FLEXO MANUFACTURING CORPORATION, PETITIONER, VS. COLUMBUS FOODS, INCORPORATED AND PACIFIC MEAT COMPANY, INCORPORATED, RESPONDENTS.

Flexo Manufacturing versus Columbus Foods

The Case

This is a petition for review on certiorari brought by Flexo Manufacturing Corporation against Columbus Foods, Incorporated and Pacific Meat Company, Incorporated. Flexo had won a money judgment in the trial court and then obtained an order allowing execution pending appeal. The respondents challenged that order before the Court of Appeals, which annulled it. Flexo now asks the Supreme Court to restore the order. The case matters because it is the Court's cleanest statement of when a prevailing party may execute a judgment that is not yet final, and of why a supersedeas bond is not the losing party's only remedy.

Procedural History

Flexo sued Columbus and Pacific for a sum of money with preliminary attachment before the Regional Trial Court of Caloocan City, Branch 131. After trial, the trial court rendered judgment in favor of Flexo, ordering the two respondents to pay solidarily the principal obligation with interest, attorney's fees and liquidated damages, and the costs of suit.

On the same day that Columbus and Pacific appealed to the Court of Appeals, Flexo filed a motion for execution pending appeal. The trial court granted it, citing the deteriorating condition of the foil pouches and the insolvency of Columbus. The respondents then filed a petition for certiorari with the Court of Appeals, which granted the petition and set aside the trial court's order. The Court of Appeals held that no good reasons or superior circumstances demanding urgency justified execution pending appeal. It noted that the foil pouches had already deteriorated, that Columbus's insolvency was not duly established, and that Flexo could still collect from Pacific as a solidary debtor. Flexo's motion for reconsideration was denied, so it came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

On two dates in August and September 1999, Flexo executed two contracts with Columbus for the manufacture of forty-eight million and six million foil pouches. Flexo made partial deliveries, which Pacific paid. Flexo then demanded payment for foil pouches that had been manufactured but not delivered, amounting to two million nine hundred fifty-seven thousand two hundred seventy pesos. Both respondents denied liability, so Flexo filed its complaint in February 2002.

The respondents answered that the two contracts were general agreements subject to specific instructions and confirmation relayed periodically. They said they had instructed Flexo to deliver all outstanding orders by the middle of April 2000, and that Flexo's failure to do so relieved them of the obligation.

After trial, the trial court ruled for Flexo and ordered the respondents to pay solidarily. The respondents appealed, and Flexo moved for execution pending appeal. The trial court granted the motion, but the Court of Appeals annulled that order, finding no urgency because the foil pouches, which had a limited shelf life, had already deteriorated even before the complaint was filed.

Issues

• Whether or not good reasons existed to justify the grant of execution pending appeal.
• Whether or not the deteriorating condition of the foil pouches constituted a good reason for execution pending appeal.
• Whether or not the insolvency of Columbus, one of two solidary debtors, was a good reason for execution pending appeal.
• Whether or not the posting of a bond by Flexo justified execution pending appeal.
• Whether or not the failure of Columbus to file a supersedeas bond barred it from questioning the order by certiorari.

Applicable Provisions

Section 2 of Rule 39 of the Rules of Court, on execution pending appeal, provides:

Section 2. Discretionary execution. (a) Execution of a judgment or final order pending appeal. On motion of the prevailing party with notice to the adverse party filed in the trial court while it has jurisdiction over the case and is in possession of either the original record or the record on appeal, as the case may be, at the time of the filing of such motion, said court may, in its discretion, order execution of a judgment or final order even before the expiration of the period to appeal. After the trial court has lost jurisdiction, any motion for execution shall be filed with the appellate court which may, in its discretion, issue a writ of execution on the judgment or final order when the interest of justice so demands in appropriate cases.

This is the provision under which the trial court granted the motion, and the Court measures the trial court's order against its requirement of a good reason.

Section 3 of Rule 39, on the stay of execution, provides:

Section 3. Stay of execution. The filing of a notice of appeal shall stay the execution of the judgment or final order appealed from, unless the trial court, in its discretion, orders otherwise. The filing of a supersedeas bond shall stay execution of the judgment or final order appealed from, unless the trial court, in its discretion, orders otherwise.

The Court construes this provision to mean that a supersedeas bond presupposes a presumptively valid occasion for discretionary execution, so its absence is not held against the losing party.

Ruling

The Court denied the petition and affirmed the Court of Appeals. On the first issue, it held that execution pending appeal is the exception to the general rule that a judgment is executed only when final and executory. It laid down three requisites: there must be a motion by the prevailing party, there must be a good reason for issuing the writ, and the good reason must be stated in a special order. Good reasons must be compelling circumstances justifying immediate execution lest the judgment become illusory, and must be superior circumstances demanding urgency that outweigh the injury should the losing party secure a reversal.

On the second issue, the Court found that the urgency had already lapsed. The first demand letter was sent in June 2000, so the pouches were processed before that date. Given their limited lifetime, they had deteriorated by the time the complaint was filed in February 2002, and by the time judgment was rendered, two and a half years had elapsed. The pouches were over and beyond their shelf life and unfit to be utilized. Unlike the earlier cases where deteriorating goods justified execution, here there was no right left to protect.

On the third issue, the Court held that the insolvency of one solidary debtor is not a good reason when a co-debtor is not insolvent. Since Pacific was adjudged solidarily liable with Columbus, the judgment would not become illusory, because Pacific could answer for it.

On the fourth issue, the Court held that the mere filing of a bond by the successful party is not a good reason for ordering execution pending appeal. The bond is merely an additional factor for the protection of the defendant's creditor; otherwise execution could be obtained through the mere filing of a bond.

On the fifth issue, the Court held that the failure of Columbus to file a supersedeas bond was not a fatal omission. Certiorari lies against an order granting execution pending appeal where the same is not founded upon good reasons, and the filing of a supersedeas bond does not entitle the losing party to suspension of execution as a matter of right.

Doctrine

Execution pending appeal is discretionary and exceptional. It requires a motion by the prevailing party, a good reason, and a special order stating that reason. The good reason must be a compelling circumstance demanding urgency, superior to the injury that a reversal would cause. The rules do not enumerate good reasons, so the trial court exercises discretion, but that discretion is reviewable by certiorari for grave abuse.

Deteriorating goods may be a good reason only where the goods still have value to protect. Where they have already deteriorated beyond their shelf life before the case was filed, the urgency has lapsed and the reason fails.

The insolvency of one of several solidary debtors is not a good reason where a co-debtor is solvent, because the judgment will not become illusory. The posting of a bond by the prevailing party is not by itself a good reason. And the failure to file a supersedeas bond does not bar the losing party from questioning the order by certiorari.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals annulling the order of execution pending appeal were affirmed. The respondents prevailed.

Remember This

Memorize the three requisites of execution pending appeal and the rule that a good reason must be a superior circumstance demanding urgency. Examiners use this case to test the requisites of discretionary execution, the solidary-debtor exception to the insolvency ground, and the rule that a supersedeas bond is not the losing party's only remedy.