Communication and Information Systems Corporation vs. Mark Sensing Australia Pty. Ltd.

An attachment bond may be approved even if its face amount exceeds the surety's statutory retention limit, provided the excess risk is ceded to authorized reinsurers; reinsurance contracts are properly issued in favor of the direct insurer, not the adverse party. Section 215 of the old Insurance Code permits deduction of reinsurance ceded in determining retained risk, and Section 4, Rule 57 of the Rules of Court requires the attachment bond itself—not the underlying reinsurance contracts—to be executed to the adverse party.

CISC and MSAPL were linked by a Memorandum of Agreement dated March 1, 2002, under which MSAPL appointed CISC as its exclusive agent to PCSO during the lifetime of a recently concluded agreement involving PCSO, MSAPL, and other suppliers. CISC was to receive a commission of 24.5% of future gross sales to PCSO, exclusive of duties and taxes, for six years. The dispute later involved an attachment bond posted in CISC's suit for unpaid commissions. The statutory backdrop includes Section 215 of the old Insurance Code, which limits a non-life insurer's retained risk to 20% of its net worth while allowing deduction of reinsured risk, and Section 4, Rule 57 of the Rules of Court, which requires an applicant's attachment bond to be executed to the adverse party.

CISC and MSAPL entered into a Memorandum of Agreement dated March 1, 2002, under which MSAPL appointed CISC as the exclusive agent of MSAPL to PCSO during the lifetime of the recently concluded Memorandum of Agreement between MSAPL, PCSO, and other parties. The recent agreement referred to was the thermal paper and bet slip supply contract between PCSO, MSAPL, and three other suppliers: Lamco Paper Products Company, Inc., Consolidated Paper Products, Inc., and Trojan Computer Forms Manufacturing Corporation. As consideration for CISC's services, MSAPL agreed to pay CISC a commission of 24.5% of future gross sales to PCSO, exclusive of duties and taxes, for six years.

After initially complying with its obligation under the MOA, MSAPL stopped remitting commissions to CISC during the second quarter of 2004. MSAPL justified its action by claiming that Carolina de Jesus, President of CISC, violated her authority when she negotiated the Supply Contract with PCSO and three of MSAPL's competitors. According to MSAPL, it lost almost one-half of its business with PCSO because the Supply Contract provided that MSAPL's business with PCSO would be limited to the latter's Luzon operations, with MSAPL supplying 70% of thermal rolls and 50% of bet slips. MSAPL pointed out that it used to have a Build Operate Transfer Agreement with PCSO where it undertook to build a thermal paper and bet slip manufacturing facility to supply all requirements of PCSO, but PCSO unilaterally cancelled the BOT Agreement and granted supply contracts to Lamco Paper, Consolidated Paper, and Trojan Computer Forms, which ultimately resulted in litigation. The suit was eventually settled when PCSO, MSAPL, and the three other suppliers entered into the Supply Contract, which was submitted and approved by the RTC, Branch 224 of Quezon City, as a compromise agreement. MSAPL felt shortchanged by CISC's efforts and decided to withhold payment of commissions.

As a result of MSAPL's refusal to pay, CISC filed a complaint before the RTC in Quezon City for specific performance against MSAPL, MSPI, Atty. Ofelia Cajigal, and PCSO. CISC prayed that private respondents be ordered to comply with their obligations under the MOA and asked the RTC to issue a writ of preliminary mandatory injunction and/or writ of attachment. The RTC denied CISC's prayer for mandatory injunctive relief but ordered PCSO to hold the amount being contested until final determination of the case. It later reversed itself, holding that its jurisdiction was limited to the amount stated in the complaint and that it had no jurisdiction to order PCSO to withhold payments in excess of that amount. This order of reversal became the subject of a separate petition for certiorari filed by CISC before the CA, docketed as CA-G.R. SP No. 96620, where the CA reversed the RTC and ordered that additional docket fees constitute a lien on the judgment.

On September 10, 2007, the RTC granted CISC's application for issuance of a writ of preliminary attachment, stating that the non-payment of the agreed commission constituted fraud on the part of MSAPL in the performance of its obligation to CISC. The RTC found that MSAPL is a foreign corporation based in Australia and that its Philippine subsidiary, MSPI, had no other asset except its collectibles from PCSO, so CISC might be left without security if MSAPL were found liable. The RTC, however, limited the attachment to ₱4,861,312.00, the amount stated in the complaint, instead of the ₱113,197,309.10 sought by CISC. The RTC explained that it would await the Supreme Court's judgment on the issue of whether it had jurisdiction over amounts in excess of the amount prayed for, since MSAPL had appealed the adverse judgment in CA-G.R. SP No. 96620 to the Supreme Court. The Supreme Court later denied MSAPL's petition for review in G.R. No. 179073 in a Resolution dated November 12, 2007, which became final and executory on March 25, 2008.

CISC then moved to amend the order of attachment to include unpaid commissions in excess of the amount stated in the complaint. On December 22, 2008, the RTC granted CISC's motion and issued a new writ of preliminary attachment. On April 13, 2009, the RTC modified the amount covered by the writ to reflect the correct amount prayed for by CISC, conditioned upon CISC's payment of additional docket fees, and denied MSAPL's opposition to the attachment order. On July 2, 2009, the RTC modified its order insofar as it allowed CISC to pay the docket fees within a reasonable time. On July 8, 2009, CISC posted a bond in the amount of ₱113,197,309.10 through Plaridel Surety and Insurance Company in favor of MSAPL, which the RTC approved on the same date. Two days later, MSAPL filed a motion to determine the sufficiency of the bond because of questions regarding Plaridel's financial capacity. Before the RTC could act on that motion, MSAPL moved to recall and set aside the approval of the attachment bond on the ground that Plaridel had no capacity to underwrite the bond under Section 215 of the old Insurance Code because its net worth was only ₱214,820,566.00 and it could therefore underwrite only up to ₱42,964,113.20.

On September 4, 2009, the RTC denied MSAPL's motion, finding that although Plaridel could not underwrite the bond by itself, the amount covered by the attachment bond was reinsured to sixteen other insurance companies. For the best interest of both parties, the RTC ordered Plaridel to submit proof that ₱95,819,770.91 was reinsured, and Plaridel submitted its compliance on September 11, 2009, attaching the reinsurance contracts. The RTC and the CA later determined, based on Plaridel's financial statement attached to its certificate of authority issued by the Insurance Commission, that Plaridel's net worth was ₱289,332,999.00, giving it a retention limit of ₱57,866,599.80. MSAPL, for its part, claimed that Plaridel's net worth was only ₱214,820,566.00 and that it could underwrite only up to ₱42,964,113.20.

• Timeliness of Certiorari: CISC argued that the CA erred in giving due course to the petition insofar as it challenged the RTC Orders dated April 13, 2009, July 2, 2009, and July 8, 2009, because the reglementary period to challenge those Orders had already lapsed by the time private respondents filed their petition for certiorari below.

• Timeliness of Certiorari: MSAPL contended that because they continued to assail the additional attachment from the time it was first issued, the 60-day period should be counted from the final denial of their challenge to the additional attachment on September 4, 2009.
• Insufficiency of the Bond: MSAPL argued that Plaridel had no capacity to underwrite the attachment bond under Section 215 of the old Insurance Code because its net worth was only ₱214,820,566.00 and it could therefore underwrite only up to ₱42,964,113.20.
• Non-Compliance with Rule 57: MSAPL maintained that the reinsurance contracts were issued in favor of Plaridel, not MSAPL, and thus failed to comply with Section 4, Rule 57 of the Rules of Court requiring the bond to be executed to the adverse party.
• Grave Abuse of Discretion: MSAPL contended that the RTC acted with grave abuse of discretion in approving the attachment bond despite the alleged insufficiency.

• Timeliness of Certiorari — April 13, 2009 Order: Whether the CA erred in giving due course to MSAPL's petition for certiorari insofar as it challenged the RTC's April 13, 2009 Order despite the lapse of the 60-day reglementary period.
• Timeliness/Prematurity — July 2, 2009 Order: Whether the CA erred in giving due course to the petition insofar as it challenged the July 2, 2009 Order on payment of additional docket fees, when MSAPL's motion to compel payment remained pending before the RTC.
• Timeliness — July 8 and September 4, 2009 Orders: Whether MSAPL's petition for certiorari was timely filed insofar as it assailed the July 8, 2009 Order approving the attachment bond and the September 4, 2009 Order resolving the challenge to that bond.
• Grave Abuse of Discretion — Approval of Attachment Bond: Whether the RTC committed grave abuse of discretion in approving the attachment bond whose face amount exceeded Plaridel's statutory retention limit under Section 215 of the old Insurance Code.
• Reinsurance Contracts and Rule 57, Section 4: Whether reinsurance contracts issued in favor of Plaridel, rather than the adverse party MSAPL, complied with Section 4, Rule 57 of the Rules of Court requiring the applicant's bond to be executed to the adverse party.

• Timeliness of Certiorari — April 13, 2009 Order: Yes. The challenge was time-barred; the 60-day period is counted from the denial of the first motion for reconsideration of an interlocutory order, not from subsequent motions.
• Timeliness/Prematurity — July 2, 2009 Order: Yes. The petition was premature because the RTC had yet to resolve MSAPL's pending motion to compel payment, and certiorari requires no plain, speedy, and adequate remedy.
• Timeliness — July 8 and September 4, 2009 Orders: No. The petition was timely as to these Orders because MSAPL's twin motions directly challenged the approval of the attachment bond, and the September 4, 2009 Order was the second time the RTC passed upon the sufficiency of the bond.
• Grave Abuse of Discretion — Approval of Attachment Bond: No. Section 215 permits reinsurance ceded to be deducted; Plaridel retained only ₱17,377,938.19, below its ₱57,866,599.80 retention limit.
• Reinsurance Contracts and Rule 57, Section 4: Yes. Reinsurance contracts are properly issued in favor of the direct insurer; Section 4, Rule 57 applies only to the attachment bond itself, not to the underlying reinsurance contracts.

• Timeliness of Certiorari — April 13, 2009 Order: The 60-day period for challenging an interlocutory order is reckoned from the trial court's denial of the first motion for reconsideration, as held in San Juan, Jr. vs. Cruz; otherwise indefinite delays would ensue. MSAPL received the April 13, 2009 Order denying its motion for reconsideration of the December 22, 2008 Order on April 27, 2009. Its later motion to determine the sufficiency of the bond did not impugn the propriety or factual bases of the amended writ and, even if it did, would be a second motion for reconsideration that could not stay the reglementary period. The challenge to the April 13, 2009 Order was therefore time-barred, and the CA erred in giving it due course. Reglementary periods are strictly applied, and the timeliness of a petition for certiorari is mandatory and jurisdictional.
• Timeliness/Prematurity — July 2, 2009 Order: The July 2, 2009 Order resolved the incidental issue of when the additional docket fees should be paid, allowing CISC to pay within a reasonable time. Instead of moving for reconsideration, MSAPL filed a motion to compel CISC to pay the required docket fees on August 14, 2009, thereby recognizing the validity of the July 2, 2009 Order and seeking compliance with it. That motion remained pending before the RTC when MSAPL filed its petition for certiorari. A petition for certiorari may be resorted to only when there is no plain, speedy, and adequate remedy in the ordinary course of law. Parties may not preempt the trial court's action on their motions, and absent unreasonable delay, the proper remedy was to move for resolution of the pending motion. The petition as to this issue was premature.
• Timeliness — July 8 and September 4, 2009 Orders: The July 8, 2009 Order approved the attachment bond submitted by Plaridel. MSAPL directly challenged it by filing a motion to determine the sufficiency of the bond due to questions on Plaridel's financial capacity, and then an urgent motion to recall and set aside the approval dated July 21, 2009 on the ground that the bond exceeded Plaridel's retention limit under the Insurance Code. The RTC resolved both motions jointly on September 4, 2009, holding that Section 215 allows an insurance company to insure a single risk in excess of retention limits provided the excess is ceded to reinsurers, and affirming its approval of the bond. Although not captioned as motions for reconsideration, the twin motions directly challenged the approval, and the September 4, 2009 Order was the second time the RTC passed upon the sufficiency of the bond. The petition for certiorari filed on September 18, 2009, insofar as it assailed the July 8 and September 4, 2009 Orders, was timely.
• Grave Abuse of Discretion — Approval of Attachment Bond: Section 215 of the old Insurance Code limits the amount of risk that insurance companies can retain to a maximum of 20% of net worth, but risks ceded to authorized reinsurers are ipso jure deducted in computing the retention limit. The retained risk is computed by deducting ceded or reinsured risk from insurable risk; if the resulting amount is below 20% of the insurer's net worth, the retention limit is not breached. Both the RTC and the CA determined, based on Plaridel's financial statement attached to its certificate of authority issued by the Insurance Commission, that Plaridel's net worth was ₱289,332,999.00. Its retention limit was therefore ₱57,866,599.80, below the ₱113,197,309.10 face value of the attachment bond. However, Plaridel retained only an insurable risk of ₱17,377,938.19 because the remaining ₱98,819,770.91 was ceded to sixteen other insurance companies. The risk retained was thus below Plaridel's maximum retention limit. The RTC correctly applied the law and acted judiciously when it required Plaridel to submit proof of its reinsurance contracts after MSAPL questioned Plaridel's capacity to underwrite the bond. By dividing the risk through reinsurance, the bond became more reliable and more beneficial to MSAPL.
• Reinsurance Contracts and Rule 57, Section 4: A contract of reinsurance is one by which an insurer, the direct insurer or cedant, procures a third person, the reinsurer, to insure him against loss or liability by reason of the original insurance. It is a separate and distinct arrangement from the original contract of insurance, whose contracted risk is insured in the reinsurance agreement. The reinsurer's contractual relationship is with the direct insurer, not the original insured, and the original insured has no interest in and is generally not privy to the contract of reinsurance. Reinsurance is the "insurance of an insurance." By its nature, reinsurance contracts are issued in favor of the direct insurer because the subject of such contracts is the direct insurer's risk—in this case, Plaridel's contingent liability to MSAPL—and not the risk assumed under the original policy. The requirement under Section 4, Rule 57 of the Rules of Court that the applicant's bond be executed to the adverse party necessarily pertains only to the attachment bond itself and not to any underlying reinsurance contract. With or without reinsurance, the obligation of the surety to the party against whom the writ of attachment is issued remains the same. The CA therefore erred in cancelling the bond on this ground.

• Reinsurance — A contract by which an insurer (the direct insurer or cedant) procures a third person (the reinsurer) to insure it against loss or liability by reason of an original insurance. It is a separate and distinct arrangement from the original insurance; the reinsurer's contractual relationship is with the direct insurer, not the original insured, and the original insured is generally not privy to it. Reinsurance is the "insurance of an insurance." In this case, the reinsurance contracts were properly issued in favor of Plaridel, the direct insurer, because the subject was Plaridel's contingent liability to MSAPL, not the risk assumed under the original attachment bond.
• Retention Limit and Deduction of Reinsurance under Section 215 of the Old Insurance Code — A non-life insurance company may not retain any risk on any one subject of insurance exceeding 20% of its net worth. Reinsurance ceded as authorized is deducted in determining the risk retained. The retained risk is computed as Insurable Risk minus Reinsured Risk; if the result is below 20% of net worth, the retention limit is not breached. The Court applied this by finding that Plaridel's net worth was ₱289,332,999.00, its retention limit was ₱57,866,599.80, and its retained risk was only ₱17,377,938.19 after ceding ₱98,819,770.91 to sixteen reinsurers.
• Timeliness of Certiorari from an Interlocutory Order — The 60-day reglementary period for filing a petition for certiorari against an interlocutory order is counted from the trial court's denial of the first motion for reconsideration, not from the denial of subsequent motions for reconsideration. This rule prevents indefinite delays. The Court applied it to hold that MSAPL's challenge to the April 13, 2009 Order was time-barred because the period ran from April 27, 2009, when MSAPL received the denial of its first motion for reconsideration.
• Prematurity of Certiorari — A petition for certiorari may be filed only when there is no plain, speedy, and adequate remedy in the ordinary course of law. Parties may not preempt the trial court's action on their pending motions; absent unreasonable delay, the proper remedy is to move for resolution of the pending motion. The Court applied this to hold that MSAPL's challenge to the July 2, 2009 Order on docket fees was premature because its motion to compel payment remained pending before the RTC.
• Attachment Bond Executed to the Adverse Party under Section 4, Rule 57 — The applicant's attachment bond must be executed to the adverse party. This requirement pertains only to the attachment bond itself, not to any underlying reinsurance contract. With or without reinsurance, the surety's obligation to the party against whom the writ is issued remains the same. The Court applied this to hold that the reinsurance contracts issued in favor of Plaridel did not violate Section 4, Rule 57.

• "The question is whether courts may approve an attachment bond which has been reinsured as to the excess of the issuer's statutory retention limit." — This frames the core substantive issue resolved by the Court.
• "Retained Risk= Insurable Risk - Reinsured Risk" — This formula states the method for determining whether an insurer has breached its statutory retention limit after deducting reinsured risk.
• "Put simply, reinsurance is the "insurance of an insurance."" — This is the Court's canonical formulation of the nature of reinsurance.
• "The requirement under Section 4, Rule 57 of the Rules of Court that the applicant's bond be executed to the adverse party necessarily pertains only to the attachment bond itself and not to any underlying reinsurance contract." — This is the ratio decidendi on why reinsurance contracts issued in favor of the direct insurer do not violate the Rules of Court.

• San Juan, Jr. vs. Cruz, G.R. No. 167321, July 31, 2006, 497 SCRA 410 — Controlling precedent for the rule that the 60-day period to file a petition for certiorari against an interlocutory order is counted from the denial of the first motion for reconsideration, not from subsequent motions.
• Visayan Electric Company Employees Union-ALU-TUCP vs. Visayan Electric Company, Inc. (VECO), G.R. No. 205575, July 22, 2015, 763 SCRA 566, 577 — Cited for the strict application of reglementary periods and the mandatory and jurisdictional nature of the timeliness of a petition for certiorari.
• Santos vs. Court of Appeals, G.R. No. 155374, November 20, 2007, 537 SCRA 665, 671 — Cited for the rule that a petition for certiorari may be resorted to only when there is no plain, speedy, and adequate remedy, and that parties may not preempt the trial court's action on their motions.
• Avon Insurance PLC vs. Court of Appeals, G.R. No. 97642, August 29, 1997, 278 SCRA 312, 322 — Cited for the definition and separate and distinct nature of reinsurance, and for the rule that the reinsurer's contractual relationship is with the direct insurer, not the original insured.

• Section 215, Presidential Decree No. 612 (old Insurance Code) — Limits a non-life insurance company's retained risk on any one subject of insurance to 20% of its net worth; reinsurance ceded as authorized is deducted in determining the risk retained. The Court applied this to find that Plaridel's retained risk was below its retention limit after ceding the excess to reinsurers. The provision was substantially reproduced in Section 221 of Republic Act No. 10607.
• Section 4, Rule 57, Rules of Court — Requires the party applying for an attachment to give a bond executed to the adverse party in the amount fixed by the court. The Court held that this requirement applies only to the attachment bond itself and not to any underlying reinsurance contract.
• Section 1, Rule 65, Rules of Court — Provides that a petition for certiorari may be filed only when there is no plain, speedy, and adequate remedy in the ordinary course of law. The Court applied this to hold that MSAPL's challenge to the July 2, 2009 Order was premature because its motion to compel payment remained pending before the RTC.
• Sections 95 and 98, Presidential Decree No. 612 (old Insurance Code) — Define a contract of reinsurance and provide that the reinsurer's contractual relationship is with the direct insurer, not the original insured. These provisions, reproduced in Sections 97 and 100 of Republic Act No. 10607, supported the Court's holding that the reinsurance contracts were properly issued in favor of Plaridel.

Maria Lourdes P.A. Sereno, Jose C. Mendoza, Estela M. Perlas-Bernabe, and Alfredo Benjamin S. Caguioa.