The Manila Insurance Company, Inc. vs.

Spouses Roberto and Aida Amurao

G.R. No. 179628. January 16, 2013 Contract; contract of suretyship; efinition; nature of !ia"i!ity of surety; surety#s !ia"i!ity is irect, pri$ary an a"so!ute as %e!! as &oint an se'era!. (acts) *pouses +$urao entere into a construction a,ree$ent %ith +e,ean -e'e!op$ent Corp %here"y the !atter %as to construct a 6 storey co$$ercia! "ui! in,. +,ean poste perfor$ance "on secure "y .etitioner /ani!a 0nsurance Co$pany 0nc. an 0ntra *trata +ssurance Corp. 1hen +e,ean fai!e to finish the construction, spouses +$urao fi!e a case a,ainst /ani!a 0nsurance an 0ntra *trata. /ani!a 0nsurance ar,ue that %hen it e2ecute the surety a,ree$ent, the construction contract %as not yet si,ne . 3herefore, spouses +$urao ha'e no cause of action a,ainst the$. Ratio) + contract of suretyship is efine as 4an a,ree$ent %here"y a party, ca!!e the surety, ,uarantees the perfor$ance "y another party, ca!!e the principa! or o"!i,or, of an o"!i,ation or un erta5in, in fa'or of a thir party, ca!!e the o"!i,ee. 0t inc!u es officia! reco,ni6ances, stipu!ations, "on s or un erta5in,s issue "y any co$pany "y 'irtue of an un er the pro'isions of +ct No. 736, as a$en e "y +ct No. 2206 (An Act Relative to Recognizances, Stipulations, Bonds and Undertakings, and to Allow Certain Corporations to be Accepted as Surety Thereon .8 1e ha'e consistent!y he! that a surety#s !ia"i!ity is &oint an se'era!, !i$ite to the a$ount of the "on , an eter$ine strict!y "y the ter$s of contract of suretyship in re!ation to the principa! contract "et%een the o"!i,or an the o"!i,ee. 0t "ears stressin,, ho%e'er, that a!thou,h the contract of suretyship is secon ary to the principa! contract, the surety#s !ia"i!ity to the o"!i,ee is ne'erthe!ess irect, pri$ary, an a"so!ute.

Republic of the PhilippinesSUPREME COURTManila SECOND DIVISION G.R. No. 179628 January 16, 2013

THE MAN !A NSURANCE COMPAN", NC., Petitioner, vs. SPOUSES RO#ERTO an$ A %A AMURAO, Respondents. DECISION

%E! CAST !!O, J.: he !urisdiction of the Construction Industr" #rbitration Co$$ission %CI#C& is conferred b" la'. Section ( ) of E*ecutive Order %E.O.& No. I ++,, other'ise -no'n as the Construction Industr" #rbitration .a', /is broad enou0h to cover an" dispute arisin0 fro$, or connected 'ith construction contracts, 'hether these involve $ere contractual $one" clai$s or e*ecution of the 'or-s./1 his Petition for Revie' on Certiorari2 under Rule (3 of the Rules of Court assails the Decision( dated 4une 5, 1++5 and the Resolution3 dated Septe$ber 5, 1++5 of the Court of #ppeals %C#& in C#67.R. SP No. 89,)3. :actual #ntecedents On March 5, 1+++, respondent6spouses Roberto and #ida #$urao entered into a Construction Contract #0ree$ent %CC#& 9 'ith #e0ean Construction and Develop$ent Corporation %#e0ean& for the construction of a si*6store" co$$ercial buildin0 in o$as Morato corner E. Rodri0ue; #venue, <ue;on Cit". 5 o 0uarantee its full and faithful co$pliance 'ith the ter$s and conditions of the CC#, #e0ean posted perfor$ance bonds secured b" petitioner he Manila Insurance Co$pan", Inc., %petitioner& and Intra Strata #ssurance Corporation %Intra Strata&.8 On Nove$ber )3, 1++), due to the failure of #e0ean to co$plete the pro!ect, respondent spouses filed 'ith the Re0ional rial Court %R C& of <ue;on Cit", =ranch 1)5, a Co$plaint, )+ doc-eted as Civil Case No. <6+)6(3352, a0ainst petitioner and Intra Strata to collect on the perfor$ance bonds the" issued in the a$ounts of P1,59+,+++.++ and P(,((+,+++.++, respectivel". )) Intra Strata, for its part, filed an #ns'er )1 and later, a Motion to #d$it hird Part" Co$plaint,)2 'ith attached hird Part" )( Co$plaint a0ainst #e0ean, Ronald D. Nicdao, and #rnel #. Mariano. Petitioner, on the other hand, filed a Motion to Dis$iss )3 on the 0rounds that the Co$plaint states no cause of action )9 and that the filin0 of the Co$plaint is pre$ature due to the failure of respondent6spouses to i$plead the principal contractor, #e0ean. )5 he R C, ho'ever, denied the $otion in an Order ), dated Ma" ,,

1++1. hus, petitioner filed an #ns'er 'ith Counterclai$ and Cross6clai$,)8 follo'ed b" a hird Part" Co$plaint 1+ a0ainst #e0ean and spouses Ronald and Susana Nicdao. Durin0 the pre6trial, petitioner and Intra Strata discovered that the CC# entered into b" respondent6spouses and #e0ean contained an arbitration clause.1) >ence, the" filed separate Motions to Dis$iss 11 on the 0rounds of lac- of cause of action and lac- of !urisdiction. Rulin0 of the Re0ional rial Court On Ma" 3, 1++9, the R C denied both $otions. 12 Petitioner and Intra Strata separatel" $oved for reconsideration but their $otions 'ere denied b" the R C in its subse?uent Order 1( dated Septe$ber )), 1++9. #00rieved, petitioner elevated the case to the C# b" 'a" of special civil action for certiorari.13 Rulin0 of the Court of #ppeals On 4une 5, 1++5, the C# rendered a Decision 19 dis$issin0 the petition. he C# ruled that the presence of an arbitration clause in the CC# does not $erit a dis$issal of the case because under the CC#, it is onl" 'hen there are differences in the interpretation of #rticle I of the construction a0ree$ent that the parties can resort to arbitration.15 he C# also found no 0rave abuse of discretion on the part of the R C 'hen it disre0arded the fact that the CC# 'as not "et si0ned at the ti$e petitioner issued the perfor$ance bond on :ebruar" 18, 1+++.1, he C# e*plained that the perfor$ance bond 'as intended to be coter$inous 'ith the construction of the buildin0.18 It pointed out that /if the deliver" of the ori0inal contract is conte$poraneous 'ith the deliver" of the suret"@s obli0ation, each contract beco$es co$pleted at the sa$e ti$e, and the consideration 'hich supports the principal contract li-e'ise supports the subsidiar" one./2+ he C# li-e'ise said that, althou0h the contract of suret" is onl" an accessor" to the principal contract, the suret"@s liabilit" is direct, pri$ar" and absolute. 2) husA B>ERE:ORE, 'e resolve to DISMISS the petition as 'e find that no 0rave abuse of discretion attended the issuance of the order of the public respondent den"in0 the petitioner@s $otion to dis$iss.

I IS SO ORDERED.21 Petitioner $oved for reconsideration but the C# denied the sa$e in a Resolution22 dated Septe$ber 5, 1++5. Issues >ence, this petition raisin0 the follo'in0 issuesA #. >E >ONOR#=.E C# ERRED B>EN I >E.D ># I IS ON.C B>EN >ERE #RE DI::ERENCES IN >E IN ERPRE # ION O: #R IC.E I O: >E CONS RDC ION #7REEMEN ># >E P#R IES M#C RESOR O #R=I R# ION =C >E CI#C. =. >E >ONOR#=.E C# ERRED IN RE# IN7 PE I IONER #S # SO.ID#RC DE= OR INS E#D O: # SO.ID#RC 7D#R#N OR. C. >E >ONOR#=.E EC#F OVER.OOGED #ND :#I.ED O CONSIDER >E :#C ># >ERE B#S NO #C D#. #ND EHIS IN7 CONS RDC ION #7REEMEN # >E IME >E M#NI.# INSDR#NCE =OND NO. 7 %)2& 1+,1 B#S ISSDED ON :E=RD#RC 18, 1+++.2( Petitioner@s #r0u$ents Petitioner contends that the C# erred in rulin0 that the parties $a" resort to arbitration onl" 'hen there is difference in the interpretation of the contract docu$ents stated in #rticle I of the CC#.23 Petitioner insists that under Section ( of E.O. No. )++,, it is the CI#C that has ori0inal and e*clusive !urisdiction over construction disputes, such as the instant case.29 Petitioner li-e'ise i$putes error on the part of the C# in treatin0 petitioner as a solidar" debtor instead of a solidar" 0uarantor. 25 Petitioner ar0ues that 'hile a suret" is bound solidaril" 'ith the obli0or, this does not $a-e the suret" a solidar" co6debtor. 2, # suret" or 0uarantor is liable onl" if the debtor is hi$self liable. 28 In

this case, since respondent6spouses and #e0ean a0reed to sub$it an" dispute for arbitration before the CI#C, it is i$perative that the dispute bet'een respondent6spouses and #e0ean $ust first be referred to arbitration in order to establish the liabilit" of #e0ean. (+ In other 'ords, unless the liabilit" of #e0ean is deter$ined, the filin0 of the instant case is pre$ature.() :inall", petitioner puts in issue the fact that the perfor$ance bond 'as issued prior to the e*ecution of the CC#. (1 Petitioner clai$s that since there 'as no e*istin0 contract at the ti$e the perfor$ance bond 'as e*ecuted, respondent6spouses have no cause of action a0ainst petitioner. (2 hus, the co$plaint should be dis$issed.(( Respondent spouses@ #r0u$ents Respondent6spouses, on the other hand, $aintain that the CI#C has no !urisdiction over the case because there is no a$bi0uit" in the provisions of the CC#.(3 =esides, petitioner is not a part" to the CC#.(9 >ence, it cannot invo-e #rticle HVII of the CC#, 'hich provides for arbitration proceedin0s.(5 Respondent6spouses also insist that petitioner as a suret" is directl" and e?uall" bound 'ith the principal.(, he fact that the perfor$ance bond 'as issued prior to the e*ecution of the CC# also does not affect the latter@s validit" because the perfor$ance bond is coter$inous 'ith the construction of the buildin0.(8 Our Rulin0 he petition has $erit. Nature of the liabilit" of the suret" # contract of suret"ship is defined as /an a0ree$ent 'hereb" a part", called the suret", 0uarantees the perfor$ance b" another part", called the principal or obli0or, of an obli0ation or underta-in0 in favor of a third part", called the obli0ee. It includes official reco0ni;ances, stipulations, bonds or underta-in0s issued b" an" co$pan" b" virtue of and under the provisions of #ct No. 329, as a$ended b" #ct No. 11+9./3+ Be have consistentl" held that a suret"@s liabilit" is !oint and several, li$ited to the a$ount of the bond, and deter$ined strictl" b" the ter$s of contract of suret"ship in relation to the principal contract bet'een the obli0or and the obli0ee.3) It bears stressin0, ho'ever, that althou0h the contract of

suret"ship is secondar" to the principal contract, the suret"@s liabilit" to the obli0ee is nevertheless direct, pri$ar", and absolute.31 In this case, respondent6spouses %obli0ee& filed 'ith the R C a Co$plaint a0ainst petitioner %suret"& to collect on the perfor$ance bond it issued. Petitioner, ho'ever, see-s the dis$issal of the Co$plaint on the 0rounds of lac- of cause of action and lac- of !urisdiction. he respondent6spouses have cause of action a0ainst the petitionerI the perfor$ance bond is coter$inous 'ith the CC# Petitioner clai$s that respondent6spouses have no cause of action a0ainst it because at the ti$e it issued the perfor$ance bond, the CC# 'as not "et si0ned b" respondent6spouses and #e0ean. Be do not a0ree. # careful readin0 of the Perfor$ance =ond reveals that the /bond is coter$inous 'ith the final acceptance of the pro!ect./ 32 hus, the fact that it 'as issued prior to the e*ecution of the CC# does not affect its validit" or effectivit". =ut 'hile there is a cause of action a0ainst petitioner, the co$plaint $ust still be dis$issed for lac- of !urisdiction. he CI#C has !urisdiction over the case Section ( of E.O. No. )++, provides thatA SEC. (. 4urisdiction. J he CI#C shall have ori0inal and e*clusive !urisdiction over disputes arisin0 fro$, or connected 'ith, contracts entered into b" parties involved in construction in the Philippines, 'hether the dispute arises before or after the co$pletion of the contract, or after the abandon$ent or breach thereof. hese disputes $a" involve 0overn$ent or private contracts. :or the =oard to ac?uire !urisdiction, the parties to a dispute $ust a0ree to sub$it the sa$e to voluntar" arbitration. he !urisdiction of the CI#C $a" include but is not li$ited to violation of specifications for $aterials and 'or-$anship, violation of the ter$s of a0ree$ent, interpretation andKor application of contractual ti$e and dela"s, $aintenance and defects, pa"$ent,

default of e$plo"er or contractor, and chan0es in contract cost. E*cluded fro$ the covera0e of the la' are disputes arisin0 fro$ e$plo"er6e$plo"ee relationships 'hich shall continue to be covered b" the .abor Code of the Philippines. =ased on the fore0oin0, in order for the CI#C to ac?uire !urisdiction t'o re?uisites $ust concurA /first, the dispute $ust be so$eho' connected to a construction contractI and second, the parties $ust have a0reed to sub$it the dispute to arbitration proceedin0s./3( In this case, both re?uisites are present. he parties a0reed to sub$it to arbitration proceedin0s /an" dispute arisin0 in the course of the e*ecution and perfor$ance of the CC# b" reason of difference in interpretation of the Contract Docu$ents * * * 'hich the parties are unable to resolve a$icabl" bet'een the$selves./33 #rticle HVII of the CC# readsA #R IC.E HVII J #R=I R# ION )5.) #n" dispute arisin0 in the course of the e*ecution and perfor$ance of this #0ree$ent b" reason of difference in interpretation of the Contract Docu$ents set forth in #rticle I 'hich the OBNER and the CON R#C OR are unable to resolve a$icabl" bet'een the$selves shall be sub$itted b" either part" to a board of arbitrators co$posed of hree %2& $e$bers chosen as follo'sA One %)& $e$ber shall be chosen b" the CON R#C OR #ND One %)& $e$ber shall be chosen b" the OBNER. he said 'o %1& $e$bers, in turn, shall select a third $e$ber acceptable to both of the$. he decision of the =oard of #rbitrators shall be rendered 'ithin en %)+& da"s fro$ the first $eetin0 of the board, 'hich decision 'hen reached throu0h the affir$ative vote of at least 'o %1& $e$bers of the board shall be final and bindin0 upon the OBNER and CON R#C OR.
1wphi1

)5.1 Matters not other'ise provided for in this Contract or b" Special #0ree$ent of the parties shall be 0overned b" the provisions of the #rbitration .a', E*ecutive Order No. )++,. 39 In Billia$ 7olan0co Construction Corporation v. Ra" =urton Develop$ent Corporation,35 'e declared that $onetar" clai$s under a construction contract are disputes arisin0 fro$ /differences

in interpretation of the contract/ because /the $atter of ascertainin0 the duties and obli0ations of the parties under their contract all involve interpretation of the provisions of the contract./3, :ollo'in0 our reasonin0 in that case, 'e find that the issue of 'hether respondent6spouses are entitled to collect on the perfor$ance bond issued b" petitioner is a /dispute arisin0 in the course of the e*ecution and perfor$ance of the CC# b" reason of difference in the interpretation of the contract docu$ents./ he fact that petitioner is not a part" to the CC# cannot re$ove the dispute fro$ the !urisdiction of the CI#C because the issue of 'hether respondent6spouses are entitled to collect on the perfor$ance bond, as 'e have said, is a dispute arisin0 fro$ or connected to the CC#. In fact, in Prudential 7uarantee and #ssurance, Inc. v. #nscor .and, Inc.,38 'e re!ected the ar0u$ent that the !urisdiction of CI#C is li$ited to the construction industr", and thus, cannot e*tend to suret" contracts. In that case, 'e declared that /althou0h not the construction contract itself, the perfor$ance bond is dee$ed as an associate of the $ain construction contract that it cannot be separated or severed fro$ its principal. he Perfor$ance =ond is si0nificantl" and substantiall" connected to the construction contract that there can be no doubt it is the CI#C, under Section ( of E.O. No. )++,, 'hich has !urisdiction over an" dispute arisin0 fro$ or connected 'ith it./9+ In vie' of the fore0oin0, 'e a0ree 'ith the petitioner that !uriisdiction over the instant case lies 'ith the CI#C, and not 'ith the R C. hus, the Co$plaint filed b" respondent6spouses 'ith the R C $ust be dis$issed. B>ERE:ORE, the petition is hereb" 7R#N ED. he Decision dated 4une 5, 1++5 and the Resolution dated Septe$ber 5, 1++5 of the Court of #ppeals in C#67.R. SP No. 89,)3 are hereb" #NND..ED and SE #SIDE. he Presidin0 4ud0e of the Re0ional rial Court of <ue;on Cit", =ranch 1)5 )s DIREC ED to dis$iss Civil Case No. <6+)6(3352 for lac- of !urisdiction. SO ORDERED. MAR ANO C. %E! CAST !!O#ssociate 4ustice BE CONCDRA

ANTON O T. CARP O#ssociate 4usticeChairperson

TERES TA J. !EONAR%O&%E CASTRO L JOSE PORTUGA #ssociate 4ustice #ssociate 4u LL MAR( C MAR O ( CTOR ). !EONEN #ssociate 4ustice # ES # ION

I attest that the conclusions in the above Decision had been reached in consultation before the case 'as assi0ned to the 'riter of the opinion of the CourtMs Division. ANTON O T. CARP O#ssociate 4usticeChairperson CER I:IC# ION

Pursuant to Section )2, #rticle VIII of the Constitution and the Division ChairpersonMs #ttestation, I certif" that the conclusions in the above Decision had been reached in consultation before the case 'as assi0ned to the 'riter of the opinion of the CourtMs Division. MAR A !OUR%ES P. A. SERENOChief 4ustice )oo*no*+,
L

Per raffle dated 4anuar" )(.1+)2. Per Special Order No. )(+, dated 4anuar" )3, 1+)2.

LL

SEC. (. 4urisdiction. 6 he Cl#C shall have ori0inal and e*clusive !urisdiction over disputes arisin0 fro$. or connected 'ith. contracts entered into b" parties involved in construction in the Philippines. 'hether the dispute arises before or after the co$pletion of the contract, or after the abandon$ent or breach thereof. hese disputes $a" involve 0overn$ent or private contracts. :or the =oard to ac?uire !urisdiction. the parties to a dispute $ust a0ree to sub$it the sa$e to voluntar" arbitration.
)

he !urisdiction of the Cl#C $a" include but is not li$ited to violation of specifications for $aterials and 'or-$anship. violation of the ter$s of a0ree$ent, interpretation andKor application of contractual ti$e and dela"s. $aintenance and defects. pa"$ent.

default of e$plo"er or contractor, and chan0es in contract cost. E*cluded fro$ the covera0e of this la' are disputes arisin0 fro$ e$plo"er6e$plo"ee relationships 'hich shall continue to be covered b" the .abor Code of the Philippines. .ICOMCEN, lncorporated v. :oundation Specialists, Inc., 7.R. Nos. )95+11 and )9895,. #pril (, 1+)), 9(5 SCR# ,2, 8).
1 2

Rollo, pp. )2625.

Id. at 286(5I penned b" #ssociate 4ustice #polinario D. =ruselas, 4r. and concurred in b" #ssociate 4ustices =ienvenido .. Re"es %no' a $e$ber of this Court& and #urora Santia0o6.a0$an.
( 3

Id. at (8. Id. at 516,3. Id. at 286(+. Id. at 9,698. Id. at 5+65). Id. at 92695. Id. at 99. Records, Volu$e I, pp. 18621. Id. at 2,628. Id. at (+6(1. Id. at 1961,. Id. at 19. Id. at 15. Id. at (863+I penned b" 4ud0e ."dia <uerubin .a"osa. Rollo, pp. ,,68(.

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Id. at 856)++. Id. at (+. Id. at ))56)1( and ))+6))9. Records, Volu$e II, pp. 3((63(9. Id. at 3,8. C# rollo, pp. 1611. Rollo, pp. 286(5. Id. at (16((. Id. at (36(9. Id. at (9. Id. Id. at (3. Id. at (96(5. Id. at (8. Id. at )9,6)98. Id. at )98. Id. at )5). Id. at )5(. Id. at )53. Id. Id. at ),+. Id. at ),1. Id. at ),2.

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Id. at ),3. Id. at ),9. Id. at )816)82. Id. at )82. Id. Id. at )83. Id. at )89. INSDR#NCE CODE, Section )53.

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Intra6Strata #ssurance Corporation v. Republic, 7.R. No. )3935), 4ul" 8, 1++,, 335 SCR# 292, 298.
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Prudential 7uarantee and #ssurance, Inc. v. E?uino* .and Corporation, 7.R. Nos. )313+36+9, Septe$ber )2, 1++5, 322 SCR# 135, 19,.
31 32

Rollo, p. ,9.

Prudential 7uarantee and #ssurance, Inc. v. #nscor .and, Inc., 7.R. No. )551(+, Septe$ber ,, 1+)+, 92+ SCR# 29,, 259.
3( 33

Rollo, p. ,2. Id. 7.R. No. )923,1, #u0ust 8, 1+)+, 915 SCR# 5(. Id. at ,3. Supra note 3( at 2526258. Id. at 255.

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