SECOND DIVISION

TUNA PROCESSING, INC., G.R. No. 185582

Petitioner,

Present:

CARPIO, J.,
-versus- Chairperson,
BRION,
PEREZ,
SERENO, and
REYES, JJ.

PHILIPPINE KINGFORD, INC., Promulgated:

Respondent.
February 29, 2012

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

DECISION
PEREZ, J.:

Can a foreign corporation not licensed to do business in the Philippines, but

which collects royalties from entities in the Philippines, sue here to enforce a
foreign arbitral award?

In this Petition for Review on Certiorari under Rule 45,[1] petitioner Tuna
Processing, Inc. (TPI), a foreign corporation not licensed to do business in the
Philippines, prays that the Resolution[2] dated 21 November 2008 of the Regional
Trial Court (RTC) of Makati City be declared void and the case be remanded to the
RTC for further proceedings. In the assailed Resolution, the RTC dismissed
petitioners Petition for Confirmation, Recognition, and Enforcement of Foreign
Arbitral Award[3] against respondent Philippine Kingford, Inc. (Kingford), a
corporation duly organized and existing under the laws of the Philippines,[4] on the
ground that petitioner lacked legal capacity to sue.[5]

The Antecedents

On 14 January 2003, Kanemitsu Yamaoka (hereinafter referred to as the

licensor), co-patentee of U.S. Patent No. 5,484,619, Philippine Letters Patent No.
31138, and Indonesian Patent No. ID0003911 (collectively referred to as the
Yamaoka Patent),[6] and five (5) Philippine tuna processors, namely, Angel Seafood
Corporation, East Asia Fish Co., Inc., Mommy Gina Tuna Resources, Santa Cruz
Seafoods, Inc., and respondent Kingford (collectively referred to as the
sponsors/licensees)[7] entered into a Memorandum of Agreement
[8]
(MOA), pertinent provisions of which read:

1. Background and objectives. The Licensor, co-owner of U.S.Patent No. 5,484,619,

Philippine Patent No. 31138, and Indonesian Patent No. ID0003911 xxx wishes to form
an alliance with Sponsors for purposes of enforcing his three aforementioned patents,
granting licenses under those patents, and collecting royalties.
 The Sponsors wish to be licensed under the aforementioned patents in order to practice
the processes claimed in those patents in the United States, the Philippines, and
Indonesia, enforce those patents and collect royalties in conjunction with Licensor.

xxx

4. Establishment of Tuna Processors, Inc. The parties hereto agree to the establishment of
Tuna Processors, Inc. (TPI), a corporation established in the State of California, in order
to implement the objectives of this Agreement.

5. Bank account. TPI shall open and maintain bank accounts in the United States, which will
be used exclusively to deposit funds that it will collect and to disburse cash it will be
obligated to spend in connection with the implementation of this Agreement.

6. Ownership of TPI. TPI shall be owned by the Sponsors and Licensor. Licensor shall be
assigned one share of TPI for the purpose of being elected as member of the board of
directors. The remaining shares of TPI shall be held by the Sponsors according to their
respective equity shares. [9]

xxx

The parties likewise executed a Supplemental Memorandum of

Agreement[10] dated 15 January 2003 and an Agreement to Amend Memorandum
of Agreement[11] dated 14 July 2003.

Due to a series of events not mentioned in the petition, the licensees,

including respondent Kingford, withdrew from petitioner TPI and correspondingly
reneged on their obligations.[12]Petitioner submitted the dispute for arbitration
before the International Centre for Dispute Resolution in the State of California,
United States and won the case against respondent.[13]Pertinent portions of the
award read:

13.1 Within thirty (30) days from the date of transmittal of this Award to the Parties,
pursuant to the terms of this award, the total sum to be paid by RESPONDENT
 KINGFORD to CLAIMANT TPI, is the sum of ONE MILLION SEVEN HUNDRED FIFTY
THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1,750,846.10).

(A) For breach of the MOA by not paying past due assessments, RESPONDENT
KINGFORDshall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE
THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS
($229,355.90) which is 20% of MOA assessments since September 1, 2005[;]

(B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the
objectives of the MOA, RESPONDENT KINGFORD shall pay CLAIMANT the total sum
of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS AND
TWENTY CENTS ($271,490.20)[;][14] and

(C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT,
RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO
HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1,250,000.00). xxx

xxx[15]

To enforce the award, petitioner TPI filed on 10 October 2007 a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award before the
RTC of Makati City. The petition was raffled to Branch 150 presided by Judge Elmo
M. Alameda.

At Branch 150, respondent Kingford filed a Motion to Dismiss.[16] After the

court denied the motion for lack of merit,[17] respondent sought for the inhibition
of Judge Alameda and moved for the reconsideration of the order denying the
motion.[18] Judge Alameda inhibited himself notwithstanding [t]he unfounded
allegations and unsubstantiated assertions in the motion.[19]Judge Cedrick O. Ruiz
of Branch 61, to which the case was re-raffled, in turn, granted respondents Motion
for Reconsideration and dismissed the petition on the ground that the petitioner
lacked legal capacity to sue in the Philippines.[20]
 Petitioner TPI now seeks to nullify, in this instant Petition for Review on
Certiorari under Rule 45, the order of the trial court dismissing its Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award.

Issue

The core issue in this case is whether or not the court a quo was correct in
so dismissing the petition on the ground of petitioners lack of legal capacity to sue.

Our Ruling

The petition is impressed with merit.

The Corporation Code of the Philippines expressly provides:

Sec. 133. Doing business without a license. - No foreign corporation transacting

business in the Philippines without a license, or its successors or assigns, shall be permitted
to maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.

It is pursuant to the aforequoted provision that the court a quo dismissed the
petition. Thus:
Herein plaintiff TPIs Petition, etc. acknowledges that it is a foreign corporation
established in the State of California and was given the exclusive right to license or
sublicense the Yamaoka Patent and was assigned the exclusive right to enforce the said
patent and collect corresponding royalties in the Philippines. TPI likewise admits that it does
not have a license to do business in the Philippines.
 There is no doubt, therefore, in the mind of this Court that TPI has been doing
business in the Philippines, but sans a license to do so issued by the concerned government
agency of the Republic of the Philippines, when it collected royalties from five (5) Philippine
tuna processors[,] namely[,] Angel Seafood Corporation, East Asia Fish Co., Inc., Mommy
Gina Tuna Resources, Santa Cruz Seafoods, Inc. and respondent Philippine Kingford,
Inc. This being the real situation, TPI cannot be permitted to maintain or intervene in any
action, suit or proceedings in any court or administrative agency of the Philippines. A priori,
the Petition, etc. extant of the plaintiff TPI should be dismissed for it does not have the legal
personality to sue in the Philippines.[21]

The petitioner counters, however, that it is entitled to seek for the

recognition and enforcement of the subject foreign arbitral award in accordance
with Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004),[22] the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards
drafted during the United Nations Conference on International Commercial
Arbitration in 1958 (New York Convention), and the UNCITRAL Model Law on
International Commercial Arbitration (Model Law),[23] as none of these specifically
requires that the party seeking for the enforcement should have legal capacity to
sue. It anchors its argument on the following:

In the present case, enforcement has been effectively refused on a ground not found in the
[Alternative Dispute Resolution Act of 2004], New York Convention, or Model Law. It is for
this reason that TPI has brought this matter before this most Honorable Court, as it [i]s
imperative to clarify whether the Philippines international obligations and State policy to
strengthen arbitration as a means of dispute resolution may be defeated by misplaced
technical considerations not found in the relevant laws.[24]

Simply put, how do we reconcile the provisions of the Corporation Code of

the Philippines on one hand, and the Alternative Dispute Resolution Act of 2004,
the New York Convention and the Model Law on the other?

In several cases, this Court had the occasion to discuss the nature and
applicability of the Corporation Code of the Philippines, a general law, viz-a-viz
other special laws. Thus, in Koruga v. Arcenas, Jr.,[25] this Court rejected the
application of the Corporation Code and applied the New Central Bank Act. It
ratiocinated:
 Korugas invocation of the provisions of the Corporation Code is misplaced. In an
earlier case with similar antecedents, we ruled that:

The Corporation Code, however, is a general law applying to all types

of corporations, while the New Central Bank Act regulates specifically banks
and other financial institutions, including the dissolution and liquidation
thereof. As between a general and special law, the latter shall
prevail generalia specialibus non derogant.(Emphasis supplied)[26]

Further, in the recent case of Hacienda Luisita, Incorporated v. Presidential

Agrarian Reform Council,[27] this Court held:

Without doubt, the Corporation Code is the general law providing for the
formation, organization and regulation of private corporations. On the other hand, RA 6657
is the special law on agrarian reform. As between a general and special law, the latter shall
prevailgeneralia specialibus non derogant.[28]

Following the same principle, the Alternative Dispute Resolution Act of

2004 shall apply in this case as the Act, as its title - An Act to Institutionalize the Use
of an Alternative Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for Other Purposes - would suggest,
is a law especially enacted to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to resolve
their disputes.[29] It specifically provides exclusive grounds available to the party
opposing an application for recognition and enforcement of the arbitral award.[30]

Inasmuch as the Alternative Dispute Resolution Act of 2004, a municipal

law, applies in the instant petition, we do not see the need to discuss compliance
with international obligations under the New York Convention and the Model
Law. After all, both already form part of the law.
 In particular, the Alternative Dispute Resolution Act of 2004 incorporated
the New York Convention in the Act by specifically providing:

SEC. 42. Application of the New York Convention. - The New York Convention shall
govern the recognition and enforcement of arbitral awards covered by the said Convention.

xxx

SEC. 45. Rejection of a Foreign Arbitral Award. - A party to a foreign arbitration

proceeding may oppose an application for recognition and enforcement of the arbitral
award in accordance with the procedural rules to be promulgated by the Supreme Court
only on those grounds enumerated under Article V of the New York Convention. Any other
ground raised shall be disregarded by the regional trial court.

It also expressly adopted the Model Law, to wit:

Sec. 19. Adoption of the Model Law on International Commercial

Arbitration. International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the Model Law) adopted by the United Nations
Commission on International Trade Law on June 21, 1985 xxx.

Now, does a foreign corporation not licensed to do business in the

Philippines have legal capacity to sue under the provisions of the Alternative
Dispute Resolution Act of 2004? We answer in the affirmative.

Sec. 45 of the Alternative Dispute Resolution Act of 2004 provides that the
opposing party in an application for recognition and enforcement of the arbitral
award may raise only those grounds that were enumerated under Article V of
the New York Convention, to wit:

Article V
 1. Recognition and enforcement of the award may be refused, at the request of the party
against whom it is invoked, only if that party furnishes to the competent authority where
the recognition and enforcement is sought, proof that:

(a) The parties to the agreement referred to in article II were, under the law applicable to
them, under some incapacity, or the said agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon, under the law of the country
where the award was made; or

(b) The party against whom the award is invoked was not given proper notice of the
appointment of the arbitrator or of the arbitration proceedings or was otherwise unable
to present his case; or

(c) The award deals with a difference not contemplated by or not falling within the terms
of the submission to arbitration, or it contains decisions on matters beyond the scope of
the submission to arbitration, provided that, if the decisions on matters submitted to
arbitration can be separated from those not so submitted, that part of the award which
contains decisions on matters submitted to arbitration may be recognized and enforced;
or

(d) The composition of the arbitral authority or the arbitral procedure was not in
accordance with the agreement of the parties, or, failing such agreement, was not in
accordance with the law of the country where the arbitration took place; or

(e) The award has not yet become binding on the parties, or has been set aside or
suspended by a competent authority of the country in which, or under the law of which,
that award was made.

2. Recognition and enforcement of an arbitral award may also be refused if the competent
authority in the country where recognition and enforcement is sought finds that:

(a) The subject matter of the difference is not capable of settlement by arbitration under
the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of
that country.

Clearly, not one of these exclusive grounds touched on the capacity to sue of the
party seeking the recognition and enforcement of the award.

Pertinent provisions of the Special Rules of Court on Alternative Dispute

Resolution,[31]which was promulgated by the Supreme Court, likewise support this
position.
 Rule 13.1 of the Special Rules provides that [a]ny party to a foreign
arbitration may petition the court to recognize and enforce a foreign arbitral
award. The contents of such petition are enumerated in Rule 13.5.[32] Capacity to
sue is not included. Oppositely, in the Rule on local arbitral awards or arbitrations
in instances where the place of arbitration is in the Philippines,[33] it is specifically
required that a petition to determine any question concerning the existence,
validity and enforceability of such arbitration agreement[34] available to the parties
before the commencement of arbitration and/or a petition for judicial relief from
the ruling of the arbitral tribunal on a preliminary question upholding or declining
its jurisdiction[35] after arbitration has already commenced should state [t]he facts
showing that the persons named as petitioner or respondent have legal capacity to
sue or be sued.[36]

Indeed, it is in the best interest of justice that in the enforecement of a

foreign arbitralaward, we deny availment by the losing party of the rule that bars
foreign corporations not licensed to do business in the
Philippines from maintaining a suit in our courts. When a party enters
into a contract containing a foreign arbitration clause and, as in this
case, in fact submits itself to arbitration, it becomes bound by the contract, by the
arbitration and by the result of arbitration, conceding thereby the capacity of
the other party to enter into the contract, participate in the arbitration and cause
the implementation of the result. Although not on all fours with the instant case,
also worthy to consider is the
wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting
Opinion in Asset Privatization Trust v. Court of Appeals,[37] to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal

and judicial circles here and abroad. If its tested mechanism can simply be ignored by an
aggrieved party, one who, it must be stressed, voluntarily and actively participated in the
arbitration proceedings from the very beginning, it will destroy the very essence of
mutuality inherent in consensual contracts.[38]
 Clearly, on the matter of capacity to sue, a foreign arbitral award should be
respected not because it is favored over domestic laws and procedures, but
because Republic Act No. 9285 has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a
quo correctly observed that the Model Law, not the New York Convention, governs
the subject arbitral award,[39] petitioner may still seek recognition and enforcement
of the award in Philippine court, since the Model Law prescribes substantially
identical exclusive grounds for refusing recognition or enforcement.[40]
Premises considered, petitioner TPI, although not licensed to do business in
the Philippines, may seek recognition and enforcement of the foreign arbitral
award in accordance with the provisions of the Alternative Dispute Resolution Act
of 2004.

II

The remaining arguments of respondent Kingford are likewise

unmeritorious.

First. There is no need to consider respondents contention that petitioner

TPI improperly raised a question of fact when it posited that its act of entering into
a MOA should not be considered doing business in the Philippines for the purpose
of determining capacity to sue. We reiterate that the foreign corporations capacity
to sue in the Philippines is not material insofar as the recognition and enforcement
of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for
reconsideration of the assailed Resolution dated 21 November 2008 dismissing the
case. We have, time and again, ruled that the prior filing of a motion for
reconsideration is not required in certiorari under Rule 45.[41]
 Third. While we agree that petitioner failed to observe the principle of
hierarchy of courts, which, under ordinary circumstances, warrants the outright
dismissal of the case,[42] we opt to relax the rules following the pronouncement
in Chua v. Ang,[43] to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally

applies to cases involving conflicting factual allegations. Cases which depend on disputed
facts for decision cannot be brought immediately before us as we are not triers of
facts.[44] A strict application of this rule may be excused when the reason behind the rule
is not present in a case, as in the present case, where the issues are not factual but purely
legal. In these types of questions, this Court has the ultimate say so that we merely
abbreviate the review process if we, because of the unique circumstances of a case, choose
to hear and decide the legal issues outright.[45]

Moreover, the novelty and the paramount importance of the issue herein raised
should be seriously considered.[46] Surely, there is a need to take cognizance of the
case not only to guide the bench and the bar, but if only to strengthen arbitration
as a means of dispute resolution, and uphold the policy of the State embodied in
the Alternative Dispute Resolution Act of 2004, to wit:

Sec. 2. Declaration of Policy. - It is hereby declared the policy of the State to

actively promote party autonomy in the resolution of disputes or the freedom of the party
to make their own arrangements to resolve their disputes. Towards this end, the State
shall encourage and actively promote the use of Alternative Dispute Resolution (ADR) as
an important means to achieve speedy and impartial justice and declog court dockets. xxx

Fourth. As regards the issue on the validity and enforceability of the foreign
arbitral award, we leave its determination to the court a quo where its recognition
and enforcement is being sought.

Fifth. Respondent claims that petitioner failed to furnish the court of origin
a copy of the motion for time to file petition for review on certiorari before the
petition was filed with this Court.[47] We, however, find petitioners reply in
order. Thus:

26. Admittedly, reference to Branch 67 in petitioner TPIs Motion for Time to File a
Petition for Review on Certiorari under Rule 45 is a typographical error. As correctly
pointed out by respondent Kingford, the order sought to be assailed originated from
Regional Trial Court, Makati City, Branch 61.

27. xxx Upon confirmation with the Regional Trial Court, Makati City, Branch 61, a
copy of petitioner TPIs motion was received by the Metropolitan Trial Court, Makati City,
Branch 67. On 8 January 2009, the motion was forwarded to the Regional Trial Court,
Makati City, Branch 61.[48]

All considered, petitioner TPI, although a foreign corporation not licensed to

do business in the Philippines, is not, for that reason alone, precluded from filing
the Petition for Confirmation, Recognition, and Enforcement of Foreign Arbitral
Award before a Philippine court.

WHEREFORE, the Resolution dated 21 November 2008 of the Regional Trial

Court, Branch 61, Makati City in Special Proceedings No. M-6533 is
hereby REVERSED and SET ASIDE. The case is REMANDED to Branch 61 for further
proceedings.
SO ORDERED.
CARGILL PHILIPPINES, INC., G.R. No. 175404
Petitioner,
Present:

CARPIO, J., Chairperson,

- versus - NACHURA,
PERALTA,
ABAD, and
MENDOZA, JJ.

SAN FERNANDO REGALA TRADING, Promulgated:

INC.,
Respondent.
January 31, 2011

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

DECISION

PERALTA, J.:
Before us is a petition for review on certiorari seeking to reverse and set aside the
Decision[1]dated July 31, 2006 and the Resolution[2] 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 Damages[3] against petitioner Cargill Philippines, Inc. In its Complaint,
respondent alleged that it was engaged in buying and selling of molasses and
petitioner was one of its various sources from whom it purchased molasses.
Respondent alleged that it entered into a contract dated July 11, 1996 with
petitioner, wherein it was agreed upon that respondent would purchase from
petitioner 12,000 metric tons of Thailand origin cane blackstrap molasses at the
price of US$192 per metric ton; that the delivery of the molasses was to be made
in January/February 1997 and payment was to be made by means of an Irrevocable
Letter of Credit payable at sight, to be opened by September 15, 1996; that
sometime prior to September 15, 1996, the parties agreed that instead of
January/February 1997, the delivery would be made in April/May 1997 and that
payment would be by an Irrevocable Letter of Credit payable at sight, to be opened
upon petitioner's advice. Petitioner, as seller, failed to comply with its obligations
under the contract, despite demands from respondent, thus, the latter prayed for
rescission of the contract and payment of damages.
On July 24, 1998, petitioner filed a Motion to Dismiss/Suspend Proceedings and To
Refer Controversy to Voluntary Arbitration,[4] wherein it argued that the alleged
contract between the parties, dated July 11, 1996, was never consummated
because respondent never returned the proposed agreement bearing its written
acceptance or conformity nor did respondent open the Irrevocable Letter of Credit
at sight. Petitioner contended that the controversy between the parties was
whether or not the alleged contract between the parties was legally in existence
and the RTC was not the proper forum to ventilate such issue. It claimed that the
contract contained an arbitration clause, to wit:

ARBITRATION
 Any dispute which the Buyer and Seller may not be able to settle by mutual agreement
shall be settled by arbitration in the City of New York before the American Arbitration
Association. The Arbitration Award shall be final and binding on both parties.[5]

that respondent must first comply with the arbitration clause before resorting to
court, thus, the RTC must either dismiss the case or suspend the proceedings and
direct the parties to proceed with arbitration, pursuant to Sections 6[6] and
7[7] of Republic Act (R.A.) No. 876, or the Arbitration Law.

Respondent filed an Opposition, wherein it argued that the RTC has jurisdiction
over the action for rescission of contract and could not be changed by the subject
arbitration clause. It cited cases wherein arbitration clauses, such as the subject
clause in the contract, had been struck down as void for being contrary to public
policy since it provided that the arbitration award shall be final and binding on both
parties, thus, ousting the courts of jurisdiction.
In its Reply, petitioner maintained that the cited decisions were already
inapplicable, having been rendered prior to the effectivity of the New Civil Code in
1950 and the Arbitration Law in 1953.
In its Rejoinder, respondent argued that the arbitration clause relied upon by
petitioner is invalid and unenforceable, considering that the requirements imposed
by the provisions of the Arbitration Law had not been complied with.

By way of Sur-Rejoinder, petitioner contended that respondent had even clarified

that the issue boiled down to whether the arbitration clause contained in the
contract subject of the complaint is valid and enforceable; that the arbitration
clause did not violate any of the cited provisions of the Arbitration Law.
On September 17, 1998, the RTC rendered an Order,[8] the dispositive portion of
which reads:

Premises considered, defendant's Motion To Dismiss/Suspend Proceedings and To Refer

Controversy To Voluntary Arbitration is hereby DENIED. Defendant is directed to file its
answer within ten (10) days from receipt of a copy of this order.[9]
In denying the motion, the RTC found that there was no clear basis for petitioner's
plea to dismiss the case, pursuant to Section 7 of the Arbitration Law. The RTC said
that the provision directed the court concerned only to stay the action or
proceeding brought upon an issue arising out of an agreement providing for the
arbitration thereof, but did not impose the sanction of dismissal. However, the RTC
did not find the suspension of the proceedings warranted, since the Arbitration Law
contemplates an arbitration proceeding that must be conducted in the Philippines
under the jurisdiction and control of the RTC; and before an arbitrator who resides
in the country; and that the arbitral award is subject to court approval, disapproval
and modification, and that there must be an appeal from the judgment of the
RTC. The RTC found that the arbitration clause in question contravened these
procedures, i.e., the arbitration clause contemplated an arbitration proceeding
in New York before a non-resident arbitrator (American Arbitration Association);
that the arbitral award shall be final and binding on both parties. The RTC said that
to apply Section 7 of the Arbitration Law to such an agreement would result in
disregarding the other sections of the same law and rendered them useless and
mere surplusages.
Petitioner filed its Motion for Reconsideration, which the RTC denied in an
Order[10] dated November 25, 1998.
Petitioner filed a petition for certiorari with the CA raising the sole issue that the
RTC acted in excess of jurisdiction or with grave abuse of discretion in refusing to
dismiss or at least suspend the proceedings a quo, despite the fact that the party's
agreement to arbitrate had not been complied with.
Respondent filed its Comment and Reply. The parties were then required to file
their respective Memoranda.
On July 31, 2006, the CA rendered its assailed Decision denying the petition and
affirming the RTC Orders.
In denying the petition, the CA found that stipulation providing for arbitration in
contractual obligation is both valid and constitutional; that arbitration as an
alternative mode of dispute resolution has long been accepted in our jurisdiction
and expressly provided for in the Civil Code; that R.A. No. 876 (the Arbitration Law)
also expressly authorized the arbitration of domestic disputes. The CA found error
in the RTC's holding that Section 7 of R.A. No. 876 was inapplicable to arbitration
clause simply because the clause failed to comply with the requirements prescribed
by the law. The CA found that there was nothing in the Civil Code, or R.A. No. 876,
that require that arbitration proceedings must be conducted only in
the Philippinesand 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 Manifestation[12] 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 respondents 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 petitioners petition
for certiorari under Rule 65 filed in the CA against an RTC Order denying a Motion
to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration
was a wrong remedy invoking Section 29 of R.A. No. 876, which provides:

Section 29.

x x x An appeal may be taken from an order made in a proceeding under this Act, or
from a judgment entered upon an award through certiorari proceedings, but such
appeals shall be limited to question of law. x x x.

To support its argument, respondent cites the case of Gonzales v. Climax Mining
Ltd.[13](Gonzales case), wherein we ruled the impropriety of a petition
for certiorari under Rule 65 as a mode of appeal from an RTC Order directing the
parties to arbitration.
We find the cited case not in point.

In the Gonzales case, Climax-Arimco filed before the RTC of Makati a petition to
compel arbitration under R.A. No. 876, pursuant to the arbitration clause found in
the Addendum Contract it entered with Gonzales. Judge Oscar Pimentel of the RTC
of Makati then directed the parties to arbitration proceedings. Gonzales filed a
petition for certiorari with Us contending that Judge Pimentel acted with grave
abuse of discretion in immediately ordering the parties to proceed with arbitration
despite the proper, valid and timely raised argument in his Answer with
counterclaim that the Addendum Contract containing the arbitration clause was
null and void. Climax-Arimco assailed the mode of review availed of by Gonzales,
citing Section 29 of R.A. No. 876 contending that certiorari under 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 partys
agreement to arbitrate had not been complied with. Notably, the RTC found the
existence of the arbitration clause, since it said in its decision that hardly disputed
is the fact that the arbitration clause in question contravenes several provisions of
the Arbitration Law x x x and to apply Section 7 of the Arbitration Law to such an
agreement would result in the disregard of the afore-cited sections of the
Arbitration Law and render them useless and mere surplusages. However,
notwithstanding the finding that an arbitration agreement existed, the RTC denied
petitioner's motion and directed petitioner to file an answer.
In La Naval Drug Corporation v. Court of Appeals,[15] it was held that R.A. No.
876 explicitly confines the courts authority only to the determination of whether
or not there is an agreement in writing providing for arbitration. In the affirmative,
the statute ordains that the court shall issue an order summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof. If the
court, upon the other hand, finds that no such agreement exists, the proceedings
shall be dismissed.
In issuing the Order which denied petitioner's Motion to Dismiss/Suspend
Proceedings and to Refer Controversy to Voluntary Arbitration, the RTC went
beyond its authority of determining only the issue of whether or not there is an
agreement in writing providing for arbitration by directing petitioner to file an
answer, instead of ordering the parties to proceed to arbitration. In so doing, it
acted in excess of its jurisdiction and since there is no plain, speedy, and adequate
remedy in the ordinary course of law, petitioners resort to a petition for certiorari is
the proper remedy.
We now proceed to the substantive issue of whether the CA erred in finding
that this case cannot be brought under the arbitration law for the purpose of
suspending the proceedings in the RTC.
We find merit in the petition.
Arbitration, as an alternative mode of settling disputes, has long been
recognized and accepted in our jurisdiction.[16] R.A. No. 876[17] 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.
Respondents assailed the order of the Panel of Arbitrators via a petition
for certiorari before the CA. The CA granted the petition and declared that the
Panel of Arbitrators did not have jurisdiction over the complaint, since its
jurisdiction was limited to the resolution of mining disputes, such as those which
raised a question of fact or matter requiring the technical knowledge and
experience of mining authorities and not when the complaint alleged fraud and
oppression which called for the interpretation and application of laws. The CA
further ruled that the petition should have been settled through arbitration under
R.A. No. 876 − the Arbitration Law − as provided under the addendum contract.
On a review on certiorari, we affirmed the CAs finding that the Panel of Arbitrators
who, under R.A. No. 7942 of the Philippine Mining Act of 1995, has exclusive and
original jurisdiction to hear and decide mining disputes, such as mining areas,
mineral agreements, FTAAs or permits and surface owners, occupants and
claimholders/concessionaires, is bereft of jurisdiction over the complaint for
declaration of nullity of the addendum contract; thus, the Panels' jurisdiction is
limited only to those mining disputes which raised question of facts or matters
requiring the technical knowledge and experience of mining authorities. We then
said:
In Pearson v. Intermediate Appellate Court, this Court observed that the trend has
been to make the adjudication of mining cases a purely administrative matter. Decisions
of the Supreme Court on mining disputes have recognized a distinction between (1) the
primary powers granted by 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.