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G.R. NOS. 152505-06 - PRUDENTIAL GUARANTEE and ASSURANCE, INC. v. EQUINOX LAND CORPORATION

G.R. NOS. 152505-06 - PRUDENTIAL GUARANTEE and ASSURANCE, INC. v. EQUINOX LAND CORPORATION

PHILIPPINE SUPREME COURT DECISIONS

FIRST DIVISION

[G.R. NOS. 152505-06 : September 13, 2007]

PRUDENTIAL GUARANTEE and ASSURANCE, INC., Petitioner, v. EQUINOX LAND CORPORATION, Respondent.

D E C I S I O N

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the instant Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57335.

The undisputed facts of the case, as established by the Construction Industry Arbitration Commission (CIAC) and affirmed by the Court of Appeals, are:

Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5) additional floors to its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to various building contractors. Four (4) building contractors, including J Marc Construction & Development Corporation (J Marc), responded.

Finding the bid of J Marc to be the most advantageous, Equinox offered the construction project to it. On February 22, 1997, J Marc accepted the offer. Two days later, Equinox formally awarded to J Marc the contract to build the extension for a consideration of P37,000,000.00.

On February 24, 1997, J Marc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of the advance payment payable to J Marc; and (2) a performance bond likewise issued by Prudential in the amount of P7,400,000.00 to guarantee J Marc's faithful performance of its obligations under the construction agreement.

On March 17, 1997, Equinox and J Marc signed the contract and related documents. Under the terms of the contract, J Marc would supply all the labor, materials, tools, equipment, and supervision required to complete the project.

In accordance with the terms of the contract, Equinox paid J Marc a downpayment of P9,250,000.00 equivalent to 25% of the contract price.

J Marc did not adhere to the terms of the contract. It failed to submit the required monthly progress billings for the months of March and April 1997. Its workers neglected to cover the drainpipes, hence, they were clogged by wet cement. This delayed the work on the project.

On May 23, 1997, J Marc requested an unscheduled cash advance of P300,000.00 from Equinox, explaining it had encountered cash problems. Equinox granted J Marc's request to prevent delay.

On May 31, 1997, J Marc submitted its first progress billing showing that it had accomplished only 7.3825% of the construction work estimated at P2,731,535.00. After deducting the advanced payments, the net amount payable to J Marc was only P1,285,959.12. Of this amount, Equinox paid J Marc only P697,005.12 because the former paid EXAN P588,954.00 for concrete mix.

Shortly after Equinox paid J Marc based on its first progress billing, the latter again requested an advanced payment of P150,000.00. Again Equinox paid J Marc this amount. Eventually, Equinox found that the amount owing to J Marc's laborers was only P121,000.00, not P150,000.00.

In June 1997, EXAN refused to deliver concrete mix to the project site due to J Marc's recurring failure to pay on time. Faced with a looming delay in the project schedule, Equinox acceded to EXAN's request that payments for the concrete mix should be remitted to it directly.

On June 30, 1997, J Marc submitted its second progress billing showing that it accomplished only 16.0435% of the project after 4 months of construction work. Based on the contract and its own schedule, J Marc should have accomplished at least 37.70%.

Faced with the problem of delay, Equinox formally gave J Marc one final chance to take remedial steps in order to finish the project on time. However, J Marc failed to undertake any corrective measure. Consequently, on July 10, 1997, Equinox terminated its contract with J Marc and took over the project. On the same date, Equinox sent Prudential a letter claiming relief from J Marc's violations of the contract.

On July 11, 1997, the work on the project stopped. The personnel of both Equinox and J Marc jointly conducted an inventory of all materials, tools, equipment, and supplies at the construction site. They also measured and recorded the amount of work actually accomplished. As of July 11, 1997, J Marc accomplished only 19.0573% of the work or a shortage of 21.565% in violation of the contract.

The cost of J Marc's accomplishment was only P7,051,201.00. In other words, Equinox overpaid J Marc in the sum of P3,974,300.25 inclusive of the 10% retention on the first progress billing amounting to P273,152.50. In addition, Equinox also paid the wages of J Marc's laborers, the billings for unpaid supplies, and the amounts owing to subcontractors of J Marc in the total sum of P664,998.09.

On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City a complaint for sum of money and damages against J Marc and Prudential. Equinox prayed that J Marc be ordered to reimburse the amounts corresponding to its (Equinox) advanced payments and unliquidated portion of its downpayment; and to pay damages. Equinox also prayed that Prudential be ordered to pay its liability under the bonds.

In its answer, J Marc alleged that Equinox has no valid ground for terminating their contract. For its part, Prudential denied Equinox's claims and instituted a cross-claim against J Marc for any judgment that might be rendered against its bonds.

During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant to Executive Order No. 1008, it is the CIAC which has jurisdiction over it.

On February 12, 1999, the trial court granted Prudential's motion and dismissed the case.

On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential submitted a position paper contending that the CIAC has no jurisdiction over it since it is not a privy to the construction contract between Equinox and J Marc; and that its surety and performance bonds are not construction agreements, thus, any action thereon lies exclusively with the proper court.

On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against J Marc and Prudential, thus:

AWARD

After considering the evidence and the arguments of the parties, we find that:

1. J Marc has been duly notified of the filing and pendency of the arbitration proceeding commenced by Equinox against J Marc and that CIAC has acquired jurisdiction over J Marc;

2. The construction Contract was validly terminated by Equinox due to J Marc's failure to provide a timely supply of adequate labor, materials, tools, equipment, and technical services and to remedy its inability to comply with the construction schedule;

3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in the absence of adequate proof of actual and compensatory damages, we award to Equinox nominal or temperate damages in the amount of P500,000.00;

4. The percentage of accomplishment of J Marc at the time of the termination of the Contract was 19.0573% of the work valued at P7,051,201.00. This amount should be credited to J Marc. On the other hand, Equinox [i] had paid J Marc 25% of the contract price as down or advance payment, [ii] had paid J Marc its first progress billing, [iii] had made advances for payroll of the workers, and for unpaid supplies and the works of J Marc's subcontractors, all in the total sum of P11,690,483.34. Deducting the value of J Marc's accomplishment from these advances and payment, there is due from J Marc to Equinox the amount of P4,639,285.34. We hold J Marc liable to pay Equinox this amount of P4,639,285.34.

5. If J Marc had billed Equinox for its accomplishment as of July 11, 1997, 25% of the P7,051,201.00 would have been recouped as partial payment of the advanced or down payment. This would have resulted in reducing Prudential's liability on the Surety Bond from P8,250,000.00 to P7,487,199.80. We, therefore, find that Prudential is liable to Equinox on its Surety Bond the amount of P7,487,199.80;

6. Prudential is furthermore liable on its Performance Bond for the following amounts: the advances made by Equinox on behalf of J Marc to the workers, suppliers, and subcontractors amounting to P664,985.09, the nominal damages of P500,000.00 and attorney's fees of P100,000.00 or a total amount of P1,264,985.00;

7. All other claims and counterclaims are denied;

8. J Marc shall pay the cost of arbitration and shall indemnify Equinox the total amount paid by Equinox as expenses of arbitration;

9. The total liability of J Marc to Equinox is determined to be P5,139,285.34 plus attorney's fees of P100,000.00. The surety's liability cannot exceed that of the principal debtor [Art. 2054, Civil Code}. We hold that, notwithstanding our finding in Nos. 5 and 6 of this Award, Prudential is liable to Equinox on the Surety Bond and Performance Bond an amount not to exceed P5,239,285.34. The cost of arbitration shall be paid by J Marc alone.

The amount of P5,239,285.34 shall be paid by respondent J Marc and respondent Prudential, jointly and severally, with interest at six percent [6%] per annum from promulgation of this award. This amount, including accrued interest, shall earn interest at the rate of 12% per annum from the time this decision becomes final and executory until the entire amount is fully paid or judgment fully satisfied. The expenses of arbitration, which shall be paid by J Marc alone, shall likewise earn interest at 6% per annum from the date of promulgation of the award, and 12% from the date the award becomes final until this amount including accrued interest is fully paid.

SO ORDERED.

Thereupon, Prudential filed with the Court of Appeals a Petition for Review, docketed as CA-G.R. SP No. 56491. Prudential alleged that the CIAC erred in ruling that it is bound by the terms of the construction contract between Equinox and J Marc and that it is solidarily liable with J Marc under its bonds.

Equinox filed a motion for reconsideration on the ground that there is an error in the computation of its claim for unliquidated damages; and that it is entitled to an award of liquidated damages.

On February 2, 2000, the CIAC amended its Award by reducing the total liability of J Marc to Equinox to P4,060,780.21, plus attorney's fees of P100,000 or P4,160,780.21, and holding that Prudential's liability to Equinox on the surety and performance bonds should not exceed the said amount of P4,160,780.21, payable by J Marc and Prudential jointly and severally.

Dissatisfied, Equinox filed with the Court of Appeals a Petition for Review, docketed as CA-G.R. SP No. 57335. This case was consolidated with CA-G.R. SP No. 56491 filed by Prudential.

On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No. 57335 and CA-G.R. SP No. 56491, the dispositive portion of which reads:

WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with MODIFICATION in paragraph 4 in the Award by holding J Marc liable for unliquidated damages to Equinox in the amount of P5,358,167.09 and in paragraph 9 thereof by increasing the total liability of J Marc to Equinox to P5,958,167.09 (in view of the additional award of P500,000.00 as nominal and temperate damages and P100,000.00 in attorney's fees), and AFFIRMED in all other respects.

SO ORDERED.

Prudential seasonably filed a motion for reconsideration but it was denied by the Court of Appeals.

The issue raised before us is whether the Court of Appeals erred in (1) upholding the jurisdiction of the CIAC over the case; and (2) finding Prudential solidarily liable with J Marc for damages.

On the first issue, basic is the rule that administrative agencies are tribunals of limited jurisdiction and as such, can only wield such powers as are specifically granted to them by their enabling statutes.2

Section 4 of Executive Order No. 1008,3 provides:

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 Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

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 the law are disputes arising from employer-employee relationships which continue to be covered by the Labor Code of the Philippines.

In David v. Construction Industry and Arbitration Commission,4 we ruled that Section 4 vests upon the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who have agreed to submit their case for voluntary arbitration.

As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of money against J Marc and Prudential, the latter filed a motion to dismiss on the ground of lack of jurisdiction, contending that since the case involves a construction dispute, jurisdiction lies with CIAC. Prudential's motion was granted. However, after the CIAC assumed jurisdiction over the case, Prudential again moved for its dismissal, alleging that it is not a party to the construction contract between Equinox and J Marc; and that the surety and performance bonds it issued are not construction agreements.

After having voluntarily invoked before the RTC the jurisdiction of CIAC, Prudential is estopped to question its jurisdiction. As we held in Lapanday Agricultural & Development Corporation v. Estita,5 the active participation of a party in a case pending against him before a court or a quasi-judicial body is tantamount to a recognition of that court's or quasi-judicial body's jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the court's or quasi-judicial body's jurisdiction.

Moreover, in its Reply to Equinox's Opposition to the Motion to Dismiss before the RTC, Prudential, citing Philippine National Bank v. Pineda6 and Finman General Assurance Corporation v. Salik,7 argued that as a surety, it is considered under the law to be the same party as the obligor in relation to whatever is adjudged regarding the latter's obligation. Therefore, it is the CIAC which has jurisdiction over the case involving a construction contract between Equinox and J Marc. Such an admission by Prudential binds it and it cannot now claim otherwise.

Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with J Marc. Section 175 of the Insurance Code defines a suretyship as "a contract or agreement whereby a party, called the suretyship, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds, or undertakings issued under Act 5368, as amended." Corollarily, Article 2047 of the Civil Code provides that suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the purpose of fulfilling an obligation.

In Castellvi de Higgins and Higgins v. Seliner,9 we held that while a surety and a guarantor are alike in that each promises to answer for the debt or default of another, the surety assumes liability as a regular party to the undertaking and hence its obligation is primary.

In Security Pacific Assurance Corporation v. Tria-Infante,10 we reiterated the rule that while a contract of surety is secondary only to a valid principal obligation, the surety's liability to the creditor is said to be direct, primary, and absolute. In other words, the surety is directly and equally bound with the principal. Thus, Prudential is barred from disclaiming that its liability with J Marc is solidary.

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57355 is AFFIRMED in toto. Costs against petitioner.

SO ORDERED.

Puno, C.J., Chairperson, Corona, Garcia, JJ., concur.
Azcuna*, J., no part.

Endnotes:


* Former counsel of Prudential Guarantee and Assurance, Inc.

1 Rollo, pp. 96-109. Per Associate Justice Marina L. Buzon and concurred in by Associate Justice Buenaventura J. Guerrero and Associate Justice Alicia L. Santos (both retired).

2 Sumndad v. Harrigan, G.R. No. 132358, April 12, 2002, 381 SCRA 8.

3 Entitled 'Creating An Arbitration Machinery In The Construction Industry of the Philippines' or more popularly known as the 'Construction Industry Arbitration Law.'

4 G.R. No. 159795, July 30, 2004, 435 SCRA 654.

5 G.R. No. 162109, January 21, 2005, 449 SCRA 240, citing Alcantara v. Commission on Settlement of Land Problems, 361 SCRA 664 (2001).

6 G.R. No. 46658, May 13, 1991, 197 SCRA 1.

7 G.R. No. 84084, August 20, 1990, 188 SCRA 740.

8 'AN ACT RELATIVE TO RECOGNIZANCES, STIPULATIONS, BONDS, AND UNDERTAKINGS, AND TO ALLOW CERTAIN CORPORATIONS TO BE ACCEPTED AS SURETY THEREON.'

9 41 Phil. 142 (1920).

10 G.R. No. 144740, August 31, 2005, 468 SCRA 526.

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