Material Distributors v. Miles Timber and Transport Corporation
REITERATIONFacts
The Antecedents: Stewart T. Tait leased parcels of land with improvements to Miles Timber and Transport Corporation (lessee) for ten years at P2,700 monthly. The lessee subleased the property to Material Distributors (Phil.) Inc. (sublessee) under the same terms, with rentals payable directly to Tait. Several civil cases arose between the lessee and sublessee. Prentice M. Miles was appointed receiver for the sublessee's properties. Tait terminated the lease in July 1949 due to unpaid rentals from February to June 1949 (P13,500). Harry Lyons, president of the sublessee, did not vacate until June 1950, causing Marscon, Inc. (Tait's new lessee) to deduct P300 monthly from July 1949 to June 1950 (P3,600). Tait also paid unpaid realty taxes (P3,670.53) and utility bills (electricity P419.10, telephone P501.60, water P430.76). Further expenses incurred by Tait included P865.21 for clearing scattered equipment and P1,519.75 for house repairs after Lyons vacated. Miles, as receiver, sold a tractor for P14,500, leaving a balance of P11,838.15 deposited with the court. The sublessee, through Luzon Surety Company, Inc. as surety, posted a P20,000 bond to secure the release of its properties from receivership. Procedural History: The lower court ordered Luzon Surety Company, Inc. to deposit P20,000 for payment to intervenor Stewart T. Tait and cross-claimant Prentice M. Miles. The court had previously rendered judgment authorizing Miles to withdraw P2,308.68 from the deposited P11,838.15 and ordering the sublessee to pay Miles P12,625.86 plus interest. Tait was authorized to receive the remainder of the deposit (P9,529.47) and the sublessee and lessee were ordered to pay Tait P11,377.48 plus attorney's fees of P4,000.00. The court then ordered the surety company to deposit the P20,000 bond amount after hearing on Tait's motion for judgment against the surety. The Petition: Luzon Surety Company, Inc. appealed the order requiring it to deposit P20,000, arguing that the lower court erred in rendering judgment against it without a hearing and in not holding that its liability was not direct but contingent upon the non-existence or loss of the released properties.
Issue(s)
Whether the lower court erred in rendering judgment against the appellant Luzon Surety Co., Inc. without giving it a hearing where it could prove the conditions of its bond were not violated. Whether the lower court erred in not holding that under the condition of its bond, the appellant surety company is not directly answerable for the judgment against the Material Distributors (Phil.), Inc., and that its liability rests only upon a proper showing that the properties it guaranteed no longer exist or have been lost.
Ruling
The Supreme Court affirmed the order of the lower court, holding Luzon Surety Company, Inc. liable for the P20,000 bond. The Court found that the surety company had due notice and hearing before the order was issued. Furthermore, the Court ruled that the bond, posted for the release of properties under receivership, stood in place of the properties and answered for any and all claims by any claimant as owner or lien holder, especially since the surety failed to show that the properties were available to satisfy the claims of Tait and Miles.
Ratio Decidendi
On the first issue (error in rendering judgment without hearing): The Supreme Court found the first assignment of error untenable. The records showed that the lower court explicitly stated in its November 29, 1954 decision that it could not render judgment against the surety without a hearing. Subsequently, Tait filed a motion for judgment, which was set for hearing. The appellant filed an opposition, and Miles filed a similar motion which was also objected to by the appellant. The order complained of was issued on February 15, 1955, after due notice and hearing. Therefore, the appellant's claim of lack of hearing was without basis. On the second issue (nature of the surety's liability): The Supreme Court held that the surety company was directly answerable. The bond was given in consideration of the release of certain properties that were under receivership and subject to the claims of parties like the landlord (Tait) and the receiver (Miles). The circumstances under which the bond was required and filed indicated that it was intended to take the place of the released properties. Moreover, paragraph (c) of the bond explicitly stated that it "shall be payable to the Clerk of this Court and shall answer for any and all claims, demands, suits, rights or causes of action by any claimant thereto as owner or lien holder thereof or otherwise." The appellant did not allege or offer to prove that the properties released were still available to satisfy the claims of Tait and Miles. In the absence of such proof, the Court considered it reasonable to conclude that the properties must have been disposed of and were beyond the reach of the appellees. The surety company's liability was thus established under the terms of the bond.
Main Doctrine
A surety bond posted to guarantee the release of properties under receivership stands in place of the properties themselves and answers for any and all claims against them, including judgments rendered in favor of claimants, especially when the principal fails to account for the properties or demonstrate their availability to satisfy such claims.