G.R. No.

L-69450 November 22, 1988

EASTERN ASSURANCE & SURETY CORPORATION, petitioner,

vs.
INTERMEDIATE APPELLATE COURT and REPUBLIC OF THE PHILIPPINES (DEPT. OF
AGRARIAN REFORM), respondents.

Ferrer, Mariano, Sangalang & Gatdula for petitioner.

FELICIANO, J.:

The Petition at bar seeks a review of the Decision   dated 11 December 1984 rendered by the then
1

Intermediate Appellate Court, in AC-G.R. CV No. 67253.

On 8 January 1976 , the Region 7 (Cebu) Office of respondent Department of Agrarian Reform
("DAR") put up for public bidding a job or project consisting of the repair of seven (7) units of
(USAID) Willys Mitsubishi/Eisenhower jeeps. Among the bidders was Motor City, an automotive
repair, company, which latter on emerged as the winning bidder.

The winning bid was accompanied by a Proposal Bond  — required by the DAR of all bidders — in
2

the amount of P33,275.00 and issued by petitioner Eastern Assurance and Surety Corporation
("Eastern"), as surety, on behalf of Motor City, its principal. The Proposal Bond provided, in pertinent
part:

NOW, THEREFORE, the conditions of this obligation are such that if the above-
bounden principal [i.e., Motor City] shall, in the event of his becoming a successful
bidder in the above proposal: (1) fails to guarantee the true and faithful performance
of the contract in case of award; (2) shall refuse to accept the same or (3) shall not
answer for any delay and/or default in the execution of the contract as provided in the
proposal; then the DEPARTMENT OF AGRARIAN REFORM shall be entitled to be
indemnified of any loss or damage it may suffer by reason thereof not to exceed the
sum of THIRTY THREE THOUSAND TWO HUNDRED SEVENTY FIVE ONLY
(P33,275.00) PESOS, Philippine Currency, otherwise this obligation shall be void
and without effect. (Emphasis supplied)

On 31 January 1976, a Contract for Repair of Jeeps   was entered into between respondent DAR as
3

owner and Motor City as contractor, the latter obligating itself thereunder as follows:

1. That for and/in consideration of the sum of THIRTY THOUSAND PESOS

(P30,000.00) Philippine Currency, which the OWNER agrees to pay unto the
CONTRACTOR, the said CONTRACTOR agrees and undertakes to repair the
owner's seven (7) units of (USAID) Willys Mitsubishi/Eisenhower Jeeps, which are
more particularly described as follows:

Motor Number Chassis Number

1. MD-136864 1. 95696 2. MD-31015 2. 86038 3. MD-70750 3. 36201 4. MD-136846

4. 95670 5. JH4-34885 5. 15293 6. 4J-24985 6. 15215 7. 4J 54898 7. 16294
 xxx xxx xxx

5. That the CONTRACTOR agrees to put up the amount of TEN THOUSAND

PESOS (Pl0,000.00) as Performance Bond upon award of the bid;

xxx xxx xxx

8. That the CONTRACTOR agrees to finish the repairs on all seven (7) units within
ninety (90) working days, counted from the day of the award of the bid, and should
the CONTRACTOR fail to finish the repairs within the said period, he
(CONTRACTOR) shall indemnify the OWNER the amount equivalent to 1% of the
quoted lot price for each day of late delivery.

xxx xxx xxx

(Emphasis supplied)

It turned out, however, that only six (6) out of the seven (7) aforementioned jeeps were repaired fully
and delivered promptly to respondent DAR. The seventh unit, bearing Motor No. 70750 and Chassis
No. 36201, continued to remain undelivered, despite the grant of several extensions in favor of and
the issuance on 13 March 1978 of a final letter to Motor City, demanding that the latter complete the
repair and effect delivery of the seventh vehicle.

On 12 July 1978, respondent DAR commenced a suit   for specific performance and damages
4

against Motor City. Included there as a co-defendant was petitioner Eastern which, it was alleged,
"had posted the performance bond herewith attached as Annex 'B' undertaking to answer and
guarantee the true and faithful compliance and performance of the [Contract for Repair of Jeeps]."

In an Answer with Cross-Claim   petitioner Eastern (defendant below) denied having incurred any
5

liability under the Proposal Bond, alleging that such bond "did not bind answering defendant as [the]
same was a mere proposal and not an actual undertaking." That pleading also sought, by way of
cross-claim, judgment ordering Motor City to indemnify Eastern in an amount equivalent to whatever
the latter would be ordered by the court to pay the complainant plus twenty percent (20%)thereof as
attorney's fees. Eastern submitted in support of its cross-claim an Indemnity Agreement,  executed in
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its favor by Antonio Puchadez, who had signed the document in his capacity as President and
General Manager of Motor City as well as in his own personal capacity.

On 15 February 1980, the trial court rendered a Decision  , the dispositive portion of which read:
7

THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the

plaintiffs as follows: directing Motor City to deliver to the plaintiff one (1) unit of
(USAID) Willys Mitsubishi/Eisenhower Jeep with Motor No. MD-70750 already
repaired pursuant to the specifications in the "Contract for Repair of Jeeps;" directing
Motor City to pay an indemnity equivalent to 1% of P30,000.00 for each day of late
delivery (the period starts from February 1, 1976 until delivery of the unit); in case of
default, the payment thereof to be assumed or to be liquidated by Eastern Assurance
and Surety Corporation but not to exceed P33,275.00.

If eventually Eastern Assurance and Surety Corporation should pay following default
by Motor City, then the latter solidarily with Antonio Puchadez should reimburse
Eastern Assurance Surety Corporation all the amounts paid by the latter to the
 plaintiff with 20% of the amount as attorney's fees. With costs against both Motor
City and Eastern Assurance and Surety Corporation.

SO ORDERED.

On appeal, the ruling of the trial court was affirmed with a slight modification. The appellate court
held that the one percent (1%) indemnity charge for late delivery stipulated under the repair contract,
"shall be [computed] from March 3, 1978" and not 1 February 1976.

The instant Petition for Review, in essence, raises only one (1) issue; whether or not petitioner
Eastern may be held liable to respondent DAR for the contractual breach committed here by Motor
City.

The broadest argument of petitioner Eastern is that it incurred no liability under the Proposal Bond
after the Contract for Repair of Jeeps had been entered into between the DAR and Motor City.
Eastern is here relying upon the difference, in conceptual terms, between a proposal bond and a
performance bond. A proposal or bid bond has for its purpose to assure the owner of the project of
the good faith of the bidder and that the bidder will enter into a contract with the project owner should
his proposal be accepted. A performance bond is, upon the other hand designed to afford the project
owner security that the bidder, now the contractor, will faithfully comply with the requirements of the
contract awarded to the contractor and make good damages sustained by the project owner in case
of the contractor's failure to so perform.   Eastern's argument is, however, clearly too broad to be
8

helpful; for liability under a surety bond is determined not upon the basis of its abstract nature or its
title or caption but rather in accordance with the particular terms and conditions set out in such
bond.  It is thus necessary to look into the actual terms of the Proposal Bond in question.
9

Thereunder, liability on the part of petitioner Eastern as surety would be incurred upon the
happening of anyone of the following three (3) events: the failure or refusal of Motor City as principal
(1) "to guarantee the true and faithful performance of the contract in case of an award; (2) "to accept
the [award]; and (3) to "answer for any delay and/or default in the execution of the contract as
provided in the proposal." There is no dispute that the first condition refers to failure to post a
performance bond in the amount of P10,000.00; there is also no dispute that Eastern's principal did
not in fact post any such performance bond. There should therefore be no question that there was a
breach of condition No.1 of the Proposal Bond. It is urged by petitioner Eastern that the beneficiary
of the bond, public respondent DAR, had waived the stipulation in the Repair Contract providing for
the posting of such bond by entering into the contract with Motor City although the latter had not
posted the P10,000.00 Performance Bond. We do not believe that the DAR had waived the breach
of this condition. Certainly there was no express waiver. Implied waiver of a contractual stipulation
for the giving of security or collateral is not favored and has to be clearly shown. There is also no
dispute that the second condition was not breached for Motor City did accept the award of the
contract and did enter into the Contract for Repair of Jeeps.

In respect of the third condition, i.e., failure of Motor City to answer for delay or default "in the
execution of the contract as provided in the proposal", petitioner Eastern contends that this provision
refers merely to the execution, that is, the signing or conclusion of the Contract for Repair of Jeeps,
and not to the performance or implementation or carrying out of the provisions of such contract.
There are at least two (2) difficulties with this argument of Eastern. First, the ordinary or dictionary
meaning of "to execute" a contract (and especially to "execute a contract as provided in the
proposal") is or includes:

... 1: to put into effect: carry out fully and completely: PERFORM, EFFECT ... 3: to
give effect to : do what is provided or required ... : perform the requirements of :
 perform the acts necessary to the effectiveness of ... 6 : COMPLETE ... : perform
what is required to give validity to (as by signing and perhaps sealing and
delivering) ... . 
10

Thus, the term "execution" is understood ordinarily and literally as referring to both;

... 1 : the act or process of executing : PERFORMANCE, ACCOMPLISHMENT ...

3 ...c: [and] the act of signing, sealing, and delivering a legal instrument or giving it
the forms required to make it valid ... . 
11

Thus, the ordinary meaning of execution is not limited to the signing or concluding of a contract but
includes as well the performance or implementation or accomplishment of the terms and conditions
of such contract. Second, if one assumes, for purposes of analysis only, that petitioner Eastern's
contention is correct, then the second condition in the Proposal Bond (refusal "to accept [the
contract]") and the third condition (failure to "answer for any delay and/or default in the execution of
the contract as provided in the proposal") must be taken to refer to the same thing or circumstance.
But either the second or the third condition would then have to be regarded as superfluous and
meaningless, a result that must be abjured in view of the principle of effectiveness in the
interpretation of contracts.

When viewed in its entirety, the Proposal Bond may be seen to be not merely a proposal (or bid)
bond but also a performance bond. For it covers not merely the acceptance of the award and the
conclusion of a contract but also the carrying out or performance of the provisions of the contract.
We note also that the P10,000.00 Performance Bond explicitly required by paragraph 5 of the
Contract for Repair of Jeeps is lower in face amount than the Proposal Bond which has a maximum
value or face amount of P33,275.00. If petitioner Eastern's argument that its liability under the
Proposal Bond ceased the moment the Repair Contract was entered into is correct, then paragraph
5 of that Contract would be reduced to nonsense: for it must be nonsensical to require a proposal
bond in an amount 300% more than the amount of the required performance bond, if the proposal
bond were to become functus oficio the moment the contract was legally entered into. Upon the
other hand, the requirement of posting of a performance bond of P10,000.00 is quite understandable
if it be understood as simply additional security for the carrying out of the terms of the contract, that
is, additional to the Proposal Bond. 12

Finally, we note that the Proposal Bond is set out in a printed contract form of petitioner Eastern. The
three (3) circumstances occurrence of which would trigger off the liability of Eastern under the bond,
appear to be standard stipulations imposed by petitioner upon all persons seeking to secure
proposal bonds from Eastern. To this extent, the Proposal Bond is a contract of adhesion, having
been prepared solely by Eastern. Accordingly, any ambiguity or obscurity that may be found to infect
the terms of the Proposal Bond, must be construed against Eastern. 13

In sum, we hold that petitioner Eastern's liability under the Proposal Bond accrued the moment the
principal obligor, Motor City, failed to post the P10,000.00 Performance Bond and incurred in delay
and eventually defaulted in the repair and delivery of the seventh jeep unit, part of the subject matter
of the Contract for Repair of Jeeps with respondent DAR.

WHEREFORE, the Petition for Review is DENIED for lack of merit. The Decision dated 11
December 1984 of the then Intermediate Appellate Court in A.C.— G.R. CV 67523 is hereby
AFFIRMED with the modification that the one percent (1%) indemnity charge per day of delay in
delivery provided for in the Contract for Repair of Jeeps shall be computed from 13 March 1978 (not
3 March 1978), the date of last demand. Petitioner's liability for such indemnity charge shall not
exceed the face amount of the Proposal Bond (P33,275.00). Costs against petitioner.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.

G.R. No. 89020 May 5, 1992

STRONGHOLD INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS, respondent.

Gascon, Garcia & Associates for petitioner.

Castillo, Laman, Tan & Pantaleon for Northern Motors, Inc.

PARAS, J.:

In this petition for review on certiorari, petitioner Stronghold Insurance Co., Inc. assails the
decision * of the Court of Appeals in CA-G.R. CV No. 16154 affirming the order of the Regional Trial
Court, Branch 167, Pasig, Metro Manila in its Civil Case No. 52177. The dispositive portion of this
order of the Trial court reads:

WHEREFORE, in view of the foregoing consideration, the claim of the defendant

against SICI Bond No. 11652 of the Stronghold Insurance Company, Inc. is found to
have been established and said surety company is adjudged liable for damages
suffered by the defendant as found by this Court in its decision dated June 9, 1986,
to the extent of the amount of the replevin bond, which is P42,000.00 (p. 20, Rollo)

The factual antecedents are not disputed.

On March 21, 1985, Leisure Club, Inc. filed Civil Case No. 52177 against Northern Motors Inc. for
replevin and damages. It sought the recovery of certain office furnitures and equipments. In an order
dated March 22, 1985, the lower court ordered the delivery of subject properties to Leisure Club Inc.
subject to the posting of the requisite bond under Section 2, Rule 60 of the Rules of Court.
Accordingly, Leisure Club Inc. posted a replevin bond (SICI Bond No. 11652) dated March 25, 1985
in the amount of P42,000.00 issued by Stronghold Insurance Co., Inc. In due course, the lower court
issued the writ of replevin, thereby enabling Leisure Club Inc. to take possession of the disputed
properties.

Northern Motors Inc. filed a counterbond for the release of the disputed properties. However, efforts
to recover these properties proved futile as Leisure Club Inc. was never heard of again.

For failure to appear in the pre-trial of the case, Leisure Club, Inc. was declared non-suited. Northern
Motors Inc. presented its evidence ex-parte and on June 9, 1986, the lower court rendered its
decision in favor of Northern Motors Inc., the dispositive portion of which reads —

PREMISE CONSIDERED, the instant petition is hereby dismissed and on the

counterclaim, plaintiff is ordered to pay defendant the following:
 a) the actual value of the property sold at public auction by defendant, and
repossessed by plaintiff, of P20,900.00;

b) exemplary damages of P10,000.00;

c) attorney's fees in the amount of P10,000.00; and

d) costs of suit.

SO ORDERED. (p. 21, Rollo)

In the said decision, the lower court ruled that:

1. Northern Motors Inc. had rightful ownership and right of possession over the
subject properties.

2. Leisure Club Inc. is a sister company of Macronics Inc., a debtor of Northern

Motors Inc., and former owner of these properties.

3) Under the circumstances, Leisure Club Inc. instituted the action for replevin as
part of a scheme to spirit away these properties and pave the way for the evasion of
lawful obligations by its sister company. (Decision dated June 4, 1986, p. 4).

On July 3, 1986, Northern Motors Inc. filed a "Motion for Issuance of Writ of Execution Against Bond
of Plaintiff's Surety", pursuant to Section 10, Rule 20 of the Rules of Court, which was treated by the
lower court as an application for damages against the replevin bond.

At the hearing of the said motion as well as the opposition thereto filed by Stronghold Insurance Co.,
Inc., Northern Motors Inc. presented one witness in the person of its former manager Clarissa G.
Ocampo, whose testimony proved that:

(a) Northern Motors Inc., and Macronics Marketing entered into a leased agreement
wherein the latter leased certain premises from the former.

(b) Macronics failed to pay its bills to Northern Motors Inc., so the latter was forced to
terminate the lease.

(c) Because of Macronics' unpaid liabilities to Northern Motors Inc., the latter was
forced to sell off the former's properties in an auction sale wherein Northern Motors
Inc. was the buyer. Macronics was duly notified of the sale.

(d) These properties sold were the sole means available by which Northern Motors
Inc. could enforce its claim against Macronics. (TSN dated January 30, 1987; pp. 94-
95, Rollo)

Stronghold Insurance Co., Inc. did not cross-examine the said witness. Instead it asked for
continuance in order to present its own witness. Stronghold, however, never presented any witness.

On July 21, 1987, the lower court issued its now disputed Order finding Stronghold liable under its
surety bond for the damages awarded to Northern Motors Inc. in the June 8, 1986 Decision. In the
said Order, the lower court held:
Submitted for resolution is the "Motion for Issuance of Writ of Execution Against
Bond of Plaintiff's Surety" filed by the defendant and the opposition thereto filed by
the Stronghold Insurance Company, Inc.

In the decision rendered by the Court on June 9, 1977, the defendant Northern
Motors, Inc. was the prevailling party and the judgment in its favor ordered the
plaintiff to pay the actual value of the property sold at public auction by the defendant
and repossessed by plaintiff in the amount of P20,900.00, which is in favor of the
plaintiff if the latter is found not entitled to the writ of replevin earlier issued against
the defendant.

The thrust of the opposition of the bonding company is to the effect that the motion
for a writ of execution is not the proper remedy but an application against the bond
should have been the remedy pursued. The surety company contends that it is not a
party to the case and that the decision clearly became final and executory and,
therefore, is no longer liable on the bond. The surety company likewise raised the
issue as to when the decision became final and executory. Moreover, the surety
company avers that the defendant failed to prove any damage by reason of the
insurance of replevin bond.

Sec. 20 of Rule 57, in relation to Sec. 10 of Rule 60, provides that the party against
whom the bond was issued may recover on the bond for any damage resulting from
the issuance of the bond upon application and hearing. The application must be filed
either: before trial; before appeal is perfected; before judgment becomes final and
executory.

Being the prevailing party, it is undeniable that the defendant is entitled to recover
against the bond. The application for that propose was made before the decision
became final and before the appeal was perfected. Both the prevailing and losing
parties may appeal the decision. In the case of the plaintiff appears that its counsel
did not claim the decision which was sent by registered mail on June 20, 1986 and
filed the motion for execution against the bond on July 3, 1986. Hence, with respect
to the defendant the motion against the bond was filed before any appeal was
instituted and definitely on or before the judgment became final.

Although the claim against the bond was denominated as a motion for issuance of a
writ of execution, the allegations are to the effect that the defendant is applying for
damages against the bond. In fact, the defendant invokes Sec. 10, Rule 60, in
relation to Sec. 20, Rule 57, Rules of Court. Evidently, therefore, the defendant is in
reality claiming damages against the bond.

It is undisputed that the replevin bond was obtained by the plaintiff to answer for
whatever damages the defendant may suffer for the wrongful issuance of the writ. By
virtue of the writ, the plaintiff took possession of the auctioned properties. Despite a
redelivery bond issued by the defendant, the plaintiff refused to return the properties
and in the fact repossessed the same. Clearly, defendant suffered damages by
reason of the wrongful replevin, in that it has been deprived of the properties upon
which it was entitled to enforce its claim. Moreover, the extent of the damages has
been qualified in the decision dated June 9, 1986.

(pp. 21-23, Rollo)
This Order was appealed by Stronghold to the Court of Appeals. In a decision dated July 7, 1989,
the Court of Appeals affirmed the order of the lower court. This decision is now the subject of the
instant petition.

Petitioner raises the following assignment of error:

1. The lower court erred in awarding damages against herein petitioner despite
complete absence of evidence in support of the application.

2. The lower court erred in just adopting the dispositive portion of the decision dated
June 7, 1986 as basis for the award of damages against herein petitioner.

3. The lower court erred in awarding exemplary damages in favor of Northern

Motors, Inc. and against petitioner Stronghold Insurance Co., Inc.

4. The lower court erred in awarding the attorney's fees of P10,000.00 as damages
against the bond.

(pp. 10-11, Rollo)

We find no merit in the petition.

In the case of Visayan Surety & Insurance Corp. vs. Pascual, 85 Phil. 779, the Court explained the
nature of the proceedings to recover damages against a surety, in this wise:

In such case, upon application of the prevailing party, the court must order the surety
to show cause why the bond should not respond for the judgment of damages. If the
surety should contest the reality or reasonableness of the damages claimed by the
prevailing party, the court must set the application and answer for hearing.
The hearing will be summary and will be limited to such new defense, not previously
set up by the principal, as the surety may allege and offer to prove. (Id. at 785;
emphasis supplied) (p. 96, Rollo)

Stronghold Insurance Co., Inc., never denied that it issued a replevin bond. Under the terms of the
said bond, Stronghold Insurance together with Leisure Club Inc. solidarily bound themselves in the
sum of P42,000 —

(a) for the prosecution of the action,

(b) for the return of the property to the defendant if the return thereof be adjudged,
and

(c) for the payment of such sum as may in the cause be recovered against the
plaintiff and the costs of the action.

In the case at bar, all the necessary conditions for proceeding against the bond are present, to wit:

(i) the plaintiff a quo, in bad faith, failed to prosecute the action, and after relieving
the property, it promptly disappeared;
 (ii) the subject property disappeared with the plaintiff, despite a court order for their
return; and

(iii) a reasonable sum was adjudged to be due to respondent, by way of actual and
exemplary damages, attorney's fees and costs of suit.
(p. 63, Rollo)

On the propriety of the award for damages and attorney's fees, suffice it to state, that as correctly
observed by the Court of Appeals, the record shows that the same is supported by sufficient
evidence. Northern Motors proved the damages it suffered thru evidence presented in the hearing of
the case itself and in the hearing of its motion for execution against the replevin bond. No evidence
to the contrary was presented by Stronghold Insurance Co., Inc. in its behalf. It did not impugn said
award of exemplary damages and attorney's fees despite having every opportunity to do so.

As correctly held by respondent Court of Appeals ––

Stronghold Insurance, Inc. has no ground to assail the awards against it in the
disputed Order. Unless it has a new defense, it cannot simplistically dissociate itself
from Leisure Club, Inc. and disclaim liability vis-a-vis the findings made in the
Decision of the lower court dated June 9, 1986. Under Section 2, Rule 60 the bond it
filed is to ensure "the return of the property to the defendant if the return thereof be
adjudged, and for the payment to the defendant of such sum as he may recover from
the plaintiff in the action." The bond itself ensures, inter alia, "the payment of such
sum as may in the cause be recovered against the plaintiff and the cost of the
action." (pp. 24-25, Rollo)

Beside, Leisure Club Inc.'s act of filing a replevin suit without the intention of prosecuting the same
but for the mere purpose of disappearing with the provisionally recovered property in order to evade
lawfully contracted obligations constitutes a wanton, fraudulent, reckless, oppressive and malevolent
breach of contract which justifies award of exemplary damages under Art. 2232 of the Civil Code.

The attorney's fees awarded in favor of Northern Motors Inc. are likewise warranted under Article
2208 of the New Civil Code.

In any event, the trial court has decided with finality that the circumstances justifying the award of
exemplary damages and attorney's fees exist. The obligation of Stronghold Insurance Co., Inc.,
under the bond is specific. It assures "the payment of such sum as may in the cause be recovered
against the plaintiff, and the costs of the action." (emphasis supplied)

WHEREFORE, the petition is DENIED for lack of merit. No costs.

SO ORDERED.

Melencio-Herrera, Padilla, Regalado and Nocon, JJ., concur.

 
G.R. Nos. 152505-06             September 13, 2007

PRUDENTIAL GUARANTEE and ASSURANCE, INC., petitioner,

vs.
EQUINOX LAND CORPORATION, respondent.

DECISION

SANDOVAL-GUTIERREZ, J.:

Before us for resolution is the instant Petition for Review on Certiorari assailing the Decision1 of the
Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R.
SP No. 57335.

The undisputed facts of the case, as established by the Construction Industry Arbitration
Commission (CIAC) and affirmed by the Court of Appeals, are:

Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5)
additional floors to its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong
City. It then sent invitations to bid to various building contractors. Four (4) building contractors,
including J’Marc Construction & Development Corporation (J’Marc), responded.

Finding the bid of J’Marc to be the most advantageous, Equinox offered the construction project to it.
On February 22, 1997, J’Marc accepted the offer. Two days later, Equinox formally awarded to
J’Marc the contract to build the extension for a consideration of P37,000,000.00.

On February 24, 1997, J’Marc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued
by Prudential Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount
of P9,250,000.00 to guarantee the unliquidated portion of the advance payment payable to J’Marc;
and (2) a performance bond likewise issued by Prudential in the amount of P7,400,000.00 to
guarantee J’Marc’s faithful performance of its obligations under the construction agreement.

On March 17, 1997, Equinox and J’Marc signed the contract and related documents. Under the
terms of the contract, J’Marc would supply all the labor, materials, tools, equipment, and supervision
required to complete the project.

In accordance with the terms of the contract, Equinox paid J’Marc a downpayment of P9,250,000.00
equivalent to 25% of the contract price.

J’Marc did not adhere to the terms of the contract. It failed to submit the required monthly progress
billings for the months of March and April 1997. Its workers neglected to cover the drainpipes,
hence, they were clogged by wet cement. This delayed the work on the project.

On May 23, 1997, J’Marc requested an unscheduled cash advance of P300,000.00 from Equinox,
explaining it had encountered cash problems. Equinox granted J’Marc’s request to prevent delay.

On May 31, 1997, J’Marc submitted its first progress billing showing that it had accomplished only
7.3825% of the construction work estimated at P2,731,535.00. After deducting the advanced
payments, the net amount payable to J’Marc was only P1,285,959.12. Of this amount, Equinox paid
J’Marc only P697,005.12 because the former paid EXAN P588,954.00 for concrete mix.
Shortly after Equinox paid J’Marc based on its first progress billing, the latter again requested an
advanced payment of P150,000.00. Again Equinox paid J’Marc this amount. Eventually, Equinox
found that the amount owing to J’Marc’s laborers was only P121,000.00, not P150,000.00.

In June 1997, EXAN refused to deliver concrete mix to the project site due to J’Marc’s recurring
failure to pay on time. Faced with a looming delay in the project schedule, Equinox acceded to
EXAN’s request that payments for the concrete mix should be remitted to it directly.

On June 30, 1997, J’Marc submitted its second progress billing showing that it accomplished only
16.0435% of the project after 4 months of construction work. Based on the contract and its own
schedule, J’Marc should have accomplished at least 37.70%.

Faced with the problem of delay, Equinox formally gave J’Marc one final chance to take remedial
steps in order to finish the project on time. However, J’Marc failed to undertake any corrective
measure. Consequently, on July 10, 1997, Equinox terminated its contract with J’Marc and took over
the project. On the same date, Equinox sent Prudential a letter claiming relief from J’Marc’s
violations of the contract.

On July 11, 1997, the work on the project stopped. The personnel of both Equinox and J’Marc jointly
conducted an inventory of all materials, tools, equipment, and supplies at the construction site. They
also measured and recorded the amount of work actually accomplished. As of July 11, 1997, J’Marc
accomplished only 19.0573% of the work or a shortage of 21.565% in violation of the contract.

The cost of J’Marc’s accomplishment was only P7,051,201.00. In other words, Equinox overpaid
J’Marc in the sum of P3,974,300.25 inclusive of the 10% retention on the first progress billing
amounting to P273,152.50. In addition, Equinox also paid the wages of J’Marc’s laborers, the billings
for unpaid supplies, and the amounts owing to subcontractors of J’Marc in the total sum
of P664,998.09.

On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong
City a complaint for sum of money and damages against J’Marc and Prudential. Equinox prayed that
J’Marc be ordered to reimburse the amounts corresponding to its (Equinox) advanced payments and
unliquidated portion of its downpayment; and to pay damages. Equinox also prayed that Prudential
be ordered to pay its liability under the bonds.

In its answer, J’Marc alleged that Equinox has no valid ground for terminating their contract. For its
part, Prudential denied Equinox’s claims and instituted a cross-claim against J’Marc for any
judgment that might be rendered against its bonds.

During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant to
Executive Order No. 1008, it is the CIAC which has jurisdiction over it.

On February 12, 1999, the trial court granted Prudential’s motion and dismissed the case.

On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No.
17-99. Prudential submitted a position paper contending that the CIAC has no jurisdiction over it
since it is not a privy to the construction contract between Equinox and J’Marc; and that its surety
and performance bonds are not construction agreements, thus, any action thereon lies exclusively
with the proper court.
On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against J’Marc and
Prudential, thus:

AWARD

After considering the evidence and the arguments of the parties, we find that:

1. J’Marc has been duly notified of the filing and pendency of the arbitration proceeding
commenced by Equinox against J’Marc and that CIAC has acquired jurisdiction over J’Marc;

2. The construction Contract was validly terminated by Equinox due to J’Marc’s failure to
provide a timely supply of adequate labor, materials, tools, equipment, and technical services
and to remedy its inability to comply with the construction schedule;

3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in
the absence of adequate proof of actual and compensatory damages, we award to Equinox
nominal or temperate damages in the amount of P500,000.00;

4. The percentage of accomplishment of J’Marc at the time of the termination of the Contract
was 19.0573% of the work valued at P7,051,201.00. This amount should be credited to
J’Marc. On the other hand, Equinox [i] had paid J’Marc 25% of the contract price as down or
advance payment, [ii] had paid J’Marc its first progress billing, [iii] had made advances for
payroll of the workers, and for unpaid supplies and the works of J’Marc’s subcontractors, all
in the total sum of P11,690,483.34. Deducting the value of J’Marc’s accomplishment from
these advances and payment, there is due from J’Marc to Equinox the amount
of P4,639,285.34. We hold J’Marc liable to pay Equinox this amount of P4,639,285.34.

5. If J’Marc had billed Equinox for its accomplishment as of July 11, 1997, 25% of
the P7,051,201.00 would have been recouped as partial payment of the advanced or down
payment. This would have resulted in reducing Prudential’s liability on the Surety Bond
from P8,250,000.00 to P7,487,199.80. We, therefore, find that Prudential is liable to Equinox
on its Surety Bond the amount of P7,487,199.80;

6. Prudential is furthermore liable on its Performance Bond for the following amounts: the
advances made by Equinox on behalf of J’Marc to the workers, suppliers, and
subcontractors amounting to P664,985.09, the nominal damages of P500,000.00 and
attorney’s fees of P100,000.00 or a total amount of P1,264,985.00;

7. All other claims and counterclaims are denied;

8. J’Marc shall pay the cost of arbitration and shall indemnify Equinox the total amount paid
by Equinox as expenses of arbitration;

9. The total liability of J’Marc to Equinox is determined to be P5,139,285.34 plus attorney’s

fees of P100,000.00. The surety’s liability cannot exceed that of the principal debtor [Art.
2054, Civil Code}. We hold that, notwithstanding our finding in Nos. 5 and 6 of this Award,
Prudential is liable to Equinox on the Surety Bond and Performance Bond an amount not to
exceed P5,239,285.34. The cost of arbitration shall be paid by J’Marc alone.

The amount of P5,239,285.34 shall be paid by respondent J’Marc and respondent

Prudential, jointly and severally, with interest at six percent [6%] per annum from
 promulgation of this award. This amount, including accrued interest, shall earn interest at the
rate of 12% per annum from the time this decision becomes final and executory until the
entire amount is fully paid or judgment fully satisfied. The expenses of arbitration, which shall
be paid by J’Marc alone, shall likewise earn interest at 6% per annum from the date of
promulgation of the award, and 12% from the date the award becomes final until this amount
including accrued interest is fully paid.

SO ORDERED.

Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP
No. 56491. Prudential alleged that the CIAC erred in ruling that it is bound by the terms of the
construction contract between Equinox and J’Marc and that it is solidarily liable with J’Marc under its
bonds.

Equinox filed a motion for reconsideration on the ground that there is an error in the computation of
its claim for unliquidated damages; and that it is entitled to an award of liquidated damages.

On February 2, 2000, the CIAC amended its Award by reducing the total liability of J’Marc to
Equinox to P4,060,780.21, plus attorney’s fees of P100,000 or P4,160,780.21, and holding that
Prudential’s liability to Equinox on the surety and performance bonds should not exceed the said
amount of P4,160,780.21, payable by J’Marc and Prudential jointly and severally.

Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP
No. 57335. This case was consolidated with CA-G.R. SP No. 56491 filed by Prudential.

On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No. 57335 and
CA-G.R. SP No. 56491, the dispositive portion of which reads:

WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with

MODIFICATION in paragraph 4 in the Award by holding J’Marc liable for unliquidated
damages to Equinox in the amount of P5,358,167.09 and in paragraph 9 thereof by
increasing the total liability of J’Marc to Equinox to P5,958,167.09 (in view of the additional
award of P500,000.00 as nominal and temperate damages and P100,000.00 in attorney’s
fees), and AFFIRMED in all other respects.

SO ORDERED.

Prudential seasonably filed a motion for reconsideration but it was denied by the Court of Appeals.

The issue raised before us is whether the Court of Appeals erred in (1) upholding the jurisdiction of
the CIAC over the case; and (2) finding Prudential solidarily liable with J’Marc for damages.

On the first issue, basic is the rule that administrative agencies are tribunals of limited jurisdiction
and as such, can only wield such powers as are specifically granted to them by their enabling
statutes.2

Section 4 of Executive Order No. 1008, 3 provides:

SEC. 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes
arising from, or connected with contracts entered into by parties involved in construction in
the Philippines, whether the dispute arises before or after the completion of the contract, or
 after the abandonment or breach thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit
the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for
materials and workmanship, violation of the terms of agreement, interpretation and/or
application of contractual time and delays, maintenance and defects, payment, default of
employer or contractor and changes in contract cost.

Excluded from the coverage of the law are disputes arising from employer-employee
relationships which continue to be covered by the Labor Code of the Philippines.

In David v. Construction Industry and Arbitration Commission,4 we ruled that Section 4 vests upon
the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction
contracts entered into by parties who have agreed to submit their case for voluntary arbitration.

As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of money against
J’Marc and Prudential, the latter filed a motion to dismiss on the ground of lack of jurisdiction,
contending that since the case involves a construction dispute, jurisdiction lies with CIAC.
Prudential’s motion was granted. However, after the CIAC assumed jurisdiction over the case,
Prudential again moved for its dismissal, alleging that it is not a party to the construction contract
between Equinox and J’Marc; and that the surety and performance bonds it issued are not
construction agreements.

After having voluntarily invoked before the RTC the jurisdiction of CIAC, Prudential is estopped to

question its jurisdiction. As we held in Lapanday Agricultural & Development Corporation v.
Estita,5 the active participation of a party in a case pending against him before a court or a quasi-
judicial body is tantamount to a recognition of that court’s or quasi-judicial body’s jurisdiction and a
willingness to abide by the resolution of the case and will bar said party from later on impugning the
court’s or quasi-judicial body’s jurisdiction.

Moreover, in its Reply to Equinox’s Opposition to the Motion to Dismiss before the RTC, Prudential,
citing Philippine National Bank v. Pineda 6 and Finman General Assurance Corporation v.
Salik,7 argued that as a surety, it is considered under the law to be the same party as the obligor in
relation to whatever is adjudged regarding the latter’s obligation. Therefore, it is the CIAC which has
jurisdiction over the case involving a construction contract between Equinox and J’Marc. Such an
admission by Prudential binds it and it cannot now claim otherwise.

Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with
J’Marc. Section 175 of the Insurance Code defines a suretyship as "a contract or agreement
whereby a party, called the suretyship, 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 under Act 536 8, as
amended." Corollarily, Article 2047 of the Civil Code provides that suretyship arises upon
the solidary binding of a person deemed the surety with the principal debtor for the purpose of
fulfilling an obligation.

In Castellvi de Higgins and Higgins v. Seliner,9 we held that while a surety and a guarantor are alike
in that each promises to answer for the debt or default of another, the surety assumes liability as a
regular party to the undertaking and hence its obligation is primary.
In Security Pacific Assurance Corporation v. Tria-Infante,10 we reiterated the rule that while a
contract of surety is secondary only to a valid principal obligation, the surety’s liability to the creditor
is said to be direct, primary, and absolute. In other words, the surety is directly and equally bound
with the principal. Thus, Prudential is barred from disclaiming that its liability with J’Marc is solidary.

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals (Third Division)
dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57355 is AFFIRMED in
toto. Costs against petitioner.

SO ORDERED.

Puno, C.J., Chairperson, Corona, Garcia, JJ., concur.

Azcuna*, J., no part.