G.R. No. L-26449 - Luzon Steel Corp. vs. Sia

Plaintiff-Appellant: Luzon Steel Corporation, represented by Tomas Aquino Cu.
Defendant: Jose O. Sia, acting as manager of Metal Manufacturing of the Philippines, Inc., against whom breach of contract and damages were claimed.
Surety-Appellee: Times Surety & Insurance Co., Inc., which executed a counterbond jointly and severally with the defendant.

Luzon Steel Corporation initiated an action against Metal Manufacturing of the Philippines, Inc. and Jose O. Sia, obtaining a writ of preliminary attachment on the properties of the defendants.
The attachment was lifted upon the execution of a counterbond amounting to P25,000.00 submitted by Jose O. Sia as principal and the Times Surety & Insurance Co., Inc. as the surety.
The counterbond explicitly provided that both the principal and the surety were “jointly and severally” liable for the payment of any judgment recovered by the plaintiff, in substitution for the attached properties.

After the joining of issues, the plaintiff and defendant (excluding the surety) agreed on a compromise whereby Jose O. Sia undertook to settle the claim.

Payment was structured as P500.00 monthly for the first six months, commencing in January 1965.
Upon completion of these installments, a lump sum of P22,000.00 was to be paid within one month, without interest.

The compromise was submitted to the court, approved, and subsequently a judgment was rendered in conformity with its terms.
The court directed both parties to comply with the compromise agreement.

Defendant Sia failed to comply with the agreed payment schedule under the compromise.
As a consequence, the plaintiff moved for and obtained a writ of execution against both the defendant and the counterbond provided by the surety.
The Times Surety & Insurance Co., Inc. moved to quash the writ of execution on the basis that:

It was not a party to the compromise.
The writ was issued without giving it due notice and an opportunity for a hearing.

The lower court, overruling the plaintiff’s opposition, set aside the writ of execution against the surety, cancelled the counterbond, and denied the surety’s motion for reconsideration.

The case involves the application of Rule 57, Section 12 (old Rule 59) concerning the discharge of an attachment through a cash deposit or counterbond.
The counterbond is deemed to stand "in place of the property so released" and is intended to secure the payment of any judgment rendered against the party.
Relevant Civil Code provisions (Article 2059, paragraph 2, and Article 2060) address the principle of joint and several liability of the surety and the right to excussion.

Whether the judgment rendered upon the compromise agreement discharged the obligation of the surety under the executed counterbond.

The surety contended that, as it was not a party to the compromise, it should be exempt from liability arising from the judgment.

Whether the writ of execution could be validly issued against the surety without prior exhaustion of the debtor’s (principal’s) properties.

The surety argued that execution should only proceed after the debtor’s property had been exhausted, as provided in Section 17 of Rule 57 of the Revised Rules of Court.