Excellent Quality Apparel v. Visayan Surety
REITERATIONFacts
The Antecedents: Petitioner Excellent Quality Apparel, Inc. (EQAI) entered into a contract with Multi-Rich Builders for the construction of a factory. Subsequently, Win Multi-Rich Builders, Inc. (Win Multi-Rich) was incorporated. Win Multi-Rich filed a complaint against EQAI and its Vice-President, Ying, for sum of money and damages, and prayed for a writ of attachment, alleging Ying was about to abscond and EQAI was facing closure. Win Multi-Rich secured a bond from Visayan Surety & Insurance Corporation (Visayan Surety). The RTC issued a writ of preliminary attachment. To prevent attachment of its properties, EQAI issued a check for P8,634,448.20 payable to the RTC Clerk of Court. EQAI filed an Omnibus Motion questioning the RTC's jurisdiction due to an arbitration clause in the contract, which was denied. EQAI filed an Answer with Compulsory Counterclaim. The RTC ordered the deposit of garnished funds and later granted Win Multi-Rich's motion to release the cash deposit. Win Multi-Rich posted a surety bond from Far Eastern Surety & Insurance Co., Inc. (FESICO) for P9,000,000.00 to secure the withdrawal of the cash deposit. Procedural History: EQAI filed a petition for certiorari before the Court of Appeals (CA), seeking to annul the RTC orders. The CA annulled the RTC orders but upheld the RTC's jurisdiction. EQAI moved for reconsideration, arguing the CA failed to order the return of the garnished amount. The CA denied the motion. EQAI elevated the matter to the Supreme Court (G.R. No. 175048). The Supreme Court ruled in favor of EQAI, holding that Win Multi-Rich was not a real party in interest, the RTC lacked jurisdiction due to the arbitration clause, and Win Multi-Rich could not retain the garnished amount. The Court ordered Win Multi-Rich to return the garnished amount with legal interest. Win Multi-Rich's motion for reconsideration was denied, and the decision became final and executory. EQAI moved for execution, praying for the return of its cash deposit and, in case of refusal, to hold Visayan Surety and FESICO liable under their bonds. The RTC granted the motion for execution but later lifted its order against the surety respondents, holding that EQAI failed to file a motion for judgment on the attachment bond before the finality of judgment, thus violating their right to due process. EQAI appealed to the CA, arguing the surety respondents' liability was based on their bonds. The CA affirmed the RTC's ruling, citing Section 20, Rule 57 of the Rules of Civil Procedure and the fact that the surety respondents were not impleaded in G.R. No. 175048. The Petition: EQAI filed the present petition for review on certiorari, seeking to reverse the CA's decision and resolution, arguing that the surety companies' right to due process would not be violated if execution against them is allowed and that such execution would give full effect to the judgment.
Issue(s)
Whether the Court of Appeals erred in ruling that the surety companies' right to due process would be violated if execution against them is allowed, specifically concerning Visayan Surety. Whether the Court of Appeals erred in ruling that execution against the surety companies would not give full effect to the judgment, specifically concerning FESICO.
Ruling
The petition is partly meritorious. The Court of Appeals' Decision and Resolution are affirmed with modification. The Regional Trial Court of Manila, Branch 32 in Civil Case No. 04-108940 is ordered to proceed with the execution against Far Eastern Surety & Insurance Co., Inc., to the extent of the amount of the surety bond.
Ratio Decidendi
On the liability of Visayan Surety: The Court held that EQAI failed to comply with Section 20, Rule 57 of the Rules of Court regarding claims for damages on account of improper, irregular, or excessive attachment. This provision requires that an application for damages must be filed before the finality of judgment, with due notice to the attaching party and its surety or sureties, and after proper hearing. In this case, EQAI's answer with compulsory counterclaim, which contained the application for damages, was not served on Visayan Surety. Furthermore, Visayan Surety was not furnished copies of pleadings, motions, processes, and judgments concerning the application for damages. Visayan Surety was only notified of the application when the motion for execution was filed after the judgment in G.R. No. 175048 had become final and executory. Therefore, Visayan Surety could not be held liable under Section 20, Rule 57 due to the lack of due notice before the finality of judgment. On the liability of FESICO: The Court ruled that FESICO's surety bond was not covered by Section 20, Rule 57, but rather by Section 17, Rule 57, which governs recovery upon a counter-bond. This is because FESICO's bond was posted to secure the withdrawal of EQAI's cash deposit, which had been released to Win Multi-Rich. Section 17, Rule 57 allows a party to claim damages on the surety bond after the judgment has become executory, upon demand and after notice and summary hearing. The Court found that EQAI satisfied these requirements: a motion for execution was filed and furnished to FESICO, FESICO was notified of the hearing, FESICO's counsel was present during the hearing, FESICO was given time to submit its comment, and FESICO did file its comment. The Court concluded that FESICO could not escape liability on its surety bond, as it substituted the cash deposit and was intended to answer for any damages inflicted against EQAI. Thus, FESICO is solidarily liable under its surety bond with its principal, Win Multi-Rich.
Main Doctrine
A surety on a counter-bond posted to secure the payment of a judgment becomes liable upon demand and after notice and summary hearing in the same action, as provided under Section 17, Rule 57 of the Rules of Court. However, claims for damages arising from improper, irregular, or excessive attachment must be filed before the finality of judgment with due notice to the attaching party and its surety, as mandated by Section 20, Rule 57.