Fort Bonifacio Development Corporation vs. Domingo

The CIAC's jurisdiction under Executive Order No. 1008 is limited to disputes arising from or connected with construction contracts between parties who agreed to submit to voluntary arbitration, and does not extend to a collection suit filed by an assignee of a contractor's receivables whose cause of action springs from the Deed of Assignment and the non-payment of a monetary obligation, rather than from any violation or interpretation of the construction contract itself.

Petitioner Fort Bonifacio Development Corporation is a domestic corporation engaged in real estate development. Respondent Manuel N. Domingo is the assignee of receivables from L and M Maxco Specialist Engineering Construction (LMM Construction), which receivables arose from a Trade Contract between petitioner and LMM Construction for partial structural and architectural works on the Bonifacio Ridge Condominium project. The Trade Contract contained an arbitration clause stipulating that disputes arising therefrom would be brought before the CIAC. Retention money—five percent of the contract price withheld for one year after completion to guarantee corrective works during the defect-liability period—was the specific receivable at the center of the dispute.

On 5 July 2000, petitioner Fort Bonifacio Development Corporation entered into a Trade Contract with L and M Maxco Specialist Engineering Construction (LMM Construction) for partial structural and architectural works on the Bonifacio Ridge Condominium. The contract granted petitioner the right to withhold retention money equivalent to five percent of the contract price for one year after completion, to guarantee corrective works during the defect-liability period. Due to defects and delays in LMM Construction's work, petitioner unilaterally terminated the Trade Contract and hired another contractor to finish the remaining work. Notwithstanding the pre-termination, petitioner remained liable to pay LMM Construction a fraction of the contract price proportionate to the work already performed.

On 30 July 2004, petitioner received the first Notice of Garnishment against LMM Construction's receivables, issued by the Construction Industry Arbitration Commission (CIAC) in CIAC Case No. 11-2002, wherein LMM Construction was adjudged liable to Asia-Con Builders for ₱5,990,927.77. On 30 April 2005, petitioner received a letter from respondent Manuel N. Domingo, dated 18 April 2005, inquiring about the retention money due to LMM Construction and informing petitioner that a portion of LMM Construction's receivables had been assigned to him pursuant to a Deed of Assignment executed on 28 February 2005. The assignment was made to settle LMM Construction's unpaid obligation to respondent amounting to ₱804,068.21.

Through its letter dated 11 October 2005, petitioner acknowledged that LMM Construction still had receivables consisting of retention money, but advised respondent that the retention money was not yet due and demandable and could be ascertained only after completion of corrective works. Petitioner also notified respondent that part of the receivables was being garnished by other creditors of LMM Construction. Respondent replied on 14 October 2005, asserting his ownership over the assigned portion and maintaining that the amount pertaining to him could no longer be garnished to satisfy LMM Construction's obligations to others, since it had ceased to be LMM Construction's property by virtue of the Deed of Assignment. Attached to respondent's letter was LMM Construction's endorsement dated 17 January 2005 approving respondent's claim of ₱804,068.21 chargeable against the retention money.

Before respondent's claim could be fully addressed, petitioner received a second Notice of Garnishment on 6 June 2005, this time from the National Labor Relations Commission (NLRC) to satisfy LMM Construction's liability to Nicolas Consigna. On 13 July 2005, petitioner received an Order of Delivery of Money from the Office of the Clerk of Court enforcing the first garnishment, directing delivery of ₱5,990,227.77 to Asia-Con Builders. Petitioner made partial payments on 22 July 2005 and 11 August 2005 totaling ₱1,170,601.81. A third Notice of Garnishment, accompanied by an Order of Delivery of Money from the RTC of Makati, Branch 133, was served on 26 January 2006, directing petitioner to deliver ₱558,448.27 to satisfy a judgment in favor of Concrete Masters, Inc. Petitioner denied respondent's claim by letter dated 31 January 2006, stating that after completion of rectification works and satisfaction of the various garnishment orders, no retention money remained. Notably, petitioner fully satisfied the first garnishment in the amount of ₱5,110,833.44 on that same date, and complied with the third garnishment order of ₱558,448.27 on 8 February 2006—a week after denying respondent's claim.

Respondent thereupon filed a Complaint for collection of sum of money against both LMM Construction and petitioner before the RTC of Pasay City, Branch 109, docketed as Civil Case No. 06-0200-CFM. Petitioner moved to dismiss for lack of jurisdiction over the subject matter, arguing that the CIAC—not the regular courts—had jurisdiction because respondent merely stepped into the shoes of LMM Construction as assignee and was bound by the Trade Contract's arbitration clause. The RTC denied the motion on 6 June 2006, holding that a full-blown trial was necessary to determine which between LMM Construction and petitioner should be accountable for the sum due to respondent.

• Relativity of Contracts (Article 1311, Civil Code): Petitioner argued that respondent, as assignee of LMM Construction's receivables under the Trade Contract, merely stepped into the shoes of LMM Construction and therefore became a party to the Trade Contract, bound by its arbitration clause stipulating CIAC jurisdiction over disputes.
• CIAC Jurisdiction: Petitioner maintained that since respondent's claim arose from receivables under the Trade Contract, the dispute fell within the original and exclusive jurisdiction of the CIAC under Executive Order No. 1008, not the regular courts.

• Third-Party Status: Respondent countered that the CIAC is devoid of jurisdiction over money claims of third persons against the contractor, developer, or owner of a project, as CIAC jurisdiction is limited to settling disputes arising among contractors, developers, and/or owners of construction projects.
• Nature of the Claim: Respondent argued that the case did not involve the determination of rights under the Trade Contract but rather the determination of who among LMM Construction's many creditors should enjoy preference in payment of its receivables from petitioner—a matter outside CIAC's expertise and properly cognizable by regular courts.

• Jurisdiction: Whether the RTC has jurisdiction over Civil Case No. 06-0200-CFM, or whether the CIAC has original and exclusive jurisdiction over respondent's collection suit by virtue of the arbitration clause in the Trade Contract between petitioner and LMM Construction.

• Jurisdiction: Yes, the RTC has jurisdiction. Respondent's cause of action springs not from a violation of the Trade Contract but from the non-payment of LMM Construction's monetary obligation to him and the alleged arbitrary preference given to other creditors—matters involving obligations, assignment, and preference of credits that fall outside CIAC jurisdiction and are properly cognizable by regular courts.

• Jurisdiction: Jurisdiction over the subject matter is determined by the allegations of the complaint, irrespective of whether the plaintiff is entitled to recover, and cannot be made to depend on defenses raised in a motion to dismiss. A scrupulous examination of respondent's Complaint reveals that his cause of action arises from LMM Construction's outstanding obligation to him, the Deed of Assignment of receivables made known to petitioner as early as 18 April 2005, and petitioner's refusal to deliver the assigned amount despite due notice—giving preference instead to LMM Construction's garnishing creditors. The right violated was respondent's right to receive payment for LMM Construction's financial obligation and to be preferred over other creditors, a right that pre-existed and was separate and distinct from LMM Construction's right to payment under the Trade Contract. Petitioner's reliance on Article 1311 of the Civil Code (relativity of contracts) was unavailing: while respondent as assignee stepped into LMM Construction's shoes, the right to the receivables under the Trade Contract was not even in dispute. What respondent put in issue was petitioner's purportedly arbitrary exercise of discretion in preferring other creditors' claims. The CIAC's jurisdiction under Executive Order No. 1008 covers disputes arising from or connected with construction contracts, applying the principle of ejusdem generis—other issues cognizable must be of the same or closely related kind. Respondent's claim was not construction-related at all; it involved obligations, contracts of assignment, and potentially preference of credits, tasks suited for a trial court after full-blown trial rather than an arbitration body devoted to construction contracts.

• Jurisdiction Determined by Allegations of the Complaint — Jurisdiction over the subject matter is determined by the allegations of the complaint, irrespective of whether the plaintiff is entitled to recover upon all or some of the claims asserted. It cannot be made to depend upon defenses set up in the answer or motion to dismiss. The nature of the action as appearing from the allegations and the character of the relief sought are controlling. Applied here: the Court examined respondent's Complaint and found that his cause of action arose from the Deed of Assignment and non-payment, not from the Trade Contract, thereby placing the dispute outside CIAC jurisdiction.

• Relativity of Contracts (Article 1311, Civil Code) — Contracts take effect only between the parties, their assigns and heirs, except where rights and obligations are not transmissible by nature, stipulation, or law. Applied here: while respondent as assignee stepped into LMM Construction's shoes, this did not make respondent a party to the Trade Contract for purposes of the arbitration clause, because the right to receivables under the Trade Contract was not in dispute—what was in issue was the preference among creditors, a matter external to the contract.

• CIAC Jurisdiction and Ejusdem Generis — Under Section 4 of Executive Order No. 1008, the CIAC has original and exclusive jurisdiction over disputes arising from or connected with construction contracts, provided the parties agreed to voluntary arbitration. While the enumerated matters are not exclusive, other issues cognizable must be of the same or closely related kind applying ejusdem generis. Applied here: respondent's claim for collection and preference of credits was not construction-related and did not require CIAC's technical expertise, thus falling outside CIAC jurisdiction.

• "A scrupulous examination of the aforementioned allegations in respondent's Complaint unveils the fact that his cause of action springs not from a violation of the provisions of the Trade Contract, but from the non-payment of the monetary obligation of LMM Construction to him." — This passage articulates the ratio decidendi: the source of the cause of action determines jurisdiction, and respondent's claim originated from the Deed of Assignment, not the construction contract.

• "What respondent is demanding is that a portion of such receivables amounting to ₱804,068.21 should have been paid to him first before the other creditors of LMM Construction, which, clearly, does not require the CIAC's expertise and technical knowledge of construction." — This defines the outer boundary of CIAC jurisdiction by distinguishing construction-related disputes from ordinary collection and preference-of-credits claims.

• "The adjudication of Civil Case No. 06-0200-CFM necessarily involves the application of pertinent statutes and jurisprudence to matters such as obligations, contracts of assignment, and, if appropriate, even preference of credits, a task more suited for a trial court to carry out after a full-blown trial, than an arbitration body specifically devoted to construction contracts." — This passage confirms that the nature of the legal issues—civil law on obligations and assignment—properly belongs to regular courts, not to construction arbitration.

• Serdoncillo vs. Benolirao, 358 Phil. 83 (1998) — Cited for the doctrine that jurisdiction over the subject matter is determined by the allegations of the complaint, irrespective of whether the plaintiff is entitled to recover, and cannot be made to depend on defenses in the answer or motion to dismiss.

• Megaworld Globus Asia, Inc. vs. DSM Construction and Development Corporation, 468 Phil. 305 (2004) — Cited for the definition of retention money as a portion of the contract price set aside by the project owner and retained for a certain period to guarantee corrective works during the defect-liability period.

• Gammon Philippines, Inc. vs. Metro Rail Transit Development Corporation, G.R. No. 144792, 31 January 2006, 481 SCRA 209 — Cited for the definition of "construction" as referring to all on-site works on buildings or altering structures, from land clearance through completion, used to demonstrate that respondent's claim was not construction-related.

• Section 4, Executive Order No. 1008 — Defines CIAC jurisdiction as original and exclusive over disputes arising from or connected with construction contracts, provided parties agreed to voluntary arbitration. Enumerates covered matters including violation of specifications, terms of agreement, interpretation of provisions, damages and penalties, delays, maintenance and defects, payment default, and changes in contract cost. Applied to show that respondent's claim—arising from assignment and preference of credits—falls outside this enumeration and is not of the same kind under ejusdem generis.

• Article 1311, Civil Code — Provides that contracts take effect only between the parties, their assigns and heirs, except where rights and obligations are not transmissible. Petitioner invoked this to argue respondent was bound by the Trade Contract's arbitration clause; the Court found the provision unavailing because the right to receivables under the Trade Contract was not in dispute.

• Rule 2, Revised Rules of Court — Defines cause of action as a party's act or omission that violates the rights of the other. Applied to identify respondent's violated right as his right to receive payment and to be preferred over other creditors, separate and distinct from LMM Construction's rights under the Trade Contract.

Leonardo A. Quisumbing, Antonio T. Carpio, Antonio Eduardo B. Nachura, and Diosdado M. Peralta concurred with the decision.