LUZON vs.

SIA
Luzon Steel Corporation, represented by Tomas Aquino Cu, plaintiff-appellant, vs. Jose Sia, defendant, Times Surety &
Insurance Co., Inc., surety-appellee
May 15, 1969
Reyes, JBL, J.

Short version
Facts: Luzon sued Sia for breach of contract. Sias properties were attached. The attachment was lifted upon a counter-
bond executed by Sia (principal) and Times Surety (solidary guarantor). Luzon and Sia made a compromise and the court
rendered judgment on the basis of such compromise. But Sia was not able to comply with the terms of the compromise
and a writ of execution was issued against Sia and the counter-bond. Upon motion of Times Surety, the writ was quashed
and the bond was cancelled.

Held: Court should not have cancelled the counter-bond on the theory that the compromise discharged the obligation of
the surety. 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. Also, the relationship between Sia and
Times Surety was solidary. Thus, there was no need to exhaust the properties of Sia before going after the counter-bond.

FACTS

Luzon sued its manager Jose Sia and Metal Manufacturing of the Philippines, for breach of contract and damages. It
obtained a writ of preliminary attachment of the properties of the Sia and Metal Manufacturing, but the attachment was
lifted upon a P25,000 counterbond executed by Sia, as principal, and Times Surety as solidary guarantor.

The terms of the surety reads: WHEREFORE, we JOSE O. SIA, as principal and the TIMES SURETY & INSURANCE CO.,
INC., as Surety, in consideration of the dissolution of attachment, hereby jointly and severally bind ourselves in the sum of
P25,000 to answer for the payment to the plaintiff of any judgment it may recover in the action in accordance with Section
12, Rule 59, of the Rules of Court.

Luzon and Sia (without intervention of Times Surety) entered into a compromise whereby Sia agreed to settle Luzons
claim in the following manner: Sia will pay Luzon the P25,000 P500 monthly for the first 6 months at the end of every
month, and within one month after paying the last instalment of P500, the balance of P22,000 shall be paid in lump sum,
without interest. Failure to pay one or any instalment will make the whole obligation immediately due and demandable
and a writ of execution will be issued against the bond. The compromise was submitted to the court and the latter
approved it, rendered judgment in conformity therewith, and directed the parties to comply with the same.

Sia failed to comply. Luzon moved for and obtained a writ of execution against Sia and the counterbond. Times Surety,
however, moved to quash the writ of execution against it, averring that it was not a party to the compromise.

CFI Manila set aside the writ of execution and later cancelled the counterbond.

ISSUES
1. Whether the judgment upon the compromise discharged the surety from its obligation under its attachment
counterbond (NO)
2. Whether the writ of execution could be issued against the surety without previous exhaustion of the debtor's
properties (YES)

REASONING

1. 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 lower court and Times Surety relied on doctrine concerning the liability of sureties in bonds filed by a plaintiff for the
issuance of writs of attachment, without discriminating between such bonds and those filed by a defendant for the lifting
of writs of attachment already issued and levied.

Cajefe vs. Judge Fernandez, et al.

The diverse rule in section 17 of Rule 59 for counterbonds posted to obtain the lifting of a writ of attachment is due to
these bonds being security for the payment of any judgment that the attaching party may obtain; they are thus mere
replacements of the property formerly attached, and just as the latter may be levied upon after final judgment in the case
in order to realize the amount adjudged, so is the liability of the countersureties ascertainable after the judgment has
become final. This situation does not obtain in the case of injunction counterbonds, since the sureties in the latter case
merely undertake "to pay all damages that the plaintiff may suffer by reason of the continuance ... of the acts complained
of" (Rule 60, section 6) and not to secure payment of the judgment recovered.

It was, therefore, error on the part of the court below to have ordered the surety bond cancelled, on the theory that the
parties' compromise discharged the obligation of the surety.

Mercado vs. Macapayag: 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 it was consented to by the parties.

2. Times Surety insists that the execution issued against it was invalid because the writ issued against its principal,
Sia, had not been returned unsatisfied. Times Surety invoked Section 17 of Rule 57 of the Revised Rules of Court
which provided that if the execution against the principal was unsatisfied, the payment of the judgment shall
become charged on the counter-bond and the amount due under judgment may be recovered after notice and
summary hearing. Times Surety said that Sias properties were not exhausted first and that there was no notice
and summary hearing.

Times Suretys contention is untenable. The counterbond contemplated in the rule is an ordinary guaranty where the
sureties assume a subsidiary liability. This is not the case here, because the surety in the present case bound itself jointly
and severally (in solidum) with Sia; and it is prescribed in Article 2059 (2) of the Civil Code that excusion (previous
exhaustion of the property of the debtor) shall not take place if the guarantor has bound himself solidarily with the
debtor.

Even if the suretys undertaking were not solidary with that of the principal debtor, still he may not demand exhaustion of
the property of the latter, unless he can point out sufficient leviable property of the debtor within Philippine territory
(Article 2060). There is no record that Times Surety has done so.

Also, under the rule and its own terms, the counter-bond is only conditioned upon the rendition of the judgment. Payment
under the bond is not made to depend upon the delivery or availability of the property previously attached. Where under
the rule and the bond the undertaking is to pay the judgment, the liability of the surety or sureties attaches upon the
rendition of the judgment, and the issue of an execution and its return nulla bona is not, and should not be, a condition to
the right to resort to the bond.

Furthermore, the requirement that recovery from the surety should be after notice and summary hearing in the same
action has been substantially complied with from the time the surety was allowed to move for the quashal of the writ of
execution and for the cancellation of their obligation.

DISPOSITIVE CFI is ordered to proceed with the execution against Times Surety.

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