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Cargill Phils Inc v San Fernando Regala Trading, Inc

GR. No. 175404

Facts

San Fernando Regala Trading filed before the trial court a complaint for rescission of
contract with damages against Cargill Philippines, Inc. In its complaint, San Fernando
Regala Trading alleged that it was engaged in buying and selling molasses and that
Cargill was one of its suppliers. San Fernando Regala Trading alleged that it
purchased from Cargill, and the latter had agreed to sell, 12,000 tons of cane
blackstrap molasses originating from Thailand at the price of $192 per metric ton, and
that delivery would be made in April or May 1997. After San Fernando Regala
Trading delivered the letter of credit, it claimed that Cargill failed to comply with its
obligations under the contract, which included an arbitration clause as follows:
"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."
Cargill moved to dismiss and/or suspend the court proceedings citing the arbitration
clause. San Fernando Regala Trading argued that since it was seeking rescission of
the contract, it was in effect repudiating the contract which included the arbitration
clause. Further, it argued that rescission constitutes a judicial issue, which requires the
exercise of judicial function and cannot be the subject of arbitration.

Issue:
Whether or not the action for rescission may be subjected to arbitration.

Decision

The Supreme Court held that the provision to submit to arbitration any dispute arising
between the parties is part of the contract and is itself a contract. The arbitration
agreement is to be treated as a separate agreement and does not automatically
terminate when the contract of which it is a part comes to an end. To reiterate 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
seeks to avoid.

San Fernando Regala Trading filed a complaint for rescission of contract and damages
with the trial court. In so doing, it alleged that a contract existed. It was that contract
which provided for an arbitration clause which expressed the parties' intention that
any dispute to arise between them, as buyer and seller, should be referred to
arbitration. It is for the arbitrator and not the court to decide whether a contract
between the parties exists or is valid. Under the circumstances, the argument that
rescission is judicial in nature is misplaced.