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G.R. No.

L-34589 June 29, 1988


ENGINEERING CONSTRUCTION INCORPORATED, petitioner,
vs.
NATIONAL POWER CORPORATION and COURT OF
APPEALS, respondents.
G.R. No. L-34656 June 29, 1988
MANILA ELECTRIC COMPANY, petitioner,
vs.
COURT OF APPEALS and NATIONAL POWER
CORPORATION, respondents.
FERNAN, J.:
In these related petitions for review under Rule 45 of the Rules of
Court, the Engineering Construction, Inc. [ECI] and the Manila
Electric Company [MERALCO] question the decision of the Court
of Appeals in CA-G.R. No. 47528-R which set aside the orders of
the trial court directing execution pending appeal of a judgment
for P1,108,985.31 in damages in favor of ECI. Petitioners also
question the resolution of said court holding them liable for
restitution of the garnished funds to the National Power
Corporation [NPC].
On August 29, 1968, ECI filed a complaint for damages against
the NPC in the then Court of First Instance of Manila, Branch 15,
alleging that it suffered damages to its facilities and equipment
due to the inundation of its campsite in Ipo, Norzagaray, Bulacan,
as a direct result of the improper and careless opening by NPC of
the spillway gates of Angat Dam at the height of typhoon
"Welming" on November 4,1967. 1
On December 23, 1970, the trial court found NPC guilty of gross
negligence and rendered its judgment, thus:
WHEREFORE, judgment is rendered in favor of
plaintiff and against defendant as follows:
1. Ordering defendant to pay plaintiff actual or
compensatory damages in the amount of
P675,785.31;
2. Ordering defendant to pay consequential
damages in the amount of P233,200.00; *
3. Ordering defendant to pay plaintiff the
amount of P50,000 as and by way of
exemplary damages; and
4. Ordering defendant to pay plaintiff the
amount of P50,000 as and for attorney's fees
... 2
NPC filed a notice of appeal from that decision but before it could
perfect its appeal, ECI moved for and was granted execution
pending appeal upon posting a covering bond of P200,000 which
it later increased to P1,109,000 to fully answer for whatever
damages NPC might incur by reason of the premature execution
of the lower court's decision. 3

In granting said motion for the exceptional writ over the strong
opposition of the NPC, the trial court adopted the grounds
adduced by movant ECI.
1. x x x.
2. That the substantial portion of the award of
damages refers to the actual or compensatory
damages incurred by plaintiff, which are
supported by voluminous documentary
evidence, the genuineness and due execution
of which were admitted and further, no
evidence whatever was presented to contest
the same;
3. That this case has been pending for years, as
the plaintiff and the Honorable Court were led
to believe that the matter in dispute would be
settled amicably;
4. That an appeal by defendant would
obviously be for purposes of delay;
5. That on appeal, the case would certainly
drag on for many years, and in the meantime,
the actual loss and damages sustained by
plaintiff, who because of such loss have
become heavily obligated and financially
distressed, would remain uncompensated and
unsatisfied
6. That also, plaintiff is willing and able to file a
bond to answer for any damage which
defendant may suffer as a result of an
execution pending appeal. 4
Subsequently, Deputy Sheriff Restituto R. Quemada who was
assigned to enforce the writ of execution, garnished in favor
of ECI all amounts due and payable to NPC which were then in
possession of MERALCO and sufficient to cover the judgment sum
of P1,108,985.31. 5
Attempts to lift the order of execution having proved futile and
the offer of a supersedeas bond having been rejected by the
lower court, NPC filed with the Appellate Court a petition for
certiorari. 6
In its challenged decision of October 20, 1971, the Court of
Appeals granted NPCs petition and nullified the execution
pending appeal of the judgment rendered by the trial court on
December 28, 1970, as well as all issued writs and processes in
connection with the execution. One justice dissented. 7
On November 11, 1971, MERALCO sought from the Appellate
Court a clarification and reconsideration of the aforesaid decision
on the ground, among others, that the decision was being used
by NPC to compel MERALCOto return the amount of
P1,114,545.23 (inclusive of sheriff's fees) in two checks which it
had already entrusted to the deputy sheriff on February 23, 1971,
who then indorsed and delivered the same to ECI. Whereupon, in
its resolution of January 7, 1972, the Appellate Court held the
sheriff, MERALCO and ECI liable to restore to NPC the amount due
Section 8 Provisional Remedies

to NPC which MERALCO had earlier turned over to the sheriff for
payment to ECI. 8
Their two motions for reconsideration having been
denied, ECI and MERALCO filed separate petitions for review
before this Court: Nos. L-34589 and 34656, the very petitions
before us for adjudication. In this connection, it must be made
clear that we are not concemed with the main appeal. For the
present, we limit our discussion to the correctness of the
extraordinary writ of execution pending appeal and the ordered
restitution of the garnished funds---two collateral matters which
have greatly exacerbated the existing dispute between the
parties.
We shall deal first with the propriety of the execution pending
appeal.
Section 2, Rule 39 of the Rules of Court provides:
Execution pending appeal. On motion of the
prevailing party with notice to the adverse
party the court may, in its discretion, order
execution to issue even before the expiration
of the time to appeal, upon good reasons to be
stated in a special order. If a record on appeal
is filed thereafter, the motion and the special
order shall be included thereon.
While the rule gives the court the discretionary power to allow
immediate execution, the following requisites must be satisfied
for its valid exercise:
(a) There must be a motion by the prevailing
party with notice to the adverse party;
(b) There must be a good reasons for issuing
the execution; and
(c) The good reasons must be stated in a
special order.
In its assailed decision, the Appellate Court, through Justice
Salvador V. Esguerra, observe that NPC, as defendant in the civil
case for damages, was being ordered to pay the amount of P
1,108,985.31 pending appeal when practically 40% thereof was
made up of awards of damages based on the court's sole and
untrammeled discretion. Such amount might greatly be reduced
by the superior court, especially the items for consequential and
exemplary damages and attorney's fees which by themselves
would amount to the "staggering" sum of P433,220.00
The Appellate Court noted the many instances when on review,
the amounts for attorney's fees and exemplary and moral
damages were drastically cut or eliminated altogether in the
absence of proof that the losing party acted with malice, evident
bad faith or in an oppressive manner.
Inasmuch as the list submitted by ECI of the estimated losses and
damages to its tunnel project caused by the instant flooding on
November 4, 1967 was duly supported by vouchers presented in
evidence, and considering that NPC, for its part, failed to submit
proofs to refute or contradict such documentary evidence, we are

constrained to sustain the order of execution pending appeal by


the trial court but only as far as the award for actual or
compensatory damages is concemed. We are not prepared to
disagree with the lower court on this point since it was not
sufficiently shown that it abused or exceeded its authority.
With respect to the consequential and exemplary damages as
well as attorney's fees, however, we concur with the Appellate
Court in holding that the lower court had exceeded the limits of
its discretion. Execution should have been postponed until such
time as the merits of the case have been finally determined in the
regular appeal.
In the fairly recent case of RCPI, et al vs. Lantin Nos. L-59311 and
59320, January 31, 1985 , 134 SCRA 395, 400-401, the Court said:
The execution of any award for moral and
exemplary damages is dependent on the
outcome of the main case. Unlike actual
damages for which the petitioners may clearly
be held liable if they breach a specific contract
and the amounts of which are fixed and
certain, liabilities with respect to moral and
exemplary damages as well as the exact
amounts remain uncertain and indefinite
pending resolution by the Intermediate
Appellate Court and eventually the Supreme
Court. The existence of the factual bases of
these types of damages and their casual
relation to petitioners' act will have to be
determined in the light of the assignments or
errors on appeal. It is possible that the
petitioners, after all, while liable for actual
damages may not be liable for moral and
exemplary damages. Or as in some cases
elevated to the Supreme Court, the awards
may be reduced.
Indeed, as later events would show, the
Appellate Court was proven right when it
postulated that it is not beyond the realm of
probability that NPCs appeal from the lower
court's judgment could result in the
substantial reduction of the consequential
damages and attorney's fees and the deletion
of exemplary damages.
We take judicial notice of the fact that on
August 24, 1987, the Court of Appeals
rendered a decision on the main appeal. 9 It
affirmed the trial court's conclusion
that NPC was guilty of negligence but differred
in the award of damages. While it upheld the
court a quo's award of P675,785.31 as actual
damages, it reduced the consequential
damages from P333,200.00 to P19,200.00 and
the attorney's fees from P50,000 to
P30,000.00 The grant of P50,000 as exemplary
damages was eliminated. Altogether, the
award of damages was modified from
P1,108,985.31 to P724,985.31. From that
decision, both the ECI and NPC filed their
separate appeals to this Court. 10 Finally, on
May 16, 1988, the Court promulgated its
Section 8 Provisional Remedies

judgment affirming in all respects the


Appellate Court's decision in CA-G.R. No.
49955-R, thus putting to rest the question of
negligence and NPCs liability for damages.
The point that the Court wishes to emphasize is this: Courts look
with disfavor upon any attempt to execute a judgment which has
not acquired a final character. Section 2, Rule 39, authorizing the
premature execution of judgments, being an exception to the
general rule, must be restrictively construed. It would not be a
sound rule to allow indiscriminately the execution of a money
judgment, even if there is a sufficient bond. "The reasons allowing
execution must constitute superior circumstances demanding
urgency which will outweigh the injury or damages should the
losing party secure a reversal of the judgment."' 11
We come now to the second issue of whether petitioners,
including the sheriff, are bound to restore to NPC the judgment
amount which has been delivered to ECI in compliance with the
writ of garnishment.
In line with our pronouncement that we are sanctioning in this
particular instance the execution pending appeal of actual but not
consequential and exemplary damages and attorney's fees which
must necessarily depend on the final resolution of the main cases,
i.e., Nos. L-47379 and 47481, the direct consequence would be to
authorizeNPC to proceed against the covering bond filed
by ECI but only to the extent of the difference between the
amount finally adjudicated by this Court in the main cases
[P724,985.31] and the amount originally decreed by the trial
court relating to the consequential and exemplary damages and
attorney's fees [P1,108.985.31]. In other words,ECIs bond is held
answerable to NPC for P384,000.
But while partial restitution is warranted in favor of NPC, we find
that the Appellate Court erred in not absolvingMERALCO, the
garnishee, from its obligations to NPC with respect to the
payment
to ECI of
P1,114,543.23,
thus
in
effect
subjecting MERALCO to double liability. MERALCO should not
have been faulted for its prompt obedience to a writ of
garnishment. Unless there are compelling reasons such as: a
defect on the face of the writ or actual knowledge on the part of
the garnishee of lack of entitlement on the part of the garnisher, it
is not incumbent upon the garnishee to inquire or to judge for
itself whether or not the order for the advance execution of a
judgment is valid.

clerk, sheriff or other proper officer of the


court issuing the attachment.
Garnishment is considered as a specie of attachment for reaching
credits belonging to the judgment debtor and owing to him from
a stranger to the litigation. Under the above-cited rule, the
garnishee [the third person] is obliged to deliver the credits, etc.
to the proper officer issuing the writ and "the law exempts from
liability the person having in his possession or under his control
any credits or other personal property be, longing to the
defendant, ..., if such property be delivered or transferred, ..., to
the clerk, sheriff, or other officer of the court in which the action
is pending." 12
Applying the foregoing to the case at bar, MERALCO, as garnishee,
after having been judicially compelled to pay the amount of the
judgment represented by funds in its possession belonging to the
judgment debtor or NPC, should be released from all
responsibilities over such amount after delivery thereof to the
sheriff. The reason for the rule is self-evident. To expose
garnishees to risks for obeying court orders and processes would
only undermine the administration of justice.
WHEREFORE, the Court in disposing of the two side issues of
execution pending appeal and petitioners' liability for restitution,
hereby MODIFIES the Court of Appeals' decision and resolution
under review, and rules as follows:
[a] NPC is authorized to proceed against the P1,109,000 bond
filed by ECI to the extent of P384,000 which corresponds to the
difference between the awards for consequential and exemplary
damages and attorney's fees upheld by the Court in
the main cases (Nos. L-47379 and 47481) and those decreed for
the same items by the trial court;
[b] MERALCO is declared absolved from any and all
responsibilities in connection with the amount of P1,114,545.23
representing the NPC garnished funds and therefore relieved
from the burden of restoring the same to NPC.
SO ORDERED .

Section 8, Rule 57 of the Rules of Court provides,


Effect of attachment of debts and credits.-All
persons having in their possession or under
their control any credits or other similar
personal property belonging to the party
against whom attachment is issued, or owing
any debts to the same, at the time of service
upon them of a copy of the order of
attachment and notice as provided in the last
preceding section, shall be liable to the
applicant for the amount of such credits, debts
or other property, until the attachment be
discharged, or any judgment recovered by him
be satisfied, unless such property be delivered
or transferred, or such debts be paid, to the
Section 8 Provisional Remedies

G.R. No. L-34548 November 29, 1988


RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
THE HONORABLE PACIFICO P. DE CASTRO and PHILIPPINE
VIRGINIA TOBACCO ADMINISTRATION,respondents
CORTES, J.:
The crux of the instant controversy dwells on the liability of a
bank for releasing its depositor's funds upon orders of the court,
pursuant to a writ of garnishment. If in compliance with the court
order, the bank delivered the garnished amount to the sheriff,
who in turn delivered it to the judgment creditor, but
subsequently, the order of the court directing payment was set
aside by the same judge, should the bank be held solidarily liable
with the judgment creditor to its depositor for reimbursement of
the garnished funds? The Court does not think so.
In Civil Case No. Q-12785 of the Court of First Instance of Rizal,
Quezon City Branch IX entitled "Badoc Planters, Inc. versus
Philippine Virginia Tobacco Administration, et al.," which was an
action for recovery of unpaid tobacco deliveries, an Order (Partial
Judgment) was issued on January 15, 1970 by the Hon. Lourdes P.
San Diego, then Presiding Judge, ordering the defendants therein
to pay jointly and severally, the plaintiff Badoc Planters, Inc.
(hereinafter referred to as "BADOC") within 48 hours the
aggregate amount of P206,916.76, with legal interests thereon.
On January 26,1970, BADOC filed an Urgent Ex-Parte Motion for a
Writ of Execution of the said Partial Judgment which was granted
on the same day by the herein respondent judge who acted in
place of the Hon. Judge San Diego who had just been elevated as a
Justice of the Court of Appeals. Accordingly, the Branch Clerk of
Court on the very same day, issued a Writ of Execution addressed
to Special Sheriff Faustino Rigor, who then issued a Notice of
Garnishment addressed to the General Manager and/or Cashier
of Rizal Commercial Banking Corporation (hereinafter referred to
as RCBC), the petitioner in this case, requesting a reply within
five (5) days to said garnishment as to any property which the
Philippine Virginia Tobacco Administration (hereinafter referred
to as "PVTA") might have in the possession or control of
petitioner or of any debts owing by the petitioner to said
defendant. Upon receipt of such Notice, RCBC notified PVTA
thereof to enable the PVTA to take the necessary steps for the
protection of its own interest [Record on Appeal, p. 36]
Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed by
BADOC, the respondent Judge issued an Order granting the ExParte Motion and directing the herein petitioner "to deliver in
check the amount garnished to Sheriff Faustino Rigor and Sheriff
Rigor in turn is ordered to cash the check and deliver the amount
to the plaintiff's representative and/or counsel on record."
[Record on Appeal, p. 20; Rollo, p. 5.] In compliance with said
Order, petitioner delivered to Sheriff Rigor a certified check in
the sum of P 206,916.76.
Respondent PVTA filed a Motion for Reconsideration dated
February 26,1970 which was granted in an Order dated April
6,1970, setting aside the Orders of Execution and of Payment and
the Writ of Execution and ordering petitioner and BADOC "to
restore, jointly and severally, the account of PVTA with the said
bank in the same condition and state it was before the issuance of

the aforesaid Orders by reimbursing the PVTA of the amount of P


206, 916.76 with interests at the legal rate from January 27, 1970
until fully paid to the account of the PVTA This is without
prejudice to the right of plaintiff to move for the execution of the
partial judgment pending appeal in case the motion for
reconsideration is denied and appeal is taken from the said
partial judgment." [Record on Appeal, p. 58]
The Motion for Reconsideration of the said Order of April 6, 1970
filed by herein petitioner was denied in the Order of respondent
judge dated June 10, 1970 and on June 19, 1970, which was
within the period for perfecting an appeal, the herein petitioner
filed a Notice of Appeal to the Court of Appeals from the said
Orders.
This case was then certified by the Court of Appeals to this
Honorable Court, involving as it does purely questions of law.
The petitioner raises two principal queries in the instant case: 1)
Whether or not PVTA funds are public funds not subject to
garnishment; and 2) Whether or not the respondent Judge
correctly ordered the herein petitioner to reimburse the amount
paid to the Special Sheriff by virtue of the execution issued
pursuant to the Order/Partial Judgment dated January 15, 1970.
The record reveals that on February 2, 1970, private respondent
PVTA filed a Motion for Reconsideration of the Order/ Partial
Judgment of January 15, 1970. This was granted and the
aforementioned Partial Judgment was set aside. The case was set
for hearings on November 4, 9 and 11, 1970 [Rollo, pp. 205-207.]
However, in view of the failure of plaintiff BADOC to appear on
the said dates, the lower court ordered the dismissal of the case
against PVTA for failure to prosecute [Rollo, p. 208.]
It must be noted that the Order of respondent Judge dated April
6, 1970 directing the plaintiff to reimburse PVTA t e amount of
P206,916.76 with interests became final as to said plaintiff who
failed to even file a motion for reconsideration, much less to
appeal from the said Order. Consequently, the order to restore
the account of PVTA with RCBC in the same condition and state it
was before the issuance of the questioned orders must be upheld
as to the plaintiff, BADOC.
However, the questioned Order of April 6, 1970 must be set aside
insofar as it ordered the petitioner RCBC, jointly and severally
with BADOC, to reimburse PVTA.
The petitioner merely obeyed a mandatory directive from the
respondent Judge dated January 27, 1970, ordering petitioner 94
"to deliver in check the amount garnished to Sheriff Faustino
Rigor and Sheriff Rigor is in turn ordered to cash the check and
deliver the amount to the plaintiffs representative and/or
counsel on record." [Record on Appeal, p. 20.]
PVTA however claims that the manner in which the bank
complied with the Sheriffs Notice of Garnishment indicated
breach of trust and dereliction of duty on the part of the bank as
custodian of government funds. It insistently urges that the
premature delivery of the garnished amount by RCBC to the
special sheriff even in the absence of a demand to deliver made
by the latter, before the expiration of the five-day period given to
reply to the Notice of Garnishment, without any reply having
been given thereto nor any prior authorization from its
Section 8 Provisional Remedies

depositor, PVTA and even if the court's order of January 27, 1970
did not require the bank to immediately deliver the garnished
amount constitutes such lack of prudence as to make it
answerable jointly and severally with the plaintiff for the
wrongful release of the money from the deposit of the PVTA. The
respondent Judge in his controverted Order sustained such
contention and blamed RCBC for the supposed "hasty release of
the amount from the deposit of the PVTA without giving PVTA a
chance to take proper steps by informing it of the action being
taken against its deposit, thereby observing with prudence the
five-day period given to it by the sheriff." [Rollo, p. 81.]
Such allegations must be rejected for lack of merit. In the first
place, it should be pointed out that RCBC did not deliver the
amount on the strength solely of a Notice of Garnishment; rather,
the release of the funds was made pursuant to the aforesaid
Order of January 27, 1970. While the Notice of Garnishment
dated January 26, 1970 contained no demand of payment as it
was a mere request for petitioner to withold any funds of the
PVTA then in its possession, the Order of January 27, 1970
categorically required the delivery in check of the amount
garnished to the special sheriff, Faustino Rigor.
In the second place, the bank had already filed a reply to the
Notice of Garnishment stating that it had in its custody funds
belonging to the PVTA, which, in fact was the basis of the plaintiff
in filing a motion to secure delivery of the garnished amount to
the sheriff. [See Rollo, p. 93.]
Lastly, the bank, upon the receipt of the Notice of Garnishment,
duly informed PVTA thereof to enable the latter to take the
necessary steps for the protection of its own interest [Record on
Appeal, p. 36]
It is important to stress, at this juncture, that there was nothing
irregular in the delivery of the funds of PVTA by check to the
sheriff, whose custody is equivalent to the custody of the court,
he being a court officer. The order of the court dated January 27,
1970 was composed of two parts, requiring: 1) RCBC to deliver
in check the amount garnished to the designated sheriff and 2)
the sheriff in turn to cash the check and deliver the amount to the
plaintiffs representative and/or counsel on record. It must be
noted that in delivering the garnished amount in check to the
sheriff, the RCBC did not thereby make any payment, for the law
mandates that delivery of a check does not produce the effect of
payment until it has been cashed. [Article 1249, Civil Code.]
Moreover, by virtue of the order of garnishment, the same was
placed in custodia legis and therefore, from that time on, RCBC
was holding the funds subject to the orders of the court a quo.
That the sheriff, upon delivery of the check to him by RCBC
encashed it and turned over the proceeds thereof to the plaintiff
was no longer the concern of RCBC as the responsibility over the
garnished funds passed to the court. Thus, no breach of trust or
dereliction of duty can be attributed to RCBC in delivering its
depositor's funds pursuant to a court order which was merely in
the exercise of its power of control over such funds.
... 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 court [De Leon v. Salvador, G.R. Nos. L30871 and L-31603, December 28,1970, 36
SCRA 567, 574.]
The respondent judge however, censured the petitioner for
having released the funds "simply on the strength of the Order of
the court which. far from ordering an immediate release of the
amount involved, merely serves as a standing authority to make
the release at the proper time as prescribed by the rules." [Rollo,
p. 81.]
This argument deserves no serious consideration. As stated
earlier, the order directing the bank to deliver the amount to the
sheriff was distinct and separate from the order directing the
sheriff to encash the said check. The bank had no choice but to
comply with the order demanding delivery of the garnished
amount in check. The very tenor of the order called for
immediate compliance therewith. On the other hand, the bank
cannot be held liable for the subsequent encashment of the check
as this was upon order of the court in the exercise of its power of
control over the funds placed in custodia legis by virtue of the
garnishment.
In a recent decision [Engineering Construction Inc., v. National
Power Corporation, G.R. No. L-34589, June 29, 1988] penned by
the now Chief Justice Marcelo Fernan, this Court absolved a
garnishee from any liability for prompt compliance with its order
for the delivery of the garnished funds. The rationale behind such
ruling deserves emphasis in the present case:
But while partial restitution is warranted in
favor of NPC, we find that the Appellate Court
erred in not absolving MERALCO, the
garnishee, from its obligations to NPC with
respect to the payment of ECI of P
1,114,543.23, thus in effect subjecting
MERALCO to double liability. MERALCO
should not have been faulted for its prompt
obedience to a writ of garnishment. Unless
there are compelling reasons such as: a defect
on the face of the writ or actual knowledge on
the part of the garnishee of lack of entitlement
on the part of the garnisher, it is not incumbent
upon the garnishee to inquire or to judge for
itself whether or not the order for the advance
execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court
provides:
Effect of attachment of
debts and credits.All
persons having in their
possession or under their
control any credits or other
similar personal property
belonging to the party
against whom attachment is
issued, or owing any debts
to the same, all the time of
service upon them of a copy
of the order of attachment
and notice as provided in
the last preceding section,
Section 8 Provisional Remedies
5

shall be liable to the


applicant for the amount of
such credits, debts or other
property,
until
the
attachment be discharged,
or any judgment recovered
by him be satisfied, unless
such property be delivered
or transferred, or such
debts be paid, to the clerk,
sheriff or other proper
officer of the court issuing
the attachment.
Garnishment is considered as a specie of
attachment for reaching credits belonging to
the judgment debtor and owing to him from a
stranger to the litigation. Under the abovecited rule, the garnishee [the third person] is
obliged to deliver the credits, etc. to the proper
officer issuing the writ and "the law exempts
from liability the person having in his
possession or under his control any credits or
other personal property belonging to the
defendant, ..., if such property be delivered or
transferred, ..., to the clerk, sheriff, or other
officer of the court in which the action is
pending. [3 Moran, Comments on the Rules of
Court 34 (1970 ed.)]
Applying the foregoing to the case at bar, MERALCO, as garnishee,
after having been judicially compelled to pay the amount of the
judgment represented by funds in its possession belonging to the
judgment debtor or NPC, should be released from all
responsibilities over such amount after delivery thereof to the
sheriff. The reason for the rule is self-evident. To expose garnishees
to risks for obeying court orders and processes would only
undermine the administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's stand that its
immediate compliance with the lower court's order should not
have been met with the harsh penalty of joint and several
liability. Nor can its liability to reimburse PVTA of the amount
delivered in check be premised upon the subsequent declaration
of nullity of the order of delivery. As correctly pointed out by the
petitioner:
xxx xxx xxx
That the respondent Judge, after his Order was
enforced, saw fit to recall said Order and
decree its nullity, should not prejudice one
who dutifully abided by it, the presumption
being that judicial orders are valid and issued
in the regular performance of the duties of the
Court" [Section 5(m) Rule 131, Revised Rules
of Court]. This should operate with greater
force in relation to the herein petitioner
which, not being a party in the case, was just
called upon to perform an act in accordance
with a judicial flat. A contrary view will invite
disrespect for the majesty of the law and
induce reluctance in complying with judicial
orders out of fear that said orders might be

subsequently invalidated and thereby expose


one to suffer some penalty or prejudice for
obeying the same. And this is what will happen
were the controversial orders to be sustained.
We need not underscore the danger of this as a
precedent.
xxx xxx xxx
[ Brief for the Petitioner, Rollo, p. 212;
Emphasis supplied.]
From the foregoing, it may be concluded that the charge of
breach of trust and/or dereliction of duty as well as lack of
prudence in effecting the immediate payment of the garnished
amount is totally unfounded. Upon receipt of the Notice of
Garnishment, RCBC duly informed PVTA thereof to enable the
latter to take the necessary steps for its protection. However,
right on the very next day after its receipt of such notice, RCBC
was already served with the Order requiring delivery of the
garnished amount. Confronted as it was with a mandatory
directive, disobedience to which exposed it to a contempt order,
it had no choice but to comply.
The respondent Judge nevertheless held that the liability of RCBC
for the reimbursement of the garnished amount is predicated on
the ruling of the Supreme Court in the case of Commissioner of
Public Highways v. Hon. San Diego [G.R. No. L-30098, February 18,
1970, 31 SCRA 616] which he found practically on all fours with
the case at bar.
The Court disagrees.
The said case which reiterated the rule in Republic v. Palacio [G.R.
No. L-20322, May 29, 1968, 23 SCRA 899] that government funds
and properties may not be seized under writs of execution or
garnishment to satisfy such judgment is definitely distinguishable
from the case at bar.
In the Commissioner of Public Highways case [supra], the bank
which precipitately allowed the garnishment and delivery of the
funds failed to inform its depositor thereof, charged as it was
with knowledge of the nullity of the writ of execution and notice
of garnishment against government funds. In the aforementioned
case, the funds involved belonged to the Bureau of Public
Highways, which being an arm of the executive branch of the
government, has no personality of its own separate from the
National Government. The funds involved were government
fundscovered by the rule on exemption from execution.
This brings us to the first issue raised by the petitioner: Are the
PVTA funds public funds exempt from garnishment? The Court
holds that they are not.
Republic Act No. 2265 created the PVTA as an ordinary
corporation with all the attributes of a corporate entity subject to
the provisions of the Corporation Law. Hence, it possesses the
power "to sue and be sued" and "to acquire and hold such assets
and incur such liabilities resulting directly from operations
authorized by the provisions of this Act or as essential to the
proper conduct of such operations." [Section 3, Republic Act No.
2265.]
Section 8 Provisional Remedies

Among the specific powers vested in the PVTA are: 1) to buy


Virginia tobacco grown in the Philippines for resale to local bona
fide tobacco manufacturers and leaf tobacco dealers [Section
4(b), R.A. No. 2265]; 2) to contracts of any kind as may be
necessary or incidental to the attainment of its purpose with any
person, firm or corporation, with the Government of the
Philippines or with any foreign government, subject to existing
laws [Section 4(h), R.A. No. 22651; and 3) generally, to exercise
all the powers of a corporation under the Corporation Law,
insofar as they are not inconsistent with the provisions of this Act
[Section 4(k), R.A. No. 2265.]
From the foregoing, it is clear that PVTA has been endowed with
a personality distinct and separate from the government which
owns and controls it. Accordingly, this Court has heretofore
declared that the funds of the PVTA can be garnished since "funds
of public corporation which can sue and be sued were not exempt
from garnishment" [Philippine National Bank v. Pabalan, G.R. No.
L-33112, June 15, 1978, 83 SCRA 595, 598.]
In National Shipyards and Steel Corp. v. CIR [G.R. No. L-17874,
August 31, 1964, 8 SCRA 781], this Court held that the allegation
to the effect that the funds of the NASSCO are public funds of the
government and that as such, the same may not be garnished,
attached or levied upon is untenable for, as a government-owned
or controlled corporation, it has a personality of its own, distinct
and separate from that of the government. This court has
likewise ruled that other govemment-owned and controlled
corporations like National Coal Company, the National
Waterworks and Sewerage Authority (NAWASA), the National
Coconut Corporation (NACOCO) the National Rice and Corn
Corporation (NARIC) and the Price Stabilization Council
(PRISCO) which possess attributes similar to those of the PVTA
are clothed with personalities of their own, separate and distinct
from that of the government [National Coal Company v. Collector
of Internal Revenue, 46 Phil. 583 (1924); Bacani and Matoto v.
National Coconut Corporation et al., 100 Phil. 471 (1956); Reotan
v. National Rice & Corn Corporation, G.R. No. L-16223, February
27, 1962, 4 SCRA 418.] The rationale in vesting it with a separate
personality is not difficult to find. It is well-settled that when the
government enters into commercial business, it abandons its
sovereign capacity and is to be treated like any other corporation
[Manila Hotel Employees' Association v. Manila Hotel Co. and CIR,
73 Phil. 734 (1941).]
Accordingly, as emphatically expressed by this Court in a 1978
decision, "garnishment was the appropriate remedy for the
prevailing party which could proceed against the funds of a
corporate entity even if owned or controlled by the government"
inasmuch as "by engaging in a particular business thru the
instrumentality of a corporation, the government divests
itself pro hac vice of its sovereign character, so as to render the
corporation subject to the rules of law governing private
corporations" [Philippine National Bank v. CIR, G.R No. L-32667,
January 31, 1978, 81 SCRA 314, 319.]
Furthermore, in the case of PVTA, the law has expressly allowed
it funds to answer for various obligations, including the one
sought to be enforced by plaintiff BADOC in this case (i.e. for
unpaid deliveries of tobacco). Republic Act No. 4155, which
discounted the erstwhile support given by the Central Bank to
PVTA, established in lieu thereof a "Tobacco Fund" to be collected
from the proceeds of fifty per centum of the tariff or taxes of

imported leaf tobacco and also fifty per centum of the specific
taxes on locally manufactured Virginia type cigarettes.
Section 5 of Republic Act No. 4155 provides that this fund shall
be expended for the support or payment of:
1. Indebtedness of the Philippine Virginia
Tobacco Administration and the former
Agricultural Credit and Cooperative Financing
Administration to FACOMAS and farmers and
planters
regarding
Virginia
tobacco
transactions in previous years;
2. Indebtedness of the Philippine Virginia
Tobacco Administration and the former
Agricultural Credit and Cooperative Financing
Administration to the Central Bank in gradual
amounts
regarding
Virginia
tobacco
transactions in previous years;
3. Continuation of the Philippine Virginia
Tobacco Administration support and subsidy
operationsincluding the purchase of locally
grown and produced Virginia leaf tobacco, at
the present support and subsidy prices, its
procurement, redrying, handling, warehousing
and disposal thereof, and the redrying plants
trading within the purview of their contracts;
4. Operational, office and field expenses, and
the establishment of the Tobacco Research
and Grading Institute. [Emphasis supplied.]
Inasmuch as the Tobacco Fund, a special fund, was by law,
earmarked specifically to answer obligations incurred by PVTA in
connection with its proprietary and commercial operations
authorized under the law, it follows that said funds may be
proceeded against by ordinary judicial processes such as
execution and garnishment. If such funds cannot be executed
upon or garnished pursuant to a judgment sustaining the liability
of the PVTA to answer for its obligations, then the purpose of the
law in creating the PVTA would be defeated. For it was declared
to be a national policy, with respect to the local Virginia tobacco
industry, to encourage the production of local Virginia tobacco of
the qualities needed and in quantities marketable in both
domestic and foreign markets, to establish this industry on an
efficient and economic basis, and to create a climate conducive to
local cigarette manufacture of the qualities desired by the
consuming public, blending imported and native Virginia leaf
tobacco to improve the quality of locally manufactured cigarettes
[Section 1, Republic Act No. 4155.]
The Commissioner of Public Highways case is thus
distinguishable from the case at bar. In said case, the Philippine
National Bank (PNB) as custodian of funds belonging to the
Bureau of Public Highways, an agency of the government,
was chargeable with knowledge of the exemption of such
government funds from execution and garnishment pursuant to
the elementary precept that public funds cannot be disbursed
without the appropriation required by law. On the other hand,
the same cannot hold true for RCBC as the funds entrusted to its
custody, which belong to a public corporation, are in the nature
of private funds insofar as their susceptibility to garnishment is
Section 8 Provisional Remedies

concerned. Hence, RCBC cannot be charged with lack of prudence


for immediately complying with the order to deliver the
garnished amount. Since the funds in its custody are precisely
meant for the payment of lawfully-incurred obligations, RCBC
cannot rightfully resist a court order to enforce payment of such
obligations. That such court order subsequently turned out to
have been erroneously issued should not operate to the
detriment of one who complied with its clear order.
Finally, it is contended that RCBC was bound to inquire into the
legality and propriety of the Writ of Execution and Notice of
Garnishment issued against the funds of the PVTA deposited with
said bank. But the bank was in no position to question the legality
of the garnishment since it was not even a party to the case. As
correctly pointed out by the petitioner, it had neither the
personality nor the interest to assail or controvert the orders of
respondent Judge. It had no choice but to obey the same
inasmuch as it had no standing at all to impugn the validity of the
partial judgment rendered in favor of the plaintiff or of the
processes issued in execution of such judgment.
RCBC cannot therefore be compelled to make restitution
solidarily with the plaintiff BADOC. Plaintiff BADOC alone was
responsible for the issuance of the Writ of Execution and Order of
Payment and so, the plaintiff alone should bear the consequences
of a subsequent annulment of such court orders; hence, only the
plaintiff can be ordered to restore the account of the PVTA.
WHEREFORE, the petition is hereby granted and the petitioner is
ABSOLVED from any liability to respondent PVTA for
reimbursement of the funds garnished. The questioned Order of
the respondent Judge ordering the petitioner, jointly and
severally with BADOC, to restore the account of PVTA are
modified accordingly.
SO ORDERED.

Section 8 Provisional Remedies

G.R. No. 107282 March 16, 1994


THE MANILA REMNANT CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, AND SPS. OSCAR C. VENTANILLA
AND CARMEN GLORIA DIAZ, respondents.

legal interest thereon from March 1970, plus the decreed


damages and attorney's fees. Valencia was also held liable to
MRCI for moral and exemplary damages and attorney's fees.
From this decision, separate appeals were filed by Valencia and
MRCI. The appellate court, however, sustained the trial court in
toto.

CRUZ, J.:
The present petition is an offshoot of our decision in Manila
Remnant Co., Inc., (MRCI) v. Court of Appeals, promulgated on
November 22, 1990.
That case involved parcels of land in Quezon City which were
owned by petitioner MRCI and became the subject of its
agreement with A.U. Valencia and Co., Inc., (AUVCI) by virtue of
which the latter was to act as the petitioner's agent in the
development and sale of the property. For a stipulated fee, AUVCI
was to convert the lands into a subdivision, manage the sale of
the lots, execute contracts and issue official receipts to the lot
buyers. At the time of the agreement, the president of both MRCI
and AUVCI was Artemio U. Valencia.
Pursuant to the above agreement, AUVCI executed two contracts
to sell dated March 3, 1970, covering Lots 1 and 2, Block 17, in
favor of spouses Oscar C. Ventanilla and Carmen Gloria Diaz for
the combined contract price of P66,571.00, payable monthly in
ten years. After ten days and without the knowledge of the
Ventanilla couple, Valencia, as president of MRCI, resold the same
parcels to Carlos Crisostomo, one of his sales agents, without any
consideration. Upon orders of Valencia, the monthly payments of
the Ventanillas were remitted to the MRCI as payments of
Crisostomo, for which receipts were issued in his name. The
receipts were kept by Valencia without the knowledge of the
Ventanillas and Crisostomo. The Ventanillas continued paying
their monthly installments.
On May 30, 1973, MRCI informed AUVCI that it was terminating
their agreement because of discrepancies discovered in the
latter's collections and remittances. On June 6, 1973, Valencia
was removed by the board of directors of MRCI as its president.
On November 21, 1978, the Ventanilla spouses, having learned of
the supposed sale of their lots to Crisostomo, commenced an
action for specific performance, annulment of deeds, and
damages against Manila Remnant Co., Inc., A.U. Valencia and Co.,
Inc., and Carlos Crisostomo. It was docketed as Civil Case No.
26411 in the Court of First Instance of Quezon City, Branch
7-B.
On November 17, 1980, the trial court rendered a decision
declaring the contracts to sell in favor of the Ventanillas valid and
subsisting, and annulling the contract to sell in favor of
Crisostomo. It ordered the MRCI to execute an absolute deed of
sale in favor of the Ventanillas, free from all liens and
encumbrances. Damages and attorney's fees in the total amount
of P210,000.00 were also awarded to the Ventanillas for which
the MRCI, AUVCI, and Crisostomo were held solidarily liable.
The lower court ruled further that if for any reason the transfer
of the lots could not be effected, the defendants would be
solidarily liable to the Ventanillas for reimbursement of the sum
of P73,122.35, representing the amount paid for the two lots, and

MRCI then filed before this Court a petition for certiorari to


review the portion of the decision of the Court of Appeals
upholding the solidary liability of MRCI, AUVCI and Carlos
Crisostomo for the payment of moral and exemplary damages
and attorney's fees to the Ventanillas.
On November 22, 1990, this Court affirmed the decision by the
Court of Appeals and declared the judgment of the trial court
immediately executory.
The Present Case
On January 25, 1991, the spouses Ventanilla filed with the trial
court a motion for the issuance of a writ of execution in Civil Case
No. 26411. The writ was issued on May 3, 1991, and served upon
MRCI on May 9, 1991.
In a manifestation and motion filed by MRCI with the trial court
on May 24, 1991, the petitioner alleged that the subject
properties could not be delivered to the Ventanillas because they
had already been sold to Samuel Marquez on February 7, 1990,
while their petition was pending in this Court. Nevertheless,
MRCI offered to reimburse the amount paid by the respondents,
including legal interest plus the aforestated damages. MRCI also
prayed that its tender of payment be accepted and all
garnishments on their accounts lifted.
The Ventanillas accepted the amount of P210,000.00 as damages
and attorney's fees but opposed the reimbursement offered by
MRCI in lieu of the execution of the absolute deed of sale. They
contended that the alleged sale to Samuel Marquez was void,
fraudulent, and in contempt of court and that no claim of
ownership over the properties in question had ever been made
by Marquez.
On July 19, 1991, Judge Elsie Ligot-Telan issued the following
order:
To ensure that there is enough amount to
cover the value of the lots involved if transfer
thereof to plaintiff may no longer be effected,
pending litigation of said issue, the
garnishment made by the Sheriff upon the
bank account of Manila Remnant may be lifted
only upon the deposit to the Court of the
amount of P500,000.00 in cash.
MRCI then filed a manifestation and motion for reconsideration
praying that it be ordered to reimburse the Ventanillas in the
amount of P263,074.10 and that the garnishment of its bank
deposit be lifted. This motion was denied by the trial court in its
order dated September 30, 1991. A second manifestation and
motion filed by MRCI was denied on December 18, 1991. The trial
Section 8 Provisional Remedies

court also required MRCI to show cause why it should not be


cited for contempt for disobedience of its judgment.

the petitioner to evade the execution of the absolute deed of sale


in their favor.

These orders were questioned by MRCI in a petition


for certiorari before the respondent court on the ground that they
were issued with grave abuse of discretion.

The petition must fail.

The Court of Appeals ruled that the contract to sell in favor of


Marquez did not constitute a legal impediment to the immediate
execution of the judgment. Furthermore, the cash bond fixed by
the trial court for the lifting of the garnishment was fair and
reasonable because the value of the lot in question had increased
considerably. The appellate court also set aside the show-cause
order and held that the trial court should have proceeded under
Section 10, Rule 39 of the Rules of Court and not Section 9
thereof. 1
In the petition now before us, it is submitted that the trial court
and the Court of Appeals committed certain reversible errors to
the prejudice of MRCI.
The petitioner contends that the trial court may not enforce it
garnishment order after the monetary judgment for damages had
already been satisfied and the amount for reimbursement had
already been deposited with the sheriff. Garnishment as a
remedy is intended to secure the payment of a judgment debt
when a well-founded belief exists that the erring party will
abscond or deliberately render the execution of the judgment
nugatory. As there is no such situation in this case, there is no
need for a garnishment order.
It is also averred that the trial court gravely abused its discretion
when it arbitrarily fixed the amount of the cash bond for the
lifting of the garnishment order at P500,000.00.
MRCI further maintains that the sale to Samuel Marquez was
valid and constitutes a legal impediment to the execution of the
absolute deed of sale to the Ventanillas. At the time of the sale to
Marquez, the issue of the validity of the sale to the Ventanillas
had not yet been resolved. Furthermore, there was no specific
injunction against the petitioner re-selling the property.
Lastly, the petitioner insists that Marquez was a buyer in good
faith and had a right to rely on the recitals in the certificate of
title. The subject matter of the controversy having passed to an
innocent purchaser for value, the respondent court erred in
ordering the execution of the absolute deed of sale in favor of the
Ventanillas.
For their part, the respondents argue that the validity of the sale
to them had already been established even while the previous
petition was still pending resolution. That petition only
questioned the solidary liability of MRCI to the Ventanillas. The
portion of the decision ordering the MRCI to execute an absolute
deed of sale in favor of the Ventanillas became final and
executory when the petitioner failed to appeal it to the Supreme
Court. There was no need then for an order enjoining the
petitioner from re-selling the property in litigation.
They also point to the unusual lack of interest of Marquez in
protecting and asserting his right to the disputed property, a
clear indication that the alleged sale to him was merely a ploy of

The validity of the contract to sell in favor of the Ventanilla


spouses is not disputed by the parties. Even in the previous
petition, the recognition of that contract was not assigned as
error of either the trial court or appellate court. The fact that the
MRCI did not question the legality of the award for damages to
the Ventanillas also shows that it even then already
acknowledged the validity of the contract to sell in favor of the
private respondents.
On top of all this, there are other circumstances that cast
suspicion on the validity, not to say the very existence, of the
contract with Marquez.
First, the contract to sell in favor of Marquez was entered into
after the lapse of almost ten years from the rendition of the
judgment of the trial court upholding the sale to the Ventanillas.
Second, the petitioner did not invoke the contract with Marquez
during the hearing on the motion for the issuance of the writ of
execution filed by the private respondents. It disclosed the
contract only after the writ of execution had been served upon it.
Third, in its manifestation and motion dated December 21, 1990,
the petitioner said it was ready to deliver the titles to the
Ventanillas provided that their counterclaims against private
respondents were paid or offset first. There was no mention of
the contract to sell with Marquez on February 7, 1990.
Fourth, Marquez has not intervened in any of these proceedings
to assert and protect his rights to the subject property as an
alleged purchaser in good faith.
At any rate, even if it be assumed that the contract to sell in favor
of Marquez is valid, it cannot prevail over the final and executory
judgment ordering MRCI to execute an absolute deed of sale in
favor of the Ventanillas. No less importantly, the records do not
show that Marquez has already paid the supposed balance
amounting to P616,000.00 of the original price of over
P800,000.00. 2
The Court notes that the petitioner stands to benefit more from
the supposed contract with Marquez than from the contract with
the Ventanillas with the agreed price of only P66,571.00. Even if
it paid the P210,000.00 damages to the private respondents as
decreed by the trial court, the petitioner would still earn more
profit if the Marquez contract were to be sustained.
We come now to the order of the trial court requiring the posting
of the sum of P500,000.00 for the lifting of its garnishment order.
While the petitioners have readily complied with the order of the
trial court for the payment of damages to the Ventanillas, they
have, however, refused to execute the absolute deed of sale. It
was for the purpose of ensuring their compliance with this
portion of the judgment that the trial court issued the
garnishment order which by its term could be lifted only upon
the filling of a cash bond of P500,000.00.
Section 8 Provisional Remedies

10

The petitioner questions the propriety of this order on the


ground that it has already partially complied with the judgment
and that it has always expressed its willingness to reimburse the
amount paid by the respondents. It says that there is no need for
a garnishment order because it is willing to reimburse the
Ventanillas in lieu of execution of the absolute deed of sale.
The alternative judgment of reimbursement is applicable only if
the conveyance of the lots is not possible, but it has not been
shown that there is an obstacle to such conveyance. As the main
obligation of the petitioner is to execute the absolute deed of sale
in favor of the Ventanillas, its unjustified refusal to do so
warranted the issuance of the garnishment order.
Garnishment is a species of attachment for reaching credits
belonging to the judgment debtor and owing to him from a
stranger to the litigation. 3 It is an attachment by means of which
the plaintiff seeks to subject to his claim property of the
defendant in the hands of a third person or money owed by such
third person or garnishee to the defendant. 4 The rules on
attachment also apply to garnishment proceedings.
A garnishment order shall be lifted if it established that:
(a) the party whose accounts have been
garnished has posted a counterbond or has
made the requisite cash deposit; 5
(b) the order was improperly or irregularly
issued 6 as where there is no ground for
garnishment 7 or the affidavit and/or bond
filed therefor are defective or insufficient; 8
(c) the property attached is exempt from
execution, hence exempt from preliminary
attachment 9 or
(d) the judgment is rendered against the
attaching or garnishing creditor. 10
Partial execution of the judgment is not included in the above
enumeration of the legal grounds for the discharge of a
garnishment order. Neither does the petitioner's willingness to
reimburse render the garnishment order unnecessary. As for the
counterbond, the lower court did not err when it fixed the same
at P500,000.00. As correctly pointed out by the respondent court,
that amount corresponds to the current fair market value of the
property in litigation and was a reasonable basis for determining
the amount of the counterbond.
Regarding the refusal of the petitioner to execute the absolute
deed of sale, Section 10 of Rule 39 of the Rules of Court reads as
follows:
Sec. 10. Judgment for specific act; vesting title
If a judgment directs a party to execute a
conveyance of land, or to deliver deeds or
other documents, or to perform any other
specific act, and the party fails to comply
within the time specified, the court may direct
the act to be done at the cost of the
disobedient party by some other person

appointed by the court and the act when so


done shall have like effect as if done by the
party. If real or personal property is within the
Philippines, the court in lieu of directing a
conveyance thereof may enter judgment
divesting the title of any party and vesting it in
others and such judgment shall have the force
and effect of a conveyance executed in due
form of law.
Against the unjustified refusal of the petitioner to accept payment
of the balance of the contract price, the remedy of the
respondents is consignation, conformably to the following
provisions of the Civil Code:
Art. 1256. If the creditor to whom tender of
payment has been made refuses without just
cause to accept it, the debtor shall be released
from responsibility by the consignation of the
thing or sum due. . .
Art. 1258. Consignation shall be made by
depositing the things due at the disposal of the
judicial authority, before whom the tender of
payment shall be proved, in a proper case, and
the announcement of the consignation in other
cases.
The consignation having been made, the
interested parties shall also be notified
thereof.
Art. 1260. Once the consignation has been duly
made, the debtor may ask the judge to order
the cancellation of the obligation.
Accordingly, upon consignation by the Ventanillas of the sum
due, the trial court may enter judgment canceling the title of the
petitioner over the property and transferring the same to the
respondents. This judgment shall have the same force and effect
as conveyance duly executed in accordance with the
requirements of the law.
In sum, we find that:
1. No legal impediment exists to the execution, either by the
petitioner or the trial court, of an absolute deed of sale of the
subject property in favor of the respondent Ventanillas; and
2. The lower court did not abuse its discretion when it required
the posting of a P500,000.00 cash bond for the lifting of the
garnishment order.
WHEREFORE, the petition is DENIED and the challenged decision
of the Court of Appeals is AFFIRMED in toto, with costs against
the petitioner. It is so ordered.

Section 8 Provisional Remedies

11

G.R. Nos. 112438-39 December 12, 1995

shall have recovered in accordance with the


other portions of this decision.

CHEMPHIL EXPORT & IMPORT CORPORATION


(CEIC), petitioner,
vs.
THE HONORABLE COURT OF APPEALS JAIME Y. GONZALES, as
Assignee of the Bank of the Philippine Islands (BPI), RIZAL
COMMERCIAL BANKING CORPORATION (RCBC), LAND BANK
OF THE PHILIPPINES (LBP), PHILIPPINE COMMERCIAL &
INTERNATIONAL BANK (PCIB) and THE PHILIPPINE
INVESTMENT SYSTEM ORGANIZATION (PISO), respondents.

2. The Orders of the Regional Trial Court dated


December 19, 1989 and March 5, 1990 are
hereby REVERSED and SET ASIDE and
judgment is hereby rendered confirming the
ownership of the consortium over the
Chemphil shares of stock, subject of CA-G.R. CV
No. 26511, and the Order dated September 4,
1989, is reinstated.

G.R. No. 113394 December 12, 1995

No pronouncement as to costs.

PHILIPPINE COMMERCIAL INDUSTRIAL BANK (AND ITS


ASSIGNEE JAIME Y. GONZALES) petitioner,
vs.
HONORABLE COURT OR APPEALS and CHEMPHIL EXPORT
AND IMPORT CORPORATION (CEIC),respondents.

SO ORDERED. 1

KAPUNAN, J.:
Before us is a legal tug-of-war between the Chemphil Export and
Import Corporation (hereinafter referred to as CEIC), on one side,
and the PISO and Jaime Gonzales as assignee of the Bank of the
Philippine Islands (BPI), Rizal Commercial Banking Corporation
(RCBC), Land Bank of the Philippines (LBP) and Philippine
Commercial International Bank (PCIB), on the other (hereinafter
referred to as the consortium), over 1,717,678 shares of stock
(hereinafter referred to as the "disputed shares") in the Chemical
Industries of the Philippines (Chemphil/CIP).
Our task is to determine who is the rightful owner of the disputed
shares.
Pursuant to our resolution dated 30 May 1994, the instant case is
a consolidation of two petitions for review filed before us as
follows:
In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision of
the Court of Appeals (former Twelfth Division) promulgated on
30 June 1993 and its resolution of 29 October 1993, denying
petitioner's motion for reconsideration in the consolidated cases
entitled "Dynetics, Inc., et al. v. PISO, et al." (CA-G.R. No. 20467)
and "Dynetics, Inc., et al. v. PISO, et al.; CEIC, Intervenor-Appellee"
(CA-G.R. CV No. 26511).
The dispositive portion of the assailed decision reads, thus:
WHEREFORE, this Court resolves in these
consolidated cases as follows:
1. The Orders of the Regional Trial Court,
dated March 25, 1988, and May 20, 1988,
subject of CA-G.R. CV No. 10467, are SET
ASIDE and judgment is hereby rendered in
favor of the consortium and against appellee
Dynetics, Inc., the amount of the judgment, to
be determined by Regional Trial Court, taking
into account the value of assets that the
consortium may have already recovered and

In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask for
the annulment of the Court of Appeals' decision (former Special
Ninth Division) promulgated on 26 March 1993 in "PCIB v. Hon.
Job B. Madayag & CEIC" (CA-G.R. SP NO. 20474) dismissing the
petition for certiorari, prohibition and mandamus filed by PCIB
and of said court's resolution dated 11 January 1994 denying
their motion for reconsideration of its decision. 2
The antecedent facts leading to the aforementioned controversies
are as follows:
On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed
a complaint for declaratory relief and/or injunction against the
PISO, BPI, LBP, PCIB and RCBC or the consortium with the
Regional Trial Court of Makati, Branch 45 (Civil Case No. 8527),
seeking judicial declaration, construction and interpretation of
the validity of the surety agreement that Dynetics and Garcia had
entered into with the consortium and to perpetually enjoin the
latter from claiming, collecting and enforcing any purported
obligations which Dynetics and Garcia might have undertaken in
said agreement. 3
The consortium filed their respective answers with
counterclaims alleging that the surety agreement in question was
valid and binding and that Dynetics and Garcia were liable under
the terms of the said agreement. It likewise applied for the
issuance of a writ of preliminary attachment against Dynetics and
Garcia. 4
Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia
and Matrix Management & Trading Corporation filed a complaint
for declaratory relief and/or injunction against the Security Bank
& Trust Co. (SBTC case) before the Regional Trial Court of Makati,
Branch 135 docketed as Civil Case No. 10398. 5
On 2 July 1985, the trial court granted SBTC's prayer for the
issuance of a writ of preliminary attachment and on 9 July 1985, a
notice of garnishment covering Garcia's shares in CIP/Chemphil
(including the disputed shares) was served on Chemphil through
its then President. The notice of garnishment was duly annotated
in the stock and transfer books of Chemphil on the same date. 6
On 6 September 1985, the writ of attachment in favor of SBTC
was lifted. However, the same was reinstated on 30 October
1985. 7
Section 8 Provisional Remedies

12

In the meantime, on 12 July 1985, the Regional Trial Court in Civil


Case No. 8527 (the consortium case) denied the application of
Dynetics and Garcia for preliminary injunction and instead
granted the consortium's prayer for a consolidated writ of
preliminary attachment. Hence, on 19 July 1985, after the
consortium had filed the required bond, a writ of attachment was
issued and various real and personal properties of Dynetics and
Garcia were garnished, including the disputed shares. 8 This
garnishment, however, was not annotated in Chemphil's stock
and transfer book.
On 8 September 1987, PCIB filed a motion to dismiss the
complaint of Dynetics and Garcia for lack of interest to prosecute
and to submit its counterclaims for decision, adopting the
evidence it had adduced at the hearing of its application for
preliminary attachment. 9
On 25 March 1988, the Regional Trial Court dismissed the
complaint of Dynetics and Garcia in Civil Case No. 8527, as well as
the counterclaims of the consortium, thus:
Resolving defendant's, Philippine Commercial
International Bank, MOTION TO DISMISS
WITH MOTION TO SUBMIT DEFENDANT
PCIBANK's COUNTERCLAIM FOR DECISION,
dated September 7, 1987:
(1) The motion to dismiss is granted; and the
instant case is hereby ordered dismissed
pursuant to Sec. 3, Rule 17 of the Revised
Rules of Court, plaintiff having failed to comply
with the order dated July 16, 1987, and having
not taken further steps to prosecute the case;
and
(2) The motion to submit said defendant's
counterclaim for decision is denied; there is no
need; said counterclaim is likewise dismissed
under the authority of Dalman vs. City Court of
Dipolog City, L-63194, January 21, 1985,
wherein the Supreme Court stated that if the
civil case is dismissed, so also is the
counterclaim filed therein. "A person cannot
eat his cake and have it at the same time" (p.
645, record, Vol. I). 10
The motions for reconsideration filed by the consortium were,
likewise, denied by the trial court in its order dated 20 May 1988:
The Court could have stood pat on its order
dated 25 March 1988, in regard to which the
defendants-banks concerned filed motions for
reconsideration. However, inasmuch as
plaintiffs commented on said motions that:
"3). In any event, so as not to unduly foreclose
on the rights of the respective parties to refile
and prosecute their respective causes of
action, plaintiffs manifest their conformity to
the modification of this Honorable Court's
order to indicate that the dismissal of the
complaint and the counterclaims is without
prejudice." (p. 2, plaintiffs' COMMENT etc.

dated May 20, 1988). The Court is inclined to


so modify the said order.
WHEREFORE , the order issued on March 25,
1988, is hereby modified in the sense that the
dismissal of the complaint as well as of the
counterclaims of defendants RCBC, LBP, PCIB
and BPI shall be considered as without
prejudice (p. 675, record, Vol. I). 11
Unsatisfied with the aforementioned order, the consortium
appealed to the Court of Appeals, docketed as CA-G.R. CV No.
20467.
On 17 January 1989 during the pendency of consortium's appeal
in CA-G.R. CV No. 20467, Antonio Garcia and the consortium
entered into a Compromise Agreement which the Court of
Appeals approved on 22 May 1989 and became the basis of its
judgment by compromise. Antonio Garcia was dropped as a party
to the appeal leaving the consortium to proceed solely against
Dynetics, Inc. 12 On 27 June 1989, entry of judgment was made by
the Clerk of Court. 13
Hereunder quoted are the salient portions of said compromise
agreement:
xxx xxx xxx
3. Defendants, in consideration of avoiding an
extended litigation, having agreed to limit
their claim against plaintiff Antonio M. Garcia
to a principal sum of P145 Million immediately
demandable and to waive all other claims to
interest, penalties, attorney's fees and other
charges. The aforesaid compromise amount of
indebtedness of P145 Million shall earn
interest of eighteen percent (18%) from the
date of this Compromise.
4. Plaintiff Antonio M. Garcia and herein
defendants have no further claims against
each other.
5. This Compromise shall be without prejudice
to such claims as the parties herein may have
against plaintiff Dynetics, Inc.
6. Plaintiff Antonio M. Garcia shall have two
(2) months from date of this Compromise
within which to work for the entry and
participation of his other creditor, Security
Bank and Trust Co., into this Compromise.
Upon the expiration of this period, without
Security Bank and Trust Co. having joined, this
Compromise shall be submitted to the Court
for its information and approval (pp. 27, 2831, rollo, CA-G.R. CV No. 10467). 14
It appears that on 15 July 1988, Antonio Garcia under a Deed of
Sale transferred to Ferro Chemicals, Inc. (FCI) the disputed
shares and other properties for P79,207,331.28. It was agreed
upon that part of the purchase price shall be paid by FCI directly
Section 8 Provisional Remedies

13

to SBTC for whatever judgment credits that may be adjudged in


the latter's favor and against Antonio Garcia in the
aforementioned SBTC case. 15
On 6 March 1989, FCI, through its President Antonio M. Garcia,
issued a Bank of America Check No. 860114 in favor of SBTC in
the amount of P35,462,869.62. 16 SBTC refused to accept the
check claiming that the amount was not sufficient to discharge
the debt. The check was thus consigned by Antonio Garcia and
Dynetics with the Regional Trial Court as payment of their
judgment debt in the SBTC case. 17
On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil,
which included the disputed shares, to petitioner CEIC. The
shares were registered and recorded in the corporate books of
Chemphil in CEIC's name and the corresponding stock certificates
were issued to it. 18
Meanwhile, Antonio Garcia, in the consortium case, failed to
comply with the terms of the compromise agreement he entered
into with the consortium on 17 January 1989. As a result, on 18
July 1989, the consortium filed a motion for execution which was
granted by the trial court on 11 August 1989. Among Garcia's
properties that were levied upon on execution were his
1,717,678 shares in Chemphil (the disputed shares) previously
garnished on 19 July 1985. 19
On 22 August 1989, the consortium acquired the disputed shares
of stock at the public auction sale conducted by the sheriff for
P85,000,000.00. 20 On same day, a Certificate of Sale covering the
disputed shares was issued to it.
On 30 August 1989, 21 the consortium filed a motion (dated 29
August 1989) to order the corporate secretary of Chemphil to
enter in its stock and transfer books the sheriff's certificate of
sale dated 22 August 1989, and to issue new certificates of stock
in the name of the banks concerned. The trial court granted said
motion in its order dated 4 September 1989, thus:
For being legally proper, defendant's MOTION
TO ORDER THE CORPORATE SECRETARY OF
CHEMICAL INDUSTRIES OF THE PHILS., INC.
(CHEMPIL) TO ENTER IN THE STOCK AND
TRANSFER BOOKS OF CHEMPHIL THE
SHERIFF'S CERTIFICATE OF SALE DATED
AUGUST 22, 1989 AND TO ISSUE NEW
CERTIFICATES OF STOCK IN THE NAME OF
THE DEFENDANT BANKS, dated August 29,
1989, is hereby granted.
WHEREFORE, the corporate secretary of the
aforesaid corporation, or whoever is acting for
and in his behalf, is hereby ordered to (1)
record and/or register the Certificate of Sale
dated August 22, 1989 issued by Deputy
Sheriff Cristobal S. Jabson of this Court; (2) to
cancel the certificates of stock of plaintiff
Antonio M. Garcia and all those which may
have subsequently been issued in replacement
and/or in substitution thereof; and (3) to issue
in lieu of the said shares new shares of stock in
the name of the defendant Banks, namely,
PCIB, BPI, RCBC, LBP and PISO bank in such

proportion as their respective claims would


appear in this suit (p. 82, record, Vol. II). 22
On 26 September 1989, CEIC filed a motion to intervene (dated
25 September 1989) in the consortium case seeking the recall of
the abovementioned order on grounds that it is the rightful
owner of the disputed shares. 23 It further alleged that the
disputed shares were previously owned by Antonio M. Garcia but
subsequently sold by him on 15 July 1988 to Ferro Chemicals, Inc.
(FCI) which in turn assigned the same to CEIC in an agreement
dated 26 June 1989.
On 27 September 1989, the trial court granted CEIC's motion
allowing it to intervene, but limited only to the incidents covered
by the order dated 4 September 1989. In the same order, the trial
court directed Chemphil's corporate secretary to temporarily
refrain from implementing the 4 September 1989
order. 24
On 2 October 1989, the consortium filed their opposition to
CEIC's motion for intervention alleging that their attachment lien
over the disputed shares of stocks must prevail over the private
sale in favor of the CEIC considering that said shares of stock
were garnished in the consortium's favor as early as 19 July
1985. 25
On 4 October 1989, the consortium filed their opposition to
CEIC's motion to set aside the 4 September 1989 order and
moved to lift the 27 September 1989 order. 26
On 12 October 1989, the consortium filed a manifestation and
motion to lift the 27 September 1989 order, to reinstate the 4
September 1989 order and to direct CEIC to surrender the
disputed stock certificates of Chemphil in its possession within
twenty-four (24) hours, failing in which the President, Corporate
Secretary and stock and transfer agent of Chemphil be directed to
register the names of the banks making up the consortium as
owners of said shares, sign the new certificates of stocks
evidencing their ownership over said shares and to immediately
deliver the stock certificates to them. 27
Resolving the foregoing motions, the trial court rendered an
order dated 19 December 1989, the dispositive portion of which
reads as follows:
WHEREFORE, premises considered, the
Urgent Motion dated September 25, 1989 filed
by CEIC is hereby GRANTED. Accordingly, the
Order of September 4, 1989, is hereby SET
ASIDE, and any and all acts of the Corporate
Secretary of CHEMPHIL and/or whoever is
acting for and in his behalf, as may have
already been done, carried out or
implemented pursuant to the Order of
September 4, 1989, are hereby nullified.
PERFORCE, the CONSORTIUM'S Motions dated
October 3, 1989 and October 11, 1989, are
both hereby denied for lack of merit.
The Cease and Desist Order dated September
27, 1989, is hereby AFFIRMED and made
PERMANENT.
Section 8 Provisional Remedies

14

SO ORDERED. 28
In so ruling, the trial court ratiocinated in this wise:
xxx xxx xxx
After careful and assiduous consideration of
the
facts
and
applicable
law and
jurisprudence, the Court holds that CEIC's
Urgent Motion to Set Aside the Order of
September 4, 1989 is impressed with merit.
The CONSORTIUM has admitted that the writ
of attachment/garnishment issued on July 19,
1985 on the shares of stock belonging to
plaintiff Antonio M. Garcia was not annotated
and registered in the stock and transfer books
of CHEMPHIL. On the other hand, the prior
attachment issued in favor of SBTC on July 2,
1985 by Branch 135 of this Court in Civil Case
No. 10398, against the same CHEMPHIL shares
of Antonio M. Garcia, was duly registered and
annotated in the stock and transfer books of
CHEMPHIL. The matter of non-recording of
the Consortium's attachment in Chemphil's
stock and transfer book on the shares of
Antonio M. Garcia assumes significance
considering CEIC's position that FCI and later
CEIC acquired the CHEMPHIL shares of
Antonio M. Garcia without knowledge of the
attachment of the CONSORTIUM. This is also
important as CEIC claims that it has been
subrogated to the rights of SBTC since CEIC's
predecessor-in-interest, the FCI, had paid
SBTC the amount of P35,462,869.12 pursuant
to the Deed of Sale and Purchase of Shares of
Stock executed by Antonio M. Garcia on July
15, 1988. By reason of such payment, sale with
the knowledge and consent of Antonio M.
Garcia, FCI and CEIC, as party-in-interest to
FCI, are subrogated by operation of law to the
rights of SBTC. The Court is not unaware of the
citation in CEIC's reply that "as between two
(2) attaching creditors, the one whose claims
was first registered on the books of the
corporation enjoy priority." (Samahang
Magsasaka, Inc. vs. Chua Gan, 96 Phil. 974.)
The Court holds that a levy on the shares of
corporate stock to be valid and binding on
third persons, the notice of attachment or
garnishment must be registered and
annotated in the stock and transfer books of
the corporation, more so when the shares of
the corporation are listed and traded in the
stock exchange, as in this case. As a matter of
fact, in the CONSORTIUM's motion of August
30, 1989, they specifically move to "order the
Corporate Secretary of CHEMPHIL to enter in
the stock and transfer books of CHEMPHIL the
Sheriff's Certificate of Sale dated August 22,
1989." This goes to show that, contrary to the
arguments of the CONSORTIUM, in order that
attachment,
garnishment
and/or
encumbrances affecting rights and ownership

on shares of a corporation to be valid and


binding, the same has to be recorded in the
stock and transfer books.
Since neither CEIC nor FCI had notice of the
CONSORTIUM's attachment of July 19, 1985,
CEIC's shares of stock in CHEMPHIL, legally
acquired from Antonio M. Garcia, cannot be
levied upon in execution to satisfy his
judgment debts. At the time of the Sheriff's
levy on execution, Antonio M. Garcia has no
more in CHEMPHIL which could be levied
upon. 29
xxx xxx xxx
On 23 January 1990, the consortium and PCIB filed separate
motions for reconsideration of the aforestated order which were
opposed
by
petitioner
CEIC. 30
On 5 March 1990, the trial court denied the motions for
reconsideration. 31
On 16 March 1990, the consortium appealed to the Court of
Appeals (CA-G.R. No. 26511). In its Resolution dated 9 August
1990, the Court of Appeals consolidated CA-G.R. No. 26511 with
CA-G.R. No. 20467. 32
The issues raised in the two cases, as formulated by the Court of
Appeals, are as follows:
I
WHETHER OR NOT, UNDER THE PECULIAR
CIRCUMSTANCES OF THE CASE, THE TRIAL
COURT ERRED IN DISMISSING THE
COUNTERCLAIMS OF THE CONSORTIUM IN
CIVIL CASE NO. 8527;
II
WHETHER OR NOT THE DISMISSAL OF CIVIL
CASE NO. 8527 RESULTED IN THE
DISCHARGE OF THE WRIT OF ATTACHMENT
ISSUED THEREIN EVEN AS THE CONSORTIUM
APPEALED THE ORDER DISMISSING CIVIL
CASE NO. 8527;
III
WHETHER OR NOT THE JUDGMENT BASED
ON COMPROMISE RENDERED BY THIS COURT
ON MAY 22, 1989 HAD THE EFFECT OF
DISCHARGING THE ATTACHMENTS ISSUED IN
CIVIL CASE NO. 8527;
IV
WHETHER OR NOT THE ATTACHMENT OF
SHARES OF STOCK, IN ORDER TO BIND THIRD
Section 8 Provisional Remedies

15

PERSONS, MUST BE RECORDED IN THE


STOCK AND TRANSFER BOOK OF THE
CORPORATION; AND
V
WHETHER OR NOT FERRO CHEMICALS, INC.
(FCI), AND ITS SUCCESSOR-IN-INTEREST,
CEIC, WERE SUBROGATED TO THE RIGHTS OF
SECURITY BANK & TRUST COMPANY (SBTC)
IN A SEPARATE CIVIL ACTION. (This issue
appears to be material as SBTC is alleged to
have obtained an earlier attachment over the
same Chemphil shares that the consortium
seeks to recover in the case at bar). 33
On 6 April 1990, the PCIB separately filed with the Court of
Appeals a petition for certiorari, prohibition andmandamus with
a prayer for the issuance of a writ of preliminary injunction (CAG.R. No. SP-20474), likewise, assailing the very same orders
dated 19 December 1989 and 5 March 1990, subject of CA-G.R.
No. 26511. 34
On 30 June 1993, the Court of Appeals (Twelfth Division) in CAG.R. No. 26511 and CA-G.R. No. 20467 rendered a decision
reversing the orders of the trial court and confirming the
ownership of the consortium over the disputed shares. CEIC's
motion for reconsideration was denied on 29 October 1993. 35
In ruling for the consortium, the Court of Appeals made the
following ratiocination: 36
On the first issue, it ruled that the evidence
offered by the consortium in support of its
counterclaims, coupled with the failure of
Dynetics and Garcia to prosecute their case,
was sufficient basis for the RTC to pass upon
and
determine
the
consortium's
counterclaims.
The Court of Appeals found no application for
the ruling in Dalman v. City Court of Dipolog,
134 SCRA 243 (1985) that "a person cannot
eat his cake and have it at the same time. If the
civil case is dismissed, so also is the
counterclaim filed therein" because the factual
background of the present action is different.
In the instant case, both Dynetics and Garcia
and the consortium presented testimonial and
documentary evidence which clearly should
have supported a judgment on the merits in
favor of the consortium. As the consortium
correctly argued, the net atrocious effect of the
Regional Trial Court's ruling is that it allows a
situation where a party litigant is forced to
plead and prove compulsory counterclaims
only to be denied those counterclaims on
account of the adverse party's failure to
prosecute his case. Verily, the consortium had
no alternative but to present its counterclaims
in Civil Case No. 8527 since its counterclaims
are compulsory in nature.

On the second issue, the Court of Appeals


opined that unless a writ of attachment is
lifted by a special order specifically providing
for the discharge thereof, or unless a case has
been finally dismissed against the party in
whose favor the attachment has been issued,
the attachment lien subsists. When the
consortium, therefore, took an appeal from the
Regional Trial Court's orders of March 25,
1988 and May 20, 1988, such appeal had the
effect of preserving the consortium's
attachment liens secured at the inception of
Civil Case No. 8527, invoking the rule in Olib
v. Pastoral, 188 SCRA 692 (1988) that where
the main action is appealed, the attachment
issued in the said main case is also considered
appealed.
Anent the third issue, the compromise
agreement between the consortium and Garcia
dated 17 January 1989 did not result in the
abandonment of its attachment lien over his
properties. Said agreement was approved by
the Court of Appeals in a Resolution dated 22
May 1989. The judgment based on the
compromise agreement had the effect of
preserving the said attachment lien as security
for the satisfaction of said judgment (citing BF
Homes, Inc. v. CA, 190 SCRA 262, [1990]).
As to the fourth issue, the Court of Appeals
agreed with the consortium's position that the
attachment of shares of stock in a corporation
need not be recorded in the corporation's
stock and transfer book in order to bind third
persons.
Section 7(d), Rule 57 of the Rules of Court was
complied with by the consortium (through the
Sheriff of the trial court) when the notice of
garnishment over the Chemphil shares of
Garcia was served on the president of
Chemphil on July 19, 1985. Indeed, to bind
third persons, no law requires that an
attachment of shares of stock be recorded in
the stock and transfer book of a corporation.
The statement attributed by the Regional Trial
Court to the Supreme Court in Samahang
Magsasaka, Inc.vs. Gonzalo Chua Guan, G.R. No.
L-7252, February 25, 1955 (unreported), to
the effect that "as between two attaching
creditors, the one whose claim was registered
first on the books of the corporation enjoys
priority," is an obiter dictum that does not
modify the procedure laid down in Section
7(d), Rule 57 of the Rules of Court.
Therefore, ruled the Court of Appeals, the
attachment made over the Chemphil shares in
the name of Garcia on July 19, 1985 was made
in accordance with law and the lien created
thereby remained valid and subsisting at the
time Garcia sold those shares to FCI
Section 8 Provisional Remedies

16

(predecessor-in-interest of appellee CEIC) in


1988.

AGAINST THE FRIVOLOUS AND UNFOUNDED


CLAIMS OF THE CONSORTIUM.

Anent the last issue, the Court of Appeals


rejected CEIC's subrogation theory based on
Art. 1302 (2) of the New Civil Code stating that
the obligation to SBTC was paid by Garcia
himself and not by a third party (FCI).

II.

The Court of Appeals further opined that while


the check used to pay SBTC was a FCI
corporate check, it was funds of Garcia in FCI
that was used to pay off SBTC. That the funds
used to pay off SBTC were funds of Garcia has
not been refuted by FCI or CEIC. It is clear,
therefore, that there was an attempt on the
part of Garcia to use FCI and CEIC as
convenient vehicles to deny the consortium its
right to make itself whole through an
execution sale of the Chemphil shares attached
by the consortium at the inception of Civil
Case No. 8527. The consortium, therefore, is
entitled to the issuance of the Chemphil shares
of stock in its favor. The Regional Trial Court's
order of September 4, 1989, should, therefore,
be reinstated in toto.
Accordingly, the question of whether or not
the attachment lien in favor of SBTC in the
SBTC case is superior to the attachment lien in
favor of the consortium in Civil Case No. 8527
becomes immaterial with respect to the right
of intervenor-appellee CEIC. The said issue
would have been relevant had CEIC
established its subrogation to the rights of
SBTC.
On 26 March 1993, the Court of Appeals (Special Ninth Division)
in CA-G.R. No. SP 20474 rendered a decision denying due course
to and dismissing PCIB's petition for certiorari on grounds that
PCIB violated the rule against forum-shopping and that no grave
abuse of discretion was committed by respondent Regional Trial
Court in issuing its assailed orders dated 19 December 1989 and
5 March 1990. PCIB's motion for reconsideration was denied on
11 January 1994. 37
On 7 July 1993, the consortium, with the exception of PISO,
assigned without recourse all its rights and interests in the
disputed shares to Jaime Gonzales. 38
On 3 January 1994, CEIC filed the instant petition for review
docketed as G.R. Nos. 112438-39 and assigned the following
errors:
I.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN SETTING ASIDE AND
REVERSING THE ORDERS OF THE REGIONAL
TRIAL COURT DATED DECEMBER 5, 1989
AND MARCH 5, 1990 AND IN NOT
CONFIRMING PETITIONER'S OWNERSHIP
OVER THE DISPUTED CHEMPHIL SHARES

THE RESPONDENT COURT OF APPEALS


GRAVELY ERRED:
(1) In not holding that the
Consortium's attachment
over the disputed Chemphil
shares did not vest any
priority right in its favor
and cannot bind third
parties since admittedly its
attachment on 19 July 1985
was not recorded in the
stock and transfer books of
Chemphil, and subordinate
to the attachment of SBTC
which SBTC registered and
annotated in the stock and
transfer books of Chemphil
on 2 July 1985, and that the
Consortium's attachment
failed to comply with Sec.
7(d), Rule 57 of the Rules as
evidenced by the notice of
garnishment of the deputy
sheriff of the trial court
dated 19 July 1985 (annex
"D") which the sheriff
served on a certain Thelly
Ruiz who was neither
President nor managing
agent of Chemphil;
(2) In not applying the case
law enunciated by this
Honorable Supreme Court
inSamahang
Magsasaka,
Inc. vs. Gonzalo Chua Guan,
96 Phil. 974 that as
between two attaching
creditors, the one whose
claim was registered first in
the
books
of
the
corporation enjoys priority,
and which respondent
Court
erroneously
characterized
as
mere obiter dictum;
(3) In not holding that the
dismissal of the appeal of
the Consortium from the
order of the trial court
dismissing its counterclaim
against Antonio M. Garcia
and the finality of the
compromise
agreement
which ended the litigation
between the Consortium
and Antonio M. Garcia in
Section 8 Provisional Remedies

17

the Dynetics
case had ipso jure discharge
d
the
Consortium's
purported attachment over
the disputed shares.
III.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT
CEIC HAD BEEN SUBROGATED TO THE
RIGHTS OF SBTC SINCE CEIC'S PREDECESSOR
IN INTEREST HAD PAID SBTC PURSUANT TO
THE DEED OF SALE AND PURCHASE OF
STOCK EXECUTED BY ANTONIO M. GARCIA
ON JULY 15, 1988, AND THAT BY REASON OF
SUCH PAYMENT, WITH THE CONSENT AND
KNOWLEDGE OF ANTONIO M. GARCIA, FCI
AND CEIC, AS PARTY IN INTEREST TO FCI,
WERE SUBROGATED BY OPERATION OF LAW
TO THE RIGHTS OF SBTC.
IV.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED AND MADE UNWARRANTED
INFERENCES AND CONCLUSIONS, WITHOUT
ANY SUPPORTING EVIDENCE, THAT THERE
WAS AN ATTEMPT ON THE PART OF
ANTONIO M. GARCIA TO USE FCI AND CEIC AS
CONVENIENT VEHICLES TO DENY THE
CONSORTIUM ITS RIGHTS TO MAKE ITSELF
WHOLE THROUGH AN EXECUTION OF THE
CHEMPHIL
SHARES
PURPORTEDLY
ATTACHED BY THE CONSORTIUM ON 19 JULY
1985. 39
On 2 March 1994, PCIB filed its own petition for review docketed
as G.R. No. 113394 wherein it raised the following issues:
I. RESPONDENT COURT OF APPEALS
COMMITTED SERIOUS ERROR IN RENDERING
THE DECISION AND RESOLUTION IN
QUESTION (ANNEXES A AND B) IN DEFIANCE
OF LAW AND JURISPRUDENCE BY FINDING
RESPONDENT CEIC AS HAVING BEEN
SUBROGATED TO THE RIGHTS OF SBTC BY
THE PAYMENT BY FCI OF GARCIA'S DEBTS TO
THE LATTER DESPITE THE FACT THAT
A. FCI PAID THE SBTC
DEBT BY VIRTUE OF A
CONTRACT BETWEEN FCI
AND GARCIA, THUS, LEGAL
SUBROGATION DOES NOT
ARISE;
B. THE SBTC DEBT WAS
PAID BY GARCIA HIMSELF
AND NOT BY FCI, HENCE,
SUBROGATION
BY
PAYMENT COULD NOT
HAVE OCCURRED;

C. FCI DID NOT ACQUIRE


ANY RIGHT OVER THE
DISPUTED SHARES AS
SBTC HAD NOT YET
LEVIED
UPON
NOR
BOUGHT THOSE SHARES
ON
EXECUTION.
ACCORDINGLY, WHAT FCI
ACQUIRED FROM SBTC
WAS SIMPLY A JUDGMENT
CREDIT
AND
AN
ATTACHMENT LIEN TO
SECURE
ITS
SATISFACTION.
II. RESPONDENT COURT OF APPEALS
COMMITTED SERIOUS ERROR IN SUSTAINING
THE ORDERS OF THE TRIAL COURT DATED
DECEMBER 19, 1989 AND MARCH 5, 1990
WHICH DENIED PETITIONER'S OWNERSHIP
OVER
THE
DISPUTED
SHARES
NOTWITHSTANDING PROVISIONS OF LAW
AND EXTANT JURISPRUDENCE ON THE
MATTER THAT PETITIONER AND THE
CONSORTIUM HAVE PREFERRED SENIOR
RIGHTS THEREOVER.
III. RESPONDENT COURT OF APPEAL
COMMITTED
SERIOUS
ERROR
IN
CONCLUDING THAT THE DISMISSAL OF THE
COMPLAINT AND THE COUNTERCLAIM IN
CIVIL CASE NO. 8527 ALSO RESULTED IN THE
DISCHARGE OF THE WRIT OF ATTACHMENT
DESPITE THE RULINGS OF THIS HONORABLE
COURT IN BF HOMES VS. COURT OF
APPEALS, G.R. NOS. 76879 AND 77143,
OCTOBER 3, 1990, 190 SCRA 262, AND
IN OLIB VS. PASTORAL, G.R. NO. 81120,
AUGUST 20, 1990, 188 SCRA 692 TO THE
CONTRARY.
IV. RESPONDENT COURT OF APPEALS
EXCEEDED ITS JURISDICTION IN RULING ON
THE MERITS OF THE MAIN CASE
NOTWITHSTANDING THAT THOSE MATTERS
WERE NOT ON APPEAL BEFORE IT.
V. RESPONDENT COURT OF APPEALS
COMMITTED SERIOUS ERROR IN HOLDING
THAT PETITIONER IS GUILTY OF FORUM
SHOPPING DESPITE THE FACT THAT SC
CIRCULAR NO. 28-91 WAS NOT YET IN FORCE
AND EFFECT AT THE TIME THE PETITION
WAS
FILED
BEFORE
RESPONDENT
APPELLATE COURT, AND THAT ITS COUNSEL
AT THAT TIME HAD ADEQUATE BASIS TO
BELIEVE THAT CERTIORARI AND NOT AN
APPEAL OF THE TRIAL COURT'S ORDERS
WAS THE APPROPRIATE RELIEF. 40
As previously stated, the issue boils down to who is legally
entitled to the disputed shares of Chemphil. We shall resolve this
controversy by examining the validity of the claims of each party
and, thus, determine whose claim has priority.
Section 8 Provisional Remedies

18

CEIC's claim
CEIC traces its claim over the disputed shares to the attachment
lien obtained by SBTC on 2 July 1985 against Antonio Garcia in
Civil Case No. 10398. It avers that when FCI, CEIC's predecessorin-interest, paid SBTC the due obligations of Garcia to the said
bank pursuant to the Deed of Absolute Sale and Purchase of
Shares of Stock, 41FCI, and later CEIC, was subrogated to the
rights of SBTC, particularly to the latter's aforementioned
attachment lien over the disputed shares.
CEIC argues that SBTC's attachment lien is superior as it was
obtained on 2 July 1985, ahead of the consortium's purported
attachment on 19 July 1985. More importantly, said CEIC lien was
duly recorded in the stock and transfer books of Chemphil.
CEIC's subrogation theory is unavailing.
By definition, subrogation is "the transfer of all the rights of the
creditor to a third person, who substitutes him in all his rights. It
may either be legal or conventional. Legal subrogation is that
which takes place without agreement but by operation of law
because of certain acts; this is the subrogation referred to in
article 1302. Conventional subrogation is that which takes place
by agreement of the parties . . ." 42
CEIC's theory is premised on Art. 1302 (2) of the Civil Code which
states:
Art. 1302. It is presumed that there is legal
subrogation:
(1) When a creditor pays another creditor who
is preferred, even without the debtor's
knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the
effects of confusion as to the latter's share.
(Emphasis ours.)
Despite, however, its multitudinous arguments, CEIC presents an
erroneous interpretation of the concept of subrogation. An
analysis of the situations involved would reveal the clear
inapplicability of Art. 1302 (2).
Antonio Garcia sold the disputed shares to FCI for a consideration
of P79,207,331.28. FCI, however, did not pay the entire amount
to Garcia as it was obligated to deliver part of the purchase price
directly to SBTC pursuant to the following stipulation in the Deed
of Sale:
Manner of Payment
Payment of the Purchase Price shall be made in
accordance with the following order of

preferenceprovided that in no instance shall


the total amount paid by the Buyer exceed the
Purchase Price:
a. Buyer shall pay directly to the Security Bank
and Trust Co. the amount determined by the
Supreme Court as due and owing in favor of the
said bank by the Seller.
The foregoing amount shall be paid within
fifteen (15) days from the date the decision of
the Supreme Court in the case entitled
"Antonio M. Garcia, et al. vs. Court of Appeals,
et al." G.R. Nos. 82282-83 becomes final and
executory. 43 (Emphasis ours.)
Hence, when FCI issued the BA check to SBTC in the amount of
P35,462,869.62 to pay Garcia's indebtedness to the said bank, it
was in effect paying with Garcia's money, no longer with its own,
because said amount was part of the purchase price which
FCI owed Garcia in payment for the sale of the disputed shares by
the latter to the former. The money "paid" by FCI to SBTC, thus
properly belonged to Garcia. It is as if Garcia himself paid his own
debt to SBTC but through a third party FCI.
It is, therefore, of no consequence that what was used to pay
SBTC was a corporate check of FCI. As we have earlier stated, said
check no longer represented FCI funds but Garcia's money, being
as it was part of FCI's payment for the acquisition of the disputed
shares. The FCI check should not be taken at face value, the
attendant circumstances must also be considered.
The aforequoted contractual stipulation in the Deed of Sale dated
15 July 1988 between Antonio Garcia and FCI is nothing more but
an arrangement for the sake of convenience. Payment was to be
effected in the aforesaid manner so as to prevent money from
changing hands needlessly. Besides, the very purpose of Garcia in
selling the disputed shares and his other properties was to "settle
certain civil suits filed against him." 44
Since the money used to discharge Garcia's debt rightfully
belonged to him, FCI cannot be considered a third party payor
under Art. 1302 (2). It was but a conduit, or as aptly categorized
by respondents, merely an agent as defined in Art. 1868 of the
Civil Code:
Art. 1868. By the contract of agency a person
binds himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter.
FCI was merely fulfilling its obligation under the aforementioned
Deed of Sale.
Additionally, FCI is not a disinterested party as required by Art.
1302 (2) since the benefits of the extinguishment of the
obligation would redound to none other but itself. 45 Payment of
the judgment debt to SBTC resulted in the discharge of the
attachment lien on the disputed shares purchased by FCI. The
latter would then have a free and "clean" title to said shares.

Section 8 Provisional Remedies

19

In sum, CEIC, for its failure to fulfill the requirements of Art. 1302
(2), was not subrogated to the rights of SBTC against Antonio
Garcia and did not acquire SBTC's attachment lien over the
disputed shares which, in turn, had already been lifted or
discharged upon satisfaction by Garcia, through FCI, of his debt to
the said bank. 46
The rule laid down in the case of Samahang Magsasaka,
Inc. v. Chua Guan, 47 that as between two attaching creditors the
one whose claim was registered ahead on the books of the
corporation enjoys priority, clearly has no application in the case
at bench. As we have amply discussed, since CEIC was not
subrogated to SBTC's right as attaching creditor, which right in
turn, had already terminated after Garcia paid his debt to SBTC, it
cannot, therefore, be categorized as an attaching creditor in the
present controversy. CEIC cannot resurrect and claim a right
which no longer exists. The issue in the instant case, then, is
priority between an attaching creditor (the consortium) and a
purchaser (FCI/CEIC) of the disputed shares of stock
and not between two attaching creditors the subject matter of
the aforestated Samahang Magsasaka case.
CEIC, likewise, argues that the consortium's attachment lien over
the disputed Chemphil shares is null and void and not binding on
third parties due to the latter's failure to register said lien in the
stock and transfer books of Chemphil as mandated by the rule
laid down by the Samahang Magsasaka v. Chua Guan. 48
The attachment lien acquired by the consortium is valid and
effective. Both the Revised Rules of Court and the Corporation
Code do not require annotation in the corporation's stock and
transfer books for the attachment of shares of stock to be valid
and binding on the corporation and third party.
Section 74 of the Corporation Code which enumerates the
instances where registration in the stock and transfer books of a
corporation provides:
Sec. 74. Books to be kept; stock transfer agent.

xxx xxx xxx


Stock corporations must also keep a book to be
known as the stock and transfer book, in which
must be kept a record of all stocks in the names
of the stockholders alphabetically arranged;
the installments paid and unpaid on all stock
for which subscription has been made, and the
date of payment of any settlement; a statement
of every alienation, sale or transfer of stock
made, the date thereof, and by and to whom
made; and such other entries as the by-laws
may prescribe. The stock and transfer book
shall be kept in the principal office of the
corporation or in the office of its stock transfer
agent and shall be open for inspection by any
director or stockholder of the corporation at
reasonable hours on business days. (Emphasis
ours.)
xxx xxx xxx

Section 63 of the same Code states:


Sec. 63. Certificate of stock and transfer of
shares. The capital stock of stock
corporations shall be divided into shares for
which certificates signed by the president or
vice-president, countersigned by the secretary
or assistant secretary, and sealed with the seal
of the corporation shall be issued in
accordance with the by-laws. Shares of stock so
issued are personal property and may be
transferred by delivery of the certificate or
certificates indorsed by the owner or his
attorney-in-fact or other person legally
authorized to make the transfer. No transfer,
however, shall be valid, except as between the
parties, until the transfer is recorded in the
books of the corporation so as to show the
names of the parties to the transaction, the date
of the transfer, the number of the certificate or
certificates and the number of shares
transferred.
No shares of stock against which the
corporation holds any unpaid claim shall be
transferable in the books of the corporation.
(Emphasis ours.)
Are attachments of shares of stock included in the term "transfer"
as provided in Sec. 63 of the Corporation Code? We rule in the
negative. As succinctly declared in the case of Monserrat
v. Ceron, 49 "chattel mortgage over shares of stock need not be
registered in the corporation's stock and transfer book inasmuch
as chattel mortgage over shares of stock does not involve a
"transfer of shares," and that only absolute transfers of shares of
stock are required to be recorded in the corporation's stock and
transfer book in order to have "force and effect as against third
persons."
xxx xxx xxx
The word "transferencia" (transfer) is defined
by the "Diccionario de la Academia de la
Lengua Castellana" as "accion y efecto de
transfeir" (the act and effect of transferring);
and the verb "transferir", as "ceder or
renunciar en otro el derecho o dominio que se
tiene sobre una cosa, haciendole dueno de
ella" (to assign or waive the right in, or
absolute ownership of, a thing in favor of
another, making him the owner thereof).
In the Law Dictionary of "Words and Phrases",
third series, volume 7, p. 5867, the word
"transfer" is defined as follows:
"Transfer" means any act
by which property of one
person is vested in another,
and "transfer of shares", as
used in Uniform Stock
Transfer Act (Comp. St.
Supp. 690), implies any
Section 8 Provisional Remedies

20

means whereby one may be


divested of and another
acquire ownership of stock.
(Wallach vs. Stein [N.J.], 136
A., 209, 210.)
xxx xxx xxx
In the case of Noble vs. Ft. Smith Wholesale
Grocery Co. (127 Pac., 14, 17; 34 Okl., 662; 46
L.R.A. [N.S.], 455), cited in Words and Phrases,
second series, vol. 4, p. 978, the following
appears:
A "transfer" is the act by
which the owner of a thing
delivers it to another with
the intent of passing the
rights which he has in it to
the latter, and a chattel
mortgage is not within the
meaning of such term.
xxx xxx xxx. 50
Although the Monserrat case refers to a chattel mortgage over
shares of stock, the same may be applied to the attachment of the
disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of
property but is primarily used as a means "to seize the debtor's
property in order to secure the debt or claim of the creditor in
the event that a judgment is rendered." 51
Known commentators on the Corporation Code expound, thus:
xxx xxx xxx
Shares of stock being personal property, may
be the subject matter of pledge and chattel
mortgage.
Such collateral
transfers are
however not covered by the registration
requirement of Section 63, since our Supreme
Court has held that such provision applies only
to absolute transfers thus, the registration in
the corporate books of pledges and chattel
mortgages of shares cannot have any legal
effect. 52 (Emphasis ours.)

alienation of ownership of stock (Monserrat


vs. Ceron, 58 Phil. 469 [1933]; Chua Guan vs.
Samahang Magsasaka, Inc., 62 Phil. 472
[1935].) To affect third persons, it is enough
that the date and description of the shares
pledged appear in a public instrument. (Art.
2096, Civil Code.) With respect to a chattel
mortgage constituted on shares of stock, what
is necessary is its registration in the Chattel
Mortgage Registry. (Act No. 1508 and Art.
2140, Civil Code.) 53
CEIC's reliance on the Samahang Magsasaka case is misplaced.
Nowhere in the said decision was it categorically stated that
annotation of the attachment in the corporate books is
mandatory for its validity and for the purpose of giving notice to
third persons.
The only basis, then, for petitioner CEIC's claim is the Deed of
Sale under which it purchased the disputed shares. It is, however,
a settled rule that a purchaser of attached property acquires it
subject to an attachment legally and validly levied thereon. 54
Our corollary inquiry is whether or not the consortium has
indeed a prior valid and existing attachment lien over the
disputed shares.
Jaime Gonzales' /Consortium's Claim
Is the consortium's attachment lien over the disputed shares
valid?
CEIC vigorously argues that the consortium's writ of attachment
over the disputed shares of Chemphil is null and void, insisting as
it does, that the notice of garnishment was not validly served on
the designated officers on 19 July 1985.
To support its contention, CEIC presented the sheriff's notice of
garnishment 55 dated 19 July 1985 which showed on its face that
said notice was received by one Thelly Ruiz who was neither the
president nor managing agent of Chemphil. It makes no
difference, CEIC further avers, that Thelly Ruiz was the secretary
of the President of Chemphil, for under the above-quoted
provision she is not among the officers so authorized or
designated to be served with the notice of garnishment.
We cannot subscribe to such a narrow view of the rule on proper
service of writs of attachment.

xxx xxx xxx


The requirement that the transfer shall be
recorded in the books of the corporation to be
valid as against third persons has reference
only to absolute transfers or absolute
conveyance of the ownership or title to a
share.
Consequently, the entry or notation on the
books of the corporation of pledges and
chattel mortgages on shares is not necessary
to their validity (although it is advisable to do
so) since they do not involve absolute

A secretary's major function is to assist his or her superior.


He/she is in effect an extension of the latter. Obviously, as such,
one of her duties is to receive letters and notices for and in behalf
of her superior, as in the case at bench. The notice of garnishment
was addressed to and was actually received by Chemphil's
president through his secretary who formally received it for him.
Thus, in one case, 56 we ruled that the secretary of the president
may be considered an "agent" of the corporation and held that
service of summons on him is binding on the corporation.
Moreover, the service and receipt of the notice of garnishment on
19 July 1985 was duly acknowledged and confirmed by the
corporate secretary of Chemphil, Rolando Navarro and his
Section 8 Provisional Remedies

21

successor Avelino Cruz through their respective certifications


dated 15 August 1989 57 and 21 August 1989. 58
We rule, therefore, that there was substantial compliance with
Sec. 7(d), Rule 57 of the Rules of Court.
Did the compromise agreement between Antonio Garcia and the
consortium discharge the latter's attachment lien over the
disputed shares?
CEIC argues that a writ of attachment is a mere auxiliary remedy
which, upon the dismissal of the case, dies a natural death. Thus,
when the consortium entered into a compromise
agreement, 59 which resulted in the termination of their case, the
disputed shares were released from garnishment.
We disagree. To subscribe to CEIC's contentions would be to
totally disregard the concept and purpose of a preliminary
attachment.
A writ of preliminary attachment is 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 might be
secured in said action by the attaching creditor
against the defendant. 60 (Emphasis ours.)
Attachment is a juridical institution which has
for its purpose to secure the outcome of the
trial, that is, the satisfaction of the pecuniary
obligation really contracted by a person or
believed to have been contracted by him,
either by virtue of a civil obligation emanating
from contract or from law, or by virtue of
some crime or misdemeanor that he might
have committed, and the writ issued, granted
it, is executed by attaching and safely keeping
all the movable property of the defendant, or
so much thereof may be sufficient to satisfy
the plaintiff's demands . . . 61 (Emphasis ours.)
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. 62 (Emphasis
ours.)
We reiterate the rule laid down in BF Homes, Inc. v. CA 63 that an
attachment lien continues until the debt is paid, or sale is had
under execution issued on the judgment or until judgment is
satisfied, or the attachment discharged or vacated in the same
manner provided by law. We expounded in said case that:

The appointment of a rehabilitation receiver


who took control and custody of BF has not
necessarily secured the claims of Roa and
Mendoza. In the event that the receivership is
terminated with such claims not having been
satisfied, the creditors may also find
themselves without security therefor in the
civil action because of the dissolution of the
attachment. This should not be permitted.
Having previously obtained the issuance of the
writ in good faith, they should not be deprived
of its protection if the rehabilitation plan does
not succeed and the civil action is resumed.
xxx xxx xxx
As we ruled in Government of the Philippine
Islands v. Mercado:
Attachment is in the nature
of a proceeding in rem. It is
against
the
particular
property. The attaching
creditor thereby acquires
specific lien upon the
attached property which
ripens into a judgment
against the res when the
order of sale is made. Such
a proceeding is in effect a
finding that the property
attached is an indebted
thing
and
a
virtual
condemnation of it to pay
the owner's debt. The law
does not provide the length
of time an attachment lien
shall continue after the
rendition of judgment, and
it
must
therefore
necessarily continue until
the debt is paid, or sale is
had under execution issued
on the judgment or until
judgment is satisfied, or the
attachment discharged or
vacated in some manner
provided by law.
It has been held that the
lien obtained by attachment
stands upon as high
equitable grounds as a
mortgage lien:
The lien or security
obtained by an attachment
even before judgment, is a
fixed and positive security,
a specific lien, and, although
whether it will ever be
made available to the
creditor
depends
on
contingencies, its existence
Section 8 Provisional Remedies

22

is in no way contingent,
conditioned or inchoate. It
is a vested interest, an
actual
and
substantial
security, affording specific
security for satisfaction of
the debt put in suit, which
constitutes a cloud on the
legal title, and is as specific
as if created by virtue of a
voluntary act of the debtor
and stands upon as high
equitable grounds as a
mortgage. (Corpus Juris
Secundum,
433,
and
authorities therein cited.)
xxx xxx xxx
The case at bench admits of a peculiar character in the sense that
it involves a compromise agreement. Nonetheless, the rule
established in the aforequoted cases still applies, even more so
since the terms of the agreement have to be complied with in full
by the parties thereto. The parties to the compromise agreement
should not be deprived of the protection provided by an
attachment lien especially in an instance where one reneges on
his obligations under the agreement, as in the case at bench,
where Antonio Garcia failed to hold up his own end of the deal, so
to speak.
Moreover, a violation of the terms and conditions of a
compromise agreement entitles the aggrieved party to a writ of
execution.
In Abenojar & Tana v. CA, et al., 64 we held:
The non-fulfillment of the terms and
conditions of a compromise agreement
approved by the Court justifies execution
thereof and the issuance of the writ for said
purpose is the Court's ministerial duty
enforceable by mandamus.

Garcia on 15 July 1988, it took the shares subject to the prior,


valid and existing attachment lien in favor of and obtained by the
consortium.
Forum Shopping in G.R. No. 113394
We uphold the decision of the Court of Appeals finding PCIB
guilty of forum-shopping. 66
The Court of Appeals opined:
True it is, that petitioner PCIB was not a party
to the appeal made by the four other banks
belonging to the consortium, but equally true
is the rule that where the rights and liabilities
of the parties appealing are so interwoven and
dependent on each other as to be inseparable,
a reversal of the appealed decision as to those
who appealed, operates as a reversal to all and
will inure to the benefit of those who did not
join the appeal (Tropical Homes vs. Fortun,
169 SCRA 80, p. 90, citing Alling vs. Wenzel,
133 111. 264-278; 4 C.J. 1206). Such principal,
premised upon communality of interest of the
parties, is recognized in this jurisdiction
(Director of Lands vs. Reyes, 69 SCRA 415).
The four other banks which were part of the
consortium, filed their notice of appeal under
date of March 16, 1990, furnishing a copy
thereof upon the lawyers of petitioner. The
petition for certiorari in the present case was
filed on April 10, 1990, long after the other
members of the consortium had appealed
from the assailed order of December 19, 1989.
We view with skepticism PCIB's contention that it did not join the
consortium because it "honestly believed thatcertiorari was the
more efficacious and speedy relief available under the
circumstances." 67 Rule 65 of the Revised Rules of Court is not
difficult to understand. Certiorari is available only if there is no
appeal or other plain, speedy and adequate remedy in the
ordinary course of law. Hence, in instituting a separate petition
for certiorari, PCIB has deliberately resorted to forum-shopping.

Likewise we ruled in Canonizado v. Benitez: 65


A judicial compromise may be enforced by a
writ of execution. If a party fails or refuses to
abide by the compromise, the other party may
enforce the compromise or regard it as
rescinded and insist upon his original demand.
If we were to rule otherwise, we would in effect create a back
door by which a debtor can easily escape his creditors.
Consequently, we would be faced with an anomalous situation
where a debtor, in order to buy time to dispose of his properties,
would enter into a compromise agreement he has no intention of
honoring in the first place. The purpose of the provisional
remedy of attachment would thus be lost. It would become, in
analogy, a declawed and toothless tiger.
From the foregoing, it is clear that the consortium and/or its
assignee Jaime Gonzales have the better right over the disputed
shares. When CEIC purchased the disputed shares from Antonio

PCIB cannot hide behind the subterfuge that Supreme Court


Circular 28-91 was not yet in force when it filed
thecertiorari proceedings in the Court of Appeals. The rule
against forum-shopping has long been established. 68Supreme
Court Circular 28-91 merely formalized the prohibition and
provided the appropriate penalties against transgressors.
It alarms us to realize that we have to constantly repeat our
warning against forum-shopping. We cannot over-emphasize its
ill-effects, one of which is aptly demonstrated in the case at bench
where we are confronted with two divisions of the Court of
Appeals issuing contradictory decisions 69 one in favor of CEIC
and the other in favor of the consortium/Jaime Gonzales.
Forum-shopping or the act of a party against whom an adverse
judgment has been rendered in one forum, of seeking another
(and possibly favorable) opinion in another forum (other than by
appeal or the special civil action of certiorari), or the institution
of two (2) or more actions or proceedings grounded on the same
Section 8 Provisional Remedies

23

cause on the supposition that one or the other court would make
a favorable disposition, 70 has been characterized as an act of
malpractice that is prohibited and condemned as trifling with the
Courts and abusing their processes. It constitutes improper
conduct which tends to degrade the administration of justice. It
has also been aptly described as deplorable because it adds to the
congestion of the already heavily burdened dockets of the
courts. 71
WHEREFORE, premises considered the appealed decision in G.R.
Nos. 112438-39 is hereby AFFIRMED and the appealed decision
in G.R. No. 113394, insofar as it adjudged the CEIC the rightful
owner of the disputed shares, is hereby REVERSED. Moreover, for
wantonly resorting to forum-shopping, PCIB is hereby
REPRIMANDED and WARNED that a repetition of the same or
similar acts in the future shall be dealt with more severely.
SO ORDERED.

Section 8 Provisional Remedies

24

G.R. No. 104133 April 18, 1995


SPOUSES EMILIO ABINUJAR and MILAGROS M. LANA,
petitioners,
vs.
THE COURT OF APPEALS and SPOUSES SANTIAGO RAMIRO
and FLORENTINA RAMIRO, respondents.
QUIASON, J.:
This is a petition for review on ceitiorari under Rule 45 of the
Revised Rules of Court of the Decision dated December 27, 1991
and the Resolution dated February 11, 1992 of the Court of
Appeals in CA-G.R. SP No. 24683.
I
On October 10, 1987, petitioners executed a Deed of Sale with
Right to Repurchase in favor of private respondents, involving a
residential house located at No. 346 Algeciras St., Sampaloc,
Manila. Due to serious financial and business reverses,
petitioners were not able to redeem the property within four
months as agreed upon.

three installments stipulated in the compromise agreement, to


wit: P50,000.00 on January 31, 1990; P10,000.00 on February 28,
1990; and P10,000.00 on March 31, 1990.
On April 6, 1990, petitioners filed an "Urgent Ex-Parte Motion for
Reconsideration and/or Correct Order of this Court" calling
attention to a typographical error in the Order dated March 15,
1990, and asking that the amount of P10.000.00 payable on
September 30, 1990 be corrected and changed to the agreed
amount of P50,000.
On April 25, 1990, the Metropolitan Trial Court issued an order
granting the motion for correction of the typographical error in
the decision.
On August 17, 1990, petitioners filed a motion asking that the
check payments previously deposited by them with the court, be
accepted and be given to respondents in compliance with their
compromise agreement.
On August 23, 1990, respondents opposed petitioners' exparte motion and stated that they would not renew the
compromise agreement with petitioners.

On October 24, 1989, private respondents filed a complaint for


ejectment in the Metropolitan Trial Court of the City of Manila,
docketed as Civil Case No. 130352-CV against petitioners.

The Metropolitan Trial Court denied private respondents' motion


for execution dated April 15, 1990 and another similar motion
dated June 26, 1990.

On December 27, 1989, the parties, assisted by their counsels,


executed a compromise agreement. In an order dated March 15,
1990, the Metropolitan Trial Court approved the compromise
agreement. The order reproduced the agreement as follows:

On October 12, 1990, respondents filed a petition


for mandamus with us (G.R. No. 95470). In a resolution dated
November 5, 1990, we referred the case to the Executive Judge of
the Regional Trial Court, Manila. petitioners moved to dismiss the
petition for mandamus.

1.

2.

That defendants [petitioners herein] agree to


pay plaintiffs [private respondents herein] in
the amounts and on the dates specifically
indicated herein below:
a.

P50,000.00 on Jan. 31, 1990;

b.

10,000.00 on Feb. 28, 1990;

c.

10,000.00 on March 31, 1990;

d.

10,000.00 on April 30, 1990;

e.

10,000.00 on May 31, 1990;

f.

10,000.00 on June 30, 1990;

g.

10,000.00 on July 31,1990;

h.

10,000.00 on August 31, 1990;

i.

10,000.00 on September 30, 1990;

That failure on the part of the defendants to


pay three (3) consecutive payments, plaintiffs
will be entitled to a writ of execution, unless
the parties agree to extend the period of
entitlement to a writ of execution in writing to
be submitted and/or approved by this
Honorable Court; . . . (Rollo, p. 53).

On April 15, 1990, private respondents filed a motion for


execution on the ground that petitioners failed to pay the first

On March 14, 1991 the Regional Trial Court denied the motion to
dismiss and issued the assailed resolution commanding the
Metropolitan Trial Court to issue a writ of execution of the
decision approving the compromise agreement in Civil Case No.
130352-CV.
In compliance with the said resolution, the Metropolitan Trial
Court issued an order dated March 27, 1991 directing the
issuance of a writ of execution to enforce the compromise
agreement entered into by the parties.
On April 11, 1991, a "Sheriffs' Notice to Voluntarily Vacate the
Premises" was served on petitioner.
Petitioners then filed a petition for certiorari with a prayer for
the issuance of a temporary restraining order and a writ of
injunction with the Court of Appeals (CA-G.R. SP No. 24683).
On December 27, 1991, the Court of Appeals dismissed the
petition. Likewise, the said court denied the motion for
reconsideration filed by petitioner.
II
Petitioners contend that both the Regional Trial Court and
Metropolitan Trial Court acted with grave abuse of discretion, the
former in issuing a resolution directing the Metropolitan Trial
Section 8 Provisional Remedies

25

Court to issue a writ of execution against petitioners herein, and


the latter, in issuing said writ of execution.
III
A compromise agreement is a contract between the parties,
which if not contrary to law, morals or public policy, is valid and
enforceable between them (Municipal Board of Cabanatuan City
v. Samahang Magsasaka, Inc., 62 SCRA 435 [1975]). There are
two kinds of compromise agreements, the judicial, which puts an
end to a pending litigation, and the extrajudicial, which is to avoid
a litigation (Civil Code of the Philippines, Art. 2028; Caguioa, VI
Commentaries and Cases, on Civil Law 292 [1970]).
As a contract, a compromise agreement is perfected by mutual
consent (Rovero v. Amparo, 91 Phil. 228 [1952]). A judicial
compromise, however, while binding between the parties upon
its execution, is not executory until it is approved by the court
and reduced to a judgment.
Article 2037 of the Civil Code of the Philippines provides:
A compromise has upon the parties the effect
and authority of res judicata; but there shall be
no execution except in compliance with a
judicial compromise.
The non-fulfillment of the terms and conditions of a compromise
agreement approved by the court justifies execution thereof and
the issuance of the writ for said purpose is the court's ministerial
duty enforceable bymandamus (Maceda, Jr. v. Moreman Builders
Co., Inc., 203 SCRA 293 [1991]).
In the compromise agreement, petitioners obligated themselves
to pay private respondents the amount of P50,000.00 on January
31, 1990, P10,000.00 on February 28, 1990, and P10,000.00 on
March 31, 1990.
Petitioners received a copy of the decision of the Metropolitan
Trial Court approving the compromise agreement on March 26,
1990. Clearly, there was a breach, for it was only on August 17,
1990 that petitioners attempted to pay by means of nine
postdated checks the amounts agreed upon. In effect, the first
installment payment of P50,000.00 due on January 31, 1990 was
moved to August 31, 1990, the second installment of P10,000.00
due on February 28, 1990 was moved to September 30, 1990 and
so forth, thereby making the last installment of P5,000.00 due on
September 30, 1990 moved to April 30, 1991. This is tantamount
to novating the original agreement entered into by the parties
without the consent of private respondents.
Inasmuch as a judicial compromise becomes binding between the
parties upon its execution, petitioners should have paid the
installments falling due even before the approval thereof by the
trial court. But assuming that a judicial compromise is not
perfected until it is approved by the court, still petitioner should
have paid the compromise agreement installments due on March
31, 1990, together with the installments due on January 31 and
February 28, 1990 on or before March 31, 1990.
Petitioners also assail the validity of the issuance by the Deputy
Sheriff of the notice to voluntarily vacate the premises by way of

enforcing the decision approving the compromise agreement.


They maintain that their obligation is monetary in nature and the
applicable rule should have been Section 15, Rule 39 and not
Section 13, Rule 39 of the Revised Rules of Court.
Petitioners contention has merit.
When the parties entered into a compromise agreement, the
original action for ejectment was set aside and the action was
changed to a monetary obligation.
A perusal of the compromise agreement signed by the parties and
approved by the inferior court merely provided that in case the
defendants (petitioners herein) failed to pay three monthly
installments, the plaintiffs (private respondents herein) would be
entitled to a writ of execution, without specifying what the
subject of execution would be. Said agreement did not state that
petitioners would be evicted from the premises subject of the suit
in case of any default in complying with their obligation
thereunder. This was the result of the careless drafting thereof
for which only private respondents were to be blamed.
A judgment is the foundation of a writ of execution which draws
its vitality therefrom (Monaghon v. Monaghon, 25 Ohio St. 325).
An officer issuing a writ of execution is required to look to the
judgment for his immediate authority (Sydnor v. Roberts, 12 Tex.
598).
An execution must conform to and be warranted by the judgment
on which it was issued (Francisco, The Revised Rules of Court
641 [1966]; Kramer v. Montgomery, 206 Okla.190, 242 p. 2d 414
[1952]). There should not be a substantial variance between the
judgment and the writ of execution (Avery v. Lewis, 10 Vt. 332).
Thus, an execution is fatally defective if the judgment was for a
sum of money and the writ of execution was for the sale of
mortgaged property (Bank of Philippine Islands v. Green, 48 Phil.
284 [1925]).
As petitioners' obligation under the compromise agreement as
approved by the court was monetary in nature, private
respondents can avail only of the writ of execution provided in
Section 15, Rule 39 of the Revised Rules of Court, and not that
provided in Section 13.
Section 15, Rule 39 provides:
Execution of money judgments. The officer
must enforce an execution of a money
judgment by levying on all the property, real
and personal of every name and nature
whatsoever, and which may be disposed of for
value, of the judgment debtor not exempt from
execution, or on a sufficient amount of such
property, if there be sufficient, and selling the
same, and paying to the judgment creditor, or
his attorney, so much of the proceeds as will
satisfy the judgment. Any excess in the
proceeds over the judgment and accruing
costs must be delivered to the judgment
debtor, unless otherwise directed by the
judgment or order of the court. When there is
more property of the judgment debtor than is
sufficient to satisfy the judgment and accruing
Section 8 Provisional Remedies

26

costs, within the view of the officer, he must


levy only on such part of the property as is
amply sufficient to satisfy the judgment and
costs.
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.
On the other hand, Section 13, Rule 39
provides:
How execution for the delivery or restitution
of property enforced. The officer must
enforce an execution for the delivery or
restitution of property by ousting therefrom
the person against whom the judgment is
rendered and placing the judgment creditor in
possession of such property, and by levying as
hereinafter provided upon so much of the
property of the judgment debtor as will satisfy
the amount of the judgment and costs included
in the writ of execution.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED
with the MODIFICATION that the Sheriff is directed to enforce the
execution only of the money judgment in accordance with Section
15, Rule 39 of the Revised Rules of Court.
SO ORDERED.

Section 8 Provisional Remedies

27

G.R. No. L-30982

January 31, 1930

THE PHILIPPINE NATIONAL BANK, plaintiff-appellant,


vs.
OLUTANGA LUMBER COMPANY, defendant-appellee.
Camus and Delgado for appellant.
Jose Erquiaga for defendant-appellee.
Araneta and Zaragoza for appellee Bank of the Philippine Islands.
VILLA-REAL, J.:
This appeal is taken by the Philippine National Bank from an
order of the Court of First Instance of Manila, the dispositive part
of which is as follows:
The Philippine National Bank having appeared as an
ordinary creditor in the involuntary insolvency of the
Olutanga Lumber Company, civil case No. 33048 of this
court, claiming the sum attached by the sheriff, it
thereby renounced its preferred right acquired through
garnishment issued in the present case; and for that
reason, the motion of the Bank of the Philippine Islands
is hereby granted, and the sheriff of the City of Manila is
hereby ordered to return to it the sum deposited by
virtue of the garnishment, after deducting therefrom his
legal fees to which he has a perfect right
notwithstanding the result arrived at.
In support of its appeal, the appellant assigns the following
alleged errors committed by the trial court in its judgment, to wit:
1. The lower court erred in holding, in its said order of
March 31, 1928, that appellant the Philippine National
Bank had waived its lien acquired by garnishment in the
present case by joining as an unsecured creditor the
petition for the involuntary insolvency of the Olutanga
Lumber Company.
2. The lower court erred in holding, in its said order of
March 31, 1928, that the garnishment issued in the
present case referred only to P16,656.30, and in
ordering the difference between said sum and the
amount of P30,092.11 deposited with the sheriff of
Manila to be returned to the Bank of the Philippine
Islands after deducting the sheriff's fees therefrom.
3. The lower court erred in denying the motion of the
appellant of November 14, 1928.
The following facts are necessary and pertinent to resolve the
questions raised in the present appeal:
In civil case entitled the Bank of the Philippine Islands, plaintiff
and appellee, vs. Olutanga Lumber Company, defendant and
appellant, G. R. No. 27045,1 said plaintiff and appellee was
ordered by this court to pay to the aforesaid defendant and
appellant a certain sum amounting to P31,242.11, Philippine
currency. Upon the return of the case to the Court of First
Instance of Zamboanga, the corresponding writ of execution was
issued, which was complied with by the sheriff of said province
by presenting it to the manager of the branch of the Bank of the

Philippine Islands in the City of Zamboanga, on January 10, 1928,


but without levying execution on any property belonging to the
execution debtor. On the same date, the aforesaid sheriff
addressed to the central office of said bank at Manila the
following telegram:
Execution Bank Philippine Islands versus Olutanga
Lumber Company served today manager Zamboanga
branch. Please authorize him pay amount due
defendant Olutanga Lumber plus sheriff fees otherwise
levy will be made on your Zamboaga office. LUIS
PANAGUITON, Provincial Sheriff.
On the same date, January 10, 1928, before receiving the
foregoing telegram, the central office of the Bank of the
Philippine Islands in Manila was notified by the sheriff of the City
of Manila that all the credits and debts contracted by it with the
Olutanga Lumber Company, amounting to P16,656.30, plus the
interest at the rate of 12 per cent per annum from April 19, 1922
until fully paid, were levied upon in the name of the Philippine
National Rank by virtue of a writ of attachment issued in civil
case No. 32936 of the Court of First Instance of Manila.
On the following day, January 11, 1928, the Bank of the Philippine
Islands, in reply to said notice, addressed a letter to the sheriff of
the City of Manila, notifying the latter that, pursuant to his notice
of attachment, it retained at the disposal of said sheriff the
aforesaid sum of P16,656.30, plus interest at the rate of 12 per
cent per annum from April 19, 1922 until such date as may be
designated.
On the same date, January 11, 1928, the sheriff of the City of
Manila sent a letter to the Bank of the Philippine Islands at
Manila, requiring the latter to deliver to him the sum of
P32,109,45, theretofore attached, belonging to the Olutanga
Lumber Company.
After the delivery to the sheriff of the City of Manila of the
amount of the judgment in favor of the Olutanga Lumber
Company, rendered in civil case No. 1176 of the Court of First
Instance of Zamboanga, G. R. No. 27045 of this court, the Bank of
the Philippine Islands notified the provincial sheriff of
Zamboanga by telegram, on January 12, 1928, that the amount of
the judgment in favor of the Olutanga Lumber Company against
said bank had been delivered to the sheriff of the City of Manila,
and that any question on that subject should be taken up with
him.
On January 14, 1928, the provincial sheriff of Zamboanga sent a
communication to the manager of the Bank of the Philippine
Islands in said city, notifying him that all the money he had in his
possession or control, belonging to the Bank of the Philippine
Islands, was levied upon by virtue of an order of execution issued
by the Court of First Instance of Zamboanga in civil case No.
1176, entitled Bank of the Philippine Islands vs. Olutanga Lumber
Company, G. R. No. 27045 of this court, copy of which order of
execution was served upon him on January 10, 1928.
On January 14, 1928, the sheriff of the City of Manila sent a
telegram to the sheriff of the Province of Zamboanga, telling him
that the amount of the judgment against the Bank of the
Philippine Islands and in favor of the Olutanga Lumber Company,
which had been attached by virtue of two writs of attachment
Section 8 Provisional Remedies

28

issued by the Philippine National Bank and the Standard Oil


company of New York against the Olutanga Lumber Company,
had been deposited with him by said Bank of the Philippine
Islands.
Notwithstanding the fact that the provincial sheriff of Zamboanga
had been duly informed of the levy made by the sheriff of the City
of Manila upon the funds of the Olutanga Lumber Company in
possession of the herein appellee, the Bank of the Philippine
Islands, and of the delivery of said funds to said judicial officer of
the City of Manila, he attempted to collect from the branch of said
Bank of the Philippine Islands at Zamboanga the amount of the
judgment in favor of the Olutanga Lumber Company, threatening
to levy, and in fact did levy, an attachment against said branch.
In view of this act of the provincial sheriff of Zamboanga, the
herein appellee, the Bank of the Philippine Islands, had to file a
petition for prohibition with this court against the Judge of the
Court of First Instance of Zamboanga, the provincial sheriff of
said province and the Olutanga Lumber Company, docketed as G.
R. No. 29043 of this court. Upon hearing said petition, this court
entered the following resolution on February 9, 1928:
Upon consideration of the petition filed in case G. R. No.
29043, Banco de las Islas Filipinas vs. J. Horilleno et al.,
and of the answer interposed by the respondents in
connection with the arguments adduced by both parties
in their memoranda and during the hearing of said case,
and it appearing that the writ of execution complained
of was issued and served upon the petitioner before the
latter received notice by the garnishment, and two days
before he was required by the sheriff of Manila to
deliver the amount mentioned in the said garnishment
proceedings, wherefore, the respondent judge did not
exceed its jurisdiction in issuing the aforesaid writ of
execution, it is ordered that the petition for a writ of
prohibition be and is hereby denied, with costs against
the petitioner. Mr. Justice Street took no part.
On February 10, 1928, the clerk of this court sent the following
telegram to the provincial sheriff of Zamboanga:
Supreme Court denied writ of prohibition requested by
Bank Philippine Islands to stop execution judgment in
favor Olutanga Lumber Company you may proceed with
execution forthwith.
Upon receipt of the foregoing telegram, the provincial sheriff of
Zamboanga sent the following letter to the manager of the Bank
of the Philippine Islands at Zamboanga:
SIR: With reference to the levy made by the
undersigned on your office on January 14,
1928, in the sum of thirty-two thousand pesos
(P32,000), Philippine currency, to cover the
amount claimed in the order of execution
issued by the Court of First Instance of
Zamboanga in civil case No. 1176, "The Bank
of the Philippine Islands vs. Olutanga Lumber
Company," and R. G. No. 27045, which levy has
been suspended by order of the Honorable
Supreme Court by virtue of the writ of
prohibition filed by the Bank of the Philippine

Islands against the undersigned and others, I


have the honor to inform you that said writ of
prohibition has been denied by the Supreme
Court as per telegram received by the
undersigned, a copy of which is herewith
inclosed.
In view thereof, and in pursuance of the order
of execution above referred to, you are hereby
ordered to deliver to the undersigned,
immediately upon your receipt hereof, the
sum of thirty-one thousand five hundred
ninety-six pesos and eighty-three centavos
(P31,596.83), Philippine currency, which is
the amount recovered by the Olutanga Lumber
company in the Supreme Court including
interests, costs and sheriff's fees.
Zamboanga, Zamboanga, February
11,
1928.
(Sgd.)
LUIS
PANAGUITON
Provincial Sheriff
In view of this urgent and peremptory demand of the provincial
sheriff of Zamboanga, the manager of the Bank of the Philippine
Islands at Zamboanga had no other remedy than to deliver to the
sheriff of Zamboanga the sum of P31,596.83.
The only question necessary to be decided in this appeal is
whether the funds placed by the Bank of the Philippine Islands in
possession of the sheriff of the City of Manila, which had been
attached in the name of the Philippine National Bank and against
the Olutanga Lumber Company, had been released from said
attachment when the aforesaid Bank of the Philippine Islands, by
judicial order, paid the judgment rendered by this court against
the said Bank of the Philippine Islands and in favor of the
Olutanga Lumber Company.
We have seen that after the central office of the Bank of the
Philippine Islands in the City of Manila had deposited with the
sheriff of the City of Manila the sum of P32,109.45, by virtue of a
demand made upon it by the latter in compliance with an order
of attachment issued by the Court of First Instance of Manila in
civil case No. 32936, wherein the Philippine National Bank was
and still is the plaintiff and the Olutanga Lumber Company was
and still is the defendant, which sum of P32,109.45 was the
amount of the judgment rendered in civil case No. 1176 of the
Court of First Instance of Zamboanga, G. R. No. 27045 of this
court, in favor of the Olutanga Lumber Company and against the
Bank of the Philippine Islands, said central office of the Bank of
the Philippine Islands notified the provincial sheriff of
Zamboanga of said consignation; but the latter, notwithstanding
the attachment of said amount by the sheriff of the City of Manila,
tried to collect from the branch office in Zamboanga of the Bank
of the Philippine Islands the amount of said judgment. Under the
circumstances the Zamboanga branch had to resort to this court
for a remedy to prevent execution of said judgment. This court
denied the remedy prayed for, and upon receipt of notice of said
denial the provincial sheriff of Zamboanga insisted in collecting
from the Zamboanga branch of the Bank of the Philippine Islands
the amount of said judgment, which said bank had to pay. The
general rule is that, where attached properties belonging to the
principal debtor are taken out of the hands of a person by legal
process, after he had been notified of the order of attachment,
Section 8 Provisional Remedies

29

said person cannot be made to answer for the properties in a


proceeding to carry out said attachment (28 Corpus Juris,
paragraph 362, page 264). In the present case, the fact that the
funds attached in the possession of the Bank of the Philippine
Islands, belonging to the Olutanga Lumber Company, had been
deposited with the sheriff of the City of Manila by order of said
officer, does not change the juridical situation of said funds as
attached in the possession of the Bank of the Philipine Islands,
and, according to the above-quoted rule, the aforesaid Bank of
the Philippine Islands, having been judicially compelled to pay
the amount of the judgment represented by said funds to the
Olutanga Lumber Company, after having employed all the legal
means to avoid it, is released from all responsibility to the
Philippine National Bank in whose favor the writ of attachment
was issued.
For the foregoing considerations, we are of the opinion, and so
hold, that when a person has funds in his possession belonging to
a debtor, and said funds are attached by a creditor of the latter,
said person is relieved from all responsibility to said creditor if
he is judicially compelled to deliver said funds to the aforesaid
debtor.
Wherefore, the dispositive part of the order appealed from is
affirmed in so far as it grants the motion of the Bank of the
Philippine Islands, and the sheriff of the City of Manila is hereby
ordered to return to said bank the amount deposited by virtue of
the writ of attachment, after deducting his legal fees, with costs
against the appellant. So ordered.

Section 8 Provisional Remedies

30

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.
FELICIANO, J.:p
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 thirdparty 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. 11
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
Section 8 Provisional Remedies
31

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.
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).
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)

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
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
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.
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 thirdparty 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

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:

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 invokesEconomic Insurance
Company, Inc. vs. Torres, 22 which stated:

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.,

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
Section 8 Provisional Remedies
32

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.

Section 8 Provisional Remedies

33

G.R. No. L-9802

February 5, 1916

TEC BI & CO., plaintiff-appelle,


vs.
THE CHARTERED BANK OF INDIA, AUSTRALIA &
CHINA, defendant-appellant.
CARSON, J.:
The following statement of the facts upon which this case was
submitted in the court below is taken literally from the brief of
counsel for the appellant:
This is an action to recover from the defendant bank the
sum of P11,572.96, the amount of a judgment recovered
by the plaintiff against "La Urania Cigar Factory (Ltd.),"
and for which the plaintiff seeks to hold the defendant
liable by virtue of an attempted levy of attachment upon
certain leaf tobacco in the possession of the defendant
bank under a pledge executed by the said "La Urania
Cigar Factory (Ltd.)." The Tobacco being pledged for an
amount largely in excess of its value, the bank refused
to deliver it to the sheriff, and the pledge having become
due, sold the tobacco and applied the proceeds on
account of the indebtedness, previous to the time when
the plaintiff finally secured judgment against "La Urania
Cigar Factory (Ltd.)." and issued execution thereon.
The case was submitted upon a stipulation of facts as follows:
It is hereby agreed that all the facts contained in
paragraphs 1, 2, 3, and 4 of the complaint are true, with
the exception of that part of the first five lines of
paragraph 2, which alleges that the plaintiff had notice
that some of the bales of tobacco in leaf which were sold
to the "La Urania Cigar Factory (Ltd.)," were attempted
to be sold for the manifest purpose of defrauding the
plaintiff.
Referring to the answer of defendant corporation it
stipulated that the allegations of paragraphs 2, 3, 4, 5,
and 6 are true.
The defendant corporation offers in evidence the original
contract of pledge marked Exhibit 1, as part of this stipulation.
With reference to the admission of the contents of
paragraph 3 of the answer, it is understood that the
word "neutral" is eliminated.
From the allegations of the complain and answer admitted to be
true in conformity with the foregoing stipulation, it appears:
(1) That on the 7th of November 1912, the plaintiff sold
to the "La Urania Cigar Factory (Ltd.)," a quantity of leaf
tobacco. (Paragraph 1 of complaint.)
(2) That on the 16th January, 1913, the "La Urania Cigar
Factory (Ltd.)," pledged to the defendant corporation as
security for the payment of an indebtedness of P25,000
the bales of tobacco described in Exhibit A of the
answer, the original of which has been offered in

evidence in connection with the stipulation of facts as


Exhibit 1.
(3) That the bales of tobacco thus pledged and
described in Exhibit 1 were stored in the bodega of a
third person, that is to say, in the bodega of Messrs.
Sprungli & Co., situated at No. 42 (now No. 214) of Calle
David, Manila. (Paragraph 3 of answer.)
(4) That on or about the 1st day of February, 1913, the
defendant corporation demanded of the obtained from
Messrs. Sprungli & Co. the keys to the said bodega, and
discovered that of the 436 bales of tobacco described in
Exhibit 1 there remained only those set forth in
paragraph 4 of the answer. (Paragraph 4 of answer.)
(5) That the defendant bank did not know and had been
unable to ascertain whether "La Urania Cigar Factory
(Ltd.)," misrepresented the quantity of the tobacco in
the said warehouse at the time of the execution of said
document of pledge, or whether the difference between
the amount described in the document of pledge and
that found on hand on the 1st of February, 1913, and in
the meantime been disposed of by "La Urania Cigar
Factory (Ltd.)," in collusion with Messrs. Sprungli & Co.,
but that if such disposition was made it was without the
knowledge or consent of the defendant bank.
(Paragraph 5 of answer.)
(6) That from said 1st day of February, 1913, the
defendant corporation had been in the absolute and
exclusive possession of the tobacco described in the
fourth paragraph of the answer and in Exhibit 1 of the
stipulation of facts, until the 15th of May, 1913, when
same was sold under and by virtue of the document of
pledge Exhibit 1 by the defendant bank for the sum of
P12,722.36 which was applied on account of said loan,
the entire amount of which was then past due and
unpaid, leaving a large balance thereof still due and
unpaid. (Paragraph 6 of answer.)
(7) That on the 22nd day of April, 1913, the plaintiff Tec
Bi & Co., filed a complaint in the Court of First Instance
of Manila against "La Urania Cigar Factory (Ltd.),"
claiming the payment of the sum of P11,572.96 as the
balance of the unpaid purchase price of the tobacco
referred to in paragraph 2. (Paragraph 1 of complaint.)
(8) That on the 5th day of May, 1913, Tec Bi & Co. asked
for and obtained from the Court of First Instance an
attachment against the said bales of tobacco, but
inasmuch as the bodega was locked and the sheriff was
informed that the keys were in the possession of the
bank, he demanded the delivery thereof from the latter,
which demand was refused by the bank, alleging that it
held possession of the tobacco under a pledge.
(Paragraph 2 of complaint.)
(9) That in view of the statement of the bank, the sheriff
notified it that the bales of tobacco identified in Exhibit
A of the complaint were attached subject to the results
of the complaint were attached subject to the results of
Section 8 Provisional Remedies

34

the complaint filed by Tec Bi & Co. against "La Urania


Cigar Factory (Ltd.)," (Paragraph 2 of complaint.)
(10) That on the 8th day of May, 1913, the bank
answered the notification of the sheriff, confirming the
fact that it had in its possession the bales of tobacco
specified in the notification, as security for the payment
of a loan and that it intended to sell the same; that the
sheriff communicated the answer of the bank to the
attorneys to Tec Bi & Co., who replied insisting upon the
levy of the attachment. (Paragraph 3 of complaint.)
(11) That on the 19th day of May, 1913, the Court of
First Instance rendered judgment in said case against
"La Urania Cigar Factory (Ltd.)," in favor of Tec Bi & Co.,
for the sum of P11,572.96, with legal interest from April
22, 1913, and costs. (Paragraph 4 of complaint.)
(12) That on the 22d day of May, 1913, the sheriff
attempted to execute the judgment upon the bales of
tobacco attached and in the possession of the defendant
corporation, but was unable to do so due to the
statement of the agent of said corporation, that the
tobacco had been sold and that the proceeds of the sale
had been applied upon the payment of the amount due
to from "La Urania Cigar Factory (Ltd.)," (Paragraph 4 of
complaint.)
The case having been submitted on the foregoing
stipulation of facts, the Court of First Instance found
that the plaintiff's claim was a preferred credit under
the provisions of paragraph 1 of article 1922 of the Civil
Code; that the pledge executed by "La Urania Cigar
Factory (Ltd.)," in favor of the defendant corporation
(Exhibit 1) was not binding upon the plaintiff for the
reason that it was not set forth in a public instrument as
required by article 1865 of the Civil Code in order to be
effective against, third person, and rendered judgment
in favor of the plaintiff and against the defendant for the
amount of the former's judgment against "La Urania
Cigar Factory (Ltd.)," with interest and costs. (Pages 17
to 23, inclusive, bill of exceptions.)
From this judgment the defendant corporation appeals, assigning
the following errors:
ASSIGNMENT OF ERRORS
I. The court erred in holding that the plaintiff's claim as
vendor of the tobacco was entitled to preference over
that of the defendant bank secured by a pledge on the
same tobacco.
II. The court erred in applying article 1865 of the Civil
Code to the defendant's pledge, and in holding that such
pledge was ineffective as to the plaintiff.
III. The court erred in holding that the plaintiff was a
third person as contemplated by that term in article
1865 of the Civil Code.

IV. Assuming that article 1865 is applicable to the


transaction in question, the court erred in holding that
the plaintiff did not waive any defect in the private
instrument of pledge by expressly admitting its
genuineness and the correctness of its date by
stipulation, and by failure to object to its introduction in
evidence.
V. The court erred in rendering judgment in favor of the
plaintiff and against the defendant, and in denying the
latter's motion for a new trial.
It will readily be seen that our disposition of this appeal must
turn upon the force and effect which should be given the
instrument referred to in the statement of facts as the "original
contract of pledge marked Exhibit 1."
Plaintiff's contention is that under the provisions of clause 1 of
article 1922, his right as a preferred creditor for the amount of
the purchase price of the tobacco was not prejudice and could not
be prejudiced by the pledge of the tobacco to the defendant, since
the date of the contract of pledge is not evidenced by a public
document; and, further, that he had a perfect right to attach the
tobacco in the course of judicial proceedings for the recovery of
his claim against the pledgor, for the purchase price of the
tobacco pledged to the defendant bank.
The defendant bank, on the other hand, contends that under the
provisions of clause 2 of article 1922 of the Civil Code read
together with clause 1 of section 1926, the right of preference in
favor of the bank, to which the tobacco had been pledged by the
common debtor, excluded the preference in favor of the plaintiff;
and that plaintiff could not rely on the provisions of article 1865
of the Code, because he was not a "third person" in the sense in
which these words are used in that article.
Clauses 1 and 2 of article 1922 of the Civil Code are as follows:
1922. With regard to the specified personal property of
the debtor, the following are preferred:
1. Credits for the construction, repair, preservation, or
for the amount of the sale of personal property which
may be in the possession of the debtor to the extent of
the value of the same.
2. Those secured by a pledge which may be in the
possession of the creditor, with regard to the thing
pledged and to the extent of its value.
Clause 1 of article 1926 of the Civil Code is as follows:
1926. Credits which enjoy preference with regard to
certain personal property, exclude all the other to the
extent of the value of the personal property to which
the preference refers.
When two or more, creditors claim preference with
regard to certain personal property, the following rules
shall be observed as to priority of payment:

Section 8 Provisional Remedies

35

1. Credits secured by a pledge exclude all other to the


extent of the value of the thing given in pledge.
Article 1865 of the Civil Code is as follows:
A pledge shall not be effective against a third person,
when evidence of its date does not appear in a public
instrument.
Under these provisions of the Code there can be no doubt that
had the date of the contract of pledge been evidenced by a public
document, the preferential right of the pledgee would have been
superior to and excluded all and any preferential rights of the
vendor. We so held in Macke and Macke vs. Rubert (11 Phil., 480).
The pledge contract (Exhibit 1) is before us, however, and it is
admitted that the date is not evidenced by a public instrument. It
cannot therefore be permitted to prejudice the rights of the
vendor of the tobacco if he is a "third person: in the sense in
which that term is used in the above-cited article 1865 of the
code.
It cannot be doubted that with relation to the pledgor and the
pledgee the original vendor of the goods was a third person. The
words are not susceptible of any possible explanation which
would exclude him. He had no privity with either of the parties to
the pledge contract. He had no knowledge of the execution of that
contract. He did not participate in it in any way whatever. His
rights so far as they affected the pledged property, were adverse
to both pledgor and pledgee. In a word he was as to them a third
person.
It necessarily follows that since the execution of the pledge in
favor of the defendant bank without the date of execution being
evidenced by a public instrument could have no effect as again
the plaintiff, he was strictly within his rights in asserting his
claims as a preferred creditor and in levying an attachment
against the tobacco; and the defendant bank could not lawfully
assert any right as a pledgee or preferred creditor which
adversely affected the rights of the plaintiff in the premises.
To these conclusions a number of objections have been raised,
none of which, however, will bear close inspection.
It is said that even though the date of the defendant bank's pledge
is not evidenced in a public document, still the delivery of the
tobacco into the possession of the bank defeated the right of the
plaintiff to a preference. This contention is based on the
provision of article 1922 which limits the preference for the
purchase price of goods sold to the time during which they
continue in the possession of the purchaser.
To this contention there are two sufficient answers.
First. While the contract of pledge and the delivery of the tobacco
undoubtedly created a valid pledge as between the pledgor and
the pledgee, so that the pledgor himself could not disturb the
possession of the pledgee; still, with relation to third person, the
possession of the bank must be deemed to be that of the
purchaser of the tobacco, since under the provisions of article
1865 of the Code, the execution of the pledge could not affect the
right of third person. As to third persons the pledge and the

pledged property must be treated as if the pledge never had been


executed.
Second. Even if it were true that the plaintiff had lost his
statutory right of preference as a result of the execution of the
pledge and the delivery of possession to the bank, still he had a
perfect right to levy an attachment on the tobacco pending his
action to recover the amount of the pledgor's indebtedness,
unless the execution of the pledge had the effect of depriving him
of that right. But it is very clear that under the express provisions
of article 1865 of the code no such effect could be given the
pledge.
Much is made in the brief of the appellant of the fact that one of
the allegations of the answer set forth that at the date of the
issuance of the attachment the defendant bank was in the
absolute and exclusive possession of the tobacco in question; and
that the truth of this allegation was admitted in the agreed
statement of facts.
The defendant's answer contains a series of allegations setting
forth the precise nature and character of the possession of the
tobacco by the bank, and of all the circumstances under the by
virtue of which the bank came into possession; and there is
attached to the answer, as an exhibit a copy of the pledge contract
itself. We have shown that accepting these allegations as true, the
possession of the bank was not absolute and exclusive in the
sense that it could in any wise affect the right of another credit of
the common debtor, a "third person" with relation to the pledge
contract, to levy an attachment upon the tobacco. We must
conclude therefore that the stipulation as to the truth of the
allegation of the answer that the possession of the tobacco by the
bank was "absolute and exclusive" was intended only to mean
that it was "absolute and exclusive" so far as the pledgor himself
was concerned; or else that the stipulation as to the truth of the
allegations of the answer did not include this averment as to the
"absolute and exclusive" possession of the tobacco by the bank it
being merely a conclusion of law, based upon the other
allegations of facts alleged by the pleader.
A general admission of the truth of the allegations set forth in a
pleading is not an admission of the truth of an impossible
conclusion of fact drawn from other facts set out in the pleading,
nor of a wrong conclusion of law based on the allegations of fact
well pleaded, nor of the truth of a general averment of facts
contradicted by more specific averments. Thus, if a pleader
alleges that two pesos were borrowed on one day and two more
borrowed on another making five Pin all, a stipulation of the
truth of the allegations in the pleading does not amount to an
admission by the opposing party that twice two make five. Again
if a pleader alleges that one hundred pesos were loaned without
interest for one year and had not been paid, and that the
borrower is indebted to the lender in the sum of one hundred
and ten pesos, that being the amount of the capital together with
interest for the year for which the money was loaned, a
stipulation as to the truth of the allegation set forth in the
pleadings is not an admission of the truth of the conclusion of law
as to the interest due by the borrower. These elementary
principles have been quite fully developed in a great variety of
cases arising on demurrers, and sufficiently dispose of the
attempt of counsel to fix the attention of the court upon this
single averment of the answer, apart from the context and to the
exclusion of the specific allegations of fact, the truth of which, as
Section 8 Provisional Remedies

36

stipulated by the parties, cannot be questioned. (Cf. 144 U.S., 75 1;


97 Ala., 491 2; 31 Cyc., 333-337; 6 Encyc. Pl. & Pr., 334-338.)
One other contention of counsel for the appellant remains to be
considered. It is that on which his fourth assignment of error is
based. Counsel insist that "assuming that article 1865 is
applicable to the transaction in question, the court erred in
holding that the plaintiff did not waive any defect in the private
instrument of pledge by expressly admitting its genuineness and
the correctness of its date by stipulation, and by failure to object
to its introduction in evidence."
This contention rests on a misconception of the real purpose and
object of the provisions of article 1865 of the code. This article is
not a mere rule of adjective law, prescribing the mode whereby
proof may be made of the date of a contract of pledge. It is a rule
of substantive law, prescribing a condition without which the
execution of a pledge contract cannot affect third person
adversely.
The plaintiff in this action does not question the truth of the
bank's allegations that the pledge contract was executed on the
day on which it purports on its face to have been signed and
delivered. There is no suggestion of bad faith or sharp practice on
the part of either the pledgor or pledgee in the execution of the
pledge. Under the circumstances plaintiff had no reason to object
to the introduction of evidence which tended direct to establish
his claim that although the pledge had been executed as alleged
by the defendant bank, it could not affect his rights on the
premises. On the contrary he must have welcomed the
introduction of this evidence, which conclusively established the
very point upon which his whole case necessarily turns.
Plaintiff stands strictly on the rule of substantive law laid down in
this article of the code which declared that this rights, as a "third
person," cannot be adversely affected by a pledge the date of
which is not evidenced in a public document. His right so to do
cannot be successfully challenged; and indeed we are inclined to
think that the equities of the case, as far as they appear from the
record, are with the vendor of a large quantity of tobacco, in his
effort to recover the unpaid purchase price, rather than the
creditor, who succeeded in having the debtor who had failed to
pay the purchase price of this tobacco, bought on credit, turn it
over to him by way of a pledge to secure the payment of a
preexisting debt.
What has been said would seem to dispose of all the contentions
of the appellant; but at the risk of extending this opinion to an
undue length, we here insert the comment of a learned Spanish
commentator (Manresa) on the provisions of article 1865 of the
code, because he seems to have anticipated every contention of
appellant in this case, and the citation demonstrates quite
conclusively that the plaintiff is entitled to rely on his rights in
the premises as a "third person," who cannot be adversely
affected by the execution of a pledge in the manner and form in
which the pledge to the defendant bank was made.
Article 1865. A pledge will not be valid against a third
party if the certainty of the date is not expressed in a
public instrument.
This article, the precept of which did not exist in our old
law, answers the necessity for not disturbing the

relationship or the status of the ownership of things


with hidden or simulated contract of pledge, in the same
way and for the identical reasons that were taken into
account by the mortgage law in order to suppress the
implied and legal mortgages which produced so much
instability in real property.
Considering the effects of a contract of pledge, it is
easily understood that, without this warranty
demanded by law, the case may happen wherein a
debtor in bad faith from the moment that he sees his
movable property in danger of execution may attempt
to withdraw the same from the action of justice and the
reach of his creditors by simulating, through criminal
confabulations, anterior and fraudulent alterations in
his possession by means of feigned contract of this
nature; and, with the object of avoiding or preventing
such abuses, almost all the foreign writers advise that
for the effectiveness of the pledge, it be demanded as a
precise condition that in every case the contract be
executed in a public writing, for, otherwise, the
determination of its date will be rendered difficult and
its proof more so, even in cases in which it is executed
before witnesses, due to the difficulty to be encountered
in seeking those before whom it was executed.
Our code has not gone so far, for it does not demand in
express terms that in all cases the pledge be constituted
or formalized in a public writing, nor even in private
document, but only that the certainty of the date be
expressed in the first of the said class of instruments in
order that it may be valid against a third party; and, in
default of any express provision of law, in the cases
where no agreement requiring the execution in a public
writing exists, it should be subjected to the general rule,
especially to that established in the last paragraph of
article 1280, according to which all contracts not
included in the foregoing cases of the said article should
be made in writing even though it be private, whenever
the amount of the prestation of one or of the two
contracting parties exceeds 1,500 pesetas.
The pledge, therefore, can be constituted in whatever
form, as all other contracts, and the one formalized in
that way will be valid and will produce its natural and
legal consequences in the juridical order with respect to
the contracting parties and to their assigns; but it will
not have effect with respect to a third party if the
certainty of the date is not evidenced in a public writing,
by which means the legislator has tried to render
impossible the existence of the fraudulent
confabulations which we have hereinbefore indicated as
otherwise possible.
That is to say, what the law wishes in the precept that
we are examining is to impose the existence, not only of
an efficacious and authentic means of proof of the
constitution of a pledge, but also of a security of its
certainty and the reality of the pledge in order to avoid
frauds and damages to the creditors, arising from the
bad faith of the debtor; something like the inscription of
the mortgage in the Registry of Property, as has been
said by an author, although with less warranties than
this one.
Section 8 Provisional Remedies

37

Some authors criticise the limitations in the wording of


the article insofar as it does not demand an identical
expression respecting the other essential circumstances
of the contract, they upholding the necessity or at lest
the convenience of expressing in the public instrument
principally the debt for the security of which the pledge
is constituted, the date of debt, the designation of the
thing pledged, the period during which the accessory
obligation is contracted form, with all the other
stipulations which constitute the essence of the
contract. But his should not be imposed by the law but
by the private interest which is the only one affected,
and for the same reason, a like determination should be
demanded in all contracts.
The only thing in this case that could interest or concern
the legislator would be to prevent or to make
impossible any simulation or fraud, supposing the
existence of fraudulent pledged to be to the prejudice of
third parties and to that end, it is sufficient that the date
of its constitution be evidenced with all certainty in a
public instrument. Any thing else would amount to an
attempt against the principle of liberty with which
contract of the modern legislation are inspired, placing
obstacles to it by demanding the execution in every case
of a public writing, a thing which though it constitutes a
worthy and just aspiration, yet, ca not take precedence
over the will and the freedom of the contracting parties.
Hence, any one who may wish to constitute a pledge in a
private document or verbally, if the prestations of the
parties do not exceed 1,500 pesetas, can validly make it;
but the contract celebrated will not prejudice a third
party while the requisite of the execution of a public
instrument referred to in the article is not complied
with.
There exists another reason which justifies the precept
we are discussing. In fact, from the contract of pledge
arises the preference established in No. 2 of article
1922, respecting the credits guaranteed by the thing
pledged which is in the possession of the creditor, up to
the amount of its value, which preference may be
opposed against third parties; and, in order that the
latter may not be prejudiced, it is necessary that the
date of the contract be expressed in a true, indubitable
and authentic manner and that it be certain to the end
that even the bare possibility of fraud and of collusion
between the creditor keeping the pledge and the debtor
owner thereof may be excluded.
What has been said necessitates the entry of judgment affirming
the judgment entered in the court below, with the costs of this
instance against the appellant.
Let judgment be entered accordingly. So ordered.

Section 8 Provisional Remedies

38

G.R. No. 73976 May 29, 1987


THE CONSOLIDATED BANK and TRUST CORPORATION
(SOLIDBANK), petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT, GOLDEN STAR
INDUSTRIAL CORPORATION, NICOS INDUSTRIAL
CORPORATION and THE PROVINCIAL SHERIFF OF
BULACAN, respondents.
GUTIERREZ, JR., J.:
The basic issue for resolution in this petition for review of the
December 13, 1985 decision of the Intermediate Appellate Court,
now the Court of Appeals, as well as the resolution of March 13,
1986 denying the motion for reconsideration, is whether or not
an attaching creditor acquires the right of redemption of a debtor
over the attached properties of the latter which are subsequently
extrajudicially foreclosed by third parties.
Briefly, the facts are as follows: Originally, petitioner
Consolidated Bank and Trust Corporation (SOLIDBANK) loaned
private respondent NICOS Industrial Corporation (NICOS) sums
of money in the total amount of FOUR MILLION SEVENTY SIX
THOUSAND FIVE HUNDRED EIGHTEEN AND 64/100 PESOS
(P4,076,518.64).
Subsequently, NICOS failed to pay back the loan prompting
SOLIDBANK to file a collection case before the Court of First
Instance of Manila, Branch XXIX. The case was docketed as Civil
Case No. 82-11611.
On August 30, 1982, the court in the aforecited case issued an
order of attachment " ... upon the rights, interests and
participation of which defendants NICOS Industrial Corporation
... may have in Transfer Certificate of Title No. T-210581 (T32.505 M) and Transfer Certificate of Title No. T-10580 (T32.504 M) (Annexes "B", "B-1", "B-2" and "B-3" of petition).
On September 1, 1982, pursuant to the writ of attachment issued
by the Court and upon petitioner's posting of sufficient bond, the
Sheriff of Manila levied and attached the two real properties
described by the foregoing order of attachment, including the
buildings and other improvements thereon. Afterwards, the
Sheriff sent separate Notices of Levy Upon Realty to the Registrar
of Deeds of Malolos, Bulacan, dated September 1, 1982
requesting him "to make the proper annotation in the books of
your office" by virtue of the order of attachment dated August
30,1982 issued by the Manila Court in Civil Case No. 82-11611.
Accordingly, on September 7, 1982, the Registrar of Deeds of
Malolos, Bulacan, pursuant to the request of the Manila Sheriff,
inscribed and annotated the Notices of Levy Upon Real Property
at the back of Transfer Certificates of Title Nos. T-210581 (T32.505 M) and T-210580 (T-32.504 M).
Pursuant to the foregoing ng inscription and annotations, guards
were deputized by the Manila Sheriff to secure the premises of
the two attached realties.
A year later, however, on July 11, 1983, the attached properties
which had been mortgaged by NICOS to the United Coconut

Planters Bank (UCPB) on March 11, 1982, were extrajudicially


foreclosed by the latter. As the highest bidder therein, a
certificate of sale was issued to it by the Sheriff of Bulacan over
the subject realties including the buildings and improvements
thereon.
Surprisingly, two transactions occurred soon thereafter, both on
August 29, 1983. First, UCPB sold all of its rights, interests, and
participation over the properties in question to a certain Manuel
Go; Second, Manuel Go sold all the rights he acquired from UCPB
over the same lots on that very same day to private respondent
Golden Star Industrial Corporation (GOLDEN STAR).
Barely a month later, on October 5, 1983, respondent NICOS,
though fully aware that it still had the right to redeem the
auctioned properties within the one year period of redemption
from July 11, 1983, suddenly executed a document entitled
"Waiver of Right of Redemption" in favor of respondent GOLDEN
STAR.
On September 15, 1983, GOLDEN STAR filed a petition for the
issuance of a writ of possession over the subject realties before
the Regional Trial Court, Branch VI of Malolos, Bulacan.
On November 4, 1983, the Malolos Court granted GOLDEN
STAR's petition for a writ of possession and issued the writ. In
accordance with these orders, armed men of GOLDEN STAR
forcibly took over the possession of the properties in dispute
from the guards deputized by the Sheriff of Manila to secure the
premises.
Thus on November 21, 1983, petitioner SOLIDBANK, on the
strength of its prior attachment over the lands in question filed
with the Malolos court an omnibus motion to annul the writ of
possession issued to GOLDEN STAR and to punish for contempt
of court the persons who implemented the writ of possession
with the use of force and intimidation.
The respondents NICOS and GOLDEN STAR, filed oppositions to
the foregoing omnibus motion, the former on the basis of the
waiver of its right of redemption to GOLDEN STAR, and the latter
on its alleged ignorance that the lands in question were
under custodia legis, having been attached by the Sheriff of
Manila.
On June 9, 1984, the Malolos Court issued an order denying the
omnibus motion, the decretal portion of which is as follows:
WHEREFORE, the Omnibus Motion of movant
Consolidated Bank and Trust Corporation to
annul the writ of possession issued by this
Court in favor of Golden Star Industrial
Corporation and to cite for contempt those
who fraudulently secured and unlawfully
implemented the writ of possession is hereby
DENIED for lack of merit. (p. 8 of the Brief for
the Complainant-Oppositor-Appellant in ACG.R. CV No. 04398 [p.118, Rollo])
The petitioner SOLIDBANK forthwith interposed an appeal
before the Intermediate Appellate Court arguing inter alia that
the properties were under custodia legis, hence the extrajudicial
foreclosure and the writ of possession were null and void, and
Section 8 Provisional Remedies

39

that the right of NICOS to redeem the auctioned properties had


been acquired by SOLIDBANK.
On December 13, 1985, the Intermediate Appellate Court
rendered its assailed decision "finding no merit in this appeal and
affirming in toto the appealed order of June 9, 1984, ruling that
"the properties in issue ... were not incustodia legis at the time of
the extrajudicial foreclosure."
The petitioner moved for reconsideration, arguing that its writ of
attachment over the properties in question was duly registered
in the Register of Deeds of Malolos, Bulacan, and that the right to
redeem said properties should be retained or given back to
SOLIDBANK as attaching creditor.
On March 13, 1986, the Intermediate Appellate Court
promulgated its resolution denying the motion for
reconsideration for lack of merit.

82-11611, all the rights, interest and


participation
of
NICOS
INDUSTRIAL
CORPORATION-Defendant over the herein
described lot is hereby levied upon attached.;
Date of Instrument: September 1, 1982; Date
of Inscription: September 7, 1982 at 2:35.
Meycauayan, Bulacan.
(SGD.) VIOLETA R. LINCALLO GARCIA
Branch Register of Deeds
TRANSFER CERTIFICATE OF TITLE
No. T-210581 (T-32.505 M)

The fundamental question herein, which is determinative of the


other issues, is whether or not the subject properties were
under custodia legis by virtue of the prior annotation of a writ of
attachment in petitioner's favor at the time the properties were
extrajudicially foreclosed.

Entry No. 79524 (M); Kind: NOTICE OF LEVY


UPON REALTY, Executed in favor of THE
CONSOLIDATED
BANK
AND
TRUST
CORPORATION (SOLIDBANK) Plaintiff;
Conditions: Notice is hereby given that by
virtue of an Order of Attachment issued by the
C.F.I. of Manila, Branch XXIX, in Civil Case No.
82-11611, all the rights, interest and
participation
of
NICOS
INDUSTRIAL
CORPORATION Defendants over the herein
described lot is hereby levied upon attached.;
Date of Instrument; September 1, 1982; Date
of Inscription: September 7, 1982 at 2:35.

We rule in the affirmative on the following grounds:

Meycauayan, Bulacan.

First of all, the records show (specifically Annexes "B," "B-1" to


"B-3" of the petition) that on September 1, 1982, the Sheriff of
Branch XXIX of the Court of First Instance of Manila, sent
separate Notices of Levy Upon Realty to the Registrar of Deeds of
Malolos Bulacan, requesting him "to make the proper annotation
in the books of your office," "by virtue of an order of attachment
issued in Civil Case No. 82-11611 dated August 30, 1982, ... upon
the rights, interests, and participation of which defendant NICOS
Industrial Corporation in this case may have in ... ."Transfer
Certificate of Title No. T-210581 (T-32.505 M) and Transfer
Certificate of Title No. T-210580 (T-32,505 M).

(SGD.) VIOLETA R. LINCALLO GARCIA

Hence this petition for review, on the grounds that respondent


appellate court decided the case contrary to law and applicable
decisions of the Supreme Court, and has departed from the
accepted and usual course of judicial proceedings as to call for an
exercise of the power of supervision of this Court.

Secondly, and more significant, the records clearly show (page 4,


Annex "D" of petition) that the Registrar of Deeds of Malolos,
Bulacan, on September 7, 1982, inscribed and annotated the
foregoing Notices of Levy at the back of Transfer Certificate of
Title Nos. 210580 and 210581, to wit:

Branch Register of Deeds


(pp. 91-92, Rollo)
Based on the foregoing evidence on record, the conclusion is
clear that the disputed real properties were undercustodia
legis by virtue of a valid attachment at the time the same were
extrajudicially foreclosed by a third party mortgagee.
The rule is well settled that when a writ of attachment has been
levied on real property or any interest therein belonging to the
judgment debtor, the levy thus effected creates a lien which
nothing can destroy but its dissolution (Chua Pua Hermanos v.
Register of Deeds of Batangas, 50 Phil. 670; Government, et. al. v.
Mercado, 67 Phil. 409).

TRANSFER CERTIFICATE OF TITLE


The foregoing conclusion has two necessary consequences.
No. T-210580 (T-32.504 M)
Entry No. 79524 (M): Kind; NOTICE OF LEVY
UPON REALTY, Executed in favor of the
CONSOLIDATED
BANK
AND
TRUST
CORPORATION
(SOLIDBANK);-Plaintiff;
Conditions: Notice is hereby given that by
virtue of an Order of Attachment issued by the
C.F.I. of Manila, Branch XXIX, in Civil Case No.

Firstly, it follows that the writ of possession issued by the


Malolos court in favor of respondent GOLDEN STAR is nun and
void ab initio because it interfered with the jurisdiction of a coordinate and co-equal court (See De Leon v. Salvador, 36 SCRA
567):
While property or money is in custodia
legis, the officer holding it is the mere hand of
Section 8 Provisional Remedies

40

the court, his possession is the possession of


the court, and to interfere with it is to invade
the jurisdiction of the court itself (Gende v.
Fleming, 371 N.E. 2d. 191; Bishop v. Atlantic
Smokeless Coal Co., 88F. Supp. 27, 7 CJS 320).
Of equal importance is the fact that the transactions on which
respondent GOLDEN STAR's right to a writ of possession are
based are highly irregular and questionable, to say the least,
considering the following circumstances:

lapsed on September 6, 1984 without the petitioner bank ever


exercising any right of redemption.
This argument is untenable. Well settled is the rule that the
pendency of an action tolls the term of the right of redemption.
Specifically, tills Court in Ong Chua v. Carr, (53 Phil. 975, 983)
categorically ruled that:
xxx xxx xxx
... Neither was it error on the part of the court
to hold that the pendency of the action tolled
the term for the right of redemption; that is an
old and well established rule.

On July 11, 1983, the Sheriff of Bulacan executed a certificate of


sale over the two lots in question in favor of UCPB.
On August 29, 1983, or about a month and a half later, UCPB sold
its rights, interests and participation over the lands to Manuel Go.

This was reiterated in Fernandez v. Suplido (96 Phil. 541, 543), as


follows:

On that very same day, August 29, 1983, Manuel Go sold the same
properties to respondent GOLDEN STAR.

xxx xxx xxx

On October 5, 1983, respondent NICOS which had a one year


right of redemption over the lands in question executed a
"Waiver of Right of Redemption in favor of respondent GOLDEN
STAR." The attempts to bring the disputed properties out of the
petitioner's reach, inspite of the attachment, are plain and
apparent.

... As pointed out in Ong Chua v. Carr, 53 Phil.


975, the pendency of an action brought in
good faith and relating to the validity of a sale
with pacto de retro tolls the term for the right
of redemption. ...

Based on the foregoing facts, we find that respondents NICOS and


GOLDEN STAR conspired to defeat petitioner's lien on the
attached properties and to deny the latter its right of redemption.

Not only that. It has been held that "under a statute limiting the
time for redemption ... the right of redemption continues after
perfection of an appeal ... until the decision of the appeal
(Philadelphia Mortgage Co. v. Gustus, 75 N.W. 1107).

It appears that in issuing the writ of possession, the Malolos court


relied on copies of documents (which did not show the
memorandum of encumbrance) submitted to it by GOLDEN
STAR. It was thus led into the error of ruling that the petitioner's
attachment was not properly annotated.

In the case at bar, the petitioner commenced the instant action by


way of an omnibus motion before the Bulacan Court on
November 21, 1983 or barely two months after the certificate of
sale was registered on September 6, 1983, well within the one
year period of redemption.

Secondly, it likewise follows that the petitioner has acquired by


operation of law the right of redemption over the foreclosed
properties pursuant to Sec. 6 of Act No. 3135, to wit:

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is


granted and judgment is hereby rendered:

In all such cases in which an extrajudicial sale


is made ... any person having a lien on the
property subsequent to the mortgage ... may
redeem the same at any time within the term
of one year from and after the date of sale.
It has been held that "an attaching creditor may succeed to the
incidental rights to which the debtor was entitled by reason of his
ownership of the property, as for example, a right to redeem from
a prior mortgage" (Lyon v. Stanford, 5 Conn. 541, 7 SJS 505).
The fact that respondent NICOS executed a waiver of right of
redemption in favor of respondent GOLDEN STAR on October 5,
1983 is of no moment as by that time it had no more right which
it may waive in favor of another,

1) declaring as valid and binding the levy and attachment by the


Manila Sheriff on the two realties in question including the
buildings and improvements thereon;
2) declaring that petitioner has acquired the right of redemption
over the aforesaid properties which it may exercise within one
year from notice of entry of judgment in this case; and
3) declaring as null and void (a) the order of the Bulacan Court
dated November 4, 1983 granting the writ of possession to
respondent GOLDEN STAR, (b) its order of June 9, 1984 denying
the petitioner's omnibus motion, and (c) the Waiver of Right of
Redemption executed by respondent NICOS in favor of
respondent GOLDEN STAR.
SO ORDERED.

Finally, GOLDEN STAR argues that even if the attachment in issue


was duly registered and the petitioner has a right of redemption,
the certificate of sale of the lands in question was registered on
September 6, 1983. It claims that the period to redeem therefore
Section 8 Provisional Remedies

41

G.R. No. 76879 October 3, 1990


BF HOMES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS, ROSALINDA R. ROA and VICENTE
MENDOZA, respondents.
G.R.No. 77143 October 3, 1990
ROSALINDA ROA and VICENTE MENDOZA, petitioners,
vs.
COURT OF APPEALS and BF HOMES,
INCORPORATED, respondents.
CRUZ, J.:
Involved here are two petitions for review assailing the decision
of the Court of Appeals in CA-G.R. No. Sp 05411, entitled BF
Homes, Inc. v. Judge Tutaan, et al., dated June 6, 1986, as amended
on October 22, 1986.
BF Homes, Inc. is a domestic corporation previously engaged in
the business of developing and selling residential lots and houses
and other related realty matters.
On July 19, 1984, BF contracted a loan from Rosalinda R. Roa and
Vicente Mendoza in the amount of P250,000.00 with interest at
the rate of 33% per annum payable after 32 days. The obligation
was embodied in a promissory note and secured by two postdated checks issued by BF in favor of the lenders.
On September 25, 1984, BF filed a Petition for Rehabilitation and
for a Declaration in a State of Suspension of Payments under Sec.
5(d) of P.D. No. 902-A with a prayer that upon the filing of the
petition and in the meantime, all claims against it for any and all
accounts or indebtedness be suspended, but allowing petitioner
to continue with its normal operations. It also asked for the
approval of the proposed rehabilitation plan.
On October 17, 1984, Roa and Mendoza filed a complaint against
BF with the Regional Trial Court of Quezon City, docketed as Civil
Case No. Q-43104, for the recovery of the loan of P250,000.00,
with interest and attorney's fees. The complaint also prayed for
the issuance of a writ of preliminary attachment against the
properties of BF.
October 22, 1984, the trial court issued the writ against
properties of BF sufficient to satisfy the principal claim in the
amount of P257,333.33.
In a motion dated October 25, 1984, BF moved for the dismissal
of the case for lack of jurisdiction, or at least for its suspension in
view of the pendency of SEC Case No. 002693. it also asked for
the lifting of the writ of preliminary attachment.
The trial court denied the motion to dismiss on November 20,
1984, and the motion for reconsideration on January 11, 1985.
Citing the case of DMRC Enterprises v. Este del Sol Mountain
Reserves, Inc., 1 the trial court held it had jurisdiction because
what was involved was not an intra-corporate or partnership
dispute but merely a determination of the rights of the parties
arising out of the contract of loan.

On February 13, 1985, BF filed with the Intermediate Appellate


Court (now Court of Appeals) an original action forcertiorari with
prayer for a writ of preliminary injunction against the regional
trial court, Roa and Mendoza. On February 14, 1985, the Court of
Appeals issued an order temporarily restraining proceedings in
Civil Case No. Q-43104.
On March 18, 1985, the SEC, finding an urgent need to
rehabilitate BF issued an order creating a management
committee and suspending all actions for claims against BF
pending before any court, tribunal or board.
On June 6, 1986, the Court of Appeals rendered a decision
dismissing the complaint in Civil Case No. Q-43104 and declaring
the writ of preliminary attachment null and void. But upon a
motion for reconsideration filed by Roa and Mendoza, the
decision was set aside and a new one was entered upholding the
jurisdiction of the regional trial court over the case. At the same
time, however, it suspended the proceedings therein until after
the management committee shall have been impleaded as party
defendant. The dissolution of the writ of preliminary attachment
was maintained.
Both parties filed separate motions for reconsideration, BF took
exception to the amended decision insofar as it directed the
continuation of proceedings in Civil Case No. Q-43104 until after
the management committee shall have been impleaded. Roa and
Mendoza faulted the Court of Appeals for ordering BF to be
substituted by the management committee and for dissolving the
writ of preliminary attachment without the filing of the necessary
counter-bond by the defendant.
In a resolution dated December 22, 1986, the Court of Appeals
denied both motions for reconsideration, noting that the
proceedings in the civil case could not remain suspended forever.
The purpose of the suspension, it said, was to enable the
management committee to substitute BF as party defendant and
prosecute the defense to conclusion. Substitution was necessary
to prevent collusion between the previous management and
creditors it might seek to favor, to the prejudice of its other
creditors.
In sustaining the dissolution of the writ of preliminary
attachment, the respondent court said that Roa and Mendoza
were secured in the satisfaction of any judgment they might
obtain against BF since all the properties of the latter were
already in the custody of the management committee.
Their motions for reconsideration having been denied, both
parties filed their respective petitions for review before this
Court.
In G.R. No. 76879, entitled "BF Homes, Inc. v. Court of Appeals,
Rosalinda R. Roa and Vicente Mendoza," the petitioner contends
that the respondent court committed an error and violated Sec.
5(d) of P.D. No. 902-A when it authorized continuation of
proceedings in Civil Case No. Q-43104 after the management
committee created by the SEC shall have been impleaded.
In G.R. No. 77143, entitled "Rosalinda R. Roa and Vicente
Mendoza v. Court of Appeals and BF Homes, Inc.," the petitioners
seek a review on the grounds that the management committee
was not a proper party and should not have been ordered
Section 8 Provisional Remedies

42

substituted as party defendant in the regional trial court and that


the writ of preliminary attachment should not have been
dissolved.
These two petitions were ordered consolidated in the resolution
of this Court dated August 17, 1987.
On February 2, 1988, the SEC issued an order approving the
proposed revised rehabilitation plan and dissolving the
management committee earlier created. Atty. Florencio Orendain
was appointed rehabilitation receiver.
Now to the merits.
The parties in both cases are agreed that the proceedings in the
civil case for the recovery of a sum of money should be
suspended. BF originally maintained that the action should be
resumed only until after SEC Case No. 002693 shall have been
adjudicated on the merits but now agrees with Roa and Mendoza,
in line with the "assessment" of the Solicitor General, that the
action should be suspended pending the outcome of the
rehabilitation proceedings.
The pertinent provision of law dealing with the suspension of
actions for claims against the corporation is Sec. 6(c) of P.D. 902A, as amended, which reads:
Sec. 6. n order to effectively exercise such
jurisdiction, the Commission shall possess the
following powers:
xxx xxx xxx
(c) To appoint one or more receivers of the
property, real and personal, which is the
subject of the action pending before the
Commission in accordance with the pertinent
provisions of the Rules of Court, and in such
other cases whenever necessary in order to
preserve the rights of parties-litigants and/or
protect the interest of the investing public and
creditors: Provided,
however,
That
the
Commission may, in appropriate cases,
appoint a
rehabilitation receiver
of
corporations,
partnerships
or
other
associations not supervised or regulated by
other government agencies who shall have, in
addition to the powers of a regular receiver
under the provisions of the Rules of Court,
such functions and powers as are provided for
in
the
succeeding
paragraph
(d)
hereof: Provided, further, That the Commission
may appoint a rehabilitation receiver of
corporations,
partnership
or
other
associations supervised or regulated by other
government agencies, such as banks and
insurance companies, upon request of the
government agency concerned: Provided,
finally, That upon appointment of a
management
committee,
rehabilitation
receiver, board or body, pursuant to this Decree,
all actions for claims against corporations,
partnership, or associations under management

or receivership pending before any court,


tribunal, board or body shall be suspended
accordingly. (As amended by P.D. Nos. 1653,
1758 and 1799; Emphasis supplied.)
As will be noted, the duration of the suspension is not indicated
in the law itself. And neither is it specified in the SEC order
creating the management committee.
The Court feels that the respondent court erred in ordering the
resumption of the civil proceeding after the management
committee shall have been impleaded as party defendant. The
explanation that the only purpose of suspending the civil action
was to enable the management committee to substitute BF as
party defendant is not acceptable.
The view of the respondent court is that the continuation of the
action is necessary for the purpose of determining the extent of
the liability of BF to Roa and Mendoza. The flaw in this theory is
that even if such liability is determined, it still cannot be enforced
by the trial court as long as BF is under receivership. 2 Moreover,
it disregards the possibility that such determination would not be
necessary at all should the rehabilitation receiver favorably
consider and fully acknowledge the claims made by Roa and
Mendoza.
Under Sec. 6(d) of P.D. No. 902-A, the management committee or
rehabilitation receiver is empowered to take custody and control
of all existing assets and properties of such corporations under
management; to evaluate the existing assets and liabilities,
earnings and operations of such corporations; to determine the
best way to salvage and protect the interest of investors and
creditors; to study, review and evaluate the feasibility of
continuing operations and restructure and rehabilitate such
entities if determined to be feasible by the SEC.
In light of these powers, the reason for suspending actions for
claims against the corporation should not be difficult to discover.
It is not really to enable the management committee or the
rehabilitation receiver to substitute the defendant in any pending
action against it before any court, tribunal, board or body.
Obviously, the real justification is to enable the management
committee or rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extra-judicial interference that
might unduly hinder or prevent the "rescue" of the debtor
company. To allow such other action to continue would only add
to the burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being
directed toward its restructuring and rehabilitation.
In BF Homes, Inc. v. Hon. Fernando P. Agdamag et al., 3 the Court of
Appeals held:
It must be emphasized that the suspension is
only for a temporary period to prevent the
irreversible collapse of the corporation and
give the management committee or receiver
the absolute tranquility to study the viability
of the corporation. During this period, the law
creates a wall around the corporation against
all claims.
Section 8 Provisional Remedies

43

In Alemar's Sibal & Sons, Inc. v. Hon. Jesus M. Elbinias, et al., 4 this
Court, explaining the legal consequences of a receivership, said:
. . . When a corporation threatened by
bankruptcy is taken over by a receiver, all the
creditors should stand on an equal footing. Not
anyone of them should be given any
preference by paying one or some of them
ahead of the others. This is precisely the
reason for the suspension of all pending claims
against
the
corporation
under
receivership. Instead of creditors vexing the
courts with suits against the distressed firm,
they are directed to file their claims with the
receiver who is a duly appointed officer of the
SEC. (Emphasis supplied)
Consequently, we feel that the trial court cannot at this point
determine the extent of BF's liability, if any, to Roa and Mendoza.
This is true whether it is retained as party defendant or
substituted by the management committee (or the rehabilitation
receiver) as directed by the respondent court. What Roa and
Mendoza should do now is file their claims with the rehabilitation
receiver and submit to him such evidence as they would
otherwise have to adduce before the trial court to prove such
claims.
As the revised rehabilitation plan approved by the SEC is
expected to be implemented within ten years, the proceedings in
the Regional Trial Court of Quezon City should be suspended
during that period, to begin from February 2, 1988, the date of its
approval. This is without prejudice to the authority of the SEC to
extend the period when warranted and even to order the
liquidation of BF if the plan is found to be no longer feasible. On
the other hand, on a more positive note, the SEC can also find
within that period that BF has been sufficiently revived and able
to resume its normal business operations without further need of
rehabilitation.
Coming now to the writ of preliminary attachment, we find that it
must stand despite the suspension of the proceedings in the
Regional Trial Court of Quezon City. The writ was issued prior to
the creation of the management committee and so should not be
regarded as an undue advantage of Mendoza and Roa over the
other creditors of BF.
In its amended decision and the resolution ordering the
discharge of the writ of preliminary attachment, the respondent
court did not rule on whether the issuance of the writ was
improper or irregular. It simply said that the writ was no longer
proper or necessary at that time because the properties of BF
were in the hands of the receiver. We do not think so.
The appointment of a rehabilitation receiver who took control
and custody of BF has not necessarily secured the claims of Roa
and Mendoza. In the event that the receivership is terminated
with such claims not having been satisfied, the creditors may also
find themselves without security therefor in the civil action
because of the dissolution of the attachment. This should not be
permitted. Having previously obtained the issuance of the writ in
good faith, they should not be deprived of its protection if the
rehabilitation plan does not succeed and the civil action is
resumed.

It is settled that:
If there is an attachment or sequestration of
the goods or estate of the defendant in an
action which is removed to a bankruptcy
court, such an attachment or sequestration
will continue in existence and hold the goods
or estate to answer the final judgment or
decree in the same manner as they would have
been held to answer the final judgment or
decree rendered by the Court from which the
action was removed, unless the attachment or
sequestration is invalidated under applicable
law. (28 USCS No. 1479 [a].) 5
As we ruled in Government of the Philippine Islands v. Mercado: 6
Attachment is in the nature of a proceeding in
rem. It is against the particular property. The
attaching creditor thereby acquires specific
lien upon the attached property which ripens
into a judgment against the res when the order
of sale is made. Such a proceeding is in effect a
finding that the property attached is an
indebted thing and a virtual condemnation of
it to pay the owner's debt. The law does not
provide the length of time an attachment lien
shall continue after the rendition of judgment,
and it must therefore necessarily continue
until the debt is paid, or sale is had under
execution issued on the judgment or until
judgment is satisfied, or the attachment
discharged or vacated in some manner
provided by law.
It has been held that the hen obtained by
attachment stands upon as high equitable
grounds as a mortgage lien:
The lien or security
obtained by an attachment
even before judgment, is a
fixed and positive security,
a specific lien, and, although
whether it will ever be
made available to the
creditor
depends
on
contingencies, its existence
is in no way contingent,
conditioned or inchoate. It
is a vested interest, an
actual
and
substantial
security, affording specific
security for satisfaction of
the debt put in suit, which
constitutes a cloud on the
legal title, and is as specific
as if created by virtue of a
voluntary act of the debtor
and stands upon as high
equitable grounds as a
mortgage. (7 Corpus Juris
Secundum,
433,
and
authorities therein cited.)
Section 8 Provisional Remedies

44

Under the Rules of Court, a writ of attachment may be dissolved


only upon the filing of a counter-bond or upon proof of its
improper or irregular issuance. Neither ground has been
established in the case at bar to warrant the discharge of the writ.
No counter-bond has been given. As for the contention that the
writ was improperly issued for lack of notice to BF on the
application for the writ, it suffices to cite Mindanao Savings &
Loan Association, Inc. v.Court of Appeals, where we held: 7
The only requisites for the issuance of a writ of
preliminary attachment under Section 3, Rule
57 of the Rules of Court are the affidavit and
bond of the applicant.
SEC. 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
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 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 sum, the Court holds that the substitution of the management


committee/rehabilitation receiver in Civil Case No. Q-43104 in
the Regional Trial Court of Quezon City is not necessary because
the proceedings therein shall be suspended anyway pending
implementation of the revised rehabilitation plan, during which
the writ of preliminary attachment shall remain in force.
WHEREFORE, the decision of the respondent court is SET ASIDE
and judgment is rendered as follows:
(1) In G.R. No. 76879, the petition is GRANTED. The proceedings
in Civil Case No. Q-43104 shall remain suspended for a period of
ten (10) years from February 2, 1988, unless extended or
shortened by the SEC as circumstances may warrant; and
(2) In G.R.No.77143, the petition is GRANTED insofar as it seeks
restoration of the writ of preliminary attachment, issued on
October 22, 1984, which is hereby reinstated.
SO ORDERED.

No notice to the adverse party or hearing of


the application is required. As a matter of fact
a hearing would defeat the purpose of this
provisional remedy. 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.
Nevertheless, while no hearing is required by
the Rules of Court for the issuance of an
attachment (Belisle Investment & Finance Co.,
Inc. v. State Investment House, Inc., 72927,
June 30, 1987; Filinvest Credit Corp. v. Relova,
117 SCRA 420), a motion to quash the writ
may not be granted without "reasonable
notice to the applicant" and only "after
hearing" (Secs. 12 and 13, Rule 57, Rules of
Court).

Section 8 Provisional Remedies

45

[G.R. No. 111174. March 9, 2000]


REPUBLIC OF THE PHILIPPINES, petitioner, vs. HON.
BERNARDO V. SALUDARES, Presiding Judge, RTC, Br. 28,
Lianga, Surigao del Sur, and HUNG MING
KUK, respondents. Misj uris
DECISION

Military/Police authorities only if necessary. Jj


lex
xxx
FOR THE COMMISSION:
Originally Signed

QUISUMBING, J.:

MARY CONCEPCION BAUTISTA

This special civil action for certiorari assails the decision[1] of the
Regional Trial Court of Lianga, Surigao del Sur, Branch 28, dated
March 19, 1993. At issue is the jurisdiction of the trial court over
properties owned by Lianga Bay Logging Company, Inc. (LBLC),
but allegedly sequestered by the Presidential Commission on
Good Government (PCGG).

Commissioner"

The facts on record show that on April 2, 1986, the PCGG issued a
writ of sequestration,[2] which reads:
"IN THE MATTER OF THE SEQUESTRATION
OF LIANGA BAY LOGGING
x -------------------------------------------------------------------x
TO: MR. ARISTIDES M. ESCOSORA
Baganga, Davao Oriental
WRIT OF SEQUESTRATION
By virtue of the power vested unto this
Commission and by authority of the President
of the Philippines, LIANGA BAY LOGGING, with
offices at 2nd Floor, Emerald Building,
Emerald Ave., Ortigas Office Bldg. Complex,
Pasig, Metro Manila is hereby sequestered.
Mr. Aristides Escosora is hereby appointed
Fiscal Agent of this Commission and as such,
he is hereby ordered to:
1. To implement this sequestration order with
a minimum disruption of business activities.
2. To preserve and safeguard, as well as
prevent the removal. concealment of records
and the disposition and dissipation of asset,
funds and resources.
3. To prevent undue removal or withdrawal of
funds, until further orders to the Commission.

The writ of sequestration was based on the ground that the


shares of stocks in LBLC owned by Peter A. Sabido formed part of
"illegally acquired wealth." On July 27, 1987, the Republic of the
Philippines through the PCGG and the Office of the Solicitor
General filed before the Sandiganbayan a complaint[3] for
reconveyance, reversion, accounting, restitution and damages
against, among others, Peter A. Sabido.
On August 12, 1991, Sabido filed a Motion to Lift the Writs of
Sequestration before the Sandiganbayan. On November 29, 1991,
the Sandiganbayan granted the motion, disposing as follows:
"WHEREFORE, the Motion (to Lift Writs of
Sequestration) dated August 12, 1991, is
granted.
Accordingly,
the
Writs
of
Sequestration issued against the Philippine
Integrated Meat Corporation on March 17,
1986, and Lianga Bay Logging Company,
Inc. on April 2, 1986, are declared to have
been deemed automatically lifted upon the
lapse of six months from the ratification of the
1987
Constitution
on
February
2,
1987, without prejudice to the continuation of
the proceedings against PIMECO and
Lianga....(emphasis supplied)
x x xNew miso
SO ORDERED."[4]
On December 11, 1991, PCGG filed a motion for reconsideration
of the decision of Sandiganbayan praying for the nullification of
the order which lifted the writ of sequestration of LBLC.
In the meantime, on February 11, 1993, private respondent Hung
Ming Kuk filed a complaint[5] for sum of money against LBLC,
with a prayer for a writ of preliminary attachment, with the
Regional Trial Court, Branch 28, of Lianga, Surigao del Sur. The
PCGG was not impleaded by Hung Ming Kuk as party-defendant
nor was the sequestration case referred to the RTC's proceedings.

4. To report to the Commission on Good


Government within five (5) days.

Thus, the Republic of the Philippines filed a special civil


action[6] for certiorari under Rule 65, dated March 29, 1993, with
the Supreme Court. This petition, docketed as G.R. No. 109314,
was later on consolidated with other similar cases.

Further, you are authorized to request the


Commission for security support from the

Meantime, on February 15, 1993, the Sandiganbayan denied the


motion for reconsideration of PCGG, dated December 11, 1991.
Section 8 Provisional Remedies

46

On February 17, 1993, the trial court granted the writ of


preliminary attachment in favor of Hung Ming Kuk.
Thereafter, Hung Ming Kuk filed a motion to declare LBLC in
default for failure to file responsive pleadings pursuant to Sec. 1,
Rule 18 of the Rules of Court. The RTC of Lianga, acting on the
motion of Hung Ming Kuk, issued an order dated March 4, 1993,
declaring LBLC as in default. Consequently, on March 19, 1993,
the RTC rendered judgment by default, and decreed thus:
"WHEREFORE, premised on the foregoing
evidences and findings, this court hereby
renders judgment in favor of the plaintiff, and
ordering the defendant-Corporation to pay, as
follows:

Petitioner contends that the RTC of Lianga has no jurisdiction


over the subject matter of the case inasmuch as the same are
under sequestration by the PCGG. Citing Baseco vs. PCGG,
150 SCRA 181 (1987), petitioner asserts that the sequestered
assets have been placed under custodia legis of the PCGG pending
the final determination by the Sandiganbayan that said assets are
in fact ill-gotten. Hence, the RTC has no jurisdiction to order the
attachment of said sequestered properties.
Private respondent, however avers that his original complaint
was for a sum of money. It was a demand for payment of a valid
obligation owed to him by LBLC. He adds that it would be unfair
and unjust to declare the entire RTC proceedings regarding his
claim for sum of money null and void. Mis act

1. To pay plaintiff the principal amount of the


accrued unpaid obligation in the total amount
of P18,031,563.78, with interests at 14% per
annum reckoned from July 1992 to February
1993 in the computed total of P1,250,666.66,
the same to continue until said obligation is
fully paid; Acct mis

Private respondent further claims that the attachment order of


the trial court was issued after the Sandiganbayan had lifted the
writ of sequestration against LBLC. But petitioner asserts that
this order of the Sandiganbayan was reversed by the Supreme
Court in a bancdecision[8] dated January 23, 1995, resolving
several consolidated cases for which G.R. No. 109314 was
included. Petitioner stresses that said reversal had become final
and executory on April 22, 1997.

2. To pay plaintiff moral and exemplary


damages in the total amount of P150,000.00,
plus Appearance Fee for the counsel in the
sum of P5,000.00;

In PAGCOR vs. CA, 275 SCRA 433-434 (1997), involving ownership


by Philippine Casino Operators Corporation (PCOC) over several
gaming and office equipment during the time that PCOC was
under a sequestration by PCGG, the Court ruled:

3. To pay plaintiff the total amount


of P4,857,195.45 for Sheriffs Expenses,
Attached Properties Guards Fees, Filing Fees,
Litigation Expenses, and Attorneys Fees
computed at 25% of the principal obligation,
or P4,507,890.95, or a total amount
ofP4,857,195.45;

"We disagree with the RTC and the CA on the


issue of jurisdiction. While there can be no
dispute that PCOC was sequestered, the fact of
sequestration alone did not automatically oust
the RTC of jurisdiction to decide upon the
question of ownership of the subject gaming
and office equipment. The PCGG must be a
party to the suit in order that the
Sandiganbayan's exclusive jurisdiction may be
correctly invoked. This is deducible from no
less
than
E.O.
No.
14,
the 'Pea'and 'Nepomuceno' cases relied upon
by both subordinate courts. Note that in
Section 2 of E.O. No. 14 which provides:

4. To pay the costs of the suit.


IT IS SO ORDERED."[7]
On August 11, 1993, petitioner filed this special civil action under
Rule 65 of the Rules of Court, raising the sole issue as follows:
WHETHER, THE TRIAL COURT FAULTED IN
DECIDING THE CLAIM OF PRIVATE
RESPONDENT WHICH INVOLVED THE
PROPERTIES OF LIANGA BAY LOGGING CO.
INC.
In the meantime, on January 23, 1995, the Supreme Court en
banc issued its decision in the consolidated cases of Republic vs.
Sandiganbayan (First Division), 240 SCRA 376 (1995). The
decision included the nullification of the resolution of the
Sandiganbayan that lifted the writ of sequestration of LBLC
properties in G.R. No. 109314. Hence, the Court effectively
confirmed the validity of the writ of sequestration over said
properties. Peter A. Sabido's motion for reconsideration was
denied. Finally, an entry of judgment was issued on April 22,
1997, in G.R. No. 109314.

Sec. 2. The Presidential


Commission
on
Good
Government shall file all
such cases, whether civil or
criminal,
with
the
Sandiganbayan, which shall
have exclusive and original
jurisdiction thereof.
it speaks of the PCGG as party-plaintiff. On the
other hand, the PCGG was impleaded as codefendant
in
both
the 'Pea' and'Nepomuceno' cases. But here, the
PCGG does not appear in either capacity, as the
complaint is solely between PAGCOR and
respondents
PCOC
and
Marcelo.
The 'Pea' and 'Nepomuceno cases
which
recognize the independence of the PCGG and
the Sandiganbayan in sequestration cases,
therefore, cannot be invoked in the instant
Section 8 Provisional Remedies
47

case so as to divest the RTC of its jurisdiction,


under Section 19 of B.P. Blg. 129, over
PAGCOR's action for recovery of personal
property."
In the case at bar, the claim of private respondent Hung Ming Kuk
is for a sum of money arising from a debt incurred by LBLC.
Under a contract, private respondent had extended cash
advances and supplied LBLC hardware materials, auto spare
parts, and rendered services, for cutting and hauling logs. The
total claim amounts to P18,031,563.78. Following Section 19 of
B.P. Blg. 129, as amended by R.A. No. 7691 on March 25, 1994,
the complaint falls within the jurisdiction of the Regional Trial
Court, viz: S djad
"Sec. 19. Jurisdiction in civil cases. -- Regional
Trial Courts shall exercise exclusive original
jurisdiction:

The holding in Pea which confers exclusive jurisdiction on the


Sandiganbayan in sequestration cases cannot also be relied upon
by petitioner in this case. We hold that the Regional Trial Court
has jurisdiction over the complaint for payment of money
allegedly averred by LBLC to private respondent.
We now move to the ancillary issue of whether or not the
provisional remedy of attachment issued by the trial court in
favor of the private respondent is valid.
It bears recalling that when the Sandiganbayan ordered that the
writ of sequestration be lifted, PCGG filed a special civil action
for certiorarito contest that order. The Supreme Court ruled in
favor of PCGG when it granted the latter's petition to declare the
lifting of the writ of sequestration by the Sandiganbayan null and
void. The Court's en banc resolution pertinently reads:
"WHEREFORE, judgment is hereby rendered:

xxx

A. NULLIFYING AND SETTING ASIDE:


(8) In all other cases in which the demand,
exclusive of interest, damages of whatever
kind, attorney's fees, litigation expenses, and
costs or the value of the property in
controversy exceeds One hundred thousand
pesos (P100,000.00) or, in such other cases in
Metro Manila, where the demand, exclusive of
the above-mentioned items exceeds Two
hundred thousand pesos (P200,000)."

Petitioner relies, however, on the case of PCGG vs. Pea, 159 SCRA
556 (1988) and asserts that the controversy of LBLC or a
sequestered company falls within the exclusive jurisdiction of the
Sandiganbayan and not of the trial court.
In the Pea case, the trial court issued a temporary restraining
order which prevented PCGG from enforcing the memorandum of
then PCGG Commissioner Mary Concepcion Bautista. Her
memorandum denied complainant's authority to sign and
manage the funds of the sequestered company. The Supreme
Court ruled that the trial court had no jurisdiction over PCGG
being a co-equal body, and therefore, the regional trial courts
may not interfere with and restrain the PCGG or set aside the
order and actions of its Commissioner.
In contrast, the case now before us concerns receivables of the
private respondent arising out of a legitimate business contract
to supply goods and services in favor of LBLC. When a collection
suit was filed against LBLC by its supplier, Hung Ming Kuk,
evidently PCGG could not be the proper party to defend against
such claim. More so, because when PCGG had not taken over the
LBLC's business operations.Sppedsc
We note that PCGG is not an owner but a conservator. It can
exercise only powers of administration over property
sequestered, frozen or provisionally taken over. Even resort to
the provisional remedies should entail the least possible
interference with business operations or activities so that, in the
event that the accusation that the business enterprise is "illgotten" be not proven, it may be returned to its rightful owner as
far as possible in the same condition as it was at the time of
sequestration.[9]

xxx
17) in G.R. No. 109314, its impugned
Resolutions[10] dated November 29, 1991 and
February 16, 1993."
In the same en banc Resolution, the Court observed:
"II. Provisional Remedies in Pursuance of
PolicyC alrsc
Special adjective tools or devices were
provided by the Revolutionary Government
for the recovery of that "ill-gotten wealth."
These took the form of provisional remedies
akin to preliminary attachment (Rule 57), writ
of seizure of personalty (Rule 60) and
receivership (Rule 59). They were (a)
sequestration and (b) freeze orders, as regards
"unearthed instance of "ill-gotten wealth; and
(c) provisional takeover, as regards business
enterprises and properties taken over by the
government of the Marcos Administration or
by entities or persons close to former
President Marcos."
A. Executive Orders Re Sequestration, Freezing
and Takeover
These special remedies were prescribed and
defined in Executive Orders Numbered 1 and
2, promulgated by President Corazon C.
Aquino in March, 1986. Their validity and
propriety were sustained by this Court on May
27, 1987, against claims that they were
unconstitutional as being bills of attainder, or
as violative of the right against selfincrimination and the guaranty against
unreasonable searches and seizures. In the
same case, the Court also set the parameters
Section 8 Provisional Remedies

48

for and restrictions on the proper exercise of


the remedies."
In BASECO vs. PCGG, 150 SCRA 181, 182 (1987), sequestration is
defined as the process, which may be employed as a conservatory
writ whenever the right of the property is involved, to preserve,
pending litigation, specific property subject to conflicting claims
of ownership or liens and privileges.[11]
The Court also noted the relationship between attachment and
receivership, on one hand, and sequestration, freeze order and
provisional takeover on the other. The latter there are ancillary
remedies in prosecuting the ill-gotten wealth of the previous
Marcos regime. The Court observed that sequestration, freezing
and provisional takeover are akin to the provisional remedy of
preliminary attachment or receivership.
By an order of attachment, a sheriff seizes property of a
defendant in a civil suit so that it may stand as security for the
satisfaction of any judgment that may be obtained, and not
disposed of, or dissipated, or lost intentionally, or otherwise,
pending the action.[12] When a writ of attachment has been levied
on real property or any interest therein belonging to the
judgment debtor, the levy creates a lien which nothing can
destroy but its dissolution.[13] This well-settled rule is likewise
applicable to a writ of sequestration. Sccal r
Attachment is in the nature of a proceeding in rem. It is against a
particular property of a debtor. The attaching creditor thereby
acquires a specific lien upon the attached property which ripens
into a judgment against the res when the order of sale is made.
Such a proceeding is in effect a finding that the property attached
is an indebted thing and results in its virtual condemnation to
pay for the owner's debt. The law does not provide the length of
time during which an attachment lien shall continue after the
rendition of the judgment, and it must therefore continue until
the debt is paid, or sale is had under execution issued in the
judgment, or until the judgment is satisfied, or the statement
discharged or vacated in some manner provided by law.[14]
In our view, the disputed properties of LBLC were already
under custodia legis by virtue of a valid writ of
sequestration[15] issued by the PCGG on April 2, 1986, when
respondent Judge Saludares issued the assailed writ of
attachment in favor of private respondent Hung Ming Kuk. At that
time the writ of sequestration issued by PCGG against LBLC was
subsisting. Said writ of the PCGG could not be interfered with by
the RTC of Lianga, because the PCGG is a coordinate and co-equal
body. The PCGG had acquired by operation of law the right of
redemption over the property until after the final determination
of the case or until its dissolution.
WHEREFORE, the instant petition is partially GRANTED. The
default Order issued by the public respondent dated March 19,
1993, is AFFIRMED, but should be held in abeyance until the
sequestration case involving LBLC before the Sandiganbayan is
determined. The Order of Attachment issued by the public
respondent is declared NULL and VOID. No pronouncement as to
costs.
SO ORDERED.

Section 8 Provisional Remedies

49