Liability of counter-bond in an attachment case involving a compromise - G.R. No. 171750

G.R. No. 171750

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No novation despite compromise agreement; Acropolis still liable under the terms of the counter-bond

UPPC argues that the undertaking of Acropolis is to secure any judgment rendered by the RTC in its favor. It points out that because of the posting of the counter-bond by Acropolis and the dissolution of the writ of preliminary attachment against Unibox and Ortega, UPPC lost its security against the latter two who had gone bankrupt.[36] It cites the cases of Guerrero v. Court of Appeals[37] and Martinez v. Cavives[38] to support its position that the execution of a compromise agreement between the parties and the subsequent rendition of a judgment based on the said compromise agreement does not release the surety from its obligation nor does it novate the obligation.[39]

Acropolis, on the other hand, contends that it was not a party to the compromise agreement. Neither was it aware of the execution of such an agreement which contains an acknowledgment of liability on the part of Unibox and Ortega that was prejudicial to it as the surety. Accordingly, it cannot be bound by the judgment issued based on the said agreement.[40] Acropolis also questions the applicability of Guerrero and draws attention to the fact that in said case, the compromise agreement specifically stipulated that the surety shall continue to be liable, unlike in the case at bench where the compromise agreement made no mention of its obligation to UPPC.[41]

On this issue, the Court finds for UPPC also.

The terms of the Bond for Dissolution of Attachment issued by Unibox and Acropolis in favor of UPPC are clear and leave no room for ambiguity:

WHEREAS, the Honorable Court in the above-entitled case issued on _____ an Order dissolving / lifting partially the writ of attachment levied upon the defendant/s personal property, upon the filing of a counterbond by the defendants in the sun of PESOS FORTY TWO MILLION EIGHT HUNDRED FORTY FOUR THOUSAND THREE HUNDRED FIFTY THREE AND 14/100 ONLY (P 42,844,353.14) Philippine Currency.

NOW, THEREFORE, we UNIBOX PACKAGING CORP. as Principal and PHILIPPINE PRYCE ASSURANCE CORP., a corporation duly organized and existing under and by virtue of the laws of the Philippines, as Surety, in consideration of the dissolution of said attachment, hereby jointly and severally bind ourselves in the sum of FORTY TWO MILLION EIGHT HUNDRED FORTY FOUR THOUSAND THREE HUNDRED FIFTY THREE AND 14/100 ONLY (P 42,844,353.14) Philippine Currency, in favor of the plaintiff to secure the payment of any judgment that the plaintiff may recover against the defendants in this action.[42] [Emphasis and underscoring supplied]

Based on the foregoing, Acropolis voluntarily bound itself with Unibox to be solidarily liable to answer for ANY judgment which UPPC may recover from Unibox in its civil case for collection. Its counter-bond was issued in consideration of the dissolution of the writ of attachment on the properties of Unibox and Ortega. The counter-bond then replaced the properties to ensure recovery by UPPC from Unibox and Ortega. It would be the height of injustice to allow Acropolis to evade its obligation to UPPC, especially after the latter has already secured a favorable judgment.

This issue is not novel. In the case of Luzon Steel Corporation v. Sia,[43] Luzon Steel Corporation sued Metal Manufacturing of the Philippines and Jose Sia for breach of contract and damages. A writ of preliminary attachment was issued against the properties of the defendants therein but the attachment was lifted upon the filing of a counter-bond issued by Sia, as principal, and Times Surety & Insurance Co., as surety. Later, the plaintiff and the defendants entered into a compromise agreement whereby Sia agreed to settle the plaintiff’s claim. The lower court rendered a judgment in accordance with the terms of the compromise. Because the defendants failed to comply with the same, the plaintiff obtained a writ of execution against Sia and the surety on the counter-bond. The surety moved to quash the writ of execution on the ground that it was not a party to the compromise and that the writ was issued without giving the surety notice and hearing. Thus, the court set aside the writ of execution and cancelled the counter-bond. On appeal, this Court, speaking through the learned Justice J.B.L. Reyes, discussed the nature of the liability of a surety on a counter-bond:

Main issues posed are (1) whether the judgment upon the compromise discharged the surety from its obligation under its attachment counterbond and (2) whether the writ of execution could be issued against the surety without previous exhaustion of the debtor's properties.

Both questions can be solved by bearing in mind that we are dealing with a counterbond filed to discharge a levy on attachment. Rule 57, section 12, specifies that an attachment may be discharged upon the making of a cash deposit or filing a counterbond “in an amount equal to the value of the property attached as determined by the judge”; that upon the filing of the counterbond “the property attached ... shall be delivered to the party making the deposit or giving the counterbond, or the person appearing on his behalf, the deposit or counterbond aforesaid standing in place of the property so released.”

The italicized expressions constitute the key to the entire problem. Whether the judgment be rendered after trial on the merits or upon compromise, such judgment undoubtedly may be made effective upon the property released; and since the counterbond merely stands in the place of such property, there is no reason why the judgment should not be made effective against the counterbond regardless of the manner how the judgment was obtained.

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As declared by us in Mercado v. Macapayag, 69 Phil. 403, 405-406, in passing upon the liability of counter sureties in replevin who bound themselves to answer solidarily for the obligations of the defendants to the plaintiffs in a fixed amount of ₱912.04, to secure payment of the amount that said plaintiff be adjudged to recover from the defendants,

the liability of the sureties was fixed and conditioned on the finality of the judgment rendered regardless of whether the decision was based on the consent of the parties or on the merits. A judgment entered on a stipulation is nonetheless a judgment of the court because consented to by the parties.[44]

[Emphases and underscoring supplied]

The argument of Acropolis that its obligation under the counter-bond was novated by the compromise agreement is, thus, untenable. In order for novation to extinguish its obligation, Acropolis must be able to show that there is an incompatibility between the compromise agreement and the terms of the counter-bond, as required by Article 1292 of the Civil Code, which provides that:

Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. (1204)

Nothing in the compromise agreement indicates, or even hints at, releasing Acropolis from its obligation to pay UPPC after the latter has obtained a favorable judgment. Clearly, there is no incompatibility between the compromise agreement and the counter-bond. Neither can novation be presumed in this case. As explained in Duñgo v. Lopena:[45]

Novation by presumption has never been favored. To be sustained, it need be established that the old and new contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in acts of similar import.[46]

All things considered, Acropolis, as surety under the terms of the counter-bond it issued, should be held liable for the payment of the unpaid balance due to UPPC.

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