G.R. No. 251463 , August 02, 2023
Grandspan Development Corporation, Petitioner, vs. Franklin Baker, Inc. and Advance Engineering Corporation, Respondents.

FACTS

Respondents Franklin Baker, Inc. (FBI) and Advance Engineering Corporation (AEC) entered into a Construction Contract containing an arbitration clause (Article XVI) requiring disputes to be settled amicably and, if unsuccessful, by arbitration under the Philippine Dispute Resolution Center, Inc. (PDRCI) rules. AEC subcontracted part of the work to petitioner Grandspan Development Corporation (GDC) under a Subcontractor’s Agreement, which also contained an arbitration clause (Item 29) requiring disputes to be submitted to the Construction Industry Arbitration Commission (CIAC). GDC filed a Complaint for sum of money before the Regional Trial Court (RTC) against both respondents, claiming an unpaid balance for its subcontracted services. GDC impleaded FBI based on Article 1729 of the Civil Code, which allows laborers and material furnishers an action against the owner up to the amount owing from the owner to the contractor. FBI and AEC moved to dismiss the complaint, invoking the arbitration clauses in their respective contracts. The RTC dismissed the complaint and AEC’s cross-claim without prejudice, ruling it lacked jurisdiction due to the arbitration agreements. The Court of Appeals affirmed the dismissal but modified the RTC’s orders, directing the referral of the construction dispute to arbitration before the CIAC.

ISSUE

Whether the RTC correctly dismissed the complaint for sum of money on the ground of lack of jurisdiction due to the existence of arbitration clauses in the contracts, notwithstanding petitioner’s invocation of Article 1729 of the Civil Code.

RULING

Yes. The Supreme Court denied the petition and affirmed the Court of Appeals’ rulings. The arbitration clauses in the Construction Contract and the Subcontractor’s Agreement are valid and binding. The Court held that Article 1729 of the Civil Code does not grant an exclusive right of action in regular courts that overrides a valid arbitration agreement. Arbitration is a preferred mode of dispute resolution, and its provisions are deemed written into the contract. The claim involves a construction dispute falling within the original and exclusive jurisdiction of the CIAC, as mandated by law and the parties’ agreements. The principle of contract relativity does not bar the enforcement of the arbitration clause against GDC, as it is a party to the Subcontractor’s Agreement containing the CIAC arbitration clause. The RTC correctly dismissed the case for lack of jurisdiction, and the CA properly ordered the referral of the dispute to CIAC arbitration.