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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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Reyes vs. Balde II

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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Reyes vs. Balde II

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


1
under Rule 45 of the
Rules of Court assails the Decision of the Court of Appeals
2
dated February 18, 2005, which sustained 3
the Order dated
April 23, 2004 of the Arbitral Tribunal of the Construction
Industry Arbitration Commission (CIAC), denying
petitioner’s4 Motion to Terminate Proceedings and its
Resolution 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
5
entered into a Design-Build Construction
Agreement with petitioner Charles Bernard H. Reyes,
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
6
paid the
amount of P1,050,000 as down payment. Thereafter,
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.

_______________

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,7
petitioner filed with
the CIAC a motion to dismiss on grounds of lack of
jurisdiction to

_______________

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 Trial8
Court of Muntinlupa City, Branch 203 issued an Order
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 9motion to terminate
proceedings but the same was denied 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:

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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II

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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
10
AND
HAD NOT RELINQUISHED THE SAME TO CIAC.

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. 11
1008 entitled, “Construction
Industry Arbitration Law” 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 12substantially to the gross national product of
the country.

_______________

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, 13


Inc. v. Construction Industry
Arbitration Commission, 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 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 clause14is 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 award15 shall be
made after receiving the evidence of the claimant.
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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Reyes vs. Balde II

“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) 16
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.
Meanwhile, it appears that the Regional Trial Court of
Muntinlupa17
City, Branch 203 rendered judgment on July
29, 2005 in Civil Case No. 03-110 in favor of herein
petitioner, the dispositive portion of which reads:

“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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Reyes vs. Balde II

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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Reyes vs. Balde II

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 19
arbitration between the parties would be a step backward.

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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.

198

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