does not affect
the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid
and enforceable.27
Respondent argues that the separability doctrine is not applicable in petitioner's case, since in the Gonzales case, Climax-Arimco sought to enforce
the arbitration clause of its contract with Gonzales and the former's move was premised on the existence of a valid contract; while Gonzales, who
resisted the move of Climax-Arimco for arbitration, did not deny the existence of the contract but merely assailed the validity thereof on the ground
of fraud and oppression. Respondent claims that in the case before Us, petitioner who is the party insistent on arbitration also claimed in their Motion
to Dismiss/Suspend Proceedings that the contract sought by respondent to be rescinded did not exist or was not consummated; thus, there is no room
for the application of the separability doctrine, since there is no container or main contract or an arbitration clause to speak of.
We are not persuaded.
Applying the Gonzales ruling, 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 separate agreement
independent of the main contract. To reiterate. a contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient to
avoid arbitration and that is exactly the situation that the separability doctrine sought to avoid. Thus, we find that even the party who has repudiated
the main contract is not prevented from enforcing its arbitration clause.
Moreover, it is worthy to note that respondent filed a complaint for rescission of contract and damages with the RTC. In so doing, respondent alleged
that a contract exists between respondent and petitioner. It is that contract which provides for an arbitration clause which states that "any dispute
which the Buyer and Seller may not be able to settle by mutual agreement shall be settled before the City of New York by the American Arbitration
Association. The arbitration agreement clearly expressed the parties' intention that any dispute between them as buyer and seller should be referred to
arbitration. It is for the arbitrator and not the courts to decide whether a contract between the parties exists or is valid.
Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded, the CA's decision declining referral of
the parties' dispute to arbitration is still correct. It claims that its complaint in the RTC presents the issue of whether under the facts alleged, it is
entitled to rescind the contract with damages; and that issue constitutes a judicial question or one that requires the exercise of judicial function and
cannot be the subject of an arbitration proceeding. Respondent cites our ruling in Gonzales, wherein we held that a panel of arbitrator is bereft of
jurisdiction over the complaint for declaration of nullity/or termination of the subject contracts on the grounds of fraud and oppression attendant to
the execution of the addendum contract and the other contracts emanating from it, and that the complaint should have been filed with the regular
courts as it involved issues which are judicial in nature.
Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument.
In Gonzales, petitioner Gonzales filed a complaint before the Panel of Arbitrators, Region II, Mines and Geosciences Bureau, of the Department of
Environment and Natural Resources (DENR) against respondents Climax- Mining Ltd, Climax-Arimco and Australasian Philippines Mining Inc,
seeking the declaration of nullity or termination of the addendum contract and the other contracts emanating from it on the grounds of fraud and
oppression. The Panel dismissed the complaint for lack of jurisdiction. However, the Panel, upon petitioner's motion for reconsideration, ruled that it
had jurisdiction over the dispute maintaining that it was a mining dispute, since the subject complaint arose from a contract between the parties which
involved the exploration and exploitation of minerals over the disputed area.1wphi1 Respondents assailed the order of the Panel of Arbitrators via a
petition for certiorari before the CA. The CA granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the
complaint, since its jurisdiction was limited to the resolution of mining disputes, such as those which raised a question of fact or matter requiring the
technical knowledge and experience of mining authorities and not when the complaint alleged fraud and oppression which called for the
interpretation and application of laws. The CA further ruled that the petition should have been settled through arbitration under R.A. No. 876 the
Arbitration Law as provided under the addendum contract.
On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators who, under R.A. No. 7942 of the Philippine Mining Act of 1995,
has exclusive and original jurisdiction to hear and decide mining disputes, such as mining areas, mineral agreements, FTAAs or permits and surface
owners, occupants and claimholders/concessionaires, is bereft of jurisdiction over the complaint for declaration of nullity of the addendum contract;
thus, the Panels' jurisdiction is limited only to those mining disputes which raised question of facts or matters requiring the technical knowledge and
experience of mining authorities. We then said:
In Pearson v. Intermediate Appellate Court, this Court observed that the trend has been to make the adjudication of mining cases a purely
administrative matter. Decisions of the Supreme Court on mining disputes have recognized a distinction between (1) the primary powers granted by

12

pertinent provisions of law to the then Secretary of Agriculture and Natural Resources (and the bureau directors) of an executive or administrative
nature, such as granting of license, permits, lease and contracts, or approving, rejecting, reinstating or canceling applications, or deciding conflicting
applications, and (2) controversies or disagreements of civil or contractual nature between litigants which are questions of a judicial nature that may
be adjudicated only by the courts of justice. This distinction is carried on even in Rep. Act No. 7942. 28
We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with disregarding and ignoring the addendum
contract, and acting in a fraudulent and oppressive manner against petitioner, the complaint filed before the Panel was not a dispute involving rights
to mining areas, or was it a dispute involving claimholders or concessionaires, but essentially judicial issues. We then said that the Panel of
Arbitrators did not have jurisdiction over such issue, since it does not involve the application of technical knowledge and expertise relating to mining.
It is in this context that we said that:
Arbitration before the Panel of Arbitrators is proper only when there is a disagreement between the parties as to some provisions of the contract
between them, which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel. It is
not proper when one of the parties repudiates the existence or validity of such contract or agreement on the ground of fraud or oppression as in this
case. The validity of the contract cannot be subject of arbitration proceedings. Allegations of fraud and duress in the execution of a contract are
matters within the jurisdiction of the ordinary courts of law. These questions are legal in nature and require the application and interpretation of laws
and jurisprudence which is necessarily a judicial function. 29
In fact, We even clarified in our resolution on Gonzales motion for reconsideration that "when we declared that the case should not be brought for
arbitration, it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which was for
the nullification of the main contract on the ground of fraud, as it had already been determined that the case should have been brought before the
regular courts involving as it did judicial issues." We made such clarification in our resolution of the motion for reconsideration after ruling that the
parties in that case can proceed to arbitration under the Arbitration Law, as provided under the Arbitration Clause in their Addendum Contract.
WHEREFORE, the petition is GRANTED. The Decision dated July 31, 2006 and the Resolution dated November 13, 2006 of the Court of Appeals
in CA-G.R. SP No. 50304 are REVERSED and SET ASIDE. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their
dispute, pursuant to their July 11, 1996 agreement.
SO ORDERED.

FACTS:
Respondent San Fernando Regala Trading filed with the RTC of Makati City aComplaint for Rescission of Contract with Damages
against petitioner Cargill.It alleged that it agreed that it would purchase from Cargill 12,000 metric tonsof Thailand origin cane
blackstrap molasses and that the payment would beby an Irrevocable Letter of Credit payable at sight. The parties agreed thatthe
delivery would be made in April/May. Cargill failed to comply with itsobligations despite demands from respondent. The respondent
then filed forrescission.
The petitioner filed a Motion to Dismiss/Suspend proceeding, arguing that theymust first resort to arbitration as stated in their
agreement before going tocourt. However, the RTC ruled in favor of the respondent. The CA affirmed theRTC decision, adding that
the case cannot be brought under the ArbitrationLaw for the purpose of suspending the proceedings before the RTC, since inits
Motion to Dismiss/Suspend proceedings, petitioner alleged, as one of thegrounds thereof,that the subjectcontract between the
parties did not exist orit was invalid; that the said contract bearing the arbitration clause was neverconsummated by the parties,
thus, it was proper that such issue be firstresolved by the court through an appropriate trial; that the issue involved aquestion of fact
that the RTC should first resolve.
ISSUE:
Whether the CA erred in finding that this case cannot be broughtunder the arbitration law for the purpose of suspending the
proceedings in theRTC.
HE LD:
The petition is meritorious.
CIVIL LAW - Arbitration; alternative dispute resolution; contracts
Arbitration, as an alternative mode of settling disputes, has long beenrecognized and accepted in our jurisdiction. R.A. No. 876
authorizesarbitration of domestic disputes. Foreign arbitration, as a system of settlingcommercial disputes of an international
character, is likewise recognized. Theenactment of R.A. No. 9285 on April 2, 2004 further institutionalized the use

13

14