Republic of the
Supreme Court
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EASTERN ASSURANCE
and |
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G.R. No. 159731 |
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SURETY
CORPORATION, |
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Petitioner, |
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Present: |
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YNARES-SANTIAGO, J., |
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Chairperson, |
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AUSTRIA-MARTINEZ, |
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CHICO-NAZARIO, |
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NACHURA, and |
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CON-FIELD
CONSTRUCTION |
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REYES, JJ. |
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and DEVELOPMENT |
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CORPORATION, |
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Promulgated: |
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Respondent. |
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April 22, 2008 |
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D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Before the Court is a
Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the
The facts of the case
are as follows:
Con-Field Construction
and Development Corporation (Con-Field) is a domestic corporation contracted by
the ABS-CBN Corporation to construct and install a centralized air-conditioning
system in the latter's building in
In a document notarized
on P1,730,150.00.
One of the provisions
of the Agreement required Freezinhot to furnish
Con-Field with a performance bond equivalent to the sum of P346,150.00 which would insure the prompt and faithful
performance of Freezinhot's obligation. In accordance
with such provision, Freezinhot secured from Eastern
Assurance and Surety Corporation (EASCO) the required performance bond.[4]
Subsequently, Freezinhot commenced work on the project.
In a letter dated April
8, 1996,[5]
Con-Field, through its project engineers, brought to Freezinhot's
attention its observations regarding the latter's slow pace of work as well as
the defects in some parts of the project which had been finished.
On
I HEREBY MR. DEMETRIO
M. DE GUZMAN TENDER MY TERMINATION OUR SIGNED CONTRACT FOR ABS-CBN BACOLOD
MECHANICAL WORK DUE TO TECHNICAL REASONS AND ALSO INFORMING YOU AND YOUR
COMPANY THAT ANY OF MY EMPLOYEE YOU ABSORBED EFFECTIVE THIS DAY, MAY 4TH 1996
THAT I HAVE NO MORE RESPONSIBILITIES TO ANY UNTOWARD INCIDENT OR ANY ACCIDENT
THAT WILL OCCUR.[7]
Martin S. Co, the
Executive Vice-President of Con-Field, responded to de Guzman with a letter
dated
In response to your letter dated
Let it be known that CON-FIELD
did not in any way intend to terminate the contract neither facilitated any
action for the termination of your contract with us. But on
the other hand extended our support by financing the project, i.e. Mechanical
Works thru our provision of materials & consumables, in addition to payroll
of your workers.
We had accepted your termination
of contract with the ff: basis;
1.
Lack of
Equipment to complete the project up to commissioning
2.
Lack of
technical capability in respect with shop drawing and other documents to be
submitted to us, works schedules submittals.
3.
Lack of
manpower & supervision to complete the project on time. This resulted to
A/C equipment damages and lack of coordination to other works.
4.
Lack of
financial support for the project.
We wish to inform you that the
cost of labor & materials that we will purchase for the said works will be
deducted on your remaining contract balance.
We thank you for your
understanding in your move to terminate the contract as this reflects the true
situation of your work & by this move also impede the jeopardy of over
shooting more in the mechanical work schedule.
We hope that we have made our
position clear and we hope this is the last time that we discuss this issue.[9]
Subsequently, Con-Field
took over and completed the project.
On January 8, 1997,
Con-Field filed with the Regional Trial Court (RTC) of Quezon
City a Complaint[10] against
Freezinhot, de Guzman and EASCO (petitioner) seeking
to recover the amount of P616,961.14 representing the sum incurred by
Con-Field in completing the said project, as well as the P346,150.00
performance bond stipulated in its Agreement with Freezinhot.
Con-Field also sought recovery of attorney's fees and litigation expenses.
Freezinhot
and de Guzman failed to file their answer to the complaint. Con-Field filed a
motion to declare them in default.[11]
In its Order dated
Meanwhile, EASCO filed
its Answer with Compulsory Counterclaim.[13]
After trial, the RTC
rendered judgment in favor of Con-Field.[14]
The dispositive portion of the RTC Decision reads:
WHEREFORE, premises considered,
the Court hereby renders judgment in favor of the plaintiff and against the
defendants ordering:
1.
Defendant
FREEZINHOT to pay plaintiff the amount of P616,961.14 as principal
obligation plus the legal interest from the filing of the complaint;
2.
Defendants
FREEZINHOT and EASCO jointly and
severally to pay plaintiff the sum of P346,150.00 for and as the amount
of Performance Bond plus legal interest from the date of filing of the instant
case until fully paid;
3.
Defendants
FREEZINHOT and EASCO jointly and severally to pay plaintiff the amount of P20,000.00
for attorney's fees;
4.
On the
cross-claim, the defendant FREEZINHOT to reimburse the defendant EASCO the sum
equivalent to its share plus legal interest from the date of payment of EASCO
to the plaintiff; and
5.
Defendants to
pay the cost of suit.
SO ORDERED.[15]
EASCO appealed the RTC
Decision to the CA.
On
WHEREFORE, premises considered,
the instant appeal is hereby PARTLY GRANTED, in that the Decision of the
Regional Trial Court of Quezon City, Branch 216,
dated June 22, 2000 is hereby AFFIRMED, with the sole MODIFICATION that the
Eastern Assurance Surety Corporation's liability to pay plaintiff attorney's
fees is hereby DELETED.
SO ORDERED.[17]
EASCO filed a Motion
for Reconsideration[18]
but the CA denied it in its Resolution[19]
dated
Hence, the present
petition filed by EASCO based on the following assignment of errors:
I. The apellate
court glaringly committed an error of law when it wrongfully concluded in its
assailed decision that:
“By no stretch of imagination
can this set of circumstances and
evidence be construed to mean that the plaintiff had mutually terminated its agreement with defendant Freezinhot, as it appears that
such pre-termination was due to the unilateral act of Freezinhot and Demetrio de Guzman.” (par. 1, p. 7,
Decision, Annex “A-1” of
Petition).
which aforecited ruling is
contradicted by the oral testimony or express admission of plaintiff's witness,
Executive Vice-President Martin S. Co, which unmistakably shows or tends to
show that:
1) The agreement (Exh. A) was not consummated, implemented, carried into
effect, or its conditions fulfilled or performed, except for Freezinhot's securing of a performance bond in the amount
of Php346,150.00 required under the agreement on the basis of which EASCO
issued the required bond in behalf of Freezinhot and
in favor of Con-Field.
2) In lieu of the said
sub-contracting agreement, the parties effected the prohibited “labor-only” sub-contracting
arrangement wherein Freezinhot merely supplied
workers to Con-Field who allowed them to work under its (Con-Field's) own
account and responsibility due to Freezinhot's
inability to execute the agreed work on its own due to lack of substantial
capital and the tool, equipment, among others, necessary therefore, without due
notice to EASCO.
3) Con-Field's admission in its
letter (Exh. E) that it “had
accepted your (Demetrio de Guzman's) termination of
contract,” without the knowledge and consent of EASCO completely extinguished
and discharged EASCO from all liability in its contract of suretyship.
II. The accessory contract of suretyship cannot exist without a valid principal
obligation as in this case where the sub-contractor failed to fulfill or
satisfy the conditions set forth in the said agreement.
III. The appellate court
manifestly committed an error of law when it ruled that the 78% work completion
by the sub-contractor as testified to by the said plaintiff's witness -
“is by
no means conclusive and the same was given as a mere opinion.” (Penultimate par., p. 7, Decision, Annex “A-1”).
being grounded entirely on surmises or conjectures to
justify the award of damages equivalent to EASCO's
performance bond, and which is iniquitous or unconscionable, assuming without
admitting that the bond is liable therefor.[20]
Petitioner contends that respondent
admits that Freezinhot lacks substantial capital or
investment in the form of tools, equipment, machineries and supply of materials
which are needed in executing the agreed project; that the sub-contracting
agreement between respondent and Freezinhot was, in
fact, not implemented because the project was done under the account of
respondent and that Freezinhot simply supplied skill
and services to perform the required work; and that, in essence, what was
carried into effect by respondent and Freezinhot was
a “labor-only” sub-contracting arrangement which is prohibited under the Labor
Code.
Petitioner also claims that, based on
evidence, respondent and Freezinhot both agreed to
terminate their contract leading to a final, mutual and complete settlement of
all previous transactions between them.
Petitioner argues that since the
sub-contracting agreement between respondent and Freezinhot
was never implemented, there can be no valid principal obligation to speak of.
As such, under the provisions of Articles 2052[21]
and 2076[22] of the Civil Code,
petitioner is not bound to comply with the terms of the suretyship
agreement. Petitioner contends that respondent and Freezinhot's
mutual termination of their contract resulted in the extinguishment of Freezinhot's principal obligation and the performance
bond's accessory obligation.
Petitioner further avers that it was
benefited by the termination of the contract, which has the effect of a
compromise, as provided for under the provisions of Article 2063[23]
of the Civil Code.
Petitioner also asserts
that respondent's acceptance of Freezinhot's proposal
for termination of the contract operates as a renunciation of its right to
receive payment of the performance bond from petitioner.
Lastly, petitioner claims
that based on the testimony of respondent's own witness, Freezinhot
worked on the project for a period of seven months and that when respondent
took over, it only took them more than a month to complete the project. Based
on this premise, petitioner concludes that the project was actually about to be
finished when respondent took over from Freezinhot.
On the other hand,
respondent contends that the grounds relied upon by petitioner in the present
petition do not constitute questions of law on the basis of which the review
powers of the Supreme Court may not be invoked.
Respondent also avers
that the CA correctly ruled that the issue on “labor-only” contracting was
never raised in the proceedings before the RTC or the CA and that the settled
rule is that an issue cannot be raised for the first time on appeal.
Anent petitioner's
liability as surety, respondent argues that the termination of the contract
between respondent and Freezinhot was predicated on
the latter's breach of its obligation under their agreement to provide
equipment, tools, labor and materials for the project and that under the said
agreement, it is clearly stipulated that petitioner is solidarily
liable with Freezinhot to pay the performance bond
upon failure of the latter to faithfully comply with the terms of its contract
with respondent.
The Court finds the
petition bereft of merit.
As to the first and
second assigned errors, the Court agrees with respondent that, despite ample
opportunity, petitioner failed to raise before the RTC and the CA the issue on
“labor-only” contracting. The matter was raised only in petitioner's motion for
reconsideration of the Decision of the CA. Hence, this Court cannot now pass upon
this issue. Points of law, theories, issues and arguments not adequately
brought to the attention of the trial court need not be, and ordinarily will
not be, considered by a reviewing court as they cannot be raised for the first
time on appeal because this would be offensive to the basic rules of fair play,
justice and due process.[24]
The Court
is not persuaded by petitioner's argument that Freezinhot's
principal obligation has been extinguished and, as such, petitioner is not
bound to comply with the terms of the suretyship
agreement.
It is
true from respondent's letter dated
ARTICLE VI
FAILURE TO COMPLETE;
LIQUIDATED DAMAGES; RIGHT TO TAKE OVER
Whereas time being of the essence in this
Agreement and it is agreed that the CONTRACTOR [herein respondent] would suffer
losses by the delay or failure of the SUB-CONTRACTOR [Freezinhot]
to have the work contracted for completed in all parts within the time
stipulated in Article IV above, the SUB-CONTRACTOR hereby expressly covenants
and agrees to pay to the CONTRACTOR for each day of delay, Sundays and Holidays
included, the sum of ONE THOUSAND SEVEN HUNDRED THIRTY & 75/100 PESOS
(P1,730.75) Philippine Currency, per day as liquidated damages,
notwithstanding, if as assessed by the CONTRACTOR, the progress of work is slow
or that from all indications as adjudged by the CONTRACTOR, the SUB-CONTRACTOR
will not be able to complete the work in all parts within the stipulated time
or that construction and/or installations are not in accordance with the
approved plans and specifications, the CONTRACTOR shall have the right to take
over the construction and/or installation work either by itself or through
another SUB-CONTRACTOR charging against the SUB-CONTRACTOR and its sureties any
excess cost occasioned the CONTRACTOR, thereby, together with any liquidated
damages that may be due to the CONTRACTOR under this Article.
Any sum which may be payable to the CONTRACTOR
under this Agreement may be deducted and retained by the CONTRACTOR from any
balance which may be due to the SUB-CONTRACTOR when said work shall have been
finished and accomplished as herein provided.
This written Agreement may be suspended by the
CONTRACTOR, in whole or in part, after a prior written notice to the
SUB-CONRACTOR, if as determined by the CONTRACTOR such suspension will serve its
best interest.[25]
Anent the issue of
petitioner's liability as surety, the CA made the following findings and
conclusion which the Court quotes with approval, viz:
Under the terms of Exhibit “B,”
EASCO bound itself, as surety of Freezinhot, to the
plaintiff Con-Field in the amount of P346,150.00,
should Freezinhot be unable to faithfully comply with
the sub-contract for the supply and installation of a centralized airconditioning system at the ABS-CBN building in
By evidence presented, plaintiff
Con-Field had proven to our satisfaction that Freezinhot
was unable to faithfully comply with the sub-contract, without just or lawful
cause, and without the participation or encouragement of Con-Field.
In fact, it appears that
Con-Field had emphatically instructed Freezinhot to
comply with the schedule of work given to it, inasmuch as the progress of Freezinhot's work had been sluggish and dismal. However,
instead of shaping up and complying with the work requirements and schedule, Freezinhot, through its President, wrote to Con-Field
terminating its work in default of its obligations under the parties' supply
and installation Agreement. Constrained by a deadline of its own to the ABS-CBN
Corporation, plaintiff Con-Field had no recourse but to recognize Freezinhot's unilateral termination and continue with the
installation work itself, so as not to be in default itself with ABS-CBN.
By no stretch of imagination can
this set of circumstances and evidence be construed to mean that the plaintiff
had mutually terminated its agreement with defendant Freezinhot,
as it appears that such pre-termination was due to the unilateral act of Freezinhot and Demetrio de
Guzman. On the other hand, no evidence has bee presented by the appellant to
show its claim that plaintiff Con-Field was jointly
responsible for the pre-termination of the contract.[26]
With respect to the last assigned
error, the Court notes that the CA, in fact, did not give credence to the
testimony of Martin Co, the Executive Vice-President of respondent, that
petitioner was able to complete around 78% of the work required of it. The
Court finds no error in the pronouncement of the CA that the estimate “is by no
means conclusive as the same was given as a mere opinion, and without basis in
actual performance reviews or progress reports.”
Petitioner argues that the estimate
being offered by Co is lower than what had actually been accomplished by Freezinhot. Based on the premise that Freezinhot
substantially complied with its obligation, petitioner claims that the
liability of its performance bond should be equitably reduced.
The Court does not agree. No
evidence was presented either by Freezinhot or
petitioner to substantiate the claim of the latter that the project was about
to be completed when respondent took over the project. Petitioner's claim is
mere allegation which is not supported by any competent proof. Settled is the
rule that one who alleges a fact has the burden of proving it and mere
allegation is not an evidence.[27]
In any case, the Court
agrees with the CA that the performance bond should be fully awarded to
respondent because the amount of such bond is not even sufficient to answer for
the additional expenses, amounting to P616,961.14,
which it incurred by reason of Freezinhot's default.
Besides, petitioner stands to recover its losses because the RTC has ordered Freezinhot to indemnify petitioner the amount which it was
ordered to pay under its performance bond, including interests, in accordance
with their Indemnity Agreement.[28]
WHEREFORE, the
petition is DENIED. The Decision of the Court of Appeals dated
SO
ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE
CONCUR:
CONSUELO YNARES-SANTIAGO
Associate
Justice
Chairperson
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MINITA V. CHICO-NAZARIO Associate Justice |
ANTONIO EDUARDO B. NACHURA Associate Justice |
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in
the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article
VIII of the Constitution, and the Division Chairperson’s Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
REYNATO S. PUNO
Chief Justice
[1] Penned by Justice Rodrigo V. Cosico with the concurrence of Justices Juan Q. Enriquez, Jr. and Edgardo F. Sundiam; rollo, pp. 27-35.
[2]
[3] Exhibit “A,” folder of exhibits, vol. II, p. 146.
[4] Exhibit “2,” records, p. 85; Exhibit “B,” folder of exhibits, vol. II, p. 156.
[5] Exhibit “C,” id. at 158.
[6] Exhibit “D,” id. at 159.
[7]
[8] Exhibit “E,” folder of exhibits, vol. II, p. 160.
[9]
[10] Records, p. 1.
[11]
[12]
[13]
[14] RTC Decision, id. at 122-128.
[15]
[16] CA rollo, pp. 78-86.
[17]
[18]
[19]
[20] Rollo, pp. 17-18.
[21] Article 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract. It may also guarantee a natural obligation.
[22] Article 2076. The obligation of the guarantor is extinguished at the same time as that of the debtor, and for the same cases as all other obligations.
[23] Article 2063. A compromise between the creditor and the principal debtor benefits the guarantor but does not prejudice him. That which is entered into between the guarantor and the creditor benefits but does not prejudice the principal debtor.
[24] Spouses Delfino
v. St. James Hospital, Inc., G.R. No. 166735, November 23, 2007; Pineda
v. Heirs of Eliseo Guevara, G.R. No. 143188,
February 14, 2007, 515 SCRA 627, 634; Larano
v. Calendacion, G.R. No. 158231,
[25] Exhibit “A,” folder of exhibits, vol. II, pp. 147-148.
[26] CA rollo, pp. 83-84.
[27] Amor-Catalan v. Court of Appeals, G.R. No. 167109, February 6, 2007, 514 SCRA 607, 612.
[28] Exhibit “3,” records, p. 86.