G.R. No. 212025 - Excellent Quality Apparel, Inc. vs. Visayan Surety and Insurance Corporation

Case Summary (G.R. No. 212025)

Factual Background

Excellent Quality Apparel, Inc. contracted with Multi‑Rich Builders in 1996 for construction of a factory. Completion occurred November 27, 1996. Win Multi‑Rich Builders, Inc. was thereafter incorporated and on January 26, 2004 it filed a complaint for sum of money and damages before the RTC and secured a writ of preliminary attachment on February 2, 2004. To prevent enforcement of the attachment, petitioner deposited by check PHP 8,634,448.20 with the Clerk of Court on February 16, 2004. Win Multi‑Rich obtained an attachment bond from Visayan Surety to secure issuance of the writ, and later successfully procured release of petitioner’s deposited funds upon posting of Far Eastern Surety & Insurance Co., Inc. (“FESICO”) Surety Bond No. 10198 for PHP 9,000,000.00.

Early Procedural History in the RTC

Petitioner filed an Omnibus Motion to discharge the attachment and questioned the court’s jurisdiction due to an arbitration clause. The RTC denied the motion on April 12, 2004 and ordered the deposit of the garnished funds to the Clerk of Court on April 29, 2004. Win Multi‑Rich moved for release of the deposit, the RTC granted the motion on May 3, 2004, and Win Multi‑Rich withdrew the cash deposit after posting the FESICO bond.

Proceedings Before the Court of Appeals and First Supreme Court Review

Petitioner filed a Rule 65 certiorari petition with the Court of Appeals which, on March 14, 2006, annulled the RTC orders but allowed the RTC to retain jurisdiction as a collection suit. Petitioner filed for reconsideration and then sought review in the Supreme Court under Rule 45 in G.R. No. 175048. The Supreme Court, in the February 10, 2009 decision, modified the Court of Appeals by dismissing Civil Case No. 04‑108940, holding Win Multi‑Rich not a real party in interest and that the RTC lacked jurisdiction due to the arbitration clause, and ordered Win Multi‑Rich to return the garnished amount of PHP 8,634,448.20 with legal interest at 12% per annum.

Execution Proceedings and Movements to Hold Sureties Liable

After the Supreme Court decision became final and executory on June 2, 2009, petitioner moved for execution on June 26/29, 2009 and prayed that, if Win Multi‑Rich failed to comply, Visayan Surety and FESICO be held liable under their respective bonds. Win Multi‑Rich, Visayan Surety and FESICO were served with the motion for execution. At subsequent hearings and orders, the RTC issued a writ of execution on October 19, 2009, but later, on January 15, 2010, granted reconsideration and lifted execution against the surety respondents, ruling that petitioner failed to file a motion for judgment on the attachment bond before finality and thus the sureties’ right to due process was violated. The RTC denied petitioner’s motion for reconsideration on May 19, 2010.

Court of Appeals Ruling on Appeal from RTC

Petitioner appealed to the Court of Appeals, which on October 21, 2013, affirmed the RTC. The CA concluded that petitioner failed to timely claim damages against the surety under Section 20, Rule 57 and that a court judgment could not bind persons who were not parties to the action because Visayan Surety and FESICO were neither impleaded nor given prior notice in G.R. No. 175048. The CA denied petitioner’s motion for reconsideration in its April 1, 2014 Resolution.

Issues Presented to the Supreme Court

Petitioner argued that the CA rulings should be reversed because execution against the surety respondents would not violate their right to due process and would effectuate the terms of the Supreme Court judgment in G.R. No. 175048. Petitioner further asserted that FESICO’s bond did not fall under Section 20, Rule 57 because that provision pertains to the attachment bond while FESICO’s bond secured withdrawal of petitioner’s cash deposit.

Respondents’ Contentions

Visayan Surety contended that no application for damages was filed before the Supreme Court in G.R. No. 175048 and thus it had no notice, invoking the mandatory requisites of Section 20, Rule 57. FESICO averred that petitioner failed to comply with Section 20 because the motion for execution proceeded after finality and that the sureties were not impleaded in G.R. No. 175048.

Supreme Court’s Findings on Applicability of Section 20, Rule 57

The Court held that petitioner timely filed an application for damages because the asserted claim was incorporated in its answer with compulsory counterclaim filed before the RTC and thus was submitted in the same action prior to finality of the Supreme Court judgment. The Court applied the established requisites for an application under Section 20, Rule 57: filing in the same case, filing before finality, and hearing with notice to the surety. The Court concluded that petitioner failed the third requisite as to Visayan Surety because Visayan Surety was not given due notice of the application for damages before the judgment became final and executory.

Supreme Court’s Analysis of Notice and Due Process for Sureties

The Court stressed that Section 20, Rule 57 expressly requires notice to the attaching party and its surety or sureties and that damages thereunder are unliquidated and must be determined after hearing before finality. The Court reviewed prior jurisprudence and distinguished earlier rulings that excused notice, concluding that due notice to the surety is indispensable and that absent such notice no judgment for damages may be entered against the surety. The records showed that Visayan Surety received no copies of the pleadings and was only notified at the motion for execution after the Supreme Court judgment became final; accordingly Visayan Surety could not be held liable under Section 20.

Supreme Court’s Ruling on Applicability of Section 17, Rule 57 to FESICO

The Court determined that FESICO’s bond was not an attachment bond covered by Section 20 but rather a counter‑bond or surety bond substituted for petitioner’s cash deposit pursuant to Section 12, Rule 57. The Court reasoned that release of the cash deposit to the attaching party before judgment was improper, but having posted the FESICO bond in exchange for the deposit, the bond became a counter‑bond that secured payment of any judgment and thus falls squarely within Section 17, Rule 57. Under Section 17 the surety on a counter‑bond is liable upon demand after notice and summary hearing in the same action, even after the judgment becomes executory, because the liabilities are liquidated by the final judgment.

Application of Section 17 Requirements to FESICO

The Court found that FESICO received actual notice and was afforded opportunity to be heard. The record showed petitioner furnished a copy of the motion for execution to FESICO, filed a manifestation that FESIC

Case Syllabus (G.R. No. 212025)

Parties and Procedural Posture

Excellent Quality Apparel, Inc., Petitioner sought recovery of P8,634,448.20 wrongfully released from its bank account pursuant to a writ of preliminary attachment.
Win Multi-Rich Builders, Inc. was the attaching party that filed the collection suit and ultimately received the petitioner’s deposited funds.
Visayan Surety & Insurance Corporation, Respondent issued the attachment bond that secured the issuance of the writ of preliminary attachment.
Far Eastern Surety & Insurance Co., Inc., Respondent issued Surety Bond No. 10198 to secure Win Multi-Rich’s withdrawal of the petitioner’s cash deposit.
The Regional Trial Court of Manila, Branch 32 adjudicated Civil Case No. 04-108940 and ordered release of the petitioner’s deposit to Win Multi-Rich.
The Court of Appeals reviewed RTC orders in CA-G.R. CV No. 95421 and rendered the decision and resolution now under review.
The Supreme Court resolved the present petition for review on certiorari from the Court of Appeals’ October 21, 2013 Decision and April 1, 2014 Resolution.

Key Factual Allegations

Excellent Quality Apparel, Inc. contracted in 1996 with Multi-Rich Builders for construction work that included an Arbitration Clause in case of dispute.
A writ of preliminary attachment issued by the RTC on February 2, 2004 was secured by an attachment bond posted by Visayan Surety & Insurance Corporation in the amount of P8,634,448.20.
To prevent enforcement of the writ, petitioner deposited Equitable PCI Bank Check No. 160149 for P8,634,448.20 with the Clerk of Court.
The RTC ordered the deposit of the garnished funds to the Clerk of Court on April 29, 2004 and later ordered release of the deposited funds to Win Multi-Rich on May 3, 2004.
Win Multi-Rich posted Far Eastern Surety & Insurance Co., Inc. Surety Bond No. 10198 on May 7, 2004 and received the petitioner’s cash deposit.
The Court of Appeals annulled certain RTC orders in 2006 and the Supreme Court in G.R. No. 175048 on February 10, 2009 ordered Win Multi-Rich to return the garnished amount with legal interest.
Execution proceedings were initiated by petitioner after finality of the Supreme Court decision, and the RTC issued a writ of execution on October 19, 2009 that was later modified as to the surety respondents.

Procedural History

The RTC issued the writ of preliminary attachment and later ordered release of petitioner’s deposit to Win Multi-Rich upon posting of a surety bond.
The Court of Appeals, in March 2006, annulled RTC orders but affirmed RTC jurisdiction over the collection suit.
The Supreme Court, in G.R. No. 175048, on February 10, 2009 dismissed Civil Case No. 04-108940 and ordered return of P8,634,448.20 to petitioner with 12% interest.
Petitioner filed for execution and the RTC issued a writ of execution before subsequently granting reconsideration as to the surety respondents on January 15, 2010 and May 19, 2010.
The Court of Appeals denied petitioner’s appeal and maintained that petitioner failed to comply with Section 20, Rule 57 and did not give due notice to the sureties, prompting the present petition to the Supreme Court.

Issues Presented

Whether execution of the Supreme Court judgment could properly proceed against Visayan Surety & Insurance Corporation and Far Eastern Surety & Insurance Co., Inc. without violating their right to due process.
Whether allowing execution against the two surety companies would give full effect to the terms of the Supreme Court judgment in G.R. No. 175048.

Contentions of the Parties

Petitioner argued that both sureties were liable because the Supreme Court ordered return of the wrongfully garnished amount and that the surety bonds should answer in the event Win Multi-Rich failed to refund the deposit.
Visayan Surety contended that no application for damages was filed in the Supreme Court case and that Section 20, Rule 57 required timely filing with due notice to the surety before finality of judgment.
FES