Federal Builders v. Power Factors
REITERATIONFacts
The Antecedents: Federal Builders, Inc. (Federal) engaged Power Factors, Inc. (Power) as subcontractor for electric works for ₱18,000,000.00. Power demanded payment of ₱11,444,658.97 for work done. Federal claimed a lower outstanding balance and stated that payments for work after June 21, 2005, should be addressed to the owner, BIDC. Power made several demands on Federal without success. Procedural History: Power filed a request for arbitration with the CIAC, invoking an arbitration clause in a draft Contract of Service. Federal's counsel initially manifested agreement to arbitration and sought an extension. Subsequently, Federal, through new counsel, moved to dismiss, arguing CIAC lacked jurisdiction because the Contract of Service was a draft and never finalized or signed. The CIAC denied the motion and proceeded with the hearing. The CIAC rendered a Final Award ordering Federal to pay Power ₱9,369,238.87. Federal appealed to the Court of Appeals (CA), reiterating its jurisdictional challenge and disputing the awarded amounts. The CA affirmed the CIAC's decision with modification, ordering Federal to pay Power ₱7,140,728.07 plus interest. The CA ruled that the arbitration agreement need not be signed and that Federal's former counsel's manifestation bound it on the issue of jurisdiction. The CA also modified the awarded amounts, disallowing labor cost escalation due to lack of written authorization. Federal's motion for reconsideration was denied, leading to its appeal to the Supreme Court. The Petition: Federal appealed to the Supreme Court, raising issues on the CA's affirmation of CIAC's jurisdiction and the correctness of the awarded amounts.
Issue(s)
Whether the Court of Appeals erred in upholding the CIAC's jurisdiction over the present case. Whether the Court of Appeals erred in holding that Federal was liable to pay Power the amount of ₱7,140,728.07.
Ruling
The appeal is bereft of merit. The Supreme Court affirmed the decision of the Court of Appeals.
Ratio Decidendi
On the issue of CIAC's jurisdiction: The Supreme Court held that the parties had an effective agreement to submit to voluntary arbitration, thus vesting the CIAC with jurisdiction. Section 4 of E.O. No. 1008 grants the CIAC original and exclusive jurisdiction over construction disputes if the parties agree to submit the same to voluntary arbitration. The CIAC Revised Rules of Procedure explicitly state that the agreement to arbitrate need not be signed by the parties, as long as the intent to submit a present or future controversy arising from a construction contract to arbitration is clear and can be shown through any written mode of communication. The Court emphasized that the CIAC's jurisdiction is over the dispute, not over the contract itself, and the formalities of the contract do not affect the CIAC's jurisdiction. Federal's contention that the unsigned draft contract lacked mutual consent was rejected, as the essential elements of a contract were present, and Federal had previously relied on the draft contract. The Court noted that Federal's assertion of the original contract to support its claim against Power while simultaneously rejecting the efficacy of the draft contract to avoid CIAC's unfavorable decision was inconsistent. The Court reiterated that any doubt should be resolved in favor of arbitration, consistent with the policy of encouraging alternative dispute resolution methods. On the issue of awarded amounts: The Supreme Court found no reversible error in the amounts as modified by the CA. The Court agreed that Federal should not be held liable for labor cost escalation because Power did not sufficiently establish that such cost increases were to be separately determined and approved by both parties as provided under Article 1724 of the Civil Code, and there was no written authorization for such adjustments.
Main Doctrine
An agreement to submit to voluntary arbitration for purposes of vesting jurisdiction over a construction dispute in the Construction Industry Arbitration Commission (CIAC) need not be contained in the construction contract, or be signed by the parties; it is enough that the agreement be in writing and the intent to arbitrate is clear.