G.R. No.

185066 October 2, 2009

PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner,

vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Respondent.

RESOLUTION

BRION, J.:

Petitioner Philippine Charter Insurance Corporation (PCIC) submits the present motion for the reconsideration1 of our Resolution dated
December 17, 2008, which denied due course to its petition for review on certiorari.2 It seeks to reinstate the petition and effect a
reversal of the Court of Appeals (CA) Decision3 and Resolution4 dated January 7, 2008 and October 29, 2008, respectively, in CA-G.R.
CV No. 86948. In its petition, the petitioner imputes reversible error on the appellate court for ruling that it is liable under PCIC Bond No.
27547 and under PCIC Bond No. 27546, as the latter bond was not covered by the complaint for collection of sum of money filed by
respondent Philippine National Construction Corporation (PNCC).5

The facts, as drawn from the records, are briefly summarized below.

PNCC is engaged in the construction business and tollway operations. On October 16, 1997, PNCC conducted a public bidding for the
supply of labor, materials, tools, supervision, equipment, and other incidentals necessary for the fabrication and delivery of 27 tollbooths
to be used for the automation of toll collection along the expressways. Orlando Kalingo (Kalingo) won in the bidding and was awarded
the contract.

On November 13, 1997, PNCC issued – in favor of Kalingo – Purchase Order (P.O.) No. 71024L for 25 units of tollbooths for a total of
₱2,100,000.00, and P.O. No. 71025L for two units of tollbooths amounting to ₱168,000.00. These issuances were subject to the
condition, among others, that each P.O. shall be covered by a surety bond equivalent to 100% of the total down payment (50% of the
total cost reflected on the P.O.), and that the surety bond shall continue in full force until the supplier shall have complied with all the
undertakings and covenants to the full satisfaction of PNCC.

Kalingo, hence, posted surety bonds – Surety Bond Nos. 27546 and 27547 – issued by the PCIC and whose terms and conditions
read:

Surety Bond No. 27546

To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the fabrication and delivery of Two (2)
Units Toll Booth at San Fernando Interchange SB Entry as per Purchase Order No. 71025L, copy of which is attached as Annex "A."
This bond also guarantees the repayment of the down payment or whatever balance thereof in the event of failure on the part of the
Principal to finish the project due to his own fault.

It is understood that the liability of the Surety under this bond shall in no case exceed the sum of P84,000.00, Philippine Currency. 6

Surety Bond No. 27547

To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the fabrication and delivery of Twenty-five
(25) Units Toll Booth at designated Toll Plaza as per Purchase Order No. 71024L, copy of which is attached as Annex "A." This bond
also guarantees the repayment of the down payment or whatever balance thereof in the event of failure on the part of the Principal to
finish the project due to his own fault.

It is understood that the liability of the Surety under this bond shall in no case exceed the sum of P1,050,000.00, Philippine Currency. 7

To illustrate, the PCIC surety bonds are in the amounts corresponding to down payments on each P.O., as follows:

Surety Bond No. Purchase Order Units Total Cost Surety

Covered Amount (equivalent to
50% down payment)
Bond No. 27547 P.O. No. 71024L 25 P2,100,000 P1,050,000
Bond No. 27546 P.O. No. 71025L 2 P 168,000 P 84,000

Both surety bonds also contain the following conditions: (1) the liability of PCIC under the bonds expires on March 16, 1998; and (2) a
written extrajudicial demand must first be tendered to the surety, PCIC, within 15 days from the expiration date; otherwise
PCIC shall not be liable thereunder and the obligee waives the right to claim or file any court action to collect on the
bond. The following stipulation appears in the last paragraph of these bonds:

The liability of PHILIPPINE CHARTER INSURANCE CORPORATION under this bond will expire on March 16, 1998. Furthermore, it is
hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not be liable for any claim not
presented to it in writing within FIFTEEN (15) DAYS from the expiration of this bond, and that the Obligee hereby waives its
right to claim or file any court action against the Surety after the termination of FIFTEEN (15) DAYS from the time its cause of
action accrues.8 (Emphasis supplied.)

PNCC released two checks to Kalingo representing the down payment of 50% of the total project cost, which were properly receipted
by Kalingo.9 Kalingo in turn submitted the two PCIC surety bonds securing the down payments, which bonds were accepted by PNCC.

On March 3, 4, and 5, 1998, Kalingo made partial/initial delivery of four units of tollbooths under P.O. No. 71024L. However, the
tollbooths delivered were incomplete or were not fabricated according to PNCC specifications. Kalingo failed to deliver the other 23
tollbooths up to the time of filing of the complaint; despite demands, he failed and refused to comply with his obligation under the POs.

On March 9, 1998, six days before the expiration of the surety bonds and after the expiration of the delivery period provided for under
the award, PNCC filed a written extrajudicial claim against PCIC notifying it of Kalingo’s default and demanding the repayment of the
down payment on P.O. No. 71024L as secured by PCIC Bond No. 27547, in the amount of ₱1,050,000.00. The claim went unheeded
despite repeated demands. For this reason, on April 24, 2001, PNCC filed with the Regional Trial Court (RTC), Mandaluyong City a
complaint for collection of a sum of money against Kalingo and PCIC. 10 PNCC's complaint against PCIC called solely on PCIC Bond No.
27547; it did not raise or plead collection under PCIC Bond No. 27546 which secured the down payment of ₱84,000.00 on P.O. No.
71025L.

PCIC, in its answer, argued that the partial delivery of four out of the 25 units of tollbooth by Kalingo under P.O. No. 71024L should
reduce Kalingo's obligation.

The RTC, by Decision of October 31, 2005, ruled in favor of PNCC and ordered PCIC and Kalingo to jointly and severally pay the latter
₱1,050,000.00, representing the value of PCIC Bond No. 27547, plus legal interest from last demand, and ₱50,000.00 as attorney's
fees. Reconsideration of the trial court's decision was denied. The trial court made no ruling on PCIC’s liability under PCIC Bond No.
27546, a claim that was not pleaded in the complaint.

On appeal, the CA, by Decision11 of January 7, 2008, held that the RTC erred in ruling that PCIC's liability is limited only to the payment
of ₱1,050,000.00 under PCIC Bond No. 27547 which secured the down payment on P.O. No. 71024L. The appellate court held
that PCIC, as surety, is liable jointly and severally with Kalingo for the amount of the two bonds securing the two POs to Kalingo; thus,
the CA also held PCIC liable under PCIC Bond No. 27546 which secured the ₱84,000.00 down payment on P.O. No. 71025L.

Reconsideration having been denied by the appellate court in its Resolution 12 of October 29, 2008, the PCIC lodged a petition for review
on certiorari13 before this Court.

The Court, by Resolution of December 17, 2008, denied due course to the petition. 14 Hence, the PCIC filed the present motion for
reconsideration submitting the following issues for our resolution:

I. WHETHER THE APPELLATE COURT ERRED IN RULING THAT PCIC SHOULD ALSO BE HELD LIABLE UNDER BOND
NO. 27546, COLLECTION UNDER WHICH WAS NOT SUBJECT OF RESPONDENT PNCC's COMPLAINT FOR
COLLECTION OF SUM OF MONEY;

II. WHETHER THE CHECKS ISSUED IN "1997" BY RESPONDENT PNCC TO KALINGO WERE GIVEN 10 MONTHS PRIOR
TO THE AWARD OF THE PROJECT AND AMOUNTS TO CONCEALMENT OF MATERIAL FACT VITIATING THE SURETY
BONDS ISSUED BY THE PETITIONER; and

III. WHETHER THE APPELLATE COURT ERRED IN HOLDING PETITIONER PCIC LIABLE FOR ATTORNEY'S FEES.

The second issue is a factual matter not proper in proceedings before this Court. The PCIC’s position that the checks were issued 10
months prior to the award had already been rejected by both the RTC and the CA; both found that the year "1997" appearing on the
checks was a mere typographical error which should have been written as "1998." 15 Consequently, we shall no longer discuss the
PCIC's allegation of material concealment; the factual findings of the RTC, as affirmed by the CA, are conclusive on us.

Our consideration shall focus on the remaining two issues.

The PCIC presents, as its first issue, the argument that "[w]hen the Court of Appeals rendered judgment on Bond No. 27546, which
was not subject of respondent's complaint, on the ground that respondent was incorrect in not filing suit for Bond No. 27546, the Court
of Appeals virtually acted as lawyer for respondent."16

We find the PCIC’s position meritorious.

The issue before us calls for a discussion of a court’s basic appreciation of allegations in a complaint. The fundamental rule is that
reliefs granted a litigant are limited to those specifically prayed for in the complaint; other reliefs prayed for may be granted only when
related to the specific prayer(s) in the pleadings and supported by the evidence on record. Necessarily, any such relief may be granted
only where a cause of action therefor exists, based on the complaint, the pleadings, and the evidence on record.

Section 2, Rule 2 of the 1997 Rules of Civil Procedure defines a cause of action as the act or omission by which a party violates the
right of another. It is the delict or the wrongful act or omission committed by the defendant in violation of the primary right of the
plaintiff.17 Its essential elements are as follows:

1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;

2. An obligation on the part of the named defendant to respect or not to violate such right; and

3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may maintain an action for recovery of damages or other appropriate relief. 18

Only upon the occurrence of the last element does a cause of action arise, giving the plaintiff the right to maintain an action in court for
recovery of damages or other appropriate relief.19

Each of the surety bonds issued by PCIC created a right in favor of PNCC to collect the repayment of the bonded down payments
made on the two POs if contractor Kalingo defaults on his obligation under the award to fabricate and deliver to PNCC the tollbooths
contracted for. Concomitantly, PCIC, as surety, had the obligation to comply with its undertaking under the bonds to repay PNCC the
down payments the latter made on the POs if Kalingo defaults.

It must be borne in mind that each of the two bonds is a distinct contract by itself, subject to its own terms and conditions. They each
contain a provision that the surety, PCIC, will not be liable for any claim not presented to it in writing within 15 days from the expiration
of the bond, and that the obligee (PNCC) thereby waives its right to claim or file any court action against the surety (PCIC) after the
termination of 15 days from the time its cause of action accrues. This written claim provision creates a condition precedent for the
accrual of: (1) PCIC’s obligation to comply with its promise under the particular bond, and of (2) PNCC's right to collect or sue
on these bonds. PCIC’s liability to repay the bonded down payments arises only upon PNCC's filing of a written claim –
notifying PCIC of principal Kalingo’s default and demanding collection under the bond – within 15 days from the bond’s
expiry date. PNCC’s failure to comply with the written claim provision has the effect of extinguishing PCIC’s liability and
constitutes a waiver by PNCC of the right to claim or sue under the bond.

Liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We have repeatedly
held that the extent of a surety's liability is determined only by the clause of the contract of suretyship and by the conditions stated in
the bond. It cannot be extended by implication beyond the terms of the contract. 20 Equally basic is the principle that obligations arising
from contracts have the force of law between the parties and should be complied with in good faith. 21 Nothing can stop the parties from
establishing stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.22 Here, nothing in the records shows the invalidity of the written claim provision; therefore,
the parties must strictly and in good faith comply with this requirement.

The records reveal that PNCC complied with the written claim provision, but only with respect to PCIC Bond No. 27547. PNCC filed an
extrajudicial demand with PCIC informing it of Kalingo’s default under the award and demanding the repayment of the bonded down
payment on P.O. No. 71024L. Conversely, nothing in the records shows that PNCC ever complied with the provision with respect to
PCIC Bond No. 27546. Why PNCC complied with the written claim provision with respect to PCIC Bond No. 27547, but not with respect
to PCIC Bond No. 27546, has not been explained by PNCC. Under the circumstances, PNCC’s cause of action with respect to
PCIC Bond No. 27546 did not and cannot exist, such that no relief for collection thereunder may be validly awarded.

Hence, the trial court’s decision finding PCIC liable solely under PCIC Bond No. 27547 is correct – not only because collection
under the other bond, PCIC Bond No. 27546, was not raised or pleaded in the complaint, but for the more important reason
that no cause of action arose in PNCC’s favor with respect to this bond. Consequently, the appellate court was in error for
including liability under PCIC Bond No. 27546.

PNCC insists that conformably with the ruling of the CA, it should be entitled to collection under PCIC Bond No. 27546, although
collection thereunder was not specifically raised or pleaded in its complaint, because the bond was attached to the complaint and
formed part of the records. Also, considering that PCIC’s liability as surety has been duly proven before the trial and appellate courts,
PNCC posits that it is entitled to repayment under PCIC Bond No. 27546.

PNCC might be alluding to Section 2(c), Rule 7 of the Rules of Court, which provides that a pleading shall specify the relief sought, but
may add a general prayer for such further or other reliefs as may be deemed just and equitable. Under this rule, a court can grant the
relief warranted by the allegation and the proof even if it is not specifically sought by the injured party; 23 the inclusion of a general prayer
may justify the grant of a remedy different from or together with the specific remedy sought, 24 if the facts alleged in the complaint and
the evidence introduced so warrant.25

We find PNCC’s argument to be misplaced. A general prayer for "other reliefs just and equitable" appearing on a complaint or pleading
normally enables the court to award reliefs supported by the complaint or other pleadings, by the facts admitted at the trial, and by the
evidence adduced by the parties, even if these reliefs are not specifically prayed for in the complaint. We cannot, however, grant PNCC
the "other relief" of recovering under PCIC Bond No. 27546 because of the respect due the contractual stipulations of the parties. While
it is true that PCIC’s liability under PCIC Bond No. 27546 would have been clear under ordinary circumstances (considering that
Kalingo's default under his contract with PNCC is now beyond dispute), it cannot be denied that the bond contains a written claim
provision, and compliance with it is essential for the accrual of PCIC’s liability and PNCC’s right to collect under the bond.

As already discussed, this provision is the law between the parties on the matter of liability and collection under the bond. Knowing fully
well that PCIC Bond No. 27546 is a matter of record, duly proven and susceptible of the court’s scrutiny, the trial and appellate courts
must respect the terms of the bond and cannot just disregard its terms and conditions in the absence of any showing that they are
contrary to law, morals, good customs, public order, or public policy. For its failure to file a written claim with PCIC within 15 days from
the bond’s expiry date, PNCC clearly waived its right to collect under PCIC Bond No. 27546. That, wittingly or unwittingly, PNCC did not
collect under one bond in favor of calling on the other creates no other conclusion than that the right to collect under the former had
been lost. Consequently, PNCC’s cause of action with respect to PCIC Bond No. 27546 cannot juridically exist and no relief therefore
may be validly given. Hence, the CA invalidly rendered judgment with respect to PCIC Bond No. 27546, and its award based on this
bond must be deleted.

On the third issue, we hold that PCIC should be held liable for the attorney's fees PNCC incurred in bringing suit. PCIC’s unjust refusal
to pay despite PNCC’s written claim compelled the latter to hire the services of an attorney to collect on PCIC Bond No. 27547.

WHEREFORE, premises considered, we SET ASIDE our Resolution of December 17, 2008 and GRANT the present motion for
reconsideration. The petition for review on certiorari is PARTLY GRANTED. The assailed Court of Appeals Decision of January 7,
2008 and Resolution of October 29, 2008 are hereby AFFIRMED with MODIFICATION, deleting petitioner PCIC's liability under PCIC
Bond No. 27546. All other matters in the assailed Court of Appeals decision and resolution are AFFIRMED.

SO ORDERED.