682 Phil. 507
MENDOZA, J.:
You are both hereby NOTIFIED that the Bonds referred to above for the faithful performance of a Contract, dated 16 May 2000 for the construction of CCP EXTENSION BLDG. (Phase 2) at 39 Aurora Blvd., Quezon City, Metro Manila and the Variation Order No. 2 has been breached by the CONTRACTOR for which reason, the CENTRAL COLLEGES OF THE PHILIPPINES, as owner, hereby gives NOTICE that it will file an action on the said performance and surety bonds.[8]
We acknowledge the receipt of your letter dated November 14, 2003 and we are in the process of compiling the documents you requested. The said documents will be submitted as soon as possible.
Furthermore, we would like to reiterate that your principal, the Dynamic Planners & Construction Corporation has breached the Contract of Agreement dated May 16, 2000 by having completed only an estimated 51% of the construction of the 5-storey CCP Extension Building, Phase 2 and has therefore failed to perform the work within the agreed schedule.
In view thereof, as stated in our earlier letter of 6 November 2003, we were compelled to declare the occurrence of a default on the part of your principal, and have terminated their contract. Please remit to us the proceeds of the captioned Bonds within the earliest possible time.
The Central Colleges of the Philippines will complete the construction of the 5-storey CCP Extension Building, Phase 2 on its own.[11]
1. Under Surety Bond No. 45542, the amount of Php7,031,460.74 plus legal interest from the date of demand until full payment thereof;
2. Under Performance Bond Nos. PCIC-45541 [Bond Endorsement Nos. E-2003/12527] and PCIC-46172, the amount of Php6,892,890.73 plus legal interest from the date of demand until full payment thereof; and
3. Php100,000.00 as and for attorney’s fees.[16]
1. Claimant was legally justified in terminating the Contract;
2. On the issue of whether claimant faithfully complied with its contractual obligation in respect of (a) the release of the downpayment, (b) the delivery of the drawings for construction, and (c) the payment of progress billings, there is no record that Dynamic protested the delay in the delivery of the site, the delay in the submission of technical plans and demanded as a result thereof the corresponding adjustment of the Contract Period or the Contract Price. The issue of delay in the reduction of the down payment is moot since Dynamic acquiesced in the reduction of the down payment from 15% to 12% and the issue of payment of the 12th progress billing arose as a consequence of a legitimate issue as to the percentage of completion of the work by Dynamic as of August 2003.
3. Dynamic’s percentage of accomplishment as of the date of the termination of the Contract was 57.33% at P71,089,200.
4. The original Contract Price was P124,000,000. To this amount shall be added the price of Variation Order No. 2 of P13,857,814.87 or an adjusted Contract Price of P137,857,814.87. Deducting P110,000,792.87, the overpayment to Dynamic is P27,779,022.00. However, Claimant is entitled to an award not exceeding the amount of its claims in its Complaint and in the Terms of Reference.
5. Dynamic failed to produce evidence to show that it was not paid the balance of the Contract Price for Phase 1 of the Project.
6. Surety is liable to Claimant under the Performance and Surety Bonds it issued in favor of Claimant. The liability of Surety is to indemnify Claimant for the un-recouped down payment [which] shall not exceed P7,031,460.74 under the Surety Bond and for not more than P6,892,890.73 under the Performance Bonds.
7. If Surety is obliged to pay these amounts to Claimant, it is entitled, on its cross-claim, to indemnity from Dynamic.
8. Claimant’s claims under the Surety and Performance Bonds are not time-barred.
9. Surety is not barred by estoppel from denying liability under the Surety and Performance Bonds.
10. Claimant’s request to Dynamic to extend the term of these bonds, Dynamic’s request to Surety to extend their terms and Surety’s grant of the extension requested have no adverse legal effect upon the rights and obligations of the parties.
11. The contractual time-bar embodied in the bonds is valid and binding.
12. Dynamic is entitled to its claims for the payment of P1,732,264.14 for materials and of P2,500,000.00 for the equipment, formworks and scaffolding left at the site.
13. The claims for payment of moral, exemplary and temperate damages and for attorney’s fees are denied.
14. The parties shall bear their own cost of arbitration.[18]
WHEREFORE, award is hereby made against Respondent Dynamic Planners and Construction Corporation and Respondent Philippine Charter Insurance Corporation, ordering them, jointly and severally, to pay Claimant, Central Colleges of the Philippines the amount of P7,031,460.74 under the Surety Bond as un-recouped down payment, and the amount of P6,892,890.73 under the Performance Bond or the total amount of P13,924,351.47.
Award is likewise made against Claimant, Central Colleges of the Philippines, ordering the latter to pay Respondent Dynamic Planners and Construction Corporation, the amount of P1,732,264.12 for the latter’s materials left at the Project Site and the amount of P2,500,000.00 as the cost of its equipment, formworks and scaffoldings which were appropriated by the former or the total amount of P4,232,264.12.
Offsetting the amount due claimant Central Colleges of the Philippines from Respondent Dynamic Planners and Construction Corporation and that due the latter from the former, there is a net amount of P9,692,087.37 which Respondent Dynamic Planners and Construction Corporation is hereby ordered to pay Claimant Central Colleges of the Philippines with interest at the rate of 6% per annum from the date of this Final Award and 12% per annum from the time this Final Award becomes final and executory and until it is fully paid in accordance with Eastern Shipping Lines, Inc. vs. Court of Appeals (1994) 234 SCRA 78.
The joint and several liability of Respondent Philippine Charter Insurance Corporation with Respondent Dynamic Planners and Construction Corporation is accordingly reduced to P9,692,087.37. In the event of payment by Respondent Philippine Charter Insurance Corporation, the latter is entitled to indemnity from its co-Respondent Dynamic Planners and Construction Corporation up to the full amount of such payment. In the event of delay in making payment to indemnify Respondent Philippine Charter Insurance Corporation, Respondent Dynamic Planners Charter Insurance Corporation shall pay interest at the rate of 21% per annum in accordance with the Indemnity Agreement between them.
All other claims, counterclaims and cross-claims not otherwise determined in this Final Award are deemed denied for lack of merit.
SO ORDERED.[19]
WHEREFORE, the Final Award, dated 03 June 2005, of the Construction Industry Arbitration Commission (CIAC) in CIAC Case No. 36-2004 is AFFIRMED with MODIFICATION, in that the award to Dynamic Planners and Construction Corporation of its counterclaim for materials, equipment, formworks and scaffoldings left at the work site in the total amount of P4,232,264.12 is DELETED.
Philippine Charter Insurance Corporation and Dynamic Planners and Construction Corporation are ORDERED jointly and severally to pay Central Colleges of the Philippines the total amount of P13,924,351.47 under Surety Bond No. PCIC-45542, Performance Bond No. PCIC-45541 (as modified by Bond Endorsement No. E-2003/12527), and Performance Bond No. PCIC-46172. Said amount shall bear interest at the rate of 6% per annum from the date of demand made on 29 October 2003. However, for any amount not yet paid after the date of the finality of this decision, the rate of interest on the payable amount shall be increased to 12% per annum from the date when this decision becomes final and executory until it is fully paid.
SO ORDERED.[28]
1st 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?
2nd Issue: Whether or not the CA grossly erred in upholding the CIAC award pronouncing respondent CCP as rightfully and justifiably entitled to terminate the contract agreement?
3rd Issue: Whether or not the CA grossly erred in deleting the counterclaim of respondent DPCC covering the costs of materials, equipment, formworks and scaffoldings left at site and in denying petitioner to benefit from the counterclaim?[31]
ATTY. G. Q. ENRIQUEZ:[34]I am calling your attention to Bond PCIC-45542.
MR. CRISPINO P. REYES:[35]You are calling my attention where?
ATTY. G. Q. ENRIQUEZ:In the terms of Reference, can we please get the copy of that so that we can be reminded?
ATTY. B.G. FAJARDO:There are only two, Counsel-the Performance and the Surety Bond.
ATTY. G. Q. ENRIQUEZ:Performance Bond in the amount of-
MR. CRISPINO P. REYES:We’re interested in 45542 and we’re interested in 45541. What we’re no longer interested in, we have to be candid to this Honorable Tribunal, we are no longer interested, [we] no longer want to collect on Performance Bond 46172.
ATTY. A.V. CAMARA:[36]At this point in time, we would like to be of record that although that Bond 46172 covering the amount of P692,890.74 per their declaration had already been satisfied that is why only two bonds now are being…
ATTY. J.N. RABOCA:May I make a qualification with that, your Honor? It’s not that it was satisfied. It’s that the Claimant is not claiming anymore because all the works under this bond were already accomplished.
ATTY. G. Q. ENRIQUEZ:Yes, because you have already a Certificate of Acceptance.
ATTY. J.N. RABOCA:Correct.
ATTY. G. Q. ENRIQUEZ:So, we’re just narrowing down into two bonds.
ATTY. A.V. CAMARA:The two bonds.
ATTY. G. Q. ENRIQUEZ:Okay.
ATTY. A.V. CAMARA:Then therefore the liability on 46172 should be released. They are only covered by the pleadings especially the Complaint.
MR. CRISPINO P. REYES:We do not dispute this.[37] [Emphases supplied]
Sec. 4. Judicial admissions. – An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
Surety Bond PCIC-45542[46]
The liability of PHILIPPINE CHARTER INSURANCE CORPORATION, under this bond will expire on October 30, 2003; Furthermore, it is hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be liable for any claim not presented to it in writing within FIFTEEN (15) DAYS from the expiration of this bond, and that the Obligee hereby waives its right to claim or file any court action against the surety after the termination of FIFTEEN (15) DAYS from the time its cause of action accrues.
Performance Bond PCIC-45541[47] and PCIC-46172:[48]
The liability of PHILIPPINE CHARTER INSURANCE CORPORATION, under this bond will expire on October 30, 2003; Furthermore, it is hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be liable for any claim not presented to it in writing within TEN (10) DAYS from the expiration of this bond or from the occurrence of the default or failure of the Principal, whichever is the earliest, and the Obligee hereby waives its right to file any claims against the Surety after termination of the period of ten (10) DAYS above mentioned after which time this bond shall definitely terminate and be deemed absolutely cancelled.
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasis supplied]
As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit therefrom.[50] Let it be stressed that notwithstanding the fact that the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.[51]Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation,[52] reiterating the ruling in Garcia v. Court of Appeals,[53] expounds on the nature of the surety’s liability:
X x x. The surety’s obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal.
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.[54] [Emphases supplied]
ARTICLE 16
Termination
16.1 The OWNER shall have the right to terminate this CONTRACT after giving fifteen (15) days notice in writing for any of the following causes:16.1.1. Substantial failure on the part of the CONTRACTOR in fulfilling its obligation;
16.1.2. Assignment or sub-contracting of any of the works herein by the CONTRACTOR without approval by the OWNER;
16.1.3 The CONTRACTOR is willfully violating any of the material conditions, stipulations and covenants of this CONTRACT and/or the attachments hereto. In the event of termination of this CONTRACT pursuant to the above, any amount owing to the CONTRACTOR at the time of such termination for services already rendered and/or materials delivered and taken over by the OWNER shall be withheld by the OWNER pending the determination of value of damages sustained by the OWNER by reason of such termination and payment of such damages by the CONTRACTOR.
Philippine Charter Insurance Corporation and Dynamic Planners and Construction Corporation are ordered to, jointly and severally, pay Central Colleges of the Philippines the total amount of P13,231,460.73 under Surety Bond No. PCIC-45542 and Performance Bond No. PCIC-45541 (as modified by Bond Endorsement No. E-2003/12527). Said amount shall bear interest at the rate of 6% per annum from the date of demand made on October 29, 2003. For any amount not yet paid after the date of the finality of this decision, however, the rate of interest on the payable amount shall be increased to 12% per annum from the date when this decision becomes final and executory until it is fully paid.