Ang vs. De Venecia

The Construction Industry Arbitration Commission (CIAC) does not have jurisdiction over a suit for damages filed by a homeowner against a neighbor and the neighbor's contractors for damage caused by construction activities on an adjoining lot, because the homeowner is not a party to any construction contract and the dispute is quasi-delictual or tortious in nature. For the CIAC to acquire jurisdiction, three requisites must concur: (1) a dispute arising from or connected with a construction contract; (2) such contract must have been entered into by parties involved in construction in the Philippines; and (3) an agreement by the parties to submit their dispute to arbitration.

The petitioners, Drs. Reynaldo Ang and Susan Cucio-Ang, are owners of a two-storey residential house and lot in Makati City. Their neighbor, respondent Angel Margarito D. Caramat, Jr., began constructing a five-storey commercial building on the adjoining lot in 2008, with respondent Jose Mari B. Soto and his firm MC Soto Construction serving as contractor. The dispute centers on whether the CIAC, a specialized arbitral body created under Executive Order No. 1008 (the Construction Industry Arbitration Law), has jurisdiction over a suit for damages filed by an adjoining property owner who is not a party to the construction contract between the neighbor and the contractor. The case also involves OCA Circular No. 111-2014, which directed all trial courts to dismiss pending construction disputes and refer them to the CIAC.

Petitioners Drs. Reynaldo Ang and Susan Cucio-Ang (spouses Ang) own a two-storey residential house and lot at 216 Sunrise St., Barangay Singkamas, Makati City. In 2008, their neighbor, respondent Angel Margarito D. Caramat, Jr. (Angel), started construction of a five-storey commercial building on the adjoining lot. In 2009, the spouses Ang noticed cracks in their walls and misalignment of their gate and several doors in their house. Suspecting that these were due to the construction works by Angel on the adjacent lot, the spouses Ang hired an architect to survey their house. The architect reported that the foundation of their house was exposed and moved, as the foundation of the five-storey building being constructed by Angel required much deeper excavation compared to their house.

The spouses Ang referred the matter to the barangay officials of Singkamas, which ordered the parties to appear for a mediation hearing on April 2, 2009. Angel agreed to make all necessary repairs in the spouses Ang's property and to provide preventive measures against further damage to their house. However, the actual work done was limited to repair of the spouses Ang's misaligned garage door and installation of braces at their glass door. Unsatisfied with said measures, the spouses Ang sought barangay mediation again, but Angel and respondent Jose Mari B. Soto (Soto), who works for Angel's contractor, MC Soto Construction, refused to conduct additional repairs on the Ang residence, asserting that the damage thereto was caused by weaknesses in the house's foundation.

Another attempt at barangay mediation failed, prompting the spouses Ang to refer their complaint to the respondent City Engineer of Makati. The City Engineer issued a formal demand letter ordering Angel and Soto to comply with the requirements of the National Building Code, to no avail. Without any action from Angel and Soto, the spouses Ang sought and obtained a certification to file action from the barangay. After their final demand went unheeded, the spouses Ang filed the instant Complaint on June 15, 2009, against Angel, Soto, and respondents Jen Lee Vilvar (another architect of MC Soto Construction), Rosita de Venecia, Emma Trinidad Caramat (the alleged owners of the lot where Angel's building was being constructed), and the City Engineer of Makati.

During the pendency of the case, OCA Circular No. 111-2014 was promulgated, which reiterated an earlier directive for all trial courts to dismiss all pending cases involving construction disputes for referral to the CIAC. The trial court, after admitting that it was not aware of the full scope of the CIAC's jurisdiction, suspended the proceedings and instructed the parties to await further orders. The trial court then issued an Order dated November 12, 2014, dismissing the case and referring it to the CIAC. The spouses Ang filed a Manifestation with Motion to Retain Jurisdiction and to Proceed with Trial on November 17, 2014, and later a Manifestation and/or Motion for Reconsideration with Consolidated Reply on December 17, 2014. On February 20, 2015, the trial court denied both motions and affirmed the dismissal of the case.

• Timeliness of the Motion for Reconsideration: The spouses Ang argued that the case was not dismissed during the November 12, 2014 hearing; rather, the presiding judge merely informed the parties of the court's receipt of OCA Circular No. 111-2014. They argued that they only received a copy of the November 12, 2014 order on December 12, 2014, hence their Manifestation and/or Motion for Reconsideration filed on December 17, 2014 was timely filed.

• CIAC Jurisdiction: The spouses Ang argued that the CIAC has no jurisdiction over their suit because they are not parties to any construction contract, their cause of action arises from the alleged damage inflicted upon their property by respondents' construction activities, and they did not agree to submit the dispute to arbitration.

• Procedural Remedy: The spouses Ang maintained that direct resort to the Supreme Court under Rule 45 is proper because the petition raises a pure question of law—which tribunal has jurisdiction over the suit—and does not involve any determination of the truth or falsehood of factual allegations.

• Timeliness of the Motion for Reconsideration: Respondents Angel and Emma Caramat argued that the spouses Ang lost their right to question the dismissal of their case since they were unable to timely file a Motion for Reconsideration from the November 12, 2014 order, which they claimed was made in open court.

• CIAC Jurisdiction: Respondents Angel, Emma Caramat, Soto, and Vilvar asserted that the dispute is within the jurisdiction of the CIAC because the factual matters involved in the suit pertain to building and engineering matters that require the technical expertise of the CIAC to resolve. Soto admitted that the spouses Ang's cause of action springs not from a violation of the provisions of the Construction Agreement between the Sotos and the Caramats, but from the respondents' allegedly "destructive construction" and "erroneous practices" in constructing the Caramats' five-storey building.

• Scope of CIAC Jurisdiction: Respondent Vilvar, citing Sections 35 and 21 of Republic Act No. 9285 (the ADR Law), asserted that CIAC jurisdiction is not limited to contractual relations.

• Broad Construction of E.O. No. 1008: Soto and the Caramats argued that Section 4 of E.O. No. 1008 is broad enough to cover any dispute arising from or connected with construction contracts, citing Manila Insurance, Excellent Quality Apparel, Fort Bonifacio Development, and Gammon Philippines.

• CIAC Jurisdiction: Whether the Construction Industry Arbitration Commission (CIAC) has jurisdiction over an ordinary civil case for damages filed by a non-party to a construction contract.

• Propriety of Dismissal: Whether the trial court erred in dismissing the spouses Ang's suit and referring the same to the CIAC.

• CIAC Jurisdiction: No. The CIAC does not have jurisdiction over the suit. Section 4 of Executive Order No. 1008 lays down three requisites for acquisition of jurisdiction by the CIAC: (1) a dispute arising from or connected with a construction contract; (2) such contract must have been entered into by parties involved in construction in the Philippines; and (3) an agreement by the parties to submit their dispute to arbitration. None of these requisites apply because there is no construction contract between the spouses Ang and the respondents.

• Propriety of Dismissal: No. The trial court erred in dismissing the case and referring it to the CIAC. The spouses Ang's cause of action does not proceed from any construction contract but from the alleged damage inflicted upon their property by virtue of respondents' construction activities, making the dispute quasi-delictual or tortious in nature and within the exclusive jurisdiction of the trial courts.

• CIAC Jurisdiction: The Court examined Section 4 of Executive Order No. 1008, which provides that 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." The Court identified three requisites for CIAC jurisdiction: a dispute arising from or connected with a construction contract; such contract entered into by parties involved in construction in the Philippines; and an agreement by the parties to submit their dispute to arbitration. The Court found that none of these requisites apply to the case at bar because there is no construction contract between the spouses Ang and the respondents. The spouses Ang's cause of action does not proceed from any construction contract or any accessory contract thereto but from the alleged damage inflicted upon their property by virtue of respondents' construction activities. Moreover, the spouses did not agree, and even rejected, the referral of the dispute to the CIAC.

• Interpretation of CIAC Jurisdiction: The Court held that provisions of law which define the jurisdiction of a quasi-judicial agency "must be viewed in the light of the nature and function" of the particular agency whose jurisdiction is sought to be invoked. Citing Engr. Lim vs. Hon. Gamosa and Union Glass & Container Corp. vs. SEC, the Court emphasized that the CIAC was established to resolve disputes within the construction industry—disputes involving transactions and business relationships within the construction industry. The phrase "disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines" limits the jurisdiction of the CIAC not only as to subject matter jurisdiction but also as to jurisdiction over the parties.

• Rule 2.1.1 of the CIAC Rules: The Court rejected the trial court's reliance on Rule 2.1.1 of the CIAC Rules, which enumerates situations in which disputes cognizable by the CIAC may arise. The Court held that Rule 2.1.1 is merely an enumeration of situations supplementing Rule 2.1 and the first paragraph of Section 4 of E.O. No. 1008. It is not meant to supplant the constitutive elements of the CIAC's jurisdiction. Mere allegation of construction-related factual matters does not serve to automatically vest jurisdiction in the CIAC.

• Distinguishing Precedents: The Court distinguished the cases cited by the respondents. In Manila Insurance, the dispute involved a collection suit filed by a party to a construction agreement against surety companies who put up performance bonds, and the construction agreement included an arbitration clause—all three requisite elements of CIAC jurisdiction were present. In Gammon Philippines, the dispute directly arose from a construction contract entered into by the disputing parties themselves, which contained an arbitration clause. In Excellent Quality Apparel, there was a construction contract with an arbitration clause entered into by the parties in dispute. In Fort Bonifacio Development, the CIAC had no jurisdiction because the assignee's cause of action arose not from the construction contract but from the non-payment of the contractor's debts to the assignee. The Court found that the case at bar has more similarities with Fort Bonifacio Development, as both involve obligations somewhat related to a construction activity but not directly related to a construction contract.

• Non-Contractual Disputes: The Court addressed respondent Vilvar's argument that Sections 35 and 21 of Republic Act No. 9285 confirm CIAC jurisdiction over construction disputes regardless of whether they arise from a contract. The Court noted that Section 21 only contemplates "matters arising from all relationships of a commercial nature." While the CIAC may have jurisdiction over non-contractual disputes (for instance, a tortious breach of contract), these disputes must still arise from or be connected with a construction contract entered into by parties in the Philippines who agree to submit such disputes to arbitration. The relationship between the spouses Ang and the respondents is not commercial in nature—the only relation is that they are adjoining lot owners, and the only nexus is spatial in nature, which is not enough to vest jurisdiction in the CIAC.

• Trial Court's Expertise: The Court rejected the argument that the CIAC's expertise in construction matters justifies its jurisdiction. The Court reminded the trial court that it has ample means of handling technical matters, as it may utilize expert testimony under Rule 130, Section 49, or appoint commissioners under Rule 32 of the Revised Rules of Court. The core issue of the suit—whether the construction activities of respondents caused the damage to the spouses Ang's house—is a mixed question of fact and law well within the jurisdiction of the trial court to decide.

• Bias in Favor of Arbitration: The Court acknowledged the State policy to promote and encourage arbitration and alternative dispute resolution, which is essentially a bias in favor of arbitration. However, such bias is not applicable when the dispute is clearly outside the jurisdiction of the arbitral tribunal and the parties object to arbitration. Arbitration is essentially a contract to settle a dispute privately, and an arbitral tribunal cannot acquire jurisdiction if one of the parties does not agree to submit their dispute to the arbitral process.

• Requisites for CIAC Jurisdiction — For the CIAC to acquire jurisdiction under Section 4 of Executive Order No. 1008, three requisites must concur: (1) a dispute arising from or connected with a construction contract; (2) such contract must have been entered into by parties involved in construction in the Philippines; and (3) an agreement by the parties to submit their dispute to arbitration. The Court applied this test to find that the CIAC lacked jurisdiction over a suit for damages filed by an adjoining property owner who was not a party to any construction contract.

• Quasi-Delictual or Tortious Claims vs. Construction Disputes — A suit for damages caused by construction activities on an adjoining parcel of land is not a "dispute arising from or connected with a construction contract" simply because an adjoining owner is not a party to a construction contract. Such a construction of E.O. No. 1008 would unduly and excessively expand the scope of CIAC jurisdiction to include cases that are essentially quasi-delictual or tortious in nature—cases that are within the exclusive jurisdiction of the trial courts.

• Jurisdiction of Quasi-Judicial Agencies Viewed in Light of Nature and Function — Provisions of law which define the jurisdiction of a quasi-judicial agency must be viewed in the light of the nature and function of the particular agency whose jurisdiction is sought to be invoked. The CIAC was established to resolve disputes within the construction industry—disputes involving transactions and business relationships within the construction industry—and its jurisdiction is limited accordingly.

• Arbitration as a Contract — Arbitration is essentially a contract to settle a dispute privately. An arbitral tribunal cannot acquire jurisdiction if one of the parties does not agree to submit their dispute to the arbitral process. The bias in favor of arbitration under State policy is not applicable when the dispute is clearly outside the jurisdiction of the arbitral tribunal and the parties object to arbitration.

• "The jurisdiction of the CIAC is provided in Section 4 of Executive Order No. 1008, or the Construction Industry Arbitration Law... This provision lays down three requisites for acquisition of jurisdiction by the CIAC, first: a dispute arising from or connected with a construction contract; second, such contract must have been entered into by parties involved in construction in the Philippines; and third, an agreement by the parties to submit their dispute to arbitration." — This passage articulates the canonical three-part test for CIAC jurisdiction, which is the central ratio decidendi of the decision.

• "Thus, it is erroneous to consider a suit for damages caused by construction activities on an adjoining parcel of land as a 'dispute arising from or connected with a construction contract', simply because an adjoining owner is not a party to a construction contract. Furthermore, such a construction of Executive Order (E.O.) No. 1008 would unduly and excessively expand the scope of CIAC jurisdiction to include cases that are essentially quasi-delictual or tortious in nature: cases that are within the exclusive jurisdiction of the trial courts." — This passage states the core holding that tortious claims by non-parties to construction contracts remain within the trial courts' exclusive jurisdiction.

• "Rule 2.1.1 is not meant, and should not be construed, to supplant the constitutive elements of the CIAC's jurisdiction as laid down in Rule 2.1 and the first paragraph of Section 4 of E.O. No. 1008. It follows therefore, that not all disputes which may be categorized as falling under Rule 2.1.1 are cognizable by the CIAC. Stated differently, mere allegation of construction-related factual matters does not serve to automatically vest jurisdiction in the CIAC." — This passage clarifies that the CIAC Rules' enumeration of dispute types does not expand the CIAC's jurisdiction beyond the statutory requisites.

• "It must be reiterated that arbitration is essentially a contract to settle a dispute privately; and as such, an arbitral tribunal cannot acquire jurisdiction if one of the parties do not agree to submit their dispute to the arbitral process." — This passage emphasizes the consensual nature of arbitration and explains why the bias in favor of arbitration does not apply when a party objects to the arbitral forum.

• Uy vs. Chua, 616 Phil. 768 (2009) — Cited as authority for allowing direct resort to the Supreme Court from an RTC resolution on a pure question of law, supporting the procedural propriety of the petition.

• Philippine Veterans Bank vs. Monillas, 573 Phil. 384 (2008) — Cited for the proposition that a party may directly appeal to the Supreme Court from a decision of the trial court only on pure questions of law, and that a question of law exists when the doubt or difference arises as to what the law is on a certain set of facts.

• Engr. Lim, et al. vs. Hon. Gamosa, et al., 774 Phil. 31 (2015) — Cited for the principle that the jurisdiction of a quasi-judicial agency must be viewed in light of its nature and function, as applied to the NCIP's limited jurisdiction.

• Union Glass & Container Corp., et al. vs. SEC, et al., 211 Phil. 222 (1983) — Cited for the paradigm that the adjudicative power of a quasi-judicial agency must be exercised in aid of its office and limited to matters intrinsically connected with its regulatory function.

• The Manila Insurance Co., Inc. vs. Sps. Amurao, 701 Phil. 557 (2013) — Distinguished; the Court noted that while it stated that Section 4 of E.O. No. 1008 is broad enough to cover any dispute arising from or connected with construction contracts, the pronouncement must be read within the context of the factual circumstances, where all three requisite elements of CIAC jurisdiction were present.

• Excellent Quality Apparel, Inc. vs. Win Multi Rich Builders, Inc., 598 Phil. 94 (2009) — Distinguished; the case involved a construction contract with an arbitration clause entered into by the parties in dispute, unlike the present case.

• Fort Bonifacio Development Corp. vs. Domingo, 599 Phil. 554 (2009) — Followed as analogous; the Court found that the case at bar has more similarities with this case, as both involve obligations somewhat related to a construction activity but not directly related to a construction contract, and the CIAC had no jurisdiction.

• Gammon Philippines, Inc. vs. Metro Rail Transit Dev't. Corp., 516 Phil. 561 (2006) — Distinguished; the dispute directly arose from a construction contract entered into by the disputing parties themselves, which contained an arbitration clause, unlike the present case.

• Section 4, Executive Order No. 1008 (Construction Industry Arbitration Law) — The provision defining the CIAC's original and exclusive jurisdiction over "disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines." The Court interpreted this provision as requiring three concurring elements for CIAC jurisdiction, none of which were present in the case.

• Section 2, Executive Order No. 1008 (Construction Industry Arbitration Law) — The declaration of policy encouraging the early and expeditious settlement of disputes in the Philippine construction industry, which the Court used to interpret the scope of CIAC jurisdiction as limited to disputes within the construction industry.

• Rule 2.1.1, CIAC Rules — The provision enumerating situations in which disputes cognizable by the CIAC may arise. The Court held that this rule is merely an enumeration supplementing Rule 2.1 and does not supplant the constitutive elements of CIAC jurisdiction under Section 4 of E.O. No. 1008.

• Sections 35 and 21, Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004) — Cited by respondent Vilvar to argue that CIAC jurisdiction is not limited to contractual relations. The Court held that Section 21 only contemplates "matters arising from all relationships of a commercial nature," which does not apply to the relationship between adjoining lot owners.

• Rule 45, Section 1, Revised Rules of Court — The provision authorizing direct resort from the Regional Trial Courts to the Supreme Court on pure questions of law, which the Court found applicable to the petition.

• Rule 37, Section 2, Revised Rules of Court — The provision governing motions for reconsideration, which the Court applied to treat the spouses Ang's Manifestation with Motion to Retain Jurisdiction as a valid motion for reconsideration.

• Rule 130, Section 49, Revised Rules of Court — Cited as a means by which the trial court may utilize expert testimony to handle technical matters in the suit.

• Rule 32, Revised Rules of Court — Cited as a means by which the trial court may appoint commissioners to handle technical matters involved in the suit.

• Articles 2042-2046, Civil Code — Cited for the principle that arbitration is essentially a contract to settle a dispute privately, and an arbitral tribunal cannot acquire jurisdiction if one of the parties does not agree to submit to the arbitral process.

Perlas-Bernabe (Chairperson), Hernando, Inting, and Delos Santos, JJ., concurred.