adr cases - 2nd set

8/13/2019 ADR Cases - 2nd Set

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ADR CASES 2 ND SET

G.R. No. 179628 January 16, 2013

THE MANILA INSURANCE COMPANY, INC., Petitioner,vs.SPOUSES ROBERTO and AIDA AMURAO, Respondents.

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 41 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 withconstruction contracts, whether these involve mere contractual moneyclaims or execution of the works. "2

This Petition for Review on Certiorar i3 under Rule 45 of the Rules ofCourt assails the Decisio n4 dated June 7, 2007 and theResolutio n5 dated September 7, 2007 of the Court of Appeals (CA) inCA-G.R. SP No. 96815.

Factual Antecedents

On March 7, 2000, respondent-spouses Roberto and Aida Amuraoentered into a Construction Contract Agreement (CCA )6 with AegeanConstruction and Development Corporation (Aegean) for theconstruction of a six-storey commercial building in Tomas Moratocorner E. Rodriguez Avenue, Quezon City .7 To guarantee its full andfaithful compliance with the terms and conditions of the CCA,Aegean posted performance bonds secured by petitioner The ManilaInsurance Company, Inc .8 (petitioner) and Intra Strata AssuranceCorporation (Intra Strata) .9

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 CivilCase No. Q-01-45573, against petitioner and Intra Strata to collect onthe performance bonds they issued in the amounts ofP2,760,000.00and P4,440,000.00, respectively .11

Intra Strata, for its part, filed an Answe r 12 and later, a Motion toAdmit Third Party Complaint ,13 with attached Third PartyComplain t14 against Aegean, Ronald D. Nicdao, and Arnel A.Mariano.

Petitioner, on the other hand, filed a Motion to Dismis s15 on thegrounds that the Complaint states no cause of actio n16 and that thefiling 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 Orde r 18 dated May 8, 2002. Thus,

petitioner filed an Answer with Counterclaim and Cross-claim,19 followed by a Third Party Complain t20 against Aegean andspouses Ronald and Susana Nicdao.

During the pre-trial, petitioner and Intra Strata discovered that theCCA entered into by respondent-spouses and Aegean contained anarbitration clause .21

Hence, they filed separate Motions to Dismis s22 on the grounds oflack 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 IntraStrata separately moved for reconsideration but their motions weredenied by the RTC in its subsequent Orde r 24 dated September 11,2006.

Aggrieved, petitioner elevated the case to the CA by way of specialcivil action for certiorari .25

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 arbitrat ion clause in theCCA does not merit a dismissal of the case because under the CCA, itis only when there are differences in the interpretation of Article I ofthe construction agreement that the parties can resort toarbitration .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 yetsigned at the time petitioner issued the performance bond onFebruary 29, 2000 .28 The CA explained that the performance bondwas intended to be coterminous with the construction of the

building .29 It pointed out that "if the delivery of the original contractis contemporaneous with the delivery of the suretys obligation, eachcontract becomes completed at the same time, and the considerationwhich supports the principal contract likewise supports the subsidiaryone. "30 The CA likewise said that, although the contract of surety isonly an accessory to the principal contract, the suretys liability isdirect, primary and absolute .31 Thus:

WHEREFORE, we resolve to DISMISS the petition as we find thatno grave abuse of discretion attended the issuance of the order of the

publi c respondent denying the petitioners motion to dismiss.

IT IS SO ORDERED .32

Petitioner moved for reconsideration but the CA denied the same in aResolutio n33 dated September 7, 2007.

Issues

Hence, this petition raising the following issues:

A.

THE HONORABLE CA ERRED WHEN IT HELD THAT IT ISONLY WHEN THERE ARE DIFFERENCES IN THEINTERPRETATION OF ARTICLE I OF THE CONSTRUCTIONAGREEMENT THAT THE PARTIES MAY RESORT TOARBITRATION BY THE CIAC.

B.

THE HONORABLE CA ERRED IN TREATING PETITIONER ASA SOLIDARY DEBTOR INSTEAD OF A SOLIDARYGUARANTOR.

C.

THE HONORABLE [CA] OVERLOOKED AND FAILED TOCONSIDER THE FACT THAT THERE WAS NO ACTUAL AND
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2/18

ADR CASES 2 ND SET

EXISTING CONSTRUCTION AGREEMENT AT THE TIME THEMANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUEDON FEBRUARY 29, 2000 .34

Petitioners Arguments

Petitioner contends that the CA erred in ruling that the parties mayresort to arbitration only when there is difference in the interpretationof the contract documents stated in Article I of the CCA .35 Petitionerinsists that under Section 4 of E.O. No. 1008, it is the CIAC that hasoriginal and exclusive jurisdiction over construction disputes, such asthe instant case .36

Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a solidaryguarantor .37 Petitioner argues that while a surety is bound solidarilywith the obligor, this does not make the surety a solidary co-debtor .38 A surety or guarantor is liable only if the debtor is himselfliable .39 In this case, since respondent-spouses and Aegean agreed tosubmit any dispute for arbitration before the CIAC, it is imperativethat the dispute between respondent-spouses and Aegean must first

be referred to arbitration in order to establish the liability ofAegean .40 In other words, unless the liability of Aegean isdetermined, the filing of the instant case is premature .41

Finally, petitioner puts in issue the fact that the performance bondwas issued prior to the execution of the CCA .42Petitioner claims thatsince there was no existing contract at the time the performance bondwas executed, respondent-spouses have no cause of action against

petitioner .43 Thus, the complaint should be dismissed .44

Respondent spouses Arguments

Respondent-spouses, on the other hand, maintain that the CIAC hasno jurisdiction over the case because there is no ambiguity in the

provisions of the CCA .45 Besides, petitioner is not a party to theCCA .46 Hence, it cannot invoke Article XVII of the CCA, which

provides for arbitration proceedings .47 Respondent-spouses also insistthat petitioner as a surety is directly and equally bound with the

principal .48 The fact that the performance bond was issued prior tothe executi on of the CCA also does not affect the latters validity

because the performance bond is coterminous with the constructionof the building .49

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, calledthe principal or obligor, of an obligation or undertaking in favor of athird party, called the obligee. It includes official recognizances,stipulations, bonds or undertakings issued by any company by virtueof and under the provisions of Act No. 536, as amended by Act No.2206. "50 We have consistently held that a suretys liability is jointand several, limited to the amount of the bond, and determinedstrictly by the terms of contract of suretyship in relation to the

principal contract between the obligor and the obligee .51 It bearsstressing, however, that although the contract of suretyship issecondary to the principal contract, the suretys liability to theobligee is nevertheless direct, primary, and absolute .52

In this case, respondent-spouses (obligee) filed with the RTC aComplaint against petitioner (surety) to collect on the performance

bond it issued. Petitioner, however, seeks the dismissal of theComplaint 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 actionagainst it because at the time it issued the performance bond, theCCA was not yet signed by respondent-spouses and Aegean.

We do not agree.

A careful reading of the Performance Bond reveals that the "bond iscoterminous with the final acceptance of the project. "53 Thus, the factthat it was issued prior to the execution of the CCA does not affect itsvalidity 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, contractsentered into by parties involved in construction in the Philippines,whether the dispute arises before or after the completion of thecontract, or after the abandonment or breach thereof. These disputesmay involve government or private contracts. For the Board toacquire jurisdiction, the parties to a dispute must agree to submit thesame to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited toviolation of specifications for materials and workmanship, violationof the terms of agreement, interpretation and/or application ofcontractual 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 fromemployer-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 jurisdictiontwo requisites must concur: "first, the dispute must be somehowconnected to a construction contract; and second, the parties musthave 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 disputearising in the course of the execution and performance of the CCA byreason of difference in interpretation of the Contract Documents x x xwhich the parties are unable to resolve amicably betweenthemselves. "55 Article XVII of the CCA reads:

ARTICLE XVII ARBITRATION
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17.1 Any dispute arising in the course of the execution and performance of this Agreement by reason of difference ininterpretation of the Contract Documents set forth in Article I whichthe OWNER and the CONTRACTOR are unable to resolve amicably

between themselves shall be submitted by either par ty to a board ofarbitrators 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. Thedecision of the Board of Arbitrators shall be rendered within Ten (10)days from the first meeting of the board, which decision whenreached through the affirmative vote of at least Two (2) members ofthe board shall be final and binding upon the OWNER andCONTRACTOR. 1wphi1

17.2 Matters not otherwise provided for in this Contract or by SpecialAgreement of the parties shall be governed by the provisions of theArbitration Law, Executive Order No. 1008 .56

In William Golangco Construction Corporation v. Ray BurtonDevelopment Corporation ,57 we declared that monetary claims undera construction contract are disputes arising from "differences in

interpretation of the contract" because "the matter of ascertaining theduties and obligations of the parties under their contract all involveinterpretation of the provisions of the contract. "58 Following ourreasoning 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 interpretationof the contract documents."

The fact that petitioner is not a party to the CCA cannot remove thedispute from the jurisdiction of the CIAC because the issue ofwhether respondent-spouses are entitled to collect on the performance

bond, as we have said, is a dispute arising from or connected to theCCA.

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land,Inc.,59 we rejected the argument that the jurisdiction of CIAC islimited to the construction industry, and thus, cannot extend to suretycontracts. In that case, we declared that "although not theconstruction contract itself, the performance bond is deemed as anassociate of the main construction contract that it cannot be separatedor severed from its principal. The Performance Bond is significantlyand substantially connected to the construction contract that there can

be no doubt it is the CIAC, under Section 4 of E.O. No. 1008, whichhas jurisdiction over any dispute arising from or connected with it. "60

In view of the foregoing, we agree with the petitioner that juriisdiction over the instant case lies with the CIAC, and not with theRTC. Thus, the Complaint filed by respondent-spouses with the RTCmust be dismissed.

WHEREFORE, the petition is hereby GRANTED. The Decisiondated June 7, 2007 and the Resolution dated September 7, 2007 of theCourt of Appeals in CA-G.R. SP No. 96815 are hereby ANNULLEDand SET ASIDE. The Presiding Judge of the Regional Trial Court ofQuezon City, Branch 217 1s DIRECTED to dismiss Civil Case No.Q-01-45573 for lack of jurisdiction.

SO ORDERED.

G.R. No. 167022 April 4, 2011

LICOMCEN INCORPORATED, Petitioner,vs.FOUNDATION SPECIALISTS, INC., Respondent.

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

G.R. No. 169678

FOUNDATION SPECIALISTS, INC., Petitioner,vs.LICOMCEN INCORPORATED, Respondent.

D E C I S I O N

BRION, J.:

THE FACTS

The petitioner, LICOMCEN Incorporated (LICOMCEN), is adomestic corporation engaged in the business of operating shoppingmalls in the country.

In March 1997, the City Government of Legaspi awarded toLICOMCEN, after a public bidding, a lease contract over a lotlocated in the central business district of the city. Under the contract,LICOMCEN was obliged to finance the construction of a commercialcomplex/mall to be known as the LCC Citimall (Citimall). It was alsogranted the right to operate and manage Citimall for 50 years, andwas, thereafter, required to turn over the ownership and operation tothe City Government .1

For the Citimall project, LICOMCEN hired E.S. de Castro and

Associates (ESCA) to act as its engineering consultant. Since theCitimall was envisioned to be a high-rise structure, LICOMCENcontracted respondent Foundation Specialists, Inc. (FSI) to do initialconstruction works, specifically, the construction and installation of

bored piles foundation .2 LICOMCEN and FSI signed theConstruction Agreement ,3 and the accompanying BidDocument s4 and General Conditions of Contrac t5 (GCC) onSeptember 1, 1997. Immediately thereafter, FSI purchased thematerials needed for the Citimal l6 project and began working in orderto meet the 90-day deadline set by LICOMCEN.

On December 16, 1997, LICOMCEN sent word to FSI that it wasconsidering major design revisions and the suspension of work on theCitimall project. FSI replied on December 18, 1997, expressingconcern over the revisions and the suspension, as it had fullymobilized its manpower and equipment, and had ordered the deliveryof steel bars. FSI also asked for the payment of accomplished workamounting to P3,627,818.00 .7 A series of correspondence betweenLICOMCEN and FSI then followed.

ESCA wrote FSI on January 6, 1998, stating that the revised designnecessitated a change in the bored piles requirement and a substantialreduction in the number of piles. Thus, ESCA proposed to FSI thatonly 50% of the steel bars be delivered to the jobsite and the rest beshipped back to Manila .8 Notwithstanding this instruction, all theordered steel bars arrived in Legaspi City on January 14, 1998 .9
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On January 15, 1998, LICOMCEN instructed FSI to "hold allconstruction activities on the project, "10 in view of a pendingadministrative case against the officials of the City Government ofLegaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622) .11 On January 19, 1998, ESCA formalized the suspensionof construction activities and ordered the constructionsdemobilization until the case was resolved .12 In response, FSI sentESCA a letter, dated February 3, 1998, requesting payment of costs

incurred on account of the suspension whichtotaled P22,667,026.97 .13 FSI repeated its demand for payment onMarch 3, 1998 .14

ESCA re plied to FSIs demands for payment on March 24, 1998,objecting to some of the claims .15 It denied the claim for the cost ofthe steel bars that were delivered, since the delivery was done incomplete disregard of its instructions. It further disclaimed liabilityfor the other FSI claims based on the suspension, as its cause was notdue to LICOMCENs fault. FSI rejected ESCAs evaluation of itsclaims in its April 15, 1998 letter .16

On March 14, 2001, FSI sent a final demand letter to LICOMCENfor payment of P29,232,672.83 .17 Since LICOMCEN took no

positive action on FSIs demand for payment ,18

FSI filed a petitionfor arbitration with the Construction Industry ArbitrationCommission (CIAC) on October 2, 2002, docketed as CIAC Case

No. 37-2002 .19In the arbitration petition, FSI demanded payment ofthe following amounts:

a. Unpaid accomplished work billings. P 1,264,404.12

b. Material costs atsite.. 15,143,638.51

c. Equipment and labor standbycosts.. 3,058,984.34

d. Unrealized gross profit.. 9,023,575.29

e. Attorneysfees.. 300,000.00

f. Interest expenses ... equivalent to15%of the totalclaim

LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to indefinitely suspend the Citimall project dueto 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 toarbitration under GC-61 of the GCC, but one that should have beenfiled before the regular courts of Legaspi City pursuant to GC-05 .20

During the preliminary conference of January 28, 2003, LICOMCENreiterated its objections to the CIACs jurisdiction, which thearbitrators simply noted. Both FSI and LICOMCEN then proceededto draft the Terms of Reference .21

On February 4, 2003, LICOMCEN, through a collaborating counsel,filed its Ex Abundati Ad Cautela Omnibus Motion, insisting thatFSIs 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. TheCIAC denied LICOMCENs motion in its February 20, 2003order ,22 finding that the question of jurisdiction depends on certainfactual conditions that have yet to be established by ample evidence.As the CIACs February 20, 2003 order stood uncontested, thearbitration proceedings continued, with both parties actively

participating.

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

a. Unpaid accomplished work billings. P 1,264,404.12

b. Material costs atsite 14,643,638.51

c. Equipment and labor standbycosts 2,957,989.94

d. Unrealized gross profit 5,120,000.00

LICOMCEN was also required to bear the costs of arbitration in thetotal amount of P474,407.95.

LICOMCEN appealed the CIACs decision before the Court ofAppeals (CA). On November 23, 2004, the CA upheld the CIACsdecision, modifying only the amounts awarded by (a) reducingLICOMCENs liability for material costs at site to P5,694,939.87,and (b) deleting its liability for equipment and labor standby costsand unrealized gross profit; all the other awards wereaffirmed .24 Both parties moved for the reconsi deration of the CAsDecision; LICOMCENs motion was denied in the CAs February 4,2005 Resolution, while FSIs motion was denied in the CAsSeptember 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 supportof its position, LICOMCEN cites GC-61 of the GCC:

GC-61. DISPUTES AND ARBITRATION

Should any dispute of any kind arise between the LICOMCENINCORPORATED and the Contractor [referring to FSI] or theEngineer [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, INCORPORATEDwho shall within a period of thirty (30) days after being formallyrequested by either party to resolve the dispute, issue a writtendecision to the Engineer and Contractor.

Such decision shall be final and binding upon the parties and theContractor shall proceed with the execution of the Works with duediligence notwithstanding any Contractor's objection to the decisionof the Engineer. If within a period of thirty (30) days from receipt ofthe LICOMCEN, INCORPORATED's decision on the dispute, either

party does not officially give notice to contest such decision througharbitration, the said decision shall remain final and binding. However,should any party, within thirty (30) days from receipt of the
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LICOMCEN, INCORPORATED's decision, contest said decision,the dispute shall be submitted for arbitration under the ConstructionIndustry Arbitration Law, Executive Order 1008. The arbitratorsappointed under said rules and regulations shall have full power toopen 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 beforethe LICOMCEN, INCORPORATED for the purpose of obtaining his

said decision. No decision given by the LICOMCEN,INCORPORATED shall disqualify him from being called as awitness and giving evidence in the arbitration. It is understood thatthe obligations of the LICOMCEN, INCORPORATED, the Engineerand 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 arisingout of the execution of the Works" are subject to arbitration.LICOMCEN construes the phrase "execution of the Works" asreferring to the physical construction activities, since "Works" underthe GCC specifically refer to the "structures and facilities" required to

be constructed and completed for the Cit imall project .27 It considersFSIs claims as mere contractual monetary claims that should belitigated before the courts of Legaspi City, as provided in GC-05 ofthe GCC:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of orin connection with the Contract, or breach thereof, shall be litigatedin the courts of Legaspi City except where otherwise specificallystated or except when such question is submitted for settlement thruarbitration as provided herein .28

LICOMCEN also contends that FSI failed to comply with thecondition 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 thedispute, either party does not officially give notice to contest suchdecision through arbitration, the said decision shall remain final and

binding. However, should any party, within 30 days from receipt ofLICOMCENs decision, contest said decision, the dispute shall besubmitted for arbitration under the Construction Industry ArbitrationLaw.

LICOMCEN considers its March 24, 1998 letter as its final decisionon FSIs claims, but declares that FSIs reply letter of April 15, 1998is not the "notice to contest" required by GC-61 that authorizes resortto arbitration before the CIAC. It posits that nothing in FSIs April15, 1998 letter states that FSI will avail of arbitration as a mode tosettle its dispute with LICOMCEN. While FSIs final demand letterof March 14, 2001 mentioned its intention to refer the matter toarbitration, LICOMCEN declares that the letter was made three yearsafter its March 24, 1998 letter, hence, long after the 30-day period

provided in GC-61. Indeed, FSI filed the petition for arbitration withthe CIAC only on October 2, 2002 .29 Considering FSIs delays inasserting its claims, LICOMCEN also contends that FSIs action is

barred by laches.

With respect to the monetary claims of FSI, LICOMCEM alleges thatthe CA erred in upholding its liability for material costs at site for thereinforcing steel bars in the amount of P5,694,939.87, computed asfollow s30:

2nd initial rebar requirements purchased from Pag-Asa Steel Works,Inc.. P 799,5Reinforcing steel bars purchased from ARCAIndustrial Sales (total net weight of 744,197.66kilograms) 50% of net amountdue. 5,395,43

Subtotal. 6,194,93LessPurchase cost of steel bars by RamonQuinquileria.. (500,00TOTAL LIABILITY OF LICOMCEN TO FSIFOR MATERIAL COSTS AT SITE... 5,694,93

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 thePermanent or Temporary Works which have been delivered to theContractor but not yet used, and which delivery has been certified bythe Engineer. "31 None of these requisites were allegedly compliedwith. It contends that FSI failed to establish that the steel barsdelivered in Legaspi City, on January 14, 1998, were for the Citimall

project. In fact, the steel bars were delivered not at the site of theCitimall project, but at FSIs batching plant called Tuanzoncompound, a few hundred meters from the site. Even if delivery toTuanzon was allowed, the delivery was done in violation of ESCAsinstruction to ship only 50% of the materials. Advised as early asDecember 1997 to suspend the works, FSI proceeded with thedelivery of the steel bars in January 1998. LICOMCEN declared thatit should not be made to pay for costs that FSI willingly incurred foritself .32

Assuming that LICOMCEN is liable for the costs of the steel bars, itargues that its liability should be minimized by the fact that FSIincurred 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 RamonQuinquileria). LICOMCEN alleges that FSI sold the steel bars for aridiculously low price of P 4.00/kilo, when the prevailing ratewas P20.00/kilo. The sale could have garnered a higher price thatwould offset LICOMCENs liability. LICOMCEN also wants FSI toaccount for and deliver to it the remaining 744 metric tons of steel

bars not sold. Otherwise, FSI would be unjustly enriched atLICOMCENs expense, receiving payment for materials notdelivered to LICOMCEN .33

LICOMCEN also disagrees with the CA ruling that declared it solelyliable to pay the costs of arbitration. The ruling was apparently basedon the finding that LICOMCENs "failure or refusal to meet itsobligations, legal, financial, and moral, caused FSI to bring thedispute to arbitration. "34 LICOMCEN asserts that it was FSIsdecision to proceed with the delivery of the steel bars that actuallycaused the dispute; it insists that it is not the party at fault whichshould bear the arbitration costs .35

FSIs Arguments

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

Proof of damage to FSI is not required for LICOMCEN to be liablefor the material costs of the steel bars. Under GC-42, it is enough that
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the materials were delivered to the contractor, although not used. FSIsaid that the 744 metric tons of steel bars were ordered and paid for

by it for the Citimall project as early as November 1997. IfLICOMCEN contends that these were procured for other projects FSIalso 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 thesteel bars be shipped to Legaspi City; it was not a clear and specificdirective. 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 la te tostop the delivery. FSI also claims that since it believed in good faiththat the Citimall project was simply suspended, it expected work toresume soon after and decided to proceed with the shipment .37

Contrary to LICOMCEN s arguments, GC-42 of the GCC does notrequire delivery of the materials at the site of the Citimall project; itonly requires delivery to the contractor, which is FSI. Moreover, theTuanzon compound, where the steel bars were actually delivered, isvery close to the Citimall project site. FSI contends that it is a normalconstruction 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 wasuseless to have the delivery certified by ESCA because by then theCitimall project had been suspended. It would be unfair to demandFSI 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 onthe ground that FSIs documentary evidence was inadequate. FSIfinds the ruling erroneous, since LICOMCEN never questioned thelist of employees and equipments employed and rented by FSI for theduration of the suspension .39

FSI also alleges that LICOMCEN maliciously and unlawfullysuspended the Citimall project. While LICOMCEN cited several

other cases in its petition for review on certiorari as grounds forsuspending the works, its letters/notices of suspension only referredto one case, OMB-ADM-1-97-0622, an administrative case beforethe Ombudsman that was dismissed as early as October 12, 1998.LICOMCEN never notified FSI of the dismissal of this case. Moreimportantly, no restraining order or injunction was issued in any ofthese cases to justify the suspension of the Citimall project .40 FSI

posits that LICOMCENs true intent was to terminate its contractwith it, but, to avoid paying damages for breach of contract, simplydeclared it as "indefinitely suspended." That LICOMCEN conductedanother public bidding for the "new designs" is a telling indication ofLICOMCENs intent to ease out FSI .41 Thus, FSI states thatLICOMCENs bad faith in indefinitely suspending the Citimall

project entitles it to cla im 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 stipulationrefers to a contract lawfully and properly terminated. FSI seeks torecover unrealized profits under Articles 1170 and 2201 of the CivilCode.

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 machinerythat 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 thefulfillment of national development goals, as the constructionindustry provides employment to a large segment of the nationallabor 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, contractsentered into by parties involved in construction in the Philippines,whether the dispute arises before or after the completion of thecontract, or after the abandonment or breach thereof. These disputesmay involve government or private contracts. For the Board toacquire jurisdiction, the parties to a dispute must agree to submit thesame to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited toviolation of specifications for materials and workmanship; violationof the terms of agreement; interpretation and/or application ofcontractual 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 fromemployer-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 bythe 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 atribunals jurisdiction by stipulation or agreement. The text of Section4 of E.O. 1008 is broad enough to cover any dispute arising from, orconnected with construction contracts, whether these involve merecontractual money claims or execution of the works .46 Consideringthe 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 partiesstipulation that only disputes in connection with or arising out of the

physical construction activit ies (execution of the works) are arbitrable before it.

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

Section 1. Submission to CIAC Jurisdiction. An arbitration clausein a construction contract or a submission to arbitration of aconstruction dispute shall be deemed an agreement to submit anexisting or future controversy to CIAC jurisdiction, notwithstandingthe reference to a different arbitration institution or arbitral body in

such contract or submission. When a contract contains a clause forthe submission of a future controversy to arbitration, it is notnecessary for the parties to enter into a submission agreement beforethe claimant may invoke the jurisdiction of CIAC.

An arbitration agreement or a submission to arbitration shall be inwriting, but it need not be signed by the parties, as long as the intentis clear that the parties agree to submit a present or future controversyarising from a construction contract to arbitration.

In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro ManilaTollways Corporation ,47 the Court declared that "the bare fact that the

parties x x x incorporated an arbitration clause in [their contract] issufficient to vest the CIAC with jurisdiction over any construction
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controversy or claim between the parties. The arbitration clause in theconstruction contract ipso facto vested the CIAC with jurisdiction."

Under GC-61 and GC-05 of the GCC, read singly and in relation withone another, the Court sees no intent to limit resort to arbitration onlyto 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 widestsignification. Under GC-61, the voluntary arbitration clause coversany dispute of any kind, not only arising of out the execution of theworks but also in connection therewith. The payments, demand anddisputed 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 relatedto these activities. In other words, they are there because of theconstruction activities. Attorneys fees and interests payment, on theother hand, are costs directly incidental to the dispute. Hence, thescope of the arbitration clause, as worded, covers all the disputeditems.

Second and more importantly, in insisting that contractual moneyclaims can be resolved only through court action, LICOMCENdeliberately ignores one of the exceptions to the general rule stated inGC-05:

GC-05. JURISDICTION

Any question between the contracting parties that may arise out of orin connection with the Contract, or breach thereof, shall be litigatedin the courts of Legaspi City except where otherwise specificallystated or except when such question is submitted for settlement thruarbitration as provided herein.

The second exception clause authorizes the submission to arbitrationof any dispute between LICOMCEM and FSI, even if the disputedoes not directly involve the execution of physical constructionworks. 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 bythe 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 decision through arbitration"within 30 days from receipt of the decision. However, FSIs April 15,1998 letter is not the notice contemplated by GC-61; it nevermentioned FSIs plan to submit the dispute to arbitration and insteadrequested LICOMCEN to reevaluate its claims. NotwithstandingFSIs failure to make a proper and timely notice, LICOMCENsdecision (embodied in its March 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 isfor the parties to agree to submit their dispute to voluntaryarbitration:

[T]he mere existence of an arbitration clause in the constructioncontract is considered by law as an agreement by the parties to submitexisting or future controversies between them to CIAC jurisdiction,without any qualification or condition precedent. To affirm acondition precedent in the construction contract, which wouldeffectively suspend the jurisdiction of the CIAC until compliancetherewith, would be in conflict with the recognized intention of thelaw and rules to automatically vest CIAC with jurisdiction over a

dispute should the construction contract contain an arbitrationclause .48

The CIAC is given the original and exclusive jurisdiction overdisputes arising from, or connected with, contracts entered into by

parties involved in construction in the Philippines .49 This jurisdictioncannot be altered by stipulations restricting the nature of constructiondisputes, appointing another arbitral body, or making that bodysdecision final and binding.

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

The validity of the indefinitesuspension of the works on theCitimall project

Before the Court rules on each of FSIs contractual monetary claims,we deem it important to discuss the validity of LICOMCENsindefinite suspension of the works on the Citimall project. We quote

below two contractual stipula tions relevant to this issue:

GC-38. SUSPENSION OF WORKS

The Engineer [ESCA] through the LICOMCEN, INCORPORATEDshall have the authority to suspend the Works wholly or partly bywritten order for such period as may be deemed necessary, due tounfavorable weather or other conditions considered unfavorable forthe prosecution of the Works, or for failure on the part of theContractor to correct work conditions which are unsafe for workersor the general public, or failure or refusal to carry out valid orders, ordue to change of plans to suit field conditions as found necessaryduring construction, or to other factors or causes which, in theopinion of the Engineer, is necessary in the interest of the Works andto the LICOMCEN, INCORPORATED. The Contractor [FSI] shallimmediately comply with such order to suspend the work wholly or

partly directed.

In case of total suspension or suspension of activities along thecritical path of the approved PERT/CPM network and the cause ofwhich is not due to any fault of the Contractor, the elapsed time

between the effective order for suspending work and the order toresume work shall be allowed the Contractor by adjusting the timeallowed for his execution of the Contract Works.

The Engineer through LICOMCEN, INCORPORATED shall issuethe order lifting the suspension of work when conditions to resumework shall have become favorable or the reasons for the suspensionhave been duly corrected .50

GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPENDWORK 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 befound by the LICOMCEN, INCORPORATED that reasons beyondthe control of the parties render it impossible or against the interest ofthe LICOMCEN, INCORPORATED to complete the work, theLICOMCEN, INCORPORATED at any time, by written notice to the
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Contractor, may discontinue the work and terminate the Contract inwhole or in part. Upon the issuance of such notice of termination, theContractor shall discontinue to work in such manner, sequence and atsuch time as the LICOMCEN, INCORPORATED/Engineer maydirect, continuing and doing after said notice only such work andonly until such time or times as the LICOMCEN,INCORPORATED/Engineer may direct .51

Under these stipulations, we consider LICOMCENs initialsuspension of the works valid. GC-38 authorizes the suspension ofthe works for factors or causes which ESCA deems necessary in theinterests of the works and LICOMCEN. The factors or causes ofsuspension may pertain to a change or revision of works, as cited inthe December 16, 1997 and January 6, 1998 letters of ESCA, or tothe pendency of a case before the Ombudsman (OMB-ADM-1-97-0622), as cited in LICOMCENs January 15, 1998 letter and ESCAsJanuary 19, 1998 and February 17, 1998 letters. It was not necessaryfor ESCA/LICOMCEN to wait for a restraining or injunctive order to

be issued in any of the cases filed against LICOMCEN before it cansuspend the works. The language of GC-38 givesESCA/LICOMCEN sufficient discretion to determine whether theexistence of a particular situation or condition necessitates thesuspension of the works and serves the interests ofLICOMCEN. 1avvphi1

Although we consider the initial suspension of the works as valid, wefind that LICOMCEN wrongfully prolonged the suspension of theworks (or "indefinite suspension" as LICOMCEN calls it). GC-38requires ESCA/LICOMCEN to "issue an order lifting the suspensionof work when conditions to resume work shall have becomefavorable or the reasons for the suspension have been dulycorrected." The Ombudsman case (OMB-ADM-1-97-0622), whichESCA and LICOMCEN cited in their letters to FSI as a ground forthe suspension, was dismissed as early as October 12, 1998, butneither ESCA nor LICOMCEN informed FSI of this development.The pendency of the other case s52 may justify the continuedsuspension of the works, but LICOMCEN never bothered to inform

FSI of the existence of these cases until the arbitration proceedingscommenced. By May 28, 2002, the City Government of Legaspi sentLICOMCEN 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 rebiddingwas conducted merely to get cost estimates for the new design goesagainst the established practice in the construction industry. We findthe CIACs discussion on this matter relevant:

But what is more appalling and disgusting is the allegation x x x thatthe x x x invitation to bid was issued x x x solely to gather costestimates on the redesigned [Citimall project] x x x. This ArbitralTribunal finds said act of asking for bids, without any intention of

awarding the project to the lowest and qualified bidder, if true, to beextremely irresponsible and highly unprofessional. It might even be branded as fraudulent x x x [since] the invited bidders [wererequired] to pay P2,000.00 each for a set of the new plans, whichamount was non-refundable. The presence of x x x deceit makes thewhole story repugnant and unacceptable .55

LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of LICOMCENs intent to ease out FSIand terminate their contract. As with GC-31, GC-42(2) grantsLICOMCEN ample discretion to determine what reasons render itagainst its interest to complete the work in this case, the pendencyof 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 rightsunder GC-42(2).

We now proceed to discuss the effects of these findings with regardto 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 paidfor all items of work executed, satisfactorily completed and accepted

by the LICOMCEN, INCORPORATED up to the date oftermination, at the rates and prices provided for in the Contract and inaddition:

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

2. The cost of materials or goods reasonably ordered for thePermanent or Temporary Works which have been deliveredto 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, theLICOMCEN, INCORPORATED, however, shall deduct anyoutstanding balance due from the Contractor for advances in respectto 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, itemtwo of GC-42 requires that

a. the materials or goods were reasonably ordered for thePermanent 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 byFSI to make LICOMCEN liable for the cost of the steel bars orderedfor the Citimall project; the two tribunals differed only to the extentof LICOMCENs liability because the CA opined that it should belimited only to 50% of the cost of the steel bars. A review of therecords compels us to uphold the CAs finding.

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

As per our information to you on December 16, 1997, a majorrevision in the design of the Legaspi Citimall necessitated a change inthe bored piles requirement of the project. The change involved asubstantial reduction in the number and length of piles.
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We expected that you would have suspended the deliveries of thesteel bars until the new design has been approved.

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

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

In order for us to consider additional cost due to the shipping of theexcess steel bars, we need to know the actual dates of purchase,

payments and loading of the steel bars. Obviously, we cannotconsider the additional cost if you have had the chance to delay theshipping of the steel bars .57

From the above, it appears that FSI was informed of the necessity ofsuspending the works as early as December 16, 1997. Pursuant toGC-38 of the GCC, FSI was expected to immediately comply withthe order to suspend the work .58 Though ESCAs December 16, 1997notice may not have been categorical in ordering the suspension ofthe works, FSIs repl y letter of December 18, 1997 indicated that itactually complied with the notice to suspend, as it said, "We hope forthe early resolution of the new foundation plan and the resumption ofwork. "59 Despite the suspension, FSI claimed that it could not stopthe 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 werealready loaded in Manila and expected to arrive in Legaspi City byDecember 23, 1997, and (b) it expected immediate resumption ofwork 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 barsspecifically stated that these would be withdrawn from the Cagayande Oro depot, not Manil a61; indeed, the bill of lading stated that thesteel bars were loaded in Cagayan de Oro on January 11, 1998, andarrived in Legaspi City within three days, on January 14, 1998 .62 Theloading and delivery of the steel bar thus happened after FSI receivedESCAs December 16, 1997 and January 6, 1998 letters days afterthe instruction to suspend the works. Also, the same stipulation thatauthorizes LICOMCEN to suspend the works allows the extension ofthe period to complete the works. The relevant portion ofGC-38 states:

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

The above stipulation, coupled with the short period it took to shipthe steel bars from Cagayan de Oro to Legaspi City, thus negates

both FSIs

argument and the CIACs rulin g64 that there was no necessity to stopthe shipment so as to meet the 90-day deadline. These circumstances

prove that FSI acted imprudently in proceeding with the delivery,contrary to LICOMCEN s instructions. The CA was correct inholding LICOMCEN liable for only 50% of the costs of the steel barsdelivered.

The claim for equipment andlabor standby costs

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

The CIAC relied solely on the list of 37 pieces of equipmentrespondent allegedly rented and maintained at the construction siteduring the suspension of the project with the prorated rentals incurredx x x. To the mind of this Court, these lists are not sufficient toestablish the fact that indeed [FSI] incurred the said expenses.Reliance on said lists is purely speculative x x x the list ofequipments is a mere index or catalog of the equipments, which may

be utilized at the construction site. It is not the best evidence to provethat said equipment were in fact rented and maintained at theconstruction site during the suspension of the work. x x x [FSI]should have presented the lease contracts or any similar documentssuch as receipts of payments x x x. Likewise, the list of employeesdoes not in anyway prove that those employees in the list were indeedat the construction site or were required to be on call should theirservices 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 profitunder GC-41(2), which states:

GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPENDWORK 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 suchdiscontinuance or termination of the Contract, but the Contractorshall receive compensation for reasonable expenses incurred in goodfaith for the performance of the Contract and for reasonable expensesassociated with termination of the Contract. The LICOMCEN,INCORPORATED will determine the reasonableness of suchexpenses. The Contractor [FSI] shall have no claim for anticipated

profits on the work thus terminated, nor any other cla im, except forthe 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. FSIalso took pains in differentiating its claim for "unrealized profit" fromthe 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 thecontract itself