TUNA PROCESSING, INC.

,Petitioner,

-versus-

PHILIPPINE KINGFORD, INC.,Respondent.

G.R. No. 185582

Promulgated: 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 (MOA),[8] 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 KINGFORD
shall 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 arbitral award, we
deny availment by the losing party of the rule that bars foreign corporations not licensed to do
business in the Philippines from maintaining a suit in our courts. When a party enters into a
contract containing a foreign arbitration clause and, as in this case, in fact submits itself to
arbitration, it becomes bound by the contract, by the arbitration and by the result of arbitration,
conceding thereby the capacity of the other party to enter into the contract, participate in the
arbitration and cause the implementation of the result. Although not on all fours with the instant
case, also worthy to consider is the

wisdom of then Associate Justice Flerida Ruth P. Romero in her Dissenting Opinion in Asset
Privatization Trust v. Court of Appeals,[37] to wit:

xxx Arbitration, as an alternative mode of settlement, is gaining adherents in legal and judicial
circles here and abroad. If its tested mechanism can simply be ignored by an aggrieved party,
one who, it must be stressed, voluntarily and actively participated in the arbitration proceedings
from the very beginning, it will destroy the very essence of mutuality inherent in consensual
contracts.[38]

Clearly, on the matter of capacity to sue, a foreign arbitral award should be respected not
because it is favored over domestic laws and procedures, but because Republic Act No. 9285
has certainly erased any conflict of law question.

Finally, even assuming, only for the sake of argument, that the court a quo correctly observed that
the Model Law, not the New York Convention, governs the subject arbitral award,[39] petitioner
may still seek recognition and enforcement of the award in Philippine court, since the Model Law
prescribes substantially identical exclusive grounds for refusing recognition or enforcement.[40]

Premises considered, petitioner TPI, although not licensed to do business in the Philippines, may
seek recognition and enforcement of the foreign arbitral award in accordance with the provisions
of the Alternative Dispute Resolution Act of 2004.

II

The remaining arguments of respondent Kingford are likewise unmeritorious.

First. There is no need to consider respondents contention that petitioner TPI improperly raised a
question of fact when it posited that its act of entering into a MOA should not be considered doing
business in the Philippines for the purpose of determining capacity to sue. We reiterate that the
foreign corporations capacity to sue in the Philippines is not material insofar as the recognition
and enforcement of a foreign arbitral award is concerned.

Second. Respondent cannot fault petitioner for not filing a motion for reconsideration of the
assailed Resolution dated 21 November 2008 dismissing the case. We have, time and again,
ruled that the prior filing of a motion for reconsideration is not required in certiorari under Rule 45.
[41]

Third. While we agree that petitioner failed to observe the principle of hierarchy of courts, which,
under ordinary circumstances, warrants the outright dismissal of the case,[42] we opt to relax the
rules following the pronouncement in Chua v. Ang,[43] to wit:

[I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases
involving conflicting factual allegations. Cases which depend on disputed facts for decision
cannot be brought immediately before us as we are not triers of facts.[44] A strict application of
this rule may be excused when the reason behind the rule is not present in a case, as in the
present case, where the issues are not factual but purely legal. 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., Petitioner,

SAN FERNANDO REGALA TRADING, INC., Respondent.

G.R. No. 175404

Promulgated: 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 Philippines and the arbitrators should
be Philippine residents. It also found that the RTC ruling effectively invalidated not only the
disputed arbitration clause, but all other agreements which provide for foreign arbitration. The CA
did not find illegal or against public policy the arbitration clause so as to render it null and void or
ineffectual.

Notwithstanding such findings, the CA still held that the case cannot be brought under the
Arbitration Law for the purpose of suspending the proceedings before the RTC, since in its Motion
to Dismiss/Suspend proceedings, petitioner alleged, as one of the grounds thereof, that the
subject contract between the parties did not exist or it was invalid; that the said contract bearing
the arbitration clause was never consummated by the parties, thus, it was proper that such issue
be first resolved by the court through an appropriate trial; that the issue involved a question of fact
that the RTC should first resolve. Arbitration is not proper when one of the parties repudiated the
existence or validity of the contract.

Petitioner's motion for reconsideration was denied in a Resolution dated November 13, 2006.

Hence, this petition.

Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed
despite the fact that: (a) it had ruled, in its assailed decision, that the arbitration clause is valid,
enforceable and binding on the parties; (b) the case of Gonzales v. Climax Mining Ltd.[11] is
inapplicable here; (c) parties are generally allowed, under the Rules of Court, to adopt several
defenses, alternatively or hypothetically, even if such

defenses are inconsistent with each other; and (d) the complaint filed by respondent with the trial
court is premature.

Petitioner alleges that the CA adopted inconsistent positions when it found the arbitration clause
between the parties as valid and enforceable and yet in the same breath decreed that the
arbitration cannot proceed because petitioner assailed the existence of the entire agreement
containing the arbitration clause. Petitioner claims the inapplicability of the cited Gonzales case
decided in 2005, because in the present case, it was respondent who had filed the complaint for
rescission and damages with the RTC, which based its cause of action against petitioner on the
alleged agreement dated July 11, 2006 between the parties; and that the same agreement
contained the arbitration clause sought to be enforced by petitioner in this case. Thus, whether
petitioner assails the genuineness and due execution of the agreement, the fact remains that the
agreement sued upon provides for an arbitration clause; that respondent cannot use the
provisions favorable to him and completely disregard those that are unfavorable, such as the
arbitration clause.

Petitioner contends that as the defendant in the RTC, it presented two alternative defenses, i.e.,
the parties had not entered into any agreement upon which respondent as plaintiff can sue upon;
and, assuming that such agreement existed, there was an arbitration clause that should be
enforced, thus, the dispute must first be submitted to arbitration before an action can be instituted
in court. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court, included as a
ground to dismiss a complaint is when a condition precedent for filing the complaint has not been
complied with; and that submission to arbitration when such has been agreed upon is one such
condition precedent. Petitioner submits that the proceedings in the RTC must be dismissed, or at
least suspended, and the parties be ordered to proceed with arbitration.

On March 12, 2007, petitioner filed a 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.