Paramount Insurance Corp vs CA : 110086 : July 19, 1999 : J. Ynares-Santiago : First Division

FIRST DIVISION

[G.R. No. 110086. July 19, 1999]

PARAMOUNT INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and DAGUPAN ELECTRIC CORPORATION, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Before this Court is a petition for review on certiorari assailing the Decision of the Court of Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 which dismissed petitioner Paramount Insurance Corporation’s (PARAMOUNT) appeal, thereby affirming the decision of the court a quo finding petitioner liable on its injunction bond.

McAdore Finance and Investment, Inc. (McADORE) was the owner and operator of the McAdore International Palace Hotel in Dagupan City. Private respondent Dagupan Electric Corporation (DECORP), on the other hand, was the grantee of a franchise to operate and maintain electric services in the province of Pangasinan, including Dagupan City.

On February 2, 1978, McADORE and DECORP entered into a contract whereby DECORP shall provide electric power to McADORE’s Hotel. During the term of their contract for power service, DECORP noticed discrepancies between the actual monthly billings and the estimated monthly billings of McADORE. Upon inspection, it was discovered that the terminal in the transformers connected to the meter had been interchanged resulting in the slow rotation of the meter. Consequently, DECORP issued a corrected bill but McADORE refused to pay. As a result of McADORE’s failure and continued refusal to pay the corrected electric bills, DECORP disconnected power supply to the hotel on November 27, 1978.

Aggrieved, McADORE commenced a suit against DECORP for damages with prayer for a writ of preliminary injunction. McADORE posted injunction bonds from several sureties, one of which was herein petitioner PARAMOUNT, which issued an injunction bond on July 7, 1980 with a face amount of P500,000.00. Accordingly, a writ of preliminary injunction was issued wherein DECORP was ordered to continue supplying electric power to the hotel and restrained from further disconnecting it.

After due hearing, the Regional Trial Court of Quezon City, Branch 106, rendered judgment in favor of DECORP, the dispositive portion of which reads:

“WHEREFORE, there being preponderance of evidence, the court hereby dismisses the amended complaint. Further, the court rescinds the service contract between the parties, and orders McAdore to pay Decorp the following:

1. Actual damages consisting of total arrearages for electric services rendered from February 1978 to January 1983, in the sum of P3,834,489.62, plus interest at the legal rate, computed from the date of demand until full payment;

2. Moral damages in the sum of P600,000.00;

3. Exemplary damages in the sum of P400,000.00;

4. Attorney’s fees in the sum of P100,000.00; and

5. Costs of the suit.

“While this case was under litigation, the court issued a number of restraining orders or injunctions. During these incidents, McAdore filed the following bonds: Policy No. 8022709 by Paramount Insurance Corporation for P500,000.00; No. 00007 and No. 00008 by Sentinel Insurance Company, Inc. for P100,000.00 and P50,000.00; and No. 1213 by the Travelers Multi-Indemnity Corporation for P225,000.00.

“Pursuant to the dispositive portion of this decision, the court holds that these bonding companies are jointly and severally liable with McAdore, to the extent of the value of their bonds, to pay the damages adjudged to Decorp.

“Send this decision to: plaintiff’s counsel Atty. Pagapong; defendant’s counsel Atty. Vera Cruz; and to each of the bondsman.

“It is so ordered.”[1]

McADORE did not appeal the above decision. PARAMOUNT, however, appealed to the Court of Appeals assigning the following errors, to wit:

I. APPELLANT SURETY WAS NOT GRANTED DUE PROCESS NOR GIVEN ITS DAY IN COURT.

II. APPELLANT’S SURETY BOND, BEING AN INJUNCTION OR TEMPORARY RESTRAINING ORDER BOND, THE MANDATORY PROCEDURE IN SEC. 20, RULE 57, IN RELATION TO SEC. 9, RULE 58, RULES OF COURT WAS NOT OBSERVED IN THIS CASE;

III. NO EVIDENCE NOR PROOF HAD BEEN PRESENTED TO SHOW THAT HEREIN APPELLANT SURETY BOND SHOULD BE HELD LIABLE FOR TOTAL DAMAGES AS ADJUDGED IN THE CHALLENGED DECISION.”[2]

In essence, PARAMOUNT contended that it was not given its day in court because it was not notified by DECORP of its intention to present evidence of damages against its injunction bond, as mandated by Sec. 9 of Rule 58, in relation to Sec. 20 of Rule 57 of the Revised Rules of Court.

The Court of Appeals was not convinced with petitioner’s contentions. On April 30, 1993, it affirmed the decision of the trial court.

In the instant petition, PARAMOUNT seeks to reverse and set aside the decision of the Court of Appeals on the following assignment of errors:

“FIRSTLY, THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NOTICE TO PETITIONER AND ITS PRESENCE THROUGH COUNSEL IN ONE HEARING WHERE NO EVIDENCE IN SUPPORT OF THE DAMAGES GUARANTEED BY PETITIONER’S BOND RENDERS THE NEED FOR ANOTHER HEARING ON THAT MATTER A SUPERFLUITY.

“SECONDLY, THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE COURT A QUO THAT PETITIONER IS JOINTLY AND SEVERALLY LIABLE WITH McADORE TO THE EXTENT OF ITS BOND, WHICH DECISION IS NOT SUPPORTED BY THE EVIDENCE.”[3]

PARAMOUNT asserts that “(t)he bone of contention in the instant case is the matter of evidence (or lack thereof) presented by private respondent during the hearing of the case a quo, notice (or lack thereof) to the surety relative to the proceedings before the court a quo during which said evidence was presented, as well as the actual proceedings themselves.”[4] PARAMOUNT further asseverates that “no evidence relative to damages suffered by private respondent as a result of the injunction was ever presented, or that if any such evidence was presented, the same was done without notice to petitioner and in violation of its right to due process.”[5] Moreover, petitioner maintains that the injunction bond was issued and approved sometime in April 1980 to guarantee “actual and material damages as may be sustained and duly proved by private respondent.” Thus, it can only cover the period prospectively from the date of its issuance and does not retroact to the date of the initial controversy.

In its Comment, DECORP claims that PARAMOUNT participated in the proceedings and was given its day in court. This is evidenced by the “Notice of Hearing” dated February 26, 1985 addressed to the three sureties. In fact, at the hearing on March 22, 1985, PARAMOUNT was in attendance represented by Atty. Nonito Q. Cordero. Likewise, PARAMOUNT was notified of the next hearing scheduled for April 26, 1985. DECORP further stressed that the hearing on April 26, 1985 proceeded as scheduled without any comment, objection, opposition or reservation from PARAMOUNT.

The core issue to be resolved here is whether or not petitioner Paramount Insurance Corporation was denied due process when the trial court found the injunction bond it issued in favor of McADORE liable to DECORP. Stated otherwise, was there sufficient evidence to establish the liability of the petitioner on its injunction bond?

The petition is devoid of merit.

Petitioner’s submissions necessitates going into the nature of an injunction as well as over the procedure in claiming, ascertaining and awarding damages upon the injunction bond.

Injunction is an extraordinary remedy calculated to preserve the status quo of things and to prevent actual or threatened acts violative of the rules of equity and good conscience as would consequently afford an injured party a cause of action resulting from the failure of the law to provide for an adequate or complete relief.[6] A preliminary injunction is an order granted at any stage of an action or proceeding prior to the judgment or final order, requiring a party or a court, agency or a person to refrain from a particular act or acts. It may also require the performance of a particular act or acts, in which case it shall be known as a preliminary mandatory injunction.[7] Its sole purpose is not to correct a wrong of the past, in the sense of redress for injury already sustained, but to prevent further injury.[8]

A preliminary injunction or temporary restraining order may be granted only when, among others, the applicant, unless exempted by the court, files with the court where the action or proceeding is pending, a bond executed to the party or person enjoined, in an amount to be fixed by the court, to the effect that the applicant will pay such party or person all damages which he may sustain by reason of the injunction or temporary restraining order if the court should finally decide that the applicant was not entitled thereto. Upon approval of the requisite bond, a writ of preliminary injunction shall be issued.[9] At the trial, the amount of damages to be awarded to either party, upon the bond of the adverse party, shall be claimed, ascertained, and awarded under the same procedure prescribed in Section 20 of Rule 57.[10]

Rule 57, Section 20, of the 1997 Rules of Civil Procedure, which is similarly applicable to preliminary injunction, pertinently provides:

“Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An application for damages on account of improper, irregular or excessive attachment must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching obligee or his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such damages may be awarded only after proper hearing and shall be included in the judgment on the main case.

“If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must claim damages sustained during the pendency of the appeal by filing an application in the appellate court with notice to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate court becomes executory. The appellate court may allow the application to be heard and decided by the trial court.

“Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the same action the damages awarded to him from any property of the attaching obligee not exempt from execution should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.” (mutatis mutandis)

The above rule comes into play when the plaintiff-applicant for injunction fails to sustain his action, and the defendant is thereby granted the right to proceed against the bond posted by the former. In the case at bench, the trial court dismissed McADORE’s action for damages with prayer for writ of preliminary injunction and eventually adjudged the payment of actual, moral, and exemplary damages against plaintiff-applicant. Consequently, private respondent DECORP can proceed against the injunction bond posted by plaintiff-applicant to recover the damages occasioned by the issuance by the trial court of the writ of injunction.

In order for the injunction bond to become answerable for the above-described damages, the following requisites must concur:[11]

1. The application for damages must be filed in the same case where the bond was issued;

2. Such application for damages must be filed before the entry of judgment; and

3. After hearing with notice to the surety.

The records of this case reveal that during its pendency in the trial court, DECORP filed its Answer raising compulsory counterclaims for rescission of contract, moral damages, exemplary damages, attorney’s fees and litigation expenses.[12] During the trial, Atty. Nonito Cordero appeared[13] as counsel for petitioner. PARAMOUNT as well as the other sureties were properly notified of the hearing and given their day in court. Specifically, notice was sent to Atty. Cordero of the hearing on April 27, 1985, which was set for the purpose of determining the liability of the sureties. The counterclaims for damages of DECORP were proven at the trial and yet PARAMOUNT did not exert any effort to controvert the evidence presented by DECORP. Given these circumstances, PARAMOUNT cannot hide under the cloak of non-liability on its injunction bond on the mere expediency that it was deprived of due process. It bears stressing that what the law abhors is not the absence of previous notice but rather the absolute lack of opportunity to ventilate a party’s side.[14] In other words, petitioner cannot successfully invoke denial of due process where it was given the chance to be heard. As aptly held by the Court of Appeals, viz.:

“The records of the case disclose that during the trial of the case, PARAMOUNT was present and represented by its counsel Atty. Nonito Q. Cordero as shown in the trial court’s order dated March 22, 1985 (Annex “A” of Appellee’s Brief). In the said order, PARAMOUNT was duly notified of the next hearing which was scheduled on April 26, 1985. Evidently, PARAMOUNT was well-apprised of the next hearing and it cannot feign lack of notice. Having been given an opportunity to be heard during the main hearing for the matter of damages, PARAMOUNT therefore, cannot bewail that it was not given an opportunity to be heard upon denial of its motion to cancel its injunction bond. Of what use, therefore, is there to conduct another hearing when the issue of damages has been the subject of the main action of which PARAMOUNT had been duly notified? A new notice and hearing prescribed by Sec. 20, Rule 57, is therefore a repetition and a superfluity.

“Moreover, PARAMOUNT has only itself to blame when it did not make any opposition or objection during the hearing for the reception of DECORP’s evidence. Having manifested its desire to cancel its bond, it should have asked for a deferment of hearing on DECORP’s evidence but PARAMOUNT did not do anything of this sort. Only when an adverse judgment was rendered by the trial court against its principal McAdore did it whimper a denial of procedural due process.”[15]

On the same point, PARAMOUNT argues that contrary to the ruling of the Court of Appeals, there is a need for a separate hearing for the purpose of presenting evidence on the alleged damages claimed by DECORP on petitioner’s injunction bond. PARAMOUNT contends that a separate hearing is needed as no evidence dealing with DECORP’s claim for damages on petitioner’s bond was presented during the hearing wherein petitioner’s counsel attended nor in the next hearing wherein petitioner was notified but failed to attend. Since no hearing was held for the purpose of establishing its liability on the injunction bond, PARAMOUNT concludes that it is released from its obligation as surety.

Contrary to petitioner’s thesis, it is neither mandatory nor fatal that there should be a separate hearing in order that damages upon the bond can be claimed, ascertained and awarded, as can be gleaned from a cursory reading of the provisions of Rule 57, Section 20. This Court agrees with the appellate court’s ruling that:

“Jurisprudential findings laid down the doctrine that a final adjudication that the applicant is not entitled to the injunction does not suffice to make the surety liable. It is necessary, in addition, that the surety be accorded due process, that is, that it be given an opportunity to be heard on the question of its solidary liability for damages arising from a wrongful injunction order. Withal, the fact that the matter of damages was among the issues tried during the hearings on the merits will not render unnecessary or superfluous a summary hearing to determine the extent of a surety’s liability unless of course, the surety had been impleaded as a party, or otherwise earlier notified and given opportunity to be present and ventilate its side on the matter during the trial.

“The exception under the doctrinal ruling abovenoted is extant in the case at bar.”[16]

What is necessary only is for the attaching party and his surety or sureties to be duly notified and given the opportunity to be heard. In the case at bench, this Court accords due respect to the factual finding of the Court of Appeals that “PARAMOUNT was present and represented by its counsel Atty. Nonito Q. Cordero as shown in the trial court’s order dated March 22, 1985 x x x.”[17]

As stated, PARAMOUNT also argues that assuming it is liable on its injunction bond, its liability should be limited only to the amount of damages accruing from the time the injunction bond was issued until the termination of the case, and not from the time the suit was commenced. In short, it claims that the injunction bond is prospective and not retroactive in application.

This Court does not agree. Rule 58, Section 4(b), provides that a bond is executed in favor of the party enjoined to answer for all damages which he may sustain by reason of the injunction. This Court already had occasion to rule on this matter in Mendoza v. Cruz,[18] where it held that “(t)he injunction bond is intended as a security for damages in case it is finally decided that the injunction ought not to have been granted. It is designed to cover all damages which the party enjoined can possibly suffer. Its principal purpose is to protect the enjoined party against loss or damage by reason of an injunction.” No distinction was made as to when the damages should have been incurred.

Moreover, when petitioner issued its injunction bond in favor of DECORP, it was done with the full knowledge of the relevant facts obtaining in the controversy between DECORP and McADORE. At the time the injunction bond was issued, DECORP was already claiming arrears in electric bills and damages from McADORE.

It bears stressing that McADORE was found liable to pay actual damages, moral damages, exemplary damages, attorney’s fees and costs of the suit. To argue therefore that PARAMOUNT is only liable on its injunction bond from the time of its issuance and not from the time the suit was commenced is preposterous if not absurd. Indeed, it would be impossible to determine the reckoning point when moral damages, exemplary damages, attorney’s fees and costs of the suit were supposed to have been incurred. Consequently, it can be safely deduced that the bond answers for any and all damages arising from the injunction, regardless of whether it was sustained before or after the filing of the injunction bond.

PARAMOUNT further maintains that it is liable to pay actual damages only.[19] However, Rule 58, Section 4(b), clearly provides that the injunction bond is answerable for all damages. “The bond insures with all practicable certainty that the defendant may sustain no ultimate loss in the event that the injunction could finally be dissolved. Consequently, the bond may obligate the bondsmen to account to the defendant in the injunction suit for all: (1) such damages; (2) costs and damages; (3) costs, damages and reasonable attorney’s fees as shall be incurred or sustained by the person enjoined in case it is determined that the injunction was wrongfully issued.”[20] Thus, PARAMOUNT is liable, jointly and severally, for actual damages, moral damages, exemplary damages, attorney’s fees and costs of the suit, to the extent of the amount of the bond.

Be that as it may, a scrutiny of petitioner’s Indemnity Agreement[21] with McADORE shows that the former agreed “to become surety” for the stated amount “in favor of Dagupan Electric Corp.” It should be noted that McADORE was already in arrears starting from June 1979[22] up to the time it entered into an Indemnity Agreement with PARAMOUNT on July 17, 1980.

It may not be amiss to point out that by the contract of suretyship, it is not for the obligee to see to it that the principal pays the debt or fulfills the contract, but for the surety to see to it that the principal pay or perform.[23] The purpose of the injunction bond is to protect the defendant against loss or damage by reason of the injunction in case the court finally decides that the plaintiff was not entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are obligated to account to the defendant in the injunction suit for all damages, or costs and reasonable counsel’s fees, incurred or sustained by the latter in case it is determined that the injunction was wrongfully issued.[24]

The posting of a bond in connection with a preliminary injunction (or attachment under Rule 57, or receivership under Rule 59, or seizure or delivery of personal property under Rule 60) does not operate to relieve the party obtaining an injunction from any and all responsibility for the damages that the writ may thereby cause. It merely gives additional protection to the party against whom the injunction is directed. It gives the latter a right of recourse against either the applicant or his surety, or against both.[25] In the same manner, when petitioner PARAMOUNT issued the bond in favor of its principal, it undertook to assume all the damages that may be suffered after finding that the principal is not entitled to the relief being sought.

WHEREFORE, based on the foregoing, the instant petition is DENIED. The decision of the Court of Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 is AFFIRMED. With costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Melo, Kapunan, and Pardo, JJ., concur.