Philippine Charter Insurance v. Central Colleges
REITERATIONFacts
The Antecedents: Central Colleges of the Philippines (CCP) contracted Dynamic Planners and Construction Corporation (DPCC) as general contractor for a five-storey school building. DPCC posted three bonds from Philippine Charter Insurance Corporation (PCIC) to guarantee performance. Phase 1 was completed, but Phase 2 encountered significant delays. An audit revealed only 47% completion. CCP notified DPCC and PCIC of the breach and its intent to claim on the bonds. Despite DPCC's request for extension, CCP declared DPCC in default due to 51% completion and terminated the contract, hiring another contractor. PCIC denied CCP's claims on the bonds. Procedural History: CCP filed a complaint with the Construction Industry Arbitration Commission (CIAC) against DPCC and PCIC. CIAC ruled in favor of CCP, holding DPCC and PCIC jointly and severally liable for ₱13,924,351.47, but also ordered CCP to pay DPCC ₱4,232,264.12 for materials and equipment left at the site. The net award against DPCC and PCIC was ₱9,692,087.37. All parties appealed to the Court of Appeals (CA). The CA modified the CIAC decision, deleting the award for materials and equipment, and ordered PCIC and DPCC jointly and severally liable for ₱13,924,351.47 with interest. PCIC's motion for reconsideration was denied. The Petition: PCIC filed a petition for review on certiorari with the Supreme Court, challenging the CA's decision sustaining the award against it, the CA's affirmation of CCP's right to terminate the contract, and the deletion of DPCC's counterclaim.
Issue(s)
Whether the Court of Appeals erred in sustaining the CIAC award finding petitioner liable under the performance and surety bonds. Whether the Court of Appeals erred in upholding the CIAC award pronouncing respondent CCP as rightfully and justifiably entitled to terminate the contract agreement. Whether the Court of Appeals erred in deleting the counterclaim of respondent DPCC covering the costs of materials, equipment, formworks and scaffoldings left at site and in denying petitioner to benefit from the counterclaim.
Ruling
The petition is partly granted. The Court modified the Court of Appeals' decision, ordering Philippine Charter Insurance Corporation and Dynamic Planners and Construction Corporation to jointly and severally pay Central Colleges of the Philippines the total amount of ₱13,231,460.73 under Surety Bond No. PCIC-45542 and Performance Bond No. PCIC-45541 (as modified by Bond Endorsement No. E-2003/12527), with legal interest.
Ratio Decidendi
On the issue of PCIC's liability under the performance bonds and surety bond: The Court found that CCP judicially admitted it was no longer interested in pursuing Performance Bond PCIC-46172 during the arbitral proceedings. This admission, made by CCP's President, effectively settled the issue regarding that specific bond. Therefore, PCIC's liability was confined to Surety Bond No. PCIC-45542 and Performance Bond No. PCIC-45541. The Court also clarified that DPCC incurred delay from the time CCP extrajudicially demanded fulfillment of its commitment against the bonds, which was on October 29, 2003. This date triggered the notice of claim requirement under the bonds, and CCP's subsequent letter on November 6, 2003, complied with this requirement. The Court reiterated that a surety's liability is direct, primary, and absolute, making it solidarily bound with the principal debtor. PCIC, as a surety, was duty-bound to perform what it guaranteed on its bonds upon the principal's default. On the issue of CCP's right to terminate the contract: The Court affirmed the CA's disquisition that CCP was legally warranted in terminating the contract with DPCC. Article 16 of the Contract Agreement clearly granted the OWNER the right to terminate the contract upon substantial failure of the CONTRACTOR to fulfill its obligation, or if the CONTRACTOR willfully violated material conditions of the contract. DPCC's completion of only 51% of Phase 2 by the scheduled completion date constituted a substantial failure to fulfill its obligation, justifying the termination. On the issue of DPCC's counterclaim for materials and equipment: The Court found no error in the CA's deletion of the award for actual damages in favor of DPCC. The Court emphasized that actual damages require both pleading and proof of actual damages suffered, with the amount of loss being capable of proof with a reasonable degree of certainty. DPCC failed to establish that the items in the receipts it presented corresponded to the items allegedly left at the work site. Furthermore, DPCC did not appeal the CA's decision, thus it could not be granted relief in its favor. Consequently, PCIC could not benefit from a counterclaim that was not properly proven and not appealed by the party claiming it.
Main Doctrine
A surety's liability is direct, primary, and absolute, making it directly and equally bound with the principal. The obligee's claim against the surety arises upon the principal's default, and the surety can be held liable as a solidary obligor.