United Pulp and Paper v. Acropolis Central Guaranty
REITERATIONFacts
The Antecedents: United Pulp and Paper Co., Inc. (UPPC) initiated a civil case against Unibox Packaging Corporation and Vicente Ortega for the collection of ₱42,844,353.14. UPPC also sought a Writ of Preliminary Attachment due to the defendants' alleged insolvency and fraudulent transfer of assets. The Regional Trial Court (RTC) granted the writ after UPPC posted a bond. Unibox and Ortega subsequently moved to discharge the attachment, proposing to file a counter-bond. Procedural History: The RTC granted the motion to discharge the attachment, conditioned upon the filing of a counter-bond. Acropolis Central Guaranty Corporation (Acropolis) issued a Defendant’s Bond for Dissolution of Attachment for ₱42,844,353.14. UPPC moved to discharge this counter-bond, citing Acropolis's precarious financial standing, but the RTC denied this motion and approved the counter-bond. Later, UPPC, Unibox, and Ortega entered into a compromise agreement, acknowledging an obligation of ₱35,089,544.00. When Unibox and Ortega defaulted on payments, UPPC sought execution. The sheriff's return indicated no satisfaction of the judgment due to Unibox ceasing operations and assets being foreclosed, and Ortega's inaccessibility. Consequently, the RTC ordered Acropolis to pay the outstanding balance of ₱27,048,568.78 plus interest. Acropolis moved for reconsideration, arguing lack of demand and novation of its obligation due to the compromise agreement. The RTC denied this motion. Acropolis then filed a petition for certiorari with the Court of Appeals (CA), which reversed the RTC's order, absolving Acropolis. UPPC's motion for reconsideration was denied by the CA, leading to the present petition. The Petition: UPPC filed this petition for review under Rule 45 of the Rules of Court, seeking to annul the CA's decision. UPPC argues that the CA erred in not holding Acropolis liable on its counter-attachment bond, asserting compliance with the requisites for recovery, including prior demand and notice, and that the terms of the bond clearly established Acropolis's joint and solidary liability. UPPC also contends that the CA erred in finding that the RTC gravely abused its discretion in denying Acropolis's motion for reconsideration, as the motion failed to comply with the three-day notice rule and lacked merit. The core issues presented are whether UPPC made the required demand and notice upon Acropolis, and whether the compromise agreement constituted a novation that released Acropolis from its obligation under the counter-bond.
Issue(s)
Whether UPPC failed to make the required demand and notice upon Acropolis. Whether the execution of the compromise agreement between UPPC and Unibox and Ortega was tantamount to a novation which had the effect of releasing Acropolis from its obligation under the counter-attachment bond. Whether the RTC gravely abused its discretion in denying Acropolis's motion for reconsideration.
Ruling
The petition is GRANTED. The November 17, 2005 Decision and the March 1, 2006 Resolution of the Court of Appeals are REVERSED and SET ASIDE. The November 30, 2004 Order of the Regional Trial Court, Branch 148, Makati City, ordering Acropolis to comply with the terms of its counter-bond and pay UPPC the unpaid balance of the judgment in the amount of ₱27,048,568.78 with interest of 12% per annum from default is REINSTATED.
Ratio Decidendi
On whether UPPC failed to make the required demand and notice upon Acropolis: The Court finds that UPPC complied with the twin requirements of demand and notice for recovery upon the counter-bond. The filing of the Motion to Order Surety to Pay Amount of Counter-Bond constituted a judicial demand. Acropolis was duly notified of the hearing for this motion and was personally served a copy, contrary to its claim of non-receipt. The records show that Acropolis was given the opportunity to defend itself during the hearings, but it chose to ignore them. Therefore, it cannot invoke the alleged lack of notice and hearing when both requirements were met by UPPC. On whether the execution of the compromise agreement constituted novation releasing Acropolis: The Court holds that no novation occurred that would release Acropolis from its obligation. The terms of the Bond for Dissolution of Attachment clearly state that Acropolis, as surety, jointly and severally bound itself with Unibox and Ortega to secure the payment of ANY judgment that UPPC might recover. The counter-bond replaced the attached properties to ensure UPPC's recovery. The compromise agreement did not contain any express declaration releasing Acropolis, nor were the compromise agreement and the counter-bond incompatible in all points, which are requisites for novation under Article 1292 of the Civil Code. The Court cited Luzon Steel Corporation v. Sia and Mercado v. Macapayag to support the principle that a judgment based on a compromise agreement is still a valid judgment against the surety on a counter-bond. On whether the RTC gravely abused its discretion in denying Acropolis's motion for reconsideration: While the Court found the CA's reasoning on this point to be flawed, it noted that the three-day notice rule is not a hard and fast rule and substantial compliance is allowed. The purpose of the rule is to prevent surprise and give the adverse party time to study and meet the arguments. In this case, UPPC was given sufficient time to file its opposition to Acropolis's motion for reconsideration, thereby affording it the chance to argue its position and satisfying the requirements of procedural due process. The RTC's denial was based on lack of merit and the motion being filed after the scheduled hearing, which the CA had initially found to be an abuse of discretion.
Main Doctrine
A surety on a counter-bond given to secure the payment of a judgment becomes liable upon demand and notice of summary hearing, and the execution of a compromise agreement between the principal debtor and the creditor does not constitute novation that releases the surety from its obligation, absent express declaration or incompatibility.