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PRUDENTIAL GUARANTEE v. ANSCOR LAND

FACTS:

The case involves a construction contract between Anscor Land, Inc. (ALI) and Kraft Realty and Development Corporation (KRDC) for the construction of a townhouse project. As part of the contract, PGAI issued surety and performance bonds to guarantee the reimbursement of the down payment and completion of the project. ALI terminated the contract with KRDC due to significant delays and informed PGAI of its intention to make claims against the bonds. ALI sent a claim letter to PGAI after the expiration period stated in the performance bond, but PGAI did not respond. ALI filed for arbitration against KRDC and PGAI before the CIAC. The CIAC held PGAI solidarily liable with KRDC for the reimbursement of the down payment but absolved PGAI from liability under the performance bond due to the late filing of the claim. The CA modified the CIAC's decision and declared PGAI solidarily liable with KRDC under the performance bond. PGAI filed a petition before the Supreme Court, arguing that the CIAC lacked jurisdiction over the dispute as PGAI was not a party to the construction contract. The main issues are the jurisdiction of the CIAC and the timeliness of ALI's claim on the performance bond.

ISSUES:

  1. Whether the Construction Industry Arbitration Commission (CIAC) has jurisdiction over disputes arising from or connected with a performance bond issued in relation to a construction contract.

  2. Whether the petitioner, as the surety under the performance bond, can be considered a party to the construction contract and bound by the arbitration provision.

  3. Whether the silence of the accessory contract could be construed as acquiescence to the main contract.

  4. Whether the letter dated October 16, 2000 constituted a valid claim under the performance bond.

  5. Whether or not the petitioner substantially complied with the time-bar provision of the performance bond.

RULING:

  1. The CIAC has jurisdiction over disputes arising from or connected with a performance bond issued in relation to a construction contract. The performance bond is significantly and substantially connected to the construction contract that it cannot be separated or severed from its principal. Thus, any dispute arising from or connected with the performance bond falls under the jurisdiction of the CIAC.

  2. The petitioner, as the surety under the performance bond, can be considered a party to the construction contract and bound by the arbitration provision. The liability of the surety is solidary with that of the principal under the construction contract. Furthermore, accessory contracts, such as the surety contract, should be construed together with the main contract in order to arrive at their true meaning. In this case, although the performance bond was silent with regard to arbitration, the construction contract clearly provided for arbitration in the event of disputes. Therefore, the petitioner is bound by the arbitration provision of the construction contract.

  3. The silence of the accessory contract could be construed as acquiescence to the main contract. It is reasonable to assume that the party who issued the performance bond carefully studied the construction contract and if there were reservations, they would have been mentioned in the surety contract.

  4. The letter dated October 16, 2000 constituted a valid claim under the performance bond. The letter informed the issuer within the time-bar provision that the contract had been terminated due to breach, thus giving rise to the issuer's obligation under the performance bond. The use of the word "may" in expressing intent to proceed against the bond does not make the claim any less categorical. The termination of the contract necessarily implies a hiatus in the supply of labor and materials, which is covered by the performance bond.

  5. The Supreme Court affirmed the decision of the Court of Appeals and ruled that the petitioner substantially complied with the time-bar provision of the performance bond. The Court held that the petitioner's claim against the respondent arose from the failure of the third-party contractor to perform its obligation under the construction contract. The petitioner already had the "claim" or "right to payment" against the respondent from the moment the third-party contractor failed to comply with its obligation. The Court further noted that the petitioner's intent to recover its claim was clearly communicated to the respondent through a letter. Therefore, the Court held that the petitioner substantially complied with the time-bar provision.

PRINCIPLES:

  • Under EO No. 1008, the CIAC has 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.

  • A performance bond, as an accessory contract, is significantly and substantially connected to the construction contract that it cannot be separated or severed from its principal.

  • The liability of a surety, as an accessory contract, is solidary with that of the principal under the main contract.

  • Accessory contracts, such as a surety contract, should be construed together with the main contract in order to arrive at their true meaning.

  • The "complementary contracts construed together" doctrine states that accessory contracts should not be read independently of the main contract and should be interpreted together in order to arrive at their true meaning.

  • Silence in an accessory contract may be construed as acquiescence to the main contract.

  • The purpose of a time-bar provision in a performance bond is to give notice of a claim to the issuer at the earliest possible time and to allow sufficient time for evaluation and examination of the claim.

  • The generally accepted meaning of words in a time-bar provision shall control without the need for stretched interpretation.

  • The word "claim" in a time-bar provision includes the right to payment, whether or not such right is reduced to judgment, and includes the right to an equitable remedy for breach of performance.

  • A receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim.

  • In order to enforce a claim or recover a certain amount, the claim must be presented within the prescribed time-bar provision.

  • Substantial compliance with the time-bar provision is sufficient to meet the requirements.