SECOND DIVISION
G.R. No. 205007, September 16, 2019
THE MERCANTILE INSURANCE CO., INC., PETITIONER, v. DMCI-LAING CONSTRUCTION, INC.,° RESPONDENT.
D E C I S I O N
CAGUIOA, J.:
This is a petition for review on certiorari1 (Petition) under Rule 45 of the Rules of Court assailing the Decision2 dated July 30, 2012 (Assailed Decision) and Resolution3 dated January 7, 2013 (Assailed Resolution) rendered by the Court of Appeals (CA) in CA-G.R. SP. No. 80705.
The Assailed Decision and Resolution reverse the Decision4 promulgated on November 7, 2003 issued by the Construction Industry Arbitration Commission (CIAC) Arbitral Tribunal (Tribunal) in CIAC Case No. 10-2003 which, in turn, dismissed the claim filed by respondent DMCI Laing Construction, Inc. (DLCI) against Altech Fabrication Industries, Inc. (Altech) and petitioner The Mercantile Insurance Co., Inc. (Mercantile).
On March 17, 1997, Rockwell Land Corporation ("Rockwell"), as the owner and developer, entered into an agreement with [DLCI], as the General Contractor, for the construction of The Condominium Towers and associated external landscaping works of Hidalgo Place, Rizal Tower, Luna Garden, [and] Amorsolo Square (the "Project") at the Rockwell Center, Makati City. Part of [DLCI's] scope of work in the Project [was] the supply and installation of glazed aluminum and curtain walling. Part of the terms and conditions of the contract between Rockwell and DLCI (the "Main Contract") [was] the appointment of [Altech] as Rockwell's nominated sub[-]contractor to DLCI for the supply and installation of glazed aluminum and curtain walling.
On July 30, 1997, in compliance with the agreement between Rockwell and DLCI, Rockwell sent a Notice of Award to Proceed [(NTP)] to Altech for the supply and installation of the glazed aluminum and curtain walling at the Project. Said [NTP] bears the conformity of DLCI and Altech.
Pursuant to the [NTP] and the Sub-Contract Agreement [(Sub Contract)] between DLCI and Altech, Altech secured a Performance Bond from Mercantile for its scope of work in the [P]roject. On September 5, 1997, Mercantile, as surety, with Altech, as principal, issued Performance Bond No. G(13)-1500/97 in favor of Rockwell and DLCI, as obligee, for the amount of PhP90,448,941.60.
On September 8, 1997, Mercantile issued [B]ond [E]ndorsement No. E-109/97 ST, correcting the effectivity of the Performance Bond from September 5, 1997 to September 5, 1999. Thereafter, on September 12, 1997, Mercantile issued [B]ond [E]ndorsement No. E-116/97 ST, correcting the obligee of the [P]erformance [B]ond to DLCI alone, and not in favor of Rockwell and DLCI. Subsequently, on August 26, 1999, Mercantile issued [B]ond [E]ndorsement [N]o. E-220/99 ST, extending the effectivity of the Performance Bond for another six (6) months from September 5, 1999 to March 5, 2000.5 (Emphasis supplied)
[W]e detail below a programme status report of your installation works-
Panel installation at Rockwell as [of] [November 7, 1998]
Total Planned Planned Actual Actual Panels % No % No Hidalgo4623 75% 3406 14% 664 Rizal4830 60% 2919 5% 264 Luna3100 36% 1110 NIL NIL Amorsolo [east and west]3500 35% 1235 NIL NIL Project Total16,053 54% 8670 6% 928
We would record that this situation is totally unacceptable, and we hereby request, in compliance with the proposed sub-contract conditions, the submission of your revised sub-contract works programme and recovery proposals identifying the methodology by which the agreed completion dates for your works are to be maintained.
x x x x
We would remind you that as a direct consequence of these delays[,] Altech maybe held liable for x x x any costs, losses or expenses caused by the delays, and subsequently suffered by DLCI.7
This termination is due to [Altech's] failure x x x to perform in accordance with the agreed terms of the sub-contract stipulated in the Notice of Award as well as in the documents referred to therein such as, but not limited to, the [Sub-Contract]. Despite numerous written communications from us, [Altech has] failed to proceed with the sub-contract works with due diligence and [has] consistently failed to meet the required quality standards. Furthermore, [Altech has], by [its] own admission, entered into a deed of arrangement with its creditors in which it surrendered its major assets to the latter. The aforementioned acts are clearly events of default falling under [Paragraph] 17 of the [Sub-Contract] which justify [its] immediate termination x x x.
For purposes of record, we will conduct an assessment and evaluation of the sub-contract works on Wednesday[,] [February 23, 2000] before we formally take-over the same. We invite you to send your representatives to witness the assessment.
We reserve the right to claim from [Altech] reimbursement of all costs, as well as compensation for all damages, arising from [Altech's] default, including but not limited to costs of both direct and consequential delays. Likewise, we reserve the right to claim the refund of any payment which, after a review of your accomplishment and records, may be found to have been not due or wrongly paid to [Altech].16 (Emphasis supplied)
x x x Notice of the demand for arbitration of a dispute shall be filed in writing with the other party to the Sub-Contractor. The demand for arbitration shall be made within a reasonable time after the dispute has arisen and attempts to settle amicably have failed. In no case, however, shall the demand be made later than the time of final payment, except as otherwise stipulated in the Sub-Contract.27 (Italics omitted)
It is not controverted that when [DLCI] filed its claim with CIAC on [May 29, 2003], [Altech] could no longer be found and efforts to serve it with the letter request for arbitration proved futile. As already held x x x [DLCI] is found guilty of inexcusable delay in filing this claim for arbitration. The consequence of this delay is to deprive [Mercantile] of its right to go after [Altech] on a cross-claim in this suit. This surely deprives [Mercantile] of its right of subrogation against Altech as [i]ndemnitor in the Performance Bond. x x x [I]n accordance with the provisions of Article 2080 x x x [Mercantile] is "released from its obligation" under the [P]erformance [B]ond.32
WHEREFORE, the instant petition is GRANTED. The [CIAC Decision] is REVERSED and SET ASIDE. [Altech] and [Mercantile] are jointly and solidarily liable to pay [DLCI] the amount of Php31,618,494.81 representing the costs incurred by [DLCI] in completing the project and an interest at the rate of 2% per month on the said amount due from September 3, 1999 until the amount of Php31,618,494.81 is fully paid. Furthermore, a 12% interest per annum shall be imposed on the award upon the finality of this Decision until the payment thereof.37 (Emphasis supplied; emphasis in the original omitted)The CA observed that negotiations between and among DLCI, Altech and Mercantile continued after the termination of the Sub-Contract, and that DLCI served its final written demand38 upon Altech and Mercantile on January 20, 2003. A meeting between DLCI and Mercantile's representatives followed on .January 27, 2003, where said parties mutually agreed that attempts to arrive at an amicable settlement have failed.39
By executing the [P]erformance [B]ond, Mercantile, as surety, guaranteed the performance and completion by Altech of its sub contracted works, and in case of Altech's failure to complete the [P]roject according to the terms of the Sub-Contract x x x, Mercantile's liability, as surety, sets in.
A careful review of the record[s] of the case revealed that Altech has reneged on its undertaking under the Sub-Contract before DLCI asked Mercantile for the liquidation of the [P]erformance [B]ond on September 3, 1999. On various dates, DLCI sent letters to Altech concerning the latter's continued poor performance and delays which seriously affected the progress of DLCI' s programmed work. DLCI mentioned that it may have no other alternative but to seek recourse through the terms of the Sub-Contract and that repair works, as well as, associated costs as a result of damage to other contractors' works due to Altech's delay shall be charged to Altech's account.
Apparently, Altech had already been in default even prior to DLCI's call on the [P]erformance [B]ond. By reason of said default, liability attached to Altech and as a consequence, the liability of Mercantile as surety had arisen. By the language of the bond issued by Mercantile, it guaranteed the full and faithful compliance by Altech of its obligations set forth in its Sub-Contract with DLCI. This guarantee made by Mercantile gave DLCI the right to proceed against the former following Altech's default or non-compliance with its obligation.42 (Emphasis supplied)
[T]his bond is conditioned x x x upon the OBLIGEE's [DLCI's] first demand, the SURETY [(Mercantile)] shall immediately indemnify [DLCI] notwithstanding any dispute to the effect that the principal has fulfilled its contractual obligation, the amount demanded; PROVIDED however, that the liability of [Mercantile] under this bond shall in no case exceed the x x x sum [of Php90,448,941.60]. [Mercantile] further agrees to pay [DLCI] interest at the rate of 2% per month on the amount due from the date of rece[i]pt by [Mercantile] of [DLCI's] first demand letter up to the date of actual payment.59 (Emphasis supplied; italics omitted)
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 Book60shall be observed. In such case the contract is called a suretyship. (Emphasis supplied)
x x x [S]ince the surety is a solidary debtor, it is not necessary that the original debtor first failed to pay before the surety could be made liable; it is enough that a demand for payment is made by the creditor for the surety's liability to attach. Article 1216 of the Civil Code provides that:Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.65 (Emphasis supplied)
x x x [The Tribunal] makes much out of DLCI's failure to state the specific amount that it is claiming. It must be emphasized that at the time of the call on the bond, Mercantile's obligation guaranteeing project completion already arose and it is understood that the exact amount, while still undetermined, shall not exceed the amount of the bond [Php90,448,941.60].69
6. Commencement [and] Completionx x x x
(12) Time is an essential feature of the [Sub-Contract]. If [Altech] shall fail to complete the Sub-Contract Works within the time or times required by its obligations hereunder[, Altech] shall indemnify [DLCI] for any costs, losses or expenses caused by such delay, including but not limited to any liquidated damages or penalties for which [DLCI] may become liable under the Main Contract as a result wholly or partly of [Altech's] default x x x.xxxx
17. [Altech's] Defaultx x x x
(f) [If Altech] fails to execute the Sub-Contract works or to perform his other obligations in accordance with the Sub-Contract after being required in writing so to do by [DLCI]; x x xx x x x
(3) [DLCI] may in lieu of giving a notice of termination x x x take part only of the Sub-Contract Works out of the hands of [Altech] and may[,] by himself, his servants or agents execute such part and in such event [DLCI] may recover his reasonable costs of so doing from [Altech], or deduct such costs from monies otherwise becoming due to [Altech].73 (Emphasis supplied; italics omitted)
1. Total sub-contract amount Aluminum works 361,451,520.00 Glazing works __ 90,793,188.00________________________ 452,244,708.002. Adjustment Additional works/dollar fluctuation 107,532,754.60 Less: [Rockwell Debit Memo]78 ___(168,773,746.89)_______________________ (61,240,992.29) 391,003,715.713. DLCI's liabilities to date Payment on Altech's letter of credit and telegraphic transfers79 36,930,126.62 Payment in favor of Altech's local suppliers 5,485,386.43 Interest expense80 240,709.94 Payment to Fuji Reynolds81 1,763,819.91 Payment to J.A. Shillinglaw82 80,000.00 Contra-charges83 ___1,236,609.26________________________ (45,736,652.16)
4. Total amount paid by DLCI to Altech Measured worli:s less charges 297,125,482.52 Additional works/dollar fluctuation ___74,221,471.20________________________ (371,346,953.72)Balance currently remaining on Altech's estimated final account (26,079,890.17)5. Future support/DLCI liabilities84 ________________________________________ (28,150,840.04)Retention amount earlier withheld from Altech85 22,612,235.40 =============================Altech's Liability (31,618,494.81)86
ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. x x x92 (Emphasis supplied; emphasis and underscoring in the original omitted)
As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety — the accommodation party being the surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally bound with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations nor does he receive any benefit therefrom.
Contrary to petitioner's adamant stand, however, Article 2080 of the Civil Code does not apply in a contract of suretyship. [Article] 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern the relationship of petitioner[-surety] with the bank.95 (Emphasis supplied; italics in the original and citations omitted)
In relation to the rules of civil procedure, it is elementary that a judgment of a court is conclusive and binding only upon the parties and their successors-in-interest after the commencement of the action in court. A decision rendered on a complaint in a civil action or proceeding does not bind or prejudice a person not impleaded therein, for no person shall be adversely affected by the outcome of a civil action or proceeding in which he is not a party. The principle that a person cannot be prejudiced by a ruling rendered in an action or proceeding in which he has not been made a party conforms to the constitutional guarantee of due process of law.100
Endnotes:
° Also referred to as "DMCI Laing Construction, Inc." in some parts of the rollo.
* Designated as Acting Chief Justice per Special Order No. 2703 dated September 10, 2019.
1Rollo, pp. 9-49.
2 Id. at 50-74. Penned by Associate Justice Elihu A. Ybañez, with Associate Justices Japar B. Dimaampao and Victoria Isabel A. Paredes concurring.
3 Id. at 161-162.
4 Id. at 75-101. Dated October 27, 2003 and issued by the Arbitral Tribunal consisting of Chairman Alfredo F. Tadiar and Members Joven B. Joaquin and Felicitas A. Pio Roda.
5 Id. at 51-52.
6 Id. at 229-230.
7 Id. at 229-230.
8 As documented through DLCI's Letters dated November 21, 1998, November 23, 1998, January 13, 1999, April 15, 1999, June 4, 1999, August 24, 1999, September 20, 1999, September 16, 1999 and December 7, 1998; rollo, pp. 231-236, 239, 247, 249-250 and 253-254.
9Rollo, p. 283.
10 Id. at 284-285.
11 Id. at 286.
12 Id. at 288.
13 See id. at 92.
14 Id. at 296.
15 Id.
16 Id. at 287.
17 Id. at 289.
18 Id. at 290.
19 Id. at 53, 291.
20 Id. at 53, 82.
21 Id. at 85.
22 Id. at 75.
23 Id. at 76.
24 Id. at 85-86.
25 See id. at 92-97.
26 Id. at 100.
27 Id. at 80.
28 Id. at 86.
29 See id. at 86-89.
30 Id. at 91.
31 Id.
32 Id.
33 Id. at 92.
34 Id.
35 Id. at 93-95.
36 Id. at 96.
37 Id. at 73.
38 Id. at 292-294.
39 Id. at 295.
40 Id. at 59.
41 See id.
42 Id. at 62-63.
43 Id. at 52, 63-64.
44 Id. at 65.
45 Id. at 69-70.
46 Id. at 70.
47 Id. at 72.
48 Id. at 10.
49 Id. at 3-7.
50 See id. at 8.
51 See Resolution dated March 18, 2013, id. at 157.
52 Id. at 8, 9.
53 Id. at 157.
54 Id. at 168-218.
55 Id. at 303-315.
56 Id. at 80.
57 Id. at 58.
58 See CIVIL CODE, Arts. 1159, 1305-1306. See also Enriquez v. The Mercantile Insurance Co., Inc., G.R. No. 210950, August 15, 2018, accessed at <http://elibrary.judiciary.gov.ph/thebookshelf/shodowcs/1/64474>.
59Rollo, pp. 80-81.
60 Section 4, Chapter 3, Title I of Book IV to which Article 2047 refers contains the provisions on joint and solidary obligations.
61People's Trans-East Asia Insurance Corp. v. Doctors of New Millennium Holdings, Inc., 741 Phil. 149, 161 (2014), citing Stronghold Insurance Company v. Tokyu Construction Company, Ltd., 606 Phil. 400, 411 (2009).
62Trade and Investment Development Corporation of the Philippines v. AsiaPacesCorporation, 726 Phil. 555, 565 (2014).
63 See People's Trans-East Asia Insurance Corp. v. Doctors of New Millennium Holdings, Inc., supra note 61, at 161, citing American Home Insurance Co. of New York v. F.F. Cruz & Co., Inc., 671 Phil. 1, 14 (2011).
64 Supra note 62.
65 Id. at 565.
66 See CIVIL CODE, Art. 1179.
67 In Philippine Charter Insurance Corp.v.Central Colleges of the Philippines, 682 Phil. 507, 523-524 (2012), the surety and performance bonds bearing the following terms were characterized as being callable on demand:The liability of [the surety] under this bond will expire on x x x; Furthermore, it is hereby agreed and understood that [the surety] will not be liable for any claim not presented to it in writing within FIFTEEN (15) DAYS from the expiration of this bond, and that the Obligee hereby waives its right to claim or file any court action against the surety after the termination of FIFTEEN (15) DAYS from the time its cause of action accrues.
x x x x
The liability of [the surety] under this bond will expire on x x x; Furthermore, it is hereby agreed and understood that [the surety] will not be liable for any claim not presented to it in writing within TEN (10) DAYS from the expiration of this bond or from the occurrence of the default or failure of the Principal, whichever is the earliest, and the Obligee hereby waives its right to file any claims against the Surety after termination of the period of ten (10) DAYS above mentioned after which time this bond shall definitely terminate and be deemed absolutely cancelled. Id. at 521-522.
68 CIVIL CODE, Article 1169 provides:ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to"' comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
69Rollo, pp. 63-64.
70 The relevant proviso states:x x x (T]he SURETY [(Mercantile)] shall immediately indemnify the OBLIGEE [(DLCI)] notwithstanding any dispute to the effect that the principal has fulfilled its contractual obligation, the amount demanded[.] Rollo, p. 80.
71 See CIVIL CODE, Art. 22.
72Rollo, p. 81.
73 Id. at 66-68.
74 See id. at 223-275.
75 Id. at 38.
76 Id. at 75.
77 Id. at 80.
78 See id. at 126.
79 Advances made by DLCI to Altech's foreign suppliers, see rollo, p. 127.
80 Interest expense incurred on advances made in favor of Altech, see id.
81 Supplementary sub-contractor employed by DLCI, see id. at 123, 127.
82 Supplementary sub-contractor employed by DLCI, see id. at 127.
83 Represents charges against Altech's account for maintenance, administrative and power charges, as well as penalties for violations of safety rules, see id.
84 Represents other expenses incurred by DLCl for and in behalf of Altech, including advances made to Altech's suppliers, payments made in favor of supplementary sub-contractors, and cost of replacement materials, see id.
85 See rollo, p. 128.
86 See id. at 282. Emphasis supplied.
87 For dollar fluctuation, inclusion of additional works, and deduction on account of owner-incurred damage, see rollo, pp. 126-127.
88 Php45,736,652.16 + Php28,150,840.04 = Php73,887,492.20.
89 See rollo, p. 127.
90 IV Eduardo P. Caguioa, COMMENTS AND CASES ON CIVIL LAW 84-85 (2nd Rev. Ed. 1983).
91 Id. at 49-50.
92Trade and Investment Development Corp. of the Phils. v. Asia Paces Corp., supra note 62, at 566, citing Palmares v. Court of Appeals, 351 Phil. 664, 680-681 (1998).
93 266 Phil. 703,709 (1990).
94 559 Phil. 29 (2007).
95 Id. at 57-58.
96Rollo, pp. 99-100.
97 Id. at 72.
98 CIVIL CODE, Art. 2208(5).
99Rollo, p. 80.
100KT Construction Supply, Inc. v. Philippine Savings Bank, 811 Phil. 626, 634-635 (2017), citing Guy v. Gacott, 778 Phil. 308, 320 (2016).
101 As indicated by the case title docketed before the CA; see rollo, p. 50.
102 On acquisition of jurisdiction in civil cases, see Guy v. Gacott, supra note 100, at 318-319.
103 Article 2066 states:ART. 2066. The guarantor who pays for a debtor must be indemnified by the latter.
The indemnity comprises:
(1) The total amount of the debt;
(2) The legal interests thereon from the time the payment was made known to the debtor, even though it did not earn interest for the creditor;
(3) The expenses incurred by the guarantor after having notified the debtor that payment had been demanded of him;
(4) Damages, if they are due.
In Escaño v. Ortigas, Jr., 553 Phil. 24, 43-44 (2007), the Court held that the rights to indemnification as established and granted to the guarantor by Article 2066 extends as well to sureties as defined under Article 2047.