Title
Camp John Hay Development Corp. vs. Charter Chemical and Coating Corp.
Case
G.R. No. 198849
Decision Date
Aug 7, 2019
Dispute over non-delivery of studio units as payment for painting services; CIAC upheld jurisdiction, awarded monetary value and attorney's fees due to breach.
construction dispute
arbitration clause
validity of arbitration clause

Case Summary (G.R. No. 198849)

Factual Background

In 2001, Camp John Hay Development Corporation engaged Charter Chemical and Coating Corporation by a Contractor’s Agreement to complete interior and exterior painting of Unit 2E of Camp John Hay Manor for a contract price that expressly included the price of two studio units at Camp John Hay Suites. Construction of the Suites had not yet commenced when the Contractor’s Agreement was executed. Charter Chemical completed the painting works in 2003. Petitioner paid part of the contract price and agreed to offset the P5,900,000.00 balance by transferring two studio units chosen by respondent (Units 102 and 104 in the second phase of Camp John Hay Suites). The Suites’ construction experienced repeated delays and revisions of the Master Development Plan, with targeted completion dates revised from 2006 to 2012. Despite certificates in August 2005 that the units were fully paid under the offsetting scheme, the units were not delivered because construction remained unfinished.

Contractual Agreements and Chronology

The Contractor’s Agreement contained an arbitration clause and an offsetting scheme providing for two studio units as partial payment. After completion of the painting works, the parties executed pro forma contracts to sell in June 2005, which described possession as deliverable “within a reasonable period of time from the date of completion.” Petitioner relied on a series of Lease Agreements and Memoranda of Agreement with the Bases Conversion and Development Authority that set and later revised construction timetables. Respondent’s extrajudicial demand for transfer or payment was made in August 2007 and further demands followed. When demands failed, respondent filed a Request for Arbitration on June 12, 2008.

Arbitration Award

The Construction Industry Arbitration Commission issued a Final Award on March 30, 2009. The CIAC found that petitioner had failed to deliver the units within the targeted completion date and ordered payment of the monetary equivalent of the two units amounting to P5,900,000.00 and attorney’s fees of P590,000.00. The arbitral tribunal declined to “fix the period for the delivery of the subject units as provided for in Article 1197 of the Civil Code” on the ground that the reciprocal nature of the contract provided the period and CIAC could fix a period if necessary.

Procedural History

Petitioner sought review in the Court of Appeals under Rule 43, contending that the CIAC lacked jurisdiction because the contracts to sell superseded the arbitration clause and designated Pasig courts as the exclusive forum. The Court of Appeals affirmed the Final Award on May 13, 2011, holding that the arbitration clause in the Contractor’s Agreement remained controlling and that petitioner was already in delay by August 2007. Petitioner’s motion for reconsideration was denied in a September 30, 2011 Resolution. Petitioner filed a Petition for Review on Certiorari under Rule 45 in the Supreme Court on November 23, 2011.

The Parties’ Contentions

Petitioner maintained that no specific completion date existed between the contracting parties; that the proper remedy was a fixing of the period under Article 1197 rather than rescission under Article 1191; and that the contracts to sell, which contained a venue clause for Pasig courts, displaced CIAC jurisdiction. Petitioner also contested the award of attorney’s fees as unsupported by factual findings and receipts. Respondent argued that jurisdiction properly lay with CIAC because the dispute arose from the construction contract containing an arbitration clause, that petitioner was already delayed and thus liable under Article 1191, and that the contracts to sell were merely preparatory devices that did not supersede the Contractor’s Agreement. Respondent defended the award of attorney’s fees on the ground that it was compelled to litigate because of petitioner’s unjustified refusal to settle.

Issues Presented

The Supreme Court identified the issues as whether CIAC had jurisdiction despite the contracts to sell; whether rescission under Article 1191 was proper and whether the Court should instead fix a period under Article 1197; and whether the award of attorney’s fees to respondent was proper.

Jurisdictional Ruling on CIAC

The Court held that CIAC had original and exclusive jurisdiction over the dispute under Executive Order No. 1008 and under the arbitration clause of the Contractor’s Agreement. The Court explained that the Construction Industry Arbitration Law vests CIAC jurisdiction ipso facto where a construction contract contains an arbitration clause, and that any doubt should be resolved in favor of arbitration. The Court further observed that the contracts to sell did not supersede the Contractor’s Agreement because they were pro-forma instruments to effect ownership transfer under the offsetting scheme and were not inconsistent with the principal contract. The Court found that the dispute concerning the transfer as payment still fell within CIAC’s jurisdiction, which expressly includes claims of payment and default.

Ruling on Rescission under Article 1191 and Article 1197

The Court affirmed that rescission under Article 1191 is the appropriate remedy where a reciprocal obligation is breached. It explained that rescission is available when one party fails to comply with an obligation and that the injured party may choose rescission unless there is just cause to fix a period under Article 1197. The Court analyzed Article 1197 and emphasized that the power to fix a period is discretionary and should be exercised only when a period can reasonably be inferred from the contract’s nature and circumstances or when equitable considerations justify such a remedy. Applying these principles, the Court found no just cause to fix a period for petitioner’s compliance. Petitioner’s construction delays extended for more than a decade, and petitioner offered only generalized claims of force majeure and mutual delays without adequate justification. The Court concluded that to fix a period belatedly would be to prolong respondent’s deprivation and that rescission of the reciprocal obligation was therefore warranted.

Restitution and Interest

The Court explained that rescission produces mutual restitution under Article 1385, and that rescission in this context requires restoring parties as far as practicable to their original positions. Because respondent had fully performed the painting works and petitioner had enjoyed the bene

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