SECOND DIVISION
January 30, 2017
G.R. No. 219345
SECURITY BANK CORPORATION, Petitioner
vs.
GREAT WALL COMMERCIAL PRESS COMPANY, INC.,
ALFREDO BURIEL ATIENZA, FREDINO CHENG
ATIENZA and SPS. FREDERICK CHENG ATIENZA and
MONICA CU ATIENZA, Respondents
DECISION
Mendoza, J.:
This is a petition for review on certiorari seeking to reverse
and set aside the December 12, 2014 Decision1 and June 26,
2015 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP
No. 131714, which lifted the writ of preliminary attachment
issued by the Regional Trial Court, Branch 59, Makati City
(RTC), in Civil Case No. 13-570, in favor of petitioner Security
Bank Corporation (Security Bank).
The Antecedents
On May 15, 2013, Security Bank filed a Complaint for Sum of
Money (with Application for Issuance of a Writ of Preliminary
Attachment)3 against respondents Great Wall Commercial
Press Company, Inc. (Great Wall) and its sureties, Alfredo
Buriel Atienza, Fredino Cheng Atienza, and Spouses Frederick
Cheng Atienza and Monica Cu Atienza (respondents), before
the RTC. The complaint sought to recover from respondents
their unpaid obligations under a credit facility covered by
several trust receipts and surety agreements, as well as
interests, attorney's fees and costs. Security Bank argued
that in spite of the lapse of the maturity date of the
obligations from December 11, 2012 to May 7, 2013,
respondents failed to pay their obligations. The total principal
amount sought was ₱10,000,000.00.
On May 31, 2013, after due hearing, the RTC granted the
application for a writ of preliminary attachment of Security
Bank, which then posted a bond in the amount of
₱10,000,000.00.
On June 3, 2013, respondents filed their Motion to Lift Writ
of Preliminary Attachment Ad Cautelam,4 claiming that the
writ was issued with grave abuse of discretion based on the
following grounds: (1) Security Bank's allegations in its
application did not show a prima facie basis therefor; (2) the
application and the accompanying affidavits failed to allege
at least one circumstance which would show fraudulent
intent on their part; and (3) the general imputation of fraud
was contradicted by their efforts to secure an approval for a
loan restructure. 5
The RTC Orders
In its Order,6 dated July 4, 2013, the RTC denied
respondents' motion to lift, explaining that the Credit
Agreement7 and
the
Continuing
Suretyship
Agreement8 contained provisions on representations and
warranties; that the said representations and warranties
were the very reasons why Security Bank decided to extend
the loan; that respondents executed various trust receipt
agreements but did not pay or return the goods covered by
the trust receipts in violation thereof; that they failed to
explain why the goods subject of the trust receipts were not
returned and the proceeds of sale thereof remitted; and that
it was clear that respondents committed fraud in the
performance of the obligation. 9
Respondents filed a motion for reconsideration, but it was
denied by the RTC in its Order, 10 dated August 12, 2013.
Dissatisfied, respondents filed a petition for certiorari before
the CA seeking to reverse and set aside the RTC orders
denying their motion to lift the writ of preliminary attachment
issued.
The CA Ruling
In its assailed decision, dated December 12, 2014, the CA
lifted the writ of preliminary attachment. The appellate court
explained that the allegations of Security Bank were
insufficient to warrant the provisional remedy of preliminary
attachment. It pointed out that fraudulent intent could not
be inferred from a debtor's inability to pay or comply with its
obligations. The CA opined that the non-return of the
proceeds of the sale and/or the goods subject of the trust
receipts did not, by itself, constitute fraud and that, at most,
these were only averments for the award of damages once
substantiated by competent evidence. It also stressed that
respondents' act of offering a repayment proposal negated
the allegation of fraud. The CA held that fraud must be
present at the time of contracting the obligation, not
thereafter, and that the rules on the issuance of a writ of
attachment must be construed strictly against the applicant.
It disposed the case in this wise:
WHEREFORE, for the foregoing reasons, the instant petition
is GRANTED. Accordingly, the attachment over any property
of petitioners by the writ of preliminary attachment is
ordered LIFTED effective upon the finality of this Decision.
No costs.
SO ORDERED.
11
Security Bank moved for reconsideration but its motion was
denied by the CA in its assailed resolution, dated June 26,
2015.
Hence, this petition raising the lone
ISSUE
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
NULLIFYING THE WRIT OF PRELIMINARY ATTACHMENT
ISSUED BY THE TRIAL COURT. 12
Security Bank argues that there are sufficient factual and
legal bases to justify the issuance of the writ of preliminary
attachment. It claims that it was misled by respondents, who
employed fraud in contracting their obligation, as they made
the bank believe that they had the capacity to pay; that
respondents also committed fraud in the performance of
their obligation when they failed to tum over the goods
subject of the trust receipt agreements,13 or remit the
proceeds thereof despite demands; and that these were not
mere allegations in the complaint but facts that were testified
to by its witness and supported by written documents.
Security Bank added that respondents' effort to settle their
outstanding obligation was just a subterfuge to conceal their
real intention of not honoring their commitment and to delay
any legal action that the bank would take against them; that
respondents submitted a repayment proposal through a
letter, dated January 23, 2013, knowing fully well that they
were already in default; that they requested a meeting to
discuss their proposal but they failed to show up and meet
with the bank's representative; and that respondents did not
submit any supporting documents to back up their
repayment proposal.
In their Comment,14 respondents countered that there was
insufficient basis for the issuance of the writ of preliminary
attachment against them; that the mere failure to pay their
obligation was not an act of fraud; that the application for
the issuance of the writ of preliminary attachment, the
affidavit of merit and judicial affidavit merely cited general
allegations of fraud and Security Bank failed to sufficiently
show the factual circumstances constituting fraud. Moreover,
respondents claimed that they did not commit fraud because
they were earnestly negotiating with Security Bank for a loan
restructuring as shown by their Letter, 15 dated January 23,
2013, and email correspondences.
In its Reply,16 Security Bank stressed that respondents
misled them on their financial capacity and ability to pay their
obligations. It emphasized that there were specific
allegations in its complaint and its witness testified that
respondents committed fraud, specifically their failure to
comply with the trust receipt agreements, that they would
turn over the goods covered by the trust receipt agreements
or the proceeds thereof to Security Bank.
The Court’s Ruling
The Court finds merit in the petition.
Preliminary Attachment
A writ of preliminary attachment is a provisional remedy
issued upon the order of the court where an action is
pending. Through the writ, the property or properties of the
defendant may be levied upon and held thereafter by the
sheriff as security for the satisfaction of whatever judgment
might be secured by the attaching creditor against the
defendant. The provisional remedy of attachment is available
in order that the defendant may not dispose of the property
attached, and thus prevent the satisfaction of any judgment
that may be secured by the plaintiff from the former.17
In this case, Security Bank relied on Section 1 (d), Rule 57
of the Rules of Court as basis of its application for a writ of
preliminary attachment. It reads:
RULE 57
Preliminary Attachment
Section 1. Grounds upon which attachment may issue. - At
the commencement of the action or at any time before entry
of judgment, a plaintiff or any proper party may have the
property of the adverse party attached as security for the
satisfaction of any judgment that may be recovered in the
following cases:
xxx
(d) In an action against a party who has been guilty of a
fraud in contracting the debt or incurring the obligation upon
which the action is brought, or in the performance thereof;
xxx
For a writ of preliminary attachment to issue under the
above-quoted rule, the applicant must sufficiently show the
factual circumstances of the alleged fraud. It is settled that
fraudulent intent cannot be inferred from the debtor's mere
non-payment of the debt or failure to comply with his
obligation. 18
While fraud cannot be presumed, it need not be proved by
direct evidence and can well be inferred from attendant
circumstances. Fraud by its nature is not a thing susceptible
of ocular observation or readily demonstrable physically; it
must of necessity be proved in many cases by inferences
from circumstances shown to have been involved in the
transaction in question. 19
The allegations of Security Bank in support of its application
for a writ of preliminary attachment are as follow:
15. During the negotiation for the approval of the loan
application/ renewal of Respondents the latter through
Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps.
Frederick Cheng Atienza and Monica Cu Atienza, assured SBC
that the loan obligation covered by the several Trust Receipts
shall be paid in full on or before its maturity date pursuant
to the terms and conditions of the aforesaid trust receipts.
However, Respondents as well as the sureties failed to pay
the aforesaid obligation.
16. In addition, the assurance to pay in full the obligation is
further solidified by the warranty of solvency provisions of
the Credit Agreement, the pertinent portion of which states
that:
"5. Representations at Warranties. - The Borrower further
represents and warrants that xx:xe) The maintenance of the
Credit Facility is premised on the Borrower's continued ability
to service its obligations to its creditors. Accordingly, the
Borrower hereby warrants that while any of the Credit
Obligations remain unpaid, the Borrower shall at all times
have sufficient liquid assets to meet operating requirements
and pay all its/his debts as they fall due. Failure of the
Borrower to pay any maturing interest, principal or other
charges under the Credit Facility shall be conclusive evidence
of violation of this warranty."
17. To allay whatever fear or apprehension of herein plaintiff
on the commitment of Respondents to honor its obligations,
defendants-sureties likewise executed a "Continuing
Suretyship Agreement.
18. Under paragraph 3 of the said Suretyship Agreement, it
is provided that:
"3. Liability of the Surety - The liability of the Surety is
solidary, direct and immediate and not contingent upon the
pursuit by SBC of whatever remedies it may have against the
Borrower or the collateral/liens it may possess. If any of the
Guaranteed Obligations is not paid or performed on due date
(at stated maturity or by acceleration), or upon the
occurrence of any of the events of default under Section 5
hereof and/or under the Credit Instruments, the Surety shall
without need for any notice, demand or any other act or
deed, immediately and automatically become liable therefor
and the Surety shall pay and perform the same."
19. Thus, in the light of the representation made by
Respondents Commercial Press Co, Inc., Alfredo Buriel
Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng
Atienza and Monica Cu Atienza that the loan shall be paid in
full on or before maturity, coupled by the warranty of
solvency embodied in the Credit Agreement as well as the
execution of the Continuing Suretyship Agreement, the loan
application was eventually approved.
20. Needless to say that without said representations and
warranties, including the Continuing Suretyship Agreement,
the plaintiff would not have approved and granted the credit
facility to Respondents. It is thus clear that Respondents,
Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps.
Frederick Cheng Atienza and Monica Cu Atienza, misled SBC
and employed fraud in contracting said obligation.
21. Respondents, through its Vice President Fredino Cheng
Atienza, likewise executed various Trust Receipt Agreements
with the plaintiff whereby it bound itself under the following
provision:
"2. In consideration of the delivery to the Entrustee of the
possession of the Goods/Documents, the Entrustee hereby
agrees and undertakes, in accordance with the provisions of
the Presidential Decree No. 115; (i) to hold in trust for the
Bank the Goods/Documents; (ii) to sell the Goods for cash
only for the account and benefit of the Bank, and without
authority to make any other disposition of the
Goods/Documents or any part thereof, or to create a lien
thereon; (iii) to turn over to the Bank, without need of
demand, the proceeds of the sale of the Goods to the extent
of the amount of obligation specified above (the
"Obligation"), including the interest thereon, and other
amounts owing by the Entrustee to the Bank under this Trust
Receipt, on or before the maturity date above-mentioned
(the "Maturity Date"); or (iv) to return, on or before Maturity
Date, without need of demand and at the Entrustee's
expense, the Goods/Documents to the Bank, in the event of
non-sale of the Goods."
Despite the above covenants, defendants failed to pay nor
return the goods subject of the Trust Receipt Agreements.
22. Knowing fully well that they are already in default,
Respondents and defendants sureties submitted a
repayment proposal through their letter dated January 23,
2013. Through their lawyer, they likewise requested the bank
for a meeting to discuss their proposal. However, as it turned
out, the proposed repayment proposal for their loan was only
intended to delay legal action against them. They failed to
meet with the Bank's representative and neither did they
submit supporting documents to back up their repayment
proposal.20
To support its allegation of fraud, Security Bank attached the
Affidavit21 of German Vincent Pulgar IV (Pu/gar), the
Manager of the Remedial Management Division of the said
bank. He detailed how respondents represented to Security
Bank that they would pay the loans upon their maturity date.
Pulgar added that respondents signed the Credit Agreement
which contained the Warranty of Solvency and several Trust
Receipt Agreements in favor of Security Bank. The said trust
receipts were attached to the complaint which stated that
respondents were obligated to tum over to Security Bank the
proceeds of the sale of the good or to return the goods. The
several demand letters sent by Security Bank to respondents,
which were unheeded, were likewise attached to the
complaint. These pieces of evidence were presented by
Security Bank during the hearing of the application for the
issuance of a writ of preliminary attachment in the RTC.
After a judicious study of the records, the Court finds that
Security Bank was able to substantiate its factual allegation
of fraud, particularly, the violation of the trust receipt
agreements, to warrant the issuance of the writ of
preliminary attachment.
There were violations of the
trust receipts agreements
While the Court agrees that mere violations of the warranties
and representations contained in the credit agreement and
the continuing suretyship agreement do not constitute fraud
under Section 1(d) of Rule 57 of the Rules of Court, the same
cannot be said with respect to the violation of the trust
receipts agreements.
A trust receipt transaction is one where the entrustee has the
obligation to deliver to the entruster the price of the sale, or
if the merchandise is not sold, to return the merchandise to
the entruster. There are, therefore, two obligations in a trust
receipt transaction: the first refers to money received under
the obligation involving the duty to turn it over (entregarla)
to the owner of the merchandise sold, while the second
refers to the merchandise received under the obligation to
"return" it (devolvera) to the owner. 22 The obligations under
the trust receipts are governed by a special law, Presidential
Decree (P.D.) No. 115, and non-compliance have particular
legal consequences.
Failure of the entrustee to tum over the proceeds of the sale
of the goods, covered by the trust receipt to the entruster or
to return said goods if they were not disposed of in
accordance with the terms of the trust receipt shall be
punishable as es ta fa under Article 315 (1) of the Revised
Penal Code, without need of proving intent to defraud. 23 The
offense punished under P.D. No. 115 is in the nature of
malum prohibitum. Mere failure to deliver the proceeds of
the sale or the goods, if not sold, constitutes a criminal
offense that causes prejudice not only to another, but more
to the public interest.24 The present case, however, only
deals with the civil fraud in the noncompliance with the trust
receipts to warrant the issuance of a writ of preliminary
attached. A fortiori, in a civil case involving a trust receipt,
the entrustee's failure to comply with its obligations under
the trust receipt constitute as civil fraud provided that it is
alleged, and substantiated with specificity, in the complaint,
its attachments and supporting evidence.
Security Bank's complaint stated that Great Wall, through its
Vice President Fredino Cheng Atienza, executed various trust
receipt agreements in relation to its loan transactions. The
trust receipts stated that in consideration of the delivery to
the entrustee (Great Wall) of the possession of the goods, it
obligates itself to hold in trust for the bank the goods, to sell
the goods for the benefit of the bank, to tum over the
proceeds of the sale to the bank, and to return the goods to
the bank in the event of non-sale. By signing the trust receipt
agreements,
respondents
fully
acknowledged
the
consequences under the law once they failed to abide by
their obligations therein. The said trust receipt agreements
were attached to the complaint.
Upon the maturity date, however, respondents failed to
deliver the proceeds of the sale to Security Bank or to return
the goods in case of nonsale. Security Bank sent a final
demand letter to respondents, which was also attached to
the complaint, but it was unheeded. Curiously, in their letter,
dated January 23, 2013, respondents did not explain their
reason for noncompliance with their obligations under the
trust receipts; rather, they simply stated that Great Wall was
having a sudden drop of its income. Such unsubstantiated
excuse cannot vindicate respondents from their failure to
fulfill their duties under the trust receipts.
In addition, Security Bank attached Pulgar's affidavit, which
substantiated its allegation that respondents failed to comply
with its obligations under the trust receipts. During the
hearing before the RTC, Security Bank presented him and his
judicial affidavit. Regarding the trust receipts, he testified:
Q: Do you have any other basis in saying that you have
grounds for attachment?
A: Yes, defendants not only failed to pay but they also
failed to return the goods covered by the Trust Receipt.
Q: What do you mean by failure to return the goods?
A: They executed several TRs where they obligated to turn
over the proceeds of sale of goods or pay the value thereof
or return the goods themselves if they are unable to pay.
Q: What happened in this case?
A: Defendants failed to pay the value of the goods covered
by the TRs and they likewise failed to return the goods
without any explanation. Hence, obviously they
misappropriated the proceeds of the sale of goods.25
The Court is of the view that Security Bank's allegations of
violation of the trust receipts in its complaint was specific and
sufficient to assert fraud on the part of respondents. These
allegations were duly substantiated by the attachments
thereto and the testimony of Security Bank's witness.
The case of Philippine Bank of
Communications v. Court of
Appeals is inapplicable
The CA cited Philippine Bank of Communications v. Court of
Appeals26 (PBCom) to bolster its argument that fraudulent
intent cannot be inferred from a debtor's inability to pay or
comply with its obligations and that there must be proof of a
preconceived plan not to pay.27
At face value, PBCom and the present case may show a
semblance of similarity. Thus, the CA cannot be faulted for
relying on the said case.1âwphi1 A closer scrutiny of these
two cases, however, shows that their similarity is more
apparent than real.
In PBCom, the applicant for the writ of preliminary
attachment simply stated in its motion that the defendant
therein failed to remit the proceeds or return the goods
subject of the trust receipt and attached an ambiguous
affidavit stating that the case was covered by Sections 1 (b)
and (d) of Rule 57. Obviously, these allegations and
attachments are too general and vague to prove that the
defendant committed fraud. Likewise, there was no hearing
conducted in the RTC before it granted the issuance of the
writ of preliminary attachment. Thus, the Court had no
option but to lift the said writ.
In contrast, the complaint in the present case explained in
detail the factual circumstances surrounding the execution of
the trust receipts, its contents and the subsequent violation
thereof. Security Bank attached supporting annexes and
presented its witness during the hearing in the R TC to
substantiate the specific violation of trust receipts by
respondents. Security Bank took great lengths to explain the
contents of the trust receipt and show that respondents
expressed their conformity to it. When the obligation became
due, respondents did not satisfactorily explain the noncompliance of their obligations, and. despite a final demand,
they did not fulfill their obligations under the trust receipts.
Clearly, PBCom is inapplicable in the present case.
Fraud in the performance of
the obligation must be
considered
The CA stated in the assailed decision that under Section 1
(d) of Rule 57, fraud must only be present at the time of
contracting the obligation, and not thereafter. Hence, the CA
did not consider the allegation of fraud - that respondents
offered a repayment proposal but questionably failed to
attend the meeting with Security Bank regarding the said
proposal - because these acts were done after contracting
the obligation.
In this regard, the CA erred.
Previously, Section 1 (d), Rule 57 of the 1964 Rules of Court
provided that a writ of preliminary attachment may be issued
"[i]n an action against a party who has been guilty of a fraud
in contracting the debt or incurring the obligation upon which
the action is brought xxx" Thus, the fraud that justified the
issuance of a writ of preliminary attachment then was only
fraud committed in contracting an obligation (dolo
casuante). 28 When the 1997 Rules of Civil Procedure was
issued by the Court, Section l(d) of Rule 57 conspicuously
included the phrase "in the performance thereof." Hence, the
fraud committed in the performance of the obligation (dolo
incidente) was included as a ground for the issuance of a writ
of preliminary attachment.29
This significant change in Section 1 (d) of Rule 57 was
recognized recently in Republic v. Mega Pacific eSolutions,
Inc. 30 The Court stated therein that "[a]n amendment to the
Rules of Court added the phrase "in the performance thereof'
to include within the scope of the grounds for issuance of a
writ of preliminary attachment those instances relating to
fraud in the performance of the obligation."
Accordingly, the alleged fraud committed by respondents in
the performance of their obligation should have been
considered by the CA. Security Bank detailed in its complaint
that respondents, knowing fully well that they were in
default, submitted a Repayment Proposal. 31 Then, they
requested for a meeting with the bank to discuss their
proposal. For unknown reasons, they did not meet the
representatives of the Security Bank.
Respondents even attached to its Motion to Lift Writ of
Preliminary Attachment Ad Cautelam32 the correspondence
they had with Security Bank, which revealed that they did
not meet the representatives of the latter despite providing
a specific date to discuss the proposed repayment scheme.
Respondents merely offered lame excuses to justify their
absence in the arranged meeting and, ultimately, they failed
to clarify the non-compliance with their commitments. Such
acts bared that respondents were not sincere in paying their
obligation despite their maturity, substantiating the
allegations of fraud in the performance thereof.
These circumstances of the fraud committed by respondents
in the performance of their obligation undoubtedly support
the issuance of a writ of preliminary attachment in favor of
Security Bank.
Final Note
While the Court finds that Security Bank has substantiated
its allegation of fraud against respondents to warrant the
issuance of writ or preliminary attachment, this finding
should not in any manner affect the merits of the principal
case. The writ of preliminary attachment is only a provisional
remedy, which is not a cause of action in itself but is merely
adjunct to a main suit.33
WHEREFORE, the December 12, 2014 Decision and the
June 26, 2015 Resolution of the Court of Appeals in CA-G.R.
SP No. 131714 are REVERSED and SET ASIDE. The
issuance of the writ of preliminary attachment by the
Regional Trial Court, Branch 59, Makati City, in Civil Case No.
13-570, pursuant to its May 31, 2013 Order, is upheld.
SO ORDERED.
SECOND DIVISION
G.R. No. 193821, November 23, 2015
PHIL-AIR CONDITIONING CENTER, Petitioner, v. RCJ
LINES AND ROLANDO ABADILLA, JR., Respondent.
DECISION
BRION, J.:
Phil-Air Conditioning Center (Phil-Air) filed this petition for
review on certiorari1 to assail the September 15, 2010
decision2 of the Court of Appeals (CA) in CA-G.R. CV No.
85866. The CA affirmed the September 8, 2004 decision of
the Regional Trial Court (RTC), Branch 119 of Pasay City,
dismissing Phil-Air's complaint for sum of money with prayer
for a writ of preliminary attachment.3 Designated as Acting
Member in lieu of Associate Justice Antonio T. Carpio, per
Special Order No. 2282 dated November 13, 2015.
Designated as Acting Chairperson in lieu of Associate Justice
Antonio T. Carpio, per Special Order No. 2281 dated
November 13, 2015.
Antecedents
On various dates between March 5, 1990, and August 29,
1990, petitioner Phil-Air sold to respondent RCJ Lines four
Carrier Paris 240 air-conditioning units for buses (units).
The units included compressors, condensers, evaporators,
switches, wiring, circuit boards, brackets, and fittings.4
The total purchases amounted to P1,240,000.00 as shown
on a sales invoice dated November 5, 1990.5 RCJ Lines paid
P400,000.00, leaving a balance of P840,000.00.6
RCJ Lines accepted the delivery of the units, which Phil-Air
then installed after they were inspected by RCJ Lines
president Rolando Abadilla, Sr.7
Phil-Air allegedly performed regular maintenance checks on
the units pursuant to the one-year warranty on parts and
labor. After some months from installation, Phil-Air
supposedly boosted the capacity of the units by upgrading
them to the Carrier Paris 280 model.8 It also purportedly
repaired the control switch panel of one of the units for an
additional cost of P60,000.00.9
RCJ Lines issued three post-dated checks in favor of Phil-Air
to partly cover the unpaid balance:
Check No.
Amount
Post-dated
479759
Php 244,998.00
February 28, 1992
479760
Php 244,998.00
March 31, 1992
479761
Php 244,998.00
April 30, 1992
TOTAL
Php 734,994.00
All the post-dated checks were dishonored when Phil-Air
subsequently presented them for payment. Check No.
479759 was returned because it was drawn against
insufficient funds, while Check Nos. 479760 and 479761
were returned because payments were stopped.10
Before presenting the third check for payment, Phil-Air sent
a demand letter11 to Rolando Abadilla, Sr. on April 7, 1992,
asking him to fund the post-dated checks.
On July 17, 1996, Phil-Air demanded payment from
Rolando Abadilla, Jr., for the total amount of P734,994.00
plus interest, and attorney's fees equivalent to 25% of the
amount due. Phil-Air warned that it would take court action
if payment is not made within five days from demand.12
In view of the failure of RCJ Lines to pay the balance
despite demand, Phil-Air filed on April 1, 1998 the
complaint13 for sum of money with prayer for the issuance
of a writ of preliminary attachment.14 Phil-Air sought to
recover from RCJ Lines:
a) The total amount of P840,000.00 exclusive of interest
for the unpaid delivered air-conditioning units;
b) The amount of P60,000.00 for the unpaid repair
services;
c)
The total interest in the amount of P756,000.00
(P840,000.00 x 12% x 7 years + P60,000.00 x 12%
x 7 years);
d) The sum equivalent to 25% of the total amount due
as attorney's fees, plus P3,000.00 per court
appearance; and
e) Costs of the suit.
In its answer with compulsory counterclaim,15RCJ Lines
admitted that it purchased the units in the total amount of
PI,240,000.00 and that it had only paid P400,000.00. It
refused to pay the balance because Phil-Air allegedly
breached its warranty.16
RCJ Lines averred that the units did not sufficiently cool the
buses despite repeated repairs. Phil-Air purportedly
represented that the units were in accord with RCJ Lines'
cooling requirements as shown in Phil-Air's price
quotation17 dated August 4, 1989. The price quotation
provided that full payment should be made upon the units'
complete installation. Complete installation, according to
RCJ Lines, is equivalent to being in operational condition.
As it turned out, the Carrier Paris 240 model was not suited
to the 45 to 49-seater buses operated by RCJ Lines. The
units, according to RCJ Lines, were defective and did not
attain full operational condition.18
Further, RCJ Lines claimed that it was also entitled to be
reimbursed for costs and damages occasioned by the
enforcement of the writ of attachment.
RCJ Lines thus urged the RTC to order Phil-Air to pay (1)
the replacement costs of the units; (2) lost profits for nine
days from April 22 to April 30, 1999, resulting from the
attachment of its two buses amounting to
P207,000.00;19 and (3) P64,390.00 for the counter-bond
premium, moral damages, exemplary damages and
attorney's fees.
The RTC Ruling
The RTC granted the application for the issuance of a writ of
preliminary attachment after Phil-Air posted an attachment
bond in the amount of P1,656,000.00.20 Two buses of RCJ
Lines were attached pursuant to the writ dated December
18, 1998.21 The writ was executed on April 21, 1999. 22 The
attachment, however, was later lifted when the RTC granted
RCJ Lines' urgent motion to discharge the writ of
attachment.23 RCJ Lines posted a counter-bond in the same
amount
as
the
attachment
bond.24
Ruling on the merits after trial, the RTC found that Phil-Air
was guilty of laches and estopped from pursuing its claim. It
also sustained the allegation that Phil-Air had breached its
warranty.
The dispositive portion of the RTC judgment reads:
WHEREFORE, judgment is hereby rendered as follows:
A. Dismissing the complaint of plaintiff for lack
of merit.
B. Directing the plaintiff to pay the defendants
the amount of PI00,000.00 as attorney's
fees as they were forced to spend and hire
a lawyer to litigate for seven (7) years in
this Court the unfounded and invalid cause
of action of plaintiff.
C. Directing the plaintiff to pay P82,274.00 as
refund of the premium xxx for defendant's
counter-bond for the release of the two
buses which were attached per Writ of
Attachment of this Court.
D. Directing the plaintiff to pay P216,000.00
for the lost profits of defendants for the
attachment of their two buses as there was
no fraud in the transaction of the parties
and plaintiff had no sufficient cause of
action for the issuance of the writ of
attachment.
E.
F.
Dismissing all other claims of defendants as
stated in their counter-claims.
Costs against plaintiff. SO ORDERED.25
The CA Ruling
The CA affirmed the RTC decision in toto.26
First, the CA held that Phil-Air's cause of action was barred
by laches.27
The CA concluded that "Phil-Air's inaction on RCJ Lines'
repeated demands and inexplicable failure to comply with
its obligations had certainly led the latter to believe [PhilAir] was no longer interested in pursuing any claim" and
that "[Phil-Air] had been conspicuously silent for so long a
time which is disturbingly unusual for one claiming to have
been aggrieved by another."28
Second, the CA held that Phil-Air breached its warranty.
The price quotation supposedly warranted that the Carrier
Paris 240 model was suitable for 50-60-passenger coaches
and especially recommended for operation in the tropics.29
The CA gave credence to the testimony of the country
manager of Carrier Refrigeration Philippines Inc. (Carrier
Philippines) who testified that the Carrier Paris 240 model is
suited for buses with a maximum seating capacity of up to
35 persons; beyond that, the units would not function
properly.30 The CA also found convincing the testimonies of
two RCJ Lines employees who testified that they
experienced firsthand the inefficient cooling of the Carrier
Paris 240.31
Relying on these testimonies, the CA found that the four
units did not meet the cooling requirements of RCJ Lines.32
Third, the CA ordered Phil-Air to reimburse the premium on
the counter-bond amounting to P82,274.00 since the writ
was improvidently issued.
Fourth, the CA affirmed the finding of the RTC that RCJ
Lines suffered losses when the RTC attached two of its
buses.
The RTC and the CA relied on the testimony of Rolando
Abadilla, Jr., who claimed to be in charge of the daily
operations of RCJ Lines. He testified that they suffered
losses for nine days as a result of the enforcement of the
writ of preliminary attachment. The lost profits purportedly
amounted to P227,280.00. To support this claim, RCJ Lines
adduced as evidence the summary of the daily cash
collections33 from the buses that were not attached, on
various dates in August and September 2000.34
Finally, the CA sustained the award of attorney's fees for PI
00,000.00 in favor of RCJ lines for having been compelled
to litigate.
The Petition
First, Phil-Air argues that the doctrine of laches is not
applicable when the action is filed within the prescriptive
period. Laches, being a doctrine of equity, should only be
applied to fill a void in the law.35
Phil-Air asserts that it filed the complaint on April 1, 1998,
or less than eight years from the execution of the sales
invoice dated November 5, 1990. The complaint was thus
filed within the ten-year prescriptive period for actions
based upon a written contract.
Second, Phil-Air denies that it breached its warranty.
It maintains that all the units were brand new and were
accepted by RCJ Lines in good, working, and operational
condition. The units were inspected, tested, and approved
by then RCJ Lines president, Rolando Abadilla, Sr., as
proved by the delivery receipts in which he affixed his
signature.36
Phil-Air further avers that it was not notified of the alleged
breach of warranty. Assuming it breached its warranty, PhilAir submits that the action to enforce the warranty had
already prescribed.
Third, Phil-Air rejects the CA's order that it must reimburse
the premium payment for the counter-bond and the alleged
losses suffered by RCJ Lines. The attachment bond should
be answerable for damages, if any.
Respondent's Comment
RCJ Lines reiterates all the arguments it raised in its
counterclaim. It admits that it did not pay the balance of the
purchase price.37 It maintains, however, that it was justified
in doing so because Phil-Air breached its warranty. It insists
that Phil-Air was guilty of laches because it waited for eight
years to file the collection case.38
Issues
Based on the foregoing, the Court resolves the following
issues:chanRoblesvirtualLawlibrary
(1)Whether the claim of Phil-Air was barred by laches;
(2)Whether Phil-Air should reimburse RCJ Lines for the
counter- bond premium and its alleged unrealized profits;
(3)Whether RCJ Lines proved its alleged unrealized profits
arising from the enforcement of the preliminary writ of
attachment; and
(4)Whether RCJ Lines proved that Phil-Air breached its
warranty.
Our Ruling
We grant the petition.
Phil-Air's claim is not
barred by laches.
In general, there is no room to apply the concept of laches
when the law provides the period within which to enforce a
claim or file an action in court. Phil-Air's complaint for sum
of money is based on a written contract of sale. The tenyear prescriptive period under Article 1144 of the Civil Code
thus applies.39
In the present case, both parties admit the existence and
validity of the contract of sale. They recognize that
the price quotation dated August 4, 1989, contained the
terms and conditions of the sale contract. They also agree
that the price and description of the units were indicated on
the sales invoice dated November 5, 1990. The sales were
in fact consummated on various dates between March 5,
1990 and August 29, 1990, as proved by several delivery
receipts.
The Court therefore can resolve whether Phil-Air's action to
enforce the contract was timely filed even in the apparent
absence of a formal or notarized deed of sale.40 More
significantly, Rolando Abadilla, Jr., admitted under oath that
the sale was in writing.41
We note that Phil-Air filed the complaint with the RTC on
April 1, 1998. Counting from the date of the sales invoice,
or from the date of the delivery receipts, or even from the
date of the price quotation, it is clear that the complaint
was filed within the ten-year prescriptive period. Contrary
to the CA's ruling, laches does not apply.
Laches is defined as the failure or neglect for an
unreasonable and unexplained length of time, to do that
which by exercising due diligence, could or should have
been done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it
or declined to assert it.42
While the CA correctly held that prescription and estoppel
by laches are two different concepts, it failed to appreciate
the marked distinctions between the two concepts.
On the one hand, the question of laches is addressed to the
sound discretion of the court.43 The court resolves whether
the claimant asserted its claim within a reasonable
time and whether its failure to do so warrants the
presumption that it either has abandoned it or declined to
assert it. The court determines the claimant's intent to
assert its claim based on its past actions or lack of action.
After all, what is invoked in instances where a party raises
laches as a defense is the equity jurisdiction of the court.44
On the other hand, if the law gives the period within which
to enforce a claim or file an action in court, the court
confirms whether the claim is asserted or the action is filed
in court within the prescriptive period. The court
determines the claimant's intent to assert its claim by
simply measuring the time elapsed from the proper
reckoning point (e.g., the date of the written contract) to
the filing of the action or assertion of the claim.
In sum, where the law provides the period within which to
assert a claim or file an action in court, the assertion of
the claim or the filing of the action in court at any
time within the prescriptive period is generally
deemed reasonable, and thus, does not call for the
application of laches. As we held in one case, unless
reasons of inequitable proportions are adduced, any
imputed delay within the prescriptive period is not delay in
law that would bar relief.45
In Agra, et al. v. Philippine National Bank,46 we held that
"[l]aches is a recourse in equity [and] is applied only in
the absence, never in contravention, of statutory law. Thus,
laches cannot, as a rule, abate a collection suit filed within
the prescriptive period mandated by the Civil Code."
Agra involved an action for collection of a sum of money
arising from an unpaid loan. In resisting payment, the
sureties invoked laches and maintained that the creditor-
bank with full knowledge of the deteriorating financial
condition of the principal debtor did not take steps to
collect from the latter while still solvent. The sureties thus
argued that the creditor-bank's action was barred by
laches.
We found that the sureties failed to prove all the elements
of laches, namely:
(1) conduct on the part of the defendant or one under
whom he claims, giving rise to the situation of which
complaint is made and for which the complainant
seeks a remedy;
(2) delay in asserting the complainant's right, the
complainant having had knowledge or notice of
defendant's conduct and having been afforded an
opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the
right on which he bases his claim; and
(4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is
not held barred.47
cralawlawlibrary
Examining these elements, we found that only the first
element was present. There was no delay (second element)
because the creditor-bank filed the action within the tenyear prescriptive period. Since the claim was timely filed,
the defendants did not lack notice that the creditor-bank
would assert its claim (third element). Nor was the
assertion of the right deemed injurious to the defendants
(fourth element); the creditor-bank could assert its claim at
any time within the prescriptive period.
The same conclusion holds true in the present case; not all
the elements of laches are present. To repeat, Phil-Air filed
the complaint with the RTC on April 1, 1998. The time
elapsed from August 4, 1989 (the date of the price
quotation, which is the earliest possible reckoning point), is
eight years and eight months, well within the ten-year
prescriptive period. There was simply no delay (second
element of laches) where Phil-Air can be said to have
negligently slept on its rights.
More significantly, there is no basis for laches as the facts
of the present case do not give rise to an inequitable
situation that calls for the application of equity and the
principle of laches.48
Phil-Air is not directly liable
for the counter-bond premium and
RCJ Lines' alleged unrealized profits.
The CA and the RTC erred when it held Phil-Air directly
liable for the counter-bond premium and RCJ Lines' alleged
unrealized profits. Granting that RCJ Lines suffered losses,
the judgment award should have been first executed on the
attachment bond. Only if the attachment bond is
insufficient to cover the judgment award can Phil-Air be
held liable.49
We explain below the purpose of a preliminary attachment,
the procedure in obtaining it, and the manner of having it
lifted.
A writ of preliminary attachment is a provisional remedy
issued by the court where an action is pending to be levied
upon the property or properties of the defendant. The
property is held by the sheriff as security for the
satisfaction of whatever judgment that might be secured by
the attaching party against the defendant.50
The grant of the writ is conditioned not only on the finding
of the court that there exists a valid ground for its
issuance.51 The Rules also require the applicant to post a
bond.
Section 4 of Rule 57 of the Rules of Civil Procedure (Rules)
provides that "the party applying for the order must...give a
bond executed to the adverse party in the amount fixed by
the court, in its order granting the issuance of the
writ, conditioned that the latter will pay all the
costs that may be adjudged to the adverse party
and all damages that he may sustain by reason of
the attachment, if the court shall finally adjudge
that the applicant was not entitled thereto."
The enforcement of the writ notwithstanding, the party
whose property is attached is afforded relief to have the
attachment lifted.
does not result in the dissolution of the attachment
bond. Justice Narvasa, writing his separate opinion in one
case, explained:chanRoblesvirtualLawlibrary
The dissolution of the preliminary attachment upon
security given [Section 12], or a showing of its irregular or
improper issuance [Section 13], does not of course
operate to discharge the sureties on plaintiffs own
attachment bond. The reason is simple. That bond is
executed to the adverse party,. . . conditioned that the ...
(applicant) will pay all the costs which may be adjudged to
the adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge
that the applicant was not entitled thereto." Hence, until that
determination is made, as to the applicant's entitlement to
the attachment, his bond must stand and cannot be
withdrawn.59 [emphasis and underscoring supplied,
citations omitted]cralawlawlibrary
There are various modes of discharging an attachment
under Rule 57, viz.: (1) by depositing cash or posting a
counter-bond under Section 12;52 (2) by proving that the
attachment bond was improperly or irregularly issued or
enforced, or that the bond is insufficient under Section
13;53 (3) by showing that the attachment is excessive under
Section 13; and (4) by claiming that the property is exempt
from execution under Section 2.54
In the present case, the RTC lifted the preliminary
attachment after it heard RCJ Lines' urgent motion to
discharge attachment and the latter posted a counter-bond.
The RTC found that there was no fraud and Phil-Air had no
sufficient cause of action for the issuance of the writ of the
attachment. As a consequence, it ordered Phil-Air to refund
the premium payment for the counter-bond and the losses
suffered by RCJ Lines resulting from the enforcement of the
writ. The CA affirmed the RTC ruling in toto.
RCJ Lines availed of the first mode by posting a counterbond.
We reverse the CA and RTC rulings.
Under the first mode, the court will order the discharge of
the attachment after (1) the movant makes a cash deposit
or posts a counter-bond and (2) the court hears the motion
to discharge the attachment with due notice to the adverse
party.55
The amount of the cash deposit or counter-bond must be
equal to that fixed by the court in the order of attachment,
exclusive of costs. The cash deposit or counter-bond shall
secure the payment of any judgment that the attaching
party may recover in the action.56
The filing of a counter-bond to discharge the attachment
applies when there has already been a seizure of property
by the sheriff and all that is entailed is the presentation of a
motion to the proper court, seeking approval of a cash or
surety bond in an amount equivalent to the value of the
property seized and the lifting of the attachment on the
basis thereof. The counter-bond stands in place of the
property so released.57
To be clear, the discharge of the attachment by depositing
cash or posting a counter-bond under Section 12 should not
be confused with the discharge sanctioned under Section
13. Section 13 speaks of discharge on the ground that the
writ was improperly or irregularly issued or enforced, or
that the attachment bond is insufficient, or that the
attachment is excessive.
To reiterate, the discharge under Section 12 takes effect
upon posting of a counter-bond or depositing cash, and
after hearing to determine the sufficiency of the cash
deposit or counter-bond. On the other hand, the discharge
under Section 13 takes effect only upon showing that the
plaintiffs attachment bond was improperly or irregularly
issued, or that the bond is insufficient. The discharge of the
attachment under Section 13 must be made only after
hearing.58
These differences notwithstanding, the discharge of the
preliminary attachment either through Section 12 or Section
13 has no effect on and does not discharge the attachment
bond. The dissolution of the preliminary attachment
As discussed above, it is patent that under the Rules, the
attachment bond answers for all damages incurred by the
party against whom the attachment was issued.60
Thus, Phil-Air cannot be held directly liable for the costs
adjudged to and the damages sustained by RCJ Lines
because of the attachment. Section 4 of Rule 57 positively
lays down the rule that the attachment bond will pay "all
the costs which may be adjudged to the adverse
party and all damages which he may sustain by
reason of the attachment, if the court shall finally
adjudge that the applicant was not entitled thereto."
The RTC, instead of declaring Phil-Air liable for the alleged
unrealized profits and counter-bond premium, should have
ordered the execution of the judgment award on the
attachment bond. To impose direct liability to Phil-Air would
defeat the purpose of the attachment bond, which was not
dissolved despite the lifting of the writ of preliminary
attachment.
The order to refund the counter-bond premium is likewise
erroneous. The premium payment may be deemed a cost
incurred by RCJ Lines to lift the attachment. Such cost may
be charged against the attachment bond.
RCJ Lines failed to prove its
alleged unrealized profits.
In finding that RCJ Lines suffered damages because of the
attachment, the RTC and the CA gave complete credence to
the testimony of Rolando Abadilla, Jr. He claimed that RCJ
Lines lost P216,000.00 in unrealized profits for nine days
when the buses were wrongfully seized.
To arrive at this amount, RCJ Lines alleged that a bus
travelling from Manila to Ilocos and vice versa earned an
average daily income of P12,000.00. To back this claim,
RCJ Lines prepared a summary of the daily cash collections
of its nine buses on certain days of August and September
2000.
The summary of daily cash collections apparently prepared
by one RCJ Lines employee was in turn based on the
reports of the dispatchers indicating the number of
passengers and the amount of fare collected on a particular
trip. Except for one bus which travelled round-trip on
August 22-23, 2000, the daily cash collections all pertained
to the round-trip of eight buses on September 2-3, 2000.
temperate or moderate damages in the amount of Php
50,000.00.64
These documents are insufficient to prove actual damages.
We are not convinced that Phil-Air breached its express
warranty. RCJ Lines had no right to recoupment in
diminution of the price.65
In Spouses Yu v. Ngo Yet Te,61 we held that if the claim for
actual damages covers unrealized profits, the amount of
unrealized profits must be established and supported by
independent evidence of the mean income of the business
undertaking interrupted by the illegal seizure.
We explained in Spouses Yu that to merit an award of
actual damages arising from a wrongful attachment, the
attachment defendant must prove, with the best evidence
obtainable, the fact of loss or injury suffered and the
amount thereof. Such loss or injury must be of the kind
which is not only capable of proof but must actually be
proved with a reasonable degree of certainty. As to its
amount, the same must be measurable based on specific
facts, and not on guesswork or speculation.62
Spouses Yu is on all fours with the present dispute because
it also involved a claim for actual damages arising from the
illegal attachment of the claimant's properties, one of which
was a passenger bus.
The claimants in that case attempted to prove actual
damages by computing the daily average income of its bus
operation based on the value of three ticket stubs sold over
five separate days. The claimants likewise cited unused
ticket stubs as proof of income foregone when the bus was
wrongfully seized.
We found the claimant's evidence insufficient to prove
actual damages. While we recognized that they suffered
some damages, we held that "[b]y no stretch of the
imagination can we consider ticket sales for five days
sufficient evidence of the average daily income of the
passenger bus, much less its mean income. Not even the
unrebutted testimony of [the claimant] can add credence to
such evidence for the testimony itself lacks
corroboration."63
Similarly, the evidence adduced by RCJ Lines to show
actual damages fell short of the required proof. Its average
daily income cannot be derived from the summary of daily
cash collections from only two separate occasions, i.e.,
August 22-23 and September 2-3, 2000. The data
submitted is too meager and insignificant to conclude that
the buses were indeed earning an average daily income of
P12,000.00.
More significant, the person who prepared the unsigned
summary of daily cash collections was not presented before
the RTC to verify and explain how she arrived at the
computation. The dispatchers who prepared the collection
reports were likewise not presented; some of the reports
were also unsigned. While the summary was approved by
Rolando Abadilla, Jr., his testimony on the alleged
unrealized profits was uncorroborated and self-serving.
The allegation of breach
of express warranty was
notproved.
The Civil Code defines an express warranty as any
affirmation of fact or any promise by the seller relating to
the thing if the natural tendency of such affirmation or
promise is to induce the buyer to purchase the same, and if
the buyer purchases the thing relying thereon.66
The question whether there was a breach of warranty is
factual. Consequently, the Court should rely on the factual
findings of the CA and RTC, which are generally deemed
binding and conclusive to the Court. More so in a Rule 45
petition where only questions of law can be raised. Further,
factual findings of the RTC, when affirmed by the CA, are
conclusive on the Court when supported by the evidence on
record.67
The evidence on record does not support the findings of
the CA and RTC.
We emphasize that there are recognized cases where the
Court can disregard the factual findings of the RTC and CA.
In these cases, the Court draws its own conclusion based
on the evidence on record.68
In this case, Phil-Air denies that it breached its express
warranty and strongly argues that the CA and RTC
completely ignored its evidence while it sustained the bare
allegations of Rolando Abadilla, Jr.
We agree with Phil-Air. Our examination of the record
reveals that the RTC and CA manifestly overlooked certain
relevant facts not disputed by the parties which, if properly
considered, would justify a different conclusion.
To prove that Phil-Air breached its express warranty, RCJ
Lines presented the following testimonial and documentary
evidence:chanRoblesvirtualLawlibrary
1) Rolando Abadilla, Jr. who claimed that their
employees reported the defect of the units to him and
to his late father. His late father allegedly demanded
Phil-Air to repair the defects. But despite repeated
verbal demands, Phil-Air purportedly failed to comply
with its one-year warranty on parts and labor.
2) Two RCJ Lines employees who claimed that they
experienced firsthand the inefficient cooling of the
units.
3) The general manager of Carrier Philippines who
testified that the Carrier 240 model was not suitable
for buses with a capacity of more than 35 passengers,
like those operated by RCJ Lines.
Nonetheless, we recognize that RCJ Lines suffered some
form of pecuniary loss when two of its buses were
wrongfully seized, although the amount cannot be
determined with certainty.
4) Summary of expenses, sales invoices, provisional
receipts, and statements of accounts issued by other
suppliers and shops (Car Cool Philippines, Inc. and
Sta. Rosa Motor Works, Inc.) engaged by RCJ Lines
during the period of warranty to repair the defective
units, amounting to P208,132.00
We note that in its prayer for the issuance of the writ of
preliminary attachment, Phil-Air alleged that RCJ Lines was
guilty of fraud in entering into the sale transaction. A
perusal of the record, however, would show that Phil-Air
failed to prove this bare assertion. This justifies an award of
5) Commercial invoice for the $68,780.00 US Dollars
worth of new units bought from another supplier after
the lapse of warranty to replace the units supplied by
Phil-Air.69
In defense, Phil-Air claimed that it regularly checked the
units and that during the effectivity of the one-year
warranty, RCJ Lines never once complained of defects; if
there were defects, the latter should have demanded PhilAir to perform its warranty in writing; the reason it had no
proof it made repairs and delivered spare parts was
precisely because it was not apprised of any defect; and
that the testimonies of the RCJ Lines witnesses were selfserving.70
The RTC noted that Phil-Air did not present evidence to
rebut the allegation of breach.71 Phil-Air instead opposed
the admission of the documentary evidence of RCJ Lines for
failing to comply with the best evidence rule.72
We hold that the evidence that RCJ Lines submitted failed
to prove breach of express warranty.
As to the testimonial evidence
The testimonies of the RCJ Lines witnesses were selfserving and uncorroborated.
The claim of Rolando Abadilla, Jr. that his late father
verbally communicated the defects of the units to Phil-Air
was hearsay and not admissible.73 He admitted that he was
not around when his father phoned Phil-Air to demand the
repair of the units. He likewise admitted that they did not
attempt to personally meet with nor send a letter to Phil-Air
to demand the repairs.74
More tellingly, Rolando Abadilla, Jr. admitted that they
issued the post-dated checks to Phil-Air to cover the
balance of the purchase price sometime in 1992, vizQ.
Mr. Witness is it not in this case that you personally
issued three (3) checks draws against the name
Rolando Abadilla and Susan or Rolando Abadilla, and
this was some time in 1992?
A.
Yes, Sir.
Q.
And you confirm that these were all dated March 31,
April 30 and February 29, 1992?
A.
Yes, Sir.
Q.
Despite your claim that these air-conditioning units
were defective and despite your claim that these airconditioning units were not repaired by plaintiff,
hence you referred them for repair to other
companies who are not authorized, do you still
affirm the fact that you issued the postdated checks,
the total of which is exactly the balance of the
purchase price as quoted in the price quotation, yes
or no? [Emphasis supplied]
A.
Yes, Sir.75
xxx
We note that the alleged repairs made by Car Cool
Philippines, Inc. and Sta. Rosa Motor Works, Inc. started in
1991.76 If RCJ Lines knew as early as 1991 that the units
were defective and that Phil-Air refused to perform its
warranty despite repeated demands, we wonder why RCJ
Lines still issued the post-dated checks in 1992 to cover the
balance
of
the
purchase
price.
The record also reveals that Car Cool Philippines, Inc. and
Sta. Rosa Motor Works, Inc. were not authorized by the
Carrier brand to repair the units, a fact not denied by Rolando
Abadilla, Jr.77 It was likewise established that some of the
parts/items purportedly provided by the other suppliers were
expressly excluded from the list of parts/items that Phil-Air
was supposed to supply, again, a fact admitted by Rolando
Abadilla, Jr.78 It was likewise unclear that the repairs made
by the other service providers were done on the same buses
on
which
the
subject
units
were
installed. 79
We also find glaring the fact that RCJ Lines did not respond
to the April 7, 1992 demand letter sent by Phil-Air, viz. Dear Mr. Abadilla,
I have been trying to get in touch with you and Junjun the
past several weeks but have been unsuccessful xxx The
two checks that you used to partly pay for the four units
bus air conditions [sic] were all dishonored by the bank
[because they were drawn against insufficient funds].
We are but a small company and our cash flow was
adversely affected by the return of the checks, xxx It would
mean so much if you could somehow help us replenished
these checks, xxx We look forward to hearing from you
Respectfully, we remain.
Yours truly,
Ricardo Cokieng
If RCJ Lines was aware all along that the units were defective
and that Phil-Air refused to heed its verbal demands to make
repairs, we do not understand why it ignored PhilAir's written demand to replenish the returned checks. We
also find it unthinkable that RCJ Lines would spend for parts
and services from other suppliers and providers, during the
period of warranty, without demanding first in writing that
Phil-Air
make
good
its
express
warranty.
In this regard, we note that the right of the buyer to the
recoupment in the diminution of the price under Article 1599
(1) should be read together with Article 1586 of the Civil
Code,80 which provides that:
Art. 1586. In the absence of express or implied agreement
of the parties, acceptance of the goods by the buyer shall
not discharge the seller from liability in damages or other
legal remedy for breach of any promise or warranty in the
contract of sale. But, if, after acceptance of the goods,
the buyer fails to give notice to the seller of the
breach in any promise of warranty within a
reasonable time after the buyer knows, or ought to
know of such breach, the seller shall not be liable
therefor.
The obvious purpose of the notice is to protect the seller
against belated claims. If the seller is not duly notified, he
is prevented from making prompt investigation to
determine the cause and extent of his
liability.81 Consequently, he is barred from repairing or
rectifying whatever defects the goods sold had.
RCJ Lines failed to convince us that it notified Phil-Air of the
breach of warranty within a reasonable time. In truth, we
are not convinced at all that it had even notified Phil-Air.
Although Article 1586 does not require that the notice to
the seller be in writing, we cannot accept the claim of
Rolando Abadilla, Jr. that his late father verbally notified
Phil-Air of the defects, without violating the rule on
hearsay.
Also, the testimonies of the two RCJ Lines employees that
they experienced firsthand the insufficient cooling of the
units were self-serving and uncorroborated by a
disinterested party.
Further, the reliance of the CA and the RTC on the
testimony82 of the general manager of Carrier Philippines
was misplaced and unwarranted. It appears that the
computation of the cooling efficiency of the Carrier 240
model was merely theoretical, based only on the
specifications of the model and not on actual test, viz. —
Q:
Have you seen RCJ Bus?
A:
I did see.
xxx
Q:
With respect to car aircon Paris 240 installed, have
you seen this bus?
A:
No, I did not.
Q:
Mr. Witness, this case involves a particular product
a brand of the product that you did not try [sic] but
specifically Paris 240. Have you seen it personally,
the four units installed?
A:
No I did not.
Q:
Even one unit?
A:
No Sir.
decision of the Court of Appeals in CA-G.R. CV No. 85866
is REVERSED and SET ASIDE.
ACCORDINGLY, RCJ Lines is DIRECTED to pay:
1.
Eight Hundred Forty Thousand Pesos (P840,000.00)
representing the unpaid balance of the purchase
price;
2.
Interest of twelve percent (12%) per annum on the
unpaid balance to be computed from November 5,
199086 until June 30, 2013;
3.
Interest of six percent (6%) per annum on the
unpaid balance to be computed from July 1,
2013,87 until fully paid;
4.
Attorney's fees in the fixed amount of P30,000.00.88
The total amount to be recovered shall further be subject to
the legal interest rate of six percent (6 %) per annum from
the finality of this decision until fully paid.89
The attachment bond posted by Phil-Air shall be levied
upon to satisfy the P50,000.00 temperate damages
awarded to RCJ Lines and the P82,274.00 refund of the
counter-bond premium.
The meat of his testimony centered not on the subject units
but on the cooling capacity of the product that Carrier
Philippines was then selling in the market. In fact, he
admitted that his role in the company had nothing to do
with repairs of air-conditioning units.
On this basis, we do not find his testimony conclusive as to
the alleged breach of express warranty. It was too
tangential and speculative. We note that he was not even
presented as an expert witness. Even if we assume that the
computation of the cooling capacity of the Carrier 240 was
accurate, RCJ Lines still failed to prove that it duly and
promptly informed Phil-Air of the alleged breach.
On the documentary evidence
The pieces of documentary evidence submitted by RCJ
Lines to prove breach of express warranty failed to comply
with the best evidence rule. It is established on record that
the sales invoices and provisional receipts issued by
the other suppliers and service providers were mere
photocopies.83 The counsel of Phil-Air objected to the
admission of the secondary evidence without proof that the
originals were indeed lost. The counsel for RCJ Lines
requested that the evidence be conditionally accepted and
marked, which the trial court granted.
Nowhere on record, however, was it ever established that
the originals were later submitted. It was also not shown
that the originals were indeed lost, which could have
justified the submission of secondary evidence.84 The RTC
simply ignored this fact when it finally decided the case.
Conclusion
Based on the foregoing analysis, we find- that RCJ Lines
failed to prove its allegation that Phil-Air breached its
express warranty. RCJ Lines is thus held liable to pay the
balance of the purchase price plus interest and attorney's
fees.85 RCJ Lines, however, is entitled to temperate
damages as a result of the wrongful attachment of its
buses and to the refund of the premium payment for the
counter-bond.
WHEREFORE, in view of the foregoing, we
hereby GRANT the petition. The September 15, 2010
SO ORDERED.
THIRD DIVISION
September 9, 2015
G.R. No. 181721
WATERCRAFT VENTURE CORPORATION,
represented by its Vice-President, ROSARIO E.
RANOA, Petitioners,
vs.
ALFRED RAYMOND WOLFE, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, seeking to reverse and set aside the Court of
Appeals (CA) Resolution1 dated January 24, 2008 denying
the motion for reconsideration of its Decision2 dated
September 27, 2007 in CA-G.R. SP No. 97804.
The facts are as follows:
Petitioner Watercraft Venture Corporation (Watercraft) is
engaged in the business of building, repairing, storing and
maintaining yachts, boats and other pleasure crafts at the
Subic Bay Freeport Zone, Subic, Zambales. In connection
with its operations and maintenance of boat storage
facilities, it charges a boat storage fee of Two Hundred
Seventy-Two US Dollars (US$272.00) per month with
interest of 4% per month for unpaid charges.
Sometime in June 1997, Watercraft hired respondent Alfred
Raymond Wolfe (Wolfe), a British national and resident of
Subic Bay Freeport Zone, Zambales, as its Shipyard Manager.
During his empolyment, Wolfe stored the sailboat, Knotty
Gull, within Watercraft's boat storage facilities, but never
paid for the storage fees.
On March 7, 2002, Watercraft terminated the employment of
Wolfe.
Sometime in June 2002, Wolfe pulled out his sailboat from
Watercraft's storage facilities after signing a Boat Pull-Out
Clearance dated June 29, 2002 where he allegedly
acknowledged the outstanding obligation of Sixteen
Thousand Three Hundred and Twenty-Four and 82/100 US
Dollars (US$16,324.82) representing unpaid boat storage
fees for the period of June 1997 to June 2002. Despite
repeated demands, he failed to pay the said amount.
Thus, on July 7, 2005, Watercraft filed against Wolfe a
Complaint for Collection of Sum of Money with Damages with
an Application for the Issuance of a Writ of Preliminary
Attachment. The case was docketed as Civil Case No. 4534MN, and raffled to Branch 1703 of the Regional Trial Court
(RTC) of Malabon City.
In his Answer, Wolfe claimed he was hired as Service and
Repair Manager, instead of Shipyard Manager. He denied
owing Watercraft the amount of US$16,324.82 representing
storage fees for the sailboat. He explained that the sailboat
was purchased in February 1998 as part of an agreement
between him and Watercraft's then General Manager, Barry
Bailey, and its President, Ricky Sandoval, for it to be repaired
and used as training or fill-in project for the staff, and to be
sold later on. He added that pursuant to a central Listing
Agreement for the sale of the sailboat, he was appointed as
agent, placed in possession thereof and entitled to a ten
percent (10%) sales commission. He insisted that nowhere
in the agreement was there a stipulation that berthing and
storage fees will be charged during the entire time that the
sailboat was in Watercraft's dockyard. Thus, he claimed to
have been surprised when he received five (5) invoices billing
him for the said fees two (2) months after his services were
terminated. He pointed out that the complaint was an
offshoot of an illegal dismissal case he filed against
Watercraft which had been decided in his favor by the Labor
Arbiter.
Meanwhile, finding Watercraft's ex-parte application for writ
of preliminary attachment sufficient in form and in substance
pursuant to Section 1 of Rule 57 of the Rules of Court, the
RTC granted the same in the Order dated July 15, 2005,
thus:
WHEREFORE, let a Writ of Preliminary Attachment be issued
accordingly in favor of the plaintiff, Watercraft Ventures
Corporation conditioned upon the filing of attachment bond
in the amount of Three Million Two Hundred Thirty-One
Thousand Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served
simultaneously with the summons, copies of the complaint,
application for attachment, applicant's affidavit and bond,
and this Order upon the defendant.
SO ORDERED.4
Pursuant to the Order dated July 15, 2005, the Writ of
Attachment dated August 3, 2005 and the Notice of
Attachment dated August 5, 2005 were issued, and Wolfe's
two vehicles, a gray Mercedes Benz with plate number XGJ
819 and a maroon Toyota Corolla with plate number TFW
110, were levied upon.
On August 12, 2005, Wolfe's accounts at the Bank of the
Philippine Islands were also garnished.
By virtue of the Notice of Attachment and Levy dated
September 5, 2005, a white Dodge pick-up truck with plate
number XXL 111 was also levied upon. However, a certain
Jeremy Simpson filed a Motion for Leave of Court to
Intervene, claiming that he is the owner of the truck as
shown by a duly-notarized Deed of Sale executed on August
4, 2005, the Certificate of Registration No. 3628665-1 and
the Official Receipt No. 271839105.
On November 8, 2005, Wolfe filed a Motion to Discharge the
Writ of Attachment, arguing that Watercraft failed to show
the existence of fraud and that the mere failure to pay or
perform an obligation does not amount to fraud. He also
claimed that he is not a flight risk for the following reasons:
(1) contrary to the claim that his Special Working Visa
expired in April 2005, his Special Subic Working Visa and
Alien Certificate of Registration are valid until April 25, 2007
and May 11, 2006, respectively; (2) he and his family have
been residing in the Philippines since 1997; (3) he is an
existing stockholder and officer of Wolfe Marine Corporation
which is registered with the Securities and Exchange
Commission, and a consultant of "Sudeco/Ayala" projects in
Subic, a member of the Multipartite Committee for the new
port development in Subic, and the Subic Chamber of
Commerce; and (4) he intends to finish prosecuting his
pending labor case against Watercraft. On even date,
Watercraft also filed a Motion for Preliminary Hearing of its
affirmative defenses of forum shopping, litis pendentia, and
laches.
In an Order dated March 20, 2006, the RTC denied Wolfe's
Motion to Discharge Writ of Attachment and Motion for
Preliminary Hearing for lack of merit.
Wolfe filed a motion for reconsideration, but the RTC also
denied it for lack of merit in an Order dated November 10,
2006. Aggrieved, Wolfe filed a petition for certiorari before
the CA.
The CA granted Wolfe's petition in a Decision dated
September 27, 2007, the dispositive portion of which reads:
WHEREFORE, the Order dated March 20, 2006 and the Order
dated November 10, 2006 of respondent Judge are hereby
ANNULLED and SET ASIDE. Accordingly, the Writ of
Attachment issued on August 3, 2005, the Notice of
Attachment dated August 5, 2005 and the Notice of
Attachment and Levy dated September 5, 2005 are hereby
also declared NULL and VOID, and private respondent is
DIRECTED to return to their owners the vehicles that were
attached pursuant to the Writ.
SO ORDERED.5
The CA ruled that the act of issuing the writ of preliminary
attachment ex-parte constitutes grave abuse of discretion on
the part of the RTC, thus:
x x x In Cosiquien [v. Court of Appeals], the Supreme Court
held that:
"Where a judge issues a fatally defective writ of preliminary
attachment based on an affidavit which failed to allege the
requisites prescribed for the issuance of the writ of
preliminary attachment, renders the writ of preliminary
attachment issued against the property of the defendant
fatally defective. The judge issuing it is deemed to have
acted in excess of jurisdiction. In fact, the defect cannot even
be cured by amendment. Since the attachment is a harsh
and rigorous remedy which exposed the debtor to
humiliation and annoyance, the rule authorizing its issuance
must be strictly construed in favor of defendant. It is the duty
of the court before issuing the writ to ensure that all the
requisites of the law have been complied with. Otherwise, a
judge acquires no jurisdiction to issue the writ." (emphasis
supplied)
In the instant case, the Affidavit of Merit executed by Rosario
E. Rañoa, Watercraft's Vice-President, failed to show
fraudulent intent on the part of Wolfe to defraud the
company. It merely enumerated the circumstances tending
to show the alleged possibility of Wolfe's flight from the
country. And upon Wolfe's filing of the Motion to Discharge
the Writ, what the respondent Judge should have done was
to determine, through a hearing, whether the allegations of
fraud were true. As further held in Cosiquien:
"When a judge issues a writ of preliminary attachment exparte, it is incumbent on him, upon proper challenge of his
order to determine whether or not the same was
improvidently issued. If the party against whom the writ is
prayed for squarely controverts the allegation of fraud, it is
incumbent on the applicant to prove his allegation. The
burden of proving that there indeed was fraud lies with the
party making such allegation. This finds support in Section 1,
Rule 131 Rules of Court. In this jurisdiction, fraud is never
presumed." (Emphasis supplied) As correctly noted by Wolfe,
although Sec. 1 of Rule 57 allows a party to invoke fraud as
a ground for the issuance of a writ of attachment, the Rules
require that in all averments of fraud, the circumstances
constituting fraud must be stated with particularity, pursuant
to Rule 8, Section 5. The Complaint merely stated, in
paragraph 23 thereof that "For failing to pay the use [of]
facilities and services – in the form of boat storage fees, the
Defendant is clearly guilty of fraud which entitles the Plaintiff
to a Writ of Preliminary Attachment upon the property of the
Defendant as security for the satisfaction of any judgment
herein." This allegation does not constitute fraud as
contemplated by law, fraud being the "generic term
embracing all multifarious means which human ingenuity can
devise, and which are resorted to by one individual to secure
an advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is
cheated." In this instance, Wolfe's mere failure to pay the
boat storage fees does not necessarily amount to fraud,
absent any showing that such failure was due to [insidious]
machinations and intent on his part to defraud Watercraft of
the amount due it.
As to the allegation that Wolfe is a flight risk, thereby
warranting the issuance of the writ, the same lacks merit.
The mere fact that Wolfe is a British national does not
automatically mean that he would leave the country at will.
As Wolfe avers, he and his family had been staying in the
Philippines since 1997, with his daughters studying at a local
school. He also claims to be an existing stockholder and
officer of Wolfe Marine Corporation, a SEC-registered
corporation, as well as a consultant of projects in the Subic
Area, a member of the Multipartite Committee for the new
port development in Subic, and a member of the Subic
Chamber of Commerce. More importantly, Wolfe has a
pending labor case against Watercraft – a fact which the
company glaringly failed to mention in its complaint – which
Wolfe claims to want to prosecute until its very end. The said
circumstances, as well as the existence of said labor case
where Wolfe stands not only to be vindicated for his alleged
illegal dismissal, but also to receive recompense, should have
convinced the trial court that Wolfe would not want to leave
the country at will just because a suit for the collection of the
alleged unpaid boat storage fees has been filed against him
by Watercraft.
Neither should the fact that Wolfe's Special Working Visa
expired in April 2005 lead automatically to the conclusion
that he would leave the country. It is worth noting that all
visas issued by the government to foreigners staying in the
Philippines have expiration periods. These visas, however,
may be renewed, subject to the requirements of the law. In
Wolfe's case, he indeed renewed his visa, as shown by
Special Working Visa No. 05-WV-0124P issued by the Subic
Bay Metropolitan Authority Visa Processing Office on April 25,
2005, and with validity of two (2) years therefrom. Moreover,
his Alien Certificate of Registration was valid up to May 11,
2006.
Based on the foregoing, it is therefore clear that the writ was
improvidently issued. It is well to emphasize that "[T]he rules
on the issuance of a writ of attachment must be construed
strictly against the applicants. This stringency is required
because the remedy of attachment is harsh, extraordinary
and summary in nature. If all the requisites for the granting
of the writ are not present, then the court which issues it
acts in excess of its jurisdiction. Thus, in this case, Watercraft
failed to meet all the requisites for the issuance of the writ.
Thus, in granting the same, respondent Judge acted with
grave abuse of discretion.6
In a Resolution dated January 24, 2008, the CA denied
Watercraft's motion for reconsideration of its Decision, there
being no new or significant issues raised in the motion.
Dissatisfied with the CA Decision and Resolution, Watercraft
filed this petition for review on certiorari, raising these two
issues:
I.
WHETHER THE EX-PARTE ISSUANCE OF THE PRELIMINARY
ATTACHMENT BY THE TRIAL COURT IN FAVOR OF THE
PETITIONER IS VALID.
II.
WHETHER THE ALLEGATIONS IN THE AFFIDAVIT OF
MERIT CONCERNING FRAUD ARE SUFFICIENT TO
WARRANT THE ISSUANCE OF A PRELIMINARY WRIT OF
ATTACHMENT BY THE
TRIAL COURT IN FAVOR OF THE PETITIONER.7
Watercraft argues that the CA erred in holding that the RTC
committed grave abuse of discretion in issuing the writ of
preliminary attachment, and in finding that the affidavit of
merit only enumerated circumstances tending to show the
possibility of Wolfe's flight from the country, but failed to
show fraudulent intent on his part mpany.
Stressing that its application for such writ was anchored on
two (2) grounds under Section 1,8 Rule 57, Watercraft insists
that, contrary to the CA ruling, its affidavit of merit
sufficiently averred with particularity the circumstances
constituting fraud as a common element of said grounds.
Watercraft points out that its affidavit of merit shows that
from 1997, soon after Wolfe's employment as Shipyard
Manager, up to 2002, when his employment was terminated,
or for a period of five (5) years, not once did he pay the cost
for the use of the company's boat storage facilities, despite
knowledge of obligation and obvious ability to pay by reason
of his position.
Watercraft adds that its affidavit clearly stated that Wolfe, in
an attempt to avoid settling of his outstanding obligations to
the company, signed a Boat Pull-Out Clearance where he
merely acknowledged but did not pay Sixteen Thousand
Three Hundred and Twenty-Four and 82/100 US Dollars
(US$16,324.82) representing unpaid boat storage fees for
the period commencing June 1997 to June 2002. It avers
that the execution of such clearance enabled Wolfe to pull
out his boat from the company storage facilities without
payment of storage fees.
Watercraft also faults the CA in finding no merit in its
allegation that Wolfe is a flight risk. It avers that he was
supposed to stay and work in the country for a limited period,
and will eventually leave; that despite the fact that his wife
and children reside in the country, he can still leave with
them anytime; and that his work in the country will not
prevent him from leaving, thereby defeating the purpose of
the action, especially since he had denied responsibility for
his outstanding obligations. It submits that the CA
overlooked paragraph 28 of its Complaint which alleged that
"[i]n support of the foregoing allegations and the prayer for
the issuance of a Writ of Preliminary Attachment in the
instant case, the Plaintiff has attached hereto the Affidavit of
the Vice-President of the Plaintiff, MS. ROSARIO E. RAÑOA x
x x."9
Watercraft asserts that it has sufficiently complied with the
only requisites for the issuance of the writ of preliminary
attachment under Section 3, Rule 57 of the Rules of Court,
i.e., affidavit of merit and bond of the applicant. It posits that
contrary to the CA ruling, there is no requirement that
evidence must first be offered before a court can grant such
writ on the basis of Section 1 (d) of Rule 57, and that the
rules only require an affidavit showing that the case is one
of those mentioned in Section 1, Rule 57. It notes that
although a party is entitled to oppose an application for the
issuance of the writ or to move for the discharge thereof by
controverting the allegations of fraud, such rule does not
apply when the same allegations constituting fraud are the
very facts disputed in the main action, as in this case.
Watercraft also points out the inconsistent stance of Wolfe
with regard to the ownership and possession of the sailboat.
Contrary to Wolfe's Answer that the purchase of the sailboat
was made pursuant to a three (3)-way partnership
agreement between him and its General Manager and
Executive Vice-President, Barry Bailey, and its President,
Ricky Sandoval, Watercraft claims that he made a complete
turnaround and exhibited acts of soleownership by signing
the Boat Pull-Out Clearance in order to retrieve the sailboat.
It argues that common sense and logic would dictate that he
should have invoked the existence of the partnership to
answer the demand for payment of the storage fees.
Watercraft contends that in order to pre-empt whatever
action it may decide to take with respect to the sailboat in
relation to his liabilities, Wolfe accomplished in no time the
clearance that paved the way for its removal from the
company's premises without paying his outstanding
obligations. It claims that such act reveals a fraudulent intent
to use the company storage facilities without payment of
storage fees, and constitutes unjust enrichment.
The petition lacks merit.
A writ of preliminary attachment is defined as a provisional
remedy issued upon order of the court where an action is
pending to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the
sheriff as security for the satisfaction of whatever judgment
that might be secured in the said action by the attaching
creditor against the defendant.10 However, it should be
resorted to only when necessary and as a last remedy
because it exposes the debtor to humiliation and
annoyance.11 It must be granted only on concrete and
specific grounds and not merely on general averments
quoting the words of the rules.12 Since attachment is harsh,
extraordinary, and summary in nature,13 the rules on the
application of a writ of attachment must be strictly construed
in favor of the defendant. the court14 in which the action is
pending. Such bond executed to the adverse party in the
amount fixed by the court is subject to the conditions that
the applicant will pay: (1) all costs which may be adjudged
to the adverse party; and (2) all damages which such party
may sustain by reason of the attachment, if the court shall
finally adjudge that the applicant was not entitled
thereto.15 As to the requisite affidavit of merit, Section
3,16 Rule 57of the Rules of Court states that an order of
attachment shall be granted only when it appears in the
affidavit of the applicant, or of some other person who
personally knows the facts:
1. that a sufficient cause of action exists;
2. that the case is one of those mentioned in Section
117 hereof;
3. that there is no other sufficient security for the
claim sought to be enforced by the action; and
4. that the amount due to the applicant, or the value
of the property the possession of which he is entitled
to recover, is as much as the sum for which the
order is granted above all legal counterclaims.
The mere filing of an affidavit reciting the facts
required by Section 3, Rule 57, however, is not
enough to compel the judge to grant the writ of
preliminary attachment. Whether or not the affidavit
sufficiently established facts therein stated is a
question to be determined by the court in the
exercise of its discretion.18 "The sufficiency or
insufficiency of an affidavit depends upon the
amount of credit given it by the judge, and its
acceptance or rejection, upon his sound
discretion."19 Thus, in reviewing the conflicting
findings of the CA and the RTC on the pivotal issue
of whether or not Watercraft's affidavit of merit
sufficiently established facts which constitute as
grounds upon which attachment may be issued
under Section 1 (a)20 and (d),21 Rule 57, the Court
will examine the Affidavit of Preliminary
Attachment22 of Rosario E. Rañoa, its VicePresident, which reiterated the following allegations
in its complaint to substantiate the application for a
writ of preliminary attachment:
xxxx
4. Sometime in June 1997, the Defendant was hired
as Watercraft's Shipyard Manager.
5. Soon thereafter, the Defendant placed his
sailboat, the Knotty Gull, within the boat storage
facilities of Watercraft for purposes of storage and
safekeeping.
6. Despite having been employed by Watercraft, the
Defendant was not exempted from paying
Watercraft boat storage fees for the use of the said
storage facilities.
7. By virtue of his then position and employment
with Watercraft, the Defendant was very much
knowledgeable of the foregoing fact.
8. All throughout his employment with Watercraft,
the Defendant used the boat storage facilities of
Watercraft for his Knotty Gull.
9. However, all throughout the said period of his
employment, the Defendant never paid the boat
storage fees in favor of the Plaintiff.
10. The Defendant's contract of employment with
Watercraft was terminated on 07 March 2002.
11. [Sometime] thereafter, that is, in or about June
2002, the Defendant pulled out the Knotty Gull from
the boat storage facilities of Watercraft.
12. Instead of settling in full his outstanding
obligations concerning unpaid storage fees before
pulling our the Knotty Gull, the Defendant signed a
Boat Pull-Out Clearance dated 29 June 2002
wherein he merely acknowledged the then
outstanding balance of Sixteen Thousand Three
Hundred and Twenty-four and 82/100 US Dollars
(US$16,324.82), representing unpaid boat storage
fees for the period commencing June 1997 to June
2002, that he owed Watercraft.
13. By reason of Defendant's mere accomplishment
of the said Boat Pull-Out Clearance with
acknowledgment of his outstanding obligation to
Watercraft in unpaid boat storage fees, Mr. Franz
Urbanek, then the Shipyard Manager who replaced
the Defendant, contrary to company policy, rules
and regulations, permitted the latter to physically
pull out his boat from the storage facilities of the
Plaintiff without paying any portion of his
outstanding obligation in storage fees.
14. Several demands were then made upon the
Defendant for him to settle his outstanding
obligations to the Plaintiff in unpaid storage fees but
the same went unheeded.
15. As of 02 April 2005, the outstanding obligation
of the Defendant to the Plaintiff in unpaid boat
storage fees stands at Three Million Two Hundred
Thirty-One Thousand Five Hundred and Eighty-Nine
and 25/100 Pesos (Php 3,231,589.25) inclusive of
interest charges.
16. For failing to pay for the use [of] facilities and
services—in the form of boat storage facilities—duly
enjoyed by him and for failing and refusing to fulfill
his promise to pay for the said boat storage fees,
the Defendant is clearly guilty of fraud which entitles
the Plaintiff to a Writ of Preliminary Attachment
upon the property of the Defendant as security for
the satisfaction of any judgment in its favor in
accordance with the provisions of Paragraph (d),
Section 1, Rule 57 of the Rules of Court.
17. The instant case clearly falls under the said
provision of law.
18. Furthermore, lawful factual and legal grounds
exist which show that the Defendant may have
departed or is about to depart the country to
defraud his creditors thus rendering it imperative
that a Writ of Preliminary Attachment be issued in
favor of the Plaintiff in the instant case.
19. The possibility of flight on the part of the
Defendant is heightened by the existence of the
following circumstances:
a. The Special Working Visa issued in favor
of the Defendant expired in April 2005;
b. The Defendant is a British national who
may easily leave the country at will;
c. The Defendant has no real properties
and visible, permanent business or
employment in the Philippines; and
e. The house last known to have been
occupied by the Defendant is merely being
rented by him.
20. All told, the Defendant is a very serious flight
risk which fact will certainly render for naught the
capacity of the Plaintiff to recover in the instant
case.23
After a careful perusal of the foregoing allegations, the Court
agrees with the CA that Watercraft failed to state with
particularity the circumstances constituting fraud, as
required by Section 5,24 Rule 8 of the Rules of Court, and
that Wolfe's mere failure to pay the boat storage fees does
not necessarily amount to fraud, absent any showing that
such failure was due to insidious machinations and intent on
his part to defraud Watercraft of the amount due it.
In Liberty Insurance Corporation v. Court of Appeals,25 the
Court explained that to constitute a ground for attachment
in Section 1(d), Rule 57 of the Rules of Court, it must be
shown that the debtor in contracting the debt or incurring
the obligation intended to defraud the creditor. A debt is
fraudulently contracted if at the time of contracting it, the
debtor has a preconceived plan or intention not to pay. "The
fraud must relate to the execution of the agreement and
must have been the reason which induced the other party
into giving consent which he would not have otherwise
given."26
Fraudulent intent is not a physical entity, but a condition of
the mind beyond the reach of the senses, usually kept secret,
very unlikely to be confessed, and therefore, can only be
proved by unguarded expressions, conduct and
circumstances.27 Thus, the applicant for a writ of preliminary
attachment must sufficiently show the factual circumstances
of the alleged fraud because fraudulent intent cannot be
inferred from the debtor's mere non-payment of the debt or
failure to comply with his obligation.28 The particulars of such
circumstances necessarily include the time, persons, places
and specific acts of fraud committed.29 An affidavit which
does not contain concrete and specific grounds is inadequate
to sustain the issuance of such writ. In fact, mere general
averments render the writ defective and the court that
ordered its issuance acted with grave abuse of discretion
amounting to excess of jurisdiction.30
In this case, Watercraft's Affidavit of Preliminary Attachment
does not contain specific allegations of other factual
circumstances to show that Wolfe, at the time of contracting
the obligation, had a preconceived plan or intention not to
pay. Neither can it be inferred from such affidavit the
particulars of why he was guilty of fraud in the performance
of such obligation. To be specific, Watercraft's following
allegation is unsupported by any particular averment of
circumstances that will show why or how such inference or
conclusion was arrived at, to wit: "16. For failing to pay for
the use [of] facilities and services - in the form of boat
storage facilities – duly enjoyed by him and for failing and
refusing to fulfill his promise to pay for the said boat storage
fees, the Defendant is clearly guilty of fraud x x x."31 It is not
an allegation of essential facts constituting Watercraft's
causes of action, but a mere conclusion of law.
With respect to Section 1 (a),32 Rule 57, the other ground
invoked by Watercraft for the issuance of the writ of
preliminary attachment, the Court finds no compelling reason
to depart from the CA's exhaustive ruling to the effect that
such writ is unnecessary because Wolfe is not a flight risk,
thus:
As to the allegation that Wolfe is a flight risk, thereby
warranting the issuance of the writ, the same lacks merit.
The mere fact that Wolfe is a British national does not
automatically mean that he would leave the country at will.
As Wolfe avers, he and his family had been staying in the
Philippines since 1997, with his daughters studying at a local
school. He also claims to be an existing stockholder and
officer of Wolfe Marine Corporation, a SEC-registered
corporation, as well as a consultant of projects in the Subic
Area, a member of the Multipartite Committee for the new
port development in Subic, and a member of the Subic
Chamber of Commerce. More importantly, Wolfe has a
pending labor case against Watercraft – a fact which the
company glaringly failed to mention in its complaint – which
Wolfe claims to want to prosecute until its very end. The said
circumstances, as well as the existence of said labor case
where Wolfe stands not only to be vindicated for his alleged
illegal dismissal, but also to receive recompense, should have
convinced the trial court that Wolfe would not want to leave
the country at will just because a suit for the collection of the
alleged unpaid boat storage fees has been filed against him
by Watercraft.
Neither should the fact that Wolfe's Special Working Visa
expired in April 2005 lead automatically to the conclusion
that he would leave the country.1âwphi1 It is worth noting
that all visas issued by the government to
foreigner staying in the Philippines have expiration periods.
These visas, however, may be renewed, subject to the
requirements of the law. In Wolfe's case, he indeed renewed
his visa, as shown by Special Working Visa No. 05-WV-0124P
issued by the Subic Bay Metropolitan Authority Visa
Processing Office on April 25, 2005, and with validity of two
(2) years therefrom. Moreover, his Alien Certificate of
Registration was valid up to May 11, 2006.33
Meanwhile, Watercraft's reliance on Chuidian
Sandiganbayan34 is misplaced. It is well settled that:
v.
x x x when the preliminary attachment is issued upon a
ground which is at the same time the applicant's cause of
action; e.g., "an action for money or property embezzled or
fraudulently misapplied or converted to his own use by a
public officer, or an officer of a corporation, or an attorney,
factor, broker, agent, or clerk, in the course of his
employment as such, or by any other person in a fiduciary
capacity, or for a willful violation of duty," or "an action
against a party who has been guilty of fraud in contracting
the debt or incurring the obligation upon which the action is
brought," the defendant is not allowed to file a motion to
dissolve the attachment under Section 13 of Rule 57 by
offering to show the falsity of the factual averments in the
plaintiff's application and affidavits on which the writ was
based – and consequently that the writ based thereon had
been improperly or irregularly issued – the reason being that
the hearing on such a motion for dissolution of the writ would
be tantamount to a trial of the merits of the action. In other
words, the merits of the action would be ventilated at a mere
hearing of a motion, instead of at the regular trial.35
Be that as it may, the foregoing rule is not applicable in this
case because when Wolfe filed a motion to dissolve the writ
of preliminary attachment, he did not offer to show the falsity
of the factual averments in Watercraft's application and
affidavit on which the writ was based. Instead, he sought the
discharge of the writ on the ground that Watercraft failed to
particularly allege any circumstance amounting to fraud. No
trial on the merits of the action at a mere hearing of such
motion will be had since only the sufficiency of the factual
averments in the application and affidavit of merit will be
examined in order to find out whether or not Wolfe was guilty
of fraud in contracting the debt or incurring the obligation
upon which the action is brought, or in the performance
thereof.
Furthermore, the other ground upon which the writ of
preliminary attachment was issued by the RTC is not at the
same time the applicant's cause of action. Assuming
arguendo that the RTC was correct in issuing such writ on
the ground that Watercraft's complaint involves an action for
the recovery of a specified amount of money or damages
against a party, like Wolfe, who is about to depart from the
Philippines with intent to defraud his creditors, the Court
stresses that the circumstances36 cited in support thereof are
merely allegations in support of its application for such
writ.37 Such circumstances, however, are neither the core of
Watercraft's complaint for collection of sum of money and
damages, nor one of its three (3) causes of action therein.38
All told, the CA correctly ruled that Watercraft failed to meet
one of the requisites for the issuance of a writ of preliminary
attachment, i.e., that the case is one of those mentioned in
Section 1 of Rule 57, and that the RTC gravely abused its
discretion in improvidently issuing such writ. Watercraft
failed to particularly state in its affidavit of merit the
circumstances constituting intent to defraud creditors on the
part of Wolfe in contracting or in the performance of his
purported obligation to pay boat storage fees, as well as to
establish that he is a flight risk. Indeed, if all the requisites
for granting such writ are not present, then the court which
issues it acts in excess of its jurisdiction.39
WHEREFORE, premises considered, the petition is DENIED.
The Court of Appeals Decision dated September 27, 2007
and its Resolution dated January 24, 2008 in CA-G.R. SP No.
97804, are AFFIRMED. SO ORDERED.
SECOND DIVISION
July 1, 2015
G.R. No. 212025
EXCELLENT QUALITY APPAREL, INC., Petitioners,
vs.
VISAYAN SURETY & INSURANCE CORPORATION,
and FAR EASTERN SURETY & INSURANCE CO.,
INC., Respondent.
DECISION
MENDOZA, J.:
The present case involves the wrongful attachment and
release of the petitioner's funds to the adverse party and its
plight to recover the same. It seems that when misfortune
poured down from the skies, the petitioner received a
handful. The scales of justice, however, do not tilt based on
chance; rather on the proper application of law,
jurisprudence and justice.
This is a petition for review on certiorari seeking to reverse
and set aside the October 21, 2013 Decision1 and the April
1, 2014 Resolution2 of the Court of Appeals (CA), in CA-G.R.
CV No. 95421, which affirmed the January 15, 20103 and
May 19, 20104 Orders of the Regional Trial Court of Manila,
Branch 32 (RTC), in Civil Case No. 04-108940.
The Facts
On March 26, 1996, petitioner Excellent Quality Apparel,
Inc. (petitioner), then
represented
by
Max
L.F.
Ying (Ying), Vice-President for Productions, and Alfiero R.
Orden, Treasurer, entered into a contract with Multi-Rich
Builders (Multi-Rich), a single proprietorship, represented by
Wilson G. Chua, its President and General Manager, for the
construction of a garment factory within the Cavite Philippine
Economic Zone Authority (CPEZA). The duration of the
project was for a maximum period of five (5) months or 150
consecutive calendar days. Included in the contract was an
Arbitration Clause in case of dispute.
On November 27, 1996, the construction of the factory
building was completed.
On February 20, 1997, Win Multi-Rich Builders, Inc. (Win
Multi-Rich) was incorporated with the Securities and
Exchange Commission (SEC).
On January 26, 2004, Win Multi-Rich filed a complaint for
sum of money and damages against petitioner and Ying
before the RTC.5 It also prayed for the issuance of a writ of
attachment, claiming that Ying was about to abscond and
that petitioner had an impending closure.
Win Multi-Rich then secured the necessary bond in the
amount of P8,634,448.20 from respondent Visayan Surety
and Insurance Corporation (Visayan Surety).6 In the
Order,7 dated February 2, 2004, the RTC issued a writ of
preliminary attachment in favor of Win Multi-Rich.
To prevent the enforcement of the writ of preliminary
attachment on its equipment and machinery, petitioner
issued Equitable PCI Bank Check No. 160149, 8 dated
February 16, 2004, in the amount of P8,634,448.20 payable
to the Clerk of Court of the RTC.
On February 19, 2004, petitioner filed its Omnibus
Motion,9 seeking to discharge the attachment. Petitioner also
questioned the jurisdiction of the RTC due to the presence
of the Arbitration Clause in the contract. It asserted that the
case should have been referred first to the Construction
Industry
Arbitration
Commission (CIAC) pursuant
Executive Order (E.O.) No. 1008.
to
The motion, however, was denied by the RTC in its Order,10
dated April 12, 2004, because the issues of the case could
be resolved after a full-blown trial.
On April 26, 2004, petitioner filed its Answer with Compulsory
Counterclaim11 before the RTC. It denied the material
allegation of the complaint and sought the immediate lifting
of the writ of attachment. It also prayed that the bond filed
by Win Multi-Rich to support its application for attachment
be held to satisfy petitioner’s claim for damages due to the
improper issuance of such writ.
On April 29, 2004, the RTC issued another order12 directing
the deposit of the garnished funds of petitioner to the cashier
of the Clerk of Court of the RTC.
Win Multi-Rich then filed a motion,13 dated April 29, 2004, to
release petitioner’s cash deposit to it. Notably, the motion
was granted by the RTC in the Order, 14 dated May 3, 2004.
Subsequently, on May 7, 2004, Win Multi-Rich posted Surety
Bond No. 1019815 issued by respondent Far Eastern Surety
and Insurance Co., Inc. (FESICO) for the amount of
P9,000,000.00, to secure the withdrawal of the cash
deposited by petitioner. Thus, Win Multi-Rich was able to
receive the funds of petitioner even before the trial began.
On June 18, 2004, petitioner filed a petition
for certiorari16 under Rule 65 of the 1997 Rules of Civil
Procedure before the CA. The petition sought to annul and
set aside the April 12, 2004 and April 29, 2004 Orders of the
RTC. Petitioner then filed its Supplemental Manifestation and
Motion,17 asserting that its cash deposit with the RTC was
turned over to Win Multi-Rich.
On March 14, 2006, the CA rendered a decision, 18 annulling
the April 12 2004 and April 29, 2004 Orders of the RTC. It
ruled, however, that the RTC had jurisdiction over the case
inspite of the arbitration clause because it was a suit for
collection of sum of money. The dispositive portion of which
reads:
IN LIGHT OF ALL THE FOREGOING, the instant petition is
hereby GRANTED. The Orders dated April 12, 2004 and April
29, 2004 of respondent judge are hereby ANNULLED and
SET ASIDE. Accordingly, the writ of preliminary injunction is
hereby MADE PERMANENT.
SO ORDERED.19
Petitioner filed a motion for reconsideration arguing, among
others, that the CA decision failed to state an order to return
the garnished amount of P8,634,448.20, which was taken
from its bank account and given to Win Multi-Rich. In its
Resolution,20 dated October 11, 2006, the CA denied the
motion.
Aggrieved, petitioner elevated the matter to the Court by
way of a petition for review on certiorari under Rule 45,
docketed as G.R. No. 175048.
On February 10, 2009, in G.R. No. 175048, the Court
promulgated a Decision21 in favor of petitioner and
held: first, that Win Multi-Rich was not a real party in
interest; second, that the RTC should not have taken
cognizance of the collection suit because the presence of the
arbitration clause vested jurisdiction on the CIAC over all
construction disputes between petitioner and Multi-Rich;
and lastly, that Win Multi-Rich could not retain the garnished
amount, as the RTC did not have jurisdiction to issue the
questioned writ of attachment and to order the release of the
funds. The dispositive portion reads:
WHEREFORE, the petition is GRANTED. The Decision of the
Court of Appeals is hereby MODIFIED. Civil Case No. 04108940 is DISMISSED. Win Multi-Rich Builders, Inc. is
ORDERED to return the garnished amount of EIGHT
MILLION SIX HUNDRED THIRTY FOUR THOUSAND FOUR
HUNDRED FORTY-EIGHT PESOS AND TWENTY CENTAVOS
(P8,634,448.20), which was turned over by the Regional
Trial Court, to petitioner with legal interest of 12 percent
(12%) per annum upon finality of this Decision until
payment.
SO ORDERED.22
57), the CA held that petitioner failed to timely claim
damages against the surety before the decision of the Court
became final and executory. It further stated that a court
judgment could not bind persons who were not parties to the
action as the records showed that Visayan Surety and
FESICO were neither impleaded nor informed of the
proceedings before the Court in G.R. No. 175048. It was the
view of the CA that "[h]aving failed to observe very
elementary rules of procedure which are mandatory,
[petitioner] caused its own predicament."
Petitioner filed a motion for reconsideration, but it was
denied by the CA in the assailed April 1, 2014 Resolution.
Hence, this present petition, anchored on the following
Win Multi-Rich filed a motion for reconsideration but it was
denied by the Court in its April 20, 2009
Resolution.23 Pursuant to an entry of judgment,24 the Court’s
decision became final and executory on June 2, 2009.
On June 26, 2009, petitioner moved for execution thereof,
praying for the return of its cash deposit and, in the event of
refusal of Win Multi-Rich to comply, to hold Visayan Surety
and FESICO liable under their respective bonds.25
Win Multi-Rich, Visayan Surety and FESICO were served with
copies of the motion for execution.26 During the August 7,
2009 hearing on the motion for execution, counsels for
petitioner, Win Multi-Rich and FESICO were present.27 The
hearing, however, was reset to September 16, 2009. On the
said date, Win Multi-Rich, Visayan Surety and FESICO were
given fifteen (15) days to submit their respective comments
or oppositions to the motion for execution.28
On October 15, 2009, Win Multi-Rich opposed the motion for
Execution29 because the cash deposit awarded to it by the
RTC had been paid to suppliers and the said amount was
long overdue and demandable.
The RTC granted the motion for execution in an
Order,30 dated October 19, 2009, and issued a writ of
execution.31 Visayan Surety and FESICO separately moved
for reconsideration of the RTC order.
The RTC Ruling
On January 15, 2010, the RTC issued the order, 32 granting
the surety respondents’ motion for reconsideration and lifting
its October 19, 2009 Order insofar as it granted the motion
for execution against Visayan Surety and FESICO. The RTC
absolved the surety respondents because petitioner did not
file a motion for judgment on the attachment bond before
the finality of judgment, thus, violating the surety
respondents’ right to due process. It further held that the
execution against the surety respondents would go beyond
the terms of the judgment sought to be executed considering
that the Court decision pertained to Win Multi-Rich only.
Petitioner moved for reconsideration, but its motion was
denied by the RTC in its May 19, 2010 Order.33
Undaunted, petitioner appealed before the CA, arguing that
there was no violation of the right to due process because
the liability of the surety respondents were based on the
bonds issued by them.
The CA Ruling
In the assailed decision, dated October 21, 2013, the CA
found petitioner’s appeal without merit. Citing Section 20,
Rule 57 of the 1997 Rules of Civil Procedure (Section 20, Rule
STATEMENT OF ISSUES
I
THE ASSAILED DECISION AND THE ASSAILED
RESOLUTION OF THE COURT OF APPEALS SHOULD
BE REVERSED AND SET ASIDE FOR BEING
CONTRARY TO LAW AND JURISPRUDENCE
CONSIDERING THAT THE RIGHT TO DUE PROCESS
OF THE TWO SURETY COMPANIES WILL NOT BE
VIOLATED IF EXECUTION OF THE JUDGMENT
AGAINST THEM IS ALLOWED.
II
THE ASSAILED DECISION AND THE ASSAILED
RESOLUTION OF THE COURT OF APPEALS SHOULD
BE REVERSED AND SET ASIDE FOR BEING
CONTRARY TO LAW AND JURISPRUDENCE
CONSIDERING THAT TO ALLOW THE EXECUTION
AGAINST THE TWO SURETY COMPANIES WOULD
GIVE FULL EFFECT TO THE TERMS OF THE
JUDGMENT.34
Petitioner contends that Visayan Surety and FESICO could be
held liable because the Court, in G.R. No. 175048, ruled that
it cannot allow Win Multi-Rich to retain the garnished amount
turned over by the RTC, which had no jurisdiction to issue
the questioned writ of attachment. Petitioner argues that if
Win Multi-Rich fails or refuses to refund or return the cash
deposit, then Visayan Surety and FESICO must be held liable
under their respective bonds. Also, petitioner claims that the
surety bond of FESICO is not covered by Section 20, Rule 57
because it did not pertain to the writ of attachment itself, but
on the withdrawal of the cash deposit.
On October 3, 2014, Visayan Surety filed its Comment.35 It
asserted that no application for damages was filed before the
Court in G.R. No. 175048. Thus, there was no occasion to
direct the RTC to hear and decide the claim for damages,
which constituted a violation of its right to due process. Also,
Visayan Surety contended that Section 20, Rule 57 provided
a mandatory rule that an application for damages must be
filed before the judgment becomes final and executory.
On October 8, 2014, FESICO filed its Comment. 36 It averred
that petitioner failed to comply with Section 20, Rule 57 of
the Rules of Court because the hearing on the motion for
execution was conducted after the decision in G.R. No.
175048 had already become final and executory. It also
stated that petitioner failed to implead the surety
respondents as parties in G.R. No. 175048.
On January 26, 2015, petitioner filed its Consolidated
Reply.37 It stressed that because the highest court of the land
had directed the return of the wrongfully garnished amount
to petitioner, proceedings on the application under Section
20, Rule 57, became no longer necessary.
The Court’s Ruling
The petition is partly meritorious.
There was an application
for damages; but there
was no notice given to
Visayan Surety
By its nature, preliminary attachment, under Rule 57 of the
Rules of Court, "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; it is a measure auxiliary or incidental to the
main action. As such, it is available during the pendency of
the action which may be resorted to by a litigant to preserve
and protect certain rights and interests therein pending
rendition and for purposes of the ultimate effects, of a final
judgment in the case.38 In addition, attachment is also
availed of in order to acquire jurisdiction over the action by
actual or constructive seizure of the property in those
instances where personal or substituted service of summons
on the defendant cannot be effected."39
The party applying for the order of attachment must
thereafter give a bond executed to the adverse party in the
amount fixed by the court in its order granting the issuance
of the writ.40 The purpose of an attachment bond is to
answer for all costs and damages which the adverse party
may sustain by reason of the attachment if the court finally
rules that the applicant is not entitled to the writ.41
In this case, the attachment bond was issued by Visayan
Surety in order for Win Multi-Rich to secure the issuance of
the writ of attachment. Hence, any application for damages
arising from the improper, irregular or excessive attachment
shall be governed by Section 20, Rule 57, which 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 party and 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.
Rule 59 of the 1940 Rules of Court, which, in turn, was a
consolidation of Sections 170, 177, 223, 272, and 439 of the
Code of Civil Procedure regarding the damages recoverable
in case of wrongful issuance of the writs of preliminary
injunction, attachment, mandamus and replevin and the
appointment of a receiver.
Thus, the current provision of Section 20, Rule 57 of the 1997
Rules of Civil Procedure covers application for damages
against improper attachment, preliminary injunction,
receivership, and replevin.43 Consequently, jurisprudence
concerning application for damages against preliminary
injunction, receivership and replevin bonds can be equally
applied in the present case.
In a catena of cases,44 the Court has cited the requisites
under Section 20, Rule 57 in order to claim damages against
the bond, as follows:
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 first and second requisites, as stated above, relate to the
application for damages against the bond. An application for
damages must be filed in the same case where the bond was
issued, either (a) before the trial or (b) before the appeal is
perfected or (c) before the judgment becomes
executory.45 The usual procedure is to file an application for
damages with due notice to the other party and his sureties.
The other method would be to incorporate the application in
the answer with compulsory counterclaim.46
The purpose of requiring the application for damages to be
filed in the same proceeding is to avoid the multiplicity of suit
and forum shopping. It is also required to file the application
against the bond before the finality of the decision to prevent
the alteration of the immutable judgment.47
In Paramount Insurance Corp. v. CA,48 the Court allowed an
application for damages incorporated in the answer with
compulsory counterclaim of the defendant therein. The
sureties were properly notified of the hearing and were given
their day in court.
Conversely, in the recent case of Advent Capital and Finance
Corp. v. Young,49 the application for damages against the
bond was not allowed. The respondent therein filed his
omnibus motion claiming damages against surety after the
dismissal order issued by the trial court had attained finality.
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 party not exempt from execution should the
bond or deposit given by the latter be insufficient or fail to
fully satisfy the award.
In the present petition, the Court holds that petitioner
sufficiently incorporated an application for damages against
the wrongful attachment in its answer with compulsory
counterclaim filed before the RTC. Petitioner alleged that the
issuance of the improper writ of attachment caused it actual
damages in the amount of at least P3,000,000.00. It added
that the Equitable PCI Bank Check No. 160149 it issued to
the RTC Clerk of Court, to lift the improper writ of
attachment, should be returned to it.50 Evidently, these
allegations constitute petitioner’s application for damages
arising from the wrongful attachment, and the said
application was timely filed as it was filed before the finality
of judgment.
The history of Section 20, Rule 57 was discussed in Malayan
Insurance, Inc. v. Salas.42 In that case, the Court explained
that Section 20, Rule 57 was a revised version of Section 20,
The next requisite that must be satisfied by petitioner to hold
Visayan Surety liable would be that the judgment against the
wrongful attachment was promulgated after the hearing with
notice to the surety. Certainly, the surety must be given prior
notice and an opportunity to be heard with respect to the
application for damages before the finality of the judgment.
The Court rules that petitioner did not satisfy this crucial
element.
Section 20, Rule 57 specifically requires that the application
for damages against the wrongful attachment, whether filed
before the trial court or appellate court, must be with due
notice to the attaching party and his surety or sureties. Such
damages may be awarded only after proper hearing and shall
be included in the judgment on the main case.
Due notice to the adverse party and its surety setting forth
the facts supporting the applicant's right to damages and the
amount thereof under the bond is indispensable. The surety
should be given an opportunity to be heard as to the reality
or reasonableness of the damages resulting from the
wrongful issuance of the writ. In the absence of due notice
to the surety, therefore, no judgment for damages may be
entered and executed against it.51
In the old case of Visayan Surety and Insurance Corp. v.
Pascual,52 the application for damages was made before the
finality of judgment, but the surety was not given due notice.
The Court allowed such application under Section 20, Rule
59 of the 1940 Rules of Court because there was no rule
which stated that the failure to give to the surety due notice
of the application for damages would release the surety from
the obligation of the bond.53
The case of Visayan Surety and Insurance Corp. v. Pascual,
however, was abandoned in the subsequent rulings of the
Court because this was contrary to the explicit provision of
Section 20, Rule 57.54
In People Surety and Insurance Co. v. CA, 55 the defendant
therein filed an application for damages during the trial but
the surety was not notified. The Court denied the application
and stated that "it is now well settled that a court has no
jurisdiction to entertain any proceeding seeking to hold a
surety liable upon its bond, where the surety has not been
given notice of the proceedings for damages against the
principal and the judgment holding the latter liable has
already become final."56
In Plaridel Surety & Insurance Co. v. De Los Angeles, 57 a
motion for execution against the bond of the surety was filed
after the finality of judgment. The petitioner therein asserted
that the motion for execution was a sufficient notification to
the surety of its application for damages. The Court ruled,
that "[t]his notification, however, which was made after
almost a year after the promulgation of the judgment by the
Court of Appeals, did not cure the tardiness of the claim upon
the liability of the surety, which, by mandate of the Rules,
should have been included in the judgment."58
In the present case, petitioner’s answer with compulsory
counterclaim, which contained the application for damages,
was not served on Visayan Surety.59 Also, a perusal of the
records60 revealed that Visayan Surety was not furnished any
copies of the pleadings, motions, processes, and judgments
concerned with the application for damages against the
surety bond. Visayan Surety was only notified of the
application when the motion for execution was filed by
petitioner on June 29, 2009, after the judgment in G.R. No.
175048 had become final and executory on June 2, 2009.
Clearly, petitioner failed to comply with the requisites under
Section 20, Rule 57 because Visayan Surety was not given
due notice on the application for damages before the finality
of judgment. The subsequent motion for execution, which
sought to implicate Visayan Surety, cannot alter the
immutable judgment anymore.
FESICO’s bond is not
covered by Section 20,
Rule 57
While Visayan Surety could not be held liable under Section
20, Rule 57, the same cannot be said of FESICO. In the case
at bench, to forestall the enforcement of the writ of
preliminary attachment, petitioner issued Equitable PCI Bank
Check No. 160149, dated February 16, 2004, in the amount
of P8,634,448.20 payable to the Clerk of Court of the RTC.
Pursuant to the RTC Order, dated April 29, 2004, the
garnished funds of petitioner were deposited to the cashier
of the Clerk of Court of the RTC. The procedure to discharge
the writ of preliminary attachment is stated in Section 12,
Rule 57, to wit:
Sec. 12. Discharge of attachment upon giving counterbond.
After a writ of attachment has been enforced, the party
whose property has been attached, or the person appearing
on his behalf, may move for the discharge of the attachment
wholly or in part on the security given. The court shall,
after due notice and hearing, order the discharge of
the attachment if the movant makes a cash deposit,
or files a counter-bond executed to the attaching
party with the clerk of the court where the
application is made, in an amount equal to that fixed
by the court in the order of attachment, exclusive of
costs. But if the attachment is sought to be discharged with
respect to a particular property, the counter-bond shall be
equal to the value of that property as determined by the
court. In either case, the cash deposit or the counter-bond
shall secure the payment of any judgment that the attaching
party may recover in the action. A notice of the deposit shall
forthwith be served on the attaching party. Upon the
discharge of an attachment in accordance with the provisions
of this section, the property attached, or the proceeds of any
sale thereof, shall be delivered to the party making the
deposit or giving the counter-bond, or to the person
appearing on his behalf, the deposit or counter-bond
aforesaid standing in place of the property so released.
Should such counter-bond for any reason to be found to be
or become insufficient, and the party furnishing the same fail
to file an additional counter-bond, the attaching party may
apply for a new order of attachment.
[Emphasis Supplied]
Win Multi-Rich, however, took a step further and filed a
motion to release petitioner’s cash deposit to it. Immediately,
the RTC granted the motion and directed Win Multi-Rich to
post a bond in favor of petitioner in the amount of
P9,000,000.00 to answer for the damages which the latter
may sustain should the court decide that Win Multi-Rich was
not entitled to the relief sought. Subsequently, Win MultiRich filed a surety bond of FESICO before the RTC and was
able to obtain the P8,634,448.20 cash deposit of petitioner,
even before the trial commenced.
Strictly speaking, the surety bond of FESICO is not covered
by any of the provisions in Rule 57 of the Rules of Court
because, in the first place, Win Multi-Rich should not have
filed its motion to release the cash deposit of petitioner and
the RTC should not have granted the same. The release of
the cash deposit to the attaching party is anathema to the
basic tenets of a preliminary attachment.
The chief purpose of the remedy of attachment is to secure
a contingent lien on defendant’s property until plaintiff can,
by appropriate proceedings, obtain a judgment and have
such property applied to its satisfaction, or to make some
provision for unsecured debts in cases where the means of
satisfaction thereof are liable to be removed beyond the
jurisdiction, or improperly disposed of or concealed, or
otherwise placed beyond the reach of creditors.61 The
garnished funds or attached properties could only be
released to the attaching party after a judgment in his favor
is obtained. Under no circumstance, whatsoever, can
the garnished funds or attached properties, under the
custody of the sheriff or the clerk of court, be
released to the attaching party before the
promulgation of judgment.
Cash deposits and counterbonds posted by the defendant to
lift the writ of attachment is a security for the payment of
any judgment that the attaching party may obtain; they are,
thus, mere replacements of the property previously
attached.62 Accordingly, the P8,634,448.20 cash deposit of
petitioner, as replacement of the properties to be attached,
should never have been released to Win Multi-Rich.
Nevertheless, the Court must determine the nature of the
surety bond of FESICO. The cash deposit or the counterbond was supposed to secure the payment of any judgment
that the attaching party may recover in the action. 63 In this
case, however, Win Multi-Rich was able to withdraw the cash
deposit and, in exchange, it posted a surety bond of FESICO
in favor of petitioner to answer for the damages that the
latter may sustain. Corollarily, the surety bond of FESICO
substituted the cash deposit of petitioner as a security for
the judgment. Thus, to claim damages from the surety bond
of FESICO, Section 17, Rule 57 could be applied. It reads:
Sec. 17. Recovery upon the counter-bond.
When the judgment has become executory, the surety or
sureties on any counter-bond given pursuant to the
provisions of this Rule to secure the payment of the
judgment shall become charged on such counter-bond and
bound to pay the judgment obligee upon demand the
amount due under the judgment, which amount may be
recovered from such surety or sureties after notice and
summary hearing in the same action.
From a reading of the above-quoted provision, it is evident
that a surety on a counter-bond given to secure the payment
of a judgment becomes liable for the payment of the amount
due upon: (1) demand made upon the surety; and (2) notice
and summary hearing on the same action. 64 Noticeably,
unlike Section 20, Rule 57, which requires notice and hearing
before the finality of the judgment in an application for
damages, Section 17, Rule 57 allows a party to claim
damages on the surety bond after the judgment has become
executory.65
The question remains, in contrast to Section 20, why does
Section 17 sanction the notice and hearing to the surety after
the finality of judgment? The answer lies in the kind of
damages sought to be enforced against the bond.
Under Section 20, Rule 57, in relation to Section 4
therein,66 the surety bond shall answer for all the costs which
may be adjudged to the adverse party and all damages which
he may sustain by reason of the attachment. In other words,
the damages sought to be enforced against the surety bond
are unliquidated. Necessarily, a notice and hearing before
the finality of judgment must be undertaken to properly
determine the amount of damages that was suffered by the
defendant due to the improper attachment. These damages
to be imposed against the attaching party and his sureties
are different from the principal case, and must be included
in the judgment.
On the other hand, under Section 17, Rule 57, in relation to
Section 12 therein, the cash deposit or the counter-bond
shall secure the payment of any judgment that the attaching
party may recover in the action. Stated differently, the
damages sought to be charged against the surety bond
are liquidated. The final judgment had already determined
the amount to be awarded to the winning litigant on the main
action. Thus, there is nothing left to do but to execute the
judgment against the losing party, or in case of insufficiency,
against its sureties.
Here, the Court is convinced that a demand against FESICO
had been made, and that it was given due notice and an
opportunity
to
be
heard
on
its
defense.1âwphi1 First, petitioner filed a motion for execution
on June 29, 2009, a copy of which was furnished to
FESICO;67 second, petitioner filed a manifestation,68 dated
July 13, 2009, that FESICO was duly served with the said
motion and notified of the hearing on August 7,
2009; third, during the August 7, 2009 hearing on the motion
for execution, the counsels for petitioner, Win Multi-Rich and
FESICO were all present;69 fourth, in an Order, dated
September 16, 2009, FESICO was given fifteen (15) days to
submit its comment or opposition to the motion for
execution;70 and lastly, FESICO filed its comment71 on the
motion on October 1, 2009. Based on the foregoing, the
requirements under Section 17, Rule 57 have been more
than satisfied.
Indeed, FESICO cannot escape liability on its surety bond
issued in favor of petitioner. The purpose of FESICO's bond
was to secure the withdrawal of the cash deposit and to
answer any damages that would be inflicted against
petitioner in the course of the proceedings.72 Also, the
undertaking73 signed by FESICO stated that the duration of
the effectivity of the bond shall be from its approval by the
court until the action is fully decided, resolved or terminated.
FESICO cannot simply escape liability by invoking that it was
not a party in G.R. No. 175048. From the moment that
FESICO issued Surety Bond No. 10198 to Win Multi-Rich and
the same was posted before the RTC, the court has acquired
jurisdiction over the surety, and the provisions of Sections 12
and 17 of Rule 57 became operational. Thus, the Court holds
that FESICO is solidarily liable under its surety bond with its
principal Win Multi-Rich.
On a final note, the Court reminds the bench and the bar
that lawsuits, unlike duels, are not to be won by a rapier's
thrust. Technicality, when it deserts its proper office as an
aid to justice and becomes its great hindrance and chief
enemy, deserves scant consideration from courts. There
should be no vested rights in technicalities.74
WHEREFORE, the petition is PARTIALLY GRANTED. The
October 21, 2013 Decision and the April 1, 2014 Resolution
of the Court of Appeals in CA-G.R. CV No. 95421
are AFFIRMED WITH MODIFICATION. The Regional
Trial Court of Manila, Branch 32 in Civil Case No. 04-108940
is hereby ordered to proceed with the execution against Far
Eastern Surety & Insurance Co., Inc., to the extent of the
amount of the surety bond.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 190028
February 26, 2014
LETICIA P. LIGON, Petitioner,
vs.
THE REGIONAL TRIAL COURT, BRANCH 56 AT
MAKATI CITY AND ITS PRESIDING JUDGE, JUDGE
REYNALDO M. LAIGO, SHERIFF IV LUCITO V. ALEJO,
ATTY. SILVERIO GARING, MR. LEONARDO J. TING,
AND MR. BENITO G. TECHICO, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the
Decision2 dated October 30, 2009 of the Court of Appeals
(CA) in CA-G.R. SP No. 106175, finding no grave abuse of
discretion on the part of the Regional Trial Court of Makati
City, Branch 56 (Makati City RTC) in issuing the following
orders (Assailed Orders) in Civil Case No. 03-186:
(a) the Order3 dated February 9, 2007 which
directed the Register of Deeds of Muntinlupa City,
respondent Atty. Silverio Garing (Atty. Garing), to
(1) register the Officer's
Final Deed of Sale issued by respondent
SheriffLucito V. Alejo (Sheriff Alejo) on October 27,
2006 in favor of the highest bidder, respondent
Leonardo J. Ting (Ting), (2) cancel Transfer
Certificate of Title (TCT) No. 8502/T44 in the name
of Spouses Rosario and Saturnino Baladjay (Sps.
Baladjay), and (3) issue a new certificate of title in
favor of Ting, free from any liens and
encumbrances;
(b) the Order4 dated March 20, 2007 which directed
Atty. Garing to comply with the February 9, 2007
Order under pain of contempt of court; and
(c) the Order5 dated April 25, 2007 which reiterated
the directive to Atty. Garing to issue a new title in
favor of Ting after the latter’s payment of capital
gains, documentary and transfer taxes, as required.
The Facts
On November 20, 2002, petitioner Leticia P. Ligon (Ligon)
filed an amended complaint6 before the Regional Trial Court
of Quezon City, Branch 101 (Quezon City RTC) for collection
of sum of money and damages, rescission of contract, and
nullification of title with prayer for the issuance of a writ of
preliminary attachment, docketed as Civil Case No. Q-1048145 (Quezon City Case), against Sps. Baladjay, a certain
Olivia Marasigan (Marasigan), Polished Arrow Holdings, Inc.
(Polished Arrow), and its incorporators,7 namely, Spouses
Julius Gonzalo and Charaine Doreece Anne Fuentebella (Sps.
Fuentebella), Ma. Linda Mendoza (Mendoza), Barbara C.
Clavo (Clavo), Bayani E. Arit, Jr. (Arit, Jr.), and Peter M.
Kairuz (Kairuz), as well as the latter’s spouses (individual
defendants).
In her complaint, Ligon alleged, inter alia, that Rosario
Baladjay (Rosario) enticed her to extend a short-term loan in
the amount of ₱3,000,000.00, payable in a month’s time and
secured by an Allied Bank post-dated check for the same
amount.8 Ligon likewise claimed that Rosario, as further
enticement for the loan extension, represented that she and
her husband Saturnino were in the process of selling their
property in Ayala Alabang Village, Muntinlupa City (subject
property), covered by a clean title, i.e., TCT No. 85029 in the
name of Rosario Baladjay, married to Saturnino Baladjay,
and that the proceeds of the said sale could easily pay-off
the loan.10 Unfortunately, the Allied Bank check was
dishonored upon presentment and, despite assurances to
replace it with cash, Rosario failed to do so. Moreover, Ligon
discovered that the subject property had already been
transferred to Polished Arrow, alleged to be a dummy
corporation of Sps. Baladjay and the individual defendants
(defendants). As a result, TCT No. 8502 was cancelled and
replaced on October 11, 2002 by TCT No. 927311 in the name
of Polished Arrow. Thus, Ligon prayed that all defendants be
held solidarily liable to pay her the amount of ₱3,000,000.00,
with interest due, as well as ₱1,000,000.00 as attorney’s fees
and another ₱1,000,000.00 by way of moral and exemplary
damages. Asserting that the transfer of the subject property
to Polished Arrow was made in fraud of Sps. Baladjay’s
creditors, Ligon also prayed that the said transfer be nullified,
and that a writ of preliminary attachment be issued in the
interim against defendants’ assets, including the subject
property. Subsequently, an Amended Writ of Preliminary
Attachment12 was issued on November 26, 2002, and
annotated on the dorsal portion13 of TCT No. 9273 on
December 3, 2002 (December 3, 2002 attachment
annotation).
On February 18, 2003, a similar complaint for collection of
sum of money, damages, and cancellation of title with prayer
for issuance of a writ of preliminary attachment was lodged
before the Makati City RTC, docketed as Civil Case No. 03186 (Makati City Case), by Spouses Cecilia and Gil Vicente
(Sps. Vicente) against Sps. Baladjay, Polished Arrow, and
other corporations.14 In that case, it was established that
Sps. Baladjay solicited millions of pesos in investments from
Sps. Vicente using conduit companies that were controlled
by Rosario, as President and Chairperson. During the
proceedings therein, a writ of preliminary attachment also
against the subject property was issued and annotated on
the dorsal portion of TCT No. 9273 on March 12, 2003.
Thereafter, but before the Quezon City Case was concluded,
the Makati City RTC rendered a Decision15 dated December
9, 2004 (December 9, 2004 Decision), rescinding the transfer
of the subject property from Sps. Baladjay to Polished Arrow
upon a finding that the same was made in fraud of
creditors.16 Consequently, the Makati City RTC directed the
Register of Deeds of Muntinlupa City to: (a) cancel TCT No.
9273 in the name of Polished Arrow; and (b) restore TCT No.
8502 "in its previous condition" in the name of Rosario
Baladjay, married to Saturnino Baladjay.
Meanwhile, in the pending Quezon City Case, Polished Arrow
and the individual defendants (with the exception of
Marasigan) were successively dropped17 as partydefendants, after it was established that they, by themselves
directly or through other persons, had no more ownership,
interest, title, or claim over the subject property. The parties
stipulated on the existence of the December 9, 2004 Decision
of the Makati City RTC, and the fact that the same was no
longer questioned by defendants Sps. Fuentebella, Arit, Jr.,
and Polished Arrow were made conditions for their dropping
as party-defendants in the case.18 In view of the foregoing,
the Quezon City Case proceeded only against Sps. Baladjay
and Marasigan and, after due proceedings, the Quezon City
RTC rendered a Decision19 dated March 26, 2008 (March 26,
2008 Decision), directing Sps. Baladjay to pay Ligon the
amount of ₱3,000,000.00 with interest, as well as attorney’s
fees and costs of suit.
On September 25, 2008, the March 26, 2008 Decision of the
Quezon City RTC became final and executory.20 However,
when Ligon sought its execution, she discovered that the
December 3, 2002 attachment annotation had been deleted
from TCT No. 9273 when the subject property was sold by
way of public auction on September 9, 2005 to the highest
bidder, respondent Ting, for the amount of ₱9,000,000.00
during the execution proceedings in the Makati City Case, as
evidenced by the Officer’s Final Deed of Sale21 dated October
27, 2006 (Officer’s Final Deed of Sale) issued by Sheriff Alejo.
In this regard, Ligon learned that the Makati City RTC had
issued its first assailed Order22 dated February 9, 2007 (First
Assailed Order), directing Atty. Garing, as the Register of
Deeds of Muntinlupa City, to: (a) register the Officer’s Final
Deed of Sale on the official Record Book of the Register of
Deeds of Muntinlupa City; and (b) cancel TCT No. 8502 in
the name of Sps. Baladjay and issue a new title in the name
of Ting, free from any liens and encumbrances.
Atty. Garing manifested23 before the Makati City RTC that it
submitted the matter en consulta24 to the Land Registration
Authority (LRA) as he was uncertain whether the annotations
on TCT No. 9273 should be carried over to TCT No. 8502. In
response to the manifestation, the Makati City RTC issued its
second assailed Order25 dated March 20, 2007 (Second
Assailed Order), directing Atty. Garing to comply with the
First Assailed Order under pain of contempt. It explained that
it could not allow the LRA to carry over all annotations
previously annotated on TCT No. 9273 in the name of
Polished Arrow as said course of action would run counter to
its December 9, 2004 Decision which specifically ordered the
cancellation of said TCT and the restoration of TCT No. 8502
in its previous condition. It further clarified that:26
[I]f there were liens or encumbrances annotated on TCT No.
8502 in the name of Rosario Baladjay when the same was
cancelled and TCT No. 9273 was issued by the Register of
Deeds of Muntinlupa City in favor of Polished Arrow Holdings,
Inc. based on the Deed of Absolute Sale executed between
the former and the latter, only such liens or encumbrances
will have to be carried over to the new Transfer Certificate
of Title that he (Atty. Garing) is mandated to immediately
issue in favor of Leonardo J. Ting even as the Order of the
Court dated February 9, 2007 decreed that a new TCT be
issued in the name of Mr. Leonardo J. Ting, free from any
encumbrance. On the other hand, if TCT No. 8502 in the
name of Rosario Baladjay was free from any liens or
encumbrances when the same was cancelled and TCT No.
9273 was issued by the Register of Deeds of Muntinlupa City
in favor of Polished Arrow Holdings, Inc. by virtue of that
Deed of Absolute Sale executed between Rosario Baladjay
and Polished Arrow Holdings, Inc., it necessarily follows that
the new Transfer of Certificate of Title that the said Registrar
of Deeds is duty bound to issue immediately in favor of
Leonardo Ting will also be freed from any liens and
encumbrances, as simple as that. (Emphases and
underscoring supplied)
Based on the foregoing, it pronounced that it was Atty.
Garing’s ministerial duty "to promptly cancel TCT No.
8502/T-44 in the name of defendant-spouses Baladjay and
to issue a new Transfer Certificate of Title in the name of the
highest bidder, Leonardo J. Ting."27
Separately, Ting filed a motion before the Makati City RTC
on account of Atty. Garing’s letter28 dated March 26, 2006
requiring him to comply with certain documentary
requirements and to pay the appropriate capital gains,
documentary stamp and transfer taxes before a new title
could be issued in his name. In its third assailed
Order29 dated April 25, 2007 (Third Assailed Order), the
Makati City RTC directed Ting to pay the aforesaid taxes and
ordered Atty. Garing to immediately cancel TCT No. 8502
and issue a new title in the former’s name.
On June 7, 2007, Atty. Garing issued TCT No. 1975630 in the
name of Ting, free from any liens and encumbrances. Later,
Ting sold31 the subject property to respondent Benito G.
Techico (Techico), resulting in the cancellation of TCT No.
19756 and the issuance of TCT No. 3100132 in Techico’s
name.
In view of the preceding circumstances, Ligon filed, inter alia,
a certiorari petition33 against respondent Presiding Judge
Reynaldo Laigo (Judge Laigo), Sheriff Alejo, Atty. Garing,
Ting, and Techico (respondents), alleging, among others,
that the Makati City RTC committed grave abuse of discretion
in issuing the Assailed Orders. In this relation, she prayed
that the said orders be declared null and void for having been
issued in violation of her right to due process, and resulting
in (a) the deletion of the December 3, 2002 attachment
annotation on TCT No. 9273 which evidences her prior
attachment lien over the subject property, and (b) the
issuance of new titles in the names of Ting and Techico.
Consolidated with Ligon’s certiorari petition is a complaint for
indirect contempt34 against respondents, whereby it was
alleged that the latter unlawfully interfered with the court
processes of the Quezon City RTC, particularly by deleting
the December 3, 2002 attachment annotation on TCT No.
9273 which thereby prevented the execution of the Quezon
City RTC’s March 26, 2008 Decision.
The CA Ruling
In a Decision35 dated October 30, 2009, the CA dismissed
Ligon’s certiorari petition, finding that the Makati City RTC
did not gravely abuse its discretion in issuing the Assailed
Orders, adding further that the same was tantamount to a
collateral attack against the titles of both Ting and Techico,
which is prohibited under Section 4836 of Presidential Decree
No. (PD) 1529.37 Likewise, it dismissed the indirect contempt
charge for lack of sufficient basis, emphasizing that the
Assailed Orders were issued prior to the Quezon City RTC’s
Decision, meaning that the said issuances could not have
been issued in disregard of the latter decision.
Aggrieved, Ligon filed the present petition.
The Issues Before the Court
The Court resolves the following essential issues: (a)
whether or not the CA erred in ruling that the Makati City
RTC did not gravely abuse its discretion in issuing the
Assailed Orders; and (b) whether or not Judge Laigo should
be cited in contempt and penalized administratively.
The Court’s Ruling
The petition is partly meritorious.
A. Issuance of the Assailed Orders vis-à-vis
Grave Abuse of Discretion.
Attachment is defined as a provisional remedy by which the
property of an adverse party is taken into legal custody,
either at the commencement of an action or at any time
thereafter, as a security for the satisfaction of any judgment
that may be recovered by the plaintiff or any proper
party.38 Case law instructs that an attachment is a
proceeding in rem, and, hence, is against the particular
property, enforceable against the whole world. Accordingly,
the attaching creditor acquires a specific lien on the attached
property which nothing can subsequently destroy except the
very dissolution of the attachment or levy itself. Such a
proceeding, in effect, means that the property attached is an
indebted thing and a virtual condemnation of it to pay the
owner’s debt. The lien continues until the debt is paid, or sale
is had under execution issued on the judgment, or until the
judgment is satisfied, or the attachment discharged or
vacated in some manner provided by law.39 Thus, a prior
registration40 of
an
attachment
lien
creates
a
preference,41 such that when an attachment has been duly
levied upon a property, a purchaser thereof subsequent to
the attachment takes the property subject to the said
attachment.42 As provided under PD 1529, said registration
operates as a form of constructive notice to all persons.43
Applying these principles to this case, the Court finds that
the CA erred in holding that the RTC did not gravely abuse
its discretion in issuing the Assailed Orders as these
issuances essentially disregarded, inter alia, Ligon’s prior
attachment lien over the subject property patently anathema
to the nature of attachment proceedings which is wellestablished in law and jurisprudence.44 In this case, Ligon, in
order to secure the satisfaction of a favorable judgment in
the Quezon City Case, applied for and was eventually able to
secure a writ of preliminary attachment45 over the subject
property on November 25, 2002, which was later annotated
on the dorsal portion46 of TCT No. 9273 in the name of
Polished Arrow on December 3, 2002. Notwithstanding the
subsequent cancellation of TCT No. 9273 due to the Makati
City RTC’s December 9, 2004 Decision rescinding the transfer
of the subject property from Sps. Baladjay to Polished Arrow
upon a finding that the same was made in fraud of creditors,
Ligon’s attachment lien over the subject property continued
to subsist since the attachment she had earlier secured binds
the property itself, and, hence, continues until the judgment
debt of Sps. Baladjay to Ligon as adjudged in the Quezon
City Case is satisfied, or the attachment discharged or
vacated in some manner provided by law. The grave abuse
of discretion of the Makati City RTC lies with its directive to
issue a new certificate of title in the name of Ting (i.e., TCT
No. 19756),47 free from any liens and encumbrances. This
course of action clearly negates the efficacy of Ligon’s
attachment lien and, also, defies the legal characterization of
attachment proceedings. It bears noting that Ligon’s claim,
secured by the aforesaid attachment, is against Sps. Baladjay
whose ownership over the subject property had been
effectively restored in view of the RTC’s rescission of the
property’s previous sale to Polished Arrow.48 Thus, Sps.
Ligon’s attachment lien against Sps. Baladjay as well as their
successors-in-interest should have been preserved, and the
annotation thereof carried over to any subsequent certificate
of title,49 the most recent of which as it appears on record is
TCT No. 31001 in the name of Techico, without prejudice to
the latter’s right to protect his own ownership interest over
the subject property.
That said, the Court now proceeds to resolve the second and
final issue on indirect contempt.
B. Indirect Contempt Charges.
While the Court agrees with Ligon’s position on the issue of
grave abuse of discretion, it holds an opposite view anent its
complaint for indirect contempt against Judge Laigo and/or
the respondents in this case.
Contempt of court has been defined as a willful disregard or
disobedience of a public authority. In its broad sense,
contempt is a disregard of, or disobedience to, the rules or
orders of a legislative or judicial body or an interruption of
its proceedings by disorderly behavior or insolent language
in its presence or so near thereto as to disturb its
proceedings or to impair the respect due to such a body. In
its restricted and more usual sense, contempt comprehends
a despising of the authority, justice, or dignity of a court. 50
Contempt of court is of two (2) kinds, namely: direct and
indirect contempt.1âwphi1 Indirect contempt or constructive
contempt is that which is committed out of the presence of
the court. Any improper conduct tending, directly or
indirectly, to impede, obstruct, or degrade the administration
of justice would constitute indirect contempt.51
The indirect contempt charges in this case involve an
invocation of paragraphs b, c, and d, Section 3, Rule 71 of
the Rules of Court which read as follows:
Section 3. Indirect contempt to be punished after charge and
hearing. — After a charge in writing has been filed, and an
opportunity given to the respondent to comment thereon
within such period as may be fixed by the court and to be
heard by himself or counsel, a person guilty of any of the
following acts may be punished for indirect contempt:
xxxx
(b) Disobedience of or resistance to a lawful
writ, x x x;
(c) Any abuse of or any unlawful
interference with the processes or
proceedings of a court not constituting
direct contempt under section 1 of this
Rule;
(d) Any improper conduct tending, directly
or indirectly, to impede, obstruct, or
degrade the administration of justice;
Examining the petition, the Court finds that Ligon failed to
sufficiently show how the acts of each of the respondents, or
more specifically, Judge Laigo, constituted any of the acts
punishable under the foregoing section tending towards a
wilful disregard or disobedience of a public authority. In
issuing the Assailed Orders, Judge Laigo merely performed
his judicial functions pursuant to the December 9, 2004
Decision in the Makati City Case which had already attained
finality. Thus, without Ligon's proper substantiation,
considering too that Judge Laigo's official acts are accorded
with the presumption of regularity,52 the Court is constrained
to dismiss the indirect contempt charges in this case.
WHEREFORE, the petition is PARTLY GRANTED. The Decision
dated October 30, 2009 of the Court of Appeals in CA-G.R.
SP No. 106175 is REVERSED and SET ASIDE. Accordingly,
the Assailed Orders subject of this case are hereby declared
NULL and VOID only insofar as they relate to the issuance of
Transfer Certificate of Title No. 19756 in the name of
respondent Leonardo J. Ting free from any liens and
encumbrances. The Register of Deeds of Muntinlupa City is
DIRECTED to carry over and annotate on TCT No. 31001 in
the name of respondent Benito G. Techico the original
attachment lien of petitioner Leticia P. Ligon as described in
this Decision. The indirect contempt charges are, however,
DISMISSED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
in its Decision of May 4, 1990. The Appellate Court's decision
closed with the following disposition:
. . . the Orders dated May 3, 1989 granting the
issuance of a writ of preliminary attachment, dated
September 19, 1989 denying the motion to
discharge attachment; dated November 7, 1989
denying petitioner's motion for reconsideration; as
well as all other orders emanating therefrom,
specially the Writ of Attachment dated May 11, 1989
and Notice of Levy on Preliminary Attachment dated
May 11, 1989, are hereby declared null and void and
the attachment hereby ordered DISCHARGED.
G.R. No. 93262 December 29, 1991
DAVAO LIGHT & POWER CO., INC., petitioner,
vs.
THE COURT OF APPEALS, QUEENSLAND HOTEL or
MOTEL or QUEENSLAND TOURIST INN, and
TEODORICO ADARNA, respondents.
Breva & Breva Law Offices for petitioner.
Goc-Ong & Associates for private respondents.
The Appellate Tribunal declared that —
NARVASA, J.:
Subject of the appellate proceedings at bar is the decision of
the Court of Appeals in CA-G.R. Sp. No. 1967 entitled
"Queensland Hotel, Inc., etc. and Adarna v. Davao Light &
Power Co., Inc.," promulgated on May 4, 1990. 1 That
decision nullified and set aside the writ of preliminary
attachment issued by the Regional Trial Court of Davao
City 2 in Civil Case No. 19513-89 on application of the plaintiff
(Davao Light & Power Co.), before the service of summons
on the defendants (herein respondents Queensland Co., Inc.
and Adarna).
Following is the chronology of the undisputed material facts
culled from the Appellate Tribunal's judgment of May 4,
1990.
1. On May 2, 1989 Davao Light & Power Co., Inc. (hereafter,
simply Davao Light) filed a verified complaint for recovery of
a sum of money and damages against Queensland Hotel, etc.
and Teodorico Adarna (docketed as Civil Case No. 1951389). The complaint contained an ex parte application for a
writ of preliminary attachment.
2. On May 3, 1989 Judge Nartatez, to whose branch the case
was assigned by raffle, issued an Order granting the ex
parte application and fixing the attachment bond at
P4,600,513.37.
3. On May 11, 1989 the attachment bond having been
submitted by Davao Light, the writ of attachment issued.
4. On May 12, 1989, the summons and a copy of the
complaint, as well as the writ of attachment and a copy of
the attachment bond, were served on defendants
Queensland and Adarna; and pursuant to the writ, the sheriff
seized properties belonging to the latter.
5. On September 6, 1989, defendants Queensland and
Adarna filed a motion to discharge the attachment for lack of
jurisdiction to issue the same because at the time the order
of attachment was promulgated (May 3, 1989) and the
attachment writ issued (May 11, 1989), the Trial Court had
not yet acquired jurisdiction over the cause and over the
persons of the defendants.
6. On September 14, 1989, Davao Light filed an opposition
to the motion to discharge attachment.
7. On September 19, 1989, the Trial Court issued an Order
denying the motion to discharge.
This Order of September 19, 1989 was successfully
challenged by Queensland and Adarna in a special civil action
of certiorari instituted by them in the Court of Appeals. The
Order was, as aforestated, annulled by the Court of Appeals
. . . While it is true that a prayer for the issuance of
a writ of preliminary attachment may be included m
the complaint, as is usually done, it is likewise true
that the Court does not acquire jurisdiction over the
person of the defendant until he is duly summoned
or voluntarily appears, and adding the phrase that it
be issued "ex parte" does not confer said jurisdiction
before actual summons had been made, nor
retroact jurisdiction upon summons being made. . .
.
It went on to say, citing Sievert v. Court of Appeals, 3 that
"in a proceedings in attachment," the "critical time which
must be identified is . . . when the trial court acquires
authority under law to act coercively against the defendant
or his property . . .;" and that "the critical time is the of the
vesting of jurisdiction in the court over the person of the
defendant in the main case."
Reversal of this Decision of the Court of Appeals of May 4,
1990 is what Davao Light seeks in the present appellate
proceedings.
The question is whether or not a writ of preliminary
attachment may issue ex parte against a defendant before
acquisition of jurisdiction of the latter's person by service of
summons or his voluntary submission to the Court's
authority.
The Court rules that the question must be answered in the
affirmative and that consequently, the petition for review will
have to be granted.
It is incorrect to theorize that after an action or proceeding
has been commenced and jurisdiction over the person of the
plaintiff has been vested in the court, but before the
acquisition of jurisdiction over the person of the defendant
(either by service of summons or his voluntary submission to
the court's authority), nothing can be validly done by the
plaintiff or the court. It is wrong to assume that the validity
of acts done during this period should be defendant on, or
held in suspension until, the actual obtention of jurisdiction
over the defendant's person. The obtention by the court of
jurisdiction over the person of the defendant is one thing;
quite another is the acquisition of jurisdiction over the person
of the plaintiff or over the subject-matter or nature of the
action, or the res or object hereof.
An action or proceeding is commenced by the filing of the
complaint or other initiatory pleading. 4 By that act, the jurisdiction of the
court over the subject matter or nature of the action or proceeding is invoked or called into
and it is thus that the court acquires jurisdiction over
said subject matter or nature of the action. 6 And it is by that
self-same act of the plaintiff (or petitioner) of filing the
complaint (or other appropriate pleading) — by which he
signifies his submission to the court's power and authority —
that jurisdiction is acquired by the court over his person. 7 On
activity; 5
the other hand, jurisdiction over the person of the defendant
is obtained, as above stated, by the service of summons or
other coercive process upon him or by his voluntary
submission to the authority of the court. 8
The events that follow the filing of the complaint as a matter of routine are well known. After
the complaint is filed, summons issues to the defendant, the summons is then transmitted to
the sheriff, and finally, service of the summons is effected on the defendant in any of the ways
authorized by the Rules of Court. There is thus ordinarily some appreciable interval of time
between the day of the filing of the complaint and the day of service of summons of the
defendant. During this period, different acts may be done by the plaintiff or by the Court, which
entitled to recover, is as much as the sum for which the order
(of
attachment)
is
granted
above
all
legal
counterclaims." 22 If the court be so satisfied, the "order of
attachment shall be granted," 23 and the writ shall issue upon
the applicant's posting of "a bond executed to the adverse
party in an amount to be fixed by the judge, not exceeding
the plaintiffs claim, conditioned that the latter will pay all the
costs which may be adjudged to the adverse party and all
damages which he may sustain by reason of the attachment,
if the court shall finally adjudge that the applicant was not
entitled thereto." 24
are unquestionable validity and propriety. Among these, for example, are the appointment of a
guardian ad litem, 9
the grant of authority to the plaintiff to
prosecute the suit as a pauper litigant, 10 the amendment of
the complaint by the plaintiff as a matter of right without
leave of court, 11 authorization by the Court of service of
summons by publication, 12 the dismissal of the action by the
plaintiff on mere notice. 13
This, too, is true with regard to the provisional remedies of preliminary attachment, preliminary
injunction, receivership or replevin. 14
They may be validly and properly
applied for and granted even before the defendant is
summoned or is heard from.
A preliminary attachment may be defined, paraphrasing the
Rules of Court, as the provisional remedy in virtue of which
a plaintiff or other party may, at the commencement of the
action or at any time thereafter, have the property of the
adverse party taken into the custody of the court as security
for the satisfaction of any judgment that may be
recovered. 15 It is a remedy which is purely statutory in
respect of which the law requires a strict construction of the
provisions granting it. 16 Withal no principle, statutory or
jurisprudential, prohibits its issuance by any court before
acquisition of jurisdiction over the person of the defendant.
Rule 57 in fact speaks of the grant of the remedy "at the
commencement of the action or at any time
thereafter." 17 The phase, "at the commencement of the
action," obviously refers to the date of the filing of the
complaint — which, as above pointed out, is the date that
marks "the commencement of the action;" 18 and the
reference plainly is to a time before summons is served on
the defendant, or even before summons issues. What the
rule is saying quite clearly is that after an action is properly
commenced — by the filing of the complaint and the
payment of all requisite docket and other fees — the plaintiff
may apply for and obtain a writ of preliminary attachment
upon fulfillment of the pertinent requisites laid down by law,
and that he may do so at any time, either before or after
service of summons on the defendant. And this indeed, has
been the immemorial practice sanctioned by the courts: for
the plaintiff or other proper party to incorporate the
application for attachment in the complaint or other
appropriate pleading (counter-claim, cross-claim, third-party
claim) and for the Trial Court to issue the writ ex-parte at the
commencement of the action if it finds the application
otherwise sufficient in form and substance.
In Toledo v. Burgos, 19 this Court ruled that a hearing on a
motion or application for preliminary attachment is not
generally necessary unless otherwise directed by the Trial
Court in its discretion. 20 And in Filinvest Credit Corporation
v. Relova, 21 the Court declared that "(n)othing in the Rules
of Court makes notice and hearing indispensable and
mandatory requisites for the issuance of a writ of
attachment." The only pre-requisite is that the Court be
satisfied, upon consideration of "the affidavit of the applicant
or of some other person who personally knows the facts, that
a sufficient cause of action exists, that the case is one of
those mentioned in Section 1 . . . (Rule 57), that there is no
other sufficient security for the claim sought to be enforced
by the action, and that the amount due to the applicant, or
the value of the property the possession of which he is
In Mindanao Savings & Loan Association, Inc. v. Court of Appeals, decided on April 18,
1989, 25
this Court had occasion to emphasize the postulate
that no hearing is required on an application for preliminary
attachment, with notice to the defendant, for the reason that
this "would defeat the objective of the remedy . . . (since
the) time which such a hearing would take, could be enough
to enable the defendant to abscond or dispose of his property
before a writ of attachment issues." As observed by a former
member of this Court, 26 such a procedure would warn
absconding debtors-defendants of the commencement of the
suit against them and the probable seizure of their
properties, and thus give them the advantage of time to hide
their assets, leaving the creditor-plaintiff holding the
proverbial empty bag; it would place the creditor-applicant
in danger of losing any security for a favorable judgment and
thus give him only an illusory victory.
Withal, ample modes of recourse against a preliminary
attachment are secured by law to the defendant. The relative
ease with which a preliminary attachment may be obtained
is matched and paralleled by the relative facility with which
the attachment may legitimately be prevented or frustrated.
These modes of recourse against preliminary attachments
granted by Rule 57 were discussed at some length by the
separate opinion in Mindanao Savings & Loans Asso. Inc. v.
CA., supra.
That separate opinion stressed that there are two (2) ways
of discharging an attachment: first, by the posting of a
counterbond; and second, by a showing of its improper or
irregular issuance.
1.0. The submission of a counterbond is an efficacious mode
of lifting an attachment already enforced against property,
or even of preventing its enforcement altogether.
1.1. When property has already been seized under
attachment, the attachment may be discharged upon
counterbond in accordance with Section 12 of Rule 57.
Sec. 12. Discharge of attachment upon giving
counterbond. — At any time after an order of
attachment has been granted, the party whose
property has been attached or the person appearing
in his behalf, may, upon reasonable notice to the
applicant, apply to the judge who granted the order,
or to the judge of the court in which the action is
pending, for an order discharging the attachment
wholly or in part on the security given . . . in an
amount equal to the value of the property attached
as determined by the judge to secure the payment
of any judgment that the attaching creditor may
recover in the action. . . .
1.2. But even before actual levy on property, seizure under
attachment may be prevented also upon counterbond. The
defendant need not wait until his property is seized before
seeking the discharge of the attachment by a counterbond.
This is made possible by Section 5 of Rule 57.
Sec. 5. Manner of attaching property. — The officer
executing the order shall without delay attach, to
await judgment and execution in the action, all the
properties of the party against whom the order is
issued in the province, not exempt from execution,
or so much thereof as may be sufficient to satisfy
the applicant's demand, unless the former makes a
deposit with the clerk or judge of the court from
which the order issued, or gives a counter-bond
executed to the applicant, in an amount sufficient to
satisfy such demand besides costs, or in an amount
equal to the value of the property which is about to
be attached, to secure payment to the applicant of
any judgment which he may recover in the action. .
under Section 13 of Rule 57 by offering to show the
falsity of the factual averments in the plaintiff's
application and affidavits on which the writ was
based — and consequently that the writ based
thereon had been improperly or irregularly issued
(SEE Benitez v. I.A.C., 154 SCRA 41) — the reason
being that the hearing on such a motion for
dissolution of the writ would be tantamount to a trial
of the merits of the action. In other words, the
merits of the action would be ventilated at a mere
hearing of a motion, instead of at the regular trial.
Therefore, when the writ of attachment is of this
nature, the only way it can be dissolved is by a
counterbond (G.B. Inc. v. Sanchez, 98 Phil. 886).
. . (Emphasis supplied)
2.0. Aside from the filing of a counterbond, a preliminary
attachment may also be lifted or discharged on the ground
that it has been irregularly or improperly issued, in
accordance with Section 13 of Rule 57. Like the first, this
second mode of lifting an attachment may be resorted to
even before any property has been levied on. Indeed, it may
be availed of after property has been released from a levy
on attachment, as is made clear by said Section 13, viz.:
Sec. 13. Discharge of attachment for improper or
irregular issuance. — The party whose property has
been attached may also, at any time either BEFORE
or AFTER the release of the attached property, or
before any attachment shall have been actually
levied, upon reasonable notice to the attaching
creditor, apply to the judge who granted the order,
or to the judge of the court in which the action is
pending, for an order to discharge the attachment
on the ground that the same was improperly or
irregularly issued. If the motion be made on
affidavits on the part of the party whose property
has been attached, but not otherwise, the attaching
creditor may oppose the same by counter-affidavits
or other evidence in addition to that on which the
attachment was made. . . . (Emphasis supplied)
(b) Effect of the dissolution of a preliminary attachment on
the plaintiffs attachment bond:
. . . The dissolution of the preliminary attachment
upon security given, or a showing of its irregular or
improper issuance, does not of course operate to
discharge the sureties on plaintiff's own attachment
bond. The reason is simple. That bond is "executed
to the adverse party, . . . conditioned that the . . .
(applicant) will pay all the costs which may be
adjudged to the adverse party and all damages
which he may sustain by reason of the attachment,
if the court shall finally adjudge that the applicant
was not entitled thereto" (SEC. 4, Rule 57). Hence,
until that determination is made, as to the
applicant's entitlement to the attachment, his bond
must stand and cannot be with-drawn.
With respect to the other provisional remedies, i.e.,
preliminary injunction (Rule 58), receivership (Rule 59),
replevin or delivery of personal property (Rule 60), the rule
is the same: they may also issue ex parte. 29
It goes without saying that whatever be the acts done by the Court prior to the acquisition of
jurisdiction over the person of defendant, as above indicated — issuance of summons, order of
attachment and writ of attachment (and/or appointments of guardian ad litem, or grant of
authority to the plaintiff to prosecute the suit as a pauper litigant, or amendment of the complaint
This is so because "(a)s pointed out in Calderon v. I.A.C.,
155 SCRA 531 (1987), The attachment debtor cannot be
deemed to have waived any defect in the issuance of the
attachment writ by simply availing himself of one way of
discharging the attachment writ, instead of the other.
Moreover, the filing of a counterbond is a speedier way of
discharging the attachment writ maliciously sought out by
the attaching creditor instead of the other way, which, in
most instances . . . would require presentation of evidence
in a fullblown trial on the merits, and cannot easily be settled
in a pending incident of the case." 27
It may not be amiss to here reiterate other related principles dealt with in Mindanao Savings &
Loans Asso. Inc. v. C.A., supra., 28
to wit:
(a) When an attachment may not be dissolved by a
showing of its irregular or improper issuance:
. . . (W)hen the preliminary attachment is issued
upon a ground which is at the same time the
applicant's cause of action; e.g., "an action for
money or property embezzled or fraudulently
misapplied or converted to his own use by a public
officer, or an officer of a corporation, or an attorney,
factor, broker, agent, or clerk, in the course of his
employment as such, or by any other person in a
fiduciary capacity, or for a willful violation of duty."
(Sec. 1 [b], Rule 57), or "an action against a party
who has been guilty of fraud m contracting the debt
or incurring the obligation upon which the action is
brought" (Sec. 1 [d], Rule 57), the defendant is not
allowed to file a motion to dissolve the attachment
by the plaintiff as a matter of right without leave of court 30
— and however valid
and proper they might otherwise be, these do not and cannot
bind and affect the defendant until and unless jurisdiction
over his person is eventually obtained by the court, either by
service on him of summons or other coercive process or his
voluntary submission to the court's authority. Hence, when
the sheriff or other proper officer commences
implementation of the writ of attachment, it is essential that
he serve on the defendant not only a copy of the applicant's
affidavit and attachment bond, and of the order of
attachment, as explicity required by Section 5 of Rule 57, but
also the summons addressed to said defendant as well as a
copy of the complaint and order for appointment of
guardian ad litem, if any, as also explicity directed by Section
3, Rule 14 of the Rules of Court. Service of all such
documents is indispensable not only for the acquisition of
jurisdiction over the person of the defendant, but also upon
considerations of fairness, to apprise the defendant of the
complaint against him, of the issuance of a writ of
preliminary attachment and the grounds therefor and thus
accord him the opportunity to prevent attachment of his
property by the posting of a counterbond in an amount equal
to the plaintiff's claim in the complaint pursuant to Section 5
(or Section 12), Rule 57, or dissolving it by causing dismissal
of the complaint itself on any of the grounds set forth in Rule
16, or demonstrating the insufficiency of the applicant's
affidavit or bond in accordance with Section 13, Rule 57.
It was on account of the failure to comply with this
fundamental requirement of service of summons and the
other documents above indicated that writs of attachment
issued by the Trial Court ex parte were struck down by this
Court's Third Division in two (2) cases, namely: Sievert v.
Court of Appeals, 31 and BAC Manufacturing and Sales
Corporation v. Court of Appeals, et al. 32 In contrast to the
case at bar — where the summons and a copy of the
complaint, as well as the order and writ of attachment and
the attachment bond were served on the defendant —
in Sievert,
levy
on
attachment
was
attempted
notwithstanding that only the petition for issuance of the writ
of preliminary attachment was served on the defendant,
without any prior or accompanying summons and copy of the
complaint; and in BAC Manufacturing and Sales Corporation,
neither the summons nor the order granting the preliminary
attachment or the writ of attachment itself was served on
the defendant "before or at the time the levy was made."
For the guidance of all concerned, the Court reiterates and
reaffirms the proposition that writs of attachment may
properly issue ex parte provided that the Court is satisfied
that the relevant requisites therefor have been fulfilled by
the applicant, although it may, in its discretion, require prior
hearing on the application with notice to the defendant; but
that levy on property pursuant to the writ thus issued may
not
be
validly
effected
unless
preceded,
or
contemporaneously accompanied, by service on the
defendant of summons, a copy of the complaint (and of the
appointment of guardian ad litem, if any), the application for
attachment (if not incorporated in but submitted separately
from the complaint), the order of attachment, and the
plaintiff's attachment bond.
WHEREFORE, the petition is GRANTED; the challenged
decision of the Court of Appeals is hereby REVERSED, and
the order and writ of attachment issued by Hon. Milagros C.
Nartatez, Presiding Judge of Branch 8, Regional Trial Court
of Davao City in Civil Case No. 19513-89 against Queensland
Hotel or Motel or Queensland Tourist Inn and Teodorico
Adarna are hereby REINSTATED. Costs against private
respondents.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-60887 November 13, 1991
PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES,
HONORATO BORBON, SR., OFFICE OF THE
PROVINCIAL SHERIFF, PROVINCE OF
CEBU, respondents.
Hector L. Fernandez for petitioner.
Domingo Quibranza and Vicente A. Quibranza for private
respondents.
FELICIANO, J.:
The present Petition for Certiorari seeks to annul: (a) the
Order dated 6 August 1979 1 which ordered the Provincial
Sheriff to garnish the third-party liability insurance policy
issued by petitioner Perla Compania de Seguros, Inc.
("Perla") in favor of Nelia Enriquez, judgment debtor in Civil
Case No. R-15391; (b) the Order dated 24 October
1979 2 which denied the motion for reconsideration of the 6
August 1979 Order; and (c) the Order dated 8 April
1980 3 which ordered the issuance of an alias writ of
garnishment against petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ owned and
registered in the name of Nelia Enriquez, and driven by
Cosme Casas, was travelling from Cebu City to Danao City.
While passing through Liloan, Cebu, the Cimarron PUJ
collided with a private jeep owned by the late Calixto Palmes
(husband of private respondent Primitiva Palmes) who was
then driving the private jeep. The impact of the collision was
such that the private jeep was flung away to a distance of
about thirty (30) feet and then fell on its right side pinning
down Calixto Palmes. He died as a result of cardio-respiratory
arrest due to a crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon who was
then only two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes
(widow of Calixto Palmes) and Honorato Borbon, Sr. (father
of minor Adeudatus Borbon) filed a complaint 5 against
Cosme Casas and Nelia Enriquez (assisted by her husband
Leonardo Enriquez) before the then Court of First Instance
of Cebu, Branch 3, claiming actual, moral, nominal and
exemplary damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being
distinct and separate from that of co-plaintiff Primitiva
Palmes, and the amount thereof falling properly within the
jurisdiction of the inferior court, respondent Judge Jose R.
Ramolete ordered the Borbon claim excluded from the
complaint, without prejudice to its being filed with the proper
inferior court.
On 4 April 1977, the Court of First Instance rendered a
Decision 6 in favor of private respondent Primitiva Palmes,
ordering common carrier Nelia Enriquez to pay her
P10,000.00 as moral damages, P12,000.00 as compensatory
damages for the death of Calixto Palmes, P3,000.00 as
exemplary damages, P5,000.00 as actual damages, and
P1,000.00 as attorney's fees.
The judgment of the trial court became final and executory
and a writ of execution was thereafter issued. The writ of
execution was, however, returned unsatisfied. Consequently,
the judgment debtor Nelia Enriquez was summoned before
the trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was
covered by a third-party liability insurance policy issued by
petitioner Perla.
Thus, on 31 July 1979, private respondent Palmes filed a
motion for garnishment 7 praying that an order of
garnishment be issued against the insurance policy issued by
petitioner in favor of the judgment debtor. On 6 August
1979, respondent Judge issued an Order 8 directing the
Provincial Sheriff or his deputy to garnish the third-party
liability insurance policy.
Petitioner then appeared before the trial court and moved for
reconsideration of the 6 August 1979 Order and for quashal
of the writ of garnishment, 9 alleging that the writ was void
on the ground that it (Perla) was not a party to the case and
that jurisdiction over its person had never been acquired by
the trial court by service of summons or by any process. The
trial court denied petitioner's motion. 10 An Order for
issuance of an alias writ of garnishment was subsequently
issued on 8 April 1980.
More than two (2) years later, the present Petition for
Certiorari and Prohibition was filed with this Court on 25 June
1982 alleging grave abuse of discretion on the part of
respondent Judge Ramolete in ordering garnishment of the
third-party liability insurance contract issued by petitioner
Perla in favor of the judgment debtor, Nelia Enriquez. The
Petition should have been dismissed forthwith for having
been filed way out of time but, for reasons which do not
appear on the record, was nonetheless entertained.
In this Petition, petitioner Perla reiterates its contention that
its insurance contract cannot be subjected to garnishment or
execution to satisfy the judgment in Civil Case No. R-15391
because petitioner was not a party to the case and the trial
court did not acquire jurisdiction over petitioner's person.
Perla further argues that the writ of garnishment had been
issued solely on the basis of the testimony of the judgment
debtor during the examination on 23 July 1979 to the effect
that the Cimarron PUJ was covered by a third-party liability
insurance issued by Perla, without granting it the opportunity
to set up any defenses which it may have under the
insurance contract; and that the proceedings taken against
petitioner are contrary to the procedure laid down in
Economic Insurance Company, Inc. v. Torres, et al., 12
which held that under Rule 39, Section 45, the Court "may
only authorize" the judgment creditor to institute an action
against a third person who holds property belonging to the
judgment debtor.
We find no grave abuse of discretion or act in excess of or
without jurisdiction on the part of respondent Judge
Ramolete in ordering the garnishment of the judgment
debtor's third-party liability insurance.
Garnishment has been defined as a species of attachment
for reaching any property or credits pertaining or payable to
a judgment debtor. 13 In legal contemplation, it is a forced
novation by the substitution of creditors: 14 the judgment
debtor, who is the original creditor of the garnishee is,
through service of the writ of garnishment, substituted by
the judgment creditor who thereby becomes creditor of the
garnishee. Garnishment has also been described as a
warning to a person having in his possession property or
credits of the judgment debtor, not to pay the money or
deliver the property to the latter, but rather to appear and
answer the plaintiff's suit. 15
In order that the trial court may validly acquire jurisdiction
to bind the person of the garnishee, it is not necessary that
summons be served upon him. The garnishee need not be
impleaded as a party to the case. All that is necessary for the
trial court lawfully to bind the person of the garnishee or any
person who has in his possession credits belonging to the
judgment debtor is service upon him of the writ of
garnishment.
The Rules of Court themselves do not require that the
garnishee be served with summons or impleaded in the case
in order to make him liable.
citation, requires him to pay his debt, not to his former
creditor, but to the new creditor, who is creditor in the main
litigation. (Emphasis supplied).
In Rizal Commercial Banking Corporation v. De Castro, 17
the Court stressed that the asset or credit garnished is
thereupon subjected to a specific lien:
The garnishment of property to satisfy a writ of execution
operates as an attachment and fastens upon the property a
lien by which the property is brought under the jurisdiction
of the court issuing the writ. It is brought into custodia legis,
under the sole control of such
Rule 39, Section 15 provides:
Sec. 15. Execution of money judgments. — The officer must
enforce an execution of a money judgment by levying on all
the property, real or personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution . . .
Real property, stocks, shares, debts, credits, and other
personal property, or any interest in either real or personal
property, may be levied on in like manner and with like effect
as under a writ of attachment. (Emphasis supplied).
court. 18 (Emphasis supplied)
In the present case, there can be no doubt, therefore, that
the trial court actually acquired jurisdiction over petitioner
Perla when it was served with the writ of garnishment of the
third-party liability insurance policy it had issued in favor of
judgment debtor Nelia Enriquez. Perla cannot successfully
evade liability thereon by such a contention.
Rule 57, Section 7(e) in turn reads:
Sec. 7. Attachment of real and personal property; recording
thereof. — Properties shall be attached by the officer
executing the order in the following manner:
xxx
xxx
xxx
(e) Debts and credits, and other personal property not
capable of manual delivery, by leaving with the person owing
such debts, or having his possession or under his control
such credits or other personal property, or with his agent, a
copy of the order, and notice that the debts owing by him to
the party against whom attachment is issued, and the credits
and other personal property in his possession, or under his
control, belonging to said party, are attached in pursuance
of such order;
xxx
xxx
xxx
(Emphasis supplied)
Through service of the writ of garnishment, the garnishee
becomes a "virtual party" to, or a "forced intervenor" in, the
case and the trial court thereby acquires jurisdiction to bind
him to compliance with all orders and processes of the trial
court with a view to the complete satisfaction of the
judgment of the court. In Bautista v. Barredo, 16 the Court,
through Mr. Justice Bautista Angelo, held:
While it is true that defendant Jose M. Barredo was not a
party in Civil Case No. 1636 when it was instituted by
appellant against the Philippine Ready Mix Concrete
Company, Inc., however, jurisdiction was acquired over him
by the court and he became a virtual party to the case when,
after final judgment was rendered in said case against the
company, the sheriff served upon him a writ of garnishment
in behalf of appellant. Thus, as held by this Court in the case
of Tayabas Land Company vs. Sharruf, 41 Phil. 382, the
proceeding by garnishment is a species of attachment for
reaching credits belonging to the judgment debtor and owing
to him from a stranger to the litigation. By means of the
citation, the stranger becomes a forced intervenor; and the
court, having acquired jurisdiction over him by means of the
Every interest which the judgment debtor may have in
property may be subjected to execution. 19 In the instant
case, the judgment debtor Nelia Enriquez clearly had an
interest in the proceeds of the third-party liability insurance
contract. In a third-party liability insurance contract, the
insurer assumes the obligation of paying the injured third
party to whom the insured is liable. 20 The insurer becomes
liable as soon as the liability of the insured to the injured
third person attaches. Prior payment by the insured to the
injured third person is not necessary in order that the
obligation of the insurer may arise. From the moment that
the insured became liable to the third person, the insured
acquired an interest in the insurance contract, which interest
may be garnished like any other credit. 21
Petitioner also contends that in order that it may be held
liable under the third-party liability insurance, a separate
action should have been commenced by private respondents
to establish petitioner's liability. Petitioner invokes Economic
Insurance Company, Inc. vs. Torres, 22 which stated:
It is clear from Section 45, Rule 39 that if a persons
alleged to have property of the judgment debtor or
to be indebted to him claims an interest in the
property adverse to him or denies the debt, the
court may only authorize the judgment creditor to
institute an action against such person for the
recovery of such interest or debt. Said section does
not authorize the court to make a finding that the
third person has in his possession property
belonging to the judgment debtor or is indebted to
him and to order said third person to pay the
amount to the judgment creditor.
It has been held that the only power of the court in
proceedings supplemental to execution is to niake
an order authorizing the creditor to sue in the proper
court to recover an indebtedness due to the
judgment debtor. The court has no jurisdiction to try
summarily the question whether the third party
served with notice of execution and levy is indebted
to defendant when such indebtedness is denied. To
make an order in relation to property which the
garnishee claimed to own in his own right, requiring
its application in satisfaction of judgment of another,
would be to deprive the garnishee of property upon
summary proceeding and without due process of
law. (Emphasis supplied)
But reliance by petitioner on the case of Economic Insurance
Company, Inc. v. Torres (supra) is misplaced. The Court
there held that a separate action needs to be
commenced when the garnishee "claims an interest in the
property adverse to him (judgment debtor) or denies the
debt." In the instant case, petitioner Perla did not deny
before the trial court that it had indeed issued a third-party
liability insurance policy in favor of the judgment debtor.
Petitioner moreover refrained from setting up any
substantive defense which it might have against the insuredjudgment debtor. The only ground asserted by petitioner in
its "Motion for Reconsideration of the Order dated August 6,
1979 and to Quash Notice of Garnishment" was lack of
jurisdiction of the trial court for failure to implead it in the
case by serving it with summons. Accordingly, Rule 39,
Section 45 of the Rules of Court is not applicable in the
instant case, and we see no need to require a separate action
against Perla: a writ of garnishment suffices to hold
petitioner answerable to the judgment creditor. If Perla had
any substantive defenses against the judgment debtor, it is
properly deemed to have waived them by laches.
WHEREFORE, the Petition for Certiorari and Prohibition is
hereby DISMISSED for having been filed out of time and for
lack of merit. The assailed Orders of the trial court are hereby
AFFIRMED. Costs against petitioner. This Decision is
immediately executory.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-48756 September 11, 1982
K.O. GLASS CONSTRUCTION CO., INC., petitioner,
vs.
THE HONORABLE MANUEL VALENZUELA, Judge of
the Court of First Instance of Rizal, and ANTONIO D.
PINZON, respondents.
Guillermo E. Aragones for petitioner.
Ruben V. Lopez for respondent Antonio D. Pinzon.
CONCEPCION, JR., J.:
Petition for certiorari to annul and set aside the writ of
preliminary attachment issued by the respondent Judge in
Civil Case No. 5902-P of the Court of First Instance of Rizal,
entitled: Antonio D. Pinzon plaintiff, versus K.O. Glass
Construction Co., Inc., and Kenneth O. Glass,
defendants, and for the release of the amount of
P37,190.00, which had been deposited with the Clerk of
Court, to the petitioner.
On October 6, 1977, an action was instituted in the Court of
First Instance of Rizal by Antonio D. Pinzon to recover from
Kenneth O. Glass the sum of P37,190.00, alleged to be the
agreed rentals of his truck, as well as the value of spare parts
which have not been returned to him upon termination of
the lease. In his verified complaint, the plaintiff asked for an
attachment against the property of the defendant consisting
of collectibles and payables with the Philippine Geothermal,
Inc., on the grounds that the defendant is a foreigner; that
he has sufficient cause of action against the said defendant;
and that there is no sufficient security for his claim against
the defendant in the event a judgment is rendered in his
favor. 1
Finding the petition to be sufficient in form and substance,
the respondent Judge ordered the issuance of a writ of
attachment against the properties of the defendant upon the
plaintiff's filing of a bond in the amount of P37,190.00. 2
Thereupon, on November 22, 1977, the defendant Kenneth
O. Glass moved to quash the writ of attachment on the
grounds that there is no cause of action against him since
the transactions or claims of the plaintiff were entered into
by and between the plaintiff and the K.O. Glass Construction
Co., Inc., a corporation duly organized and existing under
Philippine laws; that there is no ground for the issuance of
the writ of preliminary attachment as defendant Kenneth O.
Glass never intended to leave the Philippines, and even if he
does, plaintiff can not be prejudiced thereby because his
claims are against a corporation which has sufficient funds
and property to satisfy his claim; and that the money being
garnished belongs to the K.O. Glass Corporation Co., Inc.
and not to defendant Kenneth O. Glass. 3
By reason thereof, Pinzon amended his complaint to include
K.O. Glass Construction Co., Inc. as co-defendant of Kenneth
O. Glass. 4
On January 26, 1978, the defendants therein filed a
supplementary motion to discharge and/or dissolve the writ
of preliminary attachment upon the ground that the affidavit
filed in support of the motion for preliminary attachment was
not sufficient or wanting in law for the reason that: (1) the
affidavit did not state that the amount of plaintiff's claim was
above all legal set-offs or counterclaims, as required by Sec.
3, Rule 57 of the Revised Rules of Court; (2) the affidavit did
not state that there is no other sufficient security for the
claim sought to be recovered by the action as also required
by said Sec. 3; and (3) the affidavit did not specify any of
the grounds enumerated in Sec. 1 of Rule 57, 5 but, the
respondent Judge denied the motion and ordered the
Philippine Geothermal, Inc. to deliver and deposit with the
Clerk of Court the amount of P37,190.00 immediately upon
receipt of the order which amount shall remain so deposited
to await the judgment to be rendered in the case. 6
On June 19, 1978, the defendants therein filed a bond in the
amount of P37,190.00 and asked the court for the release of
the same amount deposited with the Clerk of Court, 7 but,
the respondent Judge did not order the release of the money
deposited. 8
Hence, the present recourse. As prayed for, the Court issued
a temporary restraining order, restraining the respondent
Judge from further proceeding with the trial of the case. 9
We find merit in the petition. The respondent Judge gravely
abused his discretion in issuing the writ of preliminary
attachment and in not ordering the release of the money
which had been deposited with the Clerk of Court for the
following reasons:
First, there was no ground for the issuance of the writ of
preliminary attachment. Section 1, Rule 57 of the Revised
Rules of Court, which enumerates the grounds for the
issuance of a writ of preliminary attachment, reads, as
follows:
Sec. 1. Grounds upon which attachment
may issue. —A plaintiff or any proper party
may, at the commencement of the action
or at any time thereafter, have the property
of the adverse party attached as security
for the satisfaction of any judgment that
may be recovered in the following cases:
(a) In an action for the recovery of money
or damages on a cause of action arising
from contract, express or implied, against a
party who is about to depart from the
Philippines with intent to defraud his
creditor;
(b) In an action for money or property
embezzled or fraudulently misapplied or
converted to his own use by a public officer,
or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in
the course of his employment as such, or
by any other person in a fiduciary capacity,
or for a willful violation of duty;
(c) In an action to recover the possession
of personal property unjustly detained,
when the property, or any part thereof, has
been concealed, removed, or disposed of to
prevent its being found or taken by the
applicant or an officer;
(d) In an action against the party who has
been guilty of a fraud in contracting the
debt or incurring the obligation upon which
the action is brought, or in concealing or
disposing of the property for the taking,
detention or conversion of which the action
is brought;
(e) In an action against a party who has
removed or disposed of his property, or is
about to do so, with intent to defraud his
creditors;
(f) In an action against a party who resides
out of the Philippines, or on whom
summons may be served by publication.
In ordering the issuance of the controversial writ of
preliminary attachment, the respondent Judge said and We
quote:
The plaintiff filed a complaint for a sum of
money with prayer for Writ of Preliminary
Attachment dated September 14, 1977,
alleging that the defendant who is a
foreigner may, at any time, depart from the
Philippines with intent to defraud his
creditors including the plaintiff herein; that
there is no sufficient security for the claim
sought to be enforced by this action; that
the amount due the plaintiff is as much as
the sum for which an order of attachment
is sought to be granted; and that defendant
has sufficient leviable assets in the
Philippines consisting of collectibles and
payables due from Philippine Geothermal,
Inc., which may be disposed of at any time,
by defendant if no Writ of Preliminary
Attachment may be issued. Finding said
motion and petition to be sufficient in form
and substance. 10
Pinzon however, did not allege that the defendant Kenneth
O. Glass "is a foreigner (who) may, at any time, depart from
the Philippines with intent to defraud his creditors including
the plaintiff." He merely stated that the defendant Kenneth
O. Glass is a foreigner. The pertinent portion of the complaint
reads, as follows:
15. Plaintiff hereby avers under oath that
defendant is a foreigner and that said
defendant has a valid and just obligation to
plaintiff in the total sum of P32,290.00
arising out from his failure to pay (i) service
charges for the hauling of construction
materials; (ii) rentals for the lease of
plaintiff's Isuzu Cargo truck, and (iii) total
cost of the missing/destroyed spare parts
of said leased unit; hence, a sufficient
cause
of
action
exists
against
said defendant. Plaintiff also avers under
oath that there is no sufficient security for
his claim against the defendant in the
event a judgment be rendered in favor of
the plaintiff. however, defendant has
sufficient assets in the Philippines in the
form of collectible and payables due from
the Philippine Geothermal, Inc. with office
address at Citibank Center, Paseo de
Roxas, Makati, Metro Manila, but which
properties, if not timely attached, may be
disposed of by defendants and would
render ineffectual the reliefs prayed for by
plaintiff in this Complaint. 11
In his Amended Complaint, Pinzon alleged the following:
15. Plaintiff hereby avers under oath that
defendant GLASS is an American citizen
who controls most, if not all, the affairs of
defendant CORPORATION. Defendants
CORPORATION and GLASS have a valid and
just obligation to plaintiff in the total sum
of P32,290.00 arising out for their failure to
pay (i) service charges for hauling of
construction materials, (ii) rentals for the
lease of plaintiff's Isuzu Cargo truck, and
(iii) total cost of the missing/destroyed
spare parts of said leased unit: hence, a
sufficient cause of action exist against
said defendants. Plaintiff also avers under
oath that there is no sufficient security for
his claim against the defendants in the
event a judgment be rendered in favor of
the
plaintiff.
however,
defendant
CORPORATION has sufficient assets in the
Philippines in the form of collectibles and
payables due from the Philippine
Geothermal., Inc. with office address at
Citibank Center, Paseo de Roxas, Makati,
Metro Manila, but which properties, if not
timely attached, may be disposed of
by defendants and
would
render
ineffectual the reliefs prayed for by plaintiff
in this Complaint. 12
There being no showing, much less an allegation, that the
defendants are about to depart from the Philippines with
intent to defraud their creditor, or that they are non-resident
aliens, the attachment of their properties is not justified.
Second, the affidavit submitted by Pinzon does not comply
with the Rules. Under the Rules, an affidavit for attachment
must state that (a) sufficient cause of action exists, (b) the
case is one of those mentioned in Section I (a) of Rule 57;
(c) there is no other sufficient security 'or the claim sought
to be enforced by the action, and (d) the amount due to the
applicant for attachment or the value of the property the
possession of which he is entitled to recover, is as much as
the sum for which the order is granted above all legal
counterclaims. Section 3, Rule 57 of the Revised Rules of
Court reads. as follows:
Section 3. Affidavit and bond required.—An
order of attachment shall be granted only
when it is made to appear by the affidavit
of the applicant, or of some person who
personally knows the facts, that a sufficient
cause of action exists that the case is one
of those mentioned in Section 1 hereof;
that there is no other sufficient security for
the claim sought to be enforced by the
action, and that the amount due to the
applicant, or the value of the property the
possession of which he is entitled to
recover, is as much as the sum for which
the order is granted above all legal
counterclaims. The affidavit, and the bond
required by the next succeeding section,
must be duly filed with the clerk or judge of
the court before the order issues.
In his affidavit, Pinzon stated the following:
I, ANTONIO D. PINZON Filipino, of legal
age, married and with residence and postal
address at 1422 A. Mabini Street, Ermita,
Manila, subscribing under oath, depose and
states that.
1. On October 6,1977,I filed with the Court
of First Instance of Rizal, Pasay City Branch,
a case against Kenneth O. Glass entitled
'ANTONIO D. PINZON vs. KENNETH O.
GLASS', docketed as Civil Case No. 5902-P;
2. My Complaint against Kenneth O. Glass
is based on several causes of action,
namely:
(i) On February 15, 1977, we mutually
agreed that I undertake to haul his
construction materials from Manila to his
construction project in Bulalo, Bay, Laguna
and vice-versa, for a consideration of
P50.00 per hour;
where the application is made, in an
amount equal to the value of the property
attached as determined by the judge, to
secure the payment of any judgment that
the attaching creditor may recover in the
action. Upon the filing of such counterbond, copy thereof shall forthwith be
served on the attaching creditor or his
lawyer. Upon the discharge of an
attachment in accordance with the
provisions of this section the property
attached, or the proceeds of any sale
thereof, shall be delivered to the party
making the deposit or giving the counterbond, or the person appearing on his
behalf, the deposit or counter-bond
aforesaid standing in the place of the
property so released. Should such counterbond for any reason be found to be, or
become, insufficient, and the party
furnishing the same fail to file an additional
counter-bond the attaching creditor may
apply for a new order of attachment.
(ii) Also, on June 18, 1977, we entered into
a separate agreement whereby my Isuzu
cargo truck will be leased to him for a
consideration of P4,000.00 a month
payable on the 15th day of each month;
(iii) On September 7, 1977, after making
use of my Isuzu truck, he surrendered the
same without paying the monthly rentals
for the leased Isuzu truck and the peso
equivalent of the spare parts that were
either destroyed or misappropriated by
him;
3. As of today, October 11, 1977, Mr.
Kenneth 0. Glass still owes me the total
sum of P32,290.00 representing his
obligation arising from the hauling of his
construction materials, monthly rentals for
the lease Isuzu truck and the peso
equivalent of the spare parts that were
either destroyed or misappropriated by
him;
4. I am executing this Affidavit to attest to
the truthfulness of the foregoing and in
compliance with the provisions of Rule 57
of the Revised Rules of Court. 13
While Pinzon may have stated in his affidavit that a sufficient
cause of action exists against the defendant Kenneth O.
Glass, he did not state therein that "the case is one of those
mentioned in Section 1 hereof; that there is no other
sufficient security for the claim sought to be enforced by the
action; and that the amount due to the applicant is as much
as the sum for which the order granted above all legal
counter-claims." It has been held that the failure to allege in
the affidavit the requisites prescribed for the issuance of a
writ of preliminary attachment, renders the writ of
preliminary attachment issued against the property of the
defendant fatally defective, and the judge issuing it is
deemed to have acted in excess of his jurisdiction. 14
Finally, it appears that the petitioner has filed a counterbond
in the amount of P37,190.00 to answer for any judgment
that may be rendered against the defendant. Upon receipt of
the counter-bond the respondent Judge should have
discharged the attachment pursuant to Section 12, Rule 57
of the Revised Rules of Court which reads, as follows:
Section 12. Discharge of attachment upon
giving counterbond.—At any time after an
order of attachment has been granted, the
party whose property has been attached, or
the person appearing on his behalf, may
upon reasonable notice to the applicant,
apply to the judge who granted the order,
or to the judge of the court in which the
action is pending, for an order discharging
the attachment wholly or in part on the
security given. The judge shall, after
hearing, order the discharge of the
attachment if a cash deposit is made or a
counterbond executed to the attaching
creditor is filed, on behalf of the adverse
party, with the clerk or judge of the court
The filing of the counter-bond will serve the purpose of
preserving the defendant's property and at the same time
give the plaintiff security for any judgment that may be
obtained against the defendant. 15
WHEREFORE, the petition is GRANTED and the writ prayed
for is issued. The orders issued by the respondent Judge on
October 11, 19719, January 26, 1978, and February 3, 1978
in Civil Case No. 5902-P of the Court of First Instance of Rizal,
insofar as they relate to the issuance of the writ of
preliminary attachment, should be as they are hereby
ANNULLED and SET ASIDE and the respondents are hereby
ordered to forthwith release the garnished amount of
P37,190.00 to the petitioner. The temporary restraining
order, heretofore issued, is hereby lifted and set aside. Costs
against the private respondent Antonio D. Pinzon.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175587
September 21, 2007
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, Petitioner,
vs.
JOSEPH ANTHONY M. ALEJANDRO, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the May 31, 2006 Decision1 of
the Court of Appeals in CA-G.R. CV No. 78200 affirming the
August 30, 2000 Decision2 of the Regional Trial Court of
Makati, which granted respondent Joseph Anthony M.
Alejandro’s claim for damages arising from petitioner
Philippine Commercial International Bank’s (PCIB) invalid
garnishment of respondent’s deposits.
On October 23, 1997, petitioner filed against respondent a
complaint3 for sum of money with prayer for the issuance of
a writ of preliminary attachment. Said complaint alleged that
on September 10, 1997, respondent, a resident of Hong
Kong, executed in favor of petitioner a promissory note
obligating himself to pay ₱249,828,588.90 plus interest. In
view of the fluctuations in the foreign exchange rates which
resulted in the insufficiency of the deposits assigned by
respondent as security for the loan, petitioner requested the
latter to put up additional security for the loan. Respondent,
however, sought a reconsideration of said request pointing
out petitioner’s alleged mishandling of his account due to its
failure to carry out his instruction to close his account as early
as April 1997, when the prevailing rate of exchange of the
US Dollar to Japanese yen was US$1.00:JPY127.50.4 It
appears that the amount of ₱249,828,588.90 was the
consolidated amount of a series of yen loans granted by
petitioner to respondent during the months of February and
April 1997.5
In praying for the issuance of a writ of preliminary
attachment under Section 1 paragraphs (e) and (f) of Rule
57 of the Rules of Court, petitioner alleged that (1)
respondent fraudulently withdrew his unassigned deposits
notwithstanding his verbal promise to PCIB Assistant Vice
President Corazon B. Nepomuceno not to withdraw the same
prior to their assignment as security for the loan; and (2)
that respondent is not a resident of the Philippines. The
application for the issuance of a writ was supported with the
affidavit of Nepomuceno.6
On October 24, 1997, the trial court granted the application
and issued the writ ex parte7 after petitioner posted a bond
in the amount of ₱18,798,734.69, issued by Prudential
Guarantee & Assurance Inc., under Bond No. HO-46764-97.
On the same date, the bank deposits of respondent with Rizal
Commercial Banking Corporation (RCBC) were garnished. On
October 27, 1997, respondent, through counsel, filed a
manifestation informing the court that he is voluntarily
submitting to its jurisdiction.8
Subsequently, respondent filed a motion to quash9 the writ
contending that the withdrawal of his unassigned deposits
was not fraudulent as it was approved by petitioner. He also
alleged that petitioner knew that he maintains a permanent
residence at Calle Victoria, Ciudad Regina, Batasan Hills,
Quezon City, and an office address in Makati City at the Law
Firm Romulo Mabanta Buenaventura Sayoc & De los
Angeles, 10 where he is a partner. In both addresses,
petitioner regularly communicated with him through its
representatives. Respondent added that he is the managing
partner of the Hong Kong branch of said Law Firm; that his
stay in Hong Kong is only temporary; and that he frequently
travels back to the Philippines.
On December 24, 1997, the trial court issued an order
quashing the writ and holding that the withdrawal of
respondent’s unassigned deposits was not intended to
defraud petitioner. It also found that the representatives of
petitioner personally transacted with respondent through his
home address in Quezon City and/or his office in Makati City.
It thus concluded that petitioner misrepresented and
suppressed the facts regarding respondent’s residence
considering that it has personal and official knowledge that
for purposes of service of summons, respondent’s residence
and office addresses are located in the Philippines. The
dispositive portion of the court’s decision is as follows:
WHEREFORE, the URGENT MOTION TO QUASH, being
meritorious, is hereby GRANTED, and the ORDER of 24
October 1997 is hereby RECONSIDERED and SET ASIDE and
the WRIT OF attachment of the same is hereby
DISCHARGED.
SO ORDERED.11
With the denial12 of petitioner’s motion for reconsideration, it
elevated the case to the Court of Appeals (CA-G.R. SP No.
50748) via a petition for certiorari. On May 10, 1999, the
petition was dismissed for failure to prove that the trial court
abused its discretion in issuing the aforesaid
order.13 Petitioner filed a motion for reconsideration but was
denied on October 28, 1999.14 On petition with this Court,
the case was dismissed for late filing in a minute resolution
(G.R. No. 140605) dated January 19, 2000.15 Petitioner filed
a motion for reconsideration but was likewise denied with
finality on March 6, 2000.16
Meanwhile, on May 20, 1998, respondent filed a claim for
damages in the amount of P25 Million17 on the attachment
bond (posted by Prudential Guarantee & Assurance, Inc.,
under JCL(4) No. 01081, Bond No. HO-46764-97) on account
of the wrongful garnishment of his deposits. He presented
evidence showing that his ₱150,000.00 RCBC check payable
to his counsel as attorney’s fees, was dishonored by reason
of the garnishment of his deposits. He also testified that he
is a graduate of the Ateneo de Manila University in 1982 with
a double degree of Economics and Management Engineering
and of the University of the Philippines in 1987 with the
degree of Bachelor of Laws. Respondent likewise presented
witnesses to prove that he is a well known lawyer in the
business community both in the Philippines and in Hong
Kong.18 For its part, the lone witness presented by petitioner
was Nepomuceno who claimed that she acted in good faith
in alleging that respondent is a resident of Hong Kong.19
On August 30, 2000, the trial court awarded damages to
respondent in the amount of P25 Million without specifying
the basis thereof, thus:
WHEREFORE, premises above considered, and defendant
having duly established his claim in the amount of
₱25,000,000.00, judgment is hereby rendered ordering
Prudential Guarantee & [Assurance] Co., which is solidarily
liable with plaintiff to pay defendant the full amount of bond
under Prudential Guarantee & Assurance, Inc. JCL(4) No.
01081, [Bond No. HO-46764-97], dated 24 October 1997 in
the amount of ₱18,798,734.69. And, considering that the
amount of the bond is insufficient to fully satisfy the award
for damages, plaintiff is hereby ordered to pay defendant the
amount of ₱6,201,265.31.
SO ORDERED.20
The trial court denied petitioner’s motion for reconsideration
on October 24, 2000.21
Petitioner elevated the case to the Court of Appeals which
affirmed the findings of the trial court. It held that in claiming
that respondent was not a resident of the Philippines,
petitioner cannot be said to have been in good faith
considering that its knowledge of respondent’s Philippine
residence and office address goes into the very issue of the
trial court’s jurisdiction which would have been defective had
respondent not voluntarily appeared before it.
The Court of Appeals, however, reduced the amount of
damages awarded to petitioner and specified their basis. The
dispositive portion of the decision of the Court of Appeals
states:
WHEREFORE, the appeal is PARTIALLY GRANTED and the
decision appealed from is hereby MODIFIED. The award of
damages in the amount of ₱25,000,000.00 is deleted. In lieu
thereof, Prudential Guarantee & [Assurance, Inc.], which is
solidarily liable with appellant [herein petitioner], is
ORDERED
to pay appellee [herein respondent]
₱2,000,000.00 as nominal damages; ₱5,000,000.00 as moral
damages; and ₱1,000,000.00 as attorney’s fees, to be
satisfied against the attachment bond under Prudential
Guarantee & Assurance, Inc. JCL (4) No. 01081.
SO ORDERED.22
Both parties moved for reconsideration. On November 21,
2006, the Court of Appeals denied petitioner’s motion for
reconsideration but granted that of respondent’s by ordering
petitioner to pay additional ₱5Million as exemplary
damages.23
Hence, the instant petition.
At the outset, it must be noted that the ruling of the trial
court that petitioner is not entitled to a writ of attachment
because respondent is a resident of the Philippines and that
his act of withdrawing his deposits with petitioner was
without intent to defraud, can no longer be passed upon by
this Court. More importantly, the conclusions of the court
that petitioner bank misrepresented that respondent was
residing out of the Philippines and suppressed the fact that
respondent has a permanent residence in Metro Manila
where he may be served with summons, are now beyond the
power of this Court to review having been the subject of a
final and executory order. Said findings were sustained by
the Court of Appeals in CA-G.R. SP No. 50784 and by this
Court in G.R. No. 140605. The rule on conclusiveness of
judgment, which obtains under the premises, precludes the
relitigation of a particular fact or issue in another action
between the same parties even if based on a different claim
or cause of action. The judgment in the prior action operates
as estoppel as to those matters in issue or points
controverted, upon the determination of which the finding or
judgment was rendered. The previous judgment is
conclusive in the second case, as to those matters actually
and directly controverted and determined.24 Hence, the
issues of misrepresentation by petitioner and the residence
of respondent for purposes of service of summons can no
longer be questioned by petitioner in this case.
The core issue for resolution is whether petitioner bank is
liable for damages for the improper issuance of the writ of
attachment against respondent.
We rule in the affirmative.
Notwithstanding the final judgment that petitioner is guilty
of misrepresentation and suppression of a material fact, the
latter contends that it acted in good faith. Petitioner also
contends that even if respondent is considered a resident of
the Philippines, attachment is still proper under Section 1,
paragraph (f), Rule 57 of the Rules of Court since he
(respondent) is a resident who is temporarily out of the
Philippines upon whom service of summons may be effected
by publication.
Petitioner’s contentions are without merit.
While the final order of the trial court which quashed the writ
did not categorically use the word "bad faith" in
characterizing the representations of petitioner, the tenor of
said order evidently considers the latter to have acted in bad
faith by resorting to a deliberate strategy to mislead the
court. Thus –
In the hearings of the motion, and oral arguments of
counsels before the Court, it appears that plaintiff BANK
through its contracting officers Vice President Corazon B.
Nepomuceno and Executive Vice President Jose Ramon F.
Revilla, personally transacted with defendant mainly through
defendant’s permanent residence in METRO-MANILA, either
in defendant’s home address in Quezon City or his main
business address at the Romulo Mabanta Buenaventura
Sayoc & Delos Angeles in MAKATI and while at times follow
ups were made through defendant’s temporary home and
business addresses in Hongkong. It is therefore clear that
plaintiff could not deny their personal and official knowledge
that defendant’s permanent and official residence for
purposes of service of summons is in the Philippines. In fact,
this finding is further confirmed by the letter of Mr. JOHN
GOKONGWEI, JR. Chairman, Executive Committee of plaintiff
BANK, in his letter dated 6 October 1997 on the subject loan
to defendant of the same law firm was addressed to the
ROMULO LAW FIRM in MAKATI.
[Anent the] second ground of attachment x x x [t]he Court
finds that the amount withdrawn was not part of defendant’s
peso deposits assigned with the bank to secure the loan and
as proof that the withdrawal was not intended to defraud
plaintiff as creditor is that plaintiff approved and allowed said
withdrawals. It is even noted that when the Court granted
the prayer for attachment it was mainly on the first ground
under Section 1(f) of Rule 57 of the 1997 Rules of Civil
Procedure, that defendant resides out of the Philippines.
On the above findings, it is obvious that plaintiff already
knew from the beginning the deficiency of its second ground
for attachment [i.e.,] disposing properties with intent to
defraud his creditors, and therefore plaintiff had to resort to
this misrepresentation that defendant was residing out of the
Philippines and suppressed the fact that defendant’s
permanent residence is in METRO MANILA where he could
be served with summons.
On the above findings, and mainly on the misrepresentations
made by plaintiff on the grounds for the issuance of the
attachment in the verified complaint, the Court concludes
that defendant has duly proven its grounds in the MOTION
and that plaintiff is not entitled to the attachment.25
Petitioner is therefore barred by the principle of
conclusiveness of judgment from again invoking good faith
in the application for the issuance of the writ. Similarly, in
the case of Hanil Development Co., Ltd. v. Court of
Appeals,26 the Court debunked the claim of good faith by a
party who maliciously sought the issuance of a writ of
attachment, the bad faith of said party having been
previously determined in a final decision which voided the
assailed writ. Thus –
Apropos the Application for Judgment on the Attachment
Bond, Escobar claims in its petition that the award of
attorney’s fees and injunction bond premium in favor of Hanil
is [contrary] to law and jurisprudence. It contends that no
malice or bad faith may be imputed to it in procuring the
writ.
person in a fiduciary capacity, or for a willful
violation of duty;
Escobar’s protestation is now too late in the day. The
question of the illegality of the attachment and Escobar’s bad
faith in obtaining it has long been settled in one of the earlier
incidents of this case. The Court of Appeals, in its decision
rendered on February 3, 1983 in C.A.-G.R. No. SP-14512,
voided the challenged writ, having been issued with grave
abuse of discretion. Escobar’s bad faith in procuring the writ
cannot be doubted. Its Petition for the Issuance of
Preliminary Attachment made such damning allegations that:
Hanil was already able to secure a complete release of its
final collection from the MPWH; it has moved out some of its
heavy equipments for unknown destination, and it may leave
the country anytime. Worse, its Ex Parte Motion to Resolve
Petition alleged that "after personal verification by (Escobar)
of (Hanil’s) equipment in Cagayan de Oro City, it appears
that the equipments were no longer existing from their
compound." All these allegations of Escobar were found to
be totally baseless and untrue.
(c) In an action to recover the possession of
personal property unjustly or fraudulently taken,
detained, or converted, when the property, or any
part thereof, has been concealed, removed, or
disposed of to prevent its being found or taken by
the applicant or an authorized person;
Even assuming that the trial court did not make a categorical
pronouncement of misrepresentation and suppression of
material facts on the part of petitioner, the factual backdrop
of this case does not support petitioner’s claim of good faith.
The facts and circumstances omitted are highly material and
relevant to the grant or denial of writ of attachment applied
for.
Finally, there is no merit in petitioner’s contention that
respondent can be considered a resident who is temporarily
out of the Philippines upon whom service of summons may
be effected by publication, and therefore qualifies as among
those against whom a writ of attachment may be issued
under Section 1, paragraph (f), Rule 57 of the Rules of Court
which provides:
(f) In an action against a party x x x on whom summons may
be served by publication.
In so arguing, petitioner attempts to give the impression that
although it erroneously invoked the ground that respondent
does not reside in the Philippines, it should not be made to
pay damages because it is in fact entitled to a writ of
attachment had it invoked the proper ground under Rule 57.
However, even on this alternative ground, petitioner is still
not entitled to the issuance of a writ of attachment.
The circumstances under which a writ of preliminary
attachment may be issued are set forth in Section 1, Rule 57
of the Rules of Court, to wit:
SEC. 1. Grounds upon which attachment may issue. — At the
commencement of the action or at any time before entry of
judgment, a plaintiff or any proper party may have the
property of the adverse party attached as security for the
satisfaction of any judgment that may be recovered in the
following cases:
(a) In an action for the recovery of a specified
amount of money or damages, other than moral and
exemplary, on a cause of action arising from law,
contract, quasi-contract, delict or quasi-delict
against a party who is about to depart from the
Philippines with intent to defraud his creditors;
(b) In an action for money or property embezzled or
fraudulently misapplied or converted to his own use
by a public officer, or an officer of a corporation or
an attorney, factor, broker, agent, or clerk, in the
course of his employment as such, or by any other
(d) In an action against a party who has been guilty
of a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in
the performance thereof;
(e) In an action against a party who has removed or
disposed of his property, or is about to do so, with
intent to defraud his creditors;
(f) In an action against a party who resides out of
the Philippines, or on whom summons may be
served by publication.
The purposes of preliminary attachment are: (1) to seize the
property of the debtor in advance of final judgment and to
hold it for purposes of satisfying said judgment, as in the
grounds stated in paragraphs (a) to (e) of Section 1, Rule 57
of the Rules of Court; or (2) to acquire jurisdiction over the
action by actual or constructive seizure of the property in
those instances where personal or substituted service of
summons on the defendant cannot be effected, as in
paragraph (f) of the same provision.27
Corollarily, in actions in personam, such as the instant case
for collection of sum of money,28 summons must be served
by personal or substituted service, otherwise the court will
not acquire jurisdiction over the defendant. In case the
defendant does not reside and is not found in the Philippines
(and hence personal and substituted service cannot be
effected), the remedy of the plaintiff in order for the court to
acquire jurisdiction to try the case is to convert the action
into a proceeding in rem or quasi in rem by attaching the
property of the defendant.29 Thus, in order to acquire
jurisdiction in actions in personam where defendant resides
out of and is not found in the Philippines, it becomes a matter
of course for the court to convert the action into a
proceeding in rem or quasi in rem by attaching the
defendant’s property. The service of summons in this case
(which may be by publication coupled with the sending by
registered mail of the copy of the summons and the court
order to the last known address of the defendant), is no
longer for the purpose of acquiring jurisdiction but for
compliance with the requirements of due process.30
However, where the defendant is a resident who is
temporarily out of the Philippines, attachment of his/her
property in an action in personam, is not always necessary
in order for the court to acquire jurisdiction to hear the case.
Section 16, Rule 14 of the Rules of Court reads:
Sec. 16. Residents temporarily out of the Philippines. – When
an action is commenced against a defendant who ordinarily
resides within the Philippines, but who is temporarily out of
it, service may, by leave of court, be also effected out of the
Philippines, as under the preceding section.
The preceding section referred to in the above provision is
Section 15 which provides for extraterritorial service – (a)
personal service out of the Philippines, (b) publication
coupled with the sending by registered mail of the copy of
the summons and the court order to the last known address
of the defendant; or (c) in any other manner which the court
may deem sufficient.
In Montalban v. Maximo,31 however, the Court held that
substituted service of summons (under the present Section
7, Rule 14 of the Rules of Court) is the normal mode of
service of summons that will confer jurisdiction on the court
over the person of residents temporarily out of the
Philippines. Meaning, service of summons may be effected
by (a) leaving copies of the summons at the defendant’s
residence with some person of suitable discretion residing
therein, or (b) by leaving copies at the defendant’s office or
regular place of business with some competent person in
charge thereof.32 Hence, the court may acquire jurisdiction
over an action in personam by mere substituted service
without need of attaching the property of the defendant.
The rationale in providing for substituted service as the
normal mode of service for residents temporarily out of the
Philippines, was expounded in Montalban v. Maximo, 33 in this
wise:
A man temporarily absent from this country leaves a definite
place of residence, a dwelling where he lives, a local base,
so to speak, to which any inquiry about him may be directed
and where he is bound to return. Where one temporarily
absents himself, he leaves his affairs in the hands of one who
may be reasonably expected to act in his place and stead; to
do all that is necessary to protect his interests; and to
communicate with him from time to time any incident of
importance that may affect him or his business or his affairs.
It is usual for such a man to leave at his home or with his
business associates information as to where he may be
contacted in the event a question that affects him crops up.
Thus, in actions in personam against residents temporarily
out of the Philippines, the court need not always attach the
defendant’s property in order to have authority to try the
case. Where the plaintiff seeks to attach the defendant’s
property and to resort to the concomitant service of
summons by publication, the same must be with prior leave,
precisely because, if the sole purpose of the attachment is
for the court to acquire jurisdiction, the latter must determine
whether from the allegations in the complaint, substituted
service (to persons of suitable discretion at the defendant’s
residence or to a competent person in charge of his office or
regular place of business) will suffice, or whether there is a
need to attach the property of the defendant and resort to
service of summons by publication in order for the court to
acquire jurisdiction over the case and to comply with the
requirements of due process.
In the instant case, it must be stressed that the writ was
issued by the trial court mainly on the representation of
petitioner that respondent is not a resident of the
Philippines.34 Obviously, the trial court’s issuance of the writ
was for the sole purpose of acquiring jurisdiction to hear and
decide the case. Had the allegations in the complaint
disclosed that respondent has a residence in Quezon City and
an office in Makati City, the trial court, if only for the purpose
of acquiring jurisdiction, could have served summons by
substituted service on the said addresses, instead of
attaching the property of the defendant. The rules on the
application of a writ of attachment must be strictly construed
in favor of the defendant. For attachment is harsh,
extraordinary, and summary in nature; it is a rigorous
remedy which exposes the debtor to humiliation and
annoyance.35 It should be resorted to only when necessary
and as a last remedy.
It is clear from the foregoing that even on the allegation that
respondent is a resident temporarily out of the Philippines,
petitioner is still not entitled to a writ of attachment because
the trial court could acquire jurisdiction over the case by
substituted service instead of attaching the property of the
defendant. The misrepresentation of petitioner that
respondent does not reside in the Philippines and its omission
of his local addresses was thus a deliberate move to ensure
that the application for the writ will be granted.
In light of the foregoing, the Court of Appeals properly
sustained the finding of the trial court that petitioner is liable
for damages for the wrongful issuance of a writ of
attachment against respondent.
Anent the actual damages, the Court of Appeals is correct in
not awarding the same inasmuch as the respondent failed to
establish the amount garnished by petitioner. It is a well
settled rule that one who has been injured by a wrongful
attachment can recover damages for the actual loss resulting
therefrom. But for such losses to be recoverable, they must
constitute actual damages duly established by competent
proofs, which are, however, wanting in the present case. 36
Nevertheless, nominal damages may be awarded to a
plaintiff whose right has been violated or invaded by the
defendant, for the purpose of vindicating or recognizing that
right, and not for indemnifying the plaintiff for any loss
suffered by him. Its award is thus not for the purpose of
indemnification for a loss but for the recognition and
vindication of a right. Indeed, nominal damages are damages
in name only and not in fact.37 They are recoverable where
some injury has been done but the pecuniary value of the
damage is not shown by evidence and are thus subject to
the discretion of the court according to the circumstances of
the case.38
In this case, the award of nominal damages is proper
considering that the right of respondent to use his money
has been violated by its garnishment. The amount of nominal
damages must, however, be reduced from ₱2 million to
₱50,000.00 considering the short period of 2 months during
which the writ was in effect as well as the lack of evidence
as to the amount garnished.1âwphi1
Likewise, the award of attorney’s fees is proper when a party
is compelled to incur expenses to lift a wrongfully issued writ
of attachment. The basis of the award thereof is also the
amount of money garnished, and the length of time
respondents have been deprived of the use of their money
by reason of the wrongful attachment.39 It may also be based
upon (1) the amount and the character of the services
rendered; (2) the labor, time and trouble involved; (3) the
nature and importance of the litigation and business in which
the services were rendered; (4) the responsibility imposed;
(5) the amount of money and the value of the property
affected by the controversy or involved in the employment;
(6) the skill and the experience called for in the performance
of the services; (7) the professional character and the social
standing of the attorney; (8) the results secured, it being a
recognized rule that an attorney may properly charge a much
larger fee when it is contingent than when it is not.40
All the aforementioned weighed, and considering the short
period of time it took to have the writ lifted, the favorable
decisions of the courts below, the absence of evidence as to
the professional character and the social standing of the
attorney handling the case and the amount garnished, the
award of attorney’s fees should be fixed not at ₱1 Million, but
only at ₱200,000.00.
The courts below correctly awarded moral damages on
account of petitioner’s misrepresentation and bad faith;
however, we find the award in the amount of ₱5 Million
excessive. Moral damages are to be fixed upon the discretion
of the court taking into consideration the educational, social
and financial standing of the parties.41 Moral damages are
not intended to enrich a complainant at the expense of a
defendant.42 They are awarded only to enable the injured
party to obtain means, diversion or amusements that will
serve to obviate the moral suffering he has undergone, by
reason of petitioner’s culpable action. Moral damages must
be commensurate with the loss or injury suffered. Hence, the
award of moral damages is reduced to ₱500,000.00.
Considering petitioner’s bad faith in securing the writ of
attachment, we sustain the award of exemplary damages by
way of example or correction for public good. This should
deter parties in litigations from resorting to baseless and
preposterous allegations to obtain writs of attachments.
While as a general rule, the liability on the attachment bond
is limited to actual (or in some cases, temperate or nominal)
damages, exemplary damages may be recovered where the
attachment was established to be maliciously sued
out.43 Nevertheless, the award of exemplary damages in this
case should be reduced from ₱5M to ₱500,000.00.
Finally, contrary to the claim of petitioner, the instant case
for damages by reason of the invalid issuance of the writ,
survives the dismissal of the main case for sum of money.
Suffice it to state that the claim for damages arising from
such wrongful attachment may arise and be decided
separately from the merits of the main action.44
WHEREFORE, the petition is PARTIALLY GRANTED. The May
31, 2006 Decision of the Court of Appeals in CA-G.R. CV No.
78200 is AFFIRMED with MODIFICATIONS. As modified,
petitioner Philippine Commercial International Bank is
ordered to pay respondent Joseph Anthony M. Alejandro the
following amounts: ₱50,000.00 as nominal damages,
₱200,000.00 as attorney’s fees; and ₱500,000.00 as moral
damages, and ₱500,000.00 as exemplary damages, to be
satisfied against the attachment bond issued by Prudential
Guarantee & Assurance Inc.,45 under JCL (4) No. 01081,
Bond No. HO-46764-97.
No pronouncement as to costs.
SO ORDERED.