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Reyes vs. Balde II

*

G.R. No. 168384. August 7, 2006.

CHARLES BERNARD H. REYES doing business under the name and style CBH REYES ARCHITECTS, petitioner, vs. ANTONIO YULO BALDE II, PAULINO M. NOTO and ERNESTO J. BATTAD, SR., in their capacities as Arbitrators of the CONSTRUCTION INDUSTRY ARBITRATION COMMISSION, SPOUSES CESAR and CARMELITA ESQUIG and ROSEMARIE PAPAS, respondents.

Alternative Dispute Resolution; Arbitration; Construction Industry Arbitration Commission (CIAC); Jurisdictions; The Construction Industry Arbitration Commission (CIAC) has original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration.—In the case of Philrock, Inc. v. Construction Industry Arbitration Commission, 359 SCRA 632 (2001), the Court has ruled that CIAC has original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration. Section 1, Article III of the CIAC Rules of Procedure Governing Construction Arbitration likewise provides that recourse to the CIAC may be availed of whenever a contract contains a clause for the submission of a future controversy to arbitration, thus: SECTION 1. Submission to CIAC Juris-

* FIRST DIVISION.

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diction.—An arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different arbitration institution or arbitral body in such contract or submission. When a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. (Emphasis supplied)

Same; Same; Same; The presence of the arbitration clause in the parties’ contract vests jurisdiction on the Construction Industry Arbitration Commission (CIAC) on all controversies arising from such contract.—We agree with the findings of the Court of Appeals that the Design-Build Construction Agreement mutually entered into by the parties contain an arbitration clause, to wit:

ARTICLE 10. ARBITRATION. All questions in dispute under the Agreement shall be submitted in accordance with the provisions of Philippine Law on Arbitration and provided for in Article 2042 of the New Civil Code of the Philippines and the provisions of Republic Act No. 876. Clearly, the presence of the arbitration clause in the parties’ contract vests jurisdiction on the CIAC on all controversies arising from such contract. The arbitral clause in the agreement is a commitment by the parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith. Where the jurisdiction of CIAC is properly invoked, the failure or refusal of herein petitioner to arbitrate shall not affect the proceedings. Arbitration proceedings shall continue notwithstanding the absence or lack of participation of petitioner, and the award shall be made after receiving the evidence of the claimant.

Same; Same; Same; Jurisdictions; E.O. No. 1008 which vests jurisdiction to the Construction Industry Arbitration Commission (CIAC) over construction disputes is a special law—hence, it takes precedence over Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of 1980, a general law which vests jurisdiction to the Regional Trial Courts over civil actions in which the subject of the litigation is incapable of pecuniary estimation.—With respect to petitioner’s contention that the action is purely civil in nature hence, jurisdiction rests with the Regional Trial Court, the same must fail. Since the action is rooted on alleged violations of the agreement, it is

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embraced by the term “construction dispute.” As CIAC aptly ruled: As regards Respondent’s assertion that the claims in the civil case are not arbitrable, this Commission again begs to digress. A cursory perusal of the claims in civil case would show that such fall within the scope of CIAC jurisdiction, to wit: (1) accounting of all payments made for the purchase of construction materials; (2) cost of additional work; (3) balance on the contract price; (4) interest; (5) rescission of contract; (6) moral damages; (7) exemplary damages; and (8) cost of suit. Besides, Section 23 of E.O. No. 1008 expressly provides that all provisions of existing laws, proclamations, decrees, letters of instructions and executive orders contrary to or inconsistent with E.O. No. 1008 are repealed or modified accordingly. E.O. No. 1008 which vests jurisdiction to the CIAC over construction disputes is a special law; hence, it takes precedence over Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of 1980, a general law which vests jurisdiction to the Regional Trial Courts over civil actions in which the subject of the litigation is incapable of pecuniary estimation.

Same; Same; Being an inexpensive, speedy and amicable method of settling disputes, arbitration—along with mediation, conciliation and negotiation—is encouraged by the Supreme Court. —It bears to stress that being an inexpensive, speedy and amicable method of settling disputes, arbitration—along with mediation, conciliation and negotiation—is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of the commercial kind. It is thus regarded as the “wave of the future” in international civil and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward.

PETITION for review on certiorari of the decision and resolution of the Court of Appeals. The facts are stated in the opinion of the Court. Chavez, Miranda, Aseoche Law Offices for petitioner. Villa, Judan & Associates for private respondents.

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YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari under Rule 45 of the

Rules of Court assails the Decision 1 of the Court of Appeals

dated

April 23, 2004 of the Arbitral Tribunal 3 of the Construction Industry Arbitration Commission (CIAC), denying petitioner’s Motion to Terminate Proceedings and its Resolution 4 dated May 20, 2005 denying petitioner’s motion for reconsideration. The facts of the case are as follows:

On October 20, 2002, respondent-spouses Cesar and Carmelita Esquig entered into a Design-Build Construction

Agreement

doing business under the name and style of CBH Reyes

Architects, for the architectural design and construction of a 2-storey residence in Tahanan Village, Parañaque City. In accordance with the contract, spouses Esquig paid the

amount of P1,050,000 as down payment.

construction commenced. The relationship between petitioner and respondent spouses went on smoothly until sometime in January 2003 when the latter left for the United States and designated their co-respondent, Rosemarie Papas, as their representative. According to petitioner, Papas meddled with the construction works by demanding changes and additional works which entailed additional cost. Papas also refused to pay petitioner’s progress billing and the salary of the laborers.

dated February 18, 2005, which sustained the Order

2

5

with petitioner Charles Bernard H. Reyes,

6

Thereafter,

1 Rollo, pp. 34-48. Penned by Associate Justice Delilah Vidal-lon- Magtolis as concurred in by Associate Justices Perlita J. Tria-Tirona and Jose C. Reyes, Jr.

2 Id., at pp. 254-255. 3 Composed of Antonio Yulo Balde II as Chairman, with Paulino M. Noto and Ernesto J. Battad, Sr. as members.

4 Rollo, p. 50.

5 Id., at pp. 51-55.

6 Id., at pp. 118-119.

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Petitioner thereafter prepared an accounting report of all the additional works and their corresponding costs, however, Papas denied all the items in the list and refused to pay the same. Worse, on May 8, 2003, Papas wrote the Board of Directors of Tahanan Village Homeowner’s Association requesting for the cancellation of the contractor’s work permit. Thus, on May 26, 2003, petitioner filed a complaint for Accounting, Collection of Sum of Money, Rescission of Contract with Damages against spouses Esquig and Rosemarie Papas with the Regional Trial Court of Muntinlupa City which was docketed as Civil Case No. 03- 110. In the complaint, petitioner prayed that an accounting be rendered to determine the cost of the materials purchased by Papas; that respondents be ordered to pay the cost of the additional works done on the property; that the Design-Build Construction Agreement be ordered rescinded because respondents breached the same; and that respondents be ordered to pay moral and exemplary damages and litigation expenses. On July 15, 2003, respondents filed a motion to dismiss Civil Case No. 03-110 on the ground that the court has no jurisdiction over the subject matter of the case. They claimed that the Design-Build Construction Agreement contained an arbitration clause, thus any dispute arising therefrom should be brought before the CIAC. On even date, respondents also filed a complaint before the CIAC against the petitioner, docketed as CIAC Case No. 13-2003. Respondents alleged that petitioner unreasonably delayed the construction and refused to finish the project. Thus, they prayed that petitioner be

ordered to finish the project or, in the alternative, to pay the cost to finish the same; to reimburse the overpayments made by respondents; and to pay liquidated damages, attorney’s fees and costs of the suit. Instead of submitting an answer, petitioner filed with

of

the CIAC a motion to dismiss jurisdiction to

7

on grounds of lack

7 Id., at pp. 166-174.

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hear and decide the case as well as the pendency of the case before the trial court involving the same subject matter. In an Order dated October 17, 2003, CIAC denied petitioner’s motion to dismiss, holding that since the Design-Build Construction Agreement contained an arbitration clause, any dispute arising from said contract is within CIAC’s jurisdiction. Petitioner filed a motion for reconsideration which was denied by CIAC in its Order dated November 27, 2003. Thus, petitioner filed his Answer Ad Cautelam. Thereafter, CIAC constituted the Arbitral Tribunal and directed the same to carry on with the arbitration proceedings in accordance with CIAC Rules. Meanwhile, on February 27, 2004, the Regional Trial Court of Muntinlupa City, Branch 203 issued an Order 8 denying the motion to dismiss filed by respondents. The trial court held that it has jurisdiction over the complaint for accounting, rescission of contract and damages. Petitioner then filed with the CIAC a motion to terminate proceedings but the same was denied 9 in an Order dated April 23, 2004. Thus, petitioner filed a petition for certiorari and prohibition before the Court of Appeals which was docketed as CA-G.R. SP No. 83816. On February 18, 2005, the Court of Appeals rendered the assailed Decision dismissing the petition for lack of merit. It held that CIAC properly acquired jurisdiction over the subject property. Petitioner’s motion for reconsideration was denied hence this petition raising the following issues:

I

THE COURT OF APPEALS ERRED WHEN IT RULED THAT PETITIONER AGREED TO HAVE THE CASE SUBMITTED FOR VOLUNTARY ARBITRATION.

8 Id., at pp. 235-238. Penned by Judge Pedro M. Sabundayo, Jr. 9 Id., at p. 255.

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EVEN ASSUMING ARGUENDO THAT PETITIONER AGREED TO HAVE THE PRESENT CASE SUBMITTED FOR ARBITRATION, THE COURT OF APPEALS ERRED IN HOLDING THAT THE CIAC MAY TAKE COGNIZANCE OF THE PRESENT CASE CONSIDERING THAT THE PRESENT CASE INVOLVED ISSUES WHICH ARE OUTSIDE ITS JURISDICTION.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT ANY PROCEEDING IN THE CIAC MUST BE TERMINATED SINCE THE RTC ALREADY ASSUMED JURISDICTION OVER THE SUBJECT CONTROVERSY AND HAD NOT RELINQUISHED THE SAME TO CIAC.

10

The primordial issue in the instant case is, which body has jurisdiction over the present controversy—the Regional Trial Court or the CIAC? Petitioner contends that the CIAC has no jurisdiction to entertain the case because it is purely civil in nature and does not involve construction dispute nor require the resolution of highly technical issues. Moreover, petitioner alleges that the trial court acquired jurisdiction prior to the CIAC since petitioner’s complaint was filed earlier thus, rendering the arbitration clause moot, unenforceable and revocable. The petition lacks merit. Executive Order (EO) No. 1008 entitled, “Construction Industry Arbitration Law” 11 provided for an arbitration mechanism for the speedy resolution of construction disputes other than by court litigation. It recognized the role of the construction industry in the country’s economic progress as it utilizes a large segment of the labor force and contributes substantially to the gross national product of the country.

12

10 Id., at p. 20.

11 Issued on February 4, 1985.

12 David v. Construction Industry [and] Arbitration Commission, G.R. No. 159795, July 30, 2004, 435 SCRA 654, 660.

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Section 4 of E.O. No. 1008 provides:

SECTION 4. Jurisdiction.—The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of agreement; interpretation and/or application of contractual provisions; amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of employer or contractor and changes in contract cost. Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines.

In the case of Philrock, Inc. v. Construction Industry

Arbitration Commission,

has original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration. Section 1, Article III of the CIAC Rules of Procedure Governing Construction Arbitration likewise provides that recourse to the CIAC may be availed of whenever a contract contains a clause for the submission of a future controversy to arbitration, thus:

the Court has ruled that CIAC

13

SECTION 1. Submission to CIAC Jurisdiction.—An arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to

CIAC jurisdiction, notwithstanding the reference to a different

arbitra-

13 412 Phil. 236, 245; 359 SCRA 632, 640 (2001).

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tion institution or arbitral body in such contract or submission. When a contract contains a clause for the submission of a future controversy to arbitration, it is not necessary for the parties to enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC. (Emphasis supplied)

We agree with the findings of the Court of Appeals that the Design-Build Construction Agreement mutually entered into by the parties contain an arbitration clause, to wit:

ARTICLE 10. ARBITRATION.

All questions in dispute under the Agreement shall be submitted in accordance with the provisions of Philippine Law on Arbitration and provided for in Article 2042 of the New Civil Code of the Philippines and the provisions of Republic Act No. 876.

Clearly, the presence of the arbitration clause in the parties’ contract vests jurisdiction on the CIAC on all controversies arising from such contract. The arbitral clause in the agreement is a commitment by the parties to submit to arbitration the disputes covered therein. Because that clause is binding, they are expected to abide by it in good faith. 14 Where the jurisdiction of CIAC is properly invoked, the failure or refusal of herein petitioner to arbitrate shall not affect the proceedings. Arbitration proceedings shall continue notwithstanding the absence or lack of participation of petitioner, and the award shall be made after receiving the evidence of the claimant. 15 With respect to petitioner’s contention that the action is purely civil in nature hence, jurisdiction rests with the Regional Trial Court, the same must fail. Since the action is rooted on alleged violations of the agreement, it is embraced by the term “construction dispute.” As CIAC aptly ruled:

14 LM Power Engineering Corp. v. Capitol Industrial Construction Groups, Inc., 447 Phil. 705, 716; 399 SCRA 562, 571-572 (2003). 15 See Section 2, Article III of the Rules of Procedure Governing Construction Arbitration.

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“As regards Respondent’s assertion that the claims in the civil case are not arbitrable, this Commission again begs to digress. A

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cursory perusal of the claims in civil case would show that such fall within the scope of CIAC jurisdiction, to wit: (1) accounting of all payments made for the purchase of construction materials; (2) cost of additional work; (3) balance on the contract price; (4) interest; (5) rescission of contract; (6) moral damages; (7) exemplary damages; and (8) cost of suit.”

16

Besides, Section 23 of E.O. No. 1008 expressly provides that all provisions of existing laws, proclamations, decrees, letters of instructions and executive orders contrary to or inconsistent with E.O. No. 1008 are repealed or modified accordingly. E.O. No. 1008 which vests jurisdiction to the CIAC over construction disputes is a special law; hence, it takes precedence over Batas Pambansa Blg. 129 or the Judiciary Reorganization Act of 1980, a general law which vests jurisdiction to the Regional Trial Courts over civil

actions in which the subject of the litigation is incapable of pecuniary estimation. Meanwhile, it appears that the Regional Trial Court of Muntinlupa City, Branch 203 rendered judgment on July

29, 2005

petitioner, the dispositive portion of which reads:

in Civil Case No. 03-110 in favor of herein

17

“WHEREFORE, judgment is rendered declaring a rescission of the Design Build Construction Agreement dated 20 October 2002; ordering defendants to render an accounting of all the construction materials they bought for the construction of the project subject matter of the present case; further ordering defendants, jointly and severally, to pay plaintiff as follows:

a. P840,300.00 representing cost of additional works and changes in the project plus legal interest until fully paid;

b. P296,658.85 representing balance of the contract price plus legal interest until fully paid;

16 Rollo, p. 189. 17 Id., at p. 506.

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c. P500,000.00 as and by way of moral damages;

d. P500,000.00 as and by way of exemplary damages;

e. P500,000.00 as and by way of attorney’s fees;

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f. Cost of suit.

18

SO ORDERED.”

On June 29, 2006, the presiding judge ordered the designated sheriff to implement the writ of execution dated May 17, 2006. Consequently, Sheriff Melvin T. Bagabaldo levied on the personal properties of respondent Papas. Hence, respondents’ manifestation with prayer for the issuance of a temporary restraining order (TRO). In the Resolution dated July 12, 2006, we issued a TRO enjoining the Presiding Judge of Regional Trial Court of Muntinlupa City, Branch 203, from continuing with any of the proceedings in Civil Case No. 03-110 and from enforcing the Order dated June 29, 2006 ordering the sheriff to implement the writ. Thus, considering our findings that the CIAC and not the RTC which has jurisdiction over the instant controversy, the injunction against the Presiding Judge of the Regional Trial Court of Muntinlupa City, Branch 203 from further proceeding with Civil Case No. 03-110 must be made permanent. All the proceedings therein are declared null and void for lack of jurisdiction. The designated sheriff is enjoined from proceeding with the sale of the levied personal properties and is ordered to return the same to respondents. Accordingly, Civil Case No. 03- 110 must be dismissed on the ground of lack of jurisdiction. It bears to stress that being an inexpensive, speedy and amicable method of settling disputes, arbitration—along with mediation, conciliation and negotiation—is encouraged by the Supreme Court. Aside from unclogging judicial dockets, arbitration also hastens the resolution of disputes, especially of

18 Id., at p. 546.

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the commercial kind. It is thus regarded as the “wave of the future” in international civil and commercial disputes. Brushing aside a contractual agreement calling for arbitration between the parties would be a step backward. 19

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WHEREFORE, in view of the foregoing, the instant petition is DENIED. The Decision of the Court of Appeals dated February 18, 2005 in CA-G.R. SP No. 83816 which sustained the Order of the Arbitral Tribunal of the Construction Industry Arbitration Commission dated April 23, 2004 denying petitioner’s Motion to Terminate Proceedings, and its Resolution dated May 20, 2005 denying petitioner’s motion for reconsideration, are AFFIRMED. The Presiding Judge of the Regional Trial Court of Muntinlupa City, Branch 203 is PERMANENTLY ENJOINED from proceeding with Civil Case No. 03-110 and all the proceedings therein are DECLARED NULL AND VOID. Sheriff Melvin T. Bagabaldo is ENJOINED from proceeding with the sale of the levied personal properties and is ORDERED to return them to the respondents. The Presiding Judge of the Regional Trial Court of Muntinlupa City, Branch 203 is further DIRECTED to dismiss Civil Case No. 03-110 for lack of jurisdiction. SO ORDERED.

Panganiban (C.J., Chairperson), Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Petition denied, judgment and resolution affirmed.

Note.—While a voluntary arbitrator is not part of the governmental unit or labor department’s personnel, said arbitrator renders arbitration services provided for under labor laws. (Ludo & Luym Corporation vs. Saornido, 395 SCRA 451 [2003])

——o0o——

19 LM Power Engineering Corp. v. Capitol Industrial Construction Groups, Inc., supra note 14 at p. 714; p. 569.

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