Mindanao Portland Cement Corporation, petitioner-appellee, vs. McDonough Construction Company of Florida, respondent-appellant.
FACTS
On February 13, 1961, Mindanao Portland Cement Corporation (petitioner) and McDonough Construction Company (respondent) executed a contract for the construction of a cement plant in Iligan City, with Turnbull, Inc. engaged as the supervising “engineer.” Alterations to the plans were made through Addenda. The project, originally due on December 17, 1961, received time extensions and was substantially completed on October 22, 1962. Disagreements arose: petitioner claimed over P2,000,000 in damages for delay, while respondent claimed over P450,000 for extra work and overhead costs, and later submitted a final bill for an unpaid balance of P403,700. A conference on May 29, 1962 failed to settle these differences. Petitioner invoked the arbitration clause in their contract through written invitations on August 8 and September 24, 1962. Respondent did not respond and instead submitted its final statement on November 14, 1962. Petitioner filed an action in the Court of First Instance of Manila to compel arbitration. The trial court, after stipulation of facts and documentary evidence, found a dispute existed and ordered the parties to arbitrate pursuant to their contract and Republic Act 876. Respondent appealed, raising the purely legal question of whether it was duty-bound to arbitrate.
ISSUE
Whether, under the facts and the contract’s arbitration clause, the respondent is obligated to submit to arbitration.
RULING
Yes, the respondent is duty-bound to submit to arbitration. The Supreme Court affirmed the trial court’s decision.
1. Existence of Disagreement: The Court found that a disagreement plainly existed, as shown by the stipulation of facts stating the parties’ mutual claims (petitioner’s claim for delay damages and respondent’s claim for extra costs) remained unsettled after a conference. Respondent’s admission of petitioner’s claim (while denying its merit) and petitioner’s refusal to pay respondent’s claimed balance further evidenced the dispute.
2. Scope of Arbitration Clause and Exceptions: The contract’s arbitration clause (Paragraph 39) required arbitration for disagreements “except the interpretation of the plans and specifications and questions concerning the sufficiency of materials, the time, sequence and method of performing the work, which questions are to be finally determined by the Engineer.” The Court held that the present disputes-(a) the proper computation of the total contract price, including the cost of extra work, and (b) liability for alleged delay in completion and for losses due to plan changes-did not fall under any of these exceptions.
* They did not involve the “interpretation of plans and specifications,” which under the contract related to correcting discrepancies and explaining doubts, not determining costs.
* They did not concern “sufficiency of materials” or “method of performing the work,” which pertained to the quality and fitness of materials and workmanship.
* They did not involve “time” and “sequence of work” as exceptions, which referred to the engineer’s power to schedule work and grant extensions during construction to meet deadlines. The dispute here involved delay beyond the final extended deadline and the attendant liability, which was not for the engineer to resolve.
3. Application of Arbitration Law: Since a written arbitration provision existed and respondent failed to comply, the court correctly ordered arbitration under Section 6 of Republic Act 876 (The Arbitration Law). The Court emphasized that this proceeding was a summary remedy to enforce the arbitration agreement; it was not to resolve the merits of the claims, which should be addressed to the arbitrators. The claims were not deemed frivolous or patently baseless merely because defenses existed against them.
Wherefore, the judgment ordering the parties to proceed to arbitration was affirmed.
