Case Summary (G.R. No. 174926)
Background of the Case
In June 1990, the PPA awarded a contract to F.F. Cruz for the dredging of the entrance channel and harbor basin of the Cebu International Port. Subsequently, G. Reyes entered into a Sub-Contract Agreement with F.F. Cruz, wherein G. Reyes was to complete 50% of the estimated dredging volume. An essential component of this subcontract was the requirement for G. Reyes to secure a performance bond from an accredited surety company, which was ultimately provided by American Home.
Indemnity and Advance Payment
American Home issued a surety bond in the amount of P2.2 million to guarantee G. Reyes's obligations under the subcontract, particularly ensuring the repayment of an advance payment made by F.F. Cruz to G. Reyes. To secure this bond, Genaro Reyes and his wife executed an Indemnity Agreement with American Home, agreeing to indemnify the insurer for any damages or losses incurred as a result of the suretyship.
Project Abandonment and Dispute
In the course of the project, G. Reyes encountered issues related to siltation, which it claimed hindered its ability to complete the dredging work as stipulated. After failing to comply with contract requirements and ultimately abandoning the project, G. Reyes informed F.F. Cruz that it could no longer continue, prompting F.F. Cruz to take over the unfinished work. Consequently, F.F. Cruz demanded payment from American Home under the surety bond due to G. Reyes's failure to fulfill its subcontracting obligations.
Legal Proceedings
American Home filed a complaint against G. Reyes and its representatives for the amount of the bond plus associated costs, while G. Reyes countered that they had not breached their obligations. The Regional Trial Court of Makati ruled in favor of F.F. Cruz and held American Home liable for the bond amount. This decision was appealed to the Court of Appeals, which affirmed the lower court's ruling.
Court of Appeals Decision
The Court of Appeals found that G. Reyes failed to meet its obligations under the subcontract, having completed significantly less dredging than agreed upon. The appellate court rejected G. Reyes's arguments regarding force majeure, finding no evidence to support claims of heavy siltation adversely affecting the project. Thus, American Home was rendered liable for the payment due to the non-fulfillment of G. Reyes's obligations.
Supreme Court Review
On further review, American Home raised several arguments challenging the appellate court's interpretation of the bond as a performance bond rather than merely a guarantee for advance payments. However, the Supr
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Case Information
- Jurisdiction: Supreme Court of the Philippines
- G.R. No.: 174926
- Date of Decision: August 10, 2011
- Division: Third Division
- Decision by: Justice Peralta
Background of the Case
- The case is a petition for review on certiorari under Rule 45 of the Rules of Court filed by American Home Insurance Co. of New York (American Home) against F.F. Cruz & Co., Inc. (FF Cruz).
- The petition attacks the Decision dated September 29, 2005, and the Resolution dated September 25, 2006, of the Court of Appeals (CA) in CA-G.R. CV No. 73960, which affirmed the Regional Trial Court (RTC) of Makati's decision in Civil Case No. 93-2585.
Factual Background
- In June 1990, the Philippine Ports Authority (PPA) conducted a bidding for a dredging project at the Cebu International Port, awarded to FF Cruz.
- FF Cruz and Genaro Reyes Construction, Inc. (G. Reyes) entered into a Sub-Contract Agreement, wherein G. Reyes was to perform 50% of the dredging project involving an estimated 600,000 cubic meters.
- G. Reyes was required to file a performance bond equivalent to 10% of the subcontract's total cost upon receiving the Notice to Proceed.
- An advance payment of P2.2 million was made by FF Cruz to G. Reyes, guaranteed through a surety bond issued by American Home.
Indemnity Agreement
- Genaro Reyes and his wife, Lydia Reyes, executed an Indemnity Agreement, agreeing to indemnify American Home against damages due to the surety bond.
- The Indemnity Agreement stipulated tha