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G.R. No.

93262 December 29, 1991

DAVAO LIGHT & POWER CO., INC., petitioner,


vs.
THE COURT OF APPEALS, QUEENSLAND HOTEL or MOTEL or QUEENSLAND TOURIST INN,
and TEODORICO ADARNA, respondents.

Breva & Breva Law Offices for petitioner.

Goc-Ong & Associates for private respondents.

NARVASA, J.:p

Subject of the appellate proceedings at bar is the decision of the Court of Appeals in CA-G.R. Sp.
No. 1967 entitled "Queensland Hotel, Inc., etc. and Adarna v. Davao Light & Power Co., Inc.,"
promulgated on May 4, 1990. 1 That decision nullified and set aside the writ of preliminary attachment issued by the Regional
Trial Court of Davao City 2 in Civil Case No. 19513-89 on application of the plaintiff (Davao Light & Power Co.), before the service of
summons on the defendants (herein respondents Queensland Co., Inc. and Adarna).

Following is the chronology of the undisputed material facts culled from the Appellate Tribunal's
judgment of May 4, 1990.

1. On May 2, 1989 Davao Light & Power Co., Inc. (hereafter, simply Davao Light) filed a verified
complaint for recovery of a sum of money and damages against Queensland Hotel, etc. and
Teodorico Adarna (docketed as Civil Case No. 19513-89). The complaint contained an ex
parte application for a writ of preliminary attachment.

2. On May 3, 1989 Judge Nartatez, to whose branch the case was assigned by raffle, issued an
Order granting the ex parte application and fixing the attachment bond at P4,600,513.37.

3. On May 11, 1989 the attachment bond having been submitted by Davao Light, the writ of
attachment issued.

4. On May 12, 1989, the summons and a copy of the complaint, as well as the writ of attachment
and a copy of the attachment bond, were served on defendants Queensland and Adarna; and
pursuant to the writ, the sheriff seized properties belonging to the latter.

5. On September 6, 1989, defendants Queensland and Adarna filed a motion to discharge the
attachment for lack of jurisdiction to issue the same because at the time the order of attachment was
promulgated (May 3, 1989) and the attachment writ issued (May 11, 1989), the Trial Court had not
yet acquired jurisdiction over the cause and over the persons of the defendants.

6. On September 14, 1989, Davao Light filed an opposition to the motion to discharge attachment.

7. On September 19, 1989, the Trial Court issued an Order denying the motion to discharge.

This Order of September 19, 1989 was successfully challenged by Queensland and Adarna in a
special civil action of certiorari instituted by them in the Court of Appeals. The Order was, as
aforestated, annulled by the Court of Appeals in its Decision of May 4, 1990. The Appellate Court's
decision closed with the following disposition:

. . . the Orders dated May 3, 1989 granting the issuance of a writ of preliminary
attachment, dated September 19, 1989 denying the motion to discharge attachment;
dated November 7, 1989 denying petitioner's motion for reconsideration; as well as
all other orders emanating therefrom, specially the Writ of Attachment dated May 11,
1989 and Notice of Levy on Preliminary Attachment dated May 11, 1989, are hereby
declared null and void and the attachment hereby ordered DISCHARGED.

The Appellate Tribunal declared that —

. . . While it is true that a prayer for the issuance of a writ of preliminary attachment
may be included m the complaint, as is usually done, it is likewise true that the Court
does not acquire jurisdiction over the person of the defendant until he is duly
summoned or voluntarily appears, and adding the phrase that it be issued "ex parte"
does not confer said jurisdiction before actual summons had been made, nor retroact
jurisdiction upon summons being made. . . .

It went on to say, citing Sievert v. Court of Appeals, 3 that "in a proceedings in attachment," the "critical time
which must be identified is . . . when the trial court acquires authority under law to act coercively against the defendant or his
property . . .;" and that "the critical time is the of the vesting of jurisdiction in the court over the person of the defendant in the main
case."

Reversal of this Decision of the Court of Appeals of May 4, 1990 is what Davao Light seeks in the
present appellate proceedings.

The question is whether or not a writ of preliminary attachment may issue ex parte against a
defendant before acquisition of jurisdiction of the latter's person by service of summons or his
voluntary submission to the Court's authority.

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

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

An action or proceeding is commenced by the filing of the complaint or other initiatory pleading. 4 By
that act, the jurisdiction of the court over the subject matter or nature of the action or proceeding is invoked or called into activity; 5 and it is
thus that the court acquires jurisdiction over said subject matter or nature of the action. 6 And it is by that self-same act of the plaintiff (or
petitioner) of filing the complaint (or other appropriate pleading) — by which he signifies his submission to the court's power and authority —
that jurisdiction is acquired by the court over his person. 7 On the other hand, jurisdiction over the person of the defendant is obtained, as
above stated, by the service of summons or other coercive process upon him or by his voluntary submission to the authority of the court. 8

The events that follow the filing of the complaint as a matter of routine are well known. After the
complaint is filed, summons issues to the defendant, the summons is then transmitted to the sheriff,
and finally, service of the summons is effected on the defendant in any of the ways authorized by the
Rules of Court. There is thus ordinarily some appreciable interval of time between the day of the
filing of the complaint and the day of service of summons of the defendant. During this period,
different acts may be done by the plaintiff or by the Court, which are unquestionable validity and
propriety. Among these, for example, are the appointment of a guardian ad litem, 9 the grant of authority to
the plaintiff to prosecute the suit as a pauper litigant, 10 the amendment of the complaint by the plaintiff as a matter of right without leave of
court, 11 authorization by the Court of service of summons by publication, 12 the dismissal of the action by the plaintiff on mere notice. 13

This, too, is true with regard to the provisional remedies of preliminary attachment, preliminary
injunction, receivership or replevin. 14 They may be validly and properly applied for and granted even before the defendant is
summoned or is heard from.

A preliminary attachment may be defined, paraphrasing the Rules of Court, as the provisional
remedy in virtue of which a plaintiff or other party may, at the commencement of the action or at any
time thereafter, have the property of the adverse party taken into the custody of the court as security
for the satisfaction of any judgment that may be recovered. 15 It is a remedy which is purely statutory in respect of
which the law requires a strict construction of the provisions granting it. 16 Withal no principle, statutory or jurisprudential, prohibits its
issuance by any court before acquisition of jurisdiction over the person of the defendant.

Rule 57 in fact speaks of the grant of the remedy "at the commencement of the action or at any time
thereafter." 17 The phase, "at the commencement of the action," obviously refers to the date of the filing of the complaint — which, as
above pointed out, is the date that marks "the commencement of the action;" 18 and the reference plainly is to a time before summons is
served on the defendant, or even before summons issues. What the rule is saying quite clearly is that after an action is properly commenced
— by the filing of the complaint and the payment of all requisite docket and other fees — the plaintiff may apply for and obtain a writ of
preliminary attachment upon fulfillment of the pertinent requisites laid down by law, and that he may do so at any time, either before or after
service of summons on the defendant. And this indeed, has been the immemorial practice sanctioned by the courts: for the plaintiff or other
proper party to incorporate the application for attachment in the complaint or other appropriate pleading (counter-claim, cross-claim, third-
party claim) and for the Trial Court to issue the writ ex-parte at the commencement of the action if it finds the application otherwise sufficient
in form and substance.

In Toledo v. Burgos, 19 this Court ruled that a hearing on a motion or application for preliminary attachment is not generally
necessary unless otherwise directed by the Trial Court in its discretion. 20 And in Filinvest Credit Corporation v. Relova, 21 the Court
declared that "(n)othing in the Rules of Court makes notice and hearing indispensable and mandatory requisites for the issuance of a writ of
attachment." The only pre-requisite is that the Court be satisfied, upon consideration of "the affidavit of the applicant or of some other person
who personally knows the facts, that a sufficient cause of action exists, that the case is one of those mentioned in Section 1 . . . (Rule 57),
that there is no other sufficient security for the claim sought to be enforced by the action, and that the amount due to the applicant, or the
value of the property the possession of which he is entitled to recover, is as much as the sum for which the order (of attachment) is granted
above all legal counterclaims." 22 If the court be so satisfied, the "order of attachment shall be granted," 23 and the writ shall issue upon the
applicant's posting of "a bond executed to the adverse party in an amount to be fixed by the judge, not exceeding the plaintiffs claim,
conditioned that the latter will pay all the costs which may be adjudged to the adverse party and all damages which he may sustain by reason
of the attachment, if the court shall finally adjudge that the applicant was not entitled thereto." 24

In Mindanao Savings & Loan Association, Inc. v. Court of Appeals, decided on April 18, 1989, 25 this
Court had occasion to emphasize the postulate that no hearing is required on an application for preliminary attachment, with notice to the
defendant, for the reason that this "would defeat the objective of the remedy . . . (since the) time which such a hearing would take, could be
enough to enable the defendant to abscond or dispose of his property before a writ of attachment issues." As observed by a former member
of this Court, 26 such a procedure would warn absconding debtors-defendants of the commencement of the suit against them and the
probable seizure of their properties, and thus give them the advantage of time to hide their assets, leaving the creditor-plaintiff holding the
proverbial empty bag; it would place the creditor-applicant in danger of losing any security for a favorable judgment and thus give him only an
illusory victory.

Withal, ample modes of recourse against a preliminary attachment are secured by law to the
defendant. The relative ease with which a preliminary attachment may be obtained is matched and
paralleled by the relative facility with which the attachment may legitimately be prevented or
frustrated. These modes of recourse against preliminary attachments granted by Rule 57 were
discussed at some length by the separate opinion in Mindanao Savings & Loans
Asso. Inc. v. CA., supra.

That separate opinion stressed that there are two (2) ways of discharging an attachment: first, by the
posting of a counterbond; and second, by a showing of its improper or irregular issuance.
1.0. The submission of a counterbond is an efficacious mode of lifting an attachment already
enforced against property, or even of preventing its enforcement altogether.

1.1. When property has already been seized under attachment, the attachment may be discharged
upon counterbond in accordance with Section 12 of Rule 57.

Sec. 12. Discharge of attachment upon giving counterbond. — At any time after an
order of attachment has been granted, the party whose property has been attached
or the person appearing in his behalf, may, upon reasonable notice to the applicant,
apply to the judge who granted the order, or to the judge of the court in which the
action is pending, for an order discharging the attachment wholly or in part on the
security given . . . in an amount equal to the value of the property attached as
determined by the judge to secure the payment of any judgment that the attaching
creditor may recover in the action. . . .

1.2. But even before actual levy on property, seizure under attachment may be prevented also upon
counterbond. The defendant need not wait until his property is seized before seeking the discharge
of the attachment by a counterbond. This is made possible by Section 5 of Rule 57.

Sec. 5. Manner of attaching property. — The officer executing the order shall without
delay attach, to await judgment and execution in the action, all the properties of the
party against whom the order is issued in the province, not exempt from execution, or
so much thereof as may be sufficient to satisfy the applicant's demand, unless the
former makes a deposit with the clerk or judge of the court from which the order
issued, or gives a counter-bond executed to the applicant, in an amount sufficient to
satisfy such demand besides costs, or in an amount equal to the value of the
property which is about to be attached, to secure payment to the applicant of any
judgment which he may recover in the action. . . . (Emphasis supplied)

2.0. Aside from the filing of a counterbond, a preliminary attachment may also be lifted or discharged
on the ground that it has been irregularly or improperly issued, in accordance with Section 13 of Rule
57. Like the first, this second mode of lifting an attachment may be resorted to even before any
property has been levied on. Indeed, it may be availed of after property has been released from a
levy on attachment, as is made clear by said Section 13, viz.:

Sec. 13. Discharge of attachment for improper or irregular issuance. — The party
whose property has been attached may also, at any time either BEFORE or AFTER
the release of the attached property, or before any attachment shall have been
actually levied, upon reasonable notice to the attaching creditor, apply to the judge
who granted the order, or to the judge of the court in which the action is pending, for
an order to discharge the attachment on the ground that the same was improperly or
irregularly issued. If the motion be made on affidavits on the part of the party whose
property has been attached, but not otherwise, the attaching creditor may oppose the
same by counter-affidavits or other evidence in addition to that on which the
attachment was made. . . . (Emphasis supplied)

This is so because "(a)s pointed out in Calderon v. I.A.C., 155 SCRA 531 (1987), The attachment
debtor cannot be deemed to have waived any defect in the issuance of the attachment writ by simply
availing himself of one way of discharging the attachment writ, instead of the other. Moreover, the
filing of a counterbond is a speedier way of discharging the attachment writ maliciously sought out by
the attaching creditor instead of the other way, which, in most instances . . . would require
presentation of evidence in a fullblown trial on the merits, and cannot easily be settled in a pending
incident of the case." 27

It may not be amiss to here reiterate other related principles dealt with in Mindanao Savings & Loans
Asso. Inc. v. C.A., supra., 28 to wit:

(a) When an attachment may not be dissolved by a showing of its irregular or


improper issuance:

. . . (W)hen the preliminary attachment is issued upon a ground which is at the same
time the applicant's cause of action; e.g., "an action for money or property embezzled
or fraudulently misapplied or converted to his own use by a public officer, or an
officer of a corporation, or an attorney, factor, broker, agent, or clerk, in the course of
his employment as such, or by any other person in a fiduciary capacity, or for a willful
violation of duty." (Sec. 1 [b], Rule 57), or "an action against a party who has been
guilty of fraud m contracting the debt or incurring the obligation upon which the action
is brought" (Sec. 1 [d], Rule 57), the defendant is not allowed to file a motion to
dissolve the attachment under Section 13 of Rule 57 by offering to show the falsity of
the factual averments in the plaintiff's application and affidavits on which the writ was
based — and consequently that the writ based thereon had been improperly or
irregularly issued (SEE Benitez v. I.A.C., 154 SCRA 41) — the reason being that the
hearing on such a motion for dissolution of the writ would be tantamount to a trial of
the merits of the action. In other words, the merits of the action would be ventilated at
a mere hearing of a motion, instead of at the regular trial. Therefore, when the writ of
attachment is of this nature, the only way it can be dissolved is by a counterbond
(G.B. Inc. v. Sanchez, 98 Phil. 886).

(b) Effect of the dissolution of a preliminary attachment on the plaintiffs attachment bond:

. . . The dissolution of the preliminary attachment upon security given, or a showing


of its irregular or improper issuance, does not of course operate to discharge the
sureties on plaintiff's own attachment bond. The reason is simple. That bond is
"executed to the adverse party, . . . conditioned that the . . . (applicant) will pay all the
costs which may be adjudged to the adverse party and all damages which he may
sustain by reason of the attachment, if the court shall finally adjudge that the
applicant was not entitled thereto" (SEC. 4, Rule 57). Hence, until that determination
is made, as to the applicant's entitlement to the attachment, his bond must stand and
cannot be with-drawn.

With respect to the other provisional remedies, i.e., preliminary injunction (Rule 58), receivership
(Rule 59), replevin or delivery of personal property (Rule 60), the rule is the same: they may also
issue ex parte. 29

It goes without saying that whatever be the acts done by the Court prior to the acquisition of
jurisdiction over the person of defendant, as above indicated — issuance of summons, order of
attachment and writ of attachment (and/or appointments of guardian ad litem, or grant of authority to
the plaintiff to prosecute the suit as a pauper litigant, or amendment of the complaint by the plaintiff
as a matter of right without leave of court 30 — and however valid and proper they might otherwise be, these do not and
cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained by the court, either by service on him
of summons or other coercive process or his voluntary submission to the court's authority. Hence, when the sheriff or other proper officer
commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a copy of the applicant's affidavit
and attachment bond, and of the order of attachment, as explicity required by Section 5 of Rule 57, but also the summons addressed to said
defendant as well as a copy of the complaint and order for appointment of guardian ad litem, if any, as also explicity directed by Section 3,
Rule 14 of the Rules of Court. Service of all such documents is indispensable not only for the acquisition of jurisdiction over the person of the
defendant, but also upon considerations of fairness, to apprise the defendant of the complaint against him, of the issuance of a writ of
preliminary attachment and the grounds therefor and thus accord him the opportunity to prevent attachment of his property by the posting of
a counterbond in an amount equal to the plaintiff's claim in the complaint pursuant to Section 5 (or Section 12), Rule 57, or dissolving it by
causing dismissal of the complaint itself on any of the grounds set forth in Rule 16, or demonstrating the insufficiency of the applicant's
affidavit or bond in accordance with Section 13, Rule 57.

It was on account of the failure to comply with this fundamental requirement of service of summons
and the other documents above indicated that writs of attachment issued by the Trial Court ex
parte were struck down by this Court's Third Division in two (2) cases, namely: Sievert v. Court of
Appeals, 31 and BAC Manufacturing and Sales Corporation v. Court of Appeals, et al. 32 In contrast to the case at bar — where the
summons and a copy of the complaint, as well as the order and writ of attachment and the attachment bond were served on the defendant —
in Sievert, levy on attachment was attempted notwithstanding that only the petition for issuance of the writ of preliminary attachment was
served on the defendant, without any prior or accompanying summons and copy of the complaint; and in BAC Manufacturing and Sales
Corporation, neither the summons nor the order granting the preliminary attachment or the writ of attachment itself was served on the
defendant "before or at the time the levy was made."

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

WHEREFORE, the petition is GRANTED; the challenged decision of the Court of Appeals is hereby
REVERSED, and the order and writ of attachment issued by Hon. Milagros C. Nartatez, Presiding
Judge of Branch 8, Regional Trial Court of Davao City in Civil Case No. 19513-89 against
Queensland Hotel or Motel or Queensland Tourist Inn and Teodorico Adarna are hereby
REINSTATED. Costs against private respondents.

SO ORDERED.



















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

CHEMPHIL EXPORT & IMPORT CORPORATION (CEIC), petitioner,


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

G.R. No. 113394 December 12, 1995

PHILIPPINE COMMERCIAL INDUSTRIAL BANK (AND ITS ASSIGNEE JAIME Y.


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

KAPUNAN, J.:

Before us is a legal tug-of-war between the Chemphil Export and Import Corporation (hereinafter
referred to as CEIC), on one side, and the PISO and Jaime Gonzales as assignee of the Bank of the
Philippine Islands (BPI), Rizal Commercial Banking Corporation (RCBC), Land Bank of the
Philippines (LBP) and Philippine Commercial International Bank (PCIB), on the other (hereinafter
referred to as the consortium), over 1,717,678 shares of stock (hereinafter referred to as the
"disputed shares") in the Chemical Industries of the Philippines (Chemphil/CIP).

Our task is to determine who is the rightful owner of the disputed shares.

Pursuant to our resolution dated 30 May 1994, the instant case is a consolidation of two petitions for
review filed before us as follows:

In G.R. Nos. 112438-39, CEIC seeks the reversal of the decision of the Court of Appeals (former
Twelfth Division) promulgated on 30 June 1993 and its resolution of 29 October 1993, denying
petitioner's motion for reconsideration in the consolidated cases entitled "Dynetics, Inc., et al. v.
PISO, et al." (CA-G.R. No. 20467) and "Dynetics, Inc., et al. v. PISO, et al.; CEIC, Intervenor-
Appellee" (CA-G.R. CV No. 26511).

The dispositive portion of the assailed decision reads, thus:

WHEREFORE, this Court resolves in these consolidated cases as follows:

1. The Orders of the Regional Trial Court, dated March 25, 1988, and May 20, 1988,
subject of CA-G.R. CV No. 10467, are SET ASIDE and judgment is hereby rendered
in favor of the consortium and against appellee Dynetics, Inc., the amount of the
judgment, to be determined by Regional Trial Court, taking into account the value of
assets that the consortium may have already recovered and shall have recovered in
accordance with the other portions of this decision.
2. The Orders of the Regional Trial Court dated December 19, 1989 and March 5,
1990 are hereby REVERSED and SET ASIDE and judgment is hereby rendered
confirming the ownership of the consortium over the Chemphil shares of stock,
subject of CA-G.R. CV No. 26511, and the Order dated September 4, 1989, is
reinstated.

No pronouncement as to costs.

SO ORDERED. 1

In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales, ask for the annulment of the Court of
Appeals' decision (former Special Ninth Division) promulgated on 26 March 1993 in "PCIB v. Hon.
Job B. Madayag & CEIC" (CA-G.R. SP NO. 20474) dismissing the petition for certiorari, prohibition
and mandamus filed by PCIB and of said court's resolution dated 11 January 1994 denying their
motion for reconsideration of its decision. 2

The antecedent facts leading to the aforementioned controversies are as follows:

On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia filed a complaint for declaratory relief
and/or injunction against the PISO, BPI, LBP, PCIB and RCBC or the consortium with the Regional
Trial Court of Makati, Branch 45 (Civil Case No. 8527), seeking judicial declaration, construction and
interpretation of the validity of the surety agreement that Dynetics and Garcia had entered into with
the consortium and to perpetually enjoin the latter from claiming, collecting and enforcing any
purported obligations which Dynetics and Garcia might have undertaken in said agreement. 3

The consortium filed their respective answers with counterclaims alleging that the surety agreement
in question was valid and binding and that Dynetics and Garcia were liable under the terms of the
said agreement. It likewise applied for the issuance of a writ of preliminary attachment against
Dynetics and Garcia. 4

Seven months later, or on 23 April 1985, Dynetics, Antonio Garcia and Matrix Management &
Trading Corporation filed a complaint for declaratory relief and/or injunction against the Security
Bank & Trust Co. (SBTC case) before the Regional Trial Court of Makati, Branch 135 docketed as
Civil Case No. 10398. 5

On 2 July 1985, the trial court granted SBTC's prayer for the issuance of a writ of preliminary
attachment and on 9 July 1985, a notice of garnishment covering Garcia's shares in CIP/Chemphil
(including the disputed shares) was served on Chemphil through its then President. The notice of
garnishment was duly annotated in the stock and transfer books of Chemphil on the same date. 6

On 6 September 1985, the writ of attachment in favor of SBTC was lifted. However, the same was
reinstated on 30 October 1985. 7

In the meantime, on 12 July 1985, the Regional Trial Court in Civil Case No. 8527 (the consortium
case) denied the application of Dynetics and Garcia for preliminary injunction and instead granted
the consortium's prayer for a consolidated writ of preliminary attachment. Hence, on 19 July 1985,
after the consortium had filed the required bond, a writ of attachment was issued and various real
and personal properties of Dynetics and Garcia were garnished, including the disputed shares. 8 This
garnishment, however, was not annotated in Chemphil's stock and transfer book.
On 8 September 1987, PCIB filed a motion to dismiss the complaint of Dynetics and Garcia for lack
of interest to prosecute and to submit its counterclaims for decision, adopting the evidence it had
adduced at the hearing of its application for preliminary attachment. 9

On 25 March 1988, the Regional Trial Court dismissed the complaint of Dynetics and Garcia in Civil
Case No. 8527, as well as the counterclaims of the consortium, thus:

Resolving defendant's, Philippine Commercial International Bank, MOTION TO


DISMISS WITH MOTION TO SUBMIT DEFENDANT PCIBANK's COUNTERCLAIM
FOR DECISION, dated September 7, 1987:

(1) The motion to dismiss is granted; and the instant case is hereby ordered
dismissed pursuant to Sec. 3, Rule 17 of the Revised Rules of Court, plaintiff having
failed to comply with the order dated July 16, 1987, and having not taken further
steps to prosecute the case; and

(2) The motion to submit said defendant's counterclaim for decision is denied; there
is no need; said counterclaim is likewise dismissed under the authority of Dalman
vs. City Court of Dipolog City, L-63194, January 21, 1985, wherein the Supreme
Court stated that if the civil case is dismissed, so also is the counterclaim filed
therein. "A person cannot eat his cake and have it at the same time" (p. 645, record,
Vol. I). 10

The motions for reconsideration filed by the consortium were, likewise, denied by the trial court in its
order dated 20 May 1988:

The Court could have stood pat on its order dated 25 March 1988, in regard to which
the defendants-banks concerned filed motions for reconsideration. However,
inasmuch as plaintiffs commented on said motions that: "3). In any event, so as not
to unduly foreclose on the rights of the respective parties to refile and prosecute their
respective causes of action, plaintiffs manifest their conformity to the modification of
this Honorable Court's order to indicate that the dismissal of the complaint and the
counterclaims is without prejudice." (p. 2, plaintiffs' COMMENT etc. dated May 20,
1988). The Court is inclined to so modify the said order.

WHEREFORE , the order issued on March 25, 1988, is hereby modified in the sense
that the dismissal of the complaint as well as of the counterclaims of defendants
RCBC, LBP, PCIB and BPI shall be considered as without prejudice (p. 675, record,
Vol. I). 11

Unsatisfied with the aforementioned order, the consortium appealed to the Court of Appeals,
docketed as CA-G.R. CV No. 20467.

On 17 January 1989 during the pendency of consortium's appeal in CA-G.R. CV No. 20467, Antonio
Garcia and the consortium entered into a Compromise Agreement which the Court of Appeals
approved on 22 May 1989 and became the basis of its judgment by compromise. Antonio Garcia
was dropped as a party to the appeal leaving the consortium to proceed solely against Dynetics,
Inc. 12 On 27 June 1989, entry of judgment was made by the Clerk of Court. 13

Hereunder quoted are the salient portions of said compromise agreement:


xxx xxx xxx

3. Defendants, in consideration of avoiding an extended litigation, having agreed to


limit their claim against plaintiff Antonio M. Garcia to a principal sum of P145 Million
immediately demandable and to waive all other claims to interest, penalties,
attorney's fees and other charges. The aforesaid compromise amount of
indebtedness of P145 Million shall earn interest of eighteen percent (18%) from the
date of this Compromise.

4. Plaintiff Antonio M. Garcia and herein defendants have no further claims against
each other.

5. This Compromise shall be without prejudice to such claims as the parties herein
may have against plaintiff Dynetics, Inc.

6. Plaintiff Antonio M. Garcia shall have two (2) months from date of this
Compromise within which to work for the entry and participation of his other creditor,
Security Bank and Trust Co., into this Compromise. Upon the expiration of this
period, without Security Bank and Trust Co. having joined, this Compromise shall be
submitted to the Court for its information and approval (pp. 27, 28-31, rollo, CA-G.R.
CV No. 10467). 14

It appears that on 15 July 1988, Antonio Garcia under a Deed of Sale transferred to Ferro
Chemicals, Inc. (FCI) the disputed shares and other properties for P79,207,331.28. It was agreed
upon that part of the purchase price shall be paid by FCI directly to SBTC for whatever judgment
credits that may be adjudged in the latter's favor and against Antonio Garcia in the aforementioned
SBTC case. 15

On 6 March 1989, FCI, through its President Antonio M. Garcia, issued a Bank of America Check
No. 860114 in favor of SBTC in the amount of P35,462,869.62. 16 SBTC refused to accept the check
claiming that the amount was not sufficient to discharge the debt. The check was thus consigned by
Antonio Garcia and Dynetics with the Regional Trial Court as payment of their judgment debt in the SBTC
case. 17

On 26 June 1989, FCI assigned its 4,119,614 shares in Chemphil, which included the disputed
shares, to petitioner CEIC. The shares were registered and recorded in the corporate books of
Chemphil in CEIC's name and the corresponding stock certificates were issued to it. 18

Meanwhile, Antonio Garcia, in the consortium case, failed to comply with the terms of the
compromise agreement he entered into with the consortium on 17 January 1989. As a result, on 18
July 1989, the consortium filed a motion for execution which was granted by the trial court on 11
August 1989. Among Garcia's properties that were levied upon on execution were his 1,717,678
shares in Chemphil (the disputed shares) previously garnished on 19 July 1985. 19

On 22 August 1989, the consortium acquired the disputed shares of stock at the public auction sale
conducted by the sheriff for P85,000,000.00. 20 On same day, a Certificate of Sale covering the
disputed shares was issued to it.

On 30 August 1989, 21 the consortium filed a motion (dated 29 August 1989) to order the corporate
secretary of Chemphil to enter in its stock and transfer books the sheriff's certificate of sale dated 22
August 1989, and to issue new certificates of stock in the name of the banks concerned. The trial court
granted said motion in its order dated 4 September 1989, thus:
For being legally proper, defendant's MOTION TO ORDER THE CORPORATE
SECRETARY OF CHEMICAL INDUSTRIES OF THE PHILS., INC. (CHEMPIL) TO
ENTER IN THE STOCK AND TRANSFER BOOKS OF CHEMPHIL THE SHERIFF'S
CERTIFICATE OF SALE DATED AUGUST 22, 1989 AND TO ISSUE NEW
CERTIFICATES OF STOCK IN THE NAME OF THE DEFENDANT BANKS, dated
August 29, 1989, is hereby granted.

WHEREFORE, the corporate secretary of the aforesaid corporation, or whoever is


acting for and in his behalf, is hereby ordered to (1) record and/or register the
Certificate of Sale dated August 22, 1989 issued by Deputy Sheriff Cristobal S.
Jabson of this Court; (2) to cancel the certificates of stock of plaintiff Antonio M.
Garcia and all those which may have subsequently been issued in replacement
and/or in substitution thereof; and (3) to issue in lieu of the said shares new shares of
stock in the name of the defendant Banks, namely, PCIB, BPI, RCBC, LBP and PISO
bank in such proportion as their respective claims would appear in this suit (p. 82,
record, Vol. II). 22

On 26 September 1989, CEIC filed a motion to intervene (dated 25 September 1989) in the
consortium case seeking the recall of the abovementioned order on grounds that it is the rightful
owner of the disputed shares. 23 It further alleged that the disputed shares were previously owned by
Antonio M. Garcia but subsequently sold by him on 15 July 1988 to Ferro Chemicals, Inc. (FCI) which in
turn assigned the same to CEIC in an agreement dated 26 June 1989.

On 27 September 1989, the trial court granted CEIC's motion allowing it to intervene, but limited only
to the incidents covered by the order dated 4 September 1989. In the same order, the trial court
directed Chemphil's corporate secretary to temporarily refrain from implementing the 4 September
1989
order. 24

On 2 October 1989, the consortium filed their opposition to CEIC's motion for intervention alleging
that their attachment lien over the disputed shares of stocks must prevail over the private sale in
favor of the CEIC considering that said shares of stock were garnished in the consortium's favor as
early as 19 July 1985. 25

On 4 October 1989, the consortium filed their opposition to CEIC's motion to set aside the 4
September 1989 order and moved to lift the 27 September 1989 order. 26

On 12 October 1989, the consortium filed a manifestation and motion to lift the 27 September 1989
order, to reinstate the 4 September 1989 order and to direct CEIC to surrender the disputed stock
certificates of Chemphil in its possession within twenty-four (24) hours, failing in which the President,
Corporate Secretary and stock and transfer agent of Chemphil be directed to register the names of
the banks making up the consortium as owners of said shares, sign the new certificates of stocks
evidencing their ownership over said shares and to immediately deliver the stock certificates to
them. 27

Resolving the foregoing motions, the trial court rendered an order dated 19 December 1989, the
dispositive portion of which reads as follows:

WHEREFORE, premises considered, the Urgent Motion dated September 25, 1989
filed by CEIC is hereby GRANTED. Accordingly, the Order of September 4, 1989, is
hereby SET ASIDE, and any and all acts of the Corporate Secretary of CHEMPHIL
and/or whoever is acting for and in his behalf, as may have already been done,
carried out or implemented pursuant to the Order of September 4, 1989, are hereby
nullified.

PERFORCE, the CONSORTIUM'S Motions dated October 3, 1989 and October 11,
1989, are both hereby denied for lack of merit.

The Cease and Desist Order dated September 27, 1989, is hereby AFFIRMED and
made PERMANENT.

SO ORDERED. 28

In so ruling, the trial court ratiocinated in this wise:

xxx xxx xxx

After careful and assiduous consideration of the facts and applicable law and
jurisprudence, the Court holds that CEIC's Urgent Motion to Set Aside the Order of
September 4, 1989 is impressed with merit. The CONSORTIUM has admitted that
the writ of attachment/garnishment issued on July 19, 1985 on the shares of stock
belonging to plaintiff Antonio M. Garcia was not annotated and registered in the stock
and transfer books of CHEMPHIL. On the other hand, the prior attachment issued in
favor of SBTC on July 2, 1985 by Branch 135 of this Court in Civil Case No. 10398,
against the same CHEMPHIL shares of Antonio M. Garcia, was duly registered and
annotated in the stock and transfer books of CHEMPHIL. The matter of non-
recording of the Consortium's attachment in Chemphil's stock and transfer book on
the shares of Antonio M. Garcia assumes significance considering CEIC's position
that FCI and later CEIC acquired the CHEMPHIL shares of Antonio M. Garcia
without knowledge of the attachment of the CONSORTIUM. This is also important as
CEIC claims that it has been subrogated to the rights of SBTC since CEIC's
predecessor-in-interest, the FCI, had paid SBTC the amount of P35,462,869.12
pursuant to the Deed of Sale and Purchase of Shares of Stock executed by Antonio
M. Garcia on July 15, 1988. By reason of such payment, sale with the knowledge
and consent of Antonio M. Garcia, FCI and CEIC, as party-in-interest to FCI, are
subrogated by operation of law to the rights of SBTC. The Court is not unaware of
the citation in CEIC's reply that "as between two (2) attaching creditors, the one
whose claims was first registered on the books of the corporation enjoy priority."
(Samahang Magsasaka, Inc. vs. Chua Gan, 96 Phil. 974.)

The Court holds that a levy on the shares of corporate stock to be valid and binding
on third persons, the notice of attachment or garnishment must be registered and
annotated in the stock and transfer books of the corporation, more so when the
shares of the corporation are listed and traded in the stock exchange, as in this case.
As a matter of fact, in the CONSORTIUM's motion of August 30, 1989, they
specifically move to "order the Corporate Secretary of CHEMPHIL to enter in the
stock and transfer books of CHEMPHIL the Sheriff's Certificate of Sale dated August
22, 1989." This goes to show that, contrary to the arguments of the CONSORTIUM,
in order that attachment, garnishment and/or encumbrances affecting rights and
ownership on shares of a corporation to be valid and binding, the same has to be
recorded in the stock and transfer books.

Since neither CEIC nor FCI had notice of the CONSORTIUM's attachment of July 19,
1985, CEIC's shares of stock in CHEMPHIL, legally acquired from Antonio M. Garcia,
cannot be levied upon in execution to satisfy his judgment debts. At the time of the
Sheriff's levy on execution, Antonio M. Garcia has no more in CHEMPHIL which
could be levied upon. 29

xxx xxx xxx

On 23 January 1990, the consortium and PCIB filed separate motions for reconsideration of the
aforestated order which were opposed by petitioner
CEIC. 30

On 5 March 1990, the trial court denied the motions for


reconsideration. 31

On 16 March 1990, the consortium appealed to the Court of Appeals (CA-G.R. No. 26511). In its
Resolution dated 9 August 1990, the Court of Appeals consolidated CA-G.R. No. 26511 with CA-
G.R. No. 20467. 32

The issues raised in the two cases, as formulated by the Court of Appeals, are as follows:

WHETHER OR NOT, UNDER THE PECULIAR CIRCUMSTANCES OF THE CASE,


THE TRIAL COURT ERRED IN DISMISSING THE COUNTERCLAIMS OF THE
CONSORTIUM IN CIVIL CASE NO. 8527;

II

WHETHER OR NOT THE DISMISSAL OF CIVIL CASE NO. 8527 RESULTED IN


THE DISCHARGE OF THE WRIT OF ATTACHMENT ISSUED THEREIN EVEN AS
THE CONSORTIUM APPEALED THE ORDER DISMISSING CIVIL CASE NO. 8527;

III

WHETHER OR NOT THE JUDGMENT BASED ON COMPROMISE RENDERED BY


THIS COURT ON MAY 22, 1989 HAD THE EFFECT OF DISCHARGING THE
ATTACHMENTS ISSUED IN CIVIL CASE NO. 8527;

IV

WHETHER OR NOT THE ATTACHMENT OF SHARES OF STOCK, IN ORDER TO


BIND THIRD PERSONS, MUST BE RECORDED IN THE STOCK AND TRANSFER
BOOK OF THE CORPORATION; AND

WHETHER OR NOT FERRO CHEMICALS, INC. (FCI), AND ITS SUCCESSOR-IN-


INTEREST, CEIC, WERE SUBROGATED TO THE RIGHTS OF SECURITY BANK &
TRUST COMPANY (SBTC) IN A SEPARATE CIVIL ACTION. (This issue appears to
be material as SBTC is alleged to have obtained an earlier attachment over the same
Chemphil shares that the consortium seeks to recover in the case at bar). 33
On 6 April 1990, the PCIB separately filed with the Court of Appeals a petition for certiorari,
prohibition and mandamus with a prayer for the issuance of a writ of preliminary injunction (CA-G.R.
No. SP-20474), likewise, assailing the very same orders dated 19 December 1989 and 5 March
1990, subject of CA-G.R. No. 26511. 34

On 30 June 1993, the Court of Appeals (Twelfth Division) in CA-G.R. No. 26511 and CA-G.R. No.
20467 rendered a decision reversing the orders of the trial court and confirming the ownership of the
consortium over the disputed shares. CEIC's motion for reconsideration was denied on 29 October
1993. 35

In ruling for the consortium, the Court of Appeals made the following ratiocination: 36

On the first issue, it ruled that the evidence offered by the consortium in support of its
counterclaims, coupled with the failure of Dynetics and Garcia to prosecute their
case, was sufficient basis for the RTC to pass upon and determine the consortium's
counterclaims.

The Court of Appeals found no application for the ruling in Dalman v. City Court of
Dipolog, 134 SCRA 243 (1985) that "a person cannot eat his cake and have it at the
same time. If the civil case is dismissed, so also is the counterclaim filed therein"
because the factual background of the present action is different. In the instant case,
both Dynetics and Garcia and the consortium presented testimonial and
documentary evidence which clearly should have supported a judgment on the
merits in favor of the consortium. As the consortium correctly argued, the net
atrocious effect of the Regional Trial Court's ruling is that it allows a situation where a
party litigant is forced to plead and prove compulsory counterclaims only to be
denied those counterclaims on account of the adverse party's failure to prosecute his
case. Verily, the consortium had no alternative but to present its counterclaims in
Civil Case No. 8527 since its counterclaims are compulsory in nature.

On the second issue, the Court of Appeals opined that unless a writ of attachment is
lifted by a special order specifically providing for the discharge thereof, or unless a
case has been finally dismissed against the party in whose favor the attachment has
been issued, the attachment lien subsists. When the consortium, therefore, took an
appeal from the Regional Trial Court's orders of March 25, 1988 and May 20, 1988,
such appeal had the effect of preserving the consortium's attachment liens secured
at the inception of Civil Case No. 8527, invoking the rule in Olib v. Pastoral, 188
SCRA 692 (1988) that where the main action is appealed, the attachment issued in
the said main case is also considered appealed.

Anent the third issue, the compromise agreement between the consortium and
Garcia dated 17 January 1989 did not result in the abandonment of its attachment
lien over his properties. Said agreement was approved by the Court of Appeals in a
Resolution dated 22 May 1989. The judgment based on the compromise agreement
had the effect of preserving the said attachment lien as security for the satisfaction of
said judgment (citing BF Homes, Inc. v. CA, 190 SCRA 262, [1990]).

As to the fourth issue, the Court of Appeals agreed with the consortium's position that
the attachment of shares of stock in a corporation need not be recorded in the
corporation's stock and transfer book in order to bind third persons.
Section 7(d), Rule 57 of the Rules of Court was complied with by the consortium
(through the Sheriff of the trial court) when the notice of garnishment over the
Chemphil shares of Garcia was served on the president of Chemphil on July 19,
1985. Indeed, to bind third persons, no law requires that an attachment of shares of
stock be recorded in the stock and transfer book of a corporation. The statement
attributed by the Regional Trial Court to the Supreme Court in Samahang
Magsasaka, Inc. vs. Gonzalo Chua Guan, G.R. No. L-7252, February 25, 1955
(unreported), to the effect that "as between two attaching creditors, the one whose
claim was registered first on the books of the corporation enjoys priority," is an obiter
dictum that does not modify the procedure laid down in Section 7(d), Rule 57 of the
Rules of Court.

Therefore, ruled the Court of Appeals, the attachment made over the Chemphil
shares in the name of Garcia on July 19, 1985 was made in accordance with law and
the lien created thereby remained valid and subsisting at the time Garcia sold those
shares to FCI (predecessor-in-interest of appellee CEIC) in 1988.

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

The Court of Appeals further opined that while the check used to pay SBTC was a
FCI corporate check, it was funds of Garcia in FCI that was used to pay off SBTC.
That the funds used to pay off SBTC were funds of Garcia has not been refuted by
FCI or CEIC. It is clear, therefore, that there was an attempt on the part of Garcia to
use FCI and CEIC as convenient vehicles to deny the consortium its right to make
itself whole through an execution sale of the Chemphil shares attached by the
consortium at the inception of Civil Case No. 8527. The consortium, therefore, is
entitled to the issuance of the Chemphil shares of stock in its favor. The Regional
Trial Court's order of September 4, 1989, should, therefore, be reinstated in toto.

Accordingly, the question of whether or not the attachment lien in favor of SBTC in
the SBTC case is superior to the attachment lien in favor of the consortium in Civil
Case No. 8527 becomes immaterial with respect to the right of intervenor-appellee
CEIC. The said issue would have been relevant had CEIC established its
subrogation to the rights of SBTC.

On 26 March 1993, the Court of Appeals (Special Ninth Division) in CA-G.R. No. SP 20474 rendered
a decision denying due course to and dismissing PCIB's petition for certiorari on grounds that PCIB
violated the rule against forum-shopping and that no grave abuse of discretion was committed by
respondent Regional Trial Court in issuing its assailed orders dated 19 December 1989 and 5 March
1990. PCIB's motion for reconsideration was denied on 11 January 1994. 37

On 7 July 1993, the consortium, with the exception of PISO, assigned without recourse all its rights
and interests in the disputed shares to Jaime Gonzales. 38

On 3 January 1994, CEIC filed the instant petition for review docketed as G.R. Nos. 112438-39 and
assigned the following errors:

I.
THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN SETTING ASIDE
AND REVERSING THE ORDERS OF THE REGIONAL TRIAL COURT DATED
DECEMBER 5, 1989 AND MARCH 5, 1990 AND IN NOT CONFIRMING
PETITIONER'S OWNERSHIP OVER THE DISPUTED CHEMPHIL SHARES
AGAINST THE FRIVOLOUS AND UNFOUNDED CLAIMS OF THE CONSORTIUM.

II.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED:

(1) In not holding that the Consortium's attachment over the disputed
Chemphil shares did not vest any priority right in its favor and cannot
bind third parties since admittedly its attachment on 19 July 1985 was
not recorded in the stock and transfer books of Chemphil, and
subordinate to the attachment of SBTC which SBTC registered and
annotated in the stock and transfer books of Chemphil on 2 July
1985, and that the Consortium's attachment failed to comply with
Sec. 7(d), Rule 57 of the Rules as evidenced by the notice of
garnishment of the deputy sheriff of the trial court dated 19 July 1985
(annex "D") which the sheriff served on a certain Thelly Ruiz who was
neither President nor managing agent of Chemphil;

(2) In not applying the case law enunciated by this Honorable


Supreme Court in Samahang Magsasaka, Inc. vs. Gonzalo Chua
Guan, 96 Phil. 974 that as between two attaching creditors, the one
whose claim was registered first in the books of the corporation
enjoys priority, and which respondent Court erroneously
characterized as mere obiter dictum;

(3) In not holding that the dismissal of the appeal of the Consortium
from the order of the trial court dismissing its counterclaim against
Antonio M. Garcia and the finality of the compromise agreement
which ended the litigation between the Consortium and Antonio M.
Garcia in the Dynetics case had ipso jure discharged the
Consortium's purported attachment over the disputed shares.

III.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING


THAT CEIC HAD BEEN SUBROGATED TO THE RIGHTS OF SBTC SINCE CEIC'S
PREDECESSOR IN INTEREST HAD PAID SBTC PURSUANT TO THE DEED OF
SALE AND PURCHASE OF STOCK EXECUTED BY ANTONIO M. GARCIA ON
JULY 15, 1988, AND THAT BY REASON OF SUCH PAYMENT, WITH THE
CONSENT AND KNOWLEDGE OF ANTONIO M. GARCIA, FCI AND CEIC, AS
PARTY IN INTEREST TO FCI, WERE SUBROGATED BY OPERATION OF LAW
TO THE RIGHTS OF SBTC.

IV.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED AND MADE


UNWARRANTED INFERENCES AND CONCLUSIONS, WITHOUT ANY
SUPPORTING EVIDENCE, THAT THERE WAS AN ATTEMPT ON THE PART OF
ANTONIO M. GARCIA TO USE FCI AND CEIC AS CONVENIENT VEHICLES TO
DENY THE CONSORTIUM ITS RIGHTS TO MAKE ITSELF WHOLE THROUGH AN
EXECUTION OF THE CHEMPHIL SHARES PURPORTEDLY ATTACHED BY THE
CONSORTIUM ON 19 JULY 1985. 39

On 2 March 1994, PCIB filed its own petition for review docketed as G.R. No. 113394 wherein it
raised the following issues:

I. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN


RENDERING THE DECISION AND RESOLUTION IN QUESTION (ANNEXES A
AND B) IN DEFIANCE OF LAW AND JURISPRUDENCE BY FINDING
RESPONDENT CEIC AS HAVING BEEN SUBROGATED TO THE RIGHTS OF
SBTC BY THE PAYMENT BY FCI OF GARCIA'S DEBTS TO THE LATTER
DESPITE THE FACT THAT —

A. FCI PAID THE SBTC DEBT BY VIRTUE OF A CONTRACT


BETWEEN FCI AND GARCIA, THUS, LEGAL SUBROGATION
DOES NOT ARISE;

B. THE SBTC DEBT WAS PAID BY GARCIA HIMSELF AND NOT


BY FCI, HENCE, SUBROGATION BY PAYMENT COULD NOT
HAVE OCCURRED;

C. FCI DID NOT ACQUIRE ANY RIGHT OVER THE DISPUTED


SHARES AS SBTC HAD NOT YET LEVIED UPON NOR BOUGHT
THOSE SHARES ON EXECUTION. ACCORDINGLY, WHAT FCI
ACQUIRED FROM SBTC WAS SIMPLY A JUDGMENT CREDIT
AND AN ATTACHMENT LIEN TO SECURE ITS SATISFACTION.

II. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN


SUSTAINING THE ORDERS OF THE TRIAL COURT DATED DECEMBER 19, 1989
AND MARCH 5, 1990 WHICH DENIED PETITIONER'S OWNERSHIP OVER THE
DISPUTED SHARES NOTWITHSTANDING PROVISIONS OF LAW AND EXTANT
JURISPRUDENCE ON THE MATTER THAT PETITIONER AND THE
CONSORTIUM HAVE PREFERRED SENIOR RIGHTS THEREOVER.

III. RESPONDENT COURT OF APPEAL COMMITTED SERIOUS ERROR IN


CONCLUDING THAT THE DISMISSAL OF THE COMPLAINT AND THE
COUNTERCLAIM IN CIVIL CASE NO. 8527 ALSO RESULTED IN THE
DISCHARGE OF THE WRIT OF ATTACHMENT DESPITE THE RULINGS OF THIS
HONORABLE COURT IN BF HOMES VS. COURT OF APPEALS, G.R. NOS. 76879
AND 77143, OCTOBER 3, 1990, 190 SCRA 262, AND IN OLIB VS. PASTORAL,
G.R. NO. 81120, AUGUST 20, 1990, 188 SCRA 692 TO THE CONTRARY.

IV. RESPONDENT COURT OF APPEALS EXCEEDED ITS JURISDICTION IN


RULING ON THE MERITS OF THE MAIN CASE NOTWITHSTANDING THAT
THOSE MATTERS WERE NOT ON APPEAL BEFORE IT.

V. RESPONDENT COURT OF APPEALS COMMITTED SERIOUS ERROR IN


HOLDING THAT PETITIONER IS GUILTY OF FORUM SHOPPING DESPITE THE
FACT THAT SC CIRCULAR NO. 28-91 WAS NOT YET IN FORCE AND EFFECT
AT THE TIME THE PETITION WAS FILED BEFORE RESPONDENT APPELLATE
COURT, AND THAT ITS COUNSEL AT THAT TIME HAD ADEQUATE BASIS TO
BELIEVE THAT CERTIORARI AND NOT AN APPEAL OF THE TRIAL COURT'S
ORDERS WAS THE APPROPRIATE RELIEF. 40

As previously stated, the issue boils down to who is legally entitled to the disputed shares of
Chemphil. We shall resolve this controversy by examining the validity of the claims of each party
and, thus, determine whose claim has priority.

CEIC's claim

CEIC traces its claim over the disputed shares to the attachment lien obtained by SBTC on 2 July
1985 against Antonio Garcia in Civil Case No. 10398. It avers that when FCI, CEIC's predecessor-in-
interest, paid SBTC the due obligations of Garcia to the said bank pursuant to the Deed of Absolute
Sale and Purchase of Shares of Stock, 41FCI, and later CEIC, was subrogated to the rights of SBTC,
particularly to the latter's aforementioned attachment lien over the disputed shares.

CEIC argues that SBTC's attachment lien is superior as it was obtained on 2 July 1985, ahead of the
consortium's purported attachment on 19 July 1985. More importantly, said CEIC lien was duly
recorded in the stock and transfer books of Chemphil.

CEIC's subrogation theory is unavailing.

By definition, subrogation is "the transfer of all the rights of the creditor to a third person, who
substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which
takes place without agreement but by operation of law because of certain acts; this is the
subrogation referred to in article 1302. Conventional subrogation is that which takes place by
agreement of the parties . . ." 42

CEIC's theory is premised on Art. 1302 (2) of the Civil Code which states:

Art. 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's
knowledge;

(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;

(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter's share. (Emphasis ours.)

Despite, however, its multitudinous arguments, CEIC presents an erroneous interpretation of the
concept of subrogation. An analysis of the situations involved would reveal the clear inapplicability of
Art. 1302 (2).

Antonio Garcia sold the disputed shares to FCI for a consideration of P79,207,331.28. FCI, however,
did not pay the entire amount to Garcia as it was obligated to deliver part of the purchase price
directly to SBTC pursuant to the following stipulation in the Deed of Sale:

Manner of Payment
Payment of the Purchase Price shall be made in accordance with the following order
of preference provided that in no instance shall the total amount paid by the Buyer
exceed the Purchase Price:

a. Buyer shall pay directly to the Security Bank and Trust Co. the amount determined
by the Supreme Court as due and owing in favor of the said bank by the Seller.

The foregoing amount shall be paid within fifteen (15) days from the date the
decision of the Supreme Court in the case entitled "Antonio M. Garcia, et al. vs.
Court of Appeals, et al." G.R. Nos. 82282-83 becomes final and
executory. 43 (Emphasis ours.)

Hence, when FCI issued the BA check to SBTC in the amount of P35,462,869.62 to pay Garcia's
indebtedness to the said bank, it was in effect paying with Garcia's money, no longer with its own,
because said amount was part of the purchase price which FCI owed Garcia in payment for the sale
of the disputed shares by the latter to the former. The money "paid" by FCI to SBTC, thus properly
belonged to Garcia. It is as if Garcia himself paid his own debt to SBTC but through a third party —
FCI.

It is, therefore, of no consequence that what was used to pay SBTC was a corporate check of FCI.
As we have earlier stated, said check no longer represented FCI funds but Garcia's money, being as
it was part of FCI's payment for the acquisition of the disputed shares. The FCI check should not be
taken at face value, the attendant circumstances must also be considered.

The aforequoted contractual stipulation in the Deed of Sale dated 15 July 1988 between Antonio
Garcia and FCI is nothing more but an arrangement for the sake of convenience. Payment was to be
effected in the aforesaid manner so as to prevent money from changing hands needlessly. Besides,
the very purpose of Garcia in selling the disputed shares and his other properties was to "settle
certain civil suits filed against him." 44

Since the money used to discharge Garcia's debt rightfully belonged to him, FCI cannot be
considered a third party payor under Art. 1302 (2). It was but a conduit, or as aptly categorized by
respondents, merely an agent as defined in Art. 1868 of the Civil Code:

Art. 1868. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter.

FCI was merely fulfilling its obligation under the aforementioned Deed of Sale.

Additionally, FCI is not a disinterested party as required by Art. 1302 (2) since the benefits of the
extinguishment of the obligation would redound to none other but itself. 45 Payment of the judgment
debt to SBTC resulted in the discharge of the attachment lien on the disputed shares purchased by FCI.
The latter would then have a free and "clean" title to said shares.

In sum, CEIC, for its failure to fulfill the requirements of Art. 1302 (2), was not subrogated to the
rights of SBTC against Antonio Garcia and did not acquire SBTC's attachment lien over the disputed
shares which, in turn, had already been lifted or discharged upon satisfaction by Garcia, through
FCI, of his debt to the said bank. 46

The rule laid down in the case of Samahang Magsasaka, Inc. v. Chua Guan, 47 that as between two
attaching creditors the one whose claim was registered ahead on the books of the corporation enjoys
priority, clearly has no application in the case at bench. As we have amply discussed, since CEIC was not
subrogated to SBTC's right as attaching creditor, which right in turn, had already terminated after Garcia
paid his debt to SBTC, it cannot, therefore, be categorized as an attaching creditor in the present
controversy. CEIC cannot resurrect and claim a right which no longer exists. The issue in the instant
case, then, is priority between an attaching creditor (the consortium) and a purchaser (FCI/CEIC) of the
disputed shares of stock and not between two attaching creditors — the subject matter of the aforestated
Samahang Magsasaka case.

CEIC, likewise, argues that the consortium's attachment lien over the disputed Chemphil shares is
null and void and not binding on third parties due to the latter's failure to register said lien in the stock
and transfer books of Chemphil as mandated by the rule laid down by the Samahang Magsasaka
v. Chua Guan. 48

The attachment lien acquired by the consortium is valid and effective. Both the Revised Rules of
Court and the Corporation Code do not require annotation in the corporation's stock and transfer
books for the attachment of shares of stock to be valid and binding on the corporation and third
party.

Section 74 of the Corporation Code which enumerates the instances where registration in the stock
and transfer books of a corporation provides:

Sec. 74. Books to be kept; stock transfer agent. —

xxx xxx xxx

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

xxx xxx xxx

Section 63 of the same Code states:

Sec. 63. Certificate of stock and transfer of shares. — The capital stock of stock
corporations shall be divided into shares for which certificates signed by the
president or vice-president, countersigned by the secretary or assistant secretary,
and sealed with the seal of the corporation shall be issued in accordance with the by-
laws. Shares of stock so issued are personal property and may be transferred by
delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact
or other person legally authorized to make the transfer. No transfer, however, shall
be valid, except as between the parties, until the transfer is recorded in the books of
the corporation so as to show the names of the parties to the transaction, the date of
the transfer, the number of the certificate or certificates and the number of shares
transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation. (Emphasis ours.)

Are attachments of shares of stock included in the term "transfer" as provided in Sec. 63 of the
Corporation Code? We rule in the negative. As succinctly declared in the case of Monserrat
v. Ceron, 49 "chattel mortgage over shares of stock need not be registered in the corporation's stock and
transfer book inasmuch as chattel mortgage over shares of stock does not involve a "transfer of shares,"
and that only absolute transfers of shares of stock are required to be recorded in the corporation's stock
and transfer book in order to have "force and effect as against third persons."

xxx xxx xxx

The word "transferencia" (transfer) is defined by the "Diccionario de la Academia de


la Lengua Castellana" as "accion y efecto de transfeir" (the act and effect of
transferring); and the verb "transferir", as "ceder or renunciar en otro el derecho o
dominio que se tiene sobre una cosa, haciendole dueno de ella" (to assign or waive
the right in, or absolute ownership of, a thing in favor of another, making him the
owner thereof).

In the Law Dictionary of "Words and Phrases", third series, volume 7, p. 5867, the
word "transfer" is defined as follows:

"Transfer" means any act by which property of one person is vested


in another, and "transfer of shares", as used in Uniform Stock
Transfer Act (Comp. St. Supp. 690), implies any means whereby one
may be divested of and another acquire ownership of stock. (Wallach
vs. Stein [N.J.], 136 A., 209, 210.)

xxx xxx xxx

In the case of Noble vs. Ft. Smith Wholesale Grocery Co. (127 Pac., 14, 17; 34 Okl.,
662; 46 L.R.A. [N.S.], 455), cited in Words and Phrases, second series, vol. 4, p.
978, the following appears:

A "transfer" is the act by which the owner of a thing delivers it to


another with the intent of passing the rights which he has in it to the
latter, and a chattel mortgage is not within the meaning of such term.

xxx xxx xxx. 50

Although the Monserrat case refers to a chattel mortgage over shares of stock, the same may be
applied to the attachment of the disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of property but is primarily used as a means
"to seize the debtor's property in order to secure the debt or claim of the creditor in the event that a
judgment is rendered." 51

Known commentators on the Corporation Code expound, thus:

xxx xxx xxx


Shares of stock being personal property, may be the subject matter of pledge and
chattel mortgage. Such collateral transfers are however not covered by the
registration requirement of Section 63, since our Supreme Court has held that such
provision applies only to absolute transfers thus, the registration in the corporate
books of pledges and chattel mortgages of shares cannot have any legal
effect. 52(Emphasis ours.)

xxx xxx xxx

The requirement that the transfer shall be recorded in the books of the corporation to
be valid as against third persons has reference only to absolute transfers or absolute
conveyance of the ownership or title to a share.

Consequently, the entry or notation on the books of the corporation of pledges and
chattel mortgages on shares is not necessary to their validity (although it is advisable
to do so) since they do not involve absolute alienation of ownership of stock
(Monserrat vs. Ceron, 58 Phil. 469 [1933]; Chua Guan vs. Samahang Magsasaka,
Inc., 62 Phil. 472 [1935].) To affect third persons, it is enough that the date and
description of the shares pledged appear in a public instrument. (Art. 2096, Civil
Code.) With respect to a chattel mortgage constituted on shares of stock, what is
necessary is its registration in the Chattel Mortgage Registry. (Act No. 1508 and Art.
2140, Civil Code.) 53

CEIC's reliance on the Samahang Magsasaka case is misplaced. Nowhere in the said decision was
it categorically stated that annotation of the attachment in the corporate books is mandatory for its
validity and for the purpose of giving notice to third persons.

The only basis, then, for petitioner CEIC's claim is the Deed of Sale under which it purchased the
disputed shares. It is, however, a settled rule that a purchaser of attached property acquires it
subject to an attachment legally and validly levied thereon. 54

Our corollary inquiry is whether or not the consortium has indeed a prior valid and existing
attachment lien over the disputed shares.

Jaime Gonzales' /Consortium's Claim

Is the consortium's attachment lien over the disputed shares valid?

CEIC vigorously argues that the consortium's writ of attachment over the disputed shares of
Chemphil is null and void, insisting as it does, that the notice of garnishment was not validly served
on the designated officers on 19 July 1985.

To support its contention, CEIC presented the sheriff's notice of garnishment 55 dated 19 July 1985
which showed on its face that said notice was received by one Thelly Ruiz who was neither the president
nor managing agent of Chemphil. It makes no difference, CEIC further avers, that Thelly Ruiz was the
secretary of the President of Chemphil, for under the above-quoted provision she is not among the
officers so authorized or designated to be served with the notice of garnishment.

We cannot subscribe to such a narrow view of the rule on proper service of writs of attachment.
A secretary's major function is to assist his or her superior. He/she is in effect an extension of the
latter. Obviously, as such, one of her duties is to receive letters and notices for and in behalf of her
superior, as in the case at bench. The notice of garnishment was addressed to and was actually
received by Chemphil's president through his secretary who formally received it for him. Thus, in one
case, 56 we ruled that the secretary of the president may be considered an "agent" of the corporation and
held that service of summons on him is binding on the corporation.

Moreover, the service and receipt of the notice of garnishment on 19 July 1985 was duly
acknowledged and confirmed by the corporate secretary of Chemphil, Rolando Navarro and his
successor Avelino Cruz through their respective certifications dated 15 August 1989 57 and 21 August
1989. 58

We rule, therefore, that there was substantial compliance with Sec. 7(d), Rule 57 of the Rules of
Court.

Did the compromise agreement between Antonio Garcia and the consortium discharge the latter's
attachment lien over the disputed shares?

CEIC argues that a writ of attachment is a mere auxiliary remedy which, upon the dismissal of the
case, dies a natural death. Thus, when the consortium entered into a compromise
agreement, 59 which resulted in the termination of their case, the disputed shares were released from
garnishment.

We disagree. To subscribe to CEIC's contentions would be to totally disregard the concept and
purpose of a preliminary attachment.

A writ of preliminary attachment is a provisional remedy issued upon order of the


court where an action is pending to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the Sheriff as security for the
satisfaction of whatever judgment might be secured in said action by the attaching
creditor against the defendant. 60 (Emphasis ours.)

Attachment is a juridical institution which has for its purpose to secure the outcome of
the trial, that is, the satisfaction of the pecuniary obligation really contracted by a
person or believed to have been contracted by him, either by virtue of a civil
obligation emanating from contract or from law, or by virtue of some crime or
misdemeanor that he might have committed, and the writ issued, granted it, is
executed by attaching and safely keeping all the movable property of the defendant,
or so much thereof may be sufficient to satisfy the plaintiff's demands . .
. 61 (Emphasis ours.)

The chief purpose of the remedy of attachment is to secure a contingent lien on


defendant's property until plaintiff can, by appropriate proceedings, obtain a
judgment and have such property applied to its satisfaction, or to make some
provision for unsecured debts in cases where the means of satisfaction thereof are
liable to be removed beyond the jurisdiction, or improperly disposed of or concealed,
or otherwise placed beyond the reach of creditors. 62 (Emphasis ours.)

We reiterate the rule laid down in BF Homes, Inc. v. CA 63 that an attachment lien continues until the debt is paid, or
sale is had under execution issued on the judgment or until judgment is satisfied, or the attachment discharged or vacated in the same
manner provided by law. We expounded in said case that:
The appointment of a rehabilitation receiver who took control and custody of BF has
not necessarily secured the claims of Roa and Mendoza. In the event that the
receivership is terminated with such claims not having been satisfied, the creditors
may also find themselves without security therefor in the civil action because of the
dissolution of the attachment. This should not be permitted. Having previously
obtained the issuance of the writ in good faith, they should not be deprived of its
protection if the rehabilitation plan does not succeed and the civil action is resumed.

xxx xxx xxx

As we ruled in Government of the Philippine Islands v. Mercado:

Attachment is in the nature of a proceeding in rem. It is against the


particular property. The attaching creditor thereby acquires specific
lien upon the attached property which ripens into a judgment against
the res when the order of sale is made. Such a proceeding is in effect
a finding that the property attached is an indebted thing and a virtual
condemnation of it to pay the owner's debt. The law does not provide
the length of time an attachment lien shall continue after the rendition
of judgment, and it must therefore necessarily continue until the debt
is paid, or sale is had under execution issued on the judgment or until
judgment is satisfied, or the attachment discharged or vacated in
some manner provided by law.

It has been held that the lien obtained by attachment stands upon as
high equitable grounds as a mortgage lien:

The lien or security obtained by an attachment even before judgment,


is a fixed and positive security, a specific lien, and, although whether
it will ever be made available to the creditor depends on
contingencies, its existence is in no way contingent, conditioned or
inchoate. It is a vested interest, an actual and substantial security,
affording specific security for satisfaction of the debt put in suit, which
constitutes a cloud on the legal title, and is as specific as if created by
virtue of a voluntary act of the debtor and stands upon as high
equitable grounds as a mortgage. (Corpus Juris Secundum, 433, and
authorities therein cited.)

xxx xxx xxx

The case at bench admits of a peculiar character in the sense that it involves a compromise
agreement. Nonetheless, the rule established in the aforequoted cases still applies, even more so
since the terms of the agreement have to be complied with in full by the parties thereto. The parties
to the compromise agreement should not be deprived of the protection provided by an attachment
lien especially in an instance where one reneges on his obligations under the agreement, as in the
case at bench, where Antonio Garcia failed to hold up his own end of the deal, so to speak.

Moreover, a violation of the terms and conditions of a compromise agreement entitles the aggrieved
party to a writ of execution.

In Abenojar & Tana v. CA, et al., 64 we held:


The non-fulfillment of the terms and conditions of a compromise agreement approved
by the Court justifies execution thereof and the issuance of the writ for said purpose
is the Court's ministerial duty enforceable by mandamus.

Likewise we ruled in Canonizado v. Benitez: 65

A judicial compromise may be enforced by a writ of execution. If a party fails or


refuses to abide by the compromise, the other party may enforce the compromise or
regard it as rescinded and insist upon his original demand.

If we were to rule otherwise, we would in effect create a back door by which a debtor can easily
escape his creditors. Consequently, we would be faced with an anomalous situation where a debtor,
in order to buy time to dispose of his properties, would enter into a compromise agreement he has
no intention of honoring in the first place. The purpose of the provisional remedy of attachment
would thus be lost. It would become, in analogy, a declawed and toothless tiger.

From the foregoing, it is clear that the consortium and/or its assignee Jaime Gonzales have the
better right over the disputed shares. When CEIC purchased the disputed shares from Antonio
Garcia on 15 July 1988, it took the shares subject to the prior, valid and existing attachment lien in
favor of and obtained by the consortium.

Forum Shopping in G.R. No. 113394

We uphold the decision of the Court of Appeals finding PCIB guilty of forum-shopping. 66

The Court of Appeals opined:

True it is, that petitioner PCIB was not a party to the appeal made by the four other
banks belonging to the consortium, but equally true is the rule that where the rights
and liabilities of the parties appealing are so interwoven and dependent on each
other as to be inseparable, a reversal of the appealed decision as to those who
appealed, operates as a reversal to all and will inure to the benefit of those who did
not join the appeal (Tropical Homes vs. Fortun, 169 SCRA 80, p. 90, citing Alling vs.
Wenzel, 133 111. 264-278; 4 C.J. 1206). Such principal, premised upon communality
of interest of the parties, is recognized in this jurisdiction (Director of Lands vs.
Reyes, 69 SCRA 415). The four other banks which were part of the consortium, filed
their notice of appeal under date of March 16, 1990, furnishing a copy thereof upon
the lawyers of petitioner. The petition for certiorari in the present case was filed on
April 10, 1990, long after the other members of the consortium had appealed from
the assailed order of December 19, 1989.

We view with skepticism PCIB's contention that it did not join the consortium because it "honestly
believed that certiorari was the more efficacious and speedy relief available under the
circumstances." 67 Rule 65 of the Revised Rules of Court is not difficult to understand. Certiorari is
available only if there is no appeal or other plain, speedy and adequate remedy in the ordinary course of
law. Hence, in instituting a separate petition for certiorari, PCIB has deliberately resorted to forum-
shopping.

PCIB cannot hide behind the subterfuge that Supreme Court Circular 28-91 was not yet in force
when it filed the certiorari proceedings in the Court of Appeals. The rule against forum-shopping has
long been established. 68Supreme Court Circular 28-91 merely formalized the prohibition and provided
the appropriate penalties against transgressors.
It alarms us to realize that we have to constantly repeat our warning against forum-shopping. We
cannot over-emphasize its ill-effects, one of which is aptly demonstrated in the case at bench where
we are confronted with two divisions of the Court of Appeals issuing contradictory decisions 69 one in
favor of CEIC and the other in favor of the consortium/Jaime Gonzales.

Forum-shopping or the act of a party against whom an adverse judgment has been rendered in one
forum, of seeking another (and possibly favorable) opinion in another forum (other than by appeal or
the special civil action of certiorari), or the institution of two (2) or more actions or proceedings
grounded on the same cause on the supposition that one or the other court would make a favorable
disposition, 70 has been characterized as an act of malpractice that is prohibited and condemned as
trifling with the Courts and abusing their processes. It constitutes improper conduct which tends to
degrade the administration of justice. It has also been aptly described as deplorable because it adds to
the congestion of the already heavily burdened dockets of the
courts. 71

WHEREFORE, premises considered the appealed decision in G.R. Nos. 112438-39 is hereby
AFFIRMED and the appealed decision in G.R. No. 113394, insofar as it adjudged the CEIC the
rightful owner of the disputed shares, is hereby REVERSED. Moreover, for wantonly resorting to
forum-shopping, PCIB is hereby REPRIMANDED and WARNED that a repetition of the same or
similar acts in the future shall be dealt with more severely.

SO ORDERED.

























G.R. No. L-45720 December 29, 1937

VENTURA GUZMAN, petitioner,


vs.
ALFREDO CATOLICO and SIMEON RAMOS, Judge of First Instance of Isabela, respondents.

Arnaldo J. Guzman for the petitioner.


Alfredo Catolico in his own behalf.
No appearance for respondent Judge.

VILLA-REAL, J.:

This is a petition filed by Ventura Guzman, praying this court, after proper proceedings, to render
judgment declaring illegal and void and setting aside the writ of preliminary attachment issued by the
respondent judge, Honorable Simeon Ramos, as judge of the Court of First Instance of Isabela, and
ordering the dissolution thereof.

The pertinent facts necessary for the resolution of the legal question raised in the present case are
as follows:

On March 8, 1937, the respondent Alfredo Catolico brought an action against the herein petitioner
Ventura Guzman in the Court of First Instance of Isabela, for the recovery from the latter of the
amount of his fees for services rendered by him as attorney, praying, at the same time, for the
issuance of a writ of preliminary attachment against all of the properties adjudicated to said petitioner
in special proceedings No. 179 of said court. As grounds for the issuance of said writ of preliminary
attachment, he alleged: "That the herein defendant is trying to sell and dispose of the properties
adjudicated to him, with intention to defraud his creditors, particularly the herein plaintiff, thereby
rendering illusory the judgment that may be rendered against him, inasmuch as he has no other
properties outside the same to answer for the fees the court may fix in favor of the plaintiff, this case
being one of those mentioned by the Code of Civil Procedure warranting the issuance of a writ of
preliminary attachment" (paragraph 8 of the complaint there appears the following affidavits: "I,
Alfredo Catolico, of age, married and resident of Tuguegarao, Cagayan, after being duly sworn,
declare: That I am the same plaintiff in this case; that I have prepared and read the same (complaint)
and that all the allegations thereof are certain and true, to the best of knowledge and belief."

In view of the said complaint and affidavit, the respondent judge, on March 10, 1937, issued an order
granting the petition and ordering the issuance of a writ of preliminary attachment, after the filing of
the corresponding bond by the plaintiff.

On April 15, 1937, said defendant Ventura Guzman filed a motion for the cancellation of said writ of
preliminary attachment on the ground that it had been improperly, irregularly and illegally issued,
there being no allegation, either in the complaint or in the affidavit solemnizing it, that there is no
other sufficient security for the claim sought to be enforced by the action; that the amount due to the
plaintiff, above the legal set-off and counterclaim, is as much as the sum of which the preliminary
attachment has been granted, and that the affidavit of the plaintiff is base in mere information and
belief.

Said motion was denied by the respondent judge in an order of July 10, 1937.
The only question to be decided in this case is whether or not the requisites prescribed by law for the
issuance of a writ of preliminary attachment have been complied with.

Section 426 of the Code of the Civil Procedure provides that "A judge or justice of the peace shall
grant an order of attachment when it is made to appear to the judge or justice of the peace by the
affidavit of the plaintiff, or of some other person who knows the facts, that a sufficient cause of action
exists, and that the case is one of those mentioned in section four hundred and twenty-four, and that
there is no other sufficient security for the claim sought to be enforced by the action, and that the
amount due to the plaintiff above all legal set-offs or counterclaims is as much as the sum for which
the order is granted."

The petitioner, in attacking the legality and validity of the writ of preliminary attachment, which is the
subject matter of this petition, relies on the alleged lack of an allegation in the complaint or in the
affidavit to the effect "that there is no sufficient security for the claim sought to be enforced by the
action and that the amount alleged to be due to the plaintiff above all legal set-offs and
counterclaims is as much as the sum for which the writ has been granted", and on the fact that the
affidavit is based on mere information and belief of the plaintiff.

With respect to the last requisites just stated above, the affidavit is not defective because in it the
therein plaintiff and herein respondent Alfredo Catolico states "that all the allegations thereof are
certain and true, to the best of my knowledge and belief", and not that they are so according to his
information and belief.

As to the other two requisites, there is no allegation, either in the complaint or in affidavit solemnizing
it, to the effect that there is no other sufficient security for the claim which the plaintiff seeks to
enforce by his action, and that the amount due him from the defendant, above all legal set-offs and
counterclaims, is as much as the sum for which the writ of preliminary attachment has been granted.
Now then, does the omission of these two requisites constitute a defect preventing a judge of the
Court of First Instance from issuing a writ of preliminary attachment? lawphil.net

Attachment is a juridical institution which has for its purpose to secure the outcome of the trial, that
is, the satisfaction of the pecuniary obligation really contracted by a person or believed to have been
contracted by him, either by virtue of a civil obligation emanating from contract or law, or by virtue of
some crime or misdemeanor that he might have committed, and the writ issued, granting it, is
executed by attaching and safely keeping all the movable property of the defendant, or so much
thereof as may be sufficient to satisfy the plaintiff's demands (sec. 428, Act No. 190), or by filing a
copy of said writ with the register of deeds for the province in which the real property is situated,
whether standing upon the records in the name of the defendant or not appearing at all upon the
record, which constitutes a limitation of ownership or the right to enjoy or dispose of a thing without
further limitations than those established by law (art. 348, Civil Code), since the owner of the
property attached cannot dispose of the same free of all liens and encumbrances. The law
authorizing the issuance of a writ of preliminary attachment should, therefore, be construed strictly in
favor of the judge should require that all the requisites prescribed by law be complied with, without
which a judge acquires no jurisdiction to issue the writ. If he does so in spite of noncompliance with
said requisites, he acts in excess of his jurisdiction and with the writ so issued by him will be null and
void.

The jurisdiction of attachment proceedings being a special one, it cannot be legitimately


exercised unless the attaching creditor pursues substantially the essential requirements of
the statute, and the court can act only under the special power limited by the statute and
according to the forms of procedures it prescribes. . . . (6 C. J., 88, paragraph 121.)
Where the statutes requires the affidavit to show that defendant is indebted to plaintiff in an
amount specified, or that the latter is entitled to recover such an amount, over and above all
legal payments, set-offs, or counterclaims, compliance with this requirement is essential to
confer jurisdiction to issue the writ. (6 C. J., 132,
paragraph 201.)

An affidavit is fatally defective where it fails to comply, at least substantially, with a statutory
requirement that is shall state that the indebtedness for which the action is brought has not
been secured by any mortgage or lien upon real or personal property, or any pledge of
personal property, or, if so secured, that the security has become valueless. . . . (6 C. J.,
146, paragraph 231.)

For the foregoing consideration, this court is of the opinion and so holds that failure to allege in a
complaint or in the affidavit solemnizing it, or in a separate one, the requisites prescribed by section
426 of the Code of Civil Procedure for the issuance of a writ of preliminary attachment that there is
no other sufficient security for the claim sought to be enforced by the action, and that the amount
due to the plaintiff above all legal set-offs or counterclaims is as much as the sum for which the order
is sought, renders a writ of preliminary attachments issued against the property of a defendant fatally
defective, and the judge issuing it acts in excess of his jurisdiction.

Wherefore, the writ of certiorari applied for is granted, and the writ of preliminary attachment issued
by the respondent judge in civil case No. 1460 of the Court of First Instance of Isabela, wherein the
herein respondent Alfredo Catolico is plaintiff and the herein petitioner Ventura Guzman is
defendant, is declared null and void, with costs to respondent Alfredo Catolico. So ordered.
























G.R. No. 175587 October 24, 2008

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,


vs.
JOSEPH ANTHONY M. ALEJANDRO, Respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

This resolves the motion for reconsideration of respondent praying for an increase in the amount of
damages awarded in his favor in our September 21, 2007 Decision.

Respondent argues that the award of nominal damages of P50,000.00 should be increased to P2
Million based on the P18,798,734.69 preliminary attachment bond posted by petitioner; that his
social/professional standing warrants the award of moral damages in the amount of P5 Million
instead of P500,000.00; that attorney’s fees of P1 Million and not P200,000.00 should be awarded
considering the nature of the case, the services rendered by the counsel, and the latter’s
professional standing; and that the P500,000.00 exemplary damages should be increased to deter
petitioner from securing writs of attachment without basis.

The contentions are without merit.

The award of P500,000.00 as moral damages is commensurate to the anxiety and inconvenience
suffered by respondent. To award him the amount of P5 Million under the circumstances is
1avvphi1

scandalously excessive. Other than the self-serving allegations that he suffered untold humiliation
when he disclosed to his clients the pendency of the attachment case, respondent did not present
any witness to whom he made such disclosure. He thus failed to prove by preponderance of
evidence the degree of moral suffering or injury he suffered to convince the Court to increase the
award. To arrive at a judicious approximation of emotional or moral injury, competent and substantial
proof of the suffering experienced must be laid before the court. Essential to this approximation are
definite findings as to what the alleged moral damages suffered consisted of; otherwise, such
damages would become a penalty rather than a compensation for actual injury suffered.1

Likewise, the award of P50,000.00 as nominal damages is proper under the circumstances. Nominal
damages are not intended as indemnification for any loss suffered. It is an award decreed to
vindicate the violation of a right;2 it could be properly based on the duration of the period during
which the plaintiff was prevented from exercising such right. In the instant case, the amount of the
bond posted does not prove the actual sum garnished. The period of two months during which
respondent was prevented from using the subject bank deposits is thus the most appropriate
yardstick in determining the amount of nominal damages. Under the circumstances, the amount of
P2 Million being claimed by respondent is excessive and without basis.

Professional standing of a counsel, to be properly considered as one of the factors in determining


the award of attorney’s fees, should be established during trial proper, where the other party could
raise objections and cross-examine the witnesses. It is thus too late for respondent to present
evidence of this nature at this stage of the proceedings. Besides, the issue in this case is simple, i.e.,
the propriety of the garnishment of respondent’s deposits, which does not merit an award of P1
Million as attorney’s fees.

As for exemplary damages, the Court’s award of P500,000.00 is reasonable and sufficient to
discourage petitioner from resorting to unfounded assertions in securing writs of attachment.
Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a
deterrent against or as a negative incentive to curb socially deleterious actions.3

WHEREFORE, respondent’s motion for partial reconsideration is DENIED with finality.

SO ORDERED.







































G.R. No. L-252 March 30, 1946

TRANQUILINO CALO and DOROTEO SAN JOSE, petitioners,


vs.
ARSENIO C. ROLDAN, Judge of First Instance of Laguna, REGINO RELOVA and TEODULA
BARTOLOME, respondents.

Zosimo D. Tanalega for petitioners.


Estanislao A. Fernandez for respondents Relova and Bartolome.
No appearance for respondent Judge.

FERIA, J.:

This is a petition for writ of certiorari against the respondent Judge Arsenio C. Roldan of the Court
First Instance of Laguna, on the ground that the latter has exceeded his jurisdiction or acted with
grave abuse of discretion in appointing a receiver of certain lands and their fruits which, according to
the complainant filed by the other respondents, as plaintiffs, against petitioners, as defendants, in
case No. 7951, were in the actual possession of and belong to said plaintiffs.

The complaint filed by plaintiffs and respondents against defendants and petitioners in the Court of
First Instance of Laguna reads as follows:

1. That the plaintiffs and the defendants are all of legal age, Filipino citizens, and residents of
Pila, Laguna; the plaintiffs are husband and wife..

2. That the plaintiff spouses are the owners and the possessors of the following described
parcels of land, to wit:.

xxx xxx xxx

3. That parcel No. (a) described above is now an unplanted rice land and parcel No. (b)
described in the complaint is a coconut land, both under the possession of the plaintiffs..

4. That the defendants, without any legal right whatsoever and in connivance with each
other, through the use of force, stealth, threats and intimidation, intend or are intending to
enter and work or harvest whatever existing fruits may now be found in the lands above-
mentioned in violation of plaintiff's in this case ineffectual..

5. That unless defendants are barred, restrained, enjoined, and prohibited from entering or
harvesting the lands or working therein through ex-parte injunction, the plaintiffs will suffer
injustice, damages and irreparable injury to their great prejudice..

6. That the plaintiffs are offering a bond in their application for ex-parte injunction in the
amount of P2,000, subject to the approval of this Hon. Court, which bond is attached hereto
marked as Annex A and made an integral part of this complaint..

7. That on or about June 26, 1945, the defendants, through force, destroyed and took away
the madre-cacao fencer, and barbed wires built on the northwestern portion of the land
designated as parcel No. (b) of this complaint to the damage and prejudice of the plaintiffs in
the amount of at least P200..
Wherefore, it is respectfully prayed:.

(a) That the accompanying bond in the amount of P2,000 be approved;

(b) That a writ of preliminary injunction be issued ex-parte immediately restraining, enjoining
and prohibiting the defendants, their agents, servants, representatives, attorneys, and, (or)
other persons acting for and in their behalf, from entering in, interfering with and/or in any
wise taking any participation in the harvest of the lands belonging to the plaintiffs; or in any
wise working the lands above-described;

(c) That judgment be rendered, after due hearing, declaring the preliminary injunction final;.

(d) That the defendants be condemned jointly and severally to pay the plaintiffs the sum of
P200 as damages; and.

(e) That plaintiffs be given such other and further relief just and equitable with costs of suit to
the defendants.

The defendants filed an opposition dated August 8, 1945, to the issuance of the writ of preliminary
injunction prayed for in the above-quoted complaint, on the ground that they are owners of the lands
and have been in actual possession thereof since the year 1925; and their answer to the complaint
filed on August 14, 1945, they reiterate that they are the owners and were then in actual possession
of said property, and that the plaintiffs have never been in possession thereof.

The hearing of the petition for preliminary injunction was held on August 9, 1945, at which evidence
was introduced by both parties. After the hearing, Judge Rilloraza, then presiding over the Court of
First Instance of Laguna, denied the petition on the ground that the defendants were in actual
possession of said lands. A motion for reconsideration was filed by plaintiffs on August 20, 1945, but
said motion had not yet, up to the hearing of the present case, been decided either by Judge
Rilloraza, who was assigned to another court, or by the respondent judge.

The plaintiffs (respondents) filed on September 4, 1945, a reply to defendants' answer in which,
among others, they reiterate their allegation in the complaint that they are possessors in good faith
of the properties in question.

And on December 17, plaintiffs filed an urgent petition ex-parte praying that plaintiffs' motion for
reconsideration of the order denying their petition for preliminary injunction be granted and or for the
appointment of a receiver of the properties described in the complaint, on the ground that (a) the
plaintiffs have an interest in the properties in question, and the fruits thereof were in danger of being
lost unless a receiver was appointed; and that (b) the appointment of a receiver was the most
convenient and feasible means of preserving, administering and or disposing of the properties in
litigation which included their fruits. Respondents Judge Roldan, on the same date, December 17,
1945, decided that the court would consider the motion for reconsideration in due time, and granted
the petition for appointment of and appointed a receiver in the case.

The question to be determined in the present special civil action of certiorari is, whether or not the
respondent judge acted in excess of his jurisdiction or with grave abuse of discretion in issuing the
order appointing a receiver in the case No. 7951 of the Court of First Instance of Laguna; for it is
evident that there is no appeal or any other plain, speedy, and adequate remedy in the ordinary
course of the law against the said order, which is an incidental or interlocutory one.
It is a truism in legal procedure that what determines the nature of an action filed in the courts are
the facts alleged in the complaint as constituting the cause of the action. The facts averred as a
defense in the defendant's answer do not and can not determine or change the nature of the
plaintiff's action. The theory adopted by the plaintiff in his complaint is one thing, and that of the
defendant in his answer is another. The plaintiff has to establish or prove his theory or cause of
action in order to obtain the remedy he prays for; and the defendant his theory, if necessary, in order
to defeat the claim or action of the plaintiff..

According to the complaint filed in the said case No. 7951, the plaintiff's action is one of ordinary
injunction, for the plaintiffs allege that they are the owners of the lands therein described, and were
in actual possession thereof, and that "the defendants without any legal right whatever and in
connivance with each other, through the use of force, stealth, threat and intimidation, intend or are
intending to enter and work or harvest whatever existing fruits may be found in the lands above
mentioned in violation of plaintiffs' proprietary rights thereto;" and prays "that the defendants, their
agents, servants, representatives, and other persons acting for or in their behalf, be restrained,
enjoined and prohibited from entering in, interfering with, or in any way taking any participation in the
harvest of the lands above describe belonging to the plaintiffs."

That this is the nature of plaintiffs' action corroborated by the fact that they petitioned in the same
complaint for a preliminary prohibitory injunction, which was denied by the court in its order dated
August 17, 1945, and that the plaintiffs, in their motion for reconsideration of said order filed on
August 20 of the same year, and in their urgent petition dated December 17, moving the court to
grant said motion for reconsideration, reiterated that they were actual possessors of the land in
question.

The fact that plaintiffs, in their reply dated September 4, after reiterating their allegation or claim that
they are the owners in fee simple and possessors in good faith of the properties in question, pray
that they be declared the owners in fee simple, has not changed the nature of the action alleged in
the complaint or added a new cause of action thereto; because the allegations in plaintiffs' reply
were in answer to defendants' defenses, and the nature of plaintiffs' cause of action, as set forth in
their complaint, was not and could not be amended or changed by the reply, which plaintiffs had the
right to present as a matter of course. A plaintiff can not, after defendant's answer, amend his
complaint by changing the cause of action or adding a new one without previously obtaining leave of
court (section 2, Rule 17)..

Respondents' contention in paragraph I of their answer that the action filed by them against
petitioners in the case No. 7951 of the Court of First Instance of Laguna is not only for injunction, but
also to quiet title over the two parcels of land described in the complaint, is untenable for the reasons
stated in the previous paragraph. Besides, an equitable action to quiet title, in order to prevent
harrassment by continued assertion of adverse title, or to protect the plaintiff's legal title and
possession, may be filed in courts of equity (and our courts are also of equity), only where no other
remedy at law exists or where the legal remedy invokable would not afford adequate remedy (32
Cyc., 1306, 1307). In the present case wherein plaintiffs alleged that they are the owners and were
in actual possession of the lands described in the complaint and their fruits, the action of injunction
filed by them is the proper and adequate remedy in law, for a judgment in favor of plaintiffs would
quiet their title to said lands..

The provisional remedies denominated attachment, preliminary injunction, receivership, and delivery
of personal property, provided in Rules 59, 60, 61, and 62 of the Rules of Court, respectively, are
remedies to which parties litigant may resort for the preservation or protection of their rights or
interest, and for no other purpose, during the pendency of the principal action. If an action, by its
nature, does not require such protection or preservation, said remedies can not be applied for and
granted. To each kind of action or actions a proper provisional remedy is provided for by law. The
Rules of Court clearly specify the case in which they may be properly granted. .

Attachment may be issued only in the case or actions specifically stated in section 1, Rule 59, in
order that the defendant may not dispose of his property attached, and thus secure the satisfaction
of any judgment that may be recovered by plaintiff from defendant. For that reason a property
subject of litigation between the parties, or claimed by plaintiff as his, can not be attached upon
motion of the same plaintiff..

The special remedy of preliminary prohibitory injunction lies when the plaintiff's principal action is an
ordinary action of injunction, that is, when the relief demanded in the plaintiff's complaint consists in
restraining the commission or continuance of the act complained of, either perpetually or for a limited
period, and the other conditions required by section 3 of Rule 60 are present. The purpose of this
provisional remedy is to preserve the status quo of the things subject of the action or the relation
between the parties, in order to protect the rights of the plaintiff respecting the subject of the action
during the pendency of the suit. Because, otherwise or if no preliminary prohibition injunction were
issued, the defendant may, before final judgment, do or continue the doing of the act which the
plaintiff asks the court to restrain, and thus make ineffectual the final judgment rendered afterwards
granting the relief sought by the plaintiff. But, as this court has repeatedly held, a writ of preliminary
injunction should not be granted to take the property out of the possession of one party to place it in
the hands of another whose title has not been clearly established..

A receiver may be appointed to take charge of personal or real property which is the subject of an
ordinary civil action, when it appears that the party applying for the appointment of a receiver has an
interest in the property or fund which is the subject of the action or litigation, and that such property
or fund is in danger of being lost, removed or materially injured unless a receiver is appointed to
guard and preserve it (section 1 [b], Rule 61); or when it appears that the appointment of a receiver
is the most convenient and feasible means of preserving, administering or disposing of the property
in litigation (section 1 [e] of said Rule). The property or fund must, therefore be in litigation according
to the allegations of the complaint, and the object of appointing a receiver is to secure and preserve
the property or thing in controversy pending the litigation. Of course, if it is not in litigation and is in
actual possession of the plaintiff, the latter can not apply for and obtain the appointment of a receiver
thereof, for there would be no reason for such appointment.

Delivery of personal property as a provisional remedy consists in the delivery, by order of the court,
of a personal property by the defendant to the plaintiff, who shall give a bond to assure the return
thereof or the payment of damages to the defendant in the plaintiff's action to recover possession of
the same property fails, in order to protect the plaintiff's right of possession of said property, or
prevent the defendant from damaging, destroying or disposing of the same during the pendency of
the suit.

Undoubtedly, according to law, the provisional remedy proper to plaintiffs' action of injunction is a
preliminary prohibitory injunction, if plaintiff's theory, as set forth in the complaint, that he is the
owner and in actual possession of the premises is correct. But as the lower court found at the
hearing of the said petition for preliminary injunction that the defendants were in possession of the
lands, the lower court acted in accordance with law in denying the petition, although their motion for
reconsideration, which was still pending at the time the petition in the present case was heard in this
court, plaintiffs insist that they are in actual possession of the lands and, therefore, of the fruits
thereof.

From the foregoing it appears evident that the respondent judge acted in excess of his jurisdiction in
appointing a receiver in case No. 7951 of the Court of First Instance of Laguna. Appointment of a
receiver is not proper or does not lie in an action of injunction such as the one filed by the plaintiff.
The petition for appointment of a receiver filed by the plaintiffs (Exhibit I of the petition) is based on
the ground that it is the most convenient and feasible means of preserving, administering and
disposing of the properties in litigation; and according to plaintiffs' theory or allegations in their
complaint, neither the lands nor the palay harvested therein, are in litigation. The litigation or issue
raised by plaintiffs in their complaint is not the ownership or possession of the lands and their fruits.
It is whether or not defendants intend or were intending to enter or work or harvest whatever existing
fruits could then be found in the lands described in the complaint, alleged to be the exclusive
property and in the actual possession of the plaintiffs. It is a matter not only of law but of plain
common sense that a plaintiff will not and legally can not ask for the appointment or receiver of
property which he alleges to belong to him and to be actually in his possession. For the owner and
possessor of a property is more interested than persons in preserving and administering it.

Besides, even if the plaintiffs had amended their complaint and alleged that the lands and palay
harvested therein are being claimed by the defendants, and consequently the ownership and
possession thereof were in litigation, it appearing that the defendants (now petitioners) were in
possession of the lands and had planted the crop or palay harvested therein, as alleged in
paragraph 6 (a) and (b) of the petition filed in this court and not denied by the respondent in
paragraph 2 of his answer, the respondent judge would have acted in excess of his jurisdiction or
with a grave abuse of discretion in appointing a receiver thereof. Because relief by way of
receivership is equitable in nature, and a court of equity will not ordinarily appoint a receiver where
the rights of the parties depend on the determination of adverse claims of legal title to real property
and one party is in possession (53 C. J., p. 26). The present case falls within this rule..

In the case of Mendoza vs. Arellano and B. de Arellano, this court said:

Appointments of receivers of real estate in cases of this kind lie largely in the sound
discretion of the court, and where the effect of such an appointment is to take real estate out
of the possession of the defendant before the final adjudication of the rights of the parties,
the appointment should be made only in extreme cases and on a clear showing of necessity
therefor in order to save the plaintiff from grave and irremediable loss or damage. (34 Cyc.,
51, and cases there cited.) No such showing has been made in this case as would justify us
in interfering with the exercise by trial judge of his discretion in denying the application for
receiver. (36 Phil., 59, 63, 64.).

Although the petition is silent on the matter, as the respondents in their answer allege that the Court
of First Instance of Laguna has appointed a receiver in another case No. 7989 of said court,
instituted by the respondents Relova against Roberto Calo and his brothers and sisters, children of
Sofia de Oca and Tranquilino Calo (petitioner in this case), and submitted copy of the complaint filed
by the plaintiffs (now respondents) in case No. 7989 (Exhibit 9 of the respondents' answer), we may
properly express and do hereby express here our opinion, in order to avoid multiplicity of suits, that
as the cause of action alleged in the in the complaint filed by the respondents Relova in the other
case is substantially the same as the cause of action averred in the complaint filed in the present
case, the order of the Court of First Instance of Laguna appointing a receiver in said case No. 7989
was issued in excess of its jurisdiction, and is therefore null and void.

In view of all the foregoing, we hold that the respondent Judge Arsenio C. Roldan of the Court of
First Instance of Laguna has exceeded his jurisdiction in appointing a receiver in the present case,
and therefore the order of said respondent judge appointing the receiver, as well as all other orders
and proceedings of the court presided over by said judge in connection with the receivership, are
null and void.
As to the petitioners' petition that respondents Relova be punished for contempt of court for having
disobeyed the injunction issued by this court against the respondents requiring them to desist and
refrain from enforcing the order of receivership and entering the palay therein, it appearing from the
evidence in the record that the palay was harvested by the receiver and not by said respondents, the
petition for contempt of court is denied. So ordered, with costs against the respondents.








































G.R. No. L-48756 September 11, 1982

K.O. GLASS CONSTRUCTION CO., INC., petitioner,


vs.
THE HONORABLE MANUEL VALENZUELA, Judge of the Court of First Instance of Rizal, and
ANTONIO D. PINZON, respondents.

Guillermo E. Aragones for petitioner.

Ruben V. Lopez for respondent Antonio D. Pinzon.

CONCEPCION, JR., J.:

Petition for certiorari to annul and set aside the writ of preliminary attachment issued by the
respondent Judge in Civil Case No. 5902-P of the Court of First Instance of Rizal, entitled: Antonio
D. Pinzon plaintiff, versus K.O. Glass Construction Co., Inc., and Kenneth O. Glass, defendants, and
for the release of the amount of P37,190.00, which had been deposited with the Clerk of Court, to
the petitioner.

On October 6, 1977, an action was instituted in the Court of First Instance of Rizal by Antonio D.
Pinzon to recover from Kenneth O. Glass the sum of P37,190.00, alleged to be the agreed rentals of
his truck, as well as the value of spare parts which have not been returned to him upon termination
of the lease. In his verified complaint, the plaintiff asked for an attachment against the property of the
defendant consisting of collectibles and payables with the Philippine Geothermal, Inc., on the
grounds that the defendant is a foreigner; that he has sufficient cause of action against the said
defendant; and that there is no sufficient security for his claim against the defendant in the event a
judgment is rendered in his favor. 1

Finding the petition to be sufficient in form and substance, the respondent Judge ordered the
issuance of a writ of attachment against the properties of the defendant upon the plaintiff's filing of a
bond in the amount of P37,190.00. 2

Thereupon, on November 22, 1977, the defendant Kenneth O. Glass moved to quash the writ of
attachment on the grounds that there is no cause of action against him since the transactions or
claims of the plaintiff were entered into by and between the plaintiff and the K.O. Glass Construction
Co., Inc., a corporation duly organized and existing under Philippine laws; that there is no ground for
the issuance of the writ of preliminary attachment as defendant Kenneth O. Glass never intended to
leave the Philippines, and even if he does, plaintiff can not be prejudiced thereby because his claims
are against a corporation which has sufficient funds and property to satisfy his claim; and that the
money being garnished belongs to the K.O. Glass Corporation Co., Inc. and not to defendant
Kenneth O. Glass. 3

By reason thereof, Pinzon amended his complaint to include K.O. Glass Construction Co., Inc. as
co-defendant of Kenneth O. Glass. 4

On January 26, 1978, the defendants therein filed a supplementary motion to discharge and/or
dissolve the writ of preliminary attachment upon the ground that the affidavit filed in support of the
motion for preliminary attachment was not sufficient or wanting in law for the reason that: (1) the
affidavit did not state that the amount of plaintiff's claim was above all legal set-offs or counterclaims,
as required by Sec. 3, Rule 57 of the Revised Rules of Court; (2) the affidavit did not state that there
is no other sufficient security for the claim sought to be recovered by the action as also required by
said Sec. 3; and (3) the affidavit did not specify any of the grounds enumerated in Sec. 1 of Rule
57, 5 but, the respondent Judge denied the motion and ordered the Philippine Geothermal, Inc. to deliver
and deposit with the Clerk of Court the amount of P37,190.00 immediately upon receipt of the order which
amount shall remain so deposited to await the judgment to be rendered in the case. 6

On June 19, 1978, the defendants therein filed a bond in the amount of P37,190.00 and asked the
court for the release of the same amount deposited with the Clerk of Court, 7 but, the respondent
Judge did not order the release of the money deposited. 8

Hence, the present recourse. As prayed for, the Court issued a temporary restraining order,
restraining the respondent Judge from further proceeding with the trial of the case. 9

We find merit in the petition. The respondent Judge gravely abused his discretion in issuing the writ
of preliminary attachment and in not ordering the release of the money which had been deposited
with the Clerk of Court for the following reasons:

First, there was no ground for the issuance of the writ of preliminary attachment. Section 1, Rule 57
of the Revised Rules of Court, which enumerates the grounds for the issuance of a writ of
preliminary attachment, reads, as follows:

Sec. 1. Grounds upon which attachment may issue. —A plaintiff or any proper party
may, at the commencement of the action or at any time thereafter, have the property
of the adverse party attached as security for the satisfaction of any judgment that
may be recovered in the following cases:

(a) In an action for the recovery of money or damages on a cause of action arising
from contract, express or implied, against a party who is about to depart from the
Philippines with intent to defraud his creditor;

(b) In an action for money or property embezzled or fraudulently misapplied or


converted to his own use by a public officer, or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in the course of his employment as such, or
by any other person in a fiduciary capacity, or for a willful violation of duty;

(c) In an action to recover the possession of personal property unjustly detained,


when the property, or any part thereof, has been concealed, removed, or disposed of
to prevent its being found or taken by the applicant or an officer;

(d) In an action against the party who has been guilty of a fraud in contracting the
debt or incurring the obligation upon which the action is brought, or in concealing or
disposing of the property for the taking, detention or conversion of which the action is
brought;

(e) In an action against a party who has removed or disposed of his property, or is
about to do so, with intent to defraud his creditors;

(f) In an action against a party who resides out of the Philippines, or on whom
summons may be served by publication.
In ordering the issuance of the controversial writ of preliminary attachment, the respondent Judge
said and We quote:

The plaintiff filed a complaint for a sum of money with prayer for Writ of Preliminary
Attachment dated September 14, 1977, alleging that the defendant who is a foreigner
may, at any time, depart from the Philippines with intent to defraud his creditors
including the plaintiff herein; that there is no sufficient security for the claim sought to
be enforced by this action; that the amount due the plaintiff is as much as the sum for
which an order of attachment is sought to be granted; and that defendant has
sufficient leviable assets in the Philippines consisting of collectibles and payables
due from Philippine Geothermal, Inc., which may be disposed of at any time, by
defendant if no Writ of Preliminary Attachment may be issued. Finding said motion
and petition to be sufficient in form and substance. 10

Pinzon however, did not allege that the defendant Kenneth O. Glass "is a foreigner (who) may, at
any time, depart from the Philippines with intent to defraud his creditors including the plaintiff." He
merely stated that the defendant Kenneth O. Glass is a foreigner. The pertinent portion of the
complaint reads, as follows:

15. Plaintiff hereby avers under oath that defendant is a foreigner and that said
defendant has a valid and just obligation to plaintiff in the total sum of P32,290.00
arising out from his failure to pay (i) service charges for the hauling of construction
materials; (ii) rentals for the lease of plaintiff's Isuzu Cargo truck, and (iii) total cost of
the missing/destroyed spare parts of said leased unit; hence, a sufficient cause of
action exists against said defendant. Plaintiff also avers under oath that there is no
sufficient security for his claim against the defendant in the event a judgment be
rendered in favor of the plaintiff. however, defendant has sufficient assets in the
Philippines in the form of collectible and payables due from the Philippine
Geothermal, Inc. with office address at Citibank Center, Paseo de Roxas, Makati,
Metro Manila, but which properties, if not timely attached, may be disposed of
by defendants and would render ineffectual the reliefs prayed for by plaintiff in this
Complaint. 11

In his Amended Complaint, Pinzon alleged the following:

15. Plaintiff hereby avers under oath that defendant GLASS is an American citizen
who controls most, if not all, the affairs of defendant CORPORATION. Defendants
CORPORATION and GLASS have a valid and just obligation to plaintiff in the total
sum of P32,290.00 arising out for their failure to pay (i) service charges for hauling of
construction materials, (ii) rentals for the lease of plaintiff's Isuzu Cargo truck, and (iii)
total cost of the missing/destroyed spare parts of said leased unit: hence, a sufficient
cause of action exist against said defendants. Plaintiff also avers under oath that
there is no sufficient security for his claim against the defendants in the event a
judgment be rendered in favor of the plaintiff. however, defendant CORPORATION
has sufficient assets in the Philippines in the form of collectibles and payables due
from the Philippine Geothermal., Inc. with office address at Citibank Center, Paseo
de Roxas, Makati, Metro Manila, but which properties, if not timely attached, may be
disposed of by defendants and would render ineffectual the reliefs prayed for by
plaintiff in this Complaint. 12
There being no showing, much less an allegation, that the defendants are about to depart from the
Philippines with intent to defraud their creditor, or that they are non-resident aliens, the attachment of
their properties is not justified.

Second, the affidavit submitted by Pinzon does not comply with the Rules. Under the Rules, an
affidavit for attachment must state that (a) sufficient cause of action exists, (b) the case is one of
those mentioned in Section I (a) of Rule 57; (c) there is no other sufficient security 'or the claim
sought to be enforced by the action, and (d) the amount due to the applicant for attachment or the
value of the property the possession of which he is entitled to recover, is as much as the sum for
which the order is granted above all legal counterclaims. Section 3, Rule 57 of the Revised Rules of
Court reads. as follows:

Section 3. Affidavit and bond required.—An order of attachment shall be granted only
when it is made to appear by the affidavit of the applicant, or of some person who
personally knows the facts, that a sufficient cause of action exists that the case is
one of those mentioned in Section 1 hereof; that there is no other sufficient security
for the claim sought to be enforced by the action, and that the amount due to the
applicant, or the value of the property the possession of which he is entitled to
recover, is as much as the sum for which the order is granted above all legal
counterclaims. The affidavit, and the bond required by the next succeeding section,
must be duly filed with the clerk or judge of the court before the order issues.

In his affidavit, Pinzon stated the following:

I, ANTONIO D. PINZON Filipino, of legal age, married and with residence and postal
address at 1422 A. Mabini Street, Ermita, Manila, subscribing under oath, depose
and states that.

1. On October 6,1977,I filed with the Court of First Instance of Rizal, Pasay City
Branch, a case against Kenneth O. Glass entitled 'ANTONIO D. PINZON vs.
KENNETH O. GLASS', docketed as Civil Case No. 5902-P;

2. My Complaint against Kenneth O. Glass is based on several causes of action,


namely:

(i) On February 15, 1977, we mutually agreed that I undertake to haul his
construction materials from Manila to his construction project in Bulalo, Bay, Laguna
and vice-versa, for a consideration of P50.00 per hour;

(ii) Also, on June 18, 1977, we entered into a separate agreement whereby my Isuzu
cargo truck will be leased to him for a consideration of P4,000.00 a month payable
on the 15th day of each month;

(iii) On September 7, 1977, after making use of my Isuzu truck, he surrendered the
same without paying the monthly rentals for the leased Isuzu truck and the peso
equivalent of the spare parts that were either destroyed or misappropriated by him;

3. As of today, October 11, 1977, Mr. Kenneth 0. Glass still owes me the total sum of
P32,290.00 representing his obligation arising from the hauling of his construction
materials, monthly rentals for the lease Isuzu truck and the peso equivalent of the
spare parts that were either destroyed or misappropriated by him;
4. I am executing this Affidavit to attest to the truthfulness of the foregoing and in
compliance with the provisions of Rule 57 of the Revised Rules of Court. 13

While Pinzon may have stated in his affidavit that a sufficient cause of action exists against the
defendant Kenneth O. Glass, he did not state therein that "the case is one of those mentioned in
Section 1 hereof; that there is no other sufficient security for the claim sought to be enforced by the
action; and that the amount due to the applicant is as much as the sum for which the order granted
above all legal counter-claims." It has been held that the failure to allege in the affidavit the requisites
prescribed for the issuance of a writ of preliminary attachment, renders the writ of preliminary
attachment issued against the property of the defendant fatally defective, and the judge issuing it is
deemed to have acted in excess of his jurisdiction. 14

Finally, it appears that the petitioner has filed a counterbond in the amount of P37,190.00 to answer
for any judgment that may be rendered against the defendant. Upon receipt of the counter-bond the
respondent Judge should have discharged the attachment pursuant to Section 12, Rule 57 of the
Revised Rules of Court which reads, as follows:

Section 12. Discharge of attachment upon giving counterbond.—At any time after an
order of attachment has been granted, the party whose property has been attached,
or the person appearing on his behalf, may upon reasonable notice to the applicant,
apply to the judge who granted the order, or to the judge of the court in which the
action is pending, for an order discharging the attachment wholly or in part on the
security given. The judge shall, after hearing, order the discharge of the attachment if
a cash deposit is made or a counterbond executed to the attaching creditor is filed,
on behalf of the adverse party, with the clerk or judge of the court where the
application is made, in an amount equal to the value of the property attached as
determined by the judge, to secure the payment of any judgment that the attaching
creditor may recover in the action. Upon the filing of such counter-bond, copy thereof
shall forthwith be served on the attaching creditor or his lawyer. Upon the discharge
of an attachment in accordance with the provisions of this section the property
attached, or the proceeds of any sale thereof, shall be delivered to the party making
the deposit or giving the counter-bond, or the person appearing on his behalf, the
deposit or counter-bond aforesaid standing in the place of the property so released.
Should such counter-bond for any reason be found to be, or become, insufficient,
and the party furnishing the same fail to file an additional counter-bond the attaching
creditor may apply for a new order of attachment.

The filing of the counter-bond will serve the purpose of preserving the defendant's property and at
the same time give the plaintiff security for any judgment that may be obtained against the
defendant. 15

WHEREFORE, the petition is GRANTED and the writ prayed for is issued. The orders issued by the
respondent Judge on October 11, 19719, January 26, 1978, and February 3, 1978 in Civil Case No.
5902-P of the Court of First Instance of Rizal, insofar as they relate to the issuance of the writ of
preliminary attachment, should be as they are hereby ANNULLED and SET ASIDE and the
respondents are hereby ordered to forthwith release the garnished amount of P37,190.00 to the
petitioner. The temporary restraining order, heretofore issued, is hereby lifted and set aside. Costs
against the private respondent Antonio D. Pinzon.

SO ORDERED.


G.R. No. L-894 July 30, 1947

LUIS F. GENERAL, petitioner,


vs.
JOSE R. DE VENECIA, Judge of First Instance of Camarines Sur, and PETRA VDA. DE
RUEDAS, also representing Ernesto, Armando and Gracia (minors), respondents.

Cea, Blancaflor and Cea for petitioner.


Jose M. Peñas for respondents Ruedas.
No appearance for the respondent judge.

BENGZON, J.:

Petition for certiorari to annul the order of the Court of First Instance of Camarines Sur denying the
motion to dismiss the complaint, and to vacate the attachment issued, in civil case No. 364 therein
entitled, "Ruedas vs. Luis F. General."

That complaint was filed on June 4, 1946, to recover the value of a promissory note, worded as
follows:

For value received, I promise to pay Mr. Gregorio Ruedas the amount of four thousand
pesos (P4,000), in Philippine currency within six (6) months after peace has been declared
and government established in the Philippines.

Naga, Camarines Sur, September 25, 1944.

(Sgd.) LUIS F. GENERAL

It prayed additionally for preliminary attachment of defendant's property, upon the allegation that the
latter was about to dispose of his assets to defraud creditors. Two days later, the writ of attachment
was issued upon the filing of a suitable bond.

Having been served with summons, the defendant therein, Luis F. General, submitted, on June 11,
1946, a motion praying for dismissal of the complaint and dissolution of the attachment. He claimed
it was premature, in view of the provisions of the debt moratorium orders of the President of the
Philippines (Executive Orders Nos. 25 and 32 of 1945). Denial of this motion and of the subsequent
plea for reconsideration, prompted the institution of this special civil action, which we find to be
meritorious, for the reason that the attachment was improvidently permitted, the debt being within
the terms of the decree of moratorium (Executive Order No. 32).

It is our view that, upon objection by the debtor, no court may now proceed to hear a complaint that
seeks to compel payment of a monetary obligation coming within the purview of the moratorium. And
the issuance of a writ of attachment upon such complaint may not, of course, be allowed. Such levy
is necessarily one step in the enforcement of the obligation, enforcement which, as stated in the
order, is suspended temporarily, pending action by the Government.

But the case for petitioner is stronger when we reflect that his promise is to pay P4,000 "within six
months after peace has been declared." It being a matter of contemporary history that the peace
treaty between the United States and Japan has not even been drafted, and that no competent
official has formally declared the advent of peace (see Raquiza vs. Bardford, 75 Phil., 50), it is
obvious that the six-month period has not begun; and Luis F. General has at present and in June,
1946, no demandable duty to make payment to plaintiffs, independently of the moratorium directive.

On the question of validity of the attachment, "the general rule is that, unless the statute expressly so
provides, the remedy by attachment is not available in respect to a demand which is not due and
payable, and if an attachment is issued upon such a demand without statutory authority it is void." (7
C.J.S., p. 204.)

It must be observed that under our rules governing the matter the person seeking a preliminary
attachment must show that "a sufficient cause of action exists" and that the amount due him is as
much as the sum for which the order of attachment is granted" (sec. 3, Rule 59). Inasmuch as the
commitment of Luis F. General has not as yet become demandable, there existed no cause of action
against him, and the complaint should have been dismissed and the attachment lifted.
(Orbeta vs. Sotto, 58 Phil., 505.)

And although it is the general principle that certiorari is not available to correct judicial errors that
could be straightened out in an appeal, we have adopted the course that where an attachment has
been wrongly levied the writ may be applied for, because the remedy by appeal is either unavailable
or inadequate. (Leung Ben vs. O'Brien, 38 Phil., 182; Director of Commerce and
Industry vs. Concepcion, 43 Phil., 384; Orbeta vs. Sotto, supra.)

Wherefore, the writ of attachment is quashed and the complaint is dismissed. Costs for petitioner. So
ordered.























G.R. No. L-67715 July 11, 1986

WILLIAM ALAIN MIAILHE and THE HON. FELIX V. BARBERS, in his capacity as Presiding
Judge, RTC of Manila, Branch XXXIII, petitioners-appellants,
vs.
ELAINE M. DE LENCQUESAING and HERVE DE LENCQUESAING, respondents-appellees.

PARAS, J.:

This petition is an appeal by certiorari from the Decision of the Intermediate Appellate Court in AC-
G.R. SP. No. 01914 which declared null-and void, the Order of the Hon. Judge Felix V. Barbers,
issued in Civil Case No. 83-16829, dated April 14, 1983, granting petitioner's application for the
issuance of a writ of preliminary attachment and the Order dated September 13, 1983 denying
respondent's motion to lift said attachment.

The pertinent facts that gave rise to the instant petition are as follows: Petitioner William Alain
Miailhe, his sisters Monique Miailhe Sichere, Elaine Miailhe de Lencquesaing and their mother,
Madame Victoria D. Miailhe are co-owners of several registered real properties located in Metro
Manila. By common consent of the said co-owners, petitioner William Alain has been administering
said properties since 1960. As Madame Victoria D. Miailhe, her daughter Monique and son William
Alain (herein petitioner) failed to secure an out-of court partition thereof due to the unwillingness or
opposition of respondent Elaine, they filed in the Court of First Instance of Manila (now Regional
Trial Court) an action for Partition, which was docketed as Civil Case No. 105774 and assigned to
Branch . . . thereof, presided over by Judge Pedro Ramirez. Among the issues presented in the
partition case was the matter of petitioner's account as administrator of the properties sought to be
partitioned. But while the said administrator's account was still being examined, respondent Elaine
filed a motion praying that the sum of P203,167.36 which allegedly appeared as a cash balance in
her favor as of December 31, 1982, be ordered delivered to her by petitioner William Alain. Against
the opposition of petitioner and the other co-owners, Judge Pedro Ramirez granted the motion in his
Order dated December 19, 1983 which order is now the subject of a certiorari proceeding in the
Intermediate Appellate Court under AC-G.R. No. SP-03070.

Meanwhile however, and more specifically on February 28, 1983, respondent Elaine filed a criminal
complaint for estafa against petitioner William Alain, with the office of the City Fiscal of Manila,
alleging in her supporting affidavit that on the face of the very account submitted by him as
Administrator, he had misappropriated considerable amounts, which should have been turned over
to her as her share in the net rentals of the common properties. Two days after filing the complaint,
respondent flew back to Paris, the City of her residence. Likewise, a few days after the filing of the
criminal complaint, an extensive news item about it appeared prominently in the Bulletin Today,
March 4, 1983 issue, stating substantially that Alain Miailhe, a consul of the Philippines in the
Republic of France, had been charged with Estafa of several million pesos by his own sister with the
office of the City Fiscal of Manila.

On April 12, 1983, petitioner Alain filed a verified complaint against respondent Elaine, for Damages
in the amount of P2,000,000.00 and attorney's fees of P250,000.00 allegedly sustained by him by
reason of the filing by respondent (then defendant) of a criminal complaint for estafa, solely for the
purpose of embarrassing petitioner (then plaintiff) and besmirching his honor and reputation as a
private person and as an Honorary Consul of the Republic of the Philippine's in the City of Bordeaux,
France. Petitioner further charged respondent with having caused the publication in the March 4,
1983 issue of the Bulletin Today, of a libelous news item. In his verified complaint, petitioner prayed
for the issuance of a writ of preliminary attachment of the properties of respondent consisting of 1/6
undivided interests in certain real properties in the City of Manila on the ground that "respondent-
defendant is a non-resident of the Philippines", pursuant to paragraph (f), Section 1, Rule 57, in
relation to Section 17, Rule 14 of the Revised Rules of Court.

This case for Damages was docketed as Civil Case No. 83-16829 of the Regional Trial Court of
Manila, Branch XXXIII presided over by the Honorable Felix V. Barbers.

On April 14, 1983, Judge Barbers granted petitioner's application for preliminary attachment upon a
bond to be filed by petitioner in the amount of P2,000,000.00. Petitioner filed said bond and upon its
approval, the Writ of Preliminary Attachment was issued on April 18, 1983 which was served on the
Deputy Clerk of Court of Branch XXX before whom the action for Partition was pending.

On May 17, 1983, respondent thru counsel filed a motion to lift or dissolve the writ of attachment on
the ground that the complaint did not comply with the provisions of Sec. 3 of Rule 57, Rules of Court
and that petitioner's claim was for unliquidated damages. The motion to lift attachment having been
denied, respondent filed with the Intermediate Appellate Court a special action for certiorari under
AC-G.R. SP No. 01914 alleging that Judge Barbers had acted with grave abuse of discretion in the
premises. On April 4, 1984, the IAC issued its now assailed Decision declaring null and void the
aforesaid Writ of preliminary attachment. Petitioner filed a motion for the reconsideration of the
Decision but it was denied hence, this present petition which was given due course in the Resolution
of this Court dated February 6, 1985.

We find the petition meritless. The most important issue raised by petitioner is whether or not the
Intermediate Appellate Court erred in construing Section 1 par. (f) Rule 57 of the Rules of Court to
be applicable only in case the claim of the plaintiff is for liquidated damages (and therefore not
where he seeks to recover unliquidated damages arising from a crime or tort).

In its now assailed decision, the IAC stated —

We find, therefore, and so hold that respondent court had exceeded its jurisdiction in
issuing the writ of attachment on a claim based on an action for damages arising
from delict and quasi delict the amount of which is uncertain and had not been
reduced to judgment just because the defendant is not a resident of the Philippines.
Because of the uncertainty of the amount of plaintiff's claim it cannot be said that said
claim is over and above all legal counterclaims that defendant may have against
plaintiff, one of the indispensable requirements for the issuance of a writ of
attachment which should be stated in the affidavit of applicant as required in Sec. 3
of Rule 57 or alleged in the verified complaint of plaintiff. The attachment issued in
the case was therefore null and void.

We agree.

Section 1 of Rule 57 of the Rules of Court provides —

SEC. 1. Grounds upon which attachment may issue. A plaintiff or any proper party
may, at the commencement of the action or at any time thereafter, have the property
of the adverse party attached as security for the satisfaction of any judgment that
may be recovered in the following cases:

(a) In an action for the recovery of money or damages on a cause of action arising
fromcontract, express or implied, against a party who is about to depart from the
Philippines with intent to defraud his creditors;
(b) In an action for money or property embezzled or fraudulently misapplied or
converted to his own use by a public officer, or an officer of a corporation or an
attorney, factor, broker, agent, or clerk, in the course of his employment as such, or
by any other person in a fiduciary capacity, or for a willful violation of duty;

(c) In an action to recover the possession of personal property unjustly detained,


when the property, or any part thereof, has been concealed. removed, or disposed of
to prevent its being found or taken by the applicant or an officer;

(d) In an action against a party who has been guilty of a fraud in contracting the debt
or incurring the obligation upon which the action is brought, or in concealing or
disposing of the property for the taking, detention or conversion of which the action is
brought;

(e) In an action against a party who has removed or disposed of his property, or is
about to do so, with intent to defraud his creditors;

(f) In an action against a party who resides out of the Philippines, or on whom
summons may be served by publication. (emphasis supplied)

While it is true that from the aforequoted provision attachment may issue "in an action against a
party who resides out of the Philippines, " irrespective of the nature of the action or suit, and while it
is also true that in the case of Cu Unjieng, et al vs. Albert, 58 Phil. 495, it was held that "each of the
six grounds treated ante is independent of the others," still it is imperative that the amount sought be
liquidated.

In view of the foregoing, the Decision appealed from is hereby AFFIRMED.

SO ORDERED.



















G.R. NO. 123638 June 15, 2005

INSULAR SAVINGS BANK, Petitioner,


vs.
COURT OF APPEALS, JUDGE OMAR U. AMIN, in his capacity as Presiding Judge of Branch
135 of the Regional Trial Court of Makati, and FAR EAST BANK AND TRUST
COMPANY, Respondents.

DECISION

GARCIA, J.:

Thru this appeal via a petition for review on certiorari under Rule 45 of the Rules of Court,
petitioner Insular Savings Bank seeks to set aside the D E C I S I O N1 dated October 9, 1995 of
the Court of Appeals in CA-G.R. SP No. 34876 and its resolution dated January 24,
1996,2 denying petitioner’s motion for reconsideration.

The assailed decision of October 9, 1995 cleared the Regional Trial Court (RTC) at Makati, Branch
135, of committing, as petitioner alleged, grave abuse of discretion in denying petitioner’s motion to
discharge attachment by counter-bond in Civil Case No. 92-145, while the equally assailed
resolution of January 24, 1996 denied petitioner’s motion for reconsideration.

The undisputed facts are summarized in the appellate court’s decision3 under review, as follows:

"On December 11, 1991, respondent Bank [Far East Bank and Trust Company] instituted Arbitration
Case No. 91-069 against petitioner [Insular Savings Bank] before the Arbitration Committee of the
Philippine Clearing House Corporation [PCHC]. The dispute between the parties involved three
[unfunded] checks with a total value of P25,200,000.00. The checks were drawn against respondent
Bank and were presented by petitioner for clearing. As respondent Bank returned the checks beyond
the reglementary period, [but after petitioner’s account with PCHC was credited with the amount of
P25,200,000.00] petitioner refused to refund the money to respondent Bank. While the dispute was
pending arbitration, on January 17, 1992, respondent Bank instituted Civil Case No. 92-145 in the
Regional Trial Court of Makati and prayed for the issuance of a writ of preliminary attachment. On
January 22, 1992, Branch 133 of the Regional Trial Court of Makati issued an Order granting the
application for preliminary attachment upon posting by respondent Bank of an attachment bond in
the amount of P6,000,000.00. On January 27, 1992, Branch 133 of the Regional Trial Court of
Makati issued a writ of preliminary attachment for the amount of P25,200,000.00. During the hearing
on February 11, 1992 before the Arbitration Committee of the Philippine Clearing House
Corporation, petitioner and respondent Bank agreed to temporarily divide between them the
disputed amount of P25,200,000.00 while the dispute has not yet been resolved. As a result, the
sum of P12,600,000.00 is in the possession of respondent Bank. On March 9, 1994, petitioner filed a
motion to discharge attachment by counter-bond in the amount of P12,600,000.00. On June 13,
1994, respondent Judge issued the first assailed order denying the motion. On June 27, 1994,
petitioner filed a motion for reconsideration which was denied in the second assailed order
dated July 20, 1994" (Emphasis and words in bracket added).

From the order denying its motion to discharge attachment by counter-bond, petitioner went to the
Court of Appeals on a petition for certiorari thereat docketed as CA-G.R. SP No. 34876, ascribing on
the trial court the commission of grave abuse of discretion amounting to lack of jurisdiction.

While acknowledging that "[R]espondent Judge may have erred in his Order of June 13, 1994 that
the counter-bond should be in the amount of P27,237,700.00", in that he erroneously factored in, in
arriving at such amount, unliquidated claim items, such as actual and exemplary damages, legal
interest, attorney’s fees and expenses of litigation, the CA, in the herein assailed decision dated
October 9, 1995, nonetheless denied due course to and dismissed the petition. For, according to
the appellate court, the RTC’s order may be defended by, among others, the provision of Section 12
of Rule 57 of the Rules of Court, infra. The CA added that, assuming that the RTC erred on the
matter of computing the amount of the discharging counter-bond, its error does not amount to grave
abuse of discretion.

With its motion for reconsideration having been similarly denied, petitioner is now with us, faulting
the appellate court, as follows:

"I. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE PRINCIPAL AMOUNT
CLAIMED BY RESPONDENT BANK SHOULD BE THE BASIS FOR COMPUTING THE
AMOUNT OF THE COUNTER-BOND, FOR THE PRELIMINARY ATTACHMENT WAS
ISSUED FOR THE SAID AMOUNT ONLY.

"II. THE COURT OF APPEALS ERRED IN NOT RULING THAT THE ARGUMENT THAT
THE AMOUNT OF THE COUNTER-BOND SHOULD BE BASED ON THE VALUE OF THE
PROPERTY ATTACHED CANNOT BE RAISED FOR THE FIRST TIME IN THE COURT OF
APPEALS.

"III. THE COURT OF APPEALS ERRED IN RULING THAT THE AMOUNT OF THE
COUNTER-BOND SHOULD BE BASED ON THE VALUE OF THE PROPERTY ATTACHED
EVEN IF IT WILL RESULT IN MAKING THE AMOUNT OF THE COUNTER-BOND EXCEED
THE AMOUNT FOR WHICH PRELIMINARY ATTACHMENT WAS ISSUED."

Simply put, the issue is whether or not the CA erred in not ruling that the trial court committed grave
abuse of discretion in denying petitioner’s motion to discharge attachment by counter-bond in the
amount of P12,600,000.00.

Says the trial court in its Order of June 13, 1994:

"xxx (T)he counter-bond posted by [petitioner] Insular Savings Bank should include the unsecured
portion of [respondent’s] claim of P12,600,000.00 as agreed by means of arbitration between
[respondent] and [petitioner]; Actual damages at 25% percent per annum of unsecured amount of
claim from October 21, 1991 in the amount of P7,827,500.00; Legal interest of 12% percent per
annum from October 21, 1991 in the amount of P3,805,200.00; Exemplary damages in the amount
of P2,000,000.00; and attorney’s fees and expenses of litigation in the amount of P1,000,000.00 with
a total amount of P27,237,700.00 (Adlawan vs. Tomol, 184 SCRA 31 (1990)".

Petitioner, on the other hand, argues that the starting point in computing the amount of counter-bond
is the amount of the respondent’s demand or claim only, in this case P25,200,000.00, excluding
contingent expenses and unliquidated amount of damages. And since there was a mutual
agreement between the parties to temporarily, but equally, divide between themselves the said
amount pending and subject to the final outcome of the arbitration, the amount of P12,600,000.00
should, so petitioner argues, be the basis for computing the amount of the counter-bond.

The Court rules for the petitioner.

The then pertinent provision of Rule 57 (Preliminary Attachment) of the Rules of Court under which
the appellate court issued its assailed decision and resolution, provides as follows:
"SEC. 12. Discharge of attachment upon giving counter-bond. – At any time after an order of
attachment has been granted, the party whose property has been attached, . . . may upon
reasonable notice to the applicant, apply to the judge who granted the order or to the judge of the
court which the action is pending, for an order discharging the attachment wholly or in part on the
security given. The judge shall, after hearing, order the discharge of the attachment if a cash deposit
is made, or a counter-bond executed to the attaching creditor is filed, on behalf of the adverse party,
with the clerk or judge of the court where the application is made in an amount equal to the value
of the property attached as determined by the judge, to secure the payment of any judgment
that the attaching creditor may recover in the action. x x x . Should such counter-bond for any
reason be found to be, or become insufficient, and the party furnishing the same fail to file an
additional counter-bond, the attaching party may apply for a new order of attachment"4 (Emphasis
supplied).4

As may be noted, the amount of the counter-attachment bond is, under the terms of the aforequoted
Section 12, to be measured against the value of the attached property, as determined by the judge
to secure the payment of any judgment that the attaching creditor may recover in the action. Albeit
not explicitly stated in the same section and without necessarily diminishing the sound discretion of
the issuing judge on matters of bond approval, there can be no serious objection, in turn, to the
proposition that the attached property - and logically the counter-bond necessary to discharge the
lien on such property - should as much as possible correspond in value to, or approximately match
the attaching creditor’s principal claim. Else, excessive attachment, which ought to be avoided at all
times, shall ensue. As we held in Asuncion vs. Court of Appeals:5

"We, however, find the counter-attachment bond in the amount of P301,935.41 required of the
private respondent by the trial court as rather excessive under the circumstances. Considering that
the principal amounts claimed by the petitioner . . . total only P185,685.00, and that he had posted a
bond of only P80,000.00 for the issuance of the writ of preliminary attachment, we deem it
reasonable to lower the amount of the counter-attachment bond to be posted by the private
respondent . . . to the sum of P185,685.00."

The following excerpts from Herrera, REMEDIAL LAW, Vol. VII, 1997 ed., p. 61, citing retired Justice
Jose Y. Feria, drive home the same point articulated in Asuncion:

"The sheriff is required to attach only so much of the property of the party against whom the order is
issued as may be sufficient to satisfy the applicant’s demand, the amount of which is stated in the
order, unless a deposit is made or a counter-bond is given equal to said amount. However, if
the value of the property to be attached is less than the amount of the demand, the amount of the
applicant’s bond may be equal to the value of said property, and the amount of the adverse
party’s deposit or counter-bond may be equal to the applicant’s bond. The writ of preliminary
attachment is issued upon approval of the requisite bond". (Emphasis supplied). 1avvphi1.net

Turning to the case at bar, the records show that the principal claim of respondent, as plaintiff a
quo, is in the amount of P25,200,000.00,6 representing the three (3) unfunded checks drawn against,
and presented for clearing to, respondent bank. Jurisprudence teaches that a writ of attachment
cannot be issued for moral and exemplary damages, and other unliquidated or contingent claim.7

The order of attachment dated January 22, 1992 fixed the bond to be posted by respondent, as
applicant, at P6,000,000.00. The writ of attachment issued on January 27, 1992, in turn, expressly
indicated that petitioner is justly indebted to respondent in the amount of P25,200,000.00.8 On
February 11, 1992, before the Arbitration Committee of the Philippine Clearing House Corporation,
petitioner and respondent, however, agreed to equally divide between themselves, albeit on a
temporary basis, the disputed amount of P25,200,000.00, subject to the outcome of the arbitration
proceedings. Thus, the release by petitioner of the amount of P12,600,000.00 to respondent. On
March 7, 1994, petitioner filed a motion to discharge attachment by counter-bond in the amount
of P12,600,000.009 which, to petitioner, is the extent that respondent may actually be prejudiced in
the event its basic complaint for recovery of money against petitioner prospers.

As things stood, therefore, respondent’s principal claim against petitioner immediately prior to the
filing of the motion to discharge attachment has effectively been pruned down to P12,600,000.00.
The trial court was fully aware of this reality. Accordingly, it should have allowed a total discharge of
the attachment on a counter-bond based on the reduced claim of respondent. If a portion of the
claim is already secured, we see no justifiable reason why such portion should still be subject of
counter-bond. It may be that a counter-bond is intended to secure the payment of any judgment that
the attaching party may recover in the main action. Simple common sense, if not consideration of fair
play, however, dictates that a part of a possible judgment that has veritably been preemptively
satisfied or secured need not be covered by the counter-bond.

With the view we take of this case, the trial court, in requiring petitioner to post a counter-bond in the
amount of P27,237,700.00,

obviously glossed over one certain fundamental. We refer to the fact that the attachment respondent
applied for and the corresponding writ issued was only for the amount of P25.2 Million. Respondent,
it bears to stress, did not pray for attachment on its other claims, contingent and unliquidated as they
were. Then, too, the attaching writ rightly excluded such claims. While the records do not indicate, let
alone provide a clear answer as to the actual value of the property levied upon, it may reasonably be
assumed that it is equal to respondent’s principal claim. Be that as it may, it was simply unjust for the
trial court to base the amount of the counter-bond on a figure beyond the P25,200,000.00 threshold,
as later reduced to P12,600,200.00.

The trial court, therefore, committed grave abuse of discretion when it denied petitioner’s motion to
discharge attachment by counter-bond in the amount of P12,600,000.00, an amount more than
double the attachment bond required of, and given by, respondent. As a necessary consequence,
the Court of Appeals committed reversible error when it dismissed petitioner’s recourse thereto in
CA-G.R. SP No. 34876.

It bears to stress, as a final consideration, that the certiorari proceedings before the appellate court
and the denial of the motion to discharge attachment subject of such proceedings, transpired under
the old rules on preliminary attachment which has since been revised.10 And unlike the former
Section 12 of Rule 57 of the Rules of Court where the value of the property attached shall be the
defining measure in the computation of the discharging counter-attachment bond, the present less
stringent Section 12 of Rule 57 provides that the court shall order the discharge of attachment if the
movant "makes a cash deposit, or files a counter-bond . . . in an amount equal to that fixed by the
court in the order of attachment, exclusive of costs." Not being in the nature of a penal statute, the
Rules of Court cannot be given retroactive effect.11

This disposition should be taken in the light of then Section 12, Rule 57 of the Rules of Court.

WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed decision and resolution
of the Courts of Appeals are hereby REVERSED and SET ASIDE, along with the orders dated June
13, 1994 and July 20, 1994 of the Regional Trial Court at Makati, Branch 135, in Civil Case No. 92-
145 insofar they denied petitioner’s motion to discharge attachment by counter-bond in the amount
of P12,600,000.00, and a new one entered GRANTING such motion upon the reposting of the same
counter-bond.
SO ORDERED.











































G.R. No. L-43721 June 15, 1935

ISIDRO TAN (alias TAN LIT), petitioner,


vs.
FRANCISCO ZANDUETA, Judge, of First Instance of Manila, and TIU CHAY (alias TAN
KIA), respondents.

Gonzalo G. Padua for petitioner.


Palma and Guevara for respondents.

DIAZ, J.:

This case is intimately related to the habeas corpus case, G.R. No. 43772 (page 530, post),
instituted by the same petitioner against the same respondents, and considered and decided on the
same day.

The respondent Tiu Chay (alias Tan Kia) sued the petitioner Isidro Tan (alias Tan Lit) in civil case
No. 47826 of the Court of First Instance of Manila, to recover from him the amount of P22,500 which
he alleged to be the half corresponding to him of the P45,000 which they won as a prize in the last
drawing of the sweepstakes with ticket No. 228619 which they purchased with a part of the capital
invested in a sari-sari store. Simultaneously with his complaint, said Tiu Chay (alias Tan Kia) asked
and obtained from the respondent judge the attachment of the property of the petitioner Isidro Tan
(alias Tan Lit) upon filing a bond in the amount of P5,000.

Isidro Tan (alias Tan Lit) succeeded in dissolving the attachment by filing, in turn, a counter bond in
the same amount as that filed by Tiu Chay (alias Tan Kia) to secure said attachment; and as soon as
he obtained the order to that effect and filed the required counter bond on April 20, 1935, he
withdrew from the Philippine National Bank his deposit in the amount of P23,500 the greater part of
which was attached days before pursuant to the order of the respondent judge dated February 26,
1935. Three days after petitioner's withdrawal of the aforesaid amount from the Philippine National
Bank, the respondent Tiu Chay (alias Tan Kia) asked and obtained an order from the respondent
judge requiring the petitioner to file an additional counter bond at first P10,000, later P15,000 in lieu
of P10,000, and still later P17,000, subsequently reduced to P12,000.

When the time given the petitioner by the respondent judge to file said counter bond or to deposit in
the Philippine National Bank the amount of P12,000 of the P23,500 which he withdrew therefrom,
expired without having done either the one or the other, he was required to appear before the
respondent judge and show cause, if any, why he should not be found in contempt of court for
disobeying an order given him to that effect. And inasmuch as the explanations given by him were
not deemed satisfactory by the respondent judge, the latter declared him guilty of contempt and
immediately ordered his confinement, clearly advising him that he would continue so confined until
he puts up the said counter bond of P12,000 or deposits the same amount in the bank.

From its allegations, we gather that the petitioner of Isidro Tan (alias Tan Lit) is based upon the
following grounds: (1) That the writ of preliminary attachment issued by the respondent judge at the
instance of Tiu Chay (alias Tan Kia) was irregular and illegal, and (2) that the order of the
respondent judge directed the confinement of the petitioner until he complies with the order requiring
him to file a counter bond in the amount of P12,000 or to deposit the identical amount in the bank, is
likewise illegal because it is a sequel to another, also illegal, which directed the attachment of his
property.
As to the first ground, we find that the writ of preliminary attachment was issued in strict conformity
to the law, because the complaint wherein the said attachment was issued alleged that the
petitioner, after collecting the prize of a ticket in the last sweepstakes, consisting of the amount of
P50,000, belonging to the two, that is the petitioner and the respondent Tiu Chay (alias Tan Kia),
appropriated the entire prize exclusively for himself, in complete disregard of said Tiu Chay
(alias Tan Kia), knowing that one-half thereof did not belong to him to said respondent; that he was
merely a depository or agent of the latter as to said half, and that the petitioner acted in the manner
stated notwithstanding the fact that he was required to turn over to the respondent the part of the
prize won corresponding to the latter. The allegations to this effect are found in paragraphs 6, 7, 8,
and 9 of the complaint of said Tiu Chay (alias Tan Kia).

Petitioner's contention that, in view of his motion to dissolve the writ of preliminary attachment, on
the ground that the allegations of the complaint of the respondent Tiu Chay (alias Tan Kia) were not
true, said attachment should have been dissolved without any condition, is without force, because
the respondent judge had discretionary power, according to section 441 of Act No. 190, to dissolve
or to leave in force the said attachment, and it was precisely in the exercise of this power, after
hearing the parties, as may be deduced from the orders issued and now of record, that he decided
to dissolve the attachment but conditioned on petitioner's filing a counter bond for P5,000; and this
was voluntarily done by the petitioner, thereby enabling him to withdraw, as in fact he did withdraw,
the amount he had on deposit in the Philippine National Bank which was a part of the money won in
the last sweepstakes. On this sole ground, therefore, the writ of certiorari will not lie.

As to the second ground we understand that the adequate remedy is not certiorari but habeas
corpus, and the petitioner himself, learning of this afterwards, instituted motu proprio a habeas
corpus proceeding herein mentioned in the beginning.

In view of the facts and considerations above set forth, we are of the opinion, and so hold, that the
proceeding instituted is without merit, especially after the habeas corpus commenced by the same
petitioner has been favorably acted upon, without special finding as to the costs. So ordered.



















G.R. No. L-23237 November 14, 1925

WALTER E. OLSEN & CO., plaintiff-appellee,


vs.
WALTER E. OLSEN, defendant-appellant.

Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant.
Gibbs and McDonough for appellee.

VILLA-REAL, J.:

This is an appeal taken by the defendant from a judgment of the Court of First Instance of Manila,
sentencing him to pay plaintiff corporation the sum of P66,207.62 with legal interest thereon at the
rate of 6 per cent per annum from February 1, 1923, the date of the filing of the complaint, until full
payment and the costs, and dismissing the cross-complaint and counterclaim set up by him.

As ground of his appeal, the defendant assigns four errors as committed by the trial court, to wit: (1)
The holding that the defendant-appellant contracted fraudulently the debt which the plaintiff-appellee
seeks to recover in its complaint; (2) its failure to set aside the writ of preliminary attachment issued
by it ex parte; (3) the fact of it not having absolved the defendant from the complaint of the plaintiff
corporation and of not having given judgment for the defendant and against the plaintiff for the
amount of his counterclaim, after deducing the debt due from him to the plaintiff corporation in the
sum of P66,207.62; and (4) its action in denying the motion for new trial of the defendant.

As the first two supposed errors are intimately connected with each other, we will discuss them
jointly.

The first question that arises is whether or not an order denying a motion for the annulment of a
preliminary attachment may be reviewed through an appeal.

The preliminary attachment is an auxiliary remedy the granting of which lies within the sound
discretion of the judge taking cognizance of the principal case upon whose existence it depends.
The order of the judge denying a motion for the annulment of a writ of preliminary attachment, being
of an incidental or interlocutory and auxiliary character, cannot be the subject of an appeal
independently from the principal case, because our procedural law now in force authorizes an
appeal only from a final judgement which gives an end to the litigation. (Section 143, Act No. 190: 3
C. J., 549 par. 389.) This lack of ordinary remedy through an appeal does not mean, however, that
any excess a lower court may commit in the exercise of its jurisdiction is without remedy; because
there are the especial remedies, such as certiorari, for the purpose. (Leung Ben vs. O'Brien, 38 Phil.,
182.)

While it is true that an order denying a motion for the annulment of a preliminary attachment is not
subject to review through an appeal independently from the principal case, it not consisting a final
order, yet when the writ of preliminary attachment becomes final by virtue of a final judgment
rendered in the principal case, said writ is subject to review jointly with the judgment rendered in the
principal case through an ordinary appeal. The appellate court has the power to revoke or confirm
said order, in like manner as a judgment on the merits; because it is a ruling to which an exception
may be taken, and therefore is subject to review in an appeal by bill of exceptions. (Secs. 141-143,
Act No. 190.) The fact that section 441 of the Code of Civil Procedure does not provide any remedy
against the granting or denial of a motion for the annulment of a writ of preliminary attachment,
except in case of excess of jurisdiction, does not confer upon said order a final and irrevocable
character, taking it out from the general provisions as to appeal and review, for a special provision is
necessary for that purpose.

Having arrived at the conclusion that an order denying a motion for the annulment of a preliminary
attachment may be reviewed in an appeal taken from a final judgment rendered in the principal case,
in which said order was entered as an auxiliary remedy, we will now turn to consider the question
whether or not the trial court committed error in denying the motion for the annulment of the
preliminary attachment levied upon the property of the defendant-appellant.

It is admitted by the defendant-appellant that he is indebted to the plaintiff-appellee corporation in


the sum of P66,207.62, but denies that he has contracted said debt fraudulently.

The evidence shows that the defendant-appellant was president-treasurer and general manager of
the plaintiff-appellee corporation and exercised direct and almost exclusive supervision over its
function, funds and books of account until about the month of August, 1921. During that time he has
been taking money of the corporation without being duly authorized to do so either by the board of
directors or by the by-laws, the money taken by him having amounted to the considerable sum of
P66,207.62. Of this sum, P19,000 was invested in the purchase of the house and lot now under
attachment in this case, and P50,000 in the purchase of 500 shares of stock of Prising at the price of
P100 per share for himself and Marker. A few days afterwards he began to sell the ordinary shares
of the corporation for P430 each. The defendant-appellant attempted to justify his conduct, alleging
that the withdrawal of the funds of the corporation for his personal use was made in his current
account with said corporation, in whose treasury he deposited his own money and the certificates of
title of his shares, as well as of his estate, and that at the first meeting of the stockholders, which
took place on February 1, 1919, a statement of his account with a debit balance was submitted and
approved.

Having, as he had, absolute and almost exclusive control over the function of the corporation and its
funds by virtue of his triple capacity as president, treasurer and general manager, the defendant-
appellant should have been more scrupulous in the application of the funds of said corporation to his
own use. As a trustee of said corporation, it was his duty to see by all legal means possible that the
interests of the stockholders were protected, and should not abuse the extraordinary opportunity
which his triple position offered him to dispose of the funds of the corporation. Ordinary delicacy
required that in the disposition of the funds of the corporation for his personal use, he should be very
careful, so as to do it in such a way as would be compatible with the interest of the stockholders and
his fiduciary character. And let it not also be said that he did every thing openly and with the security
of his shares of stock, because as he could dispose of the funds of the corporation so he could
dispose of his won shares and with greater freedom. And let it not also be said that other officers of
the corporation, such as the vice-president, the secretary and other chiefs and employees, were
doing the same thing, because that does not show but that his bad example had spread among his
subordinates and all believed themselves with the same right as their chief to dispose of the funds of
the corporation for their personal use, although it were merely by way of loan, without any security of
whatever kind of course. The approval of his account at the first meeting of the stockholders cannot
be considered as a justification of his conduct, nor does it remove every suspicion of bad faith,
because the corporation was constituted exclusively by the defendant-appellant himself and his
cospeculator, Marker, and nothing else could be expected from it. As to the debt he owed to the
corporation, Walter E. Olsen was in effect a lender and a borrower at the same time. The conduct of
the defendant-appellant in connection with the funds of the corporation he represented was more
than an irregularity; and while it is not sufficiently serious to constitute a criminal fraud, it is
undoubtedly a fraud of a civil character, because it is an abuse of confidence to the damage of the
corporation and its stockholders, and constitutes one of the grounds enumerated in section 424, in
connection with section 412, of the Code of Civil Procedure for the issuance of a preliminary
attachment, and the order of the Court of First Instance of Manila, denying the motion for the
annulment of the injunction in question, is in accordance with law.lawph!1.net

As to the counterclaim set up by the defendant-appellant, we have nothing to add to the


considerations of the trial court which we make ours.

For the foregoing, and no error having been found in the judgment appealed from, the same is
hereby affirmed, with the costs against the defendant-appellant. So ordered.





































G.R. No. L-31163 November 6, 1929

URBANO SANTOS, plaintiff-appellee,


vs.
JOSE C. BERNABE, ET AL., defendants.
PABLO TIONGSON and THE PROVINCIAL SHERIFF OF BULACAN, appellants.

Arcadio Ejercito and Guevara, Francisco and Recto for appellants.


Eusebio Orense And Nicolas Belmonte for appellee.

VILLA-REAL, J.:

This appeal was taken by the defendants Pablo Tiongson and the Provincial Sheriff of Bulacan from
the judgment of the Court of First of said province, wherein said defendant Pablo Tiongson was
ordered to pay the plaintiff Urbano Santos the value of 778 cavans and 38 kilos of palay, at the rate
of P3 per cavan, without special pronouncement as to costs.

In support of their appeal, the appellants assign the following alleged errors committed by the lower
court in its judgment, to wit:

1. The court erred in holding that it has been proved that in the cavans of palay attached by
the herein defendant Pablo Tiongson from the defendant Jose C. Bernabe were included
those claimed by the plaintiff in this cause.

2. The court erred in ordering the defendant Pablo Tiongson to pay the plaintiff the value of
778 cavans and 38 kilos of palay, the refund of which is claimed by said plaintiff.

3. The court erred in denying the defendants' motion for a new trial.
1awphil.net

The following facts were conclusively proved at the trial:

On March 20, 1928, there were deposited in Jose C. Bernabe's warehouse by the plaintiff Urbano
Santos 778 cavans and 38 kilos of palay and by Pablo Tiongson 1,026 cavans and 9 kilos of the
same grain.

On said date, March 20, 1928, Pablo Tiongson filed with the Court of First Instance of Bulacan a
complaint against Jose C. Bernabe, to recover from the latter the 1,026 cavans and 9 kilos of palay
deposited in the defendant's warehouse. At the same time, the application of Pablo Tiongson for a
writ of attachment was granted, and the attachable property of Jose C. Bernabe, including 924
cavans and 31 1/2 kilos of palay found by the sheriff in his warehouse, were attached, sold at public
auction, and the proceeds thereof delivered to said defendant Pablo Tiongson, who obtained
judgment in said case.

The herein plaintiff, Urbano Santos, intervened in the attachment of the palay, but upon Pablo
Tiongson's filing the proper bond, the sheriff proceeded with the attachment, giving rise to the
present complaint.
It does not appear that the sacks of palay of Urbano Santos and those of Pablo Tiongson, deposited
in Jose C. Bernabe's warehouse, bore any marks or signs, nor were they separated one from the
other.

The plaintiff-appellee Urbano Santos contends that Pablo Tiongson cannot claim the 924 cavans
and 31 ½ kilos of palay attached by the defendant sheriff as part of those deposited by him in Jose
C. Bernabe's warehouse, because, in asking for the attachment thereof, he impliedly acknowledged
that the same belonged to Jose C. Bernabe and not to him.

In the complaint filed by Pablo Tiongson against Jose C. Bernabe, civil case No. 3665 of the Court of
First Instance of Bulacan, it is alleged that said plaintiff deposited in the defendant's warehouse
1,026 cavans and 9 kilos of palay, the return of which, or the value thereof, at the rate of P3 per
cavan was claimed therein. Upon filing said complaint, the plaintiff applied for a preliminary writ of
attachment of the defendant's property, which was accordingly issued, and the defendant's property,
including the 924 cavans and 31 ½ kilos of palay found by the sheriff in his warehouse, were
attached.

It will be seen that the action brought by Pablo Tiongson against Jose C. Bernabe is that provided in
section 262 of the Code of Civil Procedure for the delivery of personal property. Although it is true
that the plaintiff and his attorney did not follow strictly the procedure provided in said section for
claiming the delivery of said personal property nevertheless, the procedure followed by him may be
construed as equivalent thereto, considering the provisions of section 2 of the Code of Civil
Procedure of the effect that "the provisions of this Code, and the proceedings under it, shall be
liberally construed, in order to promote its object and assist the parties in obtaining speedy justice."

Liberally construing, therefore, the above cited provisions of section 262 of the Code of Civil
Procedure, the writ of attachment applied for by Pablo Tiongson against the property of Jose C.
Bernabe may be construed as a claim for the delivery of the sacks of palay deposited by the former
with the latter.

The 778 cavans and 38 kilos of palay belonging to the plaintiff Urbano Santos, having been mixed
with the 1,026 cavans and 9 kilos of palay belonging to the defendant Pablo Tiongson in Jose C.
Bernabe's warehouse; the sheriff having found only 924 cavans and 31 1/2 kilos of palay in said
warehouse at the time of the attachment thereof; and there being no means of separating form said
924 cavans and 31 1/2 of palay belonging to Urbano Santos and those belonging to Pablo Tiongson,
the following rule prescribed in article 381 of the Civil Code for cases of this nature, is applicable:

Art. 381. If, by the will of their owners, two things of identical or dissimilar nature are mixed,
or if the mixture occurs accidentally, if in the latter case the things cannot be separated
without injury, each owner shall acquire a right in the mixture proportionate to the part
belonging to him, according to the value of the things mixed or commingled.

The number of kilos in a cavan not having been determined, we will take the proportion only of the
924 cavans of palay which were attached and sold, thereby giving Urbano Santos, who deposited
778 cavans, 398.49 thereof, and Pablo Tiongson, who deposited 1,026 cavans, 525.51, or the value
thereof at the rate of P3 per cavan.

Wherefore, the judgment appealed from is hereby modified, and Pablo Tiongson is hereby ordered
to pay the plaintiff Urbano Santos the value of 398.49 cavans of palay at the rate of P3 a cavan,
without special pronouncement as to costs. So ordered.


G.R. No. 82446 July 29, 1988

STATE INVESTMENT HOUSE, INC., petitioner,


vs.
HON. COURT OF APPEALS, HON. DOROTEO N. CANEBA, in his capacity as Presiding Judge
of Branch 20, Regional Trial Court, Manila, P.O. VALDEZ, INC., and PEDRO 0.
VALDEZ, respondents.

Macalino, Salonga & Associates for petitioner.

Benjamin Relova for private respondents.

GRIÑO-AQUINO, J.:

The issue posed by the petition in this case is whether the trial court (whom the Court of Appeals
sustained) gravely abused its discretion in lifting the preliminary attachment on the private
respondents' properties.

On September 30 and October 31,1977, Pedro 0. Valdez and Rudy H. Sales executed two
Comprehensive Surety Agreements to secure any and all loans of P.O. Valdez, Inc. not exceeding
the sums of P500,000 (Annex C) and P4,934,000 (Annex D) from the petitioner State Investment
House, Inc., a domestic corporation engaged in quasi banking.

Four years later, on July 30, 1981, petitioner and P.O. Valdez, Inc. entered into an agreement for
discounting with the petitioner the receivables of P.O. Valdez, Inc. (Annex E). The other details of
the transactions between the petitioner and P.O. Valdez, Inc. are recited in the decision of the Court
of Appeals as follows:

At the time the basic loan agreement (which is the Agreement dated July 30, 1981)
was entered into, respondent P.O. Valdez, Inc. was required to provide collateral
security for the loan. And pursuant thereto, private respondents turned over to the
petitioner various certificates of stock of several corporations such as CDCP-Mining,
Northern Lines, Inc., Oriental Petroleum and others. In addition, private respondents
executed a Real Estate Mortgage in favor of the petitioner covering two (2) parcels of
land located outside Baguio City. Later, private respondents were also made to
execute a Deed of Sale dated December 29, 1982 covering the proceeds of a
postdated check for P4,066,410.20, another Deed of Sale dated January 4, 1983,
covering the proceeds as a postdated check for P197,010.31 and a Deed of
Assignment dated January 4, 1983, covering P.O. Valdez, Inc.'s construction
receivables from the Development Academy of the Philippines to the extent of
P100,000.00. (p. 34, Rollo.)

When Pedro Valdez' two checks were deposited by the petitioner upon maturity, they bounced for
insufficient funds. Despite demands, respondent corporation failed to pay its obligations to petitioner
amounting to P6,342,855.70 as of April 11, 1985.

Petitioner foreclosed its real estate mortgage on the two lots in Benguet of Pedro and Remedios
Valdez on April 11, 1985 and acquired them as the highest bidder in the foreclosure sale.
Presumably because the proceeds of the foreclosure were insufficient to satisfy the debt, petitioner
also filed a collection suit, with a prayer for preliminary attachment. It was docketed in the Regional
Trial Court of Manila as Civil Case No. 8533050 entitled "STATE INVESTMENT HOUSE, INC. vs.
P.O. VALDEZ, INC., PEDRO 0. VALDEZ and RUDY H. SALES." On November 5, 1985, the court,
through Judge (now CA Justice) Antonio Martinez, issued a writ of preliminary attachment against
the defendants' properties (Annex J). Pursuant thereto, certain real and personal properties of the
defendants were attached.

Tropical Homes, Inc. filed a third-party claim to certain properties titled in the name of Pedro Valdez.
As the sheriff failed to act on the third-party claim, the claimant filed on March 26, 1986, a motion to
lift the attachment on those properties. It was opposed by the petitioner. On May 22, 1 986,
respondent Judge Doroteo N. Caneba (who succeeded Justice Martinez) denied the motion.

In the meantime, the defendants filed their answer to the complaint. They admitted that they
obtained loans from the petitioner to finance their construction projects, namely, the DAP Building in
Pasig, the National Engineering Building in the U.P. Campus, and the UP Hostel for Economics, also
in U.P. Diliman, Quezon City.

On June 24, 1986, P.O. Valdez, Inc. and Pedro Valdez filed a motion to discharge the attachment on
the ground that there was no fraud in contracting the loans, and if any fraud existed, it was in the
performance of the obligations. The motion was opposed by the petitioner. It was denied by the
lower court on November 19, 1986.

Valdez filed a motion for reconsideration. The petitioner opposed it. Nevertheless, Judge Cañeba
granted the motion for reconsideration and discharged the preliminary attachment on the properties
of Pedro O. Valdez and Remedios Valdez on the ground that their conjugal properties may not be
attached to answer for the debts of the corporation which has a juridical personality distinct from its
incorporators. It held that "neither P.O. Valdez, Inc. and (sic) Pedro O. Valdez can be faulted nor
could they be charged of incurring fraudulent acts in obtaining the loan agreement." (Annex K). It
was the petitioner's turn to file a motion for reconsideration, but without success (Annex L).

Petitioner went to the Court of Appeals on a petition for certiorari and prohibition alleging grave
abuse of discretion on the part of the lower court in lifting the writ of preliminary attachment on the
properties of the Valdez spouses (Annex K).

The Court of Appeals dismissed the petition on January 28, 1988 (Annex A). It affirmed the lower
court's finding that there was no fraud in contracting the debt. It observed that:

1. With respect to the shares of stock which the respondents pledged as additional security for the
loan, the decline in their value did not mean that the private respondents entered into the loan
transaction in bad faith or with fraudulent intent. For the private respondents could not have foreseen
how the stocks would fare in the market. And if the petitioner thought they were worthless at the
time, it should have rejected them as collateral.

2. With respect to the two parcels of land which were mortgaged to the petitioner, the latter should
also have declined to accept them as collateral if it believed they were worth less than their
supposed value.

3. With respect to the two postdated checks which bounced, the Court of Appeals observed that
since they were "sold" to the petitioner after the loan had been granted to private respondents, their
issuance did not fraudulently induce the petitioner to grant the loan applied for. They were "mere
evidence of the private respondents" standing loan obligation to the petitioner" or "mere collaterals
for the loan granted by the petitioner to the private respondents" (Annex A).
These factual conclusions of the Court of Appeals are binding on US (Bernardo vs. Bernardo, 101
SCRA 351).

Furthermore, We have examined the grounds enumerated in the petitioner's prayer for a writ of
preliminary attachment, as reproduced in the decision of the Court of Appeals, the petitioner having
failed to submit a copy of its complaint as an annex of its petition for certiorari. The main thrust of the
prayer for preliminary attachment is the alleged misrepresentation of the debtor P.O. Valdez, Inc., in
the Agreement for Discounting Receivables and in the deeds of sale of said receivables. (Annexes
E, F, and G); that the two checks or receivables" issued by Pedro Valdez were payment for "actual
sales of its merchandise and/or personalities made to its customers or otherwise arising from its
other legitimate business transactions" (par. a) and "that the receivables . . . were genuine, valid and
subsisting and represent bona fide sales of merchandise and/or personalities made in the ordinary
course of business" (par. c).

It can hardly be doubted that those representations in petitioner's printed deeds of sale were false.
But false though they were, the petitioners cannot claim to have been deceived or deluded by them
because it knew, or should have known , that the issuer of the checks, Pedro O. Valdez, was not a
"buyer" of the "merchandise and personalities made in the ordinary course of business" by P.O.
Valdez, Inc. of which he was the president.

Since the petitioner failed to prove during the hearing of private respondents' motion to lift the
preliminary writ of attachment, that P.O. Valdez, Inc. received from it independent consideration for
the "sale" of Pedro Valdez' checks to it, apart from the loans previously extended to the corporations,
We are constrained to affirm the finding of the court of Appeals that Valdez's checks are "mere
evidence of the outstanding obligation of P.O. Valdez, Inc. to the petitioner." The petition was not
defrauded by their issuance for the loans had been contracted and released to P.O. Valdez, Inc.
long before the checks were issued.

WHEREFORE, the petition for certiorari is denied for lack of merit.

SO ORDERED.


















G.R. No. L-35990 June 17, 1981

ABOITIZ & COMPANY, INC., HONORABLE VICENTE N. CUSI JR., Judge of the Court of First
Instance of Davao, and the PROVINCIAL SHERIFF OF DAVAO DEL SUR, petitioners,
vs.
COTABATO BUS COMPANY, INC., respondent.

DE CASTRO, J.:

The instant petition stemmed from Civil Case No. 7329 of the Court of First Instance of Davao
(Branch 1) in which a writ of preliminary attachment was issued ex-parte by the Court on the
strength of an affidavit of merit attached to the verified complaint filed by petitioner herein, Aboitiz &
Co., Inc., on November 2, 1971, as plaintiff in said case, for the collection of money in the sum of P
155,739.41, which defendant therein, the respondent in the instant case, Cotabato Bus Co., owed
the said petitioner.

By virtue of the writ of preliminary attachment, the provincial sheriff attached personal properties of
the defendant bus company consisting of some buses, machinery and equipment. The ground for
the issuance of the writ is, as alleged in the complaint and the affidavit of merit executed by the
Assistant Manager of petitioner, that the defendant "has removed or disposed of its properties or
assets, or is about to do so, with intent to defraud its creditors."

Respondent company filed in the lower court an "Urgent Motion to Dissolve or Quash Writ of
Attachment" to which was attached an affidavit executed by its Assistant Manager, Baldovino
Lagbao, alleging among other things that "the Cotabato Bus Company has not been selling or
disposing of its properties, neither does it intend to do so, much less to defraud its creditors; that
also the Cotabato Bus Company, Inc. has been acquiring and buying more assets". An opposition
and a supplemental opposition were filed to the urgent motion. The lower court denied the motion
stating in its Order that "the testimony of Baldovino Lagbao, witness for the defendant, corroborates
the facts in the plaintiff's affidavit instead of disproving or showing them to be untrue."

A motion for reconsideration was filed by the defendant bus company but the lower court denied it.
Hence, the defendant went to the Court of Appeals on a petition for certiorari alleging grave abuse of
discretion on the part of herein respondent Judge, Hon. Vicente R. Cusi Jr. On giving due course to
the petition, the Court of Appeals issued a restraining order restraining the trial court from enforcing
further the writ of attachment and from proceeding with the hearing of Civil Case No. 7329. In its
decision promulgated on October 3, 1971, the Court of Appeals declared "null and void the order/writ
of attachment dated November 3, 1971 and the orders of December 2, 1971, as well as that of
December 11, 1971, ordered the release of the attached properties, and made the restraining order
originally issued permanent.

The present recourse is an appeal by certiorari from the decision of the Court of Appeals reversing
the assailed orders of the Court of First Instance of Davao, (Branch I), petitioner assigning against
the lower court the following errors:

ERROR I

THE COURT OF APPEALS ERRED IN HASTILY AND PERFUNCTORILY


RENDERING, ON OCTOBER 3, 1971, A DECISION WITHOUT CONSIDERING
MOST OF THE EVIDENCE SUCH THAT —
l) EVEN AN IMPORTANT FACT, ESTABLISHED BY DOCUMENTARY EVIDENCE
AND NOT DENIED BY RESPONDENT, IS MENTIONED ONLY AS A "CLAIM" OF
PETITIONER COMPANY;

2) THE DECISION CONTAINS NO DISCUSSION AND APPRECIATION OF THE


FACTS AS PROVED, ASSEMBLED AND PRESENTED BY PETITIONER
COMPANY SHOWING IN — THEIR TOTALITY — THAT RESPONDENT HAS
REMOVED, DIVERTED OR DISPOSED OF ITS BANK DEPOSITS, INCOME AND
OTHER LIQUID ASSETS WITH INTENT TO DEFRAUD ITS CREDITORS,
ESPECIALLY ITS UNSECURED SUPPLIERS;

3) THE DECISION IGNORES THE SIGNIFICANCE OF THE REFUSAL OF


RESPONDENT TO PERMIT, UNDER REP. ACT NO. 1405, THE METROPOLITAN
BANK & TRUST CO. TO BRING, IN COMPLIANCE WITH A subpoena DUCES
TECUM TO THE TRIAL COURT ALL THE RECORDS OF RESPONDENT'S
DEPOSITS AND WITHDRAWALS UNDER ITS CURRENT AND SAVINGS
ACCOUNTS (NOW NIL) FOR EXAMINATION BY PETITIONER COMPANY FOR
THE PURPOSE OF SHOWING DIRECTLY THE REMOVAL, DIVERSION OR
DISPOSAL OF RESPONDENT'S DEPOSITS AND INCOME WITH INTENT TO
DEFRAUD ITS CREDITORS.

ERROR II

THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE FACTS THAT


RESPONDENT'S BANK DEPOSITS ARE NIL AS PROOF WHICH - TOGETHER
WITH RESPONDENT'S ADMISSION OF AN INCOME OF FROM P10,000.00 to P
14,000.00 A DAY AND THE EVIDENCE THAT IT CANNOT PRODUCE P 634.00
WITHOUT USING A PERSONAL CHECK OF ITS PRESIDENT AND MAJORITY
STOCKHOLDER, AND OTHER EVIDENCE — SHOWS THE REMOVAL OR
CHANNELING OF ITS INCOME TO THE LATTER.

ERROR III

THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE RESCUE AND


REMOVAL BY RESPONDENT OF FIVE ATTACHED BUSES, DURING THE
DEPENDENCY OF ITS MOTION TO DISSOLVE THE ATTACHMENT IN THE,
TRIAL COURT, AS A FURTHER ACT OF REMOVAL OF PROPERTIES BY
RESPONDENT WITH INTENT TO DEFRAUD PETITIONER COMPANY, FOR
WHOSE BENEFIT SAID BUSES HAD BEEN ATTACHED.

The questions raised are mainly, if not solely, factual revolving on whether respondent bus company
has in fact removed its properties, or is about to do so, in fraud of its creditors. This being so, the
findings of the Court of Appeals on said issues of facts are generally considered conclusive and
final, and should no longer be disturbed. However, We gave due course to the petition because it
raises also a legal question of whether the writ of attachment was properly issued upon a showing
that defendant is on the verge of insolvency and may no longer satisfy its just debts without issuing
the writ. This may be inferred from the emphasis laid by petitioner on the fact that even for the
measly amount of P 634.00 payment thereof was made with a personal check of the respondent
company's president and majority stockholder, and its debts to several creditors, including secured
ones like the DBP, have remained unpaid, despite its supposed daily income of an average of P
12,000.00, as declared by its assistant manager, Baldovino Lagbao. 1
Going forthwith to this question of whether insolvency, which petitioners in effect claims to have
been proven by the evidence, particularly by company's bank account which has been reduced to
nil, may be a ground for the issuance of a writ of attachment, the respondent Court of Appeals
correctly took its position in the negative on the strength of the explicit ruling of this Court in Max
Chamorro & Co. vs. Philippine Ready Mix Concrete Company, Inc. and Hon. Manuel P. Barcelona. 2

Petitioner, however, disclaims any intention of advancing the theory that insolvency is a ground for
the issuance of a writ of attachment , 3 and insists that its evidence -is intended to prove his assertion
that respondent company has disposed, or is about to dispose, of its properties, in fraud of its creditors.
Aside from the reference petitioner had made to respondent company's "nil" bank account, as if to show
removal of company's funds, petitioner also cited the alleged non-payment of its other creditors, including
secured creditors like the DBP to which all its buses have been mortgaged, despite its daily income
averaging P12,000.00, and the rescue and removal of five attached buses.

It is an undisputed fact that, as averred by petitioner itself, the several buses attached are nearly
junks. However, upon permission by the sheriff, five of them were repaired, but they were substituted
with five buses which were also in the same condition as the five repaired ones before the repair.
This cannot be the removal intended as ground for the issuance of a writ of attachment under
section 1 (e), Rule 57, of the Rules of Court. The repair of the five buses was evidently motivated by
a desire to serve the interest of the riding public, clearly not to defraud its creditors, as there is no
showing that they were not put on the run after their repairs, as was the obvious purpose of their
substitution to be placed in running condition.

Moreover, as the buses were mortgaged to the DBP, their removal or disposal as alleged by
petitioner to provide the basis for its prayer for the issuance of a writ of attachment should be very
remote, if not nil. If removal of the buses had in fact been committed, which seems to exist only in
petitioner's apprehensive imagination, the DBP should not have failed to take proper court action,
both civil and criminal, which apparently has not been done.

The dwindling of respondent's bank account despite its daily income of from P10,000.00 to
P14,000.00 is easily explained by its having to meet heavy operating expenses, which include
salaries and wages of employees and workers. If, indeed the income of the company were
sufficiently profitable, it should not allow its buses to fall into disuse by lack of repairs. It should also
maintain a good credit standing with its suppliers of equipment, and other needs of the company to
keep its business a going concern. Petitioner is only one of the suppliers.

It is, indeed, extremely hard to remove the buses, machinery and other equipments which
respondent company have to own and keep to be able to engage and continue in the operation of its
transportation business. The sale or other form of disposition of any of this kind of property is not
difficult of detection or discovery, and strangely, petitioner, has adduced no proof of any sale or
transfer of any of them, which should have been easily obtainable.

In the main, therefore, We find that the respondent Court of Appeals has not committed any
reversible error, much less grave abuse of discretion, except that the restraining order issued by it
should not have included restraining the trial court from hearing the case, altogether. Accordingly,
the instant petition is hereby denied, but the trial court is hereby ordered to immediately proceed with
the hearing of Civil Case No. 7329 and decide it in accordance with the law and the evidence. No
special pronouncement as to costs.

SO ORDERED.


G.R. No. L-29280 August 11, 1988

PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,


vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-appellants.

Araneta, Mendoza & Papa for plaintiff-appellee.

Quasha, Asperilia, Zafra, Tayag & Ancheta for defendants-appellants.

PARAS, J.:

This is an appeal from the decision dated May 16, 1968 rendered by the Court of First Instance of
Manila, Branch XII in Civil Case No. 68095, the decretal portion of which states:

IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the defendants


to pay the plaintiff jointly and severally the sum of P601,633.01 with interest thereon
at the rate of 11% per annum from June 17, 1967, until the whole amount is paid,
plus 10% of the total amount due for attorney's fees and the costs of suit. Should the
defendants fail to pay the same to the plaintiff, then it is ordered that all the effects,
materials and stocks covered by the chattel mortgages be sold at public auction in
conformity with the Provisions of Sec. 14 of the Chattel Mortgage Law, and the
proceeds thereof applied to satisfy the judgment herein rendered. The counterclaim
of the defendants, upon the evidence presented and in the light of the authorities
above cited, is dismissed for lack of merit.

SO ORDERED

(pp. 89-90, Record on Appeal; p. 15, Rollo)

The facts of the case based on the statement of facts, made by the trial court in its decision as cited
in the briefs of both parties are as follows:

This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff
by the defendant Syvel's Incorporated on its stocks of goods, personal properties and
other materials owned by it and located at its stores or warehouses at No. 406,
Escolta, Manila; Nos. 764-766 Rizal Avenue, Manila; Nos. 10-11 Cartimar Avenue,
Pasay City; No. 886 Nicanor Reyes, Sr. (formerly Morayta), Manila; as evidenced by
Annex"A."The chattel mortgage was duly registered in the corresponding registry of
deeds of Manila and Pasay City. The chattel mortgage was in connection with a
credit commercial line in the amount of P900,000.00 granted the said defendant
corporation, the expiry date of which was May 20, 1966. On May 20, 1965,
defendants Antonio V. Syyap and Angel Y. Syyap executed an undertaking in favor
of the plaintiff whereby they both agreed to guarantee absolutely and unconditionally
and without the benefit of excussion the full and prompt payment of any
indebtedness to be incurred on account of the said credit line. Against the credit line
granted the defendant Syvel's Incorporated the latter drew advances in the form of
promissory notes which are attached to the complaint as Annexes "C" to "l." In view
of the failure of the defendant corporation to make payment in accordance with the
terms and conditions agreed upon in the Commercial Credit Agreement the plaintiff
started to foreclose extrajudicially the chattel mortgage. However, because of an
attempt to have the matter settled, the extra-judicial foreclosure was not pushed thru.
As no payment had been paid, this case was even tually filed in this Court.

On petition of the plaintiff based on the affidavits executed by Mr. Leopoldo R.


Rivera, Assistant Vice President of the plaintiff bank and Atty. Eduardo J. Berenguer
on January 12, 1967, to the effect, among others, that the defendants are disposing
of their properties with intent to defraud their creditors, particularly the plaintiff herein,
a preliminary writ of attachment was issued. As a consequence of the issuance of the
writ of attachment, the defendants, in their answer to the complaint set up a
compulsory counterclaim for damages.

After the filing of this case in this court and during its pendency defendant Antonio v.
Syyap proposed to have the case settled amicably and to that end a conference was
held in which Mr. Antonio de las Alas, Jr., Vice President of the Bank, plaintiff,
defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap requested
that the plaintiff dismiss this case because he did not want to have the goodwill of
Syvel's Incorporated impaired, and offered to execute a real estate mortgage on his
real property located in Bacoor, Cavite. Mr. De las Alas consented, and so the Real
Estate Mortgage, marked as Exhibit A, was executed by the defendant Antonio V.
Syyap and his wife Margarita Bengco Syyap on June 22, 1967. In that deed of
mortgage, defendant Syyap admitted that as of June 16, 1967, the indebtedness of
Syvel's Incorporated was P601,633.01, the breakdown of which is as follows:
P568,577.76 as principal and P33,055.25 as interest. Complying with the promise of
the plaintiff thru its Vice President to ask for the dismissal of this case, a motion to
dismiss this case without prejudice was prepared, Exhibit C, but the defendants did
not want to agree if the dismissal would mean also the dismissal of their counterclaim
Against the plaintiff. Hence, trial proceeded.

As regards the liabilities of the defendants, there is no dispute that a credit line to the
maximum amount of P900,000.00 was granted to the defendant corporation on the
guaranty of the merchandise or stocks in goods of the said corporation which were
covered by chattel mortgage duly registered as required by law. There is likewise no
dispute that the defendants Syyap guaranteed absolutely and unconditionally and
without the benefit of excussion the full and prompt payment of any indebtedness
incurred by the defendant corporation under the credit line granted it by the plaintiff.
As of June 16, 1967, its indebtedness was in the total amount of P601,633.01. This
was admitted by defendant Antonio V. Syyap in the deed of real estate mortgage
executed by him. No part of the amount has been paid by either of the defendants.
Hence their liabilities cannot be questioned. (pp. 3-6, Brief for Appellee; p. 26, Rollo)

In their brief, appellants assign the following errors:

The lower court erred in not holding that the obligation secured by the Chattel
Mortgage sought to be foreclosed in the above-entitled case was novated by the
subsequent execution between appellee and appellant Antonio V, Syyap of a real
estate mortgage as additional collateral to the obligation secured by said chattel
mortgage.
II

The lower court erred in not dismissing the above-entitled case and in finding
appellants liable under the complaint.

III

The lower court erred in not holding that the writ of preliminary attachment is devoid
of any legal and factual basis whatsoever.

IV

The lower court erred in dismissing appellants'counterclaim and in not holding


appellee liable to appellants for the consequent damages arising out of a wrongful
attachment. (pp. 1-2, Brief for the Appellants, p. 25, Rollo)

Appellants admit that they are indebted to the appellee bank in the amount of P601,633.01,
breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. After the
filing of the case and during its pendency, defendant Antonio V. Syyap proposed to have the case
amicably settled and for that purpose a conference was held in which Mr. Antonio de las Alas, Jr.,
Vice President of plaintiff People's Bank and Trust Company, defendant Antonio V. Syyap and Atty.
Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case as he did not want to
have the goodwill of Syvel's Incorporated impaired, and offered to execute a real estate mortgage on
his real property located in Bacoor, Cavite. Mr. de las Alas consented, and so the Real Estate
Mortgage (Exhibit "A") was executed by defendant Antonio Syyap and his wife Margarita Bengco
Syyap on June 22, 1967. Defendants did not agree with plaintiffs motion to dismiss which included
the dismissal of their counterclaim and filed instead their own motion to dismiss (Record on Appeal,
pp. 68-72) on the ground that by the execution of said real estate mortgage, the obligation secured
by the chattel mortgage subject of this case was novated, and therefore, appellee's cause of action
thereon was extinguished.

In an Order dated September 23, 1967, the motion was denied for not being well founded (record on
Appeal, p. 78).

Appellants contention is without merit.

Novation takes place when the object or principal condition of an obligation is changed or altered. It
is elementary that novation is never presumed; it must be explicitly stated or there must be manifest
incompatibility between the old and the new obligations in every aspect (Goni v. CA, 144 SCRA 223
[1986]; National Power Corp. v. Dayrit, 125 SCRA 849 [1983]).

In the case at bar, there is nothing in the Real Estate Mortgage which supports
appellants'submission. The contract on its face does not show the existence of an explicit novation
nor incompatibility on every point between the "old and the "new" agreements as the second
contract evidently indicates that the same was executed as new additional security to the chattel
mortgage previously entered into by the parties.

Moreover, records show that in the real estate mortgage, appellants agreed that the chattel
mortgage "shall remain in full force and shall not be impaired by this (real estate) mortgage."

The pertinent provision of the contract is quoted as follows:


That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series
of 1965, Notary Public Jose C. Merris, Manila); real estate mortgage executed by
Angel V. Syyap and Rita V. Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of
1965, Notary Public Jose C. Merris, Manila) shall remain in full force and shall not be
impaired by this mortgage (par. 5, Exhibit"A," Emphasis ours).

It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken
as additional security for the performance of the contract (Bank of P.I. v. Herrige, 47 Phil. 57).

In the determination of the legality of the writ of attachment by the Court of First Instance of Manila, it
is a well established rule that the grant or denial of a writ of attachment rests upon the sound
discretion of the court. Records are bereft of any evidence that grave abuse of discretion was
committed by respondent judge in the issuance of the writ of attachment.

Appellants contend that the affidavits of Messrs. Rivera and Berenguer on which the lower court
based the issuance of the writ of preliminary attachment relied on the reports of credit investigators
sent to the field and not on the personal knowledge of the affiants. Such contention deserves scant
consideration. Evidence adduced during the trial strongly shows that the witnesses have personal
knowledge of the facts stated in their affidavits in support of the application for the writ. They testified
that Syvel's Inc. had disposed of all the articles covered by the chattel mortgage but had not remitted
the proceeds to appellee bank; that the Syvel's Stores at the Escolta, Rizal Avenue and Morayta
Street were no longer operated by appellants and that the latter were disposing of their properties to
defraud appellee bank. Such testimonies and circumstances were given full credit by the trial court in
its decision (Brief for Appellee, p. 14). Hence, the attachment sought on the ground of actual
removal of property is justified where there is physical removal thereof by the debtor, as shown by
the records (McTaggert v. Putnam Corset Co., 8 N.Y. S 800 cited in Moran, Comments on the Rules
of Court, 1970 Ed., Vol. 3, p. 7).

Besides, the actuations of appellants were clearly seen by the witnesses who "saw a Fiat Bantam
Car-Fiat Car, a small car and about three or four persons hurrying; they were carrying goods coming
from the back portion of this store of Syvels at the Escolta, between 5:30 and 6:00 o'clock in the
evening." (Record on Appeal, pp. 45-46). Therefore, "the act of debtor (appellant) in taking his stock
of goods from the rear of his store at night, is sufficient to support an attachment upon the ground of
the fraudulent concealment of property for the purpose of delaying and defrauding creditors." (4 Am.
Jur., 841 cited in Francisco, Revised Rules of Court, Second Edition, 1985, p. 24).

In any case, intent to defraud may be and usually is inferred from the facts and circumstances of the
case; it can rarely be proved by direct evidence. It may be gleaned also from the statements and
conduct of the debtor, and in this connection, the principle may be applied that every person is
presumed to intend the natural consequences of his acts (Francisco, Revised Rules of Court, supra,
pp. 24-25), In fact the trial court is impressed "that not only has the plaintiff acted in perfect good
faith but also on facts sufficient in themselves to convince an ordinary man that the defendants were
obviously trying to spirit away a port;.on of the stocks of Syvel's Incorporated in order to render
ineffectual at least partially anyjudgment that may be rendered in favor of the plaintiff." (Decision;
Civil Case No. 68095; Record on Appeal, pp. 88-89).

Appellants having failed to adduce evidence of bad faith or malice on the part of appellee in the
procurement of the writ of preliminary attachment, the claim of the former for damages is evidently
negated. In fact, the allegations in the appellee's complaint more than justify the issuance of the writ
of attachment.
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the judgment appealed
from is AFFIRMED.

SO ORDERED.








































G.R. Nos. 65957-58 July 5, 1994

ELEAZAR V. ADLAWAN and ELENA S. ADLAWAN, petitioners,


vs.
Hon. Judge RAMON AM. TORRES, as Presiding Judge of Branch 6, Regional Trial Court Cebu
City, ABOITIZ & COMPANY, INC. and THE PROVINCIAL SHERIFFS OF CEBU, DAVAO, RIZAL
and METRO MANILA, Respectively, respondents.

Pablo P. Garcia for petitioners.

Isaias P. Dicdican and Sylva G. Aguirre-Paderanga for Aboitiz & Co., Inc.

QUIASON, J.:

This is a petitioner for certiorari and mandamus with preliminary injunction or restraining order to
nullify: (1) the Order dated September 14, 1983 of respondent Judge Ramon Am. Torres of the
Regional Trial Court, Branch 6, Cebu City, in Civil Case No. CEB-1185 and the Order dated
September 26, 1983 of Judge Emilio A. Jacinto of Branch 23 of the same court in Civil Case No.
CEB-1186, which granted the motion for the issuance of writs of preliminary attachment for the
seizure of the property of petitioners by respondent Provincial Sheriffs; and (2) the Order dated
December 12, 1983 of respondent Judge Ramon Am. Torres in the consolidated cases, Civil Case
No. CEB-1185 and Civil Case No. CEB-1186.

In a complaint dated April 24, 1982 filed with the Court of First Instance of Cebu, now Regional Trial
Court, (Civil Case No. R-21761), respondent Aboitiz and Company, Inc. (Aboitiz) sought to collect
from petitioners a sum of money representing payments for: (1) the unpaid amortizations of a loan;
(2) technical and managerial services rendered; and (3) the unpaid installments of the equipment
provided by respondent Aboitiz to petitioners (Rollo, p. 37).

Acting on the ex parte application for attachment, the Executive Judge of the Court of First Instance
of Cebu, issued on May 14, 1982, an order directing the issuance of the writ of preliminary
attachment against the property of petitioners upon the filing by respondent Aboitiz of an attachment
bond.

Subsequently, the case was raffled to Branch 11 of the Court of First Instance of Cebu, which issued
a writ of attachment addressed to the Provincial Sheriffs of Cebu and the City Sheriff of Davao City.
It was the Sheriff of Davao City who enforced the writ of attachment, resulting in the seizure of heavy
construction equipment, motor vehicle spare parts, and other personal property with the aggregate
value of P15,000,000.00. The said court also granted the motion of respondent Aboitiz to take
possession and custody of the attached property of petitioners and ordered the Provincial Sheriff of
Davao to deliver the property to respondent Aboitiz.

Petitioners moved for a bill of particulars and to set aside the ex parte writ of attachment. Finding
merit in the motion to set aside the writ, Branch 11 ordered on July 6, 1982 the lifting of the writ and,
consequently, the discharge of the property levied upon.
Respondent Aboitiz filed an urgent ex parte motion, praying for the stay of the July 6, 1982 Order for
a period of 15 days for it to be able to appeal the order. The motion was favorably acted upon.

However, on July 13, 1982, respondent Aboitiz filed a notice of dismissal of its complaint in
accordance with Section 1, Rule 17 of the Revised Rules of Court. Consequently, Branch 11 issued
an order confirming the notice of dismissal, emphasizing that all orders of the court issued prior to
the filing of said notice of dismissal had been rendered functus oficio, and considering all pending
incidents in the case as moot and academic.

Petitioner Eleazar Adlawan filed a motion praying that the July 6, 1982 Order be implemented and
enforced. On December 20, however, Branch 11 denied the motion on account of the filing by
respondent Aboitiz before Branch 16 of the Court of First Instance of Cebu in Lapu-lapu City of an
action for delivery of personal property (Civil Case No. 619-L), and the filing by petitioner Eleazar
Adlawan before Branch 10 of the same court of an action for damages in connection with the seizure
of his property under the writ of attachment.

In the replevin suit, Branch 16 ordered the seizure and delivery of the property described in the
complaint. Said property were later delivered by the provincial sheriff to respondent Aboitiz. Alleging
that while his office was situated in Cebu City, Adlawan was a resident of Minglanilla, and therefore,
the Lapu-lapu City court should not entertain the action for replevin. Petitioner Eleazar Adlawan filed
an omnibus motion praying for the reconsideration and dissolution of the writ of seizure, the retrieval
of the property seized, and the dismissal of the complaint. He also averred that the property seized
were in custodia legis by virtue of the writ of attachment issued by Branch 11. His omnibus motion
was denied. Subsequently, he filed a motion for reconsideration which was not granted.

The denial of his omnibus motion led petitioner Eleazar Adlawan to file a petition
for certiorari and mandamus in the Supreme Court (G.R. No. 63225). The Third Division of this Court
ruled on April 3, 1990 that since attachment is an ancillary remedy, the withdrawal of the complaint
left it with no leg to stand on. Thus, the Court disposed of the case as follows:

WHEREFORE, in view of the foregoing, this Court rules that the attached properties
left in the custody of private respondent Aboitiz and Company, Inc. be returned to
petitioner Eleazar V. Adlawan without prejudice to the outcome of the cases filed by
both parties (Rollo, p. 324).

Respondent Aboitiz filed a motion for reconsideration of the decision, contending that the replevin
case was distinct and separate from the case where the writ of attachment was issued. It argued that
the writ of replevin, therefore, remained in force as the Third Division of the Supreme Court had not
found it illegal. The motion was, however, denied with finality in the Resolution of July 11, 1990.

Undaunted, respondent Aboitiz filed a second motion for reconsideration with a prayer that the
dispositive portion of the decision be clarified. It asserted that because the writ of preliminary
attachment was different from the writ of replevin, we should rule that the property subject of the
latter writ should remain in custodia legis of the court issuing the said writ.

In the Resolution dated September 10, 1990, the Third Division stated that "the properties to be
returned to petitioner are only those held by private respondent (Aboitiz) by virtue of the writ of
attachment which has been declared non-existent." Accordingly, the dispositive portion of the April 3,
1990 decision of the Third Division of this Court was modified to read as follows:

WHEREFORE, in view of the foregoing, this Court rules that the properties in the
custody of the private respondent Aboitiz & Company by virtue of the writ of
attachment issued in Civil Case No. R-21761 be returned to the petitioner, but
properties in the custody of the private respondent by virtue of the writ of replevin
issued in Civil Case No. 619-L be continued in custodia legis of said court pending
litigation therein.

The Decision in G.R. No. 63225 having become final and executory, entry of judgment was made on
November 15, 1990. This should have terminated the controversy between petitioners and
respondent Aboitiz insofar as the Supreme Court was concerned, but that was not to be. On
September 9, 1983 respondent Aboitiz filed against petitioners two complaints for collection of sums
of money with prayers for the issuance of writs of attachment in the Regional Trail Court, Branch 23,
Cebu City, docketed as Civil Cases Nos. CEB-1185 and CEB-1186. The complaint in Civil Case No.
CEB-1185 alleged that petitioner Eleazar Adlawan (defendant therein) was awarded a contract for
the construction of the Tago Diversion Works for the Tago River Irrigation Project by the National
Irrigation Administration and that respondent Aboitiz (plaintiff therein) loaned him money and
equipment, which indebtedness as of June 30, 1983 totaled P13,430,259.14. Paragraph 16 of the
complaint states:

16. That, in view of the enormous liabilities which the defendants have with the
plaintiff, defendants executed a real estate mortgage covering eleven (11) parcels of
land in favor of Philippine Commercial and Industrial Bank (PCIB) to secure a
P1,000,000.00 loan with said bank and was able to remove, conceal and dispose of
their properties, obviously to defraud the plaintiff, . . . (Rollo, pp. 65-66).

The complaint in Civil Case No. CEB-1186 alleged that petitioner Eleazar Adlawan (defendant
therein) was awarded a contract for the construction of the Lasang River Irrigation Project by the
National Irrigation Administration and that respondent Aboitiz (plaintiff therein) loaned him money
and equipment, which indebtedness as of June 30, 1983 totalled P5,370,672.08. Paragraph 15 of
the complaint is similarly worded as paragraph 16 of the complaint in Civil Case No. CEB-1185.

Civil Case No. CEB-1185 was raffled to the Regional Trial Court, Branch 6, presided by respondent
Judge Ramon Am. Torres. On September 14, 1983, respondent Judge ordered the issuance of a
writ of attachment upon respondent Aboitiz' filing of a bond of P5,000,000.00. Similarly, in Civil Case
No. CEB-1186, which was raffled to Branch 23, presiding Judge Emilio A. Jacinto ordered the
issuance of a writ of attachment upon the filing of a bond of P2,500,000.00. Accordingly, in Civil
Case No. CEB-1185, the Acting Provincial Sheriff of Cebu issued separate writs dated September
26, 1983 addressed to the Sheriffs of Cebu, Davao and Metro Manila. No writ of preliminary
attachment was, however, issued in Civil Case No. CEB-1186.

Petitioners then filed in Civil Cases Nos. CEB-1185 and CEB-1186 urgent motions to hold in
abeyance the enforcement of the writs of attachments. They alleged in the main that since their
property had been previously attached and said attachment was being questioned before the
Supreme Court in G.R. No. 63225, the filing of the two cases, as well as the issuance of the writs of
attachment, constituted undue interference with the processes of this court in the then pending
petition involving the same property.

Upon motion of respondent Aboitiz, Branch 23 issued on October 13, 1983, an order directing the
transfer to Branch 6 of Civil Case No. CEB-1186 for consolidation with Civil Case No. CEB-1185.

Meanwhile, in its comment on petitioners' motion to withhold the enforcement of the writs of
attachment, respondent Aboitiz alleged that the voluntary dismissal of Civil Case No. R-21761 under
Section 1, Rule 17 of the Revised Rules of Court was without prejudice to the institution of another
action based on the same subject matter. It averred that the issuance of the writ of attachment was
justified because petitioners were intending to defraud respondent Aboitiz by mortgaging 11 parcels
of land to the Philippine Commercial and Industrial Bank (PCIB) in consideration of the loan of
P1,100,000.00, thereby making PCIB a preferred creditor to the prejudice of respondent Aboitiz,
which had an exposure amounting to P13,430,259.14.

Petitioners then filed a rejoinder to said comment, contending that since the property subject of the
writ of attachment have earlier been attached or replevied, the same property were under custodia
legis and therefore could not be the subject of other writs of attachment.

On December 12, 1983, respondent Judge issued an order finding no merit in petitioners' motion for
reconsideration and directing the sheriffs of Cebu, Davao and Metro Manila "to proceed with the
enforcement and implementation of the writs of preliminary attachment." Respondent Judge ruled
that the writs of attachment were issued on the basis of the supporting affidavits alleging that
petitioner had removed or disposed of their property with intent to defraud respondent Aboitiz (Rollo,
pp. 109-113).

On December 15, petitioners filed an ex parte motion praying: (1) that the December 12, 1983 Order
be set for hearing; (2) that they be given 15 days within which to either file a motion for
reconsideration or elevate the matter to this Court or the then Intermediate Appellate Court; and (3)
that within the same 15-day period the implementation or enforcement of the writs of attachment be
held in abeyance.

On the same day, respondent Judge issued an order holding in abeyance the enforcement of the
writs of preliminary attachment in order to afford petitioners an opportunity to seek their other
remedies (Rollo, p. 116).

On December 27, petitioners filed the instant petition for certiorari and mandamus. They alleged that
respondent Judge gravely abused his discretion in ordering the issuance of the writs of preliminary
attachment inasmuch as the real estate mortgage executed by them in favor of PCIB did not
constitute fraudulent removal, concealment or disposition of property. They argued that granting the
mortgage constituted removal or disposition of property, it was not per se a ground for attachment
lacking proof of intent to defraud the creditors of the defendant.

Petitioners contended that in Civil Case No. 21761, Branch 11 had ruled that the loan for which the
mortgage was executed was contracted in good faith, as it was necessary for them to continue their
business operations even after respondent Aboitiz had stopped giving them financial aid.

Petitioners also contended that respondent Judge exceeded his jurisdiction when he issued the
Order of December 12, 1983, without first hearing the parties on the motion for attachment and the
motion to dissolve the attachment. Moreover, they argued that respondent Judge gravely abused his
discretion in proceeding with the case, notwithstanding that his attention had been called with regard
to the pendency of G.R. No. 63225 in this Court.

As prayed for by petitioners, we issued a temporary restraining order on January 6, 1984 "enjoining
the respondents from enforcing or implementing the writs of preliminary attachment against the
property of petitioners, all dated September 26, 1983 and issued in Civil Cases Nos. CEB 1185 and
1186" (Rollo, p. 118).

II

The resolution of this case centers on the issue of the legality of the writ of attachment issued by
respondent Judge in the consolidated cases for collection of sums of money.
The affidavit submitted by respondent Aboitiz in support of its prayer for the writ of attachment does
not meet the requirements of Rule 57 of the Revised Rules of Court regarding the allegations on
impending fraudulent removal, concealment and disposition of defendant's property. As held
in Carpio v. Macadaeg, 9 SCRA 552 (1963), to justify a preliminary attachment, the removal or
disposal must have been made with intent to defraud defendant's creditors. Proof of fraud is
mandated by paragraphs (d) and (e) of Section 1, Rule 57 of the Revised Rules of Court on the
grounds upon which attachment may issue. Thus, the factual basis on defendant's intent to defraud
must be clearly alleged in the affidavit in support of the prayer for the writ of attachment if not so
specifically alleged in the verified complaint. The affidavit submitted by respondent Aboitiz states:

REPUBLIC OF THE PHILIPPINES


CITY OF CEBU ...............) S.S.

I, ROMAN S. RONQUILLO, of legal age, married and a resident of Cebu City, after
being sworn in accordance with law, hereby depose and say:

That I am the Vice-President of the plaintiff corporation in the above-entitled case;

That a sufficient cause of action exists against the defendants named therein
because the said defendants are indebted to the plaintiffs in the amount of
P13,430,259.14 exclusive of interests thereon and damages claimed;

That the defendants have removed or disposed of their properties with intent to
defraud the plaintiff, their creditor, because on May 27, 1982 they executed a real
estate mortgage in favor of Philippine Commercial and Industrial Bank (PCIB)
covering eleven (11) of their fifteen (15) parcels of land in Cebu to secure a
P1,000,000.00 loan with the same bank;

That this action is one of those specifically mentioned in Section 1, Rule 57 of the
Rules of Court, whereby a writ preliminary attachment may lawfully issue because
the action therein is one against parties who have removed or disposed of their
properties with intent to defraud their creditor, plaintiff herein;

That there is no sufficient security for the claims sought to be enforced by the present
action;

That the total amount due to the plaintiff in the above-entitled case is
P13,430,259.14, excluding interests and claim for damages and is as much the sum
for which an order of attachment is herein sought to be granted; above all legal
counter-claims on the part of the defendants.

IN VIEW WHEREOF, I hereunto set my hand this 24th day of August 1983 at Cebu
City, Philippines.

(
S
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.
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.
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(Rollo, pp. 171-172)

It is evident from said affidavit that the prayer for attachment rests on the mortgage by petitioners of
11 parcels of land in Cebu, which encumbrance respondent Aboitiz considered as fraudulent
concealment of property to its prejudice. We find, however, that there is no factual allegation which
may constitute as a valid basis for the contention that the mortgage was in fraud of respondent
Aboitiz. As this Court said in Jardine-Manila Finance, Inc. v. Court of Appeals, 171 SCRA 636
(1989), "[T]he general rule is that the affidavit is the foundation of the writ, and if none be filed or one
be filed which wholly fails to set out some facts required by law to be stated therein, there is no
jurisdiction and the proceedings are null and void."

Bare allegation that an encumbrance of a property is in fraud of the creditor does not suffice. Factual
bases for such conclusion must be clearly averred.

The execution of a mortgage in favor of another creditor is not conceived by the Rules as one of the
means of fraudulently disposing of one's property. By mortgaging a piece of property, a debtor
merely subjects it to a lien but ownership thereof is not parted with.

Furthermore, the inability to pay one's creditors is not necessarily synonymous with fraudulent intent
not to honor an obligation (Insular Bank of Asia & America, Inc. v. Court of Appeals, 190 SCRA 629
[1990]).

Consequently, when petitioners filed a motion for the reconsideration of the order directing the
issuance of the writ of attachment, respondent Judge should have considered it as a motion for the
discharge of the attachment and should have conducted a hearing or required submission of
counter-affidavits from the petitioners, if only to gather facts in support of the allegation of fraud
(Jopillo, Jr. v. Court of Appeals, 167 SCRA 247 [1988]). This is what Section 13 of Rule 57
mandates.
This procedure should be followed because, as the Court has time and again said, attachment is a
harsh, extraordinary and summary remedy and the rules governing its issuance must be construed
strictly against the applicant. Verily, a writ of attachment can only be granted on concrete and
specific grounds and not on general averments quoting perfunctorily the words of the Rules (D.P.
Lub Oil Marketing Center, Inc. v. Nicolas, 191 SCRA 423 [1990]).

The judge before whom the application is made exercises full discretion in considering the
supporting evidence proffered by the applicant. One overriding consideration is that a writ of
attachment is substantially a writ of execution except that it emanates at the beginning, instead of at
the termination of the suit (Santos v. Aquino, Jr., 205 SCRA 127 [1992]; Tay Chun Suy v. Court of
Appeals, 212 SCRA 713 [1992]).

We need not discuss the issue of whether or not Civil Cases Nos. CEB-1185 and CEB-1186
constituted undue interference with the proceedings in G.R. No. 63225 in view of the entry of
judgment in the latter case.

WHEREFORE, the petition is GRANTED and the Temporary Restraining Order issued on January 6,
1984 is made PERMANENT. Respondent Judge or whoever is the presiding judge of the Regional
Trial Court, Branch 6, Cebu City, is DIRECTED to PROCEED with the resolution of Civil Cases Nos.
CEB-1185 and CEB-1186 with deliberate dispatch.

SO ORDERED.

























G.R. No. L-37682 November 26, 1932

CLAUDE NEON LIGHTS, FEDERAL INC., U. S. A., petitioner,


vs.
PHILIPPINE ADVERTISING CORPORATION and FRANCISCO SANTAMARIA, Judge of First
Instance of Manila, respondents.

Gibbs & McDonough for petitioner.


Courtney Whitney for respondents.

BUTTE, J.:

This case is to be determined upon the petition for writ of certiorari and the demurrer thereto filed by
the respondents. The petition sets up two causes of action: one attacking the validity of a writ of
attachment issued by the respondent judge on the petition and affidavit of the respondent Philippine
Advertising Corporation, on April 6, 1932; the second, attacking the validity of the order of the
respondent judge issued the same day on the petition of the respondent Philippine Advertising
Corporation, appointing a receiver of the property which was seized by the sheriff under said writ of
attachment.

On April 5, 1932, the respondent Philippine Advertising Corporation filed suit against the petitioner in
the Court of First Instance of Manila, claiming P300,000 as damages for alleged breach of the
agency contract existing between the said respondent and the petitioner. At the same time, said
respondent filed in said court an application for writ of attachment duly verified in which it is stated
that the defendant (petitioner herein) is a foreign corporation having its principal place of business in
the City of Washington, District of Columbia. It is not alleged in said application that the defendant,
Claude Neon Lights, Inc. (the petitioner herein) was about to depart from the Philippine Islands with
intent to defraud its creditors or that it was insolvent or had removed or disposed of its property or
was about to do so with intent to defraud its creditors. The only statutory ground relied upon in the
court below and in this court for the issuance of the writ of attachment against the petitioner is
paragraph 2 of section 424 of the Code of Civil Procedure, which provides that plaintiff may have the
property of the defendant attached "in an action against a defendant not residing in the Philippine
Islands".

On April 6, 1932, the respondent judge issued the writ of attachment as prayed for, and the sheriff
has attached all the properties of the petitioner in the Philippine Islands. On the same date, on the ex
parte petition and nomination of the respondent, the respondent judge appointed Manuel C. Grey
receiver of said properties of the petitioner, fixing his bond at P3,000.

Motions to dissolve said writ of attachment and receivership were fled in the court below, supported
by affidavits of the attorney in fact for the petitioner in which it is recited, among other things, that the
petitioner is not indebted to the respondent in any sum whatever nor has it in any way breached any
contracts with the respondent or at any time interfered in the management of its business in the
Philippine Islands as carried on by its agent, the respondent, and it has faithfully complied with every
condition of said contract; that the attachment of the machinery and plants of the petitioner, as well
as its other assets, is highly prejudicial to it as it is unable to proceed with its business in the
Philippine Islands and irreparable loss will result to it unless such attachment be raised; that the filing
of said suit was malicious, without foundation, and intended only to injure the petitioner and to
depreciate the value of its holdings in the Philippine Islands. It does not appear that any answer was
made to said motion in which said allegations were denied or that any refuting evidence was offered.
On June 20 1932, the court denied said motions to vacate the attachment and receivership,
declaring that the writ of attachment conforms to section 424 of the Code of Civil Procedure.

The petitioner for certiorari prays that the writ of attachment issued by the respondent judge on April
6, 1932, as well as the order of the same date, appointing Manuel C. Grey receiver of the property of
the petitioner, be annulled.

The sufficiency of the application for the writ of attachment assailed by the petitioner upon several
grounds but we shall confine ourselves to the consideration of the question whether or not
paragraph 2 of section 424 of the Code of Civil Procedure is applicable to this petitioner.

The petitioner is a corporation duly organized under the laws of the District of Columbia; it had
complied with all the requirements of the Philippine laws and the was duly licensed to do business in
the Philippine Islands on the date said writ of attachment was issues. The petitioner was actively
engaged in doing business in the Philippine Islands and had considerable property therein, which
consisted to its manufacturing plant, machinery, merchandise and a large income under valuable
contracts, all of which property was in the possession and under the control and management of the
respondent Philippine Advertising Corporation, as the agent of the petitioner, on the date said
attachment was levied. Considered from a practical and economic viewpoint, its position in the
business community was indistinguishable from that of a domestic corporation.

Section 242 of the Code of Civil Procedure under which the petitioner's property was attached, reads
as follows:

Attachment. — A plaintiff may, at the commencement of his action, or at any time afterwards,
have the property of the defendant attached as security for the satisfaction of any judgment
that may be recovered, unless the defendant gives security to pay such judgment, in the
manner hereinafter provided, in the following cases.

1. In all the cases mentioned in section four hundred and twelve, providing for the arrest of a
defendant. But the plaintiff must make an election as to whether he will ask for an order of
arrest or an order of attachment; he shall not be entitled to both orders;

2. In an action against a defendant not residing in the Philippine Islands.

It may be observed at the outset that the words of section 424, supra, taken in their literal sense
seem to refer to a physical defendant who is capable of being "arrested" or who is "not residing in
the Philippine Islands". It is only by a fiction that it can be held that a corporation is "not residing in
the Philippine Islands". A corporation has no home or residence in the sense in which those terms
are applied to natural persons. For practical purposes, a corporation is sometimes said, in a
metaphorical sense, to be "a resident" of a certain state or a "citizen" of a certain country, which is
usually the state or country by which or under the laws of which it was created. But that fiction or
analogy between corporations and natural persons by no means extends so far that it can be said
that every statute applicable to natural persons is applicable to corporations. Indeed, within the same
jurisdiction a corporation has been held to be a "citizen" of the state of its creation for the purpose of
determining the jurisdiction of the Federal courts (Wisconsin vs. Pelican Insurance Co., 127 U. S.,
265) but not a "citizen" within the meaning of section 2 of article 4 of the Constitution of the United
States which provides that the citizens of each state shall be entitled to all the privileges and
immunities of citizens of the several states (Paul vs. Virginia, 8 Wall., 169).
The question arises whether this petitioner, a foreign corporation, shall, in a metaphorical sense, be
deemed as "not residing in the Philippine Islands" in the sense in which that expression would apply
to a natural person.

Having regard to the reason for the statute which is the protection of the creditors of a non-resident,
we are of the opinion that there is not the same reason for subjecting a duly licensed foreign
corporation to the attachment of its property by a plaintiff under section 424, paragraph 2, as may
exist in the case of a natural person not residing in the Philippine Islands. The law does not require
the latter, as it does the former, to appoint a resident agent for service of process; nor to prove to the
satisfaction of the Government before he does business here, as the foreign corporation must prove,
that he "is solvent and in sound financial condition" (section 68, Act No. 1459, as amended, the
Corporation Law), or to produce evidence of "fair dealing" (ibid.). He pays no license fee nor is his
business subject at any time to investigation by the Secretary of Finance and the Governor-General;
nor is his right to continue to do business revocable by the Government (Cf. section 71, Act No.
1459 of the Corporation Law). His books and papers are not liable to examination "at any time" by
the Attorney-General, the Insular Auditor, the Insular Treasurer, "or any other officer of the
Government" on the order of the Governor-General (section 54, ibid.). He is not, like a foreign
corporation "bound by all laws, rules and regulations applicable to domestic corporations" . . .
(section 73, ibid.), which are designed to protect creditors and the public. He can evade service of
summons and other legal process, the foreign corporation never. (Section 72, ibid.)

Corporations, as a rule, are less mobile than individuals. This is a specially true of foreign
corporations that are carrying on business by proper authority in these Islands. They possess, as a
rule, great capital which is seeking lucrative and more or less permanent investment in young and
developing countries like our Philippines. Some of them came here as far back as the Spanish
regime and are still important factors in our financial and industrial life. They are anything but "fly-by-
night" concerns. The latter, we believe, are effectually excluded from our Islands both by our laws
and by our geographical and economic situation.

If, as we believe, section 424, paragraph 2, should not be held applicable to foreign corporations
duly licensed to do business in the Philippine Islands both because the language and the reason of
the statute limit it to natural persons, we sustain and reinforce the provisions of section 71 of the
Corporation Law, Act No. 1459, which provides in substance that if the Secretary of Finance or the
Secretary of Commerce and Communications and the Governor-General find a duly licensed foreign
corporation to be insolvent or that its continuance in business will involve probable loss to its
creditors, they may revoke its license and "the Attorney-General shall take such proceedings as may
be proper to protect creditors and the public". Section 71, supra, contemplates that the proceedings
instituted by the Attorney-General shall effect the protection of all creditors and the public equally.
Obviously, the benefit of that section will be minimized, if not entirely defeated, if a creditor or a few
creditors can obtain privileged liens by writs of attachment based on the sole allegation, which is
easily and safely made, that the corporation is "not residing in the Philippine Islands". (Cf. Kuenzle &
Streiff vs. Villanueva, 41 Phil., 611.)
lawphil.net

Paragraph 2 of section 424, supra does not apply to a domestic corporation. Our laws and
jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do business
here, to the status of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells
Co. vs. Henry W. Elser & Co., 46 Phil., 70, 76; Yu Cong Eng vs. Trinidad, 47 Phil., 385, 411.) We
think it would be entirely out of line with this policy should we make a discrimination against a foreign
corporation, like the petitioner, and subject its property to the harsh writ of seizure by attachment
when it has complied not only with every requirement of law made especially of foreign corporations,
but in addition with every requirement of law made of domestic corporations. (Section 73, supra.)
It is true that the majority of the states in the American Union hold the contrary rule. But our situation
is obviously very dissimilar from that of a state in the American Union. There forty-eight states and
the central government, all creating corporations which do a tremendous interstate business, are
contiguous and separated by imaginary lines. A higher degree of protection against irresponsible
corporations may be more necessary there than here. We have no interstate business. Only the
central government grants charters to corporations. But even in the American Union there is a
minority rule which we regard as the better reasoned and the better suited to our conditions, both
geographical and economical, and more nearly in harmony with the policy of our law both under the
Spanish regime and since the American occupation. This minority rule is supported by the following
authorities: Brand vs. Auto Service Co. (New Jersey, 1907), 67 Atl., 19, 20; Mellor vs. Edward V.
Hartford, Inc. (New Jersey, 1929), 146 Atl., 206; Charles Friend & Co. vs. Gold Smith & Co. (Illinois,
1923), 138 N. E., 185; Fullilove vs. Central State Bank (Louisiana, 1926), 107 So., 590.

In the present instance, a particularly monstrous result has followed as s consequence of the
granting of the writ attaching all of the property of the petitioner on the sole allegation that it "is not
residing in the Philippine Islands". As the petitioner's business was a going concern, which the
sheriff, who levied the writ, obviously could not manage, it became necessary on the same day for
the court to appoint a receiver. This receiver, as the demurrer admits, "was and is an employee
working under the president of the respondent Philippine Advertising Corporation, so that to all
intents and purposes, all the property of the petitioner in the Philippine Islands was seized and
delivered into the hands of the respondent Philippine Advertising Corporation."

The prayer of the petitioner is granted. The order and writ of attachment complained of are annulled
and set aside and the court below is directed to vacate the order appointing Manuel C. Grey receiver
of the property of the petitioner and to require said Manuel C. Grey to submit his final report at the
earliest practicable date. Costs in both instances to be borne by the respondent, Philippine
Advertising Corporation. So ordered.





















G.R. Nos. 79926-27 October 17, 1991

STATE INVESTMENT HOUSE, INC. and STATE FINANCING CENTER, INC., petitioners,
vs.
CITIBANK, N.A., BANK OF AMERICA, NT & SA, HONGKONG & SHANGHAI BANKING
CORPORATION, and the COURT OF APPEALS, respondents.

Roco, Bunag, Kapunan & Migallos for petitioners.

Agcaoili & Associates for Citibank, N.A, and Bank of America NT & SA.

Belo, Abiera & Associates for Hongkong & Shanghai Banking Corp.

NARVASA, J.:p

The chief question in the appeal at bar is whether or not foreign banks licensed to do business in the
Philippines, may be considered "residents of the Philippine Islands" within the meaning of Section 20
of the Insolvency Law (Act No. 1956, as amended, eff. May 20, 1909) reading in part as follows: 1

An adjudication of insolvency may be made on the petition of three or more


creditors, residents of the Philippine Islands, whose credits or demands accrued in
the Philippine Islands, and the amount of which credits or demands are in the
aggregate not less than one thousand pesos: Provided, that none of said creditors
has become a creditor by assignment, however made, within thirty days prior to the
filing of said petition. Such petition must be filed in the Court of First Instance of the
province or city in which the debtor resides or has his principal place of business,
and must be verified by at least three (3) of the petitioners. . . .

The foreign banks involved in the controversy are Bank of America NT and SA, Citibank N.A. and
Hongkong and Shanghai Banking Corporation. On December 11, 1981, they jointly filed with the
Court of First Instance of Rizal a petition for involuntary insolvency of Consolidated Mines, Inc.
(CMI), which they amended four days later. 2 The case was docketed as Sp. Proc. No. 9263 and assigned to Branch 28 of
the Court.

The petition for involuntary insolvency alleged:

1) that CMI had obtained loans from the three petitioning banks, and that as of
November/December, 1981, its outstanding obligations were as follows:

a) In favor of Bank of America (BA) P15,297,367.67

(as of December 10, 1981) US$ 4,175,831.88

(b) In favor of Citibank US$ 4,920,548.85

(as of December 10, 1981)

c) In favor of Hongkong & Shanghai Bank US$ 5,389,434.12


(as of November 30, 1981); P6,233,969.24

2) that in November, 1981, State Investment House, Inc. (SIHI) and State Financing Center, Inc.
(SFCI) had separately instituted actions for collection of sums of money and damages in the Court of
First Instance of Rizal against CMI, docketed respectively as Civil Cases Numbered 43588 and
43677; and that on application of said plaintiffs, writs of preliminary attachment had been issued
which were executed on "the royalty/profit sharing payments due CMI from Benguet Consolidated
Mining, Inc;" and

3) that CMI had "committed specific acts of insolvency as provided in Section 20 of the Insolvency
Law, to wit:

xxx xxx xxx

5. that he (CMI) has suffered his (CMI's) property to remain under attachment or
legal process for three days for the purpose of hindering or delaying or defrauding his
(CMI's) creditors;

xxx xxx xxx

11. that being a merchant or tradesman he (CMI) has generally defaulted in the
payment of his (CMI's) current obligations for a period of thirty days; . . .

The petition was opposed by State Investment House, Inc. (SIHI) and State Financing Center, Inc.
(SFCI). 3 It claimed that:

1) the three petitioner banks had come to court with unclean hands in that they filed the petition for
insolvency — alleging the CMI was defrauding its creditors, and they wished all creditors to share in
its assets — although a few days earlier, they had "received for the account of CMI substantial
payments aggregating P10,800,000.00;"

2) the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of
attachment against CMI had remained in force because there were "just, valid and lawful grounds for
the(ir) issuance," and CMI was not a "merchant or tradesman" nor had it "generally defaulted in the
payment of (its) obligations for a period of thirty days . . . ;"

3) the Court had no jurisdiction to take cognizance of the petition for insolvency because petitioners
are not resident creditors of CMI in contemplation of the Insolvency Law; and

4) the Court has no power to set aside the attachment issued in favor of intervenors-oppositors SIHI
and SFCI.

CMI filed its Answer to the petition for insolvency, asserting in the main that it was not insolvent, 4 and
later filed a "Motion to Dismiss Based on Affirmative Defense of Petitioner's Lack of Capacity to Sue," echoing the theory of SIHI and SFCI
that the petitioner banks are not "Philippine residents." 5 Resolution on the motion was "deferred until after hearing of the case on the merits"
it appearing to the Court that the grounds therefor did not appear to be indubitable. 6

SIHI and SFCI filed their own Answer-in-Intervention, 7 and served on the three petitioner banks requests for admission
of certain facts in accordance with Rule 26 of the Rules of Court, 8 receiving a response only from Hongkong & Shanghai Bank. 9

SIHI and SFCI then filed a Motion for Summary Judgment dated May 23, 1983 "on the ground that,
based on the pleadings and admissions on record, the trial court had no jurisdiction to adjudicate
CMI insolvent since the petitioners (respondent foreign banks) are not "resident creditors" of CMI as
required under the Insolvency Law." 10 Oppositions to the motion were filed, 11 to which a reply was submitted. 12

The Regional Trial Court 13 found merit in the motion for summary judgment. By Order dated October 10, 1983, it rendered
"summary judgment dismissing the . . . petition for lack of jurisdiction over the subject matter, with costs against petitioners." 14 It ruled that
on the basis of the "facts on record, as shown in the pleadings, motions and admissions of the parties, an insolvency court could "not acquire
jurisdiction to adjudicate the debtor as insolvent if the creditors petitioning for adjudication of insolvency are not "residents" of the Philippines"
— citing a decision of the California Supreme Court which it declared "squarely applicable especially considering that one of the sources of
our Insolvency Law is the Insolvency Act of California of 1895 . . . " And it declared that since petitioners had been merely licensed to do
business in the Philippines, they could not be deemed residents thereof.

The three foreign banks sought to take an appeal from the Order of October 10, 1983. They filed a
notice of appeal and a record on appeal. 15 SIHI and SFCI moved to dismiss their appeal claiming it was attempted out of
time. The Trial Court denied the motion.

SIHI and SFCI filed with this Court a petition for certiorari and prohibition (G.R. NO. 66449),
impugning that denial. The Court dismissed the petition and instead required the three banks to file a
petition for review in accordance with Rule 45 of the Rules of Court. 16 This the banks did (their petition was
docketed as G.R. No. 66804). However, by Resolution dated May 16, 1984, the court referred the petition for review to the Intermediate
Appellate Court, where it was docketed as AC SP-03674. 17

In the meantime, the Trial Court approved on May 3, 1985 the banks' record on appeal and
transmitted it to this Court, where it was recorded as UDK-6866. As might have been expected, this
Court required the banks to file a petition for review under Rule 45, but they asked to be excused
from doing so since they had already filed such a petition, which had been referred to the
Intermediate Appellate Court and was there pending as AC-G.R. No. SP 03674, supra. This Court
then also referred UDK-6866 to the Intermediate Appellate Court where it was docketed as AC-G.R.
No. CV 07830.

Both referred cases, AC-G.R. No. SP 03674 and AC-G.R. No. CV 07830, were consolidated by
Resolution of the Court of Appeals dated April 9, 1986, and Decision thereon was promulgated on
July 14, 1987 by the Fifteenth Division of said Court. 18

The Appellate Court reversed the Trial Court's Order of October 10, 1983 and remanded the case to
it for further proceedings. It ruled:

1) that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash for
distribution among creditors, and then to relieve the honest debtor from the weight of oppressive
indebtedness and permit him to start life anew, free from the obligations and responsibilities
consequent upon business misfortunes;" 19 and that it was "crystal clear" that the law was "designed not only for the benefit
of the creditors but more importantly for the benefit of the debtor himself," the object being "to provide not only for the suspension of
payments and the protection of creditors but also the discharge of insolvent honest debtors to enable them to have a fresh start;"

2) that the Trial Court had placed "a very strained and restrictive interpretation of the term "resident,"
as to exclude foreign banks which have been operating in this country since the early part of the
century," and "the better approach . . . would have been to harmonize the provisions . . . (of the
Insolvency Law) with similar provisions of other succeeding laws, like the Corporation Code of the
Philippines, the General Banking Act, the Offshore Banking Law and the National Internal Revenue
Code in connection with or related to their doing business in the Philippines;"

3) that in light of said statutes, the three banks "are in truth and in fact considered as "residents" of
the Philippines for purposes of doing business in the Philippines and even for taxation matters;"

4) that the banks had "complied with all the laws, rules and regulations (for doing business in the
country) and have been doing business in the Philippines for many years now;" that the authority
granted to them by the Securities and Exchange Commission upon orders of the Monetary Board
"covers not only transacting banking business . . . but likewise maintaining suits "for recovery of any
debt, claims or demand whatsoever," and that their petition for involuntary insolvency was "nothing
more than a suit aimed at recovering a debt granted by them to Consolidated Mines, Inc., or at least
a portion thereof;"

4) that to deprive the foreign banks of their right to proceed against their debtors through insolvency
proceedings would "contravene the basic standards of equity and fair play, . . . would discourage
their operations in economic development projects that create not only jobs for our people but also
opportunities for advancement as a nation;" and

5) that the terms "residence" and "domicile" do not mean the same thing, and that as regards a
corporation, it is generally deemed an "inhabitant" of the state under whose law it is incorporated,
and has a "residence" wherever it conducts its ordinary business, and may have its legal "domicile"
in one place and "residence" in another.

SIHI and SFCI moved for reconsideration and then, when rebuffed, took an appeal to this Court.
Here, they argue that the Appellate Court's judgment should be reversed because it failed to declare
that —

1) the failure of the three foreign banks to allege under oath in their petition for involuntary
insolvency that they are Philippine residents, wishing only to "be considered Philippine residents," is
fatal to their cause;

2) also fatal to their cause is their failure to prove, much less allege, that under the domiciliary laws
of the foreign banks, a Philippine corporation is allowed the reciprocal right to petition for a debtor's
involuntary insolvency;

3) in fact and in law, the three banks are not Philippine residents because:

a) corporations have domicile and residence only in the state of their


incorporation or in the place designated by law, although for limited
and exclusive purposes, other states may consider them as
residents;

b) juridical persons may not have residence separate from their


domicile;

4) actually, the non-resident status of the banks within the context of the Insolvency Law is
confirmed by other laws;

5) the license granted to the banks to do business in the Philippines does not make them residents;

6) no substantive law explicitly grants foreign banks the power to petition for the adjudication of the
Philippine corporation as a bankrupt;

7) the Monetary Board can not appoint a conservator or receiver for a foreign bank or orders its
liquidation having only the power to revoke its license, subject to such proceedings as the Solicitor
General may thereafter deem proper to protect its creditors;
8) the foreign banks are not denied the right to collect their credits against Philippine debtors, only
the right to "petition for the harsh remedy of involuntary insolvency" not being conceded to them;

9) said banks have come to court with unclean hands, their filing of the petition for involuntary
insolvency being an attempt to defeat validly acquired rights of domestic corporations.

The concept of a foreign corporation under Section 123 of the Corporation Code is of "one formed,
organized or existing under laws other than those of the Philippines and . . . (which) laws allow
Filipino citizens and corporations to do business . . . ." There is no question that the three banks are
foreign corporations in this sence, with principal offices situated outside of the Philippines. There is
no question either that said banks have been licensed to do business in this country and have in fact
been doing business here for many years, through branch offices or agencies, including "foreign
currency deposit units;" in fact, one of them, Hongkong & Shanghai Bank has been doing business
in the Philippines since as early as 1875.

The issue is whether these Philippine branches or units may be considered "residents of the
Philippine Islands" as that term is used in Section 20 of the Insolvency Law, supra, 20 or residents of the
state under the laws of which they were respectively incorporated. The answer cannot be found in the Insolvency Law itself, which contains
no definition of the term, resident, or any clear indication of its meaning. There are however other statutes, albeit of subsequent enactment
and effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to
a foreign corporation engaged in trade or business within the Philippines," as distinguished from a "
"non-resident foreign corporation" . . . (which is one) not engaged in trade or business within the
Philippines." 21

The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries,
affiliation, extension offices or any other units of corporation or juridical person organized under the
laws of any foreign country operating in the Philippines shall be considered residents of the
Philippines." 22

The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of
foreign banks . . . (which are) called Philippine branches," in the same category as "commercial
banks, savings associations, mortgage banks, development banks, rural banks, stock savings and
loan associations" (which have been formed and organized under Philippine laws), making no
distinction between the former and the later in so far, as the terms "banking institutions" and "bank"
are used in the Act, 23 declaring on the contrary that in "all matters not specifically covered by special provisions applicable only to
foreign banks, or their branches and agencies in the Philippines, said foreign banks or their branches and agencies lawfully doing business in
the Philippines "shall be bound by all laws, rules, and regulations applicable to domestic banking corporations of the same class, except such
laws, rules and regulations as provided for the creation, formation, organization, or dissolution of corporations or as fix the relation, liabilities,
responsibilities, or duties of members, stockholders or officers or corporations." 24

This Court itself has already had occasion to hold 25 that a foreign corporation licitly doing business in the Philippines,
which is a defendant in a civil suit, may not be considered a non-resident within the scope of the legal provision authorizing attachment
against a defendant not residing in the Philippine Islands;" 26 in other words, a preliminary attachment may not be applied for and granted
solely on the asserted fact that the defendant is a foreign corporation authorized to do business in the Philippines — and is consequently and
necessarily, "a party who resides out of the Philippines." Parenthetically, if it may not be considered as a party not residing in the Philippines,
or as a party who resides out of the country, then, logically, it must be considered a party who does reside in the Philippines, who is a
resident of the country. Be this as it may, this Court pointed out that:

. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations,


duly licensed to do business here, to the status of domestic corporations. (Cf.
Section 73, Act No. 1459, and Marshall Wells Co. vs. Henry W. Elser & Co., 46 Phil.
70, 76; Yu; Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it would be entirely
out of line with this policy should we make a discrimination against a foreign
corporation, like the petitioner, and subject its property to the harsh writ of seizure by
attachment when it has complied not only with every requirement of law made
specially of foreign corporations, but in addition with every requirement of law made
of domestic corporations. . . . .

Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to
the status of domestic corporations," subsumes their being found and operating as corporations,
hence, residing, in the country.

The same principle is recognized in American law: that the "residence of a corporation, if it can be
said to have a residence, is necessarily where it exercises corporate functions . . . ;" that it is
.considered as dwelling "in the place where its business is done . . . ," as being "located where its
franchises are exercised . . . ," and as being "present where it is engaged in the prosecution of the
corporate enterprise;" that a "foreign corporation licensed to do business in a state is a resident of
any country where it maintains an office or agent for transaction of its usual and customary business
for venue purposes;" and that the "necessary element in its signification is locality of
existence." 27 Courts have held that "a domestic corporation is regarded as having a residence within the state at any place where it is
engaged in the particulars of the corporate enterprise, and not only at its chief place or home office;" 28 that "a corporation may be domiciled
in one state and resident in another; its legal domicil in the state of its creation presents no impediment to its residence in a real and practical
sense in the state of its business activities." 29

The foregoing propositions are in accord with the dictionary concept of residence as applied to
juridical persons, a term which appears to comprehend permanent as well as temporary residence.

The Court cannot thus accept the petitioners' theory that corporations may not have a residence
(i.e., the place where they operate and transact business) separate from their domicile (i.e., the state
of their formation or organization), and that they may be considered by other states as residents only
for limited and exclusive purposes. Of course, as petitioners correctly aver, it is not really the grant of
a license to a foreign corporation to do business in this country that makes it a resident; the license
merely gives legitimacy to its doing business here. What effectively makes such a foreign
corporation a resident corporation in the Philippines is its actually being in the Philippines and licitly
doing business here, "locality of existence" being, to repeat, the "necessary element in . . . (the)
signification" of the term, resident corporation.

Neither can the Court accept the theory that the omission by the banks in their petition for
involuntary insolvency of an explicit and categorical statement that they are "residents of the
Philippine Islands," is fatal to their cause. In truth, in light of the concept of resident foreign
corporations just expounded, when they alleged in that petition that they are foreign banking
corporations, licensed to do business in the Philippines, and actually doing business in this Country
through branch offices or agencies, they were in effect stating that they are resident foreign
corporations in the Philippines.

There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the
power to petition for the adjudication of a Philippine corporation as a bankrupt. This is
inconsequential, for neither is there any legal provision expressly giving domestic banks the same
power, although their capacity to petition for insolvency can scarcely be disputed and is not in truth
disputed by petitioners. The law plainly grants to a juridical person, whether it be a bank or not or it
be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the
adjudication of bankruptcy of any person, natural or juridical, provided that it is a resident corporation
and joins at least two other residents in presenting the petition to the Bankruptcy Court.

The petitioners next argue that "Philippine law is emphatic that only foreign corporations whose own
laws give Philippine nationals reciprocal rights may do business in the Philippines." As basis for the
argument they invoke Section 123 of the Corporation Code which, however, does not formulate the
proposition in the same way. Section 123 does not say, as petitioners assert, that it is required that
the laws under which foreign corporations are formed "give Philippine nationals, reciprocal rights."
What it does say is that the laws of the country or state under which a foreign corporation is "formed,
organized or existing . . . allow Filipino citizens and corporations to do business in its own country or
state," which is not quite the same thing. Now, it seems to the Court that there can be no serious
debate about the fact that the laws of the countries under which the three (3) respondent banks were
formed or organized (Hongkong and the United States) do "allow Filipino citizens and corporations to
do business" in their own territory and jurisdiction. It also seems to the Court quite apparent that the
Insolvency Law contains no requirement that the laws of the state under which a foreign corporation
has been formed or organized should grant reciprocal rights to Philippine citizens to apply for
involuntary insolvency of a resident or citizen thereof. The petitioners' point is thus not well taken and
need not be belabored.

That the Monetary Board can not appoint a conservator or receiver for a foreign bank or order its
liquidation having only the power to revoke its license, subject to such proceedings as the Solicitor
General may thereafter deem proper to protect its creditors, which is another point that petitioners
seek to make, is of no moment. It has no logical connection to the matter of whether or not the
foreign bank may properly ask for a judicial declaration of the involuntary insolvency of a domestic
corporation, which is the issue at hand. The fact is, in any event, that the law is not lacking in
sanctions against foreign banks or powerless to protect the latter's creditors.

The petitioners contend, too, that the respondent banks have come to court with unclean hands,
their filing of the petition for involuntary insolvency being an attempt to defeat validly acquired rights
of domestic corporations. The Court wishes to simply point out that the effects of the institution of
bankruptcy proceedings on all the creditors of the alleged bankrupt are clearly spelled out by the
law, and will be observed by the Insolvency Court regardless of whatever motives — apart from the
desire to share in the assets of the insolvent in satisfying its credits — that the party instituting the
proceedings might have.

Still another argument put forth by the petitioners is that the three banks' failure to incorporate their
branches in the Philippines into new banks in accordance with said Section 68 of the General
Banking Act connotes an intention on their part to continue as residents of their respective states of
incorporation and not to be regarded as residents of the Philippines. The argument is based on an
incomplete and inaccurate quotation of the cited Section. What Section 68 required of a "foreign
bank presently having branches and agencies in the Philippines, . . . within one year from the
effectivity" of the General Banking Act, was to comply with any of three (3) options, not merely with
one sole requirement. These three (3) options are the following:

1) (that singled out and quoted by the petitioners, i.e.:) "incorporate its branch or
branches into a new bank in accordance with Philippine laws . . . ; or

2) "assign capital permanently to the local branch with the concurrent maintenance of
a 'net due to' head office account which shall include all net amounts due to other
branches outside the Philippines in an amount which when added to the assigned
capital shall at all times be not less than the minimum amount of capital accounts
required for domestic commercial banks under section twenty-two of this Act;" or

3) "maintain a "net due to" head office account which shall include all net amounts
due to other branches outside the Philippines, in an amount which shall not be less
than the minimum amount of capital accounts required for domestic commercial
banks under section twenty-two of this Act."
The less said about this argument then, the better.

The petitioners allege that three days before respondent banks filed their petition for involuntary
insolvency against CMI, they received from the latter substantial payments on account in the
aggregate amount of P6,010,800.00, with the result that they were "preferred in the distribution of
CMI's assets thereby defrauding other creditors of CMI." Non sequitur. It is in any case a
circumstance that the Bankruptcy Court may well take into consideration in determining the manner
and proportion by which the assets of the insolvent company shall be distributed among its creditors;
but it should not be considered a ground for giving the petition for insolvency short shrift. Moreover,
the payment adverted to does not appear to be all that large. The total liabilities of CMI to the three
respondent banks as of December, 1981 was P21,531,336.91, and US$14,485,814.85. Converted
into Philippine currency at the rate of P7.899 to the dollar, the average rate of exchange during
December, 1981, 30 the dollar account would be P114,423,451.50. Thus, the aggregate liabilities of CMI to the banks, expressed in
Philippine currency, was P135,954,788.41 as of December, 1981, and therefore the payment to them of P6,010,800.00 constituted only
some 4.42% of the total indebtedness.

WHEREFORE, the petition is DENIED and the challenged Decision of the Court of Appeals is
AFFIRMED in toto, with costs against the petitioners.

SO ORDERED.



























G.R. No. 175587 September 21, 2007

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,


vs.
JOSEPH ANTHONY M. ALEJANDRO, Respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review assails the May 31, 2006 Decision1 of the Court of Appeals in CA-G.R. CV
No. 78200 affirming the August 30, 2000 Decision2 of the Regional Trial Court of Makati, which
granted respondent Joseph Anthony M. Alejandro’s claim for damages arising from petitioner
Philippine Commercial International Bank’s (PCIB) invalid garnishment of respondent’s deposits.

On October 23, 1997, petitioner filed against respondent a complaint3 for sum of money with prayer
for the issuance of a writ of preliminary attachment. Said complaint alleged that on September 10,
1997, respondent, a resident of Hong Kong, executed in favor of petitioner a promissory note
obligating himself to pay P249,828,588.90 plus interest. In view of the fluctuations in the foreign
exchange rates which resulted in the insufficiency of the deposits assigned by respondent as
security for the loan, petitioner requested the latter to put up additional security for the loan.
Respondent, however, sought a reconsideration of said request pointing out petitioner’s alleged
mishandling of his account due to its failure to carry out his instruction to close his account as early
as April 1997, when the prevailing rate of exchange of the US Dollar to Japanese yen was
US$1.00:JPY127.50.4 It appears that the amount of P249,828,588.90 was the consolidated amount
of a series of yen loans granted by petitioner to respondent during the months of February and April
1997.5

In praying for the issuance of a writ of preliminary attachment under Section 1 paragraphs (e) and (f)
of Rule 57 of the Rules of Court, petitioner alleged that (1) respondent fraudulently withdrew his
unassigned deposits notwithstanding his verbal promise to PCIB Assistant Vice President Corazon
B. Nepomuceno not to withdraw the same prior to their assignment as security for the loan; and (2)
that respondent is not a resident of the Philippines. The application for the issuance of a writ was
supported with the affidavit of Nepomuceno.6

On October 24, 1997, the trial court granted the application and issued the writ ex parte7 after
petitioner posted a bond in the amount of P18,798,734.69, issued by Prudential Guarantee &
Assurance Inc., under Bond No. HO-46764-97. On the same date, the bank deposits of respondent
with Rizal Commercial Banking Corporation (RCBC) were garnished. On October 27, 1997,
respondent, through counsel, filed a manifestation informing the court that he is voluntarily
submitting to its jurisdiction.8

Subsequently, respondent filed a motion to quash9 the writ contending that the withdrawal of his
unassigned deposits was not fraudulent as it was approved by petitioner. He also alleged that
petitioner knew that he maintains a permanent residence at Calle Victoria, Ciudad Regina, Batasan
Hills, Quezon City, and an office address in Makati City at the Law Firm Romulo Mabanta
Buenaventura Sayoc & De los Angeles, 10 where he is a partner. In both addresses, petitioner
regularly communicated with him through its representatives. Respondent added that he is the
managing partner of the Hong Kong branch of said Law Firm; that his stay in Hong Kong is only
temporary; and that he frequently travels back to the Philippines.
On December 24, 1997, the trial court issued an order quashing the writ and holding that the
withdrawal of respondent’s unassigned deposits was not intended to defraud petitioner. It also found
that the representatives of petitioner personally transacted with respondent through his home
address in Quezon City and/or his office in Makati City. It thus concluded that petitioner
misrepresented and suppressed the facts regarding respondent’s residence considering that it has
personal and official knowledge that for purposes of service of summons, respondent’s residence
and office addresses are located in the Philippines. The dispositive portion of the court’s decision is
as follows:

WHEREFORE, the URGENT MOTION TO QUASH, being meritorious, is hereby GRANTED, and
the ORDER of 24 October 1997 is hereby RECONSIDERED and SET ASIDE and the WRIT OF
attachment of the same is hereby DISCHARGED.

SO ORDERED.11

With the denial12 of petitioner’s motion for reconsideration, it elevated the case to the Court of
Appeals (CA-G.R. SP No. 50748) via a petition for certiorari. On May 10, 1999, the petition was
dismissed for failure to prove that the trial court abused its discretion in issuing the aforesaid
order.13 Petitioner filed a motion for reconsideration but was denied on October 28, 1999.14 On
petition with this Court, the case was dismissed for late filing in a minute resolution (G.R. No.
140605) dated January 19, 2000.15 Petitioner filed a motion for reconsideration but was
likewise denied with finality on March 6, 2000.16

Meanwhile, on May 20, 1998, respondent filed a claim for damages in the amount of P25 Million 17 on
the attachment bond (posted by Prudential Guarantee & Assurance, Inc., under JCL(4) No. 01081,
Bond No. HO-46764-97) on account of the wrongful garnishment of his deposits. He presented
evidence showing that his P150,000.00 RCBC check payable to his counsel as attorney’s fees, was
dishonored by reason of the garnishment of his deposits. He also testified that he is a graduate of
the Ateneo de Manila University in 1982 with a double degree of Economics and Management
Engineering and of the University of the Philippines in 1987 with the degree of Bachelor of Laws.
Respondent likewise presented witnesses to prove that he is a well known lawyer in the business
community both in the Philippines and in Hong Kong.18 For its part, the lone witness presented by
petitioner was Nepomuceno who claimed that she acted in good faith in alleging that respondent is a
resident of Hong Kong.19

On August 30, 2000, the trial court awarded damages to respondent in the amount of P25 Million
without specifying the basis thereof, thus:

WHEREFORE, premises above considered, and defendant having duly established his claim in the
amount of P25,000,000.00, judgment is hereby rendered ordering Prudential Guarantee &
[Assurance] Co., which is solidarily liable with plaintiff to pay defendant the full amount of bond under
Prudential Guarantee & Assurance, Inc. JCL(4) No. 01081, [Bond No. HO-46764-97], dated 24
October 1997 in the amount of P18,798,734.69. And, considering that the amount of the bond is
insufficient to fully satisfy the award for damages, plaintiff is hereby ordered to pay defendant the
amount of P6,201,265.31.

SO ORDERED.20

The trial court denied petitioner’s motion for reconsideration on October 24, 2000.21

Petitioner elevated the case to the Court of Appeals which affirmed the findings of the trial court. It
held that in claiming that respondent was not a resident of the Philippines, petitioner cannot be said
to have been in good faith considering that its knowledge of respondent’s Philippine residence and
office address goes into the very issue of the trial court’s jurisdiction which would have been
defective had respondent not voluntarily appeared before it.

The Court of Appeals, however, reduced the amount of damages awarded to petitioner and specified
their basis. The dispositive portion of the decision of the Court of Appeals states:

WHEREFORE, the appeal is PARTIALLY GRANTED and the decision appealed from is hereby
MODIFIED. The award of damages in the amount of P25,000,000.00 is deleted. In lieu thereof,
Prudential Guarantee & [Assurance, Inc.], which is solidarily liable with appellant [herein petitioner],
is ORDERED to pay appellee [herein respondent] P2,000,000.00 as nominal
damages; P5,000,000.00 as moral damages; and P1,000,000.00 as attorney’s fees, to be satisfied
against the attachment bond under Prudential Guarantee & Assurance, Inc. JCL (4) No. 01081.

SO ORDERED.22

Both parties moved for reconsideration. On November 21, 2006, the Court of Appeals denied
petitioner’s motion for reconsideration but granted that of respondent’s by ordering petitioner to pay
additional P5Million as exemplary damages.23

Hence, the instant petition.

At the outset, it must be noted that the ruling of the trial court that petitioner is not entitled to a writ of
attachment because respondent is a resident of the Philippines and that his act of withdrawing his
deposits with petitioner was without intent to defraud, can no longer be passed upon by this Court.
More importantly, the conclusions of the court that petitioner bank misrepresented that respondent
was residing out of the Philippines and suppressed the fact that respondent has a permanent
residence in Metro Manila where he may be served with summons, are now beyond the power of
this Court to review having been the subject of a final and executory order. Said findings were
sustained by the Court of Appeals in CA-G.R. SP No. 50784 and by this Court in G.R. No. 140605.
The rule on conclusiveness of judgment, which obtains under the premises, precludes the relitigation
of a particular fact or issue in another action between the same parties even if based on a different
claim or cause of action. The judgment in the prior action operates as estoppel as to those matters in
issue or points controverted, upon the determination of which the finding or judgment was rendered.
The previous judgment is conclusive in the second case, as to those matters actually and directly
controverted and determined.24 Hence, the issues of misrepresentation by petitioner and the
residence of respondent for purposes of service of summons can no longer be questioned by
petitioner in this case.

The core issue for resolution is whether petitioner bank is liable for damages for the improper
issuance of the writ of attachment against respondent.

We rule in the affirmative.

Notwithstanding the final judgment that petitioner is guilty of misrepresentation and suppression of a
material fact, the latter contends that it acted in good faith. Petitioner also contends that even if
respondent is considered a resident of the Philippines, attachment is still proper under Section 1,
paragraph (f), Rule 57 of the Rules of Court since he (respondent) is a resident who is temporarily
out of the Philippines upon whom service of summons may be effected by publication.

Petitioner’s contentions are without merit.


While the final order of the trial court which quashed the writ did not categorically use the word "bad
faith" in characterizing the representations of petitioner, the tenor of said order evidently considers
the latter to have acted in bad faith by resorting to a deliberate strategy to mislead the court. Thus –

In the hearings of the motion, and oral arguments of counsels before the Court, it appears that
plaintiff BANK through its contracting officers Vice President Corazon B. Nepomuceno and
Executive Vice President Jose Ramon F. Revilla, personally transacted with defendant mainly
through defendant’s permanent residence in METRO-MANILA, either in defendant’s home address
in Quezon City or his main business address at the Romulo Mabanta Buenaventura Sayoc & Delos
Angeles in MAKATI and while at times follow ups were made through defendant’s temporary home
and business addresses in Hongkong. It is therefore clear that plaintiff could not deny their personal
and official knowledge that defendant’s permanent and official residence for purposes of service of
summons is in the Philippines. In fact, this finding is further confirmed by the letter of Mr. JOHN
GOKONGWEI, JR. Chairman, Executive Committee of plaintiff BANK, in his letter dated 6 October
1997 on the subject loan to defendant of the same law firm was addressed to the ROMULO LAW
FIRM in MAKATI.

[Anent the] second ground of attachment x x x [t]he Court finds that the amount withdrawn was not
part of defendant’s peso deposits assigned with the bank to secure the loan and as proof that the
withdrawal was not intended to defraud plaintiff as creditor is that plaintiff approved and allowed said
withdrawals. It is even noted that when the Court granted the prayer for attachment it was mainly on
the first ground under Section 1(f) of Rule 57 of the 1997 Rules of Civil Procedure, that defendant
resides out of the Philippines.

On the above findings, it is obvious that plaintiff already knew from the beginning the deficiency of its
second ground for attachment [i.e.,] disposing properties with intent to defraud his creditors, and
therefore plaintiff had to resort to this misrepresentation that defendant was residing out of the
Philippines and suppressed the fact that defendant’s permanent residence is in METRO MANILA
where he could be served with summons.

On the above findings, and mainly on the misrepresentations made by plaintiff on the grounds for the
issuance of the attachment in the verified complaint, the Court concludes that defendant has duly
proven its grounds in the MOTION and that plaintiff is not entitled to the attachment.25

Petitioner is therefore barred by the principle of conclusiveness of judgment from again invoking
good faith in the application for the issuance of the writ. Similarly, in the case of Hanil Development
Co., Ltd. v. Court of Appeals,26the Court debunked the claim of good faith by a party who maliciously
sought the issuance of a writ of attachment, the bad faith of said party having been previously
determined in a final decision which voided the assailed writ. Thus –

Apropos the Application for Judgment on the Attachment Bond, Escobar claims in its petition that the
award of attorney’s fees and injunction bond premium in favor of Hanil is [contrary] to law and
jurisprudence. It contends that no malice or bad faith may be imputed to it in procuring the writ.

Escobar’s protestation is now too late in the day. The question of the illegality of the attachment and
Escobar’s bad faith in obtaining it has long been settled in one of the earlier incidents of this case.
The Court of Appeals, in its decision rendered on February 3, 1983 in C.A.-G.R. No. SP-14512,
voided the challenged writ, having been issued with grave abuse of discretion. Escobar’s bad faith in
procuring the writ cannot be doubted. Its Petition for the Issuance of Preliminary Attachment made
such damning allegations that: Hanil was already able to secure a complete release of its final
collection from the MPWH; it has moved out some of its heavy equipments for unknown destination,
and it may leave the country anytime. Worse, its Ex Parte Motion to Resolve Petition alleged that
"after personal verification by (Escobar) of (Hanil’s) equipment in Cagayan de Oro City, it appears
that the equipments were no longer existing from their compound." All these allegations of Escobar
were found to be totally baseless and untrue.

Even assuming that the trial court did not make a categorical pronouncement of misrepresentation
and suppression of material facts on the part of petitioner, the factual backdrop of this case does not
support petitioner’s claim of good faith. The facts and circumstances omitted are highly material and
relevant to the grant or denial of writ of attachment applied for.

Finally, there is no merit in petitioner’s contention that respondent can be considered a resident who
is temporarily out of the Philippines upon whom service of summons may be effected by publication,
and therefore qualifies as among those against whom a writ of attachment may be issued under
Section 1, paragraph (f), Rule 57 of the Rules of Court which provides:

(f) In an action against a party x x x on whom summons may be served by publication.

In so arguing, petitioner attempts to give the impression that although it erroneously invoked the
ground that respondent does not reside in the Philippines, it should not be made to pay damages
because it is in fact entitled to a writ of attachment had it invoked the proper ground under Rule 57.
However, even on this alternative ground, petitioner is still not entitled to the issuance of a writ of
attachment.

The circumstances under which a writ of preliminary attachment may be issued are set forth in
Section 1, Rule 57 of the Rules of Court, to wit:

SEC. 1. Grounds upon which attachment may issue. — At the commencement of the action or at
any time before entry of judgment, a plaintiff or any proper party may have the property of the
adverse party attached as security for the satisfaction of any judgment that may be recovered in the
following cases:

(a) In an action for the recovery of a specified amount of money or damages, other than
moral and exemplary, on a cause of action arising from law, contract, quasi-contract, delict or
quasi-delict against a party who is about to depart from the Philippines with intent to defraud
his creditors;

(b) In an action for money or property embezzled or fraudulently misapplied or converted to


his own use by a public officer, or an officer of a corporation or an attorney, factor, broker,
agent, or clerk, in the course of his employment as such, or by any other person in a
fiduciary capacity, or for a willful violation of duty;

(c) In an action to recover the possession of personal property unjustly or fraudulently taken,
detained, or converted, when the property, or any part thereof, has been concealed,
removed, or disposed of to prevent its being found or taken by the applicant or an authorized
person;

(d) In an action against a party who has been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in the performance thereof;

(e) In an action against a party who has removed or disposed of his property, or is about to
do so, with intent to defraud his creditors;
(f) In an action against a party who resides out of the Philippines, or on whom summons may
be served by publication.

The purposes of preliminary attachment are: (1) to seize the property of the debtor in advance of
final judgment and to hold it for purposes of satisfying said judgment, as in the grounds stated in
paragraphs (a) to (e) of Section 1, Rule 57 of the Rules of Court; or (2) to acquire jurisdiction over
the action by actual or constructive seizure of the property in those instances where personal or
substituted service of summons on the defendant cannot be effected, as in paragraph (f) of the same
provision.27

Corollarily, in actions in personam, such as the instant case for collection of sum of
money,28 summons must be served by personal or substituted service, otherwise the court will not
acquire jurisdiction over the defendant. In case the defendant does not reside and is not found in the
Philippines (and hence personal and substituted service cannot be effected), the remedy of the
plaintiff in order for the court to acquire jurisdiction to try the case is to convert the action into a
proceeding in rem or quasi in rem by attaching the property of the defendant.29 Thus, in order to
acquire jurisdiction in actions in personam where defendant resides out of and is not found in the
Philippines, it becomes a matter of course for the court to convert the action into a proceeding in
rem or quasi in rem by attaching the defendant’s property. The service of summons in this case
(which may be by publication coupled with the sending by registered mail of the copy of the
summons and the court order to the last known address of the defendant), is no longer for the
purpose of acquiring jurisdiction but for compliance with the requirements of due process.30

However, where the defendant is a resident who is temporarily out of the Philippines, attachment of
his/her property in an action in personam, is not always necessary in order for the court to acquire
jurisdiction to hear the case.

Section 16, Rule 14 of the Rules of Court reads:

Sec. 16. Residents temporarily out of the Philippines. – When an action is commenced against a
defendant who ordinarily resides within the Philippines, but who is temporarily out of it, service may,
by leave of court, be also effected out of the Philippines, as under the preceding section.

The preceding section referred to in the above provision is Section 15 which provides for
extraterritorial service – (a) personal service out of the Philippines, (b) publication coupled with the
sending by registered mail of the copy of the summons and the court order to the last known
address of the defendant; or (c) in any other manner which the court may deem sufficient.

In Montalban v. Maximo,31 however, the Court held that substituted service of summons (under the
present Section 7, Rule 14 of the Rules of Court) is the normal mode of service of summons that will
confer jurisdiction on the court over the person of residents temporarily out of the Philippines.
Meaning, service of summons may be effected by (a) leaving copies of the summons at the
defendant’s residence with some person of suitable discretion residing therein, or (b) by leaving
copies at the defendant’s office or regular place of business with some competent person in charge
thereof.32 Hence, the court may acquire jurisdiction over an action in personam by mere substituted
service without need of attaching the property of the defendant.

The rationale in providing for substituted service as the normal mode of service for residents
temporarily out of the Philippines, was expounded in Montalban v. Maximo,33 in this wise:

A man temporarily absent from this country leaves a definite place of residence, a dwelling where he
lives, a local base, so to speak, to which any inquiry about him may be directed and where he is
bound to return. Where one temporarily absents himself, he leaves his affairs in the hands of one
who may be reasonably expected to act in his place and stead; to do all that is necessary to protect
his interests; and to communicate with him from time to time any incident of importance that may
affect him or his business or his affairs. It is usual for such a man to leave at his home or with his
business associates information as to where he may be contacted in the event a question that
affects him crops up.

Thus, in actions in personam against residents temporarily out of the Philippines, the court need not
always attach the defendant’s property in order to have authority to try the case. Where the plaintiff
seeks to attach the defendant’s property and to resort to the concomitant service of summons by
publication, the same must be with prior leave, precisely because, if the sole purpose of the
attachment is for the court to acquire jurisdiction, the latter must determine whether from the
allegations in the complaint, substituted service (to persons of suitable discretion at the defendant’s
residence or to a competent person in charge of his office or regular place of business) will suffice,
or whether there is a need to attach the property of the defendant and resort to service of summons
by publication in order for the court to acquire jurisdiction over the case and to comply with the
requirements of due process.

In the instant case, it must be stressed that the writ was issued by the trial court mainly on the
representation of petitioner that respondent is not a resident of the Philippines.34 Obviously, the trial
court’s issuance of the writ was for the sole purpose of acquiring jurisdiction to hear and decide the
case. Had the allegations in the complaint disclosed that respondent has a residence in Quezon City
and an office in Makati City, the trial court, if only for the purpose of acquiring jurisdiction, could have
served summons by substituted service on the said addresses, instead of attaching the property of
the defendant. The rules on the application of a writ of attachment must be strictly construed in favor
of the defendant. For attachment is harsh, extraordinary, and summary in nature; it is a rigorous
remedy which exposes the debtor to humiliation and annoyance.35 It should be resorted to only when
necessary and as a last remedy.

It is clear from the foregoing that even on the allegation that respondent is a resident temporarily out
of the Philippines, petitioner is still not entitled to a writ of attachment because the trial court could
acquire jurisdiction over the case by substituted service instead of attaching the property of the
defendant. The misrepresentation of petitioner that respondent does not reside in the Philippines
and its omission of his local addresses was thus a deliberate move to ensure that the application for
the writ will be granted.

In light of the foregoing, the Court of Appeals properly sustained the finding of the trial court that
petitioner is liable for damages for the wrongful issuance of a writ of attachment against respondent.

Anent the actual damages, the Court of Appeals is correct in not awarding the same inasmuch as
the respondent failed to establish the amount garnished by petitioner. It is a well settled rule that one
who has been injured by a wrongful attachment can recover damages for the actual loss resulting
therefrom. But for such losses to be recoverable, they must constitute actual damages duly
established by competent proofs, which are, however, wanting in the present case.36

Nevertheless, nominal damages may be awarded to a plaintiff whose right has been violated or
invaded by the defendant, for the purpose of vindicating or recognizing that right, and not for
indemnifying the plaintiff for any loss suffered by him. Its award is thus not for the purpose of
indemnification for a loss but for the recognition and vindication of a right. Indeed, nominal damages
are damages in name only and not in fact.37 They are recoverable where some injury has been done
but the pecuniary value of the damage is not shown by evidence and are thus subject to the
discretion of the court according to the circumstances of the case.38
In this case, the award of nominal damages is proper considering that the right of respondent to use
his money has been violated by its garnishment. The amount of nominal damages must, however,
be reduced from P2 million to P50,000.00 considering the short period of 2 months during which the
writ was in effect as well as the lack of evidence as to the amount garnished. 1âwphi1

Likewise, the award of attorney’s fees is proper when a party is compelled to incur expenses to lift a
wrongfully issued writ of attachment. The basis of the award thereof is also the amount of money
garnished, and the length of time respondents have been deprived of the use of their money by
reason of the wrongful attachment.39 It may also be based upon (1) the amount and the character of
the services rendered; (2) the labor, time and trouble involved; (3) the nature and importance of the
litigation and business in which the services were rendered; (4) the responsibility imposed; (5) the
amount of money and the value of the property affected by the controversy or involved in the
employment; (6) the skill and the experience called for in the performance of the services; (7) the
professional character and the social standing of the attorney; (8) the results secured, it being a
recognized rule that an attorney may properly charge a much larger fee when it is contingent than
when it is not.40

All the aforementioned weighed, and considering the short period of time it took to have the writ
lifted, the favorable decisions of the courts below, the absence of evidence as to the professional
character and the social standing of the attorney handling the case and the amount garnished, the
award of attorney’s fees should be fixed not at P1 Million, but only at P200,000.00.

The courts below correctly awarded moral damages on account of petitioner’s misrepresentation and
bad faith; however, we find the award in the amount of P5 Million excessive. Moral damages are to
be fixed upon the discretion of the court taking into consideration the educational, social and
financial standing of the parties.41 Moral damages are not intended to enrich a complainant at the
expense of a defendant.42 They are awarded only to enable the injured party to obtain means,
diversion or amusements that will serve to obviate the moral suffering he has undergone, by reason
of petitioner’s culpable action. Moral damages must be commensurate with the loss or injury
suffered. Hence, the award of moral damages is reduced to P500,000.00.

Considering petitioner’s bad faith in securing the writ of attachment, we sustain the award of
exemplary damages by way of example or correction for public good. This should deter parties in
litigations from resorting to baseless and preposterous allegations to obtain writs of attachments.
While as a general rule, the liability on the attachment bond is limited to actual (or in some cases,
temperate or nominal) damages, exemplary damages may be recovered where the attachment was
established to be maliciously sued out.43 Nevertheless, the award of exemplary damages in this case
should be reduced from P5M to P500,000.00.

Finally, contrary to the claim of petitioner, the instant case for damages by reason of the invalid
issuance of the writ, survives the dismissal of the main case for sum of money. Suffice it to state that
the claim for damages arising from such wrongful attachment may arise and be decided separately
from the merits of the main action.44

WHEREFORE, the petition is PARTIALLY GRANTED. The May 31, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 78200 is AFFIRMED with MODIFICATIONS. As modified, petitioner
Philippine Commercial International Bank is ordered to pay respondent Joseph Anthony M.
Alejandro the following amounts: P50,000.00 as nominal damages, P200,000.00 as attorney’s fees;
and P500,000.00 as moral damages, and P500,000.00 as exemplary damages, to be satisfied
against the attachment bond issued by Prudential Guarantee & Assurance Inc.,45 under JCL (4) No.
01081, Bond No. HO-46764-97.
No pronouncement as to costs.

SO ORDERED.









































G.R. No. 102448 August 5, 1992

RICARDO CUARTERO, petitioner,


vs.
COURT OF APPEALS, ROBERTO EVANGELISTA and FELICIA EVANGELISTA, respondents.

Abesamis, Medialdea & Abesamis for petitioner.

Eufemio Law Offices for private respondent.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari seeking to annul the decision of the Court of Appeals
promulgated on June 27, 1991 as well as the subsequent resolution dated October 22, 1991 denying
the motion for reconsideration in CA-G.R. SP No. 23199 entitled "Spouses Roberto and Felicia
Evangelista v. Honorable Cezar C. Peralejo, Presiding Judge Regional Trial Court of Quezon City,
Branch 98, and Ricardo Cuartero," which nullified the orders of the trial court dated August 24, 1990
and October 4, 1990 and cancelled the writ of preliminary attachment issued on September 19,
1990.

Following are the series of events giving rise to the present controversy.

On August 20, 1990, petitioner Ricardo Cuartero filed a complaint before the Regional Trial Court of
Quezon City against the private respondents, Evangelista spouses, for a sum of money plus
damages with a prayer for the issuance of a writ of preliminary attachment. The complaint was
docketed as Civil Case No. Q-90-6471.

On August 24, 1990, the lower court issued an order granting ex-parte the petitioner's prayer for the
issuance of a writ of preliminary attachment.

On September 19, 1990, the writ of preliminary attachment was issued pursuant to the trial court's
order dated August 24, 1990. On the same day, the summons for the spouses Evangelista was
likewise prepared.

The following day, that is, on September 20, 1990, a copy of the writ of preliminary attachment, the
order dated August 24, 1990, the summons and the complaint were all simultaneously served upon
the private respondents at their residence. Immediately thereafter, Deputy Sheriff Ernesto L. Sula
levied, attached and pulled out the properties in compliance with the court's directive to attach all the
properties of private respondents not exempt from execution, or so much thereof as may be
sufficient to satisfy the petitioner's principal claim in the amount of P2,171,794.91.

Subsequently, the spouses Evangelista filed motion to set aside the order dated August 24, 1990
and discharge the writ of preliminary attachment for having been irregularly and improperly issued.
On October 4, 1990, the lower court denied the motion for lack of merit.

Private respondents, then, filed a special civil action for certiorari with the Court of Appeals
questioning the orders of the lower court dated August 24, 1990 and October 4, 1990 with a prayer
for a restraining order or writ of preliminary injunction to enjoin the judge from taking further
proceedings below.
In a Resolution dated October 31, 1990, the Court of Appeals resolved not to grant the prayer for
restraining order or writ of preliminary injunction, there being no clear showing that the spouses
Evangelista were entitled thereto.

On June 27, 1991, the Court of Appeals granted the petition for certiorari and rendered the
questioned decision. The motion for reconsideration filed by herein petitioner Cuartero was denied
for lack of merit in a resolution dated October 22, 1991. Hence, the present recourse to this Court.

The petitioner raises the following assignment of errors:

THE COURT OF APPEALS ERRED AND COMMITTED A GRAVE ABUSE OF


DISCRETION, AMOUNTING TO LACK OF JURISDICTION WHEN IT HELD THAT
THE REGIONAL TRIAL COURT DID NOT ACQUIRE JURISDICTION OVER
RESPONDENT SPOUSES.

II

THE COURT OF APPEALS ERRED AND ACTED WITH GRAVE ABUSE OF


DISCRETION WHEN IT HELD THAT THE REGIONAL TRIAL COURT COULD NOT
VALIDLY ISSUE THE SUBJECT WRIT OF PRELIMINARY ATTACHMENT WHICH
IS AN ANCILLARY REMEDY. (Rollo, p. 13)

The Court of Appeals' decision is grounded on its finding that the trial court did not acquire any
jurisdiction over the person of the defendants (private respondents herein). It declared that:

. . . the want of jurisdiction of the trial court to proceed in the main case as well as the
ancillary remedy of attachment is quite clear. It is not disputed that neither service of
summons with a copy of the complaint nor voluntary appearance of petitioners was
had in this case before the trial court issued the assailed order dated August 24,
1990, as well as the writ of preliminary attachment dated September 19, 1990. This
is reversible error and must be corrected on certiorari. (Rollo, p. 24)

The appellate tribunal relied on the case of Sievert v. Court of Appeals, 168 SCRA 692 (1988) in
arriving at the foregoing conclusion. It stated that:

Valid service of summons and a copy of the complaint vest jurisdiction in the court
over the defendant both for the purpose of the main case and for purposes of the
ancillary remedy of attachment and a court which has not acquired jurisdiction over
the person of defendant, cannot bind the defendant whether in the main case or in
any ancillary proceeding such as attachment proceedings (Sievert v. Court of
Appeals, 168 SCRA 692). (Rollo, p. 24)

The private respondents, in their comment, adopted and reiterated the aforementioned ruling of the
Court of Appeals. They added that aside from the want of jurisdiction, no proper ground also existed
for the issuance of the writ of preliminary attachment. They stress that the fraud in contracting the
debt or incurring the obligation upon which the action is brought which comprises a ground for
attachment must have already been intended at the inception of the contract. According to them,
there was no intent to defraud the petitioner when the postdated checks were issued inasmuch as
the latter was aware that the same were not yet funded and that they were issued only for purposes
of creating an evidence to prove a pre-existing obligation.

Another point which the private respondents raised in their comment is the alleged violation of their
constitutionally guaranteed right to due process when the writ was issued without notice and
hearing.

In the later case of Davao Light and Power Co., Inc. v. Court of Appeals, G.R. No. 93262, November
29, 1991, we had occasion to deal with certain misconceptions which may have arisen from
our Sievert ruling. The question which was resolved in the Davao Light case is whether or not a writ
of preliminary attachment may issue ex-parte against a defendant before the court acquires
jurisdiction over the latter's person by service of summons or his voluntary submission to the court's
authority. The Court answered in the affirmative. This should have clarified the matter but apparently
another ruling is necessary.

A writ of preliminary attachment is defined as a provisional remedy issued upon order of the court
where an action is pending to be levied upon the property or properties of the defendant therein, the
same to be held thereafter by the sheriff as security for the satisfaction of whatever judgment might
be secured in said action by the attaching creditor against the defendant (Adlawan v. Tomol, 184
SCRA 31 [1990] citing Virata v. Aquino, 53 SCRA 30-31 [1973]).

Under section 3, Rule 57 of the Rules of Court, the only requisites for the issuance of the writ are the
affidavit and bond of the applicant. As has been expressly ruled in BF Homes, Inc. v. Court of
Appeals, 190 SCRA 262 (1990), citing Mindanao Savings and Loan Association, Inc. v. Court of
Appeals, 172 SCRA 480 (1989), no notice to the adverse party or hearing of the application is
required inasmuch as the time which the hearing will take could be enough to enable the defendant
to abscond or dispose of his property before a writ of attachment issues. In such a case, a hearing
would render nugatory the purpose of this provisional remedy. The ruling remains good law. There
is, thus, no merit in the private respondents' claim of violation of their constitutionally guaranteed
right to due process.

The writ of preliminary attachment can be applied for and granted at the commencement of the
action or at any time thereafter (Section 1, Rule 57, Rules of Court). In Davao Light and Power, Co.,
Inc. v. Court of Appeals, supra, the phrase "at the commencement of the action" is interpreted as
referring to the date of the filing of the complaint which is a time before summons is served on the
defendant or even before summons issues. The Court added that —

. . . after an action is properly commenced — by filing of the complaint and the


payment of all requisite docket and other fees — the plaintiff may apply and obtain a
writ of preliminary attachment upon the fulfillment of the pertinent requisites laid
down by law, and that he may do so at any time, either before or after service of
summons on the defendant. And this, indeed, has been the immemorial practice
sanctioned by the courts: for the plaintiff or other proper party to incorporate the
application for attachment in the complaint or other appropriate pleading (counter-
claim, cross-claim, third-party-claim) and for the Trial Court to issue the writ ex-
parte at the commencement of the action if it finds the application otherwise sufficient
in form and substance.

The Court also pointed out that:

. . . 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 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 the period should be dependent on, or held in suspension until, the actual
obtention of jurisdiction over the defendants 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.

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. 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
the proper officer commences implementation of the writ of attachment, service of summons should
be simultaneously made.

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.

In Sievert v. Court of Appeals, supra, cited by the Court of Appeals in its questioned decision, the
writ of attachment issued ex-parte was struck down because when the writ of attachment was being
implemented, no jurisdiction over the person of the defendant had as yet been obtained. The court
had failed to serve the summons to the defendant.

The circumstances in Sievert are different from those in the case at bar. When the writ of attachment
was served on the spouses Evangelista, the summons and copy of the complaint were also
simultaneously served.

It is appropriate to reiterate this Court's exposition in the Davao Light and Power case cited earlier,
to wit:

. . . writs of attachment may properly issue ex-parte provided that the Court is
satisfied that the relevant requisites therefore 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.

The question as to whether a proper ground existed for the issuance of the writ is a question of fact
the determination of which can only be had in appropriate proceedings conducted for the purpose
(Peroxide Philippines Corporation V. Court of Appeals, 199 SCRA 882 [1991]). It must be noted that
the spouses Evangelista's motion to discharge the writ of preliminary attachment was denied by the
lower court for lack of merit. There is no showing that there was an abuse of discretion on the part of
the lower court in denying the motion.

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 a motion (Davao Light and Power Co., Inc. v. Court of Appeals, supra, The
Consolidated Bank and Trust Corp. (Solidbank) v. Court of Appeals, 197 SCRA 663 [1991]).

In the present case, one of the allegations 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 cheeks 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.

WHEREFORE, premises considered, the Court hereby GRANTS the petition. The challenged
decision of the Court of Appeals is REVERSED, and the order and writ of attachment issued by Hon.
Cezar C. Peralejo, Presiding Judge of Branch 98, Regional Trial Court of Quezon City against
spouses Evangelista are hereby REINSTATED. No pronouncement as to costs.

SO ORDERED.



























G.R. No. L-46009 May 14, 1979

RICARDO T. SALAS and MARIA SALAS, petitioners,


vs.
HON. MIDPANTAO L. ADIL, as Judge of Branch II, Court of First Instance of Iloilo, ROSITA
BEDRO and BENITA YU, respondents.

Castro Law Office for petitioners.

Tirso Espelete and Fortunato A. Padilla for private respondents.

ANTONIO, J.:

Certiorari to nullify the Order of Attachment of May 13, 1977, as well as the Writ of Attachment dated
May 16, 1977, issued by respondent Judge in Civil Case No. 10770 of the Court of First Instance of
Iloilo, entitled "Rosita Bedro and Benita Yu v. Spouses Ricardo T. Salas and Maria Salas, et al.

On September 10, 1976, respondents Rosita Bedro and Benita Yu filed the afore-mentioned civil
action with the Court of First Instance of Iloilo against herein petitioners Ricardo T. Salas and Maria
Salas, the Philippine Commercial & Industrial Bank, in its capacity as Administrator of the Testate
Estate of the deceased Charles Newton Hodges, and Avelina A. Magno, in her capacity as
Administratrix of the Testate Estate of the deceased Linnie Jane Hodge to annul the deed of sale of
Lot No. 5 executed by administrators of the Hodges Estate in favor of the Spouses Ricardo T. Salas
and Maria Salas and for damages. The action for annulment was predicated upon the averment that
Lot No. 5, being a subdivision road, is intend for public use and cannot be sold or disposed of by the
Hodges Estate. The claim for damages was based on the assertion that after defendant spouses
purchased Lots Nos. 2 and 3, they also purchased Lot No. 5 and thereafter "erected wooden posts,
laid and plastered at the door of the house on Lot No. 3, with braces of hardwood, lumber and
plywood nailed to the post", thereby preventing Rosita Bedro and Benita Yu from using the road on
the afore-mentioned lot, Lot No. 5, and that as a result of such obstruction, private respondents
Rosita Bedro and Benita Yu sustained actual damages in the amount of P114,000.00, plus the sum
of Pl,000.00 as damages daily from June 30, 1976 due to the stoppage in the construction of their
commercial buildings on Lot No. 3, and moral damages in the amount of P200,000.00.

In their answer to the complaint, the Salas spouses, after specifically denying the material
allegations in the complaint, stated that Lot No. 5 had been registered in the name of the C. N.
Hodges as their exclusive private property and was never subjected to any servitude or easement of
right of way in favor of any person; that any occupants of Lots Nos. 2 and 3 have direct access to
Bonifacio Drive, a National Highway, hence, Lot No. 5 is neither needed nor required for the egress
or ingress of the occupants thereof; and that private respondents, as a matter of fact, since 1964 had
excluded and separated completely their property (Lots Nos. 2 and 3) from Lot No. 5 by building a
concrete wall on the boundary thereon without providing any gate as entrance or exit towards Lot
No. 5; and that private respondents have no personality to question the validity of the deed of sale
over Lot No. 5 since they were not parties to the same and the sale was duly approved by the
probate court.

In a motion dated May 12, 1977, private respondents filed a Motion for Attachment, alleging, among
others, that the case was "for annulment of a deed of sale and recovery of damages" and that the
defendants have removed or disposed of their properties or are about to do so with intent to defraud
their creditors especially the plaintiffs in this case.
On May 13, 1977, respondent Judge issued ex-parte a Writ of Attachment "against the properties of
the defendants particularly Lots Nos. 1 and 4 of Psc-2157 less the building standing thereon upon
the plaintiffs filing a bond in the amount of P200,000.00 subject to the approval of this Court." After a
surety bond in the amount of P200,000.00, executed on May 11, 1977 by the Central Surety and
Insurance Company as surety was filed, the writ itself was issued by respondent Judge on May 16,
1977, directing the Sheriff to attach the properties above-mentioned. On May 17, 1977, the Deputy
Sheriff of Iloilo levied upon the aforesaid properties of petitioners.

Contending that respondent Judge gravely abused his discretion in issuing the said Writ of
Attachment, petitioners filed the present petition.

In certiorari proceedings, the cardinal rule is that the court must be given the opportunity to correct
itself, Thus, for the special civil action of certiorari to prosper, there must be no appeal nor any plain,
speedy and adequate remedy in the ordinary course of law. Petitioners, therefore, must exhaust all
available remedies in the lower court before filing a petition for certiorari, otherwise the petition shall
be held to be premature.

In the instant case, it appears that petitioners have adequate remedy under the law. They could
have filed an application with the court a quo for the discharge of the attachment for improper or
irregular issuance under section 13, Rule 57, of the Revised Rules of Court, which provides the
following

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 Salas
vs. Adil granted the order, or to the judge of the court in which the action is pending,
for an order to discharge the attachment on the ground that the same was improperly
or irregularly issued. If the motion be made on affidavits on the part of the party
whose property has been attached, but not otherwise, the attaching creditor may
oppose the same by counter-affidavits or other evidence in addition to that on which
the attachment was made. After hearing, the judge shall order the discharge of the
attachment if it appears that it was improperly or irregularly issued and the defect is
not cured forthwith.

Considering that petitioners have not availed of this remedy, the instant petition is premature.

We deem it necessary, however, for the guidance of respondent Court and of the parties, to stress
herein the nature of attachment as an extraordinary provisional remedy.

A preliminary attachment is a rigorous remedy, which exposes the debtor to humiliation and
annoyance, such it should not be abused as to cause unnecessary prejudice. It is, therefore, the
duty of the court, before issuing the writ, to ensure that all the requisites of the law have been
complied with; otherwise the judge acts in excess of his jurisdiction and the so issued shall be null
and void . 1

In Carpio v. Macadaeg, 2 this Court said:

Respondent Judge should not have issued the two writs of preliminary attachment
(Annexes C and C-1) on Abaya's simple allegation that the petitioner was about to
dispose of his property, thereby leaving no security for the satisfaction of any
judgment. Mere removal or disposal of property, by itself, is not ground for issuance
of preliminary attachment, notwithstanding absence of any security for the
satisfaction of any judgment against the defendant. The removal or disposal, to
justify preliminary attachment, must have been made with intent to defraud
defendant's creditors.

Respondent Judge in fact corrected himself. Acting on petitioner's motion to


discharge attachment and apparently believing the correctness of the grounds
alleged therein, he set aside the orders of attachment (Order of March 11, 1960,
Annex F)

But reversing himself again, he set aside his order of March 11, 1960 (Annex K,
dated March 29, 1960). This he did apparently on Abaya's contention that petitioner
was about to remove or dispose of his property in order to defraud his creditors, as
examples of which disposals he pointed to the alleged sale of the horses and of
petitioner's office furniture. ... These averments of fraudulent disposals were
controverted by petitioner who ... reiterated the defenses against preliminary
attachment which he had previously enumerated in his petition to discharge the two
orders of attachment. Thus the question of fraudulent disposal was put in issue; and
respondent Judge, before issuing the pre attachment anew, should have given the
parties opportunity to prove their respective claims or, at the very least should have
provided petitioner with the chance to show that he had not been disposing of his
property in fraud of creditors. (citing National Coconut Corporation v. Pecson L-4296,
Feb. 25, 1952, Villongco v. Panlilio, 6214, Nov. 20, 1953).

And in Garcia v. Reyes, 3 considering the allegation that the debtors were removing or disposing of
some of their properties with intent to defraud their creditors, 'this Court said that "(a)ll in all due process
would seem to require that both parties further ventilate their respective contentions in a hearing that
could indeed reveal the truth. Fairness would be served thereby, the demand of reason satisfied."

Considering the gravity of the allegation that herein petitioners have removed or disposed of their
properties or are about to do so with intent to defraud their creditors, and further considering that the
affidavit in support of the pre attachment merely states such ground in general terms, without
specific allegations of lances to show the reason why plaintiffs believe that defendants are disposing
of their properties in fraud of creditors, it was incumbent upon respondent Judge to give notice to
petitioners and to allow wherein evidence is them to present their position at a to be received.
Moreover, it appears from the records that private respondents are claiming unliquidated damages,
including moral damages, from petitioners. The authorities agree that the writ of attachment is not
available 'm a suit for damages where the amount claimed is contingent or unliquidated.

We think, however, that a rule sufficient for the determination of this case has been
suggested and acted upon, and that the remedy does not exist where unliquidated
damages were demanded. ... In Warwick v. Chase, 23 Md 161, it is said: 'It is
necessary that the standard for ascertaining the amount of damages claimed should
not only appear, but that it should be fixed and certain, and in no degree dependent
on facts either speculative or Uncertain ... The general rule is, that unliquidated
damages, ... cannot be recovered by attachment, unless the contract affords a
certain measure or standard for ascertaining the amount of the damages ... 4

Further.

The statute authorizing the issuance of the writ of garnishment and that relating to
the issuance of the writ of attachment ... have not been construed as authorizing the
writs to be issued when the plaintiff's suit is technically an action for debt. Neither of
the writs may be issued when the suit is for damages for tort, but they may be issued
when the plaintiff's claim arises out of contract either express or implied, and the
demand is liquidated, that is, the amount of the claim is not contingent, is capable of
being definitely ascertained by the usual means of evidence, and does not rest in the
discretion of the jury. 5

WHEREFORE, the instant petition is hereby DENIED, in order to enable petitioners to move before
respondent Court for the discharge of the attachment on the ground of its improper and irregular
issuance, pursuant to section 13, Rule 57, of the Revised Rules of Court, and for the aforesaid Court
to act thereon in accordance with the foregoing.



































G.R. No. 40054 September 14, 1933

LA GRANJA, INC., petitioner,


vs.
FELIX SAMSON, Judge of First Instance of Cagayan, CHUA BIAN, CHUA YU LEE and CHUA
KI, respondents.

Miguel P. Pio for petitioner.


The Respondent Judge in his own behalf.
No appearance for other respondents.

VILLA-REAL, J.:

In this original petition for mandamus filed by the corporate entity, La Granja, Inc., against Felix
Samson, as Judge of the Court of First Instance of Cagayan, Chua Bian, Chua Yu Lee and Chua Ki,
the petitioner herein, for the reasons stated in its petition, prays that a writ of mandamus be issued
against the respondent Judge compelling him to issue a writ of attachment against the properties of
the other respondents herein, who are defendants in civil case No. 1888 of the Court of First
Instance of Cagayan. The pertinent facts necessary for the solution of the questions raised in the
present case are as follows:

On July 5, 1932, the petitioner herein, La Granja, Inc., filed a complaint in the Court of First Instance
of Cagayan, against Chua Bian, Chua Yu Lee and Chua Ki, for the recovery of the sum of P2,418.18
with interest thereon at the rate of 12 per cent per annum, which case was docketed as civil case
No. 1888. The plaintiff at the same time, also prayed for the issuance of an order of attachment
against the aforementioned defendants' property and accompanied said complaint with an affidavit
of the manager of the aforesaid petitioner, La Granja, Inc., wherein it was alleged among other
essential things, that the said defendants have disposed or are disposing of their properties in favor
of the Asiatic Petroleum Co., with intent to defraud their creditors. The respondent judge, wishing to
ascertain or convince himself of the truth of the alleged disposal, required the petitioner herein to
present evidence to substantiate its allegation, before granting its petition. Inasmuch as the
petitioner refused to comply with the court's requirement, alleging as its ground that was not obliged
to do so, the respondent judge dismissed said petition for an order of attachment.

The only question to decide in the present case is whether or not the mere filing of an affidavit
executed in due form is sufficient to compel a judge to issue an order of attachment.

Section 426 of the Code of Civil procedure provides the following:

SEC. 426. Granting order of attachment. — A judge or justice of the peace shall grant an
order of attachment when it is made to appear to the judge or justice of the peace by the
affidavit of the plaintiff, or of some other person who knows the facts, that a sufficient cause
of action exists, and that the case is one of those mentioned in section four hundred and
twenty-four, and that there is no other sufficient security for the claim sought to be enforced
by the action, and that the amount due to the plaintiff above all legal set-offs or counterclaims
is as much as the sum for which the order is granted.

It will be seen that the legal provision just cited orders the granting of a writ of attachment when it
has been made to appear by affidavit that the facts mentioned by law as sufficient to warrant the
issuance thereof, exist. Although the law requires nothing more than the affidavit as a means of
establishing the existence of such facts, nevertheless, such affidavit must be sufficient to convince
the court of their existence, the court being justified in rejecting the affidavit if it does not serve this
purpose and in denying the petition for an order of attachment. The affidavit filed by the petitioner, La
Granja, Inc., must not have satisfied the respondent judge inasmuch as he desired to ascertain or
convince himself of the truth of the facts alleged therein by requiring evidence to substantiate them.
The sufficiency or insufficiency of an affidavit depends upon the amount of credit given it by the
judge, and its acceptance or rejection, upon his sound discretion.

Hence, the respondent judge, in requiring the presentation of evidence to establish the truth of the
allegation of the affidavit that the defendants had disposed or were disposing of their property to
defraud their creditors, has done nothing more than exercise his sound discretion in determining the
sufficiency of the affidavit.

In view of the foregoing considerations, we are of the opinion and so hold that the mere filing of an
affidavit executed in due form is not sufficient to compel a judge to issue an order of attachment, but
it is necessary that by such affidavit it be made to appear to the court that there exists sufficient
cause for the issuance thereof, the determination of such sufficiency being discretionary on the part
of the court.

Wherefore, the petition for a writ of mandamus is hereby denied and the same is dismissed, with
costs against the petitioner. So ordered.




























G.R. No. L-48756 September 11, 1982

K.O. GLASS CONSTRUCTION CO., INC., petitioner,


vs.
THE HONORABLE MANUEL VALENZUELA, Judge of the Court of First Instance of Rizal, and
ANTONIO D. PINZON, respondents.

Guillermo E. Aragones for petitioner.

Ruben V. Lopez for respondent Antonio D. Pinzon.

CONCEPCION, JR., J.:

Petition for certiorari to annul and set aside the writ of preliminary attachment issued by the
respondent Judge in Civil Case No. 5902-P of the Court of First Instance of Rizal, entitled: Antonio
D. Pinzon plaintiff, versus K.O. Glass Construction Co., Inc., and Kenneth O. Glass, defendants, and
for the release of the amount of P37,190.00, which had been deposited with the Clerk of Court, to
the petitioner.

On October 6, 1977, an action was instituted in the Court of First Instance of Rizal by Antonio D.
Pinzon to recover from Kenneth O. Glass the sum of P37,190.00, alleged to be the agreed rentals of
his truck, as well as the value of spare parts which have not been returned to him upon termination
of the lease. In his verified complaint, the plaintiff asked for an attachment against the property of the
defendant consisting of collectibles and payables with the Philippine Geothermal, Inc., on the
grounds that the defendant is a foreigner; that he has sufficient cause of action against the said
defendant; and that there is no sufficient security for his claim against the defendant in the event a
judgment is rendered in his favor. 1

Finding the petition to be sufficient in form and substance, the respondent Judge ordered the
issuance of a writ of attachment against the properties of the defendant upon the plaintiff's filing of a
bond in the amount of P37,190.00. 2

Thereupon, on November 22, 1977, the defendant Kenneth O. Glass moved to quash the writ of
attachment on the grounds that there is no cause of action against him since the transactions or
claims of the plaintiff were entered into by and between the plaintiff and the K.O. Glass Construction
Co., Inc., a corporation duly organized and existing under Philippine laws; that there is no ground for
the issuance of the writ of preliminary attachment as defendant Kenneth O. Glass never intended to
leave the Philippines, and even if he does, plaintiff can not be prejudiced thereby because his claims
are against a corporation which has sufficient funds and property to satisfy his claim; and that the
money being garnished belongs to the K.O. Glass Corporation Co., Inc. and not to defendant
Kenneth O. Glass. 3

By reason thereof, Pinzon amended his complaint to include K.O. Glass Construction Co., Inc. as
co-defendant of Kenneth O. Glass. 4

On January 26, 1978, the defendants therein filed a supplementary motion to discharge and/or
dissolve the writ of preliminary attachment upon the ground that the affidavit filed in support of the
motion for preliminary attachment was not sufficient or wanting in law for the reason that: (1) the
affidavit did not state that the amount of plaintiff's claim was above all legal set-offs or counterclaims,
as required by Sec. 3, Rule 57 of the Revised Rules of Court; (2) the affidavit did not state that there
is no other sufficient security for the claim sought to be recovered by the action as also required by
said Sec. 3; and (3) the affidavit did not specify any of the grounds enumerated in Sec. 1 of Rule
57, 5 but, the respondent Judge denied the motion and ordered the Philippine Geothermal, Inc. to deliver
and deposit with the Clerk of Court the amount of P37,190.00 immediately upon receipt of the order which
amount shall remain so deposited to await the judgment to be rendered in the case. 6

On June 19, 1978, the defendants therein filed a bond in the amount of P37,190.00 and asked the
court for the release of the same amount deposited with the Clerk of Court, 7 but, the respondent
Judge did not order the release of the money deposited. 8

Hence, the present recourse. As prayed for, the Court issued a temporary restraining order,
restraining the respondent Judge from further proceeding with the trial of the case. 9

We find merit in the petition. The respondent Judge gravely abused his discretion in issuing the writ
of preliminary attachment and in not ordering the release of the money which had been deposited
with the Clerk of Court for the following reasons:

First, there was no ground for the issuance of the writ of preliminary attachment. Section 1, Rule 57
of the Revised Rules of Court, which enumerates the grounds for the issuance of a writ of
preliminary attachment, reads, as follows:

Sec. 1. Grounds upon which attachment may issue. —A plaintiff or any proper party
may, at the commencement of the action or at any time thereafter, have the property
of the adverse party attached as security for the satisfaction of any judgment that
may be recovered in the following cases:

(a) In an action for the recovery of money or damages on a cause of action arising
from contract, express or implied, against a party who is about to depart from the
Philippines with intent to defraud his creditor;

(b) In an action for money or property embezzled or fraudulently misapplied or


converted to his own use by a public officer, or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in the course of his employment as such, or
by any other person in a fiduciary capacity, or for a willful violation of duty;

(c) In an action to recover the possession of personal property unjustly detained,


when the property, or any part thereof, has been concealed, removed, or disposed of
to prevent its being found or taken by the applicant or an officer;

(d) In an action against the party who has been guilty of a fraud in contracting the
debt or incurring the obligation upon which the action is brought, or in concealing or
disposing of the property for the taking, detention or conversion of which the action is
brought;

(e) In an action against a party who has removed or disposed of his property, or is
about to do so, with intent to defraud his creditors;

(f) In an action against a party who resides out of the Philippines, or on whom
summons may be served by publication.
In ordering the issuance of the controversial writ of preliminary attachment, the respondent Judge
said and We quote:

The plaintiff filed a complaint for a sum of money with prayer for Writ of Preliminary
Attachment dated September 14, 1977, alleging that the defendant who is a foreigner
may, at any time, depart from the Philippines with intent to defraud his creditors
including the plaintiff herein; that there is no sufficient security for the claim sought to
be enforced by this action; that the amount due the plaintiff is as much as the sum for
which an order of attachment is sought to be granted; and that defendant has
sufficient leviable assets in the Philippines consisting of collectibles and payables
due from Philippine Geothermal, Inc., which may be disposed of at any time, by
defendant if no Writ of Preliminary Attachment may be issued. Finding said motion
and petition to be sufficient in form and substance. 10

Pinzon however, did not allege that the defendant Kenneth O. Glass "is a foreigner (who) may, at
any time, depart from the Philippines with intent to defraud his creditors including the plaintiff." He
merely stated that the defendant Kenneth O. Glass is a foreigner. The pertinent portion of the
complaint reads, as follows:

15. Plaintiff hereby avers under oath that defendant is a foreigner and that said
defendant has a valid and just obligation to plaintiff in the total sum of P32,290.00
arising out from his failure to pay (i) service charges for the hauling of construction
materials; (ii) rentals for the lease of plaintiff's Isuzu Cargo truck, and (iii) total cost of
the missing/destroyed spare parts of said leased unit; hence, a sufficient cause of
action exists against said defendant. Plaintiff also avers under oath that there is no
sufficient security for his claim against the defendant in the event a judgment be
rendered in favor of the plaintiff. however, defendant has sufficient assets in the
Philippines in the form of collectible and payables due from the Philippine
Geothermal, Inc. with office address at Citibank Center, Paseo de Roxas, Makati,
Metro Manila, but which properties, if not timely attached, may be disposed of
by defendants and would render ineffectual the reliefs prayed for by plaintiff in this
Complaint. 11

In his Amended Complaint, Pinzon alleged the following:

15. Plaintiff hereby avers under oath that defendant GLASS is an American citizen
who controls most, if not all, the affairs of defendant CORPORATION. Defendants
CORPORATION and GLASS have a valid and just obligation to plaintiff in the total
sum of P32,290.00 arising out for their failure to pay (i) service charges for hauling of
construction materials, (ii) rentals for the lease of plaintiff's Isuzu Cargo truck, and (iii)
total cost of the missing/destroyed spare parts of said leased unit: hence, a sufficient
cause of action exist against said defendants. Plaintiff also avers under oath that
there is no sufficient security for his claim against the defendants in the event a
judgment be rendered in favor of the plaintiff. however, defendant CORPORATION
has sufficient assets in the Philippines in the form of collectibles and payables due
from the Philippine Geothermal., Inc. with office address at Citibank Center, Paseo
de Roxas, Makati, Metro Manila, but which properties, if not timely attached, may be
disposed of by defendants and would render ineffectual the reliefs prayed for by
plaintiff in this Complaint. 12
There being no showing, much less an allegation, that the defendants are about to depart from the
Philippines with intent to defraud their creditor, or that they are non-resident aliens, the attachment of
their properties is not justified.

Second, the affidavit submitted by Pinzon does not comply with the Rules. Under the Rules, an
affidavit for attachment must state that (a) sufficient cause of action exists, (b) the case is one of
those mentioned in Section I (a) of Rule 57; (c) there is no other sufficient security 'or the claim
sought to be enforced by the action, and (d) the amount due to the applicant for attachment or the
value of the property the possession of which he is entitled to recover, is as much as the sum for
which the order is granted above all legal counterclaims. Section 3, Rule 57 of the Revised Rules of
Court reads. as follows:

Section 3. Affidavit and bond required.—An order of attachment shall be granted only
when it is made to appear by the affidavit of the applicant, or of some person who
personally knows the facts, that a sufficient cause of action exists that the case is
one of those mentioned in Section 1 hereof; that there is no other sufficient security
for the claim sought to be enforced by the action, and that the amount due to the
applicant, or the value of the property the possession of which he is entitled to
recover, is as much as the sum for which the order is granted above all legal
counterclaims. The affidavit, and the bond required by the next succeeding section,
must be duly filed with the clerk or judge of the court before the order issues.

In his affidavit, Pinzon stated the following:

I, ANTONIO D. PINZON Filipino, of legal age, married and with residence and postal
address at 1422 A. Mabini Street, Ermita, Manila, subscribing under oath, depose
and states that.

1. On October 6,1977,I filed with the Court of First Instance of Rizal, Pasay City
Branch, a case against Kenneth O. Glass entitled 'ANTONIO D. PINZON vs.
KENNETH O. GLASS', docketed as Civil Case No. 5902-P;

2. My Complaint against Kenneth O. Glass is based on several causes of action,


namely:

(i) On February 15, 1977, we mutually agreed that I undertake to haul his
construction materials from Manila to his construction project in Bulalo, Bay, Laguna
and vice-versa, for a consideration of P50.00 per hour;

(ii) Also, on June 18, 1977, we entered into a separate agreement whereby my Isuzu
cargo truck will be leased to him for a consideration of P4,000.00 a month payable
on the 15th day of each month;

(iii) On September 7, 1977, after making use of my Isuzu truck, he surrendered the
same without paying the monthly rentals for the leased Isuzu truck and the peso
equivalent of the spare parts that were either destroyed or misappropriated by him;

3. As of today, October 11, 1977, Mr. Kenneth 0. Glass still owes me the total sum of
P32,290.00 representing his obligation arising from the hauling of his construction
materials, monthly rentals for the lease Isuzu truck and the peso equivalent of the
spare parts that were either destroyed or misappropriated by him;
4. I am executing this Affidavit to attest to the truthfulness of the foregoing and in
compliance with the provisions of Rule 57 of the Revised Rules of Court. 13

While Pinzon may have stated in his affidavit that a sufficient cause of action exists against the
defendant Kenneth O. Glass, he did not state therein that "the case is one of those mentioned in
Section 1 hereof; that there is no other sufficient security for the claim sought to be enforced by the
action; and that the amount due to the applicant is as much as the sum for which the order granted
above all legal counter-claims." It has been held that the failure to allege in the affidavit the requisites
prescribed for the issuance of a writ of preliminary attachment, renders the writ of preliminary
attachment issued against the property of the defendant fatally defective, and the judge issuing it is
deemed to have acted in excess of his jurisdiction. 14

Finally, it appears that the petitioner has filed a counterbond in the amount of P37,190.00 to answer
for any judgment that may be rendered against the defendant. Upon receipt of the counter-bond the
respondent Judge should have discharged the attachment pursuant to Section 12, Rule 57 of the
Revised Rules of Court which reads, as follows:

Section 12. Discharge of attachment upon giving counterbond.—At any time after an
order of attachment has been granted, the party whose property has been attached,
or the person appearing on his behalf, may upon reasonable notice to the applicant,
apply to the judge who granted the order, or to the judge of the court in which the
action is pending, for an order discharging the attachment wholly or in part on the
security given. The judge shall, after hearing, order the discharge of the attachment if
a cash deposit is made or a counterbond executed to the attaching creditor is filed,
on behalf of the adverse party, with the clerk or judge of the court where the
application is made, in an amount equal to the value of the property attached as
determined by the judge, to secure the payment of any judgment that the attaching
creditor may recover in the action. Upon the filing of such counter-bond, copy thereof
shall forthwith be served on the attaching creditor or his lawyer. Upon the discharge
of an attachment in accordance with the provisions of this section the property
attached, or the proceeds of any sale thereof, shall be delivered to the party making
the deposit or giving the counter-bond, or the person appearing on his behalf, the
deposit or counter-bond aforesaid standing in the place of the property so released.
Should such counter-bond for any reason be found to be, or become, insufficient,
and the party furnishing the same fail to file an additional counter-bond the attaching
creditor may apply for a new order of attachment.

The filing of the counter-bond will serve the purpose of preserving the defendant's property and at
the same time give the plaintiff security for any judgment that may be obtained against the
defendant. 15

WHEREFORE, the petition is GRANTED and the writ prayed for is issued. The orders issued by the
respondent Judge on October 11, 19719, January 26, 1978, and February 3, 1978 in Civil Case No.
5902-P of the Court of First Instance of Rizal, insofar as they relate to the issuance of the writ of
preliminary attachment, should be as they are hereby ANNULLED and SET ASIDE and the
respondents are hereby ordered to forthwith release the garnished amount of P37,190.00 to the
petitioner. The temporary restraining order, heretofore issued, is hereby lifted and set aside. Costs
against the private respondent Antonio D. Pinzon.

SO ORDERED.


G.R. No. L-45720 December 29, 1937

VENTURA GUZMAN, petitioner,


vs.
ALFREDO CATOLICO and SIMEON RAMOS, Judge of First Instance of Isabela, respondents.

Arnaldo J. Guzman for the petitioner.


Alfredo Catolico in his own behalf.
No appearance for respondent Judge.

VILLA-REAL, J.:

This is a petition filed by Ventura Guzman, praying this court, after proper proceedings, to render
judgment declaring illegal and void and setting aside the writ of preliminary attachment issued by the
respondent judge, Honorable Simeon Ramos, as judge of the Court of First Instance of Isabela, and
ordering the dissolution thereof.

The pertinent facts necessary for the resolution of the legal question raised in the present case are
as follows:

On March 8, 1937, the respondent Alfredo Catolico brought an action against the herein petitioner
Ventura Guzman in the Court of First Instance of Isabela, for the recovery from the latter of the
amount of his fees for services rendered by him as attorney, praying, at the same time, for the
issuance of a writ of preliminary attachment against all of the properties adjudicated to said petitioner
in special proceedings No. 179 of said court. As grounds for the issuance of said writ of preliminary
attachment, he alleged: "That the herein defendant is trying to sell and dispose of the properties
adjudicated to him, with intention to defraud his creditors, particularly the herein plaintiff, thereby
rendering illusory the judgment that may be rendered against him, inasmuch as he has no other
properties outside the same to answer for the fees the court may fix in favor of the plaintiff, this case
being one of those mentioned by the Code of Civil Procedure warranting the issuance of a writ of
preliminary attachment" (paragraph 8 of the complaint there appears the following affidavits: "I,
Alfredo Catolico, of age, married and resident of Tuguegarao, Cagayan, after being duly sworn,
declare: That I am the same plaintiff in this case; that I have prepared and read the same (complaint)
and that all the allegations thereof are certain and true, to the best of knowledge and belief."

In view of the said complaint and affidavit, the respondent judge, on March 10, 1937, issued an order
granting the petition and ordering the issuance of a writ of preliminary attachment, after the filing of
the corresponding bond by the plaintiff.

On April 15, 1937, said defendant Ventura Guzman filed a motion for the cancellation of said writ of
preliminary attachment on the ground that it had been improperly, irregularly and illegally issued,
there being no allegation, either in the complaint or in the affidavit solemnizing it, that there is no
other sufficient security for the claim sought to be enforced by the action; that the amount due to the
plaintiff, above the legal set-off and counterclaim, is as much as the sum of which the preliminary
attachment has been granted, and that the affidavit of the plaintiff is base in mere information and
belief.

Said motion was denied by the respondent judge in an order of July 10, 1937.
The only question to be decided in this case is whether or not the requisites prescribed by law for the
issuance of a writ of preliminary attachment have been complied with.

Section 426 of the Code of the Civil Procedure provides that "A judge or justice of the peace shall
grant an order of attachment when it is made to appear to the judge or justice of the peace by the
affidavit of the plaintiff, or of some other person who knows the facts, that a sufficient cause of action
exists, and that the case is one of those mentioned in section four hundred and twenty-four, and that
there is no other sufficient security for the claim sought to be enforced by the action, and that the
amount due to the plaintiff above all legal set-offs or counterclaims is as much as the sum for which
the order is granted."

The petitioner, in attacking the legality and validity of the writ of preliminary attachment, which is the
subject matter of this petition, relies on the alleged lack of an allegation in the complaint or in the
affidavit to the effect "that there is no sufficient security for the claim sought to be enforced by the
action and that the amount alleged to be due to the plaintiff above all legal set-offs and
counterclaims is as much as the sum for which the writ has been granted", and on the fact that the
affidavit is based on mere information and belief of the plaintiff.

With respect to the last requisites just stated above, the affidavit is not defective because in it the
therein plaintiff and herein respondent Alfredo Catolico states "that all the allegations thereof are
certain and true, to the best of my knowledge and belief", and not that they are so according to his
information and belief.

As to the other two requisites, there is no allegation, either in the complaint or in affidavit solemnizing
it, to the effect that there is no other sufficient security for the claim which the plaintiff seeks to
enforce by his action, and that the amount due him from the defendant, above all legal set-offs and
counterclaims, is as much as the sum for which the writ of preliminary attachment has been granted.
Now then, does the omission of these two requisites constitute a defect preventing a judge of the
Court of First Instance from issuing a writ of preliminary attachment? lawphil.net

Attachment is a juridical institution which has for its purpose to secure the outcome of the trial, that
is, the satisfaction of the pecuniary obligation really contracted by a person or believed to have been
contracted by him, either by virtue of a civil obligation emanating from contract or law, or by virtue of
some crime or misdemeanor that he might have committed, and the writ issued, granting it, is
executed by attaching and safely keeping all the movable property of the defendant, or so much
thereof as may be sufficient to satisfy the plaintiff's demands (sec. 428, Act No. 190), or by filing a
copy of said writ with the register of deeds for the province in which the real property is situated,
whether standing upon the records in the name of the defendant or not appearing at all upon the
record, which constitutes a limitation of ownership or the right to enjoy or dispose of a thing without
further limitations than those established by law (art. 348, Civil Code), since the owner of the
property attached cannot dispose of the same free of all liens and encumbrances. The law
authorizing the issuance of a writ of preliminary attachment should, therefore, be construed strictly in
favor of the judge should require that all the requisites prescribed by law be complied with, without
which a judge acquires no jurisdiction to issue the writ. If he does so in spite of noncompliance with
said requisites, he acts in excess of his jurisdiction and with the writ so issued by him will be null and
void.

The jurisdiction of attachment proceedings being a special one, it cannot be legitimately


exercised unless the attaching creditor pursues substantially the essential requirements of
the statute, and the court can act only under the special power limited by the statute and
according to the forms of procedures it prescribes. . . . (6 C. J., 88, paragraph 121.)
Where the statutes requires the affidavit to show that defendant is indebted to plaintiff in an
amount specified, or that the latter is entitled to recover such an amount, over and above all
legal payments, set-offs, or counterclaims, compliance with this requirement is essential to
confer jurisdiction to issue the writ. (6 C. J., 132,
paragraph 201.)

An affidavit is fatally defective where it fails to comply, at least substantially, with a statutory
requirement that is shall state that the indebtedness for which the action is brought has not
been secured by any mortgage or lien upon real or personal property, or any pledge of
personal property, or, if so secured, that the security has become valueless. . . . (6 C. J.,
146, paragraph 231.)

For the foregoing consideration, this court is of the opinion and so holds that failure to allege in a
complaint or in the affidavit solemnizing it, or in a separate one, the requisites prescribed by section
426 of the Code of Civil Procedure for the issuance of a writ of preliminary attachment that there is
no other sufficient security for the claim sought to be enforced by the action, and that the amount
due to the plaintiff above all legal set-offs or counterclaims is as much as the sum for which the order
is sought, renders a writ of preliminary attachments issued against the property of a defendant fatally
defective, and the judge issuing it acts in excess of his jurisdiction.

Wherefore, the writ of certiorari applied for is granted, and the writ of preliminary attachment issued
by the respondent judge in civil case No. 1460 of the Court of First Instance of Isabela, wherein the
herein respondent Alfredo Catolico is plaintiff and the herein petitioner Ventura Guzman is
defendant, is declared null and void, with costs to respondent Alfredo Catolico. So ordered.
























G.R. No. 55272 April 10, 1989

JARDINE-MANILA FINANCE, INC., petitioner,


vs.
COURT OF APPEALS, IMPACT CORPORATION, RICARDO DE LEON and EDUARDO DE
LEON, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Ramon Quisumbing, Jr. & Associates for private respondents.

FERNAN, C.J.:

This is a petition for review on certiorari seeking to reverse and set aside: (a) the August 29, 1980
decision of the Court of Appeals 1 in Special Proceedings CA-G.R. No. SP-09972-R entitled "Impact Corporation, et al. v. Hon.
Buenaventura Guerrero, etc., et al." annulling the order and the writ of attachment issued by the Court of First Instance of Rizal in Civil Case
No. 34617 entitled "Jardine-Manila Finance, Inc. v. Impact Corporation, et al." 2 and (b) the Resolution dated October 7, 1980 denying herein
petitioners motion for reconsideration. 3

On September 28, 1979, petitioner Jardine-Manila Finance, Inc. (JARDINE) filed a complaint in the
then Court of First Instance (CFI) of Rizal, docketed as Civil Case No. 34617, against private
respondents Impact Corporation (IMPACT), Ricardo de Leon and Eduardo de Leon, to collect
various sums of money allegedly due from therein defendant IMPACT under a credit accomodation
by way of a discounting line agreement. 4 Herein private respondents Ricardo de Leon and Eduardo de Leon were included
as defendants by virtue of their undertaking covered by a Surety Agreement under which they bound themselves jointly and severally with
defendant IMPACT to pay herein petitioner all of IMPACT's obligations under the aforesaid agreement. 5

It was alleged that in April and May 1979, IMPACT assigned its receivables to JARDINE on the
condition that IMPACT was to collect them on their due dates from their issuers and remit the
collected amounts to JARDINE and/or repurchase the assigned receivables; 6 but despite the fact that
IMPACT had collected the amounts due on said receivables, it failed or refused to turn over the amounts so collected to JARDINE.

JARDINE thus demanded payment of P 1,000,212.64, the total amount due under said various
deeds of assignment, plus interest of P 16,614.64 as of September 6, 1979 and 25 % of the
aforesaid amount as attorney's fees, exemplary damages and other expenses of litigation.

Likewise contained in said complaint is petitioner's application for a writ of preliminary attachment
against private respondents. The allegations in support of said petition for a writ of preliminary
attachment are quoted in full:

Special Allegations for Preliminary Attachment

A. The foregoing allegations are hereby repleaded and made integral


parts hereof.

B. The defendant corporation at the time of the execution of the


aforesaid deeds of assignment had reservation not to remit to plaintiff
the proceeds of the receivables assigned to plaintiff as confirmed by
their refusal to remit the same to plaintiff although the issuers of the
receivables assigned to plaintiff had already paid to defendant
corporation their obligations on said receivables to the latter.
C. Defendants Ricardo de Leon and Eduardo de Leon who are
likewise officers of defendant corporation in order to elicit plaintiffs
approval to enter into said deeds of assignment with defendant
corporation, executed the aforesaid surety agreement (Annex L),
likewise, with reservation in their minds not to honor their obligations
under the same as what they actually did when they refused to pay
the obligations of defendant corporation to plaintiff pursuant to the
provisions of said surety agreement. (Annex L)

D. Defendant corporation, Ricardo de Leon and Eduardo de Leon


have no visible other sufficient security for the claim sought to be
enforced by this action of plaintiff other than their real and personal
properties which are located in Metro Manila and in the province of
Rizal, Province of Nueva Ecija or elsewhere. (Emphasis supplied)

E. Plaintiffs action against defendant corporation is based upon


documents and therefrom a sufficient cause of action exists.

F. Plaintiff is willing to post a bond in an amount to be fixed by the


Honorable Court, not exceeding plaintiffs claim which will be
conditioned to the effect that plaintiff will pay all the costs which may
be adjudged to the adverse party and all damages which they may
sustain by reason of attachment, if the Honorable Court should finally
adjudge that the applicant plaintiff is not entitled thereto.7

On the basis of the foregoing allegations, the lower court granted JARDINE's petition for the
issuance of a writ of preliminary attachment on October 16, 1979. 8

On October 19, 1979, therein defendants filed a motion to set aside the writ of preliminary
attachment. They also submitted to the court a quo a memorandum in support of their motion to
dissolve the attachment contending that the grounds alleged by the plaintiff in its application for a
writ of attachment are not among the grounds specified under Section 1 of Rule 57; that the
defendants have other sufficient security; that there was no affidavit of merit to support the
application for attachment as required by Section 3 of Rule 57 and that the verification of the
complaint was defective as it did not state that the amount due to the plaintiff above all legal set-ups
or counterclaims is as much as the sum for which the order is sought. 9

JARDINE opposed the motion arguing that the mental reservation of defendants at the time of the
execution of the deeds of assignment constituted fraud; that such fraud was further confirmed by the
fact that defendants actually failed to remit the proceeds of the collection of receivables assigned by
them; that defendants failed to disclose to the plaintiff the fact that they had already collected the
receivables assigned by them; that the amounts collected by defendant corporation were received
by defendants in trust for plaintiff and defendant corporation appropriated for itself said collection. 10

On November 7, 1979, the trial court denied defendant's motion to annul the writ of preliminary
attachment. Thereupon, defendant Impact Corporation went to the appellate court on a petition for
certiorari seeking to annul said writ. 11

The findings of the Court of Appeals are as follows:

To our mind there is no question that the allegations of the complaint proper which
were repleaded and made integral part of the application for preliminary attachment
(paragraph A) made out a case of conversion or misappropriation of property held in
trust which is the subject of the complaint for the allegations stated that IMPACT had
assigned to JARDINE certain receivables with the understanding that it was to collect
the same from the issuers of said receivables and deliver the amounts collected to
JARDINE, but in spite of the fact that IMPACT had actually collected said amounts, it
failed to turn over said receivables to JARDINE. There was, therefore, in the
allegations of said complaint true conversion of the amounts received by defendant
in trust for plaintiff. Defendants in their motion to discharge the attachment and the
memorandum filed by them in support of said motion had in effect, admitted the
conversion of the amounts collected by defendant IMPACT, but justified the use of
said amounts to meet its operational expenses to prevent a complete shutdown of its
operations.

While we find that the grounds alleged by plaintiff, the herein private respondent, to
support its application for preliminary attachment are among those enumerated in
Section 1 of Rule 57 as grounds upon which an attachment may be issued, we are
constrained nonetheless to rule against the regularity or legality of the attachment
issued by respondent Court because there was no allegation made by plaintiff in its
application for the issuance of a writ of attachment to the effect 'that there is no
sufficient security for the claim sought to be enforced, by the action, and the amount
due to the applicant or the value of the property on the basis of which is entitled to
recover, is as much as the sum for which the order is granted above all legal
counterclaims, a requirement for the granting of an order of attachment under
Section 3 of Rule 57. 12

Thus, on August 29, 1980, the Court of Appeals annulled the assailed writ of attachment for having
been issued improperly and irregularly, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the petition to annul the order and the writ of
attachment issued by respondent Court is hereby GRANTED and judgment is
rendered declaring said order and writ of attachment null and void for having been
issued improperly and regularly. The restraining order issued by this Court on
November 9, 1979 restraining respondents from enforcing the writ of attachment
issued by respondent Judge on October 16, 1979 is hereby made PERMANENT.
With costs against private respondents. 13

Hence this recourse.

Reduced to bare essentials, the records show that in the exercise of its discretion, the lower court
found justification in the issuance of the attachment. On the other hand, the Court of Appeals while
in accord with the lower court that a sufficient cause of action exists for petitioner and that the
ground for its application for attachment is one of those mentioned in Section 1, Rule 57 of the Rules
of Court, found the issuance of the attachment irregular or illegal in the absence of the following
allegations in the application for attachment: (1) that "there is no sufficient security for the claim
sought to be enforced by the action; and (2) that the amount due to the applicant or the value of the
property on the basis of which he is entitled to recover, is as much as the sum for which the order is
granted above all legal counterclaims."

Ultimately, the issue therefore, is whether or not non-compliance with the formal requirements
invalidate the writ of attachment.
On both counts, petitioner admits not having used the exact words of the Rules in making the
requisite allegations, but nonetheless it alleged that it presented ultimate and specific facts, first-in
showing that there is indeed no other sufficient security for the claim sought to be enforced as shown
in paragraph D of the Complaint earlier quoted; and second-while it did not specifically state that the
sum due is above all legal counterclaims, such conclusion of fact is no longer necessary in the face
of actual proof in the answer which did not carry any counterclaim. In fine, petitioner stresses that
mere forms must not be given more weight than substance. 14

In excusing the deficiencies of its application for a writ of preliminary attachment, petitioner relies
heavily on the case of De Borja v. Platon, 15 where this Court sustained the writ of attachment issued by the lower court in
favor of the defendants based on the counterclaim of the latter despite the lack of allegations in the affidavit attached to the petition for the
issuance of the writ of attachment that the amount due the counterclaim was as much as the sum for which the order is granted above all
legal counterclaims.

It will be noted however, that the trial court found that the counterclaim of the defendants exceeded
the claims of the plaintiff. Thus, this Court held that "as the trial court had before it the evidence
adduced by both sides, the petition for a writ of preliminary attachment having been filed four years
after the trial court had begun, we presume that the lower court having in mind such evidence,
ordered the attachment accordingly." 16

In sharp contrast, in the case at bar, where the records undeniably reveal that: (1) the complaint was
filed on September 28, 1979; 17 (2) the writ of preliminary attachment was issued on October 16, 1979; 18 (3) the motion to
annul preliminary attachment dated October 19, 1979 was filed on the same day; 19 (4) the answer of defendant IMPACT dated October 30,
1979 20 was received by the RTC Pasig only on November 5, 1979, 21 it is evident that the questioned writ was issued ex parte; and at a
time when the Court a quo had yet no basis for concluding that the amount due to petitioner is as much as the sum for which the order is
granted above all legal counterclaims.

It is therefore, readily apparent that the conclusions in the De Borja case cannot be applied to the
case at bar. In fact even petitioner's plea for liberality as it vigorously invokes the doctrine on said
case which refused "to sanction that formalism and that technicality which are discountenanced by
the modern laws of procedure" is an obvious misreading of the ruling of this Court which states:

On the first point, we believe a writ of preliminary attachment may be issued in favor
of a defendant who sets up a counterclaim. For the purpose of the protection
afforded by such attachment, it is immaterial whether the defendants Borja and wife
simply presented a counterclaim or brought a separate civil action against Jose de
Borja, plaintiff in the previous case and petitioner herein. To lay down a subtle
distinction would be to sanction that formalism and that technicality which are
discountenanced by the modern laws of procedure for the sake of speedy and
substantial justice. . . . 22

as a liberal approach to the required allegations in the application for a writ of preliminary attachment
when what this Court actually allowed was the presentation of a counterclaim by the defendant
instead of a separate civil action in compliance with one of the basic requirements for the issuance
of said writ.

The authority to issue an attachment, like the jurisdiction of the court over such proceedings rests on
express statutory provisions and unless there is authority in the statute, there is no power to issue
the writ, and such authority as the statute confers must be strictly construed.23 In fact, "(E)ven where liberal
construction is the rule, the statute or the right to attachment thereby granted may not be extended by judicial interpretation beyond the
meaning conveyed by the words of the statute." 24 Petitioner's application for a writ of preliminary attachment must therefore be scrutinized
and assessed by the requisites and conditions specifically prescribed by law for the issuance of such writ.

Section 3, Rule 57 of the Revised Rules of Court governs the issuance of a writ of attachment, to wit:
Sec. 3. Affidavit and bond required.-An order of attachment shall be granted only
when it is made to appear by the affidavit of the applicant or some other person who
personally knows of the facts, that a sufficient cause of action exists, that the case is
one of those mentioned in section 1 hereof, that there is no sufficient security for the
claim sought to be enforced by the action, and that the amount due to applicant or
the value of the property the possession of which he is entitled to recover is as much
as the sum for which the order is granted above all legal counterclaims.

The stringent conditions for the issuance of the writ have been echoed in all subsequent cases, even
as late as K.O. Glass Construction Co. Inc. vs. Valenzuela, 25 wherein the writ of preliminary attachment issued was
annulled and set aside on the findings that while the plaintiff "may have stated in his affidavit that a sufficient cause of action exists against
the defendant Kenneth O. Glass, he did not state therein that the case is one of those mentioned in Section 1 hereof; that there is no other
sufficient security for the claim sought to be enforced by the action; and that the amount due to the applicant is as much as the sum for which
the order is granted above all legal counterclaims."

More specifically, it has been held that the failure to allege in the affidavit the requisites prescribed
for the issuance of the writ of preliminary attachment, renders the writ of preliminary attachment
issued against the property of the defendant fatally defective, and the judge issuing it is deemed to
have acted in excess of his jurisdiction. 26 In fact, in such cases, the defect cannot even be cured by amendment. 27

Since the attachment is a harsh and rigorous remedy which exposes the debtor to humiliation and
annoyance, the rule authorizing its issuance must be strictly construed in favor of defendant. It is the
duty of the court before issuing the writ to ensure that all the requisites of the law have been
complied with. 28 Otherwise, a judge acquires no jurisdiction to issue the writ.

The general rule is that the affidavit is the foundation of the writ, and if none be filed or one be filed
which wholly fails to set out some facts required by law to be stated therein, there is no jurisdiction
and the proceedings are null and void. Thus, while not unmindful of the fact that the property seized
under the writ and brought into court is what the court finally exercises jurisdiction over, the court
cannot subscribe to the proposition that the steps pointed out by statutes to obtain such writ are
inconsequential, and in no sense jurisdictional. 29

Considering that petitioner's application for the subject writ of preliminary attachment did not fully
comply with the requisites prescribed by law, said writ is, as it is hereby declared null and void and of
no effect whatsoever.

This conclusion renders a discussion of petitioner's other argument unnecessary.

WHEREFORE, the decision of the Court of Appeals dated August 29, 1980 is hereby AFFIRMED.
Costs against petitioner.

SO ORDERED.









G.R. No. 38284 September 17, 1933

GUILLERMO A. CU UNJIENG and MARIANO CU UNJIENG, petitioners,


vs.
LEONARD S. GODDARD, acting as Judge of First Instance of Manila, and HONGKONG &
SHANGHAI BANKING CORPORATION, respondents.

Gibbs and McDonough and Duran, Lim and Tuason for petitioners.
DeWitt, Perkins and Brady for respondents.

HULL, J.:

Original action for certiorari praying that a writ of attachment levied against the properties of the
petitioners and defendants in a civil action in the Court of First Instance of Manila, brought by
respondent Hongkong & Shanghai Banking Corporation, be declared null and void.

In that civil action it was alleged in substance that the defendants, the petitioners in this proceeding,
entered into a fraudulent conspiracy or combination with one Fernandez, by which the conspirators
would hypothecate and pledge forged securities of various kinds with the various banking institutions
and other commercial firms of the City of Manila, and pursuant to said fraudulent conspiracy,
secured credit with the bank, and the plaintiff was defrauded by the defendants and Fernandez in
the sum of P1,411,312.80. Simultaneously with the filing of the complaint, plaintiffs asked for a writ
of attachment, which was granted.

The affidavit filed at the time reads:

AFFIDAVIT

B.C.M. Johnston, of legal age and resident of the City of Manila, being duly sworn, states:

That he is the Manager of the Hongkong and Shanghai Banking Corporation, the plaintiff in
the above-entitled cause, and that he knows that there exists a cause of action in favor of
said plaintiff and against the defendants, as appears in the complaint on file in this case,
reference to which is hereby made as an integral part of this affidavit;

That the complaint is one for the recovery of money on a cause of action arising from a
fraud; and

That, as set out in the complaint, the defendants in said cause have been guilty of fraud in
contracting the debt in incurring the obligation upon which this action is brought.

(Sgd.) B.C.M. JOHNSTON

About one week thereafter, on October 20, 1931, petitioners herein filed a motion to discharge the
attachment on the ground that it had been improperly and irregularly issued, which motion contains
eight paragraphs.

Paragraph (4) alleges that the affidavit was defective in that it fails to state that there is no other
sufficient security for the claim sought to be enforced by the action and that the amount due the
plaintiff involves as much as the sum for which the order of attachment was granted, while
paragraph (5) alleges that the affidavit for attachment fails to estate that the allegations contained in
the unverified complaint to which it refers are true and that likewise the affidavit fails to estate that
affiant knows the facts.

Shortly after the hearing to discharge the attachment had begun, plaintiff asked leave to file an
amended affidavit in support of its petition for a writ of attachment.

After oral and written arguments, the respondent judge on November 25, 1931, entered an order
admitting the amended affidavit of attachment. The amended affidavit consists of three pages and is
admitted to be in full compliance with the provisions of section 426 of the Code of Civil Procedure,
which sets out what must be shown to the court before a writ of attachment shall issue.

Further proceedings were had in the trial court, and on March 4 and April 11, 1932, it entered an
order refusing on the showing so far made to dissolve the attachment. On October 4, 1932, these
proceedings were instituted, based on the two propositions (1) that an affidavit of attachment cannot
be amended and (2) that if a cause of action arises ex delicto, it is not within the terms of our
attachment statutes.

Respondents claim that petitioners had not exhausted their rights in the trial court and that if the
petitioner regarded the order of April 11 as a final order, petitioners are guilty of laches by waiting
until October before filing a complaint.

Without considering the minor questions raised by respondents, we believe it is for the best interests
of all concerned to dispose of the case on the points raised by petitioners.

As to whether amendments should be admitted, respondents rely upon section 110 of the Code of
Civil Procedure, which reads:

SEC. 110. Amendments in General. — The court shall, in furtherance of justice, and on such
terms, if any, as may be proper, allow a party to amend any pleading or proceeding and at
any stage of the action, in either the Court of first Instance or the Supreme Court, by adding
or striking out the name of any party, either plaintiff or defendant, or by correcting a mistake
in the name of a party, or a mistaken or inadequate allegation or description in any other
respect, so that the actual merits of the controversy may speedily be determined, without
regard to technicalities, and in the most expeditious and inexpensive manner. The court may
also, upon like terms, allow an answer or other pleading to be made after the time limited by
the rules of the court for filing the same. Orders of the court upon the matters provided in this
section shall be made upon motion filed in this court, and after notice to the adverse party,
and an opportunity to be heard." and claim it should read in connection with section 2 of the
same Code:

SEC. 2. Construction of Code. — The provisions of this Code and the proceedings under it,
shall be liberally construed, in order to promote its object and assist the parties in obtaining
speedy justice.

This court has held in the case of Central Capiz vs. Salas (43 Phil., 930), that section 2 applies to
applications for writs of attachment and that the affidavit may be read in connection with the
complaint.

In the original affidavit, affiant did not swear on information and relief but expressly on knowledge. It
is also clear from the affidavit that the ground on which the attachment was sought to be secured, is
paragraph 4 of section 412 of the Code of Civil Procedure. It is defective in (a) that there is no
allegation, either in the affidavit or the complaint, that there was no other sufficient security for the
claim sought to be enforced by the action and (b) that the amount due to the plaintiff above all legal
set-offs or counterclaims is as much as the sum for which the order is granted. The claim of
petitioners that the original affidavit is defective is virtually admitted by respondents by their having
filed a amended affidavit and by their insistence upon their right to amend.

Our section 110 of the Code of Civil Procedure is based on section 473 of the California Code of
Civil Procedure and is a general statute authorizing, in the discretion of the court, any amendment, in
the further interest of justice, of pleadings or procedure at any stage of the action. Proceedings in the
Court of First Instance to discharge the attachment were taken under section 441 of the Code of
Civil Procedure, which reads:

SEC. 441. Discharge of Attachment on Motion. — The defendant may also at any time either
before or after the release of the attachment property, or before any attachment shall have
been actually levied, upon reasonable notice to the plaintiff, apply to the judge or justice of
the peace who granted the order of attachment, or to the judge of the court in which the
action is pending, for an order to discharge the attachment on the ground that the same was
improperly or irregularly issued. If the motion be made on affidavits on the part of the
defendant, but not otherwise, the plaintiff may oppose the same by affidavits or other
evidence in addition to those on which the attachment was made.

If upon such application it satisfactorily appears that the writ of attachment was improperly or
irregularly issued, it must be discharged.

The corresponding sections of the California Code, namely section 556, 557, and 558, read:

SEC. 556. When a motion to discharge attachment may be made, and upon what grounds.
— The defendant may also at any time, either before or after the release of the attached
property, or before any attachment shall have been actually levied, apply, on motion, upon
reasonable notice to the plaintiff, to the court in which the action is brought, or to a judge
thereof, that the writ of attachment be discharged on the ground that the same was
improperly or irregularly issued.

SEC. 557. When motion made on affidavit, it may be opposed by affidavit. — If the motion be
made upon affidavits on the part of the defendant, but not otherwise, the plaintiff may oppose
the same by affidavits or other evidence, in addition to those on which the attachment was
made.

SEC. 558. When writ must be discharged. — If upon such application it satisfactorily appears
that the writ of attachment was improperly or irregularly issued it must be discharged;
provided that such attachment shall not be discharged if at or before the hearing of such
application, the writ of attachment, or the affidavit, or undertaking upon which such
attachment was based shall be amended and made to conform to the provisions of this
chapter.

In a long line of decisions from Castle Bros., Wolf & Sons vs. Go-Juno (7 Phil., 144), where it was
said:

Inasmuch as this section 95 is taken bodily from the California Code of Procedure, we feel
justified in following the decisions of the Supreme Court of California in the interpretation of
the same.
to Pando vs. Kette and Sellner (54 Phil., 683), where this court uses the following language:

The provision of our Code of Civil Procedure having been adopted from section 692 of the
California Code, it must be understood that our law was promulgated with the construction
placed upon it by the State of California." Where a provision of the Code of Civil Procedure
has been adopted bodily from one of the States of the Union, we have followed the rule that
it was undoubtedly the intention of the Legislature to promulgate the law with the
construction that had already been placed upon it.

At the time sections 110 and 114 were adopted, the similar provisions of the California Code had
already been construed by the Supreme Court of California. In Winters vs. Pearson (72 Cal., 553),
that court used the following language:

On a motion to discharge a writ of attachment, on the ground that it was improperly or


irregularly issued, the affidavit on which the writ was issued is not amendable. This, in our
opinion, is in accordance with section 558 of the Code of Civil Procedure, which provides
that the writ was improperly or irregularly issued, it must be discharged.

To allow the affidavit to be made good by amendment, and upon such action refused to
discharge the writ, would, in our judgment, violate the requirements of the section just above
cited.

In Tibbet vs. Tom Sue (122 Cal., 206), the court followed Winters vs. Pearson, saying:

Respondent asks the privilege of amending the undertaking, if it be held defective by this
court. From such relief he invokes section 473 of the Code of Civil Procedure, wherein
amendments are allowed to pleadings or proceedings in furtherance of justice. In speaking
as to an application to discharge a writ of attachment, the Code says: "If upon such
application it satisfactorily appears that the writ of attachment was improperly or irregularly
issued, it must be discharged." (Code Civ. Proc., sec. 558.) This section is specific and
expressly directed to the subject of attachments. It must be held to control and limit the
general provisions of the aforesaid section 473. The lawmaking body has declared what shall
be the action of the court under the circumstances here presented, and such action demands
that the writ should be discharged. It is said in Winters vs. Pearson (72 Cal., 553), that the
affidavit on attachment is not amendable. The undertaking upon attachment stands upon the
same ground.

The facts that California in 1909 changed the law by permitting amendments of a defective affidavit
for attachment under certain specified circumstances, does not affect this case, as our Legislature
has allowed the law to stand unchanged.

It therefore allows that where the affidavit for attachment is fatally defective, the attachment must be
held to have been improperly or irregularly issued and must be discharged, and such fatal defect
cannot be cured by amendment. The writ of attachment in this case should therefore have been
discharged.

In view of the above views, the second ground for the discharge of the writ of attachment presented
by petitioners herein, is reserved for discussion in another case.

The writ of certiorari herein prayed for must be granted. So ordered.


Avanceña, C.J., Street, Malcolm, Villa-Real, Abad Santos, and Butte, JJ., concur.

IMPERIAL, J.:

Petitioners brought this certiorari proceeding to annul the writ of attachment issued by the Court of
First Instance of Manila on October 14, 1931, as well as the orders of November 25, 1931, March 4
and April 11, 1932, granting the admission of an amended affidavit and denying the motion to
dissolve the attachment, respectively.

It is the purpose of this opinion to show: (a) That the averments of the complaint, which were made
integral part of the affidavit supporting the petition for the issuance of the writ of attachment, meet
substantially the requirements of the statute on attachment; (b) that the affidavit on which the petition
for attachment was based is sufficient and has substantially complied with the grounds required by
section 426 of the Code of Civil Procedure, and (c) that the respondent judge did not act in excess of
his jurisdiction when issued the writ of attachment and denied the motion for dissolution.

The complaint filed in the civil action in which the writ of attachment was issued contains, among
others, the following allegations:

III

That during the years 1930 and 1931, the said defendants entered into a fraudulent
conspiracy or combination with one Rafael Fernandez, who has been adjudicated an
involuntary insolvent by the Court of First Instance of Manila, and for that reason is not made
a defendant in this action, pursuant to which fraudulent conspiracy and combination, it was
agreed that the said Fernandez, or the said Fernandez, or the said defendant Guillermo A.
Cu Unjieng, or the said Mariano Cu Unjieng should hypothecate and pledge forged share
certificates, forged warehouse receipts, and forged securities of other kinds, in large
amounts, with various banking institutions and other commercial firms of the City of Manila,
with a view to a division of the proceeds among the said fraudulent conspirators.

IV

That pursuant to said fraudulent combination and conspiracy the said Guillermo A. Cu
Unjieng employed a forger to forge the signatures of the proper officers on a large number of
warehouse receipts and share certificates of the Pampanga Sugar Development Company,
Inc., a corporation organized under the laws of the Philippine Islands, and operating a large
sugar central in the Province of Pampanga, Philippine Islands, after the said Rafael
Fernandez, pursuant to said fraudulent combination and conspiracy, had caused a large
number of said share certificates and warehouse receipts to be printed in blank, for the
purpose of having them so forged.

That pursuant to said fraudulent combination and conspiracy, the said defendants, Guillermo
and Mariano Cu Unjieng and the said Rafael Fernandez pledged and hypothecated said
forged share certificates and said forged warehouse receipts in large amounts with various
banking institutions and commercial firms of the City of Manila, using the proceeds in some
cases for the purpose of taking up the forged certificates and warehouse receipts so pledged
and hypothecated in other cases, so as to continue the scheme for the longest in other time,
and in other cases, dividing among themselves the proceeds of the loans obtained on the
security of said forged share certificates and forged warehouse receipts so fraudulently
pledged and hypothecated.

VI

That pursuant to said fraudulent conspiracy and combination, the said Rafael Fernandez, at
various dates, on and after June 16th, 1931, pledged and hypothecated various forged
warehouse receipts and promissory notes to the plaintiff herein, as security for loans in
account current granted said Fernandez by the plaintiff in reliance therein, on which there
was a total debit balance due of P1,411,312.80, on the date of the adjudication of Fernandez
as an insolvent, that is, on the 1st day of August, 1931, together with interest at 9 per cent
per annum on P1,010,886.96 thereof from the 1st day of July, 1931, and interest on the
balance at the rate of 9 per cent per annum from July 8, 1931.

VII

That of the amounts so obtained by the said Fernandez from this plaintiff by the fraudulent
pledging and hypothecation of said forged warehouse receipts and promissory notes,
pursuant to said fraudulent combination and conspiracy, as hereinbefore alleged, said
Fernandez, pursuant to said combination and conspiracy, paid directly to the defendant
herein, Guilermo A. Cu Unjieng, sums aggregating P325,000; to the defendant herein,
Mariano Cu Unjieng, the sum of P10,000; caused other large amounts to be paid said
defendants indirectly through other banking institutions in the City of Manila; and utilized the
balance in covering overdrafts and loans obtained in his name with other banking institutions
in the City of Manila, on the security of forged share certificates, warehouse receipts and
other forged securities the proceeds of which were divided between him and the defendants
herein pursuant to said fraudulent combination and conspiracy.

VIII

That as a result of said fraudulent conspiracy and combination, between the defendants
herein and the said insolvent, Rafael Fernandez, and the pledging and hypothecation by said
Fernandez of said forged warehouse receipts and promissory notes with the plaintiff herein,
the said plaintiff has been defrauded by the defendants herein and by the said Fernandez in
the sum of P1,411,312.80, with interest on P1,010,886.96 thereof at the rate of 9 per cent
per annum from July 1, 1931, and with interest on the balance thereof at the rate of 9 per
cent per annum from July 8, 1931.

The affidavit above referred to read as follows:

AFFIDAVIT

B.C.M. Johnston, of legal age and a resident of the City of Manila, being duly sworn states:

That he is the Manager of the Hongkong & Shanghai Banking Corporation, the plaintiff in the
above entitled cause, and that he knows that there exists a cause of action in favor of the
said plaintiff and against the defendant, as appears in the complaint on file in this case,
reference to which is hereby made as an integral part of this affidavit.
That the complaint is one for the recovery of money on a cause of action arising from a
fraud: and

That as set out in the complaint, the defendant in said cause has been guilty of fraud in
contracting the debt and in incurring the obligation upon this action is brought.

(Sgd.) B.C.M. JOHNSTON

Subscribed and sworn to before me this 11th day of July, 1931, affiant exhibiting to me his
cedula certificate No. F-14401, issued at Manila, P.I., January 19, 1931.

Doc. No. 420 (Sgd.) "DOMINGO A. GUEVARA


Page 71 Notary Public
Book III Until December 31, 1932

Section 426 of Act No. 190 provides:

SEC. 426. Granting order of attachment. — A judge or justice of the peace shall grant an
order of attachment when it is made to appear to the judge or justice of the peace by the
affidavit of the plaintiff, or of some other person who knows the facts, that a sufficient cause
of action exists, and that the case is one of those mentioned in section four hundred and
twenty-four, and that there is no other sufficient security for the claim sought to be enforced
by the action, and that the amount due to the plaintiff above all legal set-offs or counterclaims
is as much as the sum for which the order is granted.

From a perusal of said section it is obvious that the law does not require conclusive evidence to
establish the requisites necessary in order a justice or judge may issue a writ of attachment; all what
the law requires is the presentation of prima facie evidence which shows the existence of said
grounds. This is the reason why it calls for affidavit in lieu of other material and competent evidence.

As alleged in the affidavit affiant made a part of his statement all material and necessary averments
contained in the complaint undoubtedly for the purpose of making a complete narration of the facts
and at the same time to avoid superfluous repetition. In substance, it was alleged in the complaint
that the defendants in the civil action were guilty of fraud at the time they incurred in the obligations
set forth and that Rafael Fernandez secured from the plaintiff the amount of over P1,000,000, which
is the subject matter of the action, thru conspiracy and collusion with the defendants-petitioners,
having delivered said Fernandez warehouse receipts and shares certificates which were forged and
valueless.

It is argued that the original affidavit was fatally defective because it failed to recite: (1) That the
plaintiff in the action has no other sufficient security for the claims sought to be enforced, and (2) that
the amount due it above all legal set-offs or counterclaims is as much as the sum for which the order
is prayed for. While it may be conceded that the original affidavit as well as the complaint are lacking
of such specific averments, still from the above quoted allegations the facts can be reasonably
inferred, If the action was brought by plaintiff to recover the amount of over P1,000,000 which it lost
in the manner above described and if it is especially alleged that the security given by the
defendants became valueless because they were all forged it is hard to conceived how one could
not deduce the inference that no other security has been given the plaintiff with the exception of
those especifically alleged in the complaint. The same inference was undoubtedly gathered by the
respondent judge when he granted the attachment upon said original affidavit and as far as I am
concerned I believed he did not exceed in the exercise of the jurisdiction conferred upon him by the
law. As to the other ground, the same thing could be said.

In deciding this case I believe technicalities of law should be overlooked in order to attain the ends of
justice. If the main action fails the petitioners, as defendants, will get compensation for any damages
or injury they may have suffered upon the bond given by plaintiff-respondent, while should the action
prosper and the attachment is already quashed plaintiff would not get anything so much so as there
are other creditors who are claiming big amounts from the same defendants.

Based on the foregoing reasons I dissent from the majority's decision and I am of the opinion that
the liberal construction of the statute on attachment should have been applied in this particular
instance and the petition denied.


































G.R. No. L-61754 August 17, 1989

ROBERTO TING, and DOLORES TING, petitioners,


vs.
HON. AUGUSTO E. VILLARIN, FELICIANO GERVACIO, FERDINAND J. GUERRERO, and
CONSOLIDATED BANK & TRUST COMPANY, respondents.

Santos, Valmonte & Associates for petitioners.

SARMIENTO, J.:

On September 17, 1981, private respondent Consolidated Bank and Trust Company (hereinafter
"Consolidated Bank") filed a complaint 1 for a sum of money with prayer for a writ of preliminary
attachment against Perlon Textile Mills and its directors.

Roberto Ting, a director, was impleaded with his wife Dolores Lim Ting. The complaint recites that
the wife was impleaded as a party defendant in order to bind their conjugal partnership of gains
which allegedly benefitted from the transactions subject of the complaint. The, spouses Ting are the
present petitioners.

Consolidated Bank actually sued on two (2) causes of action. The first was targeted at recovering on
several promissory notes the amount of P2,972,955.51, allegedly obtained for the defendant
corporation by its duly authorized officers Lu Cheng Peng, Teng See, and Roberto Ting. These
officers allegedly signed the promissory notes in their personal and official capacities thereby binding
themselves jointly and severally to Consolidated Bank for the payment of the promissory notes.

The second cause of action dwells on several violations of trust receipt agreements which the
defendant corporation executed in favor of Consolidated Bank. The defendant corporation's faithful
compliance with the trust receipt agreements appears to have been secured by the continuing
guaranty of defendants Liu Suy Lin Angelo Leonar, and Lu Cheng Peng.

In support of the application for preliminary attachment, Consolidated Bank averred the ground of
"fraud in contracting an obligation" thus —

16. Defendants are guilty of fraud in contracting their obligations more specifically
illustrated by their violation of the trust receipt agreement which is a ground defined
under Sec. 1, Rule 57 of the Rules of Court for the issuance of a writ of preliminary
attachment. 2

On September 23, 1981, acting on the application for a writ of attachment by Consolidated Bank, the
respondent judge issued the orders under question, to wit:

xxx xxx xxx

We, therefore, command you [Deputy Sheriffs Feliciano Gervacio and Ferdinand J.
Guerrero] that you attach the estate, real and personal, of the said defendants Perlon
Textile Mills, Inc., Lu Cheng Peng and Spouse; Teng See @ Teng Tik Hua and
Spouse; Spouses Roberto Ting and Dolores Lim Ting; Angelo Leonor and Spouse,
Liu Suy Lin and Spouse, and Yap Chi and Spouse, within your province to the value
of said demands, and costs of suit, and that you keep safely the same according to
the Rules of Court, unless the defendant — gives security to pay such judgment as
may be recovered in this action in the manner provided for by the Rules of Court; and
that you return immediately this order after executing the same with a full statement
of your proceedings and a complete inventory of the properties attached. 3

On March 3, 1982, acting on the petitioners' Motion to Quash Attachment, the respondent judge
issued a second order, to wit:

xxx xxx xxx

Acting on defendants Roberto and Dolores Ting's motion to quasi attachment and
plaintiffs' opposition thereto, it appearing from plaintiffs' allegations that the alleged
fraud was effected through the collective action of the defendants, the court finds the
motion to be without sufficient merit. 4

xxx xxx xxx

On July 19, 1982, acting on the petitioners' motion for reconsideration, the respondent judge issued
the last disputed order the dispositive portion of which states:

xxx xxx xxx

WHEREFORE, under the circumstances, and finding no sufficient justification for the
reconsideration of the order of March 3, 1982, the motion for reconsideration is
hereby DENIED. 5

xxx xxx xxx

The petitioners came to this Court via a petition for certiorari. They are questioning the writ of
preliminary attachment principally on the ground that the application therefor hinges on "fraud in
contracting" the trust receipt agreements under the second cause of action.

On the other hand, the petitioners are impleaded in the complaint merely under the first cause of
action. Moreover, the petitioners challenge the writ of preliminary attachment issued because, in
effect, it pierced the veil of corporate fiction. The petitioners explain that the corporation alone should
be held liable for the violation of the trust receipt agreements.

Finally, the petitioners ask that the writ of preliminary attachment be struck down by this Court
because it authorized an attachment over the petitioners' conjugal partnership property.

We agree with the petitioners.

The complaint did not provide for a sufficient basis for the issuance of a writ of preliminary
attachment. It is not enough for the complaint to ritualistic ally cite, as here, that the defendants are
"guilty of fraud in contracting an obligation." An order of attachment cannot be issued on a general
averment, such as one ceremoniously quoting from a pertinent rule. 6 The need for a recitation of
factual circumstances that support the application becomes more compelling here considering that the
ground relied upon is "fraud in contracting an obligation." The complaint utterly failed to even give a hint
about what constituted the fraud and how it was perpetrated. Fraud cannot be presumed. 7
The respondent judge thus failed in this duty to ensure that, before issuing the writ of preliminary
attachment, all the requisites of the law have been complied with. He acted in excess of his
jurisdiction and the writ he so issued is thus null and void. 8

What is more, the respondent judge plainly ignored that, as correctly pointed out by the petitioners,
the application for preliminary attachment rests on "fraud in contracting" the trust receipt
agreements. The complaint itself, save for the unwarranted sweeping reference to "defendants,"
alleged that only Consolidated Bank, as principals, and Liu Suy Lin Angelo Leonar, and Lu Cheng
Peng, as guarantors, were privy to the trust receipt agreements under the second cause of action.
Petitioner Roberto Ting's involvement is limited only to the promissory notes under the first cause of
action. The complaint thus relevantly alleges —

FIRST CAUSE OF ACTION

7. On March 15, 1979, defendant corporation, through its duly authorized officers Lu
Cheng Peng, Tang See and Roberto Ting obtained from plaintiff loan
accommodations in the amount of P2,972,955.51 and as evidence thereof, the
aforementioned defendants in their personal and official capacities executed
promissory notes undertaking therein jointly and severally with the corporation to pay
plaintiff the above-mentioned amount with interest ....

SECOND CAUSE OF ACTION

8. On different occasions in 1978-1979, defendants applied to plaintiff for the opening


of numerous letters of credit to finance its purchase of goods from various suppliers.

xxx xxx xxx

ALLEGATIONS COMMON TO ALL CAUSES OF ACTION

12. In order to secure the credit accommodations obtained and all those that the
defendant Perlon Textile Mills, Inc. may thereafter obtain from plaintiff, defendants
Liu Suy Lin Angelo Leonar and Lu Cheng Peng executed a continuing guaranty ... . 9

The sweeping nature of the attachment order probably stemmed from the respondent judge's failure
to detect that the two (2) causes of action had been misproperly joined. Joinder of causes of action
is, among others, subject to the rules on joinder of parties. 10 And the rule on joinder of parties is
enunciated in Sec. 6, Rule 3, Revised Rules of Court, thus —

Sec. 6. Permissive joinder of parties. — All persons ... against whom any right to
relief in respect to or arising out of the same transaction or series transactions is
alleged to exist, whether jointly, severally, or in the alternative, may, except as
otherwise provided in these rules ... be joined as defendants in one complaint, where
any question of law or fact common to all such ... defendants may arise in the action
... .

Here, the two causes of action arose from different transactions. There was no "series of
transactions" to speak of. But above all, the complaint can conceivably affect adversely petitioner
Roberto Ting under the first cause of action only but not in the second cause of action. 11
That the attachment ordered by the respondent judge called for the sheriffs to "attach the estate, real
and personal of ... Spouses Roberto Ting and Dolores Lim Ting" (Order of September 23, 1981)
likewise gives cause for this Court to strike it down for being null and void. The attached property of
the spouses Ting are conjugal, the same cannot be validly brought under the painful process of
attachment because:

(a) First, the wife Dolores was impleaded merely because of the fact that she is the
spouse of Roberto;

(b) Second, the conjugal partnership cannot possibly be benefitted (again, here,
Consolidated Bank's allegation that the act of the husband redounded to the benefit
of the conjugal partnership is mere "book form" when the husband binds himself, as
guarantor, because this act does not conserve or augment conjugal funds but
instead threatens to dissipate them 12 by unnecessary and unwarranted risks to the
partnership's financial stability. When the husband assumes the obligation of a guarantor,
the presumption that he acts, as administrator, for the benefit of the conjugal partnership,
is lost.

WHEREFORE, the petition is hereby GRANTED. The questioned Orders, dated September 23,
1981, March 3, 1982, and July 19,1982, of the respondent judge, and the levy on attachment made
by the deputy sheriffs against the parcel of land covered by TCT No. T-7232 and registered in the
names of the petitioners, are declared NULL AND VOID.

Costs against the private respondent.

SO ORDERED.






















G.R. No. 135830 September 30, 2005

JUAN DE DIOS CARLOS, Petitioners,


vs.
FELICIDAD SANDOVAL, also known as FELICIDAD S. VDA. DE CARLOS or FELICIDAD S.
CARLOS or FELICIDAD SANDOVAL DE CARLOS, and TEOFILO CARLOS II, Respondent.

x-------------------------------------------------------------------x

G.R. No. 136035

SIDDCOR (now MEGA PACIFIC) INSURANCE CORPORATION, Petitioners,


vs.
FELICIAD SANDOVAL VDA. DE CARLOS and TEOFILO CARLOS II, Respondent.

x------------------------------------------------------------------x

G.R. No. 137743

SIDDCOR (now MEGA PACIFIC) INSURANCE CORPORATION, Petitioners,


vs.
HON. COURT OF APPEALS (FORMER SPECIAL FOURTH DIVISION), HON. ALBERTO L.
LERMA and/or the REGIONAL TRIAL COURT OF THE CITY OF MUNTINLUPA, BRANCH 256,
FELICIDAD SANDOVAL, also known as FELICIDAD S. VDA. DE CARLOS OR FELICIDAD S.
CARLOS OR FELICIDAD SANDOVAL CARLOS OR FELICIDAD SANDOVAL VDA. DE CARLOS
and TEOFILO CARLOS II, Respondent.

DECISION

Tinga, J.:

These consolidated petitions emanated from a civil case filed by Juan de Dios Carlos ("Carlos")
against respondents Felicidad Sandoval ("Sandoval") and Teofilo Carlos II (Teofilo II) docketed with
the Regional Trial Court (RTC) of Muntinlupa City as Civil Case No. 95-135.

In his Complaint before the RTC, Carlos asserted that he was the sole surviving compulsory heir of
his parents, Felix B. Carlos and Felipa Elemia,1 who had acquired during their marriage, six parcels
of land (subject properties). His brother, Teofilo ("Teofilo"), died intestate in 1992. At the time of his
death, Teofilo was apparently married to Sandoval, and cohabiting with her and their child,
respondent Teofilo II. Nonetheless, Carlos alleged in his Complaint that Teofilo and Sandoval were
not validly married as they had not obtained any marriage license.2Furthermore, Carlos also
asserted that Teofilo II could not be considered as Teofilo’s child. As a result, Carlos concluded that
he was also the sole heir of his brother Teofilo, since the latter had died without leaving any heirs.

Carlos also claimed that Teofilo, prior to their father Felix’s death in 1963, developed a scheme to
save the elder Carlos’s estate from inheritance taxes. Under the scheme, the properties of the father
would be transferred to Teofilo who would, in turn, see to it that the shares of the legal heirs are
protected and delivered to them. Felix assented to the plan, and the subject properties were
transferred in the name of Teofilo. After Teofilo’s death, Carlos entered into certain agreements with
Sandoval in connection with the subject properties. Carlos did so, believing that the latter was the
lawful wife of his brother Teofilo. Subsequently though, Carlos discovered that Sandoval and his
brother were never validly married, as their marriage was contracted without a marriage license.3

Carlos now sought to nullify these agreements with Sandoval for want of consideration, the premise
for these contracts being non-existent. Thus, Carlos prayed of the RTC to declare the alleged
marriage between Teofilo and Sandoval void ab initio, provided that Teofilo died without issue, order
that new titles covering the subject properties be issued in the name of Carlos, and require Sandoval
to restitute Carlos in the amount of P18,924,800.00.4

Carlos likewise prayed for the issuance of the provisional relief of preliminary attachment. The RTC
issued an Order dated 7 September 1995 granting the prayer for preliminary attachment, and on 15
September 1995, a writ of preliminary attachment. Carlos posted a bond for P20,000,000.00 issued
by herein petitioner

SIDDCOR Insurance Corporation (SIDDCOR).5 Shortly thereafter, a Notice of Garnishment was


served upon the Philippine National Bank (PNB) over the deposit accounts maintained by
respondents.

Respondents filed an Urgent Motion to Discharge the Writ of Attachment, which was opposed by
Carlos. On 4 December 1995, the RTC rendered an order denying the motion. This caused
respondents to file a Petition for Certiorari with the Court of Appeals, seeking to set aside the RTC
order granting the writ of preliminary attachment denying the motion for the discharge of the writ.
This case was docketed as CA-G.R. SP No. 39267.6

On 27 February 1996, the Court of Appeals Second Division promulgated its Decision in CA-G.R.
SP No. 39267, wherein it granted the Petition for Certiorari and ordered the discharge and
dissolution of the Writ of Attachment and Notice of Garnishment.7 The Court of Appeals found that
there was no sufficient cause of action to warrant the preliminary attachment, since Carlos had
merely alleged general averments in order to support his prayer.8 Carlos elevated the said Decision
to this Court by way of Petition for Review on Certiorari, which was docketed as G.R. No. L-125717.
In a Resolution dated 21 October 1996, the Court denied Carlos’s Petition, and thus the Court of
Appeals’ Decision ordering the dissolution of the Writ of Attachment and Notice of Garnishment
became final.

In the meantime, the hearing on Carlos’s Complaint ensued before the RTC. Respondents duly filed
their Answer and thereafter filed a Motion for Summary Judgment. Carlos opposed the motion and
countered with his own Motion for Summary Judgment. On 8 April 1996, the RTC rendered a
summary judgment in favor of Carlos. Carlos’s victory was wholesale, with the RTC making the
following pronouncements:

1. Declaring the marriage between defendant Felicidad Sandoval and Teofilo Carlos solemnized at
Silang, Cavite, on May 14, 1962, evidenced by the Marriage Contract submitted in this case, null and
void ab initio for lack of the requisite marriage license;

2. Declaring that the defendant minor, Teofilo S. Carlos II, is not the natural, illegitimate, or legally
adopted child of the late Teofilo E. Carlos;

3. Ordering defendant Sandoval to pay and restitute to plaintiff the sum of P18,924,800.00, together
with the interest thereon at the legal rate from date of filing of the instant complaint until fully paid;

4. Declaring plaintiff as the sole and exclusive owner of the parcel of land, less the portion
adjudicated to the plaintiffs in Civil Case No. 11975, covered by TCT No. 139061 of the Register of
Deeds of Makati City, and ordering said Register of Deeds to cancel said title and to issue another
title in the sole name of plaintiff herein;

5. Declaring the Contract, Annex K of the Complaint, between plaintiff and defendant Sandoval null
and void, and ordering the Register of Deeds of Makati City to cancel TCT No. 139058 in the name
of Teofilo Carlos, and to issue another title in the sole name of the plaintiff herein;

6. Declaring the Contract, Annex M of the Complaint, between plaintiff and defendant Sandoval null
and void;

7. Ordering the cancellation of TCT No. 210877 in the names of defendant Sandoval and defendant
minor Teofilo S. Carlos II and ordering the Register of Deeds of Manila to issue another title in the
exclusive name of plaintiff herein.

8. Ordering the cancellation of TCT No. 210878 in the names of defendant Sandoval and defendant
minor Teofilo S. Carlos II and ordering the Register of Deeds of Manila to issue another title in the
sole name of plaintiff herein.9

Upon promulgation of the Summary Judgment, Carlos moved before the RTC for execution pending
appeal. The RTC granted the motion for execution pending appeal upon the filing of a bond.10 On 27
May 1996, the RTC issued a Writ of Execution.

Meanwhile, respondents filed a Motion for Reconsideration of the Summary Judgment, which was
denied in an Order dated 20 May 1996. Respondents then appealed the RTC Decision to the Court
of Appeals, wherein such appeal was docketed as CA-G.R. CV No. 53229. The case was raffled to
the appellate courts’ Fourteenth Division for completion of records. Sandoval and Carlos also filed
a Petition for Certiorari with Temporary Restraining Order dated 2 June 1996. This special civil
action primarily attacked the allowance of execution pending appeal, and prayed for the annulment
of the Order granting execution pending appeal, and of the Writ of Execution

On 10 December 1996, in CA-G.R. CV No. 53229, respondents filed a Motion for Judgment On the
Attachment Bond. They noted that the Court of Appeals had already ruled that the Writ of
Preliminary Attachment issued by the RTC was improperly granted and that its Decision, as affirmed
by the Supreme Court, had attained finality. Accordingly, they were entitled to damages under
Section 20, Rule 57 of the then Rules of Civil Procedure, which governed claims for damages on
account of unlawful attachment. In support of their allegation of damages, they cite the Notice of
Garnishment served on PNB Malolos Branch, where Felicidad Carlos maintained

deposits amounting to P15,546,121.98.11 Also presented in support of the motion was a Notice of
Delivery/Payment by the RTC Sheriff, directing the PNB Malolos Branch to deliver the amounts
previously garnished by virtue of the Writ of Execution dated 27 May 1996;12 a Manifestation filed by
PNB dated 19 July 1996 in CA-G.R. SP No. 40819, stating that PNB had already delivered to the
RTC Sheriff on 27 June 1996 the amount of P15,384,509.98 drawn against the accounts of Carlos;
and a Certification to the same effect issued by the PNB Malolos Branch. In an Addendum to Motion
for Judgment on the Attachment Bond, respondents additionally prayed for moral and exemplary
damages.13

After various pleadings were duly filed by the parties, the Court of Appeals Special Fourth Division
issued a Resolution dated 23 March 1998, certifying that all the necessary pleadings have been
filed, and that the case may already be referred to the Raffle Committee for assignment to
a ponente for study and report. The same Resolution likewise denied without elaboration a Motion to
Dismiss on the ground of forum-shopping filed earlier by Carlos.14
On such denial, Carlos filed a Motion for Reconsideration. Respondents likewise filed a Motion for
Partial Reconsideration dated 17 April 1998, arguing that under the Revised Internal Rules of the
Court of Appeals (RIRCA), the case may be re-raffled for assignment for study and report only after
there is a resolution that the case is deemed submitted for decision.15 They pointed out that re-raffle
could not yet be effected, as there were still pending incidents, particularly the motions for
reconsideration of Carlos and themselves, as well as the Motion for Judgment on Attachment Bond.

On 26 June 1998, the Court of Appeals Former Special Fourth Division promulgated two
resolutions.16 The first, in response to Carlos’s Motion for Reconsideration, again denied
Carlos’s Motion to Dismiss the Appeal and Motion for Suspension, but explained the reasons for
such denial.

The second resolution is at the center of the present petitions. The assailed Resolution agreed with
respondents that it was first necessary to resolve the pending incidents before the case could be re-
raffled for study and report. Accordingly, the Court of Appeals

proceeded to rule on these pending incidents. While the first resolution dwelt on the pending motions
filed by Carlos, this Resolution tackled the other matter left unresolved, the Motion for Judgment on
Attachment Bond. The Court of Appeals found the claim for damages meritorious, citing the earlier
decisions ruling that Carlos was not entitled to the preliminary attachment. Invoking Section 20, Rule
57 of the Rules of Court, as well as jurisprudence,17 the Court of Appeals ruled that it was not
necessary for the determination of damages on the injunction bond to await the decision on appeal.

The Court of Appeals then proceeded to determine to what damages respondents were entitled to.
In ruling that the award of actual damages was warranted, the court noted:

It is also not disputed that the PNB, on June 27, 1996, issued two manager’s checks: MC No.
938541 for P4,932,621.09 and MC 938542 for P10,451,888.89 payable to the order of "Luis C.
Bucayon II, Sheriff IV, RTC, Branch 256, Muntinlupa", duly received by the latter in the total amount
of PESOS FIFTEEN MILLION THREE HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED
NINE & 98/100 (P15,384,509.98), drawn against the accounts of Ms. Felicidad Sandoval Vda. de
Carlos which were earlier garnished for the satisfaction of the above-mentioned writ of attachment
(Annex "E", Motion for Judgment on the Attachment Bond, pp. 7-8)18

....

The contention of [Carlos] that the writ of attachment was not implemented falls flat on the face of
the manifestation of PNB that the delivery of the garnished P15,384,509.98 to him was effected
through the sheriff.19

The Court of Appeals found that moral and exemplary damages were not warranted, there being no
malice in pursuing the attachment. The appellate court also found the claim of P2,000,000.00 for
attorney’s fees as excessive, and reduced the sum by half. Correspondingly, the dispositive portion
of the assailed Resolution reads:

WHEREFORE, premises considered, judgment is hereby rendered against the attachment bond,
ordering SIDDCOR INSURANCE CORPORATION and plaintiff-appellee to pay defendants-
appellants, jointly and severally, the sum of P15,384,509.98 and 12% interest per annum from June
27, 1996 when the unlawful garnishment was effected until fully paid and P1,000,000.00 as
attorney’s fees with 6% interest thereon from the trial court’s decision on April 8, 1986 until fully paid.

SO ORDERED.20
Both Carlos and SIDDCOR filed their respective motions for reconsideration of the Resolution. For
their part, respondents filed a Motion for Immediate Execution dated 7 August 1998 in regard to
the Resolution of 26 June 1998 awarding them damages.

In the Resolution dated 10 October 1998,21 the Court of Appeals denied the motions for
reconsideration and granted the Motion for Immediate Execution. In granting the Motion for
Immediate Execution, the Court of Appeals cited the reasons that the appeal to be undertaken from
the 26 June 1998 Resolution was patently dilatory; that there were no material and substantial
defenses against the motion for judgment on the attachment bond, rendering the appeal pro-forma
and dilatory; that Sandoval was of advanced age and might not enjoy the fruits of the judgment on
the attachment bond; and that immediate execution would end her suffering due to the arbitrary
garnishment of her account pursuant to an improper attachment.22

In its Motion for Reconsideration, SIDDCOR explicitly assailed the allowance of the Motion for
Immediate Execution.23 This was denied by the Court of Appeals in a Resolution dated 22 December
1998.24

From these antecedents, the following petitions were filed before this Court:

G.R. No. 135830

This Appeal by Certiorari with Prayer for Temporary Restraining Order/Preliminary Injunction dated
26 October 1998 filed by Carlos assailed the two resolutions of the Court of Appeals both dated 26
June 1998, as well as the Resolution of 10 October 1998, which denied Carlos’s motion for
reconsideration. Carlos argues that the Court of Appeals, through the Former Special Fourth
Division, could not have resolved the Motion for Judgment on the Attachment Bond since the case
had not yet been re-raffled under the two-raffle system for study and report; that the Court of
Appeals erred in resolving the motion without conducting any hearing; that the Court of Appeals had
no jurisdiction over the motion as the docketing fees had not yet been filed; that the motion for
judgment, which did not contain any certification against forum-shopping, was an application subject
to the requirements of certification against forum-shopping; that there was no supporting evidence to
support the award of damages; and that the Court of Appeals committed grave abuse of discretion in
denying the Motion for Reconsideration without adverting to specific reasons mentioned for the
denial of each issue.25

Carlos likewise ascribes grave abuse of discretion to the Court of Appeals in its
other Resolution dated 26 June 1998 for its refusal to dismiss CA-G.R. CV No. 53229 on the ground
of forum-shopping, adding that the appellate court should have deferred resolution of the Motion for
Judgment on the Attachment Bond considering the prejudicial question raised in Carlos’s motion to
dismiss the main case on the ground of forum-shopping.

G.R. No. 136035

This concerns a Petition for Review filed by SIDDCOR, likewise challenging the Resolution of 26
June 1998 of the Court of Appeals and the 10 October 1998 Resolution wherein Siddcor’s Motion for
Reconsideration, among others, was denied. Siddcor argues therein that the Court of Appeals erred
in ruling on the motion for damages without awaiting judgment in the main case; granting that
damages may be awarded, these should encompass only such damages incurred during the
pendency of the appeal; and that a hearing was necessary to prove the claim for damages and the
appellate court erred in granting the award for damages despite lack of hearing.

G.R. No. 137743


The third petition for adjudication, a Petition for Certiorari under Rule 65 with Prayer for Temporary
Restraining Order or Preliminary Injunction, was also filed by SIDDCOR. This petition, dated 8
March 1999, specifically assails the allowance by the Court of Appeals of the immediate execution of
the award of damages, made through the resolutions dated 10 October 1998 and 22 December
1998.

SIDDCOR hereunder argues that Section 2, Rule 39 of the Rules of Civil Procedure requires that
execution of a judgment or final order pending appeal may be made only on motion of the prevailing
party and may be made "even before the expiration of the period to appeal."26 Respondents had
argued in their Motion for Immediate Execution that the judgment sought to be executed (that on the
attachment bond) was interlocutory and not appealable, yet cited rulings on execution pending
appeal under Section 2, Rule 39 in support of their position. SIDDCOR cites this inconsistency as
proof of a change of theory on the part of respondents which could not be done for the theories are
incompatible. Such being the case, SIDDCOR argues, the Court of Appeals gravely abused its
discretion in granting immediate execution since respondents had filed its motion on the premise that
the award on the judgment bond was interlocutory and not appealable. SIDDCOR also claims that
the judgment on the attachment bond is not interlocutory, citing Stronghold Insurance Co., Inc. v.
Court of Appeals27 wherein it was ruled that such indeed constitutes a final and appealable order.

SIDDCOR points out that no hearing was conducted on the Motion for Immediate Execution despite
the requirement in Section 2, Rule 39 that "discretionary execution may only issue upon good
reasons to be stated in a special order after due hearing." SIDDCOR likewise notes that the motion
granting immediate execution was granted in the very same resolution which had denied the motion
for reconsideration of the resolution sought to be immediately executed. For SIDDCOR, such
constituted a denial of procedural due process insofar as its statutory right to appeal was concerned,
as the resolution that it intended to appeal from was already the subject of immediate execution.

Finally, SIDDCOR contests the special reasons cited by the Court of Appeals in granting the Motion
for Immediate Execution.

Facts Arising Subsequent to the Filing of Instant Petitions

On 7 May 1999, the Court of Appeals issued a Writ of Execution directing the enforcement of the
judgment on the attachment bond.28 However, in a Resolution dated 9 June 1999, this Court through
the First Division issued a Temporary Restraining Order, enjoining the enforcement of the said Writ
of Execution.

On 15 October 2002, the Court of Appeals First Division rendered a Decision29 on the merits of CA-
G.R. CV No. 53229, setting aside the Summary Judgment and ordering the remand of the case for
further proceedings.30 Both parties filed their respective motions for reconsideration.31 In addition,
Carlos filed a motion to inhibit the author of the assailed decision, Justice Rebecca de Guia-
Salvador,32 who thereafter agreed to inhibit herself.33 Then on 7 August 2003, the Court of Appeals
Former First Division issued a Resolution deferring action on the motions for reconsideration in light
of the temporary restraining order issued by this Court until the resolution of the present petitions.

The factual background may be complicated, but the court need only concern itself with the propriety
of the judgment on the attachment bond and the subsequent moves to secure immediate execution
of such judgment. Should this Court be called upon to tackle the merits of the original action,
Carlos’s complaint, it shall be in the review of the final resolution of the Court of Appeals in CA-G.R.
CV No. 53229.

Consolidation of Issues in
G.R. Nos. 135830 and 136035

The petitions in G.R. Nos. 135830 and 136035 are concerned with the award of damages on the
attachment bond. They may be treated separately from the petition in G.R. No. 137743, which
relates to the immediate execution of the said award.

We consolidate the main issues in G.R. Nos. 135830 and 136035, as follows: (1) whether the
assailed judgment on the attachment bond could have been rendered, as it was, prior to the
adjudication of the main case; (2) whether the Court of Appeals properly complied with the hearing
requirement under Section 20, Rule 57 prior to its judgment on the attachment bond; and (3)
whether the Court of Appeals properly ascertained the amount of damages it awarded in the
judgment on the attachment bond.

Resolving these issues requires the determination of the proper scope and import of Section 20,
Rule 57 of the 1997 Rules of Civil Procedure. The provision governs the disposal of claims for
damages on account of improper, irregular or excessive attachment.

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

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

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

Section 20 essentially allows the application to be filed at any time before the judgment becomes
executory. It should be filed in the same case that is the main action, and cannot be instituted
separately.34 It should be filed with the court having jurisdiction over the case at the time of the
application.35 The remedy provided by law is exclusive and by failing to file a motion for the
determination of the damages on time and while the judgment is still under the control of the court,
the claimant loses his right to damages.36

There is no question in this case that the Motion for Judgment on the Attachment Bond filed by
respondents on 10 December 1996 was properly filed since it was filed with the Court of Appeals
during the pendency of the appeal in the main case and also as an incident thereto. The core
questions though lie in the proper interpretation of the condition under Section 20, Rule 57 that
reads: "Such damages may be awarded only after proper hearing and shall be included in the
judgment on the main case." Petitioners assert that there was no proper hearing on the application
for damages and that the Court of Appeals had wrongfully acted on the application in that it resolved
it prior to the rendition of the main judgment.

"Such Damages May Be Awarded


Only After Proper Hearing…."

We first discuss whether the "proper hearing" requirement under Section 20, Rule 57 had been
satisfied prior to the award by the Court of Appeals of damages on the attachment bond.

Section 20 of Rule 57 requires that there be a "proper hearing" before the application for damages
on the attachment bond may be granted. The hearing requirement ties with the indispensable
demand of procedural due process. Due notice to the adverse party and its surety setting forth the
facts supporting the applicant's right to damages and the amount thereof under the bond is essential.
No judgment for damages may be entered and executed against the surety without giving it an
opportunity to be heard as to the reality or reasonableness of the damages resulting from the
wrongful issuance of the writ.37

In Paramount Insurance v. Court of Appeals,38 the Court held that under the rule, it was neither
mandatory nor fatal that there should be a separate hearing in order that damages upon the bond
can be claimed, ascertained and awarded.39 What is necessary only is for the attaching party and his
surety or sureties to be duly notified and given the opportunity to be heard.40

In this case, both Carlos and SIDDCOR were duly notified by the appellate court of the Motion for
Judgment on the Attachment Bond and were required to file their respective comments
thereto.41 Carlos and SIDDCOR filed their respective comments in opposition to private

respondents’ motion.42 Clearly, all the relevant parties had been afforded the bare right to be heard
on the matter.

Concededly, the facts of this case differ from that in Paramount, wherein the award of damages was
predicated under Section 8, Rule 58, and the trial on the merits included the claim for damages on
the attachment bond. The Court did note therein that the counsel of the surety was present during
the hearings.43 In this case, unlike in Paramount, there were no open court hearings conducted by
the Court of Appeals, and it is precisely this absence that the petitioners assert as fatal.

Plainly, there is no express requirement under the rule that the hearing be done in open court, or
that the parties be allowed to confront adverse witnesses to the claim of damages on the bond. The
proper scope of the hearing requirement was explained before Paramount in Peroxide Philippines
Corp. v. Court of Appeals,44 thus:

. . . [It] is undeniable that when the attachment is challenged for having been illegally or improperly
issued, there must be a hearing with the burden of proof to sustain the writ being on the attaching
creditor. That hearing embraces not only the right to present evidence but also a reasonable
opportunity to know the claims of the opposing parties and meet them. The right to submit
arguments implies that opportunity, otherwise the right would be a barren one. It means a fair and
open hearing.

From this pronouncement, we can discern that the "proper hearing" contemplated would not merely
encompass the right of the parties to submit their respective positions, but also to present evidence
in support of their claims, and to rebut the submissions and evidence of the adverse party. This is
especially crucial considering that the necessary elements to be established in an application for
damages are essentially factual: namely, the fact of damage or injury, and the quantifiable amount of
damages sustained. Such matters cannot be established on the mere say-so of the applicant, but
require evidentiary support. At the same time, there was no equivocal statement from the Court
in Peroxide that the hearing required under the rule should be a full-blown hearing on the merits
In this case, we rule that the demands of a "proper hearing" were satisfied as of the time the Court of
Appeals rendered its assailed judgment on the attachment bond. The circumstances in this case that
we consider particularly telling are the settled premises that the judicial finding on the wrongfulness
of the attachment was then already conclusive and beyond review, and that the amount of actual
damages sustained was likewise indubitable as it indeed could be found in the official case record in
CA-G.R. CV No. 53229. As a result, petitioners would have been precluded from either raising the
defenses that the preliminary attachment was valid or disputing the amount of actual damages
sustained by reason of the garnishment. The only matter of controversy that could be litigable
through the traditional hearing would be the matter of moral and exemplary damages, but the Court
of Appeals appropriately chose not to award such damages.

Moreover, petitioners were afforded the opportunity to counter the arguments extended by the
respondents. They fully availed of that right by submitting their respective comments/oppositions. In
fine, the due process guarantee has been satisfied in this case.

It should be noted that this case poses a situation different from what is normally contemplated
under Section 20, Rule 57—wherein the very wrongfulness of the attachment remains one of the
issues in contention in the main case. In such a case, there would be a greater demand for a more
extensive hearing on the application of damages. The modality of hearing should remain within the
discretion of the court having jurisdiction to hear the application for damages. The only demand,
concordant to due process, would be the satisfaction of the right to be heard, to present evidence,
and to rebut the evidence and arguments of the opposing party.

Some disquisition is necessary on whether or not, as petitioners submit, a full-blown hearing in open
court is compulsory under Section 20, Rule 57. To impose this as a mandatory requirement would
ultimately prove too onerous to our judicial system. Perhaps such a demand would be less
burdensome on the regional trial courts, which, as a matter of routine, receive testimonial or
documentary evidence offered de novo, and to formulate conclusions on the admissibility and
credibility of the same.

However, a different situation applies if it is the Court of Appeals or the Supreme Court before which
the application for damages is filed. Both these courts, which are capacitated to receive and act on
such actions, are generally not triers of facts, and do not, in the course of daily routine, conduct
hearings. It is partly for such reason that Section 20, Rule 57 authorizes these appellate courts to
refer the application for damages to the trial court for hearing and decision. The trial courts are
functionally attuned to ascertain and evaluate at the first instance the necessary factual premises
that would establish the right to damages. Still, reference of the application for damages to the trial
court is discretionary on the part of the appellate courts. The latter, despite their traditional appellate
jurisdiction and review function, are still empowered under Section 20 to rule on the application for
damages, notwithstanding the factual dimension such question presents.

To impose as mandatory on the Court of Appeals or the Supreme Court to hear the application for
damages through full-blown hearings in open court is supremely unwise and beyond the demands of
Section 20, Rule 57. The effect would be unduly disruptive on the daily workflow of appellate courts
such as the Court of Appeals and the Supreme Court, which rarely conduct open court hearings.
Neither could the Court see what is so markedly special about an application for damages, fact-
oriented as it may be, that would require it to be heard by the appellate courts in open court when no
such mandatory rule applies to other judicial matters for resolution that are also factual in nature.

For example, the review of death penalty convictions by the Court of Appeals and the Supreme
Court necessitates a thorough evaluation of the evidence presented, notwithstanding the prior
factual appreciation made by the trial court.45 Notwithstanding the factual nature of the questions
involved, there is no rule requiring the Court of Appeals or the Supreme Court to call death penalty
cases for hearing or oral argument. If no such mandatory rule for hearing is imposed on the
appellate courts when the supreme penalty of death is involved, why then should an exceptional rule
be imposed in the case for the relatively insignificant application for damages on the attachment
bond?

If open court hearings are ever resorted to by appellate courts, such result from the exercise of
discretion rather than by imposition by statute or procedural rule. Indeed, there is no existing statute,
procedural rule, or jurisprudential fiat that makes it mandatory on the Court of Appeals or the
Supreme Court to conduct an open-court hearing on any matter for resolution. There is nothing
demonstrably urgent with an application for damages under Section 20, Rule 57 that would
necessitate this Court to adopt an unprecedented rule mandating itself or the Court of Appeals to
conduct full-blown open court hearings on a particular type of action.

This pronouncement does not contradict our ruling in Hanil Development v. IAC,46 which Carlos
interprets as requiring the Court of Appeals to conduct a proper hearing on an application for
damages on the attachment bond. Hanil concerned the refusal by the Intermediate Appellate Court
(now Court of Appeals) to take cognizance of the application for damages on the attachment bond,
such refusal being reversed by the Court, which ruled that the Intermediate Appellate Court (IAC)
had jurisdiction to accept and rule on such application. While the Court therein recognized that the
IAC was empowered to try cases and conduct hearings, or otherwise perform acts necessary to
resolve factual issues in cases,47 it did not require the appellate court to conduct a hearing in open
court, but merely to reinstate the application for damages.

Admittedly, the dispositive portion of Hanil required the Court of Appeals to conduct hearings on the
application for damages,48 but nowhere in the decision was a general rule laid down mandating the
appellate court to conduct such hearings in open court. The ascertainment of the need to conduct
full-blown hearings is best left to the discretion of the appellate court which chooses to hear the
application. At the same time, the Court cautions the appellate courts to carefully exercise their
discretion in determining the need for open-court hearings on the application for damages on the
attachment bond. The Court does not sanction the indolent award of damages on the attachment
bond by the appellate court without affording the adverse party and the bonding company concerned
the opportunity to present their sides and adduce evidence in their behalf, or on the basis of
unsubstantiated evidence.

"…And Shall be Included in the

Judgment on the Main Case"

Section 20, Rule 57 does state that the award of damages shall be included in the judgment on the
main case, and seemingly indicates that it should not be rendered prior to the adjudication of the
main case.

The rule, which guarantees a right to damages incurred by reason of wrongful attachment, has long
been recognized in this jurisdiction.49 Under Section 20, Rule 57 of the 1964 Rules of Court, it was
provided that there must be first a judgment on the action in favor of the party against whom
attachment was issued before damages can be claimed by such party.50 The Court however
subsequently clarified that under the rule, "recovery for damages may be had by the party thus
prejudiced by the wrongful attachment, even if the judgment be adverse to him."51

The language used in the 1997 revision of the Rules of Civil Procedure leaves no doubt that there is
no longer need for a favorable judgment in favor of the party against whom attachment was issued in
order that damages may be awarded. It is indubitable that even a party who loses the action in main
but is able to establish a right to damages by reason of improper, irregular, or excessive attachment
may be entitled to damages. This bolsters the notion that the claim for damages arising from such
wrongful attachment may arise and be decided separately from the merits of the main action. As
noted by the Court in Philippine Charter Insurance Corp. v. Court of Appeals:52

The surety does not, to be sure, become liable on its bond simply because judgment is subsequently
rendered against the party who obtained the preliminary attachment. The surety becomes liable
only when and if "the court shall finally adjudge that the applicant was not entitled to the
attachment." This is so regardless of the nature and character of the judgment on the merits
of the principal claims, counterclaims or cross-claims, etc. asserted by the parties against
each other. Indeed, since an applicant's cause of action may be entirely different from the
ground relied upon by him for a preliminary attachment, it may well be that although the
evidence warrants judgment in favor of said applicant, the proofs may nevertheless also
establish that said applicant's proferred ground for attachment was inexistent or specious
and hence, the writ should not have issued at all; i.e., he was not entitled thereto in the first
place. In that event, the final verdict should logically award to the applicant the relief sought in his
basic pleading, but at the same time sentence him—usually on the basis of a counterclaim—to pay
damages caused to his adversary by the wrongful attachment. [Emphasis supplied.]

Moreover, a separate rule—Section 8, Rule 58— covers instances when it is the trial court that
awards damages upon the bond for preliminary injunction of the adverse party. Tellingly, it requires
that the amount of damages to be awarded be claimed, ascertained, and awarded under the same
procedure prescribed in Section 20 of Rule 57.

In this case, we are confronted with a situation wherein the determination that the attachment was
wrongful did not come from the trial court, or any court having jurisdiction over the main action. It
was rendered by the Court of Appeals in the exercise of its certiorari jurisdiction in the original action
reviewing the propriety of the issuance of the Writ of Preliminary Attachment against the private
respondents. Said ruling attained finality when it was affirmed by this Court.

The courts are thus bound to respect the conclusiveness of this final judgment, deeming as it does
the allowance by the RTC of preliminary attachment as improper. This conclusion is no longer
subject to review, even by the court called upon to resolve the application for damages on the
attachment bond. The only matter left for adjudication is the proper amount of damages.

Nevertheless, Section 20, Rule 57 explicitly provides that the award for damages be included in the
judgment on the main case. This point was apparently not lost on the Court of Appeals when it
rendered its Resolution dated 23 March 1998, certifying that the case may now be referred to the
Raffle Committee for assignment to a ponente. The appellate court stated therein: "The Resolution
of defendants-appellants’ motion for judgment on the attachment may be incorporated in the
decision by the ponente for study and report,"53 and such observation is in conformity with Section
20.

However, this reasoning was assailed by respondents, who argued that the motion for judgment on
the attachment bond was a pending incident that should be decided before the case can be re-
raffled to a ponente for decision. Respondents may be generally correct on the point that a case can
only be deemed submitted for decision only after all pending incidents are resolved. Yet since
Section 20, Rule 57 provides that their application for damages on the attachment bond "shall be
included in the judgment on the main case," it is clear that the award for damages need not be
resolved before the case is submitted for decision, but should instead be resolved and included in
the judgment on the main case, or the decision on the Appeal by Certiorari filed by the respondents.
Thus, the action of the Court of Appeals in resolving the application for damages even before the
main judgment was issued does not conform to Section 20, Rule 57. However, the special particular
circumstances of this case lead us to rule that such error is not mortal to the award of damages.

As noted earlier, the award of damages was made after a proper hearing had occurred wherein all
the concerned parties had been given the opportunity to present their arguments and evidence in
support and in rebuttal of the application for damages. The premature award of damages does not
negate the fact that the parties were accorded due process, and indeed availed of their right to be
heard.

Moreover, we are compelled to appreciate the particular circumstance in this case that the right of
private respondents to acquire relief through the award of damages on account of the wrongful
preliminary attachment has been conclusively affirmed by the highest court of the land. This differs
from the normal situation under Section 20, Rule 57 wherein the court having jurisdiction over the
main action is still required to ascertain whether the applicant actually has a right to damages. To
mandatorily require that the award of damages be included in the judgment in the main case makes
all the sense if the right to damages would be ascertained at the same time the main judgment is
made. However, when the said right is already made viable by reason of a final judgment which is no
longer subject to review, there should be no unnecessary impediments to its immediate
implementation.

And finally, any ruling on our part voiding the award of damages solely for the reason that it was not
included in the judgment on the main case, and remanding the motion to the Court of Appeals for
proper adjudication together with the main case may exhibit fealty to the letter of the procedural rule,
but not its avowed aims of promoting a just and speedy disposition of every action and proceeding.
After all, if we were to compel the Court of Appeals to decide again on the application for damages
and incorporate its ruling in the judgment on the main action, the appellate court will be examining
exactly the same evidence and applying exactly the same rules as it already did when it issued the
assailed resolution awarding damages on the bond. This would be unnecessarily redundant
especially considering that the Supreme Court had already affirmed that there was wrongful
attachment in this case.

There is also the fact that remanding the question of damages, singly for the purpose of adhering to
the letter of the procedural rule, would further prolong the resolution of the main case, which has
been with the Court of Appeals for more than nine years now.54 Our Rules of Court precisely requires
liberal construction of the procedural rules to promote the objective of securing a just, speedy and
inexpensive disposition of every action and proceeding.55 With this precept, all the more justification
is supplied for allowing the award for damages despite its apparent prematurity, if it is in all other
respects proper.

The same reasons apply in resolving the question of whether the Court of Appeals could have
decided the Motion for Judgment on the Attachment Bond considering that the case had not yet
been re-raffled under the two-raffle system for study and report. Under Section 5, Rule 3 of the
RIRCA, a case filed with the Court of Appeals undergoes two raffles for assignment to a particular
Justice. The first raffle is made for completion of records.56Afterwards, "all raffled appealed cases,
the records of which have been completed and submitted for decision, shall be re-raffled for
assignment to a Justice for study and report."57

The fact that Section 20, Rule 57 provides that the award of damages on the attachment bond "shall
be included in the judgment on the main case" necessarily implies that it is to be made only after the
case has been re-raffled for study and report, and concurrently decided with the judgment of
the ponente in the main case. Again, the Court of Appeals failed to consider Section 20, Rule 57
when it acted upon the application even before the second raffle was made.

Had Section 20, Rule 57 been faithfully complied with, a different Justice of the Court of Appeals
would have penned the ruling on the application for damages, in accordance with the RIRCA. Yet
this circumstance does not outweigh the other considerations earlier mentioned that would warrant a
liberal interpretation of the procedural rules in favor of respondents. The parties had adduced all
their arguments and evidence before the Court of Appeals, and indeed, these were appreciated on
first instance by Justice Demetria, who eventually penned the assailed resolutions. There was
already a final determination that the attachment was wrongful. And any delay brought about by
requiring that it be the ponencia, determined after the second raffle, who decides the application for
damages may bear pro forma adherence to the letter of the rule, but would only cause the delay of
the resolution of this long-pending case. Procedural rules are designed, and must therefore be so
interpreted as, to give effect to lawful and valid claims and not to frustrate them.58

Even SIDDCOR acknowledges that there are recognized instances where the award of damages or
judgment on the attachment bond may not be included in the decision on the main case, such as if
the main case was dismissed for lack of jurisdiction and no claim for damages could have been
presented in the main case.59

Scope of Damages

Properly Awardable

Next, we examine the particular award of damages made in this case, consisting of P15,384,509.98,
plus interest, as well as P1,000,000.00 as attorney’s fees. There seems to be no dispute that the
former amount constituted the amount drawn against the account of Sandoval by reason of the writ
of execution issued by the trial court on 27 May 1996. This fact was confirmed by the PNB, in
its Manifestation dated 19 July 1996, confirming the garnishment.

Respondents’ burden in proving damages in this case was considerably lessened by the fact that
there was already a final judgment, no longer subject to review, that the preliminary attachment
allowed by the trial court was indeed wrongful. Hence, all that was necessary to be proved was the
amount of damage actually sustained by respondents by reason of the wrongful attachment. It is
unquestioned that by virtue of the writ of preliminary attachment, a Notice of Garnishment was
served upon the PNB over deposit accounts maintained by respondents. Said Notice of
Garnishment placed under the control of the RTC all the accounts maintained by respondents, and
prevented the transfer or disposition of these accounts.60 Then the subsequent Writ of
Execution dated 27 May 1996 ordered the delivery to Carlos of these accounts earlier subjected to
garnishment.61

Clearly, the amount of actual pecuniary loss sustained by respondents has been well established.
The Manifestation submitted by the PNB further affirmed the actual amount seized by Carlos, an
amount which could not have been acquired had it not been for the writ of preliminary attachment
which was wrongfully issued.

Carlos lamely argues in his petition that there was no concrete or supporting evidence to justify the
amount of actual damages, a claim that is belied by the official case records. The more substantive
argument is presented by SIDDCOR, which submits that any damages that may be awarded to
respondents can include only those that were incurred, if any, during the pendency of the appeal.
But this contention is belied by Section 4, Rule 57 of the 1997 Rules of Civil Procedure, which
provides that the bond issued for preliminary attachment is conditioned that the applicant "will pay all
the costs which may be adjudged to the adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge that the applicant was not entitled
thereto."62

The case Paramount Insurance Corp. v. Court of Appeals63 is instructive. It discusses the scope of
the bond executed by upon an application for preliminary injunction,64 which similarly covers "all
damages which [may be] sustain[ed] by reason of the injunction or temporary restraining order if the
court should finally decide that the applicant was not entitled thereto."65 The surety in that case
claimed that it could be liable "only to the amount of damages accruing from the time the injunction
bond was issued until the termination of the case, and not from the time the suit was
commenced."66 In rebutting this claim, the Court ruled:

. . . . Rule 58, Section 4(b), provides that a bond is executed in favor of the party enjoined to answer
for all damages which he may sustain by reason of the injunction. This Court already had occasion
to rule on this matter in Mendoza v. Cruz, where it held that "(t)he injunction bond is intended as a
security for damages in case it is finally decided that the injunction ought not to have been granted.
It is designed to cover all damages which the party enjoined can possibly suffer. Its principal
purpose is to protect the enjoined party against loss or damage by reason of an injunction."
No distinction was made as to when the damages should have been incurred.67

Our ruling in Philippine Charter Insurance Corp. v. Court of Appeals, relied upon by the Court of
Appeals, squarely applies to this case:

Under the circumstances, too, there can be no gainsaying the surety’s full awareness of its
undertakings under its bond: that, as the law puts it: "the plaintiff will pay all costs which may be
adjudged to the defendant(s), and all damages which may be sustained by reason of the
attachment, if the same shall finally be adjudged to have been wrongful and without cause," and that
those damages plainly comprehended not only those sustained during the trial of the action but also
those during the pendency of the appeal. This is the law, and this is how the surety's liability should
be understood. The surety's liability may be enforced whether the application for damages for
wrongful attachment be submitted in the original proceedings before the Trial Court, or on appeal, so
long as the judgment has not become executory. The surety's liability is not and cannot be
limited to the damages caused by the improper attachment only during the pendency of the
appeal. That would be absurd. The plain and patent intendment of the law is that the surety
shall answer for all damages that the party may suffer as a result of the illicit attachment, for
all the time that the attachment was in force; from levy to dissolution. . . .

The fact that the second paragraph of the rule speaks only of "damages sustained during the
pendency of the appeal" is of no moment; it obviously proceeds from the assumption in the
first paragraph that the award for the damages suffered during the pendency of the case in
the trial court was in fact "included in the final judgment" (or applied for therein before the
appeal was perfected or the judgment became executory); hence, it states that the damages
additionally suffered thereafter, i.e., during the pendency of the appeal, should be claimed before the
judgment of the appellate tribunal becomes executory. It however bears repeating that where. as
in the case at bar, the judgment of the Trial Court has expressly or impliedly sustained the
attachment and thus has given rise to no occasion to speak of, much less, file an application
for damages for wrongful attachment, and it is only in the decision of the Court of Appeals
that the attachment is declared wrongful and that the applicant "was not entitled thereto," the
rule is, as it should be, that it is entirely proper at this time for the application for damages for
such wrongful attachment to be filed—i.e., for all the damages sustained thereby, during all
the time that it was in force, not only during the pendency of the appeal. . . .68
The rule is thus well-settled that the bond issued upon an application for preliminary attachment
answers for all damages, incurred at whatever stage, which are sustained by reason of the
attachment. The award of actual damages by the Court of Appeals is thus proper in amount.
However, we disagree that the rate of legal interest be counted from the date of the "unlawful
garnishment," or on 27 June 1996. Properly, interest should start to accrue only from the moment it
had been finally determined that the attachment was unlawful, since it is on that basis that the right
to damages comes to existence. In this case, legal interest commences from the date the Court of
Appeals decision in CA-G.R. SP No. 39267 became final, by reason of its affirmation by this Court.

The award of attorney’s fees in the amount of P1,000,000.00 is also questioned before this Court,
considering that the Court of Appeals did not award moral or exemplary damages. The general rule
may be that an award of attorney’s fees should be deleted where the award of moral and exemplary
damages are eliminated.69 Nonetheless, attorney’s fees may be awarded under the Civil Code where
the court deems it just and equitable that attorney’s fees and expenses of litigation should be
recovered,70 even if moral and exemplary damages are unavailing.71

Particularly, the Court has recognized as just and equitable that attorney's fees be awarded when a
party is compelled to incur expenses to lift a wrongfully issued writ of attachment.72 The amount of
money garnished, and the length of time respondents have been deprived from use of their money
by reason of the wrongful attachment, all militate towards a finding that attorney’s fees are just and
equitable under the circumstances. However, we deem the amount of P1,000,000.00 as excessive,
and modify the award of attorney’s fees to P500,000.00 which represents merely approximately
three percent of the actual damages suffered by and awarded to respondents. We also delete the
imposition of legal interest made by the Court of Appeals on the awarded attorney’s fees.

Other Issues Raised in G.R. No. 135830

The issues raised in G.R. No. 136035 have been dispensed with, and the remaining issues in G.R.
No. 135830 are relatively minor. There is no need to dwell at length on them.

Carlos insists that respondents were liable to have paid docket fees upon filing of their Motion for
Judgment on Attachment Bond, on the theory that they claimed therein for the first time the alleged
damages resulting from the dissolved attachment. The said motion is characterized as an initiatory
proceeding because it is claimed therein for the first time, the damages arising from the attachment.
In the same vein, Carlos argues that the absence of a certification against forum-shopping attached
to the motion renders the said motion as fatal. Again, it is pointed out that initiatory pleadings must
contain the said certification against forum-shopping.

Our ruling in Santo Tomas University Hospital v. Surla73 is instructive. It was argued therein that the
requirement of the certification against forum-shopping, as contained in Administrative Circular No.
04-94,74 covered compulsory counterclaims. The Court ruled otherwise:

It bears stressing, once again, that the real office of Administrative Circular No. 04-94, made
effective on 01 April 1994, is to curb the malpractice commonly referred to also as forum-shopping. .
. . The language of the circular distinctly suggests that it is primarily intended to cover an initiatory
pleading or an incipient application of a party asserting a claim for relief.

It should not be too difficult, the foregoing rationale of the circular aptly taken, to sustain the
view that the circular in question has not, in fact, been contemplated to include a kind of
claim which, by its very nature as being auxiliary to the proceeding in the suit and as deriving
its substantive and jurisdictional support therefrom, can only be appropriately pleaded in the
answer and not remain outstanding for independent resolution except by the court where the
main case pends. Prescinding from the foregoing, the proviso in the second paragraph of Section
5, Rule 8, of the 1997 Rules of Civil Procedure, i.e., that the violation of the anti-forum shopping rule
"shall not be curable by mere amendment . . . but shall be cause for the dismissal of the case
without prejudice," being predicated on the applicability of the need for a certification against forum
shopping, obviously does not include a claim which cannot be independently set
up.75 (Emphasis supplied.)

It is clear that under Section 20, Rule 57, the application for damages on the attachment bond
cannot be independently set up, but must be filed in the main case, before the judgment therein
becomes final and executory. Santo Tomas squarely applies in determining that no certification
against forum-shopping was required in the Motion for Judgment on the Attachment Bond. The
same reasoning also sustains a ruling that neither legal fees were required for the filing of the said
motion. Section 1, Rule 141 of the Rules of Court provides that legal fees are prescribed upon the
filing of the pleading or other application which initiates an action or proceeding.76 Since the said
application for judgment on the attachment bond cannot be considered as an initiatory pleading, as it
cannot be independently set up from the main action, it is not likewise chargeable with legal fees.

As to the issue relating to the other Resolution dated 26 June 1998 denying the motion to dismiss
appeal on the ground of forum-shopping, we find Carlos’s arguments as unmeritorious. Forum-
shopping allegedly existed because petitioners had filed two cases before the Court of Appeals, CA-
G.R. CV No. 53229, and the Petition for Certiorariwith Temporary Restraining Order dated 2 June
1996 attacking the allowance of execution pending appeal. Evidently, the two causes of action in
these two petitions are different, CA-G.R. CV No. 53229 being an appeal from the Summary
Judgment rendered by the RTC, and the second petition assailing the subsequent allowance by the
RTC of execution pending appeal. There is no identity between these two causes of action that
would warrant a finding of forum-shopping.

Issues Raised in G.R. No. 137743

To recount, respondents, having obtained a favorable decision on their Motion for Judgment on the
Attachment Bond, filed a Motion for Immediate Execution of the award of damages. This was
granted by the Court of Appeals in its Resolution dated 16 October 1998, said resolution now
specifically assailed by SIDDCOR in G.R. No. 137743.

In their Motion for Immediate Execution, respondents’ theory in seeking the immediate execution of
the award of damages was that said award was not subject to appeal, the ruling thereupon being an
interlocutory order.77 This position was not adopted by the Court of Appeals in its 16 October
1998 Resolution, which was otherwise favorably disposed to respondents. Instead, the Court of
Appeals predicated the immediate execution on the following grounds: (1) that the judicial finding
that the writ of preliminary attachment was wrongful was already final and beyond review; (2) there
were no material and substantial defenses against the motion for the issuance of the judgment bond;
(3) Sandoval was elderly and sickly, without means of livelihood and may not be able to enjoy the
fruits of the judgment on the attachment bond; (4) that immediate execution would end her suffering
caused by the arbitrary garnishment of her PNB account.

There is no doubt that a judgment on the attachment bond is a final and appealable order. As stated
earlier, it is, under normal course, included in the main judgment, which in turn is final and
appealable. Respondents admit that they had erred in earlier characterizing the said judgment as an
interlocutory order. Still, SIDDCOR argues that such earlier error is fatal, and that the Court of
Appeals abused its discretion in ruling on the motion on a theory different from that urged on by
respondents.
By no means could respondents be deemed as estopped from changing their legal theory, since the
rule on estoppel applies to questions of fact and not questions of law.78 Moreover, courts are
empowered to decide cases even if the parties raise legal rationales other than that which would
actually apply in the case. The basis of whether respondents are entitled to immediate execution
arises from law, particularly Section 2(a), Rule 39 of the Rules of Court, and not solely on whatever
allegations may be raised by the movant.

Thus, we find no grave abuse of discretion on the part of the Court of Appeals, even though it
allowed execution pending appeal on a legal basis different from that originally adduced by
respondents. After all, the reasoning ultimately employed by the appellate court is correct, and it
hardly would be judicious to require the lower court to adhere to the movant’s erroneous ratiocination
and preclude the proper application of the law.

We need not review in length the justification of the Court of Appeals in allowing execution pending
appeal. The standard set under Section 2(a), Rule 39 merely requires "good reasons," a "special
order," and "due hearing." Due hearing would not require a hearing in open court, but simply the
right to be heard, which SIDDCOR availed of when it filed its opposition to the motion for immediate
execution. The Resolution dated 16 October 1998 satisfies the "special order" requirement, and it
does enumerate at length the "good reasons" for allowing execution pending appeal. As to the
appreciation of "good reasons," we simply note that the advanced age alone of Sandoval would
have sufficiently justified execution pending appeal, pursuant to the well-settled jurisprudential
rule.79 The wrongfulness of the attachment, and the length of time respondents have been deprived
of their money by reason of the wrongful attachment further justifies execution pending appeal under
these circumstances.

WHEREFORE, the petitions are DISMISSED. The Temporary Restraining Order issued in
the Resolution dated 9 June 1999 is hereby LIFTED. The assailed Resolution of the Court of
Appeals Special Fourth Division dated 26 June 1998 is AFFIRMED with the MODIFICATIONS that
the legal interest on the award of actual damages should commence from the date of the finality of
the Decision of the Court of Appeals in CA G.R. SP No. 39267 and that the award of attorney’s fees
is in the amount of P500,000. Costs against petitioners.

SO ORDERED.
















[G.R. No. 55381. March 26, 1984.]

SPOUSES JULIETA SALGADO and JOSE SALGADO, Petitioners, v. HON. COURT OF APPEALS and
PHILIPPINE COMMERCIAL & INDUSTRIAL BANK, Respondents.

Reyes & Reyes Law Office, for Petitioners.

San Juan Africa, Gonzales & San Agustin Law Office for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; PURPOSE. — The chief purpose of the remedy
of attachment is to secure a contingent lien on defendant’s property until plaintiff can, by appropriate
proceedings, obtain a judgment and have such property applied to its satisfaction, or to make some
provision for unsecured debts in cases where the means of satisfaction thereof are liable to be removed
beyond the jurisdiction, or improperly disposed of or concealed, or otherwise placed beyond the reach of
creditors (7 C.J.S. 190).

2. ID.; ID.; ID.; REQUISITES FOR ISSUANCE SHALL NOT ISSUE WHERE DEBTS SUFFICIENTLY SECURED;
REASON. — The grounds upon which attachment may issue are set forth in Section 1, Rule 57 of the Rules
of Court. But quite apart from the grounds stated therein, it is further provided in Section 3 of Rule 57 that
"an order of attachment shall be granted only when it is made to appear by the affidavit of the applicant or
some other person who personally knows the facts, that . . . there is no other sufficient security for the
claim sought to be enforced by the action." The reason for the rule prohibiting attachment where
indebtedness was already secured is to prevent the secured creditors from attaching additional property and
thus tying up more of the debtor’s property than was necessary to secure the indebtedness (Blankenship v.
Myers, 54 P. 2d 314, 316; 97 Idaho 356 [1975]). Thus, to sustain an order of attachment, "it is incumbent
upon plaintiff to establish either of these two facts, to wit: (a) that the obligation had not been secured
originally, or (b) that, if secured at its beginning, the security later became valueless." (Giandini v. Ramirez,
54 Pacific Reporter [2d] 91-92).

3. ID.; ID.; ID.; DISCHARGE THEREOF, WHEN PROPER. — Section 13, Rule 57 of the Rules of Court
authorizes the discharge of an attachment where the same had been improperly or irregularly issued. In
National Coconut Corporation v. Hon. Potenciano Pecson, 90 Phil. 809, this Court ruled that when the facts
or some of them, stated in the plaintiff’s affidavit, are shown by the defendant to be untrue, the writ of
attachment may be considered as improperly or irregularly issued.

4. ID.; ID.; ID.; ISSUANCE THEREOF STRICTLY CONSTRUED IN FAVOR OF DEFENDANT. — Since
attachment is a harsh and rigorous remedy which exposes the debtor to humiliation and annoyance, the rule
authorizing its issuance must be strictly construed in favor of the defendant. It should not be abused as to
cause unnecessary prejudice. It is the duty of the court before issuing the writ to ensure that all the
requisites of the law has been complied with (Guzman v. Catolico, 65 Phil. 257; Salas v. Adil, 90 SCRA 125).

AQUINO, J., dissenting: chanrob1es virtual 1aw library

1. REMEDIAL LAW; PROVISIONAL REMEDY; ATTACHMENT; MAY ISSUE EVEN IF DEBT IS SECURED; CASE AT
BAR. — A writ of attachment may be validly issued although the debt sued upon is secured by mortgages
where such mortgages covered not only the debt sued upon but also the debtors’ other obligations; where
the debtors failed to assign to the creditor bank their sugar proceeds which they had given as security for
their loan; and where the writ is supported by a sufficient bond.

DECISION

ESCOLIN, J.:
This is a petition for review filed by the spouses Jose Salgado and Julieta Salgado to set aside the resolution
of the then Court of Appeals in CA-G.R. No. SP-09407-R, dated September 18, 1980, which authorized the
issuance of a writ of attachment against the property of said petitioners.

The pertinent facts that gave rise to this petition are as follows: On May 8, 1978, the Philippine Commercial
and Industrial Bank, hereinafter referred to as the Bank, filed an action against petitioners, docketed as Civil
Case No. 29392 of the then Court of First Instance of Rizal, to recover on a promissory note in the amount
of P1,510,905.96, inclusive of interest and other bank charges. In its verified complaint, the Bank further
prayed for the issuance of a writ of attachment. As grounds therefor it alleged that petitioners had
fraudulently misappropriated and/or converted to their own personal use and benefit the sugar proceeds
given as security for the payment of the indebtedness; that petitioners are guilty of fraud in contracting
their obligation and have concealed, removed or disposed of the properties mortgaged or assigned to the
plaintiff, or are concealing, removing or disposing or about to do so, with intent to defraud their creditor;
that the obligation sought to be enforced is genuine and, therefore, a sufficient cause of action exists; and
that there is no sufficient security for the claim sought to be enforced by the action. Attached to the
complaint was the affidavit of Mrs. Helen Osias, Senior Branch Credit Division Manager of the Bank, wherein
she stated, among others, "that there is no sufficient security for the claim sought to be enforced by this
action."
cralaw virtua1aw library

On May 9, 1978, the trial court issued an order granting the Bank’s prayer for preliminary attachment upon
a bond in the sum of P1,510,905.96. Upon the filing of said bond, the Deputy Provincial Sheriff levied upon
several parcels of land of petitioners situated in the province of Negros Occidental.

On September 15, 1978, petitioners Salgado moved to quash the writ of attachment on the ground that
respondent Bank made fraudulent misrepresentation in securing the writ by deleting the words "R E M" or
"Real Estate Mortgage" from the xerox copy of the promissory note attached to the complaint, thereby
"making it appear that the note was unsecured when in truth and in fact it was fully secured by a series of
valid and existing real estate mortgages duly registered and annotated in the titles of the affected real
properties in favor of the plaintiff Bank." In the same motion, petitioners stressed the lack of factual basis of
the Bank’s claim as to their alleged fraudulent misappropriation or conversion of the sugar proceeds given as
security for their obligation.

After due hearing, the trial court issued an order dated January 31, 1979 granting petitioners’ motion and
lifting the writ of attachment previously issued.

Upon denial of its motion for reconsideration the Bank went to the Court of Appeals on a petition
for certiorari to annul the order of the trial court lifting the writ of attachment.
cralawnad

On November 29, 1979, the respondent Court of Appeals, finding that the order of the trial court was not
arbitrarily issued, dismissed the petition for lack of merit.

However, on motion of the Bank, the respondent Court reconsidered its decision of November 29, 1979 and
issued the questioned resolution dated September 18, 1980, which authorized the issuance of a writ of
attachment.

Hence, the present recourse.

We find the petition impressed with merit, The chief purpose of the remedy of attachment is to secure a
contingent lien on defendant’s property until plaintiff can, by appropriate proceedings, obtain a judgment
and have such property applied to its satisfaction, or to make some provision for unsecured debts in cases
where the means of satisfaction thereof are liable to be removed beyond the jurisdiction, or improperly
disposed of or concealed, or otherwise placed beyond the reach of creditors. 1

The grounds upon which attachment may issue are set forth in Section 1, Rule 57 of the Rules of Court. But
quite apart from the grounds stated therein, it is further provided in Section 3 of Rule 57 that "an order of
attachment shall be granted only when it is made to appear by the affidavit of the applicant or some other
person who personally knows the facts, that . . . there is no other sufficient security for the claim sought to
be enforced by the action." cralaw virtua1aw library

The reason for the rule prohibiting attachment where indebtedness was already secured is to prevent the
secured creditors from attaching additional property and thus tying up more of the debtor’s property than
was necessary to secure the indebtedness. 2 Thus, to sustain an order of attachment, "it is incumbent upon
plaintiff to establish either of these two facts, to wit: (a) that the obligation had not been secured originally,
or (b) that, if secured at its beginning, the security later became valueless." 3

In the instant case, the allegation in the affidavit of the Bank’s Credit Division Manager, Mrs. Helen Osias, to
the effect that "there is no sufficient security for the claim sought to be enforced by this action" has been
shown to be false. It is undisputed that the note sued upon "is fully secured by a series of valid and existing
real estate mortgages duly registered and annotated in the titles of the affected real property in favor of the
plaintiff Bank."
cralaw virtua1aw library

Section 13, Rule 57 of the Rules of Court authorizes the discharge of an attachment where the same had
been improperly or irregularly issued. In National Coconut Corporation v. Hon. Potenciano Pecson, 4 this
Court ruled that when the facts or some of them, stated in the plaintiff’s affidavit, are shown by the
defendant to be untrue, the writ of attachment may be considered as improperly or irregularly issued.

Since attachment is a harsh and rigorous remedy which exposes the debtor to humiliation and annoyance,
the rule authorizing its issuance must be strictly construed in favor of the defendant. It should not be
abused as to cause unnecessary prejudice. It is the duty of the court before issuing the writ to ensure that
all the requisites of the law has been complied with. 5

Accordingly, the resolution of the respondent Court of Appeals, now the Intermediate Appellate Court, dated
September 18, 1980, is hereby set aside. No costs.

SO ORDERED.




























G.R. No. 166759 November 25, 2009

SOFIA TORRES, FRUCTOSA TORRES, HEIRS OF MARIO TORRES and SOLAR RESOURCES,
INC.,Petitioners,
vs.
NICANOR SATSATIN, EMILINDA AUSTRIA SATSATIN, NIKKI NORMEL SATSATIN and NIKKI
NORLIN SATSATIN, Respondents.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision 1 dated November 23, 2004 of the
Court of Appeals (CA) in CA-G.R. SP No. 83595, and its Resolution2 dated January 18, 2005,
denying petitioners’ motion for reconsideration.

The factual and procedural antecedents are as follows:

The siblings Sofia Torres (Sofia), Fructosa Torres (Fructosa), and Mario Torres (Mario) each own
adjacent 20,000 square meters track of land situated at Barrio Lankaan, Dasmariñas, Cavite,
covered by Transfer Certificate of Title (TCT) Nos. 251267,3 251266,4 and 251265,5 respectively.

Sometime in 1997, Nicanor Satsatin (Nicanor) asked petitioners’ mother, Agripina Aledia, if she
wanted to sell their lands. After consultation with her daughters, daughter-in-law, and grandchildren,
Agripina agreed to sell the properties. Petitioners, thus, authorized Nicanor, through a Special Power
of Attorney, to negotiate for the sale of the properties.6

Sometime in 1999, Nicanor offered to sell the properties to Solar Resources, Inc. (Solar). Solar
allegedly agreed to purchase the three parcels of land, together with the 10,000-square-meter
property owned by a certain Rustica Aledia, for P35,000,000.00. Petitioners alleged that Nicanor
was supposed to remit to them the total amount of P28,000,000.00 or P9,333,333.00 each to Sofia,
Fructosa, and the heirs of Mario.

Petitioners claimed that Solar has already paid the entire purchase price of P35,000,000.00 to
Nicanor in Thirty-Two (32) post-dated checks which the latter encashed/deposited on their
respective due dates. Petitioners added that they also learned that during the period from January
2000 to April 2002, Nicanor allegedly acquired a house and lot at Vista Grande BF Resort Village,
Las Piñas City and a car, which he registered in the names of his unemployed children, Nikki Normel
Satsatin and Nikki Norlin Satsatin. However, notwithstanding the receipt of the entire payment for the
subject property, Nicanor only remitted the total amount of P9,000,000.00, leaving an unremitted
balance of P19,000,000.00. Despite repeated verbal and written demands, Nicanor failed to remit to
them the balance of P19,000,000.00.

Consequently, on October 25, 2002, petitioners filed before the regional trial court (RTC) a
Complaint7 for sum of money and damages, against Nicanor, Ermilinda Satsatin, Nikki Normel
Satsatin, and Nikki Norlin Satsatin. The case was docketed as Civil Case No. 2694-02, and raffled to
RTC, Branch 90, Dasmariñas, Cavite.

On October 30, 2002, petitioners filed an Ex-Parte Motion for the Issuance of a Writ of
Attachment,8 alleging among other things: that respondents are about to depart the Philippines; that
they have properties, real and personal in Metro Manila and in the nearby provinces; that the amount
due them is P19,000,000.00 above all other claims; that there is no other sufficient security for the
claim sought to be enforced; and that they are willing to post a bond fixed by the court to answer for
all costs which may be adjudged to the respondents and all damages which respondents may
sustain by reason of the attachment prayed for, if it shall be finally adjudged that petitioners are not
entitled thereto.

On October 30, 2002, the trial court issued an Order9 directing the petitioners to post a bond in the
amount of P7,000,000.00 before the court issues the writ of attachment, the dispositive portion of
which reads as follows:

WHEREFORE, premises considered, and finding the present complaint and motion sufficient in form
and substance, this Court hereby directs the herein plaintiffs to post a bond, pursuant to Section 3,
Rule 57 of the 1997 Rules of Civil Procedure, in the amount of Seven Million Pesos (P7,000,000.00),
before the Writ of Attachment issues.10

On November 15, 2002, petitioners filed a Motion for Deputation of Sheriff,11 informing the court that
they have already filed an attachment bond. They also prayed that a sheriff be deputized to serve
the writ of attachment that would be issued by the court.

In the Order12 dated November 15, 2002, the RTC granted the above motion and deputized the
sheriff, together with police security assistance, to serve the writ of attachment.

Thereafter, the RTC issued a Writ of Attachment13 dated November 15, 2002, directing the sheriff to
attach the estate, real or personal, of the respondents, the decretal portion of which reads:

WE, THEREFORE, command you to attach the estate, real or personal, not exempt from execution,
of the said defendants, in your province, to the value of said demands, and that you safely keep the
same according to the said Rule, unless the defendants give security to pay such judgment as may
be recovered on the said action, in the manner provided by the said Rule, provided that your legal
fees and all necessary expenses are fully paid.

You shall return this writ with your proceedings indorsed hereon within twenty (20) days from the
date of receipt hereof.

GIVEN UNDER MY HAND AND SEAL of this Court, this 15th day of November, 2002, at Imus for
Dasmariñas, Cavite, Philippines.14

On November 19, 2002, a copy of the writ of attachment was served upon the respondents. On the
same date, the sheriff levied the real and personal properties of the respondent, including household
appliances, cars, and a parcel of land located at Las Piñas, Manila.15

On November 21, 2002, summons, together with a copy of the complaint, was served upon the
respondents.16

On November 29, 2002, respondents filed their Answer.17

On the same day respondents filed their answer, they also filed a Motion to Discharge Writ of
Attachment18anchored on the following grounds: the bond was issued before the issuance of the writ
of attachment; the writ of attachment was issued before the summons was received by the
respondents; the sheriff did not serve copies of the application for attachment, order of attachment,
plaintiffs’ affidavit, and attachment bond, to the respondents; the sheriff did not submit a sheriff’s
return in violation of the Rules; and the grounds cited for the issuance of the writ are baseless and
devoid of merit. In the alternative, respondents offered to post a counter-bond for the lifting of the
writ of attachment.19

On March 11, 2003, after the parties filed their respective pleadings, the RTC issued an
Order20 denying the motion, but at the same time, directing the respondents to file a counter-bond, to
wit:

WHEREFORE, premises considered, after the pertinent pleadings of the parties have been taken
into account, the herein defendants are hereby directed to file a counter-bond executed to the
attaching party, in the amount of Seven Million Pesos (P7,000,000.00), to secure the payment of any
judgment that the attaching party may recover in the action, with notice on the attaching party,
whereas, the Motion to Discharge Writ of Attachment is DENIED.

SO ORDERED.21

Thereafter, respondents filed a motion for reconsideration and/or motion for clarification of the above
order. On April 3, 2003, the RTC issued another Order22 which reads:

In view of the Urgent Motion For Reconsideration And/Or Motion For Clarification of the Order of this
Court dated March 11, 2003, denying their Motion to Discharge Writ of Attachment filed by the
defendants through counsel Atty. Franco L. Loyola, the Motion to Discharge Writ of Attachment is
denied until after the defendants have posted the counter-bond in the amount of Seven Million
Pesos (P7,000,000.00).

The defendants, once again, is directed to file their counter-bond of Seven Million Pesos
(P7,000,000.00), if it so desires, in order to discharge the Writ of Attachment.

SO ORDERED.

On December 15, 2003, respondents filed an Urgent Motion to Lift/Set Aside Order Dated March
[11], 2003,23 which the RTC denied in an Order24 of even date, the dispositive portion of which reads:

WHEREFORE, premises considered, defendants’ Urgent Motion to Lift/Set Aside Order Dated
March 23, 2003 (With Manifestation to Dissolve Writ of Attachment) is hereby DENIED for lack of
Merit.

SO ORDERED.

Respondents filed an Urgent Motion for Reconsideration,25 but it was denied in the Order26 dated
March 3, 2004.

Aggrieved, respondents filed before the CA a Petition for Certiorari, Mandamus and Prohibition with
Preliminary Injunction and Temporary Restraining Order27 under Rule 65 of the Rules of Court,
docketed as CA-G.R. SP No. 83595, anchored on the following grounds:

(1) public respondents committed grave abuse of discretion amounting to lack of or in excess
of jurisdiction in failing to notice that the lower court has no jurisdiction over the person and
subject matter of the complaint when the subject Writ of Attachment was issued;
(2) public respondents committed grave abuse of discretion amounting to lack of or in excess
of jurisdiction in granting the issuance of the Writ of Attachment despite non-compliance with
the formal requisites for the issuance of the bond and the Writ of Attachment.28

Respondents argued that the subject writ was improper and irregular having been issued and
enforced without the lower court acquiring jurisdiction over the persons of the respondents. They
maintained that the writ of attachment was implemented without serving upon them the summons
together with the complaint. They also argued that the bond issued in favor of the petitioners was
defective, because the bonding company failed to obtain the proper clearance that it can transact
business with the RTC of Dasmariñas, Cavite. They added that the various clearances which were
issued in favor of the bonding company were applicable only in the courts of the cities of Pasay,
Pasig, Manila, and Makati, but not in the RTC, Imus, Cavite.29

On November 23, 2003, the CA rendered the assailed Decision in favor of the respondents, finding
grave abuse of discretion amounting to lack of or in excess of jurisdiction on the part of the RTC in
issuing the Orders dated December 15, 2003 and March 3, 2004. The decretal portion of the
Decision reads:

WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the assailed Orders are
hereby nullified and set aside. The levy on the properties of the petitioners pursuant to the Writ of
Attachment issued by the lower court is hereby LIFTED.

SO ORDERED.30

Petitioners filed a Motion for Reconsideration,31 but it was denied in the Resolution32 dated January
18, 2005.

Hence, this petition assigning the following errors:

I.

THE HONORABLE COURT OF APPEALS ERRED IN ORDERING THE LIFTING OF THE WRIT OF
ATTACHMENT PURSUANT TO SECTION 13, RULE 57 OF THE REVISED RULES OF CIVIL
PROCEDURE.

II.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PUBLIC RESPONDENT


COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN GRANTING THE WRIT OF ATTACHMENT DESPITE THE BOND BEING
INSUFFICIENT AND HAVING BEEN IMPROPERLY ISSUED.

III.

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION BY


REASON OF ESTOPPEL, LACHES AND PRESCRIPTION AND IN HOLDING THAT THE WRIT OF
ATTACHMENT WAS IMPROPERLY AND IRREGULARLY ENFORCED IN VIOLATION OF
SECTION 5, RULE 57 OF THE REVISED RULES OF COURT.

IV.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRINCIPLE OF
ESTOPPEL WILL NOT LIE AGAINST RESPONDENTS.

Petitioners maintain that in the case at bar, as in the case of FCY Construction Group, Inc. v. Court
of Appeals,33the only way the subject writ of attachment can be dissolved is by a counter-bond. They
claim that the respondents are not allowed to file a motion to dissolve the attachment under Section
13, Rule 57 of the Rules of Court. Otherwise, the hearing on the motion for the dissolution of the writ
would be tantamount to a trial on the merits, considering that the writ of preliminary attachment was
issued upon a ground which is, at the same time, the applicant’s cause of action.

Petitioners insist that the determination of the existence of grounds to discharge a writ of attachment
rests in the sound discretion of the lower court. They argue that the Certification34 issued by the
Office of the Administrator and the Certifications35 issued by the clerks of court of the RTCs of
Dasmariñas and Imus, Cavite, would show that the bonds offered by Western Guaranty Corporation,
the bonding company which issued the bond, may be accepted by the RTCs of Dasmariñas and
Imus, Cavite, and that the said bonding company has no pending liability with the government.

Petitioners contend that respondents are barred by estoppel, laches, and prescription from
questioning the orders of the RTC issuing the writ of attachment. They also maintain that the issue
whether there was impropriety or irregularity in the issuance of the orders is moot and academic,
considering that the attachment bond questioned by the respondent had already expired on
November 14, 2003 and petitioners have renewed the attachment bond covering the period from
November 14, 2003 to November 14, 2004, and further renewed to cover the period of November
14, 2004 to November 14, 2005.

The petition is bereft of merit.

A writ of preliminary attachment is defined as a provisional remedy issued upon order of the court
where an action is pending to be levied upon the property or properties of the defendant therein, the
same to be held thereafter by the sheriff as security for the satisfaction of whatever judgment that
might be secured in the said action by the attaching creditor against the defendant.36

In the case at bar, the CA correctly found that there was grave abuse of discretion amounting to lack
of or in excess of jurisdiction on the part of the trial court in approving the bond posted by petitioners
despite the fact that not all the requisites for its approval were complied with. In accepting a surety
bond, it is necessary that all the requisites for its approval are met; otherwise, the bond should be
rejected.37

Every bond should be accompanied by a clearance from the Supreme Court showing that the
company concerned is qualified to transact business which is valid only for thirty (30) days from the
date of its issuance.38 However, it is apparent that the Certification39 issued by the Office of the Court
Administrator (OCA) at the time the bond was issued would clearly show that the bonds offered by
Western Guaranty Corporation may be accepted only in the RTCs of the cities of Makati, Pasay, and
Pasig. Therefore, the surety bond issued by the bonding company should not have been accepted
by the RTC of Dasmariñas, Branch 90, since the certification secured by the bonding company from
the OCA at the time of the issuance of the bond certified that it may only be accepted in the above-
mentioned cities. Thus, the trial court acted with grave abuse of discretion amounting to lack of or in
excess of jurisdiction when it issued the writ of attachment founded on the said bond.

Moreover, in provisional remedies, particularly that of preliminary attachment, the distinction


between the issuance and the implementation of the writ of attachment is of utmost importance to
the validity of the writ. The distinction is indispensably necessary to determine when jurisdiction over
the person of the defendant should be acquired in order to validly implement the writ of attachment
upon his person.

This Court has long put to rest the issue of when jurisdiction over the person of the defendant should
be acquired in cases where a party resorts to provisional remedies. A party to a suit may, at any time
after filing the complaint, avail of the provisional remedies under the Rules of Court. Specifically,
Rule 57 on preliminary attachment speaks of the grant of the remedy "at the commencement of the
action or at any time before entry of judgment."40 This phrase refers to the date of the filing of the
complaint, which is the moment that marks "the commencement of the action." The reference plainly
is to a time before summons is served on the defendant, or even before summons issues.41

In Davao Light & Power Co., Inc. v. Court of Appeals,42 this Court clarified the actual time when
jurisdiction should be had:

It goes without saying that whatever be the acts done by the Court prior to the acquisition of
jurisdiction over the person of defendant x x x issuance of summons, order of attachment and writ
of attachment x x x 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 x x x. (Emphasis
supplied.)

In Cuartero v. Court of Appeals,43 this Court held that the grant of the provisional remedy of
attachment 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 be first obtained. However, once the implementation of the writ commences, 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.44

Thus, it is indispensable not only for the acquisition of jurisdiction over the person of the defendant,
but also upon consideration of fairness, to apprise the defendant of the complaint against him and
the issuance of a writ of preliminary attachment and the grounds therefor that prior or
contemporaneously to the serving of the writ of attachment, service of summons, together with a
copy of the complaint, the application for attachment, the applicant’s affidavit and bond, and the
order must be served upon him.

In the instant case, assuming arguendo that the trial court validly issued the writ of attachment on
November 15, 2002, which was implemented on November 19, 2002, it is to be noted that the
summons, together with a copy of the complaint, was served only on November 21, 2002.

At the time the trial court issued the writ of attachment on November 15, 2002, it can validly to do so
since the motion for its issuance can be filed "at the commencement of the action or at any time
before entry of judgment." However, at the time the writ was implemented, the trial court has not
acquired jurisdiction over the persons of the respondent since no summons was yet served upon
them. The proper officer should have previously or simultaneously with the implementation of the
writ of attachment, served a copy of the summons upon the respondents in order for the trial court to
have acquired jurisdiction upon them and for the writ to have binding effect. Consequently, even if
the writ of attachment was validly issued, it was improperly or irregularly enforced and, therefore,
cannot bind and affect the respondents.

Moreover, although there is truth in the petitioners’ contention that 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 a motion.
However, the same is not applicable in the case bar. It is clear from the respondents’ pleadings that
the grounds on which they base the lifting of the writ of attachment are the irregularities in its
issuance and in the service of the writ; not petitioners’ cause of action.
1avvphi1

Further, petitioners’ contention that respondents are barred by estoppel, laches, and prescription
from questioning the orders of the RTC issuing the writ of attachment and that the issue has become
moot and academic by the renewal of the attachment bond covering after its expiration, is devoid of
merit. As correctly held by the CA:

There are two ways of discharging the attachment. First, to file a counter-bond in accordance with
Section 12 of Rule 57. Second[,] [t]o quash the attachment on the ground that it was irregularly or
improvidently issued, as provided for in Section 13 of the same rule. Whether the attachment was
discharged by either of the two ways indicated in the law, 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. The filing of a counter-bond is merely a
speedier way of discharging the attachment writ instead of the other way.45

Moreover, again assuming arguendo that the writ of attachment was validly issued, although the trial
court later acquired jurisdiction over the respondents by service of the summons upon them, such
belated service of summons on respondents cannot be deemed to have cured the fatal defect in the
enforcement of the writ. The trial court cannot enforce such a coercive process on respondents
without first obtaining jurisdiction over their person. The preliminary writ of attachment must be
served after or simultaneous with the service of summons on the defendant whether by personal
service, substituted service or by publication as warranted by the circumstances of the case. The
subsequent service of summons does not confer a retroactive acquisition of jurisdiction over her
person because the law does not allow for retroactivity of a belated service.46

WHEREFORE, premises considered, the petition is DENIED. The Decision and Resolution of the
Court of Appeals dated November 23, 2004 and January 18, 2005, respectively, in CA-G.R. SP No.
83595 are AFFIRMED.

SO ORDERED.











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.

Wilfredo O. Paraiso for petitioner.

Tumaru, Guerrero & Tumaru Law Offices for respondents Judge Bangalan and Sheriff Jove.

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
2
Regional Trial Court's decision 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.



















G.R. No. 107303 February 21, 1994

EMMANUEL C. OÑATE 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.

Florante A. Bautista for petitioner in G.R. No. 107303.

Andin & Andin Law Offices for Brunner Development Corporation.

Quasha, Asperilla, Ancheta, Pena & Nolasco for Sun Life Assurance Company of Canada.

NOCON, J.:

These are separate petitions for certiorari with a prayer for temporary restraining order filed by
Emmanuel C. Oñate 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. Diño, 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 Oñate.

Summons was eventually served upon petitioners on January 9, 1992, while defendant Diño 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 and BAC 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 Oñate 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 Oñate is the President of Econ Holdings while petitioner Diño 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. 84034 December 22, 1988

ALBERTO SIEVERT, petitioner,


vs.
COURT OF APPEALS, HON. JUDGE ARTEMON D. LUNA and AURELIO
CAMPOSANO, respondents.

King & Adorio Law Offices for petitioner.

Moises C. Kallos for private respondent.

FELICIANO, J.:

On 18 May 1988 petitioner Alberto Sievert a citizen and resident of the Philippines received by mail
a Petition for Issuance of a Preliminary Attachment filed with the Regional Trial Court of Manila
Branch 32 in Civil Case No. 88-44346. Petitioner had not previously received any summons and any
copy of a complaint against him in Civil Case No. 88-44346.

On the day set for hearing of the Petition for a Preliminary Writ of Attachment, petitioner's counsel
went before the trial court and entered a special appearance for the limited purpose of objecting to
the jurisdiction of the court. He simultaneously filed a written objection to the jurisdiction of the trial
court to hear or act upon the Petition for Issuance of a Preliminary Writ of Attachment. In this written
objection, petitioner prayed for denial of that Petition for lack of jurisdiction over the person of the
petitioner (defendant therein) upon the ground that since no summons had been served upon him in
the main case, no jurisdiction over the person of the petitioner had been acquired by the trial court.

The trial court denied the petitioner's objection and issued in open court an order which, in relevant
part, read as follows:

Under Section 1, Rule 57, Rules of Court, it is clear that a plaintiff or any proper party
may "... at the commencement of the action or at any time thereafter, have the
property of the adverse party attached as the security for the satisfaction of any
judgment ..." This rule would overrule the contention that this Court has no
jurisdiction to act on the application, although if counsel for defendant so desire, she
is given five (5) days from today within which to submit her further position why the
writ should not be issued, upon the receipt of which or expiration of the period, the
pending incident shall be considered submitted for resolution. (Underscoring in the
original) 1

Thereupon, on the same day, petitioner filed a Petition for certiorari with the Court of Appeals. On 13
July 1988, the respondent appellate court rendered a decision, notable principally for its brevity,
dismissing the Petition. The relevant portion of the Court of Appeals' decision is quoted below:

The grounds raised in this petition state that the court a quo had not acquired
jurisdiction over defendant (now petitioner) since no summons had been served on
him, and that respondent Judge had committed a grave abuse of discretion in issuing
the questioned order without jurisdiction.
In short, the issue presented to us is whether respondent Judge may issue a writ of
preliminary attachment against petitioner before summons is served on the latter.

We rule for respondent Judge.

Under Sec. 1, Rule 57, it is clear that, at the commencement of the action, a party
may have the property of the adverse party attached as security. The resolution of
this issue depends, therefore, on what is meant by "Commencement of the action."
Moran, citing American jurisprudence on this point, stated thus: "Commencement of
action. — Action is commenced by filing of the complaint, even though summons is
not issued until a later date." (Comment on the Rules of Court, Vol. I, p. 150, 1979).
Thus, a writ of preliminary attachment may issue upon filing of the complaint even
before issuance of the summons.

WHEREFORE, for lack of merit, the petition is hereby denied and, accordingly,
dismissed. (Emphasis supplied) 2

The petitioner is now before this Court on a Petition for Review on Certiorari, assailing the above-
quoted decision of the Court of Appeals. The petitioner assigns two (2) errors:

1. The proceedings taken and the order issued on plaintiffs petition for attachment
prior to the service of summons on the defendant were contrary to law and
jurisprudence and violated the defendant's right to due process.

2. The Court of Appeals committed a grave abuse of discretion amounting to lack of


jurisdiction in ruling that a writ of preliminary attachment may issue upon filing of the
complaint even prior to issuance of the summons. 3

The two (2) assignments of error relate to the single issue which we perceive to be at stake here,
that is, whether a court which has not acquired jurisdiction over the person of the defendant in the
main case, may bind such defendant or his property by issuing a writ of preliminary attachment.

Both the trial court and the Court of Appeals held that the defendant may be bound by a writ of
preliminary attachment even before summons together with a copy of the complaint in the main case
has been validly served upon him.

We are unable to agree with the respondent courts.

There is no question that a writ of preliminary attachment may be applied for a plaintiff "at
the commencement of the action or at any time thereafter" in the cases enumerated in Section 1 of
Rule 57 of the Revised Rules of Court. The issue posed in this case, however, is not to be resolved
by determining when an action may be regarded as having been commenced, a point in time which,
in any case, is not necessarily fixed and Identical regardless of the specific purpose for which the
deter. nation is to be made. The critical time which must be Identified is, rather, when the trial court
acquires authority under law to act coercively against the defendant or his property in a proceeding
in attachment. We believe and so hold that critical time is the time of the vesting of jurisdiction in the
court over the person of the defendant in the main case.

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 . 4 A court which has not acquired jurisdi
over the person of 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 c
jurisdiction upon the issuing court over the person of the defendant.

Ordinarily, the prayer in a petition for a writ of preliminary attachment is embodied or incorporated in
the main complaint itself as one of the forms of relief sought in such complaint. Thus, valid service of
summons and a copy of the complaint will in such case vest jurisdiction in the court over the
defendant both for purposes of the main case and for purposes of the ancillary remedy of
attachment. In such case, notice of the main case is at the same time notice of the auxiliary
proceeding in attachment. Where, however, the petition for a writ of preliminary attachment is
embodied in a discrete pleading, such petition must be served either simultaneously with service of
summons and a copy of the main complaint, or after jurisdiction over the defendant has already
been acquired by such service of summons. Notice of the separate attachment petition is not notice
of the main action. Put a little differently, jurisdiction whether ratione personae or ratione materiae in
an attachment proceeding is ancillary to jurisdiction ratione personae or ratione materiae in the main
action against the defendant. If a court has no jurisdiction over the subject matter or over the person
of the defendant in the principal action, it simply has no jurisdiction to issue a writ of preliminary
attachment against the defendant or his property.

It is basic that the requirements of the Rules of Court for issuance of preliminary attachment must be
strictly and faithfully complied with in view of the nature of this provisional remedy. In Salas v.
Adil, 5 this Court described preliminary attachment as —

a rigorous remedy which exposes the debtor to humiliation and annoyance, such
[that] it should not be abused as to cause unnecessary prejudice. It is, therefore; the
duty of the court, before issuing the writ, to ensure that all the requisites of the law
have been complied with; otherwise the judge acts in excess of his jurisdiction and
the writ so issued shall be null and void. (Emphasis supplied ) 6

The above words apply with greater force in respect of that most fundamental of requisites, the
jurisdiction of the court issuing attachment over the person of the defendant.

In the case at bar, the want of jurisdiction of the trial court to proceed in the main case against the
defendant is quite clear. It is not disputed that neither service of summons with a copy of the
complaint nor voluntary appearance of petitioner Sievert was had in this case. Yet, the trial court
proceeded to hear the petition for issuance of the writ. This is reversible error and must be corrected
on certiorari.

WHEREFORE, the Petition for Review on certiorari is GRANTED due course and the Order of the
trial court dated 20 May 1988 and the Decision of the Court of Appeals dated 13 July 1988 are
hereby SET ASIDE and ANNULLED. No pronouncement as to costs.

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.

Quisumbing, Torres & Evangelista for H.B. Zachry Co.

Feria, Feria, Lustu & La O' for Vinnel Belvoir Corp.

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 formal claim with the Officer-in-Charge
of Construction, NAVFAC Contracts, Southwest Pacific, 10 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 for certiorari 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.

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

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.


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.

Godofredo Reyes for appellant.


Office of the Solicitor-General Hilado for appellee.

BUTTE, J.:

This is an appeal from a judgment of the Fourth Branch of the Court of First Instance of Manila in
a consulta submitted 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. 1ªvvphi









G.R. No. 156580 June 14, 2004

LUZ DU, petitioner,


vs.
STRONGHOLD INSURANCE Promulgated: CO., INC., respondent.

DECISION

PANGANIBAN, J.:

Preference is given to a duly registered attachment over a subsequent notice of lis pendens, even if
the beneficiary of the notice acquired the subject property before the registration of the attachment.
Under the torrens system, the auction sale of an attached realty retroacts to the date the levy was
registered.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the March
19, 2002 Decision2 and the December 5, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR
CV No. 50884. The CA disposed as follows:

"Parenthetically, when the decision in Civil Case No. 90-1848 became final and executory,
levy on execution issued and the attached property sold at public auction, the latter retroacts
to the date of the levy. Said the High Court:

‘In line with the same principle, it was held that where a preliminary attachment in
favor of ‘A’ was recorded on November 11, 1932, and the private sale of the attached
property in favor of ‘B’ was executed on May 29, 1933, the attachment lien has
priority over the private sale, which means that the purchaser took the property
subject to such attachment lien and to all of its consequences, one of which is the
subsequent sale on execution (Tambao v. Suy, 52 Phil. 237). The auction sale being
a necessary sequel to the levy, it enjoys the same preference as the attachment lien
enjoys over the private sale. In other words, the auction sale retroacts to the date of
the levy. [Were] the rule be otherwise, the preference enjoyed by the levy of
execution would be meaningless and illusory (Capistrano v. Phil. Nat. Bank, 101 Phil.
1117).’ (Underscoring supplied)

"By and large, We find no reversible error in the appealed decision.

"IN VIEW OF ALL THE FOREGOING, the instant appeal is ordered DISMISSED. No
pronouncement as to cost."4

The questioned Resolution, on the other hand, denied petitioner’s Motion for Reconsideration.

The Facts

The CA narrated the facts as follows:

"x x x Aurora Olarte de Leon was the registered owner of Lot No. 10-A (LRC Psd 336366)
per Transfer Certificate of Title No. 582/T-3. Sometime in January 1989, De Leon sold the
property to Luz Du under a ‘Conditional Deed of Sale’ wherein said vendee paid a down
payment of P75,000.00 leaving a balance of P95,000.00.

"Then again, on April 28, 1989, Aurora de Leon sold [the] same property to spouses Enrique
and Rosita Caliwag without prior notice to Luz Du. As a result, Transfer Certificate of Title
No. 582/T-3 was cancelled and Transfer Certificate of Title No. 2200 was issued in favor of
the Caliwag spouses.

"Meanwhile, Stronghold Insurance Corp., Inc. x x x commenced Civil Case No. 90-1848
against spouses Rosita and Enrique Caliwag et al., for allegedly defrauding Stronghold and
misappropriating the company’s fund by falsifying and simulating purchases of documentary
stamps. The action was accompanied by a prayer for a writ of preliminary attachment duly
annotated at the back of Transfer Certificate of Title No. 2200 on August 7, 1990.

"On her part, on December 21, 1990, Luz Du initiated Civil Case No. 60319 against Aurora
de Leon and the spouses Caliwag for the annulment of the sale by De Leon in favor of the
Caliwags, anchored on the earlier mentioned Deed of Conditional Sale.

"On January 3, 1991, Luz Du caused the annotation of a Notice Of Lis Pendens at the back
of Transfer Certificate of Title No. 2200.

"On February 11, 1991, the decision was handed down in Civil Case No. 90-1848 in favor
of Stronghold, ordering the spouses Caliwag jointly and severally to pay the
plaintiff P8,691,681.60, among others. When the decision became final and executory, on
March 12, 1991, a notice of levy on execution was annotated on Transfer Certificate of Title
No. 2200 and the attached property was sold in a public auction. On [August] 5, 1991,5 the
certificate of sale and the final Deed of Sale in favor of Stronghold were inscribed and
annotated leading to the cancellation of Transfer Certificate of Title No. 2200 and in lieu
thereof, Transfer Certificate of Title No. 6444 was issued in the name of Stronghold.

"It came to pass that on August 5, 1992, Luz Du too was able to secure a favorable judgment
in Civil Case No. 60319 and which became final and executory sometime in 1993, as well.

"Under the above historical backdrop, Luz Du commenced the present case (docketed as
Civil Case No. 64645) to cancel Transfer Certificate of Title No. 6444 in the name
of Stronghold with damages claiming priority rights over the property by virtue of her Notice
Of Lis Pendens under Entry No. 13305 and inscribed on January 3, 1991, and the final and
executory decision in Civil Case No. 60319 she filed against spouses Enrique and Rosita
Caliwag. According to Luz Du, despite her said notice of lis pendens
annotated, Stronghold still proceeded with the execution of the decision in Civil Case No.
90-1848 against the subject lot and ultimately the issuance of Transfer Certificate of Title No.
6444 in its (Stronghold’s) name."6

The trial court ruled that Stronghold had superior rights over the property because of the prior
registration of the latter’s notice of levy on attachment on Transfer Certificate of Title (TCT) No.
2200. For this reason, it found no basis to nullify TCT No. 6444, which was issued in the name of
respondent after the latter had purchased the property in a public auction.

Ruling of the Court of Appeals

Sustaining the trial court in toto, the CA held that Stronghold’s notice of levy on attachment had been
registered almost five (5) months before petitioner’s notice of lis pendens. Hence, respondent
enjoyed priority in time. Such registration, the appellate court added, constituted constructive notice
to petitioner and all third persons from the time of Stronghold’s entry, as provided under the Land
Registration Act -- now the Property Registration Decree.

The CA also held that respondent was a purchaser in good faith. The necessary sequels of
execution and sale retroacted to the time when Stronghold registered its notice of levy on
attachment, at a time when there was nothing on TCT No. 2200 that would show any defect in the
title or any adverse claim over the property.

Hence, this Petition.7

Issues

Petitioner submits the following issues for our consideration:

"I.

"Whether a Notice of Levy on Attachment on the property is a superior lien over that of the
unregistered right of a buyer of a property in possession pursuant to a Deed of Conditional
Sale.

"II.

"Whether the acquisition of the subject property by Respondent Stronghold was tainted with
bad faith."8

The Court’s Ruling

The Petition has no merit.

Main Issue:

Superiority of Rights

Petitioner submits that her unregistered right over the property by way of a prior conditional sale in
1989 enjoys preference over the lien of Stronghold -- a lien that was created by the registration of
respondent’s levy on attachment in 1990. Maintaining that the ruling in Capistrano v. PNB was
improperly applied by the Court of Appeals, petitioner avers that unlike the circumstances in that
case, the property herein had been sold to her before the levy. We do not agree.

The preference given to a duly registered levy on attachment or execution over a prior unregistered
sale is well-settled in our jurisdiction. As early as Gomez v. Levy Hermanos,9 this Court has held that
an attachment that is duly annotated on a certificate of title is superior to the right of a prior but
unregistered buyer. In that case, the Court explained as follows:

"x x x. It is true that she bought the lots with pacto de retro but the fact of her purchase was
not noted on the certificates of title until long after the attachment and its inscription on the
certificates. In the registry, therefore, the attachment appeared in the nature of a real lien
when Apolonia Gomez had her purchase recorded. The legal effect of the notation of said
lien was to subject and subordinate the right of Apolonia Gomez, as purchaser, to the lien.
She acquired the ownership of the said parcels only from the date of the recording of her title
in the register, which took place on November 21, 1932 (sec. 51 of Act No. 496; Liong-
Wong-Shih vs. Sunico and Peterson, 8 Phil. 91; Tabigue vs. Green, 11 Phil. 102; Buzon vs.
Lucauco, 13 Phil. 354; and Worcester vs. Ocampo and Ocampo, 34 Phil. 646), and the right
of ownership which she inscribed was not an absolute but a limited right, subject to a prior
registered lien, by virtue of which Levy Hermanos, Inc. was entitled to the execution of the
judgment credit over the lands in question, a right which is preferred and superior to that of
the plaintiff (sec, 51, Act No. 496 and decisions cited above). x x x"10

Indeed, the subsequent sale of the property to the attaching creditor must, of necessity, retroact to
the date of the levy. Otherwise, the preference created by the levy would be meaningless and
illusory, as reiterated in Defensor v. Brillo:11

"x x x. The doctrine is well-settled that a levy on execution duly registered takes preference
over a prior unregistered sale; and that even if the prior sale is subsequently registered
before the sale in execution but after the levy was duly made, the validity of the execution
sale should be maintained, because it retroacts to the date of the levy; otherwise, the
preference created by the levy would be meaningless and illusory.

"Even assuming, therefore, that the entry of appellants’ sales in the books of the Register of
Deeds on November 5, 1949 operated to convey the lands to them even without the
corresponding entry in the owner’s duplicate titles, the levy on execution on the same lots in
Civil Case No. 1182 on August 3, 1949, and their subsequent sale to appellee Brillo (which
retroacts to the date of the levy) still takes precedence over and must be preferred to
appellants’ deeds of sale which were registered only on November 5, 1949.

"This result is a necessary consequence of the fact that the properties herein involved were
duly registered under Act No. 496, and of the fundamental principle that registration is the
operative act that conveys and binds lands covered by Torrens titles (sections 50, 51, Act
496). Hence, if appellants became owners of the properties in question by virtue of the
recording of the conveyances in their favor, their title arose already subject to the levy in
favor of the appellee, which had been noted ahead in the records of the Register of
Deeds."12 (Citations omitted, italics supplied)

The Court has steadfastly adhered to the governing principle set forth in Sections 51 and 52 of
Presidential Decree No. 1529:13

"SEC. 51. Conveyance and other dealings by registered owner. - An owner of registered
land may convey, mortgage, lease, charge or otherwise deal with the same in accordance
with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary
instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary
instrument, except a will purporting to convey or affect registered land shall take effect as a
conveyance or bind the land, but shall operate only as a contract between the parties and as
evidence of authority to the Registry of Deeds to make registration.

"The act of registration shall be the operative act to convey or affect the land insofar as third
persons are concerned, and in all cases under this Decree, the registration shall be made in
the office of the Register of Deeds for the province or the city where the land lies.

"SEC. 52. Constructive notice upon registration. - Every conveyance, mortgage, lease,
lien, attachment, order, judgment, instrument or entry affecting registered land shall, if
registered, filed or entered in the office of the Register of Deeds for the province or city
where the land to which it relates lies, be constructive notice to all persons from the time of
such registering, filing or entering."(Italics supplied)
1avvphil.net

As the property in this case was covered by the torrens system, the registration of Stronghold’s
attachment14 was the operative act that gave validity to the transfer and created a lien upon the land
in favor of respondent.15

Capistrano Ruling

Correctly Applied

The preference created by the levy on attachment is not diminished even by the subsequent
registration of the prior sale.16 That was the import of Capistrano v. PNB,17 which held that
precedence should be given to a levy on attachment or execution, whose registration
was before that of the prior sale.

In Capistrano, the sale of the land in question -- though made as far back as 1946 -- was registered
only in 1953, after the property had already been subjected to a levy on execution by the Philippine
National Bank. The present case is not much different. The stipulation of facts shows that Stronghold
had already registered its levy on attachment before petitioner annotated her notice of lis pendens.
As in Capistrano, she invokes the alleged superior right of a prior unregistered buyer to overcome
respondent’s lien.

If either the third-party claim or the subsequent registration of the prior sale was insufficient to defeat
the previously registered attachment lien, as ruled by the Court in Capistrano, it follows that a notice
of lis pendens is likewise insufficient for the same purpose. Such notice does not establish a lien or
an encumbrance on the property affected.18 As the name suggests, a notice of lis pendens with
respect to a disputed property is intended merely to inform third persons that any of their
transactions in connection therewith -- if entered into subsequent to the notation -- would be subject
to the result of the suit.

In view of the foregoing, the CA correctly applied Capistrano, as follows:

"x x x the rule now followed is that if the attachment or levy of execution, though posterior to
the sale, is registered before the sale is registered, it takes precedence over the latter.

"The rule is not altered by the fact that at the time of the execution sale the Philippine
National Bank had information that the land levied upon had already been deeded by the
judgment debtor and his wife to Capistrano. The auction sale being a necessary sequel to
the levy, for this was effected precisely to carry out the sale, the purchase made by the bank
at said auction should enjoy the same legal priority that the levy had over the sale in favor of
plaintiff. In other words, the auction sale retroacts to the date of the levy. Were the rule
otherwise, the preference enjoyed by the levy of execution in a case like the present would
be meaningless and illusory."19 (Citations omitted, italics supplied)

Second Issue:

Taking in Bad Faith

We now tackle the next question of petitioner: whether Stronghold was a purchaser in good faith.
Suffice it to say that when Stronghold registered its notice of attachment, it did not know that the land
being attached had been sold to petitioner. It had no such knowledge precisely because the sale,
unlike the attachment, had not been registered. It is settled that a person dealing with registered
property may rely on the title and be charged with notice of only such burdens and claims as are
annotated thereon.20 This principle applies with more force to this case, absent any allegation or
proof that Stronghold had actual knowledge of the sale to petitioner before the registration of its
attachment.

Thus, the annotation of respondent’s notice of attachment was a registration in good faith, the kind
that made its prior right enforceable.21

Moreover, it is only after the notice of lis pendens is inscribed in the Office of the Register of Deeds
that purchasers of the property become bound by the judgment in the case. As Stronghold is
deemed to have acquired the property -- not at the time of actual purchase but at the time of the
attachment -- it was an innocent purchaser for value and in good faith.

WHEREFORE, the Petition is DENIED, and the assailed Decision and Resolution AFFIRMED.
Costs against petitioner.

SO ORDERED.




























G.R. No. L-60887 November 13, 1991

PERLA COMPANIA DE SEGUROS, INC., petitioner,


vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES, HONORATO BORBON, SR., OFFICE OF
THE PROVINCIAL SHERIFF, PROVINCE OF CEBU, respondents.

Hector L. Fernandez for petitioner.

Domingo Quibranza and Vicente A. Quibranza for private respondents.

FELICIANO, J.:p

The present Petition for Certiorari seeks to annul: (a) the Order dated 6 August 1979 1 which ordered the
Provincial Sheriff to garnish the third-party liability insurance policy issued by petitioner Perla Compania de Seguros, Inc. ("Perla") in favor of
Nelia Enriquez, judgment debtor in Civil Case No. R-15391; (b) the Order dated 24 October 1979 2 which denied the motion for
reconsideration of the 6 August 1979 Order; and (c) the Order dated 8 April 1980 3 which ordered the issuance of an alias writ of
garnishment against petitioner.

In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in the name of Nelia
Enriquez, and driven by Cosme Casas, was travelling from Cebu City to Danao City. While passing
through Liloan, Cebu, the Cimarron PUJ collided with a private jeep owned by the late Calixto
Palmes (husband of private respondent Primitiva Palmes) who was then driving the private jeep. The
impact of the collision was such that the private jeep was flung away to a distance of about thirty (30)
feet and then fell on its right side pinning down Calixto Palmes. He died as a result of cardio-
respiratory arrest due to a crushed chest. 4 The accident also caused physical injuries on the part of Adeudatus Borbon who
was then only two (2) years old.

On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto Palmes) and Honorato
Borbon, Sr. (father of minor Adeudatus Borbon) filed a complaint 5 against Cosme Casas and Nelia Enriquez
(assisted by her husband Leonardo Enriquez) before the then Court of First Instance of Cebu, Branch 3, claiming actual, moral, nominal and
exemplary damages as a result of the accident.

The claim of private respondent Honorato Borbon, Sr., being distinct and separate from that of co-
plaintiff Primitiva Palmes, and the amount thereof falling properly within the jurisdiction of the inferior
court, respondent Judge Jose R. Ramolete ordered the Borbon claim excluded from the complaint,
without prejudice to its being filed with the proper inferior court.

On 4 April 1977, the Court of First Instance rendered a Decision 6 in favor of private respondent Primitiva Palmes,
ordering common carrier Nelia Enriquez to pay her P10,000.00 as moral damages, P12,000.00 as compensatory damages for the death of
Calixto Palmes, P3,000.00 as exemplary damages, P5,000.00 as actual damages, and P1,000.00 as attorney's fees.

The judgment of the trial court became final and executory and a writ of execution was thereafter
issued. The writ of execution was, however, returned unsatisfied. Consequently, the judgment debtor
Nelia Enriquez was summoned before the trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was covered by a third-party liability
insurance policy issued by petitioner Perla.

Thus, on 31 July 1979, private respondent Palmes filed a motion for garnishment 7 praying that an order of
garnishment be issued against the insurance policy issued by petitioner in favor of the judgment debtor. On 6 August 1979, respondent
Judge issued an Order 8 directing the Provincial Sheriff or his deputy to garnish the third-party liability insurance policy.
Petitioner then appeared before the trial court and moved for reconsideration of the 6 August 1979
Order and for quashal of the writ of garnishment, 9 alleging that the writ was void on the ground that it (Perla) was not a
party to the case and that jurisdiction over its person had never been acquired by the trial court by service of summons or by any process.
The trial court denied petitioner's motion.10 An Order for issuance of an alias writ of garnishment was subsequently issued on 8 April
1980. 11

More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this
Court on 25 June 1982 alleging grave abuse of discretion on the part of respondent Judge Ramolete
in ordering garnishment of the third-party liability insurance contract issued by petitioner Perla in
favor of the judgment debtor, Nelia Enriquez. The Petition should have been dismissed forthwith for
having been filed way out of time but, for reasons which do not appear on the record, was
nonetheless entertained.

In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be
subjected to garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because
petitioner was not a party to the case and the trial court did not acquire jurisdiction over petitioner's
person. Perla further argues that the writ of garnishment had been issued solely on the basis of the
testimony of the judgment debtor during the examination on 23 July 1979 to the effect that the
Cimarron PUJ was covered by a third-party liability insurance issued by Perla, without granting it the
opportunity to set up any defenses which it may have under the insurance contract; and that the
proceedings taken against petitioner are contrary to the procedure laid down in Economic Insurance
Company, Inc. v. Torres, et al., 12 which held that under Rule 39, Section 45, the Court "may only authorize" the judgment
creditor to institute an action against a third person who holds property belonging to the judgment debtor.

We find no grave abuse of discretion or act in excess of or without jurisdiction on the part of
respondent Judge Ramolete in ordering the garnishment of the judgment debtor's third-party liability
insurance.

Garnishment has been defined as a species of attachment for reaching any property or credits
pertaining or payable to a judgment debtor. 13 In legal contemplation, it is a forced novation by the substitution of
creditors: 14 the judgment debtor, who is the original creditor of the garnishee is, through service of the writ of garnishment, substituted by
the judgment creditor who thereby becomes creditor of the garnishee. Garnishment has also been described as a warning to a person having
in his possession property or credits of the judgment debtor, not to pay the money or deliver the property to the latter, but rather to appear
and answer the plaintiff's suit. 15

In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is
not necessary that summons be served upon him. The garnishee need not be impleaded as a party
to the case. All that is necessary for the trial court lawfully to bind the person of the garnishee or any
person who has in his possession credits belonging to the judgment debtor is service upon him of
the writ of garnishment.

The Rules of Court themselves do not require that the garnishee be served with summons or
impleaded in the case in order to make him liable.

Rule 39, Section 15 provides:

Sec. 15. Execution of money judgments. — The officer must enforce an execution of
a money judgment by levying on all the property, real or personal of every name and
nature whatsoever, and which may be disposed of for value, of the judgment debtor
not exempt from execution . . .

Real property, stocks, shares, debts, credits, and other personal property, or any
interest in either real or personal property, may be levied on in like manner and with
like effect as under a writ of attachment. (Emphasis supplied).
Rule 57, Section 7(e) in turn reads:

Sec. 7. Attachment of real and personal property; recording thereof. — Properties


shall be attached by the officer executing the order in the following manner:

xxx xxx xxx

(e) Debts and credits, and other personal property not capable of manual delivery,
by leaving with the person owing such debts, or having his possession or under his
control such credits or other personal property, or with his agent, a copy of the order,
and notice that the debts owing by him to the party against whom attachment is
issued, and the credits and other personal property in his possession, or under his
control, belonging to said party, are attached in pursuance of such order;

xxx xxx xxx

(Emphasis supplied)

Through service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a "forced
intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to compliance with
all orders and processes of the trial court with a view to the complete satisfaction of the judgment of
the court. In Bautista v. Barredo, 16 the Court, through Mr. Justice Bautista Angelo, held:

While it is true that defendant Jose M. Barredo was not a party in Civil Case No.
1636 when it was instituted by appellant against the Philippine Ready Mix Concrete
Company, Inc., however, jurisdiction was acquired over him by the court and he
became a virtual party to the case when, after final judgment was rendered in said
case against the company, the sheriff served upon him a writ of garnishment in
behalf of appellant. Thus, as held by this Court in the case of Tayabas Land
Company vs. Sharruf, 41 Phil. 382, the proceeding by garnishment is a species of
attachment for reaching credits belonging to the judgment debtor and owing to him
from a stranger to the litigation. By means of the citation, the stranger becomes a
forced intervenor; and the court, having acquired jurisdiction over him by means of
the citation, requires him to pay his debt, not to his former creditor, but to the new
creditor, who is creditor in the main litigation. (Emphasis supplied).

In Rizal Commercial Banking Corporation v. De Castro, 17 the Court stressed that the asset or credit garnished is
thereupon subjected to a specific lien:

The garnishment of property to satisfy a writ of execution operates as an attachment


and fastens upon the property a lien by which the property is brought under the
jurisdiction of the court issuing the writ. It is brought into custodia legis, under the
sole control of such
court. 18 (Emphasis supplied)

In the present case, there can be no doubt, therefore, that the trial court actually acquired jurisdiction
over petitioner Perla when it was served with the writ of garnishment of the third-party liability
insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot successfully
evade liability thereon by such a contention.

Every interest which the judgment debtor may have in property may be subjected to execution.19 In
the instant case, the judgment debtor Nelia Enriquez clearly had an interest in the proceeds of the third-party liability insurance contract. In a
third-party liability insurance contract, the insurer assumes the obligation of paying the injured third party to whom the insured is
liable. 20 The insurer becomes liable as soon as the liability of the insured to the injured third person attaches. Prior payment by the insured
to the injured third person is not necessary in order that the obligation of the insurer may arise. From the moment that the insured became
liable to the third person, the insured acquired an interest in the insurance contract, which interest may be garnished like any other credit. 21

Petitioner also contends that in order that it may be held liable under the third-party liability
insurance, a separate action should have been commenced by private respondents to establish
petitioner's liability. Petitioner invokes Economic Insurance Company, Inc. vs. Torres, 22 which stated:

It is clear from Section 45, Rule 39 that if a persons alleged to have property of the
judgment debtor or to be indebted to him claims an interest in the property adverse to
him or denies the debt, the court may only authorize the judgment creditor to institute
an action against such person for the recovery of such interest or debt. Said section
does not authorize the court to make a finding that the third person has in his
possession property belonging to the judgment debtor or is indebted to him and to
order said third person to pay the amount to the judgment creditor.

It has been held that the only power of the court in proceedings supplemental to
execution is to niake an order authorizing the creditor to sue in the proper court to
recover an indebtedness due to the judgment debtor. The court has no jurisdiction to
try summarily the question whether the third party served with notice of execution
and levy is indebted to defendant when such indebtedness is denied. To make an
order in relation to property which the garnishee claimed to own in his own right,
requiring its application in satisfaction of judgment of another, would be to deprive
the garnishee of property upon summary proceeding and without due process of law.
(Emphasis supplied)

But reliance by petitioner on the case of Economic Insurance Company, Inc. v. Torres (supra) is
misplaced. The Court there held that a separate action needs to be commenced when the garnishee
"claims an interest in the property adverse to him (judgment debtor) or denies the debt." In the
instant case, petitioner Perla did not deny before the trial court that it had indeed issued a third-party
liability insurance policy in favor of the judgment debtor. Petitioner moreover refrained from setting
up any substantive defense which it might have against the insured-judgment debtor. The only
ground asserted by petitioner in its "Motion for Reconsideration of the Order dated August 6, 1979
and to Quash Notice of Garnishment" was lack of jurisdiction of the trial court for failure to implead it
in the case by serving it with summons. Accordingly, Rule 39, Section 45 of the Rules of Court is not
applicable in the instant case, and we see no need to require a separate action against Perla: a writ
of garnishment suffices to hold petitioner answerable to the judgment creditor. If Perla had any
substantive defenses against the judgment debtor, it is properly deemed to have waived them by
laches.

WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED for having been filed
out of time and for lack of merit. The assailed Orders of the trial court are hereby AFFIRMED. Costs
against petitioner. This Decision is immediately executory.

SO ORDERED.