National Power Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: Petitioner National Power Corporation (NPC) entered into a "Cost-Plus a Percentage" contract with private respondent PECORP, INC. (PECORP) for the construction of the Mariveles Dam No. 1. The contract stipulated that PECORP would be paid a percentage fee based on the "Actual Final Cost" of the work. Subsequently, NPC informed PECORP of its intention to contract directly with Philippine Grouting and Guniting Co., Inc. (GROGUN) for drilling and grouting work, stating PECORP would not be entitled to fees for this task. PECORP contended this violated their contract and invoked the arbitration clause. NPC proceeded with the NPC-GROGUN contract, justifying it by stating the equipment was not in the initial schedules, PECORP failed to provide equipment, GROGUN had the necessary resources, the work could not be delayed, and NPC was exercising its right under Article 1725 of the Civil Code to withdraw the work. PECORP argued that drilling and grouting were part of its overall contractual duty and that it was entitled to fees even if subcontracted. Approximately five years later, PECORP presented four claims, including fees on drilling and grouting (Claim 1) and fees on minimum guaranteed equipment rental (Claim 2). Procedural History: A board of arbitrators was convened, but NPC only agreed to arbitrate claims 3 and 4. NPC resisted claims 1 and 2. PECORP filed an action in the Regional Trial Court (RTC) to compel NPC to arbitrate all four claims. The RTC ruled in favor of PECORP, ordering arbitration of all four claims. The Court of Appeals (CA) affirmed the RTC's decision but deleted the award of attorney's fees. The CA, in its judgment, also made definitive rulings on claims 1 and 2, stating that the withdrawal of work was not valid under Article 1725 of the Civil Code and that PECORP was entitled to the 10% fee on drilling and grouting work. Regarding claim 2, the CA found that PECORP's withdrawal of the claim was conditional and rendered void because NPC failed to meet the condition of favorably adjudicating the other claims. The Petition: NPC filed a petition for review with the Supreme Court, assailing the CA's affirmation of the RTC's judgment regarding PECORP's right to claim a percentage fee from the NPC-GROGUN contract for drilling and grouting work, and the CA's ruling that PECORP's claim for a fee on minimum guaranteed equipment rental hours was subject to arbitration despite its alleged withdrawal.
Issue(s)
Whether the claims for percentage fee on drilling and grouting work (Claim 1) are arbitrable matters under the NPC-PECORP contract, and whether NPC's direct contracting with GROGUN constituted a valid withdrawal of work under Article 1725 of the Civil Code, thereby precluding PECORP from claiming fees for said work. Whether PECORP's letter dated May 19, 1980, constituted an unconditional withdrawal of its claim for fees on minimum guaranteed equipment rental. Whether the claims for percentage fee on minimum guaranteed equipment rental (Claim 2) are arbitrable matters under the NPC-PECORP contract.
Ruling
The petition is denied. The decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the arbitrability of claims for drilling and grouting work and the validity of withdrawal under Article 1725 of the Civil Code: The Supreme Court affirmed the Court of Appeals' ruling that the dispute concerning PECORP's claim for fees on drilling and grouting work was an arbitrable matter. The Court reiterated that the arbitration clause in the NPC-PECORP contract was broad, covering any "dispute, controversy, or differences between the parties arising out of this contract." The Court agreed with the CA that NPC's direct contracting with GROGUN was not a valid withdrawal of work under Article 1725 of the Civil Code. The CA reasoned that it was merely a transfer of a part of the construction, which still formed part of the project, and that the NPC-GROGUN contract did not amend or nullify the "cost plus" provision of the NPC-PECORP contract. Therefore, PECORP remained entitled to its 10% fee. The Court found no error in the CA's conclusion that the drilling and grouting work was part of PECORP's overall contractual duty to construct the dam completely, as defined by the term "Project" in the contract. The Court emphasized that Philippine law and jurisprudence recognize arbitration agreements as valid and binding, and that the claims directly emanated from the NPC-PECORP contract, making them subject to arbitration. On the withdrawal of the claim for minimum guaranteed equipment rental: The Supreme Court upheld the Court of Appeals' finding that PECORP's withdrawal of its claim for fees on minimum guaranteed equipment rental was conditional and thus rendered null and void. The CA had interpreted PECORP's letter dated May 19, 1980, to mean that the withdrawal was contingent upon NPC favorably adjudicating and endorsing the other three claims. Since NPC refused to certify for arbitration the other three claims, the condition for withdrawal was not met. Consequently, the withdrawal was ineffective, and the claim remained subject to arbitration. The Court found this disquisition by the CA to be brief, straight to the point, and deserving of full affirmance. The Court reiterated that the arbitration clause in the contract was broad enough to encompass such disputes, and that the parties' agreement to arbitrate was a contract controlled by the law of contracts. On the arbitrability of claims for minimum guaranteed equipment rental: The Supreme Court affirmed the Court of Appeals' ruling that the dispute concerning PECORP's claim for fees on minimum guaranteed equipment rental was an arbitrable matter. The Court reiterated that the arbitration clause in the NPC-PECORP contract was broad, covering any "dispute, controversy, or differences between the parties arising out of this contract." The Court emphasized that Philippine law and jurisprudence recognize arbitration agreements as valid and binding, and that the claims directly emanated from the NPC-PECORP contract, making them subject to arbitration.
Main Doctrine
A dispute arising from a contract, even if it involves the interpretation of the owner's right to withdraw work under Article 1725 of the Civil Code, is arbitrable if the contract contains a valid arbitration clause. A withdrawal of a claim is conditional and becomes void if the condition is not met.