G.R. No. 199650 - J Plus Asia Development Corp. vs. Utility Assurance Corp.

On December 24, 2007, J Plus Asia Development Corporation (“Owner”) contracted Martin E. Mabunay doing business as Seven Shades of Blue Trading and Services (“Contractor”) for the construction of a 72-room condominium/hotel (Condotel Building 25) in Boracay, Malay, Aklan, for a contract price of ₱42,000,000.00, to be completed within 365 days from the Notice of Award and Notice to Proceed upon payment of a 20% down payment (₱8,400,000.00), which was fully paid on January 14, 2008.
The Contractor secured its obligations by a Performance Bond issued by Utility Assurance Corporation (“Surety”) in the amount of ₱8,400,000.00, described as guaranteeing the full and faithful performance of the Construction Agreement, with a clause stating that the Surety’s liability “shall in no case exceed ₱8,400,000.00.”

Work commenced on January 7, 2008. Up to the 7th monthly progress billing, Owner had paid Contractor a total of ₱15,979,472.03, yet by September 16, 2008, only 27.5% of the project was complete.
A Joint Construction Evaluation Report dated November 14, 2008, confirmed 31.39% completion; construction materials on site valued at ₱1,049,364.45; net 8th–9th billings credited ₱1,538,424.84; leaving an unrecouped down payment of ₱2,379,441.53 and an uncompleted portion valued at ₱27,880,419.52 (68.61%).
Between April and November 2008, the Owner issued multiple written notices of delay citing slow progress, lack of manpower, and absence of on-site technical supervision, demanding a catch-up schedule.
On November 19, 2008, the Owner terminated the Construction Agreement for Contractor’s delays and inadequate performance, sent demand letters to the Contractor and Surety, and, upon non-compliance, filed a Request for Arbitration with the Construction Industry Arbitration Commission (CIAC), claiming ₱8,980,575.89 as liquidated damages and ₱2,379,441.53 as unrecouped down payment.

In arbitration, Contractor asserted owner-ordered retrofitting extended completion to April 30, 2009; Surety moved to dismiss for lack of cause of action and argued its bond liability was limited to the 20% down payment already extinguished by Contractor’s work. Both motions were denied; Contractor failed to appear and was deemed to have waived evidence.
On February 2, 2010, the CIAC awarded joint and several liabilities against Contractor and Surety: ₱4,469,969.90 as liquidated damages and ₱2,379,441.53 as unrecouped down payment, plus interest; capped Surety’s liability at ₱8.4 million; and ordered Contractor to indemnify Surety and pay arbitration costs and attorney’s fees.
Surety petitioned for review under Rule 43 to the Court of Appeals (CA). In a Decision dated January 27, 2011, the CA construed the bond in favor of the obligee but reversed the finding of default, ruling that delay could be reckoned only after the December 24, 2008 completion date. The CA set aside the CIAC Decision and annulled the writ of execution. Reconsideration motions were denied.

Whether Republic Act No. 9285 (Alternative Dispute Resolution Act) and the Special ADR Rules divested the CA of jurisdiction to review CIAC arbitral awards.

Whether the Surety’s Performance Bond was limited solely to the 20% down payment or secured the Contractor’s full contractual obligations.

Whether the Contractor was in default at the time of termination, entitling the Owner to liquidated damages and confiscation of the Performance Bond.

Whether the CA erred by deciding on issues not raised in the Terms of Reference, pleadings, or CIAC proceedings.