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:

00).90) which is 20% of MOA assessments since September 1.250. in turn. and Enforcement of Foreign Arbitral Award. and Enforcement of Foreign Arbitral Award before the RTC of Makati City. Recognition.750. Recognition. The petition was raffled to Branch 150 presided by Judge Elmo M. in this instant Petition for Review on Certiorari under Rule 45. the total sum to be paid by RESPONDENT KINGFORD to CLAIMANT TPI. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of ONE MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS AND NO CENTS ($1. Ruiz of Branch 61.13. Alameda.490. pursuant to the terms of this award.355. granted respondents Motion for Reconsideration and dismissed the petition on the ground that the petitioner lacked legal capacity to sue in the Philippines.[18] Judge Alameda inhibited himself notwithstanding [t]he unfounded allegations and unsubstantiated assertions in the motion.1 Within thirty (30) days from the date of transmittal of this Award to the Parties.20)[. petitioner TPI filed on 10 October 2007 a Petition for Confirmation. (A) For breach of the MOA by not paying past due assessments.10). to which the case was re-raffled.[20] Petitioner TPI now seeks to nullify. the order of the trial court dismissing its Petition for Confirmation.[17] respondent sought for the inhibition of Judge Alameda and moved for the reconsideration of the order denying the motion.000. respondent Kingford filed a Motion to Dismiss. is the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND EIGHT HUNDRED FORTY SIX DOLLARS AND TEN CENTS ($1.[16] After the court denied the motion for lack of merit. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED TWENTY NINE THOUSAND THREE HUNDRED AND FIFTY FIVE DOLLARS AND NINETY CENTS ($229.][14] and (C) For violation of THE LANHAM ACT and infringement of the YAMAOKA 619 PATENT. .846.[19] Judge Cedrick O. 2005[. xxx xxx[15] To enforce the award. RESPONDENT KINGFORD shall pay CLAIMANT the total sum of TWO HUNDRED SEVENTY ONE THOUSAND FOUR HUNDRED NINETY DOLLARS AND TWENTY CENTS ($271. At Branch 150.] (B) For breach of the MOA in failing to cooperate with CLAIMANT TPI in fulfilling the objectives of the MOA.

the Petition. Mommy Gina Tuna Resources.No foreign corporation transacting business in the Philippines without a license. etc.] namely[. Inc. and respondent Philippine Kingford. 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. East Asia Fish Co. Doing business without a license. suit or proceedings in any court or administrative agency of the Philippines. . Inc. It is pursuant to the aforequoted provision that the court a quo dismissed the petition. shall be permitted to maintain or intervene in any action. TPI likewise admits that it does not have a license to do business in the Philippines. Santa Cruz Seafoods.] Angel Seafood Corporation..[21] The petitioner counters. There is no doubt. This being the real situation. Inc. but sans a license to do so issued by the concerned government agency of the Republic of the Philippines. or its successors or assigns. 133. TPI cannot be permitted to maintain or intervene in any action. Thus: Herein plaintiff TPIs Petition. therefore. etc. when it collected royalties from five (5) Philippine tuna processors[. that it is entitled to seek for the recognition and enforcement of . however. suit or proceeding in any court or administrative agency of the Philippines.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. The Corporation Code of the Philippines expressly provides: Sec. Our Ruling The petition is impressed with merit.. in the mind of this Court that TPI has been doing business in the Philippines. A priori. 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. extant of the plaintiff TPI should be dismissed for it does not have the legal personality to sue in the Philippines.

the Corporation Code is the general law providing for the formation. In an earlier case with similar antecedents. 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. New York Convention. however. As between a general and special law. and the UNCITRAL Model Law on International Commercial Arbitration (Model Law). is a general law applying to all types of corporations. (Emphasis supplied)[26] Further. It is for this reason that TPI has brought this matter before this most Honorable Court. this Court had the occasion to discuss the nature and applicability of the Corporation Code of the Philippines. in Koruga v. the latter shall prevail generalia specialibus non derogant.[24] Simply put. including the dissolution and liquidation thereof. Thus. in the recent case of Hacienda Luisita. Jr. viz-a-viz other special laws. On the other hand. 9285 (Alternative Dispute Resolution Act of 2004). the New York Convention and the Model Law on the other? In several cases. or Model Law.[23] as none of these specifically requires that the party seeking for the enforcement should have legal capacity to sue. organization and regulation of private corporations.[27] this Court held: Without doubt. It ratiocinated: Korugas invocation of the provisions of the Corporation Code is misplaced. enforcement has been effectively refused on a ground not found in the [Alternative Dispute Resolution Act of 2004].the subject foreign arbitral award in accordance with Republic Act No. a general law. RA 6657 is the special law on agrarian reform.[25] this Court rejected the application of the Corporation Code and applied the New Central Bank Act.[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). the latter shall prevailgeneralia specialibus non derogant. and the Alternative Dispute Resolution Act of 2004. Incorporated v. Arcenas.. how do we reconcile the provisions of the Corporation Code of the Philippines on one hand. It anchors its argument on the following: In the present case. we ruled that: The Corporation Code. Presidential Agrarian Reform Council.[28] . As between a general and special law. while the New Central Bank Act regulates specifically banks and other financial institutions.

[30] Inasmuch as the Alternative Dispute Resolution Act of 2004. Application of the New York Convention. a municipal law. 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 .Following the same principle. It also expressly adopted the Model Law. as its title . 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. 42. . Adoption of the Model Law on International Commercial Arbitration.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. the Alternative Dispute Resolution Act of 2004 shall apply in this case as the Act.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.An Act to Institutionalize the Use of an Alternative Dispute Resolution System in the Philippines and to Establish the Office for Alternative Dispute Resolution. . the Alternative Dispute Resolution Act of 2004 incorporated the New York Convention in the Act by specifically providing: SEC. applies in the instant petition. 1985 xxx. xxx SEC. After all. 19. In particular. we do not see the need to discuss compliance with international obligations under the New York Convention and the Model Law. Any other ground raised shall be disregarded by the regional trial court. to wit: Sec. Now. Rejection of a Foreign Arbitral Award. and for Other Purposes . 45. both already form part of the law.The New York Convention shall govern the recognition and enforcement of arbitral awards covered by the said Convention.

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. failing any indication thereon. 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. at the request of the party against whom it is invoked. or the said agreement is not valid under the law to which the parties have subjected it or. or (e) The award has not yet become binding on the parties. under the law applicable to them. or (b) The recognition or enforcement of the award would be contrary to the public policy of that country. proof that: (a) The parties to the agreement referred to in article II were. Clearly. that award was made. if the decisions on matters submitted to arbitration can be separated from those not so submitted. under the law of the country where the award was made. only if that party furnishes to the competent authority where the recognition and enforcement is sought. not one of these exclusive grounds touched on the capacity to sue of the party seeking . or (d) The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties. Sec. 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. under some incapacity. or has been set aside or suspended by a competent authority of the country in which. provided that. or it contains decisions on matters beyond the scope of the submission to arbitration. that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced.affirmative. Recognition and enforcement of the award may be refused. 2. was not in accordance with the law of the country where the arbitration took place. failing such agreement. to wit: Article V 1. or. or (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration. or under the law of which.

likewise support this position. When a party enters into a contract containing a foreign arbitration clause and.5. The contents of such petition are enumerated in Rule 13.[36] Indeed.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. Finally. 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. one who. participate in the arbitration and cause the implementation of the result.[38] Clearly. voluntarily and actively participated in the arbitration proceedings from the very beginning. If its tested mechanism can simply be ignored by an aggrieved party. that the court a quo correctly observed that the Model Law. in fact submits itself to arbitration. it becomes bound by the contract. 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. as an alternative mode of settlement. conceding thereby the capacity of the other party to enter into the contract. not the New York Convention. Rule 13. Pertinent provisions of the Special Rules of Court on Alternative Dispute Resolution.[33] it is specifically required that a petition to determine any question concerning the existence. by the arbitration and by the result of arbitration. as in this case. it is in the best interest of justice that in the enforecement of a foreign arbitral award.the recognition and enforcement of the award.[39] petitioner . 9285 has certainly erased any conflict of law question. Court of Appeals. but because Republic Act No.[37] to wit: xxx Arbitration. a foreign arbitral award should be respected not because it is favored over domestic laws and procedures. is gaining adherents in legal and judicial circles here and abroad. Romero in her Dissenting Opinion in Asset Privatization Trust v.[31] which was promulgated by the Supreme Court. it will destroy the very essence of mutuality inherent in consensual contracts. Oppositely. even assuming.[32] Capacity to sue is not included. governs the subject arbitral award. it must be stressed. in the Rule on local arbitral awards or arbitrations in instances where the place of arbitration is in the Philippines. also worthy to consider is the wisdom of then Associate Justice Flerida Ruth P. on the matter of capacity to sue. Although not on all fours with the instant case. only for the sake of argument.

may still seek recognition and enforcement of the award in Philippine court. choose to hear and decide the legal issues outright.[43] to wit: [I]t must be remembered that [the principle of hierarchy of courts] generally applies to cases involving conflicting factual allegations. [41] Third. 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. Cases which depend on disputed facts for decision cannot be brought immediately before us as we are not triers of facts. where the issues are not factual but purely legal. under ordinary circumstances. because of the unique circumstances of a case.[45] Moreover. and . as in the present case. We have. petitioner TPI. ruled that the prior filing of a motion for reconsideration is not required in certiorari under Rule 45. 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.[42] we opt to relax the rules following the pronouncement in Chua v. this Court has the ultimate say so that we merely abbreviate the review process if we. although not licensed to do business in the Philippines. In these types of questions. Second. there is a need to take cognizance of the case not only to guide the bench and the bar. First. II The remaining arguments of respondent Kingford are likewise unmeritorious. may seek recognition and enforcement of the foreign arbitral award in accordance with the provisions of the Alternative Dispute Resolution Act of 2004. Respondent cannot fault petitioner for not filing a motion for reconsideration of the assailed Resolution dated 21 November 2008 dismissing the case. but if only to strengthen arbitration as a means of dispute resolution. the novelty and the paramount importance of the issue herein raised should be seriously considered.[40] Premises considered.[46] Surely. While we agree that petitioner failed to observe the principle of hierarchy of courts. warrants the outright dismissal of the case. time and again. since the Model Law prescribes substantially identical exclusive grounds for refusing recognition or enforcement. which. Ang.[44] A strict application of this rule may be excused when the reason behind the rule is not present in a case.

Towards this end. petitioner TPI. to wit: Sec. Makati City. As correctly pointed out by respondent Kingford. the order sought to be assailed originated from Regional Trial Court. . 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. xxx Upon confirmation with the Regional Trial Court. 27. 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. Admittedly. however. for that reason alone. Branch 61. Recognition. a copy of petitioner TPIs motion was received by the Metropolitan Trial Court. Branch 67.[48] All considered. Branch 61. is not. xxx Fourth. SO ORDERED. Makati City. Declaration of Policy. M-6533 is hereby REVERSED and SET ASIDE. Makati City. and Enforcement of Foreign Arbitral Award before a Philippine court. Thus: 26.uphold the policy of the State embodied in the Alternative Dispute Resolution Act of 2004. find petitioners reply in order. 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. the Resolution dated 21 November 2008 of the Regional Trial Court. Branch 61. The case is REMANDED to Branch 61 for further proceedings.[47] We. although a foreign corporation not licensed to do business in the Philippines. WHEREFORE. 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. Branch 61. On 8 January 2009.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. Makati City in Special Proceedings No. the motion was forwarded to the Regional Trial Court. precluded from filing the Petition for Confirmation. Makati City. 2. . Fifth.

1998. as seller.[4] wherein it argued that the alleged contract between the parties. 1996. thus. 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.000 metric tons of Thailand origin cane blackstrap molasses at the price of US$192 per metric ton.R. Respondent. INC. 1996.. 175404 Promulgated: January 31. J. INC. wherein it was agreed upon that respondent would purchase from petitioner 12. In its Complaint. Respondent alleged that it entered into a contract dated July 11. 2011 x--------------------------------------------------x DECISION PERALTA. failed to comply with its obligations under the contract.. the parties agreed that instead of January/February 1997. dated July 11. that sometime prior to September 15. 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. 1996. filed with the Regional Trial Court (RTC) of Makati City a Complaint for Rescission of Contract with Damages[3] against petitioner Cargill Philippines. to be opened by September 15.R. despite demands from respondent. On July 24.: Before us is a petition for review on certiorari seeking to reverse and set aside the Decision[1] dated July 31. Petitioner. Inc. G. No. the latter prayed for rescission of the contract and payment of damages. to be opened upon petitioner's advice. respondent San Fernando Regala Trading. SAN FERNANDO REGALA TRADING. 2006 and the Resolution[2] dated November 13. 50304.CARGILL PHILIPPINES. Inc. 2006 of the Court of Appeals (CA) in CA G. 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. The factual antecedents are as follows: On June 18. Petitioner. 1996 with petitioner. It claimed that the contract contained an . petitioner filed a Motion to Dismiss/Suspend Proceedings and To Refer Controversy to Voluntary Arbitration. 1998. 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. the delivery would be made in April/May 1997 and that payment would be by an Irrevocable Letter of Credit payable at sight. SP No.

such as the subject clause in the contract. defendant's Motion To Dismiss/Suspend Proceedings and To Refer Controversy To Voluntary Arbitration is hereby DENIED.arbitration clause. The Arbitration Award shall be final and binding on both parties. pursuant to Sections 6[6] and 7[7] of Republic Act (R. considering that the requirements imposed by the provisions of the Arbitration Law had not been complied with. 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. thus. Defendant is directed to file its answer within ten (10) days from receipt of a copy of this order. ousting the courts of jurisdiction. the RTC rendered an Order. In its Reply.[8] the dispositive portion of which reads: Premises considered. 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. By way of Sur-Rejoinder. or the Arbitration Law. Respondent filed an Opposition. thus. that the arbitration clause did not violate any of the cited provisions of the Arbitration Law.[5] that respondent must first comply with the arbitration clause before resorting to court. 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. On September 17. 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.) No. 876. having been rendered prior to the effectivity of the New Civil Code in 1950 and the Arbitration Law in 1953. 1998. petitioner maintained that the cited decisions were already inapplicable. respondent argued that the arbitration clause relied upon by petitioner is invalid and unenforceable. It cited cases wherein arbitration clauses. the RTC must either dismiss the case or suspend the proceedings and direct the parties to proceed with arbitration. In its Rejoinder.[9] .A.

or R. The CA did not find illegal or against public policy the arbitration clause so as to render it null and void or ineffectual. that arbitration as an alternative mode of dispute resolution has long been accepted in our jurisdiction and expressly provided for in the Civil Code.In denying the motion. 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. the CA found that stipulation providing for arbitration in contractual obligation is both valid and constitutional. Respondent filed its Comment and Reply. 1998. but did not impose the sanction of dismissal. 876 was inapplicable to arbitration clause simply because the clause failed to comply with the requirements prescribed by the law.A. and that there must be an appeal from the judgment of the RTC. The parties were then required to file their respective Memoranda. the CA rendered its assailed Decision denying the petition and affirming the RTC Orders. The CA found error in the RTC's holding that Section 7 of R. Notwithstanding such findings. despite the fact that the party's agreement to arbitrate had not been complied with. pursuant to Section 7 of the Arbitration Law. as one of the grounds thereof. that the arbitral award shall be final and binding on both parties. 876. No. 876 (the Arbitration Law) also expressly authorized the arbitration of domestic disputes. that the .e. The CA found that there was nothing in the Civil Code. It also found that the RTC ruling effectively invalidated not only the disputed arbitration clause. but all other agreements which provide for foreign arbitration. petitioner alleged. since in its Motion to Dismiss/Suspend proceedings. 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. the arbitration clause contemplated an arbitration proceeding in New York before a non-resident arbitrator (American Arbitration Association). No. that require that arbitration proceedings must be conducted only in the Philippines and the arbitrators should be Philippine residents. 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.A. and that the arbitral award is subject to court approval. which the RTC denied in an Order[10] dated November 25. the CA still held that the case cannot be brought under the Arbitration Law for the purpose of suspending the proceedings before the RTC. In denying the petition. On July 31.. disapproval and modification. 2006.A. and before an arbitrator who resides in the country. that R. 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. The RTC found that the arbitration clause in question contravened these procedures. No. However. i. Petitioner filed its Motion for Reconsideration. the RTC found that there was no clear basis for petitioner's plea to dismiss the case.

in its assailed decision. Petitioner's motion for reconsideration was denied in a Resolution dated November 13. Hence. and. Petitioner claims the inapplicability of the cited Gonzales case decided in 2005. thus. 2006 between the parties. Petitioner alleges that the CA committed an error of law in ruling that arbitration cannot proceed despite the fact that: (a) it had ruled. alternatively or hypothetically. 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. assuming that such agreement existed. it was proper that such issue be first resolved by the court through an appropriate trial. such as the arbitration clause. this petition. that the arbitration clause is valid. that respondent cannot use the provisions favorable to him and completely disregard those that are unfavorable. Climax Mining Ltd. to adopt several defenses. there was an arbitration clause that should be enforced. and that the same agreement contained the arbitration clause sought to be enforced by petitioner in this case. which based its cause of action against petitioner on the alleged agreement dated July 11. Petitioner argues that under Section 1(j) of Rule 16 of the Rules of Court. i. Arbitration is not proper when one of the parties repudiated the existence or validity of the contract. that the said contract bearing the arbitration clause was never consummated by the parties. it was respondent who had filed the complaint for rescission and damages with the RTC. the dispute must first be submitted to arbitration before an action can be instituted in court.. even if such defenses are inconsistent with each other.[11] is inapplicable here. whether petitioner assails the genuineness and due execution of the agreement. because in the present case. included as a ground to dismiss a complaint is when a condition precedent for filing the complaint has not been . (b) the case of Gonzales v. 2006. that the issue involved a question of fact that the RTC should first resolve. the fact remains that the agreement sued upon provides for an arbitration clause. Petitioner contends that as the defendant in the RTC. it presented two alternative defenses.e. and (d) the complaint filed by respondent with the trial court is premature. thus. Thus. enforceable and binding on the parties. under the Rules of Court. the parties had not entered into any agreement upon which respondent as plaintiff can sue upon. (c) parties are generally allowed.subject contract between the parties did not exist or it was invalid.

under its Section 29. but not to a motion to dismiss.e. even if such defenses are inconsistent with each other refers to allegations in the pleadings. that if respondent relies on said contract for its cause of action against petitioner. 98-1376 presents the principal issue of whether under the facts alleged in the complaint. such as complaint. In its Reply. Petitioner submits that the proceedings in the RTC must be dismissed. Respondent contends that Section 8 of the Rules of Court. Respondent argues that even if the existence of the contract and the arbitration clause is conceded. 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. or at least suspended. 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. It claims that the Arbitration Law which petitioner invoked as basis for its Motion prescribed. the decisions of the RTC and the CA declining referral of the dispute between the parties to arbitration would still be correct. respondent admitted the existence of all the provisions contained thereunder. counterclaim. and that submission to arbitration when such has been agreed upon is one such condition precedent. 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. thus. i. However. that such issue constitutes a judicial question or one that requires the exercise of judicial function and cannot be the subject of arbitration. alternatively or hypothetically. respondent claims that petitioner's argument is premised on the existence of a contract with respondent containing a provision for arbitration.. which it repudiates. We first address the procedural issue raised by respondent that petitioners petition for certiorari . is not correct since in the resolution of the Gonzales' motion for reconsideration in 2007. is inapplicable in this case. cross-claim. answer.complied with. This is so because respondent's complaint filed in Civil Case No. 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. On March 12. Respondent contends that the Gonzales case. third-party complaint. appeal by a petition for review on certiorari under Rule 45. which allowed a defendant to adopt in the same action several defenses. including the arbitration clause. decided in 2005. 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. and the parties be ordered to proceed with arbitration. Finally. which was decided in 2007. its reliance on the contract. 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. respondent is entitled to rescind its contract with petitioner and for the latter to pay damages. is inappropriate. a remedy. petitioner insists that respondent filed an action for rescission and damages on the basis of the contract. 2007. especially as to the doctrine of separability enunciated therein. In its Comment. that respondents citation of the Gonzales case.

A. 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. We find the cited case not in point.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. No. No. To support its argument.A. but not a question of jurisdiction. x x x An appeal may be taken from an order made in a proceeding under this Act. 876 provides for an appeal from such order. 876. or from a judgment entered upon an award through certiorari proceedings. 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.[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. No. No. 876 and the petition was filed far beyond the reglementary period.A. Judge Oscar Pimentel of the RTC of Makati then directed the parties to arbitration proceedings. citing Section 29 of R. pursuant to the arbitration clause found in the Addendum Contract it entered with Gonzales. No. Climax Mining Ltd.A. that R. that Judge Pimentel acted in accordance with the procedure prescribed in R. No. 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. 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. any supposed error committed by it will amount to nothing more than an error of .A.A. We found that Gonzales petition for certiorari raises a question of law. but such appeals shall be limited to question of law. which provides: Section 29. Climax-Arimco filed before the RTC of Makati a petition to compel arbitration under R. respondent cites the case of Gonzales v. valid and timely raised argument in his Answer with counterclaim that the Addendum Contract containing the arbitration clause was null and void. x x x. 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. Climax-Arimco assailed the mode of review availed of by Gonzales. 876. In the Gonzales case.

and adequate remedy in the ordinary course of law. Court of Appeals. 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. the proceedings a quo.[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.A. as a system of settling commercial disputes of an international character. the contract sued upon by respondent provides for an arbitration clause. including arbitration.[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. 9285 on April 2. In issuing the Order which denied petitioner's Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration. petitioners resort to a petition for certiorari is the proper remedy. In so doing. instead of ordering the parties to proceed to arbitration.[16] R. In La Naval Drug Corporation v. it acted in excess of its jurisdiction and since there is no plain. in the settlement of disputes. the proceedings shall be dismissed. However. has long been recognized and accepted in our jurisdiction. In the affirmative. We find merit in the petition. No. is likewise recognized. No.judgment reviewable by a timely appeal and not assailable by a special civil action of certiorari. Notably.[19] A contract is required for arbitration to take place and to be binding. speedy. to wit: . If the court.[23] In this case. No. Arbitration. finds that no such agreement exists. or at least suspend. 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. 876[17] authorizes arbitration of domestic disputes. as an alternative mode of settling disputes. upon the other hand. the RTC denied petitioner's motion and directed petitioner to file an answer. 876 explicitly confines the courts authority only to the determination of whether or not there is an agreement in writing providing for arbitration.A. [14] In this case.A. despite the fact that the partys agreement to arbitrate had not been complied with. 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. notwithstanding the finding that an arbitration agreement existed. 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.[18] The enactment of R. the RTC found the existence of the arbitration clause. 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. Foreign arbitration. 2004 further institutionalized the use of alternative dispute resolution systems.[15] it was held that R.

it is but proper that such issue be first resolved by the court through an appropriate trial. it is their contention that the said contract. Apropos is Gonzales v. the arbitration clause is being invoked merely as a fallback position. Thus. Consequently. etc. said the CA: Notwithstanding our ruling on the validity and enforceability of the assailed arbitration clause providing for foreign arbitration. 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. Apparently.No. Arbitration is not proper when one of the parties repudiates the existence or validity of the contract.R. As posited by petitioner. The issue involves a question of fact that the trial court should first resolve.. that the alleged contract between the parties do not legally exist or is invalid.. Indeed. 452 SCRA 607. The Arbitration Award shall be final and binding on both parties.161957). the parties may then be spared the rigors and expenses that . 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. bearing the arbitration clause. 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.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 petitioner herein cannot claim that the contract was never consummated and. litigants are enjoined from taking inconsistent positions. That being the case.. The CA ruled that arbitration cannot be ordered in this case. Petitioner claims that private respondent's complaint lacks a cause of action due to the absence of any valid contract between the parties.. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. 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. invokes the arbitration clause provided for under the contract which it alleges to be non-existent or invalid. was never consummated by the parties. at the same time. as one of the grounds thereof. We note that in its Motion to Dismiss/Suspend Proceedings. (G. petitioner Cargill alleged. Climax Mining Ltd.

[26] In so ruling that the validity of the contract containing the arbitration agreement does not affect the applicability of the arbitration clause itself. That is exactly the situation that the separability doctrine. thus: The doctrine of separability. the Gonzales case.[25] which the CA relied upon for not ordering arbitration. No. Hence. Indeed. had been modified upon a motion for reconsideration in this wise: x x x The adjudication of the petition in G. as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues. 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. enunciates that an arbitration agreement is independent of the main contract. We add that when it was declared in G.[27] Respondent argues that the separability doctrine is not applicable in petitioner's case. 167994 effectively modifies part of the Decision dated 28 February 2005 in G. it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators. 161957.R. 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. No. or severability as other writers call it. 161957 that the case should not be brought for arbitration. No. the arbitration clause/agreement still remains valid and enforceable.R. Irrespective of the fact that the main contract is invalid. seeks to avoid. we then applied the doctrine of separability. since in the Gonzales case.[24] However. 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. which was for the nullification of the main contract on the ground of fraud. A contrary ruling would suggest that a party's mere repudiation of the main contract is sufficient to avoid arbitration.arbitration in a foreign land would surely entail.R. Climax-Arimco sought to enforce the arbitration clause of its contract with . as well as jurisprudence applying it. does not affect the validity of the arbitration agreement. the doctrine denotes that the invalidity of the main contract. also referred to as the "container" contract.

Respondent cites our ruling in Gonzales. of the Department of Environment and Natural Resources (DENR) against respondents Climax. the Panel. it is entitled to rescind the contract with damages. However. since the arbitration agreement shall be treated as a separate agreement independent of the main contract. 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. while Gonzales. Applying the Gonzales ruling. It claims that its complaint in the RTC presents the issue of whether under the facts alleged. 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. The arbitration agreement clearly expressed the parties' intention that any dispute between them as buyer and seller should be referred to arbitration.Mining Ltd. the CA's decision declining referral of the parties' dispute to arbitration is still correct. To reiterate.Gonzales and the former's move was premised on the existence of a valid contract. there is no room for the application of the separability doctrine. Such argument is misplaced and respondent cannot rely on the Gonzales case to support its argument. In so doing. we find that even the party who has repudiated the main contract is not prevented from enforcing its arbitration clause. 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. 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. it is worthy to note that respondent filed a complaint for rescission of contract and damages with the RTC. did not deny the existence of the contract but merely assailed the validity thereof on the ground of fraud and oppression. 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. petitioner Gonzales filed a complaint before the Panel of Arbitrators. Respondent claims that in the case before Us. 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. respondent alleged that a contract exists between respondent and petitioner. Respondent contends that assuming that the existence of the contract and the arbitration clause is conceded. We are not persuaded. In Gonzales. thus. who resisted the move of Climax-Arimco for arbitration. Region II. It is for the arbitrator and not the courts to decide whether a contract between the parties exists or is valid. Mines and Geosciences Bureau. 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. The Panel dismissed the complaint for lack of jurisdiction. Climax-Arimco and Australasian Philippines Mining Inc. Moreover. Thus. since there is no container or main contract or an arbitration clause to speak of. upon petitioner's motion for . and that the complaint should have been filed with the regular courts as it involved issues which are judicial in nature.

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. but essentially judicial issues. rejecting. We then said: In Pearson v. lease and contracts. Act No. under R. occupants and claimholders/concessionaires. 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. Allegations of fraud and duress in the execution of a contract are matters within the jurisdiction of the ordinary courts of law. We then said that the Panel of Arbitrators did not have jurisdiction over such issue. 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. The CA granted the petition and declared that the Panel of Arbitrators did not have jurisdiction over the complaint. this Court observed that the trend has been to make the adjudication of mining cases a purely administrative matter. Intermediate Appellate Court. FTAAs or permits and surface owners. This distinction is carried on even in Rep. reinstating or canceling applications. No. is bereft of jurisdiction over the complaint for declaration of nullity of the addendum contract.[28] We found that since the complaint filed before the DENR Panel of Arbitrators charged respondents with disregarding and ignoring the addendum contract. 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. and acting in a fraudulent and oppressive manner against petitioner. The validity of the contract cannot be subject of arbitration proceedings. since its jurisdiction was limited to the resolution of mining disputes. since the subject complaint arose from a contract between the parties which involved the exploration and exploitation of minerals over the disputed area. These questions are legal . such as mining areas. 7942. has exclusive and original jurisdiction to hear and decide mining disputes. thus. the complaint filed before the Panel was not a dispute involving rights to mining areas.A. since it does not involve the application of technical knowledge and expertise relating to mining. 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. permits. No. or was it a dispute involving claimholders or concessionaires. 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.reconsideration. 7942 of the Philippine Mining Act of 1995. which needs the interpretation and the application of that particular knowledge and expertise possessed by members of that Panel. The CA further ruled that the petition should have been settled through arbitration under R. mineral agreements. 876 − the Arbitration Law − as provided under the addendum contract. or deciding conflicting applications. ruled that it had jurisdiction over the dispute maintaining that it was a mining dispute.A. we affirmed the CAs finding that the Panel of Arbitrators who. such as granting of license. Respondents assailed the order of the Panel of Arbitrators via a petition for certiorari before the CA. On a review on certiorari. or approving.

WHEREFORE. SO ORDERED. SP No.[29] In fact. as it had already been determined that the case should have been brought before the regular courts involving as it did judicial issues. pursuant to their July 11. which was for the nullification of the main contract on the ground of fraud. 1996 agreement. We even clarified in our resolution on Gonzales motion for reconsideration that when we declared that the case should not be brought for arbitration. .in nature and require the application and interpretation of laws and jurisprudence which is necessarily a judicial function. 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. 50304 are REVERSED and SET ASIDE. 2006 of the Court of Appeals in CA-G. The parties are hereby ORDERED to SUBMIT themselves to the arbitration of their dispute. as provided under the Arbitration Clause in their Addendum Contract.R. the petition is GRANTED. it should be clarified that the case referred to is the case actually filed by Gonzales before the DENR Panel of Arbitrators. The Decision dated July 31. 2006 and the Resolution dated November 13.