J PLUS ASIA DEVELOPMENT CORPORATION Vs UTILITY ASSURANCE CORPORATION

J PLUS ASIA DEVELOPMENT CORPORATION vs UTILITY ASSURANCE
CORPORATION
GR No. 199650, June 26, 2013
FACTS:
 On December 24, 2007, J Plus Asia Development Corporation,

represented by its Chairman, Joo Han Lee, and Seven Shades
of Blue Trading and Services, represented by Martin Mabunay
entered into a Construction Agreement whereby the latter
undertook to build the former‟s 72-room Condotel located in
Boracay Island, Aklan.
 The Project costs Php42,000,000.00 which will be completed
within one year or 365 days reckoned from the first calendar
day after signing of the Notice of Award and Notice to
Proceed and receipt of down payment which is 20% of the
contract price. Per the agreed work schedule, the completion
date of the project was December 2008.
 Payment of balance of the contract price will be based on
actual work finished within 15 days from receipt of the monthly
progress billings
 Mabunay, also submitted the required Performance Bond,
issued by respondent Utility Assurance Corporation (UTASSCO)
in the amount equivalent to 20% DP or 8.4 Million.
 Mabunay, commenced work at the project site on January
7,2008. However, even after seven months of paid progress
billing amounting to P15,979,472.03, and on September 16, 2008
he had accomplished only 27.5% of the project. On November
14, 2008 a Joint Construction Evaluation Result and Status
Report was conducted signed and accepted as true and
accurate by both Mabunay and Joo Han Lee. The parties
concluded and agreed that the project is only Thirty One Point
Thirty Nine (31.39%) percent complete.
 On November 19,2008, petitioner terminated the contract and
sent demand letters to Mabunay and respondent surety,
UTASSCO. As its demand went unheeded petitioner filed a
Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC)
Shierly C. Ba-ad
JD 2A
CIAC_____________________________________________________
 Petitioner prayed that Mabunay and respondent surety be
ordered to pay the unliquidated damages and the
unrecouped down payment or overpayment paid to Mabunay
 Mabunay in his Answer, claimed that the delays were caused
by the retrofitting and other revision works ordered by Joo Han
Lee and the termination of the contract by the petitioner was
premature as the 365 days period of completion started only
on May 2, 2008, thus giving him until April 20,2009. UTASSCO on
the other hand, claimed that petitioner has no cause of action
against them. They argued that the performance bond merely
guaranteed the 20% down payment which was already
exhausted. UTASSCO, otherwise, filed a cross-claim against
Mabunay for the Indemnity Agreement which Mabunay
undertook to indemnify respondent for whatever amounts it
may be adjudged liable to pay petitioner under the surety
bond
 CIAC RULING - Respondents Mabunay and UTASSCO were
ordered to jointly and severally pay the unliquidated damages
and the unrecouped down payment. It being understood that
UTASSCO‟s liability shall not exceed P8.4 million. CIAC also
ordered Mabunay to indemnify UTASSCO of the amounts
UTASSCO will have paid to claimant under the decision.
CA_____________________________________________________
 The CA assailed CIAC decision that the specific condition in the
Performance Bond did not clearly state the limitation of the
surety‟s liability, thus, should be construed in favour of the
petitioner
 However, the CA reversed the CIAC‟s ruling that Mabunay had
incurred delay which entitle petitioner to the stipulated
liquidated damages and unrecouped down payment. It held
that it is only from December 24,2008 (completion date) that
default should be reckoned with because the Construction
Agreement provided only for delay in the completion of the
project and not delay on a monthly basis using the work
schedule as reference point. Hence, petitioner‟s termination of
the contract was premature and obligation was not yet
demandable.
Shierly C. Ba-ad
JD 2A
ISSUES
1. Whether or not the Court of Appeals erred in not holding the

Alternative Dispute Resolution Act and the Special Rules on
Alternative Dispute Resolution have stripped the Court of Appeals
of Jurisdiction to Review Arbitral Awards
2. Whether or not, the Court of Appeals erred in deciding the case

upon an issue not raised or litigated before the CIAC.
RULING
Whether or not the Court of Appeals erred in not holding the

Alternative Dispute Resolution Act and the Special Rules on
Alternative Dispute Resolution have stripped the Court of Appeals of
Jurisdiction to Review Arbitral Awards
EO 1008 vests upon the CIAC 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. By Express provision of Section
19 thereof, the arbitral award of the CIAC I final and unappealable,
except on questions of law, which are appealable to the Supreme
Court. With the amendments introduce by RA 7902 and
promulgation of the 1997 Rules of Civil Procedure, the CIAC was
included in the enumeration of quasi-judicial agencies whose
decisions or awards may be appealed to the CA in a petition for
review under Rule 43.
Additionally, Section 18 of the CIAC Revised Rules of Procedure

Governing Construction Arbitration, reads:
„ SECTION 18.2 Petition for review – A petition for review from a

final award may be taken by ay of the parties within 15 days from
receipt thereof in accordance with the provisions of Rule 43 of the
Rules of court‟
Shierly C. Ba-ad
JD 2A
Whether or not, the Court of Appeals erred in deciding the case
upon an issue not raised or litigated before the CIAC.
 Whether or not, Mabunay is in default
Contrary to CIAC‟s findings, the CA opined that delay should

be reckoned only after the lapse of the one-year contract period
and consequently Mabunay‟s liability for liquidated damages
arises only upon the happening of such condition.
Default or mora on the part of the debtor is the delay in the

fulfilment of the prestation by reason of a cause imputable to the
former. It is the nonfulfillment of an obligation with respect to time.
In this jurisdiction, the following requisites must be present in order
that the debtor may be in default: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance
judicially or extrajudicially.
Here, the work schedule approved by petitioner was intended,

not only to serve as its basis for the payment of monthly progress
billings, but also for evaluation of the progress of work by the
contractor. Article 13.01 (g) (iii) of the Construction Agreement
provides that the contractor shall be deemed in default if, among
others, it had delayed without justifiable cause the completion of
the project “by more than thirty (30) calendar days based on
official work schedule duly approved by the OWNER.”
The contractor‟s default in this case pertains to his failure to
substantially perform the work on account of tremendous delays
in executing the scheduled work activities. Where a party to a
building construction contract fails to comply with the duty
imposed by the terms of the contract, a breach results for which
an action may be maintained to recover the damages sustained
thereby, and of course, a breach occurs where the contractor
inexcusably fails to perform substantially in accordance with the
terms of the contract.
Shierly C. Ba-ad
JD 2A
 Whether or not respondent surety bond, UTASSCO, is
liable for the breach committed by Mabunay
The Court opined, that the Performance bond

guaranteed the full and faithful compliance of Mabunay‟s
obligations under the Construction Agreement, and that
nowhere in law or jurisprudence does it state that the
obligation or undertaking by a surety may be apportioned.
By its nature, a performance bond guarantees that the

contractor will perform the contract, and usually provides that if
the contractor defaults and fails to complete the contract, the
surety can itself complete the contract or pay damages up to
the limit of the bond. Moreover, the rule is that if the language
of the bond is ambiguous or uncertain it will be construed most
strongly against the compensated surety and in favour of the
obliges or beneficiaries under the bond, in case petitioner as
the Project Owner, for whose benefit it was ostensibly
executed.
Hence, the award made by the Construction Industry Arbitration

Commission was reinstated with modification.
Shierly C. Ba-ad
JD 2A

J PLUS ASIA DEVELOPMENT CORPORATION Vs UTILITY ASSURANCE CORPORATION

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J PLUS ASIA DEVELOPMENT CORPORATION vs UTILITY ASSURANCE

 On December 24, 2007, J Plus Asia Development Corporation,

1. Whether or not the Court of Appeals erred in not holding the

2. Whether or not, the Court of Appeals erred in deciding the case

Whether or not the Court of Appeals erred in not holding the

EO 1008 vests upon the CIAC original and exclusive jurisdiction

Additionally, Section 18 of the CIAC Revised Rules of Procedure

„ SECTION 18.2 Petition for review – A petition for review from a

 Whether or not, Mabunay is in default

Contrary to CIAC‟s findings, the CA opined that delay should

Default or mora on the part of the debtor is the delay in the

Here, the work schedule approved by petitioner was intended,

The Court opined, that the Performance bond

By its nature, a performance bond guarantees that the

Hence, the award made by the Construction Industry Arbitration

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