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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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ANNOTATED

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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Reyes vs. Balde II

YNARES-SANTIAGO, J.:

This Petition
1
for Review on Certiorari under Rule 45 of the Rules of Court assails 2
the
Decision  of the Court of Appeals dated3 February 18, 2005, which sustained the Order  dated
April 23, 2004 of the Arbitral Tribunal  of the Construction Industry Arbitration Commission
4
(CIAC), denying petitioner’s 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
5
Cesar and Carmelita Esquig 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
6
with the contract, spouses Esquig 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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Reyes vs. Balde II

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. 7
Instead of submitting an answer, 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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Reyes vs. Balde II

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
8
27, 2004, the Regional Trial 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
9
then filed with the CIAC a motion 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:
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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Reyes vs. Balde II

II

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 10
OVER THE
SUBJECT CONTROVERSY 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
11
Order (EO) No. 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 12of the labor force and
contributes substantially to the gross national product of the country.

_______________
 10 Id.,
at p. 20.
11 Issuedon 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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Reyes vs. Balde II

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.
13
In the case of Philrock, 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 toarbitration of a construction dispute shall be deemed anagreement 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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Reyes vs. Balde II

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
14
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
15
of petitioner, and the award 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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“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;16
(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.
Meanwhile, it appears that the 17 Regional Trial Court of Muntinlupa 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;
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 19
contractual agreement calling for arbitration between
the parties would be a step backward.
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])