Luzon Steel Corp. v. Sia
REITERATIONFacts
The Antecedents: Luzon Steel Corporation sued Metal Manufacturing of the Philippines, Inc. and its manager, Jose O. Sia, for breach of contract and damages. A writ of preliminary attachment was issued against the defendants' properties. The attachment was lifted upon the filing of a P25,000.00 counterbond executed by Jose O. Sia as principal and Times Surety & Insurance Co., Inc. (surety) as solidary guarantor. The counterbond stipulated that the surety would jointly and severally answer for any judgment the plaintiff might recover. Procedural History: Plaintiff and defendant Sia entered into a compromise agreement where Sia agreed to pay P25,000.00 in installments, with the condition that failure to pay any installment would make the entire obligation due and demandable, and a writ of execution would be issued against the defendants' bond. The compromise was approved by the court, which rendered judgment in conformity therewith. The Petition: Defendant Sia failed to comply with the compromise. The plaintiff moved for and obtained a writ of execution against the defendant and the surety's counterbond. The surety moved to quash the writ of execution against it, arguing it was not a party to the compromise and was not given notice and hearing. The trial court granted the motion, quashed the writ of execution against the surety, and later cancelled the counterbond. Luzon Steel Corporation appealed.
Issue(s)
Whether the judgment upon the compromise agreement discharged the surety from its obligation under the attachment counterbond. Whether a writ of execution could be issued against the surety without previous exhaustion of the debtor's properties.
Ruling
The Supreme Court reversed the orders of the lower court, ordering it to proceed with the execution against the surety appellee, Times Surety & Insurance Co., Inc.
Ratio Decidendi
On the issue of whether the judgment upon the compromise agreement discharged the surety: The Court held that the counterbond filed to discharge an attachment stands in place of the property released. Whether the judgment is rendered after trial on the merits or upon a compromise, it may be made effective against the counterbond. The surety's apprehension that the compromise might be a result of collusion was addressed by citing Anzures vs. Alto Surety & Insurance Co., Inc., which held that the surety is not a party to the main case and need not be served notice of a petition for judgment, and that the possibility of collusion exists in both compromise and simulated trials. The Court reiterated that a judgment entered on a stipulation is nonetheless a judgment of the court. Therefore, the compromise agreement did not discharge the surety's obligation. On the issue of whether a writ of execution could be issued against the surety without previous exhaustion of the debtor's properties: The Court clarified that the counterbond in this case was a solidary one, as the surety bound itself "jointly and severally" with the defendant. Under Article 2059, paragraph 2, of the Civil Code, the benefit of excussion (previous exhaustion of the debtor's property) shall not take place if the guarantor has bound himself solidarily with the debtor. The Court emphasized that a procedural rule cannot amend substantive law or nullify express stipulations of the parties. Furthermore, even if the undertaking were not solidary, the surety could not demand exhaustion of the debtor's property without pointing out sufficient leviable property within Philippine territory, as required by Article 2060 of the Civil Code. The Court also noted that the counterbond is conditioned upon the rendition of the judgment, not on the return of the execution unsatisfied, as the undertaking is to pay the judgment.
Main Doctrine
A surety company that executes a counterbond for the discharge of an attachment, binding itself jointly and severally with the principal debtor, cannot invoke the benefit of excussion (previous exhaustion of the debtor's properties) if it has bound itself solidarily with the debtor, as stipulated in Article 2059(2) of the Civil Code. Furthermore, the counterbond stands in place of the property released from attachment, and thus, a judgment rendered upon a compromise agreement may be enforced against the counterbond, regardless of whether the surety was a party to the compromise.