TOWERS ASSURANCE CORPORATION, PETITIONER, VS. ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG AND JUDGE BENJAMIN K. GOROSPE, PRESIDING JUDGE, COURT OF FIRST INSTANCE OF MISAMI…

Towers Assurance versus Ororama Supermart

The Case

This is a petition for certiorari filed by Towers Assurance Corporation against Ororama Supermart, its owner-proprietor See Hong, and the presiding judge of the Court of First Instance of Misamis Oriental. The surety assails a decision and a writ of execution that made it solidarily liable on a counterbond it had issued to lift a writ of preliminary attachment, without giving it notice and a summary hearing. The case matters because it fixes the procedural safeguards a judgment creditor must observe before recovering from a surety on a counterbond, and it clarifies the interplay between the surety's solidary liability and the surety's right to procedural due process.

Procedural History

See Hong, proprietor of Ororama Supermart, sued the spouses Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for collection of a sum of money. The trial court issued a writ of preliminary attachment, and the Ong spouses lifted it by filing a counterbond with Towers Assurance Corporation as surety. After the Ong spouses were declared in default for nonappearance at pre-trial, the trial court rendered a decision ordering the Ong spouses and their surety, Towers Assurance Corporation, to pay solidarily. Ernesto Ong manifested that he did not want to appeal. Ororama Supermart then moved for execution, and the trial court granted the motion and issued a writ of execution against the judgment debtors and their surety. Towers Assurance Corporation went directly to the Supreme Court on a petition for certiorari, assailing the decision and the writ of execution.

Facts

On February 17, 1976, See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection of a sum of money plus litigation expenses and attorney's fees. See Hong asked for a writ of preliminary attachment, and on March 5, 1976 the lower court issued an order of attachment. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City.

To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond with Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound themselves to pay solidarily to See Hong the amount of the counterbond. On March 24, 1976 the Ong spouses filed an answer with a counterclaim, but for nonappearance at the pre-trial they were declared in default.

On October 25, 1976, the lower court rendered a decision ordering not only the Ong spouses but also their surety, Towers Assurance Corporation, to pay solidarily to See Hong, and ordering the Ong spouses to pay litigation expenses and attorney's fees. Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a motion for execution, which the lower court granted. The writ of execution was issued on March 14 against the judgment debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari.

Issues

• Whether or not the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without first giving it notice and an opportunity to be heard.
• Whether or not the surety on a counterbond is entitled to the exhaustion of the properties of the principal debtor before execution may issue against it.

Applicable Provisions

Section 17 of Rule 57 of the Rules of Court provides:

SEC. 17. When execution returned unsatisfied, recovery had upon bond. If the execution be returned unsatisfied in whole or in part, the surety or sureties on any counter bond given pursuant to the provisions of this rule to secure the payment of the judgment shall become charged on such counter bond, and bound to pay to the judgment creditor upon demand, the amount due under the judgment, which amount may be recovered from such surety or sureties after notice and summary hearing in the same action.

This provision supplies the requisites for recovery from a surety on a counterbond, including the notice and summary hearing that the Court holds to be indispensable.

Ruling

On the first issue, the Court held that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without first giving it an opportunity to be heard. The Court laid down the requisites under Section 17: first, that execution be first issued against the principal debtor and returned unsatisfied in whole or in part; second, that the creditor made a demand upon the surety for the satisfaction of the judgment; and third, that the surety be given notice and a summary hearing in the same action as to its liability for the judgment under its counterbond. The Court stressed that the surety is entitled to be heard before an execution can be issued against it since it is not a party in the case involving its principal, and that notice and hearing constitute the essence of procedural due process.

On the second issue, the Court held that the first requisite does not apply in this case because Towers Assurance Corporation assumed a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor. The solidary nature of the undertaking, however, does not dispense with notice and hearing, which remain essential before execution may issue against the surety.

Doctrine

A surety on a counterbond given to lift a writ of preliminary attachment may be charged on that bond and compelled to pay the judgment creditor, but only after notice and a summary hearing in the same action. The requisites for recovery from the surety are: execution first issued against the principal debtor and returned unsatisfied in whole or in part; a demand by the creditor upon the surety; and notice and summary hearing on the surety's liability. Because the surety is not a party to the case against its principal, notice and hearing are indispensable, for they constitute the essence of procedural due process. A surety who assumes solidary liability is not entitled to the exhaustion of the properties of the principal debtor, but this solidary liability does not excuse the notice and hearing requirement.

Disposition

The Court set aside the order and writ of execution insofar as they concerned Towers Assurance Corporation, and directed the lower court to conduct a summary hearing on the surety's liability on its counterbond, with no costs.

Remember This

Memorize this line: a surety on a counterbond may be executed against only after notice and a summary hearing, because it is not a party to the case against its principal. Examiners use this case to test the requisites under Section 17 of Rule 57 and the distinction between the surety's solidary liability and its right to procedural due process.