Case Summary (G.R. No. 200868)
Factual Background
El Dorado entered into an Owner-Contractor Agreement with ASPF Construction and Development, Inc. for the construction of a seven-storey condominium hotel for a contract price of P170,000,000.00. ASPF Construction secured a Performance Bond from Pacific Union Insurance Company in the amount of P19,641,807.80, which later was increased so that respondent issued an additional Performance Bond in the amount of P78,567,231.20, yielding a combined bond total of P98,209,039.20. During construction, El Dorado issued several warnings and notices to ASPF Construction for delays and defects, and on April 30, 2015 it issued a Notice of Default and Notice of Termination. El Dorado sought payment under the Performance Bonds from respondent on May 6, 2015, asserting events of default; respondent then informed El Dorado that the Performance Bonds were cancelled for nonpayment of premiums on June 25, 2015.
Arbitration and Claims
El Dorado filed a Request for Arbitration before the Construction Industry Arbitration Commission on July 13, 2016, without impleading ASPF Construction, and claimed among others reimbursement of an unliquidated down payment of P17,000,000.00, P350,000.00 for retrofitting, P21,538,294.76 as liquidated damages, and P3,500,000.00 for interest and arbitration costs. In its Answer with Compulsory Counterclaim, respondent challenged CIAC jurisdiction by reason of nonparty status to the Owner-Contractor Agreement and sought exemplary damages of P1,000,000.00 and attorney’s fees of P1,000,000.00.
Ruling of the CIAC
The CIAC found that it had jurisdiction because the dispute arose from or was connected with the Owner-Contractor Agreement between El Dorado and ASPF Construction. On the merits, the CIAC determined that El Dorado had paid total down payments of P17,000,000.00 while ASPF Construction’s actual accomplishment was 10.39 percent, leaving a balance of 0.39 percent or P663,000.00 in favor of ASPF Construction; accordingly, El Dorado could not recover the down payment. The CIAC denied the claim for retrofitting costs as well but awarded P1,700,000.00 as liquidated damages in favor of El Dorado. The CIAC ordered the parties to share arbitration costs pro rata and denied respondent’s prayers for exemplary damages and attorney’s fees.
Proceedings in the Court of Appeals
Both parties appealed to the Court of Appeals which, in its July 23, 2018 Consolidated Decision, affirmed with modification the CIAC award. The CA sustained the CIAC denial of El Dorado’s claims for the down payment, retrofitting costs, and interest and costs of arbitration. The CA, however, deleted the CIAC award of P1,700,000.00 as liquidated damages, reasoning that the evidence was insufficient to prove delay by ASPF Construction and that El Dorado’s own breaches, including failure to pay the down payment and refusal to settle progress billings, rendered it equally at fault. The CA also denied respondent’s contention that an unpaid First Variation Order Billing of P729,668.11 could be offset against El Dorado’s claims for lack of proof. El Dorado’s motion for reconsideration was denied in a Consolidated Resolution dated February 28, 2019.
Contentions on Appeal to the Supreme Court
El Dorado filed the present Petition for Review on Certiorari, renewing its demand for recovery of the P17,000,000.00 down payment, P21,538,294.76 as liquidated damages, interest, arbitration costs, and attorney’s fees. Respondent in its Comment agreed with the CA in deleting the liquidated damages award and defended the CA disposition. Respondent had earlier contested CIAC jurisdiction but did not press that argument before the Court of Appeals.
Issue Presented
The sole issue presented was whether the Court of Appeals correctly affirmed with modification the CIAC ruling, which necessitated determining whether the CIAC properly exercised jurisdiction over respondent, a surety issuer of the Performance Bonds, when respondent was not a signatory to the Owner-Contractor Agreement.
Supreme Court’s Analysis on Jurisdiction
The Court emphasized that jurisdiction over the subject matter is fundamental and may not be conferred by consent or acquiescence of the parties. A tribunal that lacks jurisdiction can only dismiss the action and any judgment rendered without jurisdiction is void. The Court reviewed precedents addressing CIAC jurisdiction over sureties and performance bond issuers. In Prudential Guarantee and Assurance, Inc. v. Anscor Land, Inc. (644 Phil. 634) the Court had held that CIAC had jurisdiction where the performance bond was expressly incorporated into the construction contract, such that the bond was an accessory and integral part of the contract. By contrast, in Stronghold Insurance Company, Inc. v. Spouses Stroem (751 Phil. 262) the Court held that CIAC lacked jurisdiction over the insurer where the Owner-Contractor Agreement did not incorporate the performance bond and the bond merely referenced the contract; contracts take effect only between the parties.
Application of Precedent to the Case
The Court compared the Owner-Contractor Agreement in the present case with the agreeme
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Case Syllabus (G.R. No. 200868)
Parties and Procedural Posture
- El Dorado Consulting Realty and Development Group Corporation filed a Petition for Review on Certiorari under Rule 45, Rules of Court challenging the Court of Appeals' consolidated decision and resolution.
- Pacific Union Insurance Company appeared as respondent and previously answered and filed a compulsory counterclaim before the Construction Industry Arbitration Commission.
- The case originated from CIAC Case No. 36-2016, from which both parties appealed to the Court of Appeals (CA), and thereafter El Dorado sought relief from the Supreme Court.
- The Supreme Court resolved the petition by denying it and dismissing the underlying CIAC case for lack of jurisdiction.
Key Factual Allegations
- El Dorado and ASPF Construction and Development, Inc. entered into an Owner-Contractor Agreement dated July 27, 2014 for a seven-storey condominium hotel at a contract price of PHP 170,000,000.
- ASPF Construction obtained an initial performance bond from PUIC in the amount of PHP 19,641,807.80 and later caused the bond to be increased so that PUIC issued a second bond in the amount of PHP 78,567,231.20.
- El Dorado repeatedly issued warnings and notices to ASPF Construction for delayed works, defects, and noncompliance, and on April 30, 2015 sent a Notice of Default and Termination.
- ASPF Construction allegedly requested revision of the payment schedule to cash on February 5, 2015 due to liquidity problems, which El Dorado refused.
- PUIC informed El Dorado on June 25, 2015 that the performance bonds were cancelled for non-payment of premiums.
Claims and Pleadings
- El Dorado filed a Request for Arbitration on July 13, 2016 against PUIC seeking reimbursement of an unliquidated down payment of PHP 17,000,000, cost of retrofitting PHP 350,000, liquidated damages of PHP 21,538,294.76, and interest and arbitration costs of PHP 3,500,000.
- PUIC contested CIAC jurisdiction in its Answer with Compulsory Counterclaim and sought exemplary damages of PHP 1,000,000 and attorney's fees of PHP 1,000,000.
- El Dorado did not implead ASPF Construction as a party in the arbitration proceedings before the CIAC.
Rulings Below
- The CIAC concluded that it had jurisdiction to entertain the dispute and found that El Dorado paid PHP 17,000,000 as the 10% down payment while actual contractor accomplishment was 10.39% as of March 28, 2015, leaving a net balance of 0.39% or PHP 663,000 in favor of ASPF Construction.
- The CIAC therefore denied El Dorado's claim for recovery of the down payment and denied the cost of retrofitting but awarded liquidated damages of PHP 1,700,000 in favor of El Dorado and ordered