G.R. No. 116013 - Soco vs. Court of Appeals

The vessel Y. Sontua belonged to Yu Biao Sontua y Cia. and was subject to successive mortgages.
On May 18, 1927, the vessel was mortgaged to Enrique T. Yu Chengco for the sum of P50,000.
On June 17, 1927, Yu Biao Sontua y Cia. mortgaged the same vessel to W. S. Price for another P50,000, with Chengco’s consent to register Price’s mortgage as the first.
Due to the debtor’s failure to comply with the terms of the mortgage, W. S. Price initiated a complaint on October 10, 1927, seeking the attachment of the vessel and filing a bond of P100,000 to secure the action.

On November 8, 1927, shortly after the complaint was filed, Enrique T. Yu Chengco assigned and transferred all his rights and interests as a second mortgage creditor to Pelagio Yu Singco.
On December 2, 1927, W. S. Price assigned absolutely all his rights as the first mortgage creditor to Pelagio Yu Singco, who was consequently substituted as plaintiff in lieu of Price.
The assignment and substitution issues later became central to whether proper notice was given to the parties regarding subsequent motions.

On June 7, 1928, the trial court entered a judgment in favor of Pelagio Yu Singco against Yu Biao Sontua y Cia.

The judgment required Yu Biao Sontua y Cia. to pay P100,000, plus interest and additional penalties.
The order mandated an accounting of the vessel administration, as Y. Sontua was being operated by both W. S. Price and Pelagio Yu Singco during the pendency of the suit.

On June 15, 1928, W. S. Price filed a motion seeking relief from the obligation to render an accounting of the vessel’s administration and to cancel his bond, arguing that the vessel had been administered by the appointed special sheriff and that he had sold his rights to the vessel.
On June 18, 1928, Pelagio Yu Singco rendered an accounting from October 18, 1927, to June 15, 1928, showing a net profit after deducting his remuneration, which was set at P500 monthly.
On August 14, 1928, acting on the petition to sell the vessel, the lower court ordered that after the filing of a personal bond of P30,000, the vessel be sold at a public auction for a minimum cash price of P85,000, subject to court approval.
On September 5, 1928, the court granted Price’s petition but declared his bond as still subsisting on the ground that the administration by Pelagio Yu Singco was without judicial authority.
Subsequently, on October 18, 1928, Price filed another motion identical in tenor to that of June 15, 1928, seeking to be relieved of any further liability and for the cancellation of his P100,000 bond.
On October 22, 1928, the court granted the motion and ordered that Price be relieved from all further liability related to the administration of the vessel, and his bond was cancelled.

On March 29, 1933, defendant Enrique T. Yu Chengco filed a motion for reconsideration of the October 22, 1928, order, arguing that the bond should still be considered in force.
The principal obligor Price and his surety, the Philippine Guaranty Co., Inc., opposed Chengco’s motion, and the trial court denied the motion on May 31, 1933.
Later, on June 21, 1933, the Yek Tong Lin Fire & Marine Insurance Co., Ltd., acting as surety for Pelagio Yu Singco, filed a motion to set aside the October 22 order, request declaration of Price’s bond as in force, and to apportion pro rata the liability between the two bonds.
The trial court, on June 24, 1933, denied all such motions.

There was contention regarding whether defendant-appellant Enrique T. Yu Chengco was entitled to notice of Price’s motion dated October 18, 1928, given that his alleged rights had been transferred (though the record did not reflect this assignment clearly).
Similarly, the Yek Tong Lin Fire & Marine Insurance Co., Ltd. claimed a direct interest in the bond as it guaranteed an obligation arising from the vessel’s administration, contending that it should have been notified of the motion for the cancellation of Price’s bond.
The issues surrounding notice ultimately centered on whether the failure to serve notice materially affected the rights of the parties.

Whether the trial court erred in not notifying defendant Enrique T. Yu Chengco of Price’s motion for cancelling his bond, given that his rights were allegedly transferred to Pelagio Yu Singco and the assignment did not explicitly appear in the record.

Did the absence of a clear record of the assignment constitute a reversible error regarding proper notice?
Was the error merely technical and without prejudice to the substantive rights of Chengco?

Whether the trial court erred in failing to serve notice on the Yek Tong Lin Fire & Marine Insurance Co., Ltd., a surety with an independent interest in the bond arrangement for the vessel’s administration.

Does the surety’s involvement in a distinct, supplementary bond (P30,000) grant it the right to be notified regarding the cancellation of Price’s separate bond (P100,000)?
Are the obligations under the two bonds sufficiently separate so that the failure of serving notice on the surety does not cause prejudice?