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CASE # 53


G.R. NO. 177240, September 8, 2010

FACTS: On August 2000, ALI and KRDC entered into a Construction Contract for the construction of a
townhouse in Quezon City. Under the contract, KRDC was to build and complete the project within 275
continuous calendar days within 275 continuous calendar days from the date of receipt of a notice to
proceed for P18.8 million. KRDC submitted a surety bond amounting to P4.5 million to secure the down
payment paid by ALI in case of failure to finish the project and a performance bond amounting to P4.7
million to guarantee the supply of labor, materials, tools, equipment and necessary supervision to
complete the project. The said bonds were issued in favor of ALI.

After 325 days from the receipt of NTP, ALI sent a letter to PGAI notifying that the contract was terminated
due to very serious delays. On February 2002, ALI commenced the arbitration proceedings against KRDC
and PGAI in the CIAC. PGAI contented that it was not a party to the construction contract. CIAC rendered
judgment in favor of ALI. PGAI argues that the CIAC had no jurisdiction over the dispute as regards the
claim of ALI against the performance bond because it was not a party to the construction contract.

ISSUE: Whether or not the CIAC had jurisdiction over the dispute

HELD: Yes. E.O. No. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising
from or connected with construction contracts entered into by parties that have agreed to submit their
dispute to voluntary arbitration. Under the aforquoted provision, it is apparent that a dispute must meet
two requirements in order to fall under the jurisdiction of the CIAC:

(1) the dispute must be somehow connected to a construction contract

(2) the parties must have agreed to submit the dispute to arbitration proceedings.

As regards the first requirement, the Performance Bond issued by the petitioner was meant to guarantee
supply of labor, materials , tools, equipment, and necessary supervision to complete the project. In
practice, a performance bond is usually a condition or a necessary component of construction contracts.
In the case at bar, the performance bond was so connected with the construction contract that the former
was agreed by the parties to be a condition for the latter to push through and at the same time, the former
is reliant on the latter for it’s existence as an accessory contract. The performance bond is deemed as an
associate of the main construction contract that it cannot be separated or severed from it’s principal. The
performance bond is significantly and substantially connected to the construction contract that there can
be no doubt it is the CIAC, under Section 4 of EO No. 1008, which has jurisdiction over any dispute arising
from or connected with it.

On the second requirement that the parties to a dispute must have previously agreed to submit to
arbitration, it is clear from Article 24 of the Construction Contract itself that the parties have indeed
agreed to submit their disputes to arbitration, to wit: “All disputes , controversies, or differences between
the parties arising out of or in connection with the Contract, or arising out of or
in connection with this Contract, or arising out of or in connection with the execution of the WORK shall
be settled inaccordance with the procedures laid down by the Construction Industry Arbitration Commis
sion. The cost ofarbitration shall be borne jointly by both CONTRACTOR and DEVELOPER on a fifty-
fifty (50-50) basis.”

In the case at bar, the performance bond was silent with regard to arbitration. On the other hand, the
construction contract was clear as to arbitration in the event of disputes. Applying the said doctrine, the
Court rule that the silence of the accessory contract in this case could only be construed as acquiescence
to the main contract. The construction contract breathes life into the performance bond.

CASE # 54


GR# 113931, May 6, 1998

FACTS: Respondent Spouses Claveria, doing business under the name “ Agro Brokers”, applied for a loan
with respondent Consolidated Bank & Trust Corp. (now SOLID BANK) amounting to P2.875M. The loan
was granted subject to the condition that respondent spouses execute a chattel mortgage over the 3
vessels to be acquired and that a continuing guarantee be executed by Ayala International Phils., Inc., now
herein petitioner E.Zobel, Inc. in SOLID BANK’s favor. The Claverias defaulted in the payment of the entire
obligation upon maturity. Petitioner moved to dismiss the complaint asserting that its liability as
guarantor of the loan was extinguished pursuant to A.2080, NCC. It argued that it has lost its right to be
subrogated to the first chattel mortgage in view of SOLIDBANK’s failure to register the chattel mortgage
with the appropriate government agency. SOLIDBANK meantime claimed that Article 2080 is not
applicable because petitioner is not a guarantor but a surety.

ISSUE: ISSUE: Whether or not petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK
as a guarantor or a surety

HELD: ZOBEL, Inc. obligated itself as a surety. Thus, Article 2080 of the Civil Code does not apply to it.

In the contract executed by petitioner in SOLIDBANK’s favor, albeit denominated as a “Continuing

Guaranty”, is in fact a contract of surety. The contract’s terms obligates petitioner as “surety” to induce
SOLIDBANK to extend credit to the Claverias. The contract clearly disclose that petitioner assumed liability
to SOLIDBANK, as a regular party the undertaking and obligated itself as an original promissory. It bound
itself jointly and severally to the obligation with the Claverias. In fact, SOLIDBANK need not resort to all
other legal remedies or exhaust the Claverias’ properties before it can hold petitioner liable for the
obligation. Since the petitioner is a surety, Article 2080, NCC is inapplicable. Said article applies where the
liability is as a guaranty not as a surety.