G.R. Nos. 180631-33; February 22, 2012
PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner, vs. CENTRAL COLLEGES OF THE PHILIPPINES and DYNAMIC PLANNERS AND CONSTRUCTION CORPORATION, Respondents.

FACTS

Central Colleges of the Philippines (CCP) contracted Dynamic Planners and Construction Corporation (DPCC) to construct a building. DPCC secured performance and surety bonds from Philippine Charter Insurance Corporation (PCIC). Phase 1 was completed, but Phase 2 suffered severe delays. An audit revealed only 51% completion by October 2003, prompting CCP to notify DPCC and PCIC of the breach and its intent to claim on the bonds. CCP subsequently terminated the contract, demanded payment from PCIC, and hired a new contractor.
PCIC denied CCP’s claim. CCP then filed a complaint for arbitration before the Construction Industry Arbitration Commission (CIAC) against DPCC and PCIC. The CIAC ruled in favor of CCP, holding both DPCC and PCIC jointly and severally liable under the bonds. The Court of Appeals affirmed the CIAC’s decision, leading PCIC to elevate the case to the Supreme Court via a petition for review.

ISSUE

Whether the Court of Appeals erred in affirming the CIAC’s decision holding PCIC solidarily liable with DPCC under the surety and performance bonds.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ decisions. The Court held that the CIAC validly acquired jurisdiction over PCIC. While a surety is not automatically impleaded in a construction dispute between the owner and contractor, CCP’s complaint specifically prayed for relief against PCIC on the bonds, making PCIC a real party in interest. The arbitration clause in the main contract did not bind PCIC, but PCIC voluntarily submitted to CIAC’s jurisdiction by participating in the arbitration proceedings without raising timely objection, thereby waiving any jurisdictional challenge.
On the merits, the Court found DPCC in default for failing to complete the project on schedule, which justified CCP’s termination of the contract and claim on the bonds. The bonds were callable on demand, and PCIC’s liability as a surety was solidary with that of its principal, DPCC. The Court emphasized that a surety’s obligation is direct, primary, and absolute; it is not excused by the owner’s act of taking over the work after the contractor’s default. PCIC’s liability became due upon DPCC’s breach and CCP’s valid demand. The CIAC’s factual findings, affirmed by the Court of Appeals, are conclusive and binding on the Supreme Court.