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METROPOLITAN CEBU WATER DISTRICT v. MACTAN ROCK INDUSTRIES

FACTS:

The case involves a dispute between Metropolitan Cebu Water District (MCWD) and Metro Rock Industries, Inc. (MRII) regarding a Water Supply Contract. MCWD is responsible for supplying water in its service area, while MRII is engaged in the supply of potable water. The parties entered into a contract, but conflicts arose leading to a complaint filed by MRII against MCWD before the Construction Industry Arbitration Commission (CIAC). MCWD questioned the jurisdiction of CIAC, but it proceeded with the case and ruled in favor of MRII. MCWD filed a petition for certiorari with the Court of Appeals (CA), which upheld CIAC's jurisdiction and ruled in favor of MRII.

In another case, MCWD entered into a contract with Metropolitan Realty and Investment, Inc. (MRII) for the supply and delivery of water meters. A dispute arose between the parties regarding the quality and specifications of the water meters. MRII filed a complaint with the CIAC seeking damages and rescission of the contract. MCWD argued that CIAC did not have jurisdiction as it did not involve construction work. CIAC denied MCWD's motion to dismiss and asserted its jurisdiction. MCWD filed a petition with the CA challenging CIAC's jurisdiction and subsequent motions for reconsideration. The CA upheld CIAC's jurisdiction in the first petition and denied MCWD's motion for reconsideration. MCWD filed a second petition with the CA, which was denied. The CA's decision on the first petition became final. MCWD then filed a petition with the Supreme Court (SC) questioning CIAC's jurisdiction and the CA's refusal to rule on jurisdiction in the second petition.

ISSUES:

  1. Jurisdiction of the CIAC over the Water Supply Contract dispute.

  2. Whether MCWD, as a signatory to the contract, can question the jurisdiction of CIAC.

  3. Jurisdiction of CIAC over the complaint seeking the reformation of a water supply contract.

  4. Whether the CA can refuse to render a judgment on an issue already decided.

  5. RULING OF THE COURT:

  6. The CIAC has jurisdiction over construction industry disputes, including water supply contracts. Courts should favor arbitration and resolve any doubts in favor of arbitration. MCWD, being a signatory to the Water Supply Contract, cannot escape its obligation under the arbitration clause. The SC upholds the CA's ruling on CIAC's jurisdiction over the Water Supply Contract dispute.

  7. The SC also agrees with the CA's findings on the computation of escalation cost and the inclusion of Capital Cost Recovery in the parametric formula for price escalation in the Water Supply Contract.

  8. n the second case, the SC considers both petitions before the CA as involving the same parties, causes of action, and reliefs sought, constituting litis pendentia. The CA correctly dismissed the second petition to avoid inconsistent decisions and unnecessary costs.

  9. Overall, the SC affirms the jurisdiction of the CIAC over the disputes and upholds the rulings of the CA. The factual findings of administrative agencies like the CIAC, supported by substantial evidence, are generally accorded respect and finality.

  10. Whether the Court of Appeals (CA) erred in refusing to render judgment on the issue of jurisdiction as the issue was pending before another division of the CA.

  11. Whether the principle of litis pendentia applies in this case.

  12. Whether there is identity of the rights asserted and reliefs prayed for in the two petitions.

  13. Whether the Construction Industry Arbitration Commission (CIAC) had jurisdiction to order the reformation of the Water Supply Contract.

  14. Whether the decision in the First Petition concerning CIAC jurisdiction would amount to res judicata in the Second Petition.

  15. Whether the Housing and Land Use Regulatory Board (HLURB) has the jurisdiction to determine controversies regarding the annulment of title.

  16. Whether the Regional Trial Court (RTC) must defer the exercise of its jurisdiction over related issues involving the same subject matter that is within its jurisdiction to the Department of Environment and Natural Resources (DENR).

  17. Whether the Construction Industry Arbitration Commission (CIAC) can proceed with the case even if the Metropolitan Cebu Water District (MCWD) refuses to participate in the arbitration proceedings.

  18. Whether the CIAC retained jurisdiction even if both parties had withdrawn their consent to arbitrate.

  19. Whether the CIAC decision reforming the price escalation formula should be affirmed.

  20. Whether Clause 17 of the Water Supply Contract should be reformed.

  21. Whether Mactan Rock Industries, Inc. is entitled to receive payment based on the reformed Clause 17.

RULING:

  1. The Court ruled that the CA did not err in refusing to render judgment on the issue of jurisdiction as the issue was still pending before another division of the CA. The principle of litis pendentia applies, which states 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 to avoid conflicting judgments and unnecessary costs and expenses.

  2. The Court held that all the elements of litis pendentia were present in this case, such as identity of the parties in the two actions, substantial identity in the causes of action and reliefs sought, and identity between the two actions such that any judgment rendered in one case would amount to res judicata in the other. Both cases involved a common issue, which is MCWD's challenge to the jurisdiction of the CIAC over the arbitration proceedings arising from the Water Supply Contract between MCWD and MRII.

  3. The Court found that there is identity of the rights asserted and reliefs prayed for in the two petitions. The tests to determine this are whether the same evidence would support both causes of action or whether the defenses in one case may be used to substantiate the complaint in the other. In both cases, MCWD and MRII relied on the same laws and arguments to support their positions on the matter of jurisdiction. Thus, litis pendentia applies.

  4. The CIAC had jurisdiction to order the reformation of the Water Supply Contract. The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law, and it cannot be fixed or altered by the will of the parties. Section 4 of E.O. No. 1008, which outlines the jurisdiction of the CIAC, is broad enough to cover any dispute arising from construction contracts, including the execution of works and contractual money claims. Unless specifically excluded, all incidents and matters relating to construction contracts are within the jurisdiction of the CIAC. Disputes arising from employer-employee relationships are the only matters excluded by law. The policy against split jurisdiction supports this interpretation.

  5. The decision in the First Petition concerning CIAC jurisdiction would amount to res judicata in the Second Petition. Any judgment rendered in the First Petition, regardless of which party was successful, would be final and immutable. MCWD should have appealed to the Court after the denial of its motion for reconsideration in the First Petition. Since it failed to do so, the decision in the First Petition became final.

  6. The HLURB has jurisdiction to determine controversies regarding the annulment of title as it is the sole regulatory body for housing and land development. Courts will not determine a controversy that demands the exercise of sound administrative discretion by a regulatory agency such as the HLURB. The extent to which an administrative agency may exercise its powers depends on the provisions of the statute creating such agency.

  7. The RTC must defer the exercise of its jurisdiction over related issues involving the same subject matter properly within its jurisdiction, such as the distinct cause of action for reformation of contracts, to the DENR. This is because the DENR assumed jurisdiction over the subject matter pursuant to its mandate.

  8. The CIAC can proceed with the case even if the MCWD refuses to participate in the arbitration proceedings. The CIAC Rules specify that failure of a respondent to appear, which amounts to refusal to arbitrate, will not stay the proceedings. The CIAC is mandated to appoint arbitrators and continue the arbitration proceedings. The respondent who did not appear still has the opportunity to present evidence before an award is issued.

  9. The CIAC retained jurisdiction even if both parties had withdrawn their consent to arbitrate. The existence of a valid arbitration clause binds the parties to settle their dispute through arbitration. The refusal of one party to participate does not affect the authority of the CIAC to conduct the proceedings and issue an arbitral award.

  10. The CIAC decision reforming the price escalation formula should be affirmed. The conclusion of the CIAC is supported by the facts and the law. The parametric formula for price escalation in the Water Supply Contract was found to be incomplete, and thus, the Contract should be reformed to include the Capital Cost Recovery Adjustment. The formula stated in the body of the CIAC decision should govern, as it reflects the true intention of the parties.

  11. Yes, Clause 17 of the Water Supply Contract should be reformed.

  12. Yes, Mactan Rock Industries, Inc. is entitled to receive payment based on the reformed Clause 17.

PRINCIPLES:

  • 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.

  • Litis pendentia is founded on the public policy that the same subject matter should not be the subject of controversy in courts more than once to avoid conflicting judgments and unnecessary costs and expenses.

  • To determine whether there is identity of the rights asserted and reliefs prayed for, the same evidence test or the use of defenses in one case to substantiate the complaint in the other may be employed.

  • The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law, and it cannot be fixed or altered by the will of the parties.

  • Section 4 of E.O. No. 1008 grants the CIAC jurisdiction over any dispute arising from construction contracts.

  • Unless specifically excluded, all incidents and matters relating to construction contracts are within the jurisdiction of the CIAC.

  • Disputes arising from employer-employee relationships are the only matters excluded from the CIAC's jurisdiction.

  • The decision of a quasi-judicial body, such as the CIAC, can be final and binding unless appealed to the court.

  • Res judicata applies when a matter has already been conclusively settled by a court or quasi-judicial body.

  • Administrative agencies with valid authorization from the legislature can perform quasi-judicial functions, such as deciding claims resoluble under the provisions of the Civil Code.

  • The jurisdiction of administrative agencies depends on the provisions of the statute creating such agencies.

  • The CIAC has jurisdiction over a broad range of issues and claims arising from construction disputes, including claims for unrealized profits and business losses.

  • Jurisdiction over related and incidental matters is implied by law.

  • Absence or lack of participation of a respondent in arbitration proceedings does not prevent the CIAC from proceeding with the case and issuing an award in favor of one of the parties. The CIAC must still appoint arbitrators and continue the proceedings. The respondent is given the opportunity to reopen the proceedings and present evidence before an award is issued.

  • The existence of a valid arbitration clause binds the parties to settle their dispute through arbitration, even if one party refuses to participate.

  • Article 1359 of the Civil Code provides for the reformation of a contract when there has been a meeting of the minds of the parties but their true intention is not expressed in the instrument due to mistake, fraud, inequitable conduct, or accident.

  • The dispositive portion of a decision prevails over the body of the decision, but if there is a clear and unquestionable mistake in the dispositive portion, the body of the decision prevails.

  • In interpreting a contract, the true intention of the parties should be given effect.

  • Reformation of a contract may be allowed when there is mutual mistake or meeting of the minds of the parties.

  • The court may reform a contract to reflect the true intention of the parties.

  • Upon reformation of a contract, the parties shall comply with the revised terms and conditions.

  • The payment to be received by a party shall be based on the reformed clause of the contract, as long as it is proven to be the true intention of the parties.