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[G.R. No. 171173. June 14, 2006]

WESTERN GUARANTY CORPORATION v. THE HON. SANTIAGO JAVIER RANADA IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH 137, RTC, MAKATI CITY AND WYNNE P. ZAMBRANO

Sirs/Mesdames:

Quoted hereunder, for your information, is a resolution of this Court dated JUNE 14, 2006 .

G.R. No. 171173 (Western Guaranty Corporation v. The Hon. Santiago Javier Ranada In his Capacity as Presiding Judge of Branch 137, RTC, Makati City and Wynne P. Zambrano)

On 27 August 2002, the parties in Civil Case No. 02-351 (Wynne Zambrano v. Lourdes Zambrano Korshak, LZK Holdings and Development Corporation) pending before Branch 137 of the Regional Trial Court (RTC) of Makati, entered into a Compromise Agreement, which was in turn approved by the trial court on 2 September 2002. Aside from the admission of liability on the part of the defendants and the terms by which said liability would be paid, the Compromise Agreement referred to a Performance Bond issued by Western Guaranty Corporation (WGC), through which said corporation bound itself jointly and severally with the defendants in liquidating their obligations. ^[1] cralaw The pertinent portions of the Compromise Agreement read:

5. The foregoing terms and conditions had been made known to and are acceptable to WESTERN GUARANTY CORPORATION which had agreed to bind itself jointly and severally with the defendant, in liquidating the above-itemized monetary obligation of the latter to the plaintiff in totaling P8,945,211.85, pursuant to and in accordance with the terms and conditions of that certain PERFORMANCE BOND, denominated as G(13)03358, dated August 30, 2002.

6. Parties hereby agree to comply strictly with the foregoing terms and conditions and upon the failure and refusal of the defendants to comply therewith, the plaintiff may, upon application with the Honorable Court and with due notice to said Surety [WESTERN GUARANTY CORPORATION], secure enforcement thereof by means of a writ of execution, with all such further costs and expenses in the process, chargeable to the defendants and strictly in accordance herewith. This shall be without prejudice to plaintiff's recourse to said Surety pursuant to and in accordance with the terms and conditions of its joint and solidarity liability under its aforesaid Performance Bond in favor of the plaintiff. ^[2] cralaw

However, defendants therein failed to pay and comply with the Compromise Agreement, prompting plaintiff to move for the issuance of a writ of execution. On 24 January 2003, the trial court issued the writ, notice and a copy of which were received by WGC on 12 February 2003. ^[3] cralaw WGC moved to quash the writ, claiming that it was never impleaded as a party-defendant and that the terms and conditions of the compromise agreement guaranteed by WGC had been altered by the parties without its consent and knowledge. ^[4] cralaw The trial court denied the motion, ^[5] cralaw as well as the subsequent motion for reconsideration. ^[6] cralaw According to the trial court, WGC's obligation to comply with the terms of the Compromise Agreement is based on its participation therein as the surety. Besides, it appeared from the records that WGC was furnished with a copy of the motion for issuance of the writ of execution, to which WGC filed a comment. Even WGC's counsel participated in the hearing of the motion. ^[7] cralaw

WGC filed a petition under Rule 65 with the Court of Appeals, arguing that: i) the defendants' liability as per the compromise agreement cannot be enforced against WGC by a mere writ of execution, inasmuch as it was not impleaded as a party in the case below and its liability was not indicated in the 5 September 2002 Decision approving the Compromise Agreement; and (ii) that the terms of the bond were altered by the parties without WGC's consent and knowledge, thus WGC's liability was extinguished under the law.

The Court of Appeals found WGC solidarily liable, having filed a performance bond in favor of the defendants. Further, it held that WGC was not denied due process since it participated in the hearing on the application for the writ of execution. Moreover, the claim that the parties altered the terms of the surety bond without WGC's knowledge and consent is negated by plaintiff's own insistence upon the faithful compliance by the defendants and her writing to WGC and defendants twice to remind them of their obligations under the terms of the Compromise Agreement even before the application for the issuance of the writ of execution. Even assuming that there was an extension for payment agreed upon by the parties, it would not extinguish the liability of WGC since an extension by itself does not bring about the discharge of sureties, the Court of Appeals added. ^[8] cralaw WGC filed a motion for reconsideration but the motion was denied for lack of merit. ^[9] cralaw

In the present petition for review ^[10] cralaw under Rule 45, WGC seeks the reversal of the Decision of the Court of Appeals, reiterating the same grounds raised before the courts below. In addition, WGC filed a separate application for the issuance of writ of preliminary injunction/TRO to enjoin the Sheriff's Sale to be held on 14 February 2006. ^[11] cralaw

In a Resolution dated 22 March 2006, the Court required private respondent to file her Comment to the petition and denied WGC's application for the issuance of a temporary restraining order, noting that the application had become academic as the sheriff's sale sought to be restrained had already been held. ^[12] cralaw

On 20 April 2006, private respondent Wynne Zambrano filed her Comment, ^[13] cralaw alleging that the petition is defective in form since petitioner failed to attach certified true copies of its annexes, as well as the affidavit of service. Likewise, she claims that the petition failed to show any reversible error on the part of the Court of Appeals.

The petition must be denied.

By the very nature of its being the surety of the defendants, WGC is bound to answer for the obligations of Lourdes Zambrano Korshak and LZK Holdings and Development Corporation. While the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom. ^[14] cralaw Thus, it has been stressed that while the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking. ^[15] cralaw

Thus, there is no need to implead WGC as a defendant before it may be made to answer for its obligation. Neither is there a need for a directive from the trial court for WGC to be liable on the performance bond it issued. The surety's liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal, and the creditor may proceed against such solidary debtor. ^[16] cralaw

Likewise, the Court accords great respect to the findings of the lower courts that petitioner had actively participated in the hearing of the motion for the issuance of the writ of execution. Thus, petitioner cannot successfully argue that it was denied due process.

WHEREFORE, the petition is DENIED.

Very truly yours,

(Sgd.) LUCITA ABJELINA-SORIANO
Clerk of Court

Endnotes:

^[1] cralaw Decision of the RTC dated 5 September 2002, rollo, pp. 22-25.

^[2] cralaw Id. at 24.

^[3] cralaw Id. at 26.

^[4] cralaw Id. at 27-32.

^[5] cralaw ld. at 33-34.

^[6] cralaw Id. at 35-36.

^[7] cralaw Id. at 36.

^[8] cralaw Decision of the Court of Appeals promulgated 19 October 2005.

^[9] cralaw Resolution dated 25 January 2006.

^[10] cralaw Rollo, pp.3-18.

^[11] cralaw Id. at 50-54.

^[12] cralaw Id. at 58.

^[13] cralaw Id. at 59-65.

^[14] cralaw Security Pacific Assurance Corporation v. Tria-Infante, G.R. No. 144740, 31 August 2005, 468 SCRA 526, 537.

^[15] cralaw Philippine Bank of Communications v. Lim, G.R. No. 158138, 12 April 2005, 455 SCRA 714, 721-722.

^[16] cralaw Agro Conglomerates Inc. v. Court of Appeals, G.R. No. 117660, 18 December 2000, 348 SCRA 450, 458.

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