G.R. Nos. 244214-15. March 29, 2023.
Republic of the Philippines, represented by the Department of Public Works and Highways, Petitioner, vs. Sergio C. Pascual, doing business under the name and style of SCP Construction, Respondent.

FACTS

The Department of Public Works and Highways (DPWH) awarded two construction contracts to Sergio C. Pascual (SCP Construction). The first project, for the Junction Sayre Highway-Aglayan-Alanib-Ticalaan Road, had a contract price of ₱95,329,847.68. The second, for the Gingoog-Claveria-Villanueva Road, was priced at ₱24,513,428.59. After completion, both projects received final ratings of “poor” from the DPWH’s Constructors’ Performance Evaluation System. Final Inspection Reports noted the projects were complete but with defects and deficiencies. The DPWH Regional Director instructed SCP to rectify these issues. Re-inspection reports indicated most defects remained unrectified. The DPWH then issued Notices to Terminate the contracts. In response, SCP sent letters stating rectification was “on-going” but failed to submit the required verified position papers. Consequently, the DPWH issued Decisions for Contract Termination for both projects on October 8, 2013. The DPWH also suspended and blacklisted SCP from future biddings for one year. SCP filed a Request for Arbitration with the Construction Industry Arbitration Commission (CIAC), claiming unpaid final billings and damages. The DPWH moved to dismiss, arguing the CIAC lacked jurisdiction because the arbitration clause in the contracts named a specific arbiter (the Regional Director) and not the CIAC, and that the claim was time-barred. The CIAC denied the motion to dismiss and later issued a Final Award in favor of SCP. The DPWH filed petitions with the Court of Appeals, which affirmed the CIAC’s jurisdiction and award with modifications. The DPWH then elevated the case to the Supreme Court via a Petition for Review on Certiorari.

ISSUE

1. Whether the CIAC validly acquired jurisdiction over the dispute.
2. Whether SCP’s claim was barred by prescription.

RULING

1. Yes, the CIAC validly acquired jurisdiction. The Supreme Court held that the arbitration clause in the contract, which named the DPWH Regional Director as the arbiter, was void for being potestative. A potestative condition is one which depends upon the sole will of one of the parties, making the obligation void. The clause gave the DPWH the exclusive and unilateral power to designate the arbiter (its own Regional Director), placing SCP at a disadvantage. Citing the Civil Code and jurisprudence, the Court ruled such a condition is contrary to law and public policy. Furthermore, Republic Act No. 9285 (the Alternative Dispute Resolution Act of 2004) mandates that construction disputes shall be submitted to voluntary arbitration, and Executive Order No. 1008 vests the CIAC with original and exclusive jurisdiction over construction disputes. The Court also found that the parties had effectively submitted to CIAC jurisdiction through their pleadings and participation in the arbitration process.
2. No, SCP’s claim was not barred by prescription. The action was based on a written contract (the construction agreements). Under Article 1144 of the Civil Code, actions upon a written contract must be brought within ten years from the time the right of action accrues. The right of action accrued from the date of the contract terminations on October 8, 2013. SCP filed its Request for Arbitration on July 6, 2015, which was well within the ten-year prescriptive period. The DPWH’s argument that the claim was governed by a shorter prescriptive period under the Contract Law or the Civil Code provisions on obligations was rejected. The Court affirmed that the ten-year period under Article 1144 applies.
The Supreme Court DENIED the petition and AFFIRMED the Decision and Resolution of the Court of Appeals, which had upheld the CIAC’s Final Award with modifications.