G.R. No. 139273 November 28, 2000
California and Hawaiian Sugar Company; Pacific Gulf Marine, Inc.; and C.F. Sharp & Company, petitioners, vs. Pioneer Insurance and Surety Corporation, respondent.

FACTS

Respondent Pioneer Insurance, as subrogee of consignee Metro Manila Feed Millers Association, filed a complaint for damages against petitioners concerning a cargo shipment shortage. The bill of lading incorporated a charter party containing an arbitration clause. Petitioners filed a Motion to Dismiss, arguing the complaint was premature for failure to arbitrate. The Regional Trial Court (RTC) issued an Order deferring the resolution of this motion until trial, stating the ground was not indubitable, and directed petitioners to file an Answer.
Petitioners complied, filing an Answer that reiterated the arbitration clause as an affirmative defense. They subsequently filed a Motion to Set for Preliminary Hearing on this affirmative defense. The RTC denied this motion, and the Court of Appeals affirmed, holding that under the pre-1997 Rules, a preliminary hearing on an affirmative defense is not allowed when a motion to dismiss on the same ground had already been filed and denied.

ISSUE

Whether the trial court committed grave abuse of discretion in denying petitioners’ motion for a preliminary hearing on their affirmative defense of lack of cause of action due to non-compliance with the arbitration clause.

RULING

The Supreme Court granted the petition and reversed the Court of Appeals. The Court clarified the application of Section 5, Rule 16 of the pre-1997 Rules of Court. It held that a preliminary hearing on an affirmative defense may be allowed not only when no motion to dismiss was filed, but also when a motion to dismiss was filed but its resolution was not unconditionally denied.
In this case, the RTC did not deny the Motion to Dismiss; it merely deferred its resolution until trial. This deferment, based on the ground not being “indubitable,” was equivalent to a denial of the motion for the purpose of filing an answer, but it did not constitute a final adjudication on the merits of the defense. Consequently, the grounds in the deferred motion could still be validly raised as affirmative defenses in the Answer. Since the motion was not unconditionally denied, petitioners retained the right to seek a preliminary hearing on those affirmative defenses pursuant to the old rules. The trial court therefore erred in denying the motion for a preliminary hearing. The case was remanded to the RTC to conduct such a hearing on the affirmative defense concerning the arbitration clause.