GR 171750; (January, 2012) (Digest)
G.R. No. 171750; January 25, 2012
UNITED PULP AND PAPER CO., INC., Petitioner, vs. ACROPOLIS CENTRAL GUARANTY CORPORATION, Respondent.
FACTS
Petitioner United Pulp and Paper Co., Inc. (UPPC) filed a collection case against Unibox Packaging Corporation (Unibox) and Vicente Ortega (Ortega) before the Regional Trial Court (RTC) of Makati. UPPC obtained a writ of preliminary attachment upon posting a bond. Unibox and Ortega moved to discharge the attachment by filing a counter-bond, which was issued by respondent Acropolis Central Guaranty Corporation (Acropolis). The RTC approved the counter-bond and ordered the attachment lifted.
The parties later executed a compromise agreement, which the RTC approved via a judgment. Unibox and Ortega failed to comply with the payment schedule. Consequently, UPPC secured a writ of execution. The sheriff’s return indicated that the judgment remained unsatisfied as Unibox had ceased operations, its assets were foreclosed, and no funds were available for garnishment.
UPPC then filed a “Motion to Order Surety to Pay Amount of Counter-Bond” directed at Acropolis. The RTC granted the motion and ordered Acropolis to pay the unpaid balance. Acropolis filed a motion for reconsideration, which the RTC denied for lack of merit and for allegedly violating the three-day notice rule, as the motion was received by the court and UPPC only on December 20, 2004, three days after its set hearing date of December 17, 2004.
Acropolis filed a petition for certiorari with the Court of Appeals (CA). The CA granted the petition, reversed the RTC order, and absolved Acropolis from liability. The CA ruled that: (1) Acropolis complied with the three-day notice rule as its motion was sent by registered mail four days before the hearing; (2) UPPC failed to comply with the requirements under Section 17, Rule 57 of the Rules of Court for recovery from a surety, namely: (a) a demand on the surety, (b) notice to the surety, and (c) a summary hearing on the surety’s liability; and (3) the failure of UPPC to include Acropolis in the compromise agreement was fatal. UPPC’s motion for reconsideration was denied, prompting this petition.
ISSUE
1. Whether UPPC failed to make the required demand and notice upon Acropolis as surety on the counter-bond.
2. Whether the execution of the compromise agreement between UPPC, Unibox, and Ortega constituted a novation that released Acropolis from its obligation under the counter-attachment bond.
RULING
1. On the requirements of demand and notice: The Supreme Court ruled that UPPC complied with the twin requirements of notice and demand under Section 17, Rule 57 of the Rules of Court. The provision requires that the amount due under a judgment may be recovered from the surety “after notice and summary hearing on the same action.” The Court held that UPPC’s “Motion to Order Surety to Pay Amount of Counter-Bond,” which was personally served upon Acropolis and set for hearing, constituted sufficient compliance. The motion itself was a written demand, and the hearing conducted by the RTC served as the required summary hearing to determine the surety’s liability. The CA erred in imposing additional procedural steps not required by the rule.
2. On the effect of the compromise agreement: The Supreme Court ruled that the compromise agreement between UPPC, Unibox, and Ortega did not effect a novation that would release Acropolis from its obligation. A compromise agreement novates and replaces the original obligation only between the parties to the compromise. A surety is not released unless the novation extends to and is accepted by the surety, or unless the new agreement imposes additional burdens on the principal debtor without the surety’s consent. The compromise agreement in this case did not alter the solidary nature of Acropolis’s obligation under its counter-bond, which expressly bound it “jointly and solidarily” with the defendants to pay any judgment UPPC may recover. The surety’s liability became fixed upon the judgment’s finality and the principal debtors’ default. The failure to satisfy the judgment through execution made the surety’s obligation demandable.
DISPOSITIVE PORTION:
The Supreme Court GRANTED the petition. The Decision and Resolution of the Court of Appeals were REVERSED and SET ASIDE. The Orders of the Regional Trial Court dated November 30, 2004 and February 22, 2005, which held respondent Acropolis Central Guaranty Corporation liable on its counter-attachment bond, were REINSTATED.