Eastern Assurance & Surety Corp. v. Con-Field Construction & Development Corp.
REITERATIONFacts
The Antecedents: Con-Field Construction and Development Corporation (Con-Field) was contracted by ABS-CBN Corporation to construct an air-conditioning system. Con-Field entered into a sub-contract agreement with Freezinhot for the project, with Freezinhot agreeing to furnish equipment, labor, and supervision for P1,730,150.00. Freezinhot was required to provide a performance bond of P346,150.00, which was secured from Eastern Assurance and Surety Corporation (EASCO). Freezinhot commenced work but exhibited slow progress and defects. Freezinhot's President, Demetrio de Guzman, wrote to Con-Field expressing his desire to terminate the contract due to technical reasons and disclaiming responsibility for any future incidents involving his employees. Con-Field, through its Executive Vice-President Martin S. Co, responded by accepting the termination based on Freezinhot's lack of equipment, technical capability, manpower, supervision, and financial support, stating that the cost of labor and materials to complete the project would be deducted from Freezinhot's remaining balance. Con-Field subsequently took over and completed the project. Procedural History: Con-Field filed a complaint against Freezinhot, de Guzman, and EASCO to recover P616,961.14 (cost to complete the project) and the P346,150.00 performance bond. Freezinhot and de Guzman were declared in default. EASCO filed an answer. The Regional Trial Court (RTC) ruled in favor of Con-Field, ordering Freezinhot to pay the cost of completion and Freezinhot and EASCO jointly and severally to pay the performance bond, attorney's fees, and costs. EASCO appealed to the Court of Appeals (CA). The CA affirmed the RTC decision but deleted the award of attorney's fees against EASCO. EASCO's motion for reconsideration was denied. The Petition: EASCO filed a petition for review on certiorari, assailing the CA's decision, arguing that the agreement was not consummated, that a prohibited "labor-only" sub-contracting arrangement was effected without EASCO's knowledge, that Con-Field's acceptance of Freezinhot's termination extinguished EASCO's liability, that the accessory contract of suretyship cannot exist without a valid principal obligation, and that the CA erred in its ruling on the work completion percentage.
Issue(s)
Whether the issue of "labor-only" contracting can be raised for the first time on appeal. Whether Freezinhot's principal obligation was extinguished, thereby releasing EASCO from its suretyship obligation. Whether the Court of Appeals erred in its pronouncement regarding the percentage of work completion by Freezinhot.
Ruling
The petition is denied. The Decision of the Court of Appeals dated March 28, 2003, and its Resolution of August 26, 2003, in CA-G.R. CV No. 68409, are affirmed.
Ratio Decidendi
On the issue of "labor-only" contracting: The Court held that the issue of "labor-only" contracting was not raised before the RTC or the CA and was only brought up in EASCO's motion for reconsideration. The Court reiterated the settled rule that issues not adequately brought to the attention of the trial court cannot be raised for the first time on appeal, as it would violate basic rules of fair play, justice, and due process. Therefore, this Court cannot pass upon this issue. On whether Freezinhot's principal obligation was extinguished: The Court found that while Con-Field acknowledged Freezinhot's inability to finish the project and did not object to its decision to discontinue operations, this did not extinguish Freezinhot's obligation nor did it constitute a compromise. Con-Field's letter clearly indicated that it would hold Freezinhot answerable for the costs incurred in completing the project, as sanctioned by Article VI of their Agreement. This provision explicitly grants the contractor the right to take over the work and charge any excess cost to the sub-contractor and its sureties. The Court emphasized that Freezinhot's termination was unilateral and due to its failure to perform its obligations, not a mutual termination. On the Court of Appeals' pronouncement regarding work completion: The Court agreed with the CA that the testimony regarding Freezinhot's 78% work completion was a mere opinion without basis in actual performance reviews or progress reports and was not conclusive. The Court found no evidence presented by Freezinhot or EASCO to substantiate the claim that the project was about to be completed when Con-Field took over. The Court reiterated the rule that he who alleges a fact has the burden of proving it, and mere allegations are not evidence. Furthermore, the Court noted that the performance bond amount was insufficient to cover the additional expenses incurred by Con-Field due to Freezinhot's default, and EASCO could seek reimbursement from Freezinhot based on their indemnity agreement.
Main Doctrine
A surety's obligation is solidary with the principal debtor, and the surety is liable for the performance bond when the principal fails to faithfully comply with the sub-contract, even if the principal unilaterally terminates the contract due to its inability to perform, provided the termination was not mutually agreed upon or facilitated by the contractor.