G.R. No. L-34395 - Gonzalez vs. Court of 1st Instance of Manila

Case Summary (G.R. No. L-34395)

Petitioner

Stronghold Insurance Company, Inc., the issuer of Performance Bond No. LP/G(13)83056 in the amount of P4,500,000.00, which bound Stronghold and Asis‑Leif jointly and severally to pay the owners in the event the construction project was not completed.

Respondents

Spouses Rune and Lea Stroem, owners who contracted Asis‑Leif to construct a two‑storey residence and who sued for breach of contract, collection of the bond amount and damages after rescinding the agreement for Asis‑Leif’s failure to complete the project.

Key Transactional Dates (non‑judicial)

Performance bond secured on November 15, 1999; Stronghold’s demand/request to Asis‑Leif to settle obligations on April 5, 2001; Complaint for breach of contract and sum of money filed on September 12, 2002.

Applicable Law and Doctrine

1987 Constitution (as the governing constitutional framework); Executive Order No. 1008 (Construction Industry Arbitration Law); Republic Act No. 9285 (Alternative Dispute Resolution Act of 2004); Republic Act No. 876 (as referenced in the arbitration clause of the parties’ contract); Rules of Court (particularly Rule 42 and Rule 45 provisions on Certification Against Forum Shopping and petition for review); Civil Code provisions (notably Articles 1311 and 1374 regarding contracts and interpretation; Article 2047 on suretyship); jurisprudence interpreting CIAC jurisdiction and the accessory‑contracts‑construed‑together doctrine (including Prudential Guarantee and Assurance Inc. v. Anscor Land, Inc. and other cited cases).

Procedural Posture

Spouses Stroem filed a complaint (with prayer for preliminary attachment) in 2002 against Asis‑Leif, Ms. Cynthia Asis‑Leif and Stronghold; only Stronghold was served. The Regional Trial Court rendered judgment in favor of the Stroems ordering Stronghold to pay P4,500,000.00 plus interest and attorney’s fees. Both parties appealed to the Court of Appeals; the CA affirmed with modification (increasing attorney’s fees). Stronghold filed a Petition for Review under Rule 45 to the Supreme Court, which denied the petition and dismissed the case.

Central Issues Presented

The Supreme Court articulated the main issues as (1) whether the dispute involves a construction contract; (2) whether the Construction Industry Arbitration Commission (CIAC) has exclusive jurisdiction; (3) whether the Regional Trial Court should have dismissed and referred the matter to the CIAC; and (4) whether Stronghold is liable under the performance bond and, if so, whether liability is limited to additional costs for completion or whether the bond constitutes ordinary or corporate suretyship.

Facts Relevant to Liability and Performance

Spouses Stroem and Asis‑Leif entered into an Owners‑Contractor Agreement for construction of the residence; Asis‑Leif secured a performance bond from Stronghold for P4,500,000.00; Asis‑Leif failed to complete the project; respondents rescinded the agreement and engaged an appraiser who reported partial completion percentages; Stronghold demanded Asis‑Leif to settle obligations but received no response; respondents sued and obtained judgment against Stronghold in the RTC.

Parties’ Principal Arguments

Stronghold contended the courts lacked jurisdiction because an arbitration clause in the construction contract required CIAC arbitration and thus the case should have been dismissed for arbitration; Stronghold also argued that the bond incorporated contract stipulations and that its liability was limited to additional costs for completion. The Stroems countered that Stronghold was not a party to the owners‑contractor arbitration agreement, that the bond and the construction agreement are separate contracts with distinct parties and considerations, that Stronghold’s liability under the bond was full and direct as surety, and that notice to Stronghold was not required to fix liability.

Forum‑Shopping Allegation and Court’s Finding

The Supreme Court found that Stronghold committed forum shopping by failing to disclose the pendency of the Stroems’ Motion for Partial Reconsideration of the Court of Appeals decision and by certifying falsely in its Certification Against Forum Shopping that no other action involving the same issues was pending. The Court emphasized the duties imposed by Rule 42 and Rule 45 to disclose similar pending proceedings and held that omission and failure to promptly inform the Court constituted forum shopping. The Court noted that failure to comply with the certification rule is a sufficient ground for dismissal and sternly warned counsel.

Legal Framework for CIAC Jurisdiction

Under Executive Order No. 1008 Section 4, the CIAC has original and exclusive jurisdiction over disputes arising from, or connected with, construction contracts entered into by parties in the construction industry. Republic Act No. 9285 Section 35 similarly includes among construction disputes those between parties to, or otherwise bound by, an arbitration agreement, expressly mentioning issuers of insurance policies or bonds as potentially within CIAC jurisdiction when bound by arbitration. Jurisprudence recognizes two means of vesting CIAC jurisdiction: an arbitration clause in a construction contract or an agreement by the parties to submit the dispute to the CIAC.

Accessory‑Contracts‑Construed‑Together Doctrine and Prudential Precedent

The Supreme Court summarized the accessory‑contracts‑construed‑together doctrine: an accessory contract (e.g., a performance bond) must be read together with the principal contract (the construction agreement). In Prudential Guarantee v. Anscor Land, the Court held that a performance bond so connected to the construction contract that it was effectively a component of the contract rendered disputes over the bond within CIAC jurisdiction, even if the bond itself was silent on arbitration; silence was construed as acquiescence to the arbitration terms of the principal contract.

Distinction from Prudential — Contractual Integration

The Court found the present case distinguishable from Prudential because the contractual documents differed materially. In Prudential the construction contract expressly incorporated the performance bond as part of the contract documents; in this case the Owners‑Contractor Agreement required that a performance bond be issued but did not expressly incorporate the bond into the contract documents. Article 7 of the Owners‑Contractor Agreement provided only that the contractor shall provide a performance bond acceptable to the owners and equal to P4,500,000.00, while Article 8 contained the arbitration clause applicable to disputes between the parties to that contract (Asis‑Leif and the Stroems). Because the performance bond was not expressly incorporated and the arbitrati

Case Syllabus (G.R. No. L-34395)

Case Citation and Procedural Posture

Supreme Court of the Philippines, Second Division; G.R. No. 204689, January 21, 2015.
Reported: 751 Phil. 262; 111 OG No. 30, 4261 (July 27, 2015).
Opinion authored by Justice Leonen, J.
Petition for Review under Rule 45 of the Rules of Court challenging the Court of Appeals Decision dated November 20, 2012 in CA-G.R. CV No. 96017, which affirmed the Regional Trial Court of Makati, Branch 133 Decision (Civil Case No. 02-1108) in a collection/sum of money action arising from a performance bond tied to a construction contract.

Parties and Principal Actors

Petitioner: Stronghold Insurance Company, Inc. (Stronghold).
Respondents: Spouses Rune and Lea Stroem (Spouses Stroem).
Contractor/Principal Obligor: Asis-Leif & Company, Inc. (Asis-Leif), also referred to as Asis-Leif Builders, represented by Ms. Ma. Cynthia Asis-Leif.
Appraiser: Asian Appraisal Company, Inc. (hired by the Spouses Stroem to evaluate percentage completion).
Trial and appellate courts: Regional Trial Court of Makati, Branch 133 (trial court); Court of Appeals (Special Tenth Division — decision penned by Associate Justice Angelita A. Gacutan, concurred in by Associate Justices Fernanda Lampas Peralta and Edwin D. Sorongon).

Material Facts

Spouses Stroem entered into an Owners-Contractor Agreement with Asis-Leif for construction of a two-storey house on their lot located at Lot 4A, Block 24, Don Celso Tuason Street, Valley Golf Subdivision, Barangay Mayamot, Antipolo, Rizal.
Pursuant to the Owners-Contractor Agreement, on November 15, 1999, Asis-Leif secured Performance Bond No. LP/G(13)83056 in the amount of PHP 4,500,000.00 from Stronghold.
Stronghold and Asis-Leif, through Ms. Ma. Cynthia Asis-Leif, bound themselves jointly and severally to pay the Spouses Stroem the agreed amount in the event the construction project was not completed.
Asis-Leif failed to finish the project on time despite repeated demands by the Spouses Stroem, who subsequently rescinded the agreement.
The Spouses Stroem hired Asian Appraisal Company, Inc. which evaluated the progress and reported percentage completion as follows: 47.53% of the residential building, 65.62% of the garage, and 13.32% of the swimming pool, fence, gate, and land development.
On April 5, 2001, Stronghold sent a letter to Asis-Leif requesting settlement of obligations to the Spouses Stroem; Asis-Leif did not respond.
On September 12, 2002, the Spouses Stroem filed a Complaint with Prayer for Preliminary Attachment against Asis-Leif, Ms. Cynthia Asis-Leif, and Stronghold for breach of contract and for sum of money with claim for damages.
Only Stronghold was served summons; Ms. Cynthia Asis-Leif allegedly absconded and moved out of the country.

Performance Bond — Nature and Stipulations

Performance Bond No. LP/G(13)83056 issued on November 15, 1999, amounting to PHP 4,500,000.00.
Stronghold (issuer) and Asis-Leif (contractor/principal) were jointly and severally bound to pay Spouses Stroem (beneficiaries) if the construction project was not completed.
The Owners-Contractor Agreement contained provisions regarding the performance bond (Article 7) and an arbitration clause (Article 8) in the construction contract; the exact wording of Articles 5, 7.1, 7.2, and 8.1 is set out in the record.

Trial Court Disposition (Regional Trial Court, Makati)

On July 13, 2010, the RTC rendered judgment in favor of the Spouses Stroem and against Stronghold Insurance Company, Incorporated.
The trial court ordered Stronghold to pay PHP 4,500,000.00 with six percent (6%) legal interest from the time of first demand; legal interest on interest from time of judicial demand until fully paid.
Awarded PHP 35,000.00 by way of attorney’s fees and other litigation expenses; defendant ordered to pay costs of suit.
Dispositive portion of the trial court decision explicitly set forth the sums awarded and the interest and costs.

Court of Appeals Ruling

Both Stronghold and the Spouses Stroem appealed to the Court of Appeals.
The Court of Appeals affirmed the trial court decision with modification: increased the award of attorney’s fees from PHP 35,000.00 to PHP 50,000.00.
The Court of Appeals Decision was dated November 20, 2012 (CA-G.R. CV No. 96017); the CA decision was authored by Associate Justice Angelita A. Gacutan and concurred in by the other members of the Special Tenth Division.

Supreme Court Proceedings and Process History

Petitioner filed a Petition for Review under Rule 45 in this Court assailing the Court of Appeals Decision of November 20, 2012.
The Court required the Spouses Stroem to submit a Comment on March 20, 2013; the Spouses’ Comment was noted on July 31, 2013.
Stronghold filed a Reply to the Comment; the Reply was noted December 9, 2013.
Records show petitioner received copy of the Court of Appeals Decision on December 5, 2012.
Petitioner did not file a Motion for Reconsideration before the Court of Appeals; instead filed a Motion for Extension of Time to File Petition for Review requesting 30 days from December 20, 2012 to January 19, 2013.
Respondents (Spouses Stroem) filed a Motion for Partial Reconsideration of the Court of Appeals Decision on December 11, 2012 seeking modification on amounts of moral and exemplary damages, attorney’s fees and costs. Respondents alleged petitioner received the CA resolution requiring Comment on their Motion as early as January 9, 2013.
Petitioner’s Certification Against Forum Shopping dated January 21, 2013 certified, inter alia, that it had not commenced any other action involving the same issues and that to the best of its knowledge no such action was pending.

Issues Presented to the Supreme Court

Whether the dispute involves a construction contract.
Whether the Construction Industry Arbitration Commission (CIAC) has exclusive jurisdiction over the controversy between the parties.
Whether the Regional Trial Court should have dismissed the petition outright as required by law and jurisprudence and referred the matter to the CIAC.
Whether petitioner Stronghold Insurance Company, Inc. is liable under Performance Bond No. LP/G(13)83056:
- (a) Whether Stronghold is liable only to the extent of additional cost for completion due to increases in prices for labor and materials.
- (b) Whether the case involves ordinary suretyship or corporate suretyship.

Petitioner's Principal Arguments (as presented in the petition)

The trial court lacked jurisdiction to decide the case because the Owners-Contractor Agreement contained an arbitration clause invoking CIAC jurisdiction; the lower courts should have dismissed and summarily directed the parties to arbitration under Republic Act No. 876 (as amended by EO No. 1008) which confines the court’s authority to pass only on the existence of an arbitration agreement and otherwise requires referral to arbitration.
Stipulations in the Owners-Contractor Agreement are part and parcel of the conditions in the performance bond; such stipulations induced Stronghold to issue the bond and therefore Stronghold is bound by those stipulations (arbitration clause included).
Stronghold’s liability under the bond is limited to additional costs for completion (i.e., limited monetary exposure), and the nature of its liability is constrained by the terms of the bond.
The Court of Appeals erred in finding that Stronghold changed its theory regarding the notice requirement and erred in modifying the trial court’s award of attorney’s fees.

Respondents’ Principal Arguments (as presented in their Comment)

Stronghold committed forum shopping by filing the present Petition for Review despite the pendency of the Spouses’ Motion for Partial Reconsideration of the Court of Appeals Decision dated November 20, 2012.
The Owners-Contractor Agreement is a separate and distinct contract from the performance bond; the parties to the Owners-Contractor Agreement are Asis-Leif and the Spouses Stroem, while the parties to the bond are Stronghold and the Spou