Philippine Charter Insurance Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: In December 1981, Learjet Phil. Inc. initiated a lawsuit against Gates Learjet Corporation and Gates Learjet Export Corporation. Upon Learjet Phil. Inc.'s application and the posting of an attachment bond by Philippine Charter Insurance Corporation (then Phil-Am Assurance Co., Inc.), a writ of preliminary attachment was issued, leading to the seizure of a Learjet aircraft owned by the defendants. The trial court initially ruled in favor of Learjet Phil. Inc., awarding substantial damages. However, this decision was later reversed by the Court of Appeals, which dismissed the complaint and ordered Learjet Phil. Inc. to pay damages to the defendants for the wrongful attachment of the aircraft. Procedural History: Following the Court of Appeals' reversal and dismissal of the case, the defendants filed a petition seeking to enforce the damages awarded to them against the attachment bond posted by Philippine Charter Insurance Corporation. The Court of Appeals, by Resolution dated March 10, 1987, denied Learjet Phil. Inc.'s motion for reconsideration, noted the defendants' claim for damages against the surety, and referred the matter to the trial court for hearing and decision, pursuant to Section 20, Rule 57 of the Rules of Court. The plaintiff's subsequent petition to this Court for review was denied. Upon remand, the trial court ordered the execution of the judgment against the plaintiff and, subsequently, sought to enforce it against the surety. The surety then filed a motion to recall the writ of execution, which the trial court overruled, finding that the application for damages was timely filed and that it retained jurisdiction. The surety's subsequent petition to the Court of Appeals seeking annulment of the trial court's orders was also denied. The Petition: The petitioner, Philippine Charter Insurance Corporation, is before this Court seeking the reversal of the Court of Appeals' decision promulgated on March 8, 1989, which denied its petition for certiorari, prohibition, and preliminary injunction. The petitioner argues that it was denied due process and that the defendants failed to file a proper application for damages against the surety within the prescribed period. The Court of Appeals, however, found that the general prayer in the defendants' petition was broad enough to encompass the claim for damages, that the referral to the trial court was consistent with Supreme Court rulings and its own prior resolution, and that the damages contemplated were those sustained during the pendency of the appeal due to the wrongful attachment, necessitating a hearing by the trial court.
Issue(s)
Whether the surety on an attachment bond may be held liable for damages resulting from a wrongful attachment. Whether an application for damages against the surety was timely and properly filed pursuant to Section 20, Rule 57 of the Rules of Court. Whether the trial court retained competence to hear and decide the application for damages after the appellate court's judgment. Whether due process requires that the surety be accorded a summary hearing before being held liable on the attachment bond.
Ruling
The petition is dismissed for lack of merit, with costs against the petitioner. The Court held that the defendants' application for damages against the surety was seasonable and properly referred to the trial court under Section 20, Rule 57 of the Rules of Court; the surety may be held solidarily liable for all damages caused by the wrongful attachment for the entire period the attachment was in force (subject to the limit of the bond) but must be accorded due process by way of a hearing on the application.
Ratio Decidendi
On Whether the surety may be held liable for damages: The Court explained that the filing of an attachment bond constitutes a voluntary submission by the surety to the court's jurisdiction and that the surety binds itself to pay costs and damages "if the court shall finally adjudge that the applicant was not entitled to the attachment." The surety's liability is solidary with the principal but limited to the amount stated in the bond. The Court reasoned that liability attaches not automatically with any judgment against the principal, but upon a final adjudication that the attachment was wrongful and upon observance of due process directed to the surety. Applying established authorities such as Visayan Surety and Insurance Corporation v. Pascual and the Facundo decisions, the Court reiterated that the surety's obligation covers all damages arising from the wrongful attachment for the period the attachment was in force, from levy to dissolution. The Court therefore sustained the proposition that the surety may be compelled to answer on its bond for damages properly proven and adjudged, up to the bond limit. On Timeliness under Section 20, Rule 57: The Court analyzed Section 20, Rule 57 and emphasized its prescription that the application for damages must be filed "before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching creditor and his surety or sureties." The Court held that where, as here, the trial court's judgment did not afford occasion to file an application for damages (because the trial court had initially sustained the attachment), filing the application after the appellate court reversed but before the appellate judgment became executory was seasonable. The Court explained that the second paragraph of Section 20, Rule 57 addresses damages suffered during appeal only because the first paragraph assumes damages at trial were included in the final judgment; where the appellate court first declares the attachment wrongful, the applicant may seek all damages sustained during the entire period the attachment was in force. The Court therefore found the defendants' petition timely and correctly referred to the trial court for hearing and determination. The Court noted that the filing of the defendants' petition and the Court of Appeals' March 10, 1987 referral comported with the procedural prescription of the rule. On Jurisdiction and Competence of the Trial Court: The Court held that the trial court did not lose competence to hear the application for damages simply because the appellate court's judgment became final; rather, the appellate court expressly referred the matter to the trial court "to hear and decide" pursuant to Section 20, Rule 57. The Court observed that such referral is authorized by the rule and that the trial court's subsequent proceedings, including issuance of preliminary injunction and setting of hearings, were within proper exercise of jurisdiction. The Court emphasized that the trial court must conduct the summary hearing contemplated by the rule to determine the extent of principal and surety liability. Accordingly, the trial court's orders were upheld insofar as they preserved the surety's right to be heard and the defendants' right to pursue damages. On Due Process and the Hearing Requirement: The Court stressed that although the final adjudication that the applicant was not entitled to the attachment is necessary to fix liability, it is not alone sufficient to bind the surety; the surety must be given due process, typically by a summary hearing under Section 20, Rule 57, unless it had previously been impleaded or given actual notice and opportunity to participate in the trial. The Court reiterated that if the surety had not been earlier impleaded or notified, the summary hearing remains indispensable to determine the surety's liability on the bond. The Court therefore affirmed the necessity of providing the surety an opportunity to be heard before enforcing the bond.
Main Doctrine
A surety on an attachment bond may be held solidarily liable for all damages occasioned by a wrongful attachment for the entire period the attachment was in force (from levy to dissolution), limited only to the amount of the bond; such liability may be enforced provided the application for damages is filed with notice before the judgment of the appellate court becomes executory and the surety is accorded a summary hearing under Section 20, Rule 57 of the Rules of Court.