Case Summary (G.R. No. 185066)
Summary of Facts and Underlying Contractual Arrangement
PNCC, engaged in construction and tollway operations, conducted a public bidding on October 16, 1997, for the supply and delivery of 27 automated tollbooths. Orlando Kalingo won the bid. Subsequently, PNCC issued two Purchase Orders (P.O.): No. 71024L for 25 tollbooths costing P2,100,000.00 and No. 71025L for 2 tollbooths costing P168,000.00. Each P.O. required a surety bond securing 100% of the down payment (50% of the total contract price), covering full compliance with contractual terms. Accordingly, Kalingo posted two surety bonds issued by PCIC: Bond No. 27547 for P1,050,000.00 corresponding to P.O. 71024L, and Bond No. 27546 for P84,000.00 corresponding to P.O. 71025L. Both surety bonds contained conditions including a liability expiration date of March 16, 1998, and a strict requirement that any extrajudicial written demand must be made within fifteen (15) days after bond expiration, failure of which constitutes a waiver of claim or court action against the surety.
Performance and Default
Kalingo partially delivered four tollbooths under P.O. No. 71024L in early March 1998; however, they were incomplete and failed to meet PNCC specifications. The remaining units were not delivered by the time the complaint was filed. On March 9, 1998, PNCC notified PCIC in writing of Kalingo’s default and demanded repayment under Bond No. 27547. Despite repeated demands, PCIC refused payment. PNCC then filed suit on April 24, 2001, for collection against both Kalingo and PCIC based solely on Bond No. 27547. Collection under Bond No. 27546 was not pleaded in the complaint.
Trial Court Decision
The RTC ruled in favor of PNCC, ordering PCIC and Kalingo to pay P1,050,000.00 plus legal interest and attorney’s fees. The court did not rule on liability under Bond No. 27546 as it was not part of the complaint.
Court of Appeals Ruling and Issue of Bond No. 27546
On appeal, the CA expanded PCIC’s liability, holding it jointly and severally liable for both Bonds No. 27547 and 27546, despite the absence of any claim or suit for Bond No. 27546 in the original complaint. The CA reasoned that since the bonds were attached to the complaint and the liability of PCIC as surety was proven, PNCC could collect under both bonds.
Petition for Review and Motion for Reconsideration
PCIC’s petition for review was initially denied due course. PCIC then filed a motion for reconsideration, raising three issues:
- Whether PCIC should have been held liable under Bond No. 27546 which was not subject of the complaint.
- Whether the issuance of PNCC’s checks ten months prior to the contract award amounted to material concealment vitiating the bonds.
- Whether PCIC was liable for attorney’s fees.
The Court rejected the second issue as a factual matter resolved by the RTC and CA.
Legal Analysis on Liability Under Bond No. 27546
The Court emphasized the fundamental principle that a court’s grant of relief is limited to what is specifically prayed for in the complaint, or reliefs related and supported by evidence. The cause of action arises only upon violation of a party's right through act or omission and compliance with contractual conditions precedent.
Each PCIC bond was a distinct contract with independent terms. Crucially, both contained a condition precedent requiring PNCC to file a written demand within 15 days from bond expiration to activate PCIC’s liability. PNCC complied with this written claim requirement only for Bond No. 27547, not for Bond No. 27546. Absence of written demand for the latter extinguished PCIC’s liability and constituted a waiver of PNCC’s right to claim under that bond.
The CA’s imposition of liability on Bond No. 27546, despite the non-existence of a cause of action and failure to comply with the explicit contractual conditions, was erroneous. The Court clarified that contract terms must be respected if not contrary to law or public policy. The contractual obligation of PCIC as surety is strictly limited to the conditions stated in each bond.
On the Doctrine of Granting “Other Relief”
PNCC’s invocation of a general prayer for “other relief just and equitable” was insufficient to override the express conditions of the bond or to judicially create a cause of action that did not exist. The general prayer does not permit the court to disregard contractual stipulations thereby imposing liability where conditions precedent remain unsatisfied.
Liability for Attorney’s Fees
The Court affirmed that PCIC bears attorney’s fees because its unjust refusal to pay after valid written demand caused PNCC to incur expenses to enforce its claim on Bond No. 27547.
Final Ruling and Modification of Prior Decisions
The Supreme Court granted the motion for reconsideration partly, modified the CA decision by deleting PCI
Case Syllabus (G.R. No. 185066)
Case Background and Parties Involved
- The petitioner is Philippine Charter Insurance Corporation (PCIC), and the respondent is Philippine National Construction Corporation (PNCC).
- PNCC is engaged in construction and tollway operations, conducting public bidding for supply and fabrication contracts related to tollbooths.
- Orlando Kalingo won the bidding to fabricate and deliver 27 tollbooths under two separate Purchase Orders (P.O. No. 71024L for 25 units and P.O. No. 71025L for 2 units).
- PNCC required surety bonds equivalent to 100% of the total down payment (which is 50% of the total cost of each P.O.) to secure the obligations of Kalingo under these contracts.
- PCIC issued two surety bonds to guarantee this: Bond No. 27547 covering 25 units (P1,050,000) and Bond No. 27546 covering 2 units (P84,000).
Terms and Conditions of the Surety Bonds
- Both surety bonds secured the repayment of the down payment in case of Kalingo's failure to complete the project due to his own fault.
- Each bond explicitly states the maximum liability of PCIC and refers specifically to the respective Purchase Order.
- The bonds included a critical stipulation that the surety's liability would expire on March 16, 1998.
- There is a condition precedent that a written extrajudicial demand must be filed against PCIC within fifteen (15) days after the expiration of the bonds; otherwise, the surety is not liable, and the obligee waives the right to file any claim or court action thereafter.
- These conditions form the contractual framework binding the parties and the surety.
Facts Leading to Litigation
- Kalingo made only a partial initial delivery of four out of the 25 tollbooths, which were defective and non-compliant with PNCC specifications.
- He failed to deliver the remaining tollbooths despite demands.
- PNCC filed a written extrajudicial claim against PCIC on March 9, 1998, demanding repayment on Bond No. 27547 for P1,050,000.
- This claim was ignored by PCIC, leading PNCC to file a complaint for collection on April 24, 2001 against both Kalingo and PCIC, but only under Bond No. 27547.
- The complaint did not include Bond No. 27546, related to the second Purchase Order.
Proceedings in the Regional Trial Court (RTC) and Court of Appeals (CA)
- The RTC ruled in favor of PNCC, ordering PCIC and Kalingo to jointly pay P1,050,000 under Bond No. 27547 plus interest and attorney's fees.
- The RTC did not decide on liability under Bond No. 27546 due to its absence from the complaint.
- On appeal, the CA reversed in part by holding PCIC jointly liable for both bonds (No. 27546 and No. 27547), although the complaint only sought collection under the latter.
- PCIC sought review before the Supreme Court after the CA denied reconsideration.
Issues Presented Before the Supreme Court
- Whether the CA erred in holding PCIC liable under Bond No. 27546, which was not the subject of PNCC’s complaint.
- Whether the issuance date on the checks by PNCC indicates concealment of material facts affecting the validity of the bonds.