Title
Philippine Charter Insurance Corp. vs. Central Colleges of the Philippines
Case
G.R. No. 180631-33
Decision Date
Feb 22, 2012
CCP contracted DPCC for a building project; delays led to termination. PCIC, as surety, held liable for bonds after DPCC defaulted. Counterclaim denied due to lack of evidence. SC upheld CCP's termination rights, modified bond liability.
school building construction project
general contractor
surety
A

Case Summary (G.R. No. 239315)

Factual Background — Contract Performance and Downpayment

DPCC completed Phase 1 without issue. CCP paid DPCC a downpayment of P14,880,000.00 (12% of Phase 2’s P124,000,000.00) by check dated March 14, 2002. By July and November 2003, Phase 2 progress lagged: CCP’s audits showed 47% completion by July 25, 2003 and about 51% by November 6, 2003, well behind schedule. CCP sent notice letters (October 29, 2003 and November 6, 2003) informing DPCC (and PCIC) of breach/default and advising it would claim on the construction bonds. CCP later terminated DPCC’s contract in a November 21, 2003 letter and proceeded to engage another contractor.

Procedural History — Arbitration and Judicial Review

CCP filed a complaint with request for arbitration before CIAC on October 28, 2004, seeking enforcement of the three bonds for a total of P13,924,351.47 plus interest and attorney’s fees. CIAC rendered an award on June 3, 2005 in favor of CCP, finding DPCC and PCIC jointly and severally liable for P13,924,351.47 but also awarding DPCC P4,232,264.12 for materials and equipment left at the site; net award to CCP was P9,692,087.37. All parties appealed to the Court of Appeals, which consolidated the appeals and, on June 29, 2007, affirmed CIAC with modification: it deleted the award in favor of DPCC for materials and equipment and ordered PCIC and DPCC jointly and severally to pay CCP P13,924,351.47 with prescribed interest. PCIC filed a motion for reconsideration which the CA denied; PCIC then brought a petition for review on certiorari under Rule 45 to the Supreme Court.

Issues Presented by Petitioner (PCIC)

PCIC framed three principal issues: (1) whether the CA erred in sustaining CIAC’s award finding PCIC liable under the performance and surety bonds; (2) whether the CA erred in upholding CCP’s right to terminate the contract; and (3) whether the CA erred in deleting DPCC’s counterclaim for materials, equipment, formworks and scaffoldings and in denying PCIC any benefit from that counterclaim.

Judicial Admission and Bond PCIC‑46172

PCIC argued that Performance Bond PCIC‑46172 (P692,890.74) had been satisfied and should not be collectible. The record of the CIAC hearing contains a clear verbal statement by CCP’s president that CCP was "no longer interested" in collecting on Bond 46172 because the works covered by that bond had been completed and a Certificate of Acceptance existed. The Tribunal treated this as a judicial admission under Section 4, Rule 129 of the Rules of Court. The Supreme Court accepted that CCP’s express waiver before the arbitral tribunal constituted a binding judicial admission, precluding CCP from later pursuing payment under Bond 46172. Consequently, CCP’s claim was confined to Surety Bond PCIC‑45542 and Performance Bond PCIC‑45541, and the amount collectible from PCIC was reduced accordingly.

Accrual of Cause of Action and Notice Requirement under the Bonds

PCIC contended DPCC’s default occurred as early as September 4, 2003 and that CCP’s notice (October 29, 2003 and November 6, 2003) was untimely vis‑à‑vis bond provisions requiring claims in writing within ten (or fifteen) days from expiration or from occurrence of default. The Court applied Article 1169 of the New Civil Code: delay (default) commences from the time the obligee judicially or extrajudicially demands performance. The Court held DPCC’s culpable delay did not accrue simply by lapse of time but began when CCP extrajudicially demanded fulfillment of the obligation by written notice — here, the October 29, 2003 letter. Thus CCP’s November 6, 2003 written notice complied with the bonds’ claim provisions. The subsequent December 5, 2003 extension approved by PCIC was communicated after CCP’s October 29, 2003 notice and therefore did not defeat CCP’s timely claim.

Nature and Operation of Surety Liability

The Court reiterated established principles of suretyship: a surety’s undertaking is accessory to the principal obligation but, upon the principal’s default, the surety is directly and solidarily liable with the principal (Art. 2047, New Civil Code). The surety’s liability is triggered by the obligor’s default and, where bonds are callable on demand, the surety must perform as agreed once default and proper claim notice occur. The Court therefore affirmed PCIC’s duty to respond under the remaining enforceable bonds for DPCC’s default, subject to the contractual and procedural limitations expressly contained in the bond instruments and the parties’ admissions.

CCP’s Termination of the Contract

The Court upheld the CA’s conclusion that CCP was legally justified in terminating the contract. The parties’ contract expressly granted the owner the right to terminate after fifteen days’ written notice for substantial failure of the contractor to fulfill its obligations (Article 16). Given DPCC’s inexcusable delay and the record of partial completion (around 51% as of November 2003), CCP’s declaration of default and termination fell within the contractual termination clause and was legally effective.

Deletion of DPCC’s Counterclaim for Materials and Equipment

CIAC had awarded DPCC P4,232,264.12 for materials and equipment allegedly left at the site; the CA deleted this award for insufficient proof. The Court affirmed deletion. It explained that actual or compensatory damages must be pleaded and proved with a reasonable degree of certainty using competent evidence (receipts, delivery vouchers, etc.). Although DPCC presented supplier receipts, it failed to establish that those items corresponded to the materials and equipment left at the work site. Self‑serving statements without corrobo

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