CASE DIGEST: Cargill Phils vs. San Fernando Regala Trading

G.R. No. 175404, January 31, 2011 | CARGILL PHILIPPINES, INC., petitioner, vs. SAN FERNANDO REGALA TRADING, INC., respondent. PERALTA, J.:

Respondent San Fernando Regala Trading filed with the RTC of Makati City a Complaint for Rescission of Contract with Damages against petitioner Cargill. It alleged that it agreed that it would purchase from Cargill 12,000 metric tons of Thailand origin cane blackstrap molasses and that the payment would be by an Irrevocable Letter of Credit payable at sight. The parties agreed that the delivery would be made in April/May. Cargill failed to comply with its obligations despite demands from respondent. The respondent then filed for rescission.The petitioner filed a Motion to Dismiss/Suspend proceeding, arguing that they must first resort to arbitration as stated in their agreement before going to court. However, the RTC ruled in favor of the respondent. The CA affirmed the RTC decision, adding 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 subjectcontract 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.

ISSUE: 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.

HELD: The petition is meritorious.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. R.A. No. 876 authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international character, is likewise recognized. 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.

A contract is required for arbitration to take place and to be binding. Submission to arbitration is a contract and a clause in a contract providing that all matters in dispute between the parties shall be referred to arbitration is a contract. 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.

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.

Petition is GRANTED.