Kathryn Punongbayan-Akmad

Bulacan State University

College of Law
Republic of the Philippines
Supreme Court
Manila


SECOND DIVISION


CARGILL PILIPPINES! INC"!
Petitioner!



# $ersus #




SAN %ERNANDO REGALA &RADING! INC"!
Respon'ent"
G"R" No" ()*+,+

Present-

CARPIO! ."! Chairperson!
NAC/RA!
PERAL&A!
A0AD! an'
MENDO1A! .."

Promul2ate'-

.anuar3 4(! 5,((

6 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # 6


DECISION


PERAL&A! ."-

0efore us is a petition for re$ie7 on certiorari see8in2 to re$erse an' set asi'e the
Decision9(: 'ate' .ul3 4(! 5,,; an' the Resolution95: 'ate' No$ember (4! 5,,; of the Court
of Appeals <CA= in CA G"R" SP No" *,4,+"
(
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law

&he factual antece'ents are as follo7s-


On .une (>! (??>! respon'ent San %ernan'o Re2ala &ra'in2! Inc" file' 7ith the Re2ional
&rial Court <R&C= of Ma8ati Cit3 a Complaint for Rescission of Contract 7ith Dama2es94:
a2ainst petitioner Car2ill Philippines! Inc" In its Complaint! respon'ent alle2e' that it 7as
en2a2e' in bu3in2 an' sellin2 of molasses an' petitioner 7as one of its $arious sources from
7hom it purchase' molasses" Respon'ent alle2e' that it entere' into a contract 'ate' .ul3 ((!
(??; 7ith petitioner! 7herein it 7as a2ree' upon that respon'ent 7oul' purchase from
petitioner (5!,,, metric tons of &hailan' ori2in cane blac8strap molasses at the price of
/S@(?5 per metric tonA that the 'eli$er3 of the molasses 7as to be ma'e in .anuar3B%ebruar3
(??) an' pa3ment 7as to be ma'e b3 means of an Irre$ocable Letter of Cre'it pa3able at si2ht!
to be opene' b3 September (*! (??;A that sometime prior to September (*! (??;! the parties
a2ree' that instea' of .anuar3B%ebruar3 (??)! the 'eli$er3 7oul' be ma'e in AprilBMa3 (??)
an' that pa3ment 7oul' be b3 an Irre$ocable Letter of Cre'it pa3able at si2ht! to be opene'
upon petitionerCs a'$ice" Petitioner! as seller! faile' to compl3 7ith its obli2ations un'er the
contract! 'espite 'eman's from respon'ent! thus! the latter pra3e' for rescission of the contract
an' pa3ment of 'ama2es"

On .ul3 5+! (??>! petitioner file' a Motion to DismissBSuspen' Procee'in2s an' &o Refer
Contro$ers3 to Voluntar3 Arbitration!9+: 7herein it ar2ue' that the alle2e' contract bet7een
the parties! 'ate' .ul3 ((! (??;! 7as ne$er consummate' because respon'ent ne$er returne'
the propose' a2reement bearin2 its 7ritten acceptance or conformit3 nor 'i' respon'ent open
the Irre$ocable Letter of Cre'it at si2ht" Petitioner conten'e' that the contro$ers3 bet7een the
parties 7as 7hether or not the alle2e' contract bet7een the parties 7as le2all3 in e6istence an'
the R&C 7as not the proper forum to $entilate such issue" It claime' that the contract containe'
an arbitration clause! to 7it-

AR0I&RA&ION

An3 'ispute 7hich the 0u3er an' Seller ma3 not be able to settle b3 mutual a2reement
shall be settle' b3 arbitration in the Cit3 of Ne7 Dor8 before the American Arbitration
Association" &he Arbitration A7ar' shall be final an' bin'in2 on both parties"9*:


that respon'ent must first compl3 7ith the arbitration clause before resortin2 to court! thus! the
R&C must either 'ismiss the case or suspen' the procee'in2s an' 'irect the parties to procee'
7ith arbitration! pursuant to Sections ;9;: an' )9): of Republic Act <R"A"= No" >);! or the
Arbitration La7"

Respon'ent file' an Opposition! 7herein it ar2ue' that the R&C has Euris'iction o$er the
action for rescission of contract an' coul' not be chan2e' b3 the subEect arbitration clause" It
cite' cases 7herein arbitration clauses! such as the subEect clause in the contract! ha' been
5
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
struc8 'o7n as $oi' for bein2 contrar3 to public polic3 since it pro$i'e' that the arbitration
a7ar' shall be final an' bin'in2 on both parties! thus! oustin2 the courts of Euris'iction"

In its Repl3! petitioner maintaine' that the cite' 'ecisions 7ere alrea'3 inapplicable!
ha$in2 been ren'ere' prior to the effecti$it3 of the Ne7 Ci$il Co'e in (?*, an' the Arbitration
La7 in (?*4"
In its ReEoin'er! respon'ent ar2ue' that the arbitration clause relie' upon b3 petitioner is
in$ali' an' unenforceable! consi'erin2 that the reFuirements impose' b3 the pro$isions of the
Arbitration La7 ha' not been complie' 7ith"

03 7a3 of Sur#ReEoin'er! petitioner conten'e' that respon'ent ha' e$en clarifie' that
the issue boile' 'o7n to 7hether the arbitration clause containe' in the contract subEect of the
complaint is $ali' an' enforceableA that the arbitration clause 'i' not $iolate an3 of the cite'
pro$isions of the Arbitration La7"

On September ()! (??>! the R&C ren'ere' an Or'er!9>: the 'ispositi$e portion of
7hich rea's-


Premises consi'ere'! 'efen'antCs GMotion &o DismissBSuspen' Procee'in2s an' &o
Refer Contro$ers3 &o Voluntar3 ArbitrationH is hereb3 DENIED" Defen'ant is 'irecte' to file
its ans7er 7ithin ten <(,= 'a3s from receipt of a cop3 of this or'er"9?:


In 'en3in2 the motion! the R&C foun' that there 7as no clear basis for petitionerCs plea to
'ismiss the case! pursuant to Section ) of the Arbitration La7" &he R&C sai' that the
pro$ision 'irecte' the court concerne' onl3 to sta3 the action or procee'in2 brou2ht upon an
issue arisin2 out of an a2reement pro$i'in2 for the arbitration thereof! but 'i' not impose the
sanction of 'ismissal" o7e$er! the R&C 'i' not fin' the suspension of the procee'in2s
7arrante'! since the Arbitration La7 contemplates an arbitration procee'in2 that must be
con'ucte' in the Philippines un'er the Euris'iction an' control of the R&CA an' before an
arbitrator 7ho resi'es in the countr3A an' that the arbitral a7ar' is subEect to court appro$al!
'isappro$al an' mo'ification! an' that there must be an appeal from the Eu'2ment of the R&C"
&he R&C foun' that the arbitration clause in Fuestion contra$ene' these proce'ures! i"e"! the
arbitration clause contemplate' an arbitration procee'in2 in Ne7 Dor8 before a non#resi'ent
arbitrator <American Arbitration Association=A that the arbitral a7ar' shall be final an' bin'in2
on both parties" &he R&C sai' that to appl3 Section ) of the Arbitration La7 to such an
a2reement 7oul' result in 'isre2ar'in2 the other sections of the same la7 an' ren'ere' them
useless an' mere surplusa2es"

Petitioner file' its Motion for Reconsi'eration! 7hich the R&C 'enie' in an Or'er9(,:
'ate' No$ember 5*! (??>"

Petitioner file' a petition for certiorari 7ith the CA raisin2 the sole issue that the R&C
acte' in e6cess of Euris'iction or 7ith 2ra$e abuse of 'iscretion in refusin2 to 'ismiss or at
4
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
least suspen' the procee'in2s a Fuo! 'espite the fact that the part3Cs a2reement to arbitrate ha'
not been complie' 7ith"

Respon'ent file' its Comment an' Repl3" &he parties 7ere then reFuire' to file their
respecti$e Memoran'a"

On .ul3 4(! 5,,;! the CA ren'ere' its assaile' Decision 'en3in2 the petition an'
affirmin2 the R&C Or'ers"

In 'en3in2 the petition! the CA foun' that stipulation pro$i'in2 for arbitration in
contractual obli2ation is both $ali' an' constitutionalA that arbitration as an alternati$e mo'e of
'ispute resolution has lon2 been accepte' in our Euris'iction an' e6pressl3 pro$i'e' for in the
Ci$il Co'eA that R"A" No" >); <the Arbitration La7= also e6pressl3 authoriIe' the arbitration
of 'omestic 'isputes" &he CA foun' error in the R&CCs hol'in2 that Section ) of R"A" No" >);
7as inapplicable to arbitration clause simpl3 because the clause faile' to compl3 7ith the
reFuirements prescribe' b3 the la7" &he CA foun' that there 7as nothin2 in the Ci$il Co'e! or
R"A" No" >);! that reFuire that arbitration procee'in2s must be con'ucte' onl3 in the
Philippines an' the arbitrators shoul' be Philippine resi'ents" It also foun' that the R&C rulin2
effecti$el3 in$ali'ate' not onl3 the 'ispute' arbitration clause! but all other a2reements 7hich
pro$i'e for forei2n arbitration" &he CA 'i' not fin' ille2al or a2ainst public polic3 the
arbitration clause so as to ren'er it null an' $oi' or ineffectual"

Not7ithstan'in2 such fin'in2s! the CA still hel' that the case cannot be brou2ht un'er the
Arbitration La7 for the purpose of suspen'in2 the procee'in2s before the R&C! since in its
Motion to DismissBSuspen' procee'in2s! petitioner alle2e'! as one of the 2roun's thereof! that
the subEect contract bet7een the parties 'i' not e6ist or it 7as in$ali'A that the sai' contract
bearin2 the arbitration clause 7as ne$er consummate' b3 the parties! thus! it 7as proper that
such issue be first resol$e' b3 the court throu2h an appropriate trialA that the issue in$ol$e' a
Fuestion of fact that the R&C shoul' first resol$e" Arbitration is not proper 7hen one of the
parties repu'iate' the e6istence or $ali'it3 of the contract"

PetitionerCs motion for reconsi'eration 7as 'enie' in a Resolution 'ate' No$ember (4!
5,,;"

ence! this petition"

Petitioner alle2es that the CA committe' an error of la7 in rulin2 that arbitration cannot
procee' 'espite the fact that- <a= it ha' rule'! in its assaile' 'ecision! that the arbitration clause
is $ali'! enforceable an' bin'in2 on the partiesA <b= the case of GonIales $" Clima6 Minin2 Lt'"
9((: is inapplicable hereA <c= parties are 2enerall3 allo7e'! un'er the Rules of Court! to a'opt
se$eral 'efenses! alternati$el3 or h3potheticall3! e$en if such
'efenses are inconsistent 7ith each otherA an' <'= the complaint file' b3 respon'ent 7ith the
trial court is premature"

+
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
Petitioner alle2es that the CA a'opte' inconsistent positions 7hen it foun' the arbitration
clause bet7een the parties as $ali' an' enforceable an' 3et in the same breath 'ecree' that the
arbitration cannot procee' because petitioner assaile' the e6istence of the entire a2reement
containin2 the arbitration clause" Petitioner claims the inapplicabilit3 of the cite' GonIales
case 'eci'e' in 5,,*! because in the present case! it 7as respon'ent 7ho ha' file' the
complaint for rescission an' 'ama2es 7ith the R&C! 7hich base' its cause of action a2ainst
petitioner on the alle2e' a2reement 'ate' .ul3 ((! 5,,; bet7een the partiesA an' that the same
a2reement containe' the arbitration clause sou2ht to be enforce' b3 petitioner in this case"
&hus! 7hether petitioner assails the 2enuineness an' 'ue e6ecution of the a2reement! the fact
remains that the a2reement sue' upon pro$i'es for an arbitration clauseA that respon'ent cannot
use the pro$isions fa$orable to him an' completel3 'isre2ar' those that are unfa$orable! such
as the arbitration clause"

Petitioner conten's that as the 'efen'ant in the R&C! it presente' t7o alternati$e
'efenses! i"e"! the parties ha' not entere' into an3 a2reement upon 7hich respon'ent as
plaintiff can sue uponA an'! assumin2 that such a2reement e6iste'! there 7as an arbitration
clause that shoul' be enforce'! thus! the 'ispute must first be submitte' to arbitration before an
action can be institute' in court" Petitioner ar2ues that un'er Section (<E= of Rule (; of the
Rules of Court! inclu'e' as a 2roun' to 'ismiss a complaint is 7hen a con'ition prece'ent for
filin2 the complaint has not been complie' 7ithA an' that submission to arbitration 7hen such
has been a2ree' upon is one such con'ition prece'ent" Petitioner submits that the procee'in2s
in the R&C must be 'ismisse'! or at least suspen'e'! an' the parties be or'ere' to procee' 7ith
arbitration"
On March (5! 5,,)! petitioner file' a Manifestation9(5: sa3in2 that the CACs rationale in
'eclinin2 to or'er arbitration base' on the 5,,* GonIales rulin2 ha' been mo'ifie' upon a
motion for reconsi'eration 'eci'e' in 5,,)A that the CA 'ecision lost its le2al basis! because it
ha' been rule' that the arbitration a2reement can be implemente' not7ithstan'in2 that one of
the parties thereto repu'iate' the contract 7hich containe' such a2reement base' on the
'octrine of separabilit3"

In its Comment! respon'ent ar2ues that certiorari un'er Rule ;* is not the reme'3 a2ainst an
or'er 'en3in2 a Motion to DismissBSuspen' Procee'in2s an' &o Refer Contro$ers3 to
Voluntar3 Arbitration" It claims that the Arbitration La7 7hich petitioner in$o8e' as basis for
its Motion prescribe'! un'er its Section 5?! a reme'3! i"e"! appeal b3 a petition for re$ie7 on
certiorari un'er Rule +*" Respon'ent conten's that the GonIales case! 7hich 7as 'eci'e' in
5,,)! is inapplicable in this case! especiall3 as to the 'octrine of separabilit3 enunciate'
therein" Respon'ent ar2ues that e$en if the e6istence of the contract an' the arbitration clause
is conce'e'! the 'ecisions of the R&C an' the CA 'eclinin2 referral of the 'ispute bet7een the
parties to arbitration 7oul' still be correct" &his is so because respon'entCs complaint file' in
Ci$il Case No" ?>#(4); presents the principal issue of 7hether un'er the facts alle2e' in the
complaint! respon'ent is entitle' to rescin' its contract 7ith petitioner an' for the latter to pa3
'ama2esA that such issue constitutes a Eu'icial Fuestion or one that reFuires the e6ercise of
Eu'icial function an' cannot be the subEect of arbitration"

Respon'ent conten's that Section > of the Rules of Court! 7hich allo7e' a 'efen'ant to
a'opt in the same action se$eral 'efenses! alternati$el3 or h3potheticall3! e$en if such 'efenses
*
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
are inconsistent 7ith each other refers to alle2ations in the plea'in2s! such as complaint!
counterclaim! cross#claim! thir'#part3 complaint! ans7er! but not to a motion to 'ismiss"
%inall3! respon'ent claims that petitionerCs ar2ument is premise' on the e6istence of a contract
7ith respon'ent containin2 a pro$ision for arbitration" o7e$er! its reliance on the contract!
7hich it repu'iates! is inappropriate"

In its Repl3! petitioner insists that respon'ent file' an action for rescission an' 'ama2es
on the basis of the contract! thus! respon'ent a'mitte' the e6istence of all the pro$isions
containe' thereun'er! inclu'in2 the arbitration clauseA that if respon'ent relies on sai' contract
for its cause of action a2ainst petitioner! it must also consi'er itself boun' b3 the rest of the
terms an' con'itions containe' thereun'er not7ithstan'in2 that respon'ent ma3 fin' some
pro$isions to be a'$erse to its positionA that respon'entJs citation of the GonIales case!
'eci'e' in 5,,*! to sho7 that the $ali'it3 of the contract cannot be the subEect of the arbitration
procee'in2 an' that it is the R&C 7hich has the Euris'iction to resol$e the situation bet7een the
parties herein! is not correct since in the resolution of the GonIalesC motion for reconsi'eration
in 5,,)! it ha' been rule' that an arbitration a2reement is effecti$e not7ithstan'in2 the fact
that one of the parties thereto repu'iate' the main contract 7hich containe' it"

Ke first a''ress the proce'ural issue raise' b3 respon'ent that petitionerJs petition for
certiorari un'er Rule ;* file' in the CA a2ainst an R&C Or'er 'en3in2 a Motion to
DismissBSuspen' Procee'in2s an' to Refer Contro$ers3 to Voluntar3 Arbitration 7as a 7ron2
reme'3 in$o8in2 Section 5? of R"A" No" >);! 7hich pro$i'es-

Section 5?"

6 6 6 An appeal ma3 be ta8en from an or'er ma'e in a procee'in2 un'er this Act! or from a
Eu'2ment entere' upon an a7ar' throu2h certiorari procee'in2s! but such appeals shall be
limite' to Fuestion of la7" 6 6 6"




&o support its ar2ument! respon'ent cites the case of GonIales $" Clima6 Minin2 Lt'"9(4:
<GonIales case=! 7herein 7e rule' the impropriet3 of a petition for certiorari un'er Rule ;* as
a mo'e of appeal from an R&C Or'er 'irectin2 the parties to arbitration"

Ke fin' the cite' case not in point"

In the GonIales case! Clima6#Arimco file' before the R&C of Ma8ati a petition to
compel arbitration un'er R"A" No" >);! pursuant to the arbitration clause foun' in the
A''en'um Contract it entere' 7ith GonIales" .u'2e Oscar Pimentel of the R&C of Ma8ati then
'irecte' the parties to arbitration procee'in2s" GonIales file' a petition for certiorari 7ith /s
conten'in2 that .u'2e Pimentel acte' 7ith 2ra$e abuse of 'iscretion in imme'iatel3 or'erin2
the parties to procee' 7ith arbitration 'espite the proper! $ali' an' timel3 raise' ar2ument in
his Ans7er 7ith counterclaim that the A''en'um Contract containin2 the arbitration clause
7as null an' $oi'" Clima6#Arimco assaile' the mo'e of re$ie7 a$aile' of b3 GonIales! citin2
;
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
Section 5? of R"A" No" >); conten'in2 that certiorari un'er Rule ;* can be a$aile' of onl3 if
there 7as no appeal or an3 a'eFuate reme'3 in the or'inar3 course of la7A that R"A" No" >);
pro$i'es for an appeal from such or'er" Ke then rule' that GonIalesC petition for certiorari
shoul' be 'ismisse' as it 7as file' in lieu of an appeal b3 certiorari 7hich 7as the prescribe'
reme'3 un'er R"A" No" >); an' the petition 7as file' far be3on' the re2lementar3 perio'"

Ke foun' that GonIalesJ petition for certiorari raises a Fuestion of la7! but not a
Fuestion of Euris'ictionA that .u'2e Pimentel acte' in accor'ance 7ith the proce'ure prescribe'
in R"A" No" >); 7hen he or'ere' GonIales to procee' 7ith arbitration an' appointe' a sole
arbitrator after ma8in2 the 'etermination that there 7as in'ee' an arbitration a2reement" It ha'
been hel' that as lon2 as a court acts 7ithin its Euris'iction an' 'oes not 2ra$el3 abuse its
'iscretion in the e6ercise thereof! an3 suppose' error committe' b3 it 7ill amount to nothin2
more than an error of Eu'2ment re$ie7able b3 a timel3 appeal an' not assailable b3 a special
ci$il action of certiorari"9(+:

In this case! petitioner raises before the CA the issue that the respon'ent .u'2e
acte' in e6cess of Euris'iction or 7ith 2ra$e abuse of 'iscretion in refusin2 to 'ismiss! or at
least suspen'! the procee'in2s a Fuo! 'espite the fact that the part3Js a2reement to arbitrate ha'
not been complie' 7ith" Notabl3! the R&C foun' the e6istence of the arbitration clause! since
it sai' in its 'ecision that Ghar'l3 'ispute' is the fact that the arbitration clause in Fuestion
contra$enes se$eral pro$isions of the Arbitration La7 6 6 6 an' to appl3 Section ) of the
Arbitration La7 to such an a2reement 7oul' result in the 'isre2ar' of the afore#cite' sections
of the Arbitration La7 an' ren'er them useless an' mere surplusa2es"H o7e$er!
not7ithstan'in2 the fin'in2 that an arbitration a2reement e6iste'! the R&C 'enie' petitionerCs
motion an' 'irecte' petitioner to file an ans7er"

In La Na$al Dru2 Corporation $" Court of Appeals!9(*: it 7as hel' that R"A" No" >);
e6plicitl3 confines the courtJs authorit3 onl3 to the 'etermination of 7hether or not there is an
a2reement in 7ritin2 pro$i'in2 for arbitration" In the affirmati$e! the statute or'ains that the
court shall issue an or'er summaril3 'irectin2 the parties to procee' 7ith the arbitration in
accor'ance 7ith the terms thereof" If the court! upon the other han'! fin's that no such
a2reement e6ists! the procee'in2s shall be 'ismisse'"

In issuin2 the Or'er 7hich 'enie' petitionerCs Motion to DismissBSuspen' Procee'in2s an' to
Refer Contro$ers3 to Voluntar3 Arbitration! the R&C 7ent be3on' its authorit3 of 'eterminin2
onl3 the issue of 7hether or not there is an a2reement in 7ritin2 pro$i'in2 for arbitration b3
'irectin2 petitioner to file an ans7er! instea' of or'erin2 the parties to procee' to arbitration" In
so 'oin2! it acte' in e6cess of its Euris'iction an' since there is no plain! spee'3! an' a'eFuate
reme'3 in the or'inar3 course of la7! petitionerJs resort to a petition for certiorari is the proper
reme'3"

Ke no7 procee' to the substanti$e issue of 7hether the CA erre' in fin'in2 that this case
cannot be brou2ht un'er the arbitration la7 for the purpose of suspen'in2 the procee'in2s in
the R&C"

Ke fin' merit in the petition"
)
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law

Arbitration! as an alternati$e mo'e of settlin2 'isputes! has lon2 been reco2niIe' an' accepte'
in our Euris'iction"9(;: R"A" No" >);9(): authoriIes arbitration of 'omestic 'isputes" %orei2n
arbitration! as a s3stem of settlin2 commercial 'isputes of an international character! is li8e7ise
reco2niIe'"9(>: &he enactment of R"A" No" ?5>* on April 5! 5,,+ further institutionaliIe' the
use of alternati$e 'ispute resolution s3stems! inclu'in2 arbitration! in the settlement of
'isputes"9(?:

A contract is reFuire' for arbitration to ta8e place an' to be bin'in2"95,: Submission to
arbitration is a contract 95(: an' a clause in a contract pro$i'in2 that all matters in 'ispute
bet7een the parties shall be referre' to arbitration is a contract"955: &he pro$ision to submit
to arbitration an3 'ispute arisin2 therefrom an' the relationship of the parties is part of the
contract an' is itself a contract"954:
In this case! the contract sue' upon b3 respon'ent pro$i'es for an arbitration clause! to 7it-


AR0I&RA&ION

An3 'ispute 7hich the 0u3er an' Seller ma3 not be able to settle b3 mutual a2reement shall be
settle' b3 arbitration in the Cit3 of Ne7 Dor8 before the American Arbitration Association! &he
Arbitration A7ar' shall be final an' bin'in2 on both parties"

&he CA rule' that arbitration cannot be or'ere' in this case! since petitioner alle2e' that
the contract bet7een the parties 'i' not e6ist or 7as in$ali' an' arbitration is not proper 7hen
one of the parties repu'iates the e6istence or $ali'it3 of the contract" &hus! sai' the CA-

Not7ithstan'in2 our rulin2 on the $ali'it3 an' enforceabilit3 of the assaile' arbitration clause
pro$i'in2 for forei2n arbitration! it is our consi'ere' opinion that the case at bench still cannot
be brou2ht un'er the Arbitration La7 for the purpose of suspen'in2 the procee'in2s before the
trial court" Ke note that in its Motion to DismissBSuspen' Procee'in2s! etc! petitioner Car2ill
alle2e'! as one of the 2roun's thereof! that the alle2e' contract bet7een the parties 'o not
le2all3 e6ist or is in$ali'" As posite' b3 petitioner! it is their contention that the sai' contract!
bearin2 the arbitration clause! 7as ne$er consummate' b3 the parties" &hat bein2 the case! it is
but proper that such issue be first resol$e' b3 the court throu2h an appropriate trial" &he issue
in$ol$es a Fuestion of fact that the trial court shoul' first resol$e"

Arbitration is not proper 7hen one of the parties repu'iates the e6istence or $ali'it3 of
the contract" Apropos is GonIales $" Clima6 Minin2 Lt'"! +*5 SCRA ;,)! <G"R"No"(;(?*)=!
7here the Supreme Court hel' that-

&he Fuestion of $ali'it3 of the contract containin2 the a2reement to submit to
arbitration 7ill affect the applicabilit3 of the arbitration clause itself" A part3 cannot rel3 on the
contract an' claim ri2hts or obli2ations un'er it an' at the same time impu2n its e6istence or
$ali'it3" In'ee'! liti2ants are enEoine' from ta8in2 inconsistent positions""""

>
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
ConseFuentl3! the petitioner herein cannot claim that the contract 7as ne$er
consummate' an'! at the same time! in$o8es the arbitration clause pro$i'e' for un'er the
contract 7hich it alle2es to be non#e6istent or in$ali'" Petitioner claims that pri$ate
respon'entCs complaint lac8s a cause of action 'ue to the absence of an3 $ali' contract bet7een
the parties" Apparentl3! the arbitration clause is bein2 in$o8e' merel3 as a fallbac8 position"
&he petitioner must first a''uce e$i'ence in support of its claim that there is no $ali' contract
bet7een them an' shoul' the court a Fuo fin' the claim to be meritorious! the parties ma3 then
be spare' the ri2ors an' e6penses that arbitration in a forei2n lan' 7oul' surel3 entail"95+:


o7e$er! the GonIales case!95*: 7hich the CA relie' upon for not or'erin2 arbitration!
ha' been mo'ifie' upon a motion for reconsi'eration in this 7ise-

6 6 6 &he a'Eu'ication of the petition in G"R" No" (;)??+ effecti$el3 mo'ifies part of the
Decision 'ate' 5> %ebruar3 5,,* in G"R" No" (;(?*)" ence! 7e no7 hol' that the $ali'it3 of
the contract containin2 the a2reement to submit to arbitration 'oes not affect the applicabilit3
of the arbitration clause itself" A contrar3 rulin2 7oul' su22est that a part3Cs mere repu'iation
of the main contract is sufficient to a$oi' arbitration" &hat is e6actl3 the situation that the
separabilit3 'octrine! as 7ell as Eurispru'ence appl3in2 it! see8s to a$oi'" Ke a'' that 7hen it
7as 'eclare' in G"R" No" (;(?*) that the case shoul' not be brou2ht for arbitration! it shoul'
be clarifie' that the case referre' to is the case actuall3 file' b3 GonIales before the DENR
Panel of Arbitrators! 7hich 7as for the nullification of the main contract on the 2roun' of
frau'! as it ha' alrea'3 been 'etermine' that the case shoul' ha$e been brou2ht before the
re2ular courts in$ol$in2 as it 'i' Eu'icial issues"95;:


In so rulin2 that the $ali'it3 of the contract containin2 the arbitration a2reement 'oes not
affect the applicabilit3 of the arbitration clause itself! 7e then applie' the 'octrine of
separabilit3! thus-

&he 'octrine of separabilit3! or se$erabilit3 as other 7riters call it! enunciates that an
arbitration a2reement is in'epen'ent of the main contract" &he arbitration a2reement is to be
treate' as a separate a2reement an' the arbitration a2reement 'oes not automaticall3 terminate
7hen the contract of 7hich it is a part comes to an en'"
&he separabilit3 of the arbitration a2reement is especiall3 si2nificant to the
'etermination of 7hether the in$ali'it3 of the main contract also nullifies the arbitration clause"
In'ee'! the 'octrine 'enotes that the in$ali'it3 of the main contract! also referre' to as the
LcontainerL contract! 'oes not affect the $ali'it3 of the arbitration a2reement" Irrespecti$e of
the fact that the main contract is in$ali'! the arbitration clauseBa2reement still remains $ali'
an' enforceable"95):


?
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
Respon'ent ar2ues that the separabilit3 'octrine is not applicable in petitionerCs case! since in
the GonIales case! Clima6#Arimco sou2ht to enforce the arbitration clause of its contract 7ith
GonIales an' the formerCs mo$e 7as premise' on the e6istence of a $ali' contractA 7hile
GonIales! 7ho resiste' the mo$e of Clima6#Arimco for arbitration! 'i' not 'en3 the e6istence
of the contract but merel3 assaile' the $ali'it3 thereof on the 2roun' of frau' an' oppression"
Respon'ent claims that in the case before /s! petitioner 7ho is the part3 insistent on arbitration
also claime' in their Motion to DismissBSuspen' Procee'in2s that the contract sou2ht b3
respon'ent to be rescin'e' 'i' not e6ist or 7as not consummate'A thus! there is no room for the
application of the separabilit3 'octrine! since there is no container or main contract or an
arbitration clause to spea8 of"

Ke are not persua'e'"

Appl3in2 the GonIales rulin2! an arbitration a2reement 7hich forms part of the main contract
shall not be re2ar'e' as in$ali' or non#e6istent Eust because the main contract is in$ali' or 'i'
not come into e6istence! since the arbitration a2reement shall be treate' as a separate
a2reement in'epen'ent of the main contract" &o reiterate" a contrar3 rulin2 7oul' su22est that
a part3Cs mere repu'iation of the main contract is sufficient to a$oi' arbitration an' that is
e6actl3 the situation that the separabilit3 'octrine sou2ht to a$oi'" &hus! 7e fin' that e$en the
part3 7ho has repu'iate' the main contract is not pre$ente' from enforcin2 its arbitration
clause"

Moreo$er! it is 7orth3 to note that respon'ent file' a complaint for rescission of contract an'
'ama2es 7ith the R&C" In so 'oin2! respon'ent alle2e' that a contract e6ists bet7een
respon'ent an' petitioner" It is that contract 7hich pro$i'es for an arbitration clause 7hich
states that Gan3 'ispute 7hich the 0u3er an' Seller ma3 not be able to settle b3 mutual
a2reement shall be settle' before the Cit3 of Ne7 Dor8 b3 the American Arbitration
Association" &he arbitration a2reement clearl3 e6presse' the partiesC intention that an3 'ispute
bet7een them as bu3er an' seller shoul' be referre' to arbitration" It is for the arbitrator an'
not the courts to 'eci'e 7hether a contract bet7een the parties e6ists or is $ali'"

Respon'ent conten's that assumin2 that the e6istence of the contract an' the arbitration
clause is conce'e'! the CACs 'ecision 'eclinin2 referral of the partiesC 'ispute to arbitration is
still correct" It claims that its complaint in the R&C presents the issue of 7hether un'er the
facts alle2e'! it is entitle' to rescin' the contract 7ith 'ama2esA an' that issue constitutes a
Eu'icial Fuestion or one that reFuires the e6ercise of Eu'icial function an' cannot be the subEect
of an arbitration procee'in2" Respon'ent cites our rulin2 in GonIales! 7herein 7e hel' that a
panel of arbitrator is bereft of Euris'iction o$er the complaint for 'eclaration of nullit3Bor
termination of the subEect contracts on the 2roun's of frau' an' oppression atten'ant to the
e6ecution of the a''en'um contract an' the other contracts emanatin2 from it! an' that the
complaint shoul' ha$e been file' 7ith the re2ular courts as it in$ol$e' issues 7hich are
Eu'icial in nature"

Such ar2ument is misplace' an' respon'ent cannot rel3 on the GonIales case to support
its ar2ument"

(,
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
In GonIales! petitioner GonIales file' a complaint before the Panel of Arbitrators! Re2ion
II! Mines an' Geosciences 0ureau! of the Department of En$ironment an' Natural Resources
<DENR= a2ainst respon'ents Clima6# Minin2 Lt'! Clima6#Arimco an' Australasian
Philippines Minin2 Inc! see8in2 the 'eclaration of nullit3 or termination of the a''en'um
contract an' the other contracts emanatin2 from it on the 2roun's of frau' an' oppression" &he
Panel 'ismisse' the complaint for lac8 of Euris'iction" o7e$er! the Panel! upon petitionerCs
motion for reconsi'eration! rule' that it ha' Euris'iction o$er the 'ispute maintainin2 that it
7as a minin2 'ispute! since the subEect complaint arose from a contract bet7een the parties
7hich in$ol$e' the e6ploration an' e6ploitation of minerals o$er the 'ispute' area"
Respon'ents assaile' the or'er of the Panel of Arbitrators $ia a petition for certiorari before the
CA" &he CA 2rante' the petition an' 'eclare' that the Panel of Arbitrators 'i' not ha$e
Euris'iction o$er the complaint! since its Euris'iction 7as limite' to the resolution of minin2
'isputes! such as those 7hich raise' a Fuestion of fact or matter reFuirin2 the technical
8no7le'2e an' e6perience of minin2 authorities an' not 7hen the complaint alle2e' frau' an'
oppression 7hich calle' for the interpretation an' application of la7s" &he CA further rule'
that the petition shoul' ha$e been settle' throu2h arbitration un'er R"A" No" >); M the
Arbitration La7 M as pro$i'e' un'er the a''en'um contract"

On a re$ie7 on certiorari! 7e affirme' the CAJs fin'in2 that the Panel of Arbitrators 7ho!
un'er R"A" No" )?+5 of the Philippine Minin2 Act of (??*! has e6clusi$e an' ori2inal
Euris'iction to hear an' 'eci'e minin2 'isputes! such as minin2 areas! mineral a2reements!
%&AAs or permits an' surface o7ners! occupants an' claimhol'ersBconcessionaires! is bereft of
Euris'iction o$er the complaint for 'eclaration of nullit3 of the a''en'um contractA thus! the
PanelsC Euris'iction is limite' onl3 to those minin2 'isputes 7hich raise' Fuestion of facts or
matters reFuirin2 the technical 8no7le'2e an' e6perience of minin2 authorities" Ke then sai'-

In Pearson $" Interme'iate Appellate Court! this Court obser$e' that the tren' has been to ma8e
the a'Eu'ication of minin2 cases a purel3 a'ministrati$e matter" Decisions of the Supreme
Court on minin2 'isputes ha$e reco2niIe' a 'istinction bet7een <(= the primar3 po7ers
2rante' b3 pertinent pro$isions of la7 to the then Secretar3 of A2riculture an' Natural
Resources <an' the bureau 'irectors= of an e6ecuti$e or a'ministrati$e nature! such as 2rantin2
of license! permits! lease an' contracts! or appro$in2! reEectin2! reinstatin2 or cancelin2
applications! or 'eci'in2 conflictin2 applications! an' <5= contro$ersies or 'isa2reements of
ci$il or contractual nature bet7een liti2ants 7hich are Fuestions of a Eu'icial nature that ma3
be a'Eu'icate' onl3 b3 the courts of Eustice" &his 'istinction is carrie' on e$en in Rep" Act No"
)?+5"95>:

Ke foun' that since the complaint file' before the DENR Panel of Arbitrators char2e'
respon'ents 7ith 'isre2ar'in2 an' i2norin2 the a''en'um contract! an' actin2 in a frau'ulent
an' oppressi$e manner a2ainst petitioner! the complaint file' before the Panel 7as not a
'ispute in$ol$in2 ri2hts to minin2 areas! or 7as it a 'ispute in$ol$in2 claimhol'ers or
concessionaires! but essentiall3 Eu'icial issues" Ke then sai' that the Panel of Arbitrators 'i'
not ha$e Euris'iction o$er such issue! since it 'oes not in$ol$e the application of technical
8no7le'2e an' e6pertise relatin2 to minin2" It is in this conte6t that 7e sai' that-

((
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
Arbitration before the Panel of Arbitrators is proper onl3 7hen there is a 'isa2reement
bet7een the parties as to some pro$isions of the contract bet7een them! 7hich nee's the
interpretation an' the application of that particular 8no7le'2e an' e6pertise possesse' b3
members of that Panel" It is not proper 7hen one of the parties repu'iates the e6istence or
$ali'it3 of such contract or a2reement on the 2roun' of frau' or oppression as in this case" &he
$ali'it3 of the contract cannot be subEect of arbitration procee'in2s" Alle2ations of frau' an'
'uress in the e6ecution of a contract are matters 7ithin the Euris'iction of the or'inar3 courts of
la7" &hese Fuestions are le2al in nature an' reFuire the application an' interpretation of la7s
an' Eurispru'ence 7hich is necessaril3 a Eu'icial function"95?:

In fact! Ke e$en clarifie' in our resolution on GonIalesJ motion for reconsi'eration that
G7hen 7e 'eclare' that the case shoul' not be brou2ht for arbitration! it shoul' be clarifie' that
the case referre' to is the case actuall3 file' b3 GonIales before the DENR Panel of
Arbitrators! 7hich 7as for the nullification of the main contract on the 2roun' of frau'! as it
ha' alrea'3 been 'etermine' that the case shoul' ha$e been brou2ht before the re2ular courts
in$ol$in2 as it 'i' Eu'icial issues"H Ke ma'e such clarification in our resolution of the motion
for reconsi'eration after rulin2 that the parties in that case can procee' to arbitration un'er the
Arbitration La7! as pro$i'e' un'er the Arbitration Clause in their A''en'um Contract"


KERE%ORE! the petition is GRAN&ED" &he Decision 'ate' .ul3 4(! 5,,; an' the
Resolution 'ate' No$ember (4! 5,,; of the Court of Appeals in CA#G"R" SP No" *,4,+ are
REVERSED an' SE& ASIDE" &he parties are hereb3 ORDERED to S/0MI& themsel$es to
the arbitration of their 'ispute! pursuant to their .ul3 ((! (??; a2reement"

SO ORDERED"


DIOSDADO M" PERAL&A
Associate .ustice

KE CONC/R-



AN&ONIO &" CARPIO
Associate .ustice
Chairperson



AN&ONIO ED/ARDO 0" NAC/RA RO0ER&O A" A0AD
Associate .ustice Associate .ustice



(5
Kathryn Punongbayan-Akmad
Bulacan State University
College of Law
.OSE CA&RAL MENDO1A
Associate .ustice


A&&ES&A&ION


I attest that the conclusions in the abo$e Decision ha' been reache' in consultation
before the case 7as assi2ne' to the 7riter of the opinion of the CourtJs Di$ision"



AN&ONIO &" CARPIO
Associate .ustice
Secon' Di$ision! Chairperson


CER&I%ICA&ION


Pursuant to Section (4! Article VIII of the Constitution an' the Di$ision ChairpersonJs
Attestation! I certif3 that the conclusions in the abo$e Decision ha' been reache' in
consultation before the case 7as assi2ne' to the 7riter of the opinion of the CourtJs Di$ision"




RENA&O C" CORONA
Chief .ustice
(4