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    Rey Almon Tolentino Alibuyog
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    This case involves a dispute between Central Colleges of the Philippines (CCP) and Philippine Charter Insurance Corporation (PCIC) regarding construction bonds issued by PCIC for a construction project. CCP hired a contractor, DPCC, which was significantly delayed in completing the project. CCP terminated its contract with DPCC and demanded payment from PCIC on the construction bonds. PCIC denied CCP's claims. The court ruled that as the surety, PCIC is bound to pay on the bonds given DPCC's default on the construction contract, even if PCIC approved an extension for DPCC without CCP's consent.

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    This case involves a dispute between Central Colleges of the Philippines (CCP) and Philippine Charter Insurance Corporation (PCIC) regarding construction bonds issued by PCIC for a construction project. CCP hired a contractor, DPCC, which was significantly delayed in completing the project. CCP terminated its contract with DPCC and demanded payment from PCIC on the construction bonds. PCIC denied CCP's claims. The court ruled that as the surety, PCIC is bound to pay on the bonds given DPCC's default on the construction contract, even if PCIC approved an extension for DPCC without CCP's consent.

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    © All Rights Reserved
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    200 views2 pages

    6 Digest

    Uploaded by

    Rey Almon Tolentino Alibuyog
    This case involves a dispute between Central Colleges of the Philippines (CCP) and Philippine Charter Insurance Corporation (PCIC) regarding construction bonds issued by PCIC for a construction project. CCP hired a contractor, DPCC, which was significantly delayed in completing the project. CCP terminated its contract with DPCC and demanded payment from PCIC on the construction bonds. PCIC denied CCP's claims. The court ruled that as the surety, PCIC is bound to pay on the bonds given DPCC's default on the construction contract, even if PCIC approved an extension for DPCC without CCP's consent.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    of 2

    PHIL. CHARTER INS. CORP. Vs. CENTRAL COLLEGES OF THE PHILS.

    GR Nos. 180631-33, February 22, 2012

    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.

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