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STRONGHOLD INSURANCE COMPANY v. SPS. RUNE

FACTS:

The case involves the dispute between the Spouses Stroem and Stronghold Insurance Company over a construction contract. The Spouses Stroem entered into an Owners-Contractor Agreement with Asis-Leif & Company, Inc. for the construction of their house. Asis-Leif obtained a performance bond from Stronghold Insurance Company to guarantee the completion of the project. However, Asis-Leif failed to finish the construction on time, leading the Spouses Stroem to rescind the agreement and file a complaint for breach of contract and sum of money. The Regional Trial Court ruled in favor of the Spouses Stroem and ordered Stronghold to pay them P4,500,000.00. Both parties appealed to the Court of Appeals, which affirmed the trial court's decision with modification. Stronghold argues that the trial court lacked jurisdiction due to an arbitration clause in the agreement, while the Spouses Stroem claim forum shopping on the part of Stronghold.

In this case, the dispute centers around the construction contract entered into by the Spouses Stroem and Stronghold Insurance Company. The Owners-Contractor Agreement and the performance bond are considered separate contracts with different parties and considerations. The Spouses Stroem argued that Stronghold is liable for the full amount of the performance bond without the need for prior notice, while the issues for consideration revolve around the existence of a construction contract, the jurisdiction of the Construction Industry Arbitration Committee (CIAC), and Stronghold's liability under the performance bond. Additionally, Stronghold is accused of engaging in forum shopping by failing to disclose the pendency of their Motion for Partial Reconsideration in their Certification Against Forum Shopping. The court found Stronghold guilty of forum shopping and non-compliance with the relevant rules.

On a separate case, the petitioner, Sison, lodged two complaints with different government agencies and courts against the same parties seeking the same reliefs. The first complaint was filed with the Housing and Land Use Regulatory Board (HLURB), while the second complaint was filed with the Regional Trial Court (RTC). Sison alleged that the respondents violated land development and subdivision laws and regulations in both cases. The HLURB dismissed Sison's complaint, citing lack of merit, while the RTC issued a temporary restraining order in favor of Sison. According to the respondents, Sison engaged in forum shopping by filing multiple complaints with different forums, seeking identical reliefs against them.

ISSUES:

  1. Whether the petitioner engaged in forum shopping by failing to promptly inform the court of any pending action or proceeding before other courts or tribunals.

  2. Whether the Construction Industry Arbitration Commission (CIAC) has jurisdiction over the dispute between the parties.

  3. Whether the Construction Industry Arbitration Commission (CIAC) has jurisdiction over the dispute relating to the performance bond.

  4. Whether the performance bond is an accessory contract that is significantly connected to the construction contract.

  5. Whether the petitioner can invoke the arbitration clause found in the Owners-Contractor Agreement.

  6. Whether the purpose of arbitration in relation to the construction business is defeated by the petitioner's invocation of the arbitration clause.

  7. Whether the petitioner, as a surety in a construction contract, is estopped from raising jurisdiction later.

RULING:

  1. The court held that the petitioner engaged in forum shopping by failing to fulfill its duty of promptly informing the court of any pending action or proceeding before other courts or tribunals. The court emphasized that forum shopping creates the possibility of conflicting decisions being rendered by different fora on the same issue, thereby causing vexation to the courts and parties involved. As a result, the case should be dismissed.

  2. The court ruled that the CIAC has jurisdiction over the dispute between the parties. Section 4 of Executive Order No. 1008 and Section 35 of Republic Act No. 9285 clearly define the exclusive jurisdiction of the CIAC over construction disputes. The jurisdiction of the CIAC includes disputes arising from contracts entered into by parties involved in construction in the Philippines, whether before or after the completion of the contract. The court also emphasized that the CIAC's jurisdiction is not limited to specific issues, but may cover violations of specifications, interpretation of contractual terms, delays, maintenance and defects, payment, default, and changes in contract cost. In this case, there is no dispute that the Owners-Contractor Agreement between the parties is a construction contract, and both parties acknowledge CIAC's jurisdiction over disputes arising from the agreement.

  3. Yes, the CIAC has jurisdiction over the dispute relating to the performance bond. The performance bond is an accessory contract that is significantly connected to the construction contract.

  4. The performance bond was issued pursuant to and is significantly connected to the construction contract. It guarantees the completion of the construction project even if the contractor fails in its obligations. Therefore, the CIAC, under Section 4 of EO No. 1008, has jurisdiction over any dispute arising from or connected with the performance bond.

  5. The petitioner cannot invoke the arbitration clause found in the Owners-Contractor Agreement. The construction agreement was signed only by the respondents and the contractor, Asis-Leif, and not by the petitioner. Contracts take effect only between the parties, their assigns, and heirs. Therefore, the petitioner, not being a party to the construction agreement, cannot invoke the arbitration clause.

  6. The purpose of arbitration in relation to the construction business is defeated by the petitioner's invocation of the arbitration clause. The state encourages the use of dispute resolution mechanisms, such as arbitration, to promote party autonomy. However, allowing the petitioner to invoke arbitration at this late stage of the proceedings would go against the law's goal of prompt resolution of cases in the construction industry.

  7. The petitioner, as a surety in a construction contract, is estopped from raising jurisdiction later. Since the petitioner actively participated in a collection suit, it cannot raise the jurisdiction issue at a later stage. Therefore, assuming that the petitioner is privy to the construction agreement, it cannot invoke arbitration.

PRINCIPLES:

  • Forum shopping is discouraged as it causes vexation to the courts and parties involved by potentially leading to conflicting decisions on the same issue.

  • Jurisdiction cannot be waived or acquired by estoppel. Lack of jurisdiction over an action or the subject matter cannot be cured by the parties' silence, acquiescence, or express consent.

  • The CIAC has exclusive jurisdiction over disputes arising from contracts entered into by parties involved in construction in the Philippines, whether before or after the completion of the contract. The CIAC's jurisdiction covers a wide range of issues related to construction contracts.

  • A performance bond is an accessory contract that is dependent on the principal obligation it guarantees.

  • The surety's solidary obligation for the performance of the principal debtor's obligation is indirect and secondary, but its liability to the creditor or promisee is direct, primary, and absolute.

  • The "complementary-contracts-construed-together" doctrine applies to read an accessory contract in its entirety and together with the principal contract.

  • Contracts take effect only between the parties, their assigns, and heirs.

  • The purpose of arbitration in the construction industry is to expeditiously settle disputes and promote party autonomy.

  • Sureties in construction contracts are estopped from raising jurisdiction later if they actively participate in a collection suit.