AFP General Insurance Corporation vs. Molina

A surety bond posted to perfect an employer's appeal in a labor case remains valid and enforceable despite non-payment of premium by the principal, provided the bond has been accepted by the obligee, pursuant to Section 177 of the Insurance Code, and remains in effect until final disposition of the case under Rule VI, Section 6 of the Revised NLRC Rules of Procedure.

AFPGIC is an insurance corporation that issued a supersedeas bond as surety for Radon Security & Allied Services Agency, which had posted the bond to perfect its appeal from a Labor Arbiter's decision finding it liable for illegal dismissal of several employees. The private respondents were the complainants in that labor case, having been declared constructively dismissed and awarded separation pay, backwages, and monetary benefits. The dispute arose at the execution stage, when AFPGIC sought to prevent garnishment of the bond it had issued, claiming the bond had been cancelled for non-payment of premiums.

The private respondents — Noel Molina, Juanito Arqueza, Leody Venancio, Jose Olat, Angel Cortez, Pancrasio Simpao, and Conrado Calapon — were employees who filed a complaint for illegal dismissal against Radon Security & Allied Services Agency and/or Raquel Aquias and Ever Emporium, Inc., docketed as NLRC NCR Case No. 02-00672-90. On August 20, 1996, Labor Arbiter Edgardo Madriaga 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 the Labor Arbiter's decision to the NLRC and posted a supersedeas bond issued by petitioner AFP General Insurance Corporation (AFPGIC) as surety. The appeal was docketed as NLRC NCR CA-011705-96. On April 6, 1998, the NLRC affirmed with modification the Labor Arbiter's decision, finding the private respondents constructively dismissed and ordering Radon Security to pay separation pay in lieu of reinstatement with backwages, monetary benefits limited to three years, and attorney's fees equivalent to 10% of the entire amount. Radon Security and Ever Emporium, Inc. were adjudged jointly and severally liable. Radon Security's motion for reconsideration was denied by the NLRC on June 22, 1998, and its subsequent petition for certiorari before the Supreme Court (G.R. No. 134891) was dismissed on August 31, 1998.

When the NLRC decision became final and executory, private respondents filed an Urgent Motion for Execution. The NLRC Research and Information Unit submitted a computation of the monetary awards, which Radon Security opposed through a Motion for Recomputation. On February 5, 1999, the Labor Arbiter issued a Writ of Execution incorporating the NLRC's computation and dismissed Radon Security's Motion for Recomputation. By virtue of the writ, 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, but the Labor Arbiter denied both motions on March 30, 1999.

On April 14, 1999, AFPGIC entered the fray by filing before the Labor Arbiter an Omnibus Motion to Quash Notice/Writ of Garnishment and to Discharge AFPGIC's Appeal Bond, on the ground that the bond had been cancelled and was non-existent due to Radon Security's failure to pay the yearly premiums. The Labor Arbiter denied the motion on April 30, 1999, pointing out that the question of non-payment of premiums is a dispute between the party who posted the bond and the insurer, and that allowing cancellation for non-payment would render the surety nugatory by the simple expedient of non-payment of premiums. AFPGIC appealed to the NLRC, which jointly heard it with Radon Security's appeal. On October 5, 1999, the NLRC dismissed both appeals, stressing that the bond is effective until finality of the decision and that a contrary ruling would allow respondents to simply stop paying premiums to frustrate satisfaction of the money judgment. AFPGIC's motion for reconsideration was denied on February 29, 2000.

AFPGIC then filed a special civil action for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 58763, alleging grave abuse of discretion by the NLRC. On August 20, 2001, the appellate court dismissed the petition, and AFPGIC's motion for reconsideration was denied on December 14, 2001. AFPGIC then elevated the matter to the Supreme Court via the instant petition for review on certiorari.

• Cancellation for Non-Payment of Premium: Petitioner contended 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 premium, and that such cancellation is binding upon the beneficiary as the right of a beneficiary is subordinate to that of the insured.
• Premium as Condition Precedent: Petitioner argued that payment of premium is a condition precedent to and essential for the efficaciousness of a contract of insurance, citing South Sea Surety & Insurance Co., Inc. vs. CA, and that under UCPB General Ins. Co., Inc. vs. Masagana Telamart, Inc., no insurance policy other than life is valid and binding until actual payment of the premium.
• Invalidity of Bond Under Section 77: Petitioner maintained that under Section 77 of the Insurance Code, the surety bond between AFPGIC and Radon Security was not valid and binding for non-payment of premiums, even against a third person who was intended to benefit therefrom, citing Malayan Insurance Co., Inc. vs. Cruz Arnaldo.

• Beneficiary's Right to Notice of Cancellation: Respondents argued that because the supersedeas bond was posted for the benefit of a third person to guarantee satisfaction of the money judgment, the third person who stands to benefit is entitled to notice of cancellation for any reason, and the NLRC should have been notified to enable it to take proper action.
• Bond Remains Effective Until Discharge: Respondents submitted that from its very nature, a supersedeas bond remains effective and the surety liable thereon until formally discharged from liability, and that to hold otherwise would enable a losing party to frustrate a money judgment by simply ceasing to pay premiums.

• Applicability of Insurance Code Provisions: Whether Sections 64 and 77 of the Insurance Code, governing insurance contracts in general, apply to a surety bond posted to perfect an appeal in a labor case, or whether Section 177, which specifically governs suretyship, is the applicable provision.
• Effect of Non-Payment of Premium on Surety Bond: Whether a surety bond posted to perfect an employer's appeal in a labor case may be cancelled and rendered unenforceable due to the principal's non-payment of premiums, notwithstanding its acceptance by the obligee.
• Duration of Surety Bond's Effectivity: Whether a supersedeas bond posted in a labor case remains in effect until final disposition of the case, precluding cancellation by the surety for non-payment of premium before formal discharge.

• Applicability of Insurance Code Provisions: No. Sections 64 and 77 of the Insurance Code refer to insurance contracts in general; the applicable provision is Section 177, which specifically governs suretyship and provides that a bond becomes valid and enforceable once accepted by the obligee, irrespective of whether the premium has been paid.
• Effect of Non-Payment of Premium on Surety Bond: No. The surety bond cannot be cancelled for non-payment of premium because it was accepted by the obligee — the private respondents and the NLRC — and under Section 177 of the Insurance Code, acceptance by the obligee renders the bond valid and enforceable irrespective of premium payment.
• Duration of Surety Bond's Effectivity: Yes. Under Rule VI, Section 6 of the Revised NLRC Rules of Procedure, the bond "shall be in effect until final disposition of the case," meaning it remains valid and in force until finality and execution of judgment, with discharge of the surety only thereafter.

• Applicability of Insurance Code Provisions: The controversy traces its roots to a labor dispute involving illegally dismissed workers, entailing the application of labor laws and regulations, specifically Article 223 of the Labor Code, as amended by Republic Act No. 6715, and Rule VI, Section 6 of the Revised NLRC Rules of Procedure. These provisions mandate that in labor cases involving a monetary award, an 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 posting of a bond shows the lawmakers' intent to make it the exclusive means of perfecting an appeal. The filing of a cash or surety bond is a jurisdictional requirement. Petitioner's reliance on Sections 64 and 77 of the Insurance Code was misplaced because those provisions refer to insurance contracts in general, whereas the instant case pertains to a surety bond governed by Section 177 of the Insurance Code, which specifically provides that a surety bond, once accepted by the obligee, becomes valid and enforceable irrespective of whether the premium has been paid by the obligor.

• Effect of Non-Payment of Premium on Surety Bond: Under Section 177 of the Insurance Code, a surety bond becomes valid and enforceable once accepted by the obligee, irrespective of whether the premium has been paid. The private respondents, as obligees, accepted the bond posted by Radon Security and issued by AFPGIC. Hence, the bond is both valid and enforceable. The principle a verbis legis non est recedendum (from the language of the law there must be no departure) applies. Furthermore, when AFPGIC cancelled the surety bond, it gave notice to Radon Security but not to the NLRC. By failing to notify the NLRC, AFPGIC failed to acknowledge that the NLRC had jurisdiction not only over the appealed case but also over the appeal bond. Until the surety is formally discharged, it remains subject to the jurisdiction of the NLRC. Allowing cancellation by mere non-payment of premium would open the floodgates to unscrupulous employers who would simply forego paying premiums to evade payment of the monetary judgment, undermining the labor protection clause of the Constitution.

• Duration of Surety Bond's Effectivity: Rule VI, Section 6 of the Revised NLRC Rules of Procedure 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 must be construed to mean that the surety bond remains valid and in force until finality and execution of judgment, with the resultant discharge of the surety company only thereafter, to give teeth to the labor protection clause of the Constitution. As a contemporaneous construction of Article 223 by the NLRC, this interpretation is accorded great respect by the Court. The Labor Arbiter properly directed the NLRC Sheriff to garnish the surety bond, and AFPGIC, as surety, is mandated to comply with the writ of garnishment. However, AFPGIC is not devoid of remedies against Radon Security: under Section 176 of the Insurance Code, the liability of the surety and the obligor is solidary, and under Article 2067 of the Civil Code, as applied through Section 178 of the Insurance Code, the surety who pays is subrogated to all the rights of the creditor against the debtor and may proceed to collect the amount paid, plus premiums and interest, from Radon Security.

• Surety Bond Accepted by Obligee Remains Enforceable Despite Non-Payment of Premium — Under Section 177 of the Insurance Code, a contract of suretyship or bond becomes valid and enforceable once accepted by the obligee, irrespective of whether the premium has been paid by the obligor to the surety. The Court applied this provision to hold that AFPGIC's surety bond, having been accepted by the NLRC and the private respondents as obligees, remained valid and enforceable despite Radon Security's failure to pay premiums. This rule is specific to suretyship and prevails over the general provisions of Sections 64 and 77 of the Insurance Code, which govern insurance contracts in general.

• Appeal Bond in Labor Cases Remains in Effect Until Final Disposition — Under Rule VI, Section 6 of the Revised NLRC Rules of Procedure, a cash or surety bond posted to perfect an appeal in a labor case involving a monetary award "shall be in effect until final disposition of the case." The Court construed this to mean the bond remains valid and in force until finality and execution of judgment, with discharge of the surety only thereafter. This construction is accorded great respect as a contemporaneous construction of Article 223 of the Labor Code by the implementing administrative agency.

• Posting of Bond as Jurisdictional Requirement in Labor Appeals — The filing of a cash or surety bond is a jurisdictional requirement in an appeal involving a money judgment to the NLRC. The perfection of an appeal by an employer "only" upon posting of a bond shows the lawmakers' intent to make it the exclusive means of perfecting an employer's appeal.

• Surety's Right of Subrogation Against Principal — Under Section 176 of the Insurance Code, the liability of the surety and the obligor is joint and several. Under Article 2067 of the Civil Code, as applied to suretyship through Section 178 of the Insurance Code, the surety who pays is subrogated to all the rights of the creditor against the debtor and may proceed to collect the amount paid, plus premiums due and interest, from the principal obligor.

• "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." — This passage identifies the controlling statutory provision and articulates the ratio decidendi: Section 177, not Sections 64 or 77, governs the enforceability of a surety bond accepted by the obligee.

• "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." — This passage explains the policy rationale behind the ruling: preventing employers from using non-payment of premiums as a device to evade labor judgments.

• "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 passage identifies the NLRC procedural rule that fixes the duration of the bond's effectivity, reinforcing that the bond cannot be unilaterally cancelled before final disposition.

• "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." — This passage establishes that the NLRC's jurisdiction extends to the appeal bond and that the surety must notify the NLRC of any cancellation, remaining subject to its jurisdiction until formally discharged.

• South Sea Surety & Insurance Co., Inc. vs. CA, 314 Phil. 761 (1995) — Cited by petitioner for the proposition that payment of premium is a condition precedent to the efficaciousness of a contract of insurance. The Court found petitioner's reliance on this case misplaced because it pertains to insurance contracts in general, not to surety bonds governed by Section 177.
• UCPB General Ins. Co., Inc. vs. Masagana Telamart, Inc., 367 Phil. 539 (1999) — Cited by petitioner for the rule that no insurance policy, other than life, is valid and binding until actual payment of the premium. The Court distinguished this as inapplicable to surety bonds accepted by the obligee.
• Malayan Insurance Co., Inc. vs. Cruz Arnaldo, 154 SCRA 672 (1987) — Cited by petitioner for the proposition that an insurer may cancel an insurance policy for non-payment of premium. The Court found this inapplicable because the case involves a surety bond, not a general insurance policy.
• Navarro vs. NLRC, 383 Phil. 765 (2000) — Cited for the rule that in labor cases involving a monetary award, the appeal may be perfected only upon posting of a cash or surety bond issued by a reputable bonding company accredited by the NLRC.
• Catubay vs. National Labor Relations Commission, 386 Phil. 648 (2000) — Cited for the proposition that the posting of a cash or surety bond is the exclusive means by which an employer's appeal may be perfected.
• Blancaflor vs. NLRC, 218 SCRA 366 (1993) — Cited for the rule that the filing of a cash or surety bond is a jurisdictional requirement in an appeal involving a money judgment to the NLRC.
• Madrigal and Paterno vs. Rafferty and Concepcion, 38 Phil. 414 (1918) — Cited for the principle that an interpretation of a law by the implementing administrative agency is accorded great respect by the Court.
• Sesbreño vs. Court of Appeals, 222 SCRA 466 (1993) — Cited for the rule that there is solidary liability when the law so provides, as in the case of the surety and the obligor under Section 176 of the Insurance Code.

• Article 223, Labor Code (as amended by Republic Act No. 6715) — Mandates that in case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the Commission in the amount equivalent to the monetary award. Applied as the statutory basis for requiring the appeal bond and establishing the posting of bond as the exclusive means of perfecting an employer's appeal.
• Rule VI, Section 6, Revised NLRC Rules of Procedure — Provides that the cash or surety bond posted in appeals involving monetary awards "shall be in effect until final disposition of the case." Applied as the contemporaneous construction of Article 223, fixing the duration of the bond's effectivity and precluding unilateral cancellation before final disposition.
• Section 177, Insurance Code — Specifically governs suretyship and provides that a surety bond, once accepted by the obligee, becomes valid and enforceable irrespective of whether the premium has been paid by the obligor. Applied as the controlling provision to hold the bond enforceable despite non-payment of premium.
• Section 176, Insurance Code (as amended by Presidential Decree No. 1855) — Provides that the liability of the surety shall be joint and several with the obligor and limited to the amount of the bond. Applied to establish the solidary liability of AFPGIC and Radon Security.
• Section 178, Insurance Code — Provides that pertinent provisions of the Civil Code shall be applied in a suppletory character in interpreting contracts of suretyship. Applied to incorporate Article 2067 of the Civil Code, granting AFPGIC the right of subrogation against Radon Security.
• Article 2067, Civil Code — Provides that the guarantor who pays is subrogated to all the rights which the creditor had against the debtor. Applied through Section 178 of the Insurance Code to allow AFPGIC to collect from Radon Security the amount paid on the bond, plus premiums and interest.
• Sections 64 and 77, Insurance Code — Section 64 allows cancellation of non-life insurance policies upon prior notice for grounds including non-payment of premium; Section 77 provides that no policy or contract of insurance is valid and binding unless and until the premium has been paid. The Court found petitioner's reliance on these provisions misplaced, as they govern insurance contracts in general, not surety bonds specifically governed by Section 177.

Conchita Carpio Morales, Dante O. Tinga, Presbitero J. Velasco, Jr., and Arturo D. Brion concurred. No separate concurring opinions were noted.