Visayan Surety v. Central Bank
REITERATIONFacts
The Antecedents: The Bank of the Commonwealth was placed in liquidation in 1943. In November 1951, it received a U.S. Treasury Check for war damage reparations. The Central Bank of the Philippines instructed banks not to accept or pay this check. The Bank of the Commonwealth filed Civil Case No. 14452 against the Central Bank, seeking to compel payment of the check. A preliminary injunction was issued upon the filing of a P5,000 bond by Visayan Surety & Insurance Corporation (Visayan Surety). Subsequently, an additional bond of P19,500 was required and filed by Union Surety & Insurance Co., Inc. Later, the Central Bank lifted its order, and the U.S. Treasury check was collected. Procedural History: The Bank of the Commonwealth filed a motion to dismiss Civil Cases Nos. 8352 and 14452, and also prayed for the transfer of the bond filed in Civil Case No. 14452 (totaling P24,500, with Visayan Surety's P5,000) to Special Proceedings No. R-1930 (the liquidation proceeding). This motion was granted by the Court of First Instance (CFI) of Manila. Subsequently, the CFI ordered the liquidator to use the proceeds of the war damage check to pay claims against the Bank of the Commonwealth. When the Bank of the Commonwealth failed to turn over the proceeds, the liquidator moved to forfeit the bond. Visayan Surety opposed, arguing the court lacked jurisdiction and that the transfer of the bond was erroneous and illegal, as it had not consented to the transfer or been notified. The CFI granted the forfeiture on January 13, 1956. Visayan Surety's motion for reconsideration was denied, though it claimed improper service of notice. The CFI then granted a writ of execution, which Visayan Surety moved to vacate, but this was denied. Visayan Surety filed a petition for certiorari and prohibition with the Supreme Court. The Petition: Visayan Surety sought to annul the orders of forfeiture and execution, and to prohibit further proceedings against it.
Issue(s)
Whether the Court of First Instance had the authority to order the transfer of the surety bond filed in Civil Case No. 14452 to Special Proceedings No. R-1930 without the consent of the surety, Visayan Surety & Insurance Corporation. Whether the order of forfeiture of the bond in Special Proceedings No. R-1930 was valid.
Ruling
The Supreme Court set aside the orders of the lower court dated August 18, 1954, and January 13, 1956, and made permanent the preliminary injunction issued by the Supreme Court. The petition for certiorari and prohibition was granted.
Ratio Decidendi
On the authority to transfer the surety bond: The Court held that the surety bond, undertaken by Visayan Surety & Insurance Corporation for P5,000 in Civil Case No. 14452, was specifically filed to secure payment of damages that the defendants might sustain by reason of the issuance of the injunction in that case, should it be finally decided that the plaintiff was not entitled to such a writ. The records show that the bond was filed to guarantee only the payment of damages resulting from the issuance of the writ of injunction in Civil Case No. 14452. The Court emphasized that the extent of a surety's liability is determined by the terms of the contract of suretyship. In this instance, the surety neither agreed to the transfer of the bond to another case nor acquiesced to it. The principal, the defendants in Civil Case No. 14452, and the Court failed to notify the surety or even serve notice of the order approving the motion for transfer. Therefore, the Court concluded that upon the dissolution of the writ of injunction in Civil Case No. 14452, the surety's obligation under the bond was terminated. The Court found that the lower court was without authority to order the transfer of the bond to another case without the surety's consent or notification, rendering the order of August 3, 1954, as amended by the order of August 18, 1954, null and void. The Court cited Government of the Philippine Islands vs. Herrera and La Insular vs. Machuca Gotauco et al. to support the principle that the surety's liability is strictly limited by the contract. On the validity of the order of forfeiture: Since the Court found the order transferring the bond to be null and void, it logically followed that the subsequent order of January 13, 1956, ordering the forfeiture of the bond in Special Proceedings No. R-1930, was likewise a nullity. The Court also addressed the respondents' argument that the order denying the motion for reconsideration had become final and executory due to alleged notice. However, the Court found that notice of the order denying the motion for reconsideration was improperly served upon the surety company itself and not upon its counsel of record. Citing the doctrine in Chainani vs. Tancinco et al., the Court held that service upon the party and not upon its attorney of record is improper and inadequate notice, and does not start the period to appeal. Therefore, the order denying the motion for reconsideration had not become final as far as the surety was concerned. This finding, however, was deemed beside the point in view of the ruling on the basic issue of the bond's transfer.
Main Doctrine
A surety bond filed to answer for damages arising from the issuance of a writ of injunction in a specific case cannot be transferred to another proceeding without the surety's consent, and the court is without authority to order such transfer, rendering subsequent orders of forfeiture and execution null and void.