THE Supreme Court (SC) affirmed a Court of Appeals (CA) decision sustaining a lower court’s ruling against an insurance company which stemmed from a failed dredging project at the Cebu International Port in 1991.
In a decision penned by Associate Justice Diosdado Peralta, the SC’s Third Division affirmed the CA’s ruling dated September 29, 2005 and resolution dated September 25, 2006 and also denied the petition for review filed by American Home Insurance Co. of New York (American Home).
Associate Justices Antonio Carpio, Presbitero Velasco, Jr., Arturo Brion, Ma. Lourdes Sereno concurred in the decision.
In June 1990, the Philippine Ports Authority (PPA) bid off a project for dredging of the Cebu International Port’s entrance channel and harbor basin.
F.F. Cruz & Co., Inc. (FF Cruz) won the project. Based on their earlier agreement, FF Cruz and Genaro Reyes Construction, Inc. executed a Sub-Contract Agreement— the latter agreed to carry out 50% of the dredging project’s estimated volume of 600,000 cubic meters.
FF Cruz gave G. Reyes an advance payment of P2.2 million guaranteed by a surety bond for the same amount issued by American Home.
The surety bond was issued to guarantee payment of the advance payment made by FF Cruz to G. Reyes for the dredging project should the latter fail to comply with the terms and conditions of the sub-contract.
On October 21, 1991, G. Reyes complained to the PPA about the great deal of silt and waste materials that had accumulated in the area that adversely affected its work.
In December 1991, G. Reyes informed FF Cruz that the equipment used for the project had been having difficulties because of siltation problems.
G. Reyes admitted that continuing the project was no longer a wise investment and called on FF Cruz to take over the project. FF Cruz thus took over the unfinished project.
Consequently, FF Cruz demanded from American Home the payment of P2.2 million representing the amount of the bond.
When the case reached the lower court, it ordered American Home, Genaro G. Reyes Construction, Inc., “jointly and severally, to pay third-party defendant F.F. Cruz and Company the amount of P2,200,000.00...”
The ruling was also sustained by the appellate court, prompting the insurance company to elevate the case before SC.
American Home faulted the CA in considering the surety bond as a performance bond.
It insisted that the bond guaranteed only the payment of the 15% advance payment made by FF Cruz to G. Reyes amounting to P2.2 million and not the performance of the latter’s obligations nor the completion of the dredging operations.
The insurance company also averred that making it (American Home) liable under the bond because of G. Reyes’ abandonment of the project is tantamount to enlarging its liability.
