BENGSON vs CHAN
Need for Prior Arbitration | G.R. No. L-27283 | Aquino, J. |
Emma
FACTS:
1. Bengson and Chan entered into a contract for the
construction of a 6-story building on Bengson’s lot. In
that contract, Bengson found herself to pay Chan, the
contractor, P352k for the materials labor and
construction expenses.
2. They stipulated that:
a) Construction starts on July 5, 1955
b) 1st and 2nd stories, as well as the theater should be
completed for use within 5 months
c) Construction should be finished within 12 calendar
months
3. The arbitration clause provides that any disputes
arising between the parties relative to the construction
of the building shall be determined by arbitration of 2
persons, each chosen by the parties themselves. The
determination of the arbitration shall be final,
conclusive and binding upon the parties UNLESS they
choose to go to court, in which case the determination
by arbitration is a condition precedent for taking any
court action. Expense shall be borne equally by the
parties.
4. Bengson filed an action for damages against Chan
alleging that Chan violated the contract when it failed
to finish the 1st and 2nd stories within the 5 month
period.
5. Chan and his sureties (Leoncio Chan –owner of
Universal Construction Supply and Mutual Security
Insurance Corp) alleged that:
a) They stopped the construction because Bengson
refused to pay for the 90% of the work already
accomplished
b) Construction really started in Feb because of the
changes requested by Bengson
c) The 5 month period was novated by the parties
6. They also alleged as an affirmative defense that
complaint states no cause of action since Bengson did
not submit the controversy for arbitration as stipulated
in their contract.
7. TC ruled that the COAs were embraced under the
contract hence they should’ve brought it up to the
arbitration first. TC dimissed! So P Bengson appealed.
8. P Bengson argues that the contract refers to disputes
as to the “technical process of putting up the building”
and that her causes of action for damages do not
involve question as to the construction but it is “based
on violation of the contract for construction.” Bengson
also argues that if arbitration is proper, TC should have
required the parties to proceed to arbitration (not
dismissal)
9. R argues that it is not restricted to disputes relative to
the technical process of putting up the building.
ISSUES/HELD:
1. W/N the failure to resort to arbitration warrants the
dismissal of a complaint – NO
 Bengson’s distinction between the contract for the
construction of the building and the construction of
the building is not convincing.
 SC ruled that although the causes of action in the
complaint are covered by the clause, her failure to
resort to arbitration does not warrant the dismissal
of her complaint. Arbitration may be resorted to
during the pendency of the case.
o Arbitration Law Sec 6 provides that an
aggrieved party by the failure, neglect or
refusal of another to perform under an
agreement in writing providing for
arbitration may petition the court for an
order directing the such arbitration
proceed in the manner agreed upon. Sec
7 provides that in any suit brought upon
an issue arising out of an agreement
providing for the arbitration, the court in
which such suit is pending, upon being
satisfied that the issue involved in such
suit is referable to arbitration, shall stay
the action or proceeding until an arbitrary
has been had. Provided, that the
applicant for the stay is not in default in
proceeding with such arbitration.
 In this case, the failure of Bengson to resort to
arbitration may be regarded as a refusal to comply
with the stipulation for arbitration. Defendants
defense that arbitration is a condition precedent of
a court action may be interpreted as a petition for
an order that arbitration should proceed.
 Instead of dismissing the case, the proceedings
should be suspended and parties should be
directed to go through the motions of arbitration
atleast within 60 days. With the consent of the
parties, TC may appoint a 3rd arbitrator to prevent
a deadlock between the 2 arbitrators. If the dispute
could not be settled by such, then the hearing of
the instant case should be resumed.
RULING: The trial court's order of dismissal is reversed and set
aside. If the parties cannot reach an amicable settlement at this
late hour, then the trial court should give them at least sixty days
from notice within which to settle their disputes by arbitration
and, if no settlement is finalized within that period, it should hold
a pre-trial and try the case. No
costs.chanroblesvirtualawlibrarychanr
The Arbitration Law provides:
SEC. 6. Hearing by court. — A party aggrieved by the failure,
neglect or refusal of another to perform under an agreement in
writing providing for arbitration may petition the court for an
order directing that such arbitration proceed in the manner
provided for in such agreement. Five days notice in writing of
the hearing of such application shall be served either personally
or by registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making of the
agreement or such failure to comply therewith is not in issue,
shall make an order directing the parties to proceed to
arbitration in accordance with the terms of the agreement. If the
making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding
shall be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing the
parties to proceed with arbitration in accordance with the terms
thereof.

The court shall decide all motions, petitions or applications filed

under the provisions of this Act, within ten days after such
motions, petitions, or applications have been heard by it.

SEC. 7. Stay of civil action. — If any suit or proceeding be

brought upon an issue arising out of an agreement providing for
the arbitration thereof, the court in which such quit or
proceeding is pending, upon being satisfied that the issue
involved in such suit or proceeding is referable to arbitration,
shall stay the action or proceeding until an arbitration has been
had in accordance with the terms of the agreement: Provided,
That the applicant for the stay is not in default in proceeding
with such arbitration.