G.R. No. 254764 - Playinn, Inc. vs. Prudential Guarantee and Assurance, Inc.

Case Summary (G.R. No. 254764)

Facts Leading to the CIAC Arbitration

On December 2, 2016, Playinn and Furacon executed an Owner-Contractor Agreement (Construction Agreement) under which Furacon would construct the hotel at Upper General Luna St., Baguio City, for a total contract price of PHP 106,001,000.00. Completion was to be within sixteen (16) months from the date of the Notice to Proceed (NTP). The agreement also provided liquidated damages for delay calculated at one-tenth (1/10) of one percent (1%) of the total contract price per calendar day.

To guarantee performance, Furacon obtained from Prudential: (a) Performance Bond No. BD-G13-MLA-0005800 for PHP 21,200,200.00 and (b) Surety Bond No. BD-G16-MLA-0006402 for PHP 21,200,200.00. After the agreement’s payment terms, Playinn paid Furacon PHP 20,000,000.00 on February 7, 2017, representing twenty percent of the contract price. With the issuance of the NTP dated February 20, 2017, Playinn directed Furacon to proceed starting March 1, 2017.

Project delays followed. Furacon requested an extension of six months; Playinn granted only three months, from July 2018 until October 2018. On January 26, 2018, Playinn sent an Ultimatum Letter complaining of slow progress and requiring significant changes by the end of February 2018. Based on an Accomplishment Report dated March 14, 2018, Furacon had completed only 4.58% of the project as of that period.

Considering the work had fallen behind the schedule by more than thirty calendar days, Playinn treated Furacon as in default and sent a final notice of termination dated March 15, 2018. Playinn demanded payment of PHP 50,517,524.16, representing refund of alleged overpayment of PHP 15,141,614.16 and liquidated damages of PHP 35,375,910.00. On the same date, Playinn wrote Prudential enforcing its claim on the surety and performance bonds. When the demands were unheeded, Playinn initiated arbitration before CIAC.

CIAC Proceedings and the Motion to Dismiss

Playinn filed a Request for Arbitration/Complaint against Furacon and Prudential in CIAC Case No. 27-2018. The complaint asserted, among others, that Furacon’s delay constituted breach, that Furacon was unjustly enriched by receiving the downpayment while accomplishment was minimal, and that Furacon was liable for damages, liquidated damages, exemplary damages, attorney’s fees, and costs. Playinn also claimed that Prudential was solidarily liable with Furacon for the unrecouped downpayment and damages.

CIAC required the parties to respond. On July 12, 2018, CIAC asked Prudential and Furacon to answer, nominate six arbitrators, and indicate acceptance of the arbitral tribunal mode preferred by Playinn. Prudential filed a Motion to Dismiss, contending that CIAC lacked jurisdiction over it. Prudential argued that it was not shown to have executed an arbitration agreement binding it to arbitration, and that Playinn’s complaint failed to allege any exchange of communication evidencing agreement to arbitrate, as required by the Revised CIAC Rules. Prudential also assailed the service of the July 12, 2018 letter, alleging that it was served only on its bonds department rather than on corporate officers authorized to receive notices.

In response, Playinn argued that the bonds were accessory and integral to the Construction Agreement, and that Prudential was estopped from denying its obligation to comply. On service, Playinn asserted that defects could be cured and that alternative service could still secure jurisdiction over Prudential.

CIAC referred the Motion to Dismiss to the appointed arbitrators. The tribunal was constituted, with Atty. Ismael G. Khan, Jr. as chairperson. A case management conference followed, during which Prudential was given ten days to file an answer. Instead of answering, Prudential filed a Manifestation, asserting it was a mere surety and that its liability depended on the tribunal’s determination of Furacon’s liability. The parties later entered into Terms of Reference setting out Playinn’s claims and Furacon’s counterclaims.

The Final Award and the Initial CIAC Execution Events

On May 28, 2019, the Arbitral Tribunal rendered its Final Award in favor of Playinn. It ordered Furacon to pay PHP 55,299,100.00, broken down into unrecouped downpayment (PHP 15,145,154.20), additional amount needed to complete the project (PHP 28,853,845.80), liquidated damages (PHP 10,600,100.00), exemplary damages (PHP 200,000.00), and attorney’s fees (PHP 500,000.00), plus arbitration costs paid by Playinn. The award further stated that the amount would earn six percent (6%) interest per annum from finality until full payment. As to Prudential, the Final Award provided that Prudential was solidarily liable only to the extent of the performance bond it issued to Furacon.

After the Final Award, Playinn moved for issuance of a Writ of Execution. Prudential filed a motion ad cautelam, and it also pursued a Rule 43 petition questioning the Final Award before the CA (docketed as CA-G.R. SP No. 161151), but later withdrew that petition.

Meanwhile, on August 2, 2019, the tribunal granted Playinn’s Motion for Issuance of Writ of Execution. Prudential’s motion ad cautelam was treated as a prohibited motion for reconsideration. The tribunal disapproved a surety bond submitted by Prudential for insufficiency and inconsistency with the applicable CIAP requirements. On September 5, 2019, the tribunal denied Prudential’s reconsideration. On September 2, 2019, the CIAC issued the Writ of Execution.

CA Review under Rule 65 and the CA’s Findings

Prudential filed a Rule 65 petition before the CA (docketed as CA-G.R. SP No. 162597) seeking annulment of the Order dated August 2, 2019, the Resolution dated September 5, 2019, and the Writ of Execution dated September 2, 2019, alleging grave abuse of discretion. The CA issued a temporary restraining order on October 7, 2019, later followed by a writ of preliminary injunction on January 15, 2020.

The CA granted the Rule 65 petition in its Decision dated July 23, 2020, and denied petitioner’s motions. The CA ruled, in substance, that: first, the Arbitral Tribunal’s judgment against Prudential was void for lack of jurisdiction over Prudential’s person because the July 12, 2018 directive was not properly served on the corporate officers enumerated under the 1997 Rules of Civil Procedure; and because Prudential was not shown to have expressly bound itself to an arbitration agreement. Second, the CA held that the tribunal committed grave abuse of discretion by altering Prudential’s liability in the execution stage. The CA observed that the Final Award made Prudential solidarily liable only up to the performance bond, but the tribunal later made Prudential solidarily liable up to both performance and surety bonds in the Order and Writ of Execution. Third, the CA held there was no forum shopping because the Rule 43 petition attacked the Final Award while the Rule 65 petition attacked execution-stage orders issued after the Final Award.

In its Resolution dated November 26, 2020, the CA denied petitioner’s Motion for Partial Reconsideration.

Parties’ Positions in the Supreme Court

In its Rule 45 petition, Playinn argued that the CA erred by: (a) not holding that Prudential was estopped from denying its undertaking; (b) ruling that CIAC did not acquire jurisdiction over Prudential because the Rules of Civil Procedure on summons did not apply; (c) finding no CIAC jurisdiction over the subject matter; (d) treating the deferment of the Motion to Dismiss as improper; (e) ruling that the tribunal’s execution issuances did not conform to the Final Award; (f) finding no forum shopping; and (g) refusing consolidation of the CA petitions.

Prudential countered that the petition merely rehashed issues already resolved by the CA and was unsupported. It maintained that the CA correctly found no express voluntary submission to arbitration, correctly found defects in jurisdiction over its person and the subject matter, and correctly found that the execution issuances impermissibly modified the Final Award. It also defended its procedural posture regarding Rule 43 and Rule 65 filings.

In its replies and arguments, Playinn insisted that Prudential, as an issuer of insurance/surety instruments, was solidarily liable with Furacon under both bonds, and that any challenge to CIAC jurisdiction should be barred after Prudential withdrew its Rule 43 petition. Playinn also argued that service was sufficient and that Prudential caused the deferment of the tribunal’s resolution by its own choices during case management.

Supreme Court: Finality of the Final Award as to the Parties

The Supreme Court first noted that most of the petition’s issues concerned the tribunal’s Final Award—including CIAC’s alleged jurisdiction over Prudential’s person and over the subject matter, and the handling of the Motion to Dismiss. It observed that Prudential had questioned the Final Award before the CA via Rule 43 (CA-G.R. SP No. 161151) but withdrew it. Playinn had not attacked the Final Award before any court or tribunal and had instead moved for its execution. The Court therefore treated the Final Award as already final and binding between the parties, at least as to matters directly decided therein.

Nonetheless, because the CA had anchored its ruling on jurisdictional grounds, the Court addressed the propriety of the CA’s jurisdiction discussion to finally put the issue at rest.

CIAC’s Jurisdiction over Prudential: Service and Suppletory Rules

On the CA’s service rationale, Playinn argued that CIAC has its own procedures and that the Rules of Court on summons do not govern CIAC arbitration. Prudential insisted the Rules of Court should apply suppletorily.

The Supreme Court disagreed with Prudential’s position. It cited Section 21 of EO 1008, which empowers CIAC to formulate its own rules, and it noted that the Revised CIAC Rules did not provide for service of summons on domestic private juridical entities similar to Section

Case Syllabus (G.R. No. 254764)

The dispute arose from a construction arbitration before the Construction Industry Arbitration Commission (CIAC) involving Playinn, Inc. as project owner, Furacon Builders, Inc. as contractor, and Prudential Guarantee and Assurance, Inc. as surety.
Playinn filed a Petition for Review under Rule 45 seeking to reverse the Court of Appeals (CA) decisions that annulled CIAC issuances implementing the Final Award.
The Supreme Court partly granted the petition by reinstating CIAC issuances but modifying them to conform to the dispositive portion of the Final Award.

Parties and Contractual Setting

Playinn, Inc. (Playinn) and Furacon Builders, Inc. (Furacon) executed an Owner-Contractor Agreement dated December 2, 2016 for the construction of a multi-storey hotel in Baguio City.
The project contract price was PHP 106,001,000.00, with completion within sixteen (16) months from the Notice to Proceed (NTP).
The agreement imposed liquidated damages on Furacon for delay, pegged at one-tenth (1/10) of one percent (1%) of the total contract price per calendar day of delay.
Prudential Guarantee and Assurance, Inc. (Prudential) issued two bonds for Furacon’s obligations to Playinn: a Performance Bond (PHP 21,200,200.00) and a Surety Bond (PHP 21,200,200.00), both dated January 25, 2017 and valid until April 11, 2018.
The bonds referenced a copy of the Owner-Contractor Agreement as an integral part of the bond conditions.

Key Factual Allegations

Playinn paid PHP 20,000,000.00, representing twenty percent (20%) of the total contract price, under the agreement’s payment terms.
After the NTP issued on February 20, 2017, Playinn instructed Furacon to commence on March 1, 2017.
The project experienced delay, and Furacon requested an extension of six months, which Playinn granted only for three months from July 2018 until October 2018.
Playinn issued an Ultimatum Letter on January 26, 2018 complaining of slow progress and giving Furacon until the end of February 2018 to make significant changes.
An accomplishment report dated March 14, 2018 reflected only 4.58% project completion as of that date.
Playinn treated Furacon as in default due to delay of more than 30 calendar days under the agreement, and it sent a final notice of termination dated March 15, 2018.
Playinn demanded PHP 50,517,524.16, representing refund of alleged overpayment (PHP 15,141,614.16) and liquidated damages (PHP 35,375,910.00) under the agreement.
Playinn separately enforced its claims against the surety bond for PHP 15,141,614.16 and against the performance bond for PHP 21,200,200.00 as partial satisfaction.
Playinn filed a Request for Arbitration/Complaint before CIAC against Furacon and Prudential, asserting breach, unjust enrichment, damages, liquidated damages, exemplary damages, attorney’s fees, and solidary liability of Prudential.

CIAC Proceedings and Jurisdiction Issues

CIAC requested answers and arbitrator nominations after docketing the case as CIAC Case No. 27-2018.
Prudential filed a Motion to Dismiss contending that CIAC had no jurisdiction over it because the bonds allegedly did not require arbitration and the complaint allegedly failed to allege an arbitration agreement or a subsequent submission to arbitration.
Prudential also argued improper service, stating that CIAC’s notice dated July 12, 2018 was served only on the bonds department and not on authorized corporate officers or in-house counsel.
Prudential further claimed that the complaint failed to state a cause of action because both bonds allegedly capped Prudential’s exposure at PHP 21,200,200.00 each.
Playinn countered that the bonds were accessory and integral to the construction agreement, and it argued that improper service did not automatically justify dismissal.
CIAC treated the jurisdiction challenge as for resolution within the arbitral framework, and it proceeded to appoint arbitrators after the parties failed to submit common nominees.
During case management, Prudential opted to file a Manifestation rather than an answer, asserting it was not an indispensable party and that its liability depended on the arbitral tribunal’s determination.
Playinn and Furacon executed a Terms of Reference on October 12, 2018, fixing the total claims and counterclaims.

Final Award Contents

CIAC’s Arbitral Tribunal rendered a Final Award dated May 28, 2019 in favor of Playinn.
The dispositive portion ordered Furacon to pay PHP 55,299,100.00, broken down into unrecouped down payment, additional amount needed to complete the project, liquidated damages, exemplary damages, and attorney’s fees.
The dispositive portion also required reimbursement of arbitration costs initially paid by Playinn and imposed 6% interest per annum from finality of the award until full payment.
As to Prudential, the dispositive portion stated that Prudential would be solidarily liable only to the extent of the performance bond it issued to Furacon.
In its reasoning, the Arbitral Tribunal held that CIAC had jurisdiction over Prudential because the performance bond was significantly and substantially connected to the construction contract and because Prudential was solidarily liable under the construction agreement and the bonds.
The Arbitral Tribunal found Furacon liable for delays and computed liquidated damages subject to a ten percent (10%) cap based on industry practice, awarding PHP 10,600,100.00.
The tribunal denied moral damages, awarded exemplary damages of PHP 200,000.00, and awarded attorney’s fees of PHP 500,000.00.
The tribunal rejected defenses tied to Prudential’s alleged lack of an arbitration agreement at the bond level.

Execution Stage Alteration

After the Final Award, Playinn moved for issuance of a Writ of Execution.
Prudential sought to stay execution by filing a Motion Ad Cautelam and offering a surety bond from Empire Insurance Company in the amount of PHP 21,200,200.00.
The Arbitral Tribunal issued an Order dated August 2, 2019 granting the issuance of the writ and disapproving the offered surety bond for insufficiency and inconsistency with required conditions.
In a Resolution dated September 5, 2019, the Arbitral Tribunal denied Prudential’s reconsideration.
CIAC issued a Writ of Execution dated September 2, 2019.
The execution-related issuances exposed Prudential to broader liability than the Final Award’s dispositive portion: the Writ of Execution and the Order/Resolution treated Prudential as solidarily liable to the extent of both the performance bond and surety bond.

CA Proceedings and Ruling

Prudential chal