Case Digest: The Manila Insurance vs. Spouses Amurao

G.R. No. 179628 : January 16, 2013




Spouses Roberto and Aida Amurao (Sps. Amurao) entered into a Construction Contract Agreement (CCA) with Aegean Construction and Development Corp. (Aegean) for the construction of a six-storey commercial building. To guarantee its obligation, Aegean posted performance bonds secured by petitioner Manila Insurance Company, Inc. (Manila Insurance) and Intra Strata Assurance Corporation (Intra Strata). Aegean failed to comply with its obligation. Hence, the spouses filed a complaint before the RTC to enforce its claim against the sureties.

During the pre-trial, Manila Insurance and Intra Strata discovered that the CCA contained an arbitration clause. Consequently, they filed a Motion to Dismiss on the grounds of lack of cause of action and lack of jurisdiction. The RTC denied the motion to dismiss.

Manila Insurance appealed to the Court of Appeals. The CA dismissed the petition.

Hence, Manila Insurance elevated the matter to the Supreme Court.

Manila Insurance argues that it cannot be held liable as a surety because the claim of Sps. Amurao is premature. Manila Insurance contends that the dispute between the spouses and Aegean should be brought first before the CIAC for arbitration.


I. Whether or not Manila Insurance can be held liable as surety of Aegean?

II. Whether or not the RTC has jurisdiction over the dispute?


CIVIL LAW: surety’s liability

FIRST ISSUE: Manila Insurance is liable as surety.

A contract of suretyship is defined as “an agreement whereby a party, called the surety, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee.

The Court has consistently held that a surety’s liability is joint and several, limited to the amount of the bond, and determined strictly by the terms of contract of suretyship in relation to the principal contract between the obligor and the obligee.It bears stressing, however, that although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary, and absolute. But while there is a cause of action against Manila Insurance, the complaint must still be dismissed for lack of jurisdiction.

REMEDIAL LAW: arbitration

SECOND ISSUE: The CIAC has jurisdiction over the case and not the RTC.

In order for the CIAC to acquire jurisdiction two requisites must concur: “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.” In this case, both requisites are present.