THIRD DIVISION
|
PRUDENTIAL GUARANTEE AND ASSURANCE INC., Petitioner,
- versus - |
G.R. No.
177240 Present: CARPIO
MORALES, J., Chairperson, BERSAMIN,
VILLARAMA,
JR., and SERENO, JJ. |
|
ANSCOR LAND,
INC., Respondent. |
Promulgated:
September 8, 2010 |
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DECISION
VILLARAMA, JR., J.:
This
petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assails the Decision[1] dated April 28, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 72854 which modified the Decision[2] promulgated
on September 2, 2002 by the Construction Industry Arbitration Commission (CIAC)
to the effect that herein petitioner Prudential Guarantee and Assurance Inc.
(PGAI) was declared solidarily liable with its principal Kraft Realty and
Development Corporation (KRDC) under the performance bond.
The facts
follow.
On
Under
the contract, KRDC was to build and complete the project within 275 continuous
calendar days from the date of receipt of a notice to proceed for the
consideration of P18,800,000.00.
As part
of its undertaking, KRDC submitted a surety bond amounting to P4,500,000.00
to secure the reimbursement of the down payment paid by ALI in case of failure
to finish the project and a performance bond amounting to P4,700,000.00
to guarantee the supply of labor, materials, tools, equipment, and necessary
supervision to complete the project. The
said bonds were issued in favor of ALI by herein petitioner PGAI.
Under the
Performance Bond,[4]
the parties agreed on a time-bar
provision which states:
…Furthermore, it is hereby agreed and understood that PRUDENTIAL GUARANTEE AND ASSURANCE INC., shall not be liable for any claim not discovered and presented to the company within ten days from the expiration of this bond or from the occurrence of the default or failure of the principal, whichever is the earliest, and that the obligee hereby waives his right to file any claim against the Surety after the termination of the period of ten days above mentioned after which time this bond shall definitely terminate and be deemed absolutely cancelled.
KRDC then
received a notice to proceed on
KRDC, through
a letter on
Through a
letter[7] dated P3,852,800.84. PGAI however did not respond to the
letter.
On
On P7,552,632.74
to ALI and a total of P1,292,487.81 to KRDC. CIAC also allowed the offsetting of the
awards to both parties which resulted to a net amount due to ALI of P6,260,144.93
to be paid by KRDC. Meanwhile, the CIAC
found PGAI liable for the reimbursement of the unliquidated portion of the down
payment as a solidary liability under the surety bond in the amount of P1,771,264.06.[9]
In the same
judgment, the CIAC absolved PGAI from a claim against the performance
bond. It reasoned that ALI belatedly
filed its claim on the performance bond.
The CIAC accepted the view that the
The CIAC
ruled that the
ALI then
filed a petition for review on
The CA found
the petition meritorious in its questioned Decision[11] dated
WHEREFORE, the petition is GRANTED. The decretal portion of the decision is MODIFIED to the effect that PGAI is hereby pronounced solidarily liable with KRDC under the performance bond.
SO ORDERED.[12]
Petitioner
PGAI now comes to this Court to seek relief.
Petitioner
argues that the CIAC had no jurisdiction over the dispute as regards the claim
of ALI against the performance bond because petitioner was not a party to the
construction contract. It maintains that
Executive Order (EO) No. 1008[13] did not vest jurisdiction on the CIAC
to settle disputes between a party to a construction contract on one hand and a
non-party on the other.
The
petitioner contends that CIAC’s jurisdiction was limited to the construction
industry and cannot extend to surety or guarantee contracts. By reason of the lack of jurisdiction of the
CIAC over the dispute, the
As to the
award made by the CIAC on ALI’s claims, petitioner maintains that it cannot be
held liable under the performance bond because clearly, under the time-bar provision in the said bond, the
claim made by ALI in its letter to PGAI dated
On the other
hand, respondent avers that the construction contract itself provided that the
performance and surety bond shall be deemed part of the construction contract, to
wit:
Article 1
CONTRACT DOCUMENTS
1.1 The following shall form part of this Contract and together with this Contract, are known as the “Contract Documents”:
a. Bid Proposal
x x x x
d. Notice to proceed
x x x x
j. Appendices A & B (respectively, Surety Bond for Performance and, Supply of Materials by the Developer)[15]
By
reason of this express provision in the construction contract, respondent
maintains that petitioner PGAI became a party to such contract when it
submitted its Surety and Performance bonds.
Consequently, petitioner’s argument that CIAC has not acquired
jurisdiction over PGAI because the latter was not a party to the construction
contract, is untenable.
As to
the alleged lack of jurisdiction of CIAC over the dispute arising from the surety
contract, respondent cites EO No. 1008, which provides that any dispute
connected with a construction contract comes within the original and exclusive
jurisdiction of the CIAC. The surety
bond being an integral part of the construction contract, it is necessarily
connected thereto which brings it under the jurisdiction of the CIAC.
On the
issue of timeliness of the “claim”, respondent insists that its letter dated
In fine, there are two (2) main issues for
this Court to resolve, to wit:
I.
Whether or not the CIAC had jurisdiction over the dispute.
II.
Whether or not the respondent made its claim on the performance bond within the period allowed by the time-bar provision.
First Issue – Jurisdiction of the CIAC
Section 4 of EO
No. 1008 defines the jurisdiction of the CIAC:
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
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
EO No. 1008
expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction
contracts entered into by parties that have agreed to submit their dispute to
voluntary arbitration. Under the
aforequoted provision, it is apparent that a dispute must meet two (2) requirements
in order to fall under the jurisdiction of the CIAC: 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.
As
regards the first requirement, the Performance Bond issued by the petitioner
was meant to guarantee the supply of labor, materials, tools, equipment, and
necessary supervision to complete the project.
A guarantee or a surety contract under Article 2047[16]
of the Civil Code of the Philippines is an accessory contract because it
is dependent for its existence upon the principal obligation guaranteed by it.[17]
In fact,
the primary and only reason behind the acquisition of the performance bond by
KRDC was to guarantee to ALI that the construction project would proceed in
accordance with the contract terms and conditions. In effect, the performance bond becomes
liable for the completion of the construction project in the event KRDC fails
in its contractual undertaking.
Because
of the performance bond, the construction contract between ALI and KRDC is
guaranteed to be performed even if KRDC fails in its obligation. In practice, a
performance bond is usually a condition or a necessary component of
construction contracts. In the case at
bar, the performance bond was so connected with the construction contract that
the former was agreed by the parties to be a condition for the latter to push
through and at the same time, the former is reliant on the latter for its
existence as an accessory contract.
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 EO No. 1008, which has jurisdiction over any
dispute arising from or connected with it.
On the
second requirement that the parties to a dispute must have previously agreed to
submit to arbitration, it is clear from Article 24 of the Construction Contract itself that the parties have indeed
agreed to submit their disputes to arbitration, to wit:
Article 24
DISPUTES AND ARBITRATION
All disputes, controversies, or differences between the parties arising out of or in connection with this Contract, or arising out of or in connection with the execution of the WORK shall be settled in accordance with the procedures laid down by the Construction Industry Arbitration Commission. The cost of arbitration shall be borne jointly by both CONTRACTOR and DEVELOPER on a fifty-fifty (50-50) basis.[18]
Petitioner
however argues that such provision in the construction contract does not bind
it because it is not a party to such
contract and in effect did not give its consent to submit to arbitration in
case of any dispute on the performance bond.
Such argument is untenable. The Performance
Bond issued by petitioner states that PGAI agreed --
To guarantee the supply of labor, materials, tools, equipment and necessary supervision to complete the construction of Proposed Sigma Townhouses of the Obligee as per Notice to Proceed dated November 23, 1999, copy of which is hereto attached and made an integral part of this bond.[19]
When it
executed the performance bond, PGAI’s undertaking thereunder was that of a
surety to the obligation of KRDC, the principal under the construction contract.
PGAI should not be allowed now to insist that it had nothing to do with the
construction contract and should be viewed as a non-party. Since the liability
of petitioner as surety is solidary with that of KRDC, it was properly
impleaded as it would be the party ultimately answerable under the bond should
KRDC be adjudged liable for breach of contract.
Furthermore, it is well settled that accessory contracts should not be
read independently of the main contract. They should be construed together in
order to arrive at their true meaning.[20] In Velasquez
v. Court of Appeals,[21]
the Court labeled such rule as the “complementary contracts construed together”
doctrine. It states:
That the “complementary contracts construed together” doctrine applies in this case finds support in the principle that the surety contract is merely an accessory contract and must be interpreted with its principal contract, which in this case was the loan agreement. This doctrine closely adheres to the spirit of Art. 1374 of the Civil Code which states that–
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly.
In the case at bar, the performance
bond was silent with regard to arbitration. On the other hand, the construction
contract was clear as to arbitration in the event of disputes. Applying the said doctrine, we rule that the
silence of the accessory contract in this case could only be construed as
acquiescence to the main contract. The
construction contract breathes life into the performance bond. We are not ready to assume that the
performance bond contains reservations with regard to some of the terms and
conditions in the construction contract where in fact it is silent. On the other hand, it is more reasonable to
assume that the party who issued the performance bond carefully and
meticulously studied the construction contract that it guaranteed, and if it
had reservations, it would have and should have mentioned them in the surety
contract.
Second Issue – Petitioner’s
Liability Under the Performance Bond
On
the second issue, the crux of the controversy revolves upon a letter dated
x x x x
This pertains to the contract between Kraft Realty Development Corp. and Anscor Land, Inc., which is covered by surety and performance bonds by your good company.
Please be advised that we are now terminating the contract of Kraft due to the breach by Kraft of the terms and conditions of the construction contract. More specifically, the project has accumulated very serious delays, in spite of the full cooperation that this company has extended to Kraft.
Kindly
refer to the attached letter of termination dated
Engr. Teodelito de Vera
Anscor Land, Inc.
Tel. 812-7941 to 48 Fax 813-5301
Thank you for your kind attention.[22] (Italics supplied.)
The question really is whether or not
the foregoing letter constituted a valid claim and effectively complied with
the time-bar provision in the performance bond.
It is clear that ALI communicated
two (2) important points to PGAI in the letter. First, that ALI is terminating the
construction contract with KRDC and second, that ALI may be making a claim on the bonds issued by PGAI.
The time-bar provision in the Performance
Bond provides that any claim against the bond should be “discovered and
presented to the company within ten days from the expiration of this bond or
from the occurrence of the default or failure of the principal, whichever is
the earliest”. The purpose of this provision in the performance bond is to give
the issuer, in this case PGAI, notice of the claim at the earliest possible
time and to afford the issuer sufficient time to evaluate, and examine the validity
of the claim while the evidence or indicators of breach are fresh. In the construction industry, time is
precious, delay costs money and postponement in making a claim could cause
additional expenses.
In line with the rationale behind the time-bar
provision, we rule that the letter dated
The CA thus
correctly ruled that:
The fact of contract termination had
been made known to PGAI as early as
That ALI merely used the word “may”
in expressing its intent to proceed against the bond does not make its claim
any less categorical as argued by PGAI.
The point is the very condition giving rise to the obligation to pay,
i.e. KRDC’s default and the resulting contract termination, was clearly
mentioned in the
x x x x
But the important consideration is
that ALI, by its
Surely, no bond would answer for the non-implementation of contractual provisions other than the performance bond. Further, the surety bond only guarantees reimbursement of the portion of the downpayment and not the supply of labor, materials and equipment.[23] (Emphasis supplied, italics in the original.)
In interpreting the time-bar
provision, the absence of any ambiguity in the words used would lead to the
conclusion that the generally accepted meaning of the words shall control. In the time-bar provision, the word “claim” does not give rise to any ambiguity
in interpretation and does not call for a stretched understanding.
In Finasia
Investments and Finance Corporation v. Court of Appeals,[24] the Court had the occasion to
rule that:
The word “claim” is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured.
In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim.[25] (Italics supplied.)
In the case at bar, the claim of ALI
against PGAI arose from the failure of KRDC to perform its obligation under the
construction contract. ALI therefore
already had the “claim” or “right to payment” against PGAI in the maximum
amount of P4,700,000.00 from the moment KRDC failed to comply with its
obligation. According to the time-bar provision, in order to enforce
such claim or recover the said amount, ALI shall present its claim within ten (10) days from the occurrence of the
default or failure of KRDC.
The
WHEREFORE,
the petition is DENIED and the Decision
dated
With costs against the
petitioner.
SO
ORDERED.
|
|
MARTIN S. VILLARAMA, JR. Associate Justice |
|
WE CONCUR: CONCHITA CARPIO MORALES Associate Justice Chairperson |
|
|
LUCAS P. BERSAMIN Associate Justice |
MARIANO C. Associate Justice |
|
MARIA Associate Justice |
|
A T T E S T A T I O N
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.
|
|
CONCHITA CARPIO MORALES Associate Justice Chairperson, Third Division |
C E R T I F I C A T I O N
Pursuant to Section 13, Article VIII
of the 1987 Constitution and the Division Chairperson’s Attestation, I
certify 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.
|
|
RENATO C. CORONA Chief Justice |
*
Designated additional member per
Special Order No. 879 dated
[1] Rollo, pp. 47-64. Penned by Associate Justice Ruben T. Reyes (now a retired member of this Court), with Associate Justices Rebecca De Guia-Salvador and Aurora Santiago-Lagman concurring.
[2]
[3] CA rollo, pp. 89-106.
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11] Rollo, pp. 47-64.
[12]
[13] CREATING AN ARBITRATION MACHINERY IN THE CONSTRUCTION INDUSTRY
OF THE
[14] CA rollo, pp. 24-56.
[15]
[16] ART. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
[17] Intra-Strata Assurance Corporation v. Republic, G.R. No. 156571, July 9, 2008, 557 SCRA 363, 369, citing Garcia, Jr. v. Court of Appeals, G.R. No. 80201, November 20, 1990, 191 SCRA 493, 495.
[18] CA rollo, p. 103.
[19]
[20] Rigor
v. Consolidated Orix Leasing and Finance Corporation, G.R. No. 136423,
[21] G.R. No. 124049,
[22] CA rollo, p. 200.
[23] Rollo, pp. 61 and 63.
[24] G.R. No. 107002,
[25] BLACK’S LAW DICTIONARY, 5th ed., p. 224.