G.R. No.

179628 : January 16, 2013

THE MANILA INSURANCE COMPANY,
INC., Petitioner, v. SPOUSES ROBERTO and AIDA
AMURAO,Respondent.
D E C I S I O N
DEL CASTILLO, J.:
The jurisdiction of the Construction Industry Arbitration
Commission (CIAC) is conferred by law. Section 4
1
of Executive
Order (E.O.) No. I 008, otherwise known as the Construction
Industry Arbitration Law, "is broad enough to cover any dispute
arising from, or connected with construction contracts, whether
these involve mere contractual money claims or execution of the
works."
2
?r?l1
This Petition for Review on Certiorari
3
under Rule 45 of the Rules
of Court assails the Decision
4
dated June 7, 2007 and the
Resolution
5
dated September 7, 2007 of the Court of Appeals
(CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida Amurao
entered into a Construction Contract Agreement (CCA)
6
with
Aegean Construction and Development Corporation (Aegean) for
the construction of a six-storey commercial building in Tomas
Morato corner E. Rodriguez Avenue, Quezon City.
7
To guarantee
its full and faithful compliance with the terms and conditions of
the CCA, Aegean posted performance bonds secured by petitioner
The Manila Insurance Company, Inc.
8
(petitioner) and Intra Strata
Assurance Corporation (Intra Strata).
On November 15, 2001, due to the failure of Aegean to complete
the project, respondent spouses filed with the Regional Trial
Court (RTC) of Quezon City, Branch 217, a Complaint,
10
docketed
as Civil Case No. Q-01-45573, against petitioner and Intra Strata
to collect on the performance bonds they issued in the amounts
of P2,760,000.00 and P4,440,000.00, respectively.
11
?r?l1
Intra Strata, for its part, filed an Answer
12
and later, a Motion to
Admit Third Party Complaint,
13
with attached Third Party
Complaint
14
against Aegean, Ronald D. Nicdao, and Arnel A.
Mariano.
Petitioner, on the other hand, filed a Motion to Dismiss
15
on the
grounds that the Complaint states no cause of action
16
and that
the filing of the Complaint is premature due to the failure of
respondent-spouses to implead the principal contractor,
Aegean.
17
The RTC, however, denied the motion in an
Order
18
dated May 8, 2002. Thus, petitioner filed an Answer with
Counterclaim and Cross-claim,
19
followed by a Third Party
Complaint
20
against Aegean and spouses Ronald and Susana
Nicdao.
During the pre-trial, petitioner and Intra Strata discovered that
the CCA entered into by respondent-spouses and Aegean
contained an arbitration clause.
21

Hence, they filed separate Motions to Dismiss
22
on the grounds of
lack of cause of action and lack of jurisdiction.
Ruling of the Regional Trial Court
On May 5, 2006, the RTC denied both motions.
23
Petitioner and
Intra Strata separately moved for reconsideration but their
motions were denied by the RTC in its subsequent Order
24
dated
September 11, 2006.
Aggrieved, petitioner elevated the case to the CA by way of
special civil action for certiorari.
25
?r?l1
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision
26
dismissing the
petition. The CA ruled that the presence of an arbitration clause
in the CCA does not merit a dismissal of the case because under
the CCA, it is only when there are differences in the
interpretation of Article I of the construction agreement that the
parties can resort to arbitration.
27
The CA also found no grave
abuse of discretion on the part of the RTC when it disregarded
the fact that the CCA was not yet signed at the time petitioner
issued the performance bond on February 29, 2000.
28
The CA
explained that the performance bond was intended to be
coterminous with the construction of the building.
29
It pointed
out that "if the delivery of the original contract is
contemporaneous with the delivery of the suretys obligation,
each contract becomes completed at the same time, and the
consideration which supports the principal contract likewise
supports the subsidiary one."
30
The CA likewise said that,
although the contract of surety is only an accessory to the
principal contract, the suretys liability is direct, primary and
absolute.
31
Thus:
WHEREFORE, we resolve to DISMISS the petition as we find that
no grave abuse of discretion attended the issuance of the order of
the public respondent denying the petitioners motion to dismiss.
IT IS SO ORDERED.
32
?r?l1
Petitioner moved for reconsideration but the CA denied the same
in a Resolution
33
dated September 7, 2007.
Issues
Hence, this petition raising the following issues:
A.
THE HONORABLE CA ERRED WHEN IT HELD THAT IT IS ONLY
WHEN THERE ARE DIFFERENCES IN THE INTERPRETATION OF
ARTICLE I OF THE CONSTRUCTION AGREEMENT THAT THE
PARTIES MAY RESORT TO ARBITRATION BY THE CIAC.
B.
THE HONORABLE CA ERRED IN TREATING PETITIONER AS A
SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.
C.
THE HONORABLE [CA] OVERLOOKED AND FAILED TO
CONSIDER THE FACT THAT THERE WAS NO ACTUAL AND
EXISTING CONSTRUCTION AGREEMENT AT THE TIME THE
MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED ON
FEBRUARY 29, 2000.
Petitioners Arguments
Petitioner contends that the CA erred in ruling that the parties
may resort to arbitration only when there is difference in the
interpretation of the contract documents stated in Article I of the
CCA.
35
Petitioner insists that under Section 4 of E.O. No. 1008, it is
the CIAC that has original and exclusive jurisdiction over
construction disputes, such as the instant case.
36
?r?l1
Petitioner likewise imputes error on the part of the CA in treating
petitioner as a solidary debtor instead of a solidary
guarantor.
37
Petitioner argues that while a surety is bound
solidarily with the obligor, this does not make the surety a
solidary co-debtor.
38
A surety or guarantor is liable only if the
debtor is himself liable.
39
In this case, since respondent-spouses
and Aegean agreed to submit any dispute for arbitration before
the CIAC, it is imperative that the dispute between respondent-
spouses and Aegean must first be referred to arbitration in order
to establish the liability of Aegean.
40
In other words, unless the
liability of Aegean is determined, the filing of the instant case is
premature.
Finally, petitioner puts in issue the fact that the performance
bond was issued prior to the execution of the CCA.
42
Petitioner
claims that since there was no existing contract at the time the
performance bond was executed, respondent-spouses have no
cause of action against petitioner.
43
Thus, the complaint should
be dismissed.
Respondent spouses Arguments
Respondent-spouses, on the other hand, maintain that the CIAC
has no jurisdiction over the case because there is no ambiguity in
the provisions of the CCA.
45
Besides, petitioner is not a party to
the CCA.
46
Hence, it cannot invoke Article XVII of the CCA, which
provides for arbitration proceedings.
47
Respondent-spouses also
insist that petitioner as a surety is directly and equally bound
with the principal.
48
The fact that the performance bond was
issued prior to the execution of the CCA also does not affect the
latters validity because the performance bond is coterminous
with the construction of the building.
49
?r?l1
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is defined as "an agreement whereby a
party, called the surety, guarantees the performance by another
party, called the principal or obligor, of an obligation or
undertaking in favor of a third party, called the obligee. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under the
provisions of Act No. 536, as amended by Act No. 2206."
50
We
have consistently held that a suretys liability is joint and several,
limited to the amount of the bond, and determined strictly by the
terms of contract of suretyship in relation to the principal
contract between the obligor and the obligee.
51
It bears stressing,
however, that although the contract of suretyship is secondary to
the principal contract, the suretys liability to the obligee is
nevertheless direct, primary, and absolute.
In this case, respondent-spouses (obligee) filed with the RTC a
Complaint against petitioner (surety) to collect on the
performance bond it issued. Petitioner, however, seeks the
dismissal of the Complaint on the grounds of lack of cause of
action and lack of jurisdiction.
The respondent-spouses have cause of action against the
petitioner; the performance bond is coterminous with the CCA
Petitioner claims that respondent-spouses have no cause of
action against it because at the time it issued the performance
bond, the CCA was not yet signed by respondent-spouses and
Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the "bond
is coterminous with the final acceptance of the project."
53
Thus,
the fact that it was issued prior to the execution of the CCA does
not affect its validity or effectivity.
But while there is a cause of action against petitioner, the
complaint must still be dismissed for lack of jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the
completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to
violation of specifications for materials and workmanship,
violation of the terms of agreement, interpretation and/or
application of contractual time and delays, maintenance and
defects, payment, default of employer or contractor, and changes
in contract cost.
Excluded from the coverage of the law are disputes arising from
employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
Based on the foregoing, in order for the CIAC to acquire
jurisdiction two requisites must concur: "first, the dispute must
be somehow connected to a construction contract; and second,
the parties must have agreed to submit the dispute to arbitration
proceedings."
54

In this case, both requisites are present.
The parties agreed to submit to arbitration proceedings "any
dispute arising in the course of the execution and performance of
the CCA by reason of difference in interpretation of the Contract
Documents x x x which the parties are unable to resolve amicably
between themselves."
55
Article XVII of the CCA reads:
ARTICLE XVII ARBITRATION
17.1 Any dispute arising in the course of the execution and
performance of this Agreement by reason of difference in
interpretation of the Contract Documents set forth in Article I
which the OWNER and the CONTRACTOR are unable to resolve
amicably between themselves shall be submitted by either party
to a board of arbitrators composed of Three (3) members chosen
as follows: One (1) member shall be chosen by the CONTRACTOR
AND One (1) member shall be chosen by the OWNER. The said
Two (2) members, in turn, shall select a third member acceptable
to both of them. The decision of the Board of Arbitrators shall be
rendered within Ten (10) days from the first meeting of the
board, which decision when reached through the affirmative vote
of at least Two (2) members of the board shall be final and
binding upon the OWNER and CONTRACTOR.
17.2 Matters not otherwise provided for in this Contract or by
Special Agreement of the parties shall be governed by the
provisions of the Arbitration Law, Executive Order No. 1008.
56

In William Golangco Construction Corporation v. Ray Burton
Development Corporation,
57
we declared that monetary claims
under a construction contract are disputes arising from
"differences in interpretation of the contract" because "the
matter of ascertaining the duties and obligations of the parties
under their contract all involve interpretation of the provisions of
the contract."
58
Following our reasoning in that case, we find that
the issue of whether respondent-spouses are entitled to collect
on the performance bond issued by petitioner is a "dispute
arising in the course of the execution and performance of the CCA
by reason of difference in the interpretation of the contract
documents.
The fact that petitioner is not a party to the CCA cannot remove
the dispute from the jurisdiction of the CIAC because the issue of
whether respondent-spouses are entitled to collect on the
performance bond, as we have said, is a dispute arising from or
connected to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor
Land, Inc.,
59
we rejected the argument that the jurisdiction of
CIAC is limited to the construction industry, and thus, cannot
extend to surety contracts. In that case, we declared that
"although not the construction contract itself, the performance
bond is deemed as an associate of the main construction contract
that it cannot be separated or severed from its principal. The
Performance Bond is significantly and substantially connected to
the construction contract that there can be no doubt it is the
CIAC, under Section 4 of E.O. No. 1008, which has jurisdiction
over any dispute arising from or connected with it."
60
?r?l1
In view of the foregoing, we agree with the petitioner that
juriisdiction over the instant case lies with the CIAC, and not with
the RTC. Thus, the Complaint filed by respondent-spouses with
the RTC must be dismissed.
WHEREFORE, the petition is hereby GRANTED. The Decision
dated June 7, 2007 and the Resolution dated September 7, 2007
of the Court of Appeals in CA-G.R. SP No. 96815 are hereby
ANNULLED and SET ASIDE. The Presiding Judge of the Regional
Trial Court of Quezon City, Branch 217 1s DIRECTED to dismiss
Civil Case No. Q-01-45573 for lack of jurisdiction.
SO ORDERED.




























LICOMCEN INCORPORATED,
Petitioner,

- versus -


FOUNDATION SPECIALISTS,
INC.,
Respondent.
--------------------------------------------

FOUNDATION SPECIALISTS,
INC.,
Petitioner,


- versus -




LICOMCEN INCORPORATED,
Respondent.
G.R. No. 167022











G.R. No. 169678

Present:

CARPIO MORALES, J., Chairperson,
BRION,
BERSAMIN,
VILLARAMA, JR., and
SERENO, JJ.

Promulgated:

April 4, 2011
x------------------------------------------------------------------------------------x

D E C I S I O N

BRION, J.:


THE FACTS


The petitioner, LICOMCEN Incorporated (LICOMCEN), is a
domestic corporation engaged in the business of operating
shopping malls in the country.

In March 1997, the City Government of Legaspi awarded to
LICOMCEN, after a public bidding, a lease contract over a lot
located in the central business district of the city. Under the
contract, LICOMCEN was obliged to finance the construction of a
commercial complex/mall to be known as the LCC Citimall
(Citimall). It was also granted the right to operate and manage
Citimall for 50 years, and was, thereafter, required to turn over
the ownership and operation to the City Government.
[1]


For the Citimall project, LICOMCEN hired E.S. de Castro and
Associates (ESCA) to act as its engineering consultant. Since the
Citimall was envisioned to be a high-rise structure, LICOMCEN
contracted respondent Foundation Specialists, Inc. (FSI) to do
initial construction works, specifically, the construction and
installation of bored piles foundation.
[2]
LICOMCEN and FSI
signed the Construction Agreement,
[3]
and the accompanying Bid
Documents
[4]
and General Conditions of Contract
[5]
(GCC)
onSeptember 1, 1997. Immediately thereafter, FSI purchased the
materials needed for the Citimall
[6]
project and began working in
order to meet the 90-day deadline set by LICOMCEN.

On December 16, 1997, LICOMCEN sent word to FSI that it
was considering major design revisions and the suspension of
work on the Citimall project. FSI replied on December 18, 1997,
expressing concern over the revisions and the suspension, as it
had fully mobilized its manpower and equipment, and had
ordered the delivery of steel bars. FSI also asked for the payment
of accomplished work amounting to P3,627,818.00.
[7]
A series of
correspondence between LICOMCEN and FSI then followed.

ESCA wrote FSI on January 6, 1998, stating that the revised
design necessitated a change in the bored piles requirement and
a substantial reduction in the number of piles. Thus, ESCA
proposed to FSI that only 50% of the steel bars be delivered to the
jobsiteand the rest be shipped back to Manila.
[8]
Notwithstanding
this instruction, all the ordered steel bars arrived
in Legaspi City onJanuary 14, 1998.
[9]


On January 15, 1998, LICOMCEN instructed FSI to hold all
construction activities on the project,
[10]
in view of a pending
administrative case against the officials of the City Government of
Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-
1-97-0622).
[11]
On January 19, 1998, ESCA formalized the
suspension of construction activities and ordered the
constructions demobilization until the case was resolved.
[12]
In
response, FSI sent ESCA a letter, dated February 3, 1998,
requesting payment of costs incurred on account of the
suspension which totaled P22,667,026.97.
[13]
FSI repeated its
demand for payment on March 3, 1998.
[14]


ESCA replied to FSIs demands for payment on March
24, 1998, objecting to some of the claims.
[15]
It denied the
claim for the cost of the steel bars that were delivered, since the
delivery was done in complete disregard of its instructions. It
further disclaimed liability for the other FSI claims based on the
suspension, as its cause was not due to LICOMCENs fault. FSI
rejected ESCAs evaluation of its claims in its April 15,
1998 letter.
[16]


On March 14, 2001, FSI sent a final demand letter to
LICOMCEN for payment of P29,232,672.83.
[17]
Since
LICOMCEN took no positive action on FSIs demand for
payment,
[18]
FSI filed a petition for arbitration with the
Construction Industry Arbitration Commission (CIAC) on October
2, 2002, docketed as CIAC Case No. 37-2002.
[19]
In the arbitration
petition, FSI demanded payment of the following amounts:

LICOMCEN again denied liability for the amounts
claimed by FSI. It justified its decision to indefinitely suspend the
Citimall project due to the cases filed against it involving its Lease
Contract with the City Government of Legaspi. LICOMCEN also
assailed the CIACs jurisdiction, contending that FSIs claims were
matters not subject to arbitration under GC-61 of the GCC, but
one that should have been filed before the regular courts
ofLegaspi City pursuant to GC-05.
[20]


During the preliminary conference of January 28, 2003,
LICOMCEN reiterated its objections to the CIACs jurisdiction,
which the arbitrators simply noted. Both FSI and LICOMCEN
then proceeded to draft the Terms of Reference.
[21]


a. Unpaid accomplished work
billings.
P 1,264,404.12
b. Material costs at
site..
15,143,638.51
c. Equipment and labor standby
costs..
3,058,984.34
d. Unrealized gross
profit..
9,023,575.29
e. Attorneys
fees..
300,000.00
f. Interest expenses
...
equivalent to 15% of the
total claim
On February 4, 2003, LICOMCEN, through a collaborating
counsel, filed its Ex Abundati Ad Cautela Omnibus Motion,
insisting that FSIs petition before the CIAC should be dismissed
for lack of jurisdiction; thus, it prayed for the suspension of the
arbitration proceedings until the issue of jurisdiction was finally
settled. The CIAC denied LICOMCENs motion in its February 20,
2003 order,
[22]
finding that the question of jurisdiction depends
on certain factual conditions that have yet to be established by
ample evidence. As the CIACs February 20, 2003 order stood
uncontested, the arbitration proceedings continued, with both
parties actively participating.

The CIAC issued its decision on July 7, 2003,
[23]
ruling in
favor of FSI and awarding the following amounts:

LICOMCEN was also required to bear the costs of arbitration in
the total amount ofP474,407.95.

LICOMCEN appealed the CIACs decision before the
Court of Appeals (CA). On November 23, 2004, the CA upheld the
CIACs decision, modifying only the amounts awarded by (a)
reducing LICOMCENs liability for material costs at site
toP5,694,939.87, and (b) deleting its liability for equipment and
labor standby costs and unrealized gross profit; all the other
awards were affirmed.
[24]
Both parties moved for the
reconsideration of the CAs Decision; LICOMCENs motion was
denied in the CAsFebruary 4, 2005 Resolution, while FSIs
motion was denied in the CAs September 13,
2005 Resolution. Hence, the parties filed their own petition for
review on certiorari before the Court.
[25]




LICOMCENs Arguments

LICOMCEM principally raises the question of the CIACs
jurisdiction, insisting that FSIs claims are non-arbitrable. In
support of its position, LICOMCEN cites GC-61 of the GCC:

GC-61. DISPUTES AND ARBITRATION

Should any dispute of any
kind arise between the LICOMCEN
INCORPORATED and the Contractor [referring
to FSI] or the Engineer [referring to ESCA] and
the Contractor in connection with, or arising
out of the execution of the Works, such
dispute shall first be referred to and settled by
the LICOMCEN, INCORPORATED who shall
within a period of thirty (30) days after being
formally requested by either party to resolve
the dispute, issue a written decision to the
Engineer and Contractor.

Such decision shall be final and
binding upon the parties and the Contractor
shall proceed with the execution of the Works
with due diligence notwithstanding any
Contractor's objection to the decision of the
Engineer. If within a period of thirty (30) days
from receipt of the LICOMCEN,
INCORPORATED's decision on the dispute,
either party does not officially give notice to
contest such decision through arbitration, the
said decision shall remain final and binding.
However, should any party, within thirty (30)
days from receipt of the LICOMCEN,
INCORPORATED's decision, contest said
decision, the dispute shall be submitted for
arbitration under the Construction Industry
Arbitration Law, Executive Order 1008. The
arbitrators appointed under said rules and
regulations shall have full power to open up,
revise and review any decision, opinion,
direction, certificate or valuation of the
LICOMCEN, INCORPORATED. Neither party
shall be limited to the evidence or arguments
put before the LICOMCEN, INCORPORATED
for the purpose of obtaining his said decision.
No decision given by the LICOMCEN,
INCORPORATED shall disqualify him from
being called as a witness and giving evidence
in the arbitration. It is understood that the
obligations of the LICOMCEN,
INCORPORATED, the Engineer and the
Contractor shall not be altered by reason of
the arbitration being conducted during the
progress of the Works.
[26]


LICOMCEN posits that only disputes in connection with or
arising out of the execution of the Works are subject to
arbitration. LICOMCEN construes the phrase execution of the
Works as referring to the physical construction activities, since
Works under the GCC specifically refer to the structures and
facilities required to be constructed and completed for the
Citimall project.
[27]
It considers FSIs claims as mere contractual
monetary claims that should be litigated before the courts
of Legaspi City, as provided in GC-05 of the GCC:

GC-05. JURISDICTION

Any question between the
contracting parties that may arise out of or
in connection with the Contract, or breach
thereof, shall be litigated in the courts
of Legaspi City except where otherwise
specifically stated or except when such
question is submitted for settlement thru
arbitration as provided herein.
[28]



LICOMCEN also contends that FSI failed to comply with the
condition precedent for arbitration laid down in GC-61 of the
GCC. An arbitrable dispute under GC-61 must first be referred to
and settled by LICOMCEN, which has 30 days to resolve it. If
within a period of 30 days from receipt of LICOMCENs decision
on the dispute, either party does not officially give notice to
contest such decision through arbitration, the said decision shall
remain final and binding. However, should any party, within 30
days from receipt of LICOMCENs decision, contest said decision,
the dispute shall be submitted for arbitration under the
Construction Industry Arbitration Law.

LICOMCEN considers its March 24, 1998 letter as its final
decision on FSIs claims, but declares that FSIs reply letter
ofApril 15, 1998 is not the notice to contest required by GC-61
that authorizes resort to arbitration before the CIAC. It posits
that nothing in FSIs April 15, 1998 letter states that FSI will avail
a. Unpaid accomplished work
billings.
P 1,264,404.12
b. Material costs at
site
14,643,638.51
c. Equipment and labor standby
costs
2,957,989.94
d. Unrealized gross
profit
5,120,000.00
of arbitration as a mode to settle its dispute with
LICOMCEN. While FSIs final demand letter of March 14,
2001 mentioned its intention to refer the matter to arbitration,
LICOMCEN declares that the letter was made three years after
its March 24, 1998 letter, hence, long after the 30-day period
provided in GC-61. Indeed, FSI filed the petition for arbitration
with the CIAC only on October 2, 2002.
[29]
Considering FSIs
delays in asserting its claims, LICOMCEN also contends that FSIs
action is barred by laches.

With respect to the monetary claims of FSI, LICOMCEM
alleges that the CA erred in upholding its liability for material
costs at site for the reinforcing steel bars in the amount
of P5,694,939.87, computed as follows
[30]
:

2
nd
initial rebar requirements
purchased from Pag-Asa Steel Works,
Inc..

P 799,506.83
Reinforcing steel bars purchased from
ARCA Industrial Sales (total net weight
of 744,197.66 kilograms) 50% of net
amount due.


5,395,433.04
Subtotal
.
6,194,939.87
Less
Purchase cost of steel bars by Ramon
Quinquileria
..

(500,000.00)
TOTAL LIABILITY OF LICOMCEN TO
FSI FOR MATERIAL COSTS AT
SITE...

5,694,939.8
7

Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to
pay FSI [t]he cost of materials or goods reasonably ordered for
the Permanent or Temporary Works which have
been delivered to the Contractor but not yet used, and which
delivery has been certified by the Engineer.
[31]
None of these
requisites were allegedly complied with. It contends that FSI
failed to establish that the steel bars delivered in Legaspi City,
on January 14, 1998, were for the Citimall project. In fact, the
steel bars were delivered not at the site of the Citimall project,
but at FSIs batching plant called Tuanzon compound, a few
hundred meters from the site. Even if delivery to Tuanzon was
allowed, the delivery was done in violation of ESCAs instruction
to ship only 50% of the materials. Advised as early as December
1997 to suspend the works, FSI proceeded with the delivery of
the steel bars in January 1998. LICOMCEN declared that it
should not be made to pay for costs that FSI willingly incurred
for itself.
[32]


Assuming that LICOMCEN is liable for the costs of the
steel bars, it argues that its liability should be minimized by the
fact that FSI incurred no actual damage from the purchase and
delivery of the steel bars. During the suspension of the works,
FSI sold 125,000 kg of steel bars for P500,000.00 to a third
person (a certain Ramon Quinquileria). LICOMCEN alleges that
FSI sold the steel bars for a ridiculously low price of P 4.00/kilo,
when the prevailing rate was P20.00/kilo. The sale could have
garnered a higher price that would offset LICOMCENs
liability. LICOMCEN also wants FSI to account for and deliver to
it the remaining 744 metric tons of steel bars not
sold. Otherwise, FSI would be unjustly enriched at LICOMCENs
expense, receiving payment for materials not delivered to
LICOMCEN.
[33]


LICOMCEN also disagrees with the CA ruling that declared it
solely liable to pay the costs of arbitration. The ruling was
apparently based on the finding that LICOMCENs failure or
refusal to meet its obligations, legal, financial, and moral, caused
FSI to bring the dispute to arbitration.
[34]
LICOMCEN asserts
that it was FSIs decision to proceed with the delivery of the steel
bars that actually caused the dispute; it insists that it is not the
party at fault which should bear the arbitration costs.
[35]


FSIs Arguments

FSI takes exception to the CA ruling that modified the
amount for material costs at site, and deleted the awards for
equipment and labor standby costs and unrealized profits.

Proof of damage to FSI is not required for LICOMCEN to
be liable for the material costs of the steel bars. Under GC-42, it is
enough that the materials were delivered to the contractor,
although not used. FSI said that the 744 metric tons of steel bars
were ordered and paid for by it for the Citimall project as early as
November 1997. If LICOMCEN contends that these were
procured for other projects FSI also had in Legaspi City, it should
have presented proof of this claim, but it failed to do so.
[36]


ESCAs January 6, 1998 letter simply suggested that only
50% of the steel bars be shipped to Legaspi City; it was not a
clear and specific directive. Even if it was, the steel bars were
ordered and paid for long before the notice to suspend was given;
by then, it was too late to stop the delivery. FSI also claims that
since it believed in good faith that the Citimall project was simply
suspended, it expected work to resume soon after and decided to
proceed with the shipment.
[37]


Contrary to LICOMCENs arguments, GC-42 of the GCC
does not require delivery of the materials at the site of the
Citimall project; it only requires delivery to the contractor, which
is FSI. Moreover, the Tuanzon compound, where the steel bars
were actually delivered, is very close to the Citimall project
site. FSI contends that it is a normal construction practice for
contractors to set up a staging site, to prepare the materials and
equipment to be used, rather than stock them in the crowded
job/project site. FSI also asserts that it was useless to have the
delivery certified by ESCA because by then the Citimall project
had been suspended. It would be unfair to demand FSI to
perform an act that ESCA and LICOMCEN themselves had
prevented from happening.
[38]


The CA deleted the awards for equipment and labor
standby costs on the ground that FSIs documentary evidence
was inadequate. FSI finds the ruling erroneous, since LICOMCEN
never questioned the list of employees and equipments employed
and rented by FSI for the duration of the suspension.
[39]


FSI also alleges that LICOMCEN maliciously and
unlawfully suspended the Citimall project. While LICOMCEN
cited several other cases in its petition for review on certiorari as
grounds for suspending the works, its letters/notices of
suspension only referred to one case, OMB-ADM-1-97-0622, an
administrative case before the Ombudsman that was dismissed
as early as October 12, 1998. LICOMCEN never notified FSI of the
dismissal of this case. More importantly, no restraining order or
injunction was issued in any of these cases to justify the
suspension of the Citimall project.
[40]
FSI posits that LICOMCENs
true intent was to terminate its contract with it, but, to avoid
paying damages for breach of contract, simply declared it as
indefinitely suspended. That LICOMCEN conducted another
public bidding for the new designs is a telling indication of
LICOMCENs intent to ease out FSI.
[41]
Thus, FSI states that
LICOMCENs bad faith in indefinitely suspending the Citimall
project entitles it to claim unrealized profit. The restriction under
GC-41 that [t]he contractor shall have no claim for anticipated
profits on the work thus terminated,
[42]
will not apply because
the stipulation refers to a contract lawfully and properly
terminated. FSI seeks to recover unrealized profits under
Articles 1170 and 2201 of the Civil Code.

THE COURTS RULING

The jurisdiction of the CIAC

The CIAC was created through Executive Order No.
1008 (E.O. 1008), in recognition of the need to establish an
arbitral machinery that would expeditiously settle construction
industry disputes. The prompt resolution of problems arising
from or connected with the construction industry was considered
of necessary and vital for the fulfillment of national development
goals, as the construction industry provides employment to a
large segment of the national labor force and is a leading
contributor to the gross national product.
[43]
Section 4 of E.O.
1008 states:

Sec. 4. Jurisdiction. The CIAC shall
have original and exclusive jurisdiction
over disputes arising from, or connected
with, contracts entered into by parties
involved in construction in the Philippines,
whether the dispute arises before or after
the completion of the contract, or after the
abandonment or breach thereof. These
disputes may involve government or private
contracts. For the Board to acquire
jurisdiction, the parties to a dispute must
agree to submit the same to voluntary
arbitration.

The jurisdiction of the CIAC may
include but is not limited to violation of
specifications for materials and workmanship;
violation of the terms of agreement;
interpretation and/or application of
contractual time and delays; maintenance and
defects; payment, default of employer or
contractor and changes in contract cost.

Excluded from the coverage of this
law are disputes arising from employer-
employee relationships which shall continue
to be covered by the Labor Code of
the Philippines.

The jurisdiction of courts and quasi-judicial bodies is
determined by the Constitution and the law.
[44]
It cannot be fixed
by the will of the parties to a dispute;
[45]
the parties can neither
expand nor diminish a tribunals jurisdiction by stipulation or
agreement. The text of Section 4 of E.O. 1008 is broad enough to
cover any dispute arising from, or connected with construction
contracts, whether these involve mere contractual money claims
or execution of the works.
[46]
Considering the intent behind the
law and the broad language adopted, LICOMCEN erred in
insisting on its restrictive interpretation of GC-61. The CIACs
jurisdiction cannot be limited by the parties stipulation that only
disputes in connection with or arising out of the physical
construction activities (execution of the works) are arbitrable
before it.

In fact, all that is required for the CIAC to acquire
jurisdiction is for the parties to a construction contract to
agree to submit their dispute to arbitration. Section 1, Article
III of the 1988 CIAC Rules of Procedure (as amended by CIAC
Resolution Nos. 2-91 and 3-93) states:

Section 1. Submission to CIAC Jurisdiction. An
arbitration clause in a construction
contract or a submission to arbitration of a
construction dispute shall be deemed an
agreement to submit an existing or future
controversy to CIAC jurisdiction,
notwithstanding the reference to a
different arbitration institution or arbitral
body in such contract or submission. When
a contract contains a clause for the submission
of a future controversy to arbitration, it is not
necessary for the parties to enter into a
submission agreement before the claimant
may invoke the jurisdiction of CIAC.

An arbitration agreement or a submission to
arbitration shall be in writing, but it need not
be signed by the parties, as long as the intent
is clear that the parties agree to submit a
present or future controversy arising from a
construction contract to arbitration.


In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila
Tollways Corporation,
[47]
the Court declared that the bare fact
that the parties x x x incorporated an arbitration clause in [their
contract] is sufficient to vest the CIAC with jurisdiction over any
construction controversy or claim between the parties. The
arbitration clause in the construction contract ipso
facto vested the CIAC with jurisdiction.

Under GC-61 and GC-05 of the GCC, read singly and in
relation with one another, the Court sees no intent to limit resort
to arbitration only to disputes relating to the physical
construction activities.

First, consistent with the intent of the law, an
arbitration clause pursuant to E.O. 1008 should be interpreted at
its widest signification. Under GC-61, the voluntary arbitration
clause covers any dispute of any kind, not only arising of out the
execution of the works but also in connection therewith. The
payments, demand and disputed issues in this case namely,
work billings, material costs, equipment and labor standby costs,
unrealized profits all arose because of the construction
activities and/or are connected or related to these activities. In
other words, they are there because of the construction activities.
Attorneys fees and interests payment, on the other hand, are
costs directly incidental to the dispute. Hence, the scope of the
arbitration clause, as worded, covers all the disputed items.

Second and more importantly, in insisting that
contractual money claims can be resolved only through court
action, LICOMCEN deliberately ignores one of the exceptions to
the general rule stated in GC-05:


GC-05. JURISDICTION

Any question between the
contracting parties that may arise out of or in
connection with the Contract, or breach
thereof, shall be litigated in the courts
of Legaspi City except where otherwise
specifically stated or except when such
question is submitted for settlement thru
arbitration as provided herein.

The second exception clause authorizes the submission to
arbitration of any dispute between LICOMCEM and FSI, even if
the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI
when it filed its petition for arbitration with the CIAC.

If the CIACs jurisdiction can neither be enlarged nor
diminished by the parties, it also cannot be subjected to a
condition precedent. GC-61 requires a party disagreeing with
LICOMCENs decision to officially give notice to contest such
decisionthrough arbitration within 30 days from receipt of the
decision. However, FSIs April 15, 1998 letter is not the notice
contemplated by GC-61; it never mentioned FSIs plan to submit
the dispute to arbitration and instead requested LICOMCEN to
reevaluate its claims. Notwithstanding FSIs failure to make a
proper and timely notice, LICOMCENs decision (embodied in
itsMarch 24, 1998 letter) cannot become final and binding so as
to preclude resort to the CIAC arbitration. To reiterate, all that is
required for the CIAC to acquire jurisdiction is for the parties to
agree to submit their dispute to voluntary arbitration:

[T]he mere existence of an arbitration
clause in the construction contract is
considered by law as an agreement by the
parties to submit existing or future
controversies between them to CIAC
jurisdiction, without any qualification or
condition precedent. To affirm a condition
precedent in the construction contract, which
would effectively suspend the jurisdiction of
the CIAC until compliance therewith, would be
in conflict with the recognized intention of the
law and rules to automatically vest CIAC with
jurisdiction over a dispute should the
construction contract contain an arbitration
clause.
[48]


The CIAC is given the original and exclusive
jurisdiction over disputes arising from, or connected with,
contracts entered into by parties involved in construction in
the Philippines.
[49]
This jurisdiction cannot be altered by
stipulations restricting the nature of construction disputes,
appointing another arbitral body, or making that bodys decision
final and binding.

The jurisdiction of the CIAC to resolve the dispute
between LICOMCEN and FSI is, therefore, affirmed.

The validity
of the
indefinite
suspension
of the works
on the
Citimall
project


Before the Court rules on each of FSIs contractual
monetary claims, we deem it important to discuss the validity of
LICOMCENs indefinite suspension of the works on the Citimall
project. We quote below two contractual stipulations relevant to
this issue:

GC-38. SUSPENSION OF WORKS

The Engineer [ESCA] through the
LICOMCEN, INCORPORATED shall have the
authority to suspend the Works wholly or
partly by written order for such period as
may be deemed necessary, due to
unfavorable weather or other conditions
considered unfavorable for the prosecution of
the Works, or for failure on the part of the
Contractor to correct work conditions which
are unsafe for workers or the general public,
or failure or refusal to carry out valid orders,
or due to change of plans to suit field
conditions as found necessary during
construction, or to other factors or causes
which, in the opinion of the Engineer, is
necessary in the interest of the Works and
to the LICOMCEN, INCORPORATED. The
Contractor [FSI] shall immediately comply
with such order to suspend the work
wholly or partly directed.

In case of total suspension or
suspension of activities along the critical path
of the approved PERT/CPM network and the
cause of which is not due to any fault of the
Contractor, the elapsed time between the
effective order for suspending work and
the order to resume work shall be allowed
the Contractor by adjusting the time
allowed for his execution of the Contract
Works.

The Engineer through LICOMCEN,
INCORPORATED shall issue the order lifting
the suspension of work when conditions to
resume work shall have become favorable or
the reasons for the suspension have been duly
corrected.
[50]



GC-41 LICOMCEN, INCORPORATED's RIGHT
TO SUSPEND WORK OR TERMINATE THE
CONTRACT

x x x x

2. For Convenience of LICOMCEN,
INCORPORATED

If any time before completion of
work under the Contract it shall be found
by the LICOMCEN, INCORPORATED
that reasons beyond the control of the
parties render it impossible or against the
interest of the LICOMCEN,
INCORPORATED to complete the work, the
LICOMCEN, INCORPORATED at any time, by
written notice to the Contractor, may
discontinue the work and terminate the
Contract in whole or in part. Upon the
issuance of such notice of termination, the
Contractor shall discontinue to work in such
manner, sequence and at such time as the
LICOMCEN, INCORPORATED/Engineer may
direct, continuing and doing after said notice
only such work and only until such time or
times as the LICOMCEN,
INCORPORATED/Engineer may direct.
[51]



Under these stipulations, we consider LICOMCENs initial
suspension of the works valid. GC-38 authorizes the
suspension of the works for factors or causes which ESCA deems
necessary in the interests of the works and LICOMCEN. The
factors or causes of suspension may pertain to a change or
revision of works, as cited in the December 16, 1997 and January
6, 1998 letters of ESCA, or to the pendency of a case before the
Ombudsman (OMB-ADM-1-97-0622), as cited in LICOMCENs
January 15, 1998 letter and ESCAs January 19, 1998 and
February 17, 1998 letters. It was not necessary for
ESCA/LICOMCEN to wait for a restraining or injunctive order to
be issued in any of the cases filed against LICOMCEN before it can
suspend the works. The language of GC-38 gives
ESCA/LICOMCEN sufficient discretion to determine whether the
existence of a particular situation or condition necessitates the
suspension of the works and serves the interests of LICOMCEN.

Although we consider the initial suspension of the
works as valid, we find that LICOMCEN wrongfully prolonged
the suspension of the works (or indefinite suspension as
LICOMCEN calls it). GC-38 requires ESCA/LICOMCEN to issue an
order lifting the suspension of work when conditions to resume
work shall have become favorable or the reasons for the
suspension have been duly corrected. The Ombudsman case
(OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in
their letters to FSI as a ground for the suspension, was dismissed
as early as October 12, 1998, but neither ESCA nor LICOMCEN
informed FSI of this development. The pendency of the other
cases
[52]
may justify the continued suspension of the works, but
LICOMCEN never bothered to inform FSI of the existence of these
cases until the arbitration proceedings commenced. By May 28,
2002, the City Government of Legaspi sent LICOMCEN a notice
instructing it to proceed with the Citimall project;
[53]
again,
LICOMCEN failed to relay this information to FSI. Instead,
LICOMCEN conducted a rebidding of the Citimall project based on
the new design.
[54]
LICOMCENs claim that the rebidding was
conducted merely to get cost estimates for the new design goes
against the established practice in the construction industry. We
find the CIACs discussion on this matter relevant:

But what is more appalling and disgusting is
the allegation x x x that the x x x invitation to
bid was issued x x x solely to gather cost
estimates on the redesigned [Citimall project]
x x x. This Arbitral Tribunal finds said act of
asking for bids, without any intention of
awarding the project to the lowest and
qualified bidder, if true, to be extremely
irresponsible and highly unprofessional. It
might even be branded as fraudulent x x x
[since] the invited bidders [were required] to
pay P2,000.00 each for a set
of the new plans, which amount was non-
refundable. The presence of x x x deceit makes
the whole story repugnant and
unacceptable.
[55]


LICOMCENs omissions and the imprudent rebidding of the
Citimall project are telling indications of LICOMCENs intent
to ease out FSI and terminate their contract. As with GC-31,
GC-42(2) grants LICOMCEN ample discretion to determine what
reasons render it against its interest to complete the work in
this case, the pendency of the other cases and the revised designs
for the Citimall project. Given this authority, the Court fails to the
see the logic why LICOMCEN had to resort to an indefinite
suspension of the works, instead of outrightly terminating the
contract in exercise of its rights under GC-42(2).

We now proceed to discuss the effects of these findings with
regard to FSIs monetary claims against LICOMCEN.

The claim for material costs at site

GC-42 of the GCC states:
GC-42 PAYMENT FOR TERMINATED
CONTRACT

If the Contract is terminated as aforesaid, the
Contractor will be paid for all items of work
executed, satisfactorily completed and
accepted by the LICOMCEN, INCORPORATED
up to the date of termination, at the rates and
prices provided for in the Contract and in
addition:

1. The cost of partially accomplished
items of additional or extra work
agreed upon by the LICOMCEN,
INCORPORATED and the Contractor.

2. The cost of materials or goods
reasonably ordered for the
Permanent or Temporary Works
which have been delivered to the
Contractor but not yet used and
which delivery has been certified
by the Engineer.

3. The reasonable cost of
demobilization

For any payment due the Contractor under the
above conditions, the LICOMCEN,
INCORPORATED, however, shall deduct any
outstanding balance due from the Contractor
for advances in respect to mobilization and
materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.
[56]


For LICOMCEN to be liable for the cost of materials or goods, item
two of GC-42 requires that

a. the materials or goods were reasonably ordered for the
Permanent or Temporary Works;
b. the materials or goods were delivered to the Contractor
but not yet used; and
c. the delivery was certified by the Engineer.

Both the CIAC and the CA agreed that these requisites were met
by FSI to make LICOMCEN liable for the cost of the steel bars
ordered for the Citimall project; the two tribunals differed only to
the extent of LICOMCENs liability because the CA opined that it
should be limited only to 50% of the cost of the steel bars. A
review of the records compels us to uphold the CAs finding.

Prior to the delivery of the steel bars, ESCA informed
FSI of the suspension of the works; ESCAs January 6, 1998 letter
reads:

As per our information to you on December
16, 1997, a major revision in the design of the
Legaspi Citimall necessitated a change in the
bored piles requirement of the
project. The change involved a substantial
reduction in the number and length of
piles.

We expected that you would have
suspended the deliveries of the steel bars
until the new design has been approved.

According to you[,] the steel bars had
already been paid and loaded and out
of Manila on said date.

In order to avoid double handling, storage,
security problems, we suggest that only
50% of the total requirement of steel bars
be delivered at jobsite. The balance should
be returned to Manila where storage and
security is better.

In order for us to consider additional cost
due to the shipping of the excess steel bars,
we need to know the actual dates of purchase,
payments and loading of the steel bars.
Obviously, we cannot consider the additional
cost if you have had the chance to delay the
shipping of the steel bars.
[57]


From the above, it appears that FSI was informed of the necessity
of suspending the works as early as December 16,
1997. Pursuant to GC-38 of the GCC, FSI was expected
to immediately comply with the order to suspend the
work.
[58]
Though ESCAsDecember 16, 1997 notice may not have
been categorical in ordering the suspension of the works, FSIs
reply letter of December 18, 1997 indicated that it actually
complied with the notice to suspend, as it said, We hope for the
early resolution of the new foundation plan and the resumption
of work.
[59]
Despite the suspension, FSI claimed that it could not
stop the delivery of the steel bars (nor found the need to do so)
because (a) the steel bars were ordered as early as November
1997 and were already loaded in Manila and expected to arrive in
Legaspi City by December 23, 1997, and (b) it expected
immediate resumption of work to meet the 90-day deadline.
[60]


Records, however, disclose that these claims are not
entirely accurate. The memorandum of agreement and sale
covering the steel bars specifically stated that these would be
withdrawn from the Cagayan de Oro depot, not Manila
[61]
; indeed,
the bill of lading stated that the steel bars were loaded in Cagayan
de Oro on January 11, 1998, and arrived in Legaspi City within
three days, onJanuary 14, 1998.
[62]
The loading and delivery of
the steel bar thus happened after FSI received ESCAs December
16, 1997 andJanuary 6, 1998 letters days after the instruction
to suspend the works. Also, the same stipulation that authorizes
LICOMCEN to suspend the works allows the extension of the
period to complete the works. The relevant portion of GC-38
states:

In case of total suspension x x x and
the cause of which is not due to any fault of the
Contractor [FSI], the elapsed time between
the effective order for suspending work
and the order to resume work shall be
allowed the Contractor by adjusting the
time allowed for his execution of the
Contract Works.
[63]


The above stipulation, coupled
with the short period it took to ship the
steel bars from Cagayan de Oro to Legaspi City, thus negates
both FSIs
argument and the CIACs ruling
[64]
that there was no necessity to
stop the shipment so as to meet the 90-day deadline. These
circumstances prove that FSI acted imprudently in proceeding
with the delivery, contrary to LICOMCENs instructions. The CA
was correct in holding LICOMCEN liable for only 50% of the costs
of the steel bars delivered.

The
claim
for
equipme
nt and
labor
standby
costs

The Court upholds the CAs ruling deleting the award for
equipment and labor standby costs. We quote in agreement
pertinent portions of the CA decision:

The CIAC relied solely on the list of
37 pieces of equipment respondent allegedly
rented and maintained at the construction site
during the suspension of the project with the
prorated rentals incurred x x x. To the mind of
this Court, these lists are not sufficient to
establish the fact that indeed [FSI] incurred
the said expenses. Reliance on said lists is
purely speculative x x x the list of
equipments is a mere index or catalog of
the equipments, which may be utilized at
the construction site. It is not the best
evidence to prove that said equipment
were in fact rented and maintained at the
construction site during the suspension of the
work. x x x [FSI] should have presented the
lease contracts or any similar documents
such as receipts of payments x x
x. Likewise, the list of employees does not
in anyway prove that those employees in
the list were indeed at the construction site or
were required to be on call should their
services be needed and were being paid their
salaries during the suspension of the
project. Thus, in the absence of sufficient
evidence, We deny the claim for equipment
and labor standby costs.
[65]



The claim for unrealized profit

FSI contends that it is not barred from recovering
unrealized profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO
SUSPEND WORK OR TERMINATE THE CONTRACT
x x x x

2. For Convenience of the LICOMCEN, INCORPORATED

x x x. The Contractor [FSI] shall not claim
damages for such discontinuance or
termination of the Contract, but the
Contractor shall receive compensation for
reasonable expenses incurred in good faith for
the performance of the Contract and for
reasonable expenses associated with
termination of the Contract. The LICOMCEN,
INCORPORATED will determine the
reasonableness of such expenses. The
Contractor [FSI] shall have no claim for
anticipated profits on the work thus
terminated, nor any other claim, except for
the work actually performed at the time of
complete discontinuance, including any
variations authorized by the LICOMCEN,
INCORPORATED/Engineer to be done.

The prohibition, FSI posits, applies only where the contract was
properly and lawfully terminated, which was not the case at
bar. FSI also took pains in differentiating its claim for unrealized
profit from the prohibited claim for anticipated profits;
supposedly, unrealized profit is one that is built-in in the
contract price, while anticipated profit is not. We fail to see the
distinction, considering that the contract itself neither defined
nor differentiated the two terms. [A] contract must be
interpreted from the language of the contract itself, according to
its plain and ordinary meaning.
[66]
If the terms of a contract are
clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of the stipulations shall control.
[67]


Nonetheless, on account of our earlier discussion of
LICOMCENs failure to observe the proper procedure in
terminating the contract by declaring that it was merely
indefinitely suspended, we deem that FSI is entitled to the
payment of nominal damages. Nominal damages may be awarded
to a plaintiff whose right has been violated or invaded by the
defendant, for the purpose of vindicating or recognizing that
right, and not for indemnifying the plaintiff for any loss suffered
by him.
[68]
Its award is, thus, not for the purpose of
indemnification for a loss but for the recognition and vindication
of a right. A violation of the plaintiffs right, even if only technical,
is sufficient to support an award of nominal damages.
[69]
FSI is
entitled to recover the amount of P100,000.00 as nominal
damages.

The liability for costs of arbitration

Under the parties Terms of Reference, executed before the
CIAC, the costs of arbitration shall be equally divided between
them, subject to the CIACs determination of which of the parties
shall eventually shoulder the amount.
[70]
The CIAC eventually
ruled that since LICOMCEN was the party at fault, it should bear
the costs. As the CA did, we agree with this finding. Ultimately, it
was LICOMCENs imprudent declaration of indefinitely
suspending the works that caused the dispute between it and
FSI. LICOMCEN should bear the costs of arbitration.

WHEREFORE, premises considered, the petition for review
on certiorari of LICOMCEN INCORPORATED, docketed as G.R. No.
167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678,
are DENIED. The November 23, 2004 Decision of the Court of
Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the
award of nominal damages in favor of FOUNDATION
SPECIALISTS, INC. Thus, LICOMCEN INCORPORATED is ordered
to pay FOUNDATION SPECIALISTS, INC. the following amounts:

a. P1,264,404.12 for unpaid balance on FOUNDATION
SPECIALISTS, INC. billings;
b. P5,694,939.87 for material costs at site; and
c. P100,000.00 for nominal damages.

LICOMCEN INCORPORATED is also ordered to pay the costs of
arbitration. No costs.

SO ORDERED.
































































METROPOLITAN CEBU WATER
DISTRICT,
Petitioner,




- versus -





MACTAN ROCK INDUSTRIES,
INC.,
Respondent.
G.R. No. 172438

Present:

VELASCO, JR., J., Chairperson,
PERALTA,
MENDOZA,
REYES,
*
and
PERLAS-BERNABE, JJ.



Promulgated:

July 4, 2012

x -------------------------------------------------------------------------------- x

D E C I S I O N

MENDOZA, J.:


This is a petition for review on certiorari under Rule 45
assailing the February 20, 2006 Decision
[1]
and the March 30,
2006Resolution
[2]
of the Court of Appeals (CA)

in CAG.R. CEB SP.
No. 00623.


THE FACTS

Petitioner Metropolitan Cebu Water District (MCWD) is
a government-owned and controlled corporation (GOCC) created
pursuant to Presidential Decree (PD) No. 198,
[3]
as amended, with
its principal office address at the MCWD Building, Magallanes
corner Lapu-Lapu Streets, Cebu City.
[4]
It is mandated to supply
water within its service area in the cities of Cebu, Talisay,
Mandaue, and Lapu-Lapu and the municipalities of Compostela,
Liloan, Consolacion, and Cordova in the Province of Cebu.
[5]


Respondent Metro Rock Industries, Inc. (MRII) is a
domestic corporation with principal office address at the
2
nd
Level of the Waterfront Cebu Hotel and Casino,
Lahug, Cebu City.
[6]


On May 19, 1997, MCWD entered into a Water Supply
Contract
[7]
(the Contract) with MRII wherein it was agreed that
the latter would supply MCWD with potable water, in accordance
with the World Health Organization (WHO) standard or the
Philippine national standard, with a minimum guaranteed annual
volume.
[8]


On March 15, 2004, MRII filed a Complaint
[9]
against
MCWD with the Construction Industry Arbitration
Commission(CIAC), citing the arbitration clause (Clause 18)
[10]
of
the Contract. The case was docketed as CIAC Case No. 12-2004. In
the said complaint, MRII sought the reformation of Clause 17 of
the Contract, or the Price Escalation/De-Escalation Clause, in
order to include Capital Cost Recovery in the price escalation
formula, and to have such revised formula applied from 1996
when the bidding was conducted, instead of from the first day
when MRII started selling water to MCWD. It also sought the
payment of the unpaid price escalation/adjustment, and the
payment of unpaid variation/extra work order and interest/cost
of money up to December 31, 2003.
[11]


On May 7, 2002, MCWD filed its Answer
[12]
dated April
27, 2004, which included a motion to dismiss the complaint on
the ground that the CIAC had no jurisdiction over the case, as the
Contract was not one for construction or infrastructure.

The CIAC thereafter issued an order
[13]
denying MCWDs
motion to dismiss, and calling the parties to a preliminary
conference for the review and signing of the Terms of
Reference.
[14]


MCWD, thus, filed a petition for certiorari
[15]
under Rule
65 with the CA, questioning the jurisdiction of the CIAC. The
petition was docketed as CA-G.R. SP. No. 85579 (First Petition).

Meanwhile, the CIAC proceeded with the preliminary
conference scheduled on June 10 and July 22, 2004 which MWCD
opted not to attend. MRII and the CIAC both signed the Terms of
Reference. Pursuant to the Terms of Reference and the CIAC
Order dated July 22, 2004, MRII submitted its documentary
evidence and affidavits of its witnesses.
[16]



On August 27, 2004, MRII submitted its Formal Offer of
Evidence and its memorandum of arguments in the form of a
proposed/draft decision. MCWD did not attend the hearings. It
did not submit evidence other than those annexed to its Answer.
Neither did it file a formal offer of evidence, or a memorandum of
legal arguments.
[17]


Decision of the CIAC

The CIAC promulgated its Decision
[18]
on April 14, 2005,
the dispositive portion of which reads:

WHEREFORE[,] premises
considered, judgment is hereby rendered as
follows:

1. Ordering the reformation
of Clause 17 of the Water
Supply Contract to read:

17[.] Price Escalation
and/or De-Escalation shall be based
on the parametric formula:

17.1 Power Rate Price
Adjustment/Powe
r Cost Adjustment

Current Power Rate - Base Power Rate x
30% of base selling price of water
Base Power Rate

17.2 Consumer Price Index
(CPI)
Adjustment/Oper
ating Cost
Adjustment:

Current CPI Base CPI x 40% of base selling price of
water
Base CPI

17.3 Capital Cost Recovery
Adjustment:

Current Peso to Base Peso to US$
US$ Exchange Rate Exchange
Rate x 30% of base selling price of
water
Base Peso to US $ Exchange Rate

Price escalation shall be
reckoned from January
1999 when the water was
first delivered by Mactan
Rock Industries, Inc. to the
MCWD facilities in Mactan.
The base CPI, base US$
Exchange Rate and the Base
Power Rate shall be the
prevailing rate in January
1999, while the Base Selling
Price of water shall mean
the 1996 rate per cubic
meter of water as provided
for in the Water Supply
Contract.

2. Ordering Respondent
Metropolitan Cebu Water
District to pay Claimant,
Mactan Rock Industries,
Inc[.] under the reformed
Clause 17 of the Water
Supply Contract, the net
amount
of Php12,126,296.70 plus
legal interest of six percent
(6%) per annum from the
(sic) March 15, 2004, the
date of filling (sic) of the
case with the Construction
Industry Arbitration
Commission, the rate
increased to twelve percent
(12%) per annum from the
date the herein Decision
have (sic) become final and
executory until the
foregoing amounts shall
have been fully paid[.]

3. Claimant Mactan Rock
Industries, Inc. and
Metropolitan Cebu Water
District shall share equally
the cost of arbitration.

SO ORDERED.
[19]


Decision
of the CA
in CA-
G.R. SP
No.
85579
Petition
for cer
tiorari
under
Rule 65
with the
Court of
Appeals
questioni
ng the
jurisdicti
on of the
CIAC

Meanwhile, on October 28, 2005, the CA in its
decision
[20]
in the First Petition upheld the jurisdiction of the
CIAC over the case. The CA held that when parties agree to settle
their disputes arising from or connected with construction
contracts, the CIAC acquires primary
jurisdiction.
[21]
Citing Philrock Inc. v. Construction Industry
Arbitration Commission,
[22]
the CA stated that the CIAC may
resolve not only the merits of such controversies, but may also
award damages, interest, attorneys fees, and expenses of
litigation, when appropriate.
[23]



Second, the CA held that the claims in question fall
under the jurisdiction of the CIAC. Thus:

Xxx Section 4 of Executive Order No.
1008, otherwise known as the Construction
Industry Arbitration Law delineates CIACs
jurisdiction as original and exclusive
jurisdiction over disputes arising from, or
connected with, contracts entered into by
parties involved in construction in the
Philippines, whether the disputes arise before
or after the completion of the contract, or after
abandonment thereof. Moreover, Section 5
(k) of Republic Act No. 9184 otherwise known
as [the] Government Procurement Reform Act
expressly defines infrastructure project as
including water supply[,] construction,
rehabilitation[,] demolition, repair, restoration
and maintenance.

Consistent with the above-
mentioned policy of encouraging alternative
dispute resolution methods, courts should
liberally construe arbitration clauses.
Provided such clause is susceptible of an
interpretation that covers the asserted
dispute, an order to arbitrate should be
granted. Any doubt should be resolved in favor
of arbitration. It is to be highlighted that the
dispute in the case at bar arose from the
parties incongruent positions with regard to
clause 17 of the Water Supply Contract[,]
specifically the price escalation/adjustment.
The instant case involves technical
discrepancies that are better left to an arbitral
body that has expertise in those areas.
Nevertheless, in any event, the inclusion of an
arbitration clause in a contract does not ipso
facto divest the courts of jurisdiction to pass
upon the findings of arbitral bodies, because
the awards are still judicially reviewable
under certain conditions.
[24]
(Citations
omitted.)

MCWDs motion for reconsideration of the decision in the
First Petition was still pending when it filed the petition for
review
[25]
under Rule 43 (Second Petition) appealing the decision
of the CIAC. The motion for reconsideration was eventually
denied in a Resolution
[26]
dated May 3, 2006. MCWD did not
appeal from the denial of the motion. It, thus, became final and
executory.
[27]



Decisio
n of the
CA in CA-
G.R. CEB
SP. No.
00623
Petition
for
review
under
Rule 43
appealin
g the
decision
of the
CIAC

Aggrieved by the CIAC Decision, MCWD filed a petition
for review under Rule 43 with the CA which was docketed as CA-
G.R. CEB SP. No. 00623.

The CA, however, dismissed the petition in its Decision
dated February 20, 2006. The Court therein stated that the issue
of jurisdiction had already been resolved by the 18
th
Division in
the First Petition, where the CA upheld the jurisdiction of the
CIAC over Arbitration Case No. 12-2004.

Citing jurisprudence, the CA also ruled that there being
an arbitration clause in the Contract, the action for reformation of
contract instituted by MRII in this case fell squarely within the
jurisdiction of the CIAC, not the courts. In relation to this, the CA
noted that the present rule is that courts will look with favor
upon amicable agreements to settle disputes through arbitration,
and will only interfere with great reluctance to anticipate or
nullify the action of the arbitrator. MCWD being a signatory and a
party to the Water Supply Contract, it cannot escape its obligation
under the arbitration clause.
[28]


The CA also held that the CIAC did not err in finding that
the Water Supply Contract is clear on the matter of the reckoning
period for the computation of the escalation cost from January 9,
1999, or the first day of delivery of water. Moreover, the CA
found that the CIAC did not err in ruling that the contract be
reformed to include Capital Cost Recovery in the parametric
formula for price escalation. Neither did it err in holding that the
Capital Cost Recovery shall be 30% of the Base Selling Price of
water as a consequence of the reformation of Clause 17.

Finally, the CA stressed that factual findings of
administrative agencies which are deemed to have acquired
expertise in matters within their respective jurisdictions are
generally accorded not only respect but even finality when
supported by substantial evidence.
[29]


MCWD filed a motion for reconsideration but it was
denied in the CA Resolution dated March 30, 2006.

Thus, this petition.






ISSUES

MCWD raises the following issues in its petition for
review:

MAY THE CONSTRUCTION INDUSTRY
[ARBITRATION] COMMISSION EXERCISE
JURISDICTION OVER DISPUTES ARISING
FROM A WATER SUPPLY CONTRACT?

MAY A PARTY, WHO IS A SIGNATORY TO
THE WATER SUPPLY CONTRACT[,] IN
EFFECT SUBMITTING ITSELF TO THE
JURISDICTION OF THE CONSTRUCTION
INDUSTRY ARBITRATION COMMISSION,
QUESTION THE JURISDICTION OF [THE]
CIAC?

DOES THE CONSTRUCTION INDUSTRY
ARBITRATION COMMISSION HAVE THE
(SIC) JURISDICTION OVER A COMPLAINT
PRAYING FOR A REFORMATION OF A
WATER SUPPLY CONTRACT?

MAY THE COURT OF APPEALS REFUSE TO
RENDER A [SIC] JUDGMENT ON AN ISSUE
BECAUSE THIS HAS BEEN ALREADY
SETTLED IN A DECISION RENDERED BY
ANOTHER DIVISION OF THE COURT OF
APPEALS IN A PETITION FOR CERTIORARI,
EVEN IF THE SAID DECISION HAS NOT YET
BEEN (SIC) FINAL DUE TO A TIMELY FILING
OF A MOTION FOR RECONSIDERATION?
[30]



RULING OF THE COURT

Creation of the CIAC

The Construction Industry Arbitration
Commission (CIAC) was created in 1985 under Executive
Order (E.O.) No. 1008 (Creating an Arbitration Machinery for the
Philippine Construction Industry), in recognition of the need to
establish an arbitral machinery that would expeditiously settle
construction industry disputes. The prompt resolution of
problems arising from, or connected to, the construction industry
was considered necessary and vital for the fulfillment of national
development goals, as the construction industry provided
employment to a large segment of the national labor force, and
was a leading contributor to the gross national product.
[31]


Under Section 4 of E.O. No. 1008, the CIACs jurisdiction
was specifically delineated as follows:

SECTION 4. Jurisdiction - The CIAC
shall have original and exclusive jurisdiction
over disputes arising from, or connected with,
contracts entered into by parties involved in
construction in the Philippines, whether the
disputes arise before or after the completion
of the contract, or after the abandonment or
breach thereof. These disputes may involve
government or private contracts. For the
Board to acquire jurisdiction, the parties to a
dispute must agree to submit the same to
voluntary arbitration.

The jurisdiction of the CIAC may
include but is not limited to violation of
specifications for materials and workmanship;
violation of the terms of agreement;
interpretation and/or application of
contractual provisions; amount of damages
and penalties; commencement time and
delays; maintenance and defects; payment
default of employer or contractor and changes
in contract cost.


Excluded from the coverage of this
law are disputes arising from employer-
employee relationships which shall continue
to be covered by the Labor Code of
the Philippines. (Underscoring supplied)

The jurisdiction of the CIAC as a quasi-judicial body is
confined to construction disputes,
[32]
that is, those arising from,
or connected to, contracts involving all on-site works on
buildings or altering structures from land clearance through
completion including excavation, erection and assembly and
installation of components and equipment.
[33]
The CIAC has
jurisdiction over all such disputes whether the dispute arises
before or after the completion of the contract.
[34]


Whether
the CIAC
has
jurisdict
ion over
the
dispute

As earlier stated, following the denial of its motion to
dismiss by CIAC, MCWD filed the First Petition with the CA, which
decided in favor of MRII and upheld the jurisdiction of the CIAC.

Not being in conformity, MCWD filed a motion for
reconsideration.

While the said motion was pending with the CA, MCWD filed
the Second Petition with the same court. Eventually, the motion
was denied, and MCWD never appealed the case. Thus, the
decision of the CA in the First Petition became final and
executory.



The question now is whether such final and executory
decision is binding such that courts are generally precluded from
passing judgment on the issue of jurisdiction in the present
petition.

The Court finds in the affirmative.

This Court has held time and again that a final and
executory judgment, no matter how erroneous, cannot be
changed, even by this Court. Nothing is more settled in law than
that once a judgment attains finality, it thereby becomes
immutable and unalterable. It may no longer be modified in any
respect, even if such modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and
regardless of whether the modification is attempted to be made
by the court rendering it or by the highest court of the land.
[35]

In its Decision in the First Petition, the CA affirmed the
arbitral bodys finding in CIAC Case No. 12-2004 that the case
was within its jurisdiction. Such decision having become final, it
is beyond the jurisdiction of this Court, or any court or body, for
that matter, to review or modify, even supposing for the sake of
argument, that it is indeed erroneous.

Also, the parties apparently characterized the Contract
as one involving construction, as its arbitration clause specifically
refers disputes, controversies or claims arising out of or relating
to the Contract or the breach, termination or validity thereof, if
the same cannot be settled amicably, to an arbitration tribunal, in
accordance with E.O. No. 1008, or the Construction Industry
Arbitration Law:



V. DISPUTES AND JURISDICTION:

18. Any dispute, controversy or claim
arising out of or relating to this contract or the
breach, termination or invalidity thereof, if the
same cannot be settled amicably, may be
submitted for arbitration to an Arbitration
Tribunal in accordance with Executive Order
No. 1008 dated 4 February 1985, otherwise
known as the Construction Industry
Arbitration Law and the place of arbitration
shall be the City of Cebu, Philippines,
otherwise said dispute or controversy arising
out of the contract or breach thereof shall be
submitted to the court of law having
jurisdiction thereof in the city where MCWD is
located.
[36]


Had the parties been of the mutual understanding that
the Contract was not of construction, they could have instead
referred the matter to arbitration citing Republic Act (R.A.) No.
876, or The Arbitration Law. Having been passed into law in
1953, the said statute was already in existence at the time the
contract was entered into, and could have been applied to
arbitration proceedings other than those specifically within the
arbitral jurisdiction of the CIAC.

Whether
the CA
erred in
refusing
to
render
judgmen
t on the
issue
of jurisd
iction

On a related matter, MWCD also raises the issue of
whether the 19
th
Division of the CA, Cebu City, erred in refusing
to render judgment on the issue of jurisdiction raised in the
Second Petition on the ground that it had already been settled by
the 18
th
Division in its decision in the First Petition, even if the
18
th
Division decision had not yet become final due to a timely
filing of a motion for reconsideration.


The Court rules in the negative.

The 19
th
Division was correct in refusing to render
judgment on the issue of jurisdiction as, at that time, the issue
was still pending before another division of the CA.
Litis pendentia is predicated on the principle that a
party should not be allowed to vex another more than once
regarding the same subject matter and for the same cause of
action. It is founded on the public policy that the same subject
matter should not be the subject of controversy in courts more
than once, in order that possible conflicting judgments may be
avoided for the sake of the stability of the rights and status of
persons, and also to avoid the costs and expenses incident to
numerous suits.
[37]


With the two petitions then pending before the CA, all
the elements of litis pendentia were present, that is, identity of
the parties in the two actions, substantial identity in the causes of
action and in the reliefs sought by the parties, and identity
between the two actions such that any judgment that may be
rendered in one case, regardless of which party is successful,
would amount to res judicata in the other.
[38]


In both cases, MCWD was the petitioner and MRII, the
respondent. Although they differ in form, in essence, the two
cases involved a common issue, that is, MCWDs challenge to the
jurisdiction of the CIAC over the arbitration proceedings arising
from the Water Supply Contract between the petitioner and
respondent.

To determine whether there is identity of the rights
asserted and reliefs prayed for, grounded on the same facts and
bases, the following tests may be utilized: (1) whether the same
evidence would support and sustain both the first and the second
causes of action, also known as the same evidence test; or (2)
whether the defenses in one case may be used to substantiate the
complaint in the other.
[39]
Also fundamental is the test of
determining whether the cause of action in the second case
existed at the time of the filing of the first case.
[40]


In the First Petition, MCWD argued that the CIACs
issuance of its Order
[41]
dated May 28, 2004 was tainted with
grave abuse of discretion amounting to excess or lack of
jurisdiction. Thus, MCWD stated in its prayer:

WHEREFORE, in light of the premises
laid down, petitioner most respectfully prays:

1. Upon the filing of this
Petition, a Writ of
Preliminary Injunction or
restraining order be issued
forthwith, enjoining the
respondent from
proceeding with the
hearing of the case until
further orders from the
Honorable Court of
Appeals;

2. After consideration,
petitioner also prays that
the Order dated May 28,
2004, denying petitioners
motion to dismiss be
declared without force and
effect;
3. Petitioner also prays
that the Construction
Industry Arbitration
Commission be barred from
hearing the case filed by
Mactan Rock Industries,
Inc., private respondent
herein.

Other measures of relief, which are
just and equitable under the foregoing
premise are also prayed for.
[42]


The Second Petition, on the other hand, raised the
following issues:

a. Whether or not the Arbitral
Tribunal of CIAC gravely erred in taking and
exercising jurisdiction over the complaint filed
by the respondent;

b. Whether or not the
Arbitral Tribunal of CIAC gravely erred in
reforming Clause 17 of the Contract;

c. Whether or not the same
tribunal gravely committed an error in
considering Capital Cost Recovery Adjustment
in awarding in favor of the complainant, when
the same is extraneous to the provisions of the
contract;
[43]


Thus, it prayed:

WHEREFORE, PREMISES
CONSIDERED, it is most respectfully prayed of
the Honorable Court that a Judgment be issued
reversing the findings of the Arbitral Tribunal
of the Construction Industry Arbitration
Commission in its Decision datedApril 14,
2005, as far as the order of reformation of the
water supply contract and in granting the
monetary award.

It is further prayed that the decision
rendered by the Arbitral Tribunal be declared
invalid for want of jurisdiction to arbitrate and
to order the reformation of the water supply
contract;

It is also prayed that the decision
awarding money to the respondent be strike
(sic) down as erroneous and without legal
basis for lack of jurisdiction by the Arbitral
Tribunal, which rendered the Decision.

It is also prayed that a Temporary
Restraining Order and a Writ of Preliminary
Injunction be issued at the outset, ordering the
stay of execution pending the resolution of the
issues raised in the Petition.

Other measures of relief, which are
just and equitable, are also prayed for.
[44]



In both cases, the parties also necessarily relied on the
same laws and arguments in support of their respective positions
on the matter of jurisdiction.

In the First Petition, in support of its argument, that the
CIAC had no jurisdiction to arbitrate the causes of action raised
by MRII, MCWD cited the portions of the Contract on the
obligations of the water supplier, E.O. No. 1008 (specifically
Section 4 on jurisdiction), the Rules of Procedure Governing
Construction Arbitration (Section 1, Article III). It also alleged
that in issuing the order denying its motion to dismiss, the CIAC
misread the provisions of LOI No. 1186 and R.A. No. 9184 on the
definition of an infrastructure project.
[45]


MRII, however, opined that the CIAC had jurisdiction
over the complaint and, therefore, correctly denied petitioners
motion to dismiss. MRII argued that certiorari was not a proper
remedy in case of denial of a motion to dismiss and that the
claims fell squarely under CIACs original and exclusive
jurisdiction. MRII, in support of its position, cited Section 1 of LOI
No. 1186 and Section 5(k) of R.A. No. 9184. MRII further
proposed that, as shown by MCWDs pro-forma Water Supply
Contract, Specifications, Invitation to Submit Proposal, Pre-Bid
Conference minutes, Addendum No. 1, and MRIIs Technical and
Financial Proposals, the undertaking contemplated by the parties
is one of infrastructure and of works, rather than one of supply or
mere services.
[46]


In the Second Petition, in support of the issue of
jurisdiction, MCWD again relied on Section 4 of E.O. No. 1008 and
Section 1, Article III of the Rules of Procedure Governing
Construction Arbitration. It also brought to fore the alleged faulty
conclusion of MRII that a water supply contract is subsumed
under the definition of an infrastructure project under LOI
1186.
[47]


In its Comment, MRII reiterated and adopted its
arguments before the CIAC, and insisted that the undertaking
contemplated by the parties was one of infrastructure and of
works, as distinguished from mere supply from off-the-shelf or
from mere services.
[48]
Section 1 of LOI No. 1186, to define
infrastructure and Section 5(k) of R.A. No. 9184 to include
water supply, were again cited. In support of its arguments,
MRII cited anew MCWDs pro-forma Water Supply Contract,
Specifications (in its Invitation to Submit Proposal),
pronouncements at the Pre-Bid Conference, Addendum No. 1,
and MRIIs Technical and Financial Proposals. MRII further
extensively reproduced the content of the joint affidavit of
Messrs. Antonio P. Tompar and Lito R. Maderazo, MRIIs
President/CEO and Financial Manager, respectively.
[49]


Given that the same arguments were raised on the
matter of CIAC jurisdiction, the parties thus relied on
substantially the same evidence in both petitions. MCWD
annexed to both petitions copies of the Water Supply Contract,
the complaint filed by MRII with the CIAC, and its Answer to the
said complaint. On the other hand, MRII presented Addendum
No. 1 to the Water Supply Contract and its Technical and
Financial Proposals.

Moreover, the first cause of action in the Second
Petition, that is, the CIACs having assumed jurisdiction, allegedly
unlawfully, over the dispute arising from the Water Supply
Contract, obviously existed at the time the First Petition was filed,
as the latter case dealt with the jurisdiction of the CIAC over the
complaint filed.

Finally, any judgment that may be rendered in the First
Petition on the matter of whether the CIAC has jurisdiction over
the arbitration proceedings, regardless of which party was
successful, would amount to res judicata in the Second Petition,
insofar as the issue of jurisdiction is concerned. In fact, what
MCWD should have done was to appeal to the Court after the
denial of its motion for reconsideration in the First Petition. For
not having done so, the decision therein became final and,
therefore, immutable.
Thus, following the above discussion, the 19
th
Division
was correct in refusing to render judgment on the issue of
jurisdiction in the Second Petition.

Whether
the CIAC
had
jurisdict
ion to
order
the
reforma
tion of
the
Water S
upply
Contract

The jurisdiction of courts and quasi-judicial bodies is
determined by the Constitution and the law.
[50]
It cannot be fixed
by the will of the parties to the dispute, nor can it be expanded or
diminished by stipulation or agreement.
[51]
The text of Section 4
of E.O. No. 1008 is broad enough to cover any dispute arising
from, or connected with, construction contracts, whether these
involve mere contractual money claims or execution of the
works.

This jurisdiction cannot be altered by stipulations
restricting the nature of construction disputes, appointing
another arbitral body, or making that bodys decision final and
binding.
[52]


Thus, unless specifically excluded, all incidents and
matters relating to construction contracts are deemed to be
within the jurisdiction of the CIAC. Based on the previously cited
provision outlining the CIACs jurisdiction, it is clear that with
regard to contracts over which it has jurisdiction, the only
matters that have been excluded by law are disputes arising from
employer-employee relationships, which continue to be governed
by the Labor Code of the Philippines. Moreover, this is consistent
with the policy against split jurisdiction.

In fact, in National Irrigation Administration v. Court of
Appeals,
[53]
it was held that the CIAC had jurisdiction over the
dispute, and not the contract. Therefore, even if the contract
preceded the existence of the CIAC, since the dispute arose when
the CIAC had already been constituted, the arbitral board was
exercising current, and not retroactive, jurisdiction. In the same
case, it was held that as long as the parties agree to submit to
voluntary arbitration, regardless of what forum they may choose,
their agreement will fall within the jurisdiction of the CIAC, such
that, even if they specifically choose another forum, the parties
will not be precluded from electing to submit their dispute to the
CIAC because this right has been vested upon each party by law.

This is consistent with the principle that when an
administrative agency or body is conferred quasi-judicial
functions, all controversies relating to the subject matter
pertaining to its specialization are deemed to be included within
its jurisdiction since the law does not sanction a split of
jurisdiction, as stated in Pea v. Government Service Insurance
System.
[54]


In Pea, the Court held that although the complaint for
specific performance, annulment of mortgage, and damages filed
by the petitioner against the respondent included title to,
possession of, or interest in, real estate, it was well within the
jurisdiction of the Housing and Land Use Regulatory
Board (HLURB), a quasi-judicial body, as it involved a claim
against the subdivision developer, Queens Row Subdivision, Inc.,
as well as the Government Service Insurance System (GSIS).

This case was later cited in Badillo v. Court of
Appeals,
[55]
where the Court concluded that the HLURB had
jurisdiction over complaints for annulment of title. The Court also
held that courts will not determine a controversy where the
issues for resolution demand the exercise of sound
administrative discretion, such as that of the HLURB, the sole
regulatory body for housing and land development. It was further
pointed out that the extent to which an administrative agency
may exercise its powers depends on the provisions of the statute
creating such agency.
The ponencia further quoted from C.T. Torres
Enterprises, Inc. v. Hibionada:
[56]

The argument that only courts of justice
can adjudicate claims resoluble under the
provisions of the Civil Code is out of step with
the fast-changing times. There are hundreds of
administrative bodies now performing this
function by virtue of a valid authorization
from the legislature. This quasi-judicial
function, as it is called, is exercised by them as
an incident of the principal power entrusted
to them of regulating certain activities falling
under their particular expertise.

In the Solid Homes case for example the
Court affirmed the competence of the Housing
and Land Use Regulatory Board to award
damages although this is an essentially judicial
power exercisable ordinarily only by the
courts of justice. This departure from the
traditional allocation of governmental powers
is justified by expediency, or the need of the
government to respond swiftly and
competently to the pressing problems of the
modern world.

In Bagunu v. Spouses Aggabao,
[57]
the Court ruled
that the RTC must defer the exercise of its jurisdiction on related
issues involving the same subject matter properly within its
jurisdiction, such as the distinct cause of action for reformation of
contracts involving the same property, since the DENR assumed
jurisdiction over the lot in question, pursuant to its mandate.

In National Housing Authority v. First United Constructors
Corporation,
[58]
the Court held that there was no basis for the
exclusion of claims for business losses from the jurisdiction of the
CIAC because E.O. No. 1008 excludes from the coverage of the
law only those disputes arising from employer-employee
relationships which are covered by the Labor Code, conveying an
intention to encompass a broad range of arbitrable issues within
the jurisdiction of CIAC.
[59]
Section 4 provides that (t)he
jurisdiction of the CIAC may include but is not limited to x x x,
underscoring the expansive character of the CIACs jurisdiction.
Very clearly, the CIAC has jurisdiction over a broad range of
issues and claims arising from construction disputes, including
but not limited to claims for unrealized profits and opportunity
or business losses. What E.O. No. 1008 emphatically excludes is
only disputes arising from employer-employee relationships.
[60]


Where the law does not delineate, neither should we.
Neither the provisions of the Civil Code on reformation of
contracts nor the law creating the CIAC exclude the reformation
of contracts from its jurisdiction. Jurisprudence further dictates
that the grant of jurisdiction over related and incidental matters
is implied by law. Therefore, because the CIAC has been held to
have jurisdiction over the Contract, it follows that it has
jurisdiction to order the reformation of the Contract as well.

Whether
MCWD
can
validly
refuse to
particip
ate in
the
arbitrati
onproce
edings

In light of the finality of the CA decision on the matter of
jurisdiction, the only remaining issue to be disposed of is
whether the CIAC could proceed with the case even if the MCWD
refused to participate in the arbitration proceedings.

The Court rules in the affirmative. Though one party can
refuse to participate in the arbitration proceedings,
this cannot prevent the CIAC from proceeding with the case and
issuing an award in favor of one of the parties.

Section 4.2 of the Revised Rules of Procedure Governing
Construction Arbitration (CIAC Rules) specifically provides that
where the jurisdiction of the CIAC is properly invoked by the
filing of a Request for Arbitration in accordance with CIAC Rules,
the failure of a respondent to appear, which amounts to refusal to
arbitrate, will not stay the proceedings, notwithstanding the
absence of the respondent or the lack of participation of such
party. In such cases, the CIAC is mandated to appoint the
arbitrator/s in accordance with the Rules, and the arbitration
proceedings shall continue. The award shall then be made after
receiving the evidence of the claimant.

In such a case, all is not lost for the party who did not
participate. Even after failing to appear, a respondent is still given
the opportunity, under the CIAC Rules, to have the proceedings
reopened and be allowed to present evidence, although with the
qualification that this is done before an award is issued:

4.2.1 In the event that, before award,
the Respondent who had not earlier
questioned the jurisdiction of the Tribunal,
appears and offers to present his evidence, the
Arbitral Tribunal may, for reasons that
justifies (sic) the failure to appear, reopen the
proceedings, require him to file his answer
with or without counterclaims, pay the fees,
where required under these Rules, and allow
him to present his evidence, with limited right
to cross examine witnesses already in the
discretion of the Tribunal. Evidence already
admitted shall remain. The Tribunal shall
decide the effect of such controverting
evidence presented by the Respondent on
evidence already admitted prior to such
belated appearance.


Thus, under the CIAC Rules, even without the
participation of one of the parties in the proceedings, the CIAC is
still required to proceed with the hearing of the construction
dispute.
[61]


This Court has held that the CIAC has jurisdiction over a
dispute arising from a construction contract even though only
one of the parties requested for arbitration.
[62]
In fact, in Philrock,
Inc. v. Construction Industry Arbitration Commission,
[63]
the Court
held that the CIAC retained jurisdiction even if both parties had
withdrawn their consent to arbitrate.

In this case, there being a valid arbitration clause
mutually stipulated
by the parties, they are both contractually bound to settle th
eir dispute
through arbitration before the CIAC. MCWD refused to
participate, but this should not affect the authority of the CIAC to
conduct the proceedings, and, thereafter, issue an arbitral award.

Now, with the CIAC decision being questioned by
MCWD, the Court takes a cursory reading of the said decision. It
reveals that the conclusions arrived at by CIAC are supported by
facts and the law. Article 1359 of the Civil Code states that when
there has been a meeting of the minds of the parties to a contract,
but their true intention is not expressed in the instrument
purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for
the reformation of the instrument to the end that such true
intention may be expressed. The CIAC, in this case, found that the
parametric formula for price escalation reflected in the Water
Supply Contract involved two items: Power Rate Price
Adjustment (30% of the base selling price of water) and
Consumer Price Index Adjustment (40% of the base selling price
of water). The remaining 30% of the selling price of water, which
should have been for Capital Cost Recovery, was inadvertently
left out in this parametric formula. Thus, the Contract should be
reformed accordingly to reflect the intention of the parties to
include in the price escalation formula the Capital Cost Recovery
Adjustment. These conclusions were affirmed by the CA in the
assailed decision of February 20, 2006.

As noted by MCWD in its reply, however, the dispositive
portion of the CIAC decision reforming the price escalation
formula is inconsistent with what was stated in the body of the
decision. The formula contained in the body of the decision is as
follows:

PRICE ADJUSTMENT COMPUTATION
Based on Reformed Clause 17 of the Water
Supply Contract

1. Power Cost Adjustment:

xxx

Current Power Rate Base Power Rate x 30%
of Base Selling Price of water
Base Power Rate

xxx

2. Operating Cost Adjustment - Local

xxx

Current CPI Base CPI x 30% of 40% of Base Selling
Price of Water
Base CPI

xxx

3. Operating Cost Adjustment Foreign
xxx

Current Forex Base Forex x 70% of 40% of Base
Selling Price of Water
Base Forex

xxx

4. Capital Cost Adjustment Local

xxx

Current CPI Base CPI x 30% of 30% of Base Selling
Price of Water
Base CPI

xxx

5. Capital Cost Adjustment Foreign

xxx

Current Forex Base Forex x 70% of 30% of Base
Selling Price of Water
Base Forex

xxx
[64]


The dispositive portion of the decision, however, reads:
WHEREFORE[,] premises
considered, judgment is hereby rendered as
follows:

1. Ordering the reformation of
Clause 17 of the Water Supply
Contract to read:

17[.] Price Escalation and/or De-
Escalation shall be based on the
parametric formula:

17.1 Power Rate Price
Adjustment/Power Cost
Adjustment

Current Power Rate Base Power
Rate x 30% of Base Selling Price of
water
Base Power Rate

17.2 Consumer Price Index
(CPI) Adjustment/Operatiing
(sic) Cost Adjustment:

Current CPI Base CPI x 40% of Base Selling
Price of Water
Base CPI

17.3 Capital Cost Recovery
Adjustment:

Current Peso to Base Peso to US$
US$ Exchange Rate Exchange
Rate x 30% of base selling price of
water
Base Peso to US $ Exchange Rate


The general rule is that where there is a conflict
between the fallo, or the dispositive part, and the body of the
decision or order, the fallo prevails on the theory that the fallo is
the final order and becomes the subject of execution, while the
body of the decision merely contains the reasons or conclusions
of the court ordering nothing. However, where one can clearly
and unquestionably conclude from the body of the decision that
there was a mistake in the dispositive portion, the body of the
decision will prevail.
[65]


Following the reasoning of the CIAC in this case, there
are three components to price adjustment: (1) Power Cost
Adjustment (30% of the base selling price of water); (2)
Operating Cost Adjustment (40% of the base selling price of
water); and (3) Capital Cost Adjustment (30% of the base selling
price of water).

In turn, the second componentOperating Cost
Adjustmentis computed based on Local Operating Cost
Adjustment (30%), and Foreign Operating Cost Adjustment
(70%).

Capital Cost Adjustment, on the other hand, is
composed of Local Capital Cost Adjustment (30%), and Foreign
Capital Cost Adjustment (70%).

This is consistent with the formula set forth in the body
of the CIAC decision. If the formula in the dispositive portion
were to be followed, Operating Cost Adjustment would be
computed with the Local Operating Cost Adjustment
representing the entire 40% of the base selling price of water
instead of just 30% of the Operating Cost Adjustment. Moreover,
if the Capital Cost Recovery Adjustment were to be computed
based solely on Foreign Capital Cost Recovery Adjustment, it
would represent the entire 30% of the base selling price of water,
and not just 70% of the Capital Cost Recovery Adjustment. The
omission of the marked portions of the formula as stated in the
body of the CIAC decision represents substantial changes to the
formula for price escalation. It is thus clear that the formula as
stated in the body of the decision should govern.

WHEREFORE, the petition is DENIED. The Decision and
Resolution of the Court of Appeals in C.A.-G.R. CEB SP. No. 00623
are AFFIRMED with the modification that the formula for the
computation of the Capital Cost Recovery Adjustment in the fallo
of the CIAC decision should be amended to read as follows:

WHEREFORE, premises considered,
judgment is hereby rendered as follows:

1. Ordering the reformation of
Clause 17 of the Water Supply
Contract to read:

17. Price Escalation and/or De-
Escalation shall be based on
the parametric formula:

17.1. Power Rate Price
Adjustment/Powe
r Cost Adjustment


Current Power Rate - Base Power
Rate x 30% of base selling price of
water
Base Power Rate
17.2 Consumer Price
Index (CPI)
Adjustment/Oper
ating Cost
Adjustment:

Current CPI Base CPI x 30% of 40%
of base selling price of water
Base CPI

17.3 Capital Cost Recovery
Adjustment:

Current Peso to Base Peso to US$
US$ Exchange Rate Exchange
Rate x 70% of 30% of base selling price of
water
Base Peso to US $ Exchange Rate

Price escalation shall
be reckoned from January 1999
when the water was first
delivered by Mactan Rock
Industries, Inc. to the MCWD
facilities in Mactan. The base
CPI, base US$ Exchange Rate and
the Base Power Rate shall be the
prevailing rate in January 1999,
while the Base Selling Price of
water shall mean the 1996 rate
per cubic meter of water as
provided for in the Water
Supply Contract.

2. Ordering Respondent
Metropolitan Cebu Water
District to pay Claimant, Mactan
Rock Industries, Inc. under the
reformed Clause 17 of the Water
Supply Contract, the net amount
of Php12,126,296.70 plus legal
interest of six percent (6%) per
annum from March 15, 2004, the
date of filing of the case with the
Construction Industry
Arbitration Commission, and
twelve percent (12%) per
annum from the date this
Decision becomes final and
executory, until the foregoing
amounts shall have been fully
paid.

3. Claimant Mactan Rock
Industries, Inc. and Metropolitan
Cebu Water District shall share
the cost of arbitration equally.


SO ORDERED.