UTILITY ASSURANCE CORPORATION, PLAINTIFF-APPELLEE, VS. CARLOS H. RAVANERA, OSCAR M. RAVANERA, FELINA P. BALBASTRE AND RURAL BANK OF NUEVA CACERES, INC. OF NAGA CITY, DEFENDANTS-…

Utility Assurance versus Ravanera

The Case

This is a case about a surety bond posted to stay execution of a labor judgment, and about who must ultimately bear the cost when that judgment is enforced. Utility Assurance Corporation, the surety, sued Carlos Ravanera and Oscar Ravanera, the principals, together with Felina Balbastre and the Rural Bank of Nueva Caceres, in an action for specific performance and damages, seeking reimbursement after the labor award was satisfied out of its own funds. The Ravaneras in turn filed a third-party complaint against Newsounds Broadcasting Network, their partner in the business that employed the complaining workers. The case matters because it settles a question every labor practitioner must know: does a supersedeas bond lapse when the employer stops paying premiums, and do the collateral agreements securing that bond survive?

Procedural History

The Regional Trial Court of Makati City, Branch 66, rendered judgment ordering Carlos Ravanera and the Rural Bank of Nueva Caceres to pay Utility Assurance actual damages of 840,703.47 pesos with legal interest, a penalty of 160,000 pesos, and attorney's fees of 100,000 pesos. The trial court likewise ruled in favor of the third-party plaintiffs, allowing them subrogation or contribution from Newsounds up to one-half of their liability. Both the Ravaneras and the Rural Bank, on one side, and Newsounds, on the other, appealed. The appeals were elevated to the Supreme Court, which resolved them jointly.

Facts

The Ravaneras and Newsounds were respondents in several labor cases before the National Labor Relations Commission in Naga City. In a decision dated September 30, 1993, the Labor Arbiter found the complainants illegally dismissed and ordered the respondents to pay monetary claims totalling 840,703.47 pesos. To stay execution pending appeal, the Ravaneras posted a surety bond from Utility Assurance in the same amount. To secure their obligation to the surety, Carlos Ravanera executed an Indemnity Agreement and a Deed of Assignment of Bank Deposit, the latter covering deposits held with the Rural Bank of Nueva Caceres, whose branch manager, Felina Balbastre, was the other signatory.

The bond originally ran from October 25, 1993 to October 25, 1994, and was extended to October 25, 1995 upon payment of additional premium. The Ravaneras lost their appeal, and the Labor Arbiter's decision became final and executory. After October 25, 1995, however, the Ravaneras deliberately stopped paying premiums, on the instruction of Oscar Ravanera, believing the bond would be cancelled.

In May 1996 the sheriff issued a notice of garnishment against the bond. Utility Assurance demanded that the bank release the assigned deposits, but the bank refused, claiming that the bond had expired and that the collateral agreements had been extinguished with it. The sheriff then garnished Utility Assurance's own deposits with the Philippine National Bank, and on January 14, 1997 the amount of 840,703.47 pesos was debited from its account. Utility Assurance sued for reimbursement.

Issues

• Whether or not the Ravaneras and the Rural Bank of Nueva Caceres remain liable under the Indemnity Agreement and the Deed of Assignment of Bank Deposit despite the non-renewal of the surety bond.
• Whether or not the trial court properly awarded penalty and attorney's fees.
• Whether or not Newsounds is liable to contribute one-half of the amount, given that it was not a signatory to the indemnity agreement and the deed of assignment.
• Whether or not the third-party complaint should be dismissed on the ground of litis pendentia.

Applicable Provisions

Section 6 of Rule VI of the NLRC Rules of Procedure provides:

SECTION 6. BOND. - In case the decision of the Labor Arbiter or the Regional Director involves a monetary award, an appeal by the employer may be perfected only upon the posting of a bond, which shall either be in the form of cash deposit or surety bond equivalent in amount to the monetary award, exclusive of damages and attorney's fees.

This fixes the bond required to perfect an appeal and stay execution.

The same Section 6 continues:

A cash or surety bond shall be valid and effective from the date of deposit or posting, until the case is finally decided, resolved or terminated, or the award satisfied. This condition shall be deemed incorporated in the terms and conditions of the surety bond, and shall be binding on the appellants and the bonding company.

This is the decisive language: the bond's life is measured by the case, not by the premium.

Ruling

On the first issue, the Court held that the bond remained valid notwithstanding the non-payment of premiums. The condition in the NLRC Rules is deemed incorporated into the bond and binds both appellants and the bonding company. The Court explained that this rule exists to prevent employers from evading judgment by simply refusing to pay premiums. While payment of premium is generally essential to an insurance contract, non-payment does not cancel a surety bond, because a surety bond, once accepted by the obligee, becomes valid and enforceable irrespective of whether the premium has been paid. The Court noted the deliberate intent of the Ravaneras, who knew they had lost their appeal while the bond was still in force. Since the bond subsisted, so did the collateral agreements, for obligations arising from contracts have the force of law between the parties and must be complied with in good faith.

On the second issue, the Court sustained the attorney's fees of 100,000 pesos as an exercise of sound discretion, even though the Indemnity Agreement stipulated twenty percent. It deleted the penalty of 160,000 pesos, however, because penalty interests are in the nature of liquidated damages, which must be agreed upon by the parties, and the Indemnity Agreement was silent on penalties. Legal interest was fixed at six percent per annum.

On the third issue, the Court held Newsounds liable to contribute. As partners, the Ravaneras and Newsounds were agents of one another, and whatever one does for the carrying on of partnership business binds the partnership. Newsounds also benefited from the bond, since the labor decision was stayed as against it too.

On the fourth issue, the Court found the claim of litis pendentia without merit.

Doctrine

A surety bond posted to perfect a labor appeal is valid and effective from posting until the case is finally decided or the award satisfied, and this condition is deemed incorporated into the bond and binds the appellants and the bonding company. Non-payment of premiums does not cancel the bond, because a surety bond, once accepted by the obligee, is valid and enforceable irrespective of premium payment. Consequently, the collateral agreements securing the bond, such as an indemnity agreement and a deed of assignment of bank deposit, remain valid and binding. Penalty interests are liquidated damages and cannot be awarded absent stipulation. Partners are agents of one another, and obligations incurred by one for partnership business bind the partnership.

Disposition

The Supreme Court denied both appeals, affirmed the liability of the Ravaneras and the Rural Bank of Nueva Caceres to reimburse Utility Assurance, deleted the penalty of 160,000 pesos, fixed legal interest at six percent per annum, and upheld the award of contribution from Newsounds.

Remember This

Memorize this line: a surety bond in a labor appeal lives until the case is finally decided or the award satisfied, and no employer can kill it by refusing to pay premiums. Examiners use this case to test the effect of non-payment of premiums on surety bonds, the survival of collateral agreements, and the liability of partners for obligations incurred for the partnership.