G.R. No.

161957 January 22, 2007

JORGE GONZALES and PANEL OF ARBITRATORS, Petitioners,

vs.
CLIMAX MINING LTD., CLIMAX-ARIMCO MINING CORP., and
AUSTRALASIAN PHILIPPINES MINING INC.,Respondents.

x--------------------------------------------------------------------------------- x

G.R. No. 167994 January 22, 2007

JORGE GONZALES, Petitioner,

vs.
HON. OSCAR B. PIMENTEL, in his capacity as PRESIDING
JUDGE of BR. 148 of the REGIONAL TRIAL COURT of MAKATI
CITY, and CLIMAX-ARIMCO MINING
CORPORATION, Respondents.

RESOLUTION

TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed

Addendum Contract entered into by the parties. In G.R. No. 161957,
the Court in its Decision of 28 February 20051 denied the Rule 45
petition of petitioner Jorge Gonzales (Gonzales). It held that the
DENR Panel of Arbitrators had no jurisdiction over the complaint for
the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been
brought before the regular courts as it involved judicial issues. Both
parties filed separate motions for reconsideration. Gonzales avers in
his Motion for Reconsideration2 that the Court erred in holding that
the DENR Panel of Arbitrators was bereft of jurisdiction, reiterating its
argument that the case involves a mining dispute that properly falls
within the ambit of the Panel’s authority. Gonzales adds that the
Court failed to rule on other issues he raised relating to the
sufficiency of his complaint before the DENR Panel of Arbitrators and
the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their

Motion for Partial Reconsideration and/or Clarification3 seeking
reconsideration of that part of the Decision holding that the case
should not be brought for arbitration under Republic Act (R.A.) No.
876, also known as the Arbitration Law.4 Respondents, citing
American jurisprudence5 and the UNCITRAL Model Law,6 argue that
the arbitration clause in the Addendum Contract should be treated as
an agreement independent of the other terms of the contract, and that
a claimed rescission of the main contract does not avoid the duty to
arbitrate. Respondents add that Gonzales’s argument relating to the
alleged invalidity of the Addendum Contract still has to be proven and
adjudicated on in a proper proceeding; that is, an action separate
from the motion to compel arbitration. Pending judgment in such
separate action, the Addendum Contract remains valid and binding
and so does the arbitration clause therein. Respondents add that the
holding in the Decision that "the case should not be brought under
the ambit of the Arbitration Law" appears to be premised on
Gonzales’s having "impugn[ed] the existence or validity" of the
addendum contract. If so, it supposedly conveys the idea that
Gonzales’s unilateral repudiation of the contract or mere allegation of
its invalidity is all it takes to avoid arbitration. Hence, respondents
submit that the court’s holding that "the case should not be brought
under the ambit of the Arbitration Law" be understood or clarified as
operative only where the challenge to the arbitration agreement has
been sustained by final judgment.

Both parties were required to file their respective comments to the

other party’s motion for reconsideration/clarification.7 Respondents
filed their Comment on 17 August 2005,8 while Gonzales filed his only
on 25 July 2006.9

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6

May 2005, or while the motions for reconsideration in G.R. No.
16195710 were pending, wherein Gonzales challenged the orders of
the Regional Trial Court (RTC) requiring him to proceed with the
arbitration proceedings as sought by Climax-Arimco Mining
Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
consolidated upon the recommendation of the Assistant Division
Clerk of Court since the cases are rooted in the same Addendum
Contract.
We first tackle the more recent case which is G.R. No. 167994. It
stemmed from the petition to compel arbitration filed by respondent
Climax-Arimco before the RTC of Makati City on 31 March 2000 while
the complaint for the nullification of the Addendum Contract was
pending before the DENR Panel of Arbitrators. On 23 March 2000,
Climax-Arimco had sent Gonzales a Demand for Arbitration pursuant
to Clause 19.111 of the Addendum Contract and also in accordance
with Sec. 5 of R.A. No. 876. The petition for arbitration was
subsequently filed and Climax-Arimco sought an order to compel the
parties to arbitrate pursuant to the said arbitration clause. The case,
docketed as Civil Case No. 00-444, was initially raffled to Br. 132 of
the RTC of Makati City, with Judge Herminio I. Benito as Presiding
Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to
set the application to compel arbitration for hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he

however failed to set for hearing. On 15 May 2000, he filed an
Answer with Counterclaim,12 questioning the validity of the Addendum
Contract containing the arbitration clause. Gonzales alleged that the
Addendum Contract containing the arbitration clause is void in view of
Climax-Arimco’s acts of fraud, oppression and violation of the
Constitution. Thus, the arbitration clause, Clause 19.1, contained in
the Addendum Contract is also null and void ab initio and legally
inexistent.1awphi1.net

On 18 May 2000, the RTC issued an order declaring Gonzales’s

motion to dismiss moot and academic in view of the filing of his
Answer with Counterclaim.13

On 31 May 2000, Gonzales asked the RTC to set the case for pre-
trial.14 This the RTC denied on 16 June 2000, holding that the petition
for arbitration is a special proceeding that is summary in
nature.15 However, on 7 July 2000, the RTC granted Gonzales’s
motion for reconsideration of the 16 June 2000 Order and set the
case for pre-trial on 10 August 2000, it being of the view that
Gonzales had raised in his answer the issue of the making of the
arbitration agreement.16
Climax-Arimco then filed a motion to resolve its pending motion to
compel arbitration. The RTC denied the same in its 24 July 2000
order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge

Herminio I. Benito for "not possessing the cold neutrality of an
impartial judge."17 On 5 August 2000, Judge Benito issued an Order
granting the Motion to Inhibit and ordered the re-raffling of the petition
for arbitration.18 The case was raffled to the sala of public respondent
Judge Oscar B. Pimentel of Branch 148.

On 23 August 2000, Climax-Arimco filed a motion for reconsideration

of the 24 July 2000 Order.19 Climax-Arimco argued that R.A. No. 876
does not authorize a pre-trial or trial for a motion to compel arbitration
but directs the court to hear the motion summarily and resolve it
within ten days from hearing. Judge Pimentel granted the motion and
directed the parties to arbitration. On 13 February 2001, Judge
Pimentel issued the first assailed order requiring Gonzales to proceed
with arbitration proceedings and appointing retired CA Justice Jorge
Coquia as sole arbitrator.20

Gonzales moved for reconsideration on 20 March 2001 but this was

denied in the Order dated 7 March 2005.21

Gonzales thus filed the Rule 65 petition assailing the Orders dated 13
February 2001 and 7 March 2005 of Judge Pimentel. Gonzales
contends that public respondent 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, is null and void. Gonzales has also
sought a temporary restraining order to prevent the enforcement of
the assailed orders directing the parties to arbitrate, and to direct
Judge Pimentel to hold a pre-trial conference and the necessary
hearings on the determination of the nullity of the Addendum
Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

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 applications filed under
the provisions of this Act, within ten (10) days after such motions,
petitions, or applications have been heard by it.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the "Alternative

Dispute Resolution Act of 2004:"

Sec. 24. Referral to Arbitration.—A court before which an action is

brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than the
pre-trial conference, or upon the request of both parties thereafter,
refer the parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being
performed.

According to Gonzales, the above-quoted provisions of law outline

the procedure to be followed in petitions to compel arbitration, which
the RTC did not follow. Thus, referral of the parties to arbitration by
Judge Pimentel despite the timely and properly raised issue of nullity
of the Addendum Contract was misplaced and without legal basis.
Both R.A. No. 876 and R.A. No. 9285 mandate that any issue as to
the nullity, inoperativeness, or incapability of performance of the
arbitration clause/agreement raised by one of the parties to the
alleged arbitration agreement must be determined by the court prior
to referring them to arbitration. They require that the trial court first
determine or resolve the issue of nullity, and there is no other venue
for this determination other than a pre-trial and hearing on the issue
by the trial court which has jurisdiction over the case. Gonzales adds
that the assailed 13 February 2001 Order also violated his right to
procedural due process when the trial court erroneously ruled on the
existence of the arbitration agreement despite the absence of a
hearing for the presentation of evidence on the nullity of the
Addendum Contract.

Respondent Climax-Arimco, on the other hand, assails the mode of

review availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A.
No. 876:

Sec. 29. Appeals.—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
questions of law. The proceedings upon such an appeal, including
the judgment thereon shall be governed by the Rules of Court in so
far as they are applicable.

Climax-Arimco mentions that the special civil action for certiorari

employed by Gonzales is available only where there is no appeal or
any plain, speedy, and adequate remedy in the ordinary course of law
against the challenged orders or acts. Climax-Arimco then points out
that R.A. No. 876 provides for an appeal from such orders, which,
under the Rules of Court, must be filed within 15 days from notice of
the final order or resolution appealed from or of the denial of the
motion for reconsideration filed in due time. Gonzales has not denied
that the relevant 15-day period for an appeal had elapsed long before
he filed this petition for certiorari. He cannot use the special civil
action of certiorari as a remedy for a lost appeal.

Climax-Arimco adds that an application to compel arbitration under

Sec. 6 of R.A. No. 876 confers on the trial court only a limited and
special jurisdiction, i.e., a jurisdiction solely to determine (a) whether
or not the parties have a written contract to arbitrate, and (b) if the
defendant has failed to comply with that contract. Respondent
cites La Naval Drug Corporation v. Court of Appeals,22 which holds
that in a proceeding to compel arbitration, "[t]he 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," and "[i]n 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.’"23Climax-Arimco
argues that R.A. No. 876 gives no room for any other issue to be
dealt with in such a proceeding, and that the court presented with an
application to compel arbitration may order arbitration or dismiss the
same, depending solely on its finding as to those two limited issues. If
either of these matters is disputed, the court is required to conduct a
summary hearing on it. Gonzales’s proposition contradicts both the
trial court’s limited jurisdiction and the summary nature of the
proceeding itself.

Climax-Arimco further notes that Gonzales’s attack on or repudiation

of the Addendum Contract also is not a ground to deny effect to the
arbitration clause in the Contract. The arbitration agreement is
separate and severable from the contract evidencing the parties’
commercial or economic transaction, it stresses. Hence, the alleged
defect or failure of the main contract is not a ground to deny
enforcement of the parties’ arbitration agreement. Even the party who
has repudiated the main contract is not prevented from enforcing its
arbitration provision. R.A. No. 876 itself treats the arbitration clause or
agreement as a contract separate from the commercial, economic or
other transaction to be arbitrated. The statute, in particular paragraph
1 of Sec. 2 thereof, considers the arbitration stipulation an
independent contract in its own right whose enforcement may be
prevented only on grounds which legally make the arbitration
agreement itself revocable, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more

persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties
to any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.
 xxxx

The grounds Gonzales invokes for the revocation of the Addendum

Contract—fraud and oppression in the execution thereof—are also
not grounds for the revocation of the arbitration clause in the
Contract, Climax-Arimco notes. Such grounds may only be raised by
way of defense in the arbitration itself and cannot be used to frustrate
or delay the conduct of arbitration proceedings. Instead, these should
be raised in a separate action for rescission, it continues.

Climax-Arimco emphasizes that the summary proceeding to compel

arbitration under Sec. 6 of R.A. No. 876 should not be confused with
the procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876
refers to an application to compel arbitration where the court’s
authority is limited to resolving the issue of whether there is or there
is no agreement in writing providing for arbitration, while Sec. 24 of
R.A. No. 9285 refers to an ordinary action which covers a matter that
appears to be arbitrable or subject to arbitration under the arbitration
agreement. In the latter case, the statute is clear that the court,
instead of trying the case, may, on request of either or both parties,
refer the parties to arbitration, unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being
performed. Arbitration may even be ordered in the same suit brought
upon a matter covered by an arbitration agreement even without
waiting for the outcome of the issue of the validity of the arbitration
agreement. Art. 8 of the UNCITRAL Model Law24 states that where a
court before which an action is brought in a matter which is subject of
an arbitration agreement refers the parties to arbitration, the arbitral
proceedings may proceed even while the action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it
was proper for the RTC, in the proceeding to compel arbitration under
R.A. No. 876, to order the parties to arbitrate even though the
defendant therein has raised the twin issues of validity and nullity of
the Addendum Contract and, consequently, of the arbitration clause
therein as well. The resolution of both Climax-Arimco’s Motion for
Partial Reconsideration and/or Clarification in G.R. No. 161957 and
Gonzales’s Petition for Certiorari in G.R. No. 167994 essentially turns
on whether the question of validity of the Addendum Contract bears
upon the applicability or enforceability of the arbitration clause
contained therein. The two pending matters shall thus be jointly
resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the
remedial law perspective. It deserves to be dismissed on procedural
grounds, as it was filed in lieu of appeal which is the prescribed
remedy and at that far beyond the reglementary period. It is
elementary in remedial law that the use of an erroneous mode of
appeal is cause for dismissal of the petition for certiorari and it has
been repeatedly stressed that a petition for certiorari is not a
substitute for a lost appeal. As its nature, a petition for certiorari lies
only where there is "no appeal," and "no plain, speedy and adequate
remedy in the ordinary course of law."25 The Arbitration Law
specifically provides for an appeal by certiorari, i.e., a petition for
review under certiorari under Rule 45 of the Rules of Court that raises
pure questions of law.26 There is no merit to Gonzales’s argument
that the use of the permissive term "may" in Sec. 29, R.A. No. 876 in
the filing of appeals does not prohibit nor discount the filing of a
petition for certiorari under Rule 65.27 Proper interpretation of the
aforesaid provision of law shows that the term "may" refers only to
the filing of an appeal, not to the mode of review to be employed.
Indeed, the use of "may" merely reiterates the principle that the right
to appeal is not part of due process of law but is a mere statutory
privilege to be exercised only in the manner and in accordance with
law.

Neither can BF Corporation v. Court of Appeals28 cited by Gonzales

support his theory. Gonzales argues that said case recognized and
allowed a petition for certiorari under Rule 65 "appealing the order of
the Regional Trial Court disregarding the arbitration agreement as an
acceptable remedy."29 The BF Corporation case had its origins in a
complaint for collection of sum of money filed by therein petitioner BF
Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to
suspend the proceedings alleging that the construction agreement or
the Articles of Agreement between the parties contained a clause
requiring prior resort to arbitration before judicial intervention. The
trial court found that an arbitration clause was incorporated in the
Conditions of Contract appended to and deemed an integral part of
the Articles of Agreement. Still, the trial court denied the motion to
suspend proceedings upon a finding that the Conditions of Contract
were not duly executed and signed by the parties. The trial court also
found that SPI had failed to file any written notice of demand for
arbitration within the period specified in the arbitration clause. The
trial court denied SPI's motion for reconsideration and ordered it to
file its responsive pleading. Instead of filing an answer, SPI filed a
petition for certiorari under Rule 65, which the Court of Appeals,
favorably acted upon. In a petition for review before this Court, BF
Corporation alleged, among others, that the Court of Appeals should
have dismissed the petition for certiorari since the order of the trial
court denying the motion to suspend proceedings "is a resolution of
an incident on the merits" and upon the continuation of the
proceedings, the trial court would eventually render a decision on the
merits, which decision could then be elevated to a higher court "in an
ordinary appeal."30

The Court did not uphold BF Corporation’s argument. The issue

raised before the Court was whether SPI had taken the proper mode
of appeal before the Court of Appeals. The question before the Court
of Appeals was whether the trial court had prematurely assumed
jurisdiction over the controversy. The question of jurisdiction in turn
depended on the question of existence of the arbitration clause which
is one of fact. While on its face the question of existence of the
arbitration clause is a question of fact that is not proper in a petition
for certiorari, yet since the determination of the question obliged the
Court of Appeals as it did to interpret the contract documents in
accordance with R.A. No. 876 and existing jurisprudence, the
question is likewise a question of law which may be properly taken
cognizance of in a petition for certiorari under Rule 65, so the Court
held.31

The situation in B.F. Corporation is not availing in the present petition.

The disquisition in B.F. Corporation led to the conclusion that in order
that the question of jurisdiction may be resolved, the appellate court
had to deal first with a question of law which could be addressed in a
certiorari proceeding. In the present case, Gonzales’s petition raises
a question of law, but not a question of jurisdiction. 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 has 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.32 Even if we
overlook the employment of the wrong remedy in the broader
interests of justice, the petition would nevertheless be dismissed for
failure of Gonzalez to show grave abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been

recognized and accepted in our jurisdiction. The Civil Code is explicit
on the matter.33 R.A. No. 876 also expressly authorizes arbitration of
domestic disputes. Foreign arbitration, as a system of settling
commercial disputes of an international character, was likewise
recognized when the Philippines adhered to the United Nations
"Convention on the Recognition and the Enforcement of Foreign
Arbitral Awards of 1958," under the 10 May 1965 Resolution No. 71
of the Philippine Senate, giving reciprocal recognition and allowing
enforcement of international arbitration agreements between parties
of different nationalities within a contracting state.34 The enactment of
R.A. No. 9285 on 2 April 2004 further institutionalized the use of
alternative dispute resolution systems, including arbitration, in the
settlement of disputes.

Disputes do not go to arbitration unless and until the parties have

agreed to abide by the arbitrator’s decision. Necessarily, a contract is
required for arbitration to take place and to be binding. R.A. No. 876
recognizes the contractual nature of the arbitration agreement, thus:

Sec. 2. Persons and matters subject to arbitration.—Two or more

persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties
to any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.

Such submission or contract may include question arising out of

valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the
parties.

A controversy cannot be arbitrated where one of the parties to the

controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction approve
a petition for permission to submit such controversy to arbitration
made by the general guardian or guardian ad litem of the infant or of
the incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation

Co.35 that a submission to arbitration is a contract. A clause in a
contract providing that all matters in dispute between the parties shall
be referred to arbitration is a contract,36 and in Del Monte
Corporation-USA v. Court of Appeals37 that "[t]he provision to submit
to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule,
contracts are respected as the law between the contracting parties
and produce effect as between them, their assigns and heirs."38

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It 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 applications filed under
the provisions of this Act, within ten days after such motions,
petitions, or applications have been heard by it. [Emphasis added.]

This special proceeding is the procedural mechanism for the

enforcement of the contract to arbitrate. The jurisdiction of the courts
in relation to Sec. 6 of R.A. No. 876 as well as the nature of the
proceedings therein was expounded upon in La Naval Drug
Corporation v. Court of Appeals.39 There it was held that R.A. No. 876
explicitly confines the court's 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 proceeding
shall be dismissed."40 The cited case also stressed that the
proceedings are summary in nature.41 The same thrust was made in
the earlier case of Mindanao Portland Cement Corp. v. McDonough
Construction Co. of Florida42 which held, thus:

Since there obtains herein a written provision for arbitration as well as

failure on respondent's part to comply therewith, the court a quo
rightly ordered the parties to proceed to arbitration in accordance with
the terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the dispute are
improperly raised herein. They should be addressed to the
arbitrators. This proceeding is merely a summary remedy to enforce
the agreement to arbitrate. The duty of the court in this case is not to
resolve the merits of the parties' claims but only to determine if they
should proceed to arbitration or not. x x x x43

Implicit in the summary nature of the judicial proceedings is the

separable or independent character of the arbitration clause or
agreement. This was highlighted in the cases of Manila Electric Co. v.
Pasay Trans. Co.44 and Del Monte Corporation-USA v. Court of
Appeals.45
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 part comes to an end.46

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.47

The separability of the arbitration clause is confirmed in Art. 16(1) of

the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL
Arbitration Rules.48

The separability doctrine was dwelt upon at length in the U.S. case of
Prima Paint Corp. v. Flood & Conklin Manufacturing Co.49 In that
case, Prima Paint and Flood and Conklin (F & C) entered into a
consulting agreement whereby F & C undertook to act as consultant
to Prima Paint for six years, sold to Prima Paint a list of its customers
and promised not to sell paint to these customers during the same
period. The consulting agreement contained an arbitration clause.
Prima Paint did not make payments as provided in the consulting
agreement, contending that F & C had fraudulently misrepresented
that it was solvent and able for perform its contract when in fact it was
not and had even intended to file for bankruptcy after executing the
consultancy agreement. Thus, F & C served Prima Paint with a notice
of intention to arbitrate. Prima Paint sued in court for rescission of the
consulting agreement on the ground of fraudulent misrepresentation
and asked for the issuance of an order enjoining F & C from
proceeding with arbitration. F & C moved to stay the suit pending
arbitration. The trial court granted F & C’s motion, and the U.S.
Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paint’s argument that
it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument.
Relying on Sec. 4 of the Federal Arbitration Act—which provides that
"if a party [claims to be] aggrieved by the alleged failure x x x of
another to arbitrate x x x, [t]he court shall hear the parties, and upon
being satisfied that the making of the agreement for arbitration or the
failure to comply therewith is not in issue, the court shall make an
order directing the parties to proceed to arbitration x x x. If the making
of the arbitration agreement or the failure, neglect, or refusal to
perform the same be in issue, the court shall proceed summarily to
the trial thereof"—the U.S. High Court held that the court should not
order the parties to arbitrate if the making of the arbitration agreement
is in issue. The parties should be ordered to arbitration if, and only if,
they have contracted to submit to arbitration. Prima Paint was not
entitled to trial on the question of whether an arbitration agreement
was made because its allegations of fraudulent inducement were not
directed to the arbitration clause itself, but only to the consulting
agreement which contained the arbitration agreement.50 Prima Paint
held that "arbitration clauses are ‘separable’ from the contracts in
which they are embedded, and that where no claim is made that
fraud was directed to the arbitration clause itself, a broad arbitration
clause will be held to encompass arbitration of the claim that the
contract itself was induced by fraud."51

There is reason, therefore, to rule against Gonzales when he alleges

that Judge Pimentel acted with grave abuse of discretion in ordering
the parties to proceed with arbitration. Gonzales’s argument that the
Addendum Contract is null and void and, therefore the arbitration
clause therein is void as well, is not tenable. First, the proceeding in a
petition for arbitration under R.A. No. 876 is limited only to the
resolution of the question of whether the arbitration agreement exists.
Second, the separability of the arbitration clause from the Addendum
Contract means that validity or invalidity of the Addendum Contract
will not affect the enforceability of the agreement to arbitrate. Thus,
Gonzales’s petition for certiorari should be dismissed.

This brings us back to G.R. No. 161957. 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.

The Motion for Reconsideration of Gonzales in G.R. No. 161957

should also be denied. In the motion, Gonzales raises the same
question of jurisdiction, more particularly that the complaint for
nullification of the Addendum Contract pertained to the DENR Panel
of Arbitrators, not the regular courts. He insists that the subject of his
complaint is a mining dispute since it involves a dispute concerning
rights to mining areas, the Financial and Technical Assistance
Agreement (FTAA) between the parties, and it also involves
claimowners. He adds that the Court failed to rule on other issues he
raised, such as whether he had ceded his claims over the mineral
deposits located within the Addendum Area of Influence; whether the
complaint filed before the DENR Panel of Arbitrators alleged ultimate
facts of fraud; and whether the action to declare the nullity of the
Addendum Contract on the ground of fraud has
prescribed.1avvphi1.net

These are the same issues that Gonzales raised in his Rule 45
petition in G.R. No. 161957 which were resolved against him in the
Decision of 28 February 2005. Gonzales does not raise any new
argument that would sway the Court even a bit to alter its holding that
the complaint filed before the DENR Panel of Arbitrators involves
judicial issues which should properly be resolved by the regular
courts. He alleged fraud or misrepresentation in the execution of the
Addendum Contract which is a ground for the annulment of a
voidable contract. Clearly, such allegations entail legal questions
which are within the jurisdiction of the courts.

The question of whether Gonzales had ceded his claims over the
mineral deposits in the Addendum Area of Influence is a factual
question which is not proper for determination before this Court. At all
events, moreover, the question is irrelevant to the issue of jurisdiction
of the DENR Panel of Arbitrators. It should be pointed out that the
DENR Panel of Arbitrators made a factual finding in its Order dated
18 October 2001, which it reiterated in its Order dated 25 June 2002,
that Gonzales had, "through the various agreements, assigned his
interest over the mineral claims all in favor of [Climax-Arimco]" as well
as that without the complainant [Gonzales] assigning his interest over
the mineral claims in favor of [Climax-Arimco], there would be no
FTAA to speak of."52 This finding was affirmed by the Court of
Appeals in its Decision dated 30 July 2003 resolving the petition for
certiorari filed by Climax-Arimco in regard to the 18 October 2001
Order of the DENR Panel.53

The Court of Appeals likewise found that Gonzales’s complaint

alleged fraud but did not provide any particulars to substantiate it.
The complaint repeatedly mentioned fraud, oppression, violation of
the Constitution and similar conclusions but nowhere did it give any
ultimate facts or particulars relative to the allegations.54

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all

averments of fraud, the circumstances constituting fraud must be
stated with particularity. This is to enable the opposing party to
controvert the particular facts allegedly constituting the same. Perusal
of the complaint indeed shows that it failed to state with particularity
the ultimate facts and circumstances constituting the alleged fraud. It
does not state what particulars about Climax-Arimco’s financial or
technical capability were misrepresented, or how the
misrepresentation was done. Incorporated in the body of the
complaint are verbatim reproductions of the contracts,
correspondence and government issuances that reportedly explain
the allegations of fraud and misrepresentation, but these are, at best,
evidentiary matters that should not be included in the pleading.

As to the issue of prescription, Gonzales’s claims of fraud and

misrepresentation attending the execution of the Addendum Contract
are grounds for the annulment of a voidable contract under the Civil
Code.55 Under Art. 1391 of the Code, an action for annulment shall
be brought within four years, in the case of fraud, beginning from the
time of the discovery of the same. However, the time of the discovery
of the alleged fraud is not clear from the allegations of Gonzales’s
complaint. That being the situation coupled with the fact that this
Court is not a trier of facts, any ruling on the issue of prescription
would be uncalled for or even unnecessary.

WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is

DISMISSED. Such dismissal effectively renders superfluous formal
action on the Motion for Partial Reconsideration and/or Clarification
filed by Climax Mining Ltd., et al. in G.R. No. 161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No.

161957 is DENIED WITH FINALITY.

SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

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 66 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 Order10 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, cross-claim, 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 respondent’s citation of
the Gonzales case, 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
petitioner’s 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 certiorari should 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 party’s 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 court’s 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, petitioner’s 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.

Arbitration, as an alternative mode of settling disputes, has long been

recognized and accepted in our jurisdiction.16R.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 21 and 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.

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.1âwphi1 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 CA’s 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 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.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:
G.R. No. 120105 March 27, 1998

BF CORPORATION, petitioner,
vs.
COURT OF APPEALS, SHANGRI-LA PROPERTIES, INC., RUFO
B. COLAYCO, ALFREDO C. RAMOS, MAXIMO G. LICAUCO III
and BENJAMIN C. RAMOS, respondents.

ROMERO, J.:

The basic issue in this petition for review on certiorari is whether or

not the contract for the construction of the EDSA Plaza between
petitioner BF Corporation and respondent Shangri-la Properties, Inc.
embodies an arbitration clause in case of disagreement between the
parties in the implementation of contractual provisions.

Petitioner and respondent Shangri-la Properties, Inc. (SPI) entered

into an agreement whereby the latter engaged the former to construct
the main structure of the "EDSA Plaza Project," a shopping mall
complex in the City of Mandaluyong. The construction work was in
progress when SPI decided to expand the project by engaging the
services of petitioner again. Thus, the parties entered into an
agreement for the main contract works after which construction work
began.

However, petitioner incurred delay in the construction work that SPI

considered as "serious and substantial."1 On the other hand,
according to petitioner, the construction works "progressed in faithful
compliance with the First Agreement until a fire broke out on
November 30, 1990 damaging Phase I" of the Project.2 Hence, SPI
proposed the re-negotiation of the agreement between them.

Consequently, on May 30, 1991, petitioner and SPI entered into a

written agreement denominated as "Agreement for the Execution of
Builder's Work for the EDSA Plaza Project." Said agreement would
cover the construction work on said project as of May 1, 1991 until its
eventual completion.
According to SPI, petitioner "failed to complete the construction works
and abandoned the project."3 This resulted in disagreements between
the parties as regards their respective liabilities under the contract.
On July 12, 1993, upon SPI's initiative, the parties' respective
representatives met in conference but they failed to come to an
agreement.4

Barely two days later or on July 14, 1993, petitioner filed with the
Regional Trial Court of Pasig a complaint for collection of the balance
due under the construction agreement. Named defendants therein
were SPI and members of its board of directors namely, Alfredo C.
Ramos, Rufo B. Calayco, Antonio B. Olbes, Gerardo O. Lanuza, Jr.,
Maximo G. Licauco III and Benjamin C. Ramos.

On August 3, 1993, SPI and its co-defendants filed a motion to

suspend proceedings instead of filing an answer. The motion was
anchored on defendants' allegation that the formal trade contract for
the construction of the project provided for a clause requiring prior
resort to arbitration before judicial intervention could be invoked in
any dispute arising from the contract. The following day, SPI
submitted a copy of the conditions of the contract containing the
arbitration clause that it failed to append to its motion to suspend
proceedings.

Petitioner opposed said motion claiming that there was no formal

contract between the parties although they entered into an agreement
defining their rights and obligations in undertaking the project. It
emphasized that the agreement did not provide for arbitration and
therefore the court could not be deprived of jurisdiction conferred by
law by the mere allegation of the existence of an arbitration clause in
the agreement between the parties.

In reply to said opposition, SPI insisted that there was such an

arbitration clause in the existing contract between petitioner and SPI.
It alleged that suspension of proceedings would not necessarily
deprive the court of its jurisdiction over the case and that arbitration
would expedite rather than delay the settlement of the parties'
respective claims against each other.
In a rejoinder to SPI's reply, petitioner reiterated that there was no
arbitration clause in the contract between the parties. It averred that
granting that such a clause indeed formed part of the contract,
suspension of the proceedings was no longer proper. It added that
defendants should be declared in default for failure to file their answer
within the reglementary period.

In its sur-rejoinder, SPI pointed out the significance of petitioner's

admission of the due execution of the "Articles of Agreement." Thus,
on page D/6 thereof, the signatures of Rufo B. Colayco, SPI
president, and Bayani Fernando, president of petitioner appear, while
page D/7 shows that the agreement is a public document duly
notarized on November 15, 1991 by Notary Public Nilberto R. Briones
as document No. 345, page 70, book No. LXX, Series of 1991 of his
notarial register.5

Thereafter, upon a finding that an arbitration clause indeed exists, the

lower court6 denied the motion to suspend proceedings, thus:

It appears from the said document that in the letter-

agreement dated May 30, 1991 (Annex C, Complaint),
plaintiff BF and defendant Shangri-La Properties, Inc.
agreed upon the terms and conditions of the Builders
Work for the EDSA Plaza Project (Phases I, II and
Carpark), subject to the execution by the parties of a
formal trade contract. Defendants have submitted a copy
of the alleged trade contract, which is entitled "Contract
Documents For Builder's Work Trade Contractor" dated
01 May 1991, page 2 of which is entitled "Contents of
Contract Documents" with a list of the documents therein
contained, and Section A thereof consists of the
abovementioned Letter-Agreement dated May 30, 1991.
Section C of the said Contract Documents is entitled
"Articles of Agreement and Conditions of Contract" which,
per its Index, consists of Part A (Articles of Agreement)
and B (Conditions of Contract). The said Articles of
Agreement appears to have been duly signed by
President Rufo B. Colayco of Shangri-La Properties, Inc.
and President Bayani F. Fernando of BF and their
witnesses, and was thereafter acknowledged before
 Notary Public Nilberto R. Briones of Makati, Metro Manila
on November 15, 1991. The said Articles of Agreement
also provides that the "Contract Documents" therein listed
"shall be deemed an integral part of this Agreement", and
one of the said documents is the "Conditions of Contract"
which contains the Arbitration Clause relied upon by the
defendants in their Motion to Suspend Proceedings.

This Court notes, however, that the 'Conditions of Contract' referred

to, contains the following provisions:

3. Contract Document.

Three copies of the Contract Documents

referred to in the Articles of Agreement shall
be signed by the parties to the contract and
distributed to the Owner and the Contractor
for their safe keeping." (emphasis supplied).

And it is significant to note further that the said

"Conditions of Contract" is not duly signed by the parties
on any page thereof — although it bears the initials of
BF's representatives (Bayani F. Fernando and Reynaldo
M. de la Cruz) without the initials thereon of any
representative of Shangri-La Properties, Inc.

Considering the insistence of the plaintiff that the said

Conditions of Contract was not duly executed or signed
by the parties, and the failure of the defendants to submit
any signed copy of the said document, this Court
entertains serious doubt whether or not the arbitration
clause found in the said Conditions of Contract is binding
upon the parties to the Articles of Agreement." (Emphasis
supplied.)

The lower court then ruled that, assuming that the arbitration clause
was valid and binding, still, it was "too late in the day for defendants
to invoke arbitration." It quoted the following provision of the
arbitration clause:
 Notice of the demand for arbitration of a dispute shall be
filed in writing with the other party to the contract and a
copy filed with the Project Manager. The demand for
arbitration shall be made within a reasonable time after
the dispute has arisen and attempts to settle amicably
have failed; in no case, however, shall the demand he
made be later than the time of final payment except as
otherwise expressly stipulated in the contract.

Against the above backdrop, the lower court found that per the May
30, 1991 agreement, the project was to be completed by October 31,
1991. Thereafter, the contractor would pay P80,000 for each day of
delay counted from November 1, 1991 with "liquified (sic) damages
up to a maximum of 5% of the total contract price."

The lower court also found that after the project was completed in
accordance with the agreement that contained a provision on
"progress payment billing," SPI "took possession and started
operations thereof by opening the same to the public in November,
1991." SPI, having failed to pay for the works, petitioner billed SPI in
the total amount of P110,883,101.52, contained in a demand letter
sent by it to SPI on February 17, 1993. Instead of paying the amount
demanded, SPI set up its own claim of P220,000,000.00 and
scheduled a conference on that claim for July 12, 1993. The
conference took place but it proved futile.

Upon the above facts, the lower court concluded:

Considering the fact that under the supposed Arbitration

Clause invoked by defendants, it is required that "Notice
of the demand for arbitration of a dispute shall be filed in
writing with the other party . . . . in no case . . . . later than
the time of final payment . . . "which apparently, had
elapsed, not only because defendants had taken
possession of the finished works and the plaintiff's billings
for the payment thereof had remained pending since
November, 1991 up to the filing of this case on July 14,
1993, but also for the reason that defendants have failed
to file any written notice of any demand for arbitration
during the said long period of one year and eight months,
 this Court finds that it cannot stay the proceedings in this
case as required by Sec. 7 of Republic Act No. 876,
because defendants are in default in proceeding with
such arbitration.

The lower court denied SPI's motion for reconsideration for lack of
merit and directed it and the other defendants to file their responsive
pleading or answer within fifteen (15) days from notice.

Instead of filing an answer to the complaint, SPI filed a petition

for certiorari under Rule 65 of the Rules of Court before the Court of
Appeals. Said appellate court granted the petition, annulled and set
aside the orders and stayed the proceedings in the lower court. In so
ruling, the Court of Appeals held:

The reasons given by the respondent Court in denying

petitioners' motion to suspend proceedings are untenable.

1. The notarized copy of the articles of agreement

attached as Annex A to petitioners' reply dated August 26,
1993, has been submitted by them to the respondent
Court (Annex G, petition). It bears the signature of
petitioner Rufo B. Colayco, president of petitioner
Shangri-La Properties, Inc., and of Bayani Fernando,
president of respondent Corporation (Annex G-1,
petition). At page D/4 of said articles of agreement it is
expressly provided that the conditions of contract are
"deemed an integral part" thereof (page 188, rollo). And it
is at pages D/42 to D/44 of the conditions of contract that
the provisions for arbitration are found (Annexes G-3 to
G-5, petition, pp. 227-229). Clause No. 35 on arbitration
specifically provides:

Provided always that in case any dispute or

difference shall arise between the Owner or
the Project Manager on his behalf and the
Contractor, either during the progress or after
the completion or abandonment of the Works
as to the construction of this Contract or as to
any matter or thing of whatsoever nature
 arising thereunder or in connection therewith
(including any matter or being left by this
Contract to the discretion of the Project
Manager or the withholding by the Project
Manager of any certificate to which the
Contractor may claim to be entitled or the
measurement and valuation mentioned in
clause 30 (5) (a) of these Conditions' or the
rights and liabilities of the parties under
clauses 25, 26, 32 or 33 of these Conditions),
the Owner and the Contractor hereby agree to
exert all efforts to settle their differences or
dispute amicably. Failing these efforts then
such dispute or difference shall be referred to
Arbitration in accordance with the rules and
procedures of the Philippine Arbitration Law.

The fact that said conditions of contract containing the

arbitration clause bear only the initials of respondent
Corporation's representatives, Bayani Fernando and
Reynaldo de la Cruz, without that of the representative of
petitioner Shangri-La Properties, Inc. does not militate
against its effectivity. Said petitioner having categorically
admitted that the document, Annex A to its reply dated
August 26, 1993 (Annex G, petition), is the agreement
between the parties, the initial or signature of said
petitioner's representative to signify conformity to
arbitration is no longer necessary. The parties, therefore,
should be allowed to submit their dispute to arbitration in
accordance with their agreement.

2. The respondent Court held that petitioners "are in

default in proceeding with such arbitration." It took note of
"the fact that under the supposed Arbitration Clause
invoked by defendants, it is required that "Notice of the
demand for arbitration of a dispute shall be filed in writing
with the other party . . . in no case . . . later than the time
of final payment," which apparently, had elapsed, not only
because defendants had taken possession of the finished
works and the plaintiff's billings for the payment thereof
 had remained pending since November, 1991 up to the
filing of this case on July 14, 1993, but also for the reason
that defendants have failed to file any written notice of
any demand for arbitration during the said long period of
one year and eight months, . . . ."

Respondent Court has overlooked the fact that under the

arbitration
clause —

Notice of the demand for arbitration dispute

shall be filed in writing with the other party to
the contract and a copy filed with the Project
Manager. The demand for arbitration shall be
made within a reasonable time after the
dispute has arisen and attempts to settle
amicably had failed; in no case, however,
shall the demand be made later than the time
of final payment except as otherwise
expressly stipulated in the contract (emphasis
supplied)

quoted in its order (Annex A, petition). As the respondent

Court there said, after the final demand to pay the amount
of P110,883,101.52, instead of paying, petitioners set up
its own claim against respondent Corporation in the
amount of P220,000,000.00 and set a conference thereon
on July 12, 1993. Said conference proved futile. The next
day, July 14, 1993, respondent Corporation filed its
complaint against petitioners. On August 13, 1993,
petitioners wrote to respondent Corporation requesting
arbitration. Under the circumstances, it cannot be said
that petitioners' resort to arbitration was made beyond
reasonable time. Neither can they be considered in
default of their obligation to respondent Corporation.

Hence, this petition before this Court. Petitioner assigns the following
errors:

A
 THE COURT OF APPEALS ERRED IN ISSUING THE
EXTRAORDINARY WRIT OF CERTIORARIALTHOUGH
THE REMEDY OF APPEAL WAS AVAILABLE TO
RESPONDENTS.

THE COURT OF APPEALS ERRED IN FINDING GRAVE

ABUSE OF DISCRETION IN THE FACTUAL FINDINGS
OF THE TRIAL COURT THAT:

(i) THE PARTIES DID NOT

ENTER INTO AN AGREEMENT
TO ARBITRATE.

(ii) ASSUMING THAT THE

PARTIES DID ENTER INTO THE
AGREEMENT TO ARBITRATE,
RESPONDENTS ARE ALREADY
IN DEFAULT IN INVOKING THE
AGREEMENT TO ARBITRATE.

On the first assigned error, petitioner contends that the Order of the
lower court denying the motion to suspend proceedings "is a
resolution of an incident on the merits." As such, upon the
continuation of the proceedings, the lower court would appreciate the
evidence adduced in their totality and thereafter render a decision on
the merits that may or may not sustain the existence of an arbitration
clause. A decision containing a finding that the contract has no
arbitration clause can then be elevated to a higher court "in an
ordinary appeal" where an adequate remedy could be obtained.
Hence, to petitioner, the Court of Appeals should have dismissed the
petition for certioraribecause the remedy of appeal would still be
available to private respondents at the proper time.7

The above contention is without merit.

The rule that the special civil action of certiorari may not be invoked
as a substitute for the remedy of appeal is succinctly reiterated
in Ongsitco v. Court of Appeals8 as follows:
 . . . . Countless times in the past, this Court has held that
"where appeal is the proper remedy, certiorariwill not lie."
The writs of certiorari and prohibition are remedies to
correct lack or excess of jurisdiction or grave abuse of
discretion equivalent to lack of jurisdiction committed by a
lower court. "Where the proper remedy is appeal, the
action for certiorari will not be entertained. . . . Certiorari is
not a remedy for errors of judgment. Errors of judgment
are correctible by appeal, errors of jurisdiction are
reviewable by certiorari."

Rule 65 is very clear. The extraordinary remedies

of certiorari, prohibition and mandamus are available only
when "there is no appeal or any plain, speedy and
adequate remedy in the ordinary course of law . . . ." That
is why they are referred to as "extraordinary." . . . .

The Court has likewise ruled that "certiorari will not be issued to cure
errors in proceedings or correct erroneous conclusions of law or fact.
As long as a court acts within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing
more than errors of judgment which are reviewable by timely appeal
and not by a special civil action of certiorari."9

This is not exactly so in the instant case. While this Court does not
deny the eventual jurisdiction of the lower court over the controversy,
the issue posed basically is whether the lower court prematurely
assumed jurisdiction over it. If the lower court indeed prematurely
assumed jurisdiction over the case, then it becomes an error of
jurisdiction which is a proper subject of a petition for certiorari before
the Court of Appeals. And if the lower court does not have jurisdiction
over the controversy, then any decision or order it may render may be
annulled and set aside by the appellate court.

However, the question of jurisdiction, which is a question of law

depends on the determination of the existence of the arbitration
clause, which is a question of fact. In the instant case, the lower court
found that there exists an arbitration clause. However, it ruled that in
contemplation of law, said arbitration clause does not exist.
The issue, therefore, posed before the Court of Appeals in a petition
for certiorari is whether the Arbitration Clause does not in fact exist.
On its face, the the question is one of fact which is not proper in a
petition for certiorari.

The Court of Appeals found that an Arbitration Clause does in fact

exist. In resolving said question of fact, the Court of Appeals
interpreted the construction of the subject contract documents
containing the Arbitration Clause in accordance with Republic Act No.
876 (Arbitration Law) and existing jurisprudence which will be
extensively discussed hereunder. In effect, the issue posed before
the Court of Appeals was likewise a question of law. Being a question
of law, the private respondents rightfully invoked the special civil
action of certiorari.

It is that mode of appeal taken by private respondents before the

Court of Appeals that is being questioned by the petitioners before
this Court. But at the heart of said issue is the question of whether
there exists an Arbitration Clause because if an Arbitration Clause
does not exist, then private respondents took the wrong mode of
appeal before the Court of Appeals.

For this Court to be able to resolve the question of whether private

respondents took the proper mode of appeal, which, incidentally, is a
question of law, then it has to answer the core issue of whether there
exists an Arbitration Clause which, admittedly, is a question of fact.

Moreover, where a rigid application of the rule that certiorari cannot

be a substitute for appeal will result in a manifest failure or
miscarriage of justice, the provisions of the Rules of Court which are
technical rules may be relaxed. 10 As we shall show hereunder, had
the Court of Appeals dismissed the petition for certiorari, the
issue of whether or not an arbitration clause exists in the
contract would not have been resolved in accordance with
evidence extant in the record of the case. Consequently, this
would have resulted in a judicial rejection of a contractual
provision agreed by the parties to the contract.

In the same vein, this Court holds that the question of the
existence of the arbitration clause in the contract between
petitioner and private respondents is a legal issue that must be
determined in this petition for review on certiorari.

Petitioner, while not denying that there exists an arbitration

clause in the contract in question, asserts that in contemplation
of law there could not have been one considering the following
points. First, the trial court found that the "conditions of
contract" embodying the arbitration clause is not duly signed by
the parties. Second, private respondents misrepresented before
the Court of Appeals that they produced in the trial court a
notarized duplicate original copy of the construction agreement
because what were submitted were mere photocopies thereof.
The contract(s) introduced in court by private respondents were
therefore "of dubious authenticity" because: (a) the Agreement
for the Execution of Builder's Work for the EDSA Plaza Project
does not contain an arbitration clause, (b) private respondents
"surreptitiously attached as Annexes "G-3" to "G-5" to their
petition before the Court of Appeals but these documents are
not parts of the Agreement of the parties as "there was no
formal trade contract executed," (c) if the entire compilation of
documents "is indeed a formal trade contract," then it should
have been duly notarized, (d) the certification from the Records
Management and Archives Office dated August 26, 1993 merely
states that "the notarial record of Nilberto Briones . . . is
available in the files of (said) office as Notarial Registry Entry
only," (e) the same certification attests that the document
entered in the notarial registry pertains to the Articles of
Agreement only without any other accompanying documents,
and therefore, it is not a formal trade contract, and (f) the
compilation submitted by respondents are a "mere hodge-podge
of documents and do not constitute a single intelligible
agreement."

In other words, petitioner denies the existence of the arbitration

clause primarily on the ground that the representatives of the
contracting corporations did not sign the "Conditions of
Contract" that contained the said clause. Its other contentions,
specifically that insinuating fraud as regards the alleged
insertion of the arbitration clause, are questions of fact that
should have been threshed out below.
This Court may as well proceed to determine whether the
arbitration clause does exist in the parties' contract. Republic
Act No. 876 provides for the formal requisites of an arbitration
agreement as follows:

Sec. 4. Form of arbitration agreement. — A contract

to arbitrate a controversy thereafter arising between
the parties, as well as a submission to arbitrate an
existing controversy, shall be in writing and
subscribed by the party sought to be charged, or by
his lawful agent.

The making of a contract or submission for

arbitration described in section two hereof, providing
for arbitration of any controversy, shall be deemed a
consent of the parties of the province or city where
any of the parties resides, to enforce such contract of
submission. (Emphasis supplied.).

The formal requirements of an agreement to arbitrate are

therefore the following: (a) it must be in writing and (b) it must
be subscribed by the parties or their representatives. There is no
denying that the parties entered into a written contract that was
submitted in evidence before the lower court. To "subscribe"
means to write underneath, as one's name; to sign at the end of
a document. 11 That word may sometimes be construed to mean
to give consent to or to attest.12

The Court finds that, upon a scrutiny of the records of this case,
these requisites were complied with in the contract in question.
The Articles of Agreement, which incorporates all the other
contracts and agreements between the parties, was signed by
representatives of both parties and duly notarized. The failure of
the private respondent's representative to initial the "Conditions
of Contract" would therefor not affect compliance with the
formal requirements for arbitration agreements because that
particular portion of the covenants between the parties was
included by reference in the Articles of Agreement.
Petitioner's contention that there was no arbitration clause
because the contract incorporating said provision is part of a
"hodge-podge" document, is therefore untenable. A contract
need not be contained in a single writing. It may be collected
from several different writings which do not conflict with each
other and which, when connected, show the parties, subject
matter, terms and consideration, as in contracts entered into by
correspondence. 13 A contract may be encompassed in several
instruments even though every instrument is not signed by the
parties, since it is sufficient if the unsigned instruments are
clearly identified or referred to and made part of the signed
instrument or instruments. Similarly, a written agreement of
which there are two copies, one signed by each of the parties, is
binding on both to the same extent as though there had been
only one copy of the agreement and both had signed it. 14

The flaw in petitioner's contentions therefore lies in its having

segmented the various components of the whole contract
between the parties into several parts. This notwithstanding,
petitioner ironically admits the execution of the Articles of
Agreement. Notably, too, the lower court found that the said
Articles of Agreement "also provides that the 'Contract
Documents' therein listed 'shall be deemed an integral part of
this Agreement,' and one of the said documents is the
'Conditions of Contract' which contains the Arbitration Clause.'"
It is this Articles of Agreement that was duly signed by Rufo B.
Colayco, president of private respondent SPI, and Bayani F.
Fernando, president of petitioner corporation. The same
agreement was duly subscribed before notary public Nilberto R.
Briones. In other words, the subscription of the principal
agreement effectively covered the other documents
incorporated by reference therein.

This Court likewise does not find that the Court of Appeals erred
in ruling that private respondents were not in default in invoking
the provisions of the arbitration clause which states that "(t)he
demand for arbitration shall be made within a reasonable time
after the dispute has arisen and attempts to settle amicably had
failed." Under the factual milieu, private respondent SPI should
have paid its liabilities tinder the contract in accordance with its
terms. However, misunderstandings appeared to have cropped
up between the parties ostensibly brought about by either delay
in the completion of the construction work or by force majeure
or the fire that partially gutted the project. The almost two-year
delay in paying its liabilities may not therefore be wholly
ascribed to private respondent SPI.

Besides, private respondent SPI's initiative in calling for a

conference between the parties was a step towards the agreed
resort to arbitration. However, petitioner posthaste filed the
complaint before the lower court. Thus, while private respondent
SPI's request for arbitration on August 13, 1993 might appear an
afterthought as it was made after it had filed the motion to
suspend proceedings, it was because petitioner also appeared
to act hastily in order to resolve the controversy through the
courts.

The arbitration clause provides for a "reasonable time" within

which the parties may avail of the relief under that clause.
"Reasonableness" is a relative term and the question of whether
the time within which an act has to be done is reasonable
depends on attendant circumstances. 15 This Court finds that
under the circumstances obtaining in this case, a one-month
period from the time the parties held a conference on July 12,
1993 until private respondent SPI notified petitioner that it was
invoking the arbitration clause, is a reasonable time. Indeed,
petitioner may not be faulted for resorting to the court to claim
what was due it under the contract. However, we find its denial
of the existence of the arbitration clause as an attempt to cover
up its misstep in hurriedly filing the complaint before the lower
court.

In this connection, it bears stressing that the lower court has not
lost its jurisdiction over the case. Section 7 of Republic Act No.
876 provides that proceedings therein have only been stayed.
After the special proceeding of arbitration 16 has been pursued
and completed, then the lower court may confirm the
award 17made by the arbitrator.
It should be noted that in this jurisdiction, arbitration has been
held valid and constitutional. Even before the approval on June
19, 1953 of Republic Act No. 876, this Court has countenanced
the settlement of disputes through arbitration. 18 Republic Act
No. 876 was adopted to supplement the New Civil Code's
provisions on arbitration. 19 Its potentials as one of the
alternative dispute resolution methods that are now rightfully
vaunted as "the wave of the future" in international relations, is
recognized worldwide. To brush aside a contractual agreement
calling for arbitration in case of disagreement between the
parties would therefore be a step backward.

WHEREFORE, the questioned Decision of the Court of Appeals

is hereby AFFIRMED and the petition for certiorari DENIED. This
Decision is immediately executory. Costs against petitioner.

SO ORDERED.