G.R. No. 205007 - THE MERCANTILE INSURANCE CO., INC., VS. DMCI-LAING CONSTRUCTION, INC.,°.DECISION - Supreme Court E-Library

Ruling

WHEREFORE, the instant petition is GRANTED. The [CIAC Decision] is REVERSED and SET ASIDE. [Altech] and [Mercantile] are jointly and solidarily liable to pay [DLCI] the amount of Php31,618,494.81 representing the costs incurred by [DLCI] in completing the project and an interest at the rate of 2% per month on the said amount due from September 3, 1999 until the amount of Php31,618,494.81 is fully paid. Furthermore, a 12% interest per annum shall be imposed on the award upon the finality of this Decision until the payment thereof. [37] (Emphasis supplied; emphasis in the original omitted) The CA observed that negotiations between and among DLCI, Altech and Mercantile continued after the termination of the Sub-Contract, and that DLCI served its final written demand [38] upon Altech and Mercantile on January 20, 2003. A meeting between DLCI and Mercantile's representatives followed on January 27, 2003, where said parties mutually agreed that attempts to arrive at an amicable settlement have failed . [39] Considering the foregoing, the CA ruled that the filing of the CIAC Complaint four (4) months later, or on May 29, 2003, was done within a reasonable time. [40] The CA further held that Mercantile cannot invoke laches to evade liability in this case since the CIAC Complaint was brought within the prescriptive period of ten (10) years for filing an action upon a written contract (i.e., the Performance Bond), [41] inasmuch as DLCI's right of action only arose on January 27, 2003, when negotiations between the parties ceased. Ultimately, the CA found Mercantile liable under the Performance Bond. Citing Article 2047 of the Civil Code governing suretyship, it held: By executing the [P]erformance [B]ond, Mercantile, as surety, guaranteed the performance and completion by Altech of its sub­ contracted works, and in case of Altech's failure to complete the [P]roject according to the terms of the Sub-Contract x x x, Mercantile's liability, as surety, sets in. A careful review of the record[s] of the case revealed that Altech has reneged on its undertaking under the Sub-Contract before DLCI asked Mercantile for the liquidation of the [P]erformance [B]ond on September 3, 1999. On various dates, DLCI sent letters to Altech concerning the latter's continued poor performance and delays which seriously affected the progress of DLCI' s programmed work. DLCI mentioned that it may have no other alternative but to seek recourse through the terms of the Sub-Contract and that repair works, as well as, associated costs as a result of damage to other contractors' works due to Altech's delay shall be charged to Altech's account. Apparently, Altech had already been in default even prior to DLCI's call on the [P]erformance [B]ond. By reason of said default, liability attached to Altech and as a consequence, the liability of Mercantile as surety had arisen. By the language of the bond issued by Mercantile, it guaranteed the full and faithful compliance by Altech of its obliga