1) Tokyu Construction was awarded a contract to construct NAIA Terminal 2 and subcontracted work to Gabriel Enterprises, who obtained surety bonds from Stronghold Insurance to guarantee repayment of advances and completion of work.
2) Gabriel defaulted on the subcontract. Tokyu terminated the agreement and demanded repayment from Stronghold under the surety bonds.
3) The court ruled that Stronghold was liable under the surety bonds. Revisions to the subcontract did not invalidate the bonds, as surety obligations are separate from the underlying contract and Stronghold's role was to ensure repayment and completion of work upon Gabriel's default.
1) Tokyu Construction was awarded a contract to construct NAIA Terminal 2 and subcontracted work to Gabriel Enterprises, who obtained surety bonds from Stronghold Insurance to guarantee repayment of advances and completion of work.
2) Gabriel defaulted on the subcontract. Tokyu terminated the agreement and demanded repayment from Stronghold under the surety bonds.
3) The court ruled that Stronghold was liable under the surety bonds. Revisions to the subcontract did not invalidate the bonds, as surety obligations are separate from the underlying contract and Stronghold's role was to ensure repayment and completion of work upon Gabriel's default.
1) Tokyu Construction was awarded a contract to construct NAIA Terminal 2 and subcontracted work to Gabriel Enterprises, who obtained surety bonds from Stronghold Insurance to guarantee repayment of advances and completion of work.
2) Gabriel defaulted on the subcontract. Tokyu terminated the agreement and demanded repayment from Stronghold under the surety bonds.
3) The court ruled that Stronghold was liable under the surety bonds. Revisions to the subcontract did not invalidate the bonds, as surety obligations are separate from the underlying contract and Stronghold's role was to ensure repayment and completion of work upon Gabriel's default.
53. Stronghold Insurance Co., Inc. vs. Tokyu Construction Co., Ltd., G.R. Nos.
However, all of them failed to heed _Tokyu’s demands. Hence, Tokyu
158820-21, June 5, 2009 filed a complaint against Stronghold, Tico and Gabriel before the Construction Industry Arbitration Commission (CIAC). Topic: Surety AUTHOR: YULO 11. Gabriel denied liability and argued that the delay in the completion of Ponente: Nachura, J. the project was caused by Tokyu. She also contended that the original subcontract agreement was novated by the revised scope of work and ER: completion schedule. 12. To counter Tokyu’s monetary demands, she claimed that it was, in fact, Doctrine: Tokyu who had an unpaid balance. For its part, Tico averred that it Facts: actually treated Tokyu’s demand as a claim on the performance and surety bonds it issued but it could not make payment since the claim was still subject to determination, findings, and recommendation of its 1. Respondent Tokyu Construction Company, Ltd. (Tokyu) was awarded by assigned independent adjuster. the Manila International Airport Authority a contract for the 13. On the other hand, Stronghold interposed the following special and construction of the NAIA Terminal 2. affirmative defenses: 1) the surety and performance bonds had expired; 2. Tokyu then entered into a Subcontract Agreement with G.A. Gabriel 2) the premium on the bonds had not been paid by Gabriel; 3) the Enterprises owned and managed by Remedios Gabriel (Gabriel) for the contract for which the bonds were issued was set aside/novated; 4) the construction of NAIA2’s Storm Drainage System (SDS) and the Sewage requisite notices were not made which thus barred respondent’s claims Treatment Plant (STP) for a total contract price of P56, 507,752.00. It against it; and 5) the damages claimed were not arbitrable. was agreed by the parties that the projects will be completed on August 10, 1997 and May 31, 1997, respectively. Issue: Whether or not Stronghold is liable under its bonds? YES 3. Tokyu paid Gabriel 15% of the contract price as advance payment for which Gabriel obtained from Petitioner Stronghold Surety Bonds dated Held: YES. Stronghold’s liability was not affected by the revision of the contract, February 26, 1996 and April 15, 1996 to guarantee its repayment to price, scope of work, and contract schedule. Neither was it extinguished because Tokyu. Gabriel also obtained from Stronghold Performance Bonds to of the issuance of new bonds procured from Tico. As early as February 10, 1997, guarantee to Tokyu due and timely performance of the work. Tokyu already sent a letter to Gabriel informing the latter of the delay incurred 4. Both Bonds were valid for a period of one year from date of issue. in the performance of the work, and of the former’s intention to the subcontract However, Gabriel defaulted in the performance of her obligations. agreement to prevent further losses. Apparently, Gabriel had already been in 5. Tokyu then sent a letter to Gabriel manifesting its intention to default even prior to the aforesaid letter; and demands had been previously terminate the subcontract agreement. Tokyu also demanded that made but to no avail previously made but to no avail. By reason of said default, Stronghold comply with its undertaking under its bonds. Gabriel’s liability had a arisen; as a consequence, so also did the liability of 6. Tokyu ad Gabriel agreed to revise the scope of work reducing the Stronghold as a surety arise. contract price for both projects and fixing the completion time on May 31, 1997. By the language of the bonds issued by Stronghold, it guaranteed the full and 7. Gabriel thereafter obtained from Tico Insurance Company, Inc. surety faithful compliance by Gabriel of its obligations in the construction of the SDS and performance bonds to guarantee the repayment of the advance and STP specifically set forth in the subcontract agreement, and the repayment payment given by Tokyu to Gabriel and the completion of the work for of the 15% advance payment given by Tokyu. These guarantees made by the SDS. Still, Gabriel failed to accomplish the works within the agreed Stronghold gave Tokyu the right to proceed against the former following completion period and eventually, she abandoned the project. gabriel’s noncompliance with her obligation. 8. Tokyu then sent a letter upon Gabriel terminating their agreement since the latter only partially completed the project. Tokyu demanded from Confusion, however, transpired when Gabriel and Tokyu agreed, on February 26, Gabriel the return of the balance of the advance payment. 1997, to reduce the scope of work and, consequently, the contract price. 9. Tokyu also demanded the payment of the additional amount that it Stronghold viewed such revision as novation of the original subcontract incurred in completing the project. agreement; and since no notice was given to it as a surety, it resulted in the 10. Tokyu made formal demands against Stronghold and Tico to make good extinguishment of its obligation. We wish to stress herein the nature of their obligations under their respective performance and surety bonds. suretyship, which actually involves two types of relationship—the underlying principal relationship between the creditor (Tokyu) and the debtor (Gabriel), and the accessory surety relationship between surety relationship between the principal (Gabriel) and the surety (Stronghold). The creditor accepts the surety’s solidary undertaking to pay if the debtor does not pay. Such acceptance, however, does not change in any material way the creditor’s relationship with the principal debtor nor does it make the surety an active party to the_ _the principal creditor debtor relationship. In other words, the acceptance does not give the surety the right to intervene in the principal contract_._ The surety’s role arises only upon the debtor’s default, at which arises only upon the debtor’s default, at which time, it can _be directly held liable by the creditor for payment as a solidary obligor.