Philippine Pryce Assurance Corporation v. CA and Gegroco, Inc. G.R. No.

107062 February 21, 1994 FACTS: The complaint alleged that petitioner Interworld Assurance Corporation (now Philippine Pryce Assurance Corporation) issued two surety bonds in behalf of its principal Sagum General Merchandise Petitioner admitted having executed the bonds, but denied liability because allegedly: 1. The checks which were to pay for the premiums bounced and were dishonored hence there is no contract to speak of between petitioner and its supposed principal; and 2. The bonds were merely to guarantee payment of its principal's obligation, thus, excussion is necessary The Insurance Code states that: o Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. . . . (emphasis added) Petitioner asserts that the above provision is not applicable because the respondent allegedly had not accepted the surety bond, hence could not have delivered the goods to Sagum Enterprises. ISSUE: W/N petitioner should be liable for the surety bond that it issued as payment for the premium HELD: Yes In the first place, petitioner, in its answer, admitted to have issued the bonds subject matter of the original action. Secondly, the testimony of Mr. Leonardo T. Guzman, witness for the respondent, reveals the following: Q. What are the conditions and terms of sales you extended to Sagum General Merchandise? A. First, we required him to submit to us Surety Bond to guaranty payment of the spare parts to be purchased. Then we sell to them on 90 days credit. Also, we required them to issue post-dated checks. Q. Did Sagum General merchandise comply with your surety bond requirement? A. Yes. They submitted to us and which we have accepted two surety bonds. Q Will you please present to us the aforesaid surety bonds? A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000 dated July 24, 1987 and Interworld Assurance Corp. Surety Bond No. 0037 for P1,000.000 dated October 7, 1987. Petitioner's defense that it did not have authority to issue a Surety Bond when it did is an admission of fraud committed against respondent. No person can claim benefit from the wrong he himself committed.

A representation made is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon.

AFP GENERAL INSURANCE vs MOLINA FACTS: Respondents are the complainants in a case for illegal dismissal, filed against Radon Security & Allied Services Agency and/or Raquel Aquias and Ever Emporium, Inc. Labor Arbiter ruled that the private respondents were illegally dismissed and ordered Radon Security to pay them separation pay, backwages, and other monetary claims. Radon Security appealed decision to public respondent NLRC and posted a supersedeas bond, issued by herein petitioner AFPGIC as surety. NLRC affirmed with modification the decision of the Labor Arbiter. When the Decision of the NLRC became final and executory, private respondents filed an Urgent Motion for Execution. As a result, the NLRC Research and Information Unit submitted a Computation of the Monetary Awards in accordance with the NLRC decision. Radon Security opposed said computation in its Motion for Recomputation. The Labor Arbiter issued a Writ of Execution incorporating the computation of the NLRC Research and Information Unit. That same date, the Labor Arbiter dismissed the Motion for Recomputation filed by Radon Security. By virtue of the writ of execution, the NLRC Sheriff issued a Notice of Garnishment against the supersedeas bond. Both Ever Emporium, Inc. and Radon Security moved to quash the writ of execution. Both denied. AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGICs Appeal Bond on the ground that said bond has been cancelled and thus non-existent in view of the failure of Radon Security to pay the yearly premiums. Labor Arbiter denied AFPGICs Omnibus Motion for lack of merit. The Labor Arbiter pointed out that the question of non-payment of premiums is a dispute between the party who posted the bond and the insurer; to allow the bond to be cancelled because of the non-payment of premiums would result in a factual and legal absurdity wherein a surety will be rendered nugatory by the simple expedient of nonpayment of premiums. Petitioner Contentions: that under Section 64 of the Insurance Code, which is deemed written into every insurance contract or contract of surety, an insurer may cancel a policy upon non-payment of the premium. Said cancellation is binding upon the beneficiary as the right of a beneficiary is subordinate to that of the insured. Respondents contentions: that inasmuch as a supersedeas bond was posted for the benefit of a third person to guarantee that the money judgment will be satisfied in case it is affirmed on appeal, the third person who stands to benefit from said bond is entitled to notice of its cancellation for any reason. Likewise, the NLRC should have been notified to enable it to take the proper action under the circumstances. The respondents submit that from its very nature, asupersedeas bond remains effective

and the surety liable thereon until formally discharged from said liability. To hold otherwise would enable a losing party to frustrate a money judgment by the simple expedient of ceasing to pay premiums. ISSUE: Whether or not CA gravely abused its discretion when it arbitrarily ignored the fact that subject appeal bond was already cancelled for non-payment of premium and thus it could not be subject of execution or garnishment. HELD: Yes RATIO: The controversy before the Court involves more than just the mere application of the provisions of the Insurance Code to the factual circumstances. This instant case, after all, traces its roots to a labor controversy involving illegally dismissed workers. It thus entails the application of labor laws and regulations. Recall that the heart of the dispute is not an ordinary contract of property or life insurance, but an appeal bond required by both substantive and adjective law in appeals in labor disputes. Said provisions mandate that in labor cases where the judgment appealed from involves a monetary award, the appeal may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company accredited by the NLRC. The perfection of an appeal by an employer only upon the posting of a cash or surety bond clearly and categorically shows the intent of the lawmakers to make the posting of a cash or surety bond by the employer to be the exclusive means by which an employers appeal may be perfected. Note that Rule VI, Section 6 categorically states that the cash or surety bond posted in appeals involving monetary awards in labor disputes shall be in effect until final disposition of the case. This could only be construed to mean that the surety bond shall remain valid and in force until finality and execution of judgment, with the resultant discharge of the surety company only thereafter, if we are to give teeth to the labor protection clause of the Constitution. To construe the provision any other way would open the floodgates to unscrupulous and heartless employers who would simply forego paying premiums on their surety bond in order to evade payment of the monetary judgment. The Court cannot be a party to any such iniquity. Moreover, the Insurance Code supports the private respondents arguments. The petitioners reliance on Sections 64 and 77 of the Insurance Code is misplaced. The said provisions refer to insurance contracts in general. The instant case pertains to a surety bond; thus, the applicable provision of the Insurance Code is Section 177, which specifically governs suretyship. It provides that a surety bond, once accepted by the obligee becomes valid and enforceable, irrespective of whether or not the premium has been paid by the obligor. The private respondents, the obligees here, accepted the bond posted by Radon Security and issued by the petitioner. Hence, the bond is both valid and enforceable. A verbis legis non est recedendum (from the language of the law there must be no departure).

When petitioner surety company cancelled the surety bond because Radon Security failed to pay the premiums, it gave due notice to the latter but not to the NLRC. By its failure to give notice to the NLRC, AFPGIC failed to acknowledge that the NLRC had jurisdiction not only over the appealed case, but also over the appeal bond. This oversight amounts to disrespect and contempt for a quasi-judicial agency tasked by law with resolving labor disputes. Until the surety is formally discharged, it remains subject to the jurisdiction of the NLRC. Our ruling, anchored on concern for the employee, however, does not in any way seek to derogate the rights and interests of the petitioner as against Radon Security. The former is not devoid of remedies against the latter. Under Section 176 of the Insurance Code, the liability of petitioner and Radon Security is solidary in nature. There is solidary liability only when the obligation expressly so states, or when the law so provides, or when the nature of the obligation so requires. Since the law provides that the liability of the surety company and the obligor or principal is joint and several, then either or both of them may be proceeded against for the money award. The Labor Arbiter directed the NLRC Sheriff to garnish the surety bond issued by the petitioner. The latter, as surety, is mandated to comply with the writ of garnishment, for as earlier pointed out, the bond remains enforceable and under the jurisdiction of the NLRC until it is discharged. In turn, the petitioner may proceed to collect the amount it paid on the bond, plus the premiums due and demandable, plus any interest owing from Radon Security. This is pursuant to the principle of subrogation enunciated in Article 2067 of the Civil Code which we apply to the suretyship agreement between AFPGIC and Radon Security, in accordance with Section 178 of the Insurance Code. Reparations Com. v. Universal Deep Sea Fishing 83 SCRA 764 (1978) TOPIC: Suretyship FACTS: Universal Deep-Sea Fishing Corp was awarded 6 trawl boats by the Reparations Commission as end-user of reparation goods M/S UNIFISH 1 and 2, with the price of P536,428.44, were delivered to UNIVERSAL on Nov 20, 1958 The Contract of Conditional Purchase and Sale of Reparations Goods, on Feb 12, 1960, provided that the first installment representing 10% (P53,642.84) shall be paid within 24 months from the date of complete delivery To guarantee the faithful compliance, a performance bond in the amount of P53,643 was executed in favor of Reparations Com. With UNIVERSAL as principal and Manila Surety & Fidelity Co as surety M/S UNIFISH 3 and 4 (P687,777.76) were delivered on April 20, 1959 and Contract of Conditional Purchase and Sale Reparation Goods was also made on Nov 25, 1959 and a performance bond of 68,777.77 was issued by Manila Surety M/S UNIFISH 5 and 6, covered by a contract for the Utilization of Reparation Goods was executed on Feb 12, 1960. Performance bond was issued and an indemnity agreement was executed by UNIVERSAL in favor of surety company On Aug. 10, 1962, petitioner filed a case against UNIVERSAL and surety company to recover the various amounts due UNIVERSAL said that the money are not yet due and demandable

Surety company said that action is premature, and set up a cross-claim against UNIVERSAL for reimbursement Surety Company filed a third-party complaint against Sarmiento, one of the indemnitors but Sarmiento said that he signed the agreement as acting general manager of UNIVERSAL

The surety hereunder waives notice of default and expressly agrees that it shall not be necessary for the Manila Ylang Ylang Distillery, Ltd. to proceed against the Principal upon his default or to exhaust the property of said Principal, before proceeding against the surety, the Surety's liability under this bond being a primary one and shall be eligible and demandable immediately upon occurrence of such default. (p. 16, R.O.A.) To secure the surety against loss arising from the surety bond, plaintiff executed a second mortgaged over the properties which were transferred by the Manila Ylang Ylang Distillery to plaintiff. When the first installment of P50,000 became due on June 30, 1950, the surety, defendant-appellee, did not have funds to pay the same, and neither did it have funds to pay the second installment of P40,000 which became due on June 30, 1951. So the complaint was filed by the Manila Ylang Ylang Distillery on November 16, 1950, and a supplemental complaint was later filed on January 2, 1952, to include the second installment of P40,000 then already due. The defendant had no funds with which to pay either the P50,000 or the P40,000 due under the agreement and the only amount it was able to raise was P20,000. And that was paid to Manila Ylang Ylang Distillery on account. As defendant surety had no money with which to respond for the obligation, plaintiff made an arrangement with the Philippine National Bank, whereby he would mortgage the same properties to the latter in order to raise the amount needed to pay the amount of the loan. The Philippine National Bank wanted that defendant surety cancel the second mortgage executed in its favor by Arranz, but the defendant refused to do so unless Arranz pay to it the following sums: (a) P20,000, the partial payment made to the Manila Ylang Ylang Distillery on account of the latter's judgment credit; (b) P3,045.12 from December 31, 1950 to December 31, 1954; (c) (c)P7,691.09, including renewal premium on Bond No. 8674, from November 25, 1950 to November 25, 1954, and incidental expenses and interests; (d) P10,000, for attorney's fees, and (e) P25,000, to be held by defendant in trust to answer for an alleged contingent liability of the Manila Ylang Ylang Distillery to it. As the plaintiff feared that the credit accommodation he sought from the Philippine National Bank could not be secured without release by the surety of its second mortgage, Arranz paid the above amounts except the P25,000, and thereupon the second mortgage executed in favor of surety, defendant-appellee, was cancelled. The complaint seeks to recover (a) P7,200, the premiums corresponding to the period from November 25, 1950 to November 25, 1954; and (b) P7,000 representing attorney's fees. Arranz claims that these two amounts were never due and owing to the defendant surety and that he paid it against his will in order to be able to save the properties from loss and obtain the credit accommodation from the Philippine National Bank.

ISSUE: WoN judgment, first installments under judgment, 3 contracts of conditional purchase and sale of reparations goods were already due and demandable when judgment complaint was filed? RULING: (YES) The terms of the contracts for the purchase and sale of the reparations vessels are very clear and leave no doubt as to the intent of the contracting parties In the contract concerning the M/S UNIFISH 1 and M/S UNIFISH 2, the parties expressly agreed that the first installment representing 10% of the purchase price shall be paid within 24 months from the date of complete delivery of the vessel or on May 8, 1961, and the balance to be paid in ten (10) equal yearly installments. while judgment, first installments on judgment, M/S UNIFISH 3 and M/S UNIFISH 4, and judgment, M/S UNIFISH 5 and M/S UNIFISH 6 in judgment, amounts of P68,777.77 and P54,500.00 were due on July 31, 1961 and October 17, 1961, respectively six (6) reparations vessels was already due and demandable when the present action was commenced on August 10, 1962 The payment of premiums on the bonds to the surety company had been expressly undertaken by UNIVERSAL in the indemnity agreements executed by it in favor of judgment, surety company The premium is judgment, consideration for furnishing judgment, bonds and judgment, obligation to pay judgment, same subsists for as long as judgment, liability of judgment, surety shall exist. Hence, UNIVERSAL should pay judgment, amount of P7,251.42 to judgment, surety company. We find no merit in judgment, claim of judgment, third-party defendant Pablo S. Sarmiento that he is not personally liable having merely executed judgment, indemnity agreements in his capacity as acting general manager of UNIVERSAL. Pablo S. Sarmiento appears to have signed the indemnity agreement twice the first, in this capacity as acting general manager of UNIVERSAL, and the second, in his individual capacity. Besides, the "acknowledgment" stated that "Pablo S. Sarmiento for himself and on behalf of Universal Deep-Sea Fishing Corporation" personally appeared before the notary and acknowledged that judgment, document is his own free and voluntary act and deed.

Arranz v. Manila Fidelity, 101 Phil. 272 (1957) FACTS: On November 25, 1949, the defendant appellee Manila Fidelity & Surety Co., executed and delivered to the Manila Ylang Ylang Distillery a surety bond, by virtue of which defendantappellee, as surety, understood to pay jointly and severally with plaintiff as principal, the sum of P90,000. The surety bond executed by Arranz and the defendant-appellee contains the following stipulation:

ISSUE: Whether or not Arranz can recover (a) P7,200, the premiums corresponding to the period from November 25, 1950 to November 25, 1954; and (b) P7,000 representing attorney's fees claiming that these two amounts were never due and owing to the defendant surety RULING: There is no allegation in the complaint or in any other paper in the case that the surety promised the principal that it will pay the loan or obligation contracted by the principal (plaintiff herein) for the latter's account. In the contract of suretyship the creditor was given the right to sue the principal, or the latter and the surety at the same time. This does not imply, however, that the surety covenanted or agreed with the principal that it will pay the loan for the benefit of the principal. Such a promise is not implied by law either. Plaintiff, therefore, cannot claim that there has been a breach on the part of the surety of any obligation it has made or undertaken under the suretyship contract. And the failure or refusal of the surety to pay the debt for the principal's account did not have the effect of relieving the principal of his obligation to pay the premium on the bond furnished. The premium is the consideration for furnishing the bond or the guaranty. While the liability of the surety to the obligee subsists the premium is collectible from the principal. Under the terms of the contract of suretyship the surety's obligation is that the principal pay the loan and the interest thereon, and that the surety shall be relieved of his obligation when the loan or obligation secured is paid. Now, therefore, if the above abounded Principal shall pay promptly said installments and interest thereon and shall in all respects do and fully observe all and singular the covenants, agreements and conditions as provided for in the aforesaid agreement of November 21, 1949, Annexes "A" and "B" respectively, to the true intent and meaning thereof, this obligation shall be null and void, otherwise, it shall remain in full force and effect. (p. 16, R.O.A..) As the loan and interest remained unpaid the surety continued to be bound to the creditorobligee, and as a corollary its right to collect the premium on the bond also continued. Plaintiff-appellant, therefore, cannot excuse himself from the payment of the premium on the bond upon the failure or refusal of the surety to pay the loan and the interest. Even if, therefore, the payment of the premium were against his will, still plaintiff-appellant has no cause of action for the return thereof, because the surety was entitled thereto. CAPITAL INSURANCE & SURETY CO., INC., herein represented by its General Agent, the PAN AMERICAN INSURANCE AGENCIES, INC., plaintiff-appellant, v. RONQUILLO TRADING and JOSE L. BAUTISTA, defendants-appellees. FACTS Capital Surety and Insurance Co., Inc., thru its general agent, executed and issued a surety bond in behalf of Ronquillo Trading and in favor of S.S. Eurygenes, its master, and/or its agents, Delgado Shipping Agencies. The bond was a guarantee for any additional freight which may be determined to be due on a cargo of 258 surplus army vehicles consigned

from Pusan, Korea to the Ronquillo Trading on board the S.S. Eurygenes and booked on said vessel by the Philippine Merchants Steamship Company, Inc. In consideration for the issuance by the appellant of the aforesaid surety bond the appellees executed an indemnity agreement whereby among other things, they jointly and severally promised to pay the appellant the sum of P1,827.00 in advance as premium and documentary stamps for each period of twelve months while the surety bond was in effect. About five (5) days before the expiration of the liability on the bond, P.D. Marchessini and Co., Ltd. and Delgado Shipping Agencies, Inc., filed Civil Case No. 53853 against the Philippine Merchants Steamship Co., Inc., Jose L. Bautista, doing business under the name and style of "Ronquillo Trading", for the loss ($14,800.00) they allegedly suffered as a direct consequence of the failure of the defendants to load the stipulated quantity of 406 U.S. surplus army vehicles. The appellant was made party defendant because of the bond it posted in behalf of the appellees. Upon the expiration of the 12 months life of the bond, the appellant made a formal demand for the payment of the renewal premiums and cost of documentary stamps for another year in the amount of P1,827.00. The appellees refused to pay, contending that the liability of the appellant under the surety bond accrued during the period of twelve months the said bond was originally in force and before its expiration and that the defendants-appellees were under no obligation to renew the surety bond. The appellant filed a complaint to recover the sum of P l,827.00 against the appellees. According to the appellant, it can be deduced that the payment of renewal premiums should depend upon the life and effectivity of the bond and not on the accrual of its liability. It states that as long as the bond is in full force and effect, the principal should pay the corresponding renewal premium and should continue to do so even if the liability on the bond has accrued, otherwise, surety companies will be at the mercy of their principals because while their liability continues to subsist as long as their accrued liability is not determined, or as long as the court has not determined their liability, which may take years, the principals pay no consideration for the use of their bond. And if the case is decided against appellant thereby holding its bond liable, it must pay the face value of its bond, and yet it is barred from collecting any consideration for the use of its bond during the pendency of the case. The appellees countered that the only purpose of Civil Case No. 53853 was to enforce a liability which existed even before the bond was executed. The bond was given to secure payment by appellees of such additional freight as would already be due on the cargo when it actually arrived in Manila. The bond was not executed to secure obligation or liability which was still to arise after its twelve month life. While it is true that

the lower court held that the bond was still in effect after its expiry date, the effectivity was not due to a renewal made by the appellees but because the surety bond provided that "the liability of the surety will not expire if, as in this case, it is notified of an existing obligation thereunder". The meaning of the bond's still being in effect is that, the suit on the bond instituted by the obligees prior to the expiration of the "liability" thereunder was only for the purpose of enforcing that liability and amounted to notice to appellant of an already existing or accrued liability so as not to let that liability lapse or expire and thereby bar enforcement. ISSUE Whether appellees are liable for the payment of renewal premiums after the expiry date of the bond. HELD We agree with the contention of the appellees. It must be noted that in the surety bond it is stipulated that the "liability of surety on this bond will expire on May 5, 1963 and said bond will be cancelled 15 days after its expiration, unless surety is notified of any existing obligations thereunder." Under this stipulation the bond expired on the stated date and the phrase "unless surety is notified of any existing obligations thereunder" refers to obligations incurred during the term of the bond. Furthermore, under the Indemnity Agreement, the appellees "agree to pay the COMPANY the sum of ONE THOUSAND EIGHT HUNDRED ONLY (P1,800.00) Pesos, Philippine Currency, in advance as premium thereof for every twelve (12) months or fraction thereof, while this bond or any renewal or substitution thereof is in effect." Obviously, the duration of the bond is for "every twelve (12) months or fraction thereof, while this bond or any renewal or substitution is in effect." Since the appellees opted not to renew the contract they cannot be obliged to pay the premiums. More specifically, where a contract of surety is terminated under its terms, the liability of the principal for premiums after such termination ceases notwithstanding the pendency of a lawsuit to enforce a liability that accrued during its stipulated lifetime.