Luzon Surety Co., Inc. vs. Morin de Marbella

A surety on a receiver’s bond cannot be held liable thereunder without prior notice and an opportunity to be heard, notwithstanding the solidary nature of its obligation; the summary procedure for recovery against sureties prescribed in Rule 59, Section 20, in relation to Rule 61, Section 9, governs only bonds filed by the parties, not the bond filed by the receiver himself. Solidarity merely dispenses with the benefit of excussion but does not deprive the surety of the right to present personal defenses and to contest the extent of liability in a proper hearing.

Civil Case No. 3186 of the Court of First Instance of Negros Occidental, entitled Fidela Morin Vda. de Marbella vs. Victorino Kilayko, et al., ended in a judgment declaring plaintiff the lawful heir to the estate of Matias Morin and ordering defendants to reconvey the estate properties. The trial court placed the estate under receivership. On appeal to the Supreme Court (G.R. No. L-11141), Leopoldo Anoche was appointed receiver on 6 June 1956 at the instance of plaintiff Morin. Anoche posted a P5,000 bond subscribed by himself as principal and Luzon Surety Co., Inc. as surety. The Supreme Court affirmed the judgment with modifications on 27 June 1958; the decision became final on 6 August 1958, and the case was remanded for execution. On 16 March 1959, the receiver submitted his final statement of accounts, which revealed that part of the cash and some titles entrusted to him were missing. Plaintiff moved for confiscation of the bond. The trial court, after the receiver admitted he had no money left, referred the matter for criminal investigation and subsequently ordered, without notifying the surety, that execution issue against the receiver’s bond. The writ was served on Luzon Surety Co. and its bank account garnished.

• The Receivership: Fidela Morin Vda. de Marbella won a judgment in CFI Negros Occidental against Victorino Kilayko, et al., declaring her heir to Matias Morin’s estate and ordering reconveyance of properties. The estate was ordered under receivership. Pending appeal by defendants to the Supreme Court, Leopoldo Anoche was appointed receiver on 6 June 1956 upon plaintiff’s petition. He filed a P5,000 bond on 2 July 1956 with Luzon Surety Co., Inc. as surety, conditioned on his faithful discharge of duties and obedience to court orders.

• Receiver’s Defalcation: After the Supreme Court affirmed the judgment and the case was remanded, receiver Anoche submitted a final statement of accounts on 16 March 1959. The account revealed that part of the cash and some titles entrusted to him were missing or unaccounted for. Plaintiff moved for confiscation of the bond. Ordered to answer and deposit remaining cash, the receiver stated he could no longer return any money because he had none left. The trial court endorsed the matter to the provincial fiscal for investigation of possible misappropriation.

• Execution Against the Bond: On 22 August 1959, without notifying Luzon Surety Co., the trial court held that the defendants were not responsible for the amount delivered to the receiver since the receiver had been appointed at plaintiff’s instance, and ordered a writ of execution for the amount posted by the receiver. The provincial sheriff served the writ on Luzon Surety Co. on 28 September 1959 and garnished its account with Philippine Trust Co.

• Petition for Certiorari: Luzon Surety Co. filed a petition directly with the Supreme Court, asserting that the proceedings against its bond were null and void for lack of prior notice and non-compliance with the procedure prescribed in Section 20, Rule 59 in relation to Section 9, Rule 61. It also challenged the execution as a denial of due process. Respondents opposed, arguing that the cited procedure applies only to bonds filed by parties, not by the receiver, and that certiorari was improper because no motion for reconsideration had been filed in the trial court.

• Non-compliance with Rule 59 and Rule 61: Petitioner argued that the execution against its bond was void because the trial court failed to follow the mandatory summary procedure under Section 20, Rule 59 in conjunction with Section 9, Rule 61, which requires that damages on a bond be claimed, ascertained, and granted in the same action with due notice to the surety. The ex parte issuance of the writ, without prior notice and hearing, violated both the Rules of Court and the surety’s constitutional right to due process.

• Exception to Motion for Reconsideration Requirement: Petitioner maintained that certiorari would lie despite the absence of a prior motion for reconsideration in the court below, because the order of execution was a patent nullity and because execution had already been levied and its bank account garnished, creating an urgent need for immediate relief.

• Inapplicability of Rule 59, Section 20 to Receiver’s Bond: Respondents countered that the procedure in Section 20, Rule 59, read with Section 9, Rule 61, is expressly limited to recovery upon “any bond filed by the other” — meaning bonds posted by either party to the action, such as the applicant’s bond or a counterbond. The receiver’s bond, filed by the receiver himself under Section 5, Rule 61, is distinct and not subject to that summary procedure; therefore, no violation of the rule occurred.

• Propriety of Certiorari: Respondents further contended that certiorari should be denied because petitioner failed to move for reconsideration of the execution order in the trial court, a step normally required as a condition precedent to the issuance of the extraordinary writ.

• Applicability of Summary Procedure: Whether the procedure for recovery against sureties under Section 20, Rule 59 in relation to Section 9, Rule 61 applies to the enforcement of a receiver’s bond filed under Section 5, Rule 61.
• Due Process for Surety: Whether a surety on a receiver’s bond may be held liable and subjected to execution without prior notice and an opportunity to be heard.
• Certiorari without Prior Motion: Whether certiorari may issue directly to the Supreme Court when the petitioner did not first seek reconsideration of the assailed order in the trial court.

• Applicability of Summary Procedure: The summary procedure outlined in Section 20, Rule 59 and Section 9, Rule 61 applies exclusively to bonds filed by the parties to the case — the bond posted by the applicant for receivership to answer for damages caused by an unwarranted appointment, and the counterbond posted by the opposing party. Section 9 of Rule 61 expressly limits its reach to recovery “upon any bond filed by the other,” i.e., by a party as opposed to the receiver. The receiver’s bond under Section 5 is of a different character: it is “executed to such person and in such sum as the court or judge may direct, to the effect that he will faithfully discharge the duties of receiver … and obey the orders of the court.” Liability on this bond arises from the receiver’s own misconduct or negligence in discharging his duties, for which only the receiver and his sureties are answerable. Because the summary procedure for party bonds does not govern, the trial court did not violate that particular rule — but its order was nonetheless procedurally infirm for lack of due process.

• Due Process for Surety: The surety’s liability on the receiver’s bond was affirmed in principle, but it could not be enforced without notice and hearing. The solidary character of the surety’s undertaking does not imply that judgment may be rendered against it summarily and ex parte; solidarity only eliminates the benefit of excussion — the need to exhaust the principal’s property first. Relying on Agusan vs. Velasquez, the Court held that before a surety can be condemned to pay, it has the elementary right to be informed that indemnity is being sought, to be heard, and to contest the grounds and extent of its liability. Article 1222 of the Civil Code reinforces this, allowing a solidary debtor to avail of all defenses derived from the nature of the obligation and those personal to him. If a surety could be bound by a judgment against the principal without notice, it would be stripped of the right to raise defenses personal to it or to its own share.

• Certiorari without Prior Motion: The requirement of a prior motion for reconsideration is not absolute. Certiorari lies directly where the assailed order is a patent nullity, as held in Director of Lands vs. Santamaria. The ex parte execution order, having been issued in violation of the surety’s fundamental right to due process, was tainted with nullity, not mere irregularity. Additionally, execution had already been carried out and the surety’s bank account garnished, making the matter one of extreme urgency that justified immediate resort to the Supreme Court.

• Distinction Between Party Bonds and Receiver’s Bond under Rule 61 — Under Section 9, Rule 61, the summary procedure for claiming, ascertaining, and granting damages upon a bond (as prescribed in Section 20, Rule 59) applies only to bonds filed by “either party” — the applicant’s bond under Section 3 or a counterbond under Section 4. The receiver’s bond under Section 5, conditioned on the faithful performance of the receiver’s duties, is separate and distinct. Liability for the receiver’s own misconduct or negligence is enforceable against the receiver and his sureties without resort to the summary procedure, but only after notice and hearing.

• Due Process Right of a Surety on a Receiver’s Bond — A surety cannot be condemned to pay on a receiver’s bond without prior notice and a real opportunity to be heard, regardless of the solidary nature of its obligation. Solidarity merely abrogates the benefit of excussion; it does not authorize an ex parte determination of liability. The surety is entitled to be informed that the obligee seeks to hold it liable and to contest the grounds and extent of that liability, consistent with Article 1222, Civil Code, and the rudiments of procedural due process.

• Exception to the Prior Motion for Reconsideration Requirement in Certiorari — Although a motion for reconsideration in the court of origin is generally a condition precedent to certiorari, the rule admits of exceptions. One such exception applies when the order or judgment under review is a patent nullity (citing Director of Lands vs. Santamaria). Urgency — such as the fact that execution has already issued and property has been garnished — further justifies dispensing with the requirement.

• “It seems elementary that before being condemned to pay, it was the elementary right of the surety to be heard and to be informed that the party seeking indemnity would hold it liable and was going to prove the grounds and extent of its liability. This case is different from those in which the surety, by law and/or by the terms of his contract, has promised to abide by the judgment against the principal and renounced the right to be sued or cited.” — Distinguishes the due process entitlement of a surety in the absence of an express waiver or stipulation submitting to the principal’s judgment.

• “That the liability of the surety and the principal under the term of the bond is joint and several has nothing to do with the case. The objection is purely procedural. The materiality of the question of joint and several obligation does not come into play until both principal and surety have legally been adjudged liable by a lawful judgment entered after due hearing.” — Emphasizes that solidary liability is a substantive matter of enforcement priority, not a substitute for procedural due process.

• “The procedure outlined in Rule 59, section 20, is required to be followed only in proceedings against the bond filed by the applicant for receivership … or against the counter bond posted by the party opposing the appointment of receiver … Bonds filed by the parties to cases are different and should be distinguished from the bond filed by the receiver under section 5 of Rule 61.” — Articulates the critical statutory distinction that resolved the case.

• Agusan vs. Velasquez, 88 Phil. 357 — Followed as direct authority that a surety is entitled to notice and hearing before being condemned to pay; solidarity does not eliminate the procedural right to be heard.
• Director of Lands vs. Santamaria, 44 Phil. 594 — Applied as authority for the rule that a motion for reconsideration is not a prerequisite to certiorari where the assailed order is a patent nullity.
• De la Riva vs. Molina, 32 Phil. 277, 281-282 — Cited for the principle that for damages arising from the receiver’s own misconduct or negligence, only the receiver and his sureties are responsible.
• De la Rosa vs. De Borja, 53 Phil. 990 — Cited to support that the receiver’s bond is valid and enforceable for the receiver’s misconduct.
• Yap Unki vs. Chua Jamco, 14 Phil. 602; Monteverde vs. Nakata, 30 Phil. 608; Nava vs. Hofilena, 53 Phil. 738; Visayan Surety and Insurance Corp. vs. Pascual, 85 Phil. 779; Liberty Construction Supply Co. vs. Pecson, 89 Phil. 50 — Distinguished; these cases applied the summary procedure of Rule 59, Section 20 to bonds filed by the parties, not to the receiver’s bond.

• Rule 61, Section 9, Rules of Court — Provides that recovery upon “any bond filed by the other” in accordance with Rule 61 shall proceed under the summary procedure of Section 20, Rule 59. Construed strictly to apply only to bonds filed by parties, not by the receiver.
• Rule 61, Section 3, Rules of Court — Requires the applicant for receivership to post a bond to answer for damages if the appointment is later found unwarranted; identified as one of the party bonds covered by Section 9.
• Rule 61, Section 4, Rules of Court — Permits the opposing party to post a counterbond; also a party bond subject to the summary procedure.
• Rule 61, Section 5, Rules of Court — Governs the receiver’s bond, executed to guarantee faithful discharge of duties; classified as distinct from party bonds and not covered by the summary enforcement procedure.
• Rule 59, Section 20, Rules of Court — Prescribes the procedure for claiming damages on bonds filed by parties in provisional remedy cases; held inapplicable to the receiver’s bond.
• Article 1222, Civil Code — Allows a solidary debtor to raise defenses derived from the nature of the obligation, defenses personal to him, and those personal to co-debtors as to their shares; invoked to support the surety’s right to be heard separately.

Bengzon, Bautista Angelo, Labrador, Barrera, Gutierrez David, Paredes, and Dizon, JJ., concurred. Paras, C.J., concurred in the result.