G.R. No.
L-34548 November 29, 1988 directing the herein petitioner "to deliver in check
RIZAL COMMERCIAL BANKING
CORPORATION, petitioner,
vs.
THE HONORABLE PACIFICO P. DE CASTRO
and PHILIPPINE VIRGINIA TOBACCO
ADMINISTRATION, respondents
CORTES, J.:
The crux of the instant controversy dwells on the
liability of a bank for releasing its depositor's
funds upon orders of the court, pursuant to a writ
of garnishment. If in compliance with the court
order, the bank delivered the garnished amount to
the sheriff, who in turn delivered it to the judgment
creditor, but subsequently, the order of the court
directing payment was set aside by the same
judge, should the bank be held solidarily liable
with the judgment creditor to its depositor for
reimbursement of the garnished funds? The Court
does not think so.
In Civil Case No. Q-12785 of the Court of First
Instance of Rizal, Quezon City Branch IX entitled
"Badoc Planters, Inc. versus Philippine Virginia
Tobacco Administration, et al.," which was an
action for recovery of unpaid tobacco deliveries,
an Order (Partial Judgment) was issued on
January 15, 1970 by the Hon. Lourdes P. San
Diego, then Presiding Judge, ordering the
defendants therein to pay jointly and severally,
the plaintiff Badoc Planters, Inc. (hereinafter
referred to as "BADOC") within 48 hours the
aggregate amount of P206,916.76, with legal
interests thereon.
On January 26,1970, BADOC filed an Urgent Ex-
Parte Motion for a Writ of Execution of the said
Partial Judgment which was granted on the same
day by the herein respondent judge who acted in
place of the Hon. Judge San Diego who had just
been elevated as a Justice of the Court of
Appeals. Accordingly, the Branch Clerk of Court
on the very same day, issued a Writ of Execution
addressed to Special Sheriff Faustino Rigor, who
then issued a Notice of Garnishment addressed
to the General Manager and/or Cashier of Rizal
Commercial Banking Corporation (hereinafter
referred to as RCBC), the petitioner in this case,
requesting a reply within five (5) days to said
garnishment as to any property which the
Philippine Virginia Tobacco Administration
(hereinafter referred to as "PVTA") might have in
the possession or control of petitioner or of any
debts owing by the petitioner to said defendant.
Upon receipt of such Notice, RCBC notified PVTA
thereof to enable the PVTA to take the necessary
steps for the protection of its own interest [Record
on Appeal, p. 36]
Upon an Urgent Ex-Parte Motion dated January
27, 1970 filed by BADOC, the respondent Judge
issued an Order granting the Ex-Parte Motion and
the amount garnished to Sheriff Faustino Rigor
and Sheriff Rigor in turn is ordered to cash the
check and deliver the amount to the plaintiff's
representative and/or counsel on record." [Record
on Appeal, p. 20; Rollo, p. 5.] In compliance with
said Order, petitioner delivered to Sheriff Rigor a
certified check in the sum of P 206,916.76.
Respondent PVTA filed a Motion for
Reconsideration dated February 26,1970 which
was granted in an Order dated April 6,1970,
setting aside the Orders of Execution and of
Payment and the Writ of Execution and ordering
petitioner and BADOC "to restore, jointly and
severally, the account of PVTA with the said bank
in the same condition and state it was before the
issuance of the aforesaid Orders by reimbursing
the PVTA of the amount of P 206, 916.76 with
interests at the legal rate from January 27, 1970
until fully paid to the account of the PVTA This is
without prejudice to the right of plaintiff to move
for the execution of the partial judgment pending
appeal in case the motion for reconsideration is
denied and appeal is taken from the said partial
judgment." [Record on Appeal, p. 58]
The Motion for Reconsideration of the said Order
of April 6, 1970 filed by herein petitioner was
denied in the Order of respondent judge dated
June 10, 1970 and on June 19, 1970, which was
within the period for perfecting an appeal, the
herein petitioner filed a Notice of Appeal to the
Court of Appeals from the said Orders.
This case was then certified by the Court of
Appeals to this Honorable Court, involving as it
does purely questions of law.
The petitioner raises two principal queries in the
instant case: 1) Whether or not PVTA funds are
public funds not subject to garnishment; and 2)
Whether or not the respondent Judge correctly
ordered the herein petitioner to reimburse the
amount paid to the Special Sheriff by virtue of the
execution issued pursuant to the Order/Partial
Judgment dated January 15, 1970.
The record reveals that on February 2, 1970,
private respondent PVTA filed a Motion for
Reconsideration of the Order/ Partial Judgment of
January 15, 1970. This was granted and the
aforementioned Partial Judgment was set aside.
The case was set for hearings on November 4, 9
and 11, 1970 [Rollo, pp. 205-207.] However, in
view of the failure of plaintiff BADOC to appear on
the said dates, the lower court ordered the
dismissal of the case against PVTA for failure to
prosecute [Rollo, p. 208.]
It must be noted that the Order of respondent
Judge dated April 6, 1970 directing the plaintiff to
reimburse PVTA t e amount of P206,916.76 with
interests became final as to said plaintiff who
failed to even file a motion for reconsideration,
ProvRem 2nd batch | 1
much less to appeal from the said Order.
Consequently, the order to restore the account of
PVTA with RCBC in the same condition and state
it was before the issuance of the questioned
orders must be upheld as to the plaintiff, BADOC.
However, the questioned Order of April 6, 1970
must be set aside insofar as it ordered the
petitioner RCBC, jointly and severally with
BADOC, to reimburse PVTA.
The petitioner merely obeyed a mandatory
directive from the respondent Judge dated
January 27, 1970, ordering petitioner 94 "to
deliver in check the amount garnished to Sheriff
Faustino Rigor and Sheriff Rigor is in turn ordered
to cash the check and deliver the amount to the
plaintiffs representative and/or counsel on
record." [Record on Appeal, p. 20.]
PVTA however claims that the manner in which
the bank complied with the Sheriffs Notice of
Garnishment indicated breach of trust and
dereliction of duty on the part of the bank as
custodian of government funds. It insistently
urges that the premature delivery of the garnished
amount by RCBC to the special sheriff even in the
absence of a demand to deliver made by the
latter, before the expiration of the five-day period
given to reply to the Notice of Garnishment,
without any reply having been given thereto nor
any prior authorization from its depositor, PVTA
and even if the court's order of January 27, 1970
did not require the bank to immediately deliver the
garnished amount constitutes such lack of
prudence as to make it answerable jointly and
severally with the plaintiff for the wrongful release
of the money from the deposit of the PVTA. The
respondent Judge in his controverted Order
sustained such contention and blamed RCBC for
the supposed "hasty release of the amount from
the deposit of the PVTA without giving PVTA a
chance to take proper steps by informing it of the
action being taken against its deposit, thereby
observing with prudence the five-day period given
to it by the sheriff." [Rollo, p. 81.]
Such allegations must be rejected for lack of
merit. In the first place, it should be pointed out
that RCBC did not deliver the amount on the
strength solely of a Notice of Garnishment; rather,
the release of the funds was made pursuant to
the aforesaid Order of January 27, 1970. While
the Notice of Garnishment dated January 26,
1970 contained no demand of payment as it was
a mere request for petitioner to withold any funds
of the PVTA then in its possession, the Order of
January 27, 1970 categorically required the
delivery in check of the amount garnished to the
special sheriff, Faustino Rigor.
In the second place, the bank had already filed a
reply to the Notice of Garnishment stating that it
had in its custody funds belonging to the PVTA,
which, in fact was the basis of the plaintiff in filing
a motion to secure delivery of the garnished
amount to the sheriff. [See Rollo, p. 93.]
Lastly, the bank, upon the receipt of the Notice of
Garnishment, duly informed PVTA thereof to
enable the latter to take the necessary steps for
the protection of its own interest [Record on
Appeal, p. 36]
It is important to stress, at this juncture, that there
was nothing irregular in the delivery of the funds
of PVTA by check to the sheriff, whose custody is
equivalent to the custody of the court, he being a
court officer. The order of the court dated January
27, 1970 was composed of two parts, requiring:
1) RCBC to deliver in check the amount
garnished to the designated sheriff and 2) the
sheriff in turn to cash the check and deliver the
amount to the plaintiffs representative and/or
counsel on record. It must be noted that in
delivering the garnished amount in check to the
sheriff, the RCBC did not thereby make any
payment, for the law mandates that delivery of a
check does not produce the effect of payment
until it has been cashed. [Article 1249, Civil
Code.]
Moreover, by virtue of the order of garnishment,
the same was placed in custodia legis and
therefore, from that time on, RCBC was holding
the funds subject to the orders of the court a quo.
That the sheriff, upon delivery of the check to him
by RCBC encashed it and turned over the
proceeds thereof to the plaintiff was no longer the
concern of RCBC as the responsibility over the
garnished funds passed to the court. Thus, no
breach of trust or dereliction of duty can be
attributed to RCBC in delivering its depositor's
funds pursuant to a court order which was merely
in the exercise of its power of control over such
funds.
... The garnishment of property to satisfy a
writ of execution operates as an
attachment and fastens upon the property
a lien by which the property is brought
under the jurisdiction of the court issuing
the writ. It is brought into custodia legis,
under the sole control of such court [De
Leon v. Salvador, G.R. Nos. L-30871 and
L-31603, December 28,1970, 36 SCRA
567, 574.]
The respondent judge however, censured the
petitioner for having released the funds "simply on
the strength of the Order of the court which. far
from ordering an immediate release of the
amount involved, merely serves as a standing
authority to make the release at the proper time
as prescribed by the rules." [Rollo, p. 81.]
This argument deserves no serious consideration.
As stated earlier, the order directing the bank to
deliver the amount to the sheriff was distinct and
separate from the order directing the sheriff to
ProvRem 2nd batch | 2
encash the said check. The bank had no choice
but to comply with the order demanding delivery
of the garnished amount in check. The very tenor
of the order called for immediate compliance
therewith. On the other hand, the bank cannot be
held liable for the subsequent encashment of the
check as this was upon order of the court in the
exercise of its power of control over the funds
placed in custodia legis by virtue of the
garnishment.
In a recent decision [Engineering Construction
Inc., v. National Power Corporation, G.R. No. L-
34589, June 29, 1988] penned by the now Chief
Justice Marcelo Fernan, this Court absolved a
garnishee from any liability for prompt compliance
with its order for the delivery of the garnished
funds. The rationale behind such ruling deserves
emphasis in the present case:
But while partial restitution is warranted in
favor of NPC, we find that the Appellate
Court erred in not absolving MERALCO,
the garnishee, from its obligations to NPC
with respect to the payment of ECI of P
1,114,543.23, thus in effect subjecting
MERALCO to double liability. MERALCO
should not have been faulted for its
prompt obedience to a writ of
garnishment. Unless there are compelling
reasons such as: a defect on the face of
the writ or actual knowledge on the part of
the garnishee of lack of entitlement on the
part of the garnisher, it is not incumbent
upon the garnishee to inquire or to judge
for itself whether or not the order for the
advance execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court
provides:
Effect of attachment of debts and
credits.All persons having in
their possession or under their
control any credits or other similar
personal property belonging to the
party against whom attachment is
issued, or owing any debts to the
same, all the time of service upon
them of a copy of the order of
attachment and notice as provided
in the last preceding section, shall
be liable to the applicant for the
amount of such credits, debts or
other property, until the
attachment be discharged, or any
judgment recovered by him be
satisfied, unless such property be
delivered or transferred, or such
debts be paid, to the clerk, sheriff
or other proper officer of the court
issuing the attachment.
Garnishment is considered as a
specie of attachment for reaching
credits belonging to the judgment
debtor and owing to him from a
stranger to the litigation. Under
the above-cited rule, the
garnishee [the third person] is
obliged to deliver the credits, etc.
to the proper officer issuing the
writ and "the law exempts from
liability the person having in his
possession or under his control
any credits or other personal
property belonging to the
defendant, ..., if such property be
delivered or transferred, ..., to the
clerk, sheriff, or other officer of the
court in which the action is
pending. [3 Moran, Comments on
the Rules of Court 34 (1970 ed.)]
Applying the foregoing to the case at bar,
MERALCO, as garnishee, after having been
judicially compelled to pay the amount of the
judgment represented by funds in its possession
belonging to the judgment debtor or NPC, should
be released from all responsibilities over such
amount after delivery thereof to the sheriff. The
reason for the rule is self-evident. To expose
garnishees to risks for obeying court orders and
processes would only undermine the
administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's
stand that its immediate compliance with the
lower court's order should not have been met with
the harsh penalty of joint and several liability. Nor
can its liability to reimburse PVTA of the amount
delivered in check be premised upon the
subsequent declaration of nullity of the order of
delivery. As correctly pointed out by the petitioner:
xxx xxx xxx
That the respondent Judge, after his
Order was enforced, saw fit to recall said
Order and decree its nullity, should not
prejudice one who dutifully abided by it,
the presumption being that judicial orders
are valid and issued in the regular
performance of the duties of the Court"
[Section 5(m) Rule 131, Revised Rules of
Court]. This should operate with greater
force in relation to the herein petitioner
which, not being a party in the case, was
just called upon to perform an act in
accordance with a judicial flat. A contrary
view will invite disrespect for the majesty
of the law and induce reluctance in
complying with judicial orders out of fear
that said orders might be subsequently
invalidated and thereby expose one to
suffer some penalty or prejudice for
obeying the same. And this is what will
happen were the controversial orders to
be sustained. We need not underscore
the danger of this as a precedent.
ProvRem 2nd batch | 3
 xxx xxx xxx
[ Brief for the Petitioner, Rollo, p.
212; Emphasis supplied.]
From the foregoing, it may be concluded that the
charge of breach of trust and/or dereliction of duty
as well as lack of prudence in effecting the
immediate payment of the garnished amount is
totally unfounded. Upon receipt of the Notice of
Garnishment, RCBC duly informed PVTA thereof
to enable the latter to take the necessary steps
for its protection. However, right on the very next
day after its receipt of such notice, RCBC was
already served with the Order requiring delivery of
the garnished amount. Confronted as it was with
a mandatory directive, disobedience to which
exposed it to a contempt order, it had no choice
but to comply.
The respondent Judge nevertheless held that the
liability of RCBC for the reimbursement of the
garnished amount is predicated on the ruling of
the Supreme Court in the case of Commissioner
of Public Highways v. Hon. San Diego[G.R. No.
L-30098, February 18, 1970, 31 SCRA 616]
which he found practically on all fours with the
case at bar.
The Court disagrees.
The said case which reiterated the rule
in Republic v. Palacio [G.R. No. L-20322, May 29,
1968, 23 SCRA 899] that government funds and
properties may not be seized under writs of
execution or garnishment to satisfy such
judgment is definitely distinguishable from the
case at bar.
In the Commissioner of Public Highways case
[supra], the bank which precipitately allowed the
garnishment and delivery of the funds failed to
inform its depositor thereof, charged as it was
with knowledge of the nullity of the writ of
execution and notice of garnishment against
government funds. In the aforementioned case,
the funds involved belonged to the Bureau of
Public Highways, which being an arm of the
executive branch of the government, has no
personality of its own separate from the National
Government. The funds involved
were government funds covered by the rule on
exemption from execution.
This brings us to the first issue raised by the
petitioner: Are the PVTA funds public funds
exempt from garnishment? The Court holds that
they are not.
Republic Act No. 2265 created the PVTA as an
ordinary corporation with all the attributes of a
corporate entity subject to the provisions of the
Corporation Law. Hence, it possesses the power
"to sue and be sued" and "to acquire and hold
such assets and incur such liabilities resulting
directly from operations authorized by the
provisions of this Act or as essential to the proper
conduct of such operations." [Section 3, Republic
Act No. 2265.]
Among the specific powers vested in the PVTA
are: 1) to buy Virginia tobacco grown in the
Philippines for resale to local bona fide tobacco
manufacturers and leaf tobacco dealers [Section
4(b), R.A. No. 2265]; 2) to contracts of any kind
as may be necessary or incidental to the
attainment of its purpose with any person, firm or
corporation, with the Government of the
Philippines or with any foreign government,
subject to existing laws [Section 4(h), R.A. No.
22651; and 3) generally, to exercise all the
powers of a corporation under the Corporation
Law, insofar as they are not inconsistent with the
provisions of this Act [Section 4(k), R.A. No.
2265.]
From the foregoing, it is clear that PVTA has
been endowed with a personality distinct and
separate from the government which owns and
controls it. Accordingly, this Court has heretofore
declared that the funds of the PVTA can be
garnished since "funds of public corporation
which can sue and be sued were not exempt from
garnishment" [Philippine National Bank v.
Pabalan, G.R. No. L-33112, June 15, 1978, 83
SCRA 595, 598.]
In National Shipyards and Steel Corp. v.
CIR [G.R. No. L-17874, August 31, 1964, 8 SCRA
781], this Court held that the allegation to the
effect that the funds of the NASSCO are public
funds of the government and that as such, the
same may not be garnished, attached or levied
upon is untenable for, as a government-owned or
controlled corporation, it has a personality of its
own, distinct and separate from that of the
government. This court has likewise ruled that
other govemment-owned and controlled
corporations like National Coal Company, the
National Waterworks and Sewerage Authority
(NAWASA), the National Coconut Corporation
(NACOCO) the National Rice and Corn
Corporation (NARIC) and the Price Stabilization
Council (PRISCO) which possess attributes
similar to those of the PVTA are clothed with
personalities of their own, separate and distinct
from that of the government [National Coal
Company v. Collector of Internal Revenue, 46
Phil. 583 (1924); Bacani and Matoto v. National
Coconut Corporation et al., 100 Phil. 471 (1956);
Reotan v. National Rice & Corn Corporation, G.R.
No. L-16223, February 27, 1962, 4 SCRA 418.]
The rationale in vesting it with a separate
personality is not difficult to find. It is well-settled
that when the government enters into commercial
business, it abandons its sovereign capacity and
is to be treated like any other corporation [Manila
Hotel Employees' Association v. Manila Hotel Co.
and CIR, 73 Phil. 734 (1941).]
ProvRem 2nd batch | 4
Accordingly, as emphatically expressed by this
Court in a 1978 decision, "garnishment was the
appropriate remedy for the prevailing party which
could proceed against the funds of a corporate
entity even if owned or controlled by the
government" inasmuch as "by engaging in a
particular business thru the instrumentality of a
corporation, the government divests itself pro hac
vice of its sovereign character, so as to render the
corporation subject to the rules of law governing
private corporations" [Philippine National Bank v.
CIR, G.R No. L-32667, January 31, 1978, 81
SCRA 314, 319.]
Furthermore, in the case of PVTA, the law has
expressly allowed it funds to answer for various
obligations, including the one sought to be
enforced by plaintiff BADOC in this case (i.e. for
unpaid deliveries of tobacco). Republic Act No.
4155, which discounted the erstwhile support
given by the Central Bank to PVTA, established in
lieu thereof a "Tobacco Fund" to be collected from
the proceeds of fifty per centum of the tariff or
taxes of imported leaf tobacco and also fifty per
centum of the specific taxes on locally
manufactured Virginia type cigarettes.
Section 5 of Republic Act No. 4155 provides that
this fund shall be expended for the support or
payment of:
1. Indebtedness of the Philippine Virginia
Tobacco Administration and the former
Agricultural Credit and Cooperative
Financing Administration to FACOMAS
and farmers and planters regarding
Virginia tobacco transactions in previous
years;
2. Indebtedness of the Philippine Virginia
Tobacco Administration and the former
Agricultural Credit and Cooperative
Financing Administration to the Central
Bank in gradual amounts regarding
Virginia tobacco transactions in previous
years;
3. Continuation of the Philippine Virginia
Tobacco Administration support and
subsidy operations including the purchase
of locally grown and produced Virginia
leaf tobacco, at the present support and
subsidy prices, its procurement, redrying,
handling, warehousing and disposal
thereof, and the redrying plants trading
within the purview of their contracts;
4. Operational, office and field expenses,
and the establishment of the Tobacco
Research and Grading Institute.
[Emphasis supplied.]
Inasmuch as the Tobacco Fund, a special fund,
was by law, earmarked specifically to answer
obligations incurred by PVTA in connection with
its proprietary and commercial operations
authorized under the law, it follows that said funds
may be proceeded against by ordinary judicial
processes such as execution and garnishment. If
such funds cannot be executed upon or
garnished pursuant to a judgment sustaining the
liability of the PVTA to answer for its obligations,
then the purpose of the law in creating the PVTA
would be defeated. For it was declared to be a
national policy, with respect to the local Virginia
tobacco industry, to encourage the production of
local Virginia tobacco of the qualities needed and
in quantities marketable in both domestic and
foreign markets, to establish this industry on an
efficient and economic basis, and to create a
climate conducive to local cigarette manufacture
of the qualities desired by the consuming public,
blending imported and native Virginia leaf tobacco
to improve the quality of locally manufactured
cigarettes [Section 1, Republic Act No. 4155.]
The Commissioner of Public Highways case is
thus distinguishable from the case at bar. In said
case, the Philippine National Bank (PNB) as
custodian of funds belonging to the Bureau of
Public Highways, an agency of the government,
was chargeable with knowledge of the exemption
of such government funds from execution and
garnishment pursuant to the elementary precept
that public funds cannot be disbursed without the
appropriation required by law. On the other hand,
the same cannot hold true for RCBC as the funds
entrusted to its custody, which belong to a public
corporation, are in the nature of private funds
insofar as their susceptibility to garnishment is
concerned. Hence, RCBC cannot be charged with
lack of prudence for immediately complying with
the order to deliver the garnished amount. Since
the funds in its custody are precisely meant for
the payment of lawfully-incurred obligations,
RCBC cannot rightfully resist a court order to
enforce payment of such obligations. That such
court order subsequently turned out to have been
erroneously issued should not operate to the
detriment of one who complied with its clear
order.
Finally, it is contended that RCBC was bound to
inquire into the legality and propriety of the Writ of
Execution and Notice of Garnishment issued
against the funds of the PVTA deposited with said
bank. But the bank was in no position to question
the legality of the garnishment since it was not
even a party to the case. As correctly pointed out
by the petitioner, it had neither the personality nor
the interest to assail or controvert the orders of
respondent Judge. It had no choice but to obey
the same inasmuch as it had no standing at all to
impugn the validity of the partial judgment
rendered in favor of the plaintiff or of the
processes issued in execution of such judgment.
RCBC cannot therefore be compelled to make
restitution solidarily with the plaintiff BADOC.
Plaintiff BADOC alone was responsible for the
ProvRem 2nd batch | 5
issuance of the Writ of Execution and Order of
Payment and so, the plaintiff alone should bear
the consequences of a subsequent annulment of
such court orders; hence, only the plaintiff can be
ordered to restore the account of the PVTA.
WHEREFORE, the petition is hereby granted and
the petitioner is ABSOLVED from any liability to
respondent PVTA for reimbursement of the funds
garnished. The questioned Order of the
respondent Judge ordering the petitioner, jointly
and severally with BADOC, to restore the account
of PVTA are modified accordingly. SO
ORDERED.
G.R. No. L-60887 November 13, 1991
PERLA COMPANIA DE SEGUROS,
INC., petitioner,
vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y.
PALMES, HONORATO BORBON, SR., OFFICE
OF THE PROVINCIAL SHERIFF, PROVINCE OF
CEBU, respondents.
FELICIANO, J.:p
The present Petition for Certiorari seeks to annul:
(a) the Order dated 6 August 1979 1 which
ordered the Provincial Sheriff to garnish the third-
party liability insurance policy issued by petitioner
Perla Compania de Seguros, Inc. ("Perla") in
favor of Nelia Enriquez, judgment debtor in Civil
Case No. R-15391; (b) the Order dated 24
October 1979 2 which denied the motion for
reconsideration of the 6 August 1979 Order; and
(c) the Order dated 8 April 1980 3 which ordered
the issuance of an alias writ of garnishment
against petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ
owned and registered in the name of Nelia
Enriquez, and driven by Cosme Casas, was
travelling from Cebu City to Danao City. While
passing through Liloan, Cebu, the Cimarron PUJ
collided with a private jeep owned by the late
Calixto Palmes (husband of private respondent
Primitiva Palmes) who was then driving the
private jeep. The impact of the collision was such
that the private jeep was flung away to a distance
of about thirty (30) feet and then fell on its right
side pinning down Calixto Palmes. He died as a
result of cardio-respiratory arrest due to a
crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon
who was then only two (2) years old.
On 25 June 1976, private respondents Primitiva
Palmes (widow of Calixto Palmes) and Honorato
Borbon, Sr. (father of minor Adeudatus Borbon)
filed a complaint 5 against Cosme Casas and
Nelia Enriquez (assisted by her husband
Leonardo Enriquez) before the then Court of First
Instance of Cebu, Branch 3, claiming actual,
moral, nominal and exemplary damages as a
result of the accident.
The claim of private respondent Honorato
Borbon, Sr., being distinct and separate from that
of co-plaintiff Primitiva Palmes, and the amount
thereof falling properly within the jurisdiction of
the inferior court, respondent Judge Jose R.
Ramolete ordered the Borbon claim excluded
from the complaint, without prejudice to its being
filed with the proper inferior court.
On 4 April 1977, the Court of First Instance
rendered a Decision 6 in favor of private
respondent Primitiva Palmes, ordering common
carrier Nelia Enriquez to pay her P10,000.00 as
moral damages, P12,000.00 as compensatory
damages for the death of Calixto Palmes,
P3,000.00 as exemplary damages, P5,000.00 as
actual damages, and P1,000.00 as attorney's
fees.
The judgment of the trial court became final and
executory and a writ of execution was thereafter
issued. The writ of execution was, however,
returned unsatisfied. Consequently, the judgment
debtor Nelia Enriquez was summoned before the
trial court for examination on 23 July 1979. She
declared under oath that the Cimarron PUJ
registered in her name was covered by a 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,
ProvRem 2nd batch | 6
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
ProvRem 2nd batch | 7
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.
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.
ProvRem 2nd batch | 8
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
ProvRem 2nd batch | 9
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-28297 March 30, 1970
ProvRem 2nd batch | 10
ELPIDIO JAVELLANA, plaintiff-appellant,
vs.
D. O. PLAZA ENTERPRISES, INC., defendant-
appellee.
REYES, J.B.L., J.:
Direct appeal, on points of law, from an order of
the Court of First Instance of Manila, in its Civil
Case No. 46762, modifying an earlier decision for
the plaintiff by reducing the rate of interest on the
sum adjudged, and also the attorney's fees; and
by ordering the plaintiff to pay damages to the
defendant on account of a preliminary attachment
obtained by the former upon the latter's
counterclaim.
The complaint in the aforesaid civil case was for
collection of the sum of P43,017.32 representing
balance due on purchases of wire ropes, tractors
and diesel parts made by the defendant-appellee,
D. O. Plaza Enterprises, Inc., from the plaintiff-
appellant, Elpidio Javellana. The complaint
prayed that the defendant be ordered to pay the
said sum of P43,017.32, with legal interest, plus
attorney's fees in the sum of P5,000.00; it also
prayed for a writ of preliminary attachment.
Upon plaintiff's putting up a bond, the trial court,
on 15 April 1961, issued a writ of attachment. On
20 May 1961, the defendant moved to discharge
the attachment on the ground that it was
improperly issued. The motion was denied.
On 7 November 1961, the defendant filed its
answer and counter-claimed for damages arising
from the attachment. The plaintiff answered and
interposed a counterclaim to the counterclaim.
After some years, or on 27 April 1966, the
defendant moved for the dissolution of the
preliminary attachment. Upon its filing a
counterbond, the court, on 7 May 1966, dissolved
the attachment.
On 3 November 1966, the plaintiff filed a motion
to admit his amended complaint, which the court
granted on 12 November 1966. In this amended
complaint, the plaintiff averred that of the sum of
P43,017.32 alleged in the original complaint, the
defendant has paid P3,900.00, thereby leaving a
balance of P39,117.32 unpaid, but that, as
indicated by invoices, defendant's purchases
were payable within thirty (30) days and were to
bear interest of 12% per annum plus 25%
attorney's fees. The amended complaint
accordingly prayed for the increased amounts.
Defendant did not answer this amended
complaint.
After trial, the court, on 15 June 1967, rendered
judgment. It found the following facts:
.... During the period from 23 July 1959 to 30 July
1960, defendant, in a series of transactions,
purchased from plaintiff wire ropes, tractors and
diesel spare parts, (in) payment for which he
issued several checks amounting to P43,017.32,
which, when presented to the bank, were
dishonored for lack of funds. Defendant
substituted these checks with another set of
checks for the same amount, but again, the same
were dishonored for lack of funds, as evidenced
by Exhibits A to M, except for one check in the
amount of P3,900.00 as evidenced by Exhibit C.
Thus, the principal obligation was reduced to
P39,117.32. At the time of the issuance of the
said checks, the defendant never informed
plaintiff that it had funds to back them up. Plaintiff
made demands to defendant for payment, but
defendant pleaded for time and liberalization of
payment, which was rejected by the plaintiff. The
transactions in question were covered by invoices
listed in Exhibit P, a sample of which is evidenced
by Exhibit C, wherein said transactions were for
30-day term, 12% interest per annum to be
charged from date of invoice, and 25% attorney's
fees in case of litigation.
The defendant claims that there were other
transactions between plaintiff and defendant
involving the amount of P196,828.58; that it had
no intention not to pay the checks it issued upon
presentment; and that it suffered damages in the
amount of P14,800.00 by reason of the
attachment.
xxx xxx xxx
The counterclaim for damages arising from the
attachment is without merit. The defendant was
manifestly in bad faith when it issued two sets of
bouncing checks. Hence, the attachment was not
improper, contrary to defendant's claim.
The dispositive portion of the decision decreed:
WHEREFORE, judgment is hereby rendered for
the plaintiff and against the defendant, ordering
the latter to pay the former the sum of P39,117.32
with interest at 12% per annum from 14 April
1961, the date of the filing of the original
complaint, until final payment, plus 25% of the
principal indebtedness as attorney's fees and
costs of suit.
The counterclaim as well as the counterclaim to
the counter claim are hereby dismissed for lack of
merit.
On 28 June 1967, the defendant moved to
reconsider. Over the objection of the plaintiff, the
court issued an order dated 10 August 1967, now
the subject of the present appeal, modifying the
previous decision, in the manner following:
ProvRem 2nd batch | 11
WHEREFORE, the dispositive part of the decision
rendered in this case is hereby modified as
follows:
(a) By ordering the defendant to pay plaintiff the
sum of P39,117.20 plus the legal interest therein
from the filing of the complaint until the amount is
fully paid.
(b) Ordering the plaintiff to pay defendant the sum
of P16,190.00, the amount of damages suffered
by the defendant on account of the preliminary
attachment of the defendant; and
(c) By ordering the defendant to pay P5,000.00 as
attorney's fees.
Without pronouncement as to costs.
Plaintiff-appellant assigns the following errors: the
reduction of the attorney's fees, the reduction of
the interest, and the grant to the defendant of
damages arising from the attachment.
The first two assigned errors are well taken. The
court a quo reduced the interest stated in its
previous decision from 12% to mere legal interest
and the attorney's fees from 25% to P5,000.00 on
the basis of estoppel, the ground therefor being
that the reduced amounts were those alleged,
hence admitted, by the plaintiff in his original
complaint. This was error. The original complaint
was not formally offered in evidence. Having been
amended, the original complaint lost its character
as a judicial admission, which would have
required no proof, and became merely an
extrajudicial admission, the admissibility of which,
as evidence, requires its formal offer.
Pleadings superseded or amended disappear
from the record as judicial admissions. However,
any statement contained therein may be
considered as an extrajudicial admission, and as
such, in order that the court may take it into
consideration, it should be offered formality in
evidence. (5 Moran 58, citing Lucido v. Calupitan,
27 Phil. 148; Bastida v. Menzi, 58 Phil. 188.)
Where amended pleadings have been filed,
allegations in the original pleadings can have no
effect, unless formally offered in evidence. (Jones
on Evidence, Sec. 273.)
Since the record does not show that the
complaint (marked as Exhibit 115) was admitted
in evidence, there is no proof of estoppel on the
part of the plaintiff on his allegations in the
complaint. Not only this, but since the stipulation
for 12% interest on balance due and the 25%
counsel fees appear on the invoices themselves,
appellee Plaza Enterprises cannot fairly claim that
it was deceived or misled by the pleadings of
appellant. Even more, the original plea for
P5,000.00 as attorney's fees is only contained in
the prayer of the original complaint, and it is a
well established rule that the prayer for relief,
although part of the complaint, is no part of the
cause of action and does not give character, the
plaintiff being entitled to as much relief as the
facts warrant (Rosales vs. Reyes, 25 Phil. 495;
Aguilar vs. Rubiato, 40 Phil. 470).
But the appellant's last assigned error is without
merit. Although the defendant was found to be in
bad faith in issuing two (2) sets of bouncing
checks in payment for its indebtedness, such bad
faith was not related to his having incurred the
obligation in favor of the plaintiff but to
defendant's failure to perform said obligation.
There was, therefore, no ground for the plaintiff to
attach the defendant's properties on the ground of
fraud. That the plaintiff acted in good faith in
securing attachment does not relieve him from
the damages that the defendant sustained by
reason of the attachment because he, the
plaintiff, was, in the first place, not entitled to
attachments, the element of malice was
unnecessary (3 Moran, Rules of Court, 19).
FOR THE FOREGOING REASONS, the
appealed order is hereby reversed insofar as it
reduced the amount of attorney's fees and the
interest on the principal sum adjudged in the
original decision dated 15 June 1967; but the
order is affirmed in all other respects. No costs.
[G.R. No. 115678. February 23, 2001]
PHILIPPINE BANK OF
COMMUNICATIONS, petitioner, vs. HON.
COURT OF APPEALS and BERNARDINO
VILLANUEVA, respondents.
[G.R. No. 119723. February 23, 2001]
PHILIPPINE BANK OF
COMMUNICATIONS, petitioner, vs. HON.
COURT OF APPEALS and FILIPINAS TEXTILE
MILLS, INC., respondents.
DECISION
YNARES-SANTIAGO, J.:
Before us are consolidated petitions for review
both filed by Philippine Bank of Communications;
one against the May 24, 1994 Decision of
respondent Court of Appeals in CA-G.R. SP No.
32863[1] and the other against its March 31, 1995
Decision in CA-G.R. SP No. 32762.[2] Both
Decisions set aside and nullified the August 11,
1993 Order[3] of the Regional Trial Court of
Manila, Branch 7, granting the issuance of a writ
of preliminary attachment in Civil Case No. 91-
56711.
The case commenced with the filing by petitioner,
on April 8, 1991, of a Complaint against private
ProvRem 2nd batch | 12
respondent Bernardino Villanueva, private
respondent Filipinas Textile Mills and one Sochi
Villanueva (now deceased) before the Regional
Trial Court of Manila. In the said Complaint,
petitioner sought the payment of P2,244,926.30
representing the proceeds or value of various
textile goods, the purchase of which was covered
by irrevocable letters of credit and trust receipts
executed by petitioner with private respondent
Filipinas Textile Mills as obligor; which, in turn,
were covered by surety agreements executed by
private respondent Bernardino Villanueva and
Sochi Villanueva. In their Answer, private
respondents admitted the existence of the surety
agreements and trust receipts but countered that
they had already made payments on the amount
demanded and that the interest and other
charges imposed by petitioner were onerous.
On May 31, 1993, petitioner filed a Motion for
Attachment,[4] contending that violation of the trust
receipts law constitutes estafa, thus providing
ground for the issuance of a writ of preliminary
attachment; specifically under paragraphs b and
d, Section 1, Rule 57 of the Revised Rules of
Court. Petitioner further claimed that attachment
was necessary since private respondents were
disposing of their properties to its detriment as a
creditor. Finally, petitioner offered to post a bond
for the issuance of such writ of attachment.
The Motion was duly opposed by private
respondents and, after the filing of a Reply
thereto by petitioner, the lower court issued its
August 11, 1993 Order for the issuance of a writ
of preliminary attachment, conditioned upon the
filing of an attachment bond. Following the denial
of the Motion for Reconsideration filed by private
respondent Filipinas Textile Mills, both private
respondents filed separate petitions
for certiorari before respondent Court assailing
the order granting the writ of preliminary
attachment.
Both petitions were granted, albeit on different
grounds. In CA-G.R. SP No. 32762, respondent
Court of Appeals ruled that the lower court was
guilty of grave abuse of discretion in not
conducting a hearing on the application for a writ
of preliminary attachment and not requiring
petitioner to substantiate its allegations of fraud,
embezzlement or misappropriation. On the other
hand, in CA-G.R. SP No. 32863, respondent
Court of Appeals found that the grounds cited by
petitioner in its Motion do not provide sufficient
basis for the issuance of a writ of preliminary
attachment, they being mere general
averments. Respondent Court of Appeals held
that neither embezzlement, misappropriation nor
incipient fraud may be presumed; they must be
established in order for a writ of preliminary
attachment to issue.
Hence, the instant consolidated[5] petitions
charging that respondent Court of Appeals erred
in
1. Holding that there was no sufficient basis for
the issuance of the writ of preliminary attachment
in spite of the allegations of fraud, embezzlement
and misappropriation of the proceeds or goods
entrusted to the private respondents;
2. Disregarding the fact that that the failure of
FTMI and Villanueva to remit the proceeds or
return the goods entrusted, in violation of private
respondents fiduciary duty as entrustee,
constitute embezzlement or misappropriation
which is a valid ground for the issuance of a writ
of preliminary attachment.[6]
We find no merit in the instant petitions.
To begin with, we are in accord with respondent
Court of Appeals in CA-G.R. SP No. 32863 that
the Motion for Attachment filed by petitioner and
its supporting affidavit did not sufficiently establish
the grounds relied upon in applying for the writ of
preliminary attachment.
The Motion for Attachment of petitioner states
that
1. The instant case is based on the failure of
defendants as entrustee to pay or remit the
proceeds of the goods entrusted by plaintiff to
defendant as evidenced by the trust receipts
(Annexes B, C and D of the complaint), nor to
return the goods entrusted thereto, in violation of
their fiduciary duty as agent or entrustee;
2. Under Section 13 of P.D. 115, as amended,
violation of the trust receipt law constitute(s)
estafa (fraud and/or deceit) punishable under
Article 315 par. 1[b] of the Revised Penal Code;
3. On account of the foregoing, there exist(s) valid
ground for the issuance of a writ of preliminary
attachment under Section 1 of Rule 57 of the
Revised Rules of Court particularly under sub-
paragraphs b and d, i.e. for embezzlement or
fraudulent misapplication or conversion of money
(proceeds) or property (goods entrusted) by an
agent (entrustee) in violation of his fiduciary duty
as such, and against a party who has been guilty
of fraud in contracting or incurring the debt or
obligation;
4. The issuance of a writ of preliminary
attachment is likewise urgently necessary as
there exist(s) no sufficient security for the
satisfaction of any judgment that may be
rendered against the defendants as the latter
appears to have disposed of their properties to
the detriment of the creditors like the herein
plaintiff;
ProvRem 2nd batch | 13
5. Herein plaintiff is willing to post a bond in the
amount fixed by this Honorable Court as a
condition to the issuance of a writ of preliminary
attachment against the properties of the
defendants.
Section 1(b) and (d), Rule 57 of the then
controlling Revised Rules of Court, provides, to
wit
SECTION 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:
xxxxxxxxx
(b) In an action for money or property embezzled
or fraudulently misapplied or converted to his 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;
xxxxxxxxx
(d) In an action against a party who has been
guilty of fraud in contracting the debt or incurring
the obligation upon which the action is brought, or
in concealing or disposing of the property for the
taking, detention or conversion of which the
action is brought;
xxxxxxxxx
While the Motion refers to the transaction
complained of as involving trust receipts, the
violation of the terms of which is qualified by law
as constituting estafa, it does not follow that a writ
of attachment can and should automatically
issue. Petitioner cannot merely cite Section 1(b)
and (d), Rule 57, of the Revised Rules of Court,
as mere reproduction of the rules, without more,
cannot serve as good ground for issuing a writ of
attachment. An order of attachment cannot be
issued on a general averment, such as one
ceremoniously quoting from a pertinent rule.[7]
The supporting Affidavit is even less instructive. It
merely states, as follows --
I, DOMINGO S. AURE, of legal age, married, with
address at No. 214-216 Juan Luna Street,
Binondo, Manila, after having been sworn in
accordance with law, do hereby depose and say,
THAT:
1. I am the Assistant Manager for Central
Collection Units Acquired Assets Section of the
plaintiff, Philippine Bank of Communications, and
as such I have caused the preparation of the
above motion for issuance of a writ of preliminary
attachment;
2. I have read and understood its contents which
are true and correct of my own knowledge;
3. There exist(s) sufficient cause of action against
the defendants in the instant case;
4. The instant case is one of those mentioned in
Section 1 of Rule 57 of the Revised Rules of
Court wherein a writ of preliminary attachment
may be issued against the defendants,
particularly sub-paragraphs b and d of said
section;
5. There is no other sufficient security for the
claim sought to be enforced by the instant case
and the amount due to herein plaintiff or the value
of the property sought to be recovered is as much
as the sum for which the order for attachment is
granted, above all legal counterclaims.
Again, it lacks particulars upon which the court
can discern whether or not a writ of attachment
should issue.
Petitioner cannot insist that its allegation that
private respondents failed to remit the proceeds
of the sale of the entrusted goods nor to return
the same is sufficient for attachment to issue.We
note that petitioner anchors its application upon
Section 1(d), Rule 57. This particular provision
was adequately explained in Liberty Insurance
Corporation v. Court of Appeals,[8] as follows
To sustain an attachment on this ground, it must
be shown that the debtor in contracting the debt
or incurring the obligation intended to defraud the
creditor. The fraud must relate to the execution of
the agreement and must have been the reason
which induced the other party into giving consent
which he would not have otherwise given. To
constitute a ground for attachment in Section 1
(d), Rule 57 of the Rules of Court, fraud should be
committed upon contracting the obligation sued
upon. A debt is fraudulently contracted if at
the time of contracting it the debtor has a
preconceived plan or intention not to pay, as it
is in this case. Fraud is a state of mind and need
not be proved by direct evidence but may be
inferred from the circumstances attendant in each
case (Republic v. Gonzales, 13 SCRA
633). (Emphasis ours)
We find an absence of factual allegations as to
how the fraud alleged by petitioner was
committed. As correctly held by respondent Court
of Appeals, such fraudulent intent not to honor the
admitted obligation cannot be inferred from the
debtors inability to pay or to comply with the
obligations.[9] On the other hand, as stressed,
above, fraud may be gleaned from a
ProvRem 2nd batch | 14
preconceived plan or intention not to pay. This
does not appear to be so in the case at bar. In
fact, it is alleged by private respondents that out
of the total P419,613.96 covered by the subject
trust receipts, the amount of P400,000.00 had
already been paid, leaving only P19,613.96 as
balance. Hence, regardless of the arguments
regarding penalty and interest, it can hardly be
said that private respondents harbored a
preconceived plan or intention not to pay
petitioner.
The Court of Appeals was correct, therefore, in its
finding in CA-G.R. SP No. 32863 that neither
petitioners Motion or its supporting Affidavit
provides sufficient basis for the issuance of the
writ of attachment prayed for.
We also agree with respondent Court of Appeals
in CA-G.R. SP No. 32762 that the lower court
should have conducted a hearing and required
private petitioner to substantiate its allegations of
fraud, embezzlement and misappropriation.
To reiterate, petitioners Motion for Attachment
fails to meet the standard set forth in D.P. Lub Oil
Marketing Center, Inc. v. Nicolas,[10] in
applications for attachment. In the said case, this
Court cautioned --
The petitioners prayer for a writ of preliminary
attachment hinges on the allegations in
paragraph 16 of the complaint and paragraph 4 of
the affidavit of Daniel Pe which are couched in
general terms devoid of particulars of time,
persons and places to support such a serious
assertion that defendants are disposing of their
properties in fraud of creditors. There is thus the
necessity of giving to the private respondents an
opportunity to ventilate their side in a hearing, in
accordance with due process, in order to
determine the truthfulness of the allegations. But
no hearing was afforded to the private
respondents the writ having been issued ex
parte. A writ of attachment can only be granted on
concrete and specific grounds and not on general
averments merely quoting the words of the rules.
As was frowned upon in D.P. Lub Oil Marketing
Center, Inc.,[11] not only was petitioners
application defective for having merely given
general averments; what is worse, there was no
hearing to afford private respondents an
opportunity to ventilate their side, in accordance
with due process, in order to determine the
truthfulness of the allegations of petitioner. As
already mentioned, private respondents claimed
that substantial payments were made on the
proceeds of the trust receipts sued upon. They
also refuted the allegations of fraud,
embezzlement and misappropriation by averring
that private respondent Filipinas Textile Mills
could not have done these as it had ceased its
operations starting in June of 1984 due to
workers strike. These are matters which should
have been addressed in a preliminary hearing to
guide the lower court to a judicious exercise of its
discretion regarding the attachment prayed
for. On this score, respondent Court of Appeals
was correct in setting aside the issued writ of
preliminary attachment.
Time and again, we have held that the rules on
the issuance of a writ of attachment must be
construed strictly against the applicants. This
stringency is required because the remedy of
attachment is harsh, extraordinary and summary
in nature. If all the requisites for the granting of
the writ are not present, then the court which
issues it acts in excess of its jurisdiction.[12]
WHEREFORE, for the foregoing reasons, the
instant petitions are DENIED. The decision of the
Court of Appeals in CA-G.R. SP No. 32863 and
CA-G.R. SP No. 32762 are AFFIRMED. No
pronouncement as to costs. SO ORDERED.
G.R. No. 181721, September 09, 2015
WATERCRAFT VENTURE CORPORATION,
REPRESENTED BY ITS VICE-PRESIDENT,
ROSARIO E. RAOA, Petitioner, v. ALFRED
RAYMOND WOLFE, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari under
Rule 45 of the Rules of Court, seeking to reverse
and set aside the Court of Appeals (CA)
Resolution1 dated January 24, 2008 denying the
motion for reconsideration of its Decision2 dated
September 27, 2007 in CA-G.R. SP No. 97804.
The facts are as
follows:chanRoblesvirtualLawlibrary
Petitioner Watercraft Venture Corporation
(Watercraft) is engaged in the business of
building, repairing, storing and maintaining
yachts, boats and other pleasure crafts at the
Subic Bay Freeport Zone, Subic, Zambales. In
connection with its operations and maintenance
of boat storage facilities, it charges a boat storage
fee of Two Hundred Seventy-Two US Dollars
(US$272.00) per month with interest of 4% per
month for unpaid charges.
Sometime in June 1997, Watercraft hired
respondent Alfred Raymond Wolfe (Wolfe), a
British national and resident of Subic Bay
Freeport Zone, Zambales, as its Shipyard
Manager.
During his empolyment, Wolfe stored the
sailboat, Knotty Gull, within Watercraft1 s boat
storage facilities, but never paid for the storage
fees.
ProvRem 2nd batch | 15

On March 7, 2002, Watercraft terminated the
employment of Wolfe.
Sometime in June 2002, Wolfe pulled out his
sailboat from Watercraft's storage facilities after
signing a Boat Pull-Out Clearance dated June 29,
2002 where he allegedly acknowledged the
outstanding obligation of Sixteen Thousand Three
Hundred and Twenty-Four and 82/100 US Dollars
(US$16,324.82) representing unpaid boat storage
fees for the period of June 1997 to June 2002.
Despite repeated demands, he failed to pay the
said amount.
Thus, on July 7, 2005, Watercraft filed against
Wolfe a Complaint for Collection of Sum of Money
with Damages with an Application for the
Issuance of a Writ of Preliminary Attachment. The
case was docketed as Civil Case No. 4534-MN,
and raffled to Branch 1703 of the Regional Trial
Court (RTC) of Malabon City.
In his Answer, Wolfe claimed he was hired as
Service and Repair Manager, instead of Shipyard
Manager. He denied owing Watercraft the amount
of US$16,324.82 representing storage fees for
the sailboat. He explained that the sailboat was
purchased in February 1998 as part of an
agreement between him and Watercraft1 s then
General Manager, Barry Bailey, and its President,
Ricky Sandoval, for it to be repaired and used as
training or fill-in project for the staff, and to be
sold later on. He added that pursuant to a central
Listing Agreement for the sale of the sailboat, he
was appointed as agent, placed in possession
thereof and entitled to a ten percent (10%) sales
commission. He insisted that nowhere in the
agreement was there a stipulation that berthing
and storage fees will be charged during the entire
time that the sailboat was in Watercraft's
dockyard. Thus, he claimed to have been
surprised when he received five (5) invoices
billing him for the said fees two (2) months after
his services were terminated. Fie pointed out that
the complaint was an offshoot of an illegal
dismissal case he filed against Watercraft which
had been decided in his favor by the Labor
Arbiter.
Meanwhile, finding Watercraft's ex-
parte application for writ of preliminary attachment
sufficient in form and in substance pursuant to
Section 1 of Rule 57 of the Rules of Court, the
RTC granted the same in the Order dated July
15, 2005, thus:
WHEREFORE, let a Writ of Preliminary
Attachment be issued accordingly in favor of the
plaintiff, Watercraft Ventures Corporation
conditioned upon the filing of attachment bond in
the amount of Three Million Two Hundred
Thirty-One Thousand Five Hundred and
Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served
simultaneously with the summons, copies of the
complaint, application for attachment, applicant's
affidavit and bond, and this Order upon the
defendant.
SO ORDERED.4
Pursuant to the Order dated July 15, 2005, the
Writ of Attachment dated August 3, 2005 and the
Notice of Attachment dated August 5, 2005 were
issued, and Wolfe's two vehicles, a gray
Mercedes Benz with plate number XGJ 819 and a
maroon Toyota Corolla with plate number TFW
110, were levied upon.
On August 12, 2005, Wolfe's accounts at the
Bank of the Philippine Islands were also
garnished.
By virtue of the Notice of Attachment and Levy
dated September 5, 2005, a white Dodge pick-up
truck with plate number XXL 111 was also levied
upon. However, a certain Jeremy Simpson filed a
Motion for Leave of Court to Intervene, claiming
that he is the owner of the truck as shown by a
duly-notarized Deed of Sale executed on August
4, 2005, the Certificate of Registration No.
3628665-1 and the Official Receipt No.
271839105.
On November 8, 2005, Wolfe filed a Motion to
Discharge the Writ of Attachment, arguing that
Watercraft failed to show the existence of fraud
and that the mere failure to pay or perform an
obligation does not amount to fraud. Me also
claimed that he is not a flight risk for the following
reasons: (1) contrary to the claim that his Special
Working Visa expired in April 2005, his Special
Subic Working Visa and Alien Certificate of
Registration are valid until April 25, 2007 and May
11, 2006, respectively; (2) he and his family have
been residing in the Philippines since 1997; (3) he
is an existing stockholder and officer of Wolfe
Marine Corporation which is registered with the
Securities and Exchange Commission, and a
consultant of "Sudeco/Ayala" projects in Subic, a
member of the Multipartite Committee for the new
port development in Subic, and the Subic
Chamber of Commerce; and (4) he intends to
finish prosecuting his pending labor case against
Watercraft. On even date, Watercraft also filed a
Motion for Preliminary Hearing of its affirmative
defenses of forum shopping, litis pendentia, and
laches.
In an Order dated March 20, 2006, the RTC
denied Wolfe's Motion to Discharge Writ of
Attachment and Motion for Preliminary Hearing
for lack of merit.
Wolfe filed a motion for reconsideration, but the
RTC also denied it for lack of merit in an Order
dated November 10, 2006. Aggrieved, Wolfe filed
a petition for certiorari before the CA.
ProvRem 2nd batch | 16
The CA granted Wolfe's petition in a Decision
dated September 2007, the dispositive portion of
which reads:
WHEREFORE, the Order dated March 20, 2006
and the Order dated November 10, 2006 of
respondent Judge are
hereby ANNULLED and SET ASIDE.
Accordingly, the Writ of Attachment issued on
August 3, 2005, the Notice of Attachment dated
August 5, 2005 and the Notice of Attachment and
Levy dated September 5, 2005 are hereby also
declared NULL and VOID, and private
respondent is DIRECTED to return to their
owners the vehicles that were attached pursuant
to the Writ.
SO ORDERED.5
The CA ruled that the act of issuing the writ of
preliminary attachment ex-parte constitutes grave
abuse of discretion on the part of the RTC, thus:
x x x In Cosiquien [v. Court of Appeals], the
Supreme Court held that:
"Where a judge issues a fatally defective writ
of preliminary attachment based on an
affidavit which failed to allege the requisites
prescribed for the issuance of the writ of
preliminary attachment, renders the writ of
preliminary attachment issued against the
property of the defendant fatally defective.
The judge issuing it is deemed to have acted
in excess of jurisdiction. In fact, the defect
cannot even be cured by amendment. Since the
attachment is a harsh and rigorous remedy which
exposed the debtor to humiliation and annoyance,
the rule authorizing its issuance must be strictly
construed in favor of defendant. It is the duty of
the court before issuing the Avrit to ensure
that all the requisites of the law have been
complied with. Otherwise, a judge acquires no
jurisdiction to issue the writ." (emphasis
supplied)
In the instant case, the Affidavit of Merit executed
by Rosario E. Raoa, Watercraft's Vice-President,
failed to show fraudulent intent on the part of
Wolfe to defraud the company. It merely
enumerated the circumstances tending to show
the alleged possibility of Wolfe's flight from the
country. And upon Wolfe's filing of the Motion to
Discharge the Writ, what the respondent Judge
should have done was to determine, through a
hearing, whether the allegations of fraud were
true. As further held in Cosiquien:
"When a judge issues a writ of preliminary
attachment ex-parte, it is incumbent on him,
upon proper challenge of his order to
determine whether or not the same was
improvidently issued. If the party against
whom the writ is prayed for squarely
controverts the allegation of fraud, it is
incumbent on the applicant to prove his
allegation. The burden of proving that there
indeed was fraud lies with the party making
such allegation. This finds support in Section 1,
Rule 131 Rules of Court. In this jurisdiction,
fraud is never presumed." (Emphasis supplied)
As correctly noted by Wolfe, although Sec. 1 of
Rule 57 allows a party to invoke fraud as a
ground for the issuance of a writ of attachment,
the Rules require that in all averments of fraud,
the circumstances constituting fraud must be
stated with particularity, pursuant to Rule 8,
Section 5. The Complaint merely stated, in
paragraph 23 thereof that "For failing to pay the
use [of] facilities and services in the form of boat
storage fees, the Defendant is clearly guilty of
fraud which entitles the Plaintiff to a Writ of
Preliminary Attachment upon the property of the
Defendant as security for the satisfaction of any
judgment herein." This allegation does not
constitute fraud as contemplated by law, fraud
being the "generic term embracing all multifarious
means which human ingenuity can devise, and
which are resorted to by one individual to secure
an advantage over another by false suggestions
or by suppression of truth and includes all
surprise, trick, cunning, dissembling and any
unfair way by which another is cheated." In this
instance, Wolfe's mere failure to pay the boat
storage fees does not necessarily amount to
fraud, absent any showing that such failure was
due to [insidious] machinations and intent on his
part to defraud Watercraft of the amount due it.
As to the allegation that Wolfe is a flight risk,
thereby warranting the issuance of the writ, the
same lacks merit. The mere fact that Wolfe is a
British national does not automatically mean that
he would leave the country at will. As Wolfe
avers, he and his family had been staying in the
Philippines since 1997, with his daughters
studying at a local school. He also claims to be an
existing stockholder and officer of Wolfe Marine
Corporation, a SEC-registered corporation, as
well as a consultant of projects in the Subic Area,
a member of the Multipartite Committee for the
new port development in Subic, and a member of
the Subic Chamber of Commerce. More
importantly, Wolfe has a pending labor case
against Watercraft - a fact which the company
glaringly failed to mention in its complaint - which
Wolfe claims to want to prosecute until its very
end. The said circumstances, as well as the
existence of said labor case where Wolfe stands
not only to be vindicated for his alleged illegal
dismissal, but also to receive recompense, should
have convinced the trial court that Wolfe would
not want to leave the country at will just because
a suit for the collection of the alleged unpaid boat
storage fees has been filed against him by
Watercraft.
Neither should the fact that Wolfe's Special
Working Visa expired in April 2005 lead
ProvRem 2nd batch | 17
automatically to the conclusion that he would
leave the country. It is worth noting that all visas
issued by the government to foreigners staying in
the Philippines have expiration periods. These
visas, however, may be renewed, subject to the
requirements of the law. In Wolfe's case, he
indeed renewed his visa, as shown by Special
Working Visa No. 05-WV-0124P issued by the
Subic Bay Metropolitan Authority Visa Processing
Office on April 25, 2005, and with validity of two
(2) years therefrom. Moreover, his Alien
Certificate of Registration was valid up to May 11,
2006.
Based on the foregoing, it is therefore clear that
the writ was improvidently issued. It is well to
emphasize that "[T]he rules on the issuance of a
writ of attachment must be construed strictly
against the applicants. This stringency is required
because the remedy of attachment is harsh,
extraordinary and summary in nature. If all the
requisites for the granting of the writ are not
present, then the court which issues it acts in
excess of its jurisdiction. Thus, in this case,
Watercraft failed to meet all the requisites for the
issuance of the writ. Thus, in granting the same,
respondent Judge acted with grave abuse of
discretion.6
In a Resolution dated January 24, 2008, the CA
denied Watercraft's motion for reconsideration of
its Decision, there being no new or significant
issues raised in the motion.
Dissatisfied with the CA Decision and Resolution,
Watercraft filed this petition for review
on certiorari, raising these two issues:
I.
WHETHER THE EX-PARTE ISSUANCE OF THE
PRELIMINARY ATTACHMENT BY THE TRIAL
COURT IN FAVOR OF THE PETITIONER IS
VALID.
II.
WHETHER THE ALLEGATIONS IN THE
AFFIDAVIT OF MERIT CONCERNING FRAUD
ARE SUFFICIENT TO WARRANT THE
ISSUANCE OF A PRELIMINARY WRIT OF
ATTACHMENT BY THE TRIAL COURT IN
FAVOR OF THE PETITIONER.7
Watercraft argues that the CA erred in holding
that the RTC committed grave abuse of discretion
in issuing the writ of preliminary attachment, and
in finding that the affidavit of merit only
enumerated circumstances tending to show the
possibility of Wolfe's flight from the country, but
failed to show fraudulent intent on his part to
defraud the company.
Stressing that its application for such writ was
anchored on two (2) grounds under Section
1,8 Rule 57, Watercraft insists that, contrary to the
CA ruling, its affidavit of merit sufficiently averred
with particularity the circumstances constituting
fraud as a common element of said grounds.
Watercraft points out that its affidavit of merit
shows that from 1997, soon after Wolfe's
employment as Shipyard Manager, up to 2002,
when his employment was terminated, or for a
period of five (5) years, not once did he pay the
cost for the use of the company's boat storage
facilities, despite knowledge of obligation and
obvious ability to pay by reason of his position.
Watercraft adds that its affidavit clearly stated that
Wolfe, in an attempt to avoid settling of his
outstanding obligations to the company, signed a
Boat Pull-Out Clearance where he merely
acknowledged but did not pay Sixteen Thousand
Three Hundred and Twenty-Four and 82/100 US
Dollars (US$16,324.82) representing unpaid boat
storage fees for the period commencing June
1997 to June 2002. It avers that the execution of
such clearance enabled Wolfe to pull out his boat
from the company storage facilities without
payment of storage fees.
Watercraft also faults the CA in finding no merit in
its allegation that Wolfe is a flight risk. It avers
that he was supposed to stay and work in the
country for a limited period, and will eventually
leave; that despite the fact that his wife and
children reside in the country, he can still leave
with them anytime; and that his work in the
country will not prevent him from leaving, thereby
defeating the purpose of the action, especially
since he had denied responsibility for his
outstanding obligations. It submits that the CA
overlooked paragraph 28 of its Complaint which
alleged that "[i]n support of the foregoing
allegations and the prayer for the issuance of a
Writ of Preliminary Attachment in the instant case,
the Plaintiff has attached hereto the Affidavit of
the Vice-President of the Plaintiff, MS. ROSARIO
E. RANOA x x x."9
Watercraft asserts that it has sufficiently complied
with the only requisites for the issuance of the writ
of preliminary attachment under Section 3, Rule
57 of the Rules of Court, i.e., affidavit of merit and
bond of the applicant. It posits that contrary to the
CA ruling, there is no requirement that evidence
must first be offered before a court can grant such
writ on the basis of Section 1 (d) of Rule 57, and
that the rules only require an affidavit showing
that the case is one of those mentioned in Section
1, Rule 57. It notes that although a party is
entitled to oppose an application for the issuance
of the writ or to move for the discharge thereof by
controverting the allegations of fraud, such rule
does not apply when the same allegations
constituting fraud are the very facts disputed in
the main action, as in this case.
ProvRem 2nd batch | 18
Watercraft also points out the inconsistent stance
of Wolfe with regard to the ownership and
possession of the sailboat. Contrary to Wolfe's
Answer that the purchase of the sailboat was
made pursuant to a three (3)-way partnership
agreement between him and its General Manager
and Executive Vice-President, Barry Bailey, and
its President, Ricky Sandoval, Watercraft claims
that he made a complete turnaround and
exhibited acts of sole-ownership by signing the
Boat Pull-Out Clearance in order to retrieve the
sailboat. It argues that common sense and logic
would dictate that he should have invoked the
existence of the partnership to answer the
demand for payment of the storage fees.
Watercraft contends that in order to pre-empt
whatever action it may decide to take with respect
to the sailboat in relation to his liabilities, Wolfe
accomplished in no time the clearance that paved
the way for its removal from the company's
premises without paying his outstanding
obligations. It claims that such act reveals a
fraudulent intent to use the company storage
facilities without payment of storage fees, and
constitutes unjust enrichment.
The petition lacks merit.
A writ of preliminary attachment is defined as a
provisional remedy issued upon order of the court
where an action is pending to be levied upon the
property or properties of the defendant therein,
the same to be held thereafter by the sheriff as
security for the satisfaction of whatever judgment
that might be secured in the said action by the
attaching creditor against the
defendant.10 However, it should be resorted to
only when necessary and as a last remedy
because it exposes the debtor to humiliation and
annoyance.11 It must be granted only on concrete
and specific grounds and not merely on general
averments quoting the words of the rules.12 Since
attachment is harsh, extraordinary, and summary
in nature,13 the rules on the application of a writ of
attachment must be strictly construed in favor of
the defendant.
For the issuance of an ex-parte issuance of the
preliminary attachment to be valid, an affidavit of
merit and an applicant's bond must be filed with
the court14 in which the action is pending. Such
bond executed to the adverse party in the amount
fixed by the court is subject to the conditions that
the applicant will pay: (1) all costs which may be
adjudged to the adverse party; and (2) all
damages which such party may sustain by reason
of the attachment, if the court shall finally adjudge
that the applicant was not entitled thereto.15 As to
the requisite affidavit of merit, Section 3,16 Rule
57 of the Rules of Court states that an order of
attachment shall be granted only when it appears
in the affidavit of the applicant, or of some other
person who personally knows the facts:
that a sufficient cause of action
exists;ChanRoblesVirtualawlibrary
that the case is one of those mentioned in Section
117 hereof;ChanRoblesVirtualawlibrary
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 mere filing of an affidavit reciting the facts
required by Section 3, Rule 57, however, is not
enough to compel the judge to grant the writ of
preliminary attachment. Whether or not the
affidavit sufficiently established facts therein
stated is a question to be determined by the court
in the exercise of its discretion.18 "The sufficiency
or insufficiency of an affidavit depends upon the
amount of credit given it by the judge, and its
acceptance or rejection, upon his sound
discretion."19 Thus, in reviewing the conflicting
findings of the CA and the RTC on the pivotal
issue of whether or not Watercraft's affidavit of
merit sufficiently established facts which
constitute as grounds upon which attachment
may be issued under Section 1 (a)20 and
(d),21 Rule 57, the Court will examine the Affidavit
of Preliminary Attachment22 of Rosario E. Raoa,
its Vice-President, which reiterated the following
allegations in its complaint to substantiate the
application for a writ of preliminary attachment:
x x x x
4. Sometime in June 1997, the Defendant was
hired as Watercraft's Shipyard Manager.
5. Soon thereafter, the Defendant placed his
sailboat, the Knotty Gull, within the boat storage
facilities of Watercraft for purposes of storage and
safekeeping.
6. Despite having been employed by Watercraft,
the Defendant was not exempted from paying
Watercraft boat storage fees for the use of the
said storage facilities.
7. By virtue of his then position and employment
with Watercraft, the Defendant was very much
knowledgeable of the foregoing fact.
8. All throughout his employment with Watercraft,
the Defendant used the boat storage facilities of
Watercraft for his Knotty Gull.
9. However, all throughout the said period of his
employment, the Defendant never paid the boat
storage fees in favor of the Plaintiff.
10. The Defendant's contract of employment with
Watercraft was terminated on 07 March 2002.
11. [Sometime] thereafter, that is, in or about
ProvRem 2nd batch | 19
June 2002, the Defendant pulled out the Knotty
Gull from the boat storage facilities of Watercraft.
12. Instead of settling in full his outstanding
obligations concerning unpaid storage fees before
pulling our the Knotty Gull, the Defendant signed
a Boat Pull-Out Clearance dated 29 June 2002
wherein he merely acknowledged the then
outstanding balance of Sixteen Thousand Three
Hundred and Twenty-four and 82/100 US Dollars
(US$16,324.82), representing unpaid boat
storage fees for the period commencing June
1997 to June 2002, that he owed Watercraft.
13. By reason of Defendant's mere
accomplishment of the said Boat Pull-Out
Clearance with acknowledgment of his
outstanding obligation to Watercraft in unpaid
boat storage fees, Mr. Franz Urbanek, then the
Shipyard Manager who replaced the Defendant,
contrary to company policy, rules and regulations,
permitted the latter to physically pull out his boat
from the storage facilities of the Plaintiff without
paying any portion of his outstanding obligation in
storage fees.
14. Several demands were then made upon the
Defendant for him to settle his outstanding
obligations to the Plaintiff in unpaid storage fees
but the same went unheeded.
15. As of 02 April 2005, the outstanding obligation
of the Defendant to the Plaintiff in unpaid boat
storage fees stands at Three Million Two Hundred
Thirty-One Thousand Five Hundred and Eighty-
Nine and 25/100 Pesos (Php3,231,589.25)
inclusive of interest charges.
16. For failing to pay for the use [of] facilities and
servicesin the form of boat storage facilities
duly enjoyed by him and for failing and refusing to
fulfill his promise to pay for the said boat storage
fees, the Defendant is clearly guilty
of fraud which entitles the Plaintiff to a Writ of
Preliminary Attachment upon the property of the
Defendant as security for the satisfaction of any
judgment in its favor in accordance with the
provisions of Paragraph (d), Section 1, Rule 57 of
the Rules of Court.
17. The instant case clearly falls under the said
provision of law.
18. Furthermore, lawful factual and legal grounds
exist which show that the Defendant may have
departed or is about to depart the country to
defraud his creditors thus rendering it
imperative that a Writ of Preliminary Attachment
be issued in favor of the Plaintiff in the instant
case.
19. The possibility of flight on the part of the
Defendant is heightened by the existence of the
following circumstances:
a. The Special Working Visa issued in favor of the
Defendant expired in April
2005;ChanRoblesVirtualawlibrary
b. The Defendant is a British national who may
easily leave the country at
will;ChanRoblesVirtualawlibrary
c. The Defendant has no real properties and
visible, permanent business or employment in the
Philippines; and
e. The house last known to have been occupied
by the Defendant is merely being rented by him.
20. All told, the Defendant is a very serious flight
risk which fact will certainly render for naught the
capacity of the Plaintiff to recover in the instant
case.23
After a careful perusal of the foregoing;
allegations, the Court agrees with the CA that
Watercraft failed to state with particularity the
circumstances constituting fraud, as required by
Section 5,24 Rule 8 of the Rules of Court, and that
Wolfe's mere failure to pay the boat storage fees
does not necessarily amount to fraud, absent any
showing that such failure was due to insidious
machinations and intent on his part to defraud
Watercraft of the amount due it.
In Liberty Insurance Corporation v. Court of
Appeals,25 the Court explained that to constitute a
ground for attachment in Section 1(d), Rule 57 of
the Rules of Court, it must be shown that the
debtor in contracting the debt or incurring the
obligation intended to defraud the creditor. A debt
is fraudulently contracted if at the time of
contracting it, the debtor has a preconceived plan
or intention not to pay. "The fraud must relate to
the execution of the agreement and must have
been the reason which induced the other party
into giving consent which he would not have
otherwise given."26
Fraudulent intent is not a physical entity, but a
condition of the mind beyond the reach of the
senses, usually kept secret, very unlikely to be
confessed, and therefore, can only be proved by
unguarded expressions, conduct and
circumstances.27 Thus, the applicant for a writ of
preliminary attachment must sufficiently show the
factual circumstances of the alleged fraud
because fraudulent intent cannot be inferred from
the debtor's mere non-payment of the debt or
failure to comply with his obligation.28 The
particulars of such circumstances necessarily
include the time, persons, places and specific
acts of fraud committed.29 An affidavit which does
not contain concrete and specific grounds is
inadequate to sustain the issuance of such writ. In
fact, mere general averments render the writ
defective and the court that ordered its issuance
acted with grave abuse of discretion amounting to
excess of jurisdiction.30
ProvRem 2nd batch | 20

In this case, Watercraft's Affidavit of Preliminary
Attachment does not contain specific allegations
of other factual circumstances to show that Wolfe,
at the time of contracting the obligation, had a
preconceived plan or intention not to pay. Neither
can it be inferred from such affidavit the
particulars of why he was guilty of fraud in the
performance of such obligation. To be specific,
Watercraft's following allegation is unsupported
by any particular averment of circumstances that
will show why or how such inference or
conclusion was arrived at, to wit: "16. For failing
to pay for the use [of] facilities and services - in
the form of boat storage facilities - duly enjoyed
by him and for failing and refusing to fulfill his
promise to pay for the said boat storage fees, the
Defendant is clearly guilty of fraud x x x."31 It is
not an allegation of essential facts constituting
Watercraft's causes of action, but a mere
conclusion of law.
With respect to Section 1 (a),32 Rule 57, the other
ground invoked by Watercraft for the issuance of
the writ of preliminary attachment, the Court finds
no compelling reason to depart from the CA's
exhaustive ruling to the effect that such writ is
unnecessary because Wolfe is not a flight risk,
thus:
As to the allegation that Wolfe is a (light risk,
thereby warranting the issuance of the writ, the
same lacks merit. The mere fact that Wolfe is a
British national does not automatically mean that
he would leave the country at will. As Wolfe
avers, he and his family had been staying in the
Philippines since 1997, with his daughters
studying at a local school. He also claims to be an
existing stockholder and officer of Wolfe Marine
Corporation, a SEC - registered corporation, as
well as a consultant of projects in the Subic Area,
a member of the Multipartite Committee for the
new port development in Subic, and a member of
the Subic Chamber of Commerce. More
importantly, Wolfe has a pending labor case
against Watercraft - a fact which the company
glaringly failed to mention in its complaint - which
Wolfe claims to want to prosecute until its very
end. The said circumstances, as well as the
existence of said labor case where Wolfe stands
not only to be vindicated for his alleged illegal
dismissal, but also to receive recompense, should
have convinced the trial court that Wolfe would
not want to leave the country at will just because
a suit for the collection of the alleged unpaid boat
storage fees has been filed against him by
Watercraft.
Neither should the fact that Wolfe's Special
Working Visa expired in April 2005 lead
automatically to the conclusion that he would
leave the country. It is worth noting that all visas
issued by the government to foreigner staying in
the Philippines have expiration periods. These
visas, however, may be renewed, subject to the
requirements of the law. In Wolfe's case, he
indeed renewed his visa, as shown by Special
Working Visa No. 05-WV-0124P issued by the
Subic Bay Metropolitan Authority Visa Processing
Office on April 25, 2005, and with validity of two
(2) years therefrom. Moreover, his Alien
Certificate of Registration was valid up to May 11,
2006.33
Meanwhile, Watercraft's reliance on Chuidian v.
Sandiganbayan34 is displaced. It is well settled
that:
x x x when the preliminary attachment is
issued upon a ground which is at the same
time the applicant's cause of action; e.g., "an
action for money or property embezzled or
fraudulently misapplied or converted to his own
use by a public officer, or an officer of a
corporation, or an attorney, factor, broker, agent,
or clerk, in the course of his employment as such,
or by any other person in a fiduciary capacity, or
for a willful violation of duty," or "an action against
a party who has been guilty of fraud in contracting
the debt or incurring the obligation upon which the
action is brought," the defendant is not allowed
to file a motion to dissolve the attachment
under Section 13 of Rule 57 by offering to
show the falsity of the factual averments in
the plaintiffs application and affidavits on
which the writ was based - and consequently
that the writ based thereon had been
improperly or irregularly issued - the reason
being that the hearing on such a motion for
dissolution of the writ would be tantamount to
a trial of the merits of the action. In other
words, the merits of the action would be
ventilated at a mere hearing of a motion, instead
of at the regular trial.35
Be that as it may, the foregoing rule is not
applicable in this case because when Wolfe filed
a motion to dissolve the writ of preliminary
attachment, he did not offer to show the falsity of
the factual averments in Watercraft's application
and affidavit on which the writ was based.
Instead, he sought the discharge of the writ on
the ground that Watercraft failed to particularly
allege any circumstance amounting to fraud. No
trial on the merits of the action at a mere hearing
of such motion will be had since only the
sufficiency of the factual averments in the
application and affidavit of merit will be examined
in order to find out whether or not Wolfe was
guilty of fraud in contracting the debt or incurring
the obligation upon which the action is brought, or
in the performance thereof.
Furthermore, the other ground upon which the
writ of preliminary attachment was issued by the
RTC is not at the same time the applicant's cause
of action. Assuming arguendo that the RTC was
correct in issuing such writ on the ground that
Watercraft's complaint involves an action for the
recovery of a specified amount of money or
ProvRem 2nd batch | 21
damages against a party, like Wolfe, who is about
to depart from the Philippines with intent to
defraud his creditors, the Court stresses that the
circumstances36 cited in support thereof are
merely allegations in support of its application for
such writ.37 Such circumstances, however, are
neither the core of Watercraft's complaint for
collection of sum of money and damages, nor one
of its three (3) causes of action therein.38
All told, the CA correctly ruled that Watercraft
failed to meet one of the requisites for the
issuance of a writ of preliminary attachment, i.e.,
that the case is one of those mentioned in Section
1 of Rule 57, and that the RTC gravely abused its
discretion in improvidently issuing such writ.
Watercraft failed to particularly state in its affidavit
of merit the circumstances constituting intent to
defraud creditors on the part of Wolfe in
contracting or in the performance of his purported
obligation to pay boat storage fees, as well as to
establish that he is a flight risk. Indeed, if all the
requisites for granting such writ are not present,
then the court which issues it acts in excess of its
jurisdiction.39chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the petition
is DENIED. The Court of Appeals Decision dated
September 27, 2007 and its Resolution dated
January 24, 2008 in CA-G.R. SP No. 97804,
are AFFIRMED.
SO ORDERED.
G.R. No. L-50378 September 30, 1982
FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE HONORABLE JUDGE BENJAMIN
RELOVA (In his capacity as Presiding Judge
of the Court of First Instance of Manila,
Branch XI) and ERNESTO
SALAZAR, respondents.
GUERRERO, J.:
This is a special civil action for certiorari, with
prayer for restraining order or preliminary
injunction, filed by petitioner Filinvest Credit
Corporation seeking to annul the Orders issued
by respondent Judge dated February 2, 1979 and
April 4, 1979 in Civil Case No. 109900.
As shown by the records, the antecedents of the
instant Petition are as follows:
On August 2, 1977, Filinvest Credit Corporation
(hereinafter referred to as FILINVEST) filed a
complaint in the lower court against defendants
Rallye Motor Co., Inc. (hereinafter referred to as
RALLYE) and Emesto Salazar for the collection of
a sum of money with damages and preliminary
writ of attachment. From the allegations of the
complaint, 1 it appears that in payment of a motor
vehicle described as: "One (1) Unit MAZDA
DIESEL SCHOOL BUS, Model: E4100, Serial
No.: EXC43P-02356, Motor No.: Y-13676,"
Salazar executed a promissory note dated May 5,
1977 in favor of RALLYE for the amount of
P99,828.00. To secure the note, Salazar also
executed in favor of RALLYE a deed of chattel
mortgage over the above described motor
vehicle. On May 7, 1977, RALLYE, for valuable
consideration, assigned all its rights, title and
interest to the aforementioned note and mortgage
to FILINVEST. Thereafter, FILINVEST came to
know that RALLYE had not delivered the motor
vehicle subject of the chattel mortgage to Salazar,
"as the said vehicle (had) been the subject of a
sales agreement between the codefendants."
Salazar defaulted in complying with the terms and
conditions of the aforesaid promissory note and
chattel mortgage. RALLYE, as assignor who
guaranteed the validity of the obligation, also
failed and refused to pay FILINVEST despite
demand. According to FILINVEST, the
defendants intentionally, fraudulently and with
malice concealed from it the fact that there was
no vehicle delivered under the documents
negotiated and assigned to it, otherwise, it would
not have accepted the negotiation and
assignment of the rights and interest covered by
the promissory note and chattel mortgage.
Praying for a writ of preliminary attachment,
FILINVEST submitted with its complaint the
affidavit of one Gil Mananghaya, pertinent
portions of which read thus:
That he is the Collection Manager, Automotive
Division of Filinvest Credit Corporation;
That in the performance of his duties, he came to
know of the account of Ernesto Salazar, which is
covered by a Promissory Note and secured by a
Chattel Mortgage, which documents together with
all the rights and interest thereto were assigned
by Rallye Motor Co., Inc.;
That for failure to pay a stipulated installment, and
the fact that the principal debtor, Ernesto Salazar,
and the assignor, Rallye Motor Co., Inc.
concealed the fact that there was really no motor
vehicle mortgaged under the terms of the
Promissory Note and the Chattel Mortgage, the
entire amount of the obligation stated in the
Promissory Note becomes due and demandable,
which Ernesto Salazar and Rallye Motor Co., Inc.
failed and refused to pay, so much so that a
sufficient cause of action really exists for Filinvest
Credit Corporation to institute the corresponding
complaint against said person and entity;
That the case is one of those mentioned in
Section 1, Rule 57 of his Rules of Court,
particularly an action against parties who have
been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is
brought;
ProvRem 2nd batch | 22
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 Filinvest
Credit Corporation is as much as the sum for
which the order is granted above all legal
counterclaims;
That this affidavit is executed for the purpose of
securing a writ of attachment from the court. 2
The specific provision adverted to in the above
Affidavit is Section 1(d) of Rule 57 which includes
"an action against a party who has been guilty of
fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in
concealing or disposing of the property for the
taking, detention or conversion of which the
action is brought" as one of the cases in which 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."
Judge Jorge R. Coquia (now Justice of the Court
of Appeals), then presiding Judge of the lower
court, granted the prayer for a writ of attachment
in an Order dated August 17, 1977 stating that:
Finding the complaint sufficient in form and
substance, and in view of the sworn statement of
Gil Mananghaya, Collection Manager of the
plaintiff that defendants have committed fraud in
securing the obligation and are now avoiding
payment of the same, let a writ of attachment
issue upon the plaintiff's filing of a bond in the
sum of P97,000.00.
In the meantime, let summons issue on the
defendants. 3
More than a year later, in an Urgent Motion dated
December 11, 1978, 4 defendant Salazar prayed
that the writ of preliminary attachment issued ex
parte and implemented solely against his property
be recalled and/or quashed. He argued that when
he signed the promissory note and chattel
mortgage on May 5, 1977 in favor of RALLYE,
FILINVEST was hot vet his creditor or obligee,
therefore, he could not be said to have committed
fraud when he contracted the obligation on May
5, 1977. Salazar added that as the motor vehicle
which was the object of the chattel mortgage and
the consideration for the promissory note had
admittedly not been delivered to him by RALLYE,
his repudiation of the loan and mortgage is more
justifiable.
FILINVEST filed an Opposition, but on February
2, 1979, the court a quo, this time presided over
by herein respondent Judge, ordered the
dissolution and setting aside of the writ of
preliminary attachment issued on August 17,
1977 and the return to defendant Salazar of all
his properties attached by the Sheriff by virtue of
the said writ. In this Order, respondent Judge
explained that:
When the incident was called for hearing, the
Court announced that, as a matter of procedure,
when a motion to quash a writ of preliminary
attachment is filed, it is incumbent upon the
plaintiff to prove the truth of the allegations which
were the basis for the issuance of said writ. In this
hearing, counsel for the plaintiff manifested that
he was not going to present evidence in support
of the allegation of fraud. He maintained that it
should be the defendant who should prove the
truth of his allegation in the motion to dissolve the
said writ. The Court disagrees. 5
FILINVEST filed a Motion for Reconsideration of
the above Order, and was subsequently allowed
to adduce evidence to prove that Salazar
committed fraud as alleged in the affidavit of Gil
Mananghaya earlier quoted. This notwithstanding,
respondent Judge denied the Motion in an Order
dated April 4, 1979 reasoning thus:
The plaintiff's evidence show that the defendant
Rallye Motor assigned to the former defendant
Salazar's promissory note and chattel mortgage
by virtue of which plaintiff discounted the note.
Defendant Salazar refused to pay the plaintiff for
the reason that Rallye Motor has not delivered to
Salazar the motor vehicle which he bought from
Rallye. It is the position of plaintiff that defendant
Salazar was in conspiracy with Rallye Motor in
defrauding plaintiff.
Ernesto Salazar, on his part complained that he
was himself defrauded, because while he signed
a promissory note and chattel mortgage over the
motor vehicle which he bought from Rallye Motor,
Rallye Motor did not deliver to him the personal
property he bought; that the address and
existence of Rallye Motor can no longer be found.
While it is true that the plaintiff may have been
defrauded in this transaction, it having paid Rallye
Motor the amount of the promissory note, there is
no evidence that Ernesto Salazar had connived or
in any way conspired with Rallye Motor in the
assignment of the promissory note to the plaintiff,
because of which the plaintiff paid Rallye Motor
the amount of the promissory note. Defendant
Ernesto Salazar was himself a victim of fraud.
Rallye Motor was the only party which committed
it. 6
From the above order denying reconsideration
and ordering the sheriff to return to Salazar the
personal property attached by virtue of the writ of
preliminary attachment issued on August 17,
1977, FILINVEST filed the instant Petition on April
19, 1979. On July 16, 1979, petitioner FILINVEST
also filed an Urgent Petition for Restraining
Order 7 alleging, among others, that pending this
certiorari proceeding in this court, private
respondent Salazar filed a Motion for Contempt of
ProvRem 2nd batch | 23
Court in the court below directed against
FILINVEST and four other persons allegedly for
their failure to obey the Order of respondent
Judge dated April 4, 1979, which Order is the
subject of this Petition. On July 23, 1979, this
Court issued a temporary restraining order
"enjoining respondent Judge or any person or
persons acting in his behalf from hearing private
respondent's motion for contempt in Civil Case
No. 109900, entitled, 'Filinvest Credit Corporation,
Plaintiff, versus The Rallye Motor Co., Inc., et al.,
Defendants' of the Court of First Instance of
Manila, Branch XI. " 8
Petitioner FILINVEST in its MEMORANDUM
contends that respondent Judge erred:
(1) In dissolving the writ of preliminary attachment
already enforced by the Sheriff of Manila without
Salazar's posting a counter-replevin bond as
required by Rule 57, Section 12; and
(2) In finding that there was no fraud on the part
of Salazar, despite evidence in abundance to
show the fraud perpetrated by Salazar at the very
inception of the contract.
It is urged in petitioner's first assignment of error
that the writ of preliminary attachment having
been validly and properly issued by the lower
court on August 17, 1977, the same may only be
dissolved, quashed or recalled by the posting of a
counter-replevin bond under Section 12, Rule 57
of the Revised Rules of Court which provides
that:
Section 12. Discharge of Attachment upon, gluing
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 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. ...
Citing the above provision, petitioner contends
that the court below should not have issued the
Orders dated February 2, 1979 and April 4, 1979
for failure of private respondent Salazar to make
a cash deposit or to file a counter-bond.
On the other hand, private respondent counters
that the subject writ of preliminary attachment
was improperly or irregularly issued in the first
place, in that it was issued ex parte without notice
to him and without hearing.
We do not agree with the contention of private
respondent. Nothing in the Rules of Court makes
notice and hearing indispensable and mandatory
requisites for the issuance of a writ of attachment.
The statement in the case of Blue Green Waters,
Inc. vs. Hon. Sundiam and Tan 9 cited by private
respondent, to the effect that the order of
attachment issued without notice to therein
petitioner Blue Green Waters, Inc. and without
giving it a chance to prove that it was not
fraudulently disposing of its properties is irregular,
gives the wrong implication. As clarified in the
separate opinion of Mr. Justice Claudio
Teehankee in the same cited case, 10 a writ of
attachment may be issued ex parte. Sections 3
and 4, Rule 57, merely require that an applicant
for an order of attachment file an affidavit and a
bond: the affidavit to be executed by the applicant
himself or some other person who personally
knows the facts and to show that (1) there is a
sufficient cause of action, (2) the case is one of
those mentioned in Section 1 of Rule 57, (3) there
is no other sufficient security for the claim sought
to be enforced, and (4) the amount claimed in the
action is as much as the sum for which the order
is granted above all legal
counterclaims; and the bond to be "executed to
the adverse party in an amount 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."
We agree, however, with private respondents
contention that a writ of attachment may be
discharged without the necessity of filing the cash
deposit or counter-bond required by Section 12,
Rule 57, cited by petitioner. The following
provision of the same Rule allows it:
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. 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."(Emphasis supplied)
ProvRem 2nd batch | 24
The foregoing provision grants an aggrieved party
relief from baseless and unjustifiable attachments
procured, among others, upon false allegations,
without having to file any cash deposit or counter-
bond. In the instant case the order of attachment
was granted upon the allegation of petitioner, as
plaintiff in the court below, that private respondent
RALLYE, the defendants, had committed "fraud in
contracting the debt or incurring the obligation
upon which the action is brought," covered by
Section i(d), Rule 57, earlier quoted. Subsequent
to the issuance of the attachment order on August
17, 1977, private respondent filed in the lower
court an "Urgent Motion for the Recall and
Quashal of the Writ of Preliminary Attachment on
(his property)" dated December 11,
1978 11 precisely upon the assertion that there
was "absolutely no fraud on (his) part" in
contracting the obligation sued upon by petitioner.
Private respondent was in effect claiming that
petitioner's allegation of fraud was false, that
hence there was no ground for attachment, and
that therefore the attachment order was
"improperly or irregularly issued." This Court was
held that "(i)f the grounds upon which the
attachment was issued were not true ..., the
defendant has his remedy by immediately
presenting a motion for the dissolution of the
same. 12 We find that private respondent's
abovementioned Urgent Motion was filed under
option 13, Rule 57.
The last sentence of the said provision, however,
indicates that a hearing must be conducted by the
judge for the purpose of determining whether or
not there reality was a defect in the issuance of
the attachment. The question is: At this hearing,
on whom does the burden of proof lie? Under the
circumstances of the present case, We sustain
the ruling of the court a quo in its questioned
Order dated February 2, 1979 that it should be
the plaintiff (attaching creditor), who should prove
his allegation of fraud. This pronouncement finds
support in the first sentence of Section 1, Rule
131, which states that: "Each party must prove his
own affirmative allegations." The last part of the
same provision also provides that: "The burden of
proof lies on the party who would be defeated if
no evidence were given on either side." It must be
b rne in mind that in this jurisdiction, fraud is
never presumed. FRAUS EST IdIOS ET NON
PRAESUMENDA. 13 Indeed, private transactions
are presumed to have been fair and
regular. 14 Likewise, written contracts such as the
documents executed by the parties in the instant
case, are presumed to have been entered into for
a sufficient consideration. 15
In a similar case of Villongco, et al., vs. Hon.
Panlilio, et al., 16 a writ of preliminary attachment
was issued ex parte in a case for damages on the
strength of the affidavit of therein petitioners to
the effect that therein respondents had
concealed, removed or disposed of their
properties, credits or accounts collectible to
defraud their creditors. Subsequently, the lower
court dissolved the writ of attachment. This was
questioned in a certiorari proceeding wherein this
Court held, inter alia, that:
The affidavit supporting the petition for the
issuance of the preliminary attachment may have
been sufficient to justify the issuance of the
preliminary writ, but it cannot be considered as
proof of the allegations contained in the affidavit.
The reason is obvious. The allegations are mere
conclusions of law, not statement of facts. No
acts of the defendants are ever mentioned in the
affidavit to show or prove the supposed
concealment to defraud creditors. Said
allegations are affirmative allegations, which
plaintiffs had the obligation to prove ... 17
It appears from the records that both herein
private parties did in fact adduce evidence to
support their respective claims. 18 Attached to the
instant Petition as its Annex "H" 19 is a
Memorandum filed by herein petitioner
FILINVEST in the court below on March 20, 1979.
After private respondent filed his Comment to the
Petition, 20 petitioner filed a Reply 21,attaching
another copy of the aforesaid Memorandum as
Annex "A" 22 In this case on February 28, 1979
and March 1, 1979, the plaintiff (FILINVEST)
presented in evidence documentary exhibits
"marked Exhibit A, A- I, B, B-1, B-2, B-3, B-4, C,
C-1, D, E, F, G and G-1. The Memorandum goes
on to state that FILINVEST presented as its
witness defendant Salazar himself who testified
that he signed Exhibits A, B, C, D, E and G; that
he is a holder of a master's degree in Business
Administration and is himself a very careful and
prudent person; that he does not sign post-dated
documents; that he does not sign contracts which
do not reflect the truth or which are irregular on
their face, that he intended to purchase a school
bus from Rallye Motors Co., Inc. from whom he
had already acquired one unit; that he had been
dealing with Abel Sahagun, manager of RALLYE,
whom he had known for a long time that he
intended to purchase the school bus on
installment basis so he applied for financing with
the FILINVEST; that he knew his application was
approved; that with his experience as a business
executive, he knew that under a financing
arrangement, upon approval of his application,
when he signed Exhibits A, B, C, D, E and G, the
financing company (FILINVEST) would release
the proceeds of the loan to RALLYE and that he
would be obligated to pay the installments to
FILINVEST; that he signed Exhibits A, B and C
simultaneously; that it was his wife who was
always transacting business with RALLYE and
Abel Sahagun. 23
Without disputing the above summary of
evidence, private respondent Salazar states in his
Comment that "the same evidence proferred by
(petitioner's) counsel was adopted by (private
ProvRem 2nd batch | 25
respondent) Ernesto Salazar during the the writ of preliminary attachment issued on
proceedings. 24 August 17, 1977.

According to the court a quo in its assailed order WHEREFORE, IN VIEW OF THE FOREGOING,
of April 4, 1979, Emesto Salazar "was himself the appealed Orders of the lower court dated
defrauded because while he signed the February 2, 1979 and April 4, 1979 are hereby
promissory note and the chattel mortgage over REVERSED and SET ASIDE. The temporary
the vehicle which he bought from Rallye Motors, restraining order issued by Us on July 23, 1979 is
RALLYE did not deliver to him the personal hereby made permanent. No costs. Petition
property he bought." And since no fraud was granted. SO ORDERED.
committed by Salazar, the court accordingly
ordered the sheriff to return to Salazar the
properties attached by virtue of the writ of
preliminary attachment issued on August 17,
1977.

We do not agree. Considering the claim of

respondent Salazar that Rallye Motors did not
deliver the motor vehicle to him, it follows that the
Invoice, Exhibit "C", for the motor vehicle and the
Receipt, Exhibit "G", for its delivery and both
signed by Salazar, Exhibits "C-1 " and "G-1",
were fictitious. It also follows that the Promissory
Note, Exhibit "A", to pay the price of the
undelivered vehicle was without consideration
and therefore fake; the Chattel Mortgage, Exhibit
"B", over the non-existent vehicle was likewise a
fraud; the registration of the vehicle in the name
of Salazar was a falsity and the assignment of the
promissory note by RALLYE with the conforme of
respondent Salazar in favor of petitioner over the
undelivered motor vehicle was fraudulent and a
falsification.

Respondent Salazar, knowing that no motor

vehicle was delivered to him by RALLYE,
executed and committed all the above acts as
shown the exhibits enumerated above. He agreed
and consented to the assignment by RALLYE of
the fictitious promissory note and the fraudulent
chattel mortgage, affixing his signature thereto, in
favor of petitioner FILINVEST who, in the ordinary
course of business, relied on the regularity and
validity of the transaction. Respondent had
previously applied for financing assistance from
petitioner FILINVEST as shown in Exhibits "E "
and "E-1 " and his application was approved, thus
he negotiated for the acquisition of the motor
vehicle in question from Rallye Motors. Since he
claimed that the motor vehicle was not delivered
to him, then he was duty-bound to reveal that to
FILINVEST, it being material in inducing the latter
to accept the assignment of the promissory note
and the chattel mortgage. More than that, good
faith as well as commercial usages or customs
require the disclosure of facts and circumstances
which go into the very object and consideration of
the contractual obligation. We rule that the failure
of respondent Salazar to disclose the material
fact of non-delivery of the motor vehicle, there
being a duty on his part to reveal them,
constitutes fraud. (Article 1339, New Civil Code).

We hold that the court a quo committed grave

abuse of discretion in dissolving and setting aside
ProvRem 2nd batch | 26