Professional Documents
Culture Documents
6 Digest
6 Digest
FACTS:
On May 16, 2000, Central Colleges of the Philippines (CCP), an educational
institution, contracted the services of Dynamic Planners and Construction
Corporation (DPCC) to be its general contractor for the construction of its five
(5)-storey school building. To guarantee the fulfillment of the obligation, DPCC
posted three (3) bonds, all issued by the Philippine Charter Insurance
Corporation (PCIC).
The Phase 1 of the project was completed without issue. The Phase 2 of the
project, however, encountered numerous delays. When CCP audited DPCC,
only 47% of the work to be done was actually finished. Thus, CCP informed
DPCC and PCIC of the breach in the contract and its plan to claim on the
construction bonds. CCP notified DPCC and PCIC that only 51% of the project
was completed, which was way behind the construction schedule, prompting it
to declare the occurrence of default against DPCC. It formally requested PCIC
to remit the proceeds of the bonds.
CCP notified PCIC that because of DPCC’s inability to complete the project
on time, it decided to terminate its contract with the latter and to continue the
construction on its own. Meanwhile, PCIC informed DPCC that it had
approved its request for extension of the bonds.
Eventually, negotiations to continue on with the construction between CCP
and DPCC reached a dead end. CCP hired another contractor to work on the
school site. CCP then sent a letter to PCIC of its final demand for the payment
as indicated in the bonds.
Subsequently, PCIC denied CCP’s claims against the three bonds. Thus,
CCP filed a complaint with request for arbitration before the Construction
Industry Arbitration Commission (CIAC) against DPCC and PCIC. The CIAC
rendered a decision in favor of CCP. The CA modified CIAC’s earlier decision.
The CA found that DPCC was already in delay for managing to complete only
51% of the construction work necessary to finish the Phase 2 of the project. It
held that due to DPCC’s inexcusable delay, CCP was legally within its rights to
terminate the contract with it.
ISSUE:
Whether or not the CA grossly erred in sustaining the CIAC award finding
petitioner liable to respondent CCP under the performance bonds and the
surety bond?
HELD:
In this regard, the petitioner has a point. Suretyship, in essence, contains
two types of relationship – the principal relationship between the obligee and
the obligor, and the accessory surety relationship between the principal and
the surety. In this arrangement, the obligee accepts the surety’s solidary
undertaking to pay if the obligor does not pay. Such acceptance, however,
does not change in any material way the obligee’s relationship with the
principal obligor. Neither does it make the surety an active party to the
principal obligee-obligor relationship. Thus, the acceptance does not give the
surety the right to intervene in the principal contract. The surety’s role arises
only upon the obligor’s default, at which time, it can be directly held liable by
the obligee for payment as a solidary obligor. Having acted as a surety, PCIC is
duty bound to perform what it has guaranteed on its surety and performance
bonds, all of which are callable on demand, occasioned by its principal’s
default.