Surety Bond Liability and Due Process in Wrongful Attachment Cases

The Supreme Court's 2015 decision in Excellent Quality Apparel, Inc. v. Visayan Surety & Insurance Corporation (G.R. No. 212025) clarifies a critical distinction in Philippine remedial law: not all surety bonds are treated the same when a wrongful attachment occurs. The case shows that the timing of claims and the notice given to sureties can determine whether a bond can be enforced at all.

The Dispute

Excellent Quality Apparel contracted with Multi-Rich Builders for factory construction. After a dispute arose, Win Multi-Rich Builders, Inc. sued for sum of money and obtained a writ of preliminary attachment against the company, posting a bond from Visayan Surety. To prevent seizure of its equipment, Excellent Quality deposited over P8.6 million with the court.

The trial court later allowed Win Multi-Rich to withdraw that cash deposit after Win Multi-Rich posted a separate P9 million surety bond from Far Eastern Surety (FESICO). This happened before trial even began.

The Supreme Court eventually ruled in an earlier case that the trial court lacked jurisdiction over the collection suit because of an arbitration clause, and ordered Win Multi-Rich to return the garnished amount. When Win Multi-Rich failed to pay, Excellent Quality sought to execute the judgment against both surety companies.

The Two Bonds, Two Different Rules

The Court held that the two bonds were governed by different provisions of the Rules of Court, with different procedural requirements.

Visayan Surety's Bond: Section 20, Rule 57

The bond securing the writ of attachment falls under Section 20, Rule 57 of the Rules of Court. To claim damages against this type of bond, the party must:

• File the application for damages in the same case where the bond was issued
• File it before the judgment becomes final and executory
• Give due notice to the surety and allow it to be heard

Excellent Quality had included a claim for damages in its answer with compulsory counterclaim, which satisfied the timing requirement. However, Visayan Surety was never served with that pleading or notified of the claim. The surety only learned of the claim when a motion for execution was filed—after the judgment had already become final.

The Court stressed that due notice to the surety is indispensable. A surety must have the opportunity to contest the reality and reasonableness of the damages claimed. Without such notice, no judgment for damages can be entered or executed against the surety. The Court noted that earlier case law allowing recovery despite lack of notice had been abandoned.

FESICO's Bond: Section 17, Rule 57

FESICO's bond was different. It was posted to secure the withdrawal of Excellent Quality's cash deposit—a step the Court described as contrary to the basic principles of preliminary attachment. Attached property or garnished funds should never be released to the attaching party before judgment.

Because FESICO's bond substituted the cash deposit as security for any judgment, Section 17, Rule 57 applied. This provision allows recovery against a counter-bond after judgment becomes executory, requiring only:

• A demand on the surety
• Notice and summary hearing in the same action

The Court found these requirements satisfied. Excellent Quality furnished FESICO with the motion for execution, FESICO's counsel attended hearings, and FESICO was given time to comment. FESICO was therefore solidarily liable with Win Multi-Rich under its bond.

Practical Takeaways

• Know which bond you are dealing with. A bond securing a writ of attachment (Section 20, Rule 57) requires claims to be filed before judgment becomes final, with notice to the surety. A counter-bond securing a judgment (Section 17, Rule 57) can be enforced after finality.
• Serve the surety early. Merely including a damages claim in an answer is not enough. The surety must receive notice and an opportunity to be heard before the judgment becomes final.
• Attached funds cannot be released early. Courts should never release garnished funds or attached property to the attaching party before judgment. Such action is improper.
• Due process protects sureties. Sureties have a right to contest the reality and amount of damages claimed against their bonds. Failure to give notice can bar recovery entirely.
• A judgment binds only parties. A court decision cannot bind persons who were not impleaded or informed of the proceedings, unless a specific rule provides otherwise.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.