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THE MANILA INSURANCE COMPANY, INC.

VS SPOUSES ROBERTO AND AIDA AMURAO


GR NO. 179628 | Jan 16, 2013

DOCTRINE: The jurisdiction of the Construction Industry Arbitration Commission (CIAC) is conferred
by law. Section 4 of Executive Order (E.O.) No. 1008, otherwise known as the Construction Industry
Arbitration Law, "is broad enough to cover any dispute arising from, or connected with construction
contracts, whether these involve mere contractual money claims or execution of the works.”

FACTS

Respondent Spouses Amurao entered into a Construction Contract Agreement with Aegean Construction
and Development Corporation for the construction of a 6 storey commercial building in Quezon City.
Aegean also posted performance bonds with Manila Insurance Company, Inc. (Petitioner) and Intra Strata
Assurance Corporation, to ensure its full compliance with the terms and conditions of the CCA.

Spouses Amurao filed with the RTC a complaint against Manila Insurance Company and Intra Strata on
the performance bonds they issued when Aegean failed to complete the project. Manila Insurance
Company filed a Motion to Dismiss on the grounds that the complaint stated no cause of action and that
the filing of the complaint was premature because of the failure of the Spouses to implead the principal
contractor (Aegean). The RTC denied that motion. During pre-trial, Manila Insurance Company and Intra
Strata discovered that the CCA contained an arbitration clause. They then filed separate motions to
dismiss on the grounds of lack of cause of action and lack of jurisdiction.

The RTC denied both motions. Manila Insurance Company appealed. The CA dismissed its petition.

ISSUE:

1. W/N there was a cause of action against Manila Insurance Company, given that the performance bond
was issued when the contract was not yet signed.

2. W/N the Construction Industry Arbitration Commission has jurisdiction over the case given that the
dispute concerns the surety contract.

HELD

1. A contract of suretyship is an agreement whereby a party, called the surety, guarantees the performance
by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party,
called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any
company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.

It has been consistently held by the SC that a surety’s liability is joint and several, limited to the amount
of the bond, and determined strictly by the terms of the contract of suretyship in relation to the principal
contract between the obligor and the obligee. But although the contract of contract of suretyship is
secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary and
absolute.

In the instant case, the respondent spouses (obligee) filed with the RTC a complaint against petitioner
Manila Insurance Company (surety) to collect on the performance bond that it issued. But Manila
Insurance Company claimed that the respondents have no cause of action since when it issued the
performance bond, the CCA was not yet signed by respondents and Aegean. The SC held that the fact that
the performance bond was issued prior to the execution of the CCA does not affect its validity or
effectivity. The performance bond states that “the bond is coterminous with the final acceptance of the
project.”

2. The jurisdiction of the case lies with CIAC and not with the RTC. Thus the complaint must be
dismissed.

For the CIAC to acquire jurisdiction over the case, 2 requisites must concur: 1) the dispute must be
somehow connected to a construction contract; 2) the parties must have agreed to submit the dispute to
arbitration proceedings. Both requisites are present in the case.

In Art XVII of the CCA, the parties agreed to submit to arbitration proceedings “any dispute arising in the
course of the execution and performance of the CCA by reason of difference in interpretation of the
Contract Documents… which the parties are unable to resolve amicably by themselves.” In a previous
case, the SC held that monetary claims under a construction contract are disputes arising from
“differences in interpretation of the contract” since “the matter of ascertaining the duties and obligations
of the parties under their contract all involve interpretation of the provisions of the contract.” Following
this reasoning, whether or not the respondents can collect on the performance bond issued by Manila
Insurance Company is a dispute arising in the course of the execution and performance of the CCA
because of the difference in the interpretation of the contract documents.

Even if Manila Insurance Company is not party to the CCA, it still doesn’t remove it from CIAC’s
jurisdiction because the issue of entitlement to collect is a dispute arising from or connected to the CCA.
In Prudential Guarantee and Assurance, Inc. vs Anscor Land, Inc. the SC held that “although not the
construction contract itself, the performance bond is deemed as an associate of the main construction
contract that it cannot be separated or severed from its principal. The Performance Bond is significantly
and substantially connected to the construction contract that there can be no doubt that it is the CIAC…
has jurisdiction over any dispute arising from or connected with it.

RULING: Petition is granted.

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