CARGILL PHILS INC V SAN FERNANDO REGALA TRADING INC.

G.R. NO. 175404, JANUARY 31, 2011

PERALTA, J.:

In Cargill Phils Inc v San Fernando Regala Trading, Inc the Supreme Court ruled that while
actions for rescission and damages are ordinarily judicial matters, the dispute at hand was to be
referred to arbitration because the contract which the plaintiff sought to have rescinded included
an arbitration agreement.(1)

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 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:
Yes.
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.
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.

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.