Centennial Guarantee Assurance Corporation vs. Universal Motors Corporation

Good reasons for execution pending appeal against a judgment debtor automatically apply to its surety on an injunction bond, because the surety is considered the same party as the debtor with respect to the adjudged obligation, and their liabilities are inseparable. Further, an injunction bond under Section 4(b), Rule 58 of the Rules of Court covers all damages sustained by the enjoined party by reason of the wrongful issuance of the injunction, up to the bond amount, even if some damages are listed only in the body of the decision.

Nissan Specialist Sales Corporation (NSSC) and its President Reynaldo A. Orimaco filed a complaint for breach of contract with damages against Universal Motors Corporation (UMC) and the other respondents. To secure a temporary restraining order and later a writ of preliminary injunction, NSSC and Orimaco posted a ₱1,000,000.00 injunction bond issued by CGAC. The injunction prevented respondents from selling Nissan products and from terminating the dealer agreement. The Court of Appeals subsequently dissolved the injunction on certiorari, holding that it had been issued without a clear legal right. Respondents then applied for damages against the injunction bond. The trial court dismissed the main complaint but awarded damages for the wrongful injunction, and later granted execution pending appeal against NSSC, Orimaco, and CGAC.

The Injunction Bond and Its Dissolution:

• NSSC and its President and General Manager Reynaldo A. Orimaco filed a complaint for breach of contract with damages against respondents UMC, Rodrigo T. Janeo, Jr., Gerardo Gelle, Nissan Cagayan de Oro Distributors, Inc. (NCOD), Jefferson U. Rolida, and Peter Yap.
• To secure the issuance of a temporary restraining order and a writ of preliminary injunction, NSSC and Orimaco posted a ₱1,000,000.00 injunction bond through their surety, CGAC.
• The injunction restrained respondents from dealing in Nissan vehicles and spare parts, from terminating the dealer agreement, and from supplying NCOD within NSSC’s territory.
• On certiorari, the Court of Appeals dissolved the injunction for having been issued without a clear legal right; respondents then applied for damages against the bond.

The RTC Decision on the Main Case:

• On October 31, 2007, the RTC dismissed the complaint for breach of contract and ruled that respondents were entitled to recover damages on the injunction bond because the preliminary injunction had been improvidently issued.
• The dispositive portion ordered NSSC, Orimaco, and CGAC jointly and severally to pay: (a) to UMC, actual damages of ₱928,913.68 and lost opportunities of ₱14,271,266.00; (b) to NCOD, Rolida, and Yap, ₱50,000.00 as attorney’s fees and ₱500,000.00 as lost income; and (c) to each respondent, exemplary damages of ₱300,000.00.
• The body of the decision additionally found that UMC had incurred damages of ₱4,199,355.00 due to loss of sales in 2002, the year the injunction was in effect.

Execution Pending Appeal:

• Respondents moved for execution pending appeal. The RTC granted the motion in an Order dated January 16, 2008, identifying the following good reasons: NSSC was under rehabilitation and in imminent danger of insolvency; it had ceased business operations as an authorized Nissan dealer; Orimaco had permanently migrated abroad with his family; and NSSC failed to post a supersedeas bond.
• A writ of execution pending appeal was issued. CGAC challenged the order before the CA, arguing that no good reasons existed against a mere surety and that its liability should be capped at ₱500,000.00.

• Existence of Good Reasons: CGAC argued that the “good reasons” found by the trial court—NSSC’s insolvency and Orimaco’s flight—pertained exclusively to the principal debtors. CGAC maintained that as a separate entity with a different financial standing, it could not be subjected to execution pending appeal absent a showing of its own imminent insolvency.
• Amount of Liability: CGAC contended that its obligation under the injunction bond should be limited to ₱500,000.00, the amount expressly awarded to NCOD, Rolida, and Yap in the dispositive portion of the RTC decision. It insisted that the damages to UMC stated only in the body of the decision were not part of the adjudged liability for which the bond stood as security.

• Surety Liability and Good Reasons: Respondents countered that a surety is deemed by law to be the same party as the debtor with respect to the adjudged obligation; their liabilities are interwoven and inseparable. Thus, the compelling circumstances of NSSC’s rehabilitation and Orimaco’s flight likewise warrant immediate execution against CGAC to prevent the judgment from becoming illusory.
• Full Bond Coverage: Respondents argued that under Section 4(b), Rule 58 of the Rules of Court, the injunction bond answers for all damages caused by the wrongful issuance of the preliminary injunction. Since the damages found by the trial court exceeded ₱1,000,000.00, CGAC’s liability should exhaust the entire face value of the bond.

• Good Reasons for Execution Pending Appeal Against Surety: Whether the existence of good reasons—insolvency of the corporate principal and flight of the individual principal—justifies execution pending appeal against the surety on the injunction bond.
• Extent of Liability on Injunction Bond: Whether CGAC’s liability under the injunction bond should be confined to ₱500,000.00, the amount mentioned in the dispositive portion for NCOD, Rolida, and Yap, or to the full ₱1,000,000.00 face amount of the bond.

• Good Reasons for Execution Pending Appeal Against Surety: Execution pending appeal against CGAC was proper because the same compelling circumstances that justified immediate execution against the principal debtors also applied to their surety. A surety is considered the same party as the debtor in relation to the adjudged obligation, and their liabilities are interwoven as to be inseparable. In a contract of suretyship, the surety lends credit by joining the principal’s obligation, rendering itself directly and primarily responsible without reference to the principal’s solvency. NSSC’s state of rehabilitation, its cessation of operations, and Orimaco’s permanent migration abroad constituted superior circumstances demanding urgency that outweighed any injury to CGAC; absent immediate execution, respondents’ chances of recovering on the judgment would be nullified.

• Extent of Liability on Injunction Bond: CGAC’s liability was correctly fixed at the full ₱1,000,000.00 face amount of the injunction bond. Section 4(b), Rule 58 of the Rules of Court makes the bond answerable for all damages occasioned by the improper issuance of a writ of preliminary injunction. The trial court found, in the body of its decision, that UMC suffered ₱4,199,355.00 in lost sales in 2002 as a direct result of the injunction. Together with the ₱500,000.00 awarded to NCOD, Rolida, and Yap, the total damages exhausted the bond amount. The fact that the UMC damages were not repeated in the dispositive portion did not diminish CGAC’s joint and several liability for all damages caused by the improvident injunction up to the bond’s limit.

• Good reasons for execution pending appeal — Under Section 2, Rule 39 of the Rules of Court, “good reasons” consist of compelling circumstances justifying immediate execution, lest the judgment become illusory—i.e., the prevailing party’s chances of recovery are altogether nullified. The standard imports a superior circumstance demanding urgency that outweighs injury or damage to the adverse party. Imminent danger of insolvency of the defeated party is a recognized good reason. Here, the combination of NSSC’s rehabilitation and cessation of business, plus Orimaco’s flight abroad, satisfied this standard.

• Surety’s identity with the debtor for purposes of execution — A surety is considered by law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter; their liabilities are interwoven as to be inseparable. Because a surety binds itself directly and primarily without reference to the solvency of the principal, the same exigent reasons that justify execution pending appeal against the debtor also warrant execution against the surety.

• Liability on an injunction bond — Under Section 4(b), Rule 58, an injunction bond is answerable for all damages that the enjoined party may sustain by reason of the injunction if it is finally determined that the applicant was not entitled to the writ. The bond obligates the bondsmen to account for all damages, costs, and reasonable attorney’s fees incurred due to the wrongful injunction. Coverage extends to all damages found to have been caused by the injunction, even if some are stated only in the body of the decision, up to the face amount of the bond.

• “Good reasons consist of compelling circumstances justifying immediate execution, lest judgment becomes illusory, that is, the prevailing party’s chances for recovery on execution from the judgment debtor are altogether nullified. The ‘good reason’ yardstick imports a superior circumstance demanding urgency that will outweigh injury or damage to the adverse party and one such ‘good reason’ that has been held to justify discretionary execution is the imminent danger of insolvency of the defeated party.”

• “As the latter’s surety, CGAC is considered by law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.”

• “Verily, in a contract of suretyship, one lends his credit by joining in the principal debtor’s obligation so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal.”

• “The bond insures with all practicable certainty that the defendant may sustain no ultimate loss in the event that the injunction could finally be dissolved. Consequently, the bond may obligate the bondsmen to account to the defendant in the injunction suit for all: (1) such damages; (2) costs and damages; (3) costs, damages and reasonable attorney's fees as shall be incurred or sustained by the person enjoined in case it is determined that the injunction was wrongfully issued.”

• Archinet International, Inc. v. Becco Philippines, Inc., 607 Phil. 829 (2009) — Followed as authority that execution pending appeal is an exception requiring good reasons.
• Government Service Insurance System v. Prudential Guarantee and Assurance, Inc., G.R. Nos. 165585 and 176982, November 20, 2013, 710 SCRA 337 — Followed for the definition of “good reasons” as a superior circumstance demanding urgency.
• Phil. Nails & Wires Corp. v. Malayan Insurance Co., Inc., 445 Phil. 465 (2003); Philippine National Bank v. Puno, 252 Phil. 234 (1989) — Cited and followed for the principle that imminent insolvency constitutes good reason for execution pending appeal.
• Lim v. Security Bank Corporation, G.R. No. 188539, March 12, 2014 — Followed for the rule that a surety is deemed the same party as the debtor.
• Palmares v. CA, 351 Phil. 664 (1998) — Followed for the definition of suretyship as creating direct and primary liability without reference to the principal’s solvency.
• Paramount Insurance Corp. v. CA, 369 Phil. 641 (1999) — Followed for the scope of an injunction bond covering all damages occasioned by a wrongful injunction.

• Section 2, Rule 39, Rules of Court — Requires “good reasons” for execution pending appeal. Applied to sustain immediate execution based on the principal debtor’s insolvency and the flight of its president.
• Section 4(b), Rule 58, Rules of Court — Provides that an injunction bond is answerable for all damages sustained by reason of the injunction if it is finally decided that the applicant was not entitled thereto. Applied to hold CGAC liable up to the full ₱1,000,000.00 bond amount for damages sustained by both UMC and the other respondents.

Chief Justice Maria Lourdes P.A. Sereno (Chairperson), Justices Teresita J. Leonardo-De Castro, Lucas P. Bersamin, and Jose Portugal Perez.