Case Summary (G.R. No. 199650)
Facts
On December 24, 2007, the parties executed a P42 million Construction Agreement requiring completion within 365 days of notice to proceed. A 20% down payment (P8.4 million) was fully paid on January 14, 2008. Mabunay commenced work on January 7, 2008, and posted an equivalent performance bond through Utassco. By November 14, 2008, joint inspection revealed only 31.39% completion against an agreed schedule, leaving over two-thirds of the work undone.
Arbitration Proceedings and Appellate History
J Plus terminated the contract on November 19, 2008, then filed for arbitration before the Construction Industry Arbitration Commission (CIAC), claiming P8,980,575.89 in liquidated damages and P2,379,441.53 in unrecouped down payment. The CIAC awarded joint and several liability of Mabunay and Utassco for P4,469,969.90 (liquidated damages) and P2,379,441.53, plus interest, without exceeding Utassco’s P8.4 million bond, and ordered indemnity by Mabunay. The Court of Appeals reversed, holding delay was not yet demandable before the contract’s one-year term and reinterpreting the bond’s scope.
Issues
- Whether the Court of Appeals had jurisdiction to review a CIAC arbitral award.
- Whether Mabunay was in default for delayed completion entitling J Plus to liquidated damages.
- Whether the performance bond secured full contract performance or was limited to 20% down payment.
- Proper computation of interest and indemnity.
Legal Analysis on Jurisdiction and Default
Under EO 1008, as amended by RA 7902 and the 1997 Rules, CIAC awards are final and appealable to the Supreme Court via a Rule 43 petition for review to the Court of Appeals. RA 9285 does not divest this jurisdiction nor require CIAC awards to be confirmed by the RTC. Default under Articles 1169 and 1170 and Civil Code Article 1169 arises when a demandable, liquidated obligation is not fulfilled after demand. Contractual provisions and repeated notices of delay established Mabunay’s default well before expiration of the one-year term.
Interpretation of Performance Bond and Surety Liability
The bond’s recitals guarantee “full and faithful performance” of the contract, with Utassco’s liability capped at P8.4 million. Ambiguities are construed against the surety and in favor of the obligee. The bond functions as a penalty clause permitting J Plus to confiscate its proceeds upon contrac
Case Syllabus (G.R. No. 199650)
Procedural History
- Petition for review on certiorari under Rule 45 assails the Court of Appeals’ Decision (Jan. 27, 2011) and Resolution (Dec. 8, 2011) in CA-G.R. SP No. 112808.
- Underlying arbitral award rendered by the Construction Industry Arbitration Commission (CIAC) on February 2, 2010, awarding liquidated damages, unrecouped down payment, and indemnity.
- Court of Appeals partially reversed the CIAC, finding termination premature and narrowing surety’s liability; both parties moved for reconsideration, which were denied.
- Supreme Court granted certiorari, reconsidering CA jurisdiction over CIAC awards and the merits of delay, default, and surety bond liability.
Facts
- December 24, 2007: J Plus Asia Development Corporation (“Owner”) engaged Martin E. Mabunay doing business as Seven Shades of Blue (“Contractor”) to build a P42 million, 72-room condotel on Boracay Island under a one-year completion contract.
- Owner paid 20% down payment (P8.4 million) on January 14, 2008; Contractor submitted a performance bond from Utility Assurance Corporation (“Surety”) in the same amount.
- Work commenced January 7, 2008; monthly progress billings through September 16, 2008 showed only 27.5% completion despite P15,979,472.03 payments.
- Joint evaluation on November 14, 2008 confirmed 31.39% completion; on-site materials valued at P1,049,364.45; unrecouped down payment of P2,379,441.53; uncompleted work valued at P27,880,419.52.
- November 19, 2008: Owner terminated contract for delay, sent demand letters to Contractor and Surety, then filed arbitration for P8,980,575.89 liquidated damages and P2,379,441.53 unrecouped down payment.
- CIAC denied motions to dismiss, held Contractor and Surety jointly liable, awarded damages, interests and attorney’s fees; Surety’s liability capped at P8.4 million; Contractor indemnified Surety.
- Court of Appeals reversed CIAC on delay and termination, held late completion only after contract expiry (Dec. 24, 2008) and premature termination; interpreted performance bond cap as limit on liability but not guarantee of full performance.
Issues
- Did Republic Act No. 9285 (Alt