Cargill Philippines v San Fernando Regala Trading Inc

Date: Jan 31 2011

Ponente: J Peralta

Facts:
 Regala (R) filed with RTC Makati a complaint for rescission of contract with
damages against Cargill Philippines (P)
 Regala alleged that it was engaged in buying and selling of molasses and Cargill
was one of its sources of the same
 Regala entered into a contract with Cargill to buy 12,000 tons of Thailand
blackstrap molasses at $192 per metric ton
o Delivery = Jan/feb 1997
o Payment = irrevocable letter of credit payable at sight to be opened by Sept
15 1996
o Later agreed to move delivery on april/may 1997 and the irrevocable letter
of credit payable at sight, to be opened upon P’s advice
 Cargill failed to comply with its obligation despite demands and thus Regala
prayed for rescission with damages
 Cargill filed a motion to dismiss/ suspend proceedings to refer controversy to
Voluntary Arbitration (VA)
o Arguing that alleged contract between parties was never consummated
because it never returned the proposed agreement with its acceptance
o Argued VA was the proper forum in determining WON the contract was
legally existent
o The clause provides:
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.

o Thus, R must comply with the arbitration clause before going to regular courts
pursuant to RA 876 sec 6 and 7 (refer to your soft copy mahaba masyado)
 Regala filed an opposition arguing arbitration clause is void for contrary to public
policy that its decision will be final and executory ousting jurisdiction of courts
 In its rejoinder, Regala argued that the arbitration clause did not comply with thre
requirements provided by the Arbotration Law had not been complied with
 By sur-rejoinder Cargill contended that Regala even clarified that the issue boiled
down WON arbitration clause in contract is valid and enforceable and did not
violate any of the provisions of the Arbitration Law
 RTC Ordered denying motion to dismiss/suspend
o No clear bases
o Arbitration law comtemplates an arbitration proceedings must be
conducted in the Philippines under the jurisdiction and control of RTC
o The arbitral award is subject to court approval and that there must be an
appeal from RTC
o This contravened bu the Arbitration Procedure of New York
 Cargill filed MR which RTC denied
 Cargil filed a petition for certiorari with the CA on grave abuse for refusing to dismiss
or suspend
  CA denied Petition
o Arbitration as an alternative mode of dispute resolution has long been
accepted in our jurisdiction and expressly provided for in the Civil Code and
RA 876 expressly authorizes domestic disputes
o RTC erred in saying that sec 7 was inapplicable because the clause really
failed to comply with the arbitration requirements provided in the law
o RTC erred in saying that only domestic arbitration must be conducted only in
the PH as no such restriction in the law
o Arbitration clause in this case not illegal or against public policy the
arbitration clause so as to render it null and void or ineffectual
o BUT, the issues/grounds raised were the existence/validty of the contract
bearing the arbitration clause
o Thus, RTC should first resolve this
ISSUE: WON RTC indeed have jurisdiction to the case at hand

Held:
 Regala hinges its argument on Gonzales v Climax Mining wherein SC 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
 However, SC rules it is not a case in point to the case at bar
o In that case the issue was using Rule 65 for assailing grave abuse against
judge Pimentel for ordering to proceed with arbitration despite the timely
argument that the arbitration clause was null and void
o However, sec 29 of RA 876 provides an appeal on such order and so there is
still plain, adequate and speedy remedy that bars a Rule 65
o Gonzales case raised question of law but not question of jurisdiction
 In this case
o Cargill raises before the CA the issue that Judge was in grave abuse in
refusing to dismiss or suspend the proceedings despite the fact that the
party’s agreement to arbitrate had not been complied with
o RTC found the existence of arbitration clause but contravenes several
provisions of the arbitration law
 In La Naval Drug Corporation v CA
o RA 876 explicityly confines the court’s authority only to the determination of
WON there is an agreement in writing providing for arbitration and it will
determine if the court will order to proceed with arbitration or the
proceedings shall be dismissed
 As applied
o Denying Motion to Dismiss/suspend proceedings and to refer controversy to
voluntary arbitration, the RTC went beyond its authority of determining only
the issue of WON there is an agreement in writing providing for arbitration by
directing Cargill to file an answer
 Substantive issues
o Arbitration as an alternative mode of settling disputes has long been
recognized and accepted in our jurisdiction
o RA 876 authorizes arbitration of domestic disputes
o Foreign arbitration as a system of settling commercial disputes of an
international character is likewise recognized
o RA9285 further institutionalized the use of alternative dispute resolution
systems
o A contract is required for arbitration to take place and to be binding
o Submission to arbitration is a contract and clause in a contract providing that
all matters in dispute between the parties shall be referred to arbitration is a
contract
o Provision to submit to arbitration any dispute arising therefrom and the
relationship of the parties is part of the contract and itself a contract
o Gonzales v Climax Mining
 “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..”
 ^ This was overturned in an MR resolution
 “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
 It cannot now be sufficient to avoid arbitration by merely
assailing the validity of the contract
 The separability doctrine seeks to avoid this situation
o Doctrine of seperability
 Arbitration agreement is separate agreement and does not terminate
automatically when the contract of which it is a part comes ot an end
 The invalidity of the main contract, also referred to as the “container”
contract does not affect the validity of the arbitration agreement
 WON main contract invalid, arbitration clause still remains valid and
enforceable
o Gonzales case again on judicial determination of rescission
 Cargil argues that in Gonzales case, the determination of validity of
contract lies before the regular courts as fraud and oppression were
used as its grounds, and thus a judicial function which the Court
granted
 However in its resolution, the parties in that case can proceed to
arbitration under the arbitration law, as provided under the arbitration
clause in their Addendum Contract
o GRANTED