LM Power Engineering Corporationduspute

7/14/2021 G.R. No.
141833
Today is Wednesday, July 14, 2021
THIRD DIVISION
G.R. No. 141833 March 26, 2003
LM POWER ENGINEERING CORPORATION, petitioner,

VS.
CAPITOL INDUSTRIAL CONSTRUCTION GROUPS, INC., respondent.
PANGANIBAN, 1.:
Alternative dispute resolution methods or ADRs -- like arbitration, mediation, negotiation and conciliation -- are
encouraged by the Supreme Court. By enabling parties to resolve their disputes amicably, they provide solutions
that are less time-consuming, less tedious, less confrontational, and more productive of goodwill and lasting
relationships.1
The Case
Before us is a Petition for Review on Certiorari 2 under Rule 45 of the Rules of Court, seeking to set aside the
January 28, 2000 Decision of the Court of Appeals3 (CA) in CA-GR CV No. 54232. The dispositive portion of the
Decision reads as follows:
"WHEREFORE, the judgment appealed from is REVERSED and SET ASIDE. The parties are ORDERED
to present their dispute to arbitration in accordance with their Sub-contract Agreement. The surety bond
posted by [respondent] is [d]ischarged. 4
The Facts
On February 22, 1983, Petitioner LM Power Engineering Corporation and Respondent Capitol Industrial
Construction Groups Inc. entered into a "Subcontract Agreement" involving electrical work at the Third Port of
Zamboanga. 5
On April 25, 1985, respondent took over some of the work contracted to petitioner. 6
Allegedly, the latter had
failed to finish it because of its inability to procure materials. 7
Upon completing its task under the Contract, petitioner billed respondent in the amount of P6,711,813.90. 8
Contesting the accuracy of the amount of advances and billable accomplishments listed by the former, the latter
refused to pay. Respondent also took refuge in the termination clause of the Agreement. That clause allowed it
to set off the cost of the work that petitioner had failed to undertake -- due to termination or take-over -- against
the amount it owed the latter.
Because of the dispute, petitioner filed with the Regional Trial Court (RTC) of Makati (Branch 141) a Complaint
10 for the collection of the amount representing the alleged balance due it under the Subcontract. Instead of
submitting an Answer, respondent filed a Motion to Dismiss, 11 alleging that the Complaint was premature,
because there was no prior recourse to arbitration.
In its Order12 dated September 15, 1987, the RTC denied the Motion on the ground that the dispute did not
involve the interpretation or the implementation of the Agreement and was, therefore, not covered by the arbitral
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7/14/2021 G.R. No. 141833
clause. 13
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After trial on the merits, the RTC14 ruled that the take-over of some work items by respondent was not
equivalent to a termination, but a mere modification, of the Subcontract. The latter was ordered to give full
payment for the work completed by petitioner.
Ruling of the Court of Appeals
On appeal, the CA reversed the RTC and ordered the referral of the case to arbitration. The appellate court held
as arbitrable the issue of whether respondent’s take-over of some work items had been intended to be a
termination of the original contract under Letter "K" of the Subcontract. It ruled likewise on two other issues:
whether petitioner was liable under the warranty clause of the Agreement, and whether it should reimburse
respondent for the work the latter had taken over.15
Hence, this Petition.16
The Issues
In its Memorandum, petitioner raises the following issues for the Court's consideration:
"A
Whether or not there exist[s] a controversy/dispute between petitioner and respondent regarding the
interpretation and implementation of the Sub-Contract Agreement dated February 22, 1983 that requires prior
recourse to voluntary arbitration;
"B
In the affirmative, whether or not the requirements provided in Article III 1 of CIAC Arbitration Rules regarding
request for arbitration ha[ve] been complied with[.] *^ 17
The Court’s Ruling
The Petition is unmeritorious.
First Issue:
Whether Dispute Is Arbitrable
Petitioner claims that there is no conflict regarding the interpretation or the implementation of the Agreement.
Thus, without having to resort to prior arbitration, it is entitled to collect the value of the services it rendered
through an ordinary action for the collection of a sum of money from respondent. On the other hand, the latter
contends that there is a need for prior arbitration as provided in the Agreement. This is because there are some
disparities between the parties’ positions regarding the extent of the work done, the amount of advances and
billable accomplishments, and the set off of expenses incurred by respondent in its take-over of petitioner’s work.
We side with respondent. Essentially, the dispute arose from the parties’ ncongruent positions on whether
certain provisions of their Agreement could be applied to the facts. The instant case involves technical
discrepancies that are better left to an arbitral body that has expertise in those areas. In any event, the inclusion
of an arbitration clause in a contract does not ipso facto divest the courts of jurisdiction to pass upon the findings
of arbitral bodies, because the awards are still judicially reviewable under certain conditions.18
In the case before us, the Subcontract has the following arbitral clause:
"6. The Parties hereto agree that any dispute or conflict as regards to interpretation and implementation of
this Agreement which cannot be settled between [respondent] and [petitioner] amicably shall be settled by
means of arbitration x x x. 19
Clearly, the resolution of the dispute between the parties herein requires a referral to the provisions of their
Agreement. Within the scope of the arbitration clause are discrepancies as to the amount of advances and
billable accomplishments, the application of the provision on termination, and the consequent set-off of
expenses.
A review of the factual allegations of the parties reveals that they differ on the following questions: (1) Did a take-
over/termination occur? (2) May the expenses incurred by respondent in the take-over be set off against the
amounts it owed petitioner? (3) How much were the advances and billable accomplishments?
The resolution of the foregoing issues lies in the interpretation of the provisions of the Agreement. According to
respondent, the take-over was caused by petitioner’s delay in completing the work. Such delay was in violation of
the provision in the Agreement as to time schedule:
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7/14/2021 G.R. No.

Today is Wednesday, July 14, 2021

G.R. No. 141833 March 26, 2003

LM POWER ENGINEERING CORPORATION, petitioner,

Ruling of the Court of Appeals

Hence, this Petition.16

The Court’s Ruling

The Petition is unmeritorious.

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