PHILIPPINE CHARTER INSURANCE CORPORATION, PLAINTIFF-APPELLEE, VS.MARCOPPER MINING CORPORATION, DEFENDANT-APPELLANT.

Philippine Charter Insurance Corporation versus Marcopper Mining Corporation

The Case

This is a simple collection suit with a hard commercial core. Philippine Charter Insurance Corporation, which everyone calls PCIC, sued Marcopper Mining Corporation to recover the amount it had paid to the National Labor Relations Commission on a supersedeas bond it had issued at Marcopper's request. Marcopper had posted that bond to stay execution of a labor judgment, and when the bond's proceeds were garnished and the check Marcopper had given as security was dishonored, PCIC had to pay out of its own pocket. The case matters because it teaches that a surety who pays on a bond is entitled to reimbursement from the party at whose instance the bond was issued, and that the absence of a signed indemnity agreement does not defeat that right when the bond was in fact issued and the obligation in fact performed.

Procedural History

PCIC filed a complaint for collection of a sum of money against Marcopper before the Regional Trial Court. On November 2, 2004, the trial court ruled in favor of PCIC, ordering Marcopper to pay the principal amount of 512,138 pesos with legal interest of twelve percent per annum from the date of the decision until fully paid, plus attorney's fees equivalent to ten percent of the total claim, an acceptance fee of 40,000 pesos, and the costs of suit. Marcopper appealed. The appeal reached the Supreme Court, which decided the case through its then Third Division, with Justice Barrios writing for the Court and Justices Guariña the Third and Romilla-Lontok concurring.

Facts

Marcopper was the respondent in an illegal dismissal case before the National Labor Relations Commission, filed by Ernesto Monge. Judgment was rendered against Marcopper, ordering it to reinstate Monge and pay him backwages. To stay execution of that decision pending appeal, Marcopper secured a supersedeas bond from PCIC. On March 18, 1997, PCIC issued Supersedeas Bond Number 23532 in favor of Monge in the amount of 512,138 pesos, to secure performance of Marcopper's obligation should the decision be affirmed with finality.

As a condition for issuing the bond, Marcopper delivered to PCIC an undated check for 512,138 pesos payable to the National Labor Relations Commission, drawn against Marcopper's account with the Westmont Bank. Marcopper's broker, Lacson and Lacson Insurance Brokers, confirmed this condition in a letter dated April 4, 1997. Marcopper also undertook to enter into an indemnity agreement with PCIC. PCIC sent Marcopper a pre-signed form of that agreement, but Marcopper never returned it.

On October 15, 2001, the National Labor Relations Commission directed PCIC to release 512,138 pesos as partial satisfaction of Marcopper's judgment obligation, and issued a notice of garnishment the same day. PCIC turned over Marcopper's check to the sheriff, but the check was dishonored when presented for payment. PCIC was therefore forced to pay the Commission the full amount. Its demand letters for reimbursement went unanswered, and so it sued. Marcopper admitted obtaining the bond but argued that it had bound itself to no undertaking because it never signed an indemnity agreement, and that its payment of the bond premium of 5,026 pesos and 96 centavos had extinguished its liability.

Issues

• Whether or not Marcopper is liable to reimburse PCIC for the 512,138 pesos that PCIC paid to the National Labor Relations Commission on account of the supersedeas bond.
• Whether or not the absence of a signed indemnity agreement relieves Marcopper of liability to PCIC.
• Whether or not the award of attorney's fees in favor of PCIC is proper.

Applicable Provisions

The decision does not quote any statutory provision. It rests on the settled rule on attorney's fees, which the Court states in these words:

Attorney's fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party.

This rule bears directly on the third issue, because Marcopper's refusal to reimburse PCIC compelled PCIC to sue.

Ruling

On the first issue, the Court held Marcopper liable. It found it undisputed that the supersedeas bond was issued by PCIC at Marcopper's instance to stay execution of the labor judgment, and that the Westmont Bank check payable to the National Labor Relations Commission was delivered as collateral or additional security for the bond. The Court rejected Marcopper's claim that the check was meant to secure the broker's services, since the check plainly names the Commission as payee, and the broker's letter of April 4, 1997 confirmed that purpose.

On the second issue, the Court held that the missing indemnity agreement did not defeat PCIC's claim. PCIC's unrebutted allegation was that Marcopper refused to execute and sign the agreement after the bond had already been issued. The Court accepted the explanation of PCIC's witness that the agreement was sent to Marcopper for signature but was never returned, the procedure having been adopted to complete the documentary requirements given the urgency of issuing a bond to stay execution.

On the third issue, the Court upheld the award of attorney's fees, applying the rule it quoted: Marcopper's unreasonable refusal to reimburse the amount PCIC had paid compelled PCIC to institute an action for collection to protect its rights and interests, so the award was just and equitable. The Court also stressed that findings of fact of the trial court carry great weight and will not be disturbed on appeal absent a showing that they are contrary to the facts and circumstances of weight and substance in the record.

Doctrine

A surety that issues a supersedeas bond at the instance of a judgment debtor, and that pays the judgment creditor or the proper officer when the bond is garnished and the debtor's collateral check is dishonored, is entitled to reimbursement from the debtor. The debtor's liability arises from the bond transaction itself, not from any formal indemnity agreement; the failure or refusal to sign such an agreement after the bond has been issued and accepted does not extinguish the obligation. A check delivered as additional security for the bond, payable to the tribunal or creditor, is exactly what it says on its face, and the debtor cannot later recast its purpose. Finally, attorney's fees may be awarded when a party is compelled to litigate or to incur expenses to protect his interest by reason of an unjustified act of the other party, and the factual findings of the trial court are accorded great weight on appeal.

Disposition

The Supreme Court denied Marcopper's appeal and affirmed the trial court's decision in full, holding Marcopper liable for 512,138 pesos with twelve percent legal interest per annum, plus attorney's fees, acceptance fee, and costs.

Remember This

Memorize this line: a surety who pays on a bond issued at the debtor's instance may recover reimbursement from that debtor, and the absence of a signed indemnity agreement is no defense. Examiners use this case to test the surety's right of reimbursement and the requisites for an award of attorney's fees grounded on a party's unjustified refusal to pay.