DANILO R. FRANCO, PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION, HON. LABOR ARBITER SALIMATHAR NAMBI, JOHNNY’S MEAT SUPPLY CO., INC., AND/ OR JOHNSON A. CO, BF GENERAL INS…

Franco versus Johnny's Meat Supply

The Case

This is a petition for certiorari brought by Danilo R. Franco against the National Labor Relations Commission, the labor arbiter, Johnny's Meat Supply Company, Incorporated and Johnson A. Co, and BF General Insurance Company, Incorporated. Franco had won a final judgment for illegal dismissal against his former employer, but when he moved to execute it the employer had vanished and the surety that posted the appeal bond refused to pay, claiming the bond had expired. The case matters because it fixes the rule that an appeal bond in a labor case subsists until the final disposition of the case, and that a stipulation shortening its life is void.

Procedural History

Franco filed a complaint for illegal dismissal and money claims before the labor arbiter. The labor arbiter rendered a decision finding him constructively dismissed and ordering backwages and separation pay. The employer appealed to the National Labor Relations Commission and posted a surety bond, but the Commission dismissed the appeal as filed out of time and denied reconsideration. The employer then went to the Court of Appeals on certiorari; that court affirmed the Commission with a modification of the backwages computation, and denied reconsideration. The employer elevated the matter to the Supreme Court, which denied the petition and later denied reconsideration, so the judgment became final and executory in January 2001.

Franco then sought execution. The labor arbiter issued a writ against the employer and, for partial satisfaction, against the bonding company. The writ was returned unserved because the employer could no longer be found, and the bonding company refused to pay, invoking the expiry date on the face of the bond. The labor arbiter issued an order denying the alias writ against the bonding company. Franco came to the Supreme Court by petition for certiorari, alleging grave abuse of discretion.

Facts

In 1992 Franco sued Johnny's Meat Supply and Johnson A. Co for illegal dismissal and for unpaid wages, premium pay, service incentive leave pay and thirteenth month pay. The labor arbiter ruled in his favor in June 1997, finding constructive dismissal and awarding backwages and separation pay.

The employer appealed and posted a surety bond issued by BF General Insurance in the sum of 93,810 pesos. The bond carried a stipulation that the surety's liability would expire on August 13, 1998, that notice of claims must be given within fifteen days from that date, and that any action against the surety must be filed within one year. The appeal was dismissed as late, and that dismissal was ultimately affirmed all the way to the Supreme Court, with a modification of the backwages computation.

When Franco finally moved for execution, the employer was no longer operating at its address and had no account with the bank garnished. The bonding company likewise refused to pay, saying the bond had expired. The labor arbiter agreed, holding that the bond expired on its stated date, that the bonding company was not a party to the joint declaration under oath, and that Franco had not questioned the expiry date when the bond was posted. Hence this petition.

Issues

• Whether or not certiorari is the proper remedy from the labor arbiter's order, despite the rule requiring appeal to the Commission and the doctrine of exhaustion of administrative remedies.
• Whether or not the surety bond subsists until the final disposition of the case, notwithstanding the stipulation limiting its effectivity to August 13, 1998.
• Whether or not non-payment of premiums after the supposed expiry date extinguishes the bonding company's liability.

Applicable Provisions

Section 6, Rule VI of the NLRC Rules of Procedure, as it stood when the bond was posted, provides:

Section 6. BOND. In case the decision of a Labor Arbiter, the Regional Director or his duly authorized Hearing Officer involves a monetary award, an appeal by the employer shall be perfected only upon the posting of a cash or surety bond, which shall be in effect until final disposition of the case, issued by a reputable bonding company duly accredited by the Commission or the Supreme Court in an amount equivalent to the monetary award, exclusive of damages and attorney's fees.

This is the provision that fixes the life span of the bond and that the stipulation in the bond cannot override.

Section 1, Rule VI of the New Rules of Procedure of the NLRC provides:

Section 1. PERIODS OF APPEAL. Decisions, awards or orders of the Labor Arbiter shall be final and executory unless appealed to the Commission by any or both parties within ten calendar days from receipt of such decisions, awards or orders of the Labor Arbiter.

This is the provision that identifies appeal, not certiorari, as the remedy from the assailed order.

Ruling

On the first issue, the Court held that the appropriate remedy was appeal to the Commission, and that certiorari cannot ordinarily substitute for a lost appeal. But the doctrine of exhaustion of administrative remedies is not a hard and fast rule and does not apply where the issue is purely legal, as here. In the interest of substantial justice, especially in cases involving the rights of workers, procedural lapses may be disregarded. Blind adherence to the rule would work a miscarriage of justice, since Franco's case had been pending since 1992 and the employer had disappeared by the time judgment became final.

On the second issue, the Court held that the bonding company's liability subsists. To rule otherwise would defeat the purpose of the appeal bond, which is to assure the worker that if he finally prevails the monetary award will be paid upon dismissal of the employer's appeal. Although the rules then in force did not require a joint declaration under oath, that did not mean the bond's effectivity could be shortened by agreement of employer and surety. The Court quoted with approval the ruling that the one-year period in a surety bond refers not to its duration but merely to the payment of premiums, and does not affect its effectivity. Employers and bonding companies cannot, by shortening the period of the surety's liability, circumvent the express requirement of the law. The Court quoted its own pronouncement that:

Rules of procedure are matters of public order and interest and unless the rules themselves so allow, they cannot be altered, changed or regulated by agreements between or stipulations of the parties for their singular convenience.

Hence the stipulation limiting liability to August 13, 1998 is null and void from the beginning and forms no part of the bond agreement.

On the third issue, the Court held that non-payment of premiums is of no moment, since a bond is not extinguished by reason alone of non-payment of the premium. The appeal bond in labor cases is not an ordinary suretyship but one intended to protect the paramount rights of workers, and the worker, not being privy to the surety agreement, should not be prejudiced. To hold otherwise would encourage employers and sureties to conspire against workers, leaving them with a Pyrrhic victory.

Doctrine

A surety bond posted to perfect an employer's appeal in a labor case is in effect until the final disposition of the case. Any stipulation in the bond shortening that period is null and void from the beginning, because rules of procedure are matters of public order that the parties cannot alter by agreement. Non-payment of premiums does not extinguish the bond, and the worker, not being privy to the surety contract, cannot be prejudiced by it. Procedural rules may be relaxed where strict application would frustrate substantial justice, particularly in cases involving the rights of workers.

Disposition

The petition was granted; the labor arbiter's order was annulled and set aside, and the labor arbiter was ordered to issue an alias writ of execution against BF General Insurance for 93,810 pesos.

Remember This

Memorize the line that the appeal bond shall be in effect until final disposition of the case, and that any stipulation shortening it is void. Examiners use this case to test the effect of an expired surety bond on a worker's final judgment and the relaxation of procedural rules in labor cases.