Philippine Supreme Court Jurisprudence > Year 2013 > January 2013 Decisions > G.R. No. 179628 : January 16, 2013 - THE MANILA INSURANCE COMPANY, INC., PETITIONER. VS. SPOUSES ROBERTO AND AIDA AMURAO, RESPONDENTS.:

The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred by law. Section 4¹ςrνl1 of Executive Order (E.O.) No. I 008, 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."²ςrνl1

This Petition for Review on Certiorari³ςrνl1 under Rule 45 of the Rules of Court assails the Decision⁴ςrνl1 dated June 7, 2007 and the Resolution⁵ςrνl1 dated September 7, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. 96815.cralawlibrary

Factual Antecedents

On March 7, 2000, respondent-spouses Roberto and Aida Amurao entered into a Construction Contract Agreement (CCA)⁶ςrνl1 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.⁷ςrνl1 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.⁸ςrνl1 (petitioner) and Intra Strata Assurance Corporation (Intra Strata).⁹ςrνl1

On November 15, 2001, due to the failure of Aegean to complete the project, respondent spouses filed with the Regional Trial Court (RTC) of Quezon City, Branch 217, a Complaint,¹⁰ςrνl1 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.¹¹ςrνl1

Intra Strata, for its part, filed an Answer¹²ςrνl1 and later, a Motion to Admit Third Party Complaint,¹³ςrνl1 with attached Third Party Complaint¹⁴ςrνl1 against Aegean, Ronald D. Nicdao, and Arnel A. Mariano.cralawlibrary

Petitioner, on the other hand, filed a Motion to Dismiss¹⁵ςrνl1 on the grounds that the Complaint states no cause of action¹⁶ςrνl1 and that the filing of the Complaint is premature due to the failure of respondent-spouses to implead the principal contractor, Aegean.¹⁷ςrνl1 The RTC, however, denied the motion in an Order¹⁸ςrνl1 dated May 8, 2002. Thus, petitioner filed an Answer with Counterclaim and Cross-claim,¹⁹ςrνl1 followed by a Third Party Complaint²⁰ςrνl1 against Aegean and spouses Ronald and Susana Nicdao.cralawlibrary

During the pre-trial, petitioner and Intra Strata discovered that the CCA entered into by respondent-spouses and Aegean contained an arbitration clause.²¹ςrνl1 � Hence, they filed separate Motions to Dismiss²²ςrνl1 on the grounds of lack of cause of action and lack of jurisdiction.cralawlibrary

Ruling of the Regional Trial Court �

On May 5, 2006, the RTC denied both motions.²³ςrνl1 Petitioner and Intra Strata separately moved for reconsideration but their motions were denied by the RTC in its subsequent Order²⁴ςrνl1 dated September 11, 2006.cralawlibrary

Aggrieved, petitioner elevated the case to the CA by way of special civil action for certiorari.²⁵ςrνl1

Ruling of the Court of Appeals

On June 7, 2007, the CA rendered a Decision²⁶ςrνl1 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.²⁷ςrνl1 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, 2000.²⁸ςrνl1 � The CA explained that the performance bond was intended to be coterminous with the construction of the building.²⁹ςrνl1 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.”³⁰ςrνl1 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.³¹ςrνl1 Thus:chanroblesvirtualawlibrary

WHEREFORE, we resolve to DISMISS the petition as we find that no grave abuse of discretion attended the issuance of the order of the public respondent denying the petitioner's motion to dismiss.cralawlibrary

IT IS SO ORDERED.³²ςrνl1

Petitioner moved for reconsideration but the CA denied the same in a Resolution³³ςrνl1 dated September 7, 2007.cralawlibrary

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.cralawlibrary

B.
THE HONORABLE [CA] ERRED IN TREATING [PETITIONER] AS A SOLIDARY DEBTOR INSTEAD OF A SOLIDARY GUARANTOR.cralawlibrary

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 ON FEBRUARY 29, 2000.³⁴ςrνl1

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.³⁵ςrνl1 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.³⁶ςrνl1

Petitioner likewise imputes error on the part of the CA in treating petitioner as a solidary debtor instead of a solidary guarantor.³⁷ςrνl1 Petitioner argues that while a surety is bound solidarily with the obligor, this does not make the surety a solidary co-debtor.³⁸ςrνl1 A surety or guarantor is liable only if the debtor is himself liable.³⁹ςrνl1 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 first be referred to arbitration in order to establish the liability of Aegean.⁴⁰ςrνl1 In other words, unless the liability of Aegean is determined, the filing of the instant case is premature.⁴¹ςrνl1

Finally, petitioner puts in issue the fact that the performance bond was issued prior to the execution of the CCA.⁴²ςrνl1 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.⁴³ςrνl1 Thus, the complaint should be dismissed.⁴⁴ςrνl1

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.⁴⁵ςrνl1 Besides, petitioner is not a party to the CCA.⁴⁶ςrνl1 Hence, it cannot invoke Article XVII of the CCA, which provides for arbitration proceedings.⁴⁷ςrνl1

Respondent-spouses also insist that petitioner as a surety is directly and equally bound with the principal.⁴⁸ςrνl1 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.⁴⁹ςrνl1

Our Ruling

The petition has merit.cralawlibrary

Nature of the liability of the surety

A contract of suretyship is defined 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 official 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.”⁵⁰ςrνl1 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.⁵¹ςrνl1 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.⁵²ςrνl1

In this case, respondent-spouses (obligee) filed 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.cralawlibrary

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.cralawlibrary

We do not agree.cralawlibrary

A careful reading of the Performance Bond reveals that the "bond is coterminous with the final acceptance of the project.”⁵³ςrνl1 Thus, the fact that it was issued prior to the execution of the CCA does not affect its validity or effectivity.cralawlibrary

But while there is a cause of action against petitioner, the complaint must still be dismissed for lack of jurisdiction.cralawlibrary

The CIAC has jurisdiction over the case

Section 4 of E.O. No. 1008 provides that:chanroblesvirtualawlibrary

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.cralawlibrary

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.cralawlibrary

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: "first, the dispute must be somehow connected to a construction contract; and second, the parties must have agreed to submit the dispute to arbitration proceedings.”⁵⁴ςrνl1

In this case, both requisites are present.cralawlibrary

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 x x x which [the parties] are unable to resolve amicably between themselves.”⁵⁵ςrνl1 Article XVII of the CCA reads:chanroblesvirtualawlibrary

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 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 first meeting of the board, which decision when reached through the affirmative vote of at least Two (2) members of the board shall be final and binding upon the OWNER and CONTRACTOR.cralawlibrary

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. 1008.⁵⁶ςrνl1

In William Golangco Construction Corporation v. Ray Burton Development Corporation,⁵⁷ςrνl1 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.”⁵⁸ςrνl1 Following our reasoning in that case, we find 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.cralawlibrary

In fact, in Prudential Guarantee and Assurance, Inc. v. Anscor Land, lnc.,⁵⁹ςrνl1 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 fi �om its principal. The Performance Bond is significantly 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."⁶⁰ςrνl1

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 filed by respondent-spouses with the RTC must be dismissed.cralawlibrary

WHEREFORE, the petition is hereby 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 ts DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.cralawlibrary

SO ORDERED.

Carpio, (Chairperson), Leonardo-De Castro,^*ςrνl1 Perez, and Leonen,^**ςrνl1 JJ., concur.cralawlibrary

Endnotes:

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^*ςrνl1 Per raffle dated January 14. 2013.cralawlibrary

^**ςrνl1 Per Special Order No. 1408 dated January 15, 2013.cralawlibrary

¹ςrνl1 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.cralawlibrary

The jurisdiction of the CIAC may include but is not limited to violation of specifications tor 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.cralawlibrary

Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered � the Labor Code of the Philippines.cralawlibrary

²ςrνl1 LICOMCEN, lncorporated v. Foundation Specialists, Inc., G.R. Nos. 167022 and 169678, April 4. 2011, 647 SCRA 83, 97.cralawlibrary

³ςrνl1 Rollo, pp. 13-37.cralawlibrary

⁴ςrνl1 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.cralawlibrary

⁵ςrνl1 Id. at 49.cralawlibrary

⁶ςrνl1 Id. at 72-85.cralawlibrary

⁷ςrνl1 Id. at 39-40.cralawlibrary

⁸ςrνl1 Id. at 68-69.cralawlibrary

⁹ςrνl1 Id. at 70-71.cralawlibrary

¹⁰ςrνl1 Id. at 63-67.cralawlibrary

¹¹ςrνl1 Id. at 66.cralawlibrary

¹²ςrνl1 Records, Volume I, pp. 29-32.cralawlibrary

¹³ςrνl1 Id. at 38-39.cralawlibrary

¹⁴ςrνl1 Id. at 40-42.cralawlibrary

¹⁵ςrνl1 Id. at 26-28.cralawlibrary

¹⁶ςrνl1 Id. at 26.cralawlibrary

¹⁷ςrνl1 Id. at 27.cralawlibrary

¹⁸ςrνl1 Id. at 49-50; penned by Judge Lydia Querubin Layosa.cralawlibrary

¹⁹ςrνl1 Rollo, pp. 88-94.cralawlibrary

²⁰ςrνl1 Id. at 97-100.cralawlibrary

²¹ςrνl1 Id. at 40.cralawlibrary

²²ςrνl1 Id. at 117-124 and 110-116.cralawlibrary

²³ςrνl1 Records, Volume II, pp. 544-546.cralawlibrary

²⁴ςrνl1 Id. at 589.cralawlibrary

²⁵ςrνl1 CA rollo, pp. 2-22.cralawlibrary

²⁶ςrνl1 Rollo, pp. 39-47.cralawlibrary

²⁷ςrνl1 Id. at 42-44.cralawlibrary

²⁸ςrνl1 Id. at 45-46.cralawlibrary

²⁹ςrνl1 Id. at 46.cralawlibrary

³⁰ςrνl1 Id.cralawlibrary

³¹ςrνl1 Id. at 45.cralawlibrary

³²ςrνl1 Id. at 46-47.cralawlibrary

³³ςrνl1 Id. at 49.cralawlibrary

³⁴ςrνl1 Id. at 168-169.cralawlibrary

³⁵ςrνl1 Id. at 169.cralawlibrary

³⁶ςrνl1 Id. at 171.cralawlibrary

³⁷ςrνl1 Id. at 174.cralawlibrary

³⁸ςrνl1 Id. at 175.cralawlibrary

³⁹ςrνl1 Id.cralawlibrary

⁴⁰ςrνl1 Id. at 180.cralawlibrary

⁴¹ςrνl1 Id. at 182.cralawlibrary

⁴²ςrνl1 Id. at 183.cralawlibrary

⁴³ςrνl1 Id. at 185.cralawlibrary

⁴⁴ςrνl1 Id. at 186.cralawlibrary

⁴⁵ςrνl1 Id. at 192-193.cralawlibrary

⁴⁶ςrνl1 Id. at 193.cralawlibrary

⁴⁷ςrνl1 Id.cralawlibrary

⁴⁸ςrνl1 Id. at 195.cralawlibrary

⁴⁹ςrνl1 Id. at 196.cralawlibrary

⁵⁰ςrνl1 INSURANCE CODE, Section 175.cralawlibrary

⁵¹ςrνl1 Intra-Strata Assurance Corporation v. Republic, G.R. No. 156571, July 9, 2008, 557 SCRA 363, 369.cralawlibrary

⁵²ςrνl1 Prudential Guarantee and Assurance, Inc. v. Equinox Land Corporation, G.R. Nos. 152505-06, September 13, 2007, 533 SCRA 257, 268.cralawlibrary

⁵³ςrνl1 Rollo, p. 86.cralawlibrary

⁵⁴ςrνl1 Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc., G.R. No. 177240, September 8, 2010, 630 SCRA 368, 376.cralawlibrary

⁵⁵ςrνl1 Rollo, p. 83.cralawlibrary

⁵⁶ςrνl1 Id.cralawlibrary

⁵⁷ςrνl1 G.R. No. 163582, August 9, 2010, 627 SCRA 74.cralawlibrary

⁵⁸ςrνl1 Id. at 85.cralawlibrary

⁵⁹ςrνl1 Supra note 54 at 373-379.cralawlibrary

⁶⁰ςrνl1 Id. at 377.