Republic of the Philippines day by the herein respondent judge who acted in place of the Hon.
Judge
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-34548 November 29, 1988
RIZAL COMMERCIAL BANKING CORPORATION, petitioner,
vs.
THE HONORABLE PACIFICO P. DE CASTRO and PHILIPPINE
VIRGINIA TOBACCO ADMINISTRATION, respondents
Meer, Meer & Meer for petitioner.
The Solicitor General for 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
1 Prov Rem. Cases Batch 2
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 directing the herein petitioner "to deliver in check the amount
garnished to Sheriff Faustino Rigor and Sheriff Rigor in turn is ordered to
cash the check and deliver the amount to the plaintiff's representative
and/or counsel on record." [Record on Appeal, p. 20; Rollo, p. 5.] In
compliance with said Order, petitioner delivered to Sheriff Rigor a
certified check in the sum of P 206,916.76.
Respondent PVTA filed a Motion for Reconsideration dated February
26,1970 which was granted in an Order dated April 6,1970, setting aside
the Orders of Execution and of Payment and the Writ of Execution and
ordering petitioner and BADOC "to restore, jointly and severally, the
account of PVTA with the said bank in the same condition and state it
was before the issuance of the aforesaid Orders by reimbursing the
PVTA of the amount of P 206, 916.76 with interests at the legal rate from
January 27, 1970 until fully paid to the account of the PVTA This is
without prejudice to the right of plaintiff to move for the execution of the
partial judgment pending appeal in case the motion for reconsideration is
denied and appeal is taken from the said partial judgment." [Record on
Appeal, p. 58]
The Motion for Reconsideration of the said Order of April 6, 1970 filed by
herein petitioner was denied in the Order of respondent judge dated June
10, 1970 and on June 19, 1970, which was within the period for
perfecting an appeal, the herein petitioner filed a Notice of Appeal to the
Court of Appeals from the said Orders.
This case was then certified by the Court of Appeals to this Honorable
Court, involving as it does purely questions of law.
The petitioner raises two principal queries in the instant case: 1) Whether
or not PVTA funds are public funds not subject to garnishment; and 2)
Whether or not the respondent Judge correctly ordered the herein
petitioner to reimburse the amount paid to the Special Sheriff by virtue of
the execution issued pursuant to the Order/Partial Judgment dated
January 15, 1970.
The record reveals that on February 2, 1970, private respondent PVTA
filed a Motion for Reconsideration of the Order/ Partial Judgment of
January 15, 1970. This was granted and the aforementioned Partial
Judgment was set aside. The case was set for hearings on November 4,
9 and 11, 1970 [Rollo, pp. 205-207.] However, in view of the failure of
plaintiff BADOC to appear on the said dates, the lower court ordered the
dismissal of the case against PVTA for failure to prosecute [Rollo, p.
208.]
It must be noted that the Order of respondent Judge dated April 6, 1970
directing the plaintiff to reimburse PVTA t e amount of P206,916.76 with
interests became final as to said plaintiff who failed to even file a motion
for reconsideration, much less to appeal from the said Order.
Consequently, the order to restore the account of PVTA with RCBC in the
same condition and state it was before the issuance of the questioned
orders must be upheld as to the plaintiff, BADOC.
However, the questioned Order of April 6, 1970 must be set aside insofar
as it ordered the petitioner RCBC, jointly and severally with BADOC, to
reimburse PVTA.
2 Prov Rem. Cases Batch 2
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,
3 Prov Rem. Cases Batch 2
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 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
4 Prov Rem. Cases Batch 2
or NPC, should be released from all responsibilities over such amount
after delivery thereof to the sheriff. The reason for the rule is self-evident.
To expose garnishees to risks for obeying court orders and processes
would only undermine the administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's stand that its immediate
compliance with the lower court's order should not have been met with
the harsh penalty of joint and several liability. Nor can its liability to
reimburse PVTA of the amount delivered in check be premised upon the
subsequent declaration of nullity of the order of delivery. As correctly
pointed out by the petitioner:
xxx xxx xxx
That the respondent Judge, after his Order was enforced,
saw fit to recall said Order and decree its nullity, should not
prejudice one who dutifully abided by it, the presumption
being that judicial orders are valid and issued in the regular
performance of the duties of the Court" [Section 5(m) Rule
131, Revised Rules of Court]. This should operate with
greater force in relation to the herein petitioner which, not
being a party in the case, was just called upon to perform
an act in accordance with a judicial flat. A contrary view will
invite disrespect for the majesty of the law and induce
reluctance in complying with judicial orders out of fear that
said orders might be subsequently invalidated and thereby
expose one to suffer some penalty or prejudice for obeying
the same. And this is what will happen were the
controversial orders to be sustained. We need not
underscore the danger of this as a precedent.
xxx xxx xxx
[ Brief for the Petitioner, Rollo, p. 212; Emphasis supplied.]
From the foregoing, it may be concluded that the charge of breach of
trust and/or dereliction of duty as well as lack of prudence in effecting the
immediate payment of the garnished amount is totally unfounded. Upon
receipt of the Notice of Garnishment, RCBC duly informed PVTA thereof
to enable the latter to take the necessary steps for its protection.
However, right on the very next day after its receipt of such notice, RCBC
was already served with the Order requiring delivery of the garnished
amount. Confronted as it was with a mandatory directive, disobedience to
which exposed it to a contempt order, it had no choice but to comply.
The respondent Judge nevertheless held that the liability of RCBC for the
reimbursement of the garnished amount is predicated on the ruling of the
Supreme Court in the case of Commissioner of Public Highways v. Hon.
San Diego [G.R. No. L-30098, February 18, 1970, 31 SCRA 616] which
he found practically on all fours with the case at bar.
The Court disagrees.
The said case which reiterated the rule in Republic v. Palacio [G.R. No.
L-20322, May 29, 1968, 23 SCRA 899] that government funds and
properties may not be seized under writs of execution or garnishment to
satisfy such judgment is definitely distinguishable from the case at bar.
In the Commissioner of Public Highways case [supra], the bank which
precipitately allowed the garnishment and delivery of the funds failed to
inform its depositor thereof, charged as it was with knowledge of the
nullity of the writ of execution and notice of garnishment against
government funds. In the aforementioned case, the funds involved
belonged to the Bureau of Public Highways, which being an arm of the
executive branch of the government, has no personality of its own
separate from the National Government. The funds involved were
government 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
5 Prov Rem. Cases Batch 2
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).]
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
6 Prov Rem. Cases Batch 2
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
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
7 Prov Rem. Cases Batch 2
ordering the petitioner, jointly and severally with BADOC, to restore the
account of PVTA are modified accordingly.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-60887 November 13, 1991
PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES, HONORATO
BORBON, SR., OFFICE OF THE PROVINCIAL SHERIFF, PROVINCE
OF CEBU, respondents.
Hector L. Fernandez for petitioner.
Domingo Quibranza and Vicente A. Quibranza for private respondents.
FELICIANO, J.:p
The present Petition for Certiorari seeks to annul: (a) the Order dated 6
August 1979 1 which ordered the Provincial Sheriff to garnish the third-
party liability insurance policy issued by petitioner Perla Compania de
Seguros, Inc. ("Perla") in favor of Nelia Enriquez, judgment debtor in Civil
Case No. R-15391; (b) the Order dated 24 October 1979 2 which denied
the motion for reconsideration of the 6 August 1979 Order; and (c) the
Order dated 8 April 1980 3 which ordered the issuance of an alias writ of
garnishment against petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ owned and registered in
the name of Nelia Enriquez, and driven by Cosme Casas, was travelling
from Cebu City to Danao City. While passing through Liloan, Cebu, the
Cimarron PUJ collided with a private jeep owned by the late Calixto
Palmes (husband of private respondent Primitiva Palmes) who was then
driving the private jeep. The impact of the collision was such that the
private jeep was flung away to a distance of about thirty (30) feet and
then fell on its right side pinning down Calixto Palmes. He died as a result
of cardio-respiratory arrest due to a crushed chest. 4 The accident also
caused physical injuries on the part of Adeudatus Borbon who was then
only two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes (widow of Calixto
Palmes) and Honorato Borbon, Sr. (father of minor Adeudatus Borbon)
filed a complaint 5 against Cosme Casas and Nelia Enriquez (assisted by
her husband Leonardo Enriquez) before the then Court of First Instance
of Cebu, Branch 3, claiming actual, moral, nominal and exemplary
damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being distinct and
separate from that of co-plaintiff Primitiva Palmes, and the amount
thereof falling properly within the jurisdiction of the inferior court,
respondent Judge Jose R. Ramolete ordered the Borbon claim excluded
from the complaint, without prejudice to its being filed with the proper
inferior court.
On 4 April 1977, the Court of First Instance rendered a Decision 6 in
favor of private respondent Primitiva Palmes, ordering common carrier
Nelia Enriquez to pay her P10,000.00 as moral damages, P12,000.00 as
compensatory damages for the death of Calixto Palmes, P3,000.00 as
exemplary damages, P5,000.00 as actual damages, and P1,000.00 as
attorney's fees.
The judgment of the trial court became final and executory and a writ of
execution was thereafter issued. The writ of execution was, however,
returned unsatisfied. Consequently, the judgment debtor Nelia Enriquez
was summoned before the trial court for examination on 23 July 1979.
She declared under oath that the Cimarron PUJ registered in her name
was covered by a third-party liability insurance policy issued by petitioner
Perla.
Thus, on 31 July 1979, private respondent Palmes filed a motion for
garnishment 7 praying that an order of garnishment be issued against the
8 Prov Rem. Cases Batch 2
insurance policy issued by petitioner in favor of the judgment debtor. On
6 August 1979, respondent Judge issued an Order 8 directing the
Provincial Sheriff or his deputy to garnish the third-party liability insurance
policy.
Petitioner then appeared before the trial court and moved for
reconsideration of the 6 August 1979 Order and for quashal of the writ of
garnishment, 9 alleging that the writ was void on the ground that it (Perla)
was not a party to the case and that jurisdiction over its person had never
been acquired by the trial court by service of summons or by any
process. The trial court denied petitioner's motion.10 An Order for
issuance of an alias writ of garnishment was subsequently issued on 8
April 1980. 11
More than two (2) years later, the present Petition for Certiorari and
Prohibition was filed with this Court on 25 June 1982 alleging grave
abuse of discretion on the part of respondent Judge Ramolete in ordering
garnishment of the third-party liability insurance contract issued by
petitioner Perla in favor of the judgment debtor, Nelia Enriquez. The
Petition should have been dismissed forthwith for having been filed way
out of time but, for reasons which do not appear on the record, was
nonetheless entertained.
In this Petition, petitioner Perla reiterates its contention that its insurance
contract cannot be subjected to garnishment or execution to satisfy the
judgment in Civil Case No. R-15391 because petitioner was not a party to
the case and the trial court did not acquire jurisdiction over petitioner's
person. Perla further argues that the writ of garnishment had been issued
solely on the basis of the testimony of the judgment debtor during the
examination on 23 July 1979 to the effect that the Cimarron PUJ was
covered by a third-party liability insurance issued by Perla, without
granting it the opportunity to set up any defenses which it may have
under the insurance contract; and that the proceedings taken against
petitioner are contrary to the procedure laid down in Economic Insurance
Company, Inc. v. Torres, et al., 12 which held that under Rule 39, Section
45, the Court "may only authorize" the judgment creditor to institute an
action against a third person who holds property belonging to the
judgment debtor.
We find no grave abuse of discretion or act in excess of or without
jurisdiction on the part of respondent Judge Ramolete in ordering the
garnishment of the judgment debtor's third-party liability insurance.
Garnishment has been defined as a species of attachment for reaching
any property or credits pertaining or payable to a judgment debtor. 13 In
legal contemplation, it is a forced novation by the substitution of creditors:
14 the judgment debtor, who is the original creditor of the garnishee is,
through service of the writ of garnishment, substituted by the judgment
creditor who thereby becomes creditor of the garnishee. Garnishment
has also been described as a warning to a person having in his
possession property or credits of the judgment debtor, not to pay the
money or deliver the property to the latter, but rather to appear and
answer the plaintiff's suit. 15
In order that the trial court may validly acquire jurisdiction to bind the
person of the garnishee, it is not necessary that summons be served
upon him. The garnishee need not be impleaded as a party to the case.
All that is necessary for the trial court lawfully to bind the person of the
garnishee or any person who has in his possession credits belonging to
the judgment debtor is service upon him of the writ of garnishment.
The Rules of Court themselves do not require that the garnishee be
served with summons or impleaded in the case in order to make him
liable.
Rule 39, Section 15 provides:
Sec. 15. Execution of money judgments. The officer must
enforce an execution of a money judgment by levying on all
the property, real or personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution . . .
Real property, stocks, shares, debts, credits, and other
personal property, or any interest in either real or personal
9 Prov Rem. Cases Batch 2
property, may be levied on in like manner and with like
effect as under a writ of attachment. (Emphasis supplied).
Rule 57, Section 7(e) in turn reads:
Sec. 7. Attachment of real and personal property; recording
thereof. Properties shall be attached by the officer
executing the order in the following manner:
xxx xxx xxx
(e) Debts and credits, and other personal property not
capable of manual delivery, by leaving with the person
owing such debts, or having his possession or under his
control such credits or other personal property, or with his
agent, a copy of the order, and notice that the debts owing
by him to the party against whom attachment is issued, and
the credits and other personal property in his possession, or
under his control, belonging to said party, are attached in
pursuance of such order;
xxx xxx xxx
(Emphasis supplied)
Through service of the writ of garnishment, the garnishee becomes a
"virtual party" to, or a "forced intervenor" in, the case and the trial court
thereby acquires jurisdiction to bind him to compliance with all orders and
processes of the trial court with a view to the complete satisfaction of the
judgment of the court. In Bautista v. Barredo, 16 the Court, through Mr.
Justice Bautista Angelo, held:
While it is true that defendant Jose M. Barredo was not a
party in Civil Case No. 1636 when it was instituted by
appellant against the Philippine Ready Mix Concrete
Company, Inc., however, jurisdiction was acquired over him
by the court and he became a virtual party to the case
when, after final judgment was rendered in said case
against the company, the sheriff served upon him a writ of
garnishment in behalf of appellant. Thus, as held by this
Court in the case of Tayabas Land Company vs. Sharruf,
 41 Phil. 382, the proceeding by garnishment is a species of
attachment for reaching credits belonging to the judgment
debtor and owing to him from a stranger to the litigation. By
means of the citation, the stranger becomes a forced
intervenor; and the court, having acquired jurisdiction over
him by means of the citation, requires him to pay his debt,
not to his former creditor, but to the new creditor, who is
creditor in the main litigation. (Emphasis supplied).
In Rizal Commercial Banking Corporation v. De Castro, 17 the Court
stressed that the asset or credit garnished is thereupon subjected to a
specific lien:
The garnishment of property to satisfy a writ of execution
operates as an attachment and fastens upon the property a
lien by which the property is brought under the jurisdiction
of the court issuing the writ. It is brought into custodia legis,
under the sole control of such
court. 18 (Emphasis supplied)
In the present case, there can be no doubt, therefore, that the trial court
actually acquired jurisdiction over petitioner Perla when it was served with
the writ of garnishment of the third-party liability insurance policy it had
issued in favor of judgment debtor Nelia Enriquez. Perla cannot
successfully evade liability thereon by such a contention.
Every interest which the judgment debtor may have in property may be
subjected to execution.19 In the instant case, the judgment debtor Nelia
Enriquez clearly had an interest in the proceeds of the third-party liability
insurance contract. In a third-party liability insurance contract, the insurer
assumes the obligation of paying the injured third party to whom the
insured is liable. 20 The insurer becomes liable as soon as the liability of
the insured to the injured third person attaches. Prior payment by the
insured to the injured third person is not necessary in order that the
obligation of the insurer may arise. From the moment that the insured
became liable to the third person, the insured acquired an interest in the
10 Prov Rem. Cases Batch 2
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.
Narvasa, CJ., Cruz, Grio-Aquino and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
11 Prov Rem. Cases Batch 2
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 OCTOBER 3, 1971, A DECISION WITHOUT
denied the motion stating in its Order that "the testimony of CONSIDERING MOST OF THE EVIDENCE SUCH
Baldovino Lagbao, witness for the defendant, corroborates the THAT
facts in the plaintiff's affidavit instead of disproving or showing
them to be untrue." l) EVEN AN IMPORTANT FACT, ESTABLISHED BY
DOCUMENTARY EVIDENCE AND NOT DENIED
A motion for reconsideration was filed by the defendant bus BY RESPONDENT, IS MENTIONED ONLY AS A
company but the lower court denied it. Hence, the defendant "CLAIM" OF PETITIONER COMPANY;
went to the Court of Appeals on a petition for certiorari alleging
grave abuse of discretion on the part of herein respondent Judge, 2) THE DECISION CONTAINS NO DISCUSSION
Hon. Vicente R. Cusi Jr. On giving due course to the petition, the AND APPRECIATION OF THE FACTS AS
Court of Appeals issued a restraining order restraining the trial PROVED, ASSEMBLED AND PRESENTED BY
court from enforcing further the writ of attachment and from PETITIONER COMPANY SHOWING IN THEIR
proceeding with the hearing of Civil Case No. 7329. In its TOTALITY THAT RESPONDENT HAS
decision promulgated on October 3, 1971, the Court of Appeals REMOVED, DIVERTED OR DISPOSED OF ITS
declared "null and void the order/writ of attachment dated BANK DEPOSITS, INCOME AND OTHER LIQUID
November 3, 1971 and the orders of December 2, 1971, as well ASSETS WITH INTENT TO DEFRAUD ITS
as that of December 11, 1971, ordered the release of the CREDITORS, ESPECIALLY ITS UNSECURED
attached properties, and made the restraining order originally SUPPLIERS;
issued permanent.
3) THE DECISION IGNORES THE SIGNIFICANCE
The present recourse is an appeal by certiorari from the decision OF THE REFUSAL OF RESPONDENT TO PERMIT,
of the Court of Appeals reversing the assailed orders of the Court UNDER REP. ACT NO. 1405, THE
of First Instance of Davao, (Branch I), petitioner assigning METROPOLITAN BANK & TRUST CO. TO BRING,
against the lower court the following errors: IN COMPLIANCE WITH A subpoena DUCES
TECUM TO THE TRIAL COURT ALL THE
ERROR I RECORDS OF RESPONDENT'S DEPOSITS AND
WITHDRAWALS UNDER ITS CURRENT AND
THE COURT OF APPEALS ERRED IN HASTILY SAVINGS ACCOUNTS (NOW NIL) FOR
AND PERFUNCTORILY RENDERING, ON EXAMINATION BY PETITIONER COMPANY FOR

12 Prov Rem. Cases Batch 2

THE PURPOSE OF SHOWING DIRECTLY THE
REMOVAL, DIVERSION OR DISPOSAL OF
RESPONDENT'S DEPOSITS AND INCOME WITH
INTENT TO DEFRAUD ITS CREDITORS.
ERROR II
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THE FACTS THAT
RESPONDENT'S BANK DEPOSITS ARE NIL AS
PROOF WHICH - TOGETHER WITH
RESPONDENT'S ADMISSION OF AN INCOME OF
FROM P10,000.00 to P 14,000.00 A DAY AND THE
EVIDENCE THAT IT CANNOT PRODUCE P 634.00
WITHOUT USING A PERSONAL CHECK OF ITS
PRESIDENT AND MAJORITY STOCKHOLDER,
AND OTHER EVIDENCE SHOWS THE
REMOVAL OR CHANNELING OF ITS INCOME TO
THE LATTER.
ERROR III
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THE RESCUE AND REMOVAL BY
RESPONDENT OF FIVE ATTACHED BUSES,
DURING THE DEPENDENCY OF ITS MOTION TO
DISSOLVE THE ATTACHMENT IN THE, TRIAL
COURT, AS A FURTHER ACT OF REMOVAL OF
PROPERTIES BY RESPONDENT WITH INTENT
TO DEFRAUD PETITIONER COMPANY, FOR
13 Prov Rem. Cases Batch 2
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 case, altogether. Accordingly, the instant petition is hereby denied, but the trial court is
secured creditors like the DBP to which all its buses have been mortgaged, despite its hereby ordered to immediately proceed with the hearing of Civil Case No. 7329 and
daily income averaging P12,000.00, and the rescue and removal of five attached buses. decide it in accordance with the law and the evidence. No special pronouncement as to
costs.
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, SO ORDERED.
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 Barredo (Chairman), Guerrero *, and Abad Santos, JJ., concur.
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 Aquino, J., concurs in the result.
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 Concepcion Jr., J., took no part.
substitution to be placed in running condition.
FIRST DIVISION
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 [G.R. No. 115678. February 23, 2001]
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 PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT
apparently has not been done. OF APPEALS and BERNARDINO VILLANUEVA, respondents.
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
[G.R. No. 119723. February 23, 2001]
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 PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT
lack of repairs. It should also maintain a good credit standing with its suppliers of OF APPEALS and FILIPINAS TEXTILE MILLS, INC., respondents.
equipment, and other needs of the company to keep its business a going concern.
Petitioner is only one of the suppliers.
DECISION
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 YNARES-SANTIAGO, J.:
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, Before us are consolidated petitions for review both filed by Philippine Bank of
has adduced no proof of any sale or transfer of any of them, which should have been Communications; one against the May 24, 1994 Decision of respondent Court of
easily obtainable.
Appeals in CA-G.R. SP No. 32863i[1] and the other against its March 31, 1995
In the main, therefore, We find that the respondent Court of Appeals has not committed
Decision in CA-G.R. SP No. 32762.ii[2] Both Decisions set aside and nullified
any reversible error, much less grave abuse of discretion, except that the restraining the August 11, 1993 Orderiii[3] of the Regional Trial Court of Manila, Branch 7,
order issued by it should not have included restraining the trial court from hearing the

14 Prov Rem. Cases Batch 2

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 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,iv[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.
15 Prov Rem. Cases Batch 2
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 consolidatedv[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.vi[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;
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,
16 Prov Rem. Cases Batch 2
have the property of the adverse party attached as security for the satisfaction of
any judgment that may be recovered in the following cases:
xxx xxx xxx
(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;
xxx xxx xxx
(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;
xxx xxx xxx
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.vii[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;
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)

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.
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.ix[9] On the
other hand, as stressed, above, fraud may be gleaned from a 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.

Again, it lacks particulars upon which the court can discern whether or not a writ The Court of Appeals was correct, therefore, in its finding in CA-G.R. SP No.
of attachment should issue. 32863 that neither petitioners Motion or its supporting Affidavit provides
sufficient basis for the issuance of the writ of attachment prayed for.
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 We also agree with respondent Court of Appeals in CA-G.R. SP No. 32762 that
for attachment to issue. We note that petitioner anchors its application upon the lower court should have conducted a hearing and required private petitioner
Section 1(d), Rule 57. This particular provision was adequately explained in to substantiate its allegations of fraud, embezzlement and misappropriation.
Liberty Insurance Corporation v. Court of Appeals,viii[8] as follows
To reiterate, petitioners Motion for Attachment fails to meet the standard set
To sustain an attachment on this ground, it must be shown that the debtor in forth in D.P. Lub Oil Marketing Center, Inc. v. Nicolas,x[10] in applications for
contracting the debt or incurring the obligation intended to defraud the creditor. attachment. In the said case, this Court cautioned --
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

17 Prov Rem. Cases Batch 2

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.,xi[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.xii[12]
18 Prov Rem. Cases Batch 2
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.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
EN BANC
G.R. No. L-28297 March 30, 1970 chanrobles virtua l law library
ELPIDIO JAVELLANA, Plaintiff-Appellant, v. D. O. PLAZA
ENTERPRISES, INC., Defendant-Appellee.
Ramon A. Gonzales for plaintiff-appellant. chanroblesvirtuala wlibrarychanr obles vir tual law lib rary
Hermosisima, Maramara and Sol for 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. chanroblesv irtualawlibrary chanrobles virtual law library
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 which, when presented to the bank, were dishonored for lack of funds. Defendant
defendant be ordered to pay the said sum of P43,017.32, with legal interest, plus substituted these checks with another set of checks for the same amount, but
attorney's fees in the sum of P5,000.00; it also prayed for a writ of preliminary again, the same were dishonored for lack of funds, as evidenced by Exhibits A to
attachment. chanroblesvirtualawlibrary chanrobles virtual law library 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
Upon plaintiff's putting up a bond, the trial court, on 15 April 1961, issued a writ issuance of the said checks, the defendant never informed plaintiff that it had
of attachment. On 20 May 1961, the defendant moved to discharge the funds to back them up. Plaintiff made demands to defendant for payment, but
attachment on the ground that it was improperly issued. The motion was defendant pleaded for time and liberalization of payment, which was rejected by
denied.chanroblesvirtualawlibrary chanrobles virtual law library 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
On 7 November 1961, the defendant filed its answer and counter-claimed for transactions were for 30-day term, 12% interest per annum to be charged from
damages arising from the attachment. The plaintiff answered and interposed a date of invoice, and 25% attorney's fees in case of litigation. chanroblesvirtualawlibrary chanrobles virtual law library

counterclaim to the counterclaim. chanroblesvir tualawlibrary chanrobles virtual law library

The defendant claims that there were other transactions between plaintiff and
After some years, or on 27 April 1966, the defendant moved for the dissolution defendant involving the amount of P196,828.58; that it had no intention not to
of the preliminary attachment. Upon its filing a counterbond, the court, on 7 May pay the checks it issued upon presentment; and that it suffered damages in the
1966, dissolved the attachment. amount of P14,800.00 by reason of the attachment.
chanroblesvirtualawlibrary chanrobles virtual law library chanroblesvirtualawlibrary chanrobles virtual law library

On 3 November 1966, the plaintiff filed a motion to admit his amended xxx xxx xxx chanrobles virtual law library

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 The counterclaim for damages arising from the attachment is without merit. The
original complaint, the defendant has paid P3,900.00, thereby leaving a balance defendant was manifestly in bad faith when it issued two sets of bouncing
of P39,117.32 unpaid, but that, as indicated by invoices, defendant's purchases checks. Hence, the attachment was not improper, contrary to defendant's claim.
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 The dispositive portion of the decision decreed:
increased amounts. Defendant did not answer this amended complaint. chanroblesvir tualawlibrary chanrobles virtual law library

WHEREFORE, judgment is hereby rendered for the plaintiff and against the
After trial, the court, on 15 June 1967, rendered judgment. It found the following defendant, ordering the latter to pay the former the sum of P39,117.32 with
facts: 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
.... During the period from 23 July 1959 to 30 July 1960, defendant, in a series of attorney's fees and costs of suit. chanroblesvirtualawlibrary chanrobles virtual law library

transactions, purchased from plaintiff wire ropes, tractors and diesel spare parts,
(in) payment for which he issued several checks amounting to P43,017.32,

19 Prov Rem. Cases Batch 2

The counterclaim as well as the counterclaim to the counter claim are hereby became merely an extrajudicial admission, the admissibility of which, as
dismissed for lack of merit. evidence, requires its formal offer.

On 28 June 1967, the defendant moved to reconsider. Over the objection of the Pleadings superseded or amended disappear from the record as judicial
plaintiff, the court issued an order dated 10 August 1967, now the subject of the admissions. However, any statement contained therein may be considered as an
present appeal, modifying the previous decision, in the manner following: 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
WHEREFORE, the dispositive part of the decision rendered in this case is Lucido v. Calupitan, 27 Phil. 148; Bastida v. Menzi, 58 Phil. 188.) chanrobles virtual law library

hereby modified as follows: chanrobles virtual law library

Where amended pleadings have been filed, allegations in the original pleadings
(a) By ordering the defendant to pay plaintiff the sum of P39,117.20 plus the can have no effect, unless formally offered in evidence. (Jones on Evidence, Sec.
legal interest therein from the filing of the complaint until the amount is fully 273.)
paid.chanroblesvirtualawlibrary chanrobles virtual law library

Since the record does not show that the complaint (marked as Exhibit 115) was
(b) Ordering the plaintiff to pay defendant the sum of P16,190.00, the amount of admitted in evidence, there is no proof of estoppel on the part of the plaintiff on
damages suffered by the defendant on account of the preliminary attachment of his allegations in the complaint. Not only this, but since the stipulation for 12%
the defendant; and chanrobles virtual law library 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
(c) By ordering the defendant to pay P5,000.00 as attorney's fees. chanroblesvirtualawlibrary chanrobles virtual law library 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
Without pronouncement as to costs. 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
Plaintiff-appellant assigns the following errors: the reduction of the attorney's entitled to as much relief as the facts warrant (Rosales vs. Reyes, 25 Phil. 495;
fees, the reduction of the interest, and the grant to the defendant of damages Aguilar vs. Rubiato, 40 Phil. 470). chanroblesvirtualawlibrary chanrobles virtual law library

arising from the attachment. chanroblesvirtualawlibrary chanrobles virtual law library

But the appellant's last assigned error is without merit. Although the defendant
The first two assigned errors are well taken. The court a quo reduced the interest was found to be in bad faith in issuing two (2) sets of bouncing checks in
stated in its previous decision from 12% to mere legal interest and the attorney's payment for its indebtedness, such bad faith was not related to his having
fees from 25% to P5,000.00 on the basis of estoppel, the ground therefor being incurred the obligation in favor of the plaintiff but to defendant's failure to
that the reduced amounts were those alleged, hence admitted, by the plaintiff in perform said obligation. There was, therefore, no ground for the plaintiff to
his original complaint. This was error. The original complaint was not formally attach the defendant's properties on the ground of fraud. That the plaintiff acted
offered in evidence. Having been amended, the original complaint lost its in good faith in securing attachment does not relieve him from the damages that
character as a judicial admission, which would have required no proof, and the defendant sustained by reason of the attachment because he, the plaintiff,

20 Prov Rem. Cases Batch 2

was, in the first place, not entitled to attachments, the element of malice was
unnecessary (3 Moran, Rules of Court, 19). chanroblesvirtualawlibrary chanrobles virtual law library
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.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo and Villamor, JJ., concur.
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.

On March 7, 2002, Watercraft terminated the employment of Wolfe.

G.R. No. 181721, September 09, 2015
Sometime in June 2002, Wolfe pulled out his sailboat from Watercraft's storage
WATERCRAFT VENTURE CORPORATION, REPRESENTED BY ITS facilities after signing a Boat Pull-Out Clearance dated June 29, 2002 where he
VICE-PRESIDENT, ROSARIO E. RAOA, Petitioner, v. ALFRED allegedly acknowledged the outstanding obligation of Sixteen Thousand Three
RAYMOND WOLFE, Respondent. 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
DECISION repeated demands, he failed to pay the said amount.

PERALTA, J.: 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
This is a petition for review on certiorari under Rule 45 of the Rules of Court, of Preliminary Attachment. The case was docketed as Civil Case No. 4534-MN,
1
seeking to reverse and set aside the Court of Appeals (CA) Resolution dated and raffled to Branch 1703 of the Regional Trial Court (RTC) of Malabon City.
January 24, 2008 denying the motion for reconsideration of its Decision2 dated
September 27, 2007 in CA-G.R. SP No. 97804. In his Answer, Wolfe claimed he was hired as Service and Repair Manager,
instead of Shipyard Manager. He denied owing Watercraft the amount of
The facts are as follows:chanRobles virtualLawlibrary
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
Petitioner Watercraft Venture Corporation (Watercraft) is engaged in the and Watercraft1 s then General Manager, Barry Bailey, and its President, Ricky
business of building, repairing, storing and maintaining yachts, boats and other Sandoval, for it to be repaired and used as training or fill-in project for the staff,

21 Prov Rem. Cases Batch 2

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 By virtue of the Notice of Attachment and Levy dated September 5, 2005, a white
and entitled to a ten percent (10%) sales commission. He insisted that nowhere in Dodge pick-up truck with plate number XXL 111 was also levied upon. However,
the agreement was there a stipulation that berthing and storage fees will be a certain Jeremy Simpson filed a Motion for Leave of Court to Intervene,
charged during the entire time that the sailboat was in Watercraft's dockyard. claiming that he is the owner of the truck as shown by a duly-notarized Deed of
Thus, he claimed to have been surprised when he received five (5) invoices Sale executed on August 4, 2005, the Certificate of Registration No. 3628665-1
billing him for the said fees two (2) months after his services were terminated. and the Official Receipt No. 271839105.
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 On November 8, 2005, Wolfe filed a Motion to Discharge the Writ of Attachment,
Arbiter. 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
Meanwhile, finding Watercraft's ex-parte application for writ of preliminary claimed that he is not a flight risk for the following reasons: (1) contrary to the
attachment sufficient in form and in substance pursuant to Section 1 of Rule 57 claim that his Special Working Visa expired in April 2005, his Special Subic
of the Rules of Court, the RTC granted the same in the Order dated July 15, Working Visa and Alien Certificate of Registration are valid until April 25, 2007
2005, thus: 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
WHEREFORE, let a Writ of Preliminary Attachment be issued accordingly in Marine Corporation which is registered with the Securities and Exchange
favor of the plaintiff, Watercraft Ventures Corporation conditioned upon the Commission, and a consultant of "Sudeco/Ayala" projects in Subic, a member of
filing of attachment bond in the amount of Three Million Two Hundred Thirty- the Multipartite Committee for the new port development in Subic, and the Subic
One Thousand Five Hundred and Eighty-Nine and 25/100 Pesos Chamber of Commerce; and (4) he intends to finish prosecuting his pending
(Php3,231,589.25) and the said writ be served simultaneously with the summons, labor case against Watercraft. On even date, Watercraft also filed a Motion for
copies of the complaint, application for attachment, applicant's affidavit and Preliminary Hearing of its affirmative defenses of forum shopping, litis
bond, and this Order upon the defendant. pendentia, and laches.

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.
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.

22 Prov Rem. Cases Batch 2

The CA granted Wolfe's petition in a Decision dated September 2007, the "When a judge issues a writ of preliminary attachment ex-parte, it is
dispositive portion of which reads: incumbent on him, upon proper challenge of his order to determine whether or
WHEREFORE, the Order dated March 20, 2006 and the Order dated not the same was improvidently issued. If the party against whom the writ is
November 10, 2006 of respondent Judge are hereby ANNULLED and SET prayed for squarely controverts the allegation of fraud, it is incumbent on the
ASIDE. Accordingly, the Writ of Attachment issued on August 3, 2005, the applicant to prove his allegation. The burden of proving that there indeed was
Notice of Attachment dated August 5, 2005 and the Notice of Attachment and fraud lies with the party making such allegation. This finds support in Section
Levy dated September 5, 2005 are hereby also declared NULL and VOID, and 1, Rule 131 Rules of Court. In this jurisdiction, fraud is never presumed."
private respondent is DIRECTED to return to their owners the vehicles that (Emphasis supplied)
were attached pursuant to the Writ. 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
SO ORDERED.5 in all averments of fraud, the circumstances constituting fraud must be stated
The CA ruled that the act of issuing the writ of preliminary attachment ex-parte with particularity, pursuant to Rule 8, Section 5. The Complaint merely stated, in
constitutes grave abuse of discretion on the part of the RTC, thus: paragraph 23 thereof that "For failing to pay the use [of] facilities and services
x x x In Cosiquien [v. Court of Appeals], the Supreme Court held that: in the form of boat storage fees, the Defendant is clearly guilty of fraud which
"Where a judge issues a fatally defective writ of preliminary attachment based entitles the Plaintiff to a Writ of Preliminary Attachment upon the property of the
on an affidavit which failed to allege the requisites prescribed for the issuance Defendant as security for the satisfaction of any judgment herein." This
of the writ of preliminary attachment, renders the writ of preliminary allegation does not constitute fraud as contemplated by law, fraud being the
attachment issued against the property of the defendant fatally defective. The "generic term embracing all multifarious means which human ingenuity can
judge issuing it is deemed to have acted in excess of jurisdiction. In fact, the devise, and which are resorted to by one individual to secure an advantage over
defect cannot even be cured by amendment. Since the attachment is a harsh and another by false suggestions or by suppression of truth and includes all surprise,
rigorous remedy which exposed the debtor to humiliation and annoyance, the trick, cunning, dissembling and any unfair way by which another is cheated." In
rule authorizing its issuance must be strictly construed in favor of defendant. It is this instance, Wolfe's mere failure to pay the boat storage fees does not
the duty of the court before issuing the Avrit to ensure that all the requisites of necessarily amount to fraud, absent any showing that such failure was due to
the law have been complied with. Otherwise, a judge acquires no jurisdiction to [insidious] machinations and intent on his part to defraud Watercraft of the
issue the writ." (emphasis supplied) amount due it.
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 As to the allegation that Wolfe is a flight risk, thereby warranting the issuance of
to defraud the company. It merely enumerated the circumstances tending to show the writ, the same lacks merit. The mere fact that Wolfe is a British national does
the alleged possibility of Wolfe's flight from the country. And upon Wolfe's filing not automatically mean that he would leave the country at will. As Wolfe avers,
of the Motion to Discharge the Writ, what the respondent Judge should have he and his family had been staying in the Philippines since 1997, with his
done was to determine, through a hearing, whether the allegations of fraud were daughters studying at a local school. He also claims to be an existing
true. As further held in Cosiquien: stockholder and officer of Wolfe Marine Corporation, a SEC-registered

23 Prov Rem. Cases Batch 2

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 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.
24 Prov Rem. Cases Batch 2
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.
Watercraft also points out the inconsistent stance of Wolfe with regard to the
25 Prov Rem. Cases Batch 2
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;
Cha nRoblesV irtu ala wlib rary
that the case is one of those mentioned in Section 117 hereof; ChanRoblesV irtu ala wlib rary
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:
26 Prov Rem. Cases Batch 2
xxxx
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 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 facilitiesduly 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.
27 Prov Rem. Cases Batch 2
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; ChanR oblesVirtua lawlibr ary
b. The Defendant is a British national who may easily leave the country at
will;
ChanRoblesV irtua lawlibr ary
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 not automatically mean that he would leave the country at will. As Wolfe avers,
reach of the senses, usually kept secret, very unlikely to be confessed, and he and his family had been staying in the Philippines since 1997, with his
therefore, can only be proved by unguarded expressions, conduct and daughters studying at a local school. He also claims to be an existing
circumstances.27 Thus, the applicant for a writ of preliminary attachment must stockholder and officer of Wolfe Marine Corporation, a SEC - registered
sufficiently show the factual circumstances of the alleged fraud because corporation, as well as a consultant of projects in the Subic Area, a member of
fraudulent intent cannot be inferred from the debtor's mere non-payment of the the Multipartite Committee for the new port development in Subic, and a member
debt or failure to comply with his obligation.28 The particulars of such of the Subic Chamber of Commerce. More importantly, Wolfe has a pending
circumstances necessarily include the time, persons, places and specific acts of labor case against Watercraft - a fact which the company glaringly failed to
fraud committed.29 An affidavit which does not contain concrete and specific mention in its complaint - which Wolfe claims to want to prosecute until its very
grounds is inadequate to sustain the issuance of such writ. In fact, mere general end. The said circumstances, as well as the existence of said labor case where
averments render the writ defective and the court that ordered its issuance acted Wolfe stands not only to be vindicated for his alleged illegal dismissal, but also
with grave abuse of discretion amounting to excess of jurisdiction.30 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
In this case, Watercraft's Affidavit of Preliminary Attachment does not contain alleged unpaid boat storage fees has been filed against him by Watercraft.
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 should the fact that Wolfe's Special Working Visa expired in April 2005
Neither can it be inferred from such affidavit the particulars of why he was guilty lead automatically to the conclusion that he would leave the country. It is worth
of fraud in the performance of such obligation. To be specific, Watercraft's noting that all visas issued by the government to foreigner staying in the
following allegation is unsupported by any particular averment of circumstances Philippines have expiration periods. These visas, however, may be renewed,
that will show why or how such inference or conclusion was arrived at, to wit: subject to the requirements of the law. In Wolfe's case, he indeed renewed his
"16. For failing to pay for the use [of] facilities and services - in the form of boat
visa, as shown by Special Working Visa No. 05-WV-0124P issued by the Subic
storage facilities - duly enjoyed by him and for failing and refusing to fulfill his Bay Metropolitan Authority Visa Processing Office on April 25, 2005, and with
promise to pay for the said boat storage fees, the Defendant is clearly guilty of validity of two (2) years therefrom. Moreover, his Alien Certificate of
fraud x x x."31 It is not an allegation of essential facts constituting Watercraft's Registration was valid up to May 11, 2006.33
causes of action, but a mere conclusion of law. Meanwhile, Watercraft's reliance on Chuidian v. Sandiganbayan34 is displaced.
It is well settled that:
With respect to Section 1 (a),32 Rule 57, the other ground invoked by Watercraft x x x when the preliminary attachment is issued upon a ground which is at the
for the issuance of the writ of preliminary attachment, the Court finds no same time the applicant's cause of action; e.g., "an action for money or
compelling reason to depart from the CA's exhaustive ruling to the effect that property embezzled or fraudulently misapplied or converted to his own use by a
such writ is unnecessary because Wolfe is not a flight risk, thus: public officer, or an officer of a corporation, or an attorney, factor, broker,
As to the allegation that Wolfe is a (light risk, thereby warranting the issuance of agent, or clerk, in the course of his employment as such, or by any other person
the writ, the same lacks merit. The mere fact that Wolfe is a British national does in a fiduciary capacity, or for a willful violation of duty," or "an action against a

28 Prov Rem. Cases Batch 2

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 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
29 Prov Rem. Cases Batch 2
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.39 chanroblesvirtuallawlibrary
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. chanroblesvirtuallawlibrary
Velasco, Jr., (Chairperson), Villarama, Jr., Perez,* and Jardeleza, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
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.
Labaquis, Loyola & Angara Law Offices for petitioner.
Cecilio D. Ignacio for 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
30 Prov Rem. Cases Batch 2
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;
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 Rallye Motor in defrauding plaintiff.
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
31 Prov Rem. Cases Batch 2
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
5
allegation in the motion to dissolve the said writ. The Court disagrees.
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
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
7
July 16, 1979, petitioner FILINVEST also filed an Urgent Petition for Restraining Order
alleging, among others, that pending this certiorari proceeding in this court, private
respondent Salazar filed a Motion for Contempt of 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 Justice Claudio Teehankee in the same cited case, a writ of attachment may be
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 that the latter will pay all the costs which may be adjudged to the adverse party and all
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 We agree, however, with private respondents contention that a writ of attachment may
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. ...
32 Prov Rem. Cases Batch 2
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.
10
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
damages which he may sustain by reason of the attachment, if the court shall finally
adjudge that the applicant was not entitled thereto."
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)
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 brne in mind that in this
jurisdiction, fraud is never presumed. FRAUS EST IdIOS ET NON PRAESUMENDA. 13
33 Prov Rem. Cases Batch 2
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 disclosure of facts and circumstances which go into the very object and consideration of
proceeds of the loan to RALLYE and that he would be obligated to pay the installments the contractual obligation. We rule that the failure of respondent Salazar to disclose the
to FILINVEST; that he signed Exhibits A, B and C simultaneously; that it was his wife material fact of non-delivery of the motor vehicle, there being a duty on his part to reveal
who was always transacting business with RALLYE and Abel Sahagun. 23 them, constitutes fraud. (Article 1339, New Civil Code).

Without disputing the above summary of evidence, private respondent Salazar states in We hold that the court a quo committed grave abuse of discretion in dissolving and
his Comment that "the same evidence proferred by (petitioner's) counsel was adopted setting aside the writ of preliminary attachment issued on August 17, 1977.
by (private respondent) Ernesto Salazar during the proceedings. 24
WHEREFORE, IN VIEW OF THE FOREGOING, the appealed Orders of the lower court
According to the court a quo in its assailed order of April 4, 1979, Emesto Salazar "was dated February 2, 1979 and April 4, 1979 are hereby REVERSED and SET ASIDE. The
himself defrauded because while he signed the promissory note and the chattel temporary restraining order issued by Us on July 23, 1979 is hereby made permanent.
mortgage over the vehicle which he bought from Rallye Motors, RALLYE did not deliver No costs.
to him the personal property he bought." And since no fraud was committed by Salazar,
the court accordingly ordered the sheriff to return to Salazar the properties attached by Petition granted.
virtue of the writ of preliminary attachment issued on August 17, 1977.
SO ORDERED.
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 Barredo (Chairman), Aquino, Concepcion, Jr., Santos, De Castro and Escolin, JJ.,
vehicle and the Receipt, Exhibit "G", for its delivery and both signed by Salazar, Exhibits concur.
"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

34 Prov Rem. Cases Batch 2

35 Prov Rem. Cases Batch 2