Insurance - Risks and Coverage - NPC Vs CA 1986

Insurance - Risks and Coverage
NATIONAL POWER CORPORATION vs. COURT OF APPEALS and PHILIPPINE

AMERICAN GENERAL INSURANCE CO., INC.
G.R. No. L-43706 November 14, 1986
FACTS:
The National Power Corporation (NPC) entered into a contract with the Far Eastern
Electric, Inc. (FEEI) for the erection of the Angat Balintawak transmission lines for the Angat
Hydroelectric Project. FEEI agreed to complete the work within 120 days from the signing of the
contract, otherwise it would pay NPC P200.00 per calendar day as liquidated damages, while
NPC agreed to pay the sum of P97,829.00 as consideration. The Philippine American General
Insurance Co., Inc. (Philamgen) issued a surety bond in the amount of P30,672.00 for the faithful
performance of the undertaking by FEEI. The condition of the bond provides that the liability of
Philamgen will expire one year from the final completion and acceptance and that the bond will
be cancelled 30 days after its expiration. FEEI started construction on December 26, 1962 but on
May 30, 1963, both FEEI and Philamgen wrote NPC requesting the assistance of the latter to
complete the project due to unavailability of the equipment of FEEI. The work was abandoned
on June 26, 1963, leaving the construction unfinished. On July 19, 1963 Philamgen and FEEI
informed NPC that FEEI was giving up the construction due to financial difficulties. On the
same date, NPC wrote Philamgen informing it of the withdrawal of FEEI from the work and
formally holding both FEEI and Philamgen liable for the cost of the work to be completed as of
July 20, 1962 plus damages. The work was completed by NPC on September 30, 1963. On
January 30, 1967 NPC notified Philamgen that FEEI had an outstanding obligation in the
amount of P75,019.85 and demanded the remittance of the amount of the surety bond the
answer for the cost of completion of the work. Philamgen did not pay as demanded but
contended instead that its liability under the bond has expired on September 20, 1964 and
claimed that no notice of any obligation of the surety was made within 30 days after its
expiration. NPC filed a civil case for collection of the amount of P75,019.89. Only Philamgen
answered while FEEI was declared in default. The trial court rendered judgment in favor of
NPC. On appeal by Philamgen, the Court of Appeals reversed the lower court’s decision and
dismissed the complaint.
ISSUE:
Whether or not petitioner should have given notice to respondent of any existing
obligation within 30 days from expiration of the bond to hold said surety liable thereunder.
HELD:
The petitioner claims that it has already complied with such requirement by virtue of its
notice dated July 19, 1963 of abandonment of work by FEEI and of its takeover to finish the
construction, at the same time formally holding both FEEI and Philamgen liable for the
uncompleted work and damages. The notice required in the bond within 30 days after its
expiration of any existing obligation, is applicable only in case the contractor itself had
completed the contract and not when the contractor failed to complete the work, from which
arises the continued liability of the surety under its bond as expressly provided for in the
contract.
Respondent insists that petitioner's notice dated July 19, 1983 is not sufficient despite
previous events that it had knowledge of FEEI's failure to comply with the contract and claims
that it cannot be held liable under the bond without notice within thirty days from the
expiration of the bond, that there is a subsisting obligation.
As early as May 30, 1963, Philamgen was duly informed of the failure of its principal to
comply with its undertaking. On July 19, 1963, when FEEI informed NPC that it was
abandoning the construction job, the latter forthwith informed Philamgen of the fact on the
same date. The 30-day notice adverted to in the surety bond applies to the completion of the
work by the contractor. This completion by the contractor never materialized. The surety bond
must be read in its entirety and together with the contract between NPC and the contractors.
The provisions must be construed together to arrive at their true meaning. Certain stipulations
cannot be segregated and then made to control. It is also well settled that contracts of insurance
are to be construed liberally in favor of the insured and strictly against the insurer. Thus,
ambiguity in the words of an insurance contract should be interpreted in favor of its beneficiary.
In the case at bar, it cannot be denied that the breach of contract in this case, the abandonment
of the unfinished work of the transmission line of the petitioner by the contractor Far Eastern
Electric, Inc., was within the effective date of the contract and the surety bond. Such
abandonment gave rise to the continuing liability of the bond as provided for in the contract
which is deemed incorporated in the surety bond executed for its completion. To rule therefore
that private respondent was not properly notified would be gross error.
The decision of the Court of Appeals was set aside and the decision of the lower court was
reinstated.

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Insurance - Risks and Coverage

NATIONAL POWER CORPORATION vs. COURT OF APPEALS and PHILIPPINE

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