Stronghold Insurance Co., Inc. vs. Court of Appeals

A surety which contractually stipulates that it will answer for all liabilities adjudged against the principal, and that notice to the principal is notice to the surety, is bound by the judgment against the principal even if the surety was not impleaded or notified of the original action, provided the surety was given an opportunity to be heard in a subsequent proceeding to enforce its liability. The right to a hearing may be validly waived, and a party who chooses not to be heard cannot later complain of denial of due process.

The petitioner, Stronghold Insurance Company, Inc., was the surety on a bond required of a domestic recruitment and placement agency, Pan Asian Logistics and Trading, acting on behalf of its foreign principal, Qatar National Fishing Co. The bond was required under Article 31 of the Labor Code and Section 4, Book II, Rule II of the POEA Rules and Regulations, which mandate surety bonds for the protection of Filipino citizens engaged for overseas employment by foreign companies. The purpose of such bonds is to ensure that overseas workers have recourse against local companies when their foreign employers violate their rights, since foreign principals are outside Philippine jurisdiction and typically have no local properties against which judgments can be enforced.

Pan Asian Logistics and Trading, a domestic recruiting and placement agency acting on behalf of its foreign principal, Qatar National Fishing Co., hired Adriano Urtesuela as captain of the vessel M/V Oryx for a stipulated period of twelve months. The required surety bond in the amount of P50,000.00 was submitted by Pan Asian and Stronghold Insurance Co., Inc., the petitioner, to answer for the liabilities of the employer. Urtesuela assumed his duties on April 18, 1982, but three months later his services were terminated and he was repatriated to Manila.

Urtesuela filed a complaint against Pan Asian and his former employer with the Philippine Overseas Employment Administration for breach of contract and damages. The POEA rendered a decision in his favor for the amount of P6,374.94, representing his salaries for the unexpired portion of his contract and the cash value of his unused vacation leave, plus attorney's fees and costs, which the respondents were required to pay. The judgment eventually became final and executory, not having been appealed on time. A writ of execution was issued against Pan Asian but could be enforced only against its cash bond of P10,000.00, the company having ceased to operate.

Under the surety bond, the petitioner and Pan Asian undertook to answer for all liabilities which the Philippine Overseas Employment Administration may adjudge or impose against the Principal in connection with the recruitment of Filipino seamen. The bond also stipulated that notice to the Principal is notice to the surety, and that the liability of the surety under the bond shall in no case exceed P50,000.00.

Urtesuela then filed a complaint with the Insurance Commission against Stronghold on the basis of the surety bond, praying for the value thereof plus attorney's fees and litigation costs. The Insurance Commission held that the complaint should be reformed because the provisions in the surety bond were not stipulations pour autrui to entitle Urtesuela to bring the suit himself, holding that the proper party was the POEA. This ruling was reversed on appeal by the Court of Appeals, which declared that as the actual beneficiary of the surety bond, Urtesuela was competent to sue Stronghold, which as surety was solidarily liable with Pan Asian for the judgment rendered against the latter by the POEA.

• Lack of Due Process: Petitioner argued that the decision of the POEA is not binding upon it because it was not impleaded in the complaint, was not notified thereof, did not participate in the hearing, and was not specifically directed to pay the damages awarded to the complainant, citing Aguasin vs. Velasquez for the proposition that a surety cannot be condemned to pay without due process of law.
• Unconstitutionality of Stipulation: Petitioner contended that the stipulation that notice to the Principal is notice to the surety is unconstitutional and contrary to public policy because it is "a virtual waiver" of the right to be heard and "opens wide the door for fraud and collusion between the principal and the bond obligee" to the prejudice of the surety.
• Coercion by POEA: Petitioner argued that the condition was required by the POEA and that it was coerced into accepting the condition, and therefore should not be bound by it.

• Independent Action: Private respondent contended that he sought to enforce the petitioner's liability not in the POEA case but in another forum — an independent action filed with the Insurance Commission on the basis of the surety bond — where the petitioner was given full opportunity to present its side.
• Actual Hearing Afforded: Private respondent pointed out that in the proceedings before the Insurance Commission, the petitioner was actually and extensively heard through its answer with counterclaim, its testimony at the hearings, its motion to dismiss, and its 10-page memorandum.

• Binding Effect of POEA Judgment: Whether the decision of the POEA is binding upon the surety which was not impleaded in the complaint, not notified thereof, and did not participate in the hearing.
• Validity of Waiver of Right to be Heard: Whether the stipulation that notice to the Principal is notice to the surety constitutes a valid waiver of the right to be heard or is unconstitutional and contrary to public policy.
• Due Process in Insurance Commission Proceedings: Whether the petitioner was denied due process in the proceedings before the Insurance Commission.

• Binding Effect of POEA Judgment: Yes. The petitioner unequivocally bound itself to answer for all liabilities which the POEA may adjudge or impose against the Principal, which strictly interpreted means the petitioner agreed to answer for whatever decision might be rendered against the principal, whether or not the surety was impleaded in the complaint and had the opportunity to defend itself.
• Validity of Waiver of Right to be Heard: Yes, the stipulation is valid. The right to be heard is not absolute and may be validly waived; the circumstance that the chance to be heard is not availed of does not disparage that opportunity and deprive the person of the right to due process.
• Due Process in Insurance Commission Proceedings: No. The petitioner was given full opportunity to present its side in the proceedings before the Insurance Commission, through its answer with counterclaim, testimony at hearings, motion to dismiss, and 10-page memorandum.

• Binding Effect of POEA Judgment: The Court found that the petitioner is "hoist by its own petard." The excerpt from Aguasin vs. Velasquez cited by the petitioner itself recognized that the case is "different from those in which the surety, by law and/or by the terms of his contract, has promised to abide by the judgment against the principal and renounced the right to be sued or cited." In the surety bond, the petitioner unequivocally bound itself to answer for all liabilities which the POEA may adjudge or impose against the Principal in connection with the recruitment of Filipino seamen. Strictly interpreted, this means the petitioner agreed to answer for whatever decision might be rendered against the principal, whether or not the surety was impleaded in the complaint and had the opportunity to defend itself. There is nothing in the stipulation calling for a direct judgment against the surety as a co-defendant in an action against the principal.

• Validity of Waiver of Right to be Heard: Even if the interpretation were rejected, the petitioner would still have to explain its other agreement that "notice to the Principal is notice to the surety." This was a special stipulation typewritten on the printed form of the surety bond prepared by the petitioner. Under this commitment, the petitioner is deemed, by the implied notice, to have been given an opportunity to participate in the litigation and to present its side. The Court rejected the argument that the stipulation is unconstitutional, noting that the right to be heard is as often waived as it is invoked, and validly as long as the party is given an opportunity to be heard on his behalf. The Court cited Bautista vs. Secretary of Labor and Employment for this proposition. The Court also rejected the public policy argument, noting that the speculation contravenes without proof the presumption of good faith and unreasonably imputes dishonest motives to the principal and the obligee, and disregards the fiduciary relationship between the principal and the surety. The Court drew a parallel to the rule that notice to the lawyer is considered notice to the client he represents.

• Due Process in Insurance Commission Proceedings: The Court noted that the private respondent sought to enforce the petitioner's liability not in the POEA case but in an independent action filed with the Insurance Commission. In those proceedings, the petitioner was given full opportunity (which it took) to present its side, in its answer with counterclaim to the complaint, in its testimony at the hearings, in its motion to dismiss the complaint, and in its 10-page memorandum. There is absolutely no question that in that proceeding, the petitioner was actually and even extensively heard.

• Policy Consideration: The Court emphasized that the surety bond required of recruitment agencies is intended for the protection of Filipino citizens engaged for overseas employment by foreign companies. The purpose is to insure that if the rights of overseas workers are violated by their employers, recourse would still be available to them against the local companies that recruited them for the foreign principal. Given this purpose, and guided by the benign policy of social justice, the Court rejected the technicalities raised by the petitioner against its established legal and even moral liability to the private respondent.

• Surety bound by judgment against principal where contract so provides — A surety which contractually promises to abide by the judgment against the principal and renounces the right to be sued or cited is bound by such judgment even if not impleaded or notified of the original action. This distinguishes such cases from those where the surety was not a party to the action and had no notice of or intervention in the trial, as in Aguasin vs. Velasquez.

• Waiver of right to be heard — The right to be heard is not absolute and may be validly waived, as long as the party is given an opportunity to be heard on his behalf. Due process is not violated where a person is not heard because he has chosen, for whatever reason, not to be heard. If a party opts to be silent where he has a right to speak, he cannot later be heard to complain that he was unduly silenced.

• Notice to principal is notice to surety — A stipulation in a surety bond that notice to the principal is notice to the surety is valid and binding. Under this commitment, the surety is deemed, by the implied notice, to have been given an opportunity to participate in the litigation and to present its side. This is analogous to the rule that notice to the lawyer is considered notice to the client he represents.

• Surety bond for overseas workers — The surety bond required of recruitment agencies under Article 31 of the Labor Code and Section 4, Book II, Rule II of the POEA Rules and Regulations is intended for the protection of Filipino citizens engaged for overseas employment by foreign companies. The purpose is to ensure that if the rights of overseas workers are violated by their employers, recourse would still be available to them against the local companies that recruited them for the foreign principal.

• "If the surety is to be bound by his undertaking, it is essential according to Section 10 of Rule 62 in connection with Section 20 of Rule 59 of the Rules of Court that the damages be awarded upon application and after proper hearing and included in the judgment. As a corollary to these requirements, due notice to the plaintiff and his surety setting forth the facts showing his right to damages and the amount thereof under the bond is indispensable. This has to be so if the surety is not to be condemned or made to pay without due process of law." — This passage from Aguasin vs. Velasquez, quoted by the Court, states the general rule requiring notice and hearing before a surety can be bound, but the Court distinguished it because the surety bond in this case contained stipulations that the surety promised to abide by the judgment against the principal.

• "This case is different from those in which the surety, by law and/or by the terms of his contract, has promised to abide by the judgment against the principal and renounced the right to be sued or cited." — This excerpt from Aguasin vs. Velasquez was the key to the Court's ruling, as the surety bond in this case contained exactly such a promise, making the petitioner "hoist by its own petard."

• "The circumstance that the chance to be heard is not availed of does not disparage that opportunity and deprive the person of the right to due process. This Court has consistently held in cases too numerous to mention that due process is not violated where a person is not heard because he has chosen, for whatever reason, not to be heard. It should be obvious that if he opts to be silent where he has a right to speak, he cannot later be heard to complain that he was unduly silenced." — This passage articulates the Court's doctrine on waiver of the right to be heard, holding that the right to a hearing is not absolute and may be validly waived.

• "The surety bond required of recruitment agencies is intended for the protection of our citizens who are engaged for overseas employment by foreign companies. The purpose is to insure that if the rights of these overseas workers are violated by their employers, recourse would still be available to them against the local companies that recruited them for the foreign principal." — This passage states the policy rationale behind the surety bond requirement, which the Court used to reject the petitioner's technical defenses in deference to the constitutional imperative of justice for the worker.

• Aguasin vs. Velasquez, 88 Phil. 357 — Cited by the petitioner in support of its due process argument, but distinguished by the Court because the surety bond in this case contained stipulations that the surety promised to abide by the judgment against the principal and renounced the right to be sued or cited, which the Aguasin case itself recognized as an exception to the general rule.
• Bautista vs. Secretary of Labor and Employment, 196 SCRA 470 — Cited by the Court for the proposition that the right to be heard is as often waived as it is invoked, and validly as long as the party is given an opportunity to be heard on his behalf.

• Article 31, Labor Code — The provision requiring surety bonds from recruitment agencies for the protection of overseas Filipino workers; the Court cited this as the legal basis for the bond requirement that the petitioner was bound by.
• Section 4, Book II, Rule II, POEA Rules and Regulations — The implementing rule requiring the surety bond; cited by the Court as the regulatory basis for the bond requirement.
• Section 10, Rule 62 and Section 20, Rule 59, Rules of Court — Referenced in the Aguasin vs. Velasquez excerpt quoted by the Court, these provisions require that damages be awarded upon application and after proper hearing and included in the judgment before a surety can be bound; the Court distinguished these requirements as inapplicable given the contractual stipulations in the surety bond.

Narvasa, C.J., Griño-Aquino and Medialdea, JJ., concurred.