Prudential V Anscor Digest

CASE PRUDENTIAL GUARANTEE AND ASSURANCE, INC.
TITLE: vs.
ANSCOR LAND, INC.
GR NO.: 177240| DATE: September 8, 2010
DOCTRINE:
- The Construction Industry Arbitration Commission’s (CIAC) jurisdiction is not limited to the
construction industry, but extends to surety or guarantee contracts.
- EO 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 aforequoted provision, it is apparent that a dispute must meet two (2)
requirements in order to fall under the jurisdiction of the CIAC: first, the dispute must be somehow
connected to a construction contract; and second, the parties must have agreed to submit the
dispute to arbitration proceedings.
FACTS:
On August 2, 2000. ALI and Kraft (KRDC) entered into a Construction Contract for the construction of a
townhouse project. Under the contract, KRDC was to build and complete the project within 275 days from the
date of receipt of a notice to proceed. Which was received by KRDC on November 24, 1999. As part of
undertaking, KRDC submitted a surety bond to secure the reimbursement of the down payment paid by ALI in
case of failure to finish the project and a performance bond amounting to P4,700,000.00 to guarantee the supply
of labor, materials, etc. The said bonds were issued in favor of ALI by herein petitioner Prudential Guarantee and
Assurance, Inc. (PGAI)
Under the Performance Bond, the parties agreed on a time-bar provision which states: PRUDENTIAL
GUARANTEE AND ASSURANCE, INC., shall not be liable for any claim not discovered and presented to the
company within ten days from the expiration of this bond or from the occurrence of the default or failure of the
principal, whichever is the earliest. KRDC then commenced with the construction of the project. However, the
contract was terminated due to serious delays. ALI sent on October 16, 2000 a letter to PRUDENTIAL stating its
claim over the performance bond.
Through a letter dated November 29, 2001, or exactly one (1) year after the expiration date in the performance
bond, ALI reiterated its claim against the performance bond issued by PGAI.
On February 7, 2002, ALI commenced arbitration proceedings against KRDC and PGAI in the CIAC. Hence the
petition.
RULING OF THE CIAC:

CIAC rendered judgment awarding a total of P7,552,632.74 to ALI and a total of P1,292,487.81 to KRDC. CIAC
also allowed the offsetting of the awards to both parties which resulted in a net amount due to ALI of
P6,260,144.93 to be paid by KRDC. Meanwhile, the CIAC found PGAI liable for the reimbursement of the
unliquidated portion of the down payment as a solidary liability under the surety bond in the amount of
P1,771,264.06. In the same judgment, the CIAC absolved PGAI from a claim against the performance bond.
The CIAC ruled that the October 16, 2000 letter of ALI to PGAI did not constitute a proper "claim" under the
performance bond.
RULING OF THE CA:

The CA found the petition of ALI meritorious and granted ALI’s petition to the effect that PGAI is hereby
pronounced solidarily liable with KRDC under the performance bond as well.
ISSUES:
1. Whether the CIAC had jurisdiction over the dispute, despite Prudential not being a party to the case, and
devoiding the judgment of the CIAC.
2. Whether the respondent made its claim on the performance bond within the period allowed by the
time-bar provision.
RULING:
1. Yes. The CIAC had jurisdiction over the case because when ALI executed the performance bond, PGAI's
undertaking thereunder was that of a surety to the obligation of KRDC, the principal under the
construction contract. PGAI should not be allowed now to insist that it had nothing to do with the
construction contract and should be viewed as a non-party. Since the liability of petitioner as surety
is solidary with that of KRDC, it was properly impleaded as it would be the party ultimately
answerable under the bond should KRDC be adjudged liable for breach of contract. Furthermore,
it is well settled that accessory contracts should not be read independently of the main contract.
They should be construed together in order to arrive at their true meaning.
D
2. Yes. The respondent made its claim within ten days from default of KRDC and not one year after when it
reiterated its claim to PGAI and took the case to the CIAC. The letter dated october 16, 2000 states:
Please be advised that we are now terminating the contract of Kraft due to the breach by Kraft of the terms and
conditions of the construction contract. More specifically, the project has accumulated very serious delays, in spite
of the full cooperation that this company has extended to Kraft.
Kindly refer to the attached letter of termination dated 16 October 2000.
Anscor Land, [Inc.] may be making claims against the said bonds and in this regard, kindly coordinate with the
following for any matter with which we can assist you with.
Engr. Teodelito de Vera
Anscor Land, Inc.
Tel. 812-7941 to 48 Fax 813-5301 Thank you for your kind attention.
The question really is whether or not the foregoing letter constituted a valid claim and effectively
complied with the time-bar provision in the performance bond. It is clear that ALI communicated two (2)
important points to PGAI in the letter. First, that ALI is terminating the construction contract with KRDC
and second, that ALI may be making a claim on the bonds issued by PGAI.
The time-bar provision in the Performance Bond provides that any claim against the bond should be
"discovered and presented to the company within ten days from the expiration of this bond or from the
occurrence of the default or failure of the principal, whichever is the earliest". The purpose of this
provision in the performance bond is to give the issuer, in this case PGAI, notice of the claim at the
earliest possible time and to afford the issuer sufficient time to evaluate, and examine the validity of the
claim while the evidence or indicators of breach are fresh. In the construction industry, time is precious,
delay costs money and postponement in making a claim could cause additional expenses.
In the case at bar, the claim of ALI against PGAI arose from the failure of KRDC to perform its
obligation under the construction contract. ALI therefore already had the "claim" or "right to
payment" against PGAI in the maximum amount of P4,700,000.00 from the moment KRDC failed
to comply with its obligation. According to the time-bar provision, in order to enforce such claim
or recover the said amount, ALI shall present its claim within ten (10) days from the occurrence of
the default or failure of KRDC. The October 16, 2000 letter was the presentation of the claim.
ALI's intent to recover its claim was communicated clearly to PGAI. By informing PGAI of the
termination of the contract with KRDC, ALI in effect presented a situation where PGAI is put on
notice that ALI in fact has a right to payment by virtue of the performance bond and it intends to
recover it. Undeniably, ALI has substantially complied with the time-bar provision of the
performance bond. WHEREFORE, the petition is DENIED.
NOTES:
1. Jurisdiction of the CIAC

Section 4 of EO No. 1008 defines the jurisdiction of the CIAC:
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 this law are disputes arising from employer-employee relationships which shall continue to be
covered by the Labor Code of the Philippines.
2. In Finasia Investments and Finance Corporation v. Court of Appeals, 24 the Court had the occasion to rule that: cTCEIS
The word "claim" is also defined as:
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of
performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured.
Anscor Land, Inc. (ALI)
Kraft Realty and Development Corporation (KRDC)
Prudential Guarantee and Assurance, Inc. (PGAI)

Construction Industry Arbitration Commission’s (CIAC)

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CASE PRUDENTIAL GUARANTEE AND ASSURANCE, INC.

GR NO.: 177240| DATE: September 8, 2010

RULING OF THE CIAC:

RULING OF THE CA:

1. Jurisdiction of the CIAC

The word "claim" is also defined as:

Anscor Land, Inc. (ALI)

Kraft Realty and Development Corporation (KRDC)

Prudential Guarantee and Assurance, Inc. (PGAI)

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