Bengson v. Chan
REITERATIONFacts
The Antecedents: Soledad F. Bengson and Mariano M. Chan entered into a contract for the construction of a six-story building. The contract stipulated a payment of P352,000 for materials, labor, and construction, with specific completion timelines for certain parts and the entire project. Crucially, the contract contained an arbitration clause (paragraph 15) stating that any disputes arising relative to the construction would be determined by two arbitrators, and their determination would be final and binding, serving as a condition precedent to any court action. Procedural History: Bengson filed a complaint for damages against Chan and his sureties, alleging breach of contract due to delayed construction and failure to complete the building. She claimed damages amounting to P183,800. The defendants, in their answer, denied liability and raised counterclaims. In an amended answer, they asserted an additional affirmative defense that Bengson's complaint stated no cause of action because she failed to submit the controversy for arbitration as required by the contract. The trial court sustained this defense and dismissed the complaint. The Appeal: Bengson appealed the dismissal, arguing that the trial court erred in allowing the defendants to plead a new affirmative defense in their amended answer and in holding that her causes of action were embraced by the arbitration clause, thus requiring arbitration as a condition precedent to court action. She contended that her claims were based on violations of the contract for construction, not disputes relative to the technical process of construction itself.
Issue(s)
Whether the defendants waived their right to raise the defense of failure to arbitrate by not including it in their original answer. Whether the causes of action in Bengson's complaint fall within the scope of the arbitration clause, making arbitration a condition precedent to court action. Whether the trial court should have dismissed the complaint or stayed the proceedings to allow for arbitration.
Ruling
The Supreme Court reversed and set aside the trial court's order of dismissal. It held that the defendants did not waive their right to raise the defense of failure to arbitrate. However, it found that while the causes of action were covered by the arbitration clause, the proper remedy was not dismissal but a stay of the proceedings to allow the parties to undergo arbitration. The Court directed the trial court to give the parties a period of sixty days to settle their disputes by arbitration, after which, if no settlement was reached, the trial should resume.
Ratio Decidendi
On Whether the defendants waived their right to raise the defense of failure to arbitrate: The Court held that the defendants did not waive their right to raise the affirmative defense of failure to arbitrate. This is because Section 2, Rule 9 of the Rules of Court explicitly provides that the defense of failure to state a cause of action may be alleged in a later pleading, even if not raised in the original answer or a motion to dismiss. The Court considered the defendants' assertion of this defense in their amended answer as a proper invocation of this exception, thus preventing waiver. On Whether the causes of action in Bengson's complaint fall within the scope of the arbitration clause: The Court found that the causes of action alleged in Bengson's complaint were indeed based upon supposed violations committed by the defendants of the "Contract for the Construction of a Building." The broad and inclusive language of paragraph 15 of the contract, "any and all questions, disputes or differences between the parties hereto relative to the construction of the building," clearly encompassed all disputes arising from the contract, not just technical construction issues. The Court rejected Bengson's attempt to distinguish between the "contract for construction" and the "construction of the building" as a specious and unconvincing argument, emphasizing that the intent of the parties was to submit all disputes to arbitration. On Whether the trial court should have dismissed the complaint or stayed the proceedings: The Court agreed with Bengson's alternative contention that the proper course of action was not dismissal but a stay of the proceedings to allow for arbitration. Citing Sections 6 and 7 of the Arbitration Law (Republic Act No. 876), the Court explained that a party aggrieved by the failure to comply with an arbitration agreement may petition the court to direct arbitration, or if a suit is filed, the court shall stay the action until arbitration has been had. Therefore, instead of dismissing the case, the proceedings should have been suspended, and the parties directed to undergo arbitration. The Court mandated that the trial court should give the parties at least sixty days from notice to settle their disputes by arbitration, and if no settlement is finalized within that period, the hearing of the case should be resumed.
Main Doctrine
The Supreme Court held that a clear and unambiguous arbitration clause in a contract, stipulating that any dispute arising relative to the construction of a building shall be determined by arbitration and that such determination is a condition precedent to court action, is binding upon the parties. Consequently, a party aggrieved by the failure of the other to comply with the arbitration agreement may petition the court to direct arbitration, and the court, if satisfied that an agreement for arbitration was made and there is a default in proceeding thereunder, shall order the parties to proceed with arbitration. Alternatively, if a suit is filed on an issue arising out of such agreement, the court shall stay the action until arbitration has been had, provided the applicant for the stay is not in default.