Facts:

On October 30, 1957, spouses Pedro R. Jao and Catalina Sia (plaintiffs) executed a promissory note in favor of Royal Financing Corporation (defendant), which was secured by a chattel mortgage dated October 31, 1957. Following a default, the defendant initiated an extra-judicial foreclosure of the chattel mortgage, with the Sheriff of Manila announcing a public auction of the mortgaged properties scheduled for July 11, 1958. In response, on July 7, 1958, the plaintiffs filed a complaint (Civil Case No. 36800) against the Royal Financing Corporation and the Sheriff, seeking to declare the promissory note and chattel mortgage null and void, claiming they had already settled the obligation. They also sought to prevent the sale of their properties and demanded damages, including attorney's fees. To halt the auction, the plaintiffs posted a bond for preliminary injunction amounting to P2,500.00, with Associated Insurance & Surety Co., Inc. as the surety. The trial court gra...

Facts:

1. Execution of Promissory Note and Chattel Mortgage
   On October 30, 1957, plaintiffs Pedro R. Jao and Catalina Sia signed a promissory note in favor of Royal Financing Corporation. This was secured by a chattel mortgage executed on October 31, 1957.

2. Extra-Judicial Foreclosure and Auction Sale
   On June 25, 1958, Royal Financing Corporation filed for extra-judicial foreclosure of the chattel mortgage. The Sheriff of Manila announced and advertised the sale of plaintiffs' mortgaged properties, scheduled for July 11, 1958.

3. Filing of Complaint and Preliminary Injunction
   On July 7, 1958, plaintiffs filed a complaint (Civil Case No. 36800) seeking to declare the promissory note and chattel mortgage null and void, alleging full payment of the obligation. They also sought to stop the auction sale and claimed damages. To halt the sale, plaintiffs posted a bond for preliminary injunction on July 10, 1958, with Associated Insurance & Surety Co., Inc. as surety.

4. Dismissal of the Case
   On June 11, 1959, the trial court dismissed the case without prejudice due to plaintiffs' failure to appear at the hearing. The court noted that plaintiffs and their counsel had been properly notified.

5. Motion for Judgment Against Surety Bond
   On September 7, 1959, Royal Financing Corporation moved for judgment against the surety bond, alleging that the mortgaged properties had disappeared, rendering the auction sale impossible. The surety company opposed, arguing the motion was premature.

6. Trial Court's Order
   On October 12, 1959, the trial court ordered the execution of the surety bond to satisfy the mortgage claim, despite the surety's objections. The surety's motion for reconsideration was denied, prompting the appeal.

Issue:

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Ruling:

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Ratio:

1. Purpose of the Bond
   The bond was explicitly issued to secure damages that Royal Financing Corporation might sustain due to the injunction, if the court later found the injunction wrongful. It was not intended to secure the mortgage credit.

2. Legal Requirements for Damages Against Surety Bond
   Under Section 9 of Rule 60 and Section 20 of Rule 59, damages against a surety bond can only be awarded if:

   • The application for damages is filed in the same case where the bond was issued.
   • The application is filed before the entry of final judgment.
   • A hearing is conducted with notice to the surety.
     These requirements were not met in this case.

3. Finality of Dismissal and Lack of Proper Application
   The dismissal of the case became final before Royal Financing Corporation filed its motion for judgment on the bond. No application for damages was filed prior to the final judgment, and no hearing was conducted to substantiate the claim. Thus, the surety was relieved of liability.

4. No Extension of Guaranty by Implication
   A guaranty cannot extend beyond its express terms. The bond did not cover the mortgage credit, and the trial court erred in interpreting it otherwise.