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SECTION 4

A.M. No. RTJ-93-1008 November 14, 1994

TERESITA P. ARELLANO, petitioner,


vs.
JUDGE NAPOLEON R. FLOJO, FELINO BANGALAN, Clerk of Court III, HERMINIO DEL
CASTILLO, RTC-OCC.; LUCINO JOVE, Deputy Sheriff, respondents.

RESOLUTION

MELO, J.:

Teresita P. Arellano, defendant in Civil Case No. 11-1041 then pending before Branch 6 of the
Regional Trial Court of the Second Judicial Region and stationed in Aparri, Cagayan, filed a verified
complaint for neglect of duty, misconduct, bias, and partiality against

(a) Judge Napoleon R. Flojo, then Presiding Judge of the aforementioned Branch 6, now assigned
as Presiding Judge of Branch 2 of the Regional Trial Court of Manila, for having irregularly issued an
order dated January 21, 1986 for the issuance of a writ of attachment in the said case on the same
date despite the lack of legal basis therefor.

(b) Felino Bangalan, then Acting Clerk of Court III, of the Aparri RTC (now Presiding Judge, MTC,
Branch 1, Aparri, Cagayan) for issuing the writ of attachment in the said case despite the failure of
the plaintiffs to post the required attachment bond of P100,000.00 and for deliberately delaying the
issuance of service of summons to the defendant in that although the case was filed on January 21,
1986, the defendant (complainant herein) was served summons only on May 13, 1986 or four (4)
months thereafter, and that she was not even furnished a copy of the Order authorizing the issuance
of a writ of attachment, the so-called attachment bond, as well as the writ of attachment itself.

(c) Herminio del Castillo, Branch Clerk of Court of the Aparri RTC for deliberately delaying the
issuance of service of summons on the defendant.

(d) Luciano Jove, Deputy Sheriff, Aparri, Cagayan for seizing a vehicle not owned by the
defendant and entrusting the custody thereof to Sheriff Guards Rodolfo Auringan and Dioniso Co.,
Jr., instead of personally keeping it under his custody, resulting in the said vehicle being
cannibalized to the damage and prejudice of the complainant and the heirs of the late Ruperto
Arellano.

The complaint against Clerk of Court Herminio del Castillo was dismissed for lack of merit by the
Court in its Resolution dated June 28, 1993, as he did not appear to have had any participation in
the issuance and service of summons on the defendant in the aforementioned civil case (pp. 42-
43, Rollo.)

With respect to Judge Napoleon R. Flojo, inasmuch as the charges against him were mere
reiterations of the charges filed by the same complainant in A.M. Case No. RTJ-86-52 which had
been earlier dismissed for lack of merit by the Court en banc on March 24, 1987, the instant
complaint against him was likewise dismissed in the resolution of the Court dated November 8,
1993
(p. 83, Rollo).
Thereafter, the case was referred to Justice Ramon A. Barcelona of the Court of Appeals, for
investigation, report, and recommendation in regard to the remaining respondents.

Justice Barcelona finds Judge Bangalan (then Clerk of Court III) guilty of negligence for (1) having
issued the writ of attachment on January 21, 1986 in spite of the applicants' failure to post an
acceptable bond as required under Section 4, Rule 57 of the Rules of Court for what appears in the
record is only a promissory note in the form of an affidavit executed by Victor Suguitan, Andres
Langaman, and Mariano Retreta; having caused the implementation through Sheriff Jove, of the said
writ of attachment on January 23, 1986, knowingly fully well that no summons had as yet been
issued and served as of said date upon defendant therein in violation of Section 5, Rule 57 of the
Rules of Court and Section 3, Rule 14 of the same rules.

As for Sheriff Jove, Justice Barcelona found that in serving the writ of attachment, the sheriff did not
serve the same on the defendant but on somebody whom he suspected only as holding the property
of the complainant. He failed to verify the ownership of the cargo truck he attached. To compound
the sheriff's failure to exercise diligence in the execution of the writ of attachment, he surrendered
the custody of the property to the two alleged guards instead of depositing the same in a bonded
warehouse.

Finding both Judge Bangalan and Sheriff Jove remiss in the performance of their duties, Justice
Barcelona recommends that they each be suspended for one (1) month (not chargeable to their
accumulated leave) without pay. However, this Court is of the opinion and thus hereby holds that a
fine of P5,000.00 each for Judge Bangalan and Sheriff Jove is the commensurate penalty for the
irregularity that attended the civil case below. In this respect, we agree with the factual findings and
analysis of the Office of the Court Administrator, thus:

Indeed, he issued the Writ of Attachment although the plaintiffs have not yet posted
the required attachment bond. It is explicitly stated in his Comment that what was
filed was merely an undertaking. The fact that the "Undertaking" was subscribed by
the branch clerk of court does not necessarily follow that it carried the imprimatur of
the presiding judge thereof. As a lawyer, respondent Bangalan, who is now a Judge
should have known the glaring distinctions between a plain undertaking and a real
attachment bond. The difference between the two is not that hard to discern. As ruled
by Judge Ernesto A. Talamayan in his order of April 23, 1993 (Rollo, pp. 18-19), no
bond can be confiscated to answer for the damages sustained by defendants. He
discovered that only a promissory note in the form of an affidavit executed by the
bondsmen denominated as an attachment bond appears on the record. Had
respondent Bangalan carefully examined the undertaking filed before he issued the
writ of attachment, such a situation could have been obviated. Where a statute
authorizing attachment requires, as a condition to the issuance of the writ, that a
bond shall be given by plaintiff to indemnify defendant for any loss or injury resulting
from the attachment in case it proves to be wrongful, a failure to give such bond is
fatal, and an attachment issued without the necessary bond is invalid (7 C.J.S. 326).
However, we do not find that the delay in the issuance and service of summons was
deliberately done to prejudice the defendant. Bad faith cannot be inferred by the
mere fact of delay considering that it was issued by the Office of the Clerk of Court
and not by the branch clerk to whom the case was already assigned.

For seizing a vehicle which is not owned by the defendant, respondent Sheriff Jove
may be held administratively liable. Although his actuation may not have been tainted
with bad faith or malice, he failed to exercise due prudence in attaching the truck. He
should have verified first if the truck he seized was owned by the judgment debtor,
especially in this case where it was found in the possession of a person other than its
real owner. Consequently, the writ of attachment was ordered dissolved in the
Decision of Judge Tumacder dated August 9, 1989 (Rollo, pp. 25 to 41) as the
property attached does not belong to the judgment debtor but to her father, Ruperto
Arellano. A sheriff incurs liability if he wrongfully levies upon the property of a third
person (47 Am Jr 857). A sheriff has no authority to attach the property of any person
under execution except that of the judgment debtor. If he does so, the writ of
execution affords him no justification, for the action is not in obedience to the
mandate of the writ (Codesal and Ocampo vs. Ascue, 38 Phil. 902). The sheriff
maybe liable for enforcing execution on property belonging to a third party (Sec. 17,
Rule 39, Rules of Court). However, he cannot be faulted for entrusting the custody
thereof to the sheriff guards considering that he can not physically keep the cargo
truck under his custody. His stand is sustained by the Court in its Order of October
10, 1989 (Rollo, pp. 110 to 111), holding the two (2) sheriff guards liable for the
cannibalism of the truck.

(pp. 132-133. Rollo)

WHEREFORE, premises considered, Judge Felino Bangalan and Sheriff Lucinio Jove are hereby
each fined the amount of FIVE THOUSAND PESOS (P5,000.00), with the severe warning that a
repetition of the same or similar acts in the future will be dealt with more severely.

SO ORDERED.

G.R. No. 74696 November 11, 1987

JOSE D. CALDERON, petitioner,


vs.
THE INTERMEDIATE APPELLATE COURT, GEORGE SCHULZE, GEORGE SCHULZE, JR.,
ANTONIO C. AMOR, MANUEL A. MOZO, and VICTOR M. NALUZ, respondents.

G. R. No. 73916 November 11, 1987

FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., petitioner,


vs.
THE INTERMEDIATE APPELLATE COURT, GEORGE SCHULZE, ANTONIO C. AMOR, MANUEL
A. MOZO and VICTOR M. NALUZ, respondents.

PARAS, J.:

For review on certiorari is respondent appellate Court's decision 1 in AC-G.R. No. 01420, which affirmed the
Regional Trial Court's decision 2
appealed from holding the plaintiff Jose D. Calderon (petitioner herein) and his
bondsman the Integrated Bonding and Insurance Company, Inc., jointly and severally liable to pay
defendants (private respondents herein), damages caused by the filing by Calderon of the allegedly
unwarranted suit and the wrongful and malicious attachment of private respondents' properties.

The facts of the case are briefly as follows:


On November 2, 1976, petitioner Calderon purchased from the private respondents the following:
the Luzon Brokerage Corporation (LBC for brevity) and its five (5) affiliate companies, namely, Luzon
Air Freight, Inc., Luzon Port Terminals Services, Inc., Luzon (GS) Warehousing Corporation, GS
Industrial Management Corporation, and GS Luzon Trucking Corporation. Twenty one (21) days
thereafter or on November 23, 1976, the Bureau of Customs suspended the operations of LBC for
failure to pay the amount of P1,475,840.00 representing customs taxes and duties incurred prior to
the execution of the sale. In order to lift the suspension Calderon paid the sum of P606,430.00 to the
Bureau of Customs.

On October 27, 1977, Calderon filed a complaint against private respondents to recover said amount
of P1,475,840.00, with damages by reason of breach of warranty. In the same complaint, the
petitioner prayed for a preliminary attachment, alleging: that private respondents had deliberately
and willfully concealed from his knowledge such staggering liability of the LBC for the purpose of
misleading him into buying the six aforesaid companies; and that private respondent Schulze is
about to depart from the Philippines in order to defraud his creditors.

To support the petition for preliminary attachment, the petitioner posted a surety bond of
P1,475,840.00. On October 28, 1977, the trial court issued a writ of preliminary attachment,
whereupon properties of the private respondents were attached and their bank deposits were
garnished.

On November 10, 1977, petitioner Calderon filed an amended complaint, alleging that while the
liabilities of LBC are reflected in its books, the aforesaid amount was fraudulently withdrawn and
misappropriated by private respondent Schulze. (pp. 7-18, Rollo)

On the other hand, private respondents claimed: that the amount of P1,475,840.00 due to the
Bureau of Customs represents the duties and taxes payable out of the advanced payments made by
LBC's client, Philippine Refining Company (PRC, for brevity) in August, September and October,
1976, and in the first and second weeks of November 1976, after Calderon himself had taken control
of the management of LBC (Exhibit A); that these deposit payments were properly recorded in the
books of the corporation and existing as part of the corporate funds; that from the first week of June,
1976 up to October 30, 1976, private respondent Schulze fully disclose and explained to Calderon
that these customer's advanced deposit payments (including those of the PRC) are to be paid to the
Bureau of Customs when their corresponding customs taxes and duties become due; that during this
phase of the negotiation, Calderon and his representatives inspected and studied the corporate
books and records at will and learned the daily operations and management of LBC; that the
petitioner did not pay out of his own pocket but out of the LBC funds the said amount of P606,430,30
demanded by the Bureau of Customs, as evidenced by a manager's check No. FEBTC 25092
(Exhibits 9, 10, 11 & 38) and another facility negotiated with the Insular Bank of Asia and America
(Exhibit K-2); and that private respondents are setting up a counterclaim for actual, moral and
exemplary damages as well as attorney's fees, as a consequence of the filing of the baseless suit
and the wrongful and malicious attachment of their properties, (pp. 217-221, Rollo)

On November 17, 1977, private respondents filed a counterbond, whereupon the trial court issued
an order directing the sheriff to return all real and personal properties already levied upon and to lift
the notices of garnishment issued in connection with the said attachment (Annex B, p. 42, Rollo).

After trial, the trial court dismissed the complaint, holding Calderon and his surety First integrated
Bonding and Insurance Co., Inc., jointly and severally liable to pay the damages prayed for by the
private respondents.
Said decision was affirmed on appeal, although slightly modified in the sense that the award of moral
and exemplary damages in favor of private respondents Schulze and Amor was reduced. The
dispositive portion of the judgment of affirmance and modification reads:

WHEREFORE, the judgment of the lower court is modified as follows:

To defendant-appellee George Schulze:


P650,000.00 as moral damages and
P200,000.00 as exemplary damages.

To defendant-appellee Antonio C. Amor:


P150,000.00 as moral damages and
P30,000.00 as exemplary damages,

An other dispositions in the judgment appealed from, including the dismissal of the
amended complainant are hereby affirmed in toto.

SO ORDERED.

In his petition, petitioner Calderon asserts, among other things, that the court below erred:

IN HOLDING THAT THE PETITIONER FAILED TO ESTABLISH HIS CLAIMS.

II

IN HOLDING THAT THE PRELIMINARY ATTACHMENT HAD BEEN


WRONGFULLY AND MALICIOUSLY SUED OUT.

III

IN HOLDING THAT THE PETITIONER IS LIABLE NOT ONLY FOR ACTUAL


DAMAGES BUT MORAL AND EX-EXEMPLARY DAMAGES AS WELL.

On the other hand, petitioner Insurance Company raises the following issues:

WHETHER OR NOT THE PETITIONER SURETY IS LIABLE FOR DAMAGES ON


ITS CONTRACTED SURETYSHIP NOTWITHSTANDING THE DISSOLUTION OF
THE WRIT OF PRELIMINARY ATTACHMENT, AS A CON. SEQUENCE OF THE
FILING OF THE DEFENDANT'S COUNTER- BOND, WHEREBY LEVIED
PROPERTIES WERE ORDERED BY THE COURT RETURNED TO PRIVATE
RESPONDENTS AND THE NOTICES OF GARNISHMENT ISSUED IN
CONNECTION THEREWITH ORDERED LIFTED.

II
WHETHER OR NOT THE SUBSEQUENT FILING BY PRIVATE RESPONDENTS
OF A COUNTER-BOND TO DISCHARGE THE WRIT OF PRELIMINARY
ATTACHMENT CONSTITUTE A WAIVER ON ANY DEFECT IN THE ISSUANCE OF
THE ATTACHMENT WRIT.

III

WHETHER OR NOT A SURETY IS A GUARANTOR OF THE EXISTENCE OF A


GOOD CAUSE OF ACTION IN THE COMPLAINT.

The petition is devoid of merit.

Whether or not the amount of P1,475,840.00 was duly disclosed as an outstanding liability of LBC or
was misappropriated by private respondent Schulze is purely a factual issue. That Calderon was
clearly in bad faith when he asked for the attachment is indicated by the fact that he failed to appear
in court to support his charge of misappropriation by Schulze, and in effect, preventing his being
cross-examined, no document on the charges was presented by him.

What the Appellate Court found in this regard need not be further elaborated upon. The Appellate
Court ruled:

... The record shows that appellant Calderon failed to produce any evidence in
support of his sworn charge that appellee Schulze had deliberately and willfully
concealed the liabilities of Luzon Brokerage Corporation. Neither did appellant
Calderon prove his sworn charges that appellee Schulze had maliciously and
fraudulently withdrawn and misappropriated the amount of Pl,475,840.00 and that an
the defendants had maliciously and fraudulently concealed and withheld from him
this alleged liability of Luzon Brokerage Corporation in breach of the contract-
warranty that said corporation had no obligations or liabilities except those appearing
in the books and records of the said corporation. Indeed, appellant Calderon never
appeared in the trial court to substantiate the charges in his verified complaints and
in his affidavit to support his petition for the issuance of a writ of attachment. He
distanced himself from the appellees and avoided cross-examination regarding his
sworn allegations. ...

... But even though appellant Calderon failed to prove his serious charges of fraud,
malice and bad faith, the appellees took it upon themselves to show that they did not
conceal or withhold from appellant's knowledge the deposits made by Philippine
Refining Co., Inc. with Luzon Brokerage Corporation and that they did not withdraw
and misappropriate the deposits made by Philippine Refining Co., Inc. with Luzon
Brokerage Corporation.

The books and records of Luzon Brokerage Corporation on which the Financial
Statement of Luzon Brokerage Corporation, as of October 31, 1976 was prepared by
the auditing firm retained by appellant Calderon himself (Exhibit 1), disclose that the
liabilities of Luzon Brokerage Corporation in the total amount of P4,574,498.32
appear under the heading 'Customers Deposit' (Exhibit 1-A) this amount includes the
deposit of Philippine Refining Co., Inc. in the sum of Pl,475,840.00.

But appellant Calderon contends that this financial statement was dated February 4,
1977 (see Exhibit 1-C). There is nothing commendable in this argument because the
bases of the financial statement were the books, records and documents of Luzon
Brokerage Corporation for the period ending October 31, 1976, which were all turned
over to and examined by appellant Calderon and his executive, legal and financial
staffs. There is also no merit in the contention of appellant Calderon that the
appellees have tampered the books of Luzon Brokerage Corporation because there
is no proof to back this charge, let alone the fact that appellant Calderon did not even
present the said books to support his charge.

As stated above, the amount of customers' deposits in the sum of P4,574,498.32


includes the deposits of Philippine Refining Co., Inc. (Exhibits 46-A, 46-B, 46-C, 46-
D, 46-E, 46-F, 46-G, 46-H, 46-1, 46-J, t.s.n. July 23, 1980, pp. 12-13, 14-15). The
amounts deposited by Philippine Refining Co., Inc. on various dates with Luzon
Brokerage Corporation made before the execution of the sale were all entered in
three other corporate books of Luzon Brokerage Corporation namely, the Cash
Receipts Register (Exhibits 39-A-1 to 39-K-1 and 39-A-1-B to 39-K-1-B), the Journal
Vouchers (Exhibits 42 to 46 and 42-A to 43- A), and the Customer's Deposit Ledger
(Exhibit 46-A to 46-J) ... .

Thus, the claim of appellant Calderon that the deposits made by Philippine Refining
Co., Inc. with Luzon Brokerage Corporation of P406,430.00 on August 24, 1976
(Exhibit N P53,640.00 on October 13, 1976 (Exhibit 0), P406,430.00 on September
8, 1976 (Exhibit P P199,508.00 on September 24, 1976 (Exhibit Q P52,738.00 on
October 22, 1976 (Exhibit R and P264,436.00 on October 7, 1976 (Exhibit S) were
not entered in the books of Luzon Brokerage Corporation, is completely without
merit. ... (pp. 85-87, Rollo)

It is evident from the foregoing that the attachment was maliciously sued out and that as already
pointed out Schulze was not in bad faith.

While as a general rule, the liability on the attachment bond is limited to actual damages, moral and
exemplary damages may be recovered where the attachment was alleged to be maliciously sued out
and established to be so.(Lazatin vs. Twano et al,
L-12736, July 31, 1961).

In the instant case, the issues of wrongful and malicious suing out of the writ of preliminary
attachment were joined not only in private respondents' motion to discharge the attachment but also
in their answer to the amended complaint (p. 38, Rollo). The trial court observed that the books and
records of Luzon Brokerage Corporation disclose that the liabilities of the said corporation in the total
amount of P4,574,498.32 appear under the heading "Customs Deposit" (Exhibit 1-A) and this
amount includes the deposit of Philippine Refining Co., Inc. in the sum of P1,475,840.00 (p. 26,
Rollo). On the other hand, plaintiff never appeared in court, and failed to produce any evidence to
substantiate his charges (p. 26, Rollo).

Well settled is the rule that the factual findings of the trial court are entitled to great weight and
respect on appeal, especially when established by unrebutted testimonial and documentary
evidence, as in this case.

Anent the petition of the surety, We say the following:

Specifically, petitioner surety contends that the dissolution of the attachment extinguishes its
obligation under the bond, for the basis of its liability, which is wrongful attachment, no longer exists,
the attachment bond having been rendered void and ineffective, by virtue of Section 12, Rule 57 of
the Rules of Court. (p. 5, Petition)
While Section 12, Rule 57 of the Rules of Court provides that upon the filing of a counterbond, the
attachment is discharged or dissolved, nowhere is it provided that the attachment bond is rendered
void and ineffective upon the filing of counterbond.

The liability of the attachment bond is defined in Section 4, Rule 57 of the Rules of Court, as follows:

Sec. 4. Condition of applicant's bond. The party applying for the order must give a
bond executed to the adverse party in an amount to be fixed by the judge, not
exceeding the applicant's claim, conditioned that the latter will pay all the costs which
may be adjudged to the adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge that the applicant was not
entitled thereto.

It is clear from the above provision that the responsibility of the surety arises "if the court shall finally
adjudge that the plaintiff was not entitled thereto." In Rocco vs. Meads, 96 Phil. Reports 884, we held
that the liability attaches if the plaintiff is not entitled to the attachment because the requirements
entitling him to the writ are wanting, or if the plaintiff has no right to the attachment because the facts
stated in his affidavit, or some of them, are untrue. It is, therefore, evident that upon the dismissal of
an attachment wrongfully issued, the surety is liable for damages as a direct result of said
attachment.

Equally untenable is the Surety's contention that by filing a counterbond, private respondents waived
any defect or flaw in the issuance of the attachment writ, for they could have sought, without need of
filing any counterbond, the discharge of the attachment if the same was improperly or irregularly
issued, as provided in Section 13, Rule 57 of the Rules of Court.

Whether the attachment was discharged by either of the two (2) ways indicated in the law, i.e., by
filing a counterbond or by showing that the order of attachment was improperly or irregularly issued,
the liability of the surety on the attachment bond subsists because the final reckoning is when "the
Court shall finally adjudge that the attaching creditor was not entitled" to the issuance of the
attachment writ in the first place.

The attachment debtor cannot be deemed to have waived any defect in the issuance of the
attachment writ by simply availing himself of one way of discharging the attachment writ, instead of
the other. Moreover, the filing of a counterbond is a speedier way of discharging the attachment writ
maliciously sought out by the attaching creditor instead of the other way, which, in most instances
like in the present case, would require presentation of evidence in a full-blown trial on the merits and
cannot easily be settled in a pending incident of the case.

We believe, however, that in the light of the factual situation in this case, the damages awarded by
the Intermediate Appellate Court are rather excessive. They must be reduced.

WHEREFORE, the judgment of said Appellate Court is hereby modified as follows: Both petitioner
Calderon and petitioner First Integrated Bonding and Insurance Company, Inc. are hereby ordered
to give jointly and severally:

1. Respondent George Schulze, P250,000.00 as moral damages and P50,000.00 as


exemplary damages; and

2. Respondent Antonio C. Amor, P50,000.00 as moral damages and P10,000.00 as


exemplary damages.
The rest of the judgment of the Intermediate Appellate Court is hereby AFFIRMED.

SO ORDERED.

SECTION 5

G.R. No. L-39596 March 23, 1934

"CONSULTA" No. 1013 OF THE REGISTER OF DEEDS OF TAYABAS. GOTAUCO &


CO., applicant-appellant,
vs.
THE REGISTER OF DEEDS OF TAYABAS, oppositor-appellee.

BUTTE, J.:

This is an appeal from a judgment of the Fourth Branch of the Court of First Instance of Manila in
a consultasubmitted by the register of deeds of Tayabas.

Our decision upon this appeal has been facilitated because both the appellant and the appellee, the
latter being represented by the Solicitor-General, agreed that the judgment should be reversed.

On August 12, 1932, when Exhibits A and B were presented to the register, by which a levy of
execution against the judgment debtor, Rafael Vilar was made on fifteen contracts of land described
in Exhibit B and registered in the name of Florentino Vilar, the register properly denied the inscription
of said levy of execution because the title to the lands was in the name of Florentino Vilar and no
evidence was submitted that Rafael Vilar had any present or possible future interest in the land. On
September 17, 1932, there was presented to him a copy of a petition filed in the Court of First
Instance of the province, entitled, "Intestado del Finado Florentino Vilar", from which he could
properly infer that Florentino Vilar was dead and that the judgment debtor Rafael Vilar is one of the
heirs of the deceased Florentino Vilar. Although the value of the participation of Rafael Vilar in the
estate of Florentino Vilar was indeterminable before the final liquidation of the estate, nevertheless,
the right of participation in the estate and the lands thereof may be attached and sold. The real test
was laid down by this court in the case of Reyes vs. Grey (21 Phil., 73, 76), namely: Does the
judgment debtor hold such a beneficial interest in the property that he can sell or otherwise dispose
of it for value? Nothing appears in this record to indicate that Rafael Vilar being sui juris could not
dispose of his interest or share as heir in the estate of Florentina Vilar. Having this right, he could by
a conveyance defeat pro tanto the provisions of section 450 of the Code of Civil Procedure and thus
deprive the judgment creditor of the benefit of a lawful execution. (See also Consulta No. 441 de los
Abogados de Smith, Bell & Co., 48 Phil., 656, 664, 665.)

On October 12, 1932, with the knowledge which he them had, the register should have accepted
and inscribed Exhibit A, B and D.

The judgment in this consulta is reversed without special pronouncement as to costs. 1vvphi1.ne+

G.R. No. 107303 February 21, 1994

EMMANUEL C. OATE and ECON HOLDINGS CORPORATION, petitioners,


vs.
HON. ZUES C. ABROGAR, as Presiding Judge of Branch 150 of the Regional Trial Court of
Makati, and SUN LIFE ASSURANCE COMPANY OF CANADA, respondents.

G.R. No. 107491 February 21, 1994

BRUNNER DEVELOPMENT CORPORATION, petitioner,


vs.
HON. ZUES C. ABROGAR, as Presiding Judge of Branch 150 of the Regional Trial Court of
Makati, and SUN LIFE ASSURANCE COMPANY OF CANADA, respondents.

NOCON, J.:

These are separate petitions for certiorari with a prayer for temporary restraining order filed by
Emmanuel C. Oate and Econ Holdings Corporation (in G.R. No. 107303), and Brunner
Development Corporation (in G.R. No. 107491), both of which assail several orders issued by
respondent Judge Zues C. Abrogar in Civil Case No. 91-3506.

The pertinent facts are as follows: On December 23, 1991, respondent Sun Life Assurance
Company of Canada (Sun Life, for brevity) filed a complaint for a sum of money with a prayer for the
immediate issuance of a writ of attachment against petitioners, and Noel L. Dio, which was
docketed as Civil Case No. 91-3506 and raffled to Branch 150 of the RTC Makati, presided over by
respondent Judge. The following day, December 24, 1991, respondent Judge issued an order
granting the issuance of a writ of attachment, and the writ was actually issued on December 27,
1991.

On January 3, 1992, upon Sun Life's ex-parte motion, the trial court amended the writ of attachment
to reflect the alleged amount of the indebtedness. That same day, Deputy Sheriff Arturo C. Flores,
accompanied by a representative of Sun Life, attempted to serve summons and a copy of the
amended writ of attachment upon petitioners at their known office address at 108 Aguirre St., Makati
but was not able to do so since there was no responsible officer to receive the same. 1 Nonetheless,
Sheriff Flores proceeded, over a period of several days, to serve notices of garnishment upon several
commercial banks and financial institutions, and levied on attachment a condominium unit and a real
property belonging to petitioner Oate.

Summons was eventually served upon petitioners on January 9, 1992, while defendant Dio was
served with summons on January 16, 1992.

On January 21, 1992, petitioners filed an "Urgent Motion to Discharge/Dissolve Writ of Attachment."
That same day, Sun Life filed an ex-parte motion to examine the books of accounts and ledgers of
petitioner Brunner Development Corporation (Brunner, for brevity) at the Urban Bank, Legaspi
Village Branch, and to obtain copies thereof, which motion was granted by respondent Judge. The
examination of said account took place on January 23, 1992. Petitioners filed a motion to nullify the
proceedings taken thereat since they were not present.

On January 30, 1992, petitioners and their co-defendants filed a memorandum in support of the
motion to discharge attachment. Also on that same day, Sun Life filed another motion for
examination of bank accounts, this time seeking the examination of Account No. 0041-0277-03 with
the Bank of Philippine Islands (BPI) which, incidentally, petitioners claim not to be owned by them
and the records of Philippine National Bank (PNB) with regard to checks payable to Brunner. Sun
Life asked the court to order both banks to comply with the notice of garnishment.
On February 6, 1992, respondent Judge issued an order (1) denying petitioners' and the co-
defendants' motion to discharge the amended writ of attachment, (2) approving Sun Life's additional
attachment, (3) granting Sun Life's motion to examine the BPI account, and (4) denying petitioners'
motion to nullify the proceedings of January 23, 1992.

On March 12, 1992, petitioners filed a motion for reconsideration of the February 6, 1992 order. On
September 6, 1992, respondent Judge denied the motion for reconsideration.

Hence, the instant petitions. Petitioners' basic argument is that respondent Judge had acted with
grave abuse of discretion amounting to lack or in excess of jurisdiction in (1) issuing ex parte the
original and amended writs of preliminary attachment and the corresponding notices of garnishment
and levy on attachment since the trial court had not yet acquired jurisdiction over them; and (2)
allowing the examination of the bank records though no notice was given to them.

We find both petitions unmeritorious.

Petitioners initially argue that respondent Judge erred in granting Sun Life's prayer for a writ of
preliminary attachment on the ground that the trial court had not acquired jurisdiction over them. This
argument is clearly unavailing since it is well-settled that a writ of preliminary attachment may be
validly applied for and granted even before the defendant is summoned or is heard from. 2 The
rationale behind this rule was stated by the Court in this wise:

A preliminary attachment may be defined, paraphrasing the Rules of Court, as the


provisional remedy in virtue of which a plaintiff or other proper party may, at the
commencement of the action or any time thereafter, have the property of the adverse
party taken into the custody of the court as security for the satisfaction of any
judgment that may be recovered. It is a remedy which is purely statutory in respect of
which the law requires a strict construction of the provisions granting it. Withal no
principle, statutory or jurisprudential, prohibits its issuance by any court before
acquisition of jurisdiction over the person of the defendant.

Rule 57 in fact speaks of the grant of the remedy "at the commencement of the
action or at any time thereafter." The phrase "at the commencement of the action,"
obviously refers to the date of the filing of the complaint which, as abovepointed
out, its the date that marks "the commencement of the action;" and the reference
plainly is to a time before summons is served on the defendant or even before
summons issues. What the rule is saying quite clearly is that after an action is
properly
commenced by the filing of the complaint and the payment of all requisite docket
and other fees the plaintiff may apply for and obtain a writ of preliminary
attachment upon fulfillment of the pertinent requisites laid down by law, and that he
may do so at any time, either before or after service of summons on the defendant.
And this indeed, has been the immemorial practice sanctioned by the courts: for the
plaintiff or other proper party to incorporate the application for attachment in the
complaint or other appropriate pleading (counterclaim, cross-claim, third-party claim)
and for the Trial Court to issue the writ ex-parte at the commencement of the action if
it finds the application otherwise sufficient in form and substance. 3

Petitioners then contended that the writ should have been discharged since the ground on which it
was issued fraud in contracting the obligation was not present. This cannot be considered a
ground for lifting the writ since this delves into the very complaint of the Sun Life. As this Court
stated in Cuatro v. Court of Appeals: 4
Moreover, an attachment may not be dissolved by a showing of its irregular or
improper issuance if it is upon a ground which is at the same time the applicant's
cause of action in the main case since an anomalous situation would result if the
issues of the main case would be ventilated and resolved in a mere hearing of the
motion (Davao Light and Power Co., Inc. vs. Court of Appeals, supra, The
Consolidated Bank and Trust Corp. (Solidbank) vs. Court of Appeals, 197 SCRA 663
[1991]).

In the present case, one of the allegation in petitioner's complaint below is that the
defendant spouses induced the plaintiff to grant the loan by issuing postdated checks
to cover the installment payments and a separate set of postdated checks for
payment of the stipulated interest (Annex "B"). The issue of fraud, then, is clearly
within the competence of the lower court in the main action. 5

The fact that a criminal complaint for estafa filed by Sun Life against the petitioners was dismissed
by the Provincial Prosecutor of Rizal for Makati on April 21, 1992 and was upheld by the Provincial
Prosecutor on July 13, 1992 is of no moment since the same can be indicative only of the absence
of criminal liability, but not of civil liability. Besides, Sun Life had elevated the case for review to the
Department of Justice, where the case is presently pending.

Finally, petitioners argue that the enforcement of the writ was invalid since it undisputedly preceded
the actual service of summons by six days at most. Petitioners cite the decisions in Sievert vs. Court
of Appeals, et al. 6 andBAC Manufacturing and Sales Corp. vs. Court of Appeals, et al., 7 wherein this
Court held that enforcement of the writ of attachment can not bind the defendant in view of the failure of
the trial court to acquire jurisdiction over the defendant through either summons or his voluntary
appearance.

We do not agree entirely with petitioners. True, this Court had held in a recent decision that the
enforcement of writ of attachment may not validly be effected until and unless proceeded or
contemporaneously accompanied by service of summons. 8

But we must distinguish the case at bar from the Sievert and BAC Manufacturing cases. In those two
cases,summons was never served upon the defendants. The plaintiffs therein did not even attempt
to cause service of summons upon the defendants, right up to the time the cases went up to this
Court. This is not true in the case at bar. The records reveal that Sheriff Flores and Sun Life did
attempt a contemporaneous service of both summons and the writ of attachment on January 3,
1992, but we stymied by the absence of a responsible officer in petitioners' offices. Note is taken of
the fact that petitioners Oate and Econ Holdings admitted in their answer 9 that the offices of both
Brunner Development Corporation and Econ Holdings were located at the same address and that
petitioner Oate is the President of Econ Holdings while petitioner Dio is the President of Brunner
Development Corporation as well as a stockholder and director of Econ Holdings.

Thus, an exception to the established rule on the enforcement of the writ of attachment can be made
where a previous attempt to serve the summons and the writ of attachment failed due to factors
beyond the control of either the plaintiff or the process server, provided that such service is effected
within a reasonable period thereafter.

Several reasons can be given for the exception. First, there is a possibility that a defendant, having
been alerted of plaintiffs action by the attempted service of summons and the writ of attachment,
would put his properties beyond the reach of the plaintiff while the latter is trying to serve the
summons and the writ anew. By the time the plaintiff may have caused the service of summons and
the writ, there might not be any property of the defendant left to attach.
Second, the court eventually acquired jurisdiction over the petitioners six days later. To nullify the
notices of garnishment issued prior thereto would again open the possibility that petitioners would
transfer the garnished monies while Sun Life applied for new notices of garnishment.

Third, the ease by which a writ of attachment can be obtained is counter-balanced by the ease by
which the same can be discharged: the defendant can either make a cash deposit or post a counter-
bond equivalent to the value of the property attached. 10 The petitioners herein tried to have the writ of
attachment discharged by posting a counter-bond, the same was denied by respondent Judge on the
ground that the amount of the counter-bond was less than that of Sun Life's bond.

II.

Petitioners' second ground assail the acts of respondent Judge in allowing the examination of Urban
Banks' records and in ordering that the examination of the bank records of BPI and PNB as invalid
since no notice of said examinations were ever given them. Sun Life grounded its requests for the
examination of the bank accounts on Section 10, Rule 57 of the Rules of Court, which provided, to
wit:

Sec. 10. Examination of party whose property is attached and persons indebted to
him or controlling his property; delivery of property to officer. Any person owing
debts to the party whose property is attached or having in his possession or under
his control any credit or other personal property belonging to such party, may be
required to attend before the court in which the action is pending, or before a
commissioner appointed by the court and be examined on oath respecting the same.
The party whose property is attached may also be required to attend for the purpose
of giving information respecting his property, and may be examined on oath. The
court may, after such examination, order personal property capable of manual
delivery belonging to him, in the possession of the person so required to attend
before the court, to be delivered to the clerk or court, sheriff, or other proper officer
on such terms as may be just, having reference to any lien thereon or claim against
the same, to await the judgment in the action.

It is clear from the foregoing provision that notice need only be given to the garnishee, but the
person who is holding property or credits belonging to the defendant. The provision does not require
that notice be furnished the defendant himself, except when there is a need to examine said
defendant "for the purpose of giving information respecting his property.

Furthermore, Section 10 Rule 57 is not incompatible with Republic Act No. 1405, as amended, "An
Act Prohibiting Disclosure or Inquiry Into, Deposits With Any Banking Institution and Providing
Penalty Therefore," for Section 2 therefore provides an exception "in cases where the money
deposited or invested is the subject matter of the litigation."

The examination of the bank records is not a fishing expedition, but rather a method by which Sun
Life could trace the proceeds of the check it paid to petitioners.

WHEREFORE, the instant petitions are hereby DISMISSED. The temporary restraining order issued
on June 28, 1993 is hereby lifted.

SO ORDERED.

G.R. No. 107303 February 23, 1995


EMMANUEL C. OATE and ECON HOLDINGS CORPORATION, petitioners,
vs.
HON. ZEUS C. ABROGAR, as Presiding Judge of Branch 150 of the Regional Trial Court of
Makati, and SUN LIFE ASSURANCE COMPANY OF CANADA, respondents.

BRUNNER DEVELOPMENT CORPORATION, petitioner,


vs.
HON. ZEUS C. ABROGAR, as Presiding Judge of Branch 150 of the Regional Trial Court of
Makati, and SUN LIFE ASSURANCE COMPANY OF CANADA, respondents.

RESOLUTION

MENDOZA, J.:

These are motions separately filed by petitioners, seeking reconsideration of the decision of the
Second Division holding that although the levy on attachment of petitioners' properties had been
made before the trial court acquired jurisdiction over them, the subsequent service of summons on
them cured the invalidity of the attachment.

The motions were referred to the Court en banc in view of the fact that in another decision rendered
by the Third Division on the same question, it was held that the subsequent acquisition of jurisdiction
over the person of a defendant does not render valid the previous attachment of his property. 1 The
Court en bancaccepted the referral and now issues this resolution.

Petitioners maintain that, in accordance with prior decisions of this Court, the attachment of their
properties was void because the trial court had not at that time acquired jurisdiction over them and
that the subsequent service of summons on them did not cure the invalidity of the levy. They further
contend that the examination of the books and ledgers of the Bank of the Philippine Islands (BPI),
the Philippine National Bank (PNB) and the Urban Bank was a "fishing expedition" which the trial
court should not have authorized because petitioner Emmanuel C. Oate, whose accounts were
examined, was not a signatory to any of the documents evidencing the transaction between Sun Life
Assurance of Canada (Sun Life) and Brunner Development Corporation (Brunner).

On the other hand private respondent Sun Life stresses the fact that the trial
court eventually acquired jurisdiction over petitioners and contends that this cured the invalidity of
the attachment of petitioners' properties. With respect to the second contention of petitioners, private
respondent argues that the examination of petitioner Oate's bank account was justified because it
was he who signed checks transferring huge amounts from Brunner's account in the Urban Bank to
the PNB and the BPI.

At the outset, it should be stated that the Court does not in the least doubt the validity of the writ of
attachment issued in these cases. The fact that a criminal complaint for estafa which Sun Life had
filed against petitioner Oate and Noel L. Dio, president of Brunner, was dismissed by the Office of
the Provincial Prosecutor is immaterial to the resolution of the motions for reconsideration. In the first
place, the dismissal, although later affirmed by the Department of Justice, is pending
reconsideration. In the second place, since the issue in the case below is precisely whether
petitioners were guilty of fraud in contracting their obligation, resolution of the question must await
the trial of the main case.
However, we find petitioners' contention respecting the validity of the attachment of their properties
to be well taken. We hold that the attachment of petitioners' properties prior to the acquisition of
jurisdiction by the respondent court is void and that the subsequent service of summons on
petitioners did not cure the invalidity of such attachment. The records show that before the summons
and the complaint were served on petitioners Oate and Econ Holdings Corporation (Econ) on
January 9, 1992, Deputy Sheriff Arturo C. Flores had already served on January 3, 1992 notices of
garnishment on the PNB Head office 2 and on all its Metro Manila branches and an A.B capital. 3 In
addition he made other levies before the service of summons on petitioners, to wit:

On January 6, 1992, he served notices of garnishment on the Urban Bank Head Office and all its
Metro Manila branches, 4 and on the BPI. 5

On the same day, he levied on attachment Oate's condominium unit at the Amorsolo Apartments
Condominium Project, covered by Condominium Certificate of Title No. S-1758. 6

On January 7, 1992, he served notice of garnishment on the Union Bank of the Philippines. 7

On January 8, 1992, he attached Oate's lot, consisting of 1,256 square meters, at the Ayala-
Alabang Subdivision, Alabang, Muntinlupa, covered by TCT No. 112673. 8

First. The Deputy Sheriff claims that he had tried to serve the summons with a copy of the complaint
on petitioners on January 3, 1992 but that there was no one in the offices of petitioners on whom he
could make a service. This is denied by petitioners who claim that their office was always open and
that Adeliza M. Jaranilla, Econ's Chief Accountant who eventually received summons on behalf of
Oate and Econ, was present that day. Whatever the truth is, the fact is that no other attempt was
made by the sheriff to serve the summons except on January 9, 1992, in the case of Oate and
Econ, and on January 16, 1992, in the case of Dio. Meantime, he made several levies, which
indicates a predisposition to serve the writ of attachment in anticipation of the eventual acquisition by
the court of jurisdiction over petitioners.

Second. Private respondent invokes the ruling in Davao Light & Power Co. v. Court of Appeals 9 in
support of its contention that the subsequent acquisition of jurisdiction by the court cured the defect in the proceedings for attachment. It cites
the following portion of the decision in Davao Light and Power, written by Justice, now Chief Justice, Narvasa:

It goes without saying that whatever be the acts done by the Court prior to the
acquisition of jurisdiction over the person of the defendant, as above indicated
issuance of summons, order of attachment and writ of attachment (and/or
appointment of guardian ad litem, or grant of authority to the plaintiff to prosecute the
suit as a pauper litigant, or amendment of the complaint by the plaintiff as a matter of
right without leave of court and however valid and proper they might otherwise be,
these do not and cannot bind and affect the defendant until and unless jurisdiction
over his person is eventually obtained by the court, either by service on him of
summons or other coercive process or his voluntary submission to the court's
authority. Hence, when the sheriff or other proper officer commences implementation
of the writ of attachment, it is essential that he serve on the defendant not only a
copy of the applicant's affidavit and attachment bond, and of the order of attachment,
as explicitly required by Section 5 of Rule 57, but also the summons addressed to
said defendant as well as a copy of the complaint and order for appointment of
guardian ad litem, if any, as also explicitly directed by Section 3, Rule 14 of the Rules
of
Court. 10
It is clear from the above excerpt, however, that while the petition for a writ of preliminary attachment
may be granted and the writ itself issued before the defendant is summoned, the writ of attachment
cannot beimplemented until jurisdiction over the person of the defendant is obtained. As this Court
explained, "levy on property pursuant to the writ thus issued may not be validly effected unless
preceded, orcontemporaneously accompanied, by service on the defendant of summons, a copy of
the complaint (and of the appointment of guardian ad litem, if any), the application for attachment (if
not incorporated in but submitted separately from the complaint), the order of attachment, and the
plaintiff's attachment bond." 11

Further clarification on this point was made in Cuartero v. Court of Appeals, 12 in which it was held:

It must be emphasized that the grant of the provisional remedy of attachment


practically involves three stages; first, the court issues the order granting the
application; second, the writ of attachment issues pursuant to the order granting the
writ; and third, the writ is implemented. For the initial two stages, it is not necessary
that jurisdiction over the person of the defendant should first be obtained. However,
once the implementation commences, it is required that the court must have acquired
jurisdiction over the defendant for without such jurisdiction, the court has no power
and authority to act in any manner against the defendant. Any order issuing from the
Court will not bind the defendant.

Private respondent argues that the case of Cuartero itself provides for an exception as shown in the
statement that "the court [in issuing the writ of preliminary attachment] cannot bind and affect the
defendant until jurisdiction is eventually obtained" and that since petitioners were subsequently
served with summons, no question can be raised against the validity of the attachment of petitioners'
properties before such service.

The statement in question has been taken out of context. The full statement reads:

It is clear from our pronouncements that a writ of preliminary attachment may issue
even before summons is served upon the defendant. However, we have likewise
ruled that the writ cannot bind and affect the defendant until jurisdiction over his
person is eventually obtained.Therefore, it is required that when proper officer
commences implementation of the writ of attachment service of summons should be
simultaneously made. 13

Indeed, as this Court through its First Division has ruled on facts similar to those in these cases, the
attachment of properties before the service of summons on the defendant is invalid, even though the
court later acquires jurisdiction over the defendant. 14 At the very least, then, the writ of attachment
must be servedsimultaneously with the service of summons before the writ may be enforced. As the
properties of the petitioners were attached by the sheriff before he had served the summons on them, the
levies made must be considered void.

Third. Nor can the attachment of petitioners' properties before the service of summons on them was
made be justified an the ground that unless the writ was then enforced, petitioners would be alerted
and might dispose of their properties before summons could be served on them.

The Rules of Court do not require that issuance of the writ be kept a secret until it can be enforced.
Otherwise in no case may the service of summons on the defendant precede the levy on
attachment. To the contrary, Rule 57, 13 allows the defendant to move to discharge the
attachment even before any attachment is actually levied upon, thus negating any inference that
before its enforcement, the issuance of the writ must be kept secret. Rule 57,
13 provides:

Sec. 13. Discharge of attachment for improper or irregular issuance. The party
whose property has been attached may also, at any time either before or after the
release of the attached property, or before any attachment shall have been actually
levied, upon reasonable notice to the attaching creditor, apply to the judge who
granted the order, or to the judge of the court in which the action is pending, for an
order to discharge the attachment on the ground that the same was improperly or
irregularly issued. . . . (Emphasis added).

As this Court pointed out in Davao Light and Power, 15 the lifting of an attachment "may be resorted to
even before any property has been levied on."

It is indeed true that proceedings for the issuance of a writ of attachment are generally ex parte.
InMindanao Savings and Loans Ass'n v. Court of Appeals 16 it was held that no hearing is required for
the issuance of a writ of attachment because this "would defeat the objective of the remedy [because] the
time which such hearing would take could be enough to enable the defendant to abscond or dispose of
his property before a writ of attachment issues." It is not, however, notice to defendant that is sought to be
avoided but the "time which such hearing would take" because of the possibility that defendant may delay
the hearing to be able to dispose of his properties. On the contrary there may in fact be a need for a
hearing before the writ is issued as where the issue of fraudulent disposal of property is raised. 17 It is not
true that there should be no hearing lest a defendant learns of the application for attachment and he
remove's his properties before the writ can be enforced.

On the other hand, to authorize the attachment of property even before jurisdiction over the person
of the defendant is acquired through the service of summons or his voluntary appearance could lead
to abuse. It is entirely possible that the defendant may not know of the filing of a case against him
and consequently may not be able to take steps to protect his interests.

Nor may sheriff's failure to abide by the law be excused on the pretext that after all the court later
acquired jurisdiction over petitioners. More important than the need for insuring success in the
enforcement of the writ is the need for affirming a principle by insisting on that "most fundamental of
all requisites the jurisdiction of the court issuing attachment over the person of the defendant." 18 It
may be that the same result would follow from requiring that a new writ be served all over again. The
19
symbolic significance of such an act, however, is that it would affirm our commitment to the rule of law.

II

We likewise find petitioners' second contention to be meritorious. The records show that, on January
21, 1992, respondent judge ordered the examination of the books of accounts and ledgers of
Brunner at the Urban Bank, Legaspi Village branch, and on January 30, 199 the records of account
of petitioner Oate at the BPI, even as he ordered the PNB to produce the records regarding certain
checks deposited in it.

First. Sun Life defends these court orders on the ground that the money paid by it to Brunner was
subsequently withdrawn from the Urban Bank after it had been deposited by Brunner and then
transferred to BPI and to the unnamed account in the petitioner Oate's account in the BPI and to
the unnamed account in the PNB.

The issue before the trial court, however, concerns the nature of the transaction between petitioner
Brunner and Sun Life. In its complaint, Sun Life alleges that Oate, in his personal capacity and as
president of Econ, offered to sell to Sun Life P46,990,000.00 worth of treasury bills owned by Econ
and Brunner at the discounted price of P39,526,500.82; that on November 27, 1991, Sun Life paid
the price by means of a check payable to Brunner; that Brunner, through its president Noel L. Dio,
issued to it a receipt with undertaking to deliver the treasury bills to Sun Life; and that on December
4, 1991, Brunner and Dio delivered instead a promissory note, dated November 27, 1991, in which
it was made to appear that the transaction was a money placement instead of sale of treasury bills.

Thus the issue is whether the money paid to Brunner was the consideration for the sale of treasury
bills, as Sun Life claims, or whether it was money intended for placement, as petitioners allege.
Petitioners do not deny receipt of P39,526,500.82 from Sun Life. Hence, whether the transaction is
considered a sale or money placement does not make the money the "subject matter of litigation"
within the meaning of 2 of Republic Act No. 1405 which prohibits the disclosure or inquiry into bank
deposits except "in cases where the money deposited or invested is the subject matter of litigation."
Nor will it matter whether the money was "swindled" as Sun Life contends.

Second. The examination of bank books and records cannot be justified under Rule 57, 10. This
provision states:

Sec. 10. Examination of party whose property is attached and persons indebted to
him or controlling his property; delivery of property to officer. Any person owing
debts to the party whose property is attached or having in his possession or under
his control any credit or other personal property belonging to such party, may be
required to attend before the court in which the action is pending, or before a
commissioner appointed by the court, and be examined on oath respecting the
same. The party whose property is attached may also be required to attend for the
purpose of giving information respecting his property, and may be examined on oath.
The court may, after such examination, order personal property capable of manual
delivery belonging to him, in the possession of the person so required to attend
before the court, to be delivered to the clerk of the court, sheriff, or other proper
officer on such terms as may be just, having reference to any lien thereon or claims
against the same, to await the judgment in the action.

Since, as already stated, the attachment of petitioners' properties was invalid, the examination
ordered in connection with such attachment must likewise be considered invalid. Under Rule 57,
10, as quoted above, such examination is only proper where the property of the person examined
has been validly attached.

WHEREFORE, the decision dated February 21, 1994 is RECONSIDERED and SET ASIDE and
another one is rendered GRANTING the petitions for certiorari and SETTING ASIDE the orders
dated February 26, 1992 and September 9, 1992, insofar as they authorize the attachment of
petitioners' properties and the examination of bank books and records pertaining to their accounts,
and ORDERING respondent Judge Zeus C. Abrogar

(1) forthwith to issue an alias writ of attachment upon the same bond furnished by respondent Sun
Life Assurance Company of Canada;

(2) direct the sheriff to lift the levy under the original writ of attachment and simultaneously levy on
the same properties pursuant to the alias writ so issued; and

(3) take such steps as may be necessary to insure that there will be no intervening period between
the lifting of the original attachment and the subsequent levy under the alias writ.
Petitioners may file the necessary counterbond to prevent subsequent levy or to dissolve the
attachment after such levy.

SO ORDERED.

G.R. No. 106989 May 10, 1994

H.B. ZACHRY COMPANY INTERNATIONAL, petitioner,


vs.
HON. COURT OF and VINNEL-BELVOIR CORPORATION, respondents.

G.R. No. 107124 May 10, 1994

VINNEL-BELVOIR CORPORATION, petitioner,


vs.
THE COURT OF APPEALS and H.B. ZACHRY COMPANY INTERNATIONAL, respondents.

DAVIDE, JR., J.:

Challenged in these petitions for review, which were ordered consolidated on 9 December 1992, 1 is
the decision of the Court of Appeals in CA-G.R. SP No. 24174, 2 promulgated on 1 July 1992, the
dispositive portion of which reads:

WHEREFORE, premises considered, this Petition for Certiorari and Prohibition is


hereby granted in so far as it prayed for the dissolution of the writ of preliminary
attachment inasmuch as it was issued prior to the service of summons and a copy of
the complaint on petitioner. The writ of preliminary attachment issued by respondent
Court on March 21, 1990 is hereby ordered lifted and dissolved as having been
issued in grave abuse of discretion by respondent Court.

With respect to the issue of whether or not parties should submit the instant dispute
[to] arbitration, We hereby order public respondent to conduct a hearing for the
determination of the proper interpretation of the provisions of the Subcontract
Agreement.

No pronouncement as to costs. 3

and its 2 September 1992 Resolution 4 which denied the motion for partial reconsideration of H.B.
Zachry Company International (hereinafter Zachry) and the motion for reconsideration of Vinnel-Belvoir
Corporation (hereinafter VBC).

The pleadings of the parties and the challenged decision disclose the following material facts:

On 17 July 1987, VBC entered into a written Subcontract Agreement 5 with Zachry, a foreign
corporation. The latter had been engaged by the United States Navy to design and construct 264 Family
Housing Units at the US Naval Base at Subic, Zambales. Under the agreement, specifically under Section
3 on Payment, VBC was to perform all the construction work on the housing project and would be paid
"for the performance of the work the sum of Six Million Four Hundred Sixty-eight Thousand U.S. Dollars
(U.S. $6,468,000.00), subject to additions and deductions for changes as hereinafter provided." This
"lump sum price is based on CONTRACTOR'S proposal, dated 21 May 1987 (including drawings),
submitted to OWNER for Alternate Design-Apartments." It was also provided "that substantial differences
between the proposal and the final drawings and Specification approved by the OWNER may be grounds
for an equitable adjustment in price and/or time of performance if requested by either party in accordance
with Section 6 [on] Changes." 6 Section 27 of the agreement reads:

Section 27. DISPUTES PROCEDURE

A. In case of any dispute, except those that are specifically provided for in this
SUBCONTRACT, between the SUBCONTRACTOR and the CONTRACTOR, the
SUBCONTRACTOR agrees to be bound to the CONTRACTOR to the same extent
that the CONTRACTOR is bound to the OWNER by the terms of the GENERAL
CONTRACT and by any and all decisions or determinations made thereunder by the
party or boards so authorized in the GENERAL CONTRACT. The
SUBCONTRACTOR, on items or issues relating or attributable to the
SUBCONTRACTOR, also agrees to be bound to the CONTRACTOR to the same
extent that the CONTRACTOR is bound to the OWNER by the final decision of a
court of competent jurisdiction, whether or not the SUBCONTRACTOR is a party to
such proceeding. If such a dispute is prosecuted or defended by the CONTRACTOR
against the OWNER under the terms of the GENERAL CONTRACT or in court
action, the SUBCONTRACTOR agrees to furnish all documents, statements,
witnesses and other information required by the CONTRACTOR for such purpose. It
is expressly understood that as to any and all work done and agreed to be done by
the CONTRACTOR and as to any and all materials, equipment or services furnished
or agreed to be furnished by the SUBCONTRACTOR, and as to any and all
damages incurred by the SUBCONTRACTOR in connection with this
SUBCONTRACT, the CONTRACTOR shall not be liable to the SUBCONTRACTOR
to any greater extent than the OWNER is liable to and pays the CONTRACTOR for
the use and benefit of the SUBCONTRACTOR for such claims, except those claims
arising from acts of the CONTRACTOR. No dispute shall interfere with the progress
of the WORK and the SUBCONTRACTOR agrees to proceed with his WORK as
directed, despite any disputes it may have with the CONTRACTOR, the OWNER, or
other parties.

B. If at any time any controversy should arise between the CONTRACTOR and the
SUBCONTRACTOR, with respect to any matter or thing involved in, related to or
arising out of this SUBCONTRACT, which controversy is not controlled or
determined by subparagraph 27.A. above or other provisions in this
SUBCONTRACT, then said controversy shall be decided as follows:

1. The SUBCONTRACTOR shall be conclusively bound and abide by the


CONTRACTOR'S written decision respecting said controversy, unless the
SUBCONTRACTOR shall commence arbitration proceedings as hereinafter provided
within thirty (30) days following receipt of such written decision.

2. If the SUBCONTRACTOR decides to appeal from the written decision of the


CONTRACTOR, then the controversy shall be decided by arbitration in accordance
with the then current rules of the Construction Industry Arbitration Rules of the
American Arbitration Association, and the arbitration decision shall be final and
binding on both parties; provided, however, that proceedings before the American
Arbitration Association shall be commenced by the SUBCONTRACTOR not later
than thirty (30) days following the CONTRACTOR'S written decision pursuant to
subparagraph 27.B.1 above. If the SUBCONTRACTOR does not file a demand for
arbitration with the American Arbitration Association and CONTRACTOR within this
thirty (30) day period, then the CONTRACTOR'S written decision is final and binding.
3. This agreement to arbitrate shall be specifically enforceable. 7

When VBC had almost completed the project, Zachry complained of the quality of work, making it a
reason for its decision to take over the management of the project, which paragraph c, Section 7 of
the Subcontract Agreement authorized. However, prior to such take-over, the parties executed on 18
December 1989 a Supplemental Agreement, 8 pertinent portions of which read as follows:

2. All funds for progress as computed by the schedule of prices under the
subcontract will be retained by ZACHRY to insure sufficiency of funds to finish the
lump sum project as scoped by the subcontract. However, one month after the date
of this agreement, when ZACHRY shall have determined the cost to complete the
subcontract, ZACHRY shall as appropriate, release to VBC the corresponding
portion of the amounts retained.

xxx xxx xxx

7. All costs incurred by ZACHRY chargeable to VBC under the subcontract from the
date of the takeover to complete the scope of the subcontract will be to the account
of VBC and/or its sureties. Zachry will advise both VBC and its sureties on a periodic
basis as to progress and accumulated costs.

xxx xxx xxx

9. VBC will be invited to participate in negotiations with the Navy in Change Orders
concerning its scope of work. VBC will accept as final, without recourse against
ZACHRY the Navy's decision regarding its interest in these Change Orders or
modifications.

In accordance with the above conditions, VBC submitted to Zachry on 10 January 1990 a detailed
computation of the cost to complete the subcontract on the housing project. According to VBC's
computation, there remains a balance of $1,103,000.00 due in its favor as of 18 January 1990. This
amount includes the sum of $200,000.00 allegedly withheld by Zachry and the labor escalation
adjustment granted earlier by the US Navy in the amount of $282,000.00 due VBC. Zachry,
however, not only refused to acknowledge the indebtedness but continually failed to submit to VBC a
statement of accumulated costs, as a result of which VBC was prevented from checking the
accuracy of the said costs. On 2 March 1990, VBC wrote Zachry a letter demanding compliance with
its obligations. 9 Zachry still failed to do so. VBC made representations to pursue its claim, including a
10
formal claim with the Officer-in-Charge of Construction, NAVFAC Contracts, Southwest Pacific, which
also failed.

Hence, on 20 March 1990, VBC filed a Complaint 11 with the Regional Trial Court (RTC) of Makati
against Zachry for the collection of the payments due it with a prayer for a writ of preliminary attachment
over Zachry's bank account in Subic Base and over the remaining thirty-one undelivered housing units
which were to be turned over to the US Navy by Zachry on 30 March 1990. The case was docketed as
Civil Case No. 90-772 and was raffled to Branch 142 of the said court presided over by Judge Salvador
P. de Guzman, Jr. Paragraph 2 of the Complaint alleges that defendant Zachry "is a foreign corporation
with address at 527 Longwood Street, San Antonio, Texas, U.S.A. and has some of its officers working at
U.S. Naval Base, Subic Bay, Zambales where it may be served with summons."

On 21 March 1990, the trial court issued an order granting the application for the issuance of the writ
of preliminary attachment and fixing the attachment bond at P24,266,000.00. 12 VBC put up the
required bond and on 26 March 1990, the trial court issued the writ of attachment, 13 which was served,
together with the summons, a copy of the complaint with annexes, the bond, and a copy of the order of
attachment, on 27 March 1990 in the manner described in the Sheriff's Partial Return 14 of 29 March
1990:

upon defendant H.B. Zachry Company (International) at its field office in U.S. Naval
Base, Subic Bay, Zambales thru Ruby Apostol who acknowledged receipt thereof.
Mr. James M. Cupit, defendant's authorized officer was in their Manila office at the
time of service.

The return further states:

That on March 28, 1990, the undersigned sheriff went to the office of defendant H. B.
Zachry Company (International) at c/o A.M. Oreta & Co. at 5th Floor, Ermita Building,
Arquiza corner Alhambra streets, Ermita, Manila to serve the Court's processes but
was informed by Atty. Felix Lobiro of A.M. Oreta & Co., that defendant H.B. Zachry
Company has its own office at Room 600, 6th Floor of the same building (Ermita
Building). However, said defendant's office was closed and defendant company
(ZACHRY) only holds office during Mondays and Tuesdays of the week as per
information gathered from the adjacent office.

On 27 March 1990, VBC filed an Amended Complaint 15 in Civil Case No. 90-772 to implead as
additional defendants the US Navy Treasury Office-Subic Naval Base and Captain A.L. Wynn, an officer
of the US Navy, against whom VBC prayed for a restraining order or preliminary injunction to restrain the
latter from preparing the treasury warrant checks to be paid to Zachry and the former from signing the
said checks and to restrain both from making any further payments to Zachry. It also amended paragraph
2 on the status and circumstances of Zachry as follows:

2. Defendant, H.B. Zachry Co. (International) . . . is a foreign corporation with


address at 527 Longwood Street, San Antonio, Texas, U.S.A. and may be served
with summons and all other legal processes at the following addresses: a) H.B.
Zachry Company (International), U.S. Naval Base, Subic Bay, Zambales; and b) H.B.
Zachry Company (International) c/o A.M. Oreta & Co., 5th Floor Ermita Building,
Arquiza corner Alhambra Streets, Ermita, Manila, through its authorized officer
James C. Cupit. 16

On 6 April 1990, Zachry filed a motion to dismiss the complaint 17 on the ground of lack of jurisdiction
over its person because the summons was not validly served on it. It alleges that it is a foreign
corporation duly licensed on 13 November 1989 by the Securities and Exchange Commission to do
business in the Philippines 18 and, pursuant to Section 128 of the Corporation Code of the Philippines,
had appointed Atty. Lucas Nunag 19 as its resident agent on whom any summons and legal processes
against it may be served. Atty. Nunag's address is at the 10th Floor, Shell House, 156 Valero St., Makati,
Metro Manila.

Summons and a copy of the Amended Complaint were served on 24 April 1990 on Zachry through
Atty. Nunag as shown in the sheriff's return dated 24 April 1990. 20

On 26 April 1990, VBC filed a Manifestation 21 to inform the court of the above service of summons on
Zachry which it claimed rendered moot and academic the motion to dismiss.

On 24 May 1990, Zachry filed an Omnibus Motion 22 (a) to dismiss the complaint for lack of jurisdiction
over its person since the subsequent service of summons did not cure the jurisdictional defect it earlier
pointed out and, in the alternative, to dismiss the case or suspend the proceedings therein for failure of
the plaintiff to submit the controversy in question to arbitration as provided for in its contract with Zachry;
and (b) to dissolve the writ of attachment of 26 March 1990 "for having been issued without jurisdiction,
having been issued prior to the service of summons." The arbitration provision referred to is Section 27.B
of the Subcontract Agreement quoted earlier. In support of its alternative prayer for the suspension of
proceedings, it cited Section 7 of R.A. No. 876, otherwise known as the Arbitration Act which provides:

Sec. 7. Stay of Civil Action If any suit or proceeding be brought upon an issue,
arising out of an agreement providing for the arbitration thereof, the Court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the terms of the agreement. . . .

This provision is almost identical with Section 3 of the United States Arbitration Act.

As to the invalidity of the writ of attachment, Zachry avails of the decision in Sievert vs. Court of
Appeals 23wherein this Court said:

Attachment is an ancillary remedy. It is not sought for its own sake but rather to
enable the attaching party to realize upon relief sought and expected to be granted in
the main or principal action. A court which has not acquired jurisdiction over the
person of the defendant, cannot bind that defendant whether in the main case or in
any ancillary proceeding such as attachment proceedings. The service of a petition
for preliminary attachment without the prior or simultaneous service of summons and
a copy of the complaint in the main case and that is what happened in this case
does not of course confer jurisdiction upon the issuing court over the person of the
defendant. 24

VBC opposed the Omnibus Motion. Pleadings related to the Omnibus Motion were subsequently
filed. 25

In its Order of 19 September 1990, 26 the trial court resolved the Omnibus Motion and the related
incidents by declaring that "the merits of the case can only [be] reached after due presentation of
evidence." Hence, it denied the motion and directed the defendants to file their answer within the period
provided by law.

On 8 October 1990, Zachry filed a motion for the reconsideration 27 of the above order assailing the
court's inaction on the second and third issues raised in its Omnibus Motion, viz., the necessity of
arbitration and the invalidity of the writ of attachment. VBC opposed the motion. 28 On 9 January 1991, the
court issued an order denying the motion for reconsideration by ruling that the writ of preliminary
attachment was regularly issued and that the violations of the Subcontract Agreement can be "tranced
[sic] only after the case is heard on the merits."

Dissatisfied with the denial, Zachry filed with the Court of Appeals on 14 February 1991 a petition
forcertiorari and prohibition, 29 which was docketed as CA-G.R. SP No. 24174. Zachry contends therein
that:

1. The proceedings before respondent trial court should be suspended, pending


submission of the dispute to arbitration pursuant to Section 27-B of the Subcontract
Agreement;

2. Alternatively, the complaint should be dismissed, pending arbitration pursuant to


Section 27-B of the Subcontract Agreement;
3. As a third alternative, the complaint should be dismissed, because the dispute has
been resolved with finality under Section 27-B of the Subcontract Agreement; and

4. The writ of preliminary attachment should be dissolved, as having been outside, or


in excess of respondent court's jurisdiction, having been issued prior to the service of
summons on petitioner.

It then prays that (a) the orders of the trial court of 19 September 1990 and 9 January 1991 be
annulled for having been issued without or in excess of jurisdiction or with grave abuse of discretion;
and (b) the trial court be directed to immediately suspend the proceedings in Civil Case No. 90-772
pending arbitration proceedings in accordance with the terms of Section 27.B of the Subcontract
Agreement or, alternatively, to dismiss the amended complaint and dissolve the writ of attachment. It
also prays for the issuance of a temporary restraining order and a writ of preliminary injunction to
restrain the trial court from proceeding further in Civil Case No. 90-772.

On 18 February 1991, the Court of Appeals issued a temporary restraining order. 30

On 1 July 1991, the Court of Appeals promulgated the challenged decision 31 dissolving the writ of
preliminary attachment issued by the trial court and ordering it to conduct a hearing to determine the
proper interpretation of the provisions of the Subcontract Agreement. As to the writ of attachment, the
Court of Appeals held that summons was served on Zachry only on 24 April 1990; hence,
applying Sievert vs. Court of Appeals, 32 the trial court "had no authority yet to act coercively against the
defendant" when it issued the writ of attachment on 21 March 1990. As to arbitration, it ruled:

We are of the reasoned opinion that unlike in the factual situation in the cases cited
by petitioner, the contract involved in the case at bar is, with respect to its arbitration
clause, vogue [sic] and uncertain. Section 27.B which is the provision upon which
petitioner anchors its claims is ambiguous in its terminology when it states that "if at
anytime any controversy should arise between the contractor and the subcontractor .
. . which controversy is not controlled or determined by Section 27.A above or other
provision of this subcontract . . . ." This provision states that only when a controversy
arises between the contractor and the subcontractor which is not covered by Section
27.A or any provision of the Subcontract Agreement will the parties submit to
arbitration. As to what controversies fall under Section 27.B, it is not clear from a
mere perusal of the provisions. It is therefore not correct for petitioner to say that any
and all dispute arising between the contracting parties should be resolved by
arbitration prior to a filing of a suit in court. 33

VBC and Zachry filed a motion for reconsideration and a partial motion for reconsideration,
respectively. 34The former urged the Court of Appeals to consider the decision of this Court of 29
November 1991 in Davao Light & Power Co. vs. Court of Appeals 35 wherein this Court ruled that a writ of
preliminary attachment may be issued ex-parte prior to the service of summons and a copy of the
complaint on the defendants. On the other hand, Zachry insists that "[t]here is nothing 'vague' or
'ambiguous about' " the provision on dispute procedures set forth in Subsections 27.B.1 to 27.B.3 of the
Subcontract Agreement.

In its Resolution of 2 September 1992, 36 the Court of Appeals denied the above motions of the parties.

Hence, these petitions which were given due course in this Court's Resolution of 8 March 1993. 37

In G.R. No. 106989, petitioner Zachry reiterates all the issues it raised before the Court of Appeals,
except that regarding the validity of the writ of attachment which was decided in its favor.
In G.R. No. 107124, petitioner VBC raises the following issues:

A. WHETHER THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT


PRIOR TO THE SERVICE OF THE SUMMONS AND A COPY OF THE AMENDED
COMPLAINT ON THE RESPONDENT IS VALID.

B. WHETHER RESORT TO ARBITRATION PRIOR TO FILING A SUIT IN COURT


IS REQUIRED BY THE SUBCONTRACT AGREEMENT UNDER THE FACTS
OBTAINING IN THE PRESENT CASES.

As to the first issue, VBC takes refuge in the ruling in Davao Light & Power Co. vs. Court of
Appeals 38 and argues that the issuance of the writ of attachment on 21 March 1990, although before the
service of the summons, was valid. Its issuance and implementation are two different and separate
things; the first is not affected by any defect in the implementation which may be corrected. Moreover,
assuming arguendo that the initial service of summons was defective, it was cured by the numerous
pleadings thereafter filed. Finally, whatever doubts existed on the effectiveness of the implementation of
the writ was erased by its re-service on the resident agent of Zachry.

As to the issue on arbitration, VBC maintains that arbitration is not required under the facts obtaining
in the present case because the applicable provision of the Subcontract Agreement is Section 3 on
Payment and not Section 27.B on Arbitration. Zachry's fraudulent actuations and gross violation of
the Subcontract Agreement render prior resort to arbitration futile and useless. The preliminary
attachment, which was essential to secure the interest of the petitioner, could not have been
obtained through arbitration proceedings.

Zachry, in its Comment, 39 contends that pursuant to the Sievert and Davao Light rulings, the issuance of
the writ of attachment before the service of summons on Zachry's resident agent was invalid and that the
various pleadings filed by the parties did not cure its invalidity. It argues that the arbitration procedure is
set forth in Section 27.B of the Subcontract Agreement. It further maintains that pursuant to General
Insurance vs. Union Insurance, 40 the alleged fraudulent actuations which relate to the merits of the case
may be properly addressed to the arbitrators and that there is no merit to the claim that arbitration would
be useless since the arbitration proceeding would be presided over by an independent and competent
arbitral tribunal.

The issues in these petitions are properly defined by VBC in G.R. No. 107124.

We find for petitioner VBC.

It was error for the Court of Appeals to declare, on the ground of grave abuse of discretion, the
nullity of the writ of attachment issued by the trial court on 21 March 1990. In the first place, the writ
was in fact issued only on 26 March 1990 and served, together with the summons, copy of the
complaint, the Order of 21 March 1990, and the bond, on 27 March 1990 on Zachry at its field office
in Subic Bay, Zambales, through one Ruby Apostol. What the Court of Appeals referred to as having
been issued on 21 March 1990 is the order granting the application for the issuance of a writ of
preliminary attachment upon the posting of a bond of P24,266,000.00. 41 In the second place, even
granting arguendo that the Court of Appeals had indeed in mind the 26 March 1990 writ of attachment, its
issuance, as well as the issuance of the 21 March 1990 Order, did not suffer from any procedural or
jurisdictional defect; the trial court could validly issue both.

However, the writ of attachment cannot be validly enforced through the levy of Zachry's property
before the court had acquired jurisdiction over Zachry's person either through its voluntary
appearance or the valid service of summons upon it. 42 To put it in another way, a distinction should be
made between the issuance and the enforcement of the writ. The trial court has unlimited power to issue
the writ upon the commencement of the action even before it acquires jurisdiction over the person of the
defendant, but enforcement thereof can only be validly done after it shall have acquired such jurisdiction.
This is the rule enunciated in Davao Light & Power Co. vs. Court of
Appeals. 43 In that case, this Court stated:

The question is whether or not a writ of preliminary attachment may issue ex


parte against a defendant before acquisition of jurisdiction of the latter's person by
service of summons or his voluntary submission to the Court's authority.

The Court rules that the question must be answered in the affirmative and that
consequently, the petition for review will have to be granted.

It is incorrect to theorize that after an action or proceeding has been commenced and
jurisdiction over the person of the plaintiff has been vested in the court, but before
the acquisition of jurisdiction over the person of the defendant (either by service of
summons or his voluntary submission to the court's authority), nothing can be validly
done by the plaintiff or the court. It is wrong to assume that the validity of acts done
during this period should be dependent on, or held in suspension until, the actual
obtention of jurisdiction over the defendant's person. The obtention by the court of
jurisdiction over the person of the defendant is one thing; quite another is the
acquisition of jurisdiction over the person of the plaintiff or over the subject-matter or
nature of the action, or the res or object thereof. 44

xxx xxx xxx

A preliminary attachment may be defined, paraphrasing the Rules of Court, as the


provisional remedy in virtue of which a plaintiff or other proper party may, at the
commencement of the action or at any time thereafter, have the property of the
adverse party taken into the custody of the court as security for the satisfaction of
any judgment that may be recovered. It is a remedy which is purely statutory in
respect of which the law requires a strict construction of the provisions granting it.
Withal no principle, statutory or jurisprudential, prohibits its issuance by any court
before acquisition of jurisdiction over the person of the defendant.

Rule 57 in fact speaks of the grant of the remedy "at the commencement of the
action or at any time thereafter." The phrase "at the commencement of the action,"
obviously refers to the date of the filing of the complaint which, as above pointed
out, is the date that marks "the commencement of the action;" and the reference
plainly is to a time before summons is served on the defendant, or even before
summons issues. What the rule is saying quite clearly is that after an action is
properly commenced by the filing of the complaint and the payment of all requisite
docket and other fees the plaintiff may apply for and obtain a writ of preliminary
attachment upon fulfillment of the pertinent requisites laid down by law, and that he
may do so at any time, either before or after service of summons on the defendant.
And this indeed, has been the immemorial practice sanctioned by the courts: for the
plaintiff or other proper party to incorporate the application for attachment in the
complaint or other appropriate pleading (counterclaim, cross-claim, third-party claim)
and for the Trial Court to issue the writ ex-parte at the commencement of the action if
it finds the application otherwise sufficient in form and substance. 45

xxx xxx xxx


It goes without saying that whatever be the acts done by the Court prior to the
acquisition of jurisdiction over the person of the defendant, as above indicated
issuance of summons, order of attachment and writ of attachment (and/or
appointment of guardian ad litem, or grant of authority to the plaintiff to prosecute the
suit as a pauper litigant, or amendment of the complaint by the plaintiff as a matter of
right without leave of court) and however valid and proper they might otherwise
be, these do not and cannot bind and affect the defendant until and unless
jurisdiction over his person is eventually obtained by the court, either by service on
him of summons or other coercive process or his voluntary submission to the court's
authority. Hence, when the sheriff or other proper officer commences implementation
of the writ of attachment, it is essential that he serve on the defendant not only a
copy of the applicant's affidavit and attachment bond, and of the order of attachment,
as explicitly required by Section 5 of Rule 57, but also the summons addressed to
said defendant as well as a copy of the complaint and order for appointment of
guardian ad litem, if any, as also explicitly directed by Section 3, Rule 14 of the Rules
of Court. Service of all such documents is indispensable not only for the acquisition
of jurisdiction over the person of the defendant, but also upon considerations of
fairness, to apprise the defendant of the complaint against him, of the issuance of a
writ of preliminary attachment and the grounds therefor and thus accord him the
opportunity to prevent attachment of his property by the posting of a counterbond in
an amount equal to the plaintiff's claim in the complaint pursuant to Section 5 (or
Section 12), Rule 57, or dissolving it by causing dismissal of the complaint itself on
any of the grounds set forth in Rule 16, or demonstrating the insufficiency of the
applicant's affidavit or bond in accordance with Section 13, Rule 57. 46

xxx xxx xxx

For the guidance of all concerned, the Court reiterates and reaffirms the proposition
that writs of attachment may properly issue ex parte provided that the Court is
satisfied that the relevant requisites therefor have been fulfilled by the applicant,
although it may, in its discretion, require prior hearing on the application with notice
to the defendant; but that levy on property pursuant to the writ thus issued may not
be validly effected unless preceded, or contemporaneously accompanied, by service
on the defendant of summons, a copy of the complaint (and of the appointment of
guardian ad litem, if any), the application for attachment (if not incorporated in but
submitted separately from the complaint), the order of attachment, and the plaintiff's
attachment bond. 47

We reiterated the rule laid down in Davao Light in the subsequent case of Cuartero vs. Court of
Appeals 48wherein we stated:

It must be emphasized that the grant of the provisional remedy of attachment


practically involves three stages: first, the court issues the order granting the
application; second, the writ of attachment issues pursuant to the order granting the
writ; and third, the writ is implemented. For the initial two stages, it is not necessary
that jurisdiction over the person of the defendant should first be obtained. However,
once the implementation commences, it is required that the court must have acquired
jurisdiction over the person of the defendant for without such jurisdiction, the court
has no power and authority to act in any manner against the defendant. Any order
issuing from the Court will not bind the defendant.
The validity then of the order granting the application for a writ of preliminary attachment on 21
March 1990 and of the issuance of the writ of preliminary attachment on 26 March 1990 is beyond
dispute. However, the enforcement of the preliminary attachment on 27 March 1990, although
simultaneous with the service of the summons and a copy of the complaint, did not bind Zachry
because the service of the summons was not validly made. When a foreign corporation has
designated a person to receive service of summons pursuant to the Corporation Code, that
designation is exclusive and service of summons on any other person is inefficacious. 49 The valid
service of summons and a copy of the amended complaint was only made upon it on 24 April 1990, and it
was only then that the trial court acquired jurisdiction over Zachry's person. Accordingly, the levy on
attachment made by the sheriff on 27 April 1990 was invalid. However, the writ of preliminary attachment
may be validly served anew.

As to the second issue of arbitration, we find that although the order of the trial court denying the
motion to dismiss did not clearly state so, it is evident that the trial court perceived the ground of the
motion to be not indubitable; hence, it could defer its resolution thereon until the trial of the case. In
deciding a motion to dismiss, Section 3, Rule 16 of the Rules of Court grants the court four options:
(1) to deny the motion, (2) to grant the motion, (3) to allow amendment of pleadings, or (4) to defer
the hearing and determination of the motion until the trial, if the ground alleged therein does not
appear to be indubitable. Under the fourth option, the court is under no obligation to immediately
hold a hearing on the motion; it is vested with discretion to defer such hearing and the determination
of the motion until the trial of the case. 50 The lack of indubitability of the ground involved in Zachry's
motion to dismiss is confirmed by the Court of Appeals when it declared:

Section 27. B which is the provision upon which petitioner [Zachry] anchors its claim
is ambiguous in its terminology when it states that "if at any time any controversy
should arise between the contractor and the subcontractor . . . which controversy is
not controlled or determined by Section 27.A above or other provisions of this
subcontract' . . . . This provision states that only when a controversy arises between
the contractor and subcontractor which is not covered by Section 27.A or any
provision of the Subcontract will the parties submit to arbitration. As to what
controversies fall under Section 27.B, it is not clear from a mere perusal of the
provisions.

Indeed, the parties could not even agree on what controversies fall within Section 27.B, and,
perhaps, rightly so because the said Section 27.B excludes controversies controlled or determined
by Section 27.A and other provisions of the Subcontract Agreement, which are themselves unclear.
For that reason, VBC insists that its cause of action in Civil Case No. 90-772 is based on Section 3
of the Subcontract Agreement. It may further be emphasized that VBC's complaint was precipitated
by Zachry's refusal to comply with the Supplemental Agreement. Evidently, Section 3 of the
Subcontract Agreement and the Supplemental Agreement are excluded by Section 27.B. The trial
court was, therefore, correct in denying Zachry's motion to dismiss.

However, we cannot give our assent to the Court of Appeals' order directing the trial court to conduct
a hearing for the determination of the proper interpretation of the provisions of the Subcontract
Agreement. It would re-open the motion to dismiss which, upon the trial court's exercise of its
discretion, was properly denied for lack of indubitability of the ground invoked and thereby unduly
interfere with the trial court's discretion. The proper interpretation could only be done by the trial
court after presentation of evidence during trial on the merits pursuant to the tenor of its order
denying the motion to dismiss. If the trial court should find that, indeed, arbitration is in order, then it
could apply Section 7 of R.A. No. 876 which reads as follows:

Sec. 7. Stay of civil action. If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the terms of the
agreement: Provided, That the applicant for the stay is not in default in proceeding
with such arbitration.

WHEREFORE, the petition in G.R. No. 107124 is GRANTED while that in G.R. No. 106989 is
DENIED for lack of merit. The challenged Decision of 1 July 1992 and Resolution of 2 September
1992 are hereby SET ASIDE. The orders of Branch 142 of the Regional Trial Court of Makati in Civil
Case No. 90-772 of 19 September 1990 denying the motion to dismiss and of 8 October 1990
denying the motion to reconsider the former are REINSTATED. However, the service of the writ of
preliminary attachment on 26 March 1990 is hereby declared invalid. The writ may, nevertheless, be
served anew.

No pronouncement as to costs.

SO ORDERED.

SECTION 6

G.R. No. L-42594 October 18, 1979

ELIGIO ROQUE and RODRIGO G. MALONJAO, petitioners,


vs.
HON. COURT OF APPEALS, HON. JUDGE CARLOS L. SUNDIAM, (CFI-Manila, Branch XXVIII)
ASSOCIATED BANKING CORPORATION FIL-EASTERN WOOD INDUSTRIES, INC., CITY
SHERIFF OF MANILA, DEPUTY SHERIFFS ADRIEL GARCIA and BENJAMIN
GARVIDA, respondents.

MELENCIO-HERRERA, J.:

Treating this Petition as a special civil action for Certiorari, we affirm the Decision of the Court of
Appeals denying petitioners' prayer to set aside the trial Court Order, dated April 14, 1975, to
surrender the barge in question under pain of contempt, and its subsequent Orders denying their
Motion for Reconsideration.

There is no dispute as to the following background facts:

On January 31, 1973, respondent Associated Banking Corporation (the Bank, for short) instituted an
action, Civil Case No. 89692, in the Court of First Instance of Manila, Branch XXVIII, respondent
Judge, presiding, against private respondent Fil-Eastern Wood Industries, Inc. (Fil-Eastern, for
brevity), a domestic corporation, for recovery of a sum of money.

Upon ex-parte application by the Bank for a Writ of Preliminary Attachment, respondent Judge, after
the filing and approval of the required bond of P220,000.00, issued, on February 4, 1974, an Order
of Attachment commanding the Sheriff to attach the estate, real and personal, of Fil-Eastern. 1

On February 7, 1974, the Sheriff's "Notice of Levy Pursuant to the Writ of Attachment" was
registered in the Office of the Commander of the First Coast Guard, District of Manila, 2 pursuant to
Sec. 805 of the Tariff and Customs Code, as amended by Presidential Decree No. 34, requiring the
registration of documents affecting titles of vessels with that entity. The said notice read, "levy is hereby
made upon all the rights, titles, interest, shares and participation which the defendant Fil-Eastern Wood
Industries, Inc. has or might have over a sea vessel or barge named Fil-Eastern V.

It appears that prior to the issuance of said Writ of Attachment, Fil-Eastern had delivered the barge
to the Cotabato Visayan Development Corporation sometime in April, 1973, for repair. The job was
completed in June 1973, but Fil-Eastern failed to pay the cost of repairs of P261,190.59. Pursuant to
the provisions of Article 2112 3 in relation to Article 1731 4 of the Civil Code, the Cotabato Visayan
Development Corporation proceeded before Notary Public Clemente R. Gonzales of Manila to the sale of
said barge. In the public auction sale conducted by said Notary Public on April 24, 1974, petitioner Eligio
Roque acquired the barge as the highest bidder, and was accordingly issued a Certificate of Sale by the
Notary Public. On the same date, the Cotabato Visayan Development Corporation issued an Affidavit of
Release of mechanic's lien against Fil-Eastern. The Certificate of Sale was received in the office of the
Philippine Coast Guard on May 3, 1974. 5 It wag not until December 24, 1974, however, that Certificate of
Ownership No. 8647, a Certificate. of Philippine Register, a Certificate of Change of Name of Vessel from
Fil-Eastern V" to "Satellite I I, " as well as a Coastwise License, were issued to Roque by the Philippine
Coast Guard. 6 These muniments of title were issued only after counsel for Eligio Roque had assured the
Philippine Coast Guard, in a letter dated November 13, 1974, that "without touching on the merit of the
preference of our client's claim in relation to the levy registered by other claimants, such levy is not in any
manner a legal obstacle to the registration of the vessels in our client's name." 7 Acting thereon, the
Acting Commandant of the Philippine Coast Guard in a letter dated November 23, 1974, authorized the
issuance of a new certificate of registration annotating thereon any levy validly registered against said
vessel(s)." 8 However, neither the Certificate of Ownership nor the Certificate of Philippine Register
appended as Annexes "C" and "D", respectively, to petitioners' Urgent Manifestation and Motion filed
before the lower Court 9 carry that annotation.

On August 29, 1974, the Bank filed a "Motion for the Issuance of Another Writ of Attachment" stating
that at the time of the issuance of the Writ on February 4, 1974, the barge in question could not be
located within the jurisdiction of the trial Court. having been anchored somewhere in the Visayas,
and that actual levy on the barge could not be made as "the original Order of attachment is allegedly
in the possession of the Branch Deputy Sheriff appointed by the Honorable Court, who has not
reported to the office since August 26, 1974, and, therefore, could not implement the writ." 10 On the
same date, August 29, 1974, the trial Court (Judge Rafael S. Sison, presiding) denied the issuance of
another Writ (apparently ' v because it was deemed unnecessary), but instead ordered the Deputy Sheriff
of Branch XXVIII to coordinate with the City Sheriff of Manila in the implementation of the Writ previously
issued. 11 On August 30, 1974, Deputy Sheriff Garvida actually seized and levied upon the vessel.

On October 7, 1974, respondent Bank and respondent Fil-Eastern submitted a Compromise


Agreement whereby Fil-Eastern bound itself to pay to the Bank the principal amount of P200,000.00,
with 1417,9 interest, plus other amounts stated therein. On October 9, 1974, respondent Judge
approved the Agreement and rendered judgment accordingly. On November 6, 1974, the Bank
moved for the issuance of a Writ of Execution for failure of Fil-Eastern to make payments within the
period stipulated in the Compromise Agreement.

Meanwhile, without prior authority from Deputy Sheriff Garvida the barge in question was "spirited
away" to Bacolod City by a certain Captain Marcelino Agito, who claimed to have been given the
right to use the same by Fil-Eastern.12

On January 6, 1975, respondent Judge issued an Order requiring Capt. Marcelino Agito, in
coordination with Deputy Sheriff Benjamin E. Garvida to bring back to Manila the barge in
question. 13
On March 7, 1975, respondent Judge issued a Writ of Execution and ordered the sale of the barge
at public auction, as follows:

ORDER

The Decision rendered by this Court under date of October 9, 1974 having already
become final and executory, let a Writ of Execution be issued to be enforced by
Sheriff Adriel V. Garcia by conducting an auction sale on the vessel placed under
attachment. The satisfaction of the judgment in this case shall be given preference
and the payment of the third party claim of Alfredo H. Maligaya for and in behalf of
Leonardo M. Canoso shall be satisfied from whatever remaining proceeds of the
auction sale on the aforedsaid vessel, if there be any.

SO ORDERED. 14

On April 7, 1975, Capt. Marcelino Aguito and Deputy Sheriff Benjamin Garvida filed a Manifestation
stating that petitioner Rodrigo Malonjao, acting for and in behalf of his co-petitioner Eligio Roque,
refused to-surrender the barge on the ground I d that Eligio Roque is now the new owner, having
acquired the same by purchase at public auction, and praying that petitioners, and all persons
claiming under them, be directed to surrender the barge to the custody of the Court through its duly
authorized representative.

On April 14, 1975, respondent Judge issued the following Order:

Upon motion filed by Capt. Marcelino Agito and Deputy Sheriff Benjamin Garvida and
considering the absence of a formal claim with this Court filed by Eulogio Roque,
personally or through counsel, relative to the barge SATELLITE II, EX-FIL-EASTERN
V', subject of the writ of Attachment issued by this Court on February 7, 1974, and in
order to prevent further delay in the implementation of the Order of this Court dated
March 7, 1975, Rodrigo Malonjao and Eulogio Roque and an persons claiming right
under them over the aforesaid vessel, including those acting under their direction or
supervision, are hereby ordered under pain of being cited in contempt of Court to
forthwith surrender possession of the above said vessel to Sheriff Adriel V. Garcia so
that the latter may be able to implement fully and expeditiously the aforesaid Order of
this Court dated March 7, 1975. ... 15

On April 24, 1975, petitioners filed before the trial Court an Urgent Manifestation and Motion seeking
to set aside the Order of April 14, 1975, claiming that Roque is now the new owner of the barge
having acquired the same at a public auction sale arising from a mechanic's lien. The Motion was
denied by respondent Judge on the ground that the records belied petitioners' claim that the auction
sale occurred very much ahead of the notice of levy. Petitioners' first and second Motion for
Reconsideration were similarly denied. On July 16, 1975, respondent Deputy Sheriff Adriel V. Garcia
submitted a report informing the Court that the barge in question had been turned over to him and
was anchored along Pasig River, under guard.

On August 28, 1975, petitioners sought relief from the Court of Appeals by filing a "Petition for
certiorari and Prohibition with Preliminary Injunction and Preliminary Mandatory Injunction" assailing
and asking to vacate the Orders issued in Civil Case No. 89692 by respondent Judge as well as the
Writs, notices and other processes emanating therefrom. The Court of Appeals, * in denying the Petition in
its Decision promulgated on November 24, 1975, ruled that certiorari did not lie as petitioner was not without sufficient and adequate remedy
to obtain relief from the damaging effects of the Orders complained of.
Petitioner filed the present Petition on March 1, 1976 before this Court, claiming that they are
purchasers in good faith and for valuable consideration, having actually paid the total amount of
P354,689.00 to the Cotabato Visayan Development Corporation for three barges, one of which is the
barge in question. They have also raised the following legal issues:

1. The decision of the respondent Court of Appeals sustaining the challenged orders,
writs and other processes issued by the respondent Judge is contrary to the
provisions of Art. 1731 in relation to Art. 2112 of the New Civil Code and to the ruling
laid down in Bank of P.I. vs. Walter A. Smith' & Co., 55 Phil. 533 and Bachrach Motor
Co. vs. Mendoza, 43 Phil. 410.

2. If the levy and/or attachment by the sheriff of the barge in question are illegal, will
herein petitioner be required to avail of Section 14, Rule 57 and/or Section 17, Rule
39 of the Revised Rules of Court?

On July 19, 1976, we issued a Restraining Order enjoining respondents from proceeding with the
projected sale at public auction of the barge, subject of this litigation. We also declared the case
submitted for decision. On January 18, 1977, the Bank filed a Motion for Authority to Sell the barge
under attachment. This was opposed, however, by petitioners and we resolved to defer resolution
until decision on the merits is rendered.

On May 31, 1979, the Bank filed a Motion for Early Resolution, but the same was agendaed only on
September 24, 1979. We take note of the BANK's contention that ever since the Sheriff took custody
of the vessel on July 16, 1975, the same has been lying Idle, moored at the Muelle de la Industrial,
Pasig River, exposed to the elements, and has deteriorated rapidly, hence the need for early
resolution. It should be reiterated that this is a special civil action for Certiorari, the main requisites
for the issuance of which Writ are: 1) that the Writ be directed against a tribunal, board or officer
exercising judicial functions; 2) that such tribunal, board or officer has acted without or in excess of
jurisdiction or with grave abuse of discretion; and 3) that there is no appeal, nor any plain, speedy
and adequate remedy in the ordinary course of law. 16 While the first requisite has been met, the
second-hand the third have not.

We agree with the findings of the Court of Appeals that petitioners were not without any plain,
speedy and adequate remedy in the ordinary course of law. For one, upon the issuance of the
Order, dated August 29, 1974, commanding the implementation of the Writ of Attachment,
petitioners could have availed themselves of the remedy provided for in Section 14, Rule 57 of the
Rules of Court, which reads:

If the property taken be claimed by any person other than the party against whom
attachment had been issued or his agent, and such person makes an affidavit of his
title thereto or right to the possession thereof, stating the grounds of such right or
title, and serves such affidavit upon the officer while the latter has possession of the
property, and a copy thereof upon the attaching creditor, the officer shall not be
bound to keep the property under attachment, unless the attaching creditor or his
agent, on demand of the said officer, secures him against such claim by a bond in a
sum not greater than the value of the property attached. ...

For another, when respondent Sheriff seized the vessel in question to be sold at public auction in
accordance with the Order of execution of March 7, 1975, petitioner could have availed of the
remedy under Section 17, Rule 39 of the Rules of Court which provides:
If the property levied on be claimed by any other person than the Judgment debtor or
his agent, and such person make an affidavit of his title thereto or right to the
possession thereof, stating the grounds of such right or title, and serve the same
upon the officer making the levy, and a copy thereof upon the judgment creditor, the
officer shall not be bound to keep the property, unless such judgment creditor or his
agent, on demand of the officer, indemnify the officer against such claim by a bond in
a sum not greater than the value of the property levied on. ...

Petitioner Eligio Roque argues, however, that he could not avail of the foregoing Rules inasmuch as
the vessel was not in the actual custody of the Sheriff nor of the Court, since the supposed levy by
the Sheriff on February 7, 1974 was a mere paper levy which, in legal contemplation, is no levy at
an. It is a fact that respondent Sheriff could not effect seizure immediately, first, because the barge
could nowhere be found in this vicinity, and subsequently when found, because petitioners would not
deliver possession to the Sheriff. It was not until the trial Court granted the Sheriff's Motion praying
for an Order directing petitioners or their agents to surrender the barge to the custody of the Court,
that the Sheriff was able to take physical custody. As a general rule, however, a levy of an
attachment upon personal property may be either actual or constructive. 17 In this case, levy had been
constructively made by the registration of the same with the Philippine Coast Guard on February 7, 1974.
Constructive possession should be held sufficient where actual possession is not feasible, 18 particularly
when it was followed up by the actual seizure of the property as soon as that could possibly be effected.

Petitioners further argue that the levy was illegal because the Writ was implemented more than sixty
days after its issuance so that they need not have complied with Section 14, Rule 57, supra. The
Rules do not provide any lifetime for a Writ of Attachment unlike a Writ of Execution. But even
granting that a Writ of Attachment is valid for only sixty days, yet, since there was constructive levy
within that period the fact that actual seizure was effected only thereafter cannot affect the validity of
that levy.

Neither can it be said that respondent Judge committed grave abuse of discretion in issuing the
challenged Order of April 14, 1975, supra, whereby it commanded the immediate implementation of
the Order of execution of March 7, 1975 and ordered petitioners to surrender possession of the
barge to the Sheriff under pain of contempt. A trial Court is enjoined by law to bring about a prompt
dispatch of the controversy pending before it. As it was, it took the trial Court more than a year to
cause the enforcement of its Writs and processes. Moreover, its Decision of October 9, 1974 had
become final and executory, and execution then became purely a ministerial phase of adjudication. It
had no jurisdiction to pass upon petitioners' claim of ownership not only because trial in that, case
had already been terminated but also considering that petitioners were not parties in the case below
nor had they filed any third-party claim for the enforcement of their rights.

Verily, petitioners' remedy was to ventilate their claims of ownership in a separate and independent
reivindicatory action, as even then suggested by the Court of Appeals. That was the arena where the
question of preferential rights, if any, impliedly raised in the first assigned error, could have been fully
threshed out.

...a third person claiming to be the owner of the property attached or levied upon is
required to file a separate or independent action to determine whether the property
should answer for the claim of the attaching or judgment creditor instead of being
allowed to raise that issue in the case where the writ of attachment or execution was
issued (Sec. 17, Rule 39 and sec. 14, Rule 57, Rules of Court; Bayer Philippines,
Inc. vs. Agana, L-38701, April 8, 1975, 63 SCRA 355). 19
In the interest of justice, petitioners can still file an independent civil action to establish their
ownership over the barge, if they have not yet done so.

WHEREFORE, in the absence of jurisdictional errors, this Petition is dismissed, and the Restraining
Order, heretofore issued, hereby lifted effective immediately.

No costs.

SO ORDERED.