The Supreme Court has affirmed that an agreement to submit to voluntary arbitration before the Construction Industry Arbitration Commission (CIAC) does not require a formal, signed contract. The crucial factor is a clear, written agreement reflecting the parties’ intent to arbitrate, even if that agreement is expressed through informal communications. This ruling reinforces the preference for alternative dispute resolution in the construction industry, emphasizing efficiency and speed in resolving conflicts and clarifying that the lack of a signed contract does not necessarily invalidate an arbitration agreement, especially when the intent to arbitrate is evident.

Unsigned Agreement, Undisputed Intent: Can CIAC Resolve Construction Conflicts?

Federal Builders, Inc. (Federal) and Power Factors Inc. (Power) entered into a subcontract agreement for electrical work on the Bullion Mall project. A dispute arose regarding unpaid amounts, leading Power to file a request for arbitration with the CIAC, invoking an arbitration clause found within their draft Contract of Service. Federal contested the CIAC’s jurisdiction, arguing that the Contract of Service was never finalized or signed, thus rendering the arbitration clause invalid. The CIAC and the Court of Appeals (CA) ruled in favor of Power, prompting Federal to appeal to the Supreme Court. The central legal question was whether the CIAC had jurisdiction over the dispute given the absence of a signed contract containing the arbitration agreement.

The Supreme Court upheld the CA’s decision, emphasizing that under the CIAC Revised Rules of Procedure Governing Construction Arbitration, a formal, signed contract is not required for the CIAC to acquire jurisdiction. The court referenced Section 4 of Executive Order No. 1008 (E.O. No. 1008), also known as The Construction Industry Arbitration Law, which states that the CIAC has original and exclusive jurisdiction over disputes arising from construction contracts, provided the parties agree to submit to voluntary arbitration. The agreement to arbitrate does not need to be contained in the construction contract, or be signed by the parties; it is enough that the agreement be in writing.

The CIAC Revised Rules further clarify that the agreement may be reflected in an arbitration clause within the contract or through a subsequent agreement to submit to voluntary arbitration. Critically, Section 4.1.2 specifies that an arbitration agreement or submission to arbitration must be in writing but need not be signed by the parties, as long as the intent to submit a construction dispute to arbitration is clear. This intent can be demonstrated through various forms of written communication, including letters, emails, or other electronic means.

The Court highlighted the liberal application of procedural rules regarding the form of the agreement, aligning with the spirit of E.O. No. 1008, which favors voluntary dispute resolution methods like arbitration due to their efficiency. The Court reiterated that the jurisdiction of the CIAC is over the dispute itself, not necessarily over the contract between the parties. Section 2.1, Rule 2 of the CIAC Revised Rules specifies that the CIAC has original and exclusive jurisdiction over construction disputes, whether such disputes arise from or are merely connected with the construction contracts entered into by parties, and whether such disputes arise before or after the completion of the contracts. The execution of contracts and the effect of the agreement to submit to arbitration are different matters, and the signing or non-signing of one does not necessarily affect the other.

Federal contended that there was no mutual consent regarding the arbitration clause because the Contract of Service was merely a draft. However, the Supreme Court rejected this argument, referencing Article 1318 of the Civil Code, which outlines the essential elements of a valid contract: consent, object, and cause. The Court clarified that a contract does not need to be in writing to be binding unless the law specifically requires it, citing Articles 1356 and 1357 of the Civil Code. The actions of both parties indicated a valid contract, despite the unsigned Contract of Service.

Specifically, Power had already performed work, and Federal had made a partial payment, indicating an agreement. Furthermore, Federal itself drafted the Contract of Service, which contained the arbitration clause. The Court noted that Federal could not selectively rely on the draft contract to support its claims while simultaneously denying its validity to avoid CIAC jurisdiction. The arbitration clause in the draft provided:

15. ARBITRATION COMMITTEE – All disputes, controversies or differences, which may arise between the Parties herein, out of or in relation to or in connection with this Agreement, or for breach thereof shall be settled by the Construction Industry Arbitration Commission (CIAC) which shall have original and exclusive jurisdiction over the aforementioned disputes.

The Court found the presence of this clause, coupled with the conduct of the parties, sufficient to establish an agreement to arbitrate. In this connection, the CA correctly observed that the act of Atty. Albano in manifesting that Federal had agreed to the form of arbitration was unnecessary and inconsequential considering the recognition of the value of the Contract of Service despite its being an unsigned draft.

The Court distinguished between the requirements of Republic Act No. 876 (Arbitration Law), which mandates a signed written agreement for arbitration, and the CIAC Revised Rules, which explicitly allow an unsigned written agreement. Given the policy favoring alternative dispute resolution, the Court resolved any doubts in favor of arbitration, supporting the CIAC’s jurisdiction in this case. Consistent with the policy of encouraging alternative dispute resolution methods, therefore, any doubt should be resolved in favor of arbitration. The need for establishing a proper arbitral machinery to settle disputes expeditiously was recognized by the Government in order to promote and maintain the development of the country’s construction industry.

Regarding the specific amounts owed, the Court affirmed the CA’s modification, finding that Power did not adequately prove an agreement for separate determination and approval of cost escalations. As such, Federal was not held liable for labor cost escalation, confirming the final award as modified by the appellate court.

FAQs

What was the key issue in this case?	The key issue was whether the Construction Industry Arbitration Commission (CIAC) had jurisdiction over a construction dispute when the contract containing the arbitration clause was unsigned.
Does an arbitration agreement need to be signed to be enforceable under CIAC rules?	No, according to the CIAC Revised Rules of Procedure, an arbitration agreement does not need to be signed as long as there is a clear written intent to submit disputes to arbitration.
What types of written communication can demonstrate intent to arbitrate?	Intent to arbitrate can be demonstrated through letters, emails, or any other mode of written communication, even if the contract itself is unsigned.
What is the significance of Executive Order No. 1008 in this context?	Executive Order No. 1008, also known as The Construction Industry Arbitration Law, establishes the CIAC and grants it jurisdiction over construction disputes where parties agree to voluntary arbitration.
What happens if there is doubt about whether parties agreed to arbitration?	Consistent with the policy of encouraging alternative dispute resolution methods, any doubt should be resolved in favor of arbitration.
What is the difference between the CIAC rules and the general Arbitration Law regarding signed agreements?	While the general Arbitration Law (Republic Act No. 876) requires a signed agreement, the CIAC Revised Rules do not, reflecting a more flexible approach to arbitration agreements in the construction industry.
Why does the CIAC take a more lenient approach to arbitration agreements?	The CIAC’s approach aims to expedite the resolution of construction disputes, recognizing the importance of a healthy construction industry to the national economy.
What was the final decision regarding the amounts owed in this case?	The Supreme Court affirmed the Court of Appeals’ modified decision, holding Federal Builders liable for certain unpaid balances but not for labor cost escalation due to insufficient proof of a separate agreement.

In conclusion, this case clarifies that a signed contract is not necessarily required for the CIAC to have jurisdiction over a construction dispute, provided there is a clear written agreement to arbitrate. This ruling reinforces the preference for alternative dispute resolution in the construction industry, emphasizing efficiency and speed in resolving conflicts.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Federal Builders, Inc. vs. Power Factors, Inc., G.R. No. 211504, March 08, 2017