Camp John Hay Development Corp. v. Charter Chemical and Coating Corp.
REITERATIONFacts
The Antecedents: Camp John Hay Development Corporation (Camp John Hay Development) entered into a Contractor's Agreement with Charter Chemical and Coating Corporation (Charter Chemical) in January 2001 for painting works on a project in Baguio City. The contract price included the value of two studio units in Camp John Hay Suites, to be determined by Charter Chemical's choice. Although the painting works were completed by Charter Chemical in 2003, and a Final Inspection and Acceptance Certificate was issued in 2005, Camp John Hay Development failed to deliver the two units as agreed. The construction of the Camp John Hay Suites had not commenced at the time of the agreement and was subject to significant delays, with revised completion dates extending as far as 2012. Procedural History: Charter Chemical demanded the transfer of the units or payment of their value. When these demands were not met, Charter Chemical initiated arbitration proceedings before the Construction Industry Arbitration Commission (CIAC) in June 2008. The CIAC, in its March 30, 2009 Final Award, ordered Camp John Hay Development to pay Charter Chemical the monetary equivalent of the two units, totaling P5,900,000.00, plus P590,000.00 in attorney's fees. Camp John Hay Development appealed to the Court of Appeals (CA), arguing that the CIAC lacked jurisdiction and that the contract did not specify a completion date, thus requesting a fixing of the period. The CA, in its May 13, 2011 Decision and September 30, 2011 Resolution, affirmed the CIAC's award, holding that the arbitration clause in the Contractor's Agreement remained valid and that Camp John Hay Development was in delay. The Petition: Camp John Hay Development filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the CA's decision. The petitioner argued that the CIAC lacked jurisdiction due to a dispute resolution clause in subsequent contracts to sell and that the Contractor's Agreement lacked a definite completion date for the units, necessitating the fixing of a period under Article 1197 of the Civil Code rather than rescission under Article 1191. Petitioner contended that the CA erred in relying on a separate agreement (Memorandum of Agreement with Bases Conversion and Development Authority) to establish a completion date and that the contracts to sell superseded the arbitration clause. Petitioner also contested the award of attorney's fees. The Supreme Court considered whether the CA erred in affirming the CIAC's jurisdiction, the rescission of the obligation, and the award of attorney's fees.
Issue(s)
Whether the Construction Industry Arbitration Commission (CIAC) had jurisdiction over the dispute despite the existence of a dispute resolution clause in subsequent contracts to sell. Whether the Court of Appeals correctly rescinded the obligation under Article 1191 of the Civil Code and whether a period should have been fixed under Article 1197 of the Civil Code. Whether the Court of Appeals erred in affirming the award of attorney's fees to respondent Charter Chemical and Coating Corporation.
Ruling
The Petition is denied. The Court of Appeals' Decision and Resolution are affirmed with modification, ordering Camp John Hay Development Corporation to pay Charter Chemical and Coating Corporation the amount of P5,900,000.00 with legal interest and P590,000.00 as attorney's fees.
Ratio Decidendi
On the jurisdiction of the CIAC: The Supreme Court held that the CIAC has original and exclusive jurisdiction over construction disputes, as provided by Executive Order No. 1008 and affirmed by Republic Act No. 9285. An arbitration clause in a construction contract, like the one in the Contractor's Agreement, automatically vests the CIAC with jurisdiction, regardless of any reference to other arbitral bodies or subsequent agreements with different dispute resolution clauses, unless there is a clear intent to supersede the arbitration clause. The contracts to sell were merely ancillary to the Contractor's Agreement and did not divest the CIAC of jurisdiction over the dispute concerning payment for services rendered under the construction contract. The Court emphasized the policy of favoring arbitration and noted that the dispute, concerning payment for construction services, falls within the CIAC's purview. On rescission under Article 1191 versus fixing of period under Article 1197: The Court affirmed the rescission of the obligation under Article 1191 of the Civil Code. It explained that rescission is the proper remedy for a breach of reciprocal obligations when one party fails to comply with what is incumbent upon him. In this case, Camp John Hay Development's failure to deliver the two (2) units as payment, despite the completion of painting works by Charter Chemical and the lapse of many years, constituted a breach. The Court found no "just cause" to fix a period for compliance under Article 1197, as the delay was protracted and without sufficient explanation, making further delay inequitable to Charter Chemical. The Court reiterated that fixing a period is discretionary and should not be used to excuse prolonged non-compliance. On the award of attorney's fees: The Supreme Court affirmed the award of attorney's fees. It reasoned that Charter Chemical was compelled to litigate and incur expenses to protect its rights due to Camp John Hay Development's unjustified refusal to satisfy a plainly valid and demandable claim. The prolonged delay and the need for legal representation to recover the payment, which was due since 2003, made the award of attorney's fees just and equitable under Article 2208(2) and (11) of the Civil Code. The Court noted that Camp John Hay Development's breach of faith and refusal to settle the matter necessitated the filing of the arbitration case, thus justifying the award.
Main Doctrine
Rescission under Article 1191 of the Civil Code is the proper remedy for breach of reciprocal obligations when the obligor cannot comply with their undertaking, and the court should not fix a period for compliance absent just cause. The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is original and exclusive over construction disputes, and an arbitration clause in a construction contract vests CIAC with jurisdiction, which cannot be divested by subsequent agreements with different dispute resolution clauses unless expressly intended.