MALAYAN INSURANCE CO., INC., PETITIONER, VS. HON. EMILIO V. SALAS, AS PRESIDING JUDGE, COURT OF FIRST INSTANCE OF RIZAL, BRANCH I, PASIG, METRO MANILA, ROSENDO FERNANDO AND JOHN…

This case is about the surety company’s liability on its replevin bond which was not included in the final judgment
against the principal in the bond.  It is
undisputed that in 1970 Makati Motor Sales, Inc., as
vendor mortgagee, sued Rosendo
Fernando for the recovery of four diesel trucks and the collection of the
balance of his obligation plus damages (Civil Case No. 13874, Court of First
Instance of Rizal, Pasig
Branch I).

To obtain immediate possession of the trucks pending trial, Makati Motor Sales, Inc. posted a replevin
bond executed by the Malayan Insurance Co., Inc. In that bond the surety bound
itself to pay P362,775.92 “for the return of the
property to the defendant, if the return thereof be adjudged, and for the
payment of such sum as may in the cause be recovered against the
plaintiff”.  Pursuant to the order
of the court, the sheriff seized the four trucks.  Later, two of the trucks were re­turned to
Fernando.

After trial, or on March 2, 1973, the lower court ren­dered
judgment ordering Makati Motor Sales, Inc. to return
to Fernando the other two trucks and to pay him, for the seizure of each of
them, damages in the sum of three hundred pesos daily from September 25 and 26,
1970 (or six hundred pesos for the two trucks from the latter date) until their
return to Fernando plus P26,000 as actual and moral
damages.

In turn, Fernando was ordered to pay Makati
Motor Sales, Inc. the sum of P66,998.34, as the
balance of the price of the two trucks, with twelve percent interest from
February 28, 1969 until fully paid and the further sum of P15,730.20 as the
cost of the repair with six percent interest from September 11, 1970 until
fully paid.

Makati Motor Sales, Inc. appealed to
the Court of Appeals.  It affirmed the
lower court’s judgment in its deci­sion of March 1, 1977 in CA-G.R. No.
54196-R.

Meanwhile, on May 11,
1973, or before the elevation of the record to the Court of
Appeals, Fernando filed in the trial court an application for damages against
the replevin bond. 
It was opposed by the surety on the ground that the trial court had lost
jurisdiction over the case because of the perfection of the appeal.  The trial court denied the application on June 28, 1973.

On May 27, 1974
Fernando filed in the Court of Appeals his claim for damages against the replevin bond.  He
prayed that the same be included in the judgment.  The surety, which
was furnished with a copy of the claim, filed an opposition to it.

The Court of Appeals did not act immediately on that claim but in
its 1977 decision it observed that Fernando’s motion or claim “was
correct” and it ordered that his claim against Malayan Insurance Co., Inc.
“be heard before the trial court”. 
That decision affirming the lower court’s judgment became final and executory on March
18, 1977.

On April 6, 1977,
or after the remand of the record to the trial court, Fernando filed a motion
to set for hearing his application for damages against the surety on its replevin bond.  The
application was heard with notice to Makati Motor
Sales, Inc. and Malayan Insurance Co., Inc. Fernando submitted documentary
evidence.  On December 15, 1977 Malayan Insurance Co., Inc.
moved to quash the proceeding regarding the claim for damages.  It contended that the trial court has no
jurisdiction to alter or modify the final judgment of the Court of Appeals.

The trial court in its order of July 14, 1978 denied the motion to quash.  It directed Malayan Insurance Co., Inc. to
pay Fernando the damages which it had adjudged against Makati
Motor Sales, Inc.  The surety company
appealed from that order to this Court pursuant to Republic Act No. 5440.

Section 10, Rule 60 of the Rules of Court provides that in replevin cases, as in receivership and injunction cases,
the damages “to be awarded to either party upon any bond filed by the
other” “shall be claimed, ascertained, and granted” in
accordance with section 20 of Rule 57 which reads:

“SEC. 20.  Claim for damages on account of illegal
attachment.  – If the judgment on the
action be in favor of the party against whom attachment was issued, he may
recover, upon the bond given or deposit made by the attaching creditor, any
damages resulting from the attachment. 
Such damages may be awarded only upon application and after proper
hearing, and shall be included in the final judgment.  The application must be filed before the
trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching creditor and
his surety or sureties, setting forth the facts showing his right to damages
and the amount thereof.

“If the judgment of the appellate court be favorable to the
party against whom the attachment was issued, he must claim damages sustained
during the pendency of the appeal by filing an
application with notice to the party in whose favor the attachment was issued
or his surety or sureties, before the judgment of the appellate court becomes executory.  The appellate
court may allow the application to be heard and decided by the trial court.”

Under section 20, in order to recover damages on a replevin bond (or on a bond for preliminary attachment, injunction
or receivership) it is necessary (1) that the defendant-claimant has secured a
favorable judgment in the main action, meaning that the plaintiff has no cause
of action and was not, therefore, entitled to the provisional remedy of replevin; (2) that the application for damages, showing
claimant’s right thereto and the amount thereof, be filed in the same action
before trial or before appeal is perfected or before the judgment becomes executory; (3) that due notice be given to the other party
and his surety or sureties, notice to the principal not being sufficient and
(4) that there should be a proper hear­ing and the award for damages should be
included in the final judgment (Luneta Motor Co. vs.
Menendez, 117 Phil. 970, 974; 3 Moran’s Comments on the Rules of Court, 1970
Ed., pp. 54-56.  See Cruz vs. Manila
Surety & Fidelity Co., Inc., 92 Phil. 699).

In this appeal, Malayan Insurance Co., Inc. contends that the
trial court’s judgment against it is not warranted under section 20 of Rule
57.  It assails the trial court’s
competence to render judgment against the surety after the decision of the
Court of Appeals against the surety’s principal had become final and executory.

We hold that the trial court has jurisdiction to pass upon
Fernando’s application for the recovery of damages on the surety’s replevin bond.  The
reason is that Fernando sea­sonably filed his application for damages in the
Court of Appeals.  It was not his
fault that the damages claimed by him against the surety were not included in
the judgment of the Court of Appeals affirming the trial court’s award of
damages to Fernando payable by the principal in the replevin
bond.  The peculiar factual situation of
this case makes it an exception to the settled rule that the surety’s liability
for damages should be included in the final judgment to prevent duplicity of
suits or proceedings.

As may be gathered from section 20 of Rule 57, the application
for damages against the surety must be filed (with notice to the surety) in the
Court of First Instance before the trial or before appeal is perfected or
before the judgment becomes executory.

If an appeal is taken, the application must be filed in the
appellate court but always before the judgment of that court becomes executory so that the award may be included in its judgment
(Luneta Motor Co. vs. Menendez, 117 Phil. 970, 976).

But it is not always mandatory that the appellate court
should include in its judgment the award of damages against the surety.  Thus, it was held that where the application
for damages against the surety is seasonably made in the appellate court,
“the latter must either proceed to hear and decide the application or refer”
it “to the trial court and allow it to hear and decide the same”
(Rivera vs. Talavera, 112 Phil. 209, 219).

We have stated earlier that in the instant case Fernando in 1974
made a timely claim in the Court of Appeals for an award of damages against
Malayan Insurance Co., Inc. enforceable against its replevin
bond.  The surety was notified of that
application.  It registered an opposition
to the claim.  The Court of Appeals did
not resolve the claim immediately but in its 1977 decision it directed the
trial court to hear that claim.

Obviously, the lower court has no choice but to implement that
directive which is the law of the case (See Compagnie
Franco-Indochinoise vs. Deutsch, etc., 39 Phil. 474,
476).

However, the trial court’s implementation of that directive was
incorrect.  It set the claim for hearing
but the surety assailed its jurisdiction and did not consider itself bound by
the mandate of the appellate court.  The
merits of the claim for damages were not threshed out at the hearing because the
surety stood pat on its contention that the trial court has no jurisdiction to
allow the claim in view of the finality of the decision of the Court of
Appeals.

This Court has held that, if the surety was not given
notice when the claim for damages against the principal in the replevin bond was heard, then as a matter of procedural due
process the surety is entitled to be heard when the judgment for damages
against the principal is sought to be enforced against the surety’s replevin bond.

“The hearing will be summary and will be limited to such new
defense, not previously set up by the principal, as the surety may allege and
offer to prove.  The oral proof of
damages already adduced by the claimant may be repro­duced without the
necessity of retaking the testimony, but the surety should be given an
opportunity to cross-examine the witness or witnesses if it so desires.”
That procedure would forestall the perpetration of fraud or collusion against
the surety (Visayan Surety and Insurance Corporation
vs. Pascual, 85 Phil. 779, 785-786).

Inasmuch as in this case appellant Malayan Insurance Co., Inc.
was not given the summary hearing during which it could contest the reality or
reasonableness of Fernando’s claim for damages, we have to set aside the trial
court’s order awarding damages against it and, in the interest of justice, give
it another opportunity to be heard on the merits of Fernando’s claim for
damages.

Before closing, it may be useful to make a review and synthesis
of the copious jurisprudence on the surety’s liability in attachment,
injunction, replevin and receivership bonds.  It was observed in one case that once upon a
time the rulings on that point were in a muddled state.

Section 20 of Rule 57 is a revised version of section 20, Rule 59
of the 1940 Rules of Court which earlier section 20 is a restatement of this
Court’s rulings under sections 170, 177, 223, 272 and 439 of the Code of Civil
Procedure regarding the damages recoverable in case of the wrongful issuance of
the writs of preliminary injunction, attachment, mandamus and replevin and the appointment of a receiver.

Section 170 contains the provision that the damages suffered in
connection with the issuance of a preliminary injunction shall be ascertained
by the court trying the action (meaning the court where the action is pending)
and shall be included in the final judgment “against the plaintiff and
against the sureties”.  As to
damages in case of wrongful attachment, see section 439 of the Code of Civil
Procedure and Belzunce vs. Fernandez, 10 Phil. 452.

So, as held under the Code of Civil Procedure, if the preliminary
injunction was issued by this Court, the spe­cification of damages should be
filed in this Court.  The peti­tioner and
his bondsmen should be served with copies of the specification (Somes vs. Crossfield, 9 Phil. 13
and Macatangay vs. Municipality of San Juan de Bocboc, 9 Phil. 19).

On the other hand, under section 439 of the Code of Civil
Procedure, the damages caused by a wrongful attachment may be adjudicated in a
summary hearing but the better practice would be to claim the damages in the
answer and to offer evidence in support thereof during the trial (Gasataya vs. Fallon, 32 Phil. 245 and Raymundo
vs. Carpio, 33 Phil. 395).

Note that under the second paragraph of section 20, Rule 57 of
the present Rules of Court, the damages suffered during the pendency
of an appeal in a case where the writs of attachment, injunction and replevin or an order of re­ceivership were issued should be
claimed in the appellate court.

There is an old ruling that the sureties in an injunction bond
are bound by a judgment for damages against their principal even if the
sureties were not heard at the time the claim for damages was tried.  The reason for that ruling is that the
sureties in an injunction bond “assume such a connection with the suit
that they are included by a judgment in it in a suit at law upon the bond, so
far as the same issues are involved; and that, upon the entry of a judgment
against the prin­cipal, their liability is absolute” (Florentino
vs. Domadag, 45 O.G. 4937,
81 Phil. 882).

Also, it was held that if damages were awarded against the
principal in a replevin bond without notice to the
surety, that final judgment may be enforced against the surety after it has
been given an opportunity to be heard as to the reality or reasonableness of
the alleged damages.  In such a case, the
trial court must order the surety to show cause why
the bond should not answer for the judgment for damages.  The hearing is summary and the surety may
cross-examine the witnesses presented by the defendant (Visayan
Surety & Insurance Corporation vs. Pascual, 85
Phil. 779).

Insofar as those rulings in the Florentino
and Visayan Surety cases allowed a
claim for damages against the surety to be ventilated in a separate proceeding
or after the finality of the judgment for damages against the principal in the
bond, those rulings were jettisoned and abandoned in several subsequent
cases because they are contrary to the explicit provision of section 20 of Rule
59, now Rule 57, that the judgment for damages against the surety should be
included in the final judg­ment to avoid additional proceedings (Cruz vs.
Manila Surety & Fidelity Co., Inc., 92 Phil. 699; Japco
vs. City of Manila, 48 Phil. 851, 855).

The damages are recoverable on the theory that an actionable
wrong was committed by the losing party. 
The recovery is limited to the amount of the bond (Pacis
vs. Commission on Elections, L-29026, August 22, 1969, 29 SCRA
24, 29).

The usual procedure is to file an application for damages with
due notice to the other party and his sureties. 
The other party may answer the application.  Upon the issues thus being joined, the matter
will be tried and determined.  A court
order declaring the bond confiscated without adhering to that procedure is void
(Fabella vs. Tancinco, 86
Phil. 543; Luzon Surety Co., Inc. vs. Guerrero, L-20705, June 20, 1966, 17 SCRA 400).

The claim for damages against the surety should be made with
notice to the surety and before the judgment against the principal becomes executory.  The
liability of the surety should be included in the final judgment.  That remedy is exclusive.  If not availed of, the surety is released (Curilan vs. Court of Appeals, 105 Phil. 1160 and De la Rama vs. Villarosa, 118 Phil.
424, 430; Jesswani vs. Dialdas,
91 Phil. 915; Estioco vs. Hamada, 103 Phil. 1145).

Therefore, the prevailing settled rule is that a court has no
jurisdiction to entertain any proceeding seeking to hold a surety liable upon
its bond if such surety has not been given notice of the claim for damages
against the principal and the judgment holding the latter liable has already
become executory (People’s Surety & Insurance
Co., Inc. vs. Court of Appeals, L-21627, June 29, 1967, 20 SCRA
481).

If the judgment awarding damages against the principal in a bond
for the lifting of a preliminary injunction had already become executory, that claim cannot be pressed against the surety
by setting it for hearing with notice to the surety.  The failure to notify the surety of the claim
for damages against the principal relieves the surety from any liability on his
bond (Sy vs. Ceniza, 115
Phil. 396; Pacis vs. Commission on Elections,
L-29026, August 22, 1969, 29 SCRA 24; Dee vs. Masloff, 116 Phil. 412).

To entertain the belated claim against the surety after the
judgment for damages against the principal has become executory
would result in the alteration of that judgment.  That should not be done (De Guia vs. Alto Surety & Insurance Co., Inc., 117 Phil.
434; Visayan Surety & Insurance Co., Inc. vs. De Aquino, 96 Phil. 900; Port Motors, Inc. vs. Raposas and Alto Surety & Insurance Co., Inc., 100
Phil. 732; Gerardo vs. Plaridel Surety &
Insurance Co., Inc., 100 Phil. 178; Luneta Motor Co.
vs. Lopez, 105 Phil. 327; Curilan vs. Court of
Appeals, 105 Phil. 1160; Riel vs. Lacson, 104 Phil.
1055).

Moreover, the damages claimed by the defendant should be pleaded
as a compulsory counterclaim in his answer. 
Hence, a separate action to claim those damages is unwarranted (Ty Tion and Yu vs. Marsman & Co. and Alpha Insurance & Surety Co.,
Inc., 115 Phil. 746, 749; Medina vs. Maderera del
Norte de Catanduanes, Inc., 51 Phil. 240; Nueva-España vs. Montelibano, 58
Phil. 807; Tan-Suyco vs. Javier, 21 Phil. 82).

It may be noted that in the Visayan
Surety case, 85 Phil. 779, Visayan Surety &
Insurance Corporation filed a replevin bond for one
Yu Sip who sued Victoria Pascual for the recovery of
a truck.  The trial court found that the
writ of replevin was wrongfully procured, that
Victoria Pascual was the lawful owner of the truck
and that she suffered damages on account of its wrongful seizure by the sheriff
at the instance of plaintiff Yu Sip.

The trial court ordered Yu Sip to return the truck to Victoria Pascual or to pay its value of P2,300 in case of his inability
to return it and, in either case, to pay thirty pesos
daily from January 6, 1947
up to the date of the return of the truck or until its value was fully
paid.  The Court of Appeals affirmed that
judgment.

After the return of the record to the trial court, Victoria Pascual filed a “petition for execution of the surety
bond” wherein she prayed for a writ of execution against the surety to
satisfy the judgment out of its replevin bond.  The surety opposed that petition.  It contended that it was never notified by
Victoria Pascual regarding her presentation of
evidence covering the damages which she had suffered.  The trial court granted the petition and
ordered the issuance of a writ of execution against the surety.  That order was assailed in a certiorari
proceeding in this Court.

It was held that the writ of execution should be set aside and
that the surety should be given a chance to be heard in a summary
proceeding.  That proceeding was
conducted after the judgment against Yu Sip, the principal in the replevin bond, had become final and executory.

What was done in the Visayan
Surety case, as recounted above, was not allowed in subsequent cases.  Thus, in Manila Underwriters Insurance Co.,
Inc. vs. Tan, 107 Phil. 911, the trial court rendered in 1954 a judgment
dissolving the preliminary attachment and ordering the plaintiff to pay the
defendant the damages which the latter suffered by reason of the wrongful
attachment.  The surety in the attach­ment
bond was not notified of the hearing but it was furnished with a copy of the
decision.

In 1957 the Court of Appeals affirmed that judgment.  After it became final, the defendant filed in
the trial court against the surety a motion for execution which the latter
opposed.  At the hearing of the motion,
the defendant offered to reproduce the evidence which he had presented at the
trial.  The offer was accepted by the
trial court.  It issued the writ of
execution against the surety.

It was held that, because the surety was not notified of the
hearing on the damages suffered by the defendant in the manner prescribed in
section 20 of Rule 59, now Rule 57, it was not liable for damages under its
attachment bond.

The surety is notified so that he may cross-examine the witnesses
testifying as to the damages and question the evidence presented by the
claimant and interpose any appro­priate defense (Riel vs. Lacson,
104 Phil. 1055; Liberty Construction Supply Co. vs. Pecson,
89 Phil. 50).

So, if plaintiff’s claim for damages resulting from the wrongful
lifting of the writ of preliminary injunction was awarded in the main decision
without notice to the surety and the decision had become executory,
the failure to notify the surety on time relieves him from his liability under
the bond (Alliance Insurance & Surety Co., Inc. vs. Piccio,
105 Phil. 1192).

The surety may be held liable only if before the judgment for
damages against the principal becomes executory, an
order is entered against him after a hearing with notice to him.  After the judgment becomes executory, it is too late to file such claim for damages
with notice to the surety (Abelow vs. Riva, 105 Phil.
159; Visayan Surety & Insurance Corp. vs. Lacson, 96 Phil. 878).

Where the Court of Appeals dismissed a mandamus action originally
filed in that court and dissolved the preliminary injunction which it had
issued and after entry of judgment was made the record was remanded to the
trial court, it was error for the Court of Appeals to allow the respondent in
that case to file a claim for damages against the principal and surety in the
injunction bond.  The claim should have
been filed before the judgment of dismissal became final (Luzon Surety Co.,
Inc. vs. Court of Appeals, 108 Phil. 157).

Section 20 of Rule 57 contemplates one judgment for damages
against the principal and the surety in the injunction, replevin,
attachment and receivership bonds.  Since
the judicial bondsman has no right to demand the exhaustion of the property of
the principal debtor, there is no justification for entering separate judgments
against them.  The claim for damages
against the surety should be made before entry of judgment (Del Rosario vs.
Nava, 95 Phil. 637).

In the Del Rosario case, a judgment for damages was
rendered against the principal in an attachment bond but there was no notice to
the surety of the claim for damages. 
That judgment became final.  After
the execution against the principal was returned unsatisfied, the claimant
filed a motion praying that the surety company be required to show cause why it should not answer for the judgment against the
principal.

It was held that, while the prevailing party may apply for an
award of damages against the surety even after the award has already been
obtained against the principal, nevertheless, in order that all awards for
damages may be included in the final judgment, the application and notice to
the surety must be made before the judgment against the principal be­comes
final and executory.

In another case, it was held that as the winning party sought to
hold the surety liable on its replevin bond almost a
year after the judgment of the Court of Appeals became final,
the trial court erred in enforcing its judgment against the surety.  “The surety may only be held liable if,
before judgment becomes final, an order against the surety is entered after a
hearing with notice to the surety”. 
The claim against the surety should be included in the final
judgment.  It is not sufficient that the
surety be afforded an opportunity to oppose the writ of execution.  (Plaridel
Surety & Insurance Company vs. De los Angeles,
L-25550, July 31, 1968, 24 SCRA 487).

After this Court’s judgment dissolving a preliminary injunction
had become final and executory, it would be too late
to entertain in the trial court the defendant’s application for damages allegedly
caused by the injunction (Santos vs. Moir, 36 Phil.
350).

The defendant in a replevin case cannot
file a separate action for damages due to the wrongful issuance of the
writ.  He should have claimed the damages
as a counterclaim in the original replevin suit (Pascua vs. Sideco, 24 Phil. 26; Ty Tion and Yu vs. Marsman & Co. and Alpha Ins. & Surety Co. Inc., 115
Phil. 746).

A final judgment for damages against the principal in a replevin bond cannot be enforced against the surety company
which was not notified of the claim for damages and was not afforded a chance
to be heard (People’s Surety and Ins. Co., Inc. vs. Aragon, 117 Phil. 257).

 Where an injunction was
dissolved and only attorney’s fees and costs were adjudged against the
principal, and the procedure for claiming damages against the surety was not
followed, no recourse could be had against the injunction bond in case the writ
of execution against the principal was not satisfied.  Moreover, the attorney’s fees and costs could
be recovered from the principal even without the filing of the bond (People’s
Surety & Insurance Co., Inc. vs. Bayona, 103
Phil. 1109).

Where after the dismissal of a petition for relief from the
judgment of a municipal court, the Court of First Instance ordered ex parte the issuance of a writ of execution against
the petitioner’s injunction bond, that order is void because there was no
formal claim for damages and there was no hearing with notice to the petitioner
and his surety.  The court should hold a
hearing.  (Luzon Surety
Co., Inc. vs. Guerrero, L-20705, June 20, 1966, 17 SCRA
400).

Where on June 11, 1959 an action to stop the fore­closure of a
chattel mortgage was dismissed, without prejudice, for failure to prosecute
and, before that dismissal became final, the defendant did not prove any
damages resulting from the issuance of the preliminary injunction, defendant’s
motion of September 7, 1959 praying that judgment be rendered against the
surety’s bond could no longer be entertained. 
The claim for damages should have been made before entry of final
judgment.  It must be duly substantiated
at the proper hearing with notice to the surety (Jao
and Sia vs. Royal Financing Corporation, 114 Phil.
1152; Visayan Surety & Insurance Corp. vs. Lacson, 96 Phil. 878).

If the case wherein the injunction was issued was dismissed for
failure to prosecute and no damages were awarded to the defendant by reason of
the issuance of the injunction, it was error for the trial court to issue a
writ of execution against the surety since there was no claim
nor evidence of damages suffered by the defendant.  The order of dismissal did not include any
award of damages.  (Vet Bros. and Co.,
Inc. vs. Movido, 114 Phil. 211).

The case of Vadil vs. De Venecia, 118 Phil. 1217, involves a queer situation.  Plaintiff corporation
in that case filed an action to recover a sum of money.  It asked for a writ of attachment.  Before any attachment could be issued, the
defendant filed a counterbond.  But this bond provided that the defendant
and his sureties would pay “all damages that the defendant (sic)
may suffer by reason of” the attachment. 
In other words, the defendant executed a bond in favor of himself.

Judgment was rendered for the plaintiff.  As the execution was returned unsatisfied,
the trial court on plaintiff’s motion ordered execution against defendant’s
bond.  It was held that the execution was
wrongfully issued.

However, where an injunction was issued in a forcible entry case
but on certiorari to the Court of First Instance, the justice of the peace
court was held to be without jurisdic­tion to entertain the ejectment
case, that ejectment suit is not considered dismissed
and it may still be regarded as pending in the justice of the peace court for
the purpose of allowing the defendant’s claim for damages on the injunction
bond (Cruz vs. Manila Surety & Fidelity Co., 92 Phil. 699).

Section 10 of Rule 60 makes section 20 of Rule 57 applicable not
only to the replevin bond but also to the redelivery
bond posted by the defendant for the lifting of the order of seizure.  The requisites for holding the surety liable
on the replevin bond are also the
requisites for holding the surety liable on the redelivery bond.  So, if the surety on the redelivery bond was
not notified of the plaintiff’s claim for damages, the surety cannot be held
liable on its redelivery bond for the damages adjudged against the
principal.  It is necessary that the
surety be notified and that its liability be included in the final judgment against
the principal (Luneta Motor Co. vs. Menendez, 117
Phil. 970).

The writ of execution issued against the counterbond
for the dissolution of an injunction is void if it was issued without notice to
the surety and after the judgment on the merits had become executory.  The surety’s liability should have been
included in the final judgment (Cajefe vs. Fernandez,
109 Phil. 743).

If the judgment awarding damages against the principals in the counterbonds filed for the lifting of the receivership was
appealed to the Court of Appeals and the plaintiff-appellee
filed in the trial court (not in the appellate court) his application for
damages against the sureties in the counterbonds, the
trial court cannot hear the said application after the record is remanded to it
because, by then, the decision of the appellate court had become final and the
damages to be awarded against the sureties could no longer be included in that
judgment.  The application for damages
against the sureties should have been filed in the Court of Appeals (Luneta Motor Co. vs. Menendez, 117 Phil. 970, 976).

The procedure in section 20 of Rule 57 should not be
confounded with the procedure in section 17 of the same rule regarding
the surety’s liability on the counterbond
for the lifting of the preliminary attachment.  Under section 17, the surety may be held
liable after notice and summary hearing conducted after the judgment had become
executory and the execution was returned unsatisfied
(Towers Assurance Corporation vs. Ororama Supermart, L-45848, November 9, 1977, 80 SCRA 262; Vanguard Assurance Corporation vs. Court of
Appeals, L-25921, May 27, 1975, 64 SCRA 148).

The case contemplated in section 17 of Rule 57 is different from
the case envisaged in section 20 of that rule (Dizon
vs. Valdes, L-23920, April 25, 1968, 23 SCRA 200; Visayan Surety & Insurance Corp. vs. De Aquino, 96 Phil. 900).

Nor does section 20 of Rule 57 apply to cases where the surety
bound himself to abide by the judgment against his principal and thereby
renounced his right to be sued or cited, or where the surety guaranteed the
return of certain goods and he did not raise the issue of lack of notice, or
where the sureties bound themselves to pay the plaintiff a definite amount (Aguasin vs. Velasquez, 88 Phil. 357; Lawyers Cooperative
Publishing Co. vs. Periquet, 71 Phil. 204; Mercado
vs. Macapayag and Pineda, 69 Phil. 403 cited in
Alliance Insurance case, 105 Phil. 1201).

Note that a different rule also obtains with respect to the
surety in the bond of an administrator or executor.  The nature of a surety’s obligation on an
administrator’s bond, which makes him privy to the proceeding against his
principal, is such that he is bound and concluded, in the absence of fraud or
collusion, by a judgment against his principal, even though the surety was not
a party to the proceedings (Laurente vs. Rizal Surety & Insurance Co., Inc., L-21250, March 31,
1966, 16 SCRA 551, citing Philippine Trust Co. vs.
Luzon Surety Co., Inc., 112 Phil. 44. 
See Cosme de Mendoza vs. Pacheco and Cordero,
64 Phil. 34).

It should be underscored that in the instant case, although the
surety’s liability was not included in the final judgment, which became executory, nevertheless, there was a timely application for
damages in the Court of Appeals which in its decision ordered the trial court
to hear defendant-appellee Fernando’s claim for
damages against the surety.  That feature
of the case removes it from the coverage of the rule that the surety should be
heard before the judgment becomes executory and that
his liability should be included in the final judgment.

WHEREFORE, we hold that the trial court has jurisdiction
to comply with the directive of the Court of Appeals but we reverse and set
aside its order of July 14, 1978, requiring petitioner-appellant Malayan
Insurance Co., Inc. to pay the damages which it had adjudged against Makati Motor Sales, Inc.

The trial court is required to hold a summary hearing wherein
appellant surety should be given a chance to contest the reality or
reasonableness of respondent-appellee Rosendo Fernando’s claim for damages.  After such hearing, or if the surety should
waive it, the trial court should render the proper judgment.  No costs.

SO ORDERED.

Concepcion, Jr., Santos, and Abad Santos, JJ., concur.

Antonio, (Acting Chairman), J., concurs
in a separate opinion.

Fernando, Acting C.J., and Barredo, JJ., did not take part.