PEDRO R. JAO AND CATALINA SIA, PLAINTIFFS AND APPELLEES, VS. ROYAL FINANCING CORPORATION, ET AL., DEFENDANTS AND APPELLEES. ASSOCIATED INSURANCE & SURETY CO., INC., BONDSMAN AND…

On October 30, 1957, plaintiffs spouses Pedro R. Jao and Catalina Sia, signed
a promissory note in favor of the defendant Royal Financing Corporation,
guaranteed by a chattel mortgage, executed on October 31, 1957. On June 27,
1958, in accordance with the extra-judicial foreclosure of chattel mortgage
filed by defendant corporation on June 25, 1958, the Sheriff of Manila,
announced and advertised for sale the properties of plaintiff, which were the
object of the chattel mortgage, the same to take place on July 11, 1958 at
plaintiffs’ premises in Manila. On July 7, 1958, plaintiffs filed a complaint
(Civil Case No. 36800), against the Royal Financing Corporation and the Sheriff
of Manila, praying the lower court to declare the promissory note of October 30,
1957, null and void, for having allegedly paid the same; to declare the chattel
mortgage of October 31, 1957 null and void, due to the payment of the
obligation, and to order the Sheriff to desist from selling the properties and
the corporation to pay plaintiffs the sum of P1,000.00 as attorney’s fees and
P5,000.00 as moral damages. In order to stop the sale of the properties at
public auction, plaintiffs on July 10, 1958, filed plaintiffs’ bonds for
preliminary injunction in the amount of P2,500.00 with plaintiffs, as principals
and the defendant Associated Insurance & Surety Co., Inc., as sureties. The
trial court suspended the sale scheduled for July 11, 1958. Subsequently, the
defendants filed their separate Answers, which, after the customary admissions
and denials, interposed affirmative defenses claiming that plaintiffs have no
cause of action, that plaintiffs were still indebted to defendant corporation in
the sum of P1,713.30, so much so that plaintiffs and their counsel Gualberto
Cruz, had on April 28, 1958, asked for an extension of 30 days within which to
pay their indebtedness and set up a counterclaim praying for P15,000.00 as moral
damages, P1,000.00 for attorney’s fees; and to proceed with the sale of the
chattels in accordance with the extra-judicial foreclosure of the chattel
mortgage.

On June 11, 1959, the lower court issued the following order of
dismissal:

“When this case was called for hearing on June 9, 1959, at 10:00 o’clock
a.m., neither plaintiffs nor their counsel, appeared, although a certain Mr.
Eugenio Gutierrez, not himself a lawyer, appeared for them, stating that their
attorney, Mr. Gualberto Cruz, was ill. There was no formal motion for
postponement made nor was there presented a medical certificate with regards to
Atty. Cruz’ illness.

Defendants, through counsel, made an oral motion to dismiss. The Court held
its ruling in abeyance until shown by the Sheriff’s return that there had been
due notice to said plaintiffs of the hearing set for June 9, 1959, in which
case, the said oral motion to dismiss would be granted, but without
prejudice.

The Court has since been satisfied by the sheriff’s return that plaintiffs,
through their counsel, Atty. Gualberto Cruz had been properly notified. Premises
considered, the motion to dismiss is hereby granted. Let this case be dismissed
without prejudice. * * *”.

On September 7, 1959, defendant corporation moved for judgment against the
surety’s bond (Associated Insurance & Surety Co., Inc.), as the sheriff had
reported that the mortgaged properties had disappeared and were no longer in the
plaintiffs’ possession, and no auction sale could be carried out, and that the
defendant corporation desired to present evidence to prove its pending
counterclaim. On September 19, 1959, counsel for the surety company opposed,
alleging that the motion was premature as the counterclaim had not yet been
decided, and there was no decision or ruling, subject of execution against the
surety, should the plaintiffs be unable to satisfy said decision.

On October 12, 1959, the lower court issued an order, the relevant portions
of which are hereunder reproduced—

“* * *. Under the circumstances, and particularly because the bond in
question was put up precisely to secure defendant’s right, particularly in
its mortgage credit, in the satisfaction of which, the sale of plaintiffs’
properties was suspended, the surety cannot now be heard to claim that the bond
cannot be executed either because it is premature or because it was not
mentioned in the order to dismiss this action.

This Court is not to be hoodwinked with such subtle legal juggling, and
hereby orders:

1. That the bond of P2,500.00 put up by plaintiffs through the Associated
   Insurance & Surety Co., Inc. be executed to satisfy defendant’s
   mortgage claim and

2. That this case with respect to defendant’s counterclaim be tried on November
   3, 1959, at 9:00 o’clock in the morning.”

A motion for reconsideration filed by the Surety Company of the above Order
was denied. Hence, the present appeal was directly elevated to this Court, the
questions raised being purely legal in nature. Appellant surety company alleged,
that the trial court erred (1) In holding that plaintiffs’ bond for preliminary
injunction issued by the bondsman-appellant was to secure the defendant-appellee
Hoyal Financing Corporation’s mortgage credit; and (2) in ordering the execution
of the bond on behalf of plaintiffsappellees. The pertinent portions of the bond
are quoted below:

“WHEREAS the above-named plaintiff has filed an action in the Court of First
Instance of Manila against the above-named defendant and prayed for a
preliminary injunction and the Court has ordered that a writ of preliminary
injunction issue upon the filing of a bond in the sum of TWO THOUSAND FIVE
HUNDRED PESOS ONLY (F2,500.00) Philippine Currency;

WHEREAS, we PEDRO R. JAO & CATALINA SIA as Principal and the ASSOCIATED
INSURANCE & SURETY CO. INC., of Manila as Sureties, in consideration of the
above and of the issuance of said writ of preliminary injunction, hereby,
jointly and severally, bind ourselves to herein defendants in the sum of TWO
THOUSAND FIVE HUNDRED PESOS ONLY (P2,500.00) Philippine Currency, under the
condition that we and the plaintiff will pay to herein defendants the party
enjoined all such damages as surety party may sustain by reason of the
injunction, if the Court should finally decide that the plaintiff was not
entitled thereto.”

The purpose of the bond, therefore, is to secure the defendants-appellees
(Corporation), for any such damages they may sustain by reason of the
injunction, if the Court should finally decide that the plaintiffs-appellees
(spouses Jao) were not entitled thereto. There is nothing which could even
remotely be construed to mean as a security for the mortgage credit of the
corporation. The bondsman-appellant has nothing to do with the mortgage credit;
it did not issue the bond with the idea of securing said mortgage credit. Tiie
bond was solely and expressly issued for the purpose of securing the prayer for
preliminary injunction filed by the plaintiff-appellee and to secure the
defendantsappellees for whatever damage they may sustain as a result or by
reason of the injunction, if the same should be declared as wrongfully issued. A
guaranty can not extend to more than what is expressly stipulated there; it
cannot be extended by implication beyond its specified limits (Art. 2055, new
Civ. Code; Uy Aloe vs. Cho Jan Ling, 27 Phil., 427; Solon vs. Solon, 64 Phil.,
729). We, therefore, hold that the bond in question was not put up to secure
defendants right, particularly their mortgage credit.

Granting for the purpose of argument that the bond covers the mortgage
credit, the defendant-appellant poses the question as to whether or not the
execution of the judgment has been effected in accordance with law. It contends
it is not. The plaintiffs-appellees and the trial court claim otherwise. The
pertinent provisions of law applicable to the matter on appeal, are section 9,
of Rule 60, in connection with section 20 of Rule 59. Damages against the surety
under a bond for attachment, injunction, receivership and delivery of personal
property (replevin), can only be obtained or awarded, pursuant to these
provisions. In order that the surety may be bound under the bond for damages,
the following requisites must be fulfilled, to wit: (1) The application for
damages must be filed in the same case where the bond was issued; (2) such
application for damages must be filed before the entry of final judgment; and
(3) after a hearing with notice to the surety (Facundo vs. Tan, et al., Facundo
vs. Santos, et al., Facundo vs. Lim, et al., 85 Phil., 24§, 47 Off. Gaz., 2912;
Visayan Surety & Ins. Corp. vs. Pascual, 85 Phil., 779; 47 Off. Gaz., 5075;
Liberty Cons. Co. vs. Pecson, et al., 89 Phil., 50; Abelow vs. De la Riva, et
al., 105 Phil., 159). The dismissal of the case filed by the
plaintiffs-appellees on July 11, 1959, had become final and executory before the
defendant-appellee corporation filed its motion for judgment on the bond on
September 7, 1959. In the order of the trial court, dismissing the complaint,
there appears no pronouncement whatsoever against the surety bond. The
appellee-corporation failed to file its proper application for damages prior to
the termination of the case against it. It is barred to do so now. The
prevailing party, if such would be the proper term for the appellee-corporation,
having failed to file its application for damages against the bond prior to the
entry of final judgment, the bondsman-appellant is relieved of further liability
thereunder (Del Rosario vs. Nava, 95 Phil., 637; 50 Off. Gaz., [9] 4189).

The motion for judgment against surety’s bond filed by the
appellee-corporation, is not the proper application spoken of under sec. 20,
Rule 59. The said motion prayed for immediate judgment, without even asking the
trial court to first determine, thru proper hearing, the reasonableness or
reality of the claim for damages, considering the fact that the bond held the
bondsman liable for damages, if any, sustained by the corporation in or by
virtue of the issuance of the injunction, and not for the mortgage credit. A
claim even filed within the time is not sufficient to render the bond answerable
for damages. Such claim for damages must be duly substantiated and proven by
competent evidence to show that they are not merely fabricated or made on
pretext. There having been no hearing, the trial court was not justified in
rendering judgment against the bondsman-appellant for any amount, much less the
full amount of the bond, as was adjudged in the present case by the said trial
court (Jesswani vs. Dialdos, G. R. No. L-4651, May 12, 1952).

In view hereof, we reverse the orders of the trial court dated October 12,
1959 and November 17, 1959, rendering judgment against the bond in question, and
enter another relieving the bondsman-appellant of further responsibility in
connection therewith. No costs.

Bengzon, C. J., Padilla, Bautista Angelo, Concepcion, Reyes, J. B. L.,
and Dizon, JJ., concur.