Leelin Marketing Corporation v. Belfast Surety & Insurance Co., Inc.
REITERATIONFacts
The Antecedents: Plaintiff Leelin Marketing Corporation (LEELIN) filed an action for a sum of money against defendants Mario Santos and Aurelio Cartano, doing business as C & S Agro Development Company. LEELIN procured a writ of preliminary attachment, leading to the seizure of merchandise and vehicles. The defendants, through Belfast Surety and Insurance Co., Inc. (Surety), posted a counterbond in the amount of P20,000.00 to secure the discharge of the attachment. The counterbond stipulated that the Surety would pay all costs and damages sustained by LEELIN if the attachment was finally adjudged wrongful and without sufficient cause. Procedural History: Defendants failed to appear for trial, and evidence was received by a commissioner. The trial court rendered a decision ordering the defendants to pay LEELIN P14,020.26 plus interest, P3,505.07 as attorney's fees, and P1,312.25 for expenses related to the case and attachment. The decision became final and executory. A writ of execution was issued but returned unsatisfied. LEELIN moved to charge the Surety on its counterbond. The Surety opposed, denying liability. The trial court denied LEELIN's motion, holding that the Surety could not be held liable for the monetary judgment because it was not given notice and a hearing before the judgment became final, applying Section 20 of Rule 57. The Petition: LEELIN appealed the trial court's order denying its motion to charge the Surety.
Issue(s)
Whether the counterbond posted for the discharge of an attachment is liable for the money judgment in favor of the judgment creditor. Whether the trial court erred in applying Section 20 of Rule 57 of the Rules of Court to the counterbond posted under Section 12 of Rule 57; and whether the bond should be reformed to include the statutory purpose of securing the judgment.
Ruling
The Supreme Court reversed the order of the trial court. It held that the counterbond posted for the discharge of an attachment is liable for the money judgment. The Court ordered the trial court to proceed with the execution against Belfast Surety and Insurance Co., Inc., to the extent of the amount of the counterbond.
Ratio Decidendi
On the issue of the counterbond's liability for the money judgment: The Court clarified the distinction between a bond for the issuance of an attachment (Section 4, Rule 57) and a counterbond for the discharge of an attachment (Section 12, Rule 57). It emphasized that a counterbond under Section 12 is filed to secure the payment of any judgment that the attaching creditor may recover in the action. When execution against the principal debtor is returned unsatisfied, the surety on the counterbond becomes charged and liable for the judgment amount after notice and summary hearing, as provided in Section 17 of Rule 57. The Court found that LEELIN had substantially complied with these requisites by issuing a writ of execution, having it returned unsatisfied, filing a motion to charge the Surety, serving notice of hearing, and holding a summary hearing. The trial court's reliance on Section 20, Rule 57, which pertains to claims for damages on account of illegal attachment, was deemed misplaced as it did not apply to the liability of a counterbond for the main judgment. On the issue of the application of Section 20, Rule 57 and reformation of the instrument: The Court noted that while the literal terms of the bond did not explicitly state liability for the judgment, it found a mutual mistake of the parties in executing the bond. The Surety posted the bond "in consideration of the lifting of said attachment," and the law (Section 12, Rule 57) requires such a bond to secure the payment of any judgment. The Court held that the statute under which the bond is given is read into the bond, and any conditions contrary to law are treated as surplusage. Therefore, the bond should be reformed to include the statutory purpose of securing the judgment. The Surety was estopped from denying the purpose and intent of the bond, as doing so would allow it to enrich itself by its own bad faith. The Court cited Article 1361 of the Civil Code on reformation due to mutual mistake and jurisprudence supporting the principle that statutory or judicial bonds are governed by the law requiring them.
Main Doctrine
A counterbond posted for the discharge of an attachment, under Section 12 of Rule 57 of the Rules of Court, secures the payment of any judgment that the attaching creditor may recover in the action. When execution against the principal debtor is returned unsatisfied, the surety on the counterbond becomes liable for the judgment amount after notice and summary hearing, and the statute requiring such security is read into the bond, overriding any contrary stipulations.