Security Pacific Assurance Corporation vs. The Hon. Amelia Tria-Infante

A counter-bond posted to discharge an attachment is a security for the payment of any judgment that the attaching party may recover, and the surety thereon is solidarily liable with the principal debtor once the judgment becomes final and executory. The discharge of an attachment upon giving a counter-bond does not require a separate order of discharge where the court has already effectively discharged the attachment and declared the surety solidarily bound in its decision on the main case.

The case originated from a complaint for violation of Batas Pambansa Blg. 22 filed by Reynaldo Anzures against Teresita Villaluz, docketed as Criminal Case No. 89-69257 before the Regional Trial Court, Branch 9, Manila. Anzures obtained a writ of preliminary attachment against Villaluz's properties upon posting an attachment bond of ₱2,123,400.00. During the pendency of the appeal to the Supreme Court in G.R. No. 106214, Villaluz posted a counter-bond of ₱2,500,000.00 issued by petitioner Security Pacific Assurance Corporation to discharge the attachment.

On 26 August 1988, Reynaldo Anzures instituted a complaint against Teresita Villaluz for violation of Batas Pambansa Blg. 22, docketed as Criminal Case No. 89-69257 before the Regional Trial Court, Branch 9, Manila. An Ex-Parte Motion for Preliminary Attachment dated 06 March 1989 was filed by Anzures, and on 03 July 1989, the trial court ordered the issuance of a writ of preliminary attachment upon posting of a bond fixed at ₱2,123,400.00. An attachment bond was posted and approved, and the sheriff attached certain properties of Villaluz, which were annotated on the corresponding certificates of title.

On 25 May 1990, the trial court rendered a Decision acquitting Villaluz of the crime charged but holding her civilly liable to pay Anzures ₱2,123,400.00 with legal interest from December 18, 1987, plus ₱50,000.00 as attorney's fees and costs. Villaluz appealed to the Court of Appeals, which affirmed the decision as to the civil aspect on 30 April 1992. The case was elevated to the Supreme Court as G.R. No. 106214.

During the pendency of the appeal, Villaluz posted a counter-bond in the amount of ₱2,500,000.00 issued by petitioner Security Pacific Assurance Corporation, which bound itself "jointly and severally" with Villaluz for "any judgment" that may be recovered by Anzures. On the same date, 07 February 1997, Villaluz filed an Urgent Motion to Discharge Attachment. On 05 September 1997, the Supreme Court promulgated its decision in G.R. No. 106214, affirming in toto the Court of Appeals decision.

In view of the finality of the decision, Anzures moved for execution of judgment. On 07 May 1999, the trial court, now presided over by respondent Judge Amelia Tria-Infante, issued a Writ of Execution. Sheriff Reynaldo R. Buazon attempted to serve the writ upon Villaluz but she no longer resided at her given address. The sheriff then sent a Notice of Garnishment upon petitioner at its office in Makati City by virtue of the counter-bond. Petitioner refused to assume its obligation on the counter-bond.

Anzures filed a Motion to Proceed with Garnishment, which petitioner opposed, contending that it should not be held liable on the counter-attachment bond. The trial court granted the motion in its Order dated 31 March 2000, and the sheriff issued a Follow-Up of Garnishment dated 03 April 2000. Petitioner filed a Petition for Certiorari with the Court of Appeals, which was dismissed on 16 June 2000; reconsideration was denied on 22 August 2000.

Meanwhile, on 17 January 2001, petitioner and the spouses Reynaldo and Zenaida Anzures executed a Memorandum of Understanding stipulating that the total amount garnished from petitioner had amounted to ₱1,541,063.85, with the remaining amount sought to be executed at ₱958,936.15. Petitioner paid ₱300,000.00 upon signing, with the balance to be paid in installments, subject to a proviso that the contract would not be construed as a waiver of the appellate review pending before the Supreme Court.

• Non-Discharge of Attachment: Petitioner contended that the writ of attachment against Villaluz's properties was not discharged, and since the writ was not discharged, its liability on the counter-bond did not accrue. The alleged failure of the Supreme Court in G.R. No. 106214 to approve the counter-bond and to cause the discharge of the attachment prevented the happening of a condition upon which the counter-bond's issuance was premised.

• Nature of the Agreement: Petitioner asserted that the agreement between it and Villaluz was not a suretyship agreement in the sense that petitioner had become an additional debtor in relation to private respondents. It claimed it was merely waiving its right of excussion that would ordinarily apply to counter-bond guarantors under Section 12, Rule 57 of the 1997 Rules.

• No Ipso Facto Discharge: Petitioner admitted the binding effect of the bond as between the parties thereto but did not subscribe to the theory that the attachment was ipso facto or automatically discharged by the mere filing of the bond in court. Without an order of discharge of attachment and approval of the bond, petitioner submitted that its stipulated liability could not arise, for to hold otherwise would trample upon the statutorily guaranteed right of the parties to contractual autonomy.

• Ipso Facto Discharge: Private respondents asserted that the filing of the counter-bond by Villaluz had already ipso facto discharged the attachment on the properties and made petitioner liable on the bond. Upon acceptance of the premium, there was already an express contract for surety between Villaluz and petitioner in the amount of ₱2,500,000.00 to answer for any adverse judgment against Villaluz.

• Liability on the Counter-Bond: Whether the Court of Appeals committed reversible error in affirming the 31 March 2000 order of the trial court which allowed execution on the counter-bond issued by petitioner.

• Discharge Without Court Approval: Whether the Court of Appeals correctly ruled that the attachment on the property of Villaluz was discharged without need of court approval of the counter-bond posted.

• Discharge by Mere Posting: Whether the Court of Appeals correctly ruled that the attachment on the property of Villaluz was discharged by the mere act of posting the counter-bond.

• Liability on the Counter-Bond: No. The Court of Appeals committed no reversible error. The counter-bond itself stated that the parties jointly and severally bound themselves to secure the payment of any judgment that the plaintiff may recover against the defendant, and a surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter.

• Discharge Without Court Approval: Yes. The necessary steps in the discharge of an attachment upon giving counter-bond had been taken. To require a specific order for the discharge of the attachment when the Supreme Court in G.R. No. 106214 had already declared that petitioner is solidarily bound with Villaluz would be mere surplusage.

• Discharge by Mere Posting: Yes. While the ruling in Belisle Investment and Finance Co., Inc. vs. State Investment House, Inc. suggests that mere posting of a counter-bond does not automatically discharge the writ of attachment, consideration of the Supreme Court's decision in G.R. No. 106214 in its entirety shows that the Court virtually discharged the attachment after all the parties therein had been heard on the matter.

• Liability on the Counter-Bond: The Court cited Tijam vs. Sibonghanoy and Vanguard Assurance Corp. vs. Court of Appeals, holding that after the judgment for the plaintiff has become executory and the execution is "returned unsatisfied," the liability of the bond automatically attaches, and in failure of the surety to satisfy the judgment despite demand, a writ of execution may issue against the surety. The Court also cited Luzon Steel Corporation vs. Sia, holding that counter-bonds posted to obtain the lifting of a writ of attachment are security for the payment of any judgment that the attaching party may obtain, and are thus mere replacements of the property formerly attached. The Court rejected petitioner's argument that its surety agreement merely waived its right of excussion, noting that the counter-bond itself stated that the parties jointly and severally bound themselves. A surety is considered in law as being the same party as the debtor, and their liabilities are interwoven as to be inseparable. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety's liability to the creditor is direct, primary, and absolute; he is directly and equally bound with the principal.

• Discharge Without Court Approval: The Court noted that in G.R. No. 106214, per its Resolution dated 15 January 1997, it permitted Villaluz to file a counter-attachment bond, and on 17 February 1997, required the private respondents to comment on the sufficiency of the counter-bond. The Court found it quite palpable that the necessary steps in the discharge of an attachment upon giving counter-bond had been taken. The Court's decision in G.R. No. 106214 had already declared that petitioner is solidarily bound with Villaluz, and to require a specific order for the discharge of the attachment would be mere surplusage.

• Discharge by Mere Posting: The Court acknowledged its ruling in Belisle Investment and Finance Co., Inc. vs. State Investment House, Inc. that the mere posting of a counter-bond does not automatically discharge the writ of attachment, and that it is only after hearing and after the judge has ordered the discharge that the writ is properly discharged under Section 12, Rule 57. However, the Court distinguished the present case, explaining that consideration of its decision in G.R. No. 106214 in its entirety readily shows that the Court virtually discharged the attachment after all the parties therein had been heard on the matter. The Court adopted the Court of Appeals' reasoning that the filing of the counter-attachment bond discharged the attachment and made petitioner liable, as gleaned from the "DEFENDANT'S BOND FOR THE DISSOLUTION OF ATTACHMENT," which stated that Security Pacific Assurance Corporation, as surety, in consideration of the dissolution of the attachment, jointly and severally bound itself with Villaluz for any judgment that may be recovered. The Court further noted that the contract of surety is only between Villaluz and petitioner, and petitioner cannot escape liability by stating that court approval is needed, as this defense can only be availed against Villaluz but not against third persons who are not parties to the contract of surety. The Court concluded that a judgment must be read in its entirety and construed as a whole to give effect to every word and part, and that insurance companies are prone to invent excuses to avoid their just obligation.

• Suretyship — A contract of suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default, or miscarriage of another, known as the principal. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety's liability to the creditor is direct, primary, and absolute; he is directly and equally bound with the principal. The surety is considered in 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. In this case, the Court applied this doctrine to hold petitioner solidarily liable with Villaluz on the counter-bond.

• Counter-Bond as Replacement of Attached Property — Counter-bonds posted to obtain the lifting of a writ of attachment are security for the payment of any judgment that the attaching party may obtain; they are thus mere replacements of the property formerly attached. Just as the attached property may be levied upon after final judgment, so is the liability of the countersureties ascertainable after the judgment has become final. The Court applied this doctrine to hold that petitioner's liability on the counter-bond attached once the judgment in G.R. No. 106214 became final and executory.

• Automatic Attachment of Bond Liability — After the judgment for the plaintiff has become executory and the execution is "returned unsatisfied," the liability of the bond automatically attaches, and in failure of the surety to satisfy the judgment against the defendant despite demand, a writ of execution may issue against the surety to enforce the obligation of the bond. The Court applied this doctrine to justify the garnishment against petitioner.

• Discharge of Attachment Upon Giving Counter-Bond — Under Section 12, Rule 57 of the 1997 Rules of Civil Procedure, there are two ways to secure the discharge of an attachment: (1) the party whose property has been attached or a person appearing on his behalf may post a security; or (2) said party may show that the order of attachment was improperly or irregularly issued. The first applies where a counter-bond is posted. The Court held that while the mere posting of a counter-bond does not automatically discharge the writ of attachment, the necessary steps had been taken in this case, and the Supreme Court's decision in the main case had virtually discharged the attachment.

• "After the judgment for the plaintiff has become executory and the execution is 'returned unsatisfied,' as in this case, the liability of the bond automatically attaches and, in failure of the surety to satisfy the judgment against the defendant despite demand therefore, writ of execution may issue against the surety to enforce the obligation of the bond." — This passage from Tijam v. Sibonghanoy, as reiterated in Vanguard Assurance Corp. v. Court of Appeals, states the controlling doctrine on when a surety's liability on a bond attaches, and was cited by the Court to justify the garnishment against petitioner.

• "Counterbonds posted to obtain the lifting of a writ of attachment is due to these bonds being security for the payment of any judgment that the attaching party may obtain; they are thus mere replacements of the property formerly attached, and just as the latter may be levied upon after final judgment in the case in order to realize the amount adjudged, so is the liability of the countersureties ascertainable after the judgment has become final." — This passage from Luzon Steel Corporation v. Sia defines the nature of counter-bonds as replacements of attached property, which the Court applied to hold petitioner liable.

• "The filing of the counter-attachment bond by petitioner Villaluz has discharged the attachment on the properties and made the petitioner corporation liable on the counter-attachment bond. This can be gleaned from the 'DEFENDANT'S BOND FOR THE DISSOLUTION OF ATTACHMENT', which states that Security Pacific Assurance Corporation, as surety, in consideration of the dissolution of the said attachment jointly and severally, binds itself with petitioner Villaluz for any judgment that may be recovered by private respondent Anzures against petitioner Villaluz." — This passage from the Court of Appeals' decision, adopted by the Supreme Court, explains why the counter-bond discharged the attachment and made petitioner liable.

• "The petitioner corporation cannot impose requisites before it can be made liable when the law clearly does not require such requisites to be fulfilled." — This passage from the Court of Appeals' decision, adopted by the Supreme Court, rejects petitioner's argument that court approval was a prerequisite to its liability.

• Tijam vs. Sibonghanoy, G.R. No. L-21450, 15 April 1968, 23 SCRA 29 — Cited as controlling precedent for the rule that after judgment becomes executory and execution is returned unsatisfied, the liability of the bond automatically attaches and execution may issue against the surety.

• Vanguard Assurance Corp. vs. Court of Appeals, G.R. No. L-25921, 27 May 1975, 64 SCRA 148 — Cited as reiterating the doctrine in Tijam vs. Sibonghanoy on automatic attachment of bond liability.

• Luzon Steel Corporation vs. Sia, G.R. No. L-26449, 15 May 1969, 28 SCRA 58 — Cited for the doctrine that counter-bonds are security for the payment of any judgment and are mere replacements of the property formerly attached.

• Imperial Insurance, Inc. vs. De Los Angeles, G.R. No. L-28030, 18 January 1982, 111 SCRA 24 — Cited for the ruling that Section 17, Rule 57 cannot be construed to require that execution against the debtor first be returned unsatisfied where the bond is solidary.

• Philippine British Assurance Co., Inc. vs. Intermediate Appellate Court, G.R. No. L-72005, 29 May 1987, 150 SCRA 520 — Cited for the holding that the counter-bond is intended to secure the payment of "any judgment" that the attaching creditor may recover in the action.

• Belisle Investment and Finance Co., Inc. vs. State Investment House, Inc., G.R. No. L-71917, 30 June 1987, 151 SCRA 630 — Distinguished; the Court acknowledged its ruling that mere posting of a counter-bond does not automatically discharge the writ of attachment, but distinguished the present case because the Supreme Court in G.R. No. 106214 had virtually discharged the attachment.

• Philippine National Bank vs. Pineda, G.R. No. 46658, 13 May 1991, 197 SCRA 1 — Cited for the doctrine that a surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter.

• Garcia, Jr. vs. Court of Appeals, G.R. No. 80201, 20 November 1990, 191 SCRA 493 — Cited for the definition of suretyship and the direct, primary, and absolute liability of the surety.

• Cathay Insurance Co., Inc. vs. Court of Appeals, G.R. No. 85624, 05 June 1989, 174 SCRA 11 — Cited for the observation that insurance companies are prone to invent excuses to avoid their just obligation.

• Section 12, Rule 57, 1997 Rules of Civil Procedure — Provides for the discharge of attachment upon giving a counter-bond. The court shall, after due notice and hearing, order the discharge of the attachment if the movant makes a cash deposit or files a counter-bond executed to the attaching party in an amount equal to that fixed by the court in the order of attachment. The counter-bond shall secure the payment of any judgment that the attaching party may recover in the action. The Court applied this provision to determine whether the attachment was validly discharged.

• Section 13, Rule 57, 1997 Rules of Civil Procedure — Cited as one of the two ways to secure the discharge of an attachment, namely, by showing that the order of attachment was improperly or irregularly issued. The Court noted that the first method under Section 12 applied in the instant case.

• Article 2058, New Civil Code — Provides that the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and has resorted to all the legal remedies against the debtor. The Court noted petitioner's invocation of this provision but rejected its application, holding that the counter-bond itself stated that the parties jointly and severally bound themselves.

• Reynato S. Puno, Associate Justice, Chairman
• Ma. Alicia Austria-Martinez, Associate Justice
• Romeo J. Callejo, Sr., Associate Justice
• Dante O. Tinga, Associate Justice