Soledad Bengson vs.

Mariano Chan, Universal Construction Supply & Leoncio Chan, Mutual

Security Insurance Corporation & Krause Ignacio
(G.R. No. L-27283 (78 SCRA 113), July 29, 1977)

BENGSON

FACTS:

In June 1965, petitioner entered into a contract with contractor, respondent Chan,
whereby the latter would construct a 6-storey building in petitioner’s property in La Union, and
as compensation, petitioner will pay the amount of P352k. Said contract included an arbitration
clause whereby the parties submitted themselves to arbitration on any & all disputes relative to
the construction of the building. The parties stipulated that arbitration shall be a condition
precedent in the event the party/ies choose to go to court.

In May 1966, petitioner filed an action for damages against Chan for the latter’s delay
which was the reason why petitioner terminated the contract. The respondents however
contended that the construction was stopped because petitioner refused to pay for 90% of the
work already accomplished by them. Respondents moreover raised that petitioner failed to first
submit the dispute to arbitration.

The trial court dismissed the case. On appeal, petitioner contended that her cause of
action did not involve construction disputes, hence should not be covered by the arbitration
clause.

ISSUE:

Whether or not the controversy herein should be referred to arbitration

HELD:

Yes, the terms of paragraph 15 clearly express the intention of the parties that all
disputes between them should first be arbitrated before court action can be taken by the
aggrieved party.

From the facts provided, all the causes of action alleged in the plaintiff's amended
complaint are based upon the supposed violations committed by the defendants of the
'Contract for the Construction of a Building"' and that "the provisions of paragraph 15 hereof
leave very little room for doubt that the said causes of action are embraced within the phrase
'any and all questions, disputes or differences between the parties hereto relative to the
construction of the building', which must be determined by arbitration of two persons and such
determination by the arbitrators shall be 'final, conclusive and binding upon both parties' unless
they go to court, in which case the determination by arbitration is ' a condition precedent for
taking any court action'."

However, although the causes of action in petitioner’s complaint are covered by

paragraph 15, her failure to resort to arbitration does not warrant the dismissal of her
complaint. The proceedings therein should have been suspended and the parties directed to go
through the motions of arbitration at least within a sixty-day period. With the consent of the
parties, the trial court may appoint a third arbitrator to prevent a deadlock between the two
arbitrators. In the event that the disputes between the parties could not be settled definitively
by arbitration, then the hearing of the instant case should be resumed.

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.