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Peoples Bank and Trust Co. vs Syvels Inc. ACTUATIONS WERE GIVEN CONSIDERATION.

Besides, the
164 SCRA 247 actuations of appellants were clearly seen by the witnesses who
FACTS: "saw a Fiat Bantam Car-Fiat Car, a small car and about three or four
Peoples Bank and Trust Co (PBTC) extrajudicially foreclosed the persons hurrying; they were carrying goods coming from the back
chattel mortgage executed by Syvel Inc portion of this store of Syvels at the Escolta, between 5:30 and 6:00
on its stocks of goods, personal properties and other materials o'clock in the evening." (Record on Appeal, pp. 45-46). Therefore,
owned by it. The chattel mortgage was in connection with a credit "the act of debtor (appellant) in taking his stock of goods from the
commercial line in the amount of P900,000.00 granted by PBTC to rear of his store at night, is sufficient to support an attachment
Syvel Inc. upon the ground of the fraudulent concealment of property for the
purpose of delaying and defrauding creditors." (4 Am. Jur., 841
Antonio V. Syyap and Angel Y. Syyap executed an undertaking in cited in Francisco, Revised Rules of Court, Second Edition, 1985, p.
favor of the PBTC whereby they both agreed to guarantee 24).
absolutely and unconditionally and without the benefit of
excussion the full and prompt payment of any indebtedness to be INTENT TO DEFRAUD MAY BE AND USUALLY IS INFERRED FROM
incurred on account of the said credit line. In view of the failure of THE FACTS AND CIRCUMSTANCES OF THE CASE; IT CAN RARELY BE
the defendant corporation to make payment in accordance with PROVED BY DIRECT EVIDENCE. It may be gleaned also from the
the terms and conditions agreed upon in the Commercial Credit statements and conduct of the debtor, and in this connection, the
Agreement the PBTC started to foreclose extrajudicially the chattel principle may be applied that every person is presumed to intend
mortgage. However, because of an attempt to have the matter the natural consequences of his acts (Francisco, Revised Rules of
settled, the extra-judicial foreclosure was not pushed thru. As no Court, supra, pp. 24-25), In fact the trial court is impressed "that
payment had been paid, this case was eventually filed in this Court. not only has the plaintiff acted in perfect good faith but also on
facts sufficient in themselves to convince an ordinary man that the
On petition of the plaintiff based on the affidavits executed by Mr. defendants were obviously trying to spirit away a port;.on of the
Leopoldo R. Rivera, Assistant Vice President of the plaintiff bank stocks of Syvel's Incorporated in order to render ineffectual at least
and Atty. Eduardo J. Berenguer on January 12, 1967, to the effect, partially anyjudgment that may be rendered in favor of the
among others, that the defendants are disposing of their properties plaintiff." (Decision; Civil Case No. 68095; Record on Appeal, pp. 88-
with intent to defraud their creditors, particularly the plaintiff 89). Appellants having failed to adduce evidence of bad faith or
herein, a preliminary writ of attachment was issued. As a malice on the part of appellee in the procurement of the writ of
consequence of the issuance of the writ of attachment, the preliminary attachment, the claim of the former for damages is
defendants, in their answer to the complaint set up a compulsory evidently negated. In fact, the allegations in the appellee's
counterclaim for damages. complaint more than justify the issuance of the writ of attachment.
(KC )
Appellants contend that the affidavits of Messrs. Rivera and
Berenguer on which the lower court based the issuance of the writ
of preliminary attachment relied on the reports of credit
investigators sent to the field and not on the personal knowledge
of the affiants.

ISSUE: WON the writ of preliminary attachment was properly


issued? YES
HELD:
GRANT OR DENIAL OF A WRIT OF ATTACHMENT RESTS UPON THE
SOUND DISCRETION OF THE COURT. In the determination of the
legality of the writ of attachment by the Court of First Instance of
Manila, it is a well established rule that the grant or denial of a writ
of attachment rests upon the sound discretion of the court.
Records are bereft of any evidence that grave abuse of discretion
was committed by respondent judge in the issuance of the writ of
attachment.

EVIDENCE ADDUCED DURING THE TRIAL STRONGLY SHOWS THAT


THE WITNESSES HAVE PERSONAL KNOWLEDGE OF THE FACTS
STATED IN THEIR AFFIDAVITS in support of the application for the
writ. They testified that Syvel's Inc. had disposed of all the articles
covered by the chattel mortgage but had not remitted the proceeds
to appellee bank; that the Syvel's Stores at the Escolta, Rizal Avenue
and Morayta Street were no longer operated by appellants and that
the latter were disposing of their properties to defraud appellee
bank. Such testimonies and circumstances were given full credit by
the trial court in its decision (Brief for Appellee, p. 14). Hence, the
attachment sought on the ground of actual removal of property is
justified where there is physical removal thereof by the debtor, as
shown by the records (McTaggert v. Putnam Corset Co., 8 N.Y. S
800 cited in Moran, Comments on the Rules of Court, 1970 Ed., Vol.
3, p. 7).
Adlawan vs Torres constitute fraudulent removal, concealment or disposition of
233 SCRA 645 (94) property. They argued that granting the mortgage constituted
removal or disposition of property, it was not per se a ground for
Aboitiz sought to collect from Eleazar and Elena Adlawan a sum of attachment lacking proof of intent to defraud the creditors of the
money representing payments for: (1) the unpaid amortizations of defendant.
a loan; (2) technical and managerial services rendered; and (3) the
unpaid installments of the equipment provided by respondent Petitioners contended that in Civil Case No. 21761, Branch 11 had
Aboitiz to petitioners (Rollo, p. 37). ruled that the loan for which the mortgage was executed was
contracted in good faith, as it was necessary for them to continue
Aboitiz filed against Eleazar and Elena Adlawan two complaints for their business operations even after respondent Aboitiz had
collection of sums of money with prayers for the issuance of writs stopped giving them financial aid.
of attachment. The complaint in the first case alleged that Eleazar
Adlawan was awarded contracts for the construction of the Tago ISSUE: WON the writ of preliminary attachment was properly
and Lasang River Irrigation Projects by the National Irrigation issued? NO
Administration and that Aboitiz loaned him money and equipment,
amounting to P13,430,259.14 and another 5, 360, 672. 08. The HELD:
complaint in part, states: THE AFFIDAVIT SUBMITTED BY RESPONDENT ABOITIZ IN
SUPPORT OF ITS PRAYER FOR THE WRIT OF ATTACHMENT DOES
That, in view of the enormous liabilities which the NOT MEET THE REQUIREMENTS OF RULE 57 of the Revised Rules
defendants have with the plaintiff, defendants executed of Court regarding the allegations on impending fraudulent
a real estate mortgage covering eleven (11) parcels of removal, concealment and disposition of defendant's property. As
land in favor of Philippine Commercial and Industrial held in Carpio v. Macadaeg, 9 SCRA 552 (1963), to justify a
Bank (PCIB) to secure a P1,000,000.00 loan with said preliminary attachment, the removal or disposal must have been
bank and was able to remove, conceal and dispose of made with intent to defraud defendant's creditors. Proof of fraud
their properties, obviously to defraud the plaintiff, . . . is mandated by paragraphs (d) and (e) of Section 1, Rule 57 of the
(Rollo, pp. 65-66). Revised Rules of Court on the grounds upon which attachment may
issue. Thus, the factual basis on defendant's intent to defraud must
Writs of attachment were issued. Adlawans then filed urgent be clearly alleged in the affidavit in support of the prayer for the
motions to hold in abeyance the enforcement of the writs of writ of attachment if not so specifically alleged in the verified
attachments. They alleged in the main that since their property had complaint. The affidavit submitted by respondent Aboitiz states:
been previously attached and said attachment was being
questioned before the SC,the filing of the two cases, as well as the REPUBLIC OF THE PHILIPPINES
issuance of the writs of attachment, constituted undue CITY OF CEBU ...............) S.S.
interference with the processes of this court in the then pending I, ROMAN S. RONQUILLO, of legal age, married and a
petition involving the same property. resident of Cebu City, after being sworn in accordance
with law, hereby depose and say:
Meanwhile, in its comment on petitioners' motion to withhold the That I am the Vice-President of the plaintiff corporation
enforcement of the writs of attachment, respondent Aboitiz in the above-entitled case;
alleged that the voluntary dismissal of Civil Case No. R-21761 under That a sufficient cause of action exists against the
Section 1, Rule 17 of the Revised Rules of Court was without defendants named therein because the said defendants
prejudice to the institution of another action based on the same are indebted to the plaintiffs in the amount of
subject matter. It averred that the issuance of the writ of P13,430,259.14 exclusive of interests thereon and
attachment was justified because petitioners were intending to damages claimed;
defraud respondent Aboitiz by mortgaging 11 parcels of land to That the defendants have removed or disposed of their
the Philippine Commercial and Industrial Bank (PCIB) in properties with intent to defraud the plaintiff, their
consideration of the loan of P1,100,000.00, thereby making PCIB a creditor, because on May 27, 1982 they executed a real
preferred creditor to the prejudice of respondent Aboitiz, which estate mortgage in favor of Philippine Commercial and
had an exposure amounting to P13,430,259.14. Industrial Bank (PCIB) covering eleven (11) of their
fifteen (15) parcels of land in Cebu to secure a
Adlawans then filed a rejoinder to said comment, contending that P1,000,000.00 loan with the same bank;
since the property subject of the writ of attachment have earlier That this action is one of those specifically mentioned in
been attached or replevied, the same property were Section 1, Rule 57 of the Rules of Court, whereby a writ
under custodia legis and therefore could not be the subject of preliminary attachment may lawfully issue because the
other writs of attachment. action therein is one against parties who have removed
or disposed of their properties with intent to defraud
The judge ordered "to proceed with the enforcement and their creditor, plaintiff herein;
implementation of the writs of preliminary attachment That there is no sufficient security for the claims sought
maintaning that the writs of attachment were issued on the basis to be enforced by the present action;
of the supporting affidavits alleging that petitioner had removed or That the total amount due to the plaintiff in the above-
disposed of their property with intent to defraud respondent entitled case is P13,430,259.14, excluding interests and
Aboitiz claim for damages and is as much the sum for which an
order of attachment is herein sought to be granted;
Adlawans filed the present petition for certiorari and mandamus above all legal counter-claims on the part of the
imputing grave abuse of discretion upon the judge in ordering the defendants.
issuance of the writs of preliminary attachment inasmuch as the IN VIEW WHEREOF, I hereunto set my hand this 24th
real estate mortgage executed by them in favor of PCIB did not day of August 1983 at Cebu City, Philippines.
(Sgd.)
RAMON S. RONQUILLO
Affiant
(Rollo, pp. 171-172)

It is evident from said affidavit that the prayer for attachment rests
on the mortgage by petitioners of 11 parcels of land in Cebu, which
encumbrance respondent Aboitiz considered as fraudulent
concealment of property to its prejudice. We find, however, that
there is no factual allegation which may constitute as a valid basis
for the contention that the mortgage was in fraud of respondent
Aboitiz. xxx"[T]he general rule is that the affidavit is the foundation
of the writ, and if none be filed or one be filed which wholly fails to
set out some facts required by law to be stated therein, there is no
jurisdiction and the proceedings are null and void."Bare allegation
that an encumbrance of a property is in fraud of the creditor does
not suffice. Factual bases for such conclusion must be clearly
averred.

THE EXECUTION OF A MORTGAGE IN FAVOR OF ANOTHER


CREDITOR IS NOT CONCEIVED BY THE RULES AS ONE OF THE
MEANS OF FRAUDULENTLY DISPOSING OF ONE'S PROPERTY. By
mortgaging a piece of property, a debtor merely subjects it to a lien
but ownership thereof is not parted with.

Furthermore, the inability to pay one's creditors is not necessarily


synonymous with fraudulent intent not to honor an obligation
(Insular Bank of Asia & America, Inc. v. Court of Appeals, 190 SCRA
629 [1990]).

Consequently, when petitioners filed a motion for the


reconsideration of the order directing the issuance of the writ of
attachment, respondent Judge should have considered it as a
motion for the discharge of the attachment and should have
conducted a hearing or required submission of counter-affidavits
from the petitioners, if only to gather facts in support of the
allegation of fraud (Jopillo, Jr. v. Court of Appeals, 167 SCRA 247
[1988]). This is what Section 13 of Rule 57 mandates.

This procedure should be followed because, as the Court has time


and again said, attachment is a harsh, extraordinary and summary
remedy and the rules governing its issuance must be construed
strictly against the applicant. Verily, a writ of attachment can only
be granted on concrete and specific grounds and not on general
averments quoting perfunctorily the words of the Rules (D.P. Lub
Oil Marketing Center, Inc. v. Nicolas, 191 SCRA 423 [1990]).

The judge before whom the application is made exercises full


discretion in considering the supporting evidence proffered by the
applicant. One overriding consideration is that a writ of attachment
is substantially a writ of execution except that it emanates at the
beginning, instead of at the termination of the suit (Santos v.
Aquino, Jr., 205 SCRA 127 [1992]; Tay Chun Suy v. Court of Appeals,
212 SCRA 713 [1992]).
Claude Neon Lights vs Phil. Advertising Corp Attachment. A plaintiff may, at the commencement
(57 Phil. 607) of his action, or at any time afterwards, have the
property of the defendant attached as security for the
Philippine Advertising Corporation (PAC) filed a suit against the satisfaction of any judgment that may be recovered,
petitioner Claude Neon Lights (Claude) claiming P300,000 as unless the defendant gives security to pay such
damages for alleged breach of the agency contract existing judgment, in the manner hereinafter provided, in the
between them. At the same time, PAC filed an application for writ following cases.
of attachment duly verified in which it is stated that the Claude is a
foreign corporation having its principal place of business in the City 1. In all the cases mentioned in section four hundred
of Washington, District of Columbia. It is not alleged in said and twelve, providing for the arrest of a defendant. But
application that the Claude was about to depart from the Philippine the plaintiff must make an election as to whether he will
Islands with intent to defraud its creditors or that it was insolvent ask for an order of arrest or an order of attachment; he
or had removed or disposed of its property or was about to do so shall not be entitled to both orders;
with intent to defraud its creditors. The only statutory ground
relied upon in the court below and in this court for the issuance of 2. In an action against a defendant not residing in the
the writ of attachment is paragraph 2 of section 424 of the Code of Philippine Islands.
Civil Procedure, which provides that plaintiff may have the property
of the defendant attached "in an action against a defendant not It may be observed at the outset that the words of section 424,
residing in the Philippine Islands". supra, taken in their literal sense seem to refer to a physical
defendant who is capable of being "arrested" or who is "not
This writ of attachment was granted, and the sheriff has attached residing in the Philippine Islands". It is only by a fiction that it can
all the properties of Claude in the Philippine Islands. The be held that a corporation is "not residing in the Philippine Islands".
respondent judge also appointed Manuel C. Grey as receiver of said A corporation has no home or residence in the sense in which those
properties of the Claude. terms are applied to natural persons. For practical purposes, a
corporation is sometimes said, in a metaphorical sense, to be "a
Claude filed a motion to dissolve said writ of attachment and resident" of a certain state or a "citizen" of a certain country, which
receivership, supported by affidavits of the attorney in fact for the is usually the state or country by which or under the laws of which
Claude in which it is recited, among other things, that it is not it was created. But that fiction or analogy between corporations
indebted to the PAC in any sum whatever nor has it in any way and natural persons by no means extends so far that it can be said
breached any contracts with PAC or at any time interfered in the that every statute applicable to natural persons is applicable to
management of its business in the Philippine Islands as carried on corporations. Indeed, within the same jurisdiction a corporation
by its agent, the PAC, and it has faithfully complied with every has been held to be a "citizen" of the state of its creation for the
condition of said contract; that the attachment of the machinery purpose of determining the jurisdiction of the Federal courts
and plants of Claude, as well as its other assets, is highly prejudicial (Wisconsin vs. Pelican Insurance Co., 127 U. S., 265) but not a
to it as it is unable to proceed with its business in the Philippine "citizen" within the meaning of section 2 of article 4 of the
Islands and irreparable loss will result to it unless such attachment Constitution of the United States which provides that the citizens
be raised; that the filing of said suit was malicious, without of each state shall be entitled to all the privileges and immunities
foundation, and intended only to injure the petitioner and to of citizens of the several states (Paul vs. Virginia, 8 Wall., 169).
depreciate the value of its holdings in the Philippine Islands. It does
not appear that any answer was made to said motion in which said The question arises whether this petitioner, a foreign corporation,
allegations were denied or that any refuting evidence was offered. shall, in a metaphorical sense, be deemed as "not residing in the
Philippine Islands" in the sense in which that expression would
The motion to vacate attachment and receivership were denied, for apply to a natural person.
the such writs were said to conform with section 424 of the Code
of Civil Procedure. Having regard to the reason for the statute which is the protection
of the creditors of a non-resident, we are of the opinion that
ISSUE: WON the writ of attachment was properly issued? NO THERE IS NOT THE SAME REASON FOR SUBJECTING A DULY
LICENSED FOREIGN CORPORATION TO THE ATTACHMENT OF ITS
HELD: PROPERTY BY A PLAINTIFF UNDER SECTION 424, PARAGRAPH 2,
Claude Neon Lights is a corporation duly organized under the laws AS MAY EXIST IN THE CASE OF A NATURAL PERSON NOT RESIDING
of the District of Columbia; it had complied with all the IN THE PHILIPPINE ISLANDS. The law does not require the latter, as
requirements of the Philippine laws and was duly licensed to do it does the former, to appoint a resident agent for service of
business in the Philippine Islands on the date said writ of process; nor to prove to the satisfaction of the Government before
attachment was issues. Claude was actively engaged in doing he does business here, as the foreign corporation must prove, that
business in the Philippine Islands and had considerable property he "is solvent and in sound financial condition" (section 68, Act No.
therein, which consisted to its manufacturing plant, machinery, 1459, as amended, the Corporation Law), or to produce evidence
merchandise and a large income under valuable contracts, all of of "fair dealing" (ibid.). He pays no license fee nor is his business
which property was in the possession and under the control and subject at any time to investigation by the Secretary of Finance and
management of the PAC, as the agent of the Claude, on the date the Governor-General; nor is his right to continue to do business
said attachment was levied. Considered from a practical and revocable by the Government (Cf. section 71, Act No. 1459 of the
economic viewpoint, its position in the business community was Corporation Law). His books and papers are not liable to
indistinguishable from that of a domestic corporation. examination "at any time" by the Attorney-General, the Insular
Auditor, the Insular Treasurer, "or any other officer of the
Section 242 of the Code of Civil Procedure under which the Government" on the order of the Governor-General (section 54,
petitioner's property was attached, reads as follows: ibid.). He is not, like a foreign corporation "bound by all laws, rules
and regulations applicable to domestic corporations" . . . (section
73, ibid.), which are designed to protect creditors and the public. Manuel C. Grey to submit his final report at the earliest practicable
He can evade service of summons and other legal process, the date.
foreign corporation never. (Section 72, ibid.)

Corporations, as a rule, are less mobile than individuals. This is a


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

If, as we believe, section 424, paragraph 2, should not be held


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

PARAGRAPH 2 OF SECTION 424, SUPRA DOES NOT APPLY TO A


DOMESTIC CORPORATION. Our laws and jurisprudence indicate a
purpose to assimilate foreign corporations, duly licensed to do
business here, to the status of domestic corporations. We think it
would be entirely out of line with this policy should we make a
discrimination against a foreign corporation, like the petitioner,
and subject its property to the harsh writ of seizure by attachment
when it has complied not only with every requirement of law made
especially of foreign corporations, but in addition with every
requirement of law made of domestic corporations. (Section 73,
supra.)

monstrous result has followed as s consequence of the granting of


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

The prayer of the petitioner is granted. The order and writ of


attachment complained of are annulled and set aside and the court
below is directed to vacate the order appointing Manuel C. Grey
receiver of the property of the petitioner and to require said
State Investment House, Inc. vs Citibank ISSUE: WON a foreign corporation licitly doing business in the
(203 SCRA 9) Philippines, which is a defendant in a civil suit, may be considered
a non-resident for the purpose of attachment? NO.
The chief question In the appeal at bar: whether or not foreign
banks licensed to do business in the Philippines, may be HELD:
considered "residents of the Philippine Islands" within the meaning The concept of a foreign corporation under Section 123 of the
of Section 20 of the Insolvency Law (Act No. 1956, as amended, eff. Corporation Code is of "one formed, organized or existing under
May 20, 1909) reading in part as follows: 1 laws other than those of the Philippines and . . . (which) laws allow
Filipino citizens and corporations to do business . . . ." There is no
An adjudication of insolvency may be made on the question that the three banks are foreign corporations in this
petition of three or more creditors, residents of the sence, with principal offices situated outside of the Philippines.
Philippine Islands, whose credits or demands accrued in There is no question either that said banks have been licensed to
the Philippine Islands, and the amount of which credits do business in this country and have in fact been doing business
or demands are in the aggregate not less than one here for many years, through branch offices or agencies, including
thousand pesos: Provided, that none of said creditors "foreign currency deposit units;" in fact, one of them, Hongkong &
has become a creditor by assignment, however made, Shanghai Bank has been doing business in the Philippines since as
within thirty days prior to the filing of said petition. Such early as 1875.
petition must be filed in the Court of First Instance of
the province or city in which the debtor resides or has The NIRC declares the term "'resident foreign
his principal place of business, and must be verified by corporation' applies to a foreign corporation engaged in
at least three (3) of the petitioners. . . . trade or business within the Philippines," as
distinguished from a " "non-resident foreign
Foreign banks in this case: Bank of America NT and SA, Citibank N.A. corporation" . . . (which is one) not engaged in trade or
and Hongkong and Shanghai Banking Corporationjointly filed a business within the Philippines." 21
petition for involuntary insolvency of Consolidated Mines, Inc.
(CMI). On November, 1981, State Investment House, Inc. (SIHI) The Offshore Banking Law, Presidential Decree No.
and State Financing Center, Inc. (SFCI) had separately instituted 1034, states "that branches, subsidiaries, affiliation,
actions for collection of sums of money and damages vs CMI and extension offices or any other units of corporation or
that on application of said plaintiffs, writs of preliminary juridical person organized under the laws of any foreign
attachment had been issued which were executed on "the country operating in the Philippines shall be considered
royalty/profit sharing payments due CMI from Benguet residents of the Philippines." 22
Consolidated Mining, Inc;"
The General Banking Act, Republic Act No. 337, places
State Investment House, Inc. (SIHI) and State Financing Center, Inc. "branches and agencies in the Philippines of foreign
(SFCI) opposed the petition, alleging that the banks . . . (which are) called Philippine branches," in the
1) banks had come to court with unclean hands in that same category as "commercial banks, savings
they filed the petition for insolvency alleging the CMI associations, mortgage banks, development banks,
was defrauding its creditors, and they wished all rural banks, stock savings and loan associations" (which
creditors to share in its assets although a few days have been formed and organized under Philippine
earlier, they had "received for the account of CMI laws), making no distinction between the former and
substantial payments aggregating P10,800,000.00;" the later in so far, as the terms "banking institutions"
2) the Court had no jurisdiction to take cognizance of the and "bank" are used in the Act, 23 declaring on the
petition for insolvency because petitioners contrary that in "all matters not specifically covered by
are not resident creditors of CMI in contemplation of special provisions applicable only to foreign banks, or
the Insolvency Law; and their branches and agencies in the Philippines, said
3) the Court has no power to set aside the attachment foreign banks or their branches and agencies lawfully
issued in favor of intervenors-oppositors SIHI and SFCI. doing business in the Philippines "shall be bound by all
laws, rules, and regulations applicable to domestic
CMI filed its Answer to the petition for insolvency, asserting in the banking corporations of the same class, except such
main that it was not insolvent. laws, rules and regulations as provided for the creation,
SIHI and SFCI then filed a Motion for Summary Judgment "on the formation, organization, or dissolution of corporations
ground that, based on the pleadings and admissions on record, the or as fix the relation, liabilities, responsibilities, or duties
trial court had no jurisdiction to adjudicate CMI insolvent since the of members, stockholders or officers or
petitioners (respondent foreign banks) are not "resident creditors" corporations." 24
of CMI as required under the Insolvency Law."
A FOREIGN CORPORATION LICITLY DOING BUSINESS IN THE
RTC ruled that on the basis of the "facts on record, as shown in the PHILIPPINES, WHICH IS A DEFENDANT IN A CIVIL SUIT, MAY NOT
pleadings, motions and admissions of the parties, an insolvency BE CONSIDERED A NON-RESIDENT WITHIN THE SCOPE OF THE
court could "not acquire jurisdiction to adjudicate the debtor as LEGAL PROVISION AUTHORIZING ATTACHMENT AGAINST A
insolvent if the creditors petitioning for adjudication of insolvency DEFENDANT NOT RESIDING IN THE PHILIPPINE ISLANDS;" 26 in
are not "residents" of the Philippines" citing a decision of the other words, a preliminary attachment may not be applied for and
California Supreme Court " And it declared that since petitioners granted solely on the asserted fact that the defendant is a foreign
had been merely licensed to do business in the Philippines, they corporation authorized to do business in the Philippines and is
could not be deemed residents thereof. consequently and necessarily, "a party who resides out of the
Philippines." Parenthetically, if it may not be considered as a party
not residing in the Philippines, or as a party who resides out of the
country, then, logically, it must be considered a party who does creditors; but it should not be considered a ground for giving the
reside in the Philippines, who is a resident of the country. Be this as petition for insolvency short shrift. Hence, the petition for
it may, this Court pointed out that: insolvency was denied.
. . . Our laws and jurisprudence indicate a purpose to assimilate
foreign corporations, duly licensed to do business here, to the
status of domestic corporations. We think it would be entirely out
of line with this policy should we make a discrimination against a
foreign corporation, like the petitioner, and subject its property to
the harsh writ of seizure by attachment when it has complied not
only with every requirement of law made specially of foreign
corporations, but in addition with every requirement of law made
of domestic corporations. . . . .

Obviously, the assimilation of foreign corporations authorized to do


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

The Court cannot thus accept the petitioners' theory that


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

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

There is, of course, as petitioners argue, no substantive law


explicitly granting foreign banks the power to petition for the
adjudication of a Philippine corporation as a bankrupt. This is
inconsequential, for neither is there any legal provision expressly
giving domestic banks the same power, although their capacity to
petition for insolvency can scarcely be disputed and is not in truth
disputed by petitioners. The law plainly grants to a juridical person,
whether it be a bank or not or it be a foreign or domestic
corporation, as to natural persons as well, such a power to petition
for the adjudication of bankruptcy of any person, natural or
juridical, provided that it is a resident corporation and joins at least
two other residents in presenting the petition to the Bankruptcy
Court.

The petitioners allege that three days before respondent banks


filed their petition for involuntary insolvency against CMI, they
received from the latter substantial payments on account in the
aggregate amount of P6,010,800.00, with the result that they were
"preferred in the distribution of CMI's assets thereby defrauding
other creditors of CMI." Non sequitur. It is in any case a
circumstance that the Bankruptcy Court may well take into
consideration in determining the manner and proportion by which
the assets of the insolvent company shall be distributed among its
Mabanag vs Gallemore An illustration of what we term potential jurisdiction over the res,
. is found in the proceeding to register the title of land under our
system for the registration of land. Here the court, without taking
Roman Mabanag filed an action to recover P735.18, an amount actual physical control over the property assumes, at the instance
said to have been paid by him to Joseph Gallemore for the sale of of some person claiming to be owner, to exercise a jurisdiction in
the two parcels of land which was afterwards annulled. Joseph is rem over the property and to adjudicate the title in favor of the
said to be residing in Los Angeles, California, U. S. A. He has no petitioner against all the world. (Banco Espaol-Filipino vs.
property in the Philippine except an alleged debt owing him by a Palanca, supra, 927-928.).
resident of the municipality of Misamis Occidental. This debt, upon
petition of the plaintiff, after the filing of the complaint and before In an ordinary attachment proceeding, if the defendant is not
the suit was dismissed, was attached to the extent of plaintiff's personally served, the preliminary seizure is to be considered
claim for the payment of which the action was brought. But the necessary in order to confer jurisdiction upon the court. In this case
attachment was dissolved in the same order dismissing the case. the lien on the property is acquired by the seizure; and the purpose
of the proceeding is to subject the property to that lien. If a lien
The trial court opined that it "has no authority nor jurisdiction to already exists, whether created by mortgage, contract, or statute,
render judgment against the herein defendant, Joseph M. the preliminary seizure is not necessary; and the court proceeds to
Gallemore for being a non-resident. enforce such lien in the manner provided by law precisely as though
the property had been seized upon attachment. (Roller vs. Holly,
ISSUE: WON the dissolution of the attachment was proper? NO. 176 U.S., 398, 405; 44 Law. ed., 520.) It results that the mere
circumstance that in an attachment the property may be seized at
HELD: the inception of the proceedings, while in the foreclosure suit it is
Section 2, Rule 5, of the Rules of Court provides: If any of the not taken into legal custody until the time comes for the sale, does
defendants does not reside and is not found in the Philippines, and not materially affect the fundamental principle involved in both
the action effects the personal status of the plaintiff, or any cases, which is that the court is here exercising a jurisdiction over
property of the defendant located in the Philippines, the action may the property in a proceeding directed essentially in rem. (Id., 929-
be commenced and tried in the province where the plaintiff resides 930.).
or the property, or any portion thereof, is situated or found.
When, however, the action relates to property located in the
AS A GENERAL RULE, WHEN THE DEFENDANT IS NOT RESIDING Philippines, the Philippine courts may validly try the case, upon the
AND IS NOT FOUND IN THE PHILIPPINES, THE PHILIPPINE COURTS principles that a "State, through its tribunals, may subject property
CANNOT TRY ANY CASE AGAINST HIM because of the impossibility situated within its limit owned by non-residents to the payment of
of acquiring jurisdiction over his person, unless he voluntarily the demand of its own citizens against them; and the exercise of
appears in court. this jurisdiction in no respect infringes upon the sovereignty of the
But, when the action affects the personal status of the State were the owners are domiciled. Every State owes protection
plaintiff residing in the Philippines, or is intended to to its own citizens; and, when non-residents deal with them, it is a
seize or dispose of any property, real or personal, of the legitimate and just exercise of authority to hold any appropriate
defendant, located in the Philippines, it may be validly any property owned by such non-residents to satisfy the claims of
tried by the Philippine courts, for then, they have its citizens. It is in virtue of the State's jurisdiction over the property
jurisdiction over the res, i.e., the personal status of the of the non-resident situated within its limits that its tribunals can
plaintiff or the property of the defendant, and their inquire into the non-resident's obligations to its own citizens, and
jurisdiction over the person of the non-resident the inquiry can then be carried only to the extent necessary to
defendant is not essential. Venue in such cases may be control disposition of the property. If the non-resident has no
laid in the province where the plaintiff whose personal property in the State, there is nothing upon which the tribunals can
status is in question resides, or where the property of adjudicate. (Slade Perkins vs. Dizon, 40 Off. Gaz. [3d Supplement],
the defendant or a part thereof involved in the litigation No. 7, p. 216.).
is located. A fuller statement of the principle whereunder attachment or
garnishment of property of a non-resident defendant confers
Literally this Court said: jurisdiction on the court in an otherwise personal action, appears
Jurisdiction over the property which is the subject of litigation may in two well known and authoritative works:
result either
1) from a seizure of the property under legal process, The main action in an attachment or garnishment suit is in rem until
whereby it is brought into the actual custody of the law, jurisdiction of the defendant is secured. Thereafter, it is in
or it may result personam and also in rem, unless jurisdiction of the res is lost as by
2) from the institution of legal proceedings wherein, under dissolution of the attachment. If jurisdiction of the defendant is
special provisions of law, the power of the court over acquired but jurisdiction of the res is lost, it is then purely in
the property is recognized and made effective. In the personam. . . a proceeding against property without jurisdiction of
latter case the property, though at all times within the the person of the defendant is in substance a proceeding in rem;
potential power of the court, may never be taken into and where there is jurisdiction of the defendant, but the
actual custody at all. proceedings against the property continues, that proceedings is
none the less necessarily in rem, although in form there is but a
An illustration of the jurisdiction acquired by actual seizure is found single proceeding. (4 Am. Jur., 556-557.)
in attachment proceedings, where the property is seized at the
beginning of the action, or some subsequent stage of its progress, As the remedy is administered in some states, the theory of an
and held to abide the final event of the litigation. attachment, whether it is by process against or to subject the
property or effects of a resident or non-resident of the state, is that
it partakes essentially of the nature and character of the
proceeding in personam and not of a proceeding in rem. And if the
defendant appears the action proceeds in accordance with the
practice governing proceedings in personam. But were the
defendant fails to appear in the action, the proceeding is to be
considered as one in the nature of a proceeding in rem. And where
the court acts directly on the property, the title thereof being
charged by the court without the intervention of the party, the
proceeding unquestionably is one in rem in the fullest meaning of
the term.

In attachment proceedings against a non-resident defendant


where personal service on him is lacking, it is elementary that the
court must obtain jurisdiction of the property of the defendant. If
no steps have been taken to acquire jurisdiction of the defendant's
person, and he has not appeared and answered or otherwise
submitted himself to the jurisdiction of the court, the court is
without jurisdiction to render judgment until there has been a
lawful seizure of property owned by him within the jurisdiction of
the court. (2 R. C. L., 800-804.).
IN THIS CASE, THE COURT HAS ACQUIRED JURISDICTION OF THE
CASE AT BAR BY VIRTUE OF THE ATTACHMENT OF THE
DEFENDANT'S CREDIT. Though no jurisdiction is obtained over the
debtor's person, the case may proceed to judgment if there is
property in the custody of the court that can be applied to its
satisfaction.

It is our judgment that the court below erred in dismissing the case
and dissolving the attachment; and it is ordered that, upon petition
of the plaintiff, it issue a new writ of attachment and then proceed
to trial.