GR 141833; (March, 2003) (Digest)
G.R. No. 141833; March 26, 2003
LM POWER ENGINEERING CORPORATION, petitioner, vs. CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
FACTS
Petitioner LM Power and respondent Capitol entered into a Subcontract Agreement for electrical work. After respondent took over some work items due to alleged delays by petitioner, a billing dispute arose. Petitioner filed a collection suit in the RTC. Respondent moved to dismiss, invoking the contract’s arbitration clause requiring prior recourse to arbitration for disputes regarding the agreement’s interpretation or implementation. The RTC denied the motion, reasoning the dispute was a simple collection suit not covered by arbitration, and after trial ruled for petitioner.
The Court of Appeals reversed the RTC. It found the core issues—whether the take-over constituted a termination under the contract, the applicability of the set-off provision, and the determination of advances and billable accomplishments—were disputes requiring interpretation of the Subcontract Agreement. Consequently, the CA ordered the parties to submit to arbitration as stipulated.
ISSUE
Whether the dispute between the parties is arbitrable under the arbitration clause of their Subcontract Agreement, thereby making the filing of the collection suit premature.
RULING
Yes, the dispute is arbitrable. The arbitration clause explicitly covers “any dispute or conflict as regards to interpretation and implementation of this Agreement.” The Court held that the parties’ conflicting positions directly necessitate interpreting the contract’s provisions. The central questions—if a termination occurred under the contract’s specific clause, if set-off was permissible, and the accurate amounts of advances and accomplishments—are not mere questions of fact but inherently require construing the agreement’s terms to apply them to the facts.
The legal logic is that when a contract contains a valid arbitration clause, judicial intervention is precluded until the arbitral process is exhausted for disputes falling within the clause’s scope. The Court emphasized the policy favoring alternative dispute resolution. The technical nature of construction disputes makes them particularly suitable for arbitration by a specialized body like the Construction Industry Arbitration Commission. The RTC therefore erred in assuming jurisdiction; it should have granted the motion to dismiss and referred the parties to arbitration. The filing of the collection suit was premature as the condition precedent of arbitration had not been complied with.