GR 177240; (September, 2010) (Digest)
G.R. No. 177240; September 8, 2010
PRUDENTIAL GUARANTEE AND ASSURANCE INC., Petitioner, vs. ANSCOR LAND, INC., Respondent.
FACTS
Anscor Land, Inc. (ALI) entered into a Construction Contract with Kraft Realty and Development Corporation (KRDC). As required, KRDC secured a performance bond from Prudential Guarantee and Assurance Inc. (PGAI). The bond contained a time-bar provision stating that PGAI “shall not be liable for any claim not discovered and presented to the company within ten days from the expiration of this bond or from the occurrence of the default.” Due to serious delays, ALI terminated the contract with KRDC on October 16, 2000, and on the same date sent PGAI a letter notifying it of the termination and stating that ALI “may be making claims against the said bonds.” Over a year later, on November 29, 2001, ALI sent a formal letter to PGAI reiterating its claim under the performance bond. ALI subsequently initiated arbitration proceedings before the Construction Industry Arbitration Commission (CIAC) against both KRDC and PGAI.
The CIAC ruled that PGAI was not liable under the performance bond, holding that ALI’s October 16, 2000 letter was merely tentative and did not constitute a valid “claim” presented within the ten-day period stipulated in the bond. The Court of Appeals reversed the CIAC, finding that the October 16, 2000 letter substantially complied with the time-bar provision and thus declared PGAI solidarily liable with KRDC under the performance bond. PGAI appealed, arguing that the CIAC had no jurisdiction over it as a non-party to the construction contract and that the claim was indisputably filed late.
ISSUE
1. Did the CIAC have jurisdiction over PGAI, the surety?
2. Did ALI’s October 16, 2000 letter constitute a valid claim presented within the period stipulated in the performance bond?
RULING
Yes to both issues. First, the Supreme Court held that the CIAC validly exercised jurisdiction over PGAI. The performance bond was an integral part of the construction contract, as expressly stipulated in the contract documents. A surety contract is accessory to and inseparable from the principal obligation. Since the CIAC had jurisdiction over disputes arising from the construction contract, its jurisdiction extended to the enforcement of the accessory surety agreement. PGAI, by issuing the bond, voluntarily bound itself to the terms of the construction contract, including the arbitration clause.
Second, the Court ruled that ALI’s October 16, 2000 letter substantially complied with the time-bar provision. The letter, which informed PGAI of the termination of the principal contract due to KRDC’s default, served as a notice that put the surety on guard that a claim would be forthcoming. While it used the phrase “may be making claims,” the communication, read in its entirety and in the context of the simultaneous contract termination, was a sufficient presentation of a claim within the meaning of the bond. The law looks at the substance rather than the form. The subsequent formal demand merely quantified the claim already initiated. Therefore, PGAI’s solidary liability under the performance bond was properly upheld. The petition was denied.