Excellent Quality Apparel v Visayan Surety

PET entered into a contract with Win Multi-Rich for the construction of a garment factory. The
construction was completed.

Win Multi-Rich filed complaint for sum of money and damages against PET and Ying, its VP for
productions, before RTC. Also prayed for issuance of writ of attachment, claiming that Ying was about to
abscond and that PET had an impending closure.

Win then secured bond from Visayan Surety. RTC then issued writ of preliminary attachment in favour of
Win.

PET issued Check to prevent enforcement of WPI. PET then filed Omnibus Motion seeking to discharge
attachment. But RTC denied the motion.

PET then filed Answer with Compulsory Counterclaim before RTC, denying the material allegation of
complaint and sought immediate lifting of writ of attachment. Also prayed that the bond filed by Win be
held to satisfy PET’s claim for damages due to improper issuance of writ.

RTC issued another order directing the deposit of garnished funds of PET to the cashier of the clerk of
court of RTC.

Win then filed motion to release PET’s cash deposit to it. RTC granted it. Win then posted Surety Bond
issued by RESP Far Eastern Surety to secure withdrawal of the cash deposit by PET. Thus Win was able to
receive funds of PET even before trial began.

PET filed petition for certiorari under R65 before CA, seeking to annul and set aside RTC orders. CA
annulled the orders of RTC.

PET then filed MR arguing that CA decision failed to state an order to return garnished amount. CA
denied.

PET then filed petition for review on certiorari under R45 before SC. SC ruled that Win could not retain
garnished amount as RTC did not have jurisdiction to issue the writ of attachment and to order the
release of funds.

Win then filed MR which was denied by SC. Such decision became final and executory.

PET moved for execution, praying for the return of its cash deposit, and in the event of Win’s refusal to
comply, hold RESP Visayan Surety and Far Eastern Surety liable under their respective bonds. RTC
granted the motion for execution and issued a writ of execution. Visayan and Far Eastern separately
moved for reconsideration of such order.

RTC granted the surety respondents’ MR and lifted the motion for execution against Visayan and Far
Eastern. RTC absolved the surety RESPS because PET did not file motion for judgment on the attachment
bond before finality of judgment, thus violating the surety RESPS’ right to due process. It also held that
the execution against the surety RESPS would go beyond the terms of the judgment sought to be
executed considering that the Court decision pertained to Win only.

PET moved for MR but denied by RTC. It then appealed to CA.

CA ruled that PET failed to timely claim damages against the surety before the decision of the Court
became final and executory. Further stated that a court judgment could not bind persons who were not
parties to the action since Visayan and Far Eastern were not impleaded or informed of the proceedings.
PET filed MR but CA denied it.

Before SC, PET contends that Visayan and Far Eastern could be held liable because SC previously ruled
that it cannot allow Win to retain the garnished amount turned over by RTC, which had no jurisdiction to
issue the writ of attachment. PET argues that if Win fail/refuses to refund or return cash deposit,
Visayan and Far Eastern must be held liable under their respective bonds. PET also claims that the surety
bond of FESICO is not covered by Sec.20, R57 because it did not pertain to the writ of attachment itself,
but on the withdrawal of cash deposit.

WON

Visayan is liable – NO

Far Eastern is liable -- NO

Held

Preliminary attachment is an ancillary remedy applied for not for its own sake but to enable the
attaching party to realize upon relief sought and expected to be granted in the main or principal action.
As such, it’s available during pendency of the action to preserve and protect certain rights and interests
therein pending rendition of a final judgment. Also, attachment is availed of in order to acquire
jurisdiction over the action by actual or constructive seizure of property in instances where
personal/substituted service of summons on defendant can’t be effected.

Party applying for order of attachment must then give a bond executed to the adverse party in the
amount fixed by Court in its order granting the issuance of the writ. Purpose of attachment bond is to
answer for all costs and damages which adverse party may sustain by reason of attachment of court
finally rules that applicant is not entitled to the writ.

Here, the attachment bond was issued by Visayan in order for Win to secure issuance of writ of
attachment. So any application for damages arising from improper attachment is governed by Sec.20,
R57.

The current provision of Sec.20, R57 covers application for damages against improper attachment,
prelim injunction, receivership, replevin.

Requsites under Sec.20, R57 in order to claim damages against the bond:

1. Application for damages must be filed in the same case where bond was issued, either
a. Before trial
b. Before appeal is perfected, or
c. Before judgment becomes executory
2. Application for damages must be filed before entry of judgment
3. After hearing with notice to surety OR incorporate the application in the answer with
compulsory counterclaim
Here, PET sufficiently incorporated an application for damages against wrongful attachment in its
answer with compulsory counterclaim filed before RTC.

But as to the 3rd requisite, PET’s answer with compulsory counterclaim, which contained the application
for damages, was not served on Visayan. Visayan was only notified of application when the motion for
execution filed by PET after the judgment had become final and executory.

--

As to Far Eastern

PET issued check to forestall enforcement of WPI. PET’s garnished funds where then deposited to the
cashier of the clerk of RTC. But Win filed motion to release PET’s cash deposit to it. RTC then granted
motion and directed Win to post bond in favour of PET to answer for damages which latter may sustain
should court decide that Win was not entitled to the relief sought. Subsequently, Win filed surety bond
of Far Eastern and was able to obtain cash deposit of PET even before trial commenced.

SC held that the surety bond of Far Eastern is not covered by Sec.20, R57 because Win should not have
filed motion to release cash deposit of PET and RTC should not have granted the same.

Chief purpose of remedy of attachment is to secure a contingent lien on DEF’s property until plaintiff
can by appropriate proceedings obtain judgment and have such property applied to its satisfaction, or to
make some provision for unsecured debts in cases where means of satisfaction thereof are liable to be
removed beyond jurisdiction, or improperly disposed of or concealed, or otherwise placed beyond reach
of creditors. The garnished funds or attached properties could only be released to attaching party after a
judgment in his favour is obtained. Under no circumstance can garnished funds to attached properties
under sheriff’s custody or clerk of court be released to attaching party before promulgation of judgment

Cash deposits and counterbonds posted by DEF to lift writ of attachment is a security for payment of any
judgment the attaching party may obtain; they are mere replacements of property previously attached.
So PET’s cash deposit, as replacements of properties to be attached, should never have been released to
Win.

The cash deposit or counterbond was supposed to secure payment of any judgment that attaching party
may recover. But here, Win was able to withdraw the cash deposit and in exchange, posted a surety
bond of Far Eastern in favour of PET to answer for damages the PET may sustain. So the surety bond of
Far Eastern substituted the cash deposit of PET as security for judgment. Thus to claim damages form
surety bond of Far Eastern, Sec.17, R57 could be applied. A surety on a counterbond given to secure
payment of judgment becomes liable for payment of amount due upon:

1. Demand made upon surety

2. Notice and summary hearing on the same action

Unlike Sec.20, R57, which requires notice and hearing before finality of judgment in an application for
damages, Sec.17, R57 allows a party to claim damages on the surety bond after the judgment has
become executory. Why? Sec.20 – damages sought to be enforced against surety bond are unliquidated.
Sec.17 – liquidated (final judgment had already determined the amount to be awarded to winning
litigant).
Here, a demand against Far Eastern had been made and it was given due notice and opportunity to be
heard: Pet filed motion for execution, copy furnished Far Eastern.; PET filed manifestation that Far
Eastern was duly served with said motion and notified of the hearing; during the hearing on the motion
for execution; counsels for Far Eastern were present; in an Order, Far Eastern was given 15 days to
submit comment/opposition to the motion for execution, which it did.

So Far Eastern can’t escape liability. Purpose of Far Eastern’s bond is to secure withdrawal of cash
deposit and answer any damages that would be inflicted against PET in the course of proceedings. IT
can’t escape liability by invoking that it was not a party to the first case. From the moment it issued the
surety bond to Win, and it was posted before RTC, court had acquired jurisdiction over the surety.