SECOND DIVISION

[G.R. No. 179628. January 16, 2013.]

INC. petitioner, vs . SPOUSES

THE MANILA INSURANCE COMPANY, INC.,
ROBERTO and AIDA AMURAO , respondents.

DECISION

DEL CASTILLO , J : p

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred

by law. Section 4 1 of Executive Order (E.O.) No. 1008, otherwise known as the
Construction Industry Arbitration Law, "is broad enough to cover any dispute arising from,
or connected with construction contracts, whether these involve mere contractual money
claims or execution of the works." 2
This Petition for Review on Certiorari 3 under Rule 45 of the Rules of Court assails the
Decision 4 dated June 7, 2007 and the Resolution 5 dated September 7, 2007 of the Court
of Appeals (CA) in CA-G.R. SP No. 96815.
Factual Antecedents
On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a
Construction Contract Agreement (CCA) 6 with Aegean Construction and Development
Corporation (Aegean) for the construction of a six-storey commercial building in Tomas
Morato corner E. Rodriguez Avenue, Quezon City. 7 To guarantee its full and faithful
compliance with the terms and conditions of the CCA, Aegean posted performance bonds
secured by petitioner The Manila Insurance Company, Inc. 8 (petitioner) and Intra Strata
Assurance Corporation (Intra Strata). 9
On November 15, 2001, due to the failure of Aegean to complete the project, respondent
spouses led with the Regional Trial Court (RTC) of Quezon City, Branch 217, a Complaint,
1 0 docketed as Civil Case No. Q-01-45573, against petitioner and Intra Strata to collect on
the performance bonds they issued in the amounts of P2,760,000.00 and P4,440,000.00,
respectively. 1 1
Intra Strata, for its part, led an Answer 1 2 and later, a Motion to Admit Third Party
Complaint, 1 3 with attached Third Party Complaint 1 4 against Aegean, Ronald D. Nicdao,
and Arnel A. Mariano.
Petitioner, on the other hand, led a Motion to Dismiss 1 5 on the grounds that the
Complaint states no cause of action 1 6 and that the ling of the Complaint is premature
due to the failure of respondent-spouses to implead the principal contractor, Aegean. 1 7
The RTC, however, denied the motion in an Order 1 8 dated May 8, 2002. Thus, petitioner
led an Answer with Counterclaim and Cross-claim, 1 9 followed by a Third Party Complaint
2 0 against Aegean and spouses Ronald and Susana Nicdao.

During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by
respondent-spouses and Aegean contained an arbitration clause. 2 1 Hence, they led
separate Motions to Dismiss 2 2 on the grounds of lack of cause of action and lack of
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 jurisdiction.
Ruling of the Regional Trial Court
On May 5, 2006, the RTC denied both motions. 2 3 Petitioner and Intra Strata separately
moved for reconsideration but their motions were denied by the RTC in its subsequent
Order 2 4 dated September 11, 2006.
Aggrieved, petitioner elevated the case to the CA by way of special civil action for
certiorari. 2 5
Ruling of the Court of Appeals
On June 7, 2007, the CA rendered a Decision 2 6 dismissing the petition. The CA ruled that
the presence of an arbitration clause in the CCA does not merit a dismissal of the case
because under the CCA, it is only when there are differences in the interpretation of Article I
of the construction agreement that the parties can resort to arbitration. 2 7 The CA also
found no grave abuse of discretion on the part of the RTC when it disregarded the fact that
the CCA was not yet signed at the time petitioner issued the performance bond on
February 29, 2000. 2 8 The CA explained that the performance bond was intended to be
coterminous with the construction of the building. 2 9 It pointed out that "if the delivery of
the original contract is contemporaneous with the delivery of the surety's obligation, each
contract becomes completed at the same time, and the consideration which supports the
principal contract likewise supports the subsidiary one." 3 0 The CA likewise said that,
although the contract of surety is only an accessory to the principal contract, the surety's
liability is direct, primary and absolute. 3 1 Thus:
WHEREFORE, we resolve to DISMISS the petition as we nd that no grave abuse
of discretion attended the issuance of the order of the public respondent denying
the petitioner's motion to dismiss.
IT IS SO ORDERED. 3 2

Petitioner moved for reconsideration but the CA denied the same in a Resolution 3 3 dated
September 7, 2007.
Issues
Hence, this petition raising the following issues:
A.

THE HONORABLE [CA] ERRED WHEN IT HELD THAT IT IS ONLY WHEN THERE
ARE DIFFERENCES IN THE INTERPRETATION OF ARTICLE I OF THE
CONSTRUCTION AGREEMENT THAT THE PARTIES MAY RESORT TO
ARBITRATION BY THE CIAC.

B.

THE HONORABLE [CA] ERRED IN TREATING [PETITIONER] AS A SOLIDARY

DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.

C.

THE HONORABLE [CA] OVERLOOKED AND FAILED TO CONSIDER THE FACT

THAT THERE WAS NO ACTUAL AND EXISTING CONSTRUCTION AGREEMENT
AT THE TIME THE MANILA INSURANCE BOND NO. G (13) 2082 WAS ISSUED
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 ON FEBRUARY 29, 2000. 3 4

Petitioner's Arguments
Petitioner contends that the CA erred in ruling that the parties may resort to arbitration
only when there is difference in the interpretation of the contract documents stated in
Article I of the CCA. 3 5 Petitioner insists that under Section 4 of E.O. No. 1008, it is the
CIAC that has original and exclusive jurisdiction over construction disputes, such as the
instant case. 3 6
Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary
debtor instead of a solidary guarantor. 3 7 Petitioner argues that while a surety is bound
solidarily with the obligor, this does not make the surety a solidary co-debtor. 3 8 A surety
or guarantor is liable only if the debtor is himself liable. 3 9 In this case, since respondent-
spouses and Aegean agreed to submit any dispute for arbitration before the CIAC, it is
imperative that the dispute between respondent-spouses and Aegean must rst be
referred to arbitration in order to establish the liability of Aegean. 4 0 In other words, unless
the liability of Aegean is determined, the filing of the instant case is premature. 4 1
Finally, petitioner puts in issue the fact that the performance bond was issued prior to the
execution of the CCA. 4 2 Petitioner claims that since there was no existing contract at the
time the performance bond was executed, respondent-spouses have no cause of action
against petitioner. 4 3 Thus, the complaint should be dismissed. 4 4
Respondent spouses' Arguments
Respondent-spouses, on the other hand, maintain that the CIAC has no jurisdiction over the
case because there is no ambiguity in the provisions of the CCA. 4 5 Besides, petitioner is
not a party to the CCA. 4 6 Hence, it cannot invoke Article XVII of the CCA, which provides
for arbitration proceedings. 4 7 Respondent-spouses also insist that petitioner as a surety
is directly and equally bound with the principal. 4 8 The fact that the performance bond was
issued prior to the execution of the CCA also does not affect the latter's validity because
the performance bond is coterminous with the construction of the building. 4 9
Our Ruling
The petition has merit.
Nature of the liability of the surety
A contract of suretyship is de ned as "an agreement whereby a party, called the surety,
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 of cial
recognizances, stipulations, bonds or undertakings issued by any company by virtue of and
under the provisions of Act No. 536, as amended by Act No. 2206." 5 0 We have
consistently held that a surety's liability is joint and several, limited to the amount of the
bond, and determined strictly by the terms of contract of suretyship in relation to the
principal contract between the obligor and the obligee. 5 1 It bears stressing, however, that
although the contract of suretyship is secondary to the principal contract, the surety's
liability to the obligee is nevertheless direct, primary, and absolute. 5 2
In this case, respondent-spouses (obligee) led with the RTC a Complaint against
petitioner (surety) to collect on the performance bond it issued. Petitioner, however, seeks
the dismissal of the Complaint on the grounds of lack of cause of action and lack of
jurisdiction.
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 The respondent-spouses have cause of
action against the petitioner; the
performance bond is coterminous with
the CCA
Petitioner claims that respondent-spouses have no cause of action against it because at
the time it issued the performance bond, the CCA was not yet signed by respondent-
spouses and Aegean.
We do not agree.
A careful reading of the Performance Bond reveals that the "bond is coterminous with the
nal acceptance of the project." 5 3 Thus, the fact that it was issued prior to the execution
of the CCA does not affect its validity or effectivity.
But while there is a cause of action against petitioner, the complaint must still be
dismissed for lack of jurisdiction.
The CIAC has jurisdiction over the case
Section 4 of E.O. No. 1008 provides that:
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
speci cations 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 shall continue to be covered by the Labor Code of
the Philippines.

Based on the foregoing, in order for the CIAC to acquire jurisdiction two requisites must
concur: " rst, the dispute must be somehow connected to a construction contract; and
second, the parties must have agreed to submit the dispute to arbitration proceedings." 5 4
In this case, both requisites are present.
The parties agreed to submit to arbitration proceedings "[a]ny dispute arising in the course
of the execution and performance of [the CCA] by reason of difference in interpretation of
the Contract Documents . . . which [the parties] are unable to resolve amicably between
themselves." 5 5 Article XVII of the CCA reads:
ARTICLE XVII — ARBITRATION

17.1  Any dispute arising in the course of the execution and performance
of this Agreement by reason of difference in interpretation of the Contract
Documents set forth in Article I which the OWNER and the CONTRACTOR are
unable to resolve amicably between themselves shall be submitted by either
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 party to a board of arbitrators composed of Three (3) members chosen as
follows: One (1) member shall be chosen by the CONTRACTOR AND One (1)
member shall be chosen by the OWNER. The said Two (2) members, in turn,
shall select a third member acceptable to both of them. The decision of the
Board of Arbitrators shall be rendered within Ten (10) days from the rst
meeting of the board, which decision when reached through the af rmative vote
of at least Two (2) members of the board shall be nal and binding upon the
OWNER and CONTRACTOR.

17.2   Matters not otherwise provided for in this Contract or by Special

Agreement of the parties shall be governed by the provisions of the Arbitration
Law, Executive Order No. 1008. 5 6

In William Golangco Construction Corporation v. Ray Burton Development Corporation, 5 7

we declared that monetary claims under a construction contract are disputes arising from
"differences in interpretation of the contract" because "the matter of ascertaining the
duties and obligations of the parties under their contract all involve interpretation of the
provisions of the contract." 5 8 Following our reasoning in that case, we nd that the issue
of whether respondent-spouses are entitled to collect on the performance bond issued by
petitioner is a "dispute arising in the course of the execution and performance of [the CCA]
by reason of difference in the interpretation of the contract documents."
The fact that petitioner is not a party to the CCA cannot remove the dispute from the
jurisdiction of the CIAC because the issue of whether respondent-spouses are entitled to
collect on the performance bond, as we have said, is a dispute arising from or connected
to the CCA.
In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., 5 9 we rejected the
argument that the jurisdiction of CIAC is limited to the construction industry, and thus,
cannot extend to surety contracts. In that case, we declared that "[a]lthough not the
construction contract itself, the performance bond is deemed as an associate of the main
construction contract that it cannot be separated or severed from its principal. The
Performance Bond is signi cantly and substantially connected to the construction
contract that there can be no doubt it is the CIAC, under Section 4 of E.O. No. 1008, which
has jurisdiction over any dispute arising from or connected with it." 6 0
In view of the foregoing, we agree with the petitioner that jurisdiction over the instant case
lies with the CIAC, and not with the RTC. Thus, the Complaint led by respondent-spouses
with the RTC must be dismissed.
WHEREFORE, the petition is hereby GRANTED.
GRANTED The Decision dated June 7, 2007 and the
Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are
hereby ANNULLED and SET ASIDE . The Presiding Judge of the Regional Trial Court of
Quezon City, Branch 217 is DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of
jurisdiction.
SO ORDERED.
Carpio, Leonardo-de Castro, * Perez and Leonen, ** JJ., concur.

Footnotes

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 *Per raffle dated January 14, 2013.

**Per Special Order No. 1408 dated January 15, 2013.

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

2.LICOMCEN, Incorporated v. Foundation Specialists, Inc., G.R. Nos. 167022 and 169678, April
4, 2011, 647 SCRA 83, 97.

3.Rollo, pp. 13-37.

4.Id. at 39-47; penned by Associate Justice Apolinario D. Bruselas, Jr. and concurred in by
Associate Justices Bienvenido L. Reyes (now a member of this Court) and Aurora
Santiago-Lagman.

5.Id. at 49.

6.Id. at 72-85.

7.Id. at 39-40.

8.Id. at 68-69.

9.Id. at 70-71.

10.Id. at 63-67.

11.Id. at 66.

12.Records, Volume I, pp. 29-32.

13.Id. at 38-39.

14.Id. at 40-42.

15.Id. at 26-28.

16.Id. at 26.

17.Id. at 27.

18.Id. at 49-50; penned by Judge Lydia Querubin Layosa.

19.Rollo, pp. 88-94.

20.Id. at 97-100.

21.Id. at 40.
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 22.Id. at 117-124 and 110-116.

23.Records, Volume II, pp. 544-546.

24.Id. at 589.

25.CA rollo, pp. 2-22.

26.Rollo, pp. 39-47.

27.Id. at 42-44.

28.Id. at 45-46.

29.Id. at 46.

30.Id.

31.Id. at 45.

32.Id. at 46-47.

33.Id. at 49.

34.Id. at 168-169.

35.Id. at 169.

36.Id. at 171.

37.Id. at 174.

38.Id. at 175.

39.Id.

40.Id. at 180.

41.Id. at 182.

42.Id. at 183.

43.Id. at 185.

44.Id. at 186.

45.Id. at 192-193.

46.Id. at 193.

47.Id.

48.Id. at 195.

49.Id. at 196.

50.INSURANCE CODE, Section 175.

51.Intra-Strata Assurance Corporation v. Republic, G.R. No. 156571, July 9, 2008, 557 SCRA
363, 369.

52.Prudential Guarantee and Assurance, Inc. v. Equinox Land Corporation, G.R. Nos. 152505-06,
September 13, 2007, 533 SCRA 257, 268.
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 53.Rollo, p. 86.

54.Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., G.R. No. 177240, September
8, 2010, 630 SCRA 368, 376.

55.Rollo, p. 83.

56.Id.

57.G.R. No. 163582, August 9, 2010, 627 SCRA 74.

58.Id. at 85.

59.Supra note 54 at 373-379.

60.Id. at 377.

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