You are on page 1of 10

 

contract because it can also be in the form of other modes of


communication in writing.
G.R. No. 211504. March 8, 2017.* _______________
 
FEDERAL BUILDERS, INC., petitioner, vs. POWER *  THIRD DIVISION.
FACTORS, INC., respondent.
 
Construction Industry Arbitration Commission; Jurisdiction;  
Under the Construction Industry Arbitration Commission Revised 79
Rules of Procedure Governing Construction VOL. 820, MARCH 8, 79
Arbitration (CIAC Revised Rules), all that is required for the CIAC 2017
to acquire jurisdiction is for the parties of any construction contract
to agree to submit their dispute to arbitration.—The need to Federal Builders, Inc. vs.
establish a proper arbitral machinery to settle disputes expeditiously Power Factors, Inc.
was recognized by the Government in order to promote and maintain Same; Same; Executive Order (EO) No. 1008 emphasizes that
the development of the country’s construction industry. With such the modes of voluntary dispute resolution like arbitration are
recognition came the creation of the CIAC through Executive Order always preferred because they settle disputes in a speedy and
No. 1008 (E.O. No. 1008), also known as The Construction Industry amicable manner.—The liberal application of procedural rules as to
Arbitration Law. Section 4 of E.O. No. 1008 provides: Sec. the form by which the agreement is embodied is the objective of the
4. Jurisdiction.—The CIAC shall have original and exclusive CIAC Revised Rules. Such liberality conforms to the letter and spirit
jurisdiction over disputes arising from, or connected with, contracts of E.O. No. 1008 itself which emphasizes that the modes of
entered into by parties involved in construction in the Philippines, voluntary dispute resolution like arbitration are always preferred
whether the dispute arises before or after the completion of the because they settle disputes in a speedy and amicable manner. They
contract, or after the abandonment or breach thereof. These disputes likewise help in alleviating or unclogging the judicial dockets.
may involve government or private contracts. For the Board to Verily, E.O. No. 1008 recognizes that the expeditious resolution of
acquire jurisdiction, the parties to a dispute must agree to submit the construction disputes will promote a healthy partnership between the
same to voluntary arbitration. x x x Under the CIAC Revised Rules of Government and the private sector as well as aid in the continuous
Procedure Governing Construction Arbitration (CIAC Revised growth of the country considering that the construction industry
Rules), all that is required for the CIAC to acquire jurisdiction is for provides employment to a large segment of the national labor force
the parties of any construction contract to agree to submit their aside from its being a leading contributor to the gross national
dispute to arbitration.  Also, Section 2.3 of the CIAC Revised product.
Rules states that the agreement may be reflected in an arbitration Same; Same; Construction Disputes; Section 2.1, Rule 2 of the
clause in their contract or by subsequently agreeing to submit their Construction Industry Arbitration Commission (CIAC) Revised
dispute to voluntary arbitration. The CIAC Revised Rules clarifies, Rules particularly specifies that the CIAC has original and exclusive
however, that the agreement of the parties to submit their dispute to jurisdiction over construction disputes, whether such disputes
arbitration need not be signed or be formally agreed upon in the arise from or are merely connected with the construction contracts

1|Page
entered into by parties, and whether such disputes binding between them by virtue of all the essential elements for a
arise before or after the completion of the contracts.—Worthy to valid contract being present.
note is that the jurisdiction of the CIAC is over the dispute, not over Construction Industry Arbitration Commission; Jurisdiction;
the contract between the parties. Section 2.1, Rule 2 of the Although the agreement to submit to arbitration has been expressly
CIAC Revised Rules particularly specifies that the CIAC has original required to be in writing and signed by the parties therein by Section
and exclusive jurisdiction over construction disputes, whether 4 of Republic Act (RA) No. 876 (Arbitration Law), the requirement is
such disputes arise from or are merely connected with the conspicuously absent from the Construction Industry Arbitration
construction contracts entered into by parties, and whether such Commission (CIAC) Revised Rules, which even expressly allows
disputes arise before or after the completion of the contracts. such agreement not to be signed by the parties therein.—The
Accordingly, the execution of the contracts and the effect of the agreement contemplated in the CIAC Revised Rules to vest
agreement to submit to arbitration are different matters, and the jurisdiction of the CIAC over the parties’ dispute is not necessarily
signing or non-signing of one does not necessarily affect the other. In an arbitration clause to be contained only in a signed and finalized
other words, the formalities of the contract have nothing to do with construction contract. The agreement could also be in a separate
the jurisdiction of the CIAC. agreement, or any other form of written communication, as long as
Civil Law; Contracts; A contract does not need to be in writing their intent to submit their dispute to arbitration is clear. The fact that
in order to be obligatory and effective unless the law specifically a contract was signed by both parties has nothing to do with the
requires so.—Under Article 1318 of the Civil Code, a valid contract jurisdiction of the CIAC, and this is the explanation why the
should have the following essential elements, namely: (a) consent of CIAC Revised Rules itself expressly provides that the written
the contracting parties; (b) object certain that is the subject matter of communication or agreement need not be signed by the parties.
Although the agreement to submit to arbitration has been expressly
  required to be in writing and signed by the parties therein by Section
  4 of Republic Act No. 876 (Arbitration Law), the requirement is
80 conspicuously absent from the CIAC Revised Rules, which even
80 SUPREME COURT expressly allows such agreement not to be signed by the parties
REPORTS therein. Brushing aside the obvious contractual agreement in this
ANNOTATED case warranting the submission to arbitration is surely a step
backward. Consistent with the policy of encouraging alternative
Federal Builders, Inc. vs. dispute resolution methods, therefore, any doubt should be resolved
Power Factors, Inc. in favor of arbitration. In this connection, the CA correctly observed
the contract; and (c) cause or consideration. Moreover, a that the act of Atty. Albano in manifesting that Federal had agreed to
contract does not need to be in writing in order to be obligatory and the form of arbitration was unnecessary and inconsequential
effective unless the law specifically requires so. Pursuant to Article considering the recognition of the value of the Contract of Service
1356 and Article 1357 of the Civil Code, contracts shall be despite its being an unsigned draft.
obligatory in whatever form they may have been entered into,
provided that all the essential requisites for their validity are present.  
Indeed, there was a contract between Federal and Power even if the  
Contract of Service was unsigned. Such contract was obligatory and 81

2|Page
VOL. 820, MARCH 8, 81 the electric works at the Bullion Mall and the Precinct Building
2017 for P18,000,000.00.3
_______________
Federal Builders, Inc. vs.
Power Factors, Inc. 1  Rollo, pp. 32-45; penned by Associate Justice Leoncia R. Dimagiba and
PETITION for review on certiorari of a decision of the Court concurred in by Associate Justices Rosmari D. Carandang and Ricardo R.
Rosario.
of Appeals. 2  Id., at pp. 98-128.
The facts are stated in the opinion of the Court. 3  Id., at p. 33.
   Atienza, Formento, Aquino & Alzate for petitioner.
   Erlich V. Barraquias for respondent.  
 
BERSAMIN, J.: 82
  82 SUPREME COURT
An agreement to submit to voluntary arbitration for REPORTS
purposes of vesting jurisdiction over a construction dispute in ANNOTATED
the Construction Industry Arbitration Commission (CIAC) Federal Builders, Inc. vs.
need not be contained in the construction contract, or be signed
Power Factors, Inc.
by the parties. It is enough that the agreement be in writing.
On February 19, 2008, Power sent a demand letter to
 
Federal claiming the unpaid amount of P11,444,658.97 for
The Case
work done by Power for the Bullion Mall and the Precinct
 
Building. Federal replied that its outstanding balance under the
Federal Builders, Inc. (Federal) appeals to reverse the
original contract only amounted to P1,641,513.94, and that the
decision promulgated on August 12, 2013,1 whereby the Court
demand for payment for work done by Power after June 21,
of Appeals (CA) affirmed the adverse decision rendered on
2005 should be addressed directly to BIDC.4 Nonetheless,
May 12, 2010 by the Construction Industry Arbitration
Power made several demands on Federal to no avail.
Commission (CIAC) with modification of the total amount
On October 29, 2009, Power filed a request for arbitration
awarded.2
in the CIAC invoking the arbitration clause of the Contract of
 
Service reading as follows:
Antecedents
15. ARBITRATION COMMITTEE — All disputes,
  controversies or differences, which may arise between the parties
Federal was the general contractor of the Bullion Mall herein, out of or in relation to or in connection with this Agreement,
under a construction agreement with Bullion Investment and or for breach thereof shall be settled by the Construction Industry
Development Corporation (BIDC). In 2004, Federal engaged Arbitration Commission (CIAC) which shall have original and
respondent Power Factors, Inc. (Power) as its subcontractor for exclusive jurisdiction over the aforementioned disputes. 5

3|Page
  2010,9 disposing:
On November 20, 2009, Atty. Vivencio Albano, the counsel In summary: Respondent Federal Builders, Inc. is hereby
of Federal, submitted a letter to the CIAC manifesting that ordered to pay claimant Power Factors, Inc. the following
Federal agreed to arbitration and sought an extension of 15 sums:
days to file its answer, which request the CIAC granted. The foregoing amount shall earn legal interest at the rate of
On December 16, 2009, Atty. Albano filed his withdrawal 6% per annum from the date of this Final Award until this award
of appearance stating that Federal had meanwhile engaged becomes final and executory, Claimant shall then be entitled to
another counsel.6 12% per annum until the entire amount is fully satisfied by
Respondent.
Federal, represented by new counsel (Domingo, Dizon,
Leonardo and Rodillas Law Office), moved to dismiss the case  
on the ground that CIAC had no jurisdiction over the case Federal appealed the award to the CA insisting that the
inasmuch as the Contract of Service between Federal and CIAC had no jurisdiction to hear and decide the case; and that
Power had been a mere draft that was never finalized or signed the amounts thereby awarded to Power lacked legal and factual
by the parties. Federal contended that in the absence of the bases.
_______________ _______________
4  Id. 7   Id., at p. 35.
5  Id., at p. 44. 8   Id.
6  Id., at pp. 34-35. 9   Id., at pp. 98-128.

   
   
83 84
VOL. 820, MARCH 8, 83 84 SUPREME COURT
2017 REPORTS
Federal Builders, Inc. vs. ANNOTATED
Power Factors, Inc. Federal Builders, Inc. vs.
agreement for arbitration, the CIAC had no jurisdiction to hear Power Factors, Inc.
and decide the case.7 On August 12, 2013, the CA affirmed the CIAC’s decision
On February 8, 2010, the CIAC issued an order setting the with modification as to the amounts due to Power,10 viz.:
case for hearing, and directing that Federal’s motion to dismiss WHEREFORE, the CIAC Final Award dated 12 May 2010 in
be resolved after the reception of evidence of the parties.8 CIAC Case No. 31-2009 is
Federal did not thereafter participate in the proceedings hereby AFFIRMED with MODIFICATION. As modified,
until the CIAC rendered the Final Award dated May 12, FEDERAL BUILDERS, INC. is ordered to pay POWER FACTORS,

4|Page
INC. the following:  
85
1. Unpaid balance on VOL. 820, MARCH 8, 85
the original P4,276,614.75; 2017
Contract
Federal Builders, Inc. vs.
2. Unpaid balance on
change orders
2,864,113.32; Power Factors, Inc.
3. Attorney’s Fees 250,000.00; Concerning the amounts awarded, the CA opined that the
4. Cost of Arbitration 149,503.86; CIAC should not have allowed the increase based on labor-cost
The interest to be imposed on the net award (unpaid balance on escalation because of the absence of the agreement between the
the original contract and change order) amounting to P7,140,728.07 parties on such escalation and because there was no
awarded to POWER FACTORS, INC. shall be six (6%) per annum, authorization in writing allowing the adjustment or increase in
reckoned from 4 July 2006 until this Decision becomes final and the cost of materials and labor.13
executory. Further, the total award due to POWER FACTORS, INC. After the CA denied Federal’s motion for reconsideration
shall be subjected to an interest of twelve percent (12%) per on February 19, 2004,14 Federal has come to the Court on
annum computed from the time this judgment becomes final and appeal.
executory, until full satisfaction.  
SO ORDERED. 11
Issue
  The issues to be resolved are: (a) whether the CA erred in
Anent jurisdiction, the CA explained that the CIAC Revised upholding CIAC’s jurisdiction over the present case; and (b)
Rules of Procedure stated that the agreement to arbitrate need whether the CA erred in holding that Federal was liable to pay
not be signed by the parties; that the consent to submit to Power the amount of P7,140,728.07.
voluntary arbitration was not necessary in view of the  
arbitration clause contained in the Contract of Service; and that Ruling of the Court
Federal’s contention that its former counsel’s act of  
manifesting its consent to the arbitration stipulated in the draft The appeal is bereft of merit.
Contract of Service did not bind it was inconsequential on the  
issue of jurisdiction.12 1.
_______________ The parties had an effective agreement
to submit to voluntary arbitration;
10  Id., at pp. 32-42. hence, the CIAC had jurisdiction
11  Id., at pp. 44-45.
12  Id., at p. 38.
 
The need to establish a proper arbitral machinery to settle
  disputes expeditiously was recognized by the Government in

5|Page
order to promote and maintain the development of the dispute to voluntary arbitration. The CIAC Revised
country’s construction industry. With such recognition came Rules clarifies, however, that the agreement of the parties to
the creation of the CIAC through Executive Order No. 1008 submit their dispute to arbitration need not be signed or be
(E.O. No. 1008), also known as The Construction Industry formally agreed upon in the contract because it can also be in
Arbitration Law. Section 4 of E.O. No. 1008 provides: the form of other modes of communication in writing, viz.:
_______________ RULE 4 – EFFECT OF AGREEMENT TO ARBITRATE
SECTION 4.1. Submission to CIAC jurisdiction.—An arbitration
13  Id., at pp. 42-43. clause in a construction contract or a submission to arbitration of a
14  Id., at p. 47.
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.
86
86 SUPREME COURT _______________
REPORTS
15  Rule 4, CIAC Revised Rules; LICOMCEN, Incorporated v. Foundation
ANNOTATED Specialists, Inc., G.R. Nos. 167022 & 169678, April 4, 2011, 647 SCRA 83, 97.
Federal Builders, Inc. vs.
Power Factors, Inc.  
Sec. 4. Jurisdiction.—The CIAC shall have original and  
exclusive jurisdiction over disputes arising from, or connected with, 87
contracts entered into by parties involved in construction in the VOL. 820, MARCH 8, 87
Philippines, whether the dispute arises before or after the completion 2017
of the contract, or after the abandonment or breach thereof. These Federal Builders, Inc. vs.
disputes may involve government or private contracts. For the Board
to acquire jurisdiction, the parties to a dispute must agree to submit
Power Factors, Inc.
the same to voluntary arbitration. x x x 4.1.1 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
Under the CIAC Revised Rules of Procedure Governing the jurisdiction of CIAC.
4.1.2 An arbitration agreement or a submission to
Construction Arbitration (CIAC Revised Rules), all that is
arbitration shall be in writing, but it need not be signed by the
required for the CIAC to acquire jurisdiction is for the parties parties, as long as the intent is clear that the parties agree to
of any construction contract to agree to submit their dispute to submit a present or future controversy arising from a
arbitration.15 Also, Section 2.3 of the CIAC Revised Rules states construction contract to arbitration. It may be in the form of
that the agreement may be reflected in an arbitration clause in exchange of letters sent by post or by telefax, telexes, telegrams,
their contract or by subsequently agreeing to submit their electronic mail or any other mode of communication.

6|Page
  Federal Builders, Inc. vs.
The liberal application of procedural rules as to the form by Power Factors, Inc.
which the agreement is embodied is the objective of the merely connected with the construction contracts entered into
CIAC Revised Rules. Such liberality conforms to the letter and by parties, and whether such disputes arise before or after the
spirit of E.O. No. 1008 itself which emphasizes that the modes completion of the contracts. Accordingly, the execution of the
of voluntary dispute resolution like arbitration are always contracts and the effect of the agreement to submit to
preferred because they settle disputes in a speedy and amicable arbitration are different matters, and the signing or non-signing
manner. They likewise help in alleviating or unclogging the of one does not necessarily affect the other. In other words, the
judicial dockets. Verily, E.O. No. 1008 recognizes that the formalities of the contract have nothing to do with the
expeditious resolution of construction disputes will promote a jurisdiction of the CIAC.
healthy partnership between the Government and the private Federal contends that there was no mutual consent and no
sector as well as aid in the continuous growth of the country meeting of the minds between it and Power as to the operation
considering that the construction industry provides and binding effect of the arbitration clause because they had
employment to a large segment of the national labor force aside rejected the draft service contract.
from its being a leading contributor to the gross national The contention of Federal deserves no consideration.
product.16 Under Article 1318 of the Civil Code, a valid contract
Worthy to note is that the jurisdiction of the CIAC is over should have the following essential elements,
the dispute, not over the contract between the parties.17 Section namely: (a) consent of the contracting parties; (b) object certain
2.1, Rule 2 of the CIAC Revised Rules particularly specifies that is the subject matter of the contract; and (c) cause or
that the CIAC has original and exclusive jurisdiction consideration. Moreover, a contract does not need to be in
over construction disputes, whether such disputes arise from or writing in order to be obligatory and effective unless the law
are specifically requires so. Pursuant to Article 135618 and Article
_______________
135719 of the Civil Code, contracts shall be obligatory in
16  See Preambulatory clauses of E.O No. 1008. whatever form they may have been entered into, provided that
17  National Irrigation Administration v. Court of Appeals, G.R. No. all the essential requisites for their validity are present. Indeed,
129169, November 17, 1999, 318 SCRA 255, 267. there was a contract between Federal and Power even if the
Contract of Ser-
  _______________
 
88 18  Article 1356. Contracts shall be obligatory, in whatever form they
88 SUPREME COURT may have been entered into, provided all the essential requisites for their
validity are present. However, when the law requires that a contract be in some
REPORTS form in order that it may be valid or enforceable, or that a contract be proved in
ANNOTATED a certain way, that requirement is absolute and indispensable. In such cases, the
right of the parties stated in the following article cannot be exercised.

7|Page
19  Article 1357. If the law requires a document or other special form, as down payment that Federal was supposed to pay, Federal could
in the acts and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the contract has been
not validly insist on the lack of a contract in order to defeat the
perfected. This right may be exercised simultaneously with the action upon the jurisdiction of the CIAC. As earlier pointed out, the
contract. CIAC Revised Rules specifically allows any written mode of
communication to show the parties’ intent or agreement to
  submit to arbitration their present or future disputes arising
  from or connected with their contract.
89
The CIAC and the CA both found that the parties had
VOL. 820, MARCH 8, 89 disagreed on the amount of the down payment. On its part,
2017 Power indicated after receiving and reviewing the draft of the
Federal Builders, Inc. vs. Contract of Service that it wanted 30% as the down payment.
Power Factors, Inc. Even so, Power did not modify anything else in the draft, and
vice was unsigned. Such contract was obligatory and binding _______________
between them by virtue of all the essential elements for a valid
20  Rollo, p. 34.
contract being present.
It clearly appears that the works promised to be done by  
Power were already executed albeit still incomplete; that  
Federal paid Power P1,000,000.00 representing the originally 90
proposed down payment, and the latter accepted the payment; 90 SUPREME COURT
and that the subject of their dispute concerned only the REPORTS
amounts still due to Power. The records further show that ANNOTATED
Federal admitted having drafted the Contract of Services Federal Builders, Inc. vs.
containing the following clause on submission to arbitration, to
Power Factors, Inc.
wit:
15. ARBITRATION COMMITTEE — All disputes, returned the draft to Federal after signing it. It was Federal that
controversies or differences, which may arise between the Parties did not sign the draft because it was not amenable to the
herein, out of or in relation to or in connection with this Agreement, amount as modified by Power. It is notable that the arbitration
or for breach thereof shall be settled by the Construction Industry clause written in the draft of Federal was unchallenged by the
Arbitration Commission (CIAC) which shall have original and parties until their dispute arose.
exclusive jurisdiction over the aforementioned disputes. 20
Moreover, Federal asserted the original contract to support
its claim against Power. If Federal would insist that the
  remaining amount due to Power was only P1,641,513.94 based
With the parties having no issues on the provisions or parts on the original contract,21 it was really inconsistent for Federal
of the Contract of Service other than that pertaining to the to rely on the draft when it is beneficial to its side, and to reject

8|Page
its efficacy and existence just to relieve itself from the CIAC’s CIAC Revised Rules, which even expressly allows such
unfavorable decision. agreement not to be signed by the parties therein.24 Brushing
The agreement contemplated in the CIAC Revised Rules to aside the obvious contractual agreement in this case warranting
vest jurisdiction of the CIAC over the parties’ dispute is not the submission to arbitration is surely a step
necessarily an arbitration clause to be contained only in a backward.25 Consistent with the policy of encouraging
signed and finalized construction contract. The agreement alternative dispute resolution methods, therefore, any doubt
could also be in a separate agreement, or any other form of should be resolved in favor of arbitration.26 In this connection,
written communication, as long as their intent to submit their the CA correctly observed that the act of Atty. Albano in
dispute to arbitration is clear. The fact that a contract was manifesting that Federal had agreed to the form of arbitration
signed by both parties has nothing to do with the jurisdiction of was unnecessary and inconsequential considering the
the CIAC, and this is the explanation why the CIAC Revised recognition of the value of the Contract of Service despite its
Rules itself expressly provides that the written communication being an unsigned draft.
or agreement need not be signed by the parties.  
Although the agreement to submit to arbitration has been 2.
expressly required to be in writing and signed by the parties Amounts as modified by the CA are correct
therein by Section 422 of Republic Act No. 876 (Arbitration  
_______________ We find no reversible error regarding the amounts as
modified by the CA. Power did not sufficiently establish that
21  Id.
22  Section 4. Form of arbitration agreement.—A contract to arbitrate a the change or increase of the cost of materials and labor was to
controversy thereafter arising between the parties, as well as a submission to be separately determined and approved by both parties as
arbitrate an existing controversy, shall be in writing and subscribed by the party provided under Article 1724 of the Civil Code. As such,
sought to be charged, or by his lawful agent. Federal should not be held liable for the labor cost escalation.
The making of a contract or submission for arbitration described in Section
two hereof, providing for arbitration of any controversy, shall be deemed a WHEREFORE, the Court AFFIRMS the decision
consent of the parties of the province or city where any of the parties resides, to promulgated on August 12, 2013; and ORDERS the petitioner
enforce such contract of submission. to pay the costs of suit.
SO ORDERED.
  _______________
 
91 23  AN ACT TO AUTHORIZE THE MAKING OF ARBITRATION AND
VOL. 820, MARCH 8, 91 SUBMISSION AGREEMENTS, TO PROVIDE FOR THE APPOINTMENT OF
ARBITRATORS AND THE PROCEDURE FOR ARBITRATION IN CIVIL
2017 CONTROVERSIES, AND FOR OTHER PURPOSES, June 19, 1953.
Federal Builders, Inc. vs. 24  Subsection 4.1.2, Rule 4 of the CIAC Revised Rules.
Power Factors, Inc. 25  LM Power Engineering Corporation v. Capitol Industrial Construction
Groups, Inc., G.R. No. 141833, March 26, 2003, 399 SCRA 562, 569.
Law),23 the requirement is conspicuously absent from the

9|Page
26  Id., at pp. 569-570.

 
 
92
92 SUPREME COURT
REPORTS
ANNOTATED
Federal Builders, Inc. vs.
Power Factors, Inc.
Velasco, Jr. (Chairperson), Reyes,
Jardeleza and Caguioa,  JJ., concur.
**

Judgment affirmed.
Notes.—It is widely known that in the construction
industry, a project employee’s work depends on the availability
of projects, necessarily the duration of his employment.
(Malicdem vs. Marulas Industrial Corporation, 717 SCRA 563
[2014])
The jurisdiction of the Construction Industry Arbitration
Commission (CIAC) is derived from law. It is broad enough to
cover any dispute arising from, or connected with construction
contracts, whether these involve mere contractual money
claims or execution of the works. (Philippine Race Horse
Trainer’s Association, Inc. vs. Piedras Negras Construction &
Development Corporation, 775 SCRA 631 [2015])
 
——o0o——
© Copyright 2022 Central Book Supply, Inc. All rights
reserved.

10 | P a g e

You might also like