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[G.R. No. 165964.� February 16, 2005]
STRONGHOLD vs. BORLAGDAN
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated FEB 16 2005.
G.R. No. 165964 (Stronghold Insurance Company, Inc. vs. Ruelito C. Borlagdan, et al.)
At bar is this petition for review on certiorari of the October 14, 2003 decision [1] cralaw of the Court of Appeals in CA-G.R. SP No. 72044, affirming an earlier decision [2] cralaw dated September 13, 2001 of the Construction Industry Arbitration Commission (CIAC), the decretal portion of which reads:
WHEREFORE, in view of the foregoing, an AWARD is hereby made in favor of Claimants Ruelito C. Borlagdan and Melanie L. Borlagdan:
(1)���� Ordering Respondent Asis-Leif to pay them the amount of P1,096,292.54 as reimbursement of the amount overpaid to it;
(2)���� Ordering Respondent Stronghold to pay them the amount of P1,600,000.00, representing its undertaking under its Performance Bond, to enable the said Claimants to complete the construction of the project;
(3)���� Ordering Respondent Asis-Leif to reimburse Respondent Stronghold the aforesaid amount, which is the limit of its liability under its performance bond;
(4)���� Ordering Respondent Asis-Leif to pay the amount of P200,000.00 as and for moral damages;
(5)���� Ordering Respondent Asis-Leif to pay them the amount of P20,000.00 as and for attorney's fees and costs of the suit; and
(6)���� Ordering Respondent Asis-Leif to pay the cost of arbitration and to reimburse the other parties whatever amounts they may have advanced thereon.
SO ORDERED.
On September 17, 1999, the respondent-spouses Ruelito Borlagdan
and Melanie Borlagdan and Asis-Leif Builders Company, Inc. (Asis-Leif
Builders), entered into a contract denominated as Owners-Contractor
Agreement
[3]
cralaw
for the construction of the Borlagdans' residential building. In consideration
of the services of Asis-Leif Builders, the Borlagdans agreed to pay P3,570,984.
As required in the construction agreement, Asis-Leif Builders obtained a
performance bond from petitioner Stronghold Insurance Company (Stronghold) in
the amount of P1,600,000.00. In turn, Asis-Leif Builders executed the
corresponding indemnity agreement in favor of Stronghold.
On April 6, 2001, the spouses Borlagdan filed with the
Construction Industry Arbitration Commission (CIAC) a request for arbitration
[4]
cralaw against Asis-Leif
Builders and Stronghold In their request, the spouses alleged, inter alia,
that as of July 13, 2000, out of the total contract price of P3,570,984,
they had paid Asis-Leif Builders the total amount of P3,392,435.25; that
despite demands, the latter failed to complete the project within the period
agreed upon and instead stopped work thereon; that the unfinished project was
assessed by an independent engineer as 64.3% accomplished, thereby indicating
an overpayment by them; and that, despite a claim duly made, Asis-Leif Builders
and Stronghold refused to pay. The spouses thus prayed for a judgment ordering
Asis-Leif Builders to reimburse or return to them the excess payment they made
for the work actually accomplished in the amount of P1,211,099.38, and
for Stronghold to pay them the sum of P1,600,000.00, representing the
latter's obligation under the performance bond.
In its answer with counterclaim, Asis-Leif Builders averred that it was the spouses themselves who unilaterally terminated the construction agreement due to unresolved issues between the parties, principally the non-payment by the spouses of the Value-Added Tax (VAT) on the project.
For its part, Stronghold set up the following defenses in its
answer:
[5]
cralaw
(1) the Borlagdans had no cause of action against it because it was not a party
to the principal contract between them and Asis-Leif Builders; (2) the claim
does not fall within the coverage of the performance bond; (3) the claim
against the performance bond has no basis because the total cost of work
accomplished (64.30%) is only P2,181,335.87 which did not exceed the
project cost of P3,570,984.00; and (4) as there is no increase in
project cost attributable to Asis-Leif s alleged failure to complete the construction,
there is nothing for which the performance bond may be charged against. In the
same answer, Stronghold interposed a counterclaim for compensatory and
exemplary damages, attorney's fees and litigation expenses against the spouses,
and a cross-claim against Asis-Leif Builders for reimbursement of whatever
amount it may be ordered to pay the Borlagdans.
A formal hearing before the CIAC was held on July 19, 2001 during which all the parties and their respective counsels appeared, except Asis-Leif Builders and counsel. After the case was heard, the parties submitted their respective memoranda in the form of draft decisions. On September 13, 2001, the CIAC rendered the above-quoted decision.
On petition for review at the Court of Appeals, whereat, its recourse was docketed as CA-G.R. SP No. 72044, Stronghold maintained that the CIAC has no jurisdiction over the claim of the spouses, arguing that as the performance bond it extended to Asis-Leif is not a contract involving construction, the spouses' complaint for reimbursement from the performance bond should have been filed with the regular courts.
In the herein assailed decision [6] cralaw of October 14, 2003, the Court of Appeals dismissed Stronghold's petition, as follows:
WHEREFORE, in view of the foregoing premises, and finding no reversible error in the assailed decision, the petition for review is DISMISSED for lack of merit. The Decision dated September 13, 2001 of the Construction Industry Arbitration Commission in CIAC Case No. 12-2001 is AFFIRMED.
SO ORDERED.
In time, Stronghold moved for a reconsideration but its motion was denied by the appellate court in its Resolution of November 3, 2004. [7] cralaw
Hence, Stronghold's present petition which we find unavailing.
Section 4 of Executive Order No. 1008 which defines the jurisdiction of the CIAC, provides:
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 disputes arise 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 provisions; amount of damages and penalties; commencement time and delays; maintenance and defects; payment default of employer or contractor and changes in contract cost.
To our mind, the foregoing jurisdiction of the CIAC is encompassing and not restrictive. CIAC's jurisdiction extends, not only to claims or disputes specifically or directly involving, but also those arising from or connected with contracts of construction in the Philippines. The term "arise" means to spring from, to originate, to come into being from a specified source; to become operative, while the term "connected" means joined; united by an intervening medium, dependence or relation. [8] cralaw
Unquestionably, the performance bond, which is the basis of the Borlagdans' cause of action against petitioner Stronghold, arose from and is connected with the Owners-Contractor Agreement, as it in fact originated therefrom. For sure, the performance bond was procured by Asis-Leif Builders and duly posted by the petitioner as a requirement under, and executed in connection with, the same Owners-Contractor Agreement. As such, the performance bond is an adjunct or appendage of the said construction agreement, and both contracts complemented and formed part of each other. Petitioner Stronghold cannot then avoid the binding effect of the voluntary arbitration clause embodied the subject construction agreement between the Borlagdans and Asis-Leif Builders.
When Asis-Leif Builders and Stronghold executed the Performance Bond, petitioner's undertaking thereunder was that of a surety to the obligation of Asis-Leif, the principal, under the Owners-Contractor Agreement. This is unmistakable from the first paragraph of the performance bond, which states:
That We, ASIS-LEIF BUILDERS/MDM. MA. CYNTHIA ASIS LEIF, contractor, xxx xxx xxx, as principal and the STORNGHOLD INSURANCE COMPANY, INC., a corporation duly organized, xxx xxx xxx, as Surety, are held and firmly bound unto the SPS. RUELITO & MELANIE BORLAGDAN, and to any individual, partnership, corporation or association supplying the principal with labor and materials in the penal sum of One Million Six Hundred Thousand Pesos (P1,600,000.00) xxx xxx xxx, for the payment of which sum, well and truly to be made, we bind ourselves, xxx xxx xxx, jointly and severally, firmly by these presents. [9] cralaw
Since the liability of petitioner Stronghold as surety is solidary with that of Asis-Leif Builders, it was properly impleaded as it would be the party ultimately answerable under the bond should Asis-Leif Builders be adjudged liable for breach of contract. Petitioner's inclusion is important especially to afford complete relief to the Borlagdans as Asis-Leif Builders had not only reneged in its obligation, but also absconded.
The essence of a performance bond is to afford the project owner, in this case, the spouses Borlagdan, security that Asis-Leif Builders would faithfully comply with the terms and conditions of the Owners-Contractor Agreement, and make good damages that may be sustained by the spouses in case Asis-Leif Builders failed to perform its obligations under the contract. [10] cralaw Since Asis-Leif Builders reneged in its obligation under the construction agreement, petitioner Stronghold should pay the amount of P1,600,000.00, representing its undertaking under the performance bond.
As surety, petitioner Stronghold assumed liability as a regular party to the Owners-Constructor Agreement. It is charged as an original promissory and its obligation is primary. [11] cralaw As its liability is solidary with the principal, it follows that if the latter does not pay, a surety like petitioner, should pay as it acts as an insurer of the debt.
Besides, Stronghold, through counsel, had actively participated in the arbitration proceedings by filing an answer, nominating arbitrators to the proposed panel, participating in the deliberations on, and the formulation of, the Terms of Reference of the arbitration proceedings. By its conduct, Stronghold voluntarily submitted itself to the jurisdiction of the CIAC. Consequently, it must not now be allowed to deny that jurisdiction after submitting to it. The rule is that the active participation of a party against whom an action was brought, coupled with its failure to object to the jurisdiction of the court or administrative body where the action is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the resolution of the case, and will bar said party from later on impugning the court or body's jurisdiction. [12] cralaw
It bears emphasizing that petitioner Stronghold even asserted a counterclaim against the Borlagdans. Let alone its prayer for the dismissal of the spouses' complaint, it also asked for the payment by them of damages based on their purported bad faith. By filing a counterclaim, petitioner thereby recognized and expressly invoked the jurisdiction of the CIAC. It cannot now insist the want of it only after an unfavorable judgment was rendered. It is not right for a party who has affirmed and invoked the jurisdiction of a court to secure an affirmative relief by advancing a counterclaim and then deny afterwards that same jurisdiction to escape a penalty. A party is barred from such conduct not because the judgment or order of the court is valid but because such a practice cannot be tolerated by reason of public policy. This Court cannot countenance petitioner's inconsistent posture in attacking the jurisdiction of the arbitral tribunal to which it has voluntarily submitted. [13] cralaw The Court frowns upon the undesirable practice of submitting one's case for decision, and then accepting the judgment only if favorable, but attacking it for lack of jurisdiction if it is not. [14] cralaw
WHEREFORE, petition is hereby DENIED DUE COURSE.
SO ORDERED.
Very truly yours,
(Sgd.). LUCITA ABJELINA SORIANO
Clerk of Court
Endnotes:
[1] cralaw Penned by Associate Justice Sergio L. Pesta�o and concurred in by Associate Justices Marina L. Buzon and Jose C. Mendoza of the Fourteenth Division.
[2] cralaw Rollo, pp. 96-104.
[3] cralaw Rollo, pp. 44-48.
[4] cralaw Rollo, pp. 57-62
[5] cralaw Rollo, pp. 64-69.
[6] cralaw Rollo, pp. 8-20.
[7] cralaw Rollo, pp. 18-20.
[8] cralaw Black's Law Dictionary, Sixty Edition, 1990.
[9] cralaw Rollo, pp. 54-55.
[10] cralaw Eastern Assurance & Surety Corp. vs. Intermediate Appellate Court, November 22, 1988.
[11] cralaw Tolentino, the Civil Code of the Philippines, Vol. V, p. 501, 1992.
[12] cralaw Jose Oca, Isabelo Oca, Rodolfo O. Gutlay, and Jose Abrazaldo, vs. Court of Appeals and Sergio O. Abalos, G.R. No. 144817 [March 7, 2002].
[13] cralaw Roxas v. CA, 391 SCRA 351, 360, October 29, 2002
[14] cralaw Sta. Lucia Realty & Development, Inc. v. Cabrigas, 411 Phil. 369, 390, June 19, 2001.
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