Case Digest (G.R. No. 174926) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
This case revolves around a petition for review on certiorari filed by American Home Insurance Company of New York (American Home) against F.F. Cruz & Co., Inc. (FF Cruz). The case stems from the events that occurred during the bidding and execution stages for the dredging of the entrance channel and harbor basin of the Cebu International Port initiated by the Philippine Ports Authority (PPA) in June 1990. FF Cruz was awarded the contract, and subsequently, they formed a sub-contractual agreement with Genaro Reyes Construction, Inc. (G. Reyes), wherein G. Reyes was to complete 50% of the dredging work. This sub-contract included stipulations requiring G. Reyes to secure a performance bond—specifically a surety bond—equal to 10% of the subcontract's total cost.
- Reyes received an advance payment of PHP 2.2 million from FF Cruz, secured by a surety bond issued by American Home. Alongside, an Indemnity Agreement was executed by Genaro Reyes and his wife, wherein they agree
Case Digest (G.R. No. 174926) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Background of the Project and Contractual Relationships
- In June 1990, the Philippine Ports Authority (PPA) conducted a bidding for a dredging project at the Cebu International Port.
- The contract was awarded to F.F. Cruz & Co., Inc. (FF Cruz).
- Pursuant to an earlier agreement, FF Cruz and Genaro Reyes Construction, Inc. (G. Reyes) entered into a Sub-Contract Agreement.
- Under the Sub-Contract Agreement, G. Reyes undertook to perform 50% of the dredging project’s estimated volume (600,000 cubic meters) subject to various terms such as:
- Filing a Performance Bond (callable on demand) equivalent to 10% of the sub-contract’s total cost immediately upon receipt of the Notice to Proceed.
- Starting work within thirty (30) calendar days from the Notice to Proceed and finishing within the contract time stipulated by the main contract with the PPA.
- The Surety Bond and Indemnity Agreement
- FF Cruz advanced P2.2 million to G. Reyes, which was guaranteed by a surety bond issued by American Home Insurance Co. of New York (American Home).
- The bond was specifically issued to secure payment of the advance in the event that G. Reyes would default in complying with the sub-contract conditions.
- As security for issuing the bond, Genaro Reyes (president of G. Reyes) and his wife, Lydia Reyes, executed an Indemnity Agreement, undertaking to:
- Jointly and severally indemnify American Home against all losses, damages, costs, and expenses arising from its surety obligations.
- Ensure that their liability attaches as soon as a demand is received by American Home from FF Cruz, or as soon as it becomes liable under the bond.
- Progress and Developments on the Project
- On March 6, 1991, FF Cruz notified G. Reyes that work had commenced, with mobilization of equipment being required by March 20, 1991.
- Problems began to surface when, on October 21, 1991, G. Reyes complained about excessive accumulations of silt and waste materials adversely affecting its work.
- By December 1991, G. Reyes admitted that continuing the project was no longer a wise investment and called for FF Cruz to take over the project.
- Consequently, FF Cruz completed the unfinished work.
- Claims, Demands, and Lawsuits
- Following the takeover, FF Cruz demanded the payment of P2.2 million corresponding to the surety bond.
- American Home informed G. Reyes of FF Cruz’s demand, yet G. Reyes did not comply.
- On July 29, 1993, American Home filed a Complaint for Sum of Money against G. Reyes, Genaro Reyes, and Lydia Reyes, seeking:
- The enforcement of the Indemnity Agreement by demanding payment of P2.2 million with additional attorney’s fees and litigation expenses.
- G. Reyes in its Answer with Counterclaim and Third-Party Complaint claimed:
- It was FF Cruz who breached its obligations, asserting that its liability would arise only upon its failure to comply with the sub-contract conditions.
- Claimed that siltation problems (attributed to FF Cruz) reduced its project accomplishment.
- Contended an unpaid balance claim against FF Cruz based on differences in measured dredged volumes.
- FF Cruz, responding to G. Reyes’ third-party complaint, denied causing the siltation problems and maintained that G. Reyes abandoned the project due to its incapacity.
- Pre-Trial Issues and the Decision of the Regional Trial Court (RTC)
- During pre-trial, the issues were narrowed down to:
- Whether American Home was free from liability under the provision that the surety bond was callable anytime on demand, or if liability was discharged by G. Reyes’ performance.
- Whether force majeure should relieve American Home from liability.
- Determination of the amount and nature of the damages awarded if American Home were held liable.
- The RTC rendered a Decision ordering:
- American Home and G. Reyes to pay FF Cruz the full amount of P2.2 million representing the surety bond.
- Dismissal of G. Reyes’ third-party complaint against FF Cruz and its counterclaim for attorney’s fees.
- Ordering G. Reyes to pay overpayments and additional costs as counterclaims initiated by FF Cruz.
- Appeals and the Court of Appeals (CA) Decision
- Both American Home and G. Reyes appealed the RTC Decision to the Court of Appeals.
- On September 29, 2005, the CA:
- Dismissed American Home’s appeal and affirmed the RTC Decision.
- Found that G. Reyes failed in its contractual obligation by dredging only a fraction of the agreed volume (57,000 cubic meters out of 300,000 cubic meters) regardless of claimed force majeure due to heavy siltation.
- G. Reyes and American Home sought reconsideration which was denied in a Resolution on September 25, 2006.
- Subsequently, American Home assailed the CA decision in a petition for review on certiorari, raising several assigned errors.
- Issues Raised in the Petition for Review by American Home
- American Home insisted that:
- The bond should be interpreted solely as a guarantee for the payment of the 15% advance payment, not as a performance bond.
- Its liability should have been discharged due to G. Reyes’ abandonment of the project and FF Cruz’s takeover without its prior notice or consent.
- It should not be held liable for the entire face value of the bond (P2.2 million) as the bond was limited to securing the advance payment.
- The petition, however, was found to raise issues that were not adequately presented during trial and has been denied.
Issues:
- Central Legal Issue
- Whether American Home is liable to FF Cruz for the full amount of P2.2 million under the surety bond issued to guarantee the payment of the 15% advance payment made to G. Reyes.
- Specific Points Raised by American Home
- Whether the provision in the surety bond making it callable on demand nullifies its effect as a performance bond.
- Whether American Home should be discharged from its obligations due to:
- G. Reyes’ abandonment of the project.
- The subsequent takeover of the project by FF Cruz without American Home’s notice and consent.
- Whether, even assuming liability, adjudicating American Home for the entire face value of the bond is proper given that the bond was not intended to guarantee project completion but merely the repayment of the advance payment.
- Procedural Consideration
- Whether issues not adequately raised in the trial court may be raised for the first time on appeal, in violation of principles of fair play, justice, and due process.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)