G.R. No. 186227 - People vs. Allen Udtojan Mantalaba

On July 11, 1996, respondent San Fernando Regala Trading, Inc. and petitioner Cargill Philippines, Inc. entered into a written contract whereby respondent would purchase from petitioner 12,000 metric tons of Thailand-origin cane blackstrap molasses at US$192 per metric ton. Delivery was initially set for January/February 1997 and payment by an irrevocable letter of credit (LC) payable at sight, to be opened by September 15, 1996.
The parties later agreed to postpone delivery to April/May 1997 and to open the LC upon petitioner’s advice. Despite respondent’s demands, petitioner failed to deliver the molasses or comply with its contractual obligations.

On June 18, 1998, respondent filed a Complaint for Rescission of Contract with Damages (Civil Case No. 98-1376) in the RTC of Makati City, alleging breach of the July 11, 1996 contract.
On July 24, 1998, petitioner moved to dismiss or suspend the proceedings and to refer the dispute to arbitration under the contract’s arbitration clause, which provided for arbitration in New York before the American Arbitration Association (AAA) with a final and binding award.
Respondent opposed, arguing the arbitration clause ousted court jurisdiction and was void as against public policy; petitioner replied and sur-replied, maintaining the clause’s validity.
On September 17, 1998, the RTC denied the motion, ruling that:

Section 7 of R.A. No. 876 (Arbitration Law) authorized only a stay, not dismissal;
The clause contravened RA 876’s requirements by providing for foreign arbitration before non-resident arbitrators, a final and binding award without court supervision, and rendered key statutory provisions superfluous.

The RTC likewise denied petitioner’s motion for reconsideration on November 25, 1998.

Petitioner filed a petition for certiorari (CA G.R. SP No. 50304), alleging the RTC acted in excess of jurisdiction or with grave abuse of discretion in refusing to refer the dispute to arbitration.
On July 31, 2006, the CA rendered a Decision affirming the RTC, holding that:

The arbitration clause was valid and enforceable;
Nonetheless, arbitration could not proceed because petitioner challenged the very existence and validity of the contract containing the clause—an issue of fact for the courts; arbitration is improper when a party repudiates the contract.

Petitioner invoked Rule 65, seeking reversal of the CA’s Decision and Resolution. Petitioner argued:

The proper remedy was a certiorari under Rule 45 per Section 29 of RA 876;
The arbitration clause remained unenforceable because the contract did not exist;
The dispute—rescission for breach—was judicial in nature and non-arbitrable.

Petitioner invoked the separability doctrine post-Gonzales v. Climax Mining Ltd. (G.R. No. 167994), arguing the arbitration clause survives repudiation of the main contract.

Did the RTC act in excess of jurisdiction or with grave abuse of discretion in denying petitioner’s Motion to Dismiss/Suspend Proceedings and to Refer Controversy to Voluntary Arbitration?
Is a petition for certiorari under Rule 65 the proper remedy to challenge the RTC’s refusal to refer the dispute to arbitration?
Can arbitration be compelled under the clause once the court finds a written agreement to arbitrate, even if one party contests the existence or validity of the container contract?
Does the separability doctrine render the arbitration clause independent of the main contract and enforceable despite repudiation of the contract?