G.R. No.

181721, September 09, 2015

WATERCRAFT VENTURE CORPORATION, REPRESENTED BY ITS VICE-PRESIDENT, ROSARIO

E. RAÑOA, Petitioner, v. ALFRED RAYMOND WOLFE, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse and set aside the
Court of Appeals (CA) Resolution1 dated January 24, 2008 denying the motion for reconsideration of its Decision 2
dated September 27, 2007 in CA-G.R. SP No. 97804.

The facts are as follows:chanRoblesvirtualLawlibrary

Petitioner Watercraft Venture Corporation (Watercraft) is engaged in the business of building, repairing, storing
and maintaining yachts, boats and other pleasure crafts at the Subic Bay Freeport Zone, Subic, Zambales. In
connection with its operations and maintenance of boat storage facilities, it charges a boat storage fee of Two
Hundred Seventy-Two US Dollars (US$272.00) per month with interest of 4% per month for unpaid charges.

Sometime in June 1997, Watercraft hired respondent Alfred Raymond Wolfe (Wolfe), a British national and
resident of Subic Bay Freeport Zone, Zambales, as its Shipyard Manager.

During his empolyment, Wolfe stored the sailboat, Knotty Gull, within Watercraft1 s boat storage facilities, but
never paid for the storage fees.

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

Sometime in June 2002, Wolfe pulled out his sailboat from Watercraft's storage facilities after signing a Boat Pull-
Out Clearance dated June 29, 2002 where he allegedly acknowledged the outstanding obligation of Sixteen
Thousand Three Hundred and Twenty-Four and 82/100 US Dollars (US$16,324.82) representing unpaid boat
storage fees for the period of June 1997 to June 2002. Despite repeated demands, he failed to pay the said amount.

Thus, on July 7, 2005, Watercraft filed against Wolfe a Complaint for Collection of Sum of Money with Damages
with an Application for the Issuance of a Writ of Preliminary Attachment. The case was docketed as Civil Case
No. 4534-MN, and raffled to Branch 1703 of the Regional Trial Court (RTC) of Malabon City.

In his Answer, Wolfe claimed he was hired as Service and Repair Manager, instead of Shipyard Manager. He
denied owing Watercraft the amount of US$16,324.82 representing storage fees for the sailboat. He explained that
the sailboat was purchased in February 1998 as part of an agreement between him and Watercraft1 s then General
Manager, Barry Bailey, and its President, Ricky Sandoval, for it to be repaired and used as training or fill-in
project for the staff, and to be sold later on. He added that pursuant to a central Listing Agreement for the sale of
the sailboat, he was appointed as agent, placed in possession thereof and entitled to a ten percent (10%) sales
commission. He insisted that nowhere in the agreement was there a stipulation that berthing and storage fees will
be charged during the entire time that the sailboat was in Watercraft's dockyard. Thus, he claimed to have been
surprised when he received five (5) invoices billing him for the said fees two (2) months after his services were
terminated. Fie pointed out that the complaint was an offshoot of an illegal dismissal case he filed against
Watercraft which had been decided in his favor by the Labor Arbiter.

Meanwhile, finding Watercraft's ex-parte application for writ of preliminary attachment sufficient in form and in
substance pursuant to Section 1 of Rule 57 of the Rules of Court, the RTC granted the same in the Order dated
July 15, 2005, thus:
WHEREFORE, let a Writ of Preliminary Attachment be issued accordingly in favor of the plaintiff, Watercraft
Ventures Corporation conditioned upon the filing of attachment bond in the amount of Three Million Two
Hundred Thirty-One Thousand Five Hundred and Eighty-Nine and 25/100 Pesos (Php3,231,589.25) and the
said writ be served simultaneously with the summons, copies of the complaint, application for attachment,
applicant's affidavit and bond, and this Order upon the defendant.

SO ORDERED.4

Pursuant to the Order dated July 15, 2005, the Writ of Attachment dated August 3, 2005 and the Notice of
Attachment dated August 5, 2005 were issued, and Wolfe's two vehicles, a gray Mercedes Benz with plate number
XGJ 819 and a maroon Toyota Corolla with plate number TFW 110, were levied upon.

On August 12, 2005, Wolfe's accounts at the Bank of the Philippine Islands were also garnished.

By virtue of the Notice of Attachment and Levy dated September 5, 2005, a white Dodge pick-up truck with plate
number XXL 111 was also levied upon. However, a certain Jeremy Simpson filed a Motion for Leave of Court to
Intervene, claiming that he is the owner of the truck as shown by a duly-notarized Deed of Sale executed on
August 4, 2005, the Certificate of Registration No. 3628665-1 and the Official Receipt No. 271839105.

On November 8, 2005, Wolfe filed a Motion to Discharge the Writ of Attachment, arguing that Watercraft failed to
show the existence of fraud and that the mere failure to pay or perform an obligation does not amount to fraud.
Me also claimed that he is not a flight risk for the following reasons: (1) contrary to the claim that his Special
Working Visa expired in April 2005, his Special Subic Working Visa and Alien Certificate of Registration are valid
until April 25, 2007 and May 11, 2006, respectively; (2) he and his family have been residing in the Philippines
since 1997; (3) he is an existing stockholder and officer of Wolfe Marine Corporation which is registered with the
Securities and Exchange Commission, and a consultant of "Sudeco/Ayala" projects in Subic, a member of the
Multipartite Committee for the new port development in Subic, and the Subic Chamber of Commerce; and (4) he
intends to finish prosecuting his pending labor case against Watercraft. On even date, Watercraft also filed a
Motion for Preliminary Hearing of its affirmative defenses of forum shopping, litis pendentia, and laches.

In an Order dated March 20, 2006, the RTC denied Wolfe's Motion to Discharge Writ of Attachment and Motion
for Preliminary Hearing for lack of merit.

Wolfe filed a motion for reconsideration, but the RTC also denied it for lack of merit in an Order dated November
10, 2006. Aggrieved, Wolfe filed a petition for certiorari before the CA.

The CA granted Wolfe's petition in a Decision dated September 2007, the dispositive portion of which
reads:WHEREFORE, the Order dated March 20, 2006 and the Order dated November 10, 2006 of respondent
Judge are hereby ANNULLED and SET ASIDE. Accordingly, the Writ of Attachment issued on August 3, 2005,
the Notice of Attachment dated August 5, 2005 and the Notice of Attachment and Levy dated September 5, 2005
are hereby also declared NULL and VOID, and private respondent is DIRECTED to return to their owners the
vehicles that were attached pursuant to the Writ.

SO ORDERED.5

The CA ruled that the act of issuing the writ of preliminary attachment ex-parte constitutes grave abuse of
discretion on the part of the RTC, thus:x x x In Cosiquien [v. Court of Appeals], the Supreme Court held
that:"Where a judge issues a fatally defective writ of preliminary attachment based on an affidavit which failed
to allege the requisites prescribed for the issuance of the writ of preliminary attachment, renders the writ of
preliminary attachment issued against the property of the defendant fatally defective. The judge issuing it is
deemed to have acted in excess of jurisdiction. In fact, the defect cannot even be cured by amendment. Since the
attachment is a harsh and rigorous remedy which exposed the debtor to humiliation and annoyance, the rule
authorizing its issuance must be strictly construed in favor of defendant. It is the duty of the court before issuing
the Avrit to ensure that all the requisites of the law have been complied with. Otherwise, a judge acquires no
jurisdiction to issue the writ." (emphasis supplied)

In the instant case, the Affidavit of Merit executed by Rosario E. Rañoa, Watercraft's Vice-President, failed to
show fraudulent intent on the part of Wolfe to defraud the company. It merely enumerated the circumstances
tending to show the alleged possibility of Wolfe's flight from the country. And upon Wolfe's filing of the Motion to
Discharge the Writ, what the respondent Judge should have done was to determine, through a hearing, whether
the allegations of fraud were true. As further held in Cosiquien:"When a judge issues a writ of preliminary
attachment ex-parte, it is incumbent on him, upon proper challenge of his order to determine whether or not
the same was improvidently issued. If the party against whom the writ is prayed for squarely controverts the
allegation of fraud, it is incumbent on the applicant to prove his allegation. The burden of proving that there
indeed was fraud lies with the party making such allegation. This finds support in Section 1, Rule 131 Rules of
Court. In this jurisdiction, fraud is never presumed." (Emphasis supplied)

As correctly noted by Wolfe, although Sec. 1 of Rule 57 allows a party to invoke fraud as a ground for the
issuance of a writ of attachment, the Rules require that in all averments of fraud, the circumstances constituting
fraud must be stated with particularity, pursuant to Rule 8, Section 5. The Complaint merely stated, in paragraph
23 thereof that "For failing to pay the use [of] facilities and services in the form of boat storage fees, the
Defendant is clearly guilty of fraud which entitles the Plaintiff to a Writ of Preliminary Attachment upon the
property of the Defendant as security for the satisfaction of any judgment herein." This allegation does not
constitute fraud as contemplated by law, fraud being the "generic term embracing all multifarious means which
human ingenuity can devise, and which are resorted to by one individual to secure an advantage over another by
false suggestions or by suppression of truth and includes all surprise, trick, cunning, dissembling and any unfair
way by which another is cheated." In this instance, Wolfe's mere failure to pay the boat storage fees does not
necessarily amount to fraud, absent any showing that such failure was due to [insidious] machinations and intent
on his part to defraud Watercraft of the amount due it.

As to the allegation that Wolfe is a flight risk, thereby warranting the issuance of the writ, the same lacks merit.
The mere fact that Wolfe is a British national does not automatically mean that he would leave the country at will.
As Wolfe avers, he and his family had been staying in the Philippines since 1997, with his daughters studying at a
local school. He also claims to be an existing stockholder and officer of Wolfe Marine Corporation, a SEC-
registered corporation, as well as a consultant of projects in the Subic Area, a member of the Multipartite
Committee for the new port development in Subic, and a member of the Subic Chamber of Commerce. More
importantly, Wolfe has a pending labor case against Watercraft - a fact which the company glaringly failed to
mention in its complaint - which Wolfe claims to want to prosecute until its very end. The said circumstances, as
well as the existence of said labor case where Wolfe stands not only to be vindicated for his alleged illegal
dismissal, but also to receive recompense, should have convinced the trial court that Wolfe would not want to
leave the country at will just because a suit for the collection of the alleged unpaid boat storage fees has been
filed against him by Watercraft.

Neither should the fact that Wolfe's Special Working Visa expired in April 2005 lead automatically to the
conclusion that he would leave the country. It is worth noting that all visas issued by the government to foreigners
staying in the Philippines have expiration periods. These visas, however, may be renewed, subject to the
requirements of the law. In Wolfe's case, he indeed renewed his visa, as shown by Special Working Visa No. 05-
WV-0124P issued by the Subic Bay Metropolitan Authority Visa Processing Office on April 25, 2005, and with
validity of two (2) years therefrom. Moreover, his Alien Certificate of Registration was valid up to May 11, 2006.

Based on the foregoing, it is therefore clear that the writ was improvidently issued. It is well to emphasize that
"[T]he rules on the issuance of a writ of attachment must be construed strictly against the applicants. This
stringency is required because the remedy of attachment is harsh, extraordinary and summary in nature. If all the
requisites for the granting of the writ are not present, then the court which issues it acts in excess of its
jurisdiction. Thus, in this case, Watercraft failed to meet all the requisites for the issuance of the writ. Thus, in
granting the same, respondent Judge acted with grave abuse of discretion.6

In a Resolution dated January 24, 2008, the CA denied Watercraft's motion for reconsideration of its Decision,
there being no new or significant issues raised in the motion.

Dissatisfied with the CA Decision and Resolution, Watercraft filed this petition for review on certiorari, raising
these two issues:I.

WHETHER THE EX-PARTE ISSUANCE OF THE PRELIMINARY ATTACHMENT BY THE TRIAL COURT IN
FAVOR OF THE PETITIONER IS VALID.II.

WHETHER THE ALLEGATIONS IN THE AFFIDAVIT OF MERIT CONCERNING FRAUD ARE SUFFICIENT
TO WARRANT THE ISSUANCE OF A PRELIMINARY WRIT OF ATTACHMENT BY THE TRIAL COURT IN
FAVOR OF THE PETITIONER.7

Watercraft argues that the CA erred in holding that the RTC committed grave abuse of discretion in issuing the
writ of preliminary attachment, and in finding that the affidavit of merit only enumerated circumstances tending
to show the possibility of Wolfe's flight from the country, but failed to show fraudulent intent on his part to
defraud the company.

Stressing that its application for such writ was anchored on two (2) grounds under Section 1, 8 Rule 57, Watercraft
insists that, contrary to the CA ruling, its affidavit of merit sufficiently averred with particularity the
circumstances constituting fraud as a common element of said grounds.

Watercraft points out that its affidavit of merit shows that from 1997, soon after Wolfe's employment as Shipyard
Manager, up to 2002, when his employment was terminated, or for a period of five (5) years, not once did he pay
the cost for the use of the company's boat storage facilities, despite knowledge of obligation and obvious ability to
pay by reason of his position.

Watercraft adds that its affidavit clearly stated that Wolfe, in an attempt to avoid settling of his outstanding
obligations to the company, signed a Boat Pull-Out Clearance where he merely acknowledged but did not pay
Sixteen Thousand Three Hundred and Twenty-Four and 82/100 US Dollars (US$16,324.82) representing unpaid
boat storage fees for the period commencing June 1997 to June 2002. It avers that the execution of such
clearance enabled Wolfe to pull out his boat from the company storage facilities without payment of storage fees.

Watercraft also faults the CA in finding no merit in its allegation that Wolfe is a flight risk. It avers that he was
supposed to stay and work in the country for a limited period, and will eventually leave; that despite the fact that
his wife and children reside in the country, he can still leave with them anytime; and that his work in the country
will not prevent him from leaving, thereby defeating the purpose of the action, especially since he had denied
responsibility for his outstanding obligations. It submits that the CA overlooked paragraph 28 of its Complaint
which alleged that "[i]n support of the foregoing allegations and the prayer for the issuance of a Writ of
Preliminary Attachment in the instant case, the Plaintiff has attached hereto the Affidavit of the Vice-President of
the Plaintiff, MS. ROSARIO E. RANOA x x x."9

Watercraft asserts that it has sufficiently complied with the only requisites for the issuance of the writ of
preliminary attachment under Section 3, Rule 57 of the Rules of Court, i.e., affidavit of merit and bond of the
applicant. It posits that contrary to the CA ruling, there is no requirement that evidence must first be offered
before a court can grant such writ on the basis of Section 1 (d) of Rule 57, and that the rules only require an
affidavit showing that the case is one of those mentioned in Section 1, Rule 57. It notes that although a party is
entitled to oppose an application for the issuance of the writ or to move for the discharge thereof by controverting
the allegations of fraud, such rule does not apply when the same allegations constituting fraud are the very facts
disputed in the main action, as in this case.

Watercraft also points out the inconsistent stance of Wolfe with regard to the ownership and possession of the
sailboat. Contrary to Wolfe's Answer that the purchase of the sailboat was made pursuant to a three (3)-way
partnership agreement between him and its General Manager and Executive Vice-President, Barry Bailey, and its
President, Ricky Sandoval, Watercraft claims that he made a complete turnaround and exhibited acts of sole-
ownership by signing the Boat Pull-Out Clearance in order to retrieve the sailboat. It argues that common sense
and logic would dictate that he should have invoked the existence of the partnership to answer the demand for
payment of the storage fees.

Watercraft contends that in order to pre-empt whatever action it may decide to take with respect to the sailboat in
relation to his liabilities, Wolfe accomplished in no time the clearance that paved the way for its removal from the
company's premises without paying his outstanding obligations. It claims that such act reveals a fraudulent intent
to use the company storage facilities without payment of storage fees, and constitutes unjust enrichment.

The petition lacks merit.

A writ of preliminary attachment is defined as a provisional remedy issued upon order of the court where an
action is pending to be levied upon the property or properties of the defendant therein, the same to be held
thereafter by the sheriff as security for the satisfaction of whatever judgment that might be secured in the said
action by the attaching creditor against the defendant. 10 However, it should be resorted to only when necessary
and as a last remedy because it exposes the debtor to humiliation and annoyance. 11 It must be granted only on
concrete and specific grounds and not merely on general averments quoting the words of the rules. 12 Since
attachment is harsh, extraordinary, and summary in nature,13 the rules on the application of a writ of attachment
must be strictly construed in favor of the defendant.

For the issuance of an ex-parte issuance of the preliminary attachment to be valid, an affidavit of merit and an
applicant's bond must be filed with the court 14 in which the action is pending. Such bond executed to the adverse
party in the amount fixed by the court is subject to the conditions that the applicant will pay: (1) all costs which
may be adjudged to the adverse party; and (2) all damages which such party may sustain by reason of the
attachment, if the court shall finally adjudge that the applicant was not entitled thereto. 15 As to the requisite
affidavit of merit, Section 3,16 Rule 57 of the Rules of Court states that an order of attachment shall be granted
only when it appears in the affidavit of the applicant, or of some other person who personally knows the facts:that
a sufficient cause of action exists;ChanRoblesVirtualawlibrary

that the case is one of those mentioned in Section 117 hereof;ChanRoblesVirtualawlibrary

that there is no other sufficient security for the claim sought to be enforced by the action; and

that the amount due to the applicant, or the value of the property the possession of which he is entitled to recover,
is as much as the sum for which the order is granted above all legal counterclaims.
The mere filing of an affidavit reciting the facts required by Section 3, Rule 57, however, is not enough to compel
the judge to grant the writ of preliminary attachment. Whether or not the affidavit sufficiently established facts
therein stated is a question to be determined by the court in the exercise of its discretion. 18 "The sufficiency or
insufficiency of an affidavit depends upon the amount of credit given it by the judge, and its acceptance or
rejection, upon his sound discretion."19 Thus, in reviewing the conflicting findings of the CA and the RTC on the
pivotal issue of whether or not Watercraft's affidavit of merit sufficiently established facts which constitute as
grounds upon which attachment may be issued under Section 1 (a) 20 and (d),21 Rule 57, the Court will examine the
Affidavit of Preliminary Attachment22 of Rosario E. Rañoa, its Vice-President, which reiterated the following
allegations in its complaint to substantiate the application for a writ of preliminary attachment:x x x x
4. Sometime in June 1997, the Defendant was hired as Watercraft's Shipyard Manager.

5. Soon thereafter, the Defendant placed his sailboat, the Knotty Gull, within the boat storage facilities of
Watercraft for purposes of storage and safekeeping.

6. Despite having been employed by Watercraft, the Defendant was not exempted from paying Watercraft boat
storage fees for the use of the said storage facilities.

7. By virtue of his then position and employment with Watercraft, the Defendant was very much knowledgeable of
the foregoing fact.

8. All throughout his employment with Watercraft, the Defendant used the boat storage facilities of Watercraft for
his Knotty Gull.

9. However, all throughout the said period of his employment, the Defendant never paid the boat storage fees in
favor of the Plaintiff.

10. The Defendant's contract of employment with Watercraft was terminated on 07 March 2002.

11. [Sometime] thereafter, that is, in or about 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 services—in the form of boat storage facilities—duly enjoyed
by him and for failing and refusing to fulfill his promise to pay for the said boat storage fees, the Defendant is
clearly guilty of fraud which entitles the Plaintiff to a Writ of Preliminary Attachment upon the property of the
Defendant as security for the satisfaction of any judgment in its favor in accordance with the provisions of
Paragraph (d), Section 1, Rule 57 of the Rules of Court.

17. The instant case clearly falls under the said provision of law.

18. Furthermore, lawful factual and legal grounds exist which show that the Defendant may have departed or is
about to depart the country to defraud his creditors thus rendering it imperative that a Writ of Preliminary
Attachment be issued in favor of the Plaintiff in the instant case.

19. The possibility of flight on the part of the Defendant is heightened by the existence of the following
circumstances:a. The Special Working Visa issued in favor of the Defendant expired in April
2005;ChanRoblesVirtualawlibrary

b. The Defendant is a British national who may easily leave the country at will;ChanRoblesVirtualawlibrary

c. The Defendant has no real properties and visible, permanent business or employment in the Philippines; and

e. The house last known to have been occupied by the Defendant is merely being rented by him.

20. All told, the Defendant is a very serious flight risk which fact will certainly render for naught the capacity of
the Plaintiff to recover in the instant case.23

After a careful perusal of the foregoing; allegations, the Court agrees with the CA that Watercraft failed to state
with particularity the circumstances constituting fraud, as required by Section 5, 24 Rule 8 of the Rules of Court,
and that Wolfe's mere failure to pay the boat storage fees does not necessarily amount to fraud, absent any
showing that such failure was due to insidious machinations and intent on his part to defraud Watercraft of the
amount due it.

In Liberty Insurance Corporation v. Court of Appeals, 25 the Court explained that to constitute a ground for
attachment in Section 1(d), Rule 57 of the Rules of Court, it must be shown that the debtor in contracting the debt
or incurring the obligation intended to defraud the creditor. A debt is fraudulently contracted if at the time of
contracting it, the debtor has a preconceived plan or intention not to pay. "The fraud must relate to the execution
of the agreement and must have been the reason which induced the other party into giving consent which he
would not have otherwise given."26

Fraudulent intent is not a physical entity, but a condition of the mind beyond the reach of the senses, usually kept
secret, very unlikely to be confessed, and therefore, can only be proved by unguarded expressions, conduct and
circumstances.27 Thus, the applicant for a writ of preliminary attachment must sufficiently show the factual
circumstances of the alleged fraud because fraudulent intent cannot be inferred from the debtor's mere non-
payment of the debt or failure to comply with his obligation. 28 The particulars of such circumstances necessarily
include the time, persons, places and specific acts of fraud committed. 29 An affidavit which does not contain
concrete and specific grounds is inadequate to sustain the issuance of such writ. In fact, mere general averments
render the writ defective and the court that ordered its issuance acted with grave abuse of discretion amounting to
excess of jurisdiction.30

In this case, Watercraft's Affidavit of Preliminary Attachment does not contain specific allegations of other factual
circumstances to show that Wolfe, at the time of contracting the obligation, had a preconceived plan or intention
not to pay. Neither can it be inferred from such affidavit the particulars of why he was guilty of fraud in the
performance of such obligation. To be specific, Watercraft's following allegation is unsupported by any particular
averment of circumstances that will show why or how such inference or conclusion was arrived at, to wit: "16.
For failing to pay for the use [of] facilities and services - in the form of boat storage facilities - duly enjoyed by
him and for failing and refusing to fulfill his promise to pay for the said boat storage fees, the Defendant is
clearly guilty of fraud x x x."31 It is not an allegation of essential facts constituting Watercraft's causes of action,
but a mere conclusion of law.

With respect to Section 1 (a),32 Rule 57, the other ground invoked by Watercraft for the issuance of the writ of
preliminary attachment, the Court finds no compelling reason to depart from the CA's exhaustive ruling to the
effect that such writ is unnecessary because Wolfe is not a flight risk, thus:As to the allegation that Wolfe is a
(light risk, thereby warranting the issuance of the writ, the same lacks merit. The mere fact that Wolfe is a British
national does not automatically mean that he would leave the country at will. As Wolfe avers, he and his family
had been staying in the Philippines since 1997, with his daughters studying at a local school. He also claims to
be an existing stockholder and officer of Wolfe Marine Corporation, a SEC - registered corporation, as well as a
consultant of projects in the Subic Area, a member of the Multipartite Committee for the new port development in
Subic, and a member of the Subic Chamber of Commerce. More importantly, Wolfe has a pending labor case
against Watercraft - a fact which the company glaringly failed to mention in its complaint - which Wolfe claims to
want to prosecute until its very end. The said circumstances, as well as the existence of said labor case where
Wolfe stands not only to be vindicated for his alleged illegal dismissal, but also to receive recompense, should
have convinced the trial court that Wolfe would not want to leave the country at will just because a suit for the
collection of the alleged unpaid boat storage fees has been filed against him by Watercraft.

Neither should the fact that Wolfe's Special Working Visa expired in April 2005 lead automatically to the
conclusion that he would leave the country. It is worth noting that all visas issued by the government to foreigner
staying in the Philippines have expiration periods. These visas, however, may be renewed, subject to the
requirements of the law. In Wolfe's case, he indeed renewed his visa, as shown by Special Working Visa No. 05-
WV-0124P issued by the Subic Bay Metropolitan Authority Visa Processing Office on April 25, 2005, and with
validity of two (2) years therefrom. Moreover, his Alien Certificate of Registration was valid up to May 11, 2006.33

Meanwhile, Watercraft's reliance on Chuidian v. Sandiganbayan34 is displaced. It is well settled that:x x x when
the preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action;
e.g., "an action for money or property embezzled or fraudulently misapplied or converted to his own use by a
public officer, or an officer of a corporation, or an attorney, factor, broker, agent, or clerk, in the course of his
employment as such, or by any other person in a fiduciary capacity, or for a willful violation of duty," or "an
action against a party who has been guilty of fraud in contracting the debt or incurring the obligation upon which
the action is brought," the defendant is not allowed to file a motion to dissolve the attachment under Section 13
of Rule 57 by offering to show the falsity of the factual averments in the plaintiffs application and affidavits on
which the writ was based - and consequently that the writ based thereon had been improperly or irregularly
issued - the reason being that the hearing on such a motion for dissolution of the writ would be tantamount to
a trial of the merits of the action. In other words, the merits of the action would be ventilated at a mere hearing
of a motion, instead of at the regular trial.35

Be that as it may, the foregoing rule is not applicable in this case because when Wolfe filed a motion to dissolve
the writ of preliminary attachment, he did not offer to show the falsity of the factual averments in Watercraft's
application and affidavit on which the writ was based. Instead, he sought the discharge of the writ on the ground
that Watercraft failed to particularly allege any circumstance amounting to fraud. No trial on the merits of the
action at a mere hearing of such motion will be had since only the sufficiency of the factual averments in the
application and affidavit of merit will be examined in order to find out whether or not Wolfe was guilty of fraud in
contracting the debt or incurring the obligation upon which the action is brought, or in the performance thereof.

Furthermore, the other ground upon which the writ of preliminary attachment was issued by the RTC is not at the
same time the applicant's cause of action. Assuming arguendo that the RTC was correct in issuing such writ on the
ground that Watercraft's complaint involves an action for the recovery of a specified amount of money or damages
against a party, like Wolfe, who is about to depart from the Philippines with intent to defraud his creditors, the
Court stresses that the circumstances36 cited in support thereof are merely allegations in support of its application
for such writ.37 Such circumstances, however, are neither the core of Watercraft's complaint for collection of sum
of money and damages, nor one of its three (3) causes of action therein.38

All told, the CA correctly ruled that Watercraft failed to meet one of the requisites for the issuance of a writ of
preliminary attachment, i.e., that the case is one of those mentioned in Section 1 of Rule 57, and that the RTC
gravely abused its discretion in improvidently issuing such writ. Watercraft failed to particularly state in its
affidavit of merit the circumstances constituting intent to defraud creditors on the part of Wolfe in contracting or
in the performance of his purported obligation to pay boat storage fees, as well as to establish that he is a flight
risk. Indeed, if all the requisites for granting such writ are not present, then the court which issues it acts in excess
of its jurisdiction.39chanroblesvirtuallawlibrary

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated September
27, 2007 and its Resolution dated January 24, 2008 in CA-G.R. SP No. 97804, are AFFIRMED.

SO ORDERED.chanroblesvirtuallawlibrary

G.R. No. 212025, July 01, 2015

EXCELLENT QUALITY APPAREL, INC., Petitioner, v. VISAYAN SURETY & INSURANCE

CORPORATION, AND FAR EASTERN SURETY & INSURANCE CO., INC., Respondents.

DECISION

MENDOZA, J.:

The present case involves the wrongful attachment and release of the petitioner's funds to the adverse party and its
plight to recover the same. It seems that when misfortune poured down from the skies, the petitioner received a
handful. The scales of justice, however, do not tilt based on chance; rather on the proper application of law,
jurisprudence and justice.

This is a petition for review on certiorari seeking to reverse and set aside the October 21, 2013 Decision 1 and the
April 1, 2014 Resolution2 of the Court of Appeals (CA), in CA-G.R. CV No. 95421, which affirmed the January
15, 20103 and May 19, 20104 Orders of the Regional Trial Court of Manila, Branch 32 (RTC), in Civil Case No.
04-108940.

The Facts

On March 26, 1996, petitioner Excellent Quality Apparel, Inc. (petitioner), then represented by Max L.F. Ying
(Ying), Vice-President for Productions, and Alfiero R. Orden, Treasurer, entered into a contract with Multi-Rich
Builders (Multi-Rich), a single proprietorship, represented by Wilson G. Chua, its President and General Manager,
for the construction of a garment factory within the Cavite Philippine Economic Zone Authority (CPEZA). The
duration of the project was for a maximum period of five (5) months or 150 consecutive calendar days. Included
in the contract was an Arbitration Clause in case of dispute.

On November 27, 1996, the construction of the factory building was completed.

On February 20, 1997, Win Multi-Rich Builders, Inc. (Win Multi-Rich) was incorporated with the Securities and
Exchange Commission (SEC).

On January 26, 2004, Win Multi-Rich filed a complaint for sum of money and damages against petitioner and
Ying before the RTC.5 It also prayed for the issuance of a writ of attachment, claiming that Ying was about to
abscond and that petitioner had an impending closure.

Win Multi-Rich then secured the necessary bond in the amount of P8,634,448.20 from respondent Visayan Surety
and Insurance Corporation (Visayan Surety)6 In the Order,7 dated February 2, 2004, the RTC issued a writ of
preliminary attachment in favor of Win Multi-Rich.
To prevent the enforcement of the writ of preliminary attachment on its equipment and machinery, petitioner
issued Equitable PCI Bank Check No. 160149,8 dated February 16, 2004, in the amount of P8,634,448.20 payable
to the Clerk of Court of the RTC.

On February 19, 2004, petitioner filed its Omnibus Motion, 9 seeking to discharge the attachment. Petitioner also
questioned the jurisdiction of the RTC due to the presence of the Arbitration Clause in the contract. It asserted that
the case should have been referred first to the Construction Industry Arbitration Commission (CIAC) pursuant to
Executive Order (E.O.) No. 1008.

The motion, however, was denied by the RTC in its Order, 10 dated April 12, 2004, because the issues of the case
could be resolved after a fullblown trial.

On April 26, 2004, petitioner filed its Answer with Compulsory Counterclaim 11 before the RTC. It denied the
material allegation of the complaint and sought the immediate lifting of the writ of attachment. It also prayed that
the bond filed by Win Multi-Rich to support its application for attachment be held to satisfy petitioner's claim for
damages due to the improper issuance of such writ.

On April 29, 2004, the RTC issued another order12 directing the deposit of the garnished funds of petitioner to the
cashier of the Clerk of Court of the RTC.

Win Multi-Rich then filed a motion,13 dated April 29, 2004, to release petitioner's cash deposit to it. Notably, the
motion was granted by the RTC in the Order,14 dated May 3, 2004. Subsequently, on May 7, 2004, Win Multi-
Rich posted Surety Bond No. 1019815 issued by respondent Far Eastern Surety and Insurance Co., Inc. (FESICO)
for the amount of P9,000,000.00, to secure the withdrawal of the cash deposited by petitioner. Thus, Win Multi-
Rich was able to receive the funds of petitioner even before the trial began.

On June 18, 2004, petitioner filed a petition for certiorari16 under Rule 65 of the 1997 Rules of Civil Procedure
before the CA. The petition sought to. annul and set aside the April 12, 2004 and April 29, 2004 Orders of the
RTC. Petitioner then filed its Supplemental Manifestation and Motion, 17 asserting that its cash deposit with the
RTC was turned over to Win Multi-Rich.

On March 14, 2006, the CA rendered a decision, 18annulling the April 12 2004 and April 29, 2004 Orders of the
RTC. It ruled, however, that the RTC had jurisdiction over the case inspite of the arbitration clause because it was
a suit for collection of sum of money. The dispositive portion of which reads:LawlibraryofCRAlaw
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IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby GRANTED. The Orders dated April 12,
2004 and April 29, 2004 of respondent judge are hereby ANNULLED and SET ASIDE. Accordingly, the writ of
preliminary injunction is hereby MADE PERMANENT.

SO ORDERED.19

Petitioner filed a motion for reconsideration arguing, among others, that the CA decision failed to state an order to
return the garnished amount of P8,634,448.[20], which was taken from its bank account and given to Win Multi-
Rich. In its Resolution,20 dated October 11, 2006, the CA denied the motion.

Aggrieved, petitioner elevated the matter to the Court by way of a petition for review on certiorari under Rule 45,
docketed as G.R. No. 175048.

On February 10, 2009, in G.R. No. 175048, the Court promulgated a decision 21 in favor of petitioner and held:
first, that Win Multi-Rich was not a real party in interest; second, that the RTC should not have taken cognizance
of the collection suit because the presence of the arbitration clause vested jurisdiction on the CIAC over all
construction disputes between petitioner and Multi-Rich; and lastly, that Win Multi-Rich could not retain the
garnished amount, as the RTC did not have jurisdiction to issue the questioned writ of attachment and to order the
release of the funds. The dispositive portion reads:LawlibraryofCRAlaw
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WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals is hereby MODIFIED. Civil
Case No. 04-108940 is DISMISSED. Win Multi-Rich Builders, Inc. is ORDERED to return the garnished amount
of EIGHT MILLION SIX HUNDRED THIRTY FOUR THOUSAND FOUR HUNDRED FORTY-EIGHT
PESOS AND TWENTY CENTAVOS (P8,634,448.20), which was turned over by the Regional Trial Court, to
petitioner with legal interest of 12 percent (12%) per annum upon finality of this Decision until payment.

SO ORDERED.22

Win Multi-Rich filed a motion for reconsideration but it was denied by the Court in its April 20, 2009
Resolution.23 Pursuant to an entry of judgment,24 the Court's decision became final and executory on June 2, 2009.

On June 26, 2009, petitioner moved for execution thereof, praying for the return of its cash deposit and, in the
event of refusal of Win Multi-Rich to comply, to hold Visayan Surety and FESICO liable under their respective
bonds.25redarclaw

Win Multi-Rich, Visayan Surety and FESICO were served with copies of the motion for execution. 26 During the
August 7, 2009 hearing on the motion for execution, counsels for petitioner, Win Multi-Rich and FESICO were
present.27 The hearing, however, was reset to September 16, 2009. On the said date, Win Multi-Rich, Visayan
Surety and FESICO were given fifteen (15) days to submit their respective comments or oppositions to the motion
for execution.28redarclaw

On October 15, 2009, Win Multi-Rich opposed the motion for execution29 because the cash deposit awarded to it
by the RTC had been paid to suppliers and the said amount was long overdue and demandable.

The RTC granted the motion for execution in an Order, 30 dated October 19, 2009, and issued a writ of execution. 31
Visayan Surety and FESICO separately moved for reconsideration of the RTC order.

The RTC Ruling

On January 15, 2010, the RTC issued the order, 32 granting the surety respondents' motion for reconsideration and
lifting its October 19, 2009 Order insofar as it granted the motion for execution against Visayan Surety and
FESICO. The RTC absolved the surety respondents because petitioner did not file a motion for judgment on the
attachment bond before the finality of judgment, thus, violating the surety respondents' right to due process. It
further held that the execution against the surety respondents would go beyond the terms of the judgment sought
to be executed considering that the Court decision pertained to Win Multi-Rich only.

Petitioner moved for reconsideration, but its motion was denied by the RTC in its May 19, 2010 Order.33redarclaw

Undaunted, petitioner appealed before the CA, arguing that there was no violation of the right to due process
because the liability of the surety respondents were based on the bonds issued by them.

The CA Ruling

In the assailed decision, dated October 21, 2013, the CA found petitioner's appeal without merit. Citing Section
20, Rule 57 of the 1997 Rules of Civil Procedure (Section 20, Rule 57), the CA held that petitioner failed to timely
claim damages against the surety before the decision of the Court became final and executory. It further stated that
a court judgment could not bind persons who were not parties to the action as the records showed that Visayan
Surety and FESICO were neither impleaded nor informed of the proceedings before the Court in G.R. No.
175048. It was the view of the CA that "[hjaving failed to observe very elementary rules of procedure which are
mandatory, [petitioner] caused its own predicament."

Petitioner filed a motion for reconsideration, but it was denied by the CA in the assailed April 1, 2014 Resolution.

Hence, this present petition, anchored on the following

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STATEMENT OF ISSUES

THE ASSAILED DECISION AND THE ASSAILED RESOLUTION OF THE COURT OF APPEALS
SHOULD BE REVERSED AND SET ASIDE FOR BEING CONTRARY TO LAW AND
JURISPRUDENCE CONSIDERING THAT THE RIGHT TO DUE PROCESS OF THE TWO SURETY
COMPANIES WILL NOT BE VIOLATED IF EXECUTION OF THE JUDGMENT AGAINST THEM IS
ALLOWED.

II

THE ASSAILED DECISION AND THE ASSAILED RESOLUTION OF THE COURT OF APPEALS
SHOULD BE REVERSED AND SET ASIDE FOR BEING CONTRARY TO LAW AND
JURISPRUDENCE CONSIDERING THAT TO ALLOW THE EXECUTION AGAINST THE TWO
SURETY COMPANIES WOULD GIVE FULL EFFECT TO THE TERMS OF THE JUDGMENT. 34

Petitioner contends that Visayan Surety and FESICO could be held liable because the Court, in G.R. No. 175048,
ruled that it cannot allow Win Multi-Rich to retain the garnished amount turned over by the RTC, which had no
jurisdiction to issue the questioned writ of attachment. Petitioner argues that if Win Multi-Rich fails or refuses to
refund or return the cash deposit, then Visayan Surety and FESICO must be held liable under their respective
bonds. Also, petitioner claims that the surety bond of FESICO is not covered by Section 20, Rule 57 because it
did not pertain to the writ of attachment itself, but on the withdrawal of the cash deposit.

On October 3, 2014, Visayan Surety filed its Comment. 35 It asserted that no application for damages was filed
before the Court in G.R. No. 175048. Thus, there was no occasion to direct the RTC to hear and decide the claim
for damages, which constituted a violation of its right to due process. Also, Visayan Surety contended that Section
20, Rule 57 provided a mandatory rule that an application for damages must be filed before the judgment becomes
final and executory.

On October 8, 2014, FESICO filed its Comment. 36 It averred that petitioner failed to comply with Section 20,
Rule 57 of the Rules of Court because the hearing on the motion for execution was conducted after the decision in
G.R. No. 175048 had already become final and executory. It also stated that petitioner failed to implead the surety
respondents as parties in G.R. No. 175048.

On January 26, 2015, petitioner filed its Consolidated Reply. 37 It stressed that because the highest court of the land
had directed the return of the wrongfully garnished amount to petitioner, proceedings on the application under
Section 20, Rule 57, became no longer necessary.

The Court's Ruling

The petition is partly meritorious.

There was an application for damages; but there was no notice given to Visayan Surety

By its nature, preliminary attachment, under Rule 57 of the Rules of Court, "is an ancillary remedy applied for not
for its own sake but to enable the attaching party to realize upon relief sought and expected to be granted in the
main or principal action; it is a measure auxiliary or incidental to the main action. As such, it is available during
the pendency of the action which may be resorted to by a litigant to preserve and protect certain rights and
interests therein pending rendition and for purposes of the ultimate effects, of a final judgment in the case. 38 In
addition, attachment is also availed of in order to acquire jurisdiction over the action by actual or constructive
seizure of the property in those instances where personal or substituted service of summons on the defendant
cannot be effected."39redarclaw

The party applying for the order of attachment must thereafter give a bond executed to the adverse party in the
amount fixed by the court in its order granting the issuance of the writ. 40 The purpose of an attachment bond is to
answer for all costs and damages which the adverse party may sustain by reason of the attachment if the court
finally rules that the applicant is not entitled to the writ.41redarclaw

In this case, the attachment bond was issued by Visayan Surety in order for Win Multi-Rich to secure the issuance
of the writ of attachment. Hence, any application for damages arising from the improper, irregular or excessive
attachment shall be governed by Section 20, Rule 57, which provides:LawlibraryofCRAlaw
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Sec. 20. Claim for damages on account of improper, irregular or excessive attachment.

An application for damages on account of improper, irregular or excessive attachment must be filed before the
trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching
party and his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such
damages may be awarded only after proper hearing and shall be included in the judgment on the main case.

If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must
claim damages sustained during the pendency of the appeal by filing an application in the appellate court, with
notice to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the
appellate court becomes executory. The appellate court may allow the application to be heard and decided by the
trial court.

Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the
same action the damages awarded to him from any property of the attaching party not exempt from execution
should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.

The history of Section 20, Rule 57 was discussed in Malayan Insurance, Inc. v. Salas42 In that case, the Court
explained that Section 20, Rule 57 was a revised version of Section 20, Rule 59 of the 1940 Rules of Court,
which, in turn, was a consolidation of Sections 170, 177, 223, 272, and 439 of the Code of Civil Procedure
regarding the damages recoverable in case of wrongful issuance of the writs of preliminary injunction,
attachment, mandamus and replevin and the appointment of a receiver.

Thus, the current provision of Section 20, Rule 57 of the 1997 Rules of Civil Procedure covers application for
damages against improper attachment, preliminary injunction, receivership, and replevin. 43 Consequently,
jurisprudence concerning application for damages against preliminary injunction, receivership and replevin bonds
can be equally applied in the present case.
In a catena of cases,44 the Court has cited the requisites under Section 20, Rule 57 in order to claim damages
against the bond, as follows:LawlibraryofCRAlaw
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1 The application for damages must be filed in the same case where the bond was
issued;chanRoblesvirtualLawlibrary

2 Such application for damages must be filed before the entry of judgment; and

3 After hearing with notice to the surety.

The first and second requisites, as stated above, relate to the application for damages against the bond. An
application for damages must be filed in the same case where the bond was issued, either (a) before the trial or (b)
before the appeal is perfected or (c) before the judgment becomes executory. 45 The usual procedure is to file an
application for damages with due notice to the other party and his sureties. The other method would be to
incorporate the application in the answer with compulsory counterclaim.46redarclaw

The purpose of requiring the application for damages to be filed in the same proceeding is to avoid the
multiplicity of suit and forum shopping. It is also required to file the application against the bond before the
finality of the decision to prevent the alteration of the immutable judgment.47redarclaw

In Paramount Insurance Corp. v. CA,48 the Court allowed an application for damages incorporated in the answer
with compulsory counterclaim of the defendant therein. The sureties were properly notified of the hearing and
were given their day in court.

Conversely, in the recent case of Advent Capital and Finance Corp. v. Young,49 the application for damages
against the bond was not allowed. The respondent therein filed his omnibus motion claiming damages against
surety after the dismissal order issued by the trial court had attained finality.

In the present petition, the Court holds that petitioner sufficiently incorporated an application for damages against
the wrongful attachment in its answer with compulsory counterclaim filed before the RTC. Petitioner alleged that
the issuance of the improper writ of attachment caused it actual damages in the amount of at least P3,000,000.00.
It added that the Equitable PCI Bank Check No. 160149 it issued to the RTC Clerk of Court, to lift the improper
writ of attachment, should be returned to it.50 Evidently, these allegations constitute petitioner's application for
damages arising from the wrongful attachment, and the said application was timely filed as it was filed before the
finality of judgment.

The next requisite that must be satisfied by petitioner to hold Visayan Surety liable would be that the judgment
against the wrongful attachment was promulgated after the hearing with notice to the surety. Certainly, the surety
must be given prior notice and an opportunity to be heard with respect to the application for damages before the
finality of the judgment. The Court rules that petitioner did not satisfy this crucial element.

Section 20, Rule 57 specifically requires that the application for damages against the wrongful attachment,
whether filed before the trial court or appellate court, must be with due notice to the attaching party and his surety
or sureties. Such damages may be awarded only after proper hearing and shall be included in the judgment on the
main case.

Due notice to the adverse party and its surety setting forth the facts supporting the applicant's right to damages
and the amount thereof under the bond is indispensable. The surety should be given an opportunity to be heard as
to the reality or reasonableness of the damages resulting from the wrongful issuance of the writ. In the absence of
due notice to the surety, therefore, no judgment for damages may be entered and executed against it.51redarclaw

In the old case of Visayan Surety and Insurance Corp. v. Pascual,52 the application for damages was made before
the finality of judgment, but the surety was not given due notice. The Court allowed such application under
Section 20, Rule 59 of the 1940 Rules of Court because there was no rule which stated that the failure to give to
the surety due notice of the application for damages would release the surety from the obligation of the
bond.53redarclaw

The case of Visayan Surety and Insurance Corp. v. Pascual, however, was abandoned in the subsequent rulings of
the Court because this was contrary to the explicit provision of Section 20, Rule 57.54redarclaw

In People Surety and Insurance Co. v. CA,55 the defendant therein filed an application for damages during the trial
but the surety was not notified. The Court denied the application and stated that "it is now well settled that a court
has no jurisdiction to entertain any proceeding seeking to hold a surety liable upon its bond, where the surety has
not been given notice of the proceedings for damages against the principal and the judgment holding the latter
liable has already become final."56redarclaw

In Plaridel Surety & Insurance Co. v. De Los Angeles,57 a motion for execution against the bond of the surety was
filed after the finality of judgment. The petitioner therein asserted that the motion for execution was a sufficient
notification to the surety of its application for damages. The Court ruled, that "[t]his notification, however, which
was made after almost a year after the promulgation of the judgment by the Court of Appeals, did not cure the
tardiness of the claim upon the liability of the surety, which, by mandate of the Rules, should have been included
in the judgment."58redarclaw

In the present case, petitioner's answer with compulsory counterclaim, which contained the application for
damages, was not served on Visayan Surety.59 Also, a perusal of the records60 revealed that Visayan Surety was not
furnished any copies of the pleadings, motions, processes, and judgments concerned with the application for
damages against the surety bond. Visayan Surety was only notified of the application when the motion for
execution was filed by petitioner on June 29, 2009, after the judgment in G.R. No. 175048 had become final and
executory on June 2, 2009.

Clearly, petitioner failed to comply with the requisites under Section 20, Rule 57 because Visayan Surety was not
given due notice on the application for damages before the finality of judgment. The subsequent motion for
execution, which sought to implicate Visayan Surety, cannot alter the immutable judgment anymore.

FESICO's bond is not covered by Section 20, Rule 57

While Visayan Surety could not be held liable under Section 20, Rule 57, the same cannot be said of FESICO. In
the case at bench, to forestall the enforcement of the writ of preliminary attachment, petitioner issued Equitable
PCI Bank Check No. 160149, dated February 16, 2004, in the amount of P8,634,448.20 payable to the Clerk of
Court of the RTC. Pursuant to the RTC Order, dated April 29, 2004, the garnished funds of petitioner were
deposited to the cashier of the Clerk of Court of the RTC. The procedure to discharge the writ of preliminary
attachment is stated in Section 12, Rule 57, to wit:LawlibraryofCRAlaw

Sec. 12. Discharge of attachment upon giving counterbond.

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After a writ of attachment has been enforced, the party whose property has been attached, or the person appearing
on his behalf, may move for the discharge of the attachment wholly or in part on the security given. The court
shall, after due notice and hearing, order the discharge of the attachment if the movant makes a cash
deposit, or files a counter-bond executed to the attaching party with the clerk of the court where the
application is made, in an amount equal to that fixed by the court in the order of attachment, exclusive of
costs. But if the attachment is sought to be discharged with respect to a particular property, the counter-bond shall
be equal to the value of that property as determined by the court. In either case, the cash deposit or the counter-
bond shall secure the payment of any judgment that the attaching party may recover in the action. A notice of the
deposit shall forthwith be served on the attaching party. Upon the discharge of an attachment in accordance with
the provisions of this section, the property attached, or the proceeds of any sale thereof, shall be delivered to the
party making the deposit or giving the counter-bond, or to the person appearing on his behalf, the deposit or
counter-bond aforesaid standing in place of the property so released. Should such counter-bond for any reason to
be found to be or become insufficient, and the party furnishing the same fail to file an additional counter-bond, the
attaching party may apply for a new order of attachment.

[Emphasis Supplied]

Win Multi-Rich, however, took a step further and filed a motion to release petitioner's cash deposit to it.
Immediately, the RTC granted the motion and directed Win Multi-Rich to post a bond in favor of petitioner in the
amount of P9,000,000.00 to answer for the damages which the latter may sustain should the court decide that Win
Multi-Rich was not entitled to the relief sought. Subsequently, Win Multi-Rich filed a surety bond of FESICO
before the RTC and was able to obtain the P8,634,448.20 cash deposit of petitioner, even before the trial
commenced.

Strictly speaking, the surety bond of FESICO is not covered by any of the provisions in Rule 57 of the Rules of
Court because, in the first place, Win Multi-Rich should not have filed its motion to release the cash deposit of
petitioner and the RTC should not have granted the same. The release of the cash deposit to the attaching party is
anathema to the basic tenets of a preliminary attachment.

The chief purpose of the remedy of attachment is to secure a contingent lien on defendant's property until plaintiff
can, by appropriate proceedings, obtain a judgment and have such property applied to its satisfaction, or to make
some provision for unsecured debts in cases where the means of satisfaction thereof are liable to be removed
beyond the jurisdiction, or improperly disposed of or concealed, or otherwise placed beyond the reach of
creditors.61 The garnished funds or attached properties could only be released to the attaching party after a
judgment in his favor is obtained. Under no circumstance, whatsoever, can the garnished funds or attached
properties, under the custody of the sheriff or the clerk of court, be released to the attaching party before
the promulgation of judgment.

Cash deposits and counterbonds posted by the defendant to lift the writ of attachment is a security for the payment
of any judgment that the attaching party may obtain; they are, thus, mere replacements of the property previously
attached.62 Accordingly, the P8,634,448.20 cash deposit of petitioner, as replacement of the properties to be
attached, should never have been released to Win Multi-Rich.

Nevertheless, the Court must determine the nature of the surety bond of FESICO. The cash deposit or the counter-
bond was supposed to secure the payment of any judgment that the attaching party may recover in the action. 63 In
this case, however, Win Multi-Rich was able to withdraw the cash deposit and, in exchange, it posted a surety
bond of FESICO in favor of petitioner to answer for the damages that the latter may sustain. Corollarily, the
surety bond of FESICO substituted the cash deposit of petitioner as a security for the judgment. Thus, to claim
damages from the surety bond of FESICO, Section 17, Rule 57 could be applied. It reads:LawlibraryofCRAlaw
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Sec. 17. Recovery upon the counter-bond.

When the judgment has become executory, the surety or sureties on any counter-bond given pursuant to the
provisions of this Rule to secure the payment of the judgment shall become charged on such counter-bond and
bound to pay the judgment obligee upon demand the amount due under the judgment, which amount may be
recovered from such surety or sureties after notice and summary hearing in the same action.

From a reading of the above-quoted provision, it is evident that a surety on a counter-bond given to secure the
payment of a judgment becomes liable for the payment of the amount due upon: (1) demand made upon the
surety; and (2) notice and summary hearing on the same action. 64 Noticeably, unlike Section 20, Rule 57, which
requires notice and hearing before the finality of the judgment in an application for damages, Section 17, Rule 57
allows a party to claim damages on the surety bond after the judgment has become executory.65redarclaw

The question remains, in contrast to Section 20, why does Section 17 sanction the notice and hearing to the surety
after the finality of judgment? The answer lies in the kind of damages sought to be enforced against the bond.

Under Section 20, Rule 57, in relation to Section 4 therein, 66 the surety bond shall answer for all the costs which
may be adjudged to the adverse party and all damages which he may sustain by reason of the attachment. In other
words, the damages sought to be enforced against the surety bond are unliquidated. Necessarily, a notice and
hearing before the finality of judgment must be undertaken to properly determine the amount of damages that was
suffered by the defendant due to the improper attachment. These damages to be imposed against the attaching
party and his sureties are different from the principal case, and must be included in the judgment.

On the other hand, under Section 17, Rule 57, in relation to Section 12 therein, the cash deposit or the counter-
bond shall secure the payment of any judgment that the attaching party may recover in the action. Stated
differently, the damages sought to be charged against the surety bond are liquidated. The final judgment had
already determined the amount to be awarded to the winning litigant on the main action. Thus, there is nothing
left to do but to execute the judgment against the losing party, or in case of insufficiency, against its sureties.

Here, the Court is convinced that a demand against FESICO had been made, and that it was given due notice and
an opportunity to be heard on its defense. First, petitioner filed a motion for execution on June 29, 2009, a copy of
which was furnished to FESICO;67second, petitioner filed a manifestation,68 dated July 13, 2009, that FESICO
was duly served with the said motion and notified of the hearing on August 7, 2009; third, during the August 7,
2009 hearing on the motion for execution, the counsels for petitioner, Win Multi-Rich and FESICO were all
present;69fourth, in an Order, dated September 16, 2009, FESICO was given fifteen (15) days to submit its
comment or opposition to the motion for execution; 70 and lastly, FESICO filed its comment71 on the motion on
October 1, 2009. Based on the foregoing, the requirements under Section 17, Rule 57 have been more than
satisfied.

Indeed, FESICO cannot escape liability on its surety bond issued in favor of petitioner. The purpose of FESICO's
bond was to secure the withdrawal of the cash deposit and to answer any damages that would be inflicted against
petitioner in the course of the proceedings. 72 Also, the undertaking73 signed by FESICO stated that the duration of
the effeetivity of the bond shall be from its approval by the court until the action is fully decided, resolved or
terminated.

FESICO cannot simply escape liability by invoking that it was not a party in G.R. No. 175048. From the moment
that FESICO issued Surety Bond No. 10198 to Win Multi-Rich and the same was posted before the RTC, the
court has acquired jurisdiction over the surety, and the provisions of Sections 12 and 17 of Rule 57 became
operational. Thus, the Court holds that FESICO is solidarity liable under its surety bond with its principal Win
Multi-Rich.

On a final note, the Court reminds the bench and the bar that lawsuits, unlike duels, are not to be won by a rapier's
thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief
enemy, deserves scant consideration from courts. There should be no vested rights in technicalities.74redarclaw

WHEREFORE, the petition is PARTIALLY GRANTED. The October 21, 2013 Decision and the April 1, 2014
Resolution of the Court of Appeals in CA-G.R. CV No. 95421 are AFFIRMED WITH MODIFICATION. The
Regional Trial Court of Manila, Branch 32 in Civil Case No. 04-108940 is hereby ordered to proceed with the
execution against Far Eastern Surety & Insurance Co., Inc., to the extent of the amount of the surety bond.

SO ORDERED.cralawlawlibrary
G.R. No. 219345

SECURITY BANK CORPORATION, Petitioner

vs.
GREAT WALL COMMERCIAL PRESS COMPANY, INC., ALFREDO BURIEL ATIENZA, FREDINO
CHENG ATIENZA and SPS. FREDERICK CHENG ATIENZA and MONICA CU ATIENZA, Respondents

DECISION

mendoza, J.:

This is a petition for review on certiorari seeking to reverse and set aside the December 12, 2014 Decision 1 and
June 26, 2015 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 131714, which lifted the writ of
preliminary attachment issued by the Regional Trial Court, Branch 59, Makati City (RTC), in Civil Case No. 13-
570, in favor of petitioner Security Bank Corporation (Security Bank).

The Antecedents

On May 15, 2013, Security Bank filed a Complaint for Sum of Money (with Application for Issuance of a Writ of
Preliminary Attachment)3 against respondents Great Wall Commercial Press Company, Inc. (Great Wall) and its
sureties, Alfredo Buriel Atienza, Fredino Cheng Atienza, and Spouses Frederick Cheng Atienza and Monica Cu
Atienza (respondents), before the RTC. The complaint sought to recover from respondents their unpaid
obligations under a credit facility covered by several trust receipts and surety agreements, as well as interests,
attorney's fees and costs. Security Bank argued that in spite of the lapse of the maturity date of the obligations
from December 11, 2012 to May 7, 2013, respondents failed to pay their obligations. The total principal amount
sought was ₱10,000,000.00.

On May 31, 2013, after due hearing, the RTC granted the application for a writ of preliminary attachment of
Security Bank, which then posted a bond in the amount of ₱10,000,000.00.

On June 3, 2013, respondents filed their Motion to Lift Writ of Preliminary Attachment Ad Cautelam,4 claiming
that the writ was issued with grave abuse of discretion based on the following grounds: (1) Security Bank's
allegations in its application did not show a prima facie basis therefor; (2) the application and the accompanying
affidavits failed to allege at least one circumstance which would show fraudulent intent on their part; and (3) the
general imputation of fraud was contradicted by their efforts to secure an approval for a loan restructure. 5

The RTC Orders

In its Order,6 dated July 4, 2013, the RTC denied respondents' motion to lift, explaining that the Credit
Agreement7 and the Continuing Suretyship Agreement8 contained provisions on representations and warranties;
that the said representations and warranties were the very reasons why Security Bank decided to extend the loan;
that respondents executed various trust receipt agreements but did not pay or return the goods covered by the trust
receipts in violation thereof; that they failed to explain why the goods subject of the trust receipts were not
returned and the proceeds of sale thereof remitted; and that it was clear that respondents committed fraud in the
performance of the obligation. 9
10
Respondents filed a motion for reconsideration, but it was denied by the RTC in its Order, dated August 12,
2013.

Dissatisfied, respondents filed a petition for certiorari before the CA seeking to reverse and set aside the RTC
orders denying their motion to lift the writ of preliminary attachment issued.

The CA Ruling

In its assailed decision, dated December 12, 2014, the CA lifted the writ of preliminary attachment. The appellate
court explained that the allegations of Security Bank were insufficient to warrant the provisional remedy of
preliminary attachment. It pointed out that fraudulent intent could not be inferred from a debtor's inability to pay
or comply with its obligations. The CA opined that the non-return of the proceeds of the sale and/or the goods
subject of the trust receipts did not, by itself, constitute fraud and that, at most, these were only averments for the
award of damages once substantiated by competent evidence. It also stressed that respondents' act of offering a
repayment proposal negated the allegation of fraud. The CA held that fraud must be present at the time of
contracting the obligation, not thereafter, and that the rules on the issuance of a writ of attachment must be
construed strictly against the applicant. It disposed the case in this wise:

WHEREFORE, for the foregoing reasons, the instant petition is GRANTED. Accordingly, the attachment over
any property of petitioners by the writ of preliminary attachment is ordered LIFTED effective upon the finality of
this Decision. No costs.

SO ORDERED. 11

Security Bank moved for reconsideration but its motion was denied by the CA in its assailed resolution, dated
June 26, 2015.

Hence, this petition raising the lone

ISSUE

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NULLIFYING THE WRIT OF PRELIMINARY
ATTACHMENT ISSUED BY THE TRIAL COURT. 12

Security Bank argues that there are sufficient factual and legal bases to justify the issuance of the writ of
preliminary attachment. It claims that it was misled by respondents, who employed fraud in contracting their
obligation, as they made the bank believe that they had the capacity to pay; that respondents also committed fraud
in the performance of their obligation when they failed to tum over the goods subject of the trust receipt
agreements,13 or remit the proceeds thereof despite demands; and that these were not mere allegations in the
complaint but facts that were testified to by its witness and supported by written documents.

Security Bank added that respondents' effort to settle their outstanding obligation was just a subterfuge to conceal
their real intention of not honoring their commitment and to delay any legal action that the bank would take
against them; that respondents submitted a repayment proposal through a letter, dated January 23, 2013, knowing
fully well that they were already in default; that they requested a meeting to discuss their proposal but they failed
to show up and meet with the bank's representative; and that respondents did not submit any supporting
documents to back up their repayment proposal.

In their Comment,14 respondents countered that there was insufficient basis for the issuance of the writ of
preliminary attachment against them; that the mere failure to pay their obligation was not an act of fraud; that the
application for the issuance of the writ of preliminary attachment, the affidavit of merit and judicial affidavit
merely cited general allegations of fraud and Security Bank failed to sufficiently show the factual circumstances
constituting fraud. Moreover, respondents claimed that they did not commit fraud because they were earnestly
negotiating with Security Bank for a loan restructuring as shown by their Letter, 15 dated January 23, 2013, and
email correspondences.
In its Reply,16 Security Bank stressed that respondents misled them on their financial capacity and ability to pay
their obligations. It emphasized that there were specific allegations in its complaint and its witness testified that
respondents committed fraud, specifically their failure to comply with the trust receipt agreements, that they
would turn over the goods covered by the trust receipt agreements or the proceeds thereof to Security Bank.

The Court’s Ruling

The Court finds merit in the petition.

Preliminary Attachment

A writ of preliminary attachment is a provisional remedy issued upon the order of the court where an action is
pending. Through the writ, the property or properties of the defendant may be levied upon and held thereafter by
the sheriff as security for the satisfaction of whatever judgment might be secured by the attaching creditor against
the defendant. The provisional remedy of attachment is available in order that the defendant may not dispose of
the property attached, and thus prevent the satisfaction of any judgment that may be secured by the plaintiff from
the former.17

In this case, Security Bank relied on Section 1 (d), Rule 57 of the Rules of Court as basis of its application for a
writ of preliminary attachment. It reads:

RULE 57
Preliminary Attachment

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

xxx

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

xxx

For a writ of preliminary attachment to issue under the above-quoted rule, the applicant must sufficiently show
the factual circumstances of the alleged fraud. It is settled that fraudulent intent cannot be inferred from the
debtor's mere non-payment of the debt or failure to comply with his obligation. 18

While fraud cannot be presumed, it need not be proved by direct evidence and can well be inferred from attendant
circumstances. Fraud by its nature is not a thing susceptible of ocular observation or readily demonstrable
physically; it must of necessity be proved in many cases by inferences from circumstances shown to have been
involved in the transaction in question. 19

The allegations of Security Bank in support of its application for a writ of preliminary attachment are as follow:

15. During the negotiation for the approval of the loan application/ renewal of Respondents the latter through
Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng Atienza and Monica Cu Atienza,
assured SBC that the loan obligation covered by the several Trust Receipts shall be paid in full on or before its
maturity date pursuant to the terms and conditions of the aforesaid trust receipts. However, Respondents as well
as the sureties failed to pay the aforesaid obligation.
16. In addition, the assurance to pay in full the obligation is further solidified by the warranty of solvency
provisions of the Credit Agreement, the pertinent portion of which states that:

"5. Representations at Warranties. - The Borrower further represents and warrants that xx:xe) The maintenance of
the Credit Facility is premised on the Borrower's continued ability to service its obligations to its creditors.
Accordingly, the Borrower hereby warrants that while any of the Credit Obligations remain unpaid, the Borrower
shall at all times have sufficient liquid assets to meet operating requirements and pay all its/his debts as they fall
due. Failure of the Borrower to pay any maturing interest, principal or other charges under the Credit Facility
shall be conclusive evidence of violation of this warranty."

17. To allay whatever fear or apprehension of herein plaintiff on the commitment of Respondents to honor its
obligations, defendants-sureties likewise executed a "Continuing Suretyship Agreement.

18. Under paragraph 3 of the said Suretyship Agreement, it is provided that:

"3. Liability of the Surety - The liability of the Surety is solidary, direct and immediate and not contingent upon
the pursuit by SBC of whatever remedies it may have against the Borrower or the collateral/liens it may possess.
If any of the Guaranteed Obligations is not paid or performed on due date (at stated maturity or by acceleration),
or upon the occurrence of any of the events of default under Section 5 hereof and/or under the Credit Instruments,
the Surety shall without need for any notice, demand or any other act or deed, immediately and automatically
become liable therefor and the Surety shall pay and perform the same."

19. Thus, in the light of the representation made by Respondents Commercial Press Co, Inc., Alfredo Buriel
Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng Atienza and Monica Cu Atienza that the loan shall be
paid in full on or before maturity, coupled by the warranty of solvency embodied in the Credit Agreement as well
as the execution of the Continuing Suretyship Agreement, the loan application was eventually approved.

20. Needless to say that without said representations and warranties, including the Continuing Suretyship
Agreement, the plaintiff would not have approved and granted the credit facility to Respondents. It is thus clear
that Respondents, Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng Atienza and Monica
Cu Atienza, misled SBC and employed fraud in contracting said obligation.

21. Respondents, through its Vice President Fredino Cheng Atienza, likewise executed various Trust Receipt
Agreements with the plaintiff whereby it bound itself under the following provision:

"2. In consideration of the delivery to the Entrustee of the possession of the Goods/Documents, the Entrustee
hereby agrees and undertakes, in accordance with the provisions of the Presidential Decree No. 115; (i) to hold in
trust for the Bank the Goods/Documents; (ii) to sell the Goods for cash only for the account and benefit of the
Bank, and without authority to make any other disposition of the Goods/Documents or any part thereof, or to
create a lien thereon; (iii) to turn over to the Bank, without need of demand, the proceeds of the sale of the Goods
to the extent of the amount of obligation specified above (the "Obligation"), including the interest thereon, and
other amounts owing by the Entrustee to the Bank under this Trust Receipt, on or before the maturity date above-
mentioned (the "Maturity Date"); or (iv) to return, on or before Maturity Date, without need of demand and at the
Entrustee's expense, the Goods/Documents to the Bank, in the event of non-sale of the Goods."

Despite the above covenants, defendants failed to pay nor return the goods subject of the Trust Receipt
Agreements.

22. Knowing fully well that they are already in default, Respondents and defendants sureties submitted a
repayment proposal through their letter dated January 23, 2013. Through their lawyer, they likewise requested the
bank for a meeting to discuss their proposal. However, as it turned out, the proposed repayment proposal for their
loan was only intended to delay legal action against them. They failed to meet with the Bank's representative and
neither did they submit supporting documents to back up their repayment proposal.20

To support its allegation of fraud, Security Bank attached the Affidavit21 of German Vincent Pulgar IV (Pu/gar),
the Manager of the Remedial Management Division of the said bank. He detailed how respondents represented to
Security Bank that they would pay the loans upon their maturity date. Pulgar added that respondents signed the
Credit Agreement which contained the Warranty of Solvency and several Trust Receipt Agreements in favor of
Security Bank. The said trust receipts were attached to the complaint which stated that respondents were obligated
to tum over to Security Bank the proceeds of the sale of the good or to return the goods. The several demand
letters sent by Security Bank to respondents, which were unheeded, were likewise attached to the complaint.
These pieces of evidence were presented by Security Bank during the hearing of the application for the issuance
of a writ of preliminary attachment in the RTC.

After a judicious study of the records, the Court finds that Security Bank was able to substantiate its factual
allegation of fraud, particularly, the violation of the trust receipt agreements, to warrant the issuance of the writ of
preliminary attachment.

There were violations of the

trust receipts agreements

While the Court agrees that mere violations of the warranties and representations contained in the credit
agreement and the continuing suretyship agreement do not constitute fraud under Section 1(d) of Rule 57 of the
Rules of Court, the same cannot be said with respect to the violation of the trust receipts agreements.

A trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the price of the
sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore, two
obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty
to turn it over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise
received under the obligation to "return" it (devolvera) to the owner. 22 The obligations under the trust receipts are
governed by a special law, Presidential Decree (P.D.) No. 115, and non-compliance have particular legal
consequences.

Failure of the entrustee to tum over the proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt shall
be punishable as es ta fa under Article 315 (1) of the Revised Penal Code, without need of proving intent to
defraud. 23 The offense punished under P.D. No. 115 is in the nature of malum prohibitum. Mere failure to deliver
the proceeds of the sale or the goods, if not sold, constitutes a criminal offense that causes prejudice not only to
another, but more to the public interest. 24 The present case, however, only deals with the civil fraud in the
noncompliance with the trust receipts to warrant the issuance of a writ of preliminary attached. A fortiori, in a
civil case involving a trust receipt, the entrustee's failure to comply with its obligations under the trust receipt
constitute as civil fraud provided that it is alleged, and substantiated with specificity, in the complaint, its
attachments and supporting evidence.

Security Bank's complaint stated that Great Wall, through its Vice President Fredino Cheng Atienza, executed
various trust receipt agreements in relation to its loan transactions. The trust receipts stated that in consideration of
the delivery to the entrustee (Great Wall) of the possession of the goods, it obligates itself to hold in trust for the
bank the goods, to sell the goods for the benefit of the bank, to tum over the proceeds of the sale to the bank, and
to return the goods to the bank in the event of non-sale. By signing the trust receipt agreements, respondents fully
acknowledged the consequences under the law once they failed to abide by their obligations therein. The said trust
receipt agreements were attached to the complaint.

Upon the maturity date, however, respondents failed to deliver the proceeds of the sale to Security Bank or to
return the goods in case of nonsale. Security Bank sent a final demand letter to respondents, which was also
attached to the complaint, but it was unheeded. Curiously, in their letter, dated January 23, 2013, respondents did
not explain their reason for noncompliance with their obligations under the trust receipts; rather, they simply
stated that Great Wall was having a sudden drop of its income. Such unsubstantiated excuse cannot vindicate
respondents from their failure to fulfill their duties under the trust receipts.

In addition, Security Bank attached Pulgar's affidavit, which substantiated its allegation that respondents failed to
comply with its obligations under the trust receipts. During the hearing before the RTC, Security Bank presented
him and his judicial affidavit. Regarding the trust receipts, he testified:

Q: Do you have any other basis in saying that you have grounds for attachment?
A: Yes, defendants not only failed to pay but they also failed to return the goods covered by the Trust Receipt.

Q: What do you mean by failure to return the goods?

A: They executed several TRs where they obligated to turn over the proceeds of sale of goods or pay the value
thereof or return the goods themselves if they are unable to pay.

Q: What happened in this case?

A: Defendants failed to pay the value of the goods covered by the TRs and they likewise failed to return the goods
without any explanation. Hence, obviously they misappropriated the proceeds of the sale of goods.25

The Court is of the view that Security Bank's allegations of violation of the trust receipts in its complaint was
specific and sufficient to assert fraud on the part of respondents. These allegations were duly substantiated by the
attachments thereto and the testimony of Security Bank's witness.

The case of Philippine Bank of

Communications v. Court of
Appeals is inapplicable

The CA cited Philippine Bank of Communications v. Court of Appeals26 (PBCom) to bolster its argument that
fraudulent intent cannot be inferred from a debtor's inability to pay or comply with its obligations and that there
must be proof of a preconceived plan not to pay.27

At face value, PBCom and the present case may show a semblance of similarity. Thus, the CA cannot be faulted
for relying on the said case.1âwphi1 A closer scrutiny of these two cases, however, shows that their similarity is
more apparent than real.

In PBCom, the applicant for the writ of preliminary attachment simply stated in its motion that the defendant
therein failed to remit the proceeds or return the goods subject of the trust receipt and attached an ambiguous
affidavit stating that the case was covered by Sections 1 (b) and (d) of Rule 57. Obviously, these allegations and
attachments are too general and vague to prove that the defendant committed fraud. Likewise, there was no
hearing conducted in the RTC before it granted the issuance of the writ of preliminary attachment. Thus, the Court
had no option but to lift the said writ.

In contrast, the complaint in the present case explained in detail the factual circumstances surrounding the
execution of the trust receipts, its contents and the subsequent violation thereof. Security Bank attached
supporting annexes and presented its witness during the hearing in the R TC to substantiate the specific violation
of trust receipts by respondents. Security Bank took great lengths to explain the contents of the trust receipt and
show that respondents expressed their conformity to it. When the obligation became due, respondents did not
satisfactorily explain the non-compliance of their obligations, and. despite a final demand, they did not fulfill their
obligations under the trust receipts. Clearly, PBCom is inapplicable in the present case.

Fraud in the performance of

the obligation must be
considered

The CA stated in the assailed decision that under Section 1 (d) of Rule 57, fraud must only be present at the time
of contracting the obligation, and not thereafter. Hence, the CA did not consider the allegation of fraud - that
respondents offered a repayment proposal but questionably failed to attend the meeting with Security Bank
regarding the said proposal - because these acts were done after contracting the obligation.

In this regard, the CA erred.

Previously, Section 1 (d), Rule 57 of the 1964 Rules of Court provided that a writ of preliminary attachment may
be issued "[i]n an action against a party who has been guilty of a fraud in contracting the debt or incurring the
obligation upon which the action is brought xxx" Thus, the fraud that justified the issuance of a writ of
preliminary attachment then was only fraud committed in contracting an obligation (dolo casuante). 28 When the
1997 Rules of Civil Procedure was issued by the Court, Section l(d) of Rule 57 conspicuously included the phrase
"in the performance thereof." Hence, the fraud committed in the performance of the obligation (dolo incidente)
was included as a ground for the issuance of a writ of preliminary attachment.29

This significant change in Section 1 (d) of Rule 57 was recognized recently in Republic v. Mega Pacific
eSolutions, Inc. 30 The Court stated therein that "[a]n amendment to the Rules of Court added the phrase "in the
performance thereof' to include within the scope of the grounds for issuance of a writ of preliminary attachment
those instances relating to fraud in the performance of the obligation."

Accordingly, the alleged fraud committed by respondents in the performance of their obligation should have been
considered by the CA. Security Bank detailed in its complaint that respondents, knowing fully well that they were
in default, submitted a Repayment Proposal. 31 Then, they requested for a meeting with the bank to discuss their
proposal. For unknown reasons, they did not meet the representatives of the Security Bank.

Respondents even attached to its Motion to Lift Writ of Preliminary Attachment Ad Cautelam 32 the
correspondence they had with Security Bank, which revealed that they did not meet the representatives of the
latter despite providing a specific date to discuss the proposed repayment scheme. Respondents merely offered
lame excuses to justify their absence in the arranged meeting and, ultimately, they failed to clarify the non-
compliance with their commitments. Such acts bared that respondents were not sincere in paying their obligation
despite their maturity, substantiating the allegations of fraud in the performance thereof.

These circumstances of the fraud committed by respondents in the performance of their obligation undoubtedly
support the issuance of a writ of preliminary attachment in favor of Security Bank.

Final Note

While the Court finds that Security Bank has substantiated its allegation of fraud against respondents to warrant
the issuance of writ or preliminary attachment, this finding should not in any manner affect the merits of the
principal case. The writ of preliminary attachment is only a provisional remedy, which is not a cause of action in
itself but is merely adjunct to a main suit.33

WHEREFORE, the December 12, 2014 Decision and the June 26, 2015 Resolution of the Court of Appeals in
CA-G.R. SP No. 131714 are REVERSED and SET ASIDE. The issuance of the writ of preliminary attachment
by the Regional Trial Court, Branch 59, Makati City, in Civil Case No. 13-570, pursuant to its May 31, 2013
Order, is upheld.

SO ORDERED.
WATERCRAFT VENTURE CORPORATION v. ALFRED RAYMOND WOLFE, GR No. 181721, 2015-09-09
Facts:
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.
Sometime in June 2002, Wolfe pulled out his sailboat from Watercraft's storage facilities after signing a Boat Pull-
Out Clearance dated June 29, 2002 where he allegedly acknowledged the outstanding obligation of Sixteen
Thousand Three Hundred and Twenty-Four and 82/100 US
Dollars (US$16,324.82) representing unpaid boat storage fees for the period of June 1997 to June 2002. Despite
repeated demands, he failed to pay the said amount.
Thus, on July 7, 2005, Watercraft filed against Wolfe a Complaint for Collection of Sum of Money with Damages
with an Application for the Issuance of a Writ of Preliminary Attachment.
In his Answer, Wolfe... denied owing Watercraft the amount of US$16,324.82 representing storage fees for the
sailboat. He explained that the sailboat was purchased in February 1998 as part of an... agreement between him
and Watercraft1 s then General Manager, Barry Bailey, and its President, Ricky Sandoval, for it to be repaired and
used as training or fill-in project for the staff, and to be sold later on. He added that pursuant to a central Listing
Agreement for the sale... of the sailboat, he was appointed as agent, placed in possession thereof and entitled to a
ten percent (10%) sales commission. He insisted that nowhere in the agreement was there a stipulation that
berthing and storage fees will be charged during the entire time that the... sailboat was in Watercraft's dockyard.
Fie pointed out that the complaint was an offshoot of an illegal dismissal case he... filed against Watercraft which
had been decided in his favor by the Labor Arbiter.
Meanwhile, finding Watercraft's ex-parte application for writ of preliminary attachment sufficient in form and in
substance pursuant to Section 1 of Rule 57 of the Rules of Court, the RTC granted the same in the Order dated
July 15, 2005
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.
On November 8, 2005, Wolfe filed a Motion to Discharge the Writ of Attachment, arguing that Watercraft failed
to show the existence of fraud and that the mere failure to pay or perform an obligation does not amount to fraud.
Me also claimed that he is not a flight risk for the... following reasons: (1) contrary to the claim that his Special
Working Visa expired in April 2005, his Special Subic Working Visa and Alien Certificate of Registration are
valid until April 25, 2007 and May 11, 2006, respectively; (2) he and his family have been residing in the
Philippines since 1997; (3) he is an existing stockholder and officer of Wolfe Marine Corporation which is
registered with the Securities and Exchange Commission, and a consultant of "Sudeco/Ayala" projects in Subic, a
member of the Multipartite Committee for the new port... development in Subic, and the Subic Chamber of
Commerce; and (4) he intends to finish prosecuting his pending labor case against Watercraft.
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 petition for certiorari before the CA.
The CA granted Wolfe's petition in a Decision dated September 2007
The CA ruled that the act of issuing the writ of preliminary attachment ex-parte constitutes grave abuse of
discretion on the part of the RTC
In the instant case, the Affidavit of Merit executed by Rosario E. Rañoa, Watercraft's Vice-President, failed to
show fraudulent intent on the part of Wolfe to defraud the company. It merely enumerated the circumstances
tending to show the alleged possibility of Wolfe's flight... from the country. And upon Wolfe's filing of the Motion
to Discharge the Writ, what the respondent Judge should have done was to determine, through a hearing, whether
the allegations of fraud were true.
As correctly noted by Wolfe, although Sec. 1 of Rule 57 allows a party to invoke fraud as a ground for the
issuance of a writ of attachment, the Rules require that in all averments of fraud, the circumstances constituting
fraud must be stated with particularity, pursuant to Rule
8, Section 5.
Wolfe's mere failure to pay the boat... storage fees does not necessarily amount to fraud, absent any showing that
such failure was due to [insidious] machinations and intent on his part to defraud Watercraft of the amount due it.
As to the allegation that Wolfe is a flight risk, thereby warranting the issuance of the writ, the same lacks merit.
circumstances... 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
Issues:
WHETHER THE EX-PARTE ISSUANCE OF THE PRELIMINARY ATTACHMENT BY THE TRIAL COURT
IN FAVOR OF THE PETITIONER IS VALID.
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]
Ruling:
The petition lacks merit.
the Court agrees with the CA that Watercraft failed to state with particularity the circumstances constituting fraud,
as required by Section 5,[24] Rule 8 of the Rules of Court, and that Wolfe's mere... failure to pay the boat storage
fees does not necessarily amount to fraud, absent any showing that such failure was due to insidious machinations
and intent on his part to defraud Watercraft of the amount due it.
In Liberty Insurance Corporation v. Court of Appeals,[25] the Court explained that to constitute a ground for
attachment in Section 1(d), Rule 57 of the Rules of Court, it must be shown that the debtor in contracting the debt
or incurring the... obligation intended to defraud the creditor. A debt is fraudulently contracted if at the time of
contracting it, the debtor has a preconceived plan or intention not to pay. "The fraud must relate to the execution
of the agreement and must have been the reason which induced the... other party into giving consent which he
would not have otherwise given."[26]
Fraudulent intent is not a physical entity, but a condition of the mind beyond the reach of the senses, usually kept
secret, very unlikely to be confessed, and therefore, can only be proved by unguarded expressions, conduct and
circumstances.[27] Thus, the... applicant for a writ of preliminary attachment must sufficiently show the factual
circumstances of the alleged fraud because fraudulent intent cannot be inferred from the debtor's mere non-
payment of the debt or failure to comply with his obligation.[28]
The particulars of such circumstances necessarily include the time, persons, places and specific acts of fraud
committed.[29] An affidavit which does not contain concrete and specific grounds is inadequate to sustain the
issuance of such writ. In fact, mere... general averments render the writ defective and the court that ordered its
issuance acted with grave abuse of discretion amounting to excess of jurisdiction.[30]
In this case, Watercraft's Affidavit of Preliminary Attachment does not contain specific allegations of other factual
circumstances to show that Wolfe, at the time of contracting the obligation, had a preconceived plan or intention
not to pay. Neither can it be inferred from... such affidavit the particulars of why he was guilty of fraud in the
performance of such obligation. To be specific, Watercraft's following allegation is unsupported by any particular
averment of circumstances that will show why or how such inference or conclusion was arrived at,... to wit: "16.
For failing to pay for the use [of] facilities and services - in the form of boat storage facilities - duly enjoyed by
him and for failing and refusing to fulfill his promise to pay for the said boat storage fees, the Defendant is clearly
guilty of fraud x x... x."[31] It is not an allegation of essential facts constituting Watercraft's causes of action, but a
mere conclusion of law.
With respect to Section 1 (a),[32] Rule 57, the other ground invoked by Watercraft for the issuance of the writ of
preliminary attachment, the Court finds no compelling reason to depart from the CA's exhaustive ruling to the
effect that such writ is... unnecessary because Wolfe is not a flight risk
Meanwhile, Watercraft's reliance on Chuidian v. Sandiganbayan[34] is displaced. It is well settled that:... when the
preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action... 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.
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 circumstances[36] 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.

SECURITY BANK vs. GREAT WALL

Security Bank Corporation Vs. Great Wall Commercial Press Company, Inc., et al.
G.R. No. 219345

January 30, 2017

Facts:

May 12, 2013, Security Bank Corporation, the petitioner, filed a complaint (with application for Issuance of a
Writ of Preliminary Attachment) against the respondents, before the Regional Trial Court, Branch 59 of Makati
City. The complaint sought to recover from respondents their unpaid obligations under a credit facility covered by
several trust receipts and surety agreements, as well as interests, attorney’s fee and cost. The petitioner argued that
in spite of the lapse of the maturity date of the obligation from December 11, 2012 to May 7, 2013, respondents
failed to pay their obligations. The total principal amount sought was P10,000,000.00.

After due hearing, the RTC granted the application for a Writ of Preliminary Attachment of Security Bank, which
then posted a bond in the amount of P10,000,000.00. Then respondent filed to lift Writ of Preliminary Attachment
but denied by RTC. The respondent filed a motion for reconsideration but denied by RTC.

Dissatisfied respondents filed a petition for certiorari before CA, December 12, 2014, the CA lifted the Writ of
Preliminary Attachment. The petitioner moved for reconsideration but its motion was denied by the CA in its
assailed resolution, dated June 26, 2015.

Issue:

Whether or not the court of appeals erred in nullifying the Writ of Preliminary Attachment issued by the Regional
Trial Court.

Held:

Yes, the CA erred in nullifying the Writ of Preliminary Attachment issued by the Regional Trial Court.
Under section 1 (d), Rule 57 of the Rules of Court, Preliminary Attachment section 1. Grounds upon which
attachment may issue.- At the commencement of the action or at any time before entry of judgment, a plaintiff or
any proper party may have the property of the adverse party attached as security for the satisfaction of any
judgment that may be recovered in the following cases: (d) In an action against a party who has been guilty of a
fraud in contracting the debt or incurring the obligation upon which the action is brought, or the performance
thereof:

Wherefore, the December 12, 2014 Decision and the June 26, 2015 Resolution of the Court of Appeals in CA-
G.R. SP No. 131714 are REVERSED and SET ASIDE. The issuance of the Writ of Preliminary Attachment by
the Regional Trial Court, Branch 59, Makati City, in Civil Case No. 13-570, pursuant to its May 31, 2013 Order,
is upheld.