Cargill v. San Fernando Regala Trading

5/21/2018 Cargill v. San Fernando Regala Trading

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Kathryn Punongbayan-AkmadBulacan State UniversityCollege of Law

Republic of the PhilippinesSupreme CourtManila

SECOND DIVISION

CARGILL PILIPPINES! INC"! Petitioner!

# $ersus #

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

CARPIO! ."! Chairperson! NAC/RA! PERAL&A! A0AD! an' MENDO1A! .."Promul2ate'-

.anuar3 4(! 5,((6 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # 6

DECISION

PERAL&A! ."-

0efore us is a petition for re$ie7 on certiorari see8in2 to re$erse an' set asi'e theDecision9(: 'ate' .ul3 4(! 5,,; an' the Resolution95: 'ate' No$ember (4! 5,,; of the Courtof Appeals


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&he factual antece'ents are as follo7s-

On .une (>! (??>! respon'ent San %ernan'o Re2ala &ra'in2! Inc" file' 7ith the Re2ional&rial Court


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struc8 'o7n as $oi' for bein2 contrar3 to public polic3 since it pro$i'e' that the arbitrationa7ar' shall be final an' bin'in2 on both parties! thus! oustin2 the courts of uris'iction"

In its Repl3! petitioner maintaine' that the cite' 'ecisions 7ere alrea'3 inapplicable!

ha$in2 been ren'ere' prior to the effecti$it3 of the Ne7 Ci$il Co'e in (?*, an' the ArbitrationLa7 in (?*4" In its Reoin'er! respon'ent ar2ue' that the arbitration clause relie' upon b3 petitioner isin$ali' an' unenforceable! consi'erin2 that the reFuirements impose' b3 the pro$isions of theArbitration La7 ha' not been complie' 7ith"

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

On September ()! (??>! the R&C ren'ere' an Or'er!9>: the 'ispositi$e portion of7hich rea's-

Premises consi'ere'! 'efen'ants Motion &o DismissBSuspen' Procee'in2s an' &oRefer Contro$ers3 &o Voluntar3 ArbitrationH is hereb3 DENIED" Defen'ant is 'irecte' to fileits ans7er 7ithin ten


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least suspen' the procee'in2s a Fuo! 'espite the fact that the part3s a2reement to arbitrate ha'not been complie' 7ith"

Respon'ent file' its Comment an' Repl3" &he parties 7ere then reFuire' to file their

respecti$e Memoran'a"On .ul3 4(! 5,,;! the CA ren'ere' its assaile' Decision 'en3in2 the petition an'

affirmin2 the R&C Or'ers"

In 'en3in2 the petition! the CA foun' that stipulation pro$i'in2 for arbitration incontractual obli2ation is both $ali' an' constitutional that arbitration as an alternati$e mo'e of'ispute resolution has lon2 been accepte' in our uris'iction an' e6pressl3 pro$i'e' for in theCi$il Co'e that R"A" No" >);


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Petitioner alle2es that the CA a'opte' inconsistent positions 7hen it foun' the arbitrationclause bet7een the parties as $ali' an' enforceable an' 3et in the same breath 'ecree' that thearbitration cannot procee' because petitioner assaile' the e6istence of the entire a2reementcontainin2 the arbitration clause" Petitioner claims the inapplicabilit3 of the cite' Gonales

case 'eci'e' in 5,,*! because in the present case! it 7as respon'ent 7ho ha' file' thecomplaint for rescission an' 'ama2es 7ith the R&C! 7hich base' its cause of action a2ainstpetitioner on the alle2e' a2reement 'ate' .ul3 ((! 5,,; bet7een the parties an' that the samea2reement containe' the arbitration clause sou2ht to be enforce' b3 petitioner in this case"&hus! 7hether petitioner assails the 2enuineness an' 'ue e6ecution of the a2reement! the factremains that the a2reement sue' upon pro$i'es for an arbitration clause that respon'ent cannotuse the pro$isions fa$orable to him an' completel3 'isre2ar' those that are unfa$orable! suchas the arbitration clause"

Petitioner conten's that as the 'efen'ant in the R&C! it presente' t7o alternati$e'efenses! i"e"! the parties ha' not entere' into an3 a2reement upon 7hich respon'ent as

plaintiff can sue upon an'! assumin2 that such a2reement e6iste'! there 7as an arbitrationclause that shoul' be enforce'! thus! the 'ispute must first be submitte' to arbitration before anaction can be institute' in court" Petitioner ar2ues that un'er Section (#(4); presents the principal issue of 7hether un'er the facts alle2e' in thecomplaint! respon'ent is entitle' to rescin' its contract 7ith petitioner an' for the latter to pa3'ama2es that such issue constitutes a u'icial Fuestion or one that reFuires the e6ercise ofu'icial function an' cannot be the subect of arbitration"

Respon'ent conten's that Section > of the Rules of Court! 7hich allo7e' a 'efen'ant toa'opt in the same action se$eral 'efenses! alternati$el3 or h3potheticall3! e$en if such 'efenses

*


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are inconsistent 7ith each other refers to alle2ations in the plea'in2s! such as complaint!counterclaim! cross#claim! thir'#part3 complaint! ans7er! but not to a motion to 'ismiss"%inall3! respon'ent claims that petitioners ar2ument is premise' on the e6istence of a contract7ith respon'ent containin2 a pro$ision for arbitration" o7e$er! its reliance on the contract!

7hich it repu'iates! is inappropriate"In its Repl3! petitioner insists that respon'ent file' an action for rescission an' 'ama2es

on the basis of the contract! thus! respon'ent a'mitte' the e6istence of all the pro$isionscontaine' thereun'er! inclu'in2 the arbitration clause that if respon'ent relies on sai' contractfor its cause of action a2ainst petitioner! it must also consi'er itself boun' b3 the rest of theterms an' con'itions containe' thereun'er not7ithstan'in2 that respon'ent ma3 fin' somepro$isions to be a'$erse to its position that respon'entJs citation of the Gonales case!'eci'e' in 5,,*! to sho7 that the $ali'it3 of the contract cannot be the subect of the arbitrationprocee'in2 an' that it is the R&C 7hich has the uris'iction to resol$e the situation bet7een theparties herein! is not correct since in the resolution of the Gonales motion for reconsi'eration

in 5,,)! it ha' been rule' that an arbitration a2reement is effecti$e not7ithstan'in2 the factthat one of the parties thereto repu'iate' the main contract 7hich containe' it"

Ke first a''ress the proce'ural issue raise' b3 respon'ent that petitionerJs petition forcertiorari un'er Rule ;* file' in the CA a2ainst an R&C Or'er 'en3in2 a Motion toDismissBSuspen' Procee'in2s an' to Refer Contro$ers3 to Voluntar3 Arbitration 7as a 7ron2reme'3 in$o8in2 Section 5? of R"A" No" >);! 7hich pro$i'es-Section 5?"6 6 6 An appeal ma3 be ta8en from an or'er ma'e in a procee'in2 un'er this Act! or from au'2ment entere' upon an a7ar' throu2h certiorari procee'in2s! but such appeals shall belimite' to Fuestion of la7" 6 6 6"

&o support its ar2ument! respon'ent cites the case of Gonales $" Clima6 Minin2 Lt'"9(4:


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Section 5? of R"A" No" >); conten'in2 that certiorari un'er Rule ;* can be a$aile' of onl3 ifthere 7as no appeal or an3 a'eFuate reme'3 in the or'inar3 course of la7 that R"A" No" >);pro$i'es for an appeal from such or'er" Ke then rule' that Gonales petition for certiorarishoul' be 'ismisse' as it 7as file' in lieu of an appeal b3 certiorari 7hich 7as the prescribe'

reme'3 un'er R"A" No" >); an' the petition 7as file' far be3on' the re2lementar3 perio'"Ke foun' that GonalesJ petition for certiorari raises a Fuestion of la7! but not a

Fuestion of uris'iction that .u'2e Pimentel acte' in accor'ance 7ith the proce'ure prescribe'in R"A" No" >); 7hen he or'ere' Gonales to procee' 7ith arbitration an' appointe' a solearbitrator after ma8in2 the 'etermination that there 7as in'ee' an arbitration a2reement" It ha'been hel' that as lon2 as a court acts 7ithin its uris'iction an' 'oes not 2ra$el3 abuse its'iscretion in the e6ercise thereof! an3 suppose' error committe' b3 it 7ill amount to nothin2more than an error of u'2ment re$ie7able b3 a timel3 appeal an' not assailable b3 a specialci$il action of certiorari"9(+:

In this case! petitioner raises before the CA the issue that the respon'ent .u'2eacte' in e6cess of uris'iction or 7ith 2ra$e abuse of 'iscretion in refusin2 to 'ismiss! or atleast suspen'! the procee'in2s a Fuo! 'espite the fact that the part3Js a2reement to arbitrate ha'not been complie' 7ith" Notabl3! the R&C foun' the e6istence of the arbitration clause! sinceit sai' in its 'ecision that har'l3 'ispute' is the fact that the arbitration clause in Fuestioncontra$enes se$eral pro$isions of the Arbitration La7 6 6 6 an' to appl3 Section ) of theArbitration La7 to such an a2reement 7oul' result in the 'isre2ar' of the afore#cite' sectionsof the Arbitration La7 an' ren'er them useless an' mere surplusa2es"H o7e$er!not7ithstan'in2 the fin'in2 that an arbitration a2reement e6iste'! the R&C 'enie' petitionersmotion an' 'irecte' petitioner to file an ans7er"In La Na$al Dru2 Corporation $" Court of Appeals!9(*: it 7as hel' that R"A" No" >);e6plicitl3 confines the courtJs authorit3 onl3 to the 'etermination of 7hether or not there is ana2reement in 7ritin2 pro$i'in2 for arbitration" In the affirmati$e! the statute or'ains that thecourt shall issue an or'er summaril3 'irectin2 the parties to procee' 7ith the arbitration inaccor'ance 7ith the terms thereof" If the court! upon the other han'! fin's that no sucha2reement e6ists! the procee'in2s shall be 'ismisse'"In issuin2 the Or'er 7hich 'enie' petitioners Motion to DismissBSuspen' Procee'in2s an' toRefer Contro$ers3 to Voluntar3 Arbitration! the R&C 7ent be3on' its authorit3 of 'eterminin2onl3 the issue of 7hether or not there is an a2reement in 7ritin2 pro$i'in2 for arbitration b3'irectin2 petitioner to file an ans7er! instea' of or'erin2 the parties to procee' to arbitration" Inso 'oin2! it acte' in e6cess of its uris'iction an' since there is no plain! spee'3! an' a'eFuatereme'3 in the or'inar3 course of la7! petitionerJs resort to a petition for certiorari is the properreme'3"Ke no7 procee' to the substanti$e issue of 7hether the CA erre' in fin'in2 that this casecannot be brou2ht un'er the arbitration la7 for the purpose of suspen'in2 the procee'in2s inthe R&C"Ke fin' merit in the petition"

)


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Arbitration! as an alternati$e mo'e of settlin2 'isputes! has lon2 been reco2nie' an' accepte'in our uris'iction"9(;: R"A" No" >);9(): authories arbitration of 'omestic 'isputes" %orei2narbitration! as a s3stem of settlin2 commercial 'isputes of an international character! is li8e7ise

reco2nie'"9(>: &he enactment of R"A" No" ?5>* on April 5! 5,,+ further institutionalie' theuse of alternati$e 'ispute resolution s3stems! inclu'in2 arbitration! in the settlement of'isputes"9(?:A contract is reFuire' for arbitration to ta8e place an' to be bin'in2"95,: Submission toarbitration is a contract 95(: an' a clause in a contract pro$i'in2 that all matters in 'isputebet7een the parties shall be referre' to arbitration is a contract"955: &he pro$ision to submitto arbitration an3 'ispute arisin2 therefrom an' the relationship of the parties is part of thecontract an' is itself a contract"954:In this case! the contract sue' upon b3 respon'ent pro$i'es for an arbitration clause! to 7it-

AR0I&RA&IONAn3 'ispute 7hich the 0u3er an' Seller ma3 not be able to settle b3 mutual a2reement shall besettle' b3 arbitration in the Cit3 of Ne7 or8 before the American Arbitration Association! &heArbitration A7ar' shall be final an' bin'in2 on both parties"

&he CA rule' that arbitration cannot be or'ere' in this case! since petitioner alle2e' thatthe contract bet7een the parties 'i' not e6ist or 7as in$ali' an' arbitration is not proper 7henone of the parties repu'iates the e6istence or $ali'it3 of the contract" &hus! sai' the CA-Not7ithstan'in2 our rulin2 on the $ali'it3 an' enforceabilit3 of the assaile' arbitration clausepro$i'in2 for forei2n arbitration! it is our consi'ere' opinion that the case at bench still cannotbe brou2ht un'er the Arbitration La7 for the purpose of suspen'in2 the procee'in2s before thetrial court" Ke note that in its Motion to DismissBSuspen' Procee'in2s! etc! petitioner Car2illalle2e'! as one of the 2roun's thereof! that the alle2e' contract bet7een the parties 'o notle2all3 e6ist or is in$ali'" As posite' b3 petitioner! it is their contention that the sai' contract!bearin2 the arbitration clause! 7as ne$er consummate' b3 the parties" &hat bein2 the case! it isbut proper that such issue be first resol$e' b3 the court throu2h an appropriate trial" &he issuein$ol$es a Fuestion of fact that the trial court shoul' first resol$e"

Arbitration is not proper 7hen one of the parties repu'iates the e6istence or $ali'it3 ofthe contract" Apropos is Gonales $" Clima6 Minin2 Lt'"! +*5 SCRA ;,)!


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ConseFuentl3! the petitioner herein cannot claim that the contract 7as ne$erconsummate' an'! at the same time! in$o8es the arbitration clause pro$i'e' for un'er thecontract 7hich it alle2es to be non#e6istent or in$ali'" Petitioner claims that pri$aterespon'ents complaint lac8s a cause of action 'ue to the absence of an3 $ali' contract bet7een

the parties" Apparentl3! the arbitration clause is bein2 in$o8e' merel3 as a fallbac8 position"&he petitioner must first a''uce e$i'ence in support of its claim that there is no $ali' contractbet7een them an' shoul' the court a Fuo fin' the claim to be meritorious! the parties ma3 thenbe spare' the ri2ors an' e6penses that arbitration in a forei2n lan' 7oul' surel3 entail"95+:

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

6 6 6 &he a'u'ication of the petition in G"R" No" (;)??+ effecti$el3 mo'ifies part of theDecision 'ate' 5> %ebruar3 5,,* in G"R" No" (;(?*)" ence! 7e no7 hol' that the $ali'it3 of

the contract containin2 the a2reement to submit to arbitration 'oes not affect the applicabilit3of the arbitration clause itself" A contrar3 rulin2 7oul' su22est that a part3s mere repu'iationof the main contract is sufficient to a$oi' arbitration" &hat is e6actl3 the situation that theseparabilit3 'octrine! as 7ell as urispru'ence appl3in2 it! see8s to a$oi'" Ke a'' that 7hen it7as 'eclare' in G"R" No" (;(?*) that the case shoul' not be brou2ht for arbitration! it shoul'be clarifie' that the case referre' to is the case actuall3 file' b3 Gonales before the DENRPanel of Arbitrators! 7hich 7as for the nullification of the main contract on the 2roun' offrau'! as it ha' alrea'3 been 'etermine' that the case shoul' ha$e been brou2ht before there2ular courts in$ol$in2 as it 'i' u'icial issues"95;:

In so rulin2 that the $ali'it3 of the contract containin2 the arbitration a2reement 'oes notaffect the applicabilit3 of the arbitration clause itself! 7e then applie' the 'octrine ofseparabilit3! thus-

&he 'octrine of separabilit3! or se$erabilit3 as other 7riters call it! enunciates that anarbitration a2reement is in'epen'ent of the main contract" &he arbitration a2reement is to betreate' as a separate a2reement an' the arbitration a2reement 'oes not automaticall3 terminate7hen the contract of 7hich it is a part comes to an en'"

&he separabilit3 of the arbitration a2reement is especiall3 si2nificant to the'etermination of 7hether the in$ali'it3 of the main contract also nullifies the arbitration clause"In'ee'! the 'octrine 'enotes that the in$ali'it3 of the main contract! also referre' to as thecontainer contract! 'oes not affect the $ali'it3 of the arbitration a2reement" Irrespecti$e ofthe fact that the main contract is in$ali'! the arbitration clauseBa2reement still remains $ali'an' enforceable"95):

?


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Respon'ent ar2ues that the separabilit3 'octrine is not applicable in petitioners case! since inthe Gonales case! Clima6#Arimco sou2ht to enforce the arbitration clause of its contract 7ithGonales an' the formers mo$e 7as premise' on the e6istence of a $ali' contract 7hileGonales! 7ho resiste' the mo$e of Clima6#Arimco for arbitration! 'i' not 'en3 the e6istence

of the contract but merel3 assaile' the $ali'it3 thereof on the 2roun' of frau' an' oppression"Respon'ent claims that in the case before /s! petitioner 7ho is the part3 insistent on arbitrationalso claime' in their Motion to DismissBSuspen' Procee'in2s that the contract sou2ht b3respon'ent to be rescin'e' 'i' not e6ist or 7as not consummate' thus! there is no room for theapplication of the separabilit3 'octrine! since there is no container or main contract or anarbitration clause to spea8 of"Ke are not persua'e'"Appl3in2 the Gonales rulin2! an arbitration a2reement 7hich forms part of the main contractshall not be re2ar'e' as in$ali' or non#e6istent ust because the main contract is in$ali' or 'i'

not come into e6istence! since the arbitration a2reement shall be treate' as a separatea2reement in'epen'ent of the main contract" &o reiterate" a contrar3 rulin2 7oul' su22est thata part3s mere repu'iation of the main contract is sufficient to a$oi' arbitration an' that ise6actl3 the situation that the separabilit3 'octrine sou2ht to a$oi'" &hus! 7e fin' that e$en thepart3 7ho has repu'iate' the main contract is not pre$ente' from enforcin2 its arbitrationclause"Moreo$er! it is 7orth3 to note that respon'ent file' a complaint for rescission of contract an''ama2es 7ith the R&C" In so 'oin2! respon'ent alle2e' that a contract e6ists bet7eenrespon'ent an' petitioner" It is that contract 7hich pro$i'es for an arbitration clause 7hichstates that an3 'ispute 7hich the 0u3er an' Seller ma3 not be able to settle b3 mutuala2reement shall be settle' before the Cit3 of Ne7 or8 b3 the American ArbitrationAssociation" &he arbitration a2reement clearl3 e6presse' the parties intention that an3 'isputebet7een them as bu3er an' seller shoul' be referre' to arbitration" It is for the arbitrator an'not the courts to 'eci'e 7hether a contract bet7een the parties e6ists or is $ali'"

Respon'ent conten's that assumin2 that the e6istence of the contract an' the arbitrationclause is conce'e'! the CAs 'ecision 'eclinin2 referral of the parties 'ispute to arbitration isstill correct" It claims that its complaint in the R&C presents the issue of 7hether un'er thefacts alle2e'! it is entitle' to rescin' the contract 7ith 'ama2es an' that issue constitutes au'icial Fuestion or one that reFuires the e6ercise of u'icial function an' cannot be the subectof an arbitration procee'in2" Respon'ent cites our rulin2 in Gonales! 7herein 7e hel' that apanel of arbitrator is bereft of uris'iction o$er the complaint for 'eclaration of nullit3Bortermination of the subect contracts on the 2roun's of frau' an' oppression atten'ant to thee6ecution of the a''en'um contract an' the other contracts emanatin2 from it! an' that thecomplaint shoul' ha$e been file' 7ith the re2ular courts as it in$ol$e' issues 7hich areu'icial in nature"

Such ar2ument is misplace' an' respon'ent cannot rel3 on the Gonales case to supportits ar2ument"

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In Gonales! petitioner Gonales file' a complaint before the Panel of Arbitrators! Re2ionII! Mines an' Geosciences 0ureau! of the Department of En$ironment an' Natural Resources); theArbitration La7 as pro$i'e' un'er the a''en'um contract"

On a re$ie7 on certiorari! 7e affirme' the CAJs fin'in2 that the Panel of Arbitrators 7ho!un'er R"A" No" )?+5 of the Philippine Minin2 Act of (??*! has e6clusi$e an' ori2inaluris'iction to hear an' 'eci'e minin2 'isputes! such as minin2 areas! mineral a2reements!%&AAs or permits an' surface o7ners! occupants an' claimhol'ersBconcessionaires! is bereft ofuris'iction o$er the complaint for 'eclaration of nullit3 of the a''en'um contract thus! thePanels uris'iction is limite' onl3 to those minin2 'isputes 7hich raise' Fuestion of facts ormatters reFuirin2 the technical 8no7le'2e an' e6perience of minin2 authorities" Ke then sai'-In Pearson $" Interme'iate Appellate Court! this Court obser$e' that the tren' has been to ma8ethe a'u'ication of minin2 cases a purel3 a'ministrati$e matter" Decisions of the SupremeCourt on minin2 'isputes ha$e reco2nie' a 'istinction bet7een


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Arbitration before the Panel of Arbitrators is proper onl3 7hen there is a 'isa2reementbet7een the parties as to some pro$isions of the contract bet7een them! 7hich nee's theinterpretation an' the application of that particular 8no7le'2e an' e6pertise possesse' b3members of that Panel" It is not proper 7hen one of the parties repu'iates the e6istence or

$ali'it3 of such contract or a2reement on the 2roun' of frau' or oppression as in this case" &he$ali'it3 of the contract cannot be subect of arbitration procee'in2s" Alle2ations of frau' an''uress in the e6ecution of a contract are matters 7ithin the uris'iction of the or'inar3 courts ofla7" &hese Fuestions are le2al in nature an' reFuire the application an' interpretation of la7san' urispru'ence 7hich is necessaril3 a u'icial function"95?:

In fact! Ke e$en clarifie' in our resolution on GonalesJ motion for reconsi'eration that7hen 7e 'eclare' that the case shoul' not be brou2ht for arbitration! it shoul' be clarifie' thatthe case referre' to is the case actuall3 file' b3 Gonales before the DENR Panel ofArbitrators! 7hich 7as for the nullification of the main contract on the 2roun' of frau'! as itha' alrea'3 been 'etermine' that the case shoul' ha$e been brou2ht before the re2ular courts

in$ol$in2 as it 'i' u'icial issues"H Ke ma'e such clarification in our resolution of the motionfor reconsi'eration after rulin2 that the parties in that case can procee' to arbitration un'er theArbitration La7! as pro$i'e' un'er the Arbitration Clause in their A''en'um Contract"

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

SO ORDERED"

DIOSDADO M" PERAL&A Associate .usticeKE CONC/R-

AN&ONIO &" CARPIOAssociate .usticeChairperson

AN&ONIO ED/ARDO 0" NAC/RA RO0ER&O A" A0ADAssociate .ustice Associate .ustice

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.OSE CA&RAL MENDO1AAssociate .ustice

A&&ES&A&ION

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

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

CER&I%ICA&ION

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

RENA&O C" CORONA Chief .ustice

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Documents

Cargill v. San Fernando Regala Trading