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  • Stronghold Insurance Company, Inc., v. Spouses Rune and Lea Stroem - Castillo

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    The Supreme Court ruled that a dispute between homeowners (the Stroems) and an insurance company (Stronghold) over a performance bond issued for a construction project does not fall under the exclusive jurisdiction of the Construction Industry Arbitration Commission (CIAC). While performance bonds are connected to construction contracts, Stronghold was not a party to the original construction agreement between the Stroems and the contractor, and cannot invoke the arbitration clause in that agreement or CIAC jurisdiction. The case will proceed in regular courts rather than arbitration.

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    The Supreme Court ruled that a dispute between homeowners (the Stroems) and an insurance company (Stronghold) over a performance bond issued for a construction project does not fall under the exclusive jurisdiction of the Construction Industry Arbitration Commission (CIAC). While performance bonds are connected to construction contracts, Stronghold was not a party to the original construction agreement between the Stroems and the contractor, and cannot invoke the arbitration clause in that agreement or CIAC jurisdiction. The case will proceed in regular courts rather than arbitration.

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    © All Rights Reserved
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    42 views2 pages

    Stronghold Insurance Company, Inc., v. Spouses Rune and Lea Stroem - Castillo

    Uploaded by

    Dante Castillo
    The Supreme Court ruled that a dispute between homeowners (the Stroems) and an insurance company (Stronghold) over a performance bond issued for a construction project does not fall under the exclusive jurisdiction of the Construction Industry Arbitration Commission (CIAC). While performance bonds are connected to construction contracts, Stronghold was not a party to the original construction agreement between the Stroems and the contractor, and cannot invoke the arbitration clause in that agreement or CIAC jurisdiction. The case will proceed in regular courts rather than arbitration.

    Copyright:

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

    Stronghold Insurance Company, Inc., v.

    Spouses Rune And Lea Stroem

    GR No. 204689 | January 21, 2015 | Castillo | KEYWORD/S

    Petitioner: STRONGHOLD INSURANCE Respondent: SPOUSES RUNE and LEA


    COMPANY, INC. STROEM

    Doctrine:
    This court has previously held that a performance bond, which is meant "to guarantee the supply of
    labor, materials, tools, equipment, and necessary supervision to complete the project[,]" is
    significantly and substantially connected to the construction contract and, therefore, falls under the
    jurisdiction of the CIAC.

    FACTS:

    ● Spouses Rune and Lea Stroem (Spouses Stroem) entered into an Owners
    Contractor Agreement with Asis-Leif & Company, Inc. (Asis-Leif) for the
    construction of a two-storey house on the lot owned by Spouses Stroem.
    ● On November 15, 1999, pursuant to the agreement, Asis-Leif secured
    Performance Bond in the amount of P4,500,000.00 from Stronghold Insurance
    Company, Inc. (Stronghold).
    ● Stronghold and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif, bound themselves
    jointly and severally to pay the Spouses Stroem the agreed amount in the event
    that the construction project is not completed.
    ● Asis-Leif failed to finish the project on time.
    ● Spouses Stroem subsequently rescinded the agreement
    ● Stronghold sent a letter to Asis-Leif requesting that the company settle its
    obligations with the Spouses Stroem. No response was received from Asis-Leif.
    ● Spouses Stroem filed a Complaint for breach of contract against Asis-Leif and
    Stronghold.
    ● RTC rendered a judgment in favor of the Spouses Stroem. The trial court
    ordered Stronghold to pay the Spouses Stroem P4,500,000.00 with 6% legal
    interest.
    ● Stronghold argues that the trial court did not acquire jurisdiction over the case.
    ○ In view of the arbitration clause in the agreement and considering that
    "[Republic Act No. 876] explicitly confines the court's authority only to
    pass upon the issue of whether there is [an] agreement . . . providing for
    arbitration.

    Issue:
    Whether the dispute falls under the exclusive jurisdiction of the CIAC.

    Ruling:
    Section 4 of Executive Order No. 1008 is clear in defining the exclusive jurisdiction of the CIAC:

    SECTION 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.

    Similarly, Section 35 of Republic Act No. 9285 or the Alternative Dispute Resolution Act of 2004
    states:

    SEC. 35. Coverage of the Law. — Construction disputes which fall within the original and exclusive
    jurisdiction of the Construction Industry Arbitration Commission (the "Commission") shall include
    those between or among parties to, or who are otherwise bound by, an arbitration agreement,
    directly or by reference whether such parties are project owner, contractor, subcontractor,
    quantity surveyor; bondsman or issuer of an insurance policy in a construction project.

    The Commission shall continue to exercise original and exclusive jurisdiction over construction
    disputes although the arbitration is "commercial" pursuant to Section 21 of this Act.

    This court has ruled that when a dispute arises from a construction contract, the CIAC has exclusive
    and original jurisdiction. n this case, there is no dispute as to whether the Owners-Contractor
    Agreement between Asis-Leif and respondents is a construction contract. Petitioner and
    respondents recognize that CIAC has jurisdiction over disputes arising from the agreement.

    What is at issue in this case is the parties' agreement, or lack thereof, to submit the case to
    arbitration. Respondents argue that petitioner is not a party to the arbitration agreement. Petitioner
    did not consent to arbitration. It is only respondent and Asis-Leif that may invoke the arbitration
    clause in the contract.

    This court has previously held that a performance bond, which is meant "to guarantee the supply of
    labor, materials, tools, equipment, and necessary supervision to complete the project[,]" is
    significantly and substantially connected to the construction contract and, therefore, falls under the
    jurisdiction of the CIAC.

    In the present case, Article 7 of the Owners-Contractor Agreement merely stated that a performance
    bond shall be issued in favor of respondents, in which case petitioner and Asis-Leif Builders and/or
    Ms. Ma. Cynthia Asis-Leif shall pay P4,500,000.00 in the event that Asis-Leif fails to perform its duty
    under the Owners-Contractor Agreement. 80 Consequently, the performance bond merely
    referenced the contract entered into by respondents and Asis-Leif, which pertained to Asis-Leif's
    duty to construct a two-storey residence building with attic, pool, and landscaping over respondents'
    property.

    To be clear, it is in the Owners-Contractor Agreement that the arbitration clause is found. The
    construction agreement was signed only by respondents and the contractor, Asis-Leif, as
    represented by Ms. Ma. Cynthia Asis-Leif. It is basic that "[c]ontracts take effect only between the
    parties, their assigns and heirs[.]" Not being a party to the construction agreement, petitioner cannot
    invoke the arbitration clause. Petitioner, thus, cannot invoke the jurisdiction of the CIAC.

    Disposition:
    WHEREFORE, the petition is DENIED. The case is DISMISSED. Petitioner's counsel is STERNLY
    WARNED that a repetition or similar violation of the rule on Certification Against Forum Shopping
    will be dealt with more severely.

    Relevant Opinions:

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