G.R. No.
L-60887 November 13, 1991 In the afternoon of 1 June 1976, a Cimarron PUJ owned and
PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES,
HONORATO BORBON, SR., OFFICE OF THE
PROVINCIAL SHERIFF, PROVINCE OF
CEBU, respondents.
Provisional Remedies; Garnishment.—Garnishment has been
defined as a species of attachment for reaching any property or
credits pertaining or payable to a judgment debtor. In legal
contemplation, it is a forced novation by the substitution of
creditors: the judgment debtor, who is the original creditor of
the garnishee is, through service of the writ of garnishment,
substituted by the judgment creditor who thereby becomes
creditor of the garnishee. Garnishment has also been described
as a warning to a person having in his possession property or
credits of the judgment debtor, not to pay the money or deliver
the property to the latter, but rather to appear and answer the
plaintiff’s suit.
Same; Same; Jurisdiction to bind person of garnishee, how
acquired.—In order that the trial court may validly acquire
jurisdiction to bind the person of the garnishee, it is not
necessary that summons be served upon him. The garnishee
need not be impleaded as a party to the case. All that is
necessary for the trial court lawfully to bind the person of the
garnishee or any person who has in his possession credits
belonging to the judgment debtor is service upon him of the
writ of garnishment. The Rules of Court themselves do not
require that the garnishee be served with summons or
impleaded in the case in order to make him liable xxx Through
service of the writ of garnishment, the garnishee becomes a
“virtual party” to, or a “forced intervenor” in, the case and the
trial court thereby acquires jurisdiction to bind him to
compliance with all orders and processes of the trial court with
a view to the complete satisfaction of the judgment of the
court.
Judgments; Execution; Garnishment of third party liability
insurance contract.—Every interest which the judgment debtor
may have in property may be subjected to execution. xxx In a
third-party liability insurance contract, the insurer assumes the
obligation of paying the injured third party to whom the
insured is liable. The insurer becomes liable as soon as the
liability of the insured to the injured third person attaches.
Prior payment by the insured to the injured third person is not
necessary in order that the obligation of the insurer may arise.
From the moment that the insured became liable to the third
person, the insured acquired an interest in the insurance
contract, which interest may be garnished like any other credit.
Perla Compania de Seguros, Inc. vs. Ramolete, 203 SCRA
487, G.R. No. 60887 November 13, 1991
Hector L. Fernandez for petitioner.
Domingo Quibranza and Vicente A. Quibranza for private
respondents.
FELICIANO, J.:
The present Petition for Certiorari seeks to annul: (a) the
Order dated 6 August 1979 1 which ordered the Provincial
Sheriff to garnish the third-party liability insurance policy
issued by petitioner Perla Compania de Seguros, Inc. ("Perla")
in favor of Nelia Enriquez, judgment debtor in Civil Case No.
R-15391; (b) the Order dated 24 October 1979 2 which denied
the motion for reconsideration of the 6 August 1979 Order;
and (c) the Order dated 8 April 1980 3 which ordered the
issuance of an alias writ of garnishment against petitioner.
registered in the name of Nelia Enriquez, and driven by
Cosme Casas, was travelling from Cebu City to Danao City.
While passing through Liloan, Cebu, the Cimarron PUJ
collided with a private jeep owned by the late Calixto Palmes
(husband of private respondent Primitiva Palmes) who was
then driving the private jeep. The impact of the collision was
such that the private jeep was flung away to a distance of
about thirty (30) feet and then fell on its right side pinning
down Calixto Palmes. He died as a result of cardio-respiratory
arrest due to a crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon who was
then only two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes
(widow of Calixto Palmes) and Honorato Borbon, Sr. (father
of minor Adeudatus Borbon) filed a complaint 5 against
Cosme Casas and Nelia Enriquez (assisted by her husband
Leonardo Enriquez) before the then Court of First Instance of
Cebu, Branch 3, claiming actual, moral, nominal and
exemplary damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being
distinct and separate from that of co-plaintiff Primitiva
Palmes, and the amount thereof falling properly within the
jurisdiction of the inferior court, respondent Judge Jose R.
Ramolete ordered the Borbon claim excluded from the
complaint, without prejudice to its being filed with the proper
inferior court.
On 4 April 1977, the Court of First Instance rendered a
Decision 6 in favor of private respondent Primitiva Palmes,
ordering common carrier Nelia Enriquez to pay her
P10,000.00 as moral damages, P12,000.00 as compensatory
damages for the death of Calixto Palmes, P3,000.00 as
exemplary damages, P5,000.00 as actual damages, and
P1,000.00 as attorney's fees.
The judgment of the trial court became final and executory
and a writ of execution was thereafter issued. The writ of
execution was, however, returned unsatisfied. Consequently,
the judgment debtor Nelia Enriquez was summoned before the
trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was
covered by a third-party liability insurance policy issued by
petitioner Perla.
Thus, on 31 July 1979, private respondent Palmes filed a
motion for garnishment 7 praying that an order of garnishment
be issued against the insurance policy issued by petitioner in
favor of the judgment debtor. On 6 August 1979, respondent
Judge issued an Order 8 directing the Provincial Sheriff or his
deputy to garnish the third-party liability insurance policy.
Petitioner then appeared before the trial court and moved for
reconsideration of the 6 August 1979 Order and for quashal of
the writ of garnishment, 9 alleging that the writ was void on
the ground that it (Perla) was not a party to the case and that
jurisdiction over its person had never been acquired by the
trial court by service of summons or by any process. The trial
court denied petitioner's motion. 10 An Order for issuance of an
alias writ of garnishment was subsequently issued on 8 April
1980. 11
More than two (2) years later, the present Petition
for Certiorari and Prohibition was filed with this Court on 25
June 1982 alleging grave abuse of discretion on the part of
respondent Judge Ramolete in ordering garnishment of the
third-party liability insurance contract issued by petitioner
Perla in favor of the judgment debtor, Nelia Enriquez. The
Petition should have been dismissed forthwith for having been
filed way out of time but, for reasons which do not appear on
the record, was nonetheless entertained.

In this Petition, petitioner Perla reiterates its contention that its
insurance contract cannot be subjected to garnishment or
execution to satisfy the judgment in Civil Case No. R-15391
because petitioner was not a party to the case and the trial
court did not acquire jurisdiction over petitioner's person.
Perla further argues that the writ of garnishment had been
issued solely on the basis of the testimony of the judgment
debtor during the examination on 23 July 1979 to the effect
that the Cimarron PUJ was covered by a third-party liability
insurance issued by Perla, without granting it the opportunity
to set up any defenses which it may have under the insurance
contract; and that the proceedings taken against petitioner are
contrary to the procedure laid down in Economic Insurance
Company, Inc. v. Torres, et al.,  which held that under Rule
39, Section 45, the Court "may only authorize" the judgment
creditor to institute an action against a third person who holds
property belonging to the judgment debtor.
We find no grave abuse of discretion or act in excess of or
without jurisdiction on the part of respondent Judge Ramolete
in ordering the garnishment of the judgment debtor's third-
party liability insurance.
Garnishment has been defined as a species of attachment for
reaching any property or credits pertaining or payable to a
judgment debtor. 13 In legal contemplation, it is a forced
novation by the substitution of creditors: 14 the judgment
debtor, who is the original creditor of the garnishee is, through
service of the writ of garnishment, substituted by the judgment
creditor who thereby becomes creditor of the garnishee.
Garnishment has also been described as a warning to a person
having in his possession property or credits of the judgment
debtor, not to pay the money or deliver the property to the
latter, but rather to appear and answer the plaintiff's suit. 15
In order that the trial court may validly acquire jurisdiction to
bind the person of the garnishee, it is not necessary that
summons be served upon him. The garnishee need not be
impleaded as a party to the case. All that is necessary for the
trial court lawfully to bind the person of the garnishee or any
person who has in his possession credits belonging to the
judgment debtor is service upon him of the writ of
garnishment.
The Rules of Court themselves do not require that the
garnishee be served with summons or impleaded in the case in
order to make him liable.
Rule 39, Section 15 provides:
Sec. 15. Execution of money judgments. — The officer must
enforce an execution of a money judgment by levying on all
the property, real or personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution . . .
Real property, stocks, shares, debts, credits, and other personal
property, or any interest in either real or personal
property, may be levied on in like manner and with like effect
as under a writ of attachment. (Emphasis supplied).
Rule 57, Section 7(e) in turn reads:
Sec. 7. Attachment of real and personal property; recording
thereof. — Properties shall be attached by the officer
executing the order in the following manner:
x x x           x x x          x x x
(e) Debts and credits, and other personal property not capable
of manual delivery, by leaving with the person owing such
debts, or having his possession or under his control such
credits or other personal property, or with his agent, a copy of
the order, and notice that the debts owing by him to the party
against whom attachment is issued, and the credits and other
personal property in his possession, or under his control,
belonging to said party, are attached in pursuance of such
order;
x x x           x x x          x x x
(Emphasis supplied)
Through service of the writ of garnishment, the garnishee
becomes a "virtual party" to, or a "forced intervenor" in, the
case and the trial court thereby acquires jurisdiction to bind
him to compliance with all orders and processes of the trial
court with a view to the complete satisfaction of the judgment
of the court. In Bautista v. Barredo,  the Court, through Mr.
Justice Bautista Angelo, held:
While it is true that defendant Jose M. Barredo was
not a party in Civil Case No. 1636 when it was
instituted by appellant against the Philippine Ready
Mix Concrete Company, Inc., however, jurisdiction
was acquired over him by the court and he became a
virtual party to the case when, after final judgment
was rendered in said case against the company, the
sheriff served upon him a writ of garnishment in
behalf of appellant. Thus, as held by this Court in the
case of Tayabas Land Company vs. Sharruf, 41 Phil.
382, the proceeding by garnishment is a species of
attachment for reaching credits belonging to the
judgment debtor and owing to him from a stranger to
the litigation. By means of the citation, the stranger
becomes a forced intervenor; and the court, having
acquired jurisdiction over him by means of the
citation, requires him to pay his debt, not to his
former creditor, but to the new creditor, who is
creditor in the main litigation. (Emphasis supplied).
In Rizal Commercial Banking Corporation v. De Castro, 17 the
Court stressed that the asset or credit garnished is thereupon
subjected to a specific lien:
The garnishment of property to satisfy a writ of
execution operates as an attachment and fastens
upon the property a lien by which the property is
brought under the jurisdiction of the court issuing the
writ. It is brought into custodia legis, under the sole
control of such
court. 18 (Emphasis supplied)
In the present case, there can be no doubt, therefore, that the trial court actually acquired jurisdiction over
petitioner Perla when it was served with the writ of garnishment of the third-party liability insurance policy
it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot successfully evade liability thereon
by such a contention.
Every interest which the judgment debtor may have in property may be subjected to execution. 19
 In
the instant case, the judgment debtor Nelia Enriquez clearly
had an interest in the proceeds of the third-party liability
insurance contract. In a third-party liability insurance contract,
the insurer assumes the obligation of paying the injured third
party to whom the insured is liable. 20 The insurer becomes
liable as soon as the liability of the insured to the injured third
person attaches. Prior payment by the insured to the injured
third person is not necessary in order that the obligation of the
insurer may arise. From the moment that the insured became
liable to the third person, the insured acquired an interest in
the insurance contract, which interest may be garnished like
any other credit. 21
Petitioner also contends that in order that it may be held liable under the third-party liability insurance, a
separate action should have been commenced by private respondents to establish petitioner's liability.
Petitioner invokes Economic Insurance Company, Inc. vs. Torres, 22
 which stated:
 It is clear from Section 45, Rule 39 that if a persons
alleged to have property of the judgment debtor or to
be indebted to him claims an interest in the property
adverse to him or denies the debt, the court may only
authorize the judgment creditor to institute an action
against such person for the recovery of such interest
or debt. Said section does not authorize the court to
make a finding that the third person has in his
possession property belonging to the judgment debtor
or is indebted to him and to order said third person to
pay the amount to the judgment creditor.
It has been held that the only power of the court in
proceedings supplemental to execution is to niake an
order authorizing the creditor to sue in the proper
court to recover an indebtedness due to the judgment
debtor. The court has no jurisdiction to try summarily
the question whether the third party served with
notice of execution and levy is indebted to defendant
when such indebtedness is denied. To make an order
in relation to property which the garnishee claimed to
own in his own right, requiring its application in
satisfaction of judgment of another, would be to
deprive the garnishee of property upon summary
proceeding and without due process of law.
(Emphasis supplied)
But reliance by petitioner on the case of Economic Insurance
Company, Inc. v. Torres (supra) is misplaced. The Court there
held that a separate action needs to be commenced when the
garnishee "claims an interest in the property adverse to him
(judgment debtor) or denies the debt." In the instant case,
petitioner Perla did not deny before the trial court that it had
indeed issued a third-party liability insurance policy in favor
of the judgment debtor. Petitioner moreover refrained from
setting up any substantive defense which it might have against
the insured-judgment debtor. The only ground asserted by
petitioner in its "Motion for Reconsideration of the Order
dated August 6, 1979 and to Quash Notice of Garnishment"
was lack of jurisdiction of the trial court for failure to implead
it in the case by serving it with summons. Accordingly, Rule
39, Section 45 of the Rules of Court is not applicable in the
instant case, and we see no need to require a separate action
against Perla: a writ of garnishment suffices to hold petitioner
answerable to the judgment creditor. If Perla had any
substantive defenses against the judgment debtor, it is properly
deemed to have waived them by laches.
WHEREFORE, the Petition for Certiorari and Prohibition is
hereby DISMISSED for having been filed out of time and for
lack of merit. The assailed Orders of the trial court are hereby
AFFIRMED. Costs against petitioner. This Decision is
immediately executory.
SO ORDERED.
G.R. No. L-35990 June 17, 1981
ABOITIZ & COMPANY, INC., HONORABLE
VICENTE N. CUSI JR., Judge of the Court of First
Instance of Davao, and the PROVINCIAL SHERIFF OF
DAVAO DEL SUR, petitioners,
vs.
COTABATO BUS COMPANY, INC., respondent.
Attachment; Insolvency is not a proper ground for issuance of
a writ of attachment.—Going forthwith to this question of
whether insolvency, which petitioners in effect claims to have
been proven by the evidence, particularly by company’s bank
account which has been reduced to nil, may be a ground for
the issuance of a writ of attachment, the respondent Court of
Appeals correctly took its position in the negative on the
strength of the explicit ruling of this Court in Max Chamorro
& Co. vs. Philippine Ready Mix Concrete Company, Inc. and
Hon. Manuel P. Barcelona.
Same; Facts of this case do not warrant issuance of the writ of
attachment.—It is an undisputed fact that, as averred by
petitioner itself, the several buses attached are nearly junks.
However, upon permission by the sheriff, five of them were
repaired, but they were substituted with five buses which were
also in the same condition as the five repaired ones before the
repair. This cannot be the removal intended as ground for the
issuance of a writ of attachment under Section 1(e), Rule 57,
of the Rules of Court. The repair of the five buses was
evidently motivated by a desire to serve the interest of the
riding public, clearly not to defraud its creditors, as there is no
showing that they were not put on the run after their repairs, as
was the obvious purpose of their substitution to be placed in
running condition.
Same; Same.—Moreover, as the buses were mortgaged to the
DPB, their removal or disposal as alleged by petitioner to
provide the basis for its prayer for the issuance of a writ of
attachment should be very remote, if not nil. If removal of the
buses had in fact been committed, which seems to exist only
in petitioner’s apprehensive imagination, the DBP should not
have failed to take proper court action, both civil and criminal,
which apparently has not been done.
Same; Same.—The dwindling of respondent’s bank account
despite its daily income of from P10,000.00 to P14,000.00 is
easily explained by its having to meet heavy operating
expenses, which include salaries and wages of employees and
workers. If, indeed the income of the company were
sufficiently profitable, it should not allow its buses to fall into
disuse by lack of repairs. It should also maintain a good credit
standing with its suppliers of equipment and other needs of the
company to keep its business a going concern. Petitioner is
only one of the suppliers.
Same; Same.—It is, indeed, extremely hard to remove the
buses, machinery and other equipments which respondent
company have to own and keep to be able to engage and
continue in the operation of its transportation business. The
sale or other form of disposition of any of this kind of property
is not difficult of detection or discovery, and strangely,
petitioner has adduced no proof of any sale or transfer of any
of them, which should have been easily obtainable. Aboitiz &
Company, Inc. vs. Cotabato Bus Company, Inc., 105 SCRA
88, No. L-35990 June 17, 1981
DE CASTRO, J.:
The instant petition stemmed from Civil Case No. 7329 of the
Court of First Instance of Davao (Branch 1) in which a writ of
preliminary attachment was issued ex-parte by the Court on
the strength of an affidavit of merit attached to the verified
complaint filed by petitioner herein, Aboitiz & Co., Inc., on
November 2, 1971, as plaintiff in said case, for the collection
of money in the sum of P 155,739.41, which defendant
therein, the respondent in the instant case, Cotabato Bus Co.,
owed the said petitioner.
By virtue of the writ of preliminary attachment, the provincial
sheriff attached personal properties of the defendant bus
company consisting of some buses, machinery and equipment.
The ground for the issuance of the writ is, as alleged in the
complaint and the affidavit of merit executed by the Assistant
Manager of petitioner, that the defendant "has removed or
disposed of its properties or assets, or is about to do so, with
intent to defraud its creditors."
Respondent company filed in the lower court an "Urgent
Motion to Dissolve or Quash Writ of Attachment" to which
was attached an affidavit executed by its Assistant Manager,
Baldovino Lagbao, alleging among other things that "the
Cotabato Bus Company has not been selling or disposing of its
properties, neither does it intend to do so, much less to defraud
its creditors; that also the Cotabato Bus Company, Inc. has
been acquiring and buying more assets". An opposition and a
supplemental opposition were filed to the urgent motion. The
lower court denied the motion stating in its Order that "the
testimony of Baldovino Lagbao, witness for the defendant,
corroborates the facts in the plaintiff's affidavit instead of
disproving or showing them to be untrue."
A motion for reconsideration was filed by the defendant bus
company but the lower court denied it. Hence, the defendant
went to the Court of Appeals on a petition for certiorari
alleging grave abuse of discretion on the part of herein
respondent Judge, Hon. Vicente R. Cusi Jr. On giving due
course to the petition, the Court of Appeals issued a
restraining order restraining the trial court from enforcing
further the writ of attachment and from proceeding with the
hearing of Civil Case No. 7329. In its decision promulgated on
October 3, 1971, the Court of Appeals declared "null and void
the order/writ of attachment dated November 3, 1971 and the
orders of December 2, 1971, as well as that of December 11,
1971, ordered the release of the attached properties, and made
the restraining order originally issued permanent.
The present recourse is an appeal by certiorari from the
decision of the Court of Appeals reversing the assailed orders
of the Court of First Instance of Davao, (Branch I), petitioner
assigning against the lower court the following errors:
ERROR I
THE COURT OF APPEALS ERRED IN HASTILY
AND PERFUNCTORILY RENDERING, ON
OCTOBER 3, 1971, A DECISION WITHOUT
CONSIDERING MOST OF THE EVIDENCE SUCH
THAT —
l) EVEN AN IMPORTANT FACT, ESTABLISHED BY
DOCUMENTARY EVIDENCE AND NOT DENIED BY
RESPONDENT, IS MENTIONED ONLY AS A
"CLAIM" OF PETITIONER COMPANY;
2) THE DECISION CONTAINS NO DISCUSSION
AND APPRECIATION OF THE FACTS AS PROVED,
ASSEMBLED AND PRESENTED BY PETITIONER
COMPANY SHOWING IN — THEIR TOTALITY —
THAT RESPONDENT HAS REMOVED, DIVERTED
OR DISPOSED OF ITS BANK DEPOSITS, INCOME
AND OTHER LIQUID ASSETS WITH INTENT TO
DEFRAUD ITS CREDITORS, ESPECIALLY ITS
UNSECURED SUPPLIERS;
3) THE DECISION IGNORES THE SIGNIFICANCE
OF THE REFUSAL OF RESPONDENT TO PERMIT,
UNDER REP. ACT NO. 1405, THE METROPOLITAN
BANK & TRUST CO. TO BRING, IN COMPLIANCE
WITH A subpoena DUCES TECUM TO THE TRIAL
COURT ALL THE RECORDS OF RESPONDENT'S
DEPOSITS AND WITHDRAWALS UNDER ITS
CURRENT AND SAVINGS ACCOUNTS (NOW NIL)
FOR EXAMINATION BY PETITIONER COMPANY
FOR THE PURPOSE OF SHOWING DIRECTLY THE
REMOVAL, DIVERSION OR DISPOSAL OF
RESPONDENT'S DEPOSITS AND INCOME WITH
INTENT TO DEFRAUD ITS CREDITORS.
ERROR II
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THE FACTS THAT RESPONDENT'S
BANK DEPOSITS ARE NIL AS PROOF WHICH -
TOGETHER WITH RESPONDENT'S ADMISSION OF
AN INCOME OF FROM P10,000.00 to P 14,000.00 A
DAY AND THE EVIDENCE THAT IT CANNOT
PRODUCE P 634.00 WITHOUT USING A PERSONAL
CHECK OF ITS PRESIDENT AND MAJORITY
STOCKHOLDER, AND OTHER EVIDENCE —
SHOWS THE REMOVAL OR CHANNELING OF ITS
INCOME TO THE LATTER.
ERROR III
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THE RESCUE AND REMOVAL BY
RESPONDENT OF FIVE ATTACHED BUSES,
DURING THE DEPENDENCY OF ITS MOTION TO
DISSOLVE THE ATTACHMENT IN THE, TRIAL
COURT, AS A FURTHER ACT OF REMOVAL OF
PROPERTIES BY RESPONDENT WITH INTENT TO
DEFRAUD PETITIONER COMPANY, FOR WHOSE
BENEFIT SAID BUSES HAD BEEN ATTACHED.
The questions raised are mainly, if not solely, factual
revolving on whether respondent bus company has in fact
removed its properties, or is about to do so, in fraud of its
creditors. This being so, the findings of the Court of Appeals
on said issues of facts are generally considered conclusive and
final, and should no longer be disturbed. However, We gave
due course to the petition because it raises also a legal
question of whether the writ of attachment was properly issued
upon a showing that defendant is on the verge of insolvency
and may no longer satisfy its just debts without issuing the
writ. This may be inferred from the emphasis laid by petitioner
on the fact that even for the measly amount of P 634.00
payment thereof was made with a personal check of the
respondent company's president and majority stockholder, and
its debts to several creditors, including secured ones like the
DBP, have remained unpaid, despite its supposed daily
income of an average of P 12,000.00, as declared by its
assistant manager, Baldovino Lagbao. 1
Going forthwith to this question of whether insolvency, which
petitioners in effect claims to have been proven by the
evidence, particularly by company's bank account which has
been reduced to nil, may be a ground for the issuance of a writ
of attachment, the respondent Court of Appeals correctly took
its position in the negative on the strength of the explicit ruling
of this Court in Max Chamorro & Co. vs. Philippine Ready
Mix Concrete Company, Inc. and Hon. Manuel P. Barcelona. 2
Petitioner, however, disclaims any intention of advancing the
theory that insolvency is a ground for the issuance of a writ of
attachment , 3 and insists that its evidence -is intended to prove
his assertion that respondent company has disposed, or is
about to dispose, of its properties, in fraud of its creditors.
Aside from the reference petitioner had made to respondent
company's "nil" bank account, as if to show removal of
company's funds, petitioner also cited the alleged non-
payment of its other creditors, including secured creditors like
the DBP to which all its buses have been mortgaged, despite
its daily income averaging P12,000.00, and the rescue and
removal of five attached buses.

It is an undisputed fact that, as averred by petitioner itself, the

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

Moreover, as the buses were mortgaged to the DBP, their

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

The dwindling of respondent's bank account despite its daily

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

It is, indeed, extremely hard to remove the buses, machinery

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

In the main, therefore, We find that the respondent Court of

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

SO ORDERED.

G.R. No. 84034 December 22, 1988
ALBERTO SIEVERT, petitioner,
vs.
COURT OF APPEALS, HON. JUDGE ARTEMON D.
LUNA and AURELIO CAMPOSANO, respondents.
Attachment; Jurisdiction; The critical time when the trial court
acquires authority under the law to act coercively against the
defendant or his property in a proceeding in attachment is the
time of the vesting of jurisdiction in the court over the person
of the defendant in the main case.—There is no question that a
writ of preliminary attachment may be applied for a plaintiff
“at the commencement of the action or at any time thereafter”
in the cases enumerated in Section 1 of Rule 57 of the Revised
Rules of Court. The issue posed in this case, however, is not to
be resolved by determining when an action may be regarded
as having been commenced, a point in time which, in any
case, is not necessarily fixed and identical regardless of the
specific purpose for which the determination is to be made.
The critical time which must be identified is, rather, when the
trial court acquires authority under law to act coercively
against the defendant or his property in a proceeding in
attachment. We believe and so hold that that critical time is
the time of the vesting of jurisdiction in the court over the
person of the defendant in the main case.
Same; Same; Same; Attachment, as an ancillary remedy;
Nature of.—Attachment is an ancillary remedy. It is not
sought for its own sake but rather to enable the attaching party
to realize upon relief sought and expected to be granted in the
main or principal action. A court which has not acquired
jurisdiction over the person of defendant, cannot bind that
defendant whether in the main case or in any ancillary
proceeding such as attachment proceedings. The service of a
petition for preliminary attachment without the prior or
simultaneous service of summons and a copy of the complaint
in the main case—and that is what happened in this case—
does not of course confer jurisdiction upon the issuing court
over the person of the defendant.
Same; Same; Same; Same; Summons; Valid service of
summons and a copy of the complaint will vest jurisdiction in
the court over the defendant both for the purposes of the main
case and for purposes of the ancillary remedy of attachment.—
Ordinarily, the prayer in a petition for a writ of preliminary
attachment is embodied or incorporated in the main complaint
itself as one of the forms of relief sought in such complaint.
Thus, valid service of summons and a copy of the complaint
will in such case vest jurisdiction in the court over the
defendant both for purposes of the main case and for purposes
of the ancillary remedy of attachment. In such case, notice of
the main case is at the same time notice of the auxiliary
proceeding in attachment. Where, however, the petition for a
writ of preliminary attachment is embodied in a discrete
pleading, such petition must be served either simultaneously
with service of summons and a copy of the main complaint, or
after jurisdiction over the defendant has already been acquired
by such service of summons. Notice of the separate
attachment petition is not notice of the main action. Put a little
differently, jurisdiction whether ratione personae or ratione
materiae in an attachment proceeding is ancillary to
jurisdiction ratione personae or ratione materiae in the main
action against the defendant. If a court has no jurisdiction over
the subject matter or over the person of the defendant in the
principal action, it simply has no jurisdiction to issue a writ of
preliminary attachment against the defendant or his property.
Same; Same; Same; Same; Same; Fundamental requisite is the
jurisdiction of the court issuing attachment over the person of
the defendant; Case at bar.—It is basic that the requirements
of the Rules of Court for issuance of preliminary attachment
must be strictly and faithfully complied with in view of the
nature of this provisional remedy. In Salas v. Adil, this Court
described preliminary attachment as—“a rigorous remedy
which exposes the debtor to humiliation and annoyance, such
[that] it should not be abused as to cause unnecessary
prejudice. It is, therefore; the duty of the court, before issuing
the writ, to ensure that all the requisites of the law have been
complied with; otherwise the judge acts in excess of his
jurisdiction and the writ so issued shall be null and void.” The
above words apply with greater force in respect of that most
fundamental of requisites, the jurisdiction of the court issuing
attachment over the person of the defendant. In the case at bar,
the want of jurisdiction of the trial court to proceed in the
main case against the defendant is quite clear. It is not
disputed that neither service of summons with a copy of the
complaint nor voluntary appearance of petitioner Sievert was
had in this case. Yet, the trial court proceeded to hear the
petition for issuance of the writ. This is reversible error and
must be corrected on certiorari. Sievert vs. Court of Appeals,
168 SCRA 692, No. L-84034 December 22, 1988
King & Adorio Law Offices for petitioner.
Moises C. Kallos for private respondent.
FELICIANO, J.:
On 18 May 1988 petitioner Alberto Sievert a citizen and
resident of the Philippines received by mail a Petition for
Issuance of a Preliminary Attachment filed with the Regional
Trial Court of Manila Branch 32 in Civil Case No. 88-44346.
Petitioner had not previously received any summons and any
copy of a complaint against him in Civil Case No. 88-44346.
On the day set for hearing of the Petition for a Preliminary
Writ of Attachment, petitioner's counsel went before the trial
court and entered a special appearance for the limited purpose
of objecting to the jurisdiction of the court. He simultaneously
filed a written objection to the jurisdiction of the trial court to
hear or act upon the Petition for Issuance of a Preliminary
Writ of Attachment. In this written objection, petitioner
prayed for denial of that Petition for lack of jurisdiction over
the person of the petitioner (defendant therein) upon the
ground that since no summons had been served upon him in
the main case, no jurisdiction over the person of the petitioner
had been acquired by the trial court.
The trial court denied the petitioner's objection and issued in
open court an order which, in relevant part, read as follows:
Under Section 1, Rule 57, Rules of Court, it is clear that a
plaintiff or any proper party may "... at the
commencement of the action or at any time thereafter,
 have the property of the adverse party attached as the
security for the satisfaction of any judgment ..." This rule
would overrule the contention that this Court has no
jurisdiction to act on the application, although if counsel
for defendant so desire, she is given five (5) days from
today within which to submit her further position why the
writ should not be issued, upon the receipt of which or
expiration of the period, the pending incident shall be
considered submitted for resolution. (Underscoring in the
original) 1
Thereupon, on the same day, petitioner filed a Petition for
certiorari with the Court of Appeals. On 13 July 1988, the
respondent appellate court rendered a decision, notable
principally for its brevity, dismissing the Petition. The relevant
portion of the Court of Appeals' decision is quoted below:
The grounds raised in this petition state that the court a
quo had not acquired jurisdiction over defendant (now
petitioner) since no summons had been served on him,
and that respondent Judge had committed a grave abuse
of discretion in issuing the questioned order without
jurisdiction.
In short, the issue presented to us is whether respondent
Judge may issue a writ of preliminary attachment against
petitioner before summons is served on the latter.
We rule for respondent Judge.
Under Sec. 1, Rule 57, it is clear that, at the
commencement of the action, a party may have the
property of the adverse party attached as security. The
resolution of this issue depends, therefore, on what is
meant by "Commencement of the action." Moran, citing
American jurisprudence on this point, stated thus:
"Commencement of action. — Action is commenced by
filing of the complaint, even though summons is not
issued until a later date." (Comment on the Rules of
Court, Vol. I, p. 150, 1979). Thus, a writ of preliminary
attachment may issue upon filing of the complaint even
before issuance of the summons.
WHEREFORE, for lack of merit, the petition is hereby
denied and, accordingly, dismissed. (Emphasis supplied) 2
The petitioner is now before this Court on a Petition for
Review on Certiorari, assailing the above-quoted decision of
the Court of Appeals. The petitioner assigns two (2) errors:
1. The proceedings taken and the order issued on
plaintiffs petition for attachment prior to the service of
summons on the defendant were contrary to law and
jurisprudence and violated the defendant's right to due
process.
2. The Court of Appeals committed a grave abuse of
discretion amounting to lack of jurisdiction in ruling that
a writ of preliminary attachment may issue upon filing of
the complaint even prior to issuance of the summons. 3
The two (2) assignments of error relate to the single issue
which we perceive to be at stake here, that is, whether a court
which has not acquired jurisdiction over the person of the
defendant in the main case, may bind such defendant or his
property by issuing a writ of preliminary attachment.
Both the trial court and the Court of Appeals held that the
defendant may be bound by a writ of preliminary attachment
even before summons together with a copy of the complaint in
the main case has been validly served upon him.
We are unable to agree with the respondent courts.
There is no question that a writ of preliminary attachment may
be applied for a plaintiff "at the commencement of the
action or at any time thereafter" in the cases enumerated in
Section 1 of Rule 57 of the Revised Rules of Court. The issue
posed in this case, however, is not to be resolved by
determining when an action may be regarded as having been
commenced, a point in time which, in any case,
is not necessarily fixed and Identical regardless of the specific
purpose for which the deter. nation is to be made. The critical
time which must be Identified is, rather, when the trial court
acquires authority under law to act coercively against the
defendant or his property in a proceeding in attachment. We
believe and so hold that critical time is the time of the vesting
of jurisdiction in the court over the person of the defendant in
the main case.
Attachment is an ancillary remedy. It is not sought for its own sake but
party to realize upon relief sought and expected to be granted in the ma
which has not acquired jurisdiction over the person of defendant, canno
the main case or in any ancillary proceeding such as attachment procee
for preliminary attachment without the prior or simultaneous service of
complaint in the main case — and that is what happened in this case —
jurisdiction upon the issuing court over the person of the defendant.
Ordinarily, the prayer in a petition for a writ of preliminary
attachment is embodied or incorporated in the main complaint
itself as one of the forms of relief sought in such complaint.
Thus, valid service of summons and a copy of the complaint
will in such case vest jurisdiction in the court over the
defendant both for purposes of the main case and for purposes
of the ancillary remedy of attachment. In such case, notice of
the main case is at the same time notice of the auxiliary
proceeding in attachment. Where, however, the petition for a
writ of preliminary attachment is embodied in a discrete
pleading, such petition must be served either simultaneously
with service of summons and a copy of the main complaint,
or after jurisdiction over the defendant has already been
acquired by such service of summons. Notice of the separate
attachment petition is not notice of the main action. Put a little
differently, jurisdiction whether ratione personae or ratione
materiae in an attachment proceeding is ancillary to
jurisdiction ratione personae or ratione materiae in the main
action against the defendant. If a court has no jurisdiction over
the subject matter or over the person of the defendant in the
principal action, it simply has no jurisdiction to issue a writ of
preliminary attachment against the defendant or his property.
It is basic that the requirements of the Rules of Court for
issuance of preliminary attachment must be strictly and
faithfully complied with in view of the nature of this
provisional remedy. In Salas v. Adil, 5 this Court described
preliminary attachment as —
a rigorous remedy which exposes the debtor to
humiliation and annoyance, such [that] it should not be
abused as to cause unnecessary prejudice. It is, therefore;
the duty of the court, before issuing the writ, to ensure
that all the requisites of the law have been complied with;
otherwise the judge acts in excess of his jurisdiction and
the writ so issued shall be null and void. (Emphasis
supplied )6
The above words apply with greater force in respect of that
most fundamental of requisites, the jurisdiction of the court
issuing attachment over the person of the defendant.
In the case at bar, the want of jurisdiction of the trial court to
proceed in the main case against the defendant is quite clear. It
is not disputed that neither service of summons with a copy of
the complaint nor voluntary appearance of petitioner Sievert
was had in this case. Yet, the trial court proceeded to hear the
petition for issuance of the writ. This is reversible error and
must be corrected on certiorari.
WHEREFORE, the Petition for Review on certiorari is
GRANTED due course and the Order of the trial court dated
20 May 1988 and the Decision of the Court of Appeals dated
13 July 1988 are hereby SET ASIDE and ANNULLED. No
pronouncement as to costs.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Footnotes
1 Rollo, p. 4.
2 Rollo, pp. 16-17.
3 Rollo, p. 5.
4 We should perhaps make explicit that we
are here addressing the situation of known,
resident defendants only. Where the
defendant is a non-resident, attachment of
property may sought in order to bring a res
within the jurisdiction of the court, in
substitution, as it were, of the body of the
defendant (Section 1 [f], Rule 57, Revised
Rules of Court). Jurisdiction over the res and
the person of the defendant is, in such case,
acquired by service of summons by
publication (Sections 16,17 and 18, Rule 14,
Id.) though that jurisdiction may be made
effective only in respect of the res attached.
In Lincoln Tavern v. Snader, et al., 165 Ohio
St., 61, 133 NE, 2d 606 [19561, the
Supreme Court of Ohio said:
"... under our present law the only notice is
that of the principal action and it is upon
such notice, i.e., personal or constructive
service of summons, that jurisdiction rests;
and, even though, where the defendant is a
non-resident, it is necessary that there be an
attachment of property of the defendant in
order to clothe the court with jurisdiction to
render a judgment, the attachment is an
ancillary proceeding and there must be a
proper service of summons for the court to
become invested with jurisdiction to make
an order which will affect the attached res.
xxx xxx xxx
Under the provisions of the Ohio statute, an
attachment may issue at or after the
commencement of an action for the recovery
of money, where the defendant is a non-
resident of the state. Section 11819, General
Code, Section 2715.01, Revised
Code. However, an attachment is a
provisional remedy; an ancillary
proceeding which must be appended to a
principal action and whose very validity
must necessarily depend upon the validity of
the commencement of the principal action.
xxx xxx xxx
Thus it may be seen that, although in an
action based upon constructive service an
attachment may issue prior to the
completion of service by publication, such
attachment has only a tentative validity
which ripens into a completely valid
attachment when and if service is completed
as provided by law. If, for any reason, such
as defective service, the court is found
wanting in jurisdiction in the principal
action, then it follows that the attachment
never attained more than a tentative validity
and falls with the principal action.
G.R. No. L-54242 November 25, 1983
MAGDALENA ESTATE, INC., plaintiff-appellee,
vs.
RENE NIETO and HELEN GARCIA, defendants-
appellants.
Remedial Law; Civil Procedure; Summons; Jurisdiction; In an
action strictly in personam, personal service of summons
within the forum is required for the court to acquire
jurisdiction over the person of the defendant; Summons by
publication cannot, consistently with due process, confer upon
the court jurisdiction over the defendant.—It is true that in
Fontanilla vs. Dominguez, 73 Phil. 579, it was held that
service of summons by publication is proper in all actions
without distinction, provided the defendant is residing in the
Philippines but his identity is unknown or his address cannot
be ascertained. However, in a later case, Pantaleon vs.
Asuncion, 105 Phil. 765, the Court, speaking through then
Justice Roberto Concepcion, ruled that “it is a well-settled
principle of Constitutional Law that, in an action strictly in
personam, like the one at bar, personal service of summons,
within the forum, is essential to the acquisition of jurisdiction
over the person of the defendant, who does not voluntarily
submit himself to the authority of the court. In other words,
summons by publication cannot—consistently with the due
process clause in the Bill of Rights—confer upon the court
jurisdiction over said defendant.”
Same; Same; Same; Same; Proper remedy of judgment
creditor to enforce judgment debt upon a judgment debtor is to
locate properties of resident defendant debtor with unknown
address and cause them to be attached, and attachment
converts the action into a proceeding in rem or quasi in rem
and summons by publication may be deemed valid and
effective.—The proper recourse for a creditor in the same
situation as petitioner is to locate properties, real or personal,
of the resident defendant debtor with unknown address and
cause them to be attached under Rule 57, Section 1(f), in
which case, the attachment converts the action into a
proceeding in rem or quasi in rem and the summons by
publication may then accordingly be deemed valid and
effective.” Magdalena Estate, Inc. vs. Nieto, 125 SCRA 758,
No. L-54242 November 25, 1983
Abraham F. Sarmiento for plaintiff-appellee.
Guevara Law Office for defendants-appellants.
RELOVA, J.:ñé+.£ªwph!1
Appeal from the judgment of the then Court of First Instance
of Rizal in Quezon City, ordering defendants-appellants Rene
Nieto and Helen Garcia to pay plaintiff-appellee: têñ.£îhqwâ£
1) the sum of P11, 999.00, with interest there on at the
rate of 7% per annum beginning April 21, 1970, the date
of the letter of demand, until the same shall have been
fully paid;
2) the sum of P2,000.00 as and for attorney's fees; and
3) the cost of the suit. (p. 41, Record on Appeal)
The facts which led to the above judgment are summarized by
the trial court as follows: têñ.£îhqwâ£
The evidence shows that the defendants herein bought
from the plaintiff a parcel of land located at New Manila
Subdivision, Quezon City. Even if defendants had not
fully paid the consideration for the said lot, by special
arrangement with the plaintiff, the former were able to
have the title to said lot transferred in their names. They
had made partial payments only and the balance of their
account in the amount of P12,000.00 was secured by a
promissory note which they executed on November 3,
1960, under the following terms and conditions to wit: (a)
the defendants shall pay plaintiff the sum of P12,000.00,
with interest thereon at the rate of 7% per annum said
amount to be payable without demand in consecutive
monthly installments of not less than P500.00 per month,
beginning December 3, 1960, and on the third day of each
month thereafter, until fully paid; (b) in case of failure to
pay any monthly installment due, the total obligation, or
the balance thereof, shad automatically become due and
immediately payable; (c) that the plaintiff shall have the
right to enforce payment of the obligation, together with
the corresponding interest, including attorney's fees and
the costs of suit in case of litigation to enforce collection
of the said obligation (Exhibit "C"). Out of the aforesaid
amount of Pl2,000.00, defendants paid only P100.00 in
two installments of P50.00 each The first payment was
made on January 29, 1963 and the second payment was
made on March 14, 1963, leaving a balance of Pl1,999.90,
exclusive of interests. Plaintiff wrote defendants a letter
of demand calling the attention of the latter about the
installments in arrears under the terms and conditions of
the promissory notes; but in spite of the said letter,
defendants did not comply with their obligation. Plaintiff
referred the matter to its legal counsel, who, in turn, sent
defendants a letter of demand dated April 21, 1970 which
letter was received by the defendants (Exhibits "D", "D-l"
& "D-2"). Despite receipt of said letter, defendants did not
comply and even failed to make a reply. Plaintiff
presented further a statement of account stating therein
that the amount still owing to it, inclusive of interest up to
September 19, 1972 is P21,876.44; P11,999.00, the
amount of the principal and P9,976.44 the amount of
interest from November 3, 1960 up to September 19,1972
(Exhibit "E"). (pp. 33-34, Rollo)
There was an ex-parte reception of evidence because the
defendants-appellants had been declared in default, plaintiff
having complied with the court's order allowing service of
summons and copy of the complaint upon the defendants-
appellants through publication of the same in a newspaper of
general circulation (Daily Mirror), pursuant to Section 16,
Rule 14 of the Rules of Court.
Plaintiff claims that summons could not be served personally
upon the defendants because they concealed themselves to
avoid service upon them; and, that when the sheriff went to
the Jai-Alai Corporation of the Philippines at Cebu City where
defendant-appellant Rene Nieto holds office, as manager, he
could not be found thereat but, when the decision was served
at the same address, the defendants-appellants were able to
receive it.
In this appeal, defendants-appellants contend that the lower
court erred: (1) in allowing service of summons by
publication, and consequently, the trial court did not acquire
jurisdiction over the defendants-appellants, and the decision is
therefore void; (2) in granting relief to plaintiff-appellee when
its cause of action is barred by laches; (3) in lifting its orders
dismissing the complaint for failure to prosecute and (4) in
granting interests from November 3, 1960.
There is merit in this appeal. It is true that in Fontanilla vs.
Dominguez, 73 Phil. 579, it was held that service of summons
by publication is proper in all actions without distinction,
provided the defendant is residing in the Philippines but his
Identity is unknown or his address cannot be ascertained.
However, in a later case, Pantaleon vs. Asuncion, 105 Phil.
765, the Court, speaking through then Justice Roberto
Concepcion, ruled that "it is a well-settled principle of
Constitutional Law that, in an action strictly in personam, like
the one at bar, personal service of summons, within the
forum, is essential to the acquisition of jurisdiction divert the
person of the defendant, who does not voluntarily submit
himself to the authority of the court. In other words, summons
by publication cannot —consistently with the due process
clause in the Bill of Rights—confer upon the court jurisdiction
over said defendant." And, quoting 16A C.J.S., pp. 786, 789,
as follows: "Due process of law requires personal service to
support a personal judgment, and, when the proceeding is
strictly in personam brought to determine the personal rights
and obligations of the parties, personal service within the state
or a voluntary appearance in the case is essential to the
acquisition of jurisdiction so as to constitute compliance with
the constitutional requirement of due process. ... Although a
state legislature has more control over the form of service on
its own residents than non-residents, it has been held that in
actions in personam ... service by publication on resident
defendants, who are personally within the state and can be
found therein is not "due process of law", and a statute
allowing it is unconstitutional."
The action of herein plaintiff-appellee, being in personam, the
doctrine laid down in Pantaleon vs. Asuncion (supra) finds
application. And, the latest expression of such a doctrine
comes from Justice J. B. L. Reyes in the case of
Citizens' Surety and Insurance Company, Inc. vs. Melencio-
Herrera, 38 SCRA 369, in these words: "... the Court could
not validly acquire jurisdiction on a non-appearing defendant,
absent a personal service of summons within the forum... The
proper recourse for a creditor in the same situation as
petitioner is to locate properties, real or personal, of the
resident defendant debtor with unknown address and cause
them to be attached under Rule 57, Section 1 (f), in which
case, the attachment converts the action into a proceeding in
rem or quasi in rem and the summons by publication may then
accordingly be deemed valid and effective."
Inasmuch as in the case at bar the lower court did not acquire
jurisdiction over the person of the defendants-appellants, We
find it unnecessary to discuss the other assigned errors raised
by them.
WHEREFORE, the decision, dated October 5, 1972 of the
court a quo, is hereby SET ASIDE and the case is remanded to
the trial court for proper service of summons and trial.
SO ORDERED.
[G.R. No. L-32170. March 31, 1971.]
CITIZENS’ SURETY & INSURANCE COMPANY,
INC., Petitioner, v. HON. JUDGE A. MELENCIO-
HERRERA, SANTIAGO DACANAY, and JOSEFINA
DACANAY, Respondents.
Dayos, Tesoro & Gloria, Jr. for Petitioner.
Respondent Judge for and in his own behalf.
SYLLABUS
1. REMEDIAL LAW; JURISDICTION; ACTION IN
PERSONAM; PERSONAL SERVICE OF SUMMONS
REQUIRED. — We agree with respondent Judge that the
action of plaintiff petitioner, being in personam, the Court
could not validly acquire jurisdiction on a non-appearing
defendant, absent a personal service of summons within the
forum. We have explicitly so ruled in Pantaleon v. Asuncion,
105 Phil. 765, pointing out without such personal service, any
judgment on a non-appearing defendant would be violative of
due process. In the aforecited case this Court, through Justice
Roberto Concepcion, now Chief Justice, ruled as follows: . . .
"It is a well-settled principle of Constitutional Law that, in an
action strictly in personam, like the one at bar, personal
service of summons, within the forum, is essential to the
acquisition of jurisdiction over the person of the defendant,
who does not voluntary submit himself to the authority of the
court. In other words, summons by publication cannot —
consistently with the due process clause in the Bill of Rights
— confer upon the court jurisdiction over said
defendants.’Due process of law requires personal service to
support a personal judgment, and, when the proceeding is
strictly in personam brought to determine the personal rights
and obligations of the parties, personal service within the state
or a voluntary appearance in the case is essential to the
acquisition of jurisdiction so as to constitute compliance with
the constitutional requirement of due process. . . .’Although a
state legislature has more control over the form of service on
its own residents than nonresidents, it has been held that in
actions in personam . . . service by publication on resident
defendants who are personally within the state and can be
found therein is not "due process of law," and statute allowing
it is unconstitutional.’ (16A C.J.S., pp. 786, 789; Emphasis
our)"
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
CREDITORS; REMEDY AGAINST ABSCONDING
DEBTORS. — The proper recourse for a creditor in the same
situation as petitioner is to locate properties, real or personal,
of the resident defendant debtor with unknown address and
cause them to be attached under Rule 57, Sec. l(f), in which
case, the enactment converts the action into a proceeding in
rem or quasi in rem and the summons by publication may then
accordingly be deemed valid and effective But because
debtors who abscond and conceal themselves are also quite
adept at concealing their properties, the dismissal of the case
below by respondent Judge should be set aside and the case
held pending in the court’s archives, until petitioner as
plaintiff succeed in determining the whereabouts of the
defendants’ person or properties and causes valid summons to
be served personally or by publication as the case may be. In
this manner, the tolling of the period of prescription for as
long as the debtor remains in hiding would properly be a
matter of court record, and he can not emerge after a sufficient
lapse of time from the dismissal of the case to profit from his
own misdeed and claim prescription of his just debt.
DECISION
REYES, J.B.L., J.:
Petitioner Citizens’ Surety & Insurance Company, Inc. seeks
review of an order of respondent Judge in Civil Case No.
77134 of the Court of First Instance of Manila, Branch XVII,
entitled "Citizens’ Surety & Insurance Co., Inc. v. Santiago
Dacanay and Josefina Dacanay," dismissing the complaint for
lack of proper service of summons upon defendants.
The record is to the effect that petitioner had filed its
complaint in the Court below, alleging that at request of
defendant Santiago Dacanay, the plaintiff Surety Company
had issued its Surety Bonds Nos. 4942 and 4944, the first, in
favor of Gregorio Fajardo to guarantee payment of a P5,000-
promissory note executed by said Dacanay, and the second, in
favor of Manufacturers Bank & Trust Co., to guarantee
payment of another promissory note in like amount; that in
consideration of said bonds, Santiago and Josefina Dacanay
executed Indemnity Agreements, binding themselves jointly
and severally to indemnify plaintiff for any losses, costs and
expenses which it might sustain in connection with the
issuance of the bonds aforesaid, with interest at 12% per
annum; that as additional security, the Dacanays mortgaged to
plaintiff a parcel of land in Baguio City, covered by Certificate
of Title No. T-8116, the mortgage having been duly recorded;
that the promissory notes were not paid .and as a result,
plaintiff Surety was compelled to pay P5,000.00 to Gregorio
Fajardo and P4,081.69 to the Manufacturers’ Bank; that the
Dacanays failed to reimburse the Surety for such payments,
whereupon the Surety caused the extrajudicial foreclosure of
the mortgage to pay its claim of P12,941.69 representing its
payments, interest and stipulated liquidated damages: that at
the foreclosure sale, the land mortgaged was sold to plaintiff,
as highest bidder, for the sum of P2,000.00 — leaving an
unsatisfied balance of P10,491.69, that plaintiff sought to
recover from defendants Dacanay, plus 10% thereof as
attorneys’ fees, and the costs.
At petitioner’s request, respondent Judge caused summons to
be made by publication in the newspaper Philippines Herald.
But despite the publication and deposit of a prepaid copy of
the complaint at the Manila post office, defendants did not
appear within the period of 60 days from last publication, as
required by the summons.
that in actions in personam . . . service by publication on
resident defendants, who are personally within the state and
can be found therein is not "due process of law," and a statute
allowing it is unconstitutional.’ (16A C.J.S., pp. 786, 789;
Emphasis ours.)"
The proper recourse for a creditor in the same situation as
petitioner is to locate properties, real or personal, of the
resident defendant debtor with unknown address and cause
them to be attached under Rule 57, section 1(f), in which case,
the attachment converts the action into a proceeding in rem or
quasi in rem and the summons by publication may then
accordingly be deemed valid and effective.
But because debtors who abscond and conceal themselves are
also quite adept at concealing their properties, the dismissal of
the case below by respondent Judge should be set aside and
the case held pending in the court’s archives, until petitioner
as plaintiff succeeds in determining the whereabouts of the
defendants’ person or properties and causes valid summons to
be served personally or by publication as the case may be. In
this manner, the tolling of the period of prescription for as
long as the debtor remains in hiding would properly be a
matter of court records and he can not emerge after a sufficient
lapse of time from the dismissal of the case to profit from his
own misdeed and claim prescription of his just debt.
WHEREFORE, the order of dismissal of the case issued by
the Court below is hereby set aside, and in the interest of
justice, the proceedings are ordered suspended, to be held
pending until the plaintiff petitioner succeeds in ascertaining
the whereabouts of the defendants and/or locating properties
of the same, to enable proper summons to be issued
conformably to this Opinion. No costs.

Plaintiff then asked that defendants be declared in default; Concepcion, C.J., Makalintal, Zaldivar, Fernando, Teehankee,
but :instead, the Judge, by order of May 16, 1970, asked it to Barredo, Villamor and Makasiar, JJ., concur.
show cause why the action should not be dismissed, the suit
being in personam and defendants not having appeared. Then, Dizon and Castro, JJ., reserve their votes.
on May 29, 1970, respondent Judge dismissed the case,
despite plaintiff Surety’s argument that the summons by
publication was sufficient and valid under section 16 of Rule
14 of the Revised Rules of Court.

We agree with respondent Judge that the action of plaintiff

petitioner, being in personam, the Court could not validly
acquire jurisdiction on a non-appearing defendant, absent a
personal service of summons within the forum. We have
explicitly so ruled in Pantaleon v. Asunción, 105 Phil. 765,
pointing out without such personal service, any judgment on a
non-appearing defendant would be violative of due process. In
the aforecited case this Court, through Justice Roberto
Concepción, now Chief Justice, ruled as follows:

"Apart from the foregoing, it is well-settled principle of

Constitutional Law that, in an action strictly in personam, like
the one at bar, personal service of summons, within the forum.
is essential to the acquisition of jurisdiction over the person of
the defendant, who does not voluntarily submit himself to the
authority of the court. In other words, summons by publication
cannot — consistently with the due process clause in the Bill
of Rights — confer upon the court jurisdiction over said
defendants. .1äwphï1.ñët
‘Due process of law requires personal service to support a
personal judgment, and. when the proceeding is strictly in
personam brought to determine the personal rights and
obligations of the parties, personal service within the state or a
voluntary appearance in the case is essential to the acquisition
of jurisdiction so as to constitute compliance with the
constitutional requirement of due process. . . .

‘Although a state legislature has more control over the form of

service on its own residents than nonresidents, it has been held

G.R. No. 55272 April 10, 1989
JARDINE-MANILA FINANCE, INC., petitioner,
vs.
COURT OF APPEALS, IMPACT CORPORATION,
RICARDO DE LEON and EDUARDO DE
LEON, respondents.
Remedial Law; Civil Procedure; Provisional Remedies;
Attachment; The authority to issue a writ of attachment rests
on express statutory provisions and such authority as the
statute confers must be strictly construed.—The authority to
issue an attachment, like the jurisdiction of the court over such
proceedings rests on express statutory provisions and unless
there is authority in the statute, there is no power to issue the
writ, and such authority as the statute confers must be strictly
construed. In fact, “(E)ven where liberal construction is the
rule, the statute or the right to attachment there-by granted
may not be extended by judicial interpretation beyond the
meaning conveyed by the words of the statute.” Petitioner’s
application for a writ of preliminary attachment must therefore
be scrutinized and assessed by the requisites and conditions
specifically prescribed by law for the issuance of such writ.
Same; Same; Same; Same; Failure to allege in the affidavit the
requisites prescribed for the issuance of a writ of attachment
renders the writ fatally defective.—More specifically, it has
been held that the failure to allege in the affidavit the
requisites prescribed for the issuance of the writ of preliminary
attachment, renders the writ of preliminary attachment issued
against the property of the defendant fatally defective, and the
judge issuing it is deemed to have acted in excess of his
jurisdiction. In fact, in such cases, the defect cannot even be
cured by amendment. Since the attachment is a harsh and
rigorous remedy which exposes the debtor to humiliation and
annoyance, the rule authorizing its issuance must be strictly
construed in favor of defendant. It is the duty of the court
before issuing the writ to ensure that all the requisites of the
law have been complied with. Otherwise, a judge acquires no
jurisdiction to issue the writ.
Same; Same; Same; Same; Same; The affidavit is the
foundation of the writ and if none be filed, or if that filed fails
to set out some facts required by law to be stated therein, there
is no jurisdiction and the proceedings are null and void.—The
general rule is that the affidavit is the foundation of the writ,
and if none be filed or one be filed which wholly fails to set
out some facts required by law to be stated therein, there is no
jurisdiction and the proceedings are null and void. Thus, while
not unmindful of the fact that the property seized under the
writ and brought into court is what the court finally exercises
jurisdiction over, the court cannot subscribe to the proposition
that the steps pointed out by statutes to obtain such writ are
inconsequential, and in no sense jurisdictional. Considering
that petitioner’s application for the subject writ of preliminary
attachment did not actually fully comply with the requisites
prescribed by law, said writ is, as it is hereby declared null and
void and of no effect whatsoever. Jardine-Manila Finance, Inc.
vs. Court of Appeals, 171 SCRA 636, G.R. No. 55272 April
10, 1989
2. ID.; ID.; ID.; REQUISITES CASE OF K.O GLASS
CONSTRUCTION CO., INC. v. VALENZUELA (116 SCRA
568), CITED. — The stringent conditions for the issuance of
the writ have been echoed in all subsequent cases, even as late
as K.O. Glass Construction Co. Inc. v. Valenzuela, wherein
the writ of preliminary attachment issued was annulled and set
aside on the findings that while the plaintiff "may have stated
in his affidavit that a sufficient cause of action exists against
the defendant Kenneth O. Glass, he did not state therein that
the case is one of those mentioned in Section 1 hereof; that
there is no other sufficient security for the claim sought to be
enforced by the action; and that the amount due to the
applicant is as much as the sum for which the order is granted
above all legal counterclaims.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
Ramon Quisumbing, Jr. & Associates for private respondents.
FERNAN, C.J.:
This is a petition for review on certiorari seeking to reverse
and set aside: (a) the August 29, 1980 decision of the Court of
Appeals 1 in Special Proceedings CA-G.R. No. SP-09972-R
entitled "Impact Corporation, et al. v. Hon. Buenaventura
Guerrero, etc., et al." annulling the order and the writ of
attachment issued by the Court of First Instance of Rizal in
Civil Case No. 34617 entitled "Jardine-Manila Finance, Inc.
v. Impact Corporation, et al." 2 and (b) the Resolution dated
October 7, 1980 denying herein petitioners motion for
reconsideration. 3
On September 28, 1979, petitioner Jardine-Manila Finance,
Inc. (JARDINE) filed a complaint in the then Court of First
Instance (CFI) of Rizal, docketed as Civil Case No. 34617,
against private respondents Impact Corporation (IMPACT),
Ricardo de Leon and Eduardo de Leon, to collect various sums
of money allegedly due from therein defendant IMPACT
under a credit accomodation by way of a discounting line
agreement. 4 Herein private respondents Ricardo de Leon and
Eduardo de Leon were included as defendants by virtue of
their undertaking covered by a Surety Agreement under which
they bound themselves jointly and severally with defendant
IMPACT to pay herein petitioner all of IMPACT's obligations
under the aforesaid agreement. 5
It was alleged that in April and May 1979, IMPACT assigned
its receivables to JARDINE on the condition that IMPACT
was to collect them on their due dates from their issuers and
remit the collected amounts to JARDINE and/or repurchase
the assigned receivables; 6 but despite the fact that IMPACT
had collected the amounts due on said receivables, it failed or
refused to turn over the amounts so collected to JARDINE.
JARDINE thus demanded payment of P 1,000,212.64, the
total amount due under said various deeds of assignment, plus
interest of P 16,614.64 as of September 6, 1979 and 25 % of
the aforesaid amount as attorney's fees, exemplary damages
and other expenses of litigation.
Likewise contained in said complaint is petitioner's application
for a writ of preliminary attachment against private
respondents. The allegations in support of said petition for a
writ of preliminary attachment are quoted in full:
Special Allegations for Preliminary Attachment
A. The foregoing allegations are hereby repleaded and
made integral parts hereof.
B. The defendant corporation at the time of the execution
of the aforesaid deeds of assignment had reservation not
to remit to plaintiff the proceeds of the receivables
assigned to plaintiff as confirmed by their refusal to remit
the same to plaintiff although the issuers of the
receivables assigned to plaintiff had already paid to
defendant corporation their obligations on said
receivables to the latter.
C. Defendants Ricardo de Leon and Eduardo de Leon
who are likewise officers of defendant corporation in
order to elicit plaintiffs approval to enter into said deeds
of assignment with defendant corporation, executed the
aforesaid surety agreement (Annex L), likewise, with
reservation in their minds not to honor their obligations
under the same as what they actually did when they
refused to pay the obligations of defendant corporation to
plaintiff pursuant to the provisions of said surety
agreement. (Annex L)
D. Defendant corporation, Ricardo de Leon and Eduardo
de Leon have no visible other sufficient security for the
claim sought to be enforced by this action of
plaintiff other than their real and personal properties
which are located in Metro Manila and in the province of
Rizal, Province of Nueva Ecija or elsewhere. (Emphasis
supplied)
E. Plaintiffs action against defendant corporation is based
upon documents and therefrom a sufficient cause of
action exists.
F. Plaintiff is willing to post a bond in an amount to be
fixed by the Honorable Court, not exceeding plaintiffs
claim which will be conditioned to the effect that plaintiff
will pay all the costs which may be adjudged to the
adverse party and all damages which they may sustain by
reason of attachment, if the Honorable Court should
finally adjudge that the applicant plaintiff is not entitled
thereto.7
On the basis of the foregoing allegations, the lower court
granted JARDINE's petition for the issuance of a writ of
preliminary attachment on October 16, 1979. 8
On October 19, 1979, therein defendants filed a motion to set
aside the writ of preliminary attachment. They also submitted
to the court a quo a memorandum in support of their motion to
dissolve the attachment contending that the grounds alleged by
the plaintiff in its application for a writ of attachment are not
among the grounds specified under Section 1 of Rule 57; that
the defendants have other sufficient security; that there was no
affidavit of merit to support the application for attachment as
required by Section 3 of Rule 57 and that the verification of
the complaint was defective as it did not state that the amount
due to the plaintiff above all legal set-ups or counterclaims is
as much as the sum for which the order is sought. 9
JARDINE opposed the motion arguing that the mental
reservation of defendants at the time of the execution of the
deeds of assignment constituted fraud; that such fraud was
further confirmed by the fact that defendants actually failed to
remit the proceeds of the collection of receivables assigned by
them; that defendants failed to disclose to the plaintiff the fact
that they had already collected the receivables assigned by
them; that the amounts collected by defendant corporation
were received by defendants in trust for plaintiff and
defendant corporation appropriated for itself said
collection. 10
On November 7, 1979, the trial court denied defendant's
motion to annul the writ of preliminary attachment.
Thereupon, defendant Impact Corporation went to the
appellate court on a petition for certiorari seeking to annul said
writ. 11
The findings of the Court of Appeals are as follows:
To our mind there is no question that the allegations of
the complaint proper which were repleaded and made
integral part of the application for preliminary attachment
(paragraph A) made out a case of conversion or
misappropriation of property held in trust which is the
subject of the complaint for the allegations stated that
IMPACT had assigned to JARDINE certain receivables
with the understanding that it was to collect the same
from the issuers of said receivables and deliver the
amounts collected to JARDINE, but in spite of the fact
that IMPACT had actually collected said amounts, it
failed to turn over said receivables to JARDINE. There
was, therefore, in the allegations of said complaint true
conversion of the amounts received by defendant in trust
for plaintiff. Defendants in their motion to discharge the
attachment and the memorandum filed by them in support
of said motion had in effect, admitted the conversion of
the amounts collected by defendant IMPACT, but
justified the use of said amounts to meet its operational
expenses to prevent a complete shutdown of its
operations.
While we find that the grounds alleged by plaintiff, the
herein private respondent, to support its application for
preliminary attachment are among those enumerated in
Section 1 of Rule 57 as grounds upon which an
attachment may be issued, we are constrained nonetheless
to rule against the regularity or legality of the attachment
issued by respondent Court because there was no
allegation made by plaintiff in its application for the
issuance of a writ of attachment to the effect 'that there is
no sufficient security for the claim sought to be enforced,
by the action, and the amount due to the applicant or the
value of the property on the basis of which is entitled to
recover, is as much as the sum for which the order is
granted above all legal counterclaims, a requirement for
the granting of an order of attachment under Section 3 of
Rule 57. 12
Thus, on August 29, 1980, the Court of Appeals annulled the
assailed writ of attachment for having been issued improperly
and irregularly, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, the petition to annul
the order and the writ of attachment issued by respondent
Court is hereby GRANTED and judgment is rendered
declaring said order and writ of attachment null and void
for having been issued improperly and regularly. The
restraining order issued by this Court on November 9,
1979 restraining respondents from enforcing the writ of
attachment issued by respondent Judge on October 16,
1979 is hereby made PERMANENT. With costs against
private respondents. 13
Hence this recourse.
Reduced to bare essentials, the records show that in the
exercise of its discretion, the lower court found justification in
the issuance of the attachment. On the other hand, the Court of
Appeals while in accord with the lower court that a sufficient
cause of action exists for petitioner and that the ground for its
application for attachment is one of those mentioned in
Section 1, Rule 57 of the Rules of Court, found the issuance of
the attachment irregular or illegal in the absence of the
following allegations in the application for attachment: (1) that
"there is no sufficient security for the claim sought to be
enforced by the action; and (2) that the amount due to the
applicant or the value of the property on the basis of which he
is entitled to recover, is as much as the sum for which the
order is granted above all legal counterclaims."
Ultimately, the issue therefore, is whether or not non-
compliance with the formal requirements invalidate the writ of
attachment.
On both counts, petitioner admits not having used the exact
words of the Rules in making the requisite allegations, but
nonetheless it alleged that it presented ultimate and specific
facts, first-in showing that there is indeed no other sufficient
security for the claim sought to be enforced as shown in
paragraph D of the Complaint earlier quoted; and second-
while it did not specifically state that the sum due is above all
legal counterclaims, such conclusion of fact is no longer
necessary in the face of actual proof in the answer which did
not carry any counterclaim. In fine, petitioner stresses that
mere forms must not be given more weight than substance. 14
In excusing the deficiencies of its application for a writ of
preliminary attachment, petitioner relies heavily on the case
of De Borja v. Platon, 15 where this Court sustained the writ
of attachment issued by the lower court in favor of the
defendants based on the counterclaim of the latter despite the
lack of allegations in the affidavit attached to the petition for
the issuance of the writ of attachment that the amount due the
counterclaim was as much as the sum for which the order is
granted above all legal counterclaims.
It will be noted however, that the trial court found that the
counterclaim of the defendants exceeded the claims of the
plaintiff. Thus, this Court held that "as the trial court had
before it the evidence adduced by both sides, the petition for a
writ of preliminary attachment having been filed four years
after the trial court had begun, we presume that the lower
court having in mind such evidence, ordered the attachment
accordingly." 16
In sharp contrast, in the case at bar, where the records
undeniably reveal that: (1) the complaint was filed on
September 28, 1979; 17 (2) the writ of preliminary attachment
was issued on October 16, 1979; 18 (3) the motion to annul
preliminary attachment dated October 19, 1979 was filed on
the same day; 19 (4) the answer of defendant IMPACT dated
October 30, 1979 20 was received by the RTC Pasig only on
November 5, 1979, 21 it is evident that the questioned writ
was issued ex parte; and at a time when the Court a quo had
yet no basis for concluding that the amount due to petitioner is
as much as the sum for which the order is granted above all
legal counterclaims.
It is therefore, readily apparent that the conclusions in the De
Borja case cannot be applied to the case at bar. In fact even
petitioner's plea for liberality as it vigorously invokes the
doctrine on said case which refused "to sanction that
formalism and that technicality which are discountenanced by
the modern laws of procedure" is an obvious misreading of the
ruling of this Court which states:
On the first point, we believe a writ of preliminary
attachment may be issued in favor of a defendant who sets
up a counterclaim. For the purpose of the protection
afforded by such attachment, it is immaterial whether the
defendants Borja and wife simply presented a
counterclaim or brought a separate civil action against
Jose de Borja, plaintiff in the previous case and petitioner
herein. To lay down a subtle distinction would be to
sanction that formalism and that technicality which are
discountenanced by the modern laws of procedure for the
sake of speedy and substantial justice. . . . 22
as a liberal approach to the required allegations in the
application for a writ of preliminary attachment when what
this Court actually allowed was the presentation of a
counterclaim by the defendant instead of a separate civil
action in compliance with one of the basic requirements for
the issuance of said writ.
The authority to issue an attachment, like the jurisdiction of
the court over such proceedings rests on express statutory
provisions and unless there is authority in the statute, there is
no power to issue the writ, and such authority as the statute
confers must be strictly construed.23 In fact, "(E)ven where
liberal construction is the rule, the statute or the right to
attachment thereby granted may not be extended by judicial
interpretation beyond the meaning conveyed by the words of
the statute." 24 Petitioner's application for a writ of
preliminary attachment must therefore be scrutinized and
assessed by the requisites and conditions specifically
prescribed by law for the issuance of such writ.
Section 3, Rule 57 of the Revised Rules of Court governs the
issuance of a writ of attachment, to wit:
Sec. 3. Affidavit and bond required.-An order of
attachment shall be granted only when it is made to
appear by the affidavit of the applicant or some other
person who personally knows of the facts, that a sufficient
cause of action exists, that the case is one of those
mentioned in section 1 hereof, that there is no sufficient
security for the claim sought to be enforced by the action,
and that the amount due to applicant or the value of the
property the possession of which he is entitled to recover
is as much as the sum for which the order is granted
above all legal counterclaims.
The stringent conditions for the issuance of the writ have been
echoed in all subsequent cases, even as late as K.O. Glass
Construction Co. Inc. vs. Valenzuela, 25 wherein the writ of
preliminary attachment issued was annulled and set aside on
the findings that while the plaintiff "may have stated in his
affidavit that a sufficient cause of action exists against the
defendant Kenneth O. Glass, he did not state therein that the
case is one of those mentioned in Section 1 hereof; that there
is no other sufficient security for the claim sought to be
enforced by the action; and that the amount due to the
applicant is as much as the sum for which the order is granted
above all legal counterclaims."
More specifically, it has been held that the failure to allege in
the affidavit the requisites prescribed for the issuance of the
writ of preliminary attachment, renders the writ of preliminary
attachment issued against the property of the defendant fatally
defective, and the judge issuing it is deemed to have acted in
excess of his jurisdiction. 26 In fact, in such cases, the defect
cannot even be cured by amendment. 27
Since the attachment is a harsh and rigorous remedy which
exposes the debtor to humiliation and annoyance, the rule
authorizing its issuance must be strictly construed in favor of
defendant. It is the duty of the court before issuing the writ to
ensure that all the requisites of the law have been complied
with. 28 Otherwise, a judge acquires no jurisdiction to issue
the writ.

The general rule is that the affidavit is the foundation of the

writ, and if none be filed or one be filed which wholly fails to
set out some facts required by law to be stated therein, there is
no jurisdiction and the proceedings are null and void. Thus,
while not unmindful of the fact that the property seized under
the writ and brought into court is what the court finally
exercises jurisdiction over, the court cannot subscribe to the
proposition that the steps pointed out by statutes to obtain such
writ are inconsequential, and in no sense jurisdictional. 29

Considering that petitioner's application for the subject writ of

preliminary attachment did not fully comply with the
requisites prescribed by law, said writ is, as it is hereby
declared null and void and of no effect whatsoever.

This conclusion renders a discussion of petitioner's other

argument unnecessary.

WHEREFORE, the decision of the Court of Appeals dated

August 29, 1980 is hereby AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. L-61754 August 17, 1989

ROBERTO TING, and DOLORES TING, petitioners,

vs.
HON. AUGUSTO E. VILLARIN, FELICIANO
GERVACIO, FERDINAND J. GUERRERO, and
CONSOLIDATED BANK & TRUST
COMPANY, respondents.

Civil Procedure; Attachment; An order of attachment cannot

be issued on a general averment such as one ceremoniously
quoting from a pertinent rule.—The complaint did not provide
for a sufficient basis for the issuance of a writ of preliminary
attachment. It is not enough for the complaint to ritualistically
cite, as here, that the defendants are “guilty of fraud in
contracting an obligation.” An order of attachment cannot be
issued on a general averment, such as one ceremoniously
quoting from a pertinent rule. The need for a recitation of
factual circumstances that support the application becomes
more compelling here considering that the ground relied upon
is “fraud in contracting an obligation.” The complaint utterly
failed to even give a hint about what constituted the fraud and
how it was perpetrated. Fraud cannot be presumed.

Same; Same; Same; Respondent Judge acted in excess of his

jurisdiction and the writ he so issued is thus null and void.—
The respondent judge thus failed in his duty to ensure that,
before issuing the writ of preliminary attachment, all the
requisites of the law have been complied with. He acted in
excess of his jurisdiction and the writ he so issued is thus null
and void. Ting vs. Villaria, 176 SCRA 532, G.R. No. 61754
August 17, 1989

Santos, Valmonte & Associates for petitioners.

SARMIENTO, J.:

On September 17, 1981, private respondent Consolidated

Bank and Trust Company (hereinafter "Consolidated Bank")
filed a complaint 1 for a sum of money with prayer for a writ
of preliminary attachment against Perlon Textile Mills and its
directors.

Roberto Ting, a director, was impleaded with his wife Dolores

Lim Ting. The complaint recites that the wife was impleaded
as a party defendant in order to bind their conjugal partnership
of gains which allegedly benefitted from the transactions
subject of the complaint. The, spouses Ting are the present
petitioners.
Consolidated Bank actually sued on two (2) causes of action.
The first was targeted at recovering on several promissory
notes the amount of P2,972,955.51, allegedly obtained for the
defendant corporation by its duly authorized officers Lu
Cheng Peng, Teng See, and Roberto Ting. These officers
allegedly signed the promissory notes in their personal and
official capacities thereby binding themselves jointly and
severally to Consolidated Bank for the payment of the
promissory notes.
The second cause of action dwells on several violations of
trust receipt agreements which the defendant corporation
executed in favor of Consolidated Bank. The defendant
corporation's faithful compliance with the trust receipt
agreements appears to have been secured by the continuing
guaranty of defendants Liu Suy Lin Angelo Leonar, and Lu
Cheng Peng.
In support of the application for preliminary attachment,
Consolidated Bank averred the ground of "fraud in contracting
an obligation" thus —
16. Defendants are guilty of fraud in contracting their
obligations more specifically illustrated by their violation
of the trust receipt agreement which is a ground defined
under Sec. 1, Rule 57 of the Rules of Court for the
issuance of a writ of preliminary attachment. 2
On September 23, 1981, acting on the application for a writ of
attachment by Consolidated Bank, the respondent judge issued
the orders under question, to wit:
xxx xxx xxx
We, therefore, command you [Deputy Sheriffs Feliciano
Gervacio and Ferdinand J. Guerrero] that you attach the
estate, real and personal, of the said defendants Perlon
Textile Mills, Inc., Lu Cheng Peng and Spouse; Teng See
@ Teng Tik Hua and Spouse; Spouses Roberto Ting and
Dolores Lim Ting; Angelo Leonor and Spouse, Liu Suy
Lin and Spouse, and Yap Chi and Spouse, within your
province to the value of said demands, and costs of suit,
and that you keep safely the same according to the Rules
of Court, unless the defendant — gives security to pay
such judgment as may be recovered in this action in the
manner provided for by the Rules of Court; and that you
return immediately this order after executing the same
with a full statement of your proceedings and a complete
inventory of the properties attached. 3
On March 3, 1982, acting on the petitioners' Motion to Quash
Attachment, the respondent judge issued a second order, to
wit:
xxx xxx xxx
Acting on defendants Roberto and Dolores Ting's motion
to quasi attachment and plaintiffs' opposition thereto, it
appearing from plaintiffs' allegations that the alleged
fraud was effected through the collective action of the
defendants, the court finds the motion to be without
sufficient merit. 4
xxx xxx xxx
On July 19, 1982, acting on the petitioners' motion for
reconsideration, the respondent judge issued the last disputed
order the dispositive portion of which states:
xxx xxx xxx
WHEREFORE, under the circumstances, and finding no
sufficient justification for the reconsideration of the order
of March 3, 1982, the motion for reconsideration is
hereby DENIED. 5
xxx xxx xxx
The petitioners came to this Court via a petition for certiorari.
They are questioning the writ of preliminary attachment
principally on the ground that the application therefor hinges
on "fraud in contracting" the trust receipt agreements under
the second cause of action.
On the other hand, the petitioners are impleaded in the
complaint merely under the first cause of action. Moreover,
the petitioners challenge the writ of preliminary attachment
issued because, in effect, it pierced the veil of corporate
fiction. The petitioners explain that the corporation alone
should be held liable for the violation of the trust receipt
agreements.
Finally, the petitioners ask that the writ of preliminary
attachment be struck down by this Court because it authorized
an attachment over the petitioners' conjugal partnership
property.
We agree with the petitioners.
The complaint did not provide for a sufficient basis for the
issuance of a writ of preliminary attachment. It is not enough
for the complaint to ritualistic ally cite, as here, that the
defendants are "guilty of fraud in contracting an obligation."
An order of attachment cannot be issued on a general
averment, such as one ceremoniously quoting from a pertinent
rule. 6 The need for a recitation of factual circumstances that
support the application becomes more compelling here
considering that the ground relied upon is "fraud in
contracting an obligation." The complaint utterly failed to
even give a hint about what constituted the fraud and how it
was perpetrated. Fraud cannot be presumed. 7
The respondent judge thus failed in this duty to ensure that,
before issuing the writ of preliminary attachment, all the
requisites of the law have been complied with. He acted in
excess of his jurisdiction and the writ he so issued is thus null
and void. 8
What is more, the respondent judge plainly ignored that, as
correctly pointed out by the petitioners, the application for
preliminary attachment rests on "fraud in contracting" the trust
receipt agreements. The complaint itself, save for the
unwarranted sweeping reference to "defendants," alleged that
only Consolidated Bank, as principals, and Liu Suy Lin
Angelo Leonar, and Lu Cheng Peng, as guarantors, were privy
to the trust receipt agreements under the second cause of
action. Petitioner Roberto Ting's involvement is limited only
to the promissory notes under the first cause of action. The
complaint thus relevantly alleges —
FIRST CAUSE OF ACTION
7. On March 15, 1979, defendant corporation, through its
duly authorized officers Lu Cheng Peng, Tang See and
Roberto Ting obtained from plaintiff loan
accommodations in the amount of P2,972,955.51 and as
evidence thereof, the aforementioned defendants in their
personal and official capacities executed promissory notes
undertaking therein jointly and severally with the
corporation to pay plaintiff the above-mentioned amount
with interest ....
 SECOND CAUSE OF ACTION SO ORDERED.

8. On different occasions in 1978-1979, defendants

applied to plaintiff for the opening of numerous letters of
credit to finance its purchase of goods from various
suppliers.

xxx xxx xxx

ALLEGATIONS COMMON TO ALL CAUSES OF

ACTION

12. In order to secure the credit accommodations obtained

and all those that the defendant Perlon Textile Mills, Inc.
may thereafter obtain from plaintiff, defendants Liu Suy
Lin Angelo Leonar and Lu Cheng Peng executed a
continuing guaranty ... .9

The sweeping nature of the attachment order probably

stemmed from the respondent judge's failure to detect that the
two (2) causes of action had been misproperly joined. Joinder
of causes of action is, among others, subject to the rules on
joinder of parties. 10 And the rule on joinder of parties is
enunciated in Sec. 6, Rule 3, Revised Rules of Court, thus —

Sec. 6. Permissive joinder of parties. — All persons ...

against whom any right to relief in respect to or arising
out of the same transaction or series transactions is
alleged to exist, whether jointly, severally, or in the
alternative, may, except as otherwise provided in these
rules ... be joined as defendants in one complaint, where
any question of law or fact common to all such ...
defendants may arise in the action ... .

Here, the two causes of action arose from different

transactions. There was no "series of transactions" to speak of.
But above all, the complaint can conceivably affect adversely
petitioner Roberto Ting under the first cause of action only but
not in the second cause of action. 11

That the attachment ordered by the respondent judge called for

the sheriffs to "attach the estate, real and personal of ...
Spouses Roberto Ting and Dolores Lim Ting" (Order of
September 23, 1981) likewise gives cause for this Court to
strike it down for being null and void. The attached property
of the spouses Ting are conjugal, the same cannot be validly
brought under the painful process of attachment because:

(a) First, the wife Dolores was impleaded merely because

of the fact that she is the spouse of Roberto;

(b) Second, the conjugal partnership cannot possibly be

benefitted (again, here, Consolidated Bank's allegation
that the act of the husband redounded to the benefit of the
conjugal partnership is mere "book form" when the
husband binds himself, as guarantor, because this act does
not conserve or augment conjugal funds but instead
threatens to dissipate them 12 by unnecessary and
unwarranted risks to the partnership's financial stability.
When the husband assumes the obligation of a guarantor,
the presumption that he acts, as administrator, for the
benefit of the conjugal partnership, is lost.

WHEREFORE, the petition is hereby GRANTED. The

questioned Orders, dated September 23, 1981, March 3, 1982,
and July 19,1982, of the respondent judge, and the levy on
attachment made by the deputy sheriffs against the parcel of
land covered by TCT No. T-7232 and registered in the names
of the petitioners, are declared NULL AND VOID.

Costs against the private respondent.


 G.R. No. 102448 August 5, 1992
RICARDO CUARTERO, petitioner,
vs.
COURT OF APPEALS, ROBERTO EVANGELISTA and
FELICIA EVANGELISTA, respondents.
Remedial Law; Civil Procedure; Preliminary Attachment;
Notice to the adverse party or hearing of the application is not
required inasmuch as the time which the hearing will take
could be enough to enable the defendant to abscond or dispose
of his property before a writ of attachment issues.—Under
section 3, Rule 57 of the Rules of Court, the only requisites for
the issuance of the writ are the affidavit and bond of the
applicant. As has been expressly ruled in BF Homes, Inc. v.
Court of Appeals, 190 SCRA 262 (1990), citing Mindanao
Savings and Loan Association, Inc. v. Court of Appeals, 172
SCRA 480 (1989), no notice to the adverse party or hearing of
the application is required inasmuch as the time which the
hearing will take could be enough to enable the defendant to
abscond or dispose of his property before a writ of attachment
issues. In such a case, a hearing would render nugatory the
purpose of this provisional remedy. The ruling remains good
law. There is, thus, no merit in the private respondents’ claim
of violation of their constitutionally guaranteed right to due
process.
Same; Same; Same; Jurisdiction over the defendant; Once the
implementation of the writ commences, it is required that the
court must have acquired jurisdiction over the defendant for
without such jurisdiction, the court has no power and authority
to act in any manner against the defendant.—It must be
emphasized that the grant of the provisional remedy of
attachment practically involves three stages: first, the court
issues the order granting the application; second, the writ of
attachment issues pursuant to the order granting the writ; and
third, the writ is implemented. For the initial two stages, it is
not necessary that jurisdiction over the person of the defendant
should first be obtained. However, once the implementation
commences, it is required that the court must have acquired
jurisdiction over the defendant for without such jurisdiction,
the court has no power and authority to act in any manner
against the defendant. Any order issuing from the Court will
not bind the defendant.
Same; Same; Same; Irregular or improper issuance of
attachment; An attachment may not be dissolved by a showing
of its irregular or improper issuance if it is upon a ground
which is at the same time the applicant’s cause of action in the
main case since an anomalous situa-tion would result if the
issues of the main case would be ventilated and resolved in a
mere hearing of a motion.—Moreover, an attachment may not
be dissolved by a showing of its irregular or improper issuance
if it is upon a ground which is at the same time the applicant’s
cause of action in the main case since an anomalous situation
would result if the issues of the main case would be ventilated
and resolved in a mere hearing of a motion (Davao Light and
Power Co., Inc. v. Court of Appeals, supra, The Consolidated
Bank and Trust Corp. (Solidbank) v. Court of Appeals, 197
SCRA 663 [1991]). In the present case, one of the allegations
in petitioner’s complaint below is that the defendant spouses
induced the plaintiff to grant the loan by issuing postdated
checks to cover the installment payments and a separate set of
postdated checks for payment of the stipulated interest (Annex
“B”). The issue of fraud, then, is clearly within the
competence of the lower court in the main action. Cuartero vs.
Court of Appeals, 212 SCRA 260, G.R. No. 102448 August 5,
1992
GUTIERREZ, JR., J.:
This is a petition for review on certiorari seeking to annul the
decision of the Court of Appeals promulgated on June 27,
1991 as well as the subsequent resolution dated October 22,
1991 denying the motion for reconsideration in CA-G.R. SP
No. 23199 entitled "Spouses Roberto and Felicia Evangelista
v. Honorable Cezar C. Peralejo, Presiding Judge Regional
Trial Court of Quezon City, Branch 98, and Ricardo
Cuartero," which nullified the orders of the trial court dated
August 24, 1990 and October 4, 1990 and cancelled the writ of
preliminary attachment issued on September 19, 1990.
Following are the series of events giving rise to the present
controversy.
On August 20, 1990, petitioner Ricardo Cuartero filed a
complaint before the Regional Trial Court of Quezon City
against the private respondents, Evangelista spouses, for a sum
of money plus damages with a prayer for the issuance of a writ
of preliminary attachment. The complaint was docketed as
Civil Case No. Q-90-6471.
On August 24, 1990, the lower court issued an order
granting ex-parte the petitioner's prayer for the issuance of a
writ of preliminary attachment.
On September 19, 1990, the writ of preliminary attachment
was issued pursuant to the trial court's order dated August 24,
1990. On the same day, the summons for the spouses
Evangelista was likewise prepared.
The following day, that is, on September 20, 1990, a copy of
the writ of preliminary attachment, the order dated August 24,
1990, the summons and the complaint were all simultaneously
served upon the private respondents at their residence.
Immediately thereafter, Deputy Sheriff Ernesto L. Sula levied,
attached and pulled out the properties in compliance with the
court's directive to attach all the properties of private
respondents not exempt from execution, or so much thereof as
may be sufficient to satisfy the petitioner's principal claim in
the amount of P2,171,794.91.
Subsequently, the spouses Evangelista filed motion to set
aside the order dated August 24, 1990 and discharge the writ
of preliminary attachment for having been irregularly and
improperly issued. On October 4, 1990, the lower court denied
the motion for lack of merit.
Private respondents, then, filed a special civil action
for certiorari with the Court of Appeals questioning the orders
of the lower court dated August 24, 1990 and October 4, 1990
with a prayer for a restraining order or writ of preliminary
injunction to enjoin the judge from taking further proceedings
below.
In a Resolution dated October 31, 1990, the Court of Appeals
resolved not to grant the prayer for restraining order or writ of
preliminary injunction, there being no clear showing that the
spouses Evangelista were entitled thereto.
On June 27, 1991, the Court of Appeals granted the petition
for certiorari and rendered the questioned decision. The
motion for reconsideration filed by herein petitioner Cuartero
was denied for lack of merit in a resolution dated October 22,
1991. Hence, the present recourse to this Court.
The petitioner raises the following assignment of errors:
I should have clarified the matter but apparently another ruling
THE COURT OF APPEALS ERRED AND
COMMITTED A GRAVE ABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION WHEN
IT HELD THAT THE REGIONAL TRIAL COURT DID
NOT ACQUIRE JURISDICTION OVER
RESPONDENT SPOUSES.
II
THE COURT OF APPEALS ERRED AND ACTED
WITH GRAVE ABUSE OF DISCRETION WHEN IT
HELD THAT THE REGIONAL TRIAL COURT
COULD NOT VALIDLY ISSUE THE SUBJECT WRIT
OF PRELIMINARY ATTACHMENT WHICH IS AN
ANCILLARY REMEDY. (Rollo, p. 13)
The Court of Appeals' decision is grounded on its finding that
the trial court did not acquire any jurisdiction over the person
of the defendants (private respondents herein). It declared that:
. . . the want of jurisdiction of the trial court to proceed in
the main case as well as the ancillary remedy of
attachment is quite clear. It is not disputed that neither
service of summons with a copy of the complaint nor
voluntary appearance of petitioners was had in this case
before the trial court issued the assailed order dated
August 24, 1990, as well as the writ of preliminary
attachment dated September 19, 1990. This is reversible
error and must be corrected on certiorari. (Rollo, p. 24)
The appellate tribunal relied on the case of Sievert v. Court of
Appeals, 168 SCRA 692 (1988) in arriving at the foregoing
conclusion. It stated that:
Valid service of summons and a copy of the complaint
vest jurisdiction in the court over the defendant both for
the purpose of the main case and for purposes of the
ancillary remedy of attachment and a court which has not
acquired jurisdiction over the person of defendant, cannot
bind the defendant whether in the main case or in any
ancillary proceeding such as attachment proceedings
(Sievert v. Court of Appeals, 168 SCRA 692). (Rollo, p.
24)
The private respondents, in their comment, adopted and
reiterated the aforementioned ruling of the Court of Appeals.
They added that aside from the want of jurisdiction, no proper
ground also existed for the issuance of the writ of preliminary
attachment. They stress that the fraud in contracting the debt
or incurring the obligation upon which the action is brought
which comprises a ground for attachment must have already
been intended at the inception of the contract. According to
them, there was no intent to defraud the petitioner when the
postdated checks were issued inasmuch as the latter was aware
that the same were not yet funded and that they were issued
only for purposes of creating an evidence to prove a pre-
existing obligation.
Another point which the private respondents raised in their
comment is the alleged violation of their constitutionally
guaranteed right to due process when the writ was issued
without notice and hearing.
In the later case of Davao Light and Power Co., Inc. v. Court
of Appeals, G.R. No. 93262, November 29, 1991, we had
occasion to deal with certain misconceptions which may have
arisen from our Sievert ruling. The question which was
resolved in the Davao Light case is whether or not a writ of
preliminary attachment may issue ex-parte against a defendant
before the court acquires jurisdiction over the latter's person
by service of summons or his voluntary submission to the
court's authority. The Court answered in the affirmative. This
is necessary.
A writ of preliminary attachment is defined as a provisional
remedy issued upon order of the court where an action is
pending to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the sheriff
as security for the satisfaction of whatever judgment might be
secured in said action by the attaching creditor against the
defendant (Adlawan v. Tomol, 184 SCRA 31 [1990] citing
Virata v. Aquino, 53 SCRA 30-31 [1973]).
Under section 3, Rule 57 of the Rules of Court, the only
requisites for the issuance of the writ are the affidavit and
bond of the applicant. As has been expressly ruled in BF
Homes, Inc. v. Court of Appeals, 190 SCRA 262 (1990),
citing Mindanao Savings and Loan Association, Inc. v. Court
of Appeals, 172 SCRA 480 (1989), no notice to the adverse
party or hearing of the application is required inasmuch as the
time which the hearing will take could be enough to enable the
defendant to abscond or dispose of his property before a writ
of attachment issues. In such a case, a hearing would render
nugatory the purpose of this provisional remedy. The ruling
remains good law. There is, thus, no merit in the private
respondents' claim of violation of their constitutionally
guaranteed right to due process.
The writ of preliminary attachment can be applied for and
granted at the commencement of the action or at any time
thereafter (Section 1, Rule 57, Rules of Court). In Davao
Light and Power, Co., Inc. v. Court of Appeals, supra, the
phrase "at the commencement of the action" is interpreted as
referring to the date of the filing of the complaint which is a
time before summons is served on the defendant or even
before summons issues. The Court added that —
 . . . after an action is properly commenced — by filing of
the complaint and the payment of all requisite docket and
other fees — the plaintiff may apply and obtain a writ of
preliminary attachment upon the fulfillment of the
pertinent requisites laid down by law, and that he may do
so at any time, either before or after service of summons
on the defendant. And this, indeed, has been the
immemorial practice sanctioned by the courts: for the
plaintiff or other proper party to incorporate the
application for attachment in the complaint or other
appropriate pleading (counter-claim, cross-claim, third-
party-claim) and for the Trial Court to issue the writ ex-
parte at the commencement of the action if it finds the
application otherwise sufficient in form and substance.
The Court also pointed out that:
. . . It is incorrect to theorize that after an action or
proceeding has been commenced and jurisdiction over the
person of the plaintiff has been vested in the Court, but
before acquisition of jurisdiction over the person of the
defendant (either by service of summons or his voluntary
submission to the Court's authority), nothing can be
validly done by the plaintiff or the Court. It is wrong to
assume that the validity of acts done during the period
should be dependent on, or held in suspension until, the
actual obtention of jurisdiction over the defendants
person. The obtention by the court of jurisdiction over the
person of the defendant is one thing; quite another is the
acquisition of jurisdiction over the person of the plaintiff
or over the subject matter or nature of the action, or the
res or object thereof.
It is clear from our pronouncements that a writ of preliminary
attachment may issue even before summons is served upon the
defendant. However, we have likewise ruled that the writ
cannot bind and affect the defendant. However, we have
likewise ruled that the writ cannot bind and affect the
defendant until jurisdiction over his person is eventually
obtained. Therefore, it is required that when the proper officer
commences implementation of the writ of attachment, service
of summons should be simultaneously made.
It must be emphasized that the grant of the provisional remedy
of attachment practically involves three stages: first, the court
issues the order granting the application; second, the writ of
attachment issues pursuant to the order granting the writ; and
third, the writ is implemented. For the initial two stages, it is
not necessary that jurisdiction over the person of the defendant
should first be obtained. However, once the implementation
commences, it is required that the court must have acquired
jurisdiction over the defendant for without such jurisdiction,
the court has no power and authority to act in any manner
against the defendant. Any order issuing from the Court will
not bind the defendant.
In Sievert v. Court of Appeals, supra, cited by the Court of
Appeals in its questioned decision, the writ of attachment
issued ex-parte was struck down because when the writ of
attachment was being implemented, no jurisdiction over the
person of the defendant had as yet been obtained. The court
had failed to serve the summons to the defendant.
The circumstances in Sievert are different from those in the
case at bar. When the writ of attachment was served on the
spouses Evangelista, the summons and copy of the complaint
were also simultaneously served.
It is appropriate to reiterate this Court's exposition in
the Davao Light and Power case cited earlier, to wit:
. . . writs of attachment may properly issue ex-
parte provided that the Court is satisfied that the relevant
requisites therefore have been fulfilled by the applicant,
although it may, in its discretion, require prior hearing on
the application with notice to the defendant, but that levy
on property pursuant to the writ thus issued may not be
validly effected unless preceded, or contemporaneously
accompanied by service on the defendant of summons, a
copy of the complaint (and of the appointment of
guardian ad litem, if any), the application for attachment
(if not incorporated in but submitted separately from the
complaint), the order of attachment, and the plaintiff's
attachment bond.
The question as to whether a proper ground existed for the
issuance of the writ is a question of fact the determination of
which can only be had in appropriate proceedings conducted
for the purpose (Peroxide Philippines Corporation V. Court of
Appeals, 199 SCRA 882 [1991]). It must be noted that the
spouses Evangelista's motion to discharge the writ of
preliminary attachment was denied by the lower court for lack
of merit. There is no showing that there was an abuse of
discretion on the part of the lower court in denying the motion.
Moreover, an attachment may not be dissolved by a showing
of its irregular or improper issuance if it is upon a ground
which is at the same time the applicant's cause of action in the
main case since an anomalous situation would result if the
issues of the main case would be ventilated and resolved in a
mere hearing of a motion (Davao Light and Power Co., Inc. v.
Court of Appeals, supra, The Consolidated Bank and Trust
Corp. (Solidbank) v. Court of Appeals, 197 SCRA 663
[1991]).
In the present case, one of the allegations in petitioner's
complaint below is that the defendant spouses induced the
plaintiff to grant the loan by issuing postdated checks to cover
the installment payments and a separate set of postdated
cheeks for payment of the stipulated interest (Annex "B"). The
issue of fraud, then, is clearly within the competence of the
lower court in the main action.
WHEREFORE, premises considered, the Court hereby
GRANTS the petition. The challenged decision of the Court of
Appeals is REVERSED, and the order and writ of attachment
issued by Hon. Cezar C. Peralejo, Presiding Judge of Branch
98, Regional Trial Court of Quezon City against spouses
Evangelista are hereby REINSTATED. No pronouncement as
to costs.
SO ORDERED.
G.R. No. 106989 May 10, 1994
H.B. ZACHRY COMPANY
INTERNATIONAL, petitioner,
vs.
HON. COURT OF and VINNEL-BELVOIR
CORPORATION, respondents.
G.R. No. 107124 May 10, 1994
VINNEL-BELVOIR CORPORATION, petitioner,
vs.
THE COURT OF APPEALS and H.B. ZACHRY
COMPANY INTERNATIONAL, respondents.
Quisumbing, Torres & Evangelista for H.B. Zachry Co.
Feria, Feria, Lustu & La O' for Vinnel Belvoir Corp.
Remedial Law; Provisional Remedies; Attachment; Trial court
has unlimited power to issue the writ upon the commencement
of the action even before it acquires jurisdiction over the
person of the defendant but enforcement thereof can only be
validly done after it shall have acquired such jurisdiction.—
However, the writ of attachment cannot be validly enforced
through the levy of Zachry’s property before the court had
acquired jurisdiction over Zachry’s person either through its
voluntary appearance or the valid service of summons upon it.
To put it in another way, a distinction should be made between
the issuance and the enforcement of the writ. The trial court
has unlimited power to issue the writ upon the commencement
of the action even before it acquires jurisdiction over the
person of the defendant, but enforcement thereof can only be
validly done after it shall have acquired such jurisdiction.
Same; Same; Same; The grant of the provisional remedy of
attachment practically involves three stages: First, the court
issues the order granting the application; Second, the writ of
attachment issues pursuant to the order granting the writ, and
Third, the writ is implemented.—It must be emphasized that
the grant of the provisional remedy of attachment practically
involves three stages: first, the court issues the order granting
the application; second, the writ of attachment issues pursuant
to the order granting the writ; and third, the writ is
implemented. For the initial two stages, it is not necessary that
jurisdiction over the person of the defendant should first be
obtained. However, once the implementation commences, it is
required that the court must have acquired jurisdiction over the
person of the defendant for without such jurisdiction, the court
has no power and authority to act in any manner against the
defendant. Any order issuing from the
Same; Motions; In deciding a motion to dismiss, Section 3,
Rule 16 of the Rules of Court grants the court four options: (1)
deny the motion, (2) grant the motion, (3) allow amendment of
pleadings or (4) defer the hearing and determination of the
motion until the trial if the ground alleged therein does not
appear to be indubitable.—As to the second issue of
arbitration, we find that although the order of the trial court
denying the motion to dismiss did not clearly state so, it is
evident that the trial court perceived the ground of the motion
to be not indubitable; hence, it could defer its resolution
thereon until the trial of the case. In deciding a motion to
dismiss, Section 3, Rule 16 of the Rules of Court grants the
court four options: (1) to deny the motion, (2) to grant the
motion, (3) to allow amendment of pleadings, or (4) to defer
the hearing and determination of the motion until the trial, if
the ground alleged therein does not appear to be indubitable.
Under the fourth option, the court is under no obligation to
immediately hold a hearing on the motion; it is vested with
discretion to defer such hearing and the determination of the
motion until the trial of the case.
Same; Civil Procedure; Summons; When a foreign corporation
has designated a person to receive service of summon pursuant
to the Corporation Code, that designation is exclusive and
service of summons on any other person is inefficacious.—
However, the enforcement of the preliminary attachment on
27 March 1990, although simultaneous with the service of the
summons and a copy of the complaint, did not bind Zachry
because the service of the summons was not validly made.
When a foreign corporation has designated a person to receive
service of summons pursuant to the Corporation Code, that
designation is exclusive and service of summons on any other
person is inefficacious. The valid service of summons and a
copy of the amended complaint was only made upon it on 24
April 1990, and it was only then that the trial court acquired
jurisdiction over Zachry’s person. Accordingly, the levy on
attachment made by the sheriff on 27 April 1990 was invalid.
However, the writ of preliminary attachment may be validly
served anew. H.B. Zachry Company International vs. Court of
Appeals, 232 SCRA 329, G.R. No. 106989, G.R. No. 107124
May 10, 1994
DAVIDE, JR., J.:
Challenged in these petitions for review, which were
ordered consolidated on 9 December 1992, 1 is the decision
of the Court of Appeals in CA-G.R. SP No.
24174, 2 promulgated on 1 July 1992, the dispositive portion
of which reads:
WHEREFORE, premises considered, this Petition
for Certiorari and Prohibition is hereby granted in so far
as it prayed for the dissolution of the writ of preliminary
attachment inasmuch as it was issued prior to the service
of summons and a copy of the complaint on petitioner.
The writ of preliminary attachment issued by respondent
Court on March 21, 1990 is hereby ordered lifted and
dissolved as having been issued in grave abuse of
discretion by respondent Court.
With respect to the issue of whether or not parties should
submit the instant dispute [to] arbitration, We hereby
order public respondent to conduct a hearing for the
determination of the proper interpretation of the
provisions of the Subcontract Agreement.
No pronouncement as to costs. 3
and its 2 September 1992 Resolution 4 which denied the
motion for partial reconsideration of H.B. Zachry Company
International (hereinafter Zachry) and the motion for
reconsideration of Vinnel-Belvoir Corporation
(hereinafter VBC).
The pleadings of the parties and the challenged decision
disclose the following material facts:
On 17 July 1987, VBC entered into a written Subcontract
Agreement 5 with Zachry, a foreign corporation. The latter had
been engaged by the United States Navy to design and
construct 264 Family Housing Units at the US Naval Base at
Subic, Zambales. Under the agreement, specifically under
Section 3 on Payment, VBC was to perform all the
construction work on the housing project and would be paid
"for the performance of the work the sum of Six Million Four
Hundred Sixty-eight Thousand U.S. Dollars (U.S.
$6,468,000.00), subject to additions and deductions for
changes as hereinafter provided." This "lump sum price is
based on CONTRACTOR'S proposal, dated 21 May 1987
(including drawings), submitted to OWNER for Alternate
Design-Apartments." It was also provided "that substantial
differences between the proposal and the final drawings and
Specification approved by the OWNER may be grounds for an
equitable adjustment in price and/or time of performance if
requested by either party in accordance with Section 6 [on]
Changes." 6 Section 27 of the agreement reads:
Section 27. DISPUTES PROCEDURE
A. In case of any dispute, except those that are
specifically provided for in this SUBCONTRACT,
between the SUBCONTRACTOR and the
CONTRACTOR, the SUBCONTRACTOR agrees to be
bound to the CONTRACTOR to the same extent that the
CONTRACTOR is bound to the OWNER by the terms of
the GENERAL CONTRACT and by any and all decisions
or determinations made thereunder by the party or boards
so authorized in the GENERAL CONTRACT. The
SUBCONTRACTOR, on items or issues relating or
attributable to the SUBCONTRACTOR, also agrees to be
bound to the CONTRACTOR to the same extent that the
CONTRACTOR is bound to the OWNER by the final
decision of a court of competent jurisdiction, whether or
not the SUBCONTRACTOR is a party to such
 proceeding. If such a dispute is prosecuted or defended by
the CONTRACTOR against the OWNER under the terms
of the GENERAL CONTRACT or in court action, the
SUBCONTRACTOR agrees to furnish all documents,
statements, witnesses and other information required by
the CONTRACTOR for such purpose. It is expressly
understood that as to any and all work done and agreed to
be done by the CONTRACTOR and as to any and all
materials, equipment or services furnished or agreed to be
furnished by the SUBCONTRACTOR, and as to any and
all damages incurred by the SUBCONTRACTOR in
connection with this SUBCONTRACT, the
CONTRACTOR shall not be liable to the
SUBCONTRACTOR to any greater extent than the
OWNER is liable to and pays the CONTRACTOR for the
use and benefit of the SUBCONTRACTOR for such
claims, except those claims arising from acts of the
CONTRACTOR. No dispute shall interfere with the
progress of the WORK and the SUBCONTRACTOR
agrees to proceed with his WORK as directed, despite any
disputes it may have with the CONTRACTOR, the
OWNER, or other parties.
B. If at any time any controversy should arise between the
CONTRACTOR and the SUBCONTRACTOR, with
respect to any matter or thing involved in, related to or
arising out of this SUBCONTRACT, which controversy
is not controlled or determined by subparagraph 27.A.
above or other provisions in this SUBCONTRACT, then
said controversy shall be decided as follows:
1. The SUBCONTRACTOR shall be conclusively bound
and abide by the CONTRACTOR'S written decision
respecting said controversy, unless the
SUBCONTRACTOR shall commence arbitration
proceedings as hereinafter provided within thirty (30)
days following receipt of such written decision.
2. If the SUBCONTRACTOR decides to appeal from the
written decision of the CONTRACTOR, then the
controversy shall be decided by arbitration in accordance
with the then current rules of the Construction Industry
Arbitration Rules of the American Arbitration
Association, and the arbitration decision shall be final and
binding on both parties; provided, however, that
proceedings before the American Arbitration Association
shall be commenced by the SUBCONTRACTOR not
later than thirty (30) days following the
CONTRACTOR'S written decision pursuant to
subparagraph 27.B.1 above. If the SUBCONTRACTOR
does not file a demand for arbitration with the American
Arbitration Association and CONTRACTOR within this
thirty (30) day period, then the CONTRACTOR'S written
decision is final and binding.
3. This agreement to arbitrate shall be specifically
enforceable.7
When VBC had almost completed the project, Zachry
complained of the quality of work, making it a reason for its
decision to take over the management of the project, which
paragraph c, Section 7 of the Subcontract Agreement
authorized. However, prior to such take-over, the parties
executed on 18 December 1989 a Supplemental
Agreement, 8 pertinent portions of which read as follows:
2. All funds for progress as computed by the schedule of
prices under the subcontract will be retained by ZACHRY
to insure sufficiency of funds to finish the lump sum
project as scoped by the subcontract. However, one month
after the date of this agreement, when ZACHRY shall
have determined the cost to complete the subcontract,
ZACHRY shall as appropriate, release to VBC the
corresponding portion of the amounts retained.
xxx xxx xxx
7. All costs incurred by ZACHRY chargeable to VBC
under the subcontract from the date of the takeover to
complete the scope of the subcontract will be to the
account of VBC and/or its sureties. Zachry will advise
both VBC and its sureties on a periodic basis as to
progress and accumulated costs.
xxx xxx xxx
9. VBC will be invited to participate in negotiations with
the Navy in Change Orders concerning its scope of work.
VBC will accept as final, without recourse against
ZACHRY the Navy's decision regarding its interest in
these Change Orders or modifications.
In accordance with the above conditions, VBC submitted to
Zachry on 10 January 1990 a detailed computation of the cost
to complete the subcontract on the housing project. According
to VBC's computation, there remains a balance of
$1,103,000.00 due in its favor as of 18 January 1990. This
amount includes the sum of $200,000.00 allegedly withheld
by Zachry and the labor escalation adjustment granted earlier
by the US Navy in the amount of $282,000.00 due VBC.
Zachry, however, not only refused to acknowledge the
indebtedness but continually failed to submit to VBC a
statement of accumulated costs, as a result of which VBC was
prevented from checking the accuracy of the said costs. On 2
March 1990, VBC wrote Zachry a letter demanding
compliance with its obligations. 9 Zachry still failed to do so.
VBC made representations to pursue its claim, including a
formal claim with the Officer-in-Charge of Construction,
NAVFAC Contracts, Southwest Pacific, 10 which also failed.
Hence, on 20 March 1990, VBC filed a Complaint 11 with the
Regional Trial Court (RTC) of Makati against Zachry for the
collection of the payments due it with a prayer for a writ of
preliminary attachment over Zachry's bank account in Subic
Base and over the remaining thirty-one undelivered housing
units which were to be turned over to the US Navy by Zachry
on 30 March 1990. The case was docketed as Civil Case No.
90-772 and was raffled to Branch 142 of the said court
presided over by Judge Salvador P. de Guzman, Jr. Paragraph
2 of the Complaint alleges that defendant Zachry "is a foreign
corporation with address at 527 Longwood Street, San
Antonio, Texas, U.S.A. and has some of its officers working at
U.S. Naval Base, Subic Bay, Zambales where it may be served
with summons."
On 21 March 1990, the trial court issued an order granting the
application for the issuance of the writ of preliminary
attachment and fixing the attachment bond at
P24,266,000.00. 12 VBC put up the required bond and on 26
March 1990, the trial court issued the writ of
attachment, 13 which was served, together with the summons, a
copy of the complaint with annexes, the bond, and a copy of
the order of attachment, on 27 March 1990 in the manner
described in the Sheriff's Partial Return 14 of 29 March 1990:
upon defendant H.B. Zachry Company (International) at
its field office in U.S. Naval Base, Subic Bay, Zambales
thru Ruby Apostol who acknowledged receipt thereof.
Mr. James M. Cupit, defendant's authorized officer was in
their Manila office at the time of service.
The return further states:
 That on March 28, 1990, the undersigned sheriff went to
the office of defendant H. B. Zachry Company
(International) at c/o A.M. Oreta & Co. at 5th Floor,
Ermita Building, Arquiza corner Alhambra streets,
Ermita, Manila to serve the Court's processes but was
informed by Atty. Felix Lobiro of A.M. Oreta & Co., that
defendant H.B. Zachry Company has its own office at
Room 600, 6th Floor of the same building (Ermita
Building). However, said defendant's office was closed
and defendant company (ZACHRY) only holds office
during Mondays and Tuesdays of the week as per
information gathered from the adjacent office.
On 27 March 1990, VBC filed an Amended Complaint 15 in
Civil Case No. 90-772 to implead as additional defendants the
US Navy Treasury Office-Subic Naval Base and Captain A.L.
Wynn, an officer of the US Navy, against whom VBC prayed
for a restraining order or preliminary injunction to restrain the
latter from preparing the treasury warrant checks to be paid to
Zachry and the former from signing the said checks and to
restrain both from making any further payments to Zachry. It
also amended paragraph 2 on the status and circumstances of
Zachry as follows:
2. Defendant, H.B. Zachry Co. (International) . . . is a
foreign corporation with address at 527 Longwood Street,
San Antonio, Texas, U.S.A. and may be served with
summons and all other legal processes at the following
addresses: a) H.B. Zachry Company (International), U.S.
Naval Base, Subic Bay, Zambales; and b) H.B. Zachry
Company (International) c/o A.M. Oreta & Co., 5th Floor
Ermita Building, Arquiza corner Alhambra Streets,
Ermita, Manila, through its authorized officer James C.
Cupit. 16
On 6 April 1990, Zachry filed a motion to dismiss the
complaint 17 on the ground of lack of jurisdiction over its
person because the summons was not validly served on it. It
alleges that it is a foreign corporation duly licensed on 13
November 1989 by the Securities and Exchange Commission
to do business in the Philippines 18 and, pursuant to Section
128 of the Corporation Code of the Philippines, had appointed
Atty. Lucas Nunag 19 as its resident agent on whom any
summons and legal processes against it may be served. Atty.
Nunag's address is at the 10th Floor, Shell House, 156 Valero
St., Makati, Metro Manila.
Summons and a copy of the Amended Complaint were served
on 24 April 1990 on Zachry through Atty. Nunag as shown in
the sheriff's return dated 24 April 1990. 20
21
On 26 April 1990, VBC filed a Manifestation   to inform the
court of the above service of summons on Zachry which it
claimed rendered moot and academic the motion to dismiss.
On 24 May 1990, Zachry filed an Omnibus Motion 22 (a) to
dismiss the complaint for lack of jurisdiction over its person
since the subsequent service of summons did not cure the
jurisdictional defect it earlier pointed out and, in the
alternative, to dismiss the case or suspend the proceedings
therein for failure of the plaintiff to submit the controversy in
question to arbitration as provided for in its contract with
Zachry; and (b) to dissolve the writ of attachment of 26 March
1990 "for having been issued without jurisdiction, having been
issued prior to the service of summons." The arbitration
provision referred to is Section 27.B of the Subcontract
Agreement quoted earlier. In support of its alternative prayer
for the suspension of proceedings, it cited Section 7 of R.A.
No. 876, otherwise known as the Arbitration Act which
provides:
Sec. 7. Stay of Civil Action —If any suit or proceeding be
brought upon an issue, arising out of an agreement
providing for the arbitration thereof, the Court in which
such suit or proceeding is pending, upon being satisfied
that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the
terms of the agreement. . . .
This provision is almost identical with Section 3 of the United
States Arbitration Act.
As to the invalidity of the writ of attachment, Zachry avails of
the decision in Sievert vs. Court of Appeals 23 wherein this
Court said:
Attachment is an ancillary remedy. It is not sought for its
own sake but rather to enable the attaching party to realize
upon relief sought and expected to be granted in the main
or principal action. A court which has not acquired
jurisdiction over the person of the defendant, cannot bind
that defendant whether in the main case or in any
ancillary proceeding such as attachment proceedings. The
service of a petition for preliminary attachment without
the prior or simultaneous service of summons and a copy
of the complaint in the main case — and that is what
happened in this case—does not of course confer
jurisdiction upon the issuing court over the person of the
defendant. 24
VBC opposed the Omnibus Motion. Pleadings related to the
Omnibus Motion were subsequently filed. 25
In its Order of 19 September 1990, 26 the trial court resolved
the Omnibus Motion and the related incidents by declaring
that "the merits of the case can only [be] reached after due
presentation of evidence." Hence, it denied the motion and
directed the defendants to file their answer within the period
provided by law.
On 8 October 1990, Zachry filed a motion for the
reconsideration 27 of the above order assailing the court's
inaction on the second and third issues raised in its Omnibus
Motion, viz., the necessity of arbitration and the invalidity of
the writ of attachment. VBC opposed the motion. 28 On 9
January 1991, the court issued an order denying the motion for
reconsideration by ruling that the writ of preliminary
attachment was regularly issued and that the violations of the
Subcontract Agreement can be "tranced [sic] only after the
case is heard on the merits."
Dissatisfied with the denial, Zachry filed with the Court of
Appeals on 14 February 1991 a petition for certiorari and
prohibition, 29 which was docketed as CA-G.R. SP No. 24174.
Zachry contends therein that:
1. The proceedings before respondent trial court should be
suspended, pending submission of the dispute to
arbitration pursuant to Section 27-B of the Subcontract
Agreement;
2. Alternatively, the complaint should be dismissed,
pending arbitration pursuant to Section 27-B of the
Subcontract Agreement;
3. As a third alternative, the complaint should be
dismissed, because the dispute has been resolved with
finality under Section 27-B of the Subcontract
Agreement; and
4. The writ of preliminary attachment should be
dissolved, as having been outside, or in excess of
respondent court's jurisdiction, having been issued prior to
the service of summons on petitioner.
It then prays that (a) the orders of the trial court of 19
September 1990 and 9 January 1991 be annulled for having
been issued without or in excess of jurisdiction or with grave
abuse of discretion; and (b) the trial court be directed to
immediately suspend the proceedings in Civil Case No. 90-
772 pending arbitration proceedings in accordance with the
terms of Section 27.B of the Subcontract Agreement or,
alternatively, to dismiss the amended complaint and dissolve
the writ of attachment. It also prays for the issuance of a
temporary restraining order and a writ of preliminary
injunction to restrain the trial court from proceeding further in
Civil Case No. 90-772.
On 18 February 1991, the Court of Appeals issued a
temporary restraining order. 30
On 1 July 1991, the Court of Appeals promulgated the
challenged decision 31 dissolving the writ of preliminary
attachment issued by the trial court and ordering it to conduct
a hearing to determine the proper interpretation of the
provisions of the Subcontract Agreement. As to the writ of
attachment, the Court of Appeals held that summons was
served on Zachry only on 24 April 1990; hence,
applying Sievert vs. Court of Appeals, 32 the trial court "had no
authority yet to act coercively against the defendant" when it
issued the writ of attachment on 21 March 1990. As to
arbitration, it ruled:
We are of the reasoned opinion that unlike in the factual
situation in the cases cited by petitioner, the contract
involved in the case at bar is, with respect to its arbitration
clause, vogue [sic] and uncertain. Section 27.B which is
the provision upon which petitioner anchors its claims is
ambiguous in its terminology when it states that "if at
anytime any controversy should arise between the
contractor and the subcontractor . . . which controversy is
not controlled or determined by Section 27.A above or
other provision of this subcontract . . . ." This provision
states that only when a controversy arises between the
contractor and the subcontractor which is not covered by
Section 27.A or any provision of the Subcontract
Agreement will the parties submit to arbitration. As to
what controversies fall under Section 27.B, it is not clear
from a mere perusal of the provisions. It is therefore not
correct for petitioner to say that any and all dispute arising
between the contracting parties should be resolved by
arbitration prior to a filing of a suit in court. 33
VBC and Zachry filed a motion for reconsideration and a
partial motion for reconsideration, respectively. 34 The former
urged the Court of Appeals to consider the decision of this
Court of 29 November 1991 in Davao Light & Power Co. vs.
Court of Appeals 35 wherein this Court ruled that a writ of
preliminary attachment may be issued ex-parte prior to the
service of summons and a copy of the complaint on the
defendants. On the other hand, Zachry insists that "[t]here is
nothing 'vague' or 'ambiguous about' " the provision on dispute
procedures set forth in Subsections 27.B.1 to 27.B.3 of the
Subcontract Agreement.
In its Resolution of 2 September 1992, 36 the Court of Appeals
denied the above motions of the parties.
Hence, these petitions which were given due course in this
Court's Resolution of 8 March 1993. 37
In G.R. No. 106989, petitioner Zachry reiterates all the issues
it raised before the Court of Appeals, except that regarding the
validity of the writ of attachment which was decided in its
favor.
In G.R. No. 107124, petitioner VBC raises the following
issues:
A. WHETHER THE ISSUANCE OF THE WRIT OF
PRELIMINARY ATTACHMENT PRIOR TO THE
SERVICE OF THE SUMMONS AND A COPY OF THE
AMENDED COMPLAINT ON THE RESPONDENT IS
VALID.
B. WHETHER RESORT TO ARBITRATION PRIOR
TO FILING A SUIT IN COURT IS REQUIRED BY
THE SUBCONTRACT AGREEMENT UNDER THE
FACTS OBTAINING IN THE PRESENT CASES.
As to the first issue, VBC takes refuge in the ruling in Davao
Light & Power Co. vs. Court of Appeals 38 and argues that the
issuance of the writ of attachment on 21 March 1990, although
before the service of the summons, was valid. Its issuance and
implementation are two different and separate things; the first
is not affected by any defect in the implementation which may
be corrected. Moreover, assuming arguendo that the initial
service of summons was defective, it was cured by the
numerous pleadings thereafter filed. Finally, whatever doubts
existed on the effectiveness of the implementation of the writ
was erased by its re-service on the resident agent of Zachry.
As to the issue on arbitration, VBC maintains that arbitration
is not required under the facts obtaining in the present case
because the applicable provision of the Subcontract
Agreement is Section 3 on Payment and not Section 27.B on
Arbitration. Zachry's fraudulent actuations and gross violation
of the Subcontract Agreement render prior resort to arbitration
futile and useless. The preliminary attachment, which was
essential to secure the interest of the petitioner, could not have
been obtained through arbitration proceedings.
Zachry, in its Comment, 39 contends that pursuant to
the Sievert and Davao Light rulings, the issuance of the writ of
attachment before the service of summons on Zachry's
resident agent was invalid and that the various pleadings filed
by the parties did not cure its invalidity. It argues that the
arbitration procedure is set forth in Section 27.B of the
Subcontract Agreement. It further maintains that pursuant
to General Insurance vs. Union Insurance, 40 the alleged
fraudulent actuations which relate to the merits of the case
may be properly addressed to the arbitrators and that there is
no merit to the claim that arbitration would be useless since
the arbitration proceeding would be presided over by an
independent and competent arbitral tribunal.
The issues in these petitions are properly defined by VBC in
G.R. No. 107124.
We find for petitioner VBC.
It was error for the Court of Appeals to declare, on the ground
of grave abuse of discretion, the nullity of the writ of
attachment issued by the trial court on 21 March 1990. In the
first place, the writ was in fact issued only on 26 March 1990
and served, together with the summons, copy of the complaint,
the Order of 21 March 1990, and the bond, on 27 March 1990
on Zachry at its field office in Subic Bay, Zambales, through
one Ruby Apostol. What the Court of Appeals referred to as
having been issued on 21 March 1990 is the order granting the
application for the issuance of a writ of preliminary
attachment upon the posting of a bond of P24,266,000.00. 41 In
the second place, even granting arguendo that the Court of
Appeals had indeed in mind the 26 March 1990 writ of
attachment, its issuance, as well as the issuance of the 21
March 1990 Order, did not suffer from any procedural or
jurisdictional defect; the trial court could validly issue both.
However, the writ of attachment cannot be validly enforced
through the levy of Zachry's property before the court had
acquired jurisdiction over Zachry's person either through its
voluntary appearance or the valid service of summons upon
it. 42 To put it in another way, a distinction should be made
between the issuance and the enforcement of the writ. The trial
court has unlimited power to issue the writ upon the
commencement of the action even before it acquires
jurisdiction over the person of the defendant, but enforcement
thereof can only be validly done after it shall have acquired
such jurisdiction. This is the rule enunciated in Davao Light &
Power Co. vs. Court of
Appeals. 43 In that case, this Court stated:
The question is whether or not a writ of preliminary
attachment may issue ex parte against a defendant before
acquisition of jurisdiction of the latter's person by service
of summons or his voluntary submission to the Court's
authority.
The Court rules that the question must be answered in the
affirmative and that consequently, the petition for review
will have to be granted.
It is incorrect to theorize that after an action or proceeding
has been commenced and jurisdiction over the person of
the plaintiff has been vested in the court, but before the
acquisition of jurisdiction over the person of the
defendant (either by service of summons or his voluntary
submission to the court's authority), nothing can be
validly done by the plaintiff or the court. It is wrong to
assume that the validity of acts done during this period
should be dependent on, or held in suspension until, the
actual obtention of jurisdiction over the defendant's
person. The obtention by the court of jurisdiction over the
person of the defendant is one thing; quite another is the
acquisition of jurisdiction over the person of the plaintiff
or over the subject-matter or nature of the action, or the
res or object thereof. 44
xxx xxx xxx
A preliminary attachment may be defined, paraphrasing
the Rules of Court, as the provisional remedy in virtue of
which a plaintiff or other proper party may, at the
commencement of the action or at any time thereafter,
have the property of the adverse party taken into the
custody of the court as security for the satisfaction of any
judgment that may be recovered. It is a remedy which is
purely statutory in respect of which the law requires a
strict construction of the provisions granting it. Withal no
principle, statutory or jurisprudential, prohibits its
issuance by any court before acquisition of jurisdiction
over the person of the defendant.
Rule 57 in fact speaks of the grant of the remedy "at the
commencement of the action or at any time thereafter."
The phrase "at the commencement of the action,"
obviously refers to the date of the filing of the complaint
— which, as above pointed out, is the date that marks "the
commencement of the action;" and the reference plainly is
to a time before summons is served on the defendant, or
even before summons issues. What the rule is saying quite
clearly is that after an action is properly commenced —
by the filing of the complaint and the payment of all
requisite docket and other fees — the plaintiff may apply
for and obtain a writ of preliminary attachment upon
fulfillment of the pertinent requisites laid down by law,
and that he may do so at any time, either before or after
service of summons on the defendant. And this indeed,
has been the immemorial practice sanctioned by the
courts: for the plaintiff or other proper party to
incorporate the application for attachment in the
complaint or other appropriate pleading (counterclaim,
cross-claim, third-party claim) and for the Trial Court to
issue the writ ex-parte at the commencement of the action
if it finds the application otherwise sufficient in form and
substance. 45
xxx xxx xxx
It goes without saying that whatever be the acts done by
the Court prior to the acquisition of jurisdiction over the
person of the defendant, as above indicated — issuance of
summons, order of attachment and writ of attachment
(and/or appointment of guardian ad litem, or grant of
authority to the plaintiff to prosecute the suit as a pauper
litigant, or amendment of the complaint by the plaintiff as
a matter of right without leave of court) — and however
valid and proper they might otherwise be, these do not
and cannot bind and affect the defendant until and unless
jurisdiction over his person is eventually obtained by the
court, either by service on him of summons or other
coercive process or his voluntary submission to the court's
authority. Hence, when the sheriff or other proper officer
commences implementation of the writ of attachment, it is
essential that he serve on the defendant not only a copy of
the applicant's affidavit and attachment bond, and of the
order of attachment, as explicitly required by Section 5 of
Rule 57, but also the summons addressed to said
defendant as well as a copy of the complaint and order for
appointment of guardian ad litem, if any, as also explicitly
directed by Section 3, Rule 14 of the Rules of Court.
Service of all such documents is indispensable not only
for the acquisition of jurisdiction over the person of the
defendant, but also upon considerations of fairness, to
apprise the defendant of the complaint against him, of the
issuance of a writ of preliminary attachment and the
grounds therefor and thus accord him the opportunity to
prevent attachment of his property by the posting of a
counterbond in an amount equal to the plaintiff's claim in
the complaint pursuant to Section 5 (or Section 12), Rule
57, or dissolving it by causing dismissal of the complaint
itself on any of the grounds set forth in Rule 16, or
demonstrating the insufficiency of the applicant's affidavit
or bond in accordance with Section 13, Rule 57. 46
xxx xxx xxx
For the guidance of all concerned, the Court reiterates and
reaffirms the proposition that writs of attachment may
properly issue ex parte provided that the Court is satisfied
that the relevant requisites therefor have been fulfilled by
the applicant, although it may, in its discretion, require
prior hearing on the application with notice to the
defendant; but that levy on property pursuant to the writ
thus issued may not be validly effected unless preceded,
or contemporaneously accompanied, by service on the
defendant of summons, a copy of the complaint (and of
the appointment of guardian ad litem, if any), the
application for attachment (if not incorporated in but
submitted separately from the complaint), the order of
attachment, and the plaintiff's attachment bond. 47
We reiterated the rule laid down in Davao Light in the
subsequent case of Cuartero vs. Court of Appeals 48 wherein
we stated:
It must be emphasized that the grant of the provisional
remedy of attachment practically involves three stages:
first, the court issues the order granting the application;
second, the writ of attachment issues pursuant to the order
granting the writ; and third, the writ is implemented. For
the initial two stages, it is not necessary that jurisdiction
over the person of the defendant should first be obtained.
However, once the implementation commences, it is
required that the court must have acquired jurisdiction
over the person of the defendant for without such
jurisdiction, the court has no power and authority to act in
 any manner against the defendant. Any order issuing from
the Court will not bind the defendant.
The validity then of the order granting the application for a
writ of preliminary attachment on 21 March 1990 and of the
issuance of the writ of preliminary attachment on 26 March
1990 is beyond dispute. However, the enforcement of the
preliminary attachment on 27 March 1990, although
simultaneous with the service of the summons and a copy of
the complaint, did not bind Zachry because the service of the
summons was not validly made. When a foreign corporation
has designated a person to receive service of summons
pursuant to the Corporation Code, that designation is exclusive
and service of summons on any other person is
inefficacious. 49 The valid service of summons and a copy of
the amended complaint was only made upon it on 24 April
1990, and it was only then that the trial court acquired
jurisdiction over Zachry's person. Accordingly, the levy on
attachment made by the sheriff on 27 April 1990 was invalid.
However, the writ of preliminary attachment may be validly
served anew.
As to the second issue of arbitration, we find that although the
order of the trial court denying the motion to dismiss did not
clearly state so, it is evident that the trial court perceived the
ground of the motion to be not indubitable; hence, it could
defer its resolution thereon until the trial of the case. In
deciding a motion to dismiss, Section 3, Rule 16 of the Rules
of Court grants the court four options: (1) to deny the motion,
(2) to grant the motion, (3) to allow amendment of pleadings,
or (4) to defer the hearing and determination of the motion
until the trial, if the ground alleged therein does not appear to
be indubitable. Under the fourth option, the court is under no
obligation to immediately hold a hearing on the motion; it is
vested with discretion to defer such hearing and the
determination of the motion until the trial of the case. 50 The
lack of indubitability of the ground involved in Zachry's
motion to dismiss is confirmed by the Court of Appeals when
it declared:
Section 27. B which is the provision upon which
petitioner [Zachry] anchors its claim is ambiguous in its
terminology when it states that "if at any time any
controversy should arise between the contractor and the
subcontractor . . . which controversy is not controlled or
determined by Section 27.A above or other provisions of
this subcontract' . . . . This provision states that only when
a controversy arises between the contractor and
subcontractor which is not covered by Section 27.A or
any provision of the Subcontract will the parties submit to
arbitration. As to what controversies fall under Section
27.B, it is not clear from a mere perusal of the provisions.
Indeed, the parties could not even agree on what controversies
fall within Section 27.B, and, perhaps, rightly so because the
said Section 27.B excludes controversies controlled or
determined by Section 27.A and other provisions of the
Subcontract Agreement, which are themselves unclear. For
that reason, VBC insists that its cause of action in Civil Case
No. 90-772 is based on Section 3 of the Subcontract
Agreement. It may further be emphasized that VBC's
complaint was precipitated by Zachry's refusal to comply with
the Supplemental Agreement. Evidently, Section 3 of the
Subcontract Agreement and the Supplemental Agreement are
excluded by Section 27.B. The trial court was, therefore,
correct in denying Zachry's motion to dismiss.
However, we cannot give our assent to the Court of Appeals'
order directing the trial court to conduct a hearing for the
determination of the proper interpretation of the provisions of
the Subcontract Agreement. It would re-open the motion to
dismiss — which, upon the trial court's exercise of its
discretion, was properly denied for lack of indubitability of the
ground invoked — and thereby unduly interfere with the trial
court's discretion. The proper interpretation could only be
done by the trial court after presentation of evidence during
trial on the merits pursuant to the tenor of its order denying the
motion to dismiss. If the trial court should find that, indeed,
arbitration is in order, then it could apply Section 7 of R.A.
No. 876 which reads as follows:
Sec. 7. Stay of civil action. — If any suit or proceeding be
brought upon an issue arising out of an agreement
providing for the arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied
that the issue involved in such suit or proceeding is
referable to arbitration, shall stay the action or proceeding
until an arbitration has been had in accordance with the
terms of the agreement: Provided, That the applicant for
the stay is not in default in proceeding with such
arbitration.
WHEREFORE, the petition in G.R. No. 107124 is
GRANTED while that in G.R. No. 106989 is DENIED for
lack of merit. The challenged Decision of 1 July 1992 and
Resolution of 2 September 1992 are hereby SET ASIDE. The
orders of Branch 142 of the Regional Trial Court of Makati in
Civil Case No. 90-772 of 19 September 1990 denying the
motion to dismiss and of 8 October 1990 denying the motion
to reconsider the former are REINSTATED. However, the
service of the writ of preliminary attachment on 26 March
1990 is hereby declared invalid. The writ may, nevertheless,
be served anew.
No pronouncement as to costs.
SO ORDERED.
G.R. Nos. 112438-39 December 12, 1995
CHEMPHIL EXPORT & IMPORT CORPORATION
(CEIC), petitioner, vs. THE HONORABLE COURT OF
APPEALS JAIME Y. GONZALES, as Assignee of the
Bank of the Philippine Islands (BPI), RIZAL
COMMERCIAL BANKING CORPORATION (RCBC),
LAND BANK OF THE PHILIPPINES (LBP),
PHILIPPINE COMMERCIAL & INTERNATIONAL
BANK (PCIB) and THE PHILIPPINE INVESTMENT
SYSTEM ORGANIZATION (PISO), respondents.
Contracts; Subrogation; Classifications of Subrogation; Words
and Phrases; Subrogation is “the transfer of all the rights of the
creditor to a third person, who substitutes him in all his
rights.”—By definition, subrogation is “the transfer of all the
rights of the creditor to a third person, who substitutes him in
all his rights. It may either be legal or conventional. Legal
subrogation is that which takes place without agreement but
by operation of law because of certain acts; this is the
subrogation referred to in Article 1302. Conventional
subrogation is that which takes place by agreement of the
parties . . .”
Same; Same; Agency; Where the money used to discharge a
person’s debt rightfully belonged to the debtor, the party
paying cannot be considered a third-party payor under Art.
1302(2) of the Civil Code but a mere agent.—Since the money
used to discharge Garcia’s debt rightfully belonged to him,
FCI cannot be considered a third party payor under Art. 1302
(2). It was but a conduit, or as aptly categorized by
respondents, merely an agent as defined in Art. 1868 of the
Civil Code.
Attachment; Corporations; Both the Revised Rules of Court
and the Corporation Code do not require annotation in the
corporation’s stock and transfer books for the attachment of
shares of stock to be valid and binding on the corporation and
third parties.—The attachment lien acquired by the consortium
is valid and effective. Both the Revised Rules of Court and the
Corporation Code do not require annotation in the
corporation’s stock and transfer books for the attachment of
shares of stock to be valid and binding on the corporation and
third party.
Same; Same; Words and Phrases; Attachments of shares of
stock are not included in the term “transfer” as provided in
Sec. 63 of the Corporation Code.—Are attachments of shares
of stock included in the term “transfer” as provided in Sec. 63
of the Corporation Code? We rule in the negative. As
succinctly declared in the case of Monserrat v. Ceron, “chattel
mortgage over shares of stock need not be registered in the
corporation’s stock and transfer book inasmuch as chattel
mortgage over shares of stock does not involve a “transfer of
shares,” and that only absolute transfers of shares of stock are
required to be recorded in the corporation’s stock and transfer
book in order to have “force and effect as against third
persons.”
Same; Same; An attachment does not constitute an absolute
conveyance of property but is primarily used as a means “to
seize the debtor’s property in order to secure the debt or claim
of the creditor in the event that a judgment is rendered.”—
Although the Monserrat case refers to a chattel mortgage over
shares of stock, the same may be applied to the attachment of
the disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of
property but is primarily used as a means “to seize the debtor’s
property in order to secure the debt or claim of the creditor in
the event that a judgment is rendered.”
Same; Sales; A purchaser of attached property acquires it
subject to an attachment legally and validly levied thereon.—
The only basis, then, for petitioner CEIC’s claim is the Deed
of Sale under which it purchased the disputed shares. It is,
however, a settled rule that a purchaser of attached property
acquires it subject to an attachment legally and validly levied
thereon.
Same; Actions; Garnishments; Corporations; Secretaries; A
notice of garnishment served on the secretary of the president
binds the corporation.—CEIC vigorously argues that the
consortium’s writ of attachment over the disputed shares of
Chemphil is null and void, insisting as it does, that the notice
of garnishment was not validly served on the designated
officers on 19 July 1985. It was served on Thelly Ruiz who
was neither the president nor the managing agent of Chemphil.
It makes no difference, CEIC further avers, that Thelly Ruiz
was the secretary of the President of Chemphil, for under the
above-quoted provision she is not among the officers so
authorized or designated to be served with the notice of
garnishment. We cannot subscribe to such a narrow view of
the rule on proper service of writs of attachment. A secretary’s
major function is to assist his or her superior. He/ she is in
effect an extension of the latter. Obviously, as such, one of her
duties is to receive letters and notices for and in behalf of her
superior, as in the case at bench. The notice of garnishment
was addressed to and was actually received by Chemphil’s
president through his secretary who formally received it for
him. Thus, in one case, we ruled that the secretary of the
president may be considered an “agent” of the corporation and
held that service of summons on him is binding on the
corporation.
Same; Same; Same; Compromise Agreements; A writ of
attachment is not extinguished by the execution of a
compromise agreement among the parties.—CEIC argues that
a writ of attachment is a mere auxiliary remedy which, upon
the dismissal of the case, dies a natural death. Thus, when the
consortium entered into a compromise agreement, which
resulted in the termination of their case, the disputed shares
were released from garnishment. We disagree. To subscribe to
CEIC’s contentions would be to totally disregard the concept
and purpose of a preliminary attachment. A writ of
preliminary attachment is a provisional remedy issued upon
order of the court where an action is pending to be levied upon
the property or properties of the defendant therein, the same to
be held thereafter by the Sheriff as security for the satisfaction
of whatever judgment might be secured in said action by the
attaching creditor against the defendant.
Same; Same; Same; Same; An attachment lien continues until
the debt is paid, or sale is had under execution issued on the
judgment or until judgment is satisfied, or the attachment
discharged or vacated in the same manner provided by law.—
We reiterate the rule laid down in BF Homes, Inc. v. CA that
an attachment lien continues until the debt is paid, or sale is
had under execution issued on the judgment or until judgment
is satisfied, or the attachment discharged or vacated in the
same manner provided by law.
Same; Same; Same; Same; The parties to the compromise
agreement should not be deprived of the protection provided
by an attachment lien especially in an instance where one
reneges on his obligations under the agreement.—The case at
bench admits of a peculiar character in the sense that it
involves a compromise agreement. Nonetheless, the rule
established in the aforequoted cases still applies, even more so
since the terms of the agreement have to be complied with in
full by the parties thereto. The parties to the compromise
agreement should not be deprived of the protection provided
by an attachment lien especially in an instance where one
reneges on his obligations under the agreement, as in the case
at bench, where Antonio Garcia failed to hold up his own end
of the deal, so to speak.
Actions; Pleadings and Practice; Forum-Shopping; Appeals;
Certiorari; A party who institutes a separate petition for
certiorari instead of joining his co-parties in their appeal,
where such remedy is available, is guilty of forum shopping.
—We view with skepticism PCIB’s contention that it did not
join the consortium because it “honestly believed that
certiorari was the more efficacious and speedy relief available
under the circumstances.” Rule 65 of the Revised Rules of
Court is not difficult to understand. Certiorari is available only
if there is no appeal or other plain, speedy and adequate
remedy in the ordinary course of law. Hence, in instituting a
separate petition for certiorari, PCIB has deliberately resorted
to forum-shopping.
Same; Same; Same; The rule against forum-shopping has long
been established and Supreme Court Circular 28-91 merely
formalized the prohibition and provided the appropriate
penalties against transgressors.—PCIB cannot hide behind the
subterfuge that Supreme Court Circular 28-91 was not yet in
force when it filed the certiorari proceedings in the Court of
Appeals. The rule against forum-shopping has long been
established. Supreme Court Circular 28-91 merely formalized
the prohibition and provided the appropriate penalties against
transgressors.
Same; Same; Same; Words and Phrases; “Forum-Shopping,”
Explained.—Forum-shopping or the act of a party against
whom an adverse judgment has been rendered in one forum,
of seeking another (and possibly favorable) opinion in another
forum (other than by appeal or the special civil action of
certiorari), or the institution of two (2) or more actions or
proceedings grounded on the same cause on the supposition
that one or the other court would make a favorable disposition,
has been characterized as an act of malpractice that is
prohibited and condemned as trifling with the Courts and
abusing their processes. It constitutes improper conduct which
tends to degrade the administration of justice. It has also been
aptly described as deplorable because it adds to the congestion
of the already heavily burdened dockets of the courts.
Chemphil Export & Import Corporation vs. Court of Appeals,
251 SCRA 257, G.R. Nos. 112438-39, G.R. No. 113394
December 12, 1995
KAPUNAN, J.:
Before us is a legal tug-of-war between the Chemphil Export
and Import Corporation (hereinafter referred to as CEIC), on
one side, and the PISO and Jaime Gonzales as assignee of the
Bank of the Philippine Islands (BPI), Rizal Commercial
Banking Corporation (RCBC), Land Bank of the Philippines
(LBP) and Philippine Commercial International Bank (PCIB),
on the other (hereinafter referred to as the consortium), over
1,717,678 shares of stock (hereinafter referred to as the
"disputed shares") in the Chemical Industries of the
Philippines (Chemphil/CIP).
Our task is to determine who is the rightful owner of the
disputed shares.
Pursuant to our resolution dated 30 May 1994, the instant case
is a consolidation of two petitions for review filed before us as
follows:
In G.R. Nos. 112438-39, CEIC seeks the reversal of the
decision of the Court of Appeals (former Twelfth Division)
promulgated on 30 June 1993 and its resolution of 29 October
1993, denying petitioner's motion for reconsideration in the
consolidated cases entitled "Dynetics, Inc., et al. v. PISO, et
al." (CA-G.R. No. 20467) and "Dynetics, Inc., et al. v. PISO,
et al.; CEIC, Intervenor-Appellee" (CA-G.R. CV No. 26511).
The dispositive portion of the assailed decision reads, thus:
WHEREFORE, this Court resolves in these consolidated
cases as follows:
1. The Orders of the Regional Trial Court, dated March
25, 1988, and May 20, 1988, subject of CA-G.R. CV No.
10467, are SET ASIDE and judgment is hereby rendered
in favor of the consortium and against appellee Dynetics,
Inc., the amount of the judgment, to be determined by
Regional Trial Court, taking into account the value of
assets that the consortium may have already recovered
and shall have recovered in accordance with the other
portions of this decision.
2. The Orders of the Regional Trial Court dated
December 19, 1989 and March 5, 1990 are hereby
REVERSED and SET ASIDE and judgment is hereby
rendered confirming the ownership of the consortium
over the Chemphil shares of stock, subject of CA-G.R.
CV No. 26511, and the Order dated September 4, 1989, is
reinstated.
No pronouncement as to costs.
SO ORDERED. 1
In G.R. No. 113394, PCIB and its assignee, Jaime Gonzales,
ask for the annulment of the Court of Appeals' decision
(former Special Ninth Division) promulgated on 26 March
1993 in "PCIB v. Hon. Job B. Madayag & CEIC" (CA-G.R.
SP NO. 20474) dismissing the petition for certiorari,
prohibition and mandamus filed by PCIB and of said court's
resolution dated 11 January 1994 denying their motion for
reconsideration of its decision.2
The antecedent facts leading to the aforementioned
controversies are as follows:
On September 25, 1984, Dynetics, Inc. and Antonio M. Garcia
filed a complaint for declaratory relief and/or injunction
against the PISO, BPI, LBP, PCIB and RCBC or the
consortium with the Regional Trial Court of Makati, Branch
45 (Civil Case No. 8527), seeking judicial declaration,
construction and interpretation of the validity of the surety
agreement that Dynetics and Garcia had entered into with the
consortium and to perpetually enjoin the latter from claiming,
collecting and enforcing any purported obligations which
Dynetics and Garcia might have undertaken in said
agreement.3
The consortium filed their respective answers with
counterclaims alleging that the surety agreement in question
was valid and binding and that Dynetics and Garcia were
liable under the terms of the said agreement. It likewise
applied for the issuance of a writ of preliminary attachment
against Dynetics and Garcia.4
Seven months later, or on 23 April 1985, Dynetics, Antonio
Garcia and Matrix Management & Trading Corporation filed a
complaint for declaratory relief and/or injunction against the
Security Bank & Trust Co. (SBTC case) before the Regional
Trial Court of Makati, Branch 135 docketed as Civil Case No.
10398.5
On 2 July 1985, the trial court granted SBTC's prayer for the
issuance of a writ of preliminary attachment and on 9 July
1985, a notice of garnishment covering Garcia's shares in
CIP/Chemphil (including the disputed shares) was served on
Chemphil through its then President. The notice of
garnishment was duly annotated in the stock and transfer
books of Chemphil on the same date.6
On 6 September 1985, the writ of attachment in favor of
SBTC was lifted. However, the same was reinstated on 30
October 1985.7
In the meantime, on 12 July 1985, the Regional Trial Court in
Civil Case No. 8527 (the consortium case) denied the
application of Dynetics and Garcia for preliminary injunction
and instead granted the consortium's prayer for a consolidated
writ of preliminary attachment. Hence, on 19 July 1985, after
the consortium had filed the required bond, a writ of
attachment was issued and various real and personal properties
of Dynetics and Garcia were garnished, including the disputed
shares.8 This garnishment, however, was not annotated in
Chemphil's stock and transfer book.
On 8 September 1987, PCIB filed a motion to dismiss the
complaint of Dynetics and Garcia for lack of interest to
prosecute and to submit its counterclaims for decision,
adopting the evidence it had adduced at the hearing of its
application for preliminary attachment.9
On 25 March 1988, the Regional Trial Court dismissed the
complaint of Dynetics and Garcia in Civil Case No. 8527, as
well as the counterclaims of the consortium, thus:
Resolving defendant's, Philippine Commercial
International Bank, MOTION TO DISMISS WITH
MOTION TO SUBMIT DEFENDANT PCIBANK's
COUNTERCLAIM FOR DECISION, dated September 7,
1987:
(1) The motion to dismiss is granted; and the instant case
is hereby ordered dismissed pursuant to Sec. 3, Rule 17 of
the Revised Rules of Court, plaintiff having failed to
comply with the order dated July 16, 1987, and having not
taken further steps to prosecute the case; and
(2) The motion to submit said defendant's counterclaim
for decision is denied; there is no need; said counterclaim
is likewise dismissed under the authority of Dalman
vs. City Court of Dipolog City, L-63194, January 21,
1985, wherein the Supreme Court stated that if the civil
case is dismissed, so also is the counterclaim filed therein.
"A person cannot eat his cake and have it at the same
time" (p. 645, record, Vol. I).10
The motions for reconsideration filed by the consortium were,
likewise, denied by the trial court in its order dated 20 May
1988:
The Court could have stood pat on its order dated 25
March 1988, in regard to which the defendants-banks
concerned filed motions for reconsideration. However,
inasmuch as plaintiffs commented on said motions that:
"3). In any event, so as not to unduly foreclose on the
rights of the respective parties to refile and prosecute their
respective causes of action, plaintiffs manifest their
conformity to the modification of this Honorable Court's
order to indicate that the dismissal of the complaint and
the counterclaims is without prejudice." (p. 2, plaintiffs'
COMMENT etc. dated May 20, 1988). The Court is
inclined to so modify the said order.
WHEREFORE , the order issued on March 25, 1988, is
hereby modified in the sense that the dismissal of the
complaint as well as of the counterclaims of defendants
RCBC, LBP, PCIB and BPI shall be considered as
without prejudice (p. 675, record, Vol. I).11
Unsatisfied with the aforementioned order, the consortium
appealed to the Court of Appeals, docketed as CA-G.R. CV
No. 20467.
On 17 January 1989 during the pendency of consortium's
appeal in CA-G.R. CV No. 20467, Antonio Garcia and the
consortium entered into a Compromise Agreement which the
Court of Appeals approved on 22 May 1989 and became the
basis of its judgment by compromise. Antonio Garcia was
dropped as a party to the appeal leaving the consortium to
proceed solely against Dynetics, Inc.12 On 27 June 1989, entry
of judgment was made by the Clerk of Court.13
Hereunder quoted are the salient portions of said compromise
agreement:
xxx xxx xxx
3. Defendants, in consideration of avoiding an extended
litigation, having agreed to limit their claim against
plaintiff Antonio M. Garcia to a principal sum of P145
Million immediately demandable and to waive all other
claims to interest, penalties, attorney's fees and other
charges. The aforesaid compromise amount of
indebtedness of P145 Million shall earn interest of
eighteen percent (18%) from the date of this Compromise.
4. Plaintiff Antonio M. Garcia and herein defendants have
no further claims against each other.
5. This Compromise shall be without prejudice to such
claims as the parties herein may have against plaintiff
Dynetics, Inc.
6. Plaintiff Antonio M. Garcia shall have two (2) months
from date of this Compromise within which to work for
the entry and participation of his other creditor, Security
Bank and Trust Co., into this Compromise. Upon the
expiration of this period, without Security Bank and Trust
Co. having joined, this Compromise shall be submitted to
the Court for its information and approval (pp. 27, 28-
31, rollo, CA-G.R. CV No. 10467).14
It appears that on 15 July 1988, Antonio Garcia under a Deed
of Sale transferred to Ferro Chemicals, Inc. (FCI) the disputed
shares and other properties for P79,207,331.28. It was agreed
upon that part of the purchase price shall be paid by FCI
directly to SBTC for whatever judgment credits that may be
adjudged in the latter's favor and against Antonio Garcia in the
aforementioned SBTC case.15
On 6 March 1989, FCI, through its President Antonio M.
Garcia, issued a Bank of America Check No. 860114 in favor
of SBTC in the amount of P35,462,869.62. 16 SBTC refused to
accept the check claiming that the amount was not sufficient
to discharge the debt. The check was thus consigned by
Antonio Garcia and Dynetics with the Regional Trial Court as
payment of their judgment debt in the SBTC case.17
On 26 June 1989, FCI assigned its 4,119,614 shares in
Chemphil, which included the disputed shares, to petitioner
CEIC. The shares were registered and recorded in the
corporate books of Chemphil in CEIC's name and the
corresponding stock certificates were issued to it.18
Meanwhile, Antonio Garcia, in the consortium case, failed to
comply with the terms of the compromise agreement he
entered into with the consortium on 17 January 1989. As a
result, on 18 July 1989, the consortium filed a motion for
execution which was granted by the trial court on 11 August
1989. Among Garcia's properties that were levied upon on
execution were his 1,717,678 shares in Chemphil (the disputed
shares) previously garnished on 19 July 1985.19
On 22 August 1989, the consortium acquired the disputed
shares of stock at the public auction sale conducted by the
sheriff for P85,000,000.00. 20 On same day, a Certificate of
Sale covering the disputed shares was issued to it.
On 30 August 1989,21 the consortium filed a motion (dated 29
August 1989) to order the corporate secretary of Chemphil to
enter in its stock and transfer books the sheriff's certificate of
sale dated 22 August 1989, and to issue new certificates of
stock in the name of the banks concerned. The trial court
granted said motion in its order dated 4 September 1989, thus:
For being legally proper, defendant's MOTION TO
ORDER THE CORPORATE SECRETARY OF
CHEMICAL INDUSTRIES OF THE PHILS., INC.
(CHEMPIL) TO ENTER IN THE STOCK AND
TRANSFER BOOKS OF CHEMPHIL THE SHERIFF'S
CERTIFICATE OF SALE DATED AUGUST 22, 1989
AND TO ISSUE NEW CERTIFICATES OF STOCK IN
THE NAME OF THE DEFENDANT BANKS, dated
August 29, 1989, is hereby granted.
 WHEREFORE, the corporate secretary of the aforesaid
corporation, or whoever is acting for and in his behalf, is
hereby ordered to (1) record and/or register the Certificate
of Sale dated August 22, 1989 issued by Deputy Sheriff
Cristobal S. Jabson of this Court; (2) to cancel the
certificates of stock of plaintiff Antonio M. Garcia and all
those which may have subsequently been issued in
replacement and/or in substitution thereof; and (3) to issue
in lieu of the said shares new shares of stock in the name
of the defendant Banks, namely, PCIB, BPI, RCBC, LBP
and PISO bank in such proportion as their respective
claims would appear in this suit (p. 82, record, Vol. II).22
On 26 September 1989, CEIC filed a motion to intervene
(dated 25 September 1989) in the consortium case seeking the
recall of the abovementioned order on grounds that it is the
rightful owner of the disputed shares.23 It further alleged that
the disputed shares were previously owned by Antonio M.
Garcia but subsequently sold by him on 15 July 1988 to Ferro
Chemicals, Inc. (FCI) which in turn assigned the same to
CEIC in an agreement dated 26 June 1989.
On 27 September 1989, the trial court granted CEIC's motion
allowing it to intervene, but limited only to the incidents
covered by the order dated 4 September 1989. In the same
order, the trial court directed Chemphil's corporate secretary to
temporarily refrain from implementing the 4 September 1989
order.24
On 2 October 1989, the consortium filed their opposition to
CEIC's motion for intervention alleging that their attachment
lien over the disputed shares of stocks must prevail over the
private sale in favor of the CEIC considering that said shares
of stock were garnished in the consortium's favor as early as
19 July 1985.25
On 4 October 1989, the consortium filed their opposition to
CEIC's motion to set aside the 4 September 1989 order and
moved to lift the 27 September 1989 order.26
On 12 October 1989, the consortium filed a manifestation and
motion to lift the 27 September 1989 order, to reinstate the 4
September 1989 order and to direct CEIC to surrender the
disputed stock certificates of Chemphil in its possession
within twenty-four (24) hours, failing in which the President,
Corporate Secretary and stock and transfer agent of Chemphil
be directed to register the names of the banks making up the
consortium as owners of said shares, sign the new certificates
of stocks evidencing their ownership over said shares and to
immediately deliver the stock certificates to them.27
Resolving the foregoing motions, the trial court rendered an
order dated 19 December 1989, the dispositive portion of
which reads as follows:
WHEREFORE, premises considered, the Urgent Motion
dated September 25, 1989 filed by CEIC is hereby
GRANTED. Accordingly, the Order of September 4,
1989, is hereby SET ASIDE, and any and all acts of the
Corporate Secretary of CHEMPHIL and/or whoever is
acting for and in his behalf, as may have already been
done, carried out or implemented pursuant to the Order of
September 4, 1989, are hereby nullified.
PERFORCE, the CONSORTIUM'S Motions dated
October 3, 1989 and October 11, 1989, are both hereby
denied for lack of merit.
The Cease and Desist Order dated September 27, 1989, is
hereby AFFIRMED and made PERMANENT.
SO ORDERED.28
In so ruling, the trial court ratiocinated in this wise:
xxx xxx xxx
After careful and assiduous consideration of the facts and
applicable law and jurisprudence, the Court holds that
CEIC's Urgent Motion to Set Aside the Order of
September 4, 1989 is impressed with merit. The
CONSORTIUM has admitted that the writ of
attachment/garnishment issued on July 19, 1985 on the
shares of stock belonging to plaintiff Antonio M. Garcia
was not annotated and registered in the stock and transfer
books of CHEMPHIL. On the other hand, the prior
attachment issued in favor of SBTC on July 2, 1985 by
Branch 135 of this Court in Civil Case No. 10398, against
the same CHEMPHIL shares of Antonio M. Garcia, was
duly registered and annotated in the stock and transfer
books of CHEMPHIL. The matter of non-recording of the
Consortium's attachment in Chemphil's stock and transfer
book on the shares of Antonio M. Garcia assumes
significance considering CEIC's position that FCI and
later CEIC acquired the CHEMPHIL shares of Antonio
M. Garcia without knowledge of the attachment of the
CONSORTIUM. This is also important as CEIC claims
that it has been subrogated to the rights of SBTC since
CEIC's predecessor-in-interest, the FCI, had paid SBTC
the amount of P35,462,869.12 pursuant to the Deed of
Sale and Purchase of Shares of Stock executed by
Antonio M. Garcia on July 15, 1988. By reason of such
payment, sale with the knowledge and consent of Antonio
M. Garcia, FCI and CEIC, as party-in-interest to FCI, are
subrogated by operation of law to the rights of SBTC. The
Court is not unaware of the citation in CEIC's reply that
"as between two (2) attaching creditors, the one whose
claims was first registered on the books of the corporation
enjoy priority." (Samahang Magsasaka, Inc. vs. Chua
Gan, 96 Phil. 974.)
The Court holds that a levy on the shares of corporate
stock to be valid and binding on third persons, the notice
of attachment or garnishment must be registered and
annotated in the stock and transfer books of the
corporation, more so when the shares of the corporation
are listed and traded in the stock exchange, as in this case.
As a matter of fact, in the CONSORTIUM's motion of
August 30, 1989, they specifically move to "order the
Corporate Secretary of CHEMPHIL to enter in the stock
and transfer books of CHEMPHIL the Sheriff's Certificate
of Sale dated August 22, 1989." This goes to show that,
contrary to the arguments of the CONSORTIUM, in order
that attachment, garnishment and/or encumbrances
affecting rights and ownership on shares of a corporation
to be valid and binding, the same has to be recorded in the
stock and transfer books.
Since neither CEIC nor FCI had notice of the
CONSORTIUM's attachment of July 19, 1985, CEIC's
shares of stock in CHEMPHIL, legally acquired from
Antonio M. Garcia, cannot be levied upon in execution to
satisfy his judgment debts. At the time of the Sheriff's
levy on execution, Antonio M. Garcia has no more in
CHEMPHIL which could be levied upon.29
x x x           x x x          x x x
On 23 January 1990, the consortium and PCIB filed separate
motions for reconsideration of the aforestated order which
were opposed by petitioner
CEIC.30
On 5 March 1990, the trial court denied the motions for
reconsideration.31
On 16 March 1990, the consortium appealed to the Court of
Appeals (CA-G.R. No. 26511). In its Resolution dated 9
August 1990, the Court of Appeals consolidated CA-G.R. No.
26511 with CA-G.R. No. 20467.32
The issues raised in the two cases, as formulated by the Court
of Appeals, are as follows:
I background of the present action is different. In the
WHETHER OR NOT, UNDER THE PECULIAR
CIRCUMSTANCES OF THE CASE, THE TRIAL
COURT ERRED IN DISMISSING THE
COUNTERCLAIMS OF THE CONSORTIUM IN CIVIL
CASE NO. 8527;
II
WHETHER OR NOT THE DISMISSAL OF CIVIL
CASE NO. 8527 RESULTED IN THE DISCHARGE OF
THE WRIT OF ATTACHMENT ISSUED THEREIN
EVEN AS THE CONSORTIUM APPEALED THE
ORDER DISMISSING CIVIL CASE NO. 8527;
III
WHETHER OR NOT THE JUDGMENT BASED ON
COMPROMISE RENDERED BY THIS COURT ON
MAY 22, 1989 HAD THE EFFECT OF DISCHARGING
THE ATTACHMENTS ISSUED IN CIVIL CASE NO.
8527;
IV
WHETHER OR NOT THE ATTACHMENT OF
SHARES OF STOCK, IN ORDER TO BIND THIRD
PERSONS, MUST BE RECORDED IN THE STOCK
AND TRANSFER BOOK OF THE CORPORATION;
AND
V
WHETHER OR NOT FERRO CHEMICALS, INC.
(FCI), AND ITS SUCCESSOR-IN-INTEREST, CEIC,
WERE SUBROGATED TO THE RIGHTS OF
SECURITY BANK & TRUST COMPANY (SBTC) IN A
SEPARATE CIVIL ACTION. (This issue appears to be
material as SBTC is alleged to have obtained an earlier
attachment over the same Chemphil shares that the
consortium seeks to recover in the case at bar).33
On 6 April 1990, the PCIB separately filed with the Court of
Appeals a petition for certiorari, prohibition
and mandamus with a prayer for the issuance of a writ of
preliminary injunction (CA-G.R. No. SP-20474), likewise,
assailing the very same orders dated 19 December 1989 and 5
March 1990, subject of CA-G.R. No. 26511.34
On 30 June 1993, the Court of Appeals (Twelfth Division) in
CA-G.R. No. 26511 and CA-G.R. No. 20467 rendered a
decision reversing the orders of the trial court and confirming
the ownership of the consortium over the disputed shares.
CEIC's motion for reconsideration was denied on 29 October
1993.35
In ruling for the consortium, the Court of Appeals made the
following ratiocination:36
On the first issue, it ruled that the evidence offered by the
consortium in support of its counterclaims, coupled with
the failure of Dynetics and Garcia to prosecute their case,
was sufficient basis for the RTC to pass upon and
determine the consortium's counterclaims.
The Court of Appeals found no application for the ruling
in Dalman v. City Court of Dipolog, 134 SCRA 243
(1985) that "a person cannot eat his cake and have it at the
same time. If the civil case is dismissed, so also is the
counterclaim filed therein" because the factual
instant case, both Dynetics and Garcia and the consortium
presented testimonial and documentary evidence which
clearly should have supported a judgment on the merits in
favor of the consortium. As the consortium correctly
argued, the net atrocious effect of the Regional Trial
Court's ruling is that it allows a situation where a party
litigant is forced to plead and prove compulsory
counterclaims only to be denied those counterclaims on
account of the adverse party's failure to prosecute his
case. Verily, the consortium had no alternative but to
present its counterclaims in Civil Case No. 8527 since its
counterclaims are compulsory in nature.
On the second issue, the Court of Appeals opined that
unless a writ of attachment is lifted by a special order
specifically providing for the discharge thereof, or unless
a case has been finally dismissed against the party in
whose favor the attachment has been issued, the
attachment lien subsists. When the consortium, therefore,
took an appeal from the Regional Trial Court's orders of
March 25, 1988 and May 20, 1988, such appeal had the
effect of preserving the consortium's attachment liens
secured at the inception of Civil Case No. 8527, invoking
the rule in Olib v. Pastoral, 188 SCRA 692 (1988) that
where the main action is appealed, the attachment issued
in the said main case is also considered appealed.
Anent the third issue, the compromise agreement between
the consortium and Garcia dated 17 January 1989 did not
result in the abandonment of its attachment lien over his
properties. Said agreement was approved by the Court of
Appeals in a Resolution dated 22 May 1989. The
judgment based on the compromise agreement had the
effect of preserving the said attachment lien as security
for the satisfaction of said judgment (citing BF Homes,
Inc. v. CA, 190 SCRA 262, [1990]).
As to the fourth issue, the Court of Appeals agreed with
the consortium's position that the attachment of shares of
stock in a corporation need not be recorded in the
corporation's stock and transfer book in order to bind third
persons.
Section 7(d), Rule 57 of the Rules of Court was complied
with by the consortium (through the Sheriff of the trial
court) when the notice of garnishment over the Chemphil
shares of Garcia was served on the president of Chemphil
on July 19, 1985. Indeed, to bind third persons, no law
requires that an attachment of shares of stock be recorded
in the stock and transfer book of a corporation. The
statement attributed by the Regional Trial Court to the
Supreme Court in Samahang Magsasaka,
Inc. vs. Gonzalo Chua Guan, G.R. No. L-7252, February
25, 1955 (unreported), to the effect that "as between two
attaching creditors, the one whose claim was registered
first on the books of the corporation enjoys priority," is
an obiter dictum that does not modify the procedure laid
down in Section 7(d), Rule 57 of the Rules of Court.
 Therefore, ruled the Court of Appeals, the attachment
made over the Chemphil shares in the name of Garcia on
July 19, 1985 was made in accordance with law and the
lien created thereby remained valid and subsisting at the
time Garcia sold those shares to FCI (predecessor-in-
interest of appellee CEIC) in 1988.
Anent the last issue, the Court of Appeals rejected CEIC's
subrogation theory based on Art. 1302 (2) of the New
Civil Code stating that the obligation to SBTC was paid
by Garcia himself and not by a third party (FCI).
The Court of Appeals further opined that while the check
used to pay SBTC was a FCI corporate check, it was
funds of Garcia in FCI that was used to pay off SBTC.
That the funds used to pay off SBTC were funds of
Garcia has not been refuted by FCI or CEIC. It is clear,
therefore, that there was an attempt on the part of Garcia
to use FCI and CEIC as convenient vehicles to deny the
consortium its right to make itself whole through an
execution sale of the Chemphil shares attached by the
consortium at the inception of Civil Case No. 8527. The
consortium, therefore, is entitled to the issuance of the
Chemphil shares of stock in its favor. The Regional Trial
Court's order of September 4, 1989, should, therefore, be
reinstated in toto.
Accordingly, the question of whether or not the
attachment lien in favor of SBTC in the SBTC case is
superior to the attachment lien in favor of the consortium
in Civil Case No. 8527 becomes immaterial with respect
to the right of intervenor-appellee CEIC. The said issue
would have been relevant had CEIC established its
subrogation to the rights of SBTC.
On 26 March 1993, the Court of Appeals (Special Ninth
Division) in CA-G.R. No. SP 20474 rendered a decision
denying due course to and dismissing PCIB's petition
for certiorari on grounds that PCIB violated the rule against
forum-shopping and that no grave abuse of discretion was
committed by respondent Regional Trial Court in issuing its
assailed orders dated 19 December 1989 and 5 March 1990.
PCIB's motion for reconsideration was denied on 11 January
1994.37
On 7 July 1993, the consortium, with the exception of PISO,
assigned without recourse all its rights and interests in the
disputed shares to Jaime Gonzales.38
On 3 January 1994, CEIC filed the instant petition for review
docketed as G.R. Nos. 112438-39 and assigned the following
errors:
I.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN SETTING ASIDE AND
REVERSING THE ORDERS OF THE REGIONAL
TRIAL COURT DATED DECEMBER 5, 1989 AND
MARCH 5, 1990 AND IN NOT CONFIRMING
PETITIONER'S OWNERSHIP OVER THE DISPUTED
CHEMPHIL SHARES AGAINST THE FRIVOLOUS
AND UNFOUNDED CLAIMS OF THE
CONSORTIUM.
II.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED:
(1) In not holding that the Consortium's attachment over
the disputed Chemphil shares did not vest any priority
right in its favor and cannot bind third parties since
admittedly its attachment on 19 July 1985 was not
recorded in the stock and transfer books of Chemphil, and
subordinate to the attachment of SBTC which SBTC
registered and annotated in the stock and transfer books of
Chemphil on 2 July 1985, and that the Consortium's
attachment failed to comply with Sec. 7(d), Rule 57 of the
Rules as evidenced by the notice of garnishment of the
deputy sheriff of the trial court dated 19 July 1985 (annex
"D") which the sheriff served on a certain Thelly Ruiz
who was neither President nor managing agent of
Chemphil;
(2) In not applying the case law enunciated by this
Honorable Supreme Court in Samahang Magsasaka,
Inc. vs. Gonzalo Chua Guan, 96 Phil. 974 that as between
two attaching creditors, the one whose claim was
registered first in the books of the corporation enjoys
priority, and which respondent Court erroneously
characterized as mere obiter dictum;
(3) In not holding that the dismissal of the appeal of the
Consortium from the order of the trial court dismissing its
counterclaim against Antonio M. Garcia and the finality
of the compromise agreement which ended the litigation
between the Consortium and Antonio M. Garcia in
the Dynetics case had ipso jure discharged the
Consortium's purported attachment over the disputed
shares.
III.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING THAT CEIC
HAD BEEN SUBROGATED TO THE RIGHTS OF
SBTC SINCE CEIC'S PREDECESSOR IN INTEREST
HAD PAID SBTC PURSUANT TO THE DEED OF
SALE AND PURCHASE OF STOCK EXECUTED BY
ANTONIO M. GARCIA ON JULY 15, 1988, AND
THAT BY REASON OF SUCH PAYMENT, WITH THE
CONSENT AND KNOWLEDGE OF ANTONIO M.
GARCIA, FCI AND CEIC, AS PARTY IN INTEREST
TO FCI, WERE SUBROGATED BY OPERATION OF
LAW TO THE RIGHTS OF SBTC.
IV.
THE RESPONDENT COURT OF APPEALS
GRAVELY ERRED AND MADE UNWARRANTED
INFERENCES AND CONCLUSIONS, WITHOUT ANY
SUPPORTING EVIDENCE, THAT THERE WAS AN
ATTEMPT ON THE PART OF ANTONIO M. GARCIA
TO USE FCI AND CEIC AS CONVENIENT
VEHICLES TO DENY THE CONSORTIUM ITS
RIGHTS TO MAKE ITSELF WHOLE THROUGH AN
EXECUTION OF THE CHEMPHIL SHARES
PURPORTEDLY ATTACHED BY THE
CONSORTIUM ON 19 JULY 1985. 39
On 2 March 1994, PCIB filed its own petition for review
docketed as G.R. No. 113394 wherein it raised the following
issues:
I. RESPONDENT COURT OF APPEALS COMMITTED
SERIOUS ERROR IN RENDERING THE DECISION
AND RESOLUTION IN QUESTION (ANNEXES A
AND B) IN DEFIANCE OF LAW AND
JURISPRUDENCE BY FINDING RESPONDENT CEIC
AS HAVING BEEN SUBROGATED TO THE RIGHTS
OF SBTC BY THE PAYMENT BY FCI OF GARCIA'S
DEBTS TO THE LATTER DESPITE THE FACT THAT
—
 A. FCI PAID THE SBTC DEBT BY VIRTUE OF A
CONTRACT BETWEEN FCI AND GARCIA, THUS,
LEGAL SUBROGATION DOES NOT ARISE;
B. THE SBTC DEBT WAS PAID BY GARCIA
HIMSELF AND NOT BY FCI, HENCE,
SUBROGATION BY PAYMENT COULD NOT HAVE
OCCURRED;
C. FCI DID NOT ACQUIRE ANY RIGHT OVER THE
DISPUTED SHARES AS SBTC HAD NOT YET
LEVIED UPON NOR BOUGHT THOSE SHARES ON
EXECUTION. ACCORDINGLY, WHAT FCI
ACQUIRED FROM SBTC WAS SIMPLY A
JUDGMENT CREDIT AND AN ATTACHMENT LIEN
TO SECURE ITS SATISFACTION.
II. RESPONDENT COURT OF APPEALS
COMMITTED SERIOUS ERROR IN SUSTAINING
THE ORDERS OF THE TRIAL COURT DATED
DECEMBER 19, 1989 AND MARCH 5, 1990 WHICH
DENIED PETITIONER'S OWNERSHIP OVER THE
DISPUTED SHARES NOTWITHSTANDING
PROVISIONS OF LAW AND EXTANT
JURISPRUDENCE ON THE MATTER THAT
PETITIONER AND THE CONSORTIUM HAVE
PREFERRED SENIOR RIGHTS THEREOVER.
III. RESPONDENT COURT OF APPEAL
COMMITTED SERIOUS ERROR IN CONCLUDING
THAT THE DISMISSAL OF THE COMPLAINT AND
THE COUNTERCLAIM IN CIVIL CASE NO. 8527
ALSO RESULTED IN THE DISCHARGE OF THE
WRIT OF ATTACHMENT DESPITE THE RULINGS
OF THIS HONORABLE COURT IN BF HOMES
VS. COURT OF APPEALS, G.R. NOS. 76879 AND
77143, OCTOBER 3, 1990, 190 SCRA 262, AND
IN OLIB VS. PASTORAL, G.R. NO. 81120, AUGUST 20,
1990, 188 SCRA 692 TO THE CONTRARY.
IV. RESPONDENT COURT OF APPEALS EXCEEDED
ITS JURISDICTION IN RULING ON THE MERITS OF
THE MAIN CASE NOTWITHSTANDING THAT
THOSE MATTERS WERE NOT ON APPEAL BEFORE
IT.
V. RESPONDENT COURT OF APPEALS
COMMITTED SERIOUS ERROR IN HOLDING THAT
PETITIONER IS GUILTY OF FORUM SHOPPING
DESPITE THE FACT THAT SC CIRCULAR NO. 28-91
WAS NOT YET IN FORCE AND EFFECT AT THE
TIME THE PETITION WAS FILED BEFORE
RESPONDENT APPELLATE COURT, AND THAT ITS
COUNSEL AT THAT TIME HAD ADEQUATE BASIS
TO BELIEVE THAT CERTIORARI AND NOT AN
APPEAL OF THE TRIAL COURT'S ORDERS WAS
THE APPROPRIATE RELIEF.40
As previously stated, the issue boils down to who is legally
entitled to the disputed shares of Chemphil. We shall resolve
this controversy by examining the validity of the claims of
each party and, thus, determine whose claim has priority.
CEIC's claim
CEIC traces its claim over the disputed shares to the
attachment lien obtained by SBTC on 2 July 1985 against
Antonio Garcia in Civil Case No. 10398. It avers that when
FCI, CEIC's predecessor-in-interest, paid SBTC the due
obligations of Garcia to the said bank pursuant to the Deed of
Absolute Sale and Purchase of Shares of Stock,41 FCI, and
later CEIC, was subrogated to the rights of SBTC, particularly
to the latter's aforementioned attachment lien over the disputed
shares.
CEIC argues that SBTC's attachment lien is superior as it was
obtained on 2 July 1985, ahead of the consortium's purported
attachment on 19 July 1985. More importantly, said CEIC lien
was duly recorded in the stock and transfer books of
Chemphil.
CEIC's subrogation theory is unavailing.
By definition, subrogation is "the transfer of all the rights of
the creditor to a third person, who substitutes him in all his
rights. It may either be legal or conventional. Legal
subrogation is that which takes place without agreement but
by operation of law because of certain acts; this is the
subrogation referred to in article 1302. Conventional
subrogation is that which takes place by agreement of the
parties . . ."42
CEIC's theory is premised on Art. 1302 (2) of the Civil Code
which states:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation pays,
without prejudice to the effects of confusion as to the
latter's share. (Emphasis ours.)
Despite, however, its multitudinous arguments, CEIC presents
an erroneous interpretation of the concept of subrogation. An
analysis of the situations involved would reveal the clear
inapplicability of Art. 1302 (2).
Antonio Garcia sold the disputed shares to FCI for a
consideration of P79,207,331.28. FCI, however, did not pay
the entire amount to Garcia as it was obligated to deliver part
of the purchase price directly to SBTC pursuant to the
following stipulation in the Deed of Sale:
Manner of Payment
Payment of the Purchase Price shall be made in
accordance with the following order of
preference provided that in no instance shall the total
amount paid by the Buyer exceed the Purchase Price:
a. Buyer shall pay directly to the Security Bank and Trust
Co. the amount determined by the Supreme Court as due
and owing in favor of the said bank by the Seller.
The foregoing amount shall be paid within fifteen (15)
days from the date the decision of the Supreme Court in
the case entitled "Antonio M. Garcia, et al. vs. Court of
Appeals, et al." G.R. Nos. 82282-83 becomes final and
executory. 43 (Emphasis ours.)
Hence, when FCI issued the BA check to SBTC in the amount
of P35,462,869.62 to pay Garcia's indebtedness to the said
bank, it was in effect paying with Garcia's money, no longer
with its own, because said amount was part of the purchase
price which FCI owed Garcia in payment for the sale of the
disputed shares by the latter to the former. The money "paid"
by FCI to SBTC, thus properly belonged to Garcia. It is as if
Garcia himself paid his own debt to SBTC but through a third
party — FCI.
It is, therefore, of no consequence that what was used to pay
SBTC was a corporate check of FCI. As we have earlier
stated, said check no longer represented FCI funds but
Garcia's money, being as it was part of FCI's payment for the
acquisition of the disputed shares. The FCI check should not
be taken at face value, the attendant circumstances must also
be considered.
The aforequoted contractual stipulation in the Deed of Sale
dated 15 July 1988 between Antonio Garcia and FCI is
nothing more but an arrangement for the sake of convenience.
Payment was to be effected in the aforesaid manner so as to
prevent money from changing hands needlessly. Besides, the
very purpose of Garcia in selling the disputed shares and his
other properties was to "settle certain civil suits filed against
him."44
Since the money used to discharge Garcia's debt rightfully
belonged to him, FCI cannot be considered a third party payor
under Art. 1302 (2). It was but a conduit, or as aptly
categorized by respondents, merely an agent as defined in Art.
1868 of the Civil Code:
Art. 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter.
FCI was merely fulfilling its obligation under the
aforementioned Deed of Sale.
Additionally, FCI is not a disinterested party as required by
Art. 1302 (2) since the benefits of the extinguishment of the
obligation would redound to none other but itself.45 Payment
of the judgment debt to SBTC resulted in the discharge of the
attachment lien on the disputed shares purchased by FCI. The
latter would then have a free and "clean" title to said shares.
In sum, CEIC, for its failure to fulfill the requirements of Art.
1302 (2), was not subrogated to the rights of SBTC against
Antonio Garcia and did not acquire SBTC's attachment lien
over the disputed shares which, in turn, had already been lifted
or discharged upon satisfaction by Garcia, through FCI, of his
debt to the said bank.46
The rule laid down in the case of Samahang Magsasaka,
Inc. v. Chua Guan,47 that as between two attaching creditors
the one whose claim was registered ahead on the books of the
corporation enjoys priority, clearly has no application in the
case at bench. As we have amply discussed, since CEIC was
not subrogated to SBTC's right as attaching creditor, which
right in turn, had already terminated after Garcia paid his debt
to SBTC, it cannot, therefore, be categorized as an attaching
creditor in the present controversy. CEIC cannot resurrect and
claim a right which no longer exists. The issue in the instant
case, then, is priority between an attaching creditor (the
consortium) and a purchaser (FCI/CEIC) of the disputed
shares of stock and not between two attaching creditors — the
subject matter of the aforestated Samahang Magsasaka case.
CEIC, likewise, argues that the consortium's attachment lien
over the disputed Chemphil shares is null and void and not
binding on third parties due to the latter's failure to register
said lien in the stock and transfer books of Chemphil as
mandated by the rule laid down by the Samahang Magsasaka
v. Chua Guan.48
The attachment lien acquired by the consortium is valid and
effective. Both the Revised Rules of Court and the
Corporation Code do not require annotation in the
corporation's stock and transfer books for the attachment of
shares of stock to be valid and binding on the corporation and
third party.
Section 74 of the Corporation Code which enumerates the
instances where registration in the stock and transfer books of
a corporation provides:
Sec. 74. Books to be kept; stock transfer agent. —
xxx xxx xxx
Stock corporations must also keep a book to be known as
the stock and transfer book, in which must be kept a
record of all stocks in the names of the stockholders
alphabetically arranged; the installments paid and unpaid
on all stock for which subscription has been made, and
the date of payment of any settlement; a statement of
every alienation, sale or transfer of stock made, the date
thereof, and by and to whom made; and such other entries
as the by-laws may prescribe. The stock and transfer book
shall be kept in the principal office of the corporation or
in the office of its stock transfer agent and shall be open
for inspection by any director or stockholder of the
corporation at reasonable hours on business days.
(Emphasis ours.)
x x x           x x x          x x x
Section 63 of the same Code states:
Sec. 63. Certificate of stock and transfer of shares. — The
capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or
vice-president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall
be issued in accordance with the by-laws. Shares of stock
so issued are personal property and may be transferred
by delivery of the certificate or certificates indorsed by
the owner or his attorney-in-fact or other person legally
authorized to make the transfer. No transfer, however,
shall be valid, except as between the parties, until the
transfer is recorded in the books of the corporation so as
to show the names of the parties to the transaction, the
date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds
any unpaid claim shall be transferable in the books of the
corporation. (Emphasis ours.)
Are attachments of shares of stock included in the term
"transfer" as provided in Sec. 63 of the Corporation Code? We
rule in the negative. As succinctly declared in the case
of Monserrat v. Ceron,49 "chattel mortgage over shares of
stock need not be registered in the corporation's stock and
transfer book inasmuch as chattel mortgage over shares of
stock does not involve a "transfer of shares," and that only
absolute transfers of shares of stock are required to be
recorded in the corporation's stock and transfer book in order
to have "force and effect as against third persons."
xxx xxx xxx
 The word "transferencia" (transfer) is defined by the
"Diccionario de la Academia de la Lengua Castellana" as
"accion y efecto de transfeir" (the act and effect of
transferring); and the verb "transferir", as "ceder or
renunciar en otro el derecho o dominio que se tiene sobre
una cosa, haciendole dueno de ella" (to assign or waive
the right in, or absolute ownership of, a thing in favor of
another, making him the owner thereof).
In the Law Dictionary of "Words and Phrases", third
series, volume 7, p. 5867, the word "transfer" is defined
as follows:
"Transfer" means any act by which property of one person
is vested in another, and "transfer of shares", as used in
Uniform Stock Transfer Act (Comp. St. Supp. 690),
implies any means whereby one may be divested of and
another acquire ownership of stock. (Wallach vs. Stein
[N.J.], 136 A., 209, 210.)
xxx xxx xxx
In the case of Noble vs. Ft. Smith Wholesale Grocery Co.
(127 Pac., 14, 17; 34 Okl., 662; 46 L.R.A. [N.S.], 455),
cited in Words and Phrases, second series, vol. 4, p. 978,
the following appears:
A "transfer" is the act by which the owner of a thing
delivers it to another with the intent of passing the rights
which he has in it to the latter, and a chattel mortgage is
not within the meaning of such term.
xxx xxx xxx.50
Although the Monserrat case refers to a chattel mortgage over
shares of stock, the same may be applied to the attachment of
the disputed shares of stock in the present controversy since an
attachment does not constitute an absolute conveyance of
property but is primarily used as a means "to seize the debtor's
property in order to secure the debt or claim of the creditor in
the event that a judgment is rendered."51
Known commentators on the Corporation Code expound, thus:
xxx xxx xxx
Shares of stock being personal property, may be the
subject matter of pledge and chattel mortgage.
Such collateral transfers are however not covered by the
registration requirement of Section 63, since our Supreme
Court has held that such provision applies only to
absolute transfers thus, the registration in the corporate
books of pledges and chattel mortgages of shares cannot
have any legal effect. 52 (Emphasis ours.)
xxx xxx xxx
The requirement that the transfer shall be recorded in the
books of the corporation to be valid as against third
persons has reference only to absolute transfers or
absolute conveyance of the ownership or title to a share.
Consequently, the entry or notation on the books of the
corporation of pledges and chattel mortgages on shares is
not necessary to their validity (although it is advisable to
do so) since they do not involve absolute alienation of
ownership of stock (Monserrat vs. Ceron, 58 Phil. 469
[1933]; Chua Guan vs. Samahang Magsasaka, Inc., 62
Phil. 472 [1935].) To affect third persons, it is enough that
the date and description of the shares pledged appear in a
public instrument. (Art. 2096, Civil Code.) With respect
to a chattel mortgage constituted on shares of stock, what
is necessary is its registration in the Chattel Mortgage
Registry. (Act No. 1508 and Art. 2140, Civil Code.)53
CEIC's reliance on the Samahang Magsasaka case is
misplaced. Nowhere in the said decision was it categorically
stated that annotation of the attachment in the corporate books
is mandatory for its validity and for the purpose of giving
notice to third persons.
The only basis, then, for petitioner CEIC's claim is the Deed
of Sale under which it purchased the disputed shares. It is,
however, a settled rule that a purchaser of attached property
acquires it subject to an attachment legally and validly levied
thereon.54
Our corollary inquiry is whether or not the consortium has
indeed a prior valid and existing attachment lien over the
disputed shares.
Jaime Gonzales' /Consortium's Claim
Is the consortium's attachment lien over the disputed shares
valid?
CEIC vigorously argues that the consortium's writ of
attachment over the disputed shares of Chemphil is null and
void, insisting as it does, that the notice of garnishment was
not validly served on the designated officers on 19 July 1985.
To support its contention, CEIC presented the sheriff's notice
of garnishment55 dated 19 July 1985 which showed on its face
that said notice was received by one Thelly Ruiz who was
neither the president nor managing agent of Chemphil. It
makes no difference, CEIC further avers, that Thelly Ruiz was
the secretary of the President of Chemphil, for under the
above-quoted provision she is not among the officers so
authorized or designated to be served with the notice of
garnishment.
We cannot subscribe to such a narrow view of the rule on
proper service of writs of attachment.
A secretary's major function is to assist his or her superior.
He/she is in effect an extension of the latter. Obviously, as
such, one of her duties is to receive letters and notices for and
in behalf of her superior, as in the case at bench. The notice of
garnishment was addressed to and was actually received by
Chemphil's president through his secretary who formally
received it for him. Thus, in one case,56 we ruled that the
secretary of the president may be considered an "agent" of the
corporation and held that service of summons on him is
binding on the corporation.
Moreover, the service and receipt of the notice of garnishment
on 19 July 1985 was duly acknowledged and confirmed by the
corporate secretary of Chemphil, Rolando Navarro and his
successor Avelino Cruz through their respective certifications
dated 15 August 198957 and 21 August 1989.58
We rule, therefore, that there was substantial compliance with
Sec. 7(d), Rule 57 of the Rules of Court.
Did the compromise agreement between Antonio Garcia and
the consortium discharge the latter's attachment lien over the
disputed shares?
CEIC argues that a writ of attachment is a mere auxiliary
remedy which, upon the dismissal of the case, dies a natural
death. Thus, when the consortium entered into a compromise
agreement, 59 which resulted in the termination of their case,
the disputed shares were released from garnishment.
We disagree. To subscribe to CEIC's contentions would be to
totally disregard the concept and purpose of a preliminary
attachment.
A writ of preliminary attachment is a provisional remedy
issued upon order of the court where an action is pending
to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the
Sheriff as security for the satisfaction of whatever
judgment might be secured in said action by the attaching
creditor against the defendant.60 (Emphasis ours.)
Attachment is a juridical institution which has for its
purpose to secure the outcome of the trial, that is, the
satisfaction of the pecuniary obligation really contracted
by a person or believed to have been contracted by him,
either by virtue of a civil obligation emanating from
contract or from law, or by virtue of some crime or
misdemeanor that he might have committed, and the writ
issued, granted it, is executed by attaching and safely
keeping all the movable property of the defendant, or so
much thereof may be sufficient to satisfy the plaintiff's
demands . . .61 (Emphasis ours.)
The chief purpose of the remedy of attachment is to
secure a contingent lien on defendant's property until
plaintiff can, by appropriate proceedings, obtain a
judgment and have such property applied to its
satisfaction, or to make some provision for unsecured
debts in cases where the means of satisfaction thereof are
liable to be removed beyond the jurisdiction, or
improperly disposed of or concealed, or otherwise placed
beyond the reach of creditors.62 (Emphasis ours.)
We reiterate the rule laid down in BF Homes,
Inc. v. CA 63 that an attachment lien continues until the debt
is paid, or sale is had under execution issued on the judgment
or until judgment is satisfied, or the attachment discharged or
vacated in the same manner provided by law. We expounded
in said case that:
The appointment of a rehabilitation receiver who took
control and custody of BF has not necessarily secured the
claims of Roa and Mendoza. In the event that the
receivership is terminated with such claims not having
been satisfied, the creditors may also find themselves
without security therefor in the civil action because of the
dissolution of the attachment. This should not be
permitted. Having previously obtained the issuance of the
writ in good faith, they should not be deprived of its
protection if the rehabilitation plan does not succeed and
the civil action is resumed.
xxx xxx xxx
As we ruled in Government of the Philippine Islands
v. Mercado:
Attachment is in the nature of a proceeding in rem. It is
against the particular property. The attaching creditor
thereby acquires specific lien upon the attached property
which ripens into a judgment against the res when the
order of sale is made. Such a proceeding is in effect a
finding that the property attached is an indebted thing and
a virtual condemnation of it to pay the owner's debt. The
law does not provide the length of time an attachment lien
shall continue after the rendition of judgment, and it must
therefore necessarily continue until the debt is paid, or
sale is had under execution issued on the judgment or
until judgment is satisfied, or the attachment discharged
or vacated in some manner provided by law.
It has been held that the lien obtained by attachment
stands upon as high equitable grounds as a mortgage lien:
The lien or security obtained by an attachment even
before judgment, is a fixed and positive security, a
specific lien, and, although whether it will ever be made
available to the creditor depends on contingencies, its
existence is in no way contingent, conditioned or
inchoate. It is a vested interest, an actual and substantial
security, affording specific security for satisfaction of the
debt put in suit, which constitutes a cloud on the legal
title, and is as specific as if created by virtue of a
voluntary act of the debtor and stands upon as high
equitable grounds as a mortgage. (Corpus Juris
Secundum, 433, and authorities therein cited.)
x x x           x x x          x x x
The case at bench admits of a peculiar character in the sense
that it involves a compromise agreement. Nonetheless, the rule
established in the aforequoted cases still applies, even more so
since the terms of the agreement have to be complied with in
full by the parties thereto. The parties to the compromise
agreement should not be deprived of the protection provided
by an attachment lien especially in an instance where one
reneges on his obligations under the agreement, as in the case
at bench, where Antonio Garcia failed to hold up his own end
of the deal, so to speak.
Moreover, a violation of the terms and conditions of a
compromise agreement entitles the aggrieved party to a writ of
execution.
In Abenojar & Tana v. CA, et al., 64 we held:
The non-fulfillment of the terms and conditions of a
compromise agreement approved by the Court justifies
execution thereof and the issuance of the writ for said
purpose is the Court's ministerial duty enforceable
by mandamus.
Likewise we ruled in Canonizado v. Benitez:65
A judicial compromise may be enforced by a writ of
execution. If a party fails or refuses to abide by the
compromise, the other party may enforce the
compromise or regard it as rescinded and insist upon his
original demand.
If we were to rule otherwise, we would in effect create a back
door by which a debtor can easily escape his creditors.
Consequently, we would be faced with an anomalous situation
where a debtor, in order to buy time to dispose of his
properties, would enter into a compromise agreement he has
no intention of honoring in the first place. The purpose of the
provisional remedy of attachment would thus be lost. It would
become, in analogy, a declawed and toothless tiger.
From the foregoing, it is clear that the consortium and/or its
assignee Jaime Gonzales have the better right over the
disputed shares. When CEIC purchased the disputed shares
from Antonio Garcia on 15 July 1988, it took the shares
subject to the prior, valid and existing attachment lien in favor
of and obtained by the consortium.
Forum Shopping in G.R. No. 113394
We uphold the decision of the Court of Appeals finding PCIB
guilty of forum-shopping.66
The Court of Appeals opined:
 True it is, that petitioner PCIB was not a party to the
appeal made by the four other banks belonging to the
consortium, but equally true is the rule that where the
rights and liabilities of the parties appealing are so
interwoven and dependent on each other as to be
inseparable, a reversal of the appealed decision as to those
who appealed, operates as a reversal to all and will inure
to the benefit of those who did not join the appeal
(Tropical Homes vs. Fortun, 169 SCRA 80, p.
90, citing Alling vs. Wenzel, 133 111. 264-278; 4 C.J.
1206). Such principal, premised upon communality of
interest of the parties, is recognized in this jurisdiction
(Director of Lands vs. Reyes, 69 SCRA 415). The four
other banks which were part of the consortium, filed their
notice of appeal under date of March 16, 1990, furnishing
a copy thereof upon the lawyers of petitioner. The petition
for certiorari in the present case was filed on April 10,
1990, long after the other members of the consortium had
appealed from the assailed order of December 19, 1989.

We view with skepticism PCIB's contention that it did not join

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

PCIB cannot hide behind the subterfuge that Supreme Court

Circular 28-91 was not yet in force when it filed
the certiorari proceedings in the Court of Appeals. The rule
against forum-shopping has long been established.68 Supreme
Court Circular 28-91 merely formalized the prohibition and
provided the appropriate penalties against transgressors.

It alarms us to realize that we have to constantly repeat our

warning against forum-shopping. We cannot over-emphasize
its ill-effects, one of which is aptly demonstrated in the case at
bench where we are confronted with two divisions of the
Court of Appeals issuing contradictory decisions69 one in favor
of CEIC and the other in favor of the consortium/Jaime
Gonzales.

Forum-shopping or the act of a party against whom an adverse

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

WHEREFORE, premises considered the appealed decision in

G.R. Nos. 112438-39 is hereby AFFIRMED and the appealed
decision in G.R. No. 113394, insofar as it adjudged the CEIC
the rightful owner of the disputed shares, is hereby
REVERSED. Moreover, for wantonly resorting to forum-
shopping, PCIB is hereby REPRIMANDED and WARNED
that a repetition of the same or similar acts in the future shall
be dealt with more severely. SO ORDERED.

G.R. No. 111190 June 27, 1995
LORETO D. DE LA VICTORIA, as City Fiscal of
Mandaue City and in his personal capacity as
garnishee, petitioner,
vs.
HON. JOSE P. BURGOS, Presiding Judge, RTC, Br.
XVII, Cebu City, and RAUL H. SESBREÑO, respondents.
Judgments; Garnishment; Words and Phrases; Garnishment is
considered as a species of attachment for reaching credits
belonging to the judgment debtor owing to him from a
stranger to the litigation.—Garnishment is considered as a
species of attachment for reaching credits belonging to the
judgment debtor owing to him from a stranger to the litigation.
Emphasis is laid on the phrase “belonging to the judgment
debtor” since it is the focal point in resolving the issues raised.
Same; Same; Same; Administrative Law; Public Officers;
Negotiable Instruments Law; As ordinarily understood,
delivery means the transfer of the possession of the instrument
by the maker or drawer with intent to transfer title to the payee
and recognize him as the holder thereof.—As Assistant City
Fiscal, the source of the salary of Mabanto, Jr., is public funds.
He receives his compensation in the form of checks from the
Department of Justice through petitioner as City Fiscal of
Mandaue City and head of office. Under Sec. 16 of the
Negotiable Instruments Law, every contract on a negotiable
instrument is incomplete and revocable until delivery of the
instrument for the purpose of giving effect thereto. As
ordinarily understood, delivery means the transfer of the
possession of the instrument by the maker or drawer with
intent to transfer title to the payee and recognize him as the
holder thereof.
Same; Same; Same; Same; Same; Same; Where checks due a
government employee have not yet been delivered to him,
they do not belong to him and still have the character of public
funds.—According to the trial court, the checks of Mabanto,
Jr., were already released by the Department of Justice duly
signed by the officer concerned through petitioner and upon
service of the writ of garnishment by the sheriff petitioner was
under obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At
the same time however it considered the checks as no longer
government funds and presumed delivered to the payee based
on the last sentence of Sec. 16 of the Negotiable Instruments
Law which states: “And where the instrument is no longer in
the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed.” Yet, the
presumption is not conclusive because the last portion of the
provision says “until the contrary is proved.” However this
phrase was deleted by the trial court for no apparent reason.
Proof to the contrary is its own finding that the checks were in
the custody of petitioner. Inasmuch as said checks had not yet
been delivered to Mabanto, Jr., they did not belong to him and
still had the character of public funds. In Tiro v. Hontanosas
we ruled that—The salary check of a government officer or
employee such as a teacher does not belong to him before it is
physically delivered to him. Until that time the check belongs
to the government. Accordingly, before there is actual delivery
of the check, the payee has no power over it; he cannot assign
it without the consent of the Government.
Same; Same; Same; Same; Same; Same; Checks due a
government employee may not be garnished to satisfy a
judgment.—As a necessary consequence of being public fund,
the checks may not be garnished to satisfy the judgment. The
rationale behind this doctrine is obvious consideration of
public policy. The Court succinctly stated in Commissioner of
Public Highways v. San Diego that—The functions and public
services rendered by the State cannot be allowed to be
paralyzed or disrupted by the diversion of public funds from
their legitimate and specific objects, as appropriated by law.
Same; Same; Same; Same; Same; Same; It is incumbent upon
the garnishee to inquire into the validity of the notice of
garnishment where he has actual knowledge of the non-
entitlement of garnisher to the checks in his possession.—In
the case at bench, it was incumbent upon petitioner to inquire
into the validity of the notice of garnishment as he had actual
knowledge of the non-entitlement of private respondent to the
checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in
issuing the notice of garnishment concerning the salary checks
of Mabanto, Jr., in the possession of petitioner.
DAVIDE, JR., J., Separate opinion:
Judgments; Garnishment; Administrative Law; Public
Officers; If the salary and RATA checks correspond to a
payroll period and to a month which had already lapsed at the
time the notice of garnishment is served, the garnishment
would be valid, as the checks would then cease to be property
of the Government and would become the property of the
employee.—I respectfully submit that if these salary and
RATA checks corresponded, respectively, to a payroll period
and to a month which had already lapsed at the time the notice
of garnishment was served, the garnishment would be valid, as
the checks would then cease to be property of the Government
and would become property of Mabanto. Upon the expiration
of such period and month, the sums indicated therein were
deemed automatically segregated from the budgetary
allocations for the Department of Justice under the General
Appropriations Act. De la Victoria vs. Burgos, 245 SCRA
374, G.R. No. 111190 June 27, 1995
BELLOSILLO, J.:
RAUL H. SESBREÑO filed a complaint for damages against
Assistant City Fiscals Bienvenido N. Mabanto, Jr., and Dario
D. Rama, Jr., before the Regional Trial Court of Cebu City.
After trial judgment was rendered ordering the defendants to
pay P11,000.00 to the plaintiff, private respondent herein. The
decision having become final and executory, on motion of the
latter, the trial court ordered its execution. This order was
questioned by the defendants before the Court of Appeals.
However, on 15 January 1992 a writ of execution was issued.
On 4 February 1992 a notice of garnishment was served on
petitioner Loreto D. de la Victoria as City Fiscal of Mandaue
City where defendant Mabanto, Jr., was then detailed. The
notice directed petitioner not to disburse, transfer, release or
convey to any other person except to the deputy sheriff
concerned the salary checks or other checks, monies, or cash
due or belonging to Mabanto, Jr., under penalty of law. 1 On
10 March 1992 private respondent filed a motion before the
trial court for examination of the garnishees.
On 25 May 1992 the petition pending before the Court of
Appeals was dismissed. Thus the trial court, finding no more
legal obstacle to act on the motion for examination of the
garnishees, directed petitioner on 4 November 1992 to submit
his report showing the amount of the garnished salaries of
Mabanto, Jr., within fifteen (15) days from receipt 2 taking
into consideration the provisions of Sec. 12, pars. (f) and (i),
Rule 39 of the Rules of Court.
On 24 November 1992 private respondent filed a motion to
require petitioner to explain why he should not be cited in
contempt of court for failing to comply with the order of 4
November 1992.
On the other hand, on 19 January 1993 petitioner moved to
quash the notice of garnishment claiming that he was not in
possession of any money, funds, credit, property or anything
of value belonging to Mabanto, Jr., except his salary and
RATA checks, but that said checks were not yet properties of
Mabanto, Jr., until delivered to him. He further claimed that,
as such, they were still public funds which could not be
subject to garnishment.
On 9 March 1993 the trial court denied both motions and
ordered petitioner to immediately comply with its order of 4
November 1992. 3 It opined that the checks of Mabanto, Jr.,
had already been released through petitioner by the
Department of Justice duly signed by the officer concerned.
Upon service of the writ of garnishment, petitioner as
custodian of the checks was under obligation to hold them for
the judgment creditor. Petitioner became a virtual party to, or
a forced intervenor in, the case and the trial court thereby
acquired jurisdiction to bind him to its orders and processes
with a view to the complete satisfaction of the judgment.
Additionally, there was no sufficient reason for petitioner to
hold the checks because they were no longer government
funds and presumably delivered to the payee, conformably
with the last sentence of Sec. 16 of the Negotiable Instruments
Law.
With regard to the contempt charge, the trial court was not
morally convinced of petitioner's guilt. For, while his
explanation suffered from procedural infirmities nevertheless
he took pains in enlightening the court by sending a written
explanation dated 22 July 1992 requesting for the lifting of the
notice of garnishment on the ground that the notice should
have been sent to the Finance Officer of the Department of
Justice. Petitioner insists that he had no authority to segregate
a portion of the salary of Mabanto, Jr. The explanation
however was not submitted to the trial court for action since
the stenographic reporter failed to attach it to the record. 4
On 20 April 1993 the motion for reconsideration was denied.
The trial court explained that it was not the duty of the
garnishee to inquire or judge for himself whether the issuance
of the order of execution, writ of execution and notice of
garnishment was justified. His only duty was to turn over the
garnished checks to the trial court which issued the order of
execution. 5
Petitioner raises the following relevant issues: (1) whether a
check still in the hands of the maker or its duly authorized
representative is owned by the payee before physical delivery
to the latter: and, (2) whether the salary check of a government
official or employee funded with public funds can be subject
to garnishment.
Petitioner reiterates his position that the salary checks were
not owned by Mabanto, Jr., because they were not yet
delivered to him, and that petitioner as garnishee has no legal
obligation to hold and deliver them to the trial court to be
applied to Mabanto, Jr.'s judgment debt. The thesis of
petitioner is that the salary checks still formed part of public
funds and therefore beyond the reach of garnishment
proceedings.
Petitioner has well argued his case.
Garnishment is considered as a species of attachment for
reaching credits belonging to the judgment debtor owing to
him from a stranger to the litigation. 6 Emphasis is laid on the
phrase "belonging to the judgment debtor" since it is the focal
point in resolving the issues raised.
As Assistant City Fiscal, the source of the salary of Mabanto,
Jr., is public funds. He receives his compensation in the form
of checks from the Department of Justice through petitioner as
City Fiscal of Mandaue City and head of office. Under Sec. 16
of the Negotiable Instruments Law, every contract on a
negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving
effect thereto. As ordinarily understood, delivery means the
transfer of the possession of the instrument by the maker or
drawer with intent to transfer title to the payee and recognize
him as the holder thereof.7
According to the trial court, the checks of Mabanto, Jr., were
already released by the Department of Justice duly signed by
the officer concerned through petitioner and upon service of
the writ of garnishment by the sheriff petitioner was under
obligation to hold them for the judgment creditor. It
recognized the role of petitioner as custodian of the checks. At
the same time however it considered the checks as no longer
government funds and presumed delivered to the payee based
on the last sentence of Sec. 16 of the Negotiable Instruments
Law which states: "And where the instrument is no longer in
the possession of a party whose signature appears thereon, a
valid and intentional delivery by him is presumed." Yet, the
presumption is not conclusive because the last portion of the
provision says "until the contrary is proved." However this
phrase was deleted by the trial court for no apparent reason.
Proof to the contrary is its own finding that the checks were in
the custody of petitioner. Inasmuch as said checks had not yet
been delivered to Mabanto, Jr., they did not belong to him and
still had the character of public funds. In Tiro
v. Hontanosas  8 we ruled that —
The salary check of a government officer or employee
such as a teacher does not belong to him before it is
physically delivered to him. Until that time the check
belongs to the government. Accordingly, before there is
actual delivery of the check, the payee has no power over
it; he cannot assign it without the consent of the
Government.
As a necessary consequence of being public fund, the checks
may not be garnished to satisfy the judgment. 9 The rationale
behind this doctrine is obvious consideration of public policy.
The Court succinctly stated in Commissioner of Public
Highways v. San Diego  10 that —
The functions and public services rendered by the State
cannot be allowed to be paralyzed or disrupted by the
 diversion of public funds from their legitimate and
specific objects, as appropriated by law.

In denying petitioner's motion for reconsideration, the trial

court expressed the additional ratiocination that it was not the
duty of the garnishee to inquire or judge for himself whether
the issuance of the order of execution, the writ of execution,
and the notice of garnishment was justified, citing our ruling
in Philippine Commercial Industrial Bank v. Court of
Appeals. 11 Our precise ruling in that case was that "[I]t is not
incumbent upon the garnishee to inquire or to judge for itself
whether or not the order for the advance execution of a
judgment is valid." But that is invoking only the general rule.
We have also established therein the compelling reasons, as
exceptions thereto, which were not taken into account by the
trial court, e.g., a defect on the face of the writ or actual
knowledge by the garnishee of lack of entitlement on the part
of the garnisher. It is worth to note that the ruling referred to
the validity of advance execution of judgments, but a careful
scrutiny of that case and similar cases reveals that it was
applicable to a notice of garnishment as well. In the case at
bench, it was incumbent upon petitioner to inquire into the
validity of the notice of garnishment as he had actual
knowledge of the non-entitlement of private respondent to the
checks in question. Consequently, we find no difficulty
concluding that the trial court exceeded its jurisdiction in
issuing the notice of garnishment concerning the salary checks
of Mabanto, Jr., in the possession of petitioner.

WHEREFORE, the petition is GRANTED. The orders of 9

March 1993 and 20 April 1993 of the Regional Trial Court of
Cebu City, Br. 17, subject of the petition are SET ASIDE. The
notice of garnishment served on petitioner dated 3 February
1992 is ordered DISCHARGED.

SO ORDERED.

June 30, 1987

G.R. No. 71917

BELISLE INVESTMENT & FINANCE CO., INC. and

SMITH, BELL & CO., INC., petitioners,
vs.
STATE IN INVESTMENT HOUSE, INC., THE
INTERMEDIATE APPRECIATE APPELLATE COURT
(SECOND SPECIAL CASES DIVISION) respondents,

Remedial Law; Provisional Remedies; Injunction; Rule that

the grant or denial of an injunction rests upon the sound
discretion of the court; Exception.—It is a well established
rule that the grant or denial of an injunction rests upon the
sound discretion of the court, in the exercise of which
appellate courts will not interfere except on a clear case of
abuse (Yaptinchay vs. Torres, 28 SCRA 489 [1969]).

Same; Same; Same; Attachment; Notice and hearing, not

indispensable and mandatory requisites in the issuance of writ
of attachment; Issuance of injunction ex parte discouraged, as
the rules and jurisprudence require that no preliminary
injunction shall issue without hearing.—As correctly found by
the Court of Appeals, no grave abuse of discretion can be
ascribed to respondent Judge either in the issuance of the writ
of attachment without notice to petitioners as there is nothing
in the Rules of Court which makes notice and hearing
indispensable and mandatory requisites in the issuance of a
writ of attachment (Filinvest Credit Corporation vs. Relova,
117 SCRA 420) or in the failure of respondent Judge to
immediately restrain the enforcement of the writ of
preliminary attachment upon petitioners’ posting of a
counterbond for indeed, the rules and jurisprudence require
that no preliminary injunction shall issue without hearing. In
fact the issuance of injunction ex parte is discouraged and the
Court has repeatedly held that preliminary injunction is an
extraordinary peremptory remedy that should be dispensed
with circumspection, and both sides should first be heard
whenever possible (Ramos vs. Court of Appeals, 95 SCRA
360 [1980]; Palaman Lumber & Plywood Co., Inc., et al. vs.
Arranz, et al., L-27106, 22 SCRA 1194 [1968].
Same; Same; Same; Same; Mere posting of a counterbond
does not automatically discharge the writ of attachment; How
writ of attachment properly discharged.—Moreover, the Court
of Appeals correctly ruled that the mere posting of a
counterbond does not automatically discharge the writ of
attachment. It is only after hearing and after the judge has
ordered the discharge of the attachment if a cash deposit is
made or a counterbond is executed to the attaching creditor is
filed, that the writ of attachment is properly discharged under
Section 12, Rule 57 of the Rules of Court. While it is
undisputed that respondent court heard the parties on February
4, 1985, they were thereafter given a total of nine (9) days to
file their written pleadings after which the motion would be
deemed submitted for resolution.
Same; Same; Same; Same; Special Civil Actions; Petition for
certiorari; Before filing a petition for certiorari in a higher
court, the attention of the lower court should be first called to
its supposed error and its correction should be sought;
Reasons.—This Court has ruled that before filing a petition for
certiorari in a higher court, the attention of the lower court
should generally be first called to its supposed error and its
correction should be sought. If this is not done, the petition for
certiorari should be denied. The reason for this rule is that
issues which Courts of First Instance are bound to decide
should not summarily be taken from them and submitted to an
appellate court without first giving such lower courts the
opportunity to dispose of the same with due deliberation
(Butuan Bay Wood Export Corp. vs. Court of Appeals, 97
Phil. 297–298 [1980]).
Same; Same; Same; Lower court is the proper forum to thresh
out whether or not the attachment order should be enforced
and the writ of attachment should be discharged.—Under the
circumstances, the lower court should be the proper forum to
thresh out the question of whether or not private respondents
should continue to be enjoined or restrained from the
enforcement of the questioned attachment order (Rubio vs.
Mariano, 52 SCRA 344 [1973]), as well as the matter of
whether or not the writ of attachment issued by the lower court
should be discharged. Belisle Investment & Finance Co., Inc.
vs. State Investment House, Inc., 151 SCRA 630, No. L-71917
June 30, 1987
PARAS, J.:
This is a petition for review on certiorari seeking the reversal
of: (a) the decision of the Intermediate Appellate Court * (now
Court of Appeals) dated April 30, 1985, denying due course to
the petition for certiorari, prohibition and mandamus with
preliminary injunction and temporary restraining order, filed
with said appellate court without a certified copy of the order
being assailed but obviously referring to an order issued ex-
parte by the lower court to attach petitioners' properties and
(b) the resolution of the same appellate court denying
petitioners' motion for reconsideration.
In November 1982 and May 1983 State Investment House,
Inc. (HOUSE, for short) and Belisle Investment and Finance
Co., Inc. (FINANCE, for short), executed agreements whereby
the former agreed to extend financial assistance to the latter,
who in turn shall execute in favor of HOUSE promissory
notes to evidence its indebtedness under each availment and,
whenever necessary and applicable in such form and tenor as
prescribed by law and other rules and regulations promulgated
by the Securities and Exchange Commission and the Central
Bank of the Philippines (Complaint; Rollo, pp. 44-45).
Smith, Bell & Co., Inc., owner of 93% of the outstanding
stock of FINANCE, executed in favor of HOUSE
Comprehensive Surety Agreements whereby Smith, Bell
guaranteed jointly and severally with FINANCE the full and
punctual payment at maturity to HOUSE of any and all such
instruments, loans, advances, credits and/or other obligations
and also any and all other indebtedness of every kind which
together with any and all expenses, interests or penalties
which may be incurred by HOUSE in collecting all or any
such instruments or other indebtedness or obligations (Ibid,
Rollo, P. 45).
Smith, Bell also executed a Letter of Conformity, confirming
that it is in fact the owner of the abovementioned shares of
stock and that it has full knowledge of the obligations being
undertaken by FINANCE with HOUSE (Ibid, Rollo, p. 46).
On May 27 and August 27, 1984, FINANCE failed to pay its
obligations with HOUSE despite demands. As of October 10,
1984, the obligations of FINANCE remaining outstanding and
unpaid, amounted to P6,838,358.00 (Rollo, p. 48).
On December 6, 1984, a complaint with preliminary
attachment was filed by HOUSE against FINANCE and
Smith, Bell & Co., Inc. with the Regional Trial Court of
Manila, Branch 49, docketed therein as Civil Case No. 84-
28167. Acting on the prayer for writ of preliminary
attachment, respondent Judge on January 23, 1985 issued an
Order directing the Branch Clerk of Court to receive plaintiff's
evidence on the application for writ of preliminary attachment
to be enforced against the properties of defendants (petitioners
herein) not exempt from execution to the extent of
P6,838,358.00 the amount claimed in plaintiff's complaint. On
January 29, 1985, an order of attachment was issued and
addressed to public respondents, Deputy Sheriffs Gerry C.
Duncan and Germiliano G. Tengco, who were directed to
attach real and personal properties, of the defendants not
exempt from execution. On January 31, 1985, personal
properties of petitioner FINANCE and the real and personal
properties of Smith, Bell & Co., Inc. were levied upon
(Decision, AC-G.R. Sp. No. 05745, Rollo, p. 128).
On January 31, 1985, petitioners filed a motion to discharge
attachment and posted a counterbond in the amount of
P6,838,358.00. On February 4, 1985 the motion to discharge
attachment and an urgent ex parte motion for issuance of
restraining order filed by defendants were heard and argued
before the respondent court. At the hearing, the parties were
given a total of nine (9) days to file their written pleadings
after which the motion to discharge attachment shall be
deemed submitted for resolution (Ibid, p. 129).
On February 7, 1985, private respondent filed its opposition to
petitioners' motion to discharge attachment. Petitioners in turn
filed their reply to opposition. On February 11, 1985
petitioners filed a supplement to motion to discharge
attachment and on the same day filed their answer with
counterclaim. On February 21, 1985, private respondent filed
its reply and answer to counter-claim.
From the chronology of events, it will be observed that before
respondent Judge could resolve the motion to discharge and
the supplement to the motion to discharge attachment,
petitioners filed on February 8, 1985 a petition for certiorari,
prohibition and mandamus with preliminary injunction and
temporary restraining order in the Supreme Court docketed as
Special Civil Action G.R. No. 69819. On March 7, 1985,
petitioners filed an Urgent Motion in Reiteration of Petition
praying for the Issuance of a Writ of Preliminary Injunction
and/or Temporary Restraining Order. In the resolution of
March 13, 1985, the Supreme Court issued a temporary
restraining order and referred the case to the Intermediate
Appellate Court (now Court of Appeals) for proper
determination of the case and an pending incidents (Rollo,
G.R. No. 71917, pp. 20; 128-132, Rollo, G.R. No. 69819).
As aforestated, the petition was denied due course by the
Court of Appeals and dismissed without pronouncement as to
costs. (Decision, AC-G.R. SP No. 05745; Rollo, pp. 128-132).
In like manner, petitioners' motion for reconsideration of said
decision was denied for lack of merit, in the resolution of
August 16, 1985 of the same Appellate Court.
Hence, this petition. Petitioners raise the following questions
of law:
(a) WHETHER THE HONORABLE INTERMEDIATE
APPELLATE COURT (SECOND DIVISION HAS
DECIDED A QUESTION NOT IN ACCORD WITH LAW
OR WITH THE APPLICABLE DECISIONS OF THE
SUPREME COURT; or
(b) WHETHER THE HONORABLE INTERMEDIATE
APPELLATE COURT (SECOND DIVISION) HAS SO FAR
DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS OR SO FAR
SANCTIONED SUCH DEPARTURE BY THE LOWER
COURT BY FAILING TO TIMELY RESTRAIN
ENFORCEMENT OF A WRIT OF ATTACHMENT
PENDING APPROVAL OF SUFFICIENT COUNTERBOND
RESULTING TO EXCESSIVE LEVY.
In the resolution of October 14, 1985, the First Division of this
Court, without giving due course to the petition, required the
respondents to comment thereon (Rollo, p. 174) which was
compelled with on November 14, 1985 (Rollo, pp. 178-179).
In the resolution of December 16, 1985, the Court Resolved to
require the petitioners to file a reply thereto, which was filed
on February 12, 1986 (Rollo, pp. 217-228).
A careful perusal of the records as well as the arguments
adduced by both parties, reveals that the Court of Appeals
correctly denied due course to subject petition.
As ably demonstrated by said Appellate Court, the issues
raised by the petitioners had long been laid to rest by the
Supreme Court.
The main thrust of this petition is the alleged failure of the
Intermediate Appellate Court to rule among others on the
inaction of the lower court to timely resolve petitioners'
motion for the issuance of temporary restraining order pending
the resolution of said petitioners' motion to discharge the writ
of preliminary attachment by posting a counterbond equal to
the amount of plaintiff's claim. Otherwise stated, petitioners
appear to be of the view that upon their posting of a
counterbond which accompanies their motion to discharge the
writ of preliminary attachment, it is mandatory for the
respondent Judge to stay the enforcement of said writ.
It will be recalled that the Supreme Court has already issued a
temporary restraining order as prayed for by the petitioners in
G.R. No. 69819 "Balisle Investment and Finance Co., Inc., et
al. vs. State Investment House, Inc., et al." In the resolution of
the First Division dated March 13, 1985, before subject
petition for Certiorari, Prohibition and mandamus with
preliminary injunction and temporary restraining order was
referred to the Court of Appeals for proper determination of
the case and all pending incidents.
In the determination of the case and pending incidents, the
Court of Appeals cannot be faulted for not having ruled on the
alleged inaction of respondent Judge to issue the preliminary
injunction or restraining order in the lower court to stop the
enforcement of the writ of preliminary attachment.
It is a well established rule that the grant or denial of an
injunction rests upon the sound discretion of the court, in the
exercise of which appellate courts will not interfere except on
a clear case of abuse (Yaptinchay vs. Torres, 28 SCRA 489
[1969]).
As correctly found by the Court of Appeals, no grave abuse of
discretion can be ascribed to respondent Judge either in the
issuance of the writ of attachment without notice to petitioner
petitioners as there is nothing in the Rules of Court which
makes notice and hearing indispensable and mandatory
requisites in the issuance of a writ of attachment (Filinvest
Credit Corporation vs. Relova, 117 SCRA 420) or in the
failure of respondent Judge to immediately restrain the
enforcement of the writ of preliminary attachment upon
petitioners' posting of a counterbond for indeed, the rules and
jurisprudence require that no preliminary injunction shall issue
without hearing. In fact the issuance of injunction ex parte is
discouraged and the Court has repeatedly held that preliminary
injunction is an extra ordinary peremptory remedy that should
be dispensed with circumspection, and both sides should first
be heard whenever possible (Ramos vs. Court of Appeals, 95
SCRA 360 [1980]; Palaman Lumber & Plywood Co., Inc., et
al. vs. Arranz, et al., L-27106, 22 SCRA 1194 [1968]).
Moreover, the Court of Appeals correctly ruled that the mere
posting of a counterbond does not automatically discharge the
writ of attachment. It is only after hearing and after the judge
has ordered the discharge of the attachment if a cash deposit is
made or a counterbond is executed to the attaching creditor is
filed, that the writ of attachment is properly discharged under
Section 12, Rule 57 of the Rules of Court. While it is
undisputed that respondent court heard the parties on February
4, 1985, they were thereafter given a total of nine (9) days to
file their written pleadings after which the motion would be
deemed submitted for resolution.
Thus, both the motion to discharge attachment and the motion
for the issuance of preliminary injunction to stay the
enforcement thereof, were still pending consideration by the
lower court with both parties still filing pleadings up to
February 14, 1985, when petitioners filed subject petition with
the Supreme Court on February 8, 1985. To say the least, the
petition in the instant case was premature.
This Court has ruled that before filing a petition for certiorari
in a higher court, the attention of the lower court should
generally be first called to its supposed error and its correction
should be sought. If this is not done, the petition for certiorari
should be denied. The reason for this rule is that issues which
Courts of First Instance are bound to decide should not
summarily be taken from them and submitted to an appellate
court without first giving such lower courts the opportunity to
dispose of the same with due deliberation (Butuan Bay Wood
Export Corp. vs. Court of Appeals, 97 Phil. 297-298 [1980]).
Under the circumstances, the lower court should be the proper
forum to thresh out the question of whether or not private
respondents should continue to be enjoined or restrained from
the enforcement of the questioned attachment order (Rubio vs.
Mariano, 52 SCRA 344 [1973]), as well as the matter of
whether or not the writ of attachment issued by the lower court
should be discharged.
PREMISES CONSIDERED, (a) the instant petition is hereby
DENIED and the decision of the Court of Appeals is hereby
AFFIRMED, and (b) this case is REMANDED to the lower
court for trial on the merits and for the determination of all
pending incidents.
SO ORDERED.
G.R. No. 74696 November 11, 1987
JOSE D. CALDERON, petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT,
GEORGE SCHULZE, GEORGE SCHULZE, JR.,
ANTONIO C. AMOR, MANUEL A. MOZO, and
VICTOR M. NALUZ, respondents.
G. R. No. 73916 November 11, 1987
FIRST INTEGRATED BONDING AND INSURANCE
COMPANY, INC., petitioner,
vs.
THE INTERMEDIATE APPELLATE COURT,
GEORGE SCHULZE, ANTONIO C. AMOR, MANUEL
A. MOZO and VICTOR M. NALUZ, respondents.
Remedial Law; Provisional Remedies; Attachment; Petitioner
was clearly in bad faith when he asked for the attachment for
his failure to appear in court to support his charge of
misappropriation against one of the respondents.—Whether or
not the amount of P1,475,840.00 was duly disclosed as an
outstanding liability of LBC or was misappropriated by
private respondent Schulze is purely a factual issue. That
Calderon was clearly in bad faith when he asked for the
attachment is indicated by the fact that he failed to appear in
court to support his charge of misappropriation by Schulze,
and in effect, preventing his being cross-examined, no
document on the charges was presented by him.
Same; Same; Same; Damages; Although generally the liability
on the attachment bond is limited to actual damages, moral
and exemplary damages may be recovered where the
attachment was maliciously sued out.—While as a general
rule, the liability on the attachment bond is limited to actual
damages, moral and exemplary damages may be recovered
where the attachment was alleged to be maliciously sued out
and established to be so. (Lazatin vs. Twano et al, L-12736.
July 31, 1961)
Same; Same; Same; Same; Judgment; Rule that the factual
findings of the trial court are entitled to great weight and
respect on appeal, especially when established by unrebutted
evidence.—Well settled is the rule that the factual findings of
the trial court are entitled to great weight and respect on
appeal, especially when established by unrebutted testimonial
and documentary evidence, as in this case.
Same; Same; Same; Same; Absence of a provision in Sec. 12,
Rule 57, Rules of Court, that the attachment bond is rendered
void and ineffective upon the filing of a counterbond.—While
Section 12, Rule 57 of the Rules of Court provides that upon
the filing of a counterbond, the attachment is discharged or
dissolved, nowhere is it provided that the attachment bond is
rendered void and ineffective upon the filing of counterbond.
Same; Same; Same; Liability of the attachment bond.—The
liability of the attachment bond is defined in Section 4, Rule
57 of the Rules of Court, as follows: “Sec. 4. Condition of
applicant’s bond. The party applying for the order must give a
bond executed to the adverse party in an amount to be fixed by
the judge, not exceeding the applicant’s claim, conditioned
that the latter will pay all the costs which may be adjudged to
the adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge that
the applicant was not entitled thereto.”
Same; Same; Same; Same; Upon the dismissal of an
attachment wrongfully issued, the surety is liable for damages
as a direct result of the attachment.—It is clear from the above
provision that the responsibility of the surety arises “if the
court shall finally adjudge that the plaintiff was not entitled
thereto.” In Rocco vs. Meads, 96 Phil. Reports 884, we held
that the liability attaches if the plaintiff is not entitled to the
attachment because the requirements entitling him to the writ
are wanting, or if the plaintiff has no right to the attachment
because the facts stated in his affidavit, or some of them, are
untrue. It is, therefore, evident that upon the dismissal of an
attachment wrongfully issued, the surety is liable for damages
as a direct result of said attachment.
Same; Same; Same; Same; Whether the attachment was
discharged by the filing of a counterbond or by showing that
the order of attachment was improperly or irregularly issued,
the liability of the surety on the attachment bond subsists;
Reason; The attachment debtor cannot be deemed to have
waived any defect in the issuance of the attachment writ;
Filing of a counterbond, a speedier way of discharging the
attachment writ maliciously sought out by the attaching
creditor.—Whether the attachment was discharged by either of
the two (2) ways indicated in the law, i.e., by filing a
counterbond or by showing that the order of attachment was
improperly or irregularly issued, the liability of the surety on
the attachment bond subsists because the final reckoning is
when “the Court shall finally adjudge that the attaching
creditor was not entitled” to the issuance of the attachment
writ in the first place. The attachment debtor cannot be
deemed to have waived any defect in the issuance of the
attachment writ by simply availing himself of one way of
discharging the attachment writ, instead of the other.
Moreover, the filing of a counterbond is a speedier way of
discharging the attachment writ maliciously sought out by the
attaching creditor instead of the other way, which, in most
instances like in the present case, would require presentation
of evidence in a fullblown trial on the merits and cannot easily
be settled in a pending incident of the case.
Same; Same; Same; Same; Damages awarded in case at bar is
reduced for being excessive.—We believe, however, that in
the light of the factual situation in this case, the damages
awarded by the Intermediate Appellate Court are rather
excessive. They must be reduced. Calderon vs. Intermediate
Appellate Court, 155 SCRA 531, No. L-74696, No. L-73916
November 11, 1987
PARAS, J.:
For review on certiorari is respondent appellate Court's
decision 1 in AC-G.R. No. 01420, which affirmed the
Regional Trial Court's decision 2 appealed from holding the
plaintiff Jose D. Calderon (petitioner herein) and his
bondsman the Integrated Bonding and Insurance Company,
Inc., jointly and severally liable to pay defendants (private
respondents herein), damages caused by the filing by Calderon
of the allegedly unwarranted suit and the wrongful and
malicious attachment of private respondents' properties.
The facts of the case are briefly as follows:
On November 2, 1976, petitioner Calderon purchased from the
private respondents the following: the Luzon Brokerage
Corporation (LBC for brevity) and its five (5) affiliate
companies, namely, Luzon Air Freight, Inc., Luzon Port
Terminals Services, Inc., Luzon (GS) Warehousing
Corporation, GS Industrial Management Corporation, and GS
Luzon Trucking Corporation. Twenty one (21) days thereafter
or on November 23, 1976, the Bureau of Customs suspended
the operations of LBC for failure to pay the amount of
P1,475,840.00 representing customs taxes and duties incurred
prior to the execution of the sale. In order to lift the suspension
Calderon paid the sum of P606,430.00 to the Bureau of
Customs.
On October 27, 1977, Calderon filed a complaint against
private respondents to recover said amount of P1,475,840.00,
with damages by reason of breach of warranty. In the same
complaint, the petitioner prayed for a preliminary attachment,
alleging: that private respondents had deliberately and
willfully concealed from his knowledge such staggering
liability of the LBC for the purpose of misleading him into
buying the six aforesaid companies; and that private
respondent Schulze is about to depart from the Philippines in
order to defraud his creditors.
To support the petition for preliminary attachment, the
petitioner posted a surety bond of P1,475,840.00. On October
28, 1977, the trial court issued a writ of preliminary
attachment, whereupon properties of the private respondents
were attached and their bank deposits were garnished.
On November 10, 1977, petitioner Calderon filed an amended
complaint, alleging that while the liabilities of LBC are
reflected in its books, the aforesaid amount was fraudulently
withdrawn and misappropriated by private respondent
Schulze. (pp. 7-18, Rollo)
On the other hand, private respondents claimed: that the
amount of P1,475,840.00 due to the Bureau of Customs
represents the duties and taxes payable out of the advanced
payments made by LBC's client, Philippine Refining
Company (PRC, for brevity) in August, September and
October, 1976, and in the first and second weeks of November
1976, after Calderon himself had taken control of the
management of LBC (Exhibit A); that these deposit payments
were properly recorded in the books of the corporation and
existing as part of the corporate funds; that from the first week
of June, 1976 up to October 30, 1976, private respondent
Schulze fully disclose and explained to Calderon that these
customer's advanced deposit payments (including those of the
PRC) are to be paid to the Bureau of Customs when their
corresponding customs taxes and duties become due; that
during this phase of the negotiation, Calderon and his
representatives inspected and studied the corporate books and
records at will and learned the daily operations and
management of LBC; that the petitioner did not pay out of his
own pocket but out of the LBC funds the said amount of
P606,430,30 demanded by the Bureau of Customs, as
evidenced by a manager's check No. FEBTC 25092 (Exhibits
9, 10, 11 & 38) and another facility negotiated with the Insular
Bank of Asia and America (Exhibit K-2); and that private
respondents are setting up a counterclaim for actual, moral and
exemplary damages as well as attorney's fees, as a
consequence of the filing of the baseless suit and the wrongful
and malicious attachment of their properties, (pp. 217-221,
Rollo)
On November 17, 1977, private respondents filed a
counterbond, whereupon the trial court issued an order
directing the sheriff to return all real and personal properties
already levied upon and to lift the notices of garnishment
issued in connection with the said attachment (Annex B, p. 42,
Rollo).
After trial, the trial court dismissed the complaint, holding
Calderon and his surety First integrated Bonding and
Insurance Co., Inc., jointly and severally liable to pay the
damages prayed for by the private respondents.
Said decision was affirmed on appeal, although slightly
modified in the sense that the award of moral and exemplary
damages in favor of private respondents Schulze and Amor
was reduced. The dispositive portion of the judgment of
affirmance and modification reads:
WHEREFORE, the judgment of the lower court is
modified as follows:
To defendant-appellee George Schulze:
P650,000.00 as moral damages and
P200,000.00 as exemplary damages.
To defendant-appellee Antonio C. Amor:
P150,000.00 as moral damages and
P30,000.00 as exemplary damages,
An other dispositions in the judgment appealed from,
including the dismissal of the amended complainant are
hereby affirmed in toto.
SO ORDERED.
In his petition, petitioner Calderon asserts, among other things,
that the court below erred:
I and fraudulently concealed and withheld from him this
IN HOLDING THAT THE PETITIONER FAILED TO
ESTABLISH HIS CLAIMS.
II
IN HOLDING THAT THE PRELIMINARY
ATTACHMENT HAD BEEN WRONGFULLY AND
MALICIOUSLY SUED OUT.
III
IN HOLDING THAT THE PETITIONER IS LIABLE
NOT ONLY FOR ACTUAL DAMAGES BUT MORAL
AND EX-EXEMPLARY DAMAGES AS WELL.
On the other hand, petitioner Insurance Company raises the
following issues:
I
WHETHER OR NOT THE PETITIONER SURETY IS
LIABLE FOR DAMAGES ON ITS CONTRACTED
SURETYSHIP NOTWITHSTANDING THE
DISSOLUTION OF THE WRIT OF PRELIMINARY
ATTACHMENT, AS A CON. SEQUENCE OF THE
FILING OF THE DEFENDANT'S COUNTER- BOND,
WHEREBY LEVIED PROPERTIES WERE ORDERED
BY THE COURT RETURNED TO PRIVATE
RESPONDENTS AND THE NOTICES OF
GARNISHMENT ISSUED IN CONNECTION
THEREWITH ORDERED LIFTED.
II
WHETHER OR NOT THE SUBSEQUENT FILING BY
PRIVATE RESPONDENTS OF A COUNTER-BOND
TO DISCHARGE THE WRIT OF PRELIMINARY
ATTACHMENT CONSTITUTE A WAIVER ON ANY
DEFECT IN THE ISSUANCE OF THE ATTACHMENT
WRIT.
III
WHETHER OR NOT A SURETY IS A GUARANTOR
OF THE EXISTENCE OF A GOOD CAUSE OF
ACTION IN THE COMPLAINT.
The petition is devoid of merit.
Whether or not the amount of P1,475,840.00 was duly
disclosed as an outstanding liability of LBC or was
misappropriated by private respondent Schulze is purely a
factual issue. That Calderon was clearly in bad faith when he
asked for the attachment is indicated by the fact that he failed
to appear in court to support his charge of misappropriation by
Schulze, and in effect, preventing his being cross-examined,
no document on the charges was presented by him.
What the Appellate Court found in this regard need not be
further elaborated upon. The Appellate Court ruled:
... The record shows that appellant Calderon failed to
produce any evidence in support of his sworn charge that
appellee Schulze had deliberately and willfully concealed
the liabilities of Luzon Brokerage Corporation. Neither
did appellant Calderon prove his sworn charges that
appellee Schulze had maliciously and fraudulently
withdrawn and misappropriated the amount of
Pl,475,840.00 and that an the defendants had maliciously
alleged liability of Luzon Brokerage Corporation in
breach of the contract-warranty that said corporation had
no obligations or liabilities except those appearing in the
books and records of the said corporation. Indeed,
appellant Calderon never appeared in the trial court to
substantiate the charges in his verified complaints and in
his affidavit to support his petition for the issuance of a
writ of attachment. He distanced himself from the
appellees and avoided cross-examination regarding his
sworn allegations. ...
... But even though appellant Calderon failed to prove his
serious charges of fraud, malice and bad faith, the
appellees took it upon themselves to show that they did
not conceal or withhold from appellant's knowledge the
deposits made by Philippine Refining Co., Inc. with
Luzon Brokerage Corporation and that they did not
withdraw and misappropriate the deposits made by
Philippine Refining Co., Inc. with Luzon Brokerage
Corporation.
The books and records of Luzon Brokerage Corporation
on which the Financial Statement of Luzon Brokerage
Corporation, as of October 31, 1976 was prepared by the
auditing firm retained by appellant Calderon himself
(Exhibit 1), disclose that the liabilities of Luzon
Brokerage Corporation in the total amount of
P4,574,498.32 appear under the heading 'Customers
Deposit' (Exhibit 1-A) this amount includes the deposit of
Philippine Refining Co., Inc. in the sum of Pl,475,840.00.
But appellant Calderon contends that this financial
statement was dated February 4, 1977 (see Exhibit 1-C).
There is nothing commendable in this argument because
the bases of the financial statement were the books,
records and documents of Luzon Brokerage Corporation
for the period ending October 31, 1976, which were all
turned over to and examined by appellant Calderon and
his executive, legal and financial staffs. There is also no
merit in the contention of appellant Calderon that the
appellees have tampered the books of Luzon Brokerage
Corporation because there is no proof to back this charge,
let alone the fact that appellant Calderon did not even
present the said books to support his charge.
As stated above, the amount of customers' deposits in the
sum of P4,574,498.32 includes the deposits of Philippine
Refining Co., Inc. (Exhibits 46-A, 46-B, 46-C, 46-D, 46-
E, 46-F, 46-G, 46-H, 46-1, 46-J, t.s.n. July 23, 1980, pp.
12-13, 14-15). The amounts deposited by Philippine
Refining Co., Inc. on various dates with Luzon Brokerage
Corporation made before the execution of the sale were
all entered in three other corporate books of Luzon
Brokerage Corporation namely, the Cash Receipts
Register (Exhibits 39-A-1 to 39-K-1 and 39-A-1-B to 39-
K-1-B), the Journal Vouchers (Exhibits 42 to 46 and 42-A
to 43- A), and the Customer's Deposit Ledger (Exhibit 46-
A to 46-J) ... .
Thus, the claim of appellant Calderon that the deposits
made by Philippine Refining Co., Inc. with Luzon
Brokerage Corporation of P406,430.00 on August 24,
1976 (Exhibit N P53,640.00 on October 13, 1976 (Exhibit
0), P406,430.00 on September 8, 1976 (Exhibit P
P199,508.00 on September 24, 1976 (Exhibit Q
P52,738.00 on October 22, 1976 (Exhibit R and
P264,436.00 on October 7, 1976 (Exhibit S) were not
entered in the books of Luzon Brokerage Corporation, is
completely without merit. ... (pp. 85-87, Rollo)
It is evident from the foregoing that the attachment was
maliciously sued out and that as already pointed out Schulze
was not in bad faith.
While as a general rule, the liability on the attachment bond is
limited to actual damages, moral and exemplary damages may
be recovered where the attachment was alleged to be
maliciously sued out and established to be so. (Lazatin vs.
Twano et al,
L-12736, July 31, 1961).
In the instant case, the issues of wrongful and malicious suing
out of the writ of preliminary attachment were joined not only
in private respondents' motion to discharge the attachment but
also in their answer to the amended complaint (p. 38, Rollo).
The trial court observed that the books and records of Luzon
Brokerage Corporation disclose that the liabilities of the said
corporation in the total amount of P4,574,498.32 appear under
the heading "Customs Deposit" (Exhibit 1-A) and this amount
includes the deposit of Philippine Refining Co., Inc. in the
sum of P1,475,840.00 (p. 26, Rollo). On the other hand,
plaintiff never appeared in court, and failed to produce any
evidence to substantiate his charges (p. 26, Rollo).
Well settled is the rule that the factual findings of the trial
court are entitled to great weight and respect on appeal,
especially when established by unrebutted testimonial and
documentary evidence, as in this case.
Anent the petition of the surety, We say the following:
Specifically, petitioner surety contends that the dissolution of
the attachment extinguishes its obligation under the bond, for
the basis of its liability, which is wrongful attachment, no
longer exists, the attachment bond having been rendered void
and ineffective, by virtue of Section 12, Rule 57 of the Rules
of Court. (p. 5, Petition)
While Section 12, Rule 57 of the Rules of Court provides that
upon the filing of a counterbond, the attachment is discharged
or dissolved, nowhere is it provided that the attachment bond
is rendered void and ineffective upon the filing of
counterbond.
The liability of the attachment bond is defined in Section 4,
Rule 57 of the Rules of Court, as follows:
Sec. 4. Condition of applicant's bond. The party applying
for the order must give a bond executed to the adverse
party in an amount to be fixed by the judge, not exceeding
the applicant's claim, conditioned that the latter will pay
all the costs which may be adjudged to the adverse party
and all damages which he may sustain by reason of the
attachment, if the court shall finally adjudge that the
applicant was not entitled thereto.
It is clear from the above provision that the responsibility of
the surety arises "if the court shall finally adjudge that the
plaintiff was not entitled thereto." In Rocco vs. Meads, 96
Phil. Reports 884, we held that the liability attaches if the
plaintiff is not entitled to the attachment because the
requirements entitling him to the writ are wanting, or if the
plaintiff has no right to the attachment because the facts stated
in his affidavit, or some of them, are untrue. It is, therefore,
evident that upon the dismissal of an attachment wrongfully
issued, the surety is liable for damages as a direct result of said
attachment.
Equally untenable is the Surety's contention that by filing a
counterbond, private respondents waived any defect or flaw in
the issuance of the attachment writ, for they could have
sought, without need of filing any counterbond, the discharge
of the attachment if the same was improperly or irregularly
issued, as provided in Section 13, Rule 57 of the Rules of
Court.
Whether the attachment was discharged by either of the two
(2) ways indicated in the law, i.e., by filing a counterbond or
by showing that the order of attachment was improperly or
irregularly issued, the liability of the surety on the attachment
bond subsists because the final reckoning is when "the Court
shall finally adjudge that the attaching creditor was not
entitled" to the issuance of the attachment writ in the first
place.
The attachment debtor cannot be deemed to have waived any
defect in the issuance of the attachment writ by simply
availing himself of one way of discharging the attachment
writ, instead of the other. Moreover, the filing of a
counterbond is a speedier way of discharging the attachment
writ maliciously sought out by the attaching creditor instead of
the other way, which, in most instances like in the present
case, would require presentation of evidence in a full-blown
trial on the merits and cannot easily be settled in a pending
incident of the case.
We believe, however, that in the light of the factual situation
in this case, the damages awarded by the Intermediate
Appellate Court are rather excessive. They must be reduced.
WHEREFORE, the judgment of said Appellate Court is
hereby modified as follows: Both petitioner Calderon and
petitioner First Integrated Bonding and Insurance Company,
Inc. are hereby ordered to give jointly and severally:
1. Respondent George Schulze, P250,000.00 as moral
damages and P50,000.00 as exemplary damages; and
2. Respondent Antonio C. Amor, P50,000.00 as moral
damages and P10,000.00 as exemplary damages.
The rest of the judgment of the Intermediate Appellate Court
is hereby AFFIRMED.
SO ORDERED.
G.R. No. 84481 April 18, 1989
MINDANAO SAVINGS & LOAN ASSOCIATION, INC.
(formerly Davao Savings & Loan Association) &
FRANCISCO VILLAMOR, petitioners,
vs.
HON. COURT OF APPEALS, POLY R. MERCADO, and
JUAN P. MERCADO, respondents.
Remedial Law; Civil Procedure; Provisional Remedies;
Attachment; Requisites of; Motion to Quash Writ of
Attachment; No notice to the adverse party, or hearing on the
application is required before a writ of preliminary attachment
may issue, but a motion to quash a writ of attachment may
only be granted, after notice to the applicant and after hearing.
—–The only requisites for the issuance of a writ of
preliminary attachment under Section 3, Rule 57 of the Rules
of Court are the affidavit and bond of the applicant. x x x No
notice to the adverse party or hearing of the application is
required. As a matter of fact a hearing would defeat the
purpose of this provisional remedy. The time which such a
hearing would take, could be enough to enable the defendant
to abscond or dispose of his property before a writ of
attachment issues. Nevertheless, while no hearing is required
by the Rules of Court for the issuance of an attachment
(Belisle Investment Finance Co., Inc. vs. State Investment
House, Inc., 72927, June 30, 1987; Filinvest Credit Corp. vs.
Relova, 117 SCRA 420), a motion to quash the writ may not
be granted without “reasonable notice to the applicant” and
only “after hearing” (Secs. 12 and 13, Rule 57, Rules of
Court).
Same; Same; Same; Same; Same; Counterbond; Objections to
the impropriety or irregularity of the writ of attachment may
no longer be invoked, once a counterbond is filed.—–The
Court of Appeals did not err in holding that objections to the
impropriety or irregularity of the writ of attachment “may no
longer be invoked once a counterbond is filed,” when the
ground for the issuance of the writ forms the core of the
complaint. Indeed, after the defendants has obtained the
discharge of the writ of attachment by filing a counterbond
under Section 12, Rule 57 of the Rules of Court, he may not
file another motion under Section 13, Rule 57 to quash the
writ for impropriety or irregularity in issuing it. The reason is
simple. The writ had already been quashed by filing a
counterbond, hence, another motion to quash it would be
pointless. Moreover, as the Court of Appeals correctly
observed, when the ground for the issuance of the writ is also
the core of the complaint, the question of whether the plaintiff
was entitled to the writ can only be determined after, not
before, a full-blown trial on the merits of the case. This
accords with our ruling in G.B., Inc. vs. Sanchez, 98 Phil. 886
that: “The merits of a main action are not triable in a motion to
discharge an attachment, otherwise an applicant for the
dissolution could force a trial on the merits of the case on this
motion.”
Same; Same; Same; Same; Same; Same; The counterbond
may not be released until the court shall have finally absolved
the defendant from the plaintiff’s claims.—–May the
defendant, after procuring the dissolution of the attachment by
filing a counterbond, ask for the cancellation of the
counterbond on the ground that the order of attachment was
improperly issued? That question was answered by this Court
when it ruled in Uy Kimpang vs. Javier, 65 Phil. 170, that “the
obligors in the bond are absolutely liable for the amount of
any judgment that the plaintiff may recover in the action
without reference to the question of whether the attachment
was rightfully or wrongfully issued.” The liability of the
surety on the counterbond subsists until the Court shall have
finally absolved the defendant from the plaintiff’s claims.
Only then may the counterbond be released. The same rule
applies to the plaintiff’s attachment bond. “The liability of the
surety on the bond subsists because the final reckoning is
when the Court shall finally adjudge that the attaching creditor
was not entitled to the issuance of the attachment writ,”
(Calderon vs. Intermediate Appellate Court, 155 SCRA 531.)
NARVASA, J., Concurring And Dissenting
Remedial Law; Civil Procedure; Provisional Remedies;
Discharge of Attachment; A preliminary attachment may be
discharged at the instance of the party against whom it is
issued by submission of a counterbond or by a demonstration
of the impropriety and irregularity of its issuance.—–I agree
that the decision of the Court of Appeals subject of the appeal
in this case should be affirmed. I write this separate opinion
simply to stress certain principles relative to the discharge of
preliminary attachments so that our own decision or that
thereby affirmed be not applied to juridical situations beyond
their intendment, which may well result from the statement
that “after the defendant has obtained the discharge of the writ
of attachment by filing a counterbond under Section 12, Rule
57 of the Rules of Court, he may not file another motion under
Section 13, Rule 57 to quash the writ for impropriety or
irregularity in issuing it.” xxx This mode of dissolution
presents no apparent difficulty. It applies when there has
already been a seizure of property by the sheriff. All that is
entailed is the presentation of a motion to the proper court,
seeking approval of a cash or surety bond in an amount
equivalent to the value of the property seized and the lifting of
the attachment on the basis thereof. The counter-bond stands,
according to the cited section, “in place of the property so
released.” 1.1. But a party need not wait until his property has
been seized before seeking its dissolution upon security. In
fact he may prevent the seizure of his property under
attachment by giving security in an amount sufficient to
satisfy the claims against him. x x x 2.0. The second way of
lifting a preliminary attachment is by proving its irregular or
improper issuance, under Section 13 of Rule 57. Like the first,
this second mode may be availed of even before any property
has been actually attached. It may even be resorted to after the
property has already been released from the levy on
attachment, as the pertinent provision makes clear. Mindanao
Savings & Loan Asso., Inc. vs. Court of Appeals, 172 SCRA
480, G.R. No. 84481 April 18, 1989
GRIÑO-AQUINO, J.:
On September 10, 1986, private respondents filed in the
Regional Trial Court of Davao City, a complaint against
defendants D.S. Homes, Inc., and its directors, Laurentino G.
Cuevas, Saturnino R. Petalcorin, Engr. Uldarico D. Dumdum,
Aurora P. De Leon, Ramon D. Basa, Francisco D. Villamor,
Richard F. Magallanes, Geronimo S. Palermo Felicisima V.
Ramos and Eugenio M. De los Santos (hereinafter referred to
as D.S. Homes, et al.) for "Rescission of Contract and
Damages" with a prayer for the issuance of a writ of
preliminary attachment, docketed as Civil Case No. 18263.
On September 28, 1986, Judge Dinopol issued an order
granting ex parte the application for a writ of preliminary
attachment.
On September 22, 1986, the private respondents amended
their complaint and on October 10, 1986, filed a second
amended complaint impleading as additional defendants
herein petitioners Davao Savings & Loan Association, Inc.
and its president, Francisco Villamor, but dropping Eugenio
M. De los Santos.
On November 5, 1986, Judge Dinopol issued ex parte an
amended order of attachment against all the defendants named
in the second amended complaint, including the petitioners but
excluding Eugenio C. de los Santos.
D. S. Homes. Inc., et al. and the Davao Savings & Loan
Association (later renamed Mindanao Savings & Loan
Association, Inc. or "MSLA") and Francisco Villamor filed
separate motions to quash the writ of attachment. When their
motions were denied by the Court, D.S. Homes, Inc., et al.
offered a counterbond in the amount of Pl,752,861.41 per
certificate issued by the Land Bank of the Philippines, a
banking partner of petitioner MSLA The lower court accepted
the Land Bank Certificate of . Deposit for Pl,752,861.41 as
counterbond and lifted the writ of preliminary attachment on
June 5, 1987 (Annex V)
On July 29, 1987, MSLA and Villamor filed in the Court of
Appeals a petition for certiorari (Annex A) to annul the order
of attachment and the denial of their motion to quash the same
(CA-G.R. SP No. 12467). The petitioners alleged that the trial
court acted in excess of its jurisdiction in issuing the ex
parte orders of preliminary attachment and in denying their
motion to quash the writ of attachment, D.S. Homes, Inc., et
al. did not join them.
On May 5, 1988, the Court of Appeals dismissed the petition
for certiorari and remanded the records of Civil Case No.
18263 to the Regional Trial Court of Davao City, Branch 13,
for expeditious proceedings. It held:
Objections against the writ may no longer be invoked
once a counterbond is filed for its lifting or dissolution.
The grounds invoked for the issuance of the writ form the
core of the complaint and it is right away obvious that a
trial on the merits was necessary. The merits of a main
action are not triable in a motion to discharge an
attachment otherwise an applicant for dissolution could
force a trial on the merits on his motion (4 Am. Jur., Sec.
635, 934, cited in G.G. Inc. vs. Sanchez, et al., 98 Phil.
886, 890, 891). (Annex B, p. 185, Rollo.)
Dissatisfied, the petitioners appealed to this Court.
A careful consideration of the petition for review fails to yield
any novel legal questions for this Court to resolve.
The only requisites for the issuance of a writ of preliminary
attachment under Section 3, Rule 57 of the Rules of Court are
the affidavit and bond of the applicant.
SEC. 3. Affidavit and bond required .— An order of
attachment shall be granted only when it is made to
appear by the affidavit of the applicant, or of some other
person who personally knows the facts, that a sufficient
cause of action exists that the case is one of those
mentioned in section 1 hereof, that there is no other
sufficient security for the claim sought to be enforced by
the action, and that the amount due to the applicant, or the
value of the. property the possession of which he is
entitled to recover, is as much as the sum for which the
order is granted above all legal counterclaims. The
affidavit, and the bond required by the next succeeding
section must be duly filed with the clerk or judge of the
court before the order issues.
The reason is simple. The writ had already been quashed by
filing a counterbond, hence, another motion to quash it would
be pointless. Moreover, as the Court of Appeals correctly
observed, when the ground for the issuance of the writ is also
the core of the complaint, the question of whether the plaintiff
was entitled to the writ can only be determined after, not
before, a full-blown trial on the merits of the case. This
accords with our ruling G.B. Inc. vs. Sanchez, 98 Phil. 886
that: "The merits of a main action are not triable in a motion to
discharge an attachment, otherwise an applicant for the
dissolution could force a trial on the merits of the case on this
motion."
May the defendant, after procuring the dissolution of the
attachment by filing a counterbond, ask for the cancellation of
the counterbond on the ground that the order of attachment
was improperly issued? That question was answered by this
Court when it ruled in Uy Kimpang vs. Javier, 65 Phil. 170,
that "the obligors in the bond are absolutely liable for the
amount of any judgment that the plaintiff may recover in the
action without reference to the question of whether the
attachment was rightfully or wrongfully issued."
The liability of the surety on the counterbond subsists until the
Court shall have finally absolved the defendant from the
plaintiff s claims. Only then may the counterbond be released.
The same rule applies to the plaintiffs attachment bond. "The
liability of the surety on the bond subsists because the final
reckoning is when the Court shall finally adjudge that the
attaching creditor was not entitled to the issuance of the
attachment writ," (Calderon vs. Intermediate Appellate Court,
155 SCRA 531.)
WHEREFORE, finding no reversible error in the decision of
the Court of Appeals in CA-G.R. SP No. 12467, the petition
for review is denied for lack of merit with costs against the
petitioners.
SO ORDERED.

No notice to the adverse party or hearing of the application is

required. As a matter of fact a hearing would defeat the
purpose of this provisional remedy. The time which such a
hearing would take, could be enough to enable the defendant
to abscond or dispose of his property before a writ of
attachment issues. Nevertheless, while no hearing is required
by the Rules of Court for the issuance of an attachment
(Belisle Investment & Finance Co., Inc. vs. State Investment
House, Inc., 72927, June 30, 1987; Filinvest Credit Corp. vs.
Relova, 11 7 SCRA 420), a motion to quash the writ may not
be granted without "reasonable notice to the applicant" and
only "after hearing" (Secs. 12 and 13, Rule 57, Rules of
Court).

The Court of Appeals did not err in holding that objections to

the impropriety or irregularity of the writ of attachment "may
no longer be invoked once a counterbond is filed," when the
ground for the issuance of the writ forms the core of the
complaint.

Indeed, after the defendant has obtained the discharge of the

writ of attachment by filing a counterbond under Section 12,
Rule 57 of the Rules of Court, he may not file another motion
under Section 13, Rule 57 to quash the writ for impropriety or
irregularity in issuing it.
G.R. No. 71535 September 15, 1987

HELENA Z. T. BENITEZ, petitioner-appellee,
vs.
THE INTERMEDIATE APPELLATE COURT,
ROSARIO R. VELOSO, in her capacity as Judge of the
Regional Trial Court, National Capital Judicial Region,
Branch 133, et al., respondents-appellants.

Attachments; Appeals; Certiorari; An affidavit supporting the

petition for issuance of preliminary attachment may be
sufficient to justify issuance of preliminary writ but cannot be
considered as proof of the allegations. Therein which are mere
conclusions of law not statement of facts.—ln Villongco, et al.
vs. Hon. Panlilio, et al., we held that the affidavit supporting
the petition for the issuance of the preliminary attachment may
have been sufficient to justify the issuance of the preliminary
writ, but it cannot be considered as proof of the allegations
contained in the affidavit, which are mere conclusions of law,
not statement of facts. Petitioner in the instant case having
squarely controverted the private respondent's allegation of
fraud, it was incumbent on the latter to prove its 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 of the Rules of Court which provides: "Each party
must prove his own affirmation allegations. x x x The burden
of proof lies on the party who would be defeated if no
evidence were given on either side." In this jurisdiction, fraud
is never presumed.

Same; Same; Abuse of discretion; Denial of the motion to

discharge writ of preliminary attachment without conducting a
hearing and requiring subtantiation of the allegation of fraud is
tanta-mount to grave abuse of discretion on the part of the
judge.—It was grave abuse of discretion on the part of
respondent Judge Rosario Veloso to deny petitioner's Urgent
Motion to Discharge Writ of Preliminary Attachment, without
conducting a hearing and requiring the plaintiff to substantiate
its allegation of fraud. Neither can respondent Judge avoid
deciding the issue raised in petitioner's urgent motion by
ruling that "the issue cannot be determined without adducing
evidence at the same time going into the merits of the case."
Having issued the writ of preliminary attachment ex parte, it
was incumbent on the respondent court, upon proper challenge
of its order, to determine whether or not the same was
improvidently issued. A preliminary attachment is a rigorous
remedy which exposes the debtor to humiliation and
annoyance, such that it should not be abused to cause
unnecessary prejudice and, if wrongfully issued on the basis of
false allegation, should at once be corrected.

Same; Same; Counterbond; A writ of attachment may be

discharged without the necessity of filing a cash bond or
counterbond pursuant to Sec. 13, Rule 57 of the Rules of
Court.—We agree with petitioner that a writ of attachment
may be discharged pursuant to Section 13, Rule 57, without
the necessity of filing a cash deposit or counterbond. The
provisions of the aforesaid section grants an aggrieved party
relief from baseless and unjustifiable attachments procured,
among others, upon false allegations, without having to file
any cash deposit or counterbond. Benitez vs. Intermediate
Appellate Court, 154 SCRA 41, No. L- 71535 September 15,
1987

YAP, J.:
This is a petition for review on certiorari of the decision of
respondent Intermediate Appellate Court dated July 25, 1985,
affirming the questioned orders of the Regional Trial Court of
Makati, to wit: (a) the order dated December 11, 1984,
granting the private respondents' petition for a writ of
attachment ex-parte; (b) the order dated January 31, 1985,
denying petitioner's urgent motion to discharge attachment;
and (c) the order dated April 24, 1985, denying petitioner's
motion for reconsideration.
The records show that on December 6, 1984, private
respondent Casa Filipina Development Corporation (Casa
Filipina for brevity) filed a complaint against herein petitioner
Helena T. Benitez for recission of contract, plus damages,
with a prayer for preliminary attachment. The complaint
alleged that sometime on April 16, 1983, the plaintiff Casa
Filipina, a real estate corporation, represented by Renato P.
Dragon, and defendant Benitez (the petitioner herein), entered
into a verbal contract whereby Benitez allegedly agreed to
undertake to purchase/convey land for Casa Filipina in the
total value of One Million Pesos (P1,000,000.00) within the
period of four (4) months from receipt of the total amount. On
the same date, Casa Filipina tendered a check payment in the
amount of Five Hundred Thousand Pesos (P500,000.00) in the
name of Benitez. On August 26, 1983, to complete the amount
of One Million Pesos as allegedly agreed upon, Casa Filipina
issued again another check in the amount of Five Hundred
Thousand Pesos (P500,000.00). Both checks were deposited
and credited in petitioner's bank account. The four-month
period allegedly elapsed without Benitez having purchased nor
conveyed any real estate in the total value of One Million
Pesos (P1,000,000.00) in favor of Casa Filipina, but instead
Benitez converted the entrusted money for her own personal
use in violation of her fiduciary relationship with plaintiff and
that despite repeated demands for the refund or return of the
aforementioned amount, Benitez chose to ignore the same.
Praying for a writ of preliminary attachment, Casa Filipina
submitted with its complaint, the affidavit of one Nestor P.
Borromeo, the corporate secretary and acting treasurer of the
corporation.
The writ of attachment was granted by respondent court
exparte in an order dated December 11, 1985.
On December 27, 1984, the Clerk of Court issued a writ of
preliminary attachment, by virtue of which the respondent
Sheriff served notices of garnishment to the Philippine
Women's University, Taft Avenue, Manila, the Unlad
Development Resources Corporation and Bank of the
Philippine Islands, Unlad Condominium, Taft Avenue,
Manila, thereby garnishing the deposits, shares of stocks,
salaries and other personal property of the petitioner. Likewise
on January 30, 1984, petitioner was advised by the Acting
Register of Deeds of Quezon City that a notice of levy was
filed with the Registrar's Office affecting two parcels of prime
land at Mariposa Street, with an aggregate area of 4,304
square meters which are owned by and registered in the name
of the petitioner.
Earlier on January 21, 1985, Benitez filed an answer with
counterclaim and opposition to the petition for issuance of a
writ of preliminary attachment. On the same date, Benitez also
filed an Urgent Motion to Discharge Writ of Preliminary
Attachment under Section 13, Rule 57 of the Rules of Court,
on the ground that the same was improperly or irregularly
issued. Benitez alleged that sometime in March 1983, Mr.
Renato Dragon, acting for himself and Casa Filipina agreed to
buy ten (10) hectares of petitioner's land in Dasmarinas,
Cavite, for a price of P15.00 per square meter or for a total
consideration of One Million Five Hundred Thousand Pesos
(P1,500,000.00); that it was agreed upon by the parties that it
is only upon full payment of the amount of P1,500,000.00 that
delivery of the ten-hectare property of the petitioner will be
made; that Casa Filipina was not able to comply with the
obligation to pay the balance of P500,000.00 despite repeated
demands and instead filed the present action for recission.
In support of its urgent motion to discharge the writ of
preliminary attachment, petitioner attached thereto the
affidavit of her technical assistant and attorney-in-fact by the
name of Virginia Real, who alleged. among other things, that
she knows for a fact that the transaction between Benitez and
Dragon for Casa Filipina, was one of purchase and sale; that a
copy of TCT No. 9833 covering the land to be purchased was
furnished the office of Mr. Dragon on February 28, 1984; that
petitioner is willing and able to execute a deed of absolute sale
in favor of Casa Filipina upon full payment of the balance of
P500,000.00.
The said motion was set for hearing on January 25, 1985 but
the private respondent and its counsel failed to appear despite
notice. Consequently, the motion was deemed submitted for
resolution.
On January 31, 1985, respondent Court denied petitioner's
motion to discharge writ of preliminary attachment. The said
order reads:
Considering defendant's motion to quash and/or lift the writ of
preliminary attachment issued by this Court upon properties of
defendant on the ground that the same was predicated upon
false and untrue allegations, the Court believes and so rules
that the issue cannot be determined without adducing evidence
at the same time going into the merits of the case which in the
opinion of the Court could not be done at this stage of the
proceedings.
Considering that the writ of preliminary attachment was issued
after having satisfied the requirements of the rules, the same
may not be lifted or discharged without the defendant filing a
counterbond.
WHEREFORE, the motion to lift and/or discharge the writ of
preliminary attachment is hereby denied.
SO ORDERED.
On February 5, 1985, despite the lower court's denial of
petitioner's motion to discharge preliminary attachment, the
private respondent filed a belated opposition to the said
motion, to which the petitioner filed a reply a February 18,
1985.
On March 14, 1985, petitioner discovered that her motion to
discharge preliminary attachment was denied. Hence, on
March 20, 1985, petitioner filed a motion for reconsideration
which was likewise denied by respondent judge on April 24,
1985, Whereupon, a petition for certiorari, mandamus and
prohibition was filed by the petitioner before respondent
Intermediate Appellate Court, which, as stated earlier, was
dismissed for I acknowledge of merit. Hence, this petition.
On January 8, 1986, the Court gave due course to the petition
and required the parties to submit their memoranda.
Petitioner poses the following questions for resolution, to wit:
1. Whether a counter-attachment bond is necessary and
indispensable under the circumstances before the subject writ
of preliminary attachment may be recalled, quashed and/or
discharged?
2. Whether or not the issue on the propriety of the issuance of
the subject writ may be resolved without going into the merits
of the principal action?
We find the petition meritorious.
The attachment was granted by the lower court ex-parte under
Section 1 (b), Rule 57, Rules of Court, upon the allegation of
respondent Casa Filipina, that petitioner Helena Benitez, the
defendant, had violated their alleged fiduciary relationship and
had unlawfully converted the amount of P1,000,000.00 for her
own use. Petitioner promptly filed an urgent motion to
discharge writ of preliminary attachment for improper or
irregular issuance, supported by the affidavit of Virginia Real,
who alleged that there was no fiduciary relationship between
the plaintiff and defendant inasmuch as the transaction
between them was one of sale of real property. Thus, in effect,
the petitioner claims that the private respondent's allegation of
fraud was false, that hence there was no ground for the
attachment, and that consequently, the attachment order was
improperly or irregularly issued.
In Villongco, et al. vs. Hon. Panlilio, et al., 1 we held that the
affidavit supporting the petition for the issuance of the
preliminary attachment may have been sufficient to justify the
issuance of the preliminary writ, but it cannot be considered as
proof of the allegations contained in the affidavit, which are
mere conclusions of law, not statement of facts. Petitioner in
the instant case having squarely controverted the private
respondent's allegation of fraud, it was incumbent on the latter
to prove its 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 of the Rules of Court
which provides: "Each party must prove his own affirmation
allegations. . . . The burden of proof lies on the party who
would be defeated if no evidence were given on either side."
In this jurisdiction, fraud is never presumed. 2
The petitioner's Urgent Motion to Discharge Writ of
Preliminary Attachment was filed under Section 13, Rule 57.
The last sentence of said provision indicates that a hearing
must be conducted by the judge for the purpose of determining
whether or not there really was a defect in the issuance of the
attachment.
on April 16, 1983 showed that the check for P500,000.00 was
for "Payment for downpayment of lot to be purchased" 4 and
the check voucher dated August 27, 1983 for P500,000.00 was
for "Second payment for lot to be purchased."5
It was grave abuse of discretion on the part of respondent
Judge Rosario Veloso to deny petitioner's Urgent Motion to
Discharge Writ of Preliminary Attachment, without
conducting a hearing and requiring the plaintiff to substantiate
its allegation of fraud. Neither can respondent Judge avoid
deciding the issue raised in petitioner's urgent motion by
ruling that "the issue cannot be determined without adducing
evidence at the same time going into the merits of the case."
Having issued the writ of preliminary attachment ex parte, it
was incumbent on the respondent court, upon proper challenge
of its order, to determine whether or not the same was
improvidently issued. A preliminary attachment is a rigorous
remedy which exposes the debtor to humiliation and
annoyance, such that it should not be abused to cause
unnecessary prejudice and, if wrongfully issued on the basis of
false allegation, should at once be corrected.
We agree with petitioner that a writ of attachment may be
discharged pursuant to Section 13, Rule 57, without the
necessity of filing a cash deposit or counterbond. The
provisions of the aforesaid section grants an aggrieved party
relief from baseless and unjustifiable attachments procured,
among others, upon false allegations, without having to file
any cash deposit or counterbond.
WHEREFORE, in view of the foregoing, the appealed
decision is hereby reversed and the ex parte writ of
preliminary attachment issued by the respondent Regional
Trial Court on December 11, 1984 is ANNULLED and SET
ASIDE. Costs against private respondent.
SO ORDERED.

It appears from the records that no hearing was conducted by

the lower court. Indeed, when the case was called for hearing,
the plaintiff (private respondent herein), failed to appear and
the petitioner's motion was considered submitted for
resolution.

Private respondent has alleged in its memorandum that

petitioner did not file an affidavit in support of her Urgent
Motion to Discharge Attachment, as required under Section 13
of Rule 57, hence, it was not necessary or imperative that a
hearing be held. The Court finds private respondent's
allegation to be irresponsible, for attached to petitioner's
motion was the supporting affidavit of Virginia L. Real, the
technical assistant of petitioner Benitez. In her affidavit, she
stated that she had personal knowledge of the transaction
between respondent Casa Filipina and petitioner Benitez; that
Mr. Renato Dragon, for himself and/or Casa Filipina, agreed
to buy a portion consisting of 10 hectares of a parcel of land
belonging to Benitez in Dasmarinas, Cavite, for the total price
of P1,500,000.00 of which private respondent made a
downpayment of P500,000.00 on April 16, 1983; and a second
payment of P500,000.00 on August 27, 1983; that private
respondent having failed to pay the balance of P500,000.00,
the deed of sale could not be executed in favor of private
respondent. The record amply supports petitioner's version, as
against the private respondent's allegation that Benitez had
acted as agent in receiving the money and converted the same
for her own use in violation of the fiduciary relationship
existing between her and private respondent. Private
respondent acknowledged the receipt of a xerox copy of TCT
No. 9833 covering petitioner's land in Dasmarinas,
Cavite, 3 and the check voucher issued by private respondent

G.R. No. 81120 August 20, 1990
Sps. OLIB and ROBERTA R. OLIB, petitioners,
vs.
Hon. EDELWINA C, PASTORAL, Judge of the Regional
Trial Court of Agusan del Norte and Butuan City, Branch
III and CORAZON M, NAVIA, respondents.
Attachment defined; Nature of.—Attachment is defined as a
provisional remedy by which the property of an adverse party
is taken into legal custody, either at the commencement of an
action or at any time thereafter, as a security for the
satisfaction of any judgment that may be recovered by the
plaintiff or any proper party. It is an auxiliary remedy and
cannot have an independent existence apart from the main suit
or claim instituted by the plaintiff against the defendant. Being
merely ancillary to a principal proceeding, the attachment
must fail if the suit itself cannot be maintained as the purpose
of the writ can no longer be justified.
Same; Same; Where the main action is appealed, the
attachment is also considered appealed.—The consequence is
that where the main action is appealed, the attachment which
may have been issued as an incident of that action, is also
considered appealed and so also removed from the jurisdiction
of the court a quo. The attachment itself cannot be the subject
of a separate case independent of the principal action because
the attachment was only an incident of such action.
Same; Same; Rule that the bond is not deemed extinguished
by reason of non-payment of the premium on the attachment
bond.—Coming now to the argument that the attachment was
automatically lifted because of the non-payment of the
premium on the attachment bond, the Court feels it is time
again to correct a common misimpression. The rule is that the
bond is not deemed extinguished by reason alone of such non-
payment.
Same; Same; The order of attachment is considered
discharged only when the judgment has already become final
and executory and not when it is still on appeal; Reason.—
Finally, on the correct interpretation of Rule 57, Section 19, of
the Rules of Court, we hold that the order of attachment is
considered discharged only where the judgment has already
become final and executory and not when it is still 011 appeal.
The obvious reason is that, except in a few specified cases,
execution pending appeal is not allowed. Olib vs. Pastoral,
188 SCRA 692, G.R No. 81120 August 20, 1990
CRUZ, J.:
This case could have been remanded to the Court of Appeals,
which has concurrent jurisdiction with this Court in petitions
for certiorari against the regional trial courts under Rule 65 of
the Rules of Court. We have decided to retain and rule on it
directly, however, so we can emphasize the important
doctrines we shall here affirm.
On November 13, 1981, Corazon M. Navia sued the spouses
Oscar and Roberta Olib, petitioner herein, for dissolution of
their partnership and other reliefs, with a prayer for the
issuance of a writ of a preliminary attachment.1 The it was
granted on November 10, 1983, resulting in the attachment of
six parcels of land belonging to the petitioners, along with
stocks of merchandise in their bodega.2 The writ was amended
on December 14, 1983, to release the merchandise. Two years
later, on May 16, 1985, the petitioners filed a motion to
discharge the preliminary attachment on the ground that the
attachment bond executed for one year from November 1983
had already lapsed. 3 This was accompanied by a certification
from the bonding company that the bond had not been
renewed and the corresponding payment for extension had not
been made . 4
On February 25,1986, Judge Miguel S. Rallos of the Regional
Trial Court of Agusan del Norte and Butuan City rendered
judgment for the petitioners and sentenced the private
respondent to pay them actual, moral and exemplary damages,
plus attorney's fees and litigation expenses. 5 On April 16,
1986, Navia perfected her appeal from the challenged
judgment, and the records of the case were elevated to the
Court of Appeals on January 25, 1988.6
Although the trial court found in the text of the decision that
the private respondent was not entitled to the issuance of the
writ of preliminary attachment, no mention was made of the
said writ in the dispositive portion. As a result, the annotation
of the preliminary attachment on the certificates/titles of the
attached lands was maintained and could not be canceled.
On July 20, 1987, the petitioners moved for the discharge of
the writ of preliminary attachment by the respondent court on
the basis of the judgment in their favor. Navia filed an
opposition, contending that as she had perfected her appeal to
the Court of Appeals, the trial court no longer had any
jurisdiction over the case. The private respondent cited Rule
41, Section 9, of the Rules of Court, reading as follows:
When appeal deemed perfected; effect thereof. — If the
notice of appeal, the appeal bond and the record on appeal
have been filed in due time, the appeal is deemed
perfected upon the approval of the record on appeal and
of the appeal bond other than a cash bond, and thereafter
the trial court loses its jurisdiction over the case, except to
issue orders for the protection and preservation of the
rights of the parties which do not involve any matter
litigated by the appeal, to approve compromises offered
by the parties prior to the transmittal of the record on
appeal to the appellate court, and to permit the
prosecution of pauper's appeals.
On August 24, 1987, Judge Edelwina C. Pastoral, who had
succeeded Judge Rallos denied the motion on the ground
invoked in the opposition and declared:
Settled is the rule that the trial court loses its jurisdiction
over the record and over the subject of the case once an
appeal in the case has been perfected. The exception to
this rule refers to the orders of the Court to protect and
preserve the rights of the parties which do not involve any
matter litigated by appeal (Section 9, Rule 41 of the Rules
of Court). The writ of preliminary attachment was earlier
granted as a security for the satisfaction of the judgment,
the latter being now the subject of the appeal. To grant
defendant's motion at this juncture is to disturb and not to
preserve the rights of the parties. It is the stand of this
Court that the status quo of the parties shall be maintained
for it cannot predetermine the posture which the appellate
court will adopt, either to affirm, modify or reverse the
questioned decision of this Court.
The petitioners moved for reconsideration, invoking the case
of Galang v. Endencia, 7 where this Court held:
The levy in attachment of the properties of the defendant
upon the allegation that he is about to dispose of the same
to defraud his creditors is one which is intended for the
protection and preservation of the rights of the plaintiff
and which in no way involves any matter litigated by the
defendant's appeal. And as the respondent court had
jurisdiction to issue the writ of attachment, its errors, if
any, committed in the appreciation of the probative value
of the facts stated in the petition for the writ do not affect
its jurisdiction but merely the exercise of such
jurisdiction. We need not belabor here the rule that what
makes up jurisdiction is the authority to act in a particular
case and not the correctness of the action taken thereon.
Without such authority, as determined by law, the court
cannot act, or if it does, its actuations are null and voId;
but where the authority exists, all orders and decisions of
the court rendered in the exercise thereof and within its
limits are valId even if they were erroneous.
They argued that if the court a quo could issue a writ of
attachment after the appeal had been perfected, then it could
a fortiori discharge such a writ, especially where, as in the
case at bar, the movants were the prevailing parties.
Later, somewhat inconsistently, the petitioners also contended
that there was really no more need for an order discharging the
attachment as this followed by operation of Rule 57, Section
19, of the Rules of Court. Such discharge was the immediate
and automatic effect of any judgment in favor of the party
whose property had been attached, thus:
SEC. 19. Disposition of attached property where
judgment is for party against whom attachment is issued.
— If judgment be rendered against the attaching creditor,
all the proceeds of sales and money collected or received
by the sheriff, clerk, or other proper officer under the
order of attachment, and all property attached remaining
in any such officer's hands, shall be delivered to the party
against whom attachment was issued, and the order of
attachment discharged.
The motion having been denied, the petitioners sought
reconsideration a second time, insisting that (a) the attachment
had been automatically discharged under Rule 57, Section 19;
and (b) the attachment bond had already lapsed for non-
payment of the premiums. They were rebuffed again. They
then came before this Court, contending that the respondent
court committed grave abuse of discretion in denying their
motion.
We hold that it did not.
Attachment is defined as a provisional remedy by which the
property of an adverse party is taken into legal custody, either
at the commencement of an action or at any time thereafter, as
a security for the satisfaction of any judgment that may be
recovered by the plaintiff or any proper party.8
It is an auxiliary remedy and cannot have an independent
existence apart from the main suit or claim instituted by the
plaintiff against the defendant. 9 Being merely ancillary to a
principal proceeding, the attachment must fail if the suit itself
cannot be maintained as the purpose of the writ can no longer
be justified.
The consequence is that where the main action is appealed, the
attachment which may hive been issued as an incident of that
action, is also considered appealed and so also removed from
the jurisdiction of the court a quo. The attachment itself
cannot be the subject of a separate case independent of the
principal action because the attachment was only an incident
of such action.
We held in Olsen v. Olsen: 10
The preliminary attachment is an auxiliary remedy the
granting of which lies within the sound discretion of the
judge taking cognizance of the principal case upon whose
existence it depends. The order of the judge denying a
motion for the annulment of a writ of preliminary
attachment, being of an incIdental or interlocutory and
auxiliary character, cannot be the subject of an appeal
independently from the principal case, because our
procedural law now in force authorizes an appeal only
from a final judgement which gives an end to the
litigation. (Section 143, Act 190; 3 C.J., 549. par. 389.)
xxx xxx xxx
While it is true that an order denying a motion for the
annulment of a preliminary attachment is not subject to
review through an appeal independently from the
principal case, it is not constituting a final order, yet when
the writ of preliminary attachment becomes final by virtue
of a final judgment rendered in the principal case, saId
writ is subject to review jointly with the judgment
rendered in the principal case through an ordinary appeal.
It is also worth noting, as an appropriate observation on the
impropriety of the remedy employed by the petitioners in this
case, that, in Jopillo v. Court of Appeals, 11 this Court
observed:
... even assuming that the trial court committed an error in
denying the motion to discharge the writ of attachment
the error (if it is an error at all) is an error in judgment
which cannot be corrected through the extraordinary
remedy of certiorari but by an ordinary appeal at the
proper time.
Coming now to the argument that the attachment was
automatically lifted because of the non-payment of the
premium on the attachment bond, the Court feels it is time
again to correct a common misimpression. The rule is that the
bond is not deemed extinguished by reason alone of such non-
payment. The Court made this clear in Luzon Surety Co. v.
Quebrar, 12 where it declared:
To allow the defendants-appellants to evade their liability
under the Indemnity Agreements by non-payment of the
premiums would ultimately lead to giving the
administrator the power to diminish or reduce and
 altogether nullify his liability under the Administrator's
Bonds. As already stated, this is contrary to the intent and
purpose of the law in provIding for the administrator's
bonds for the protection of the creditors, heirs, legatees,
and the estate.

xxx xxx xxx

Lastly, in Manila Surety and FIdelity Co., Inc. v.

Villarama (107 Phil. 891), it was held that "the one-year
period mentioned therein refers not to the duration or
lifetime of the bond, but merely to the payment of
premiums, and, consequently, does not affect at all the
effectivity or efficacy of such bond. But such non-
payment alone of the premiums for the succeeding
years ... does not necessarily extinguish or terminate the
effectivity of the counter-bond in the absence of an
express stipulation in the contract making such non-
payment of premiums a cause for the extinguishment or
termination of the undertaking.

These principles are applicable to other kinds of bonds,

including the attachment bond in the case at bar. On this bond,
the respondent court correctly observed:

... a cursory examination of the bond for levy on

attachment executed between herein plaintiff Corazon M.
Navia and the branch manager of the First Continental
Assurance ' Co., Inc. (Rollo, pp. 347-348) discloses no
stipulation that the surety company will terminate the
bond for non-payment of the premium. This minor matter
on non-payment of premiums of the bond pertains to the
contracting parties to resolve. 13

Finally, on the correct interpretation of Rule 57, Section 19, of

the Rules of Court, we hold that the order of attachment is
considered discharged only where the judgment has already
become final and executory and not when it is still on appeal.
The obvious reason is that, except in a few specified cases,
execution pending appeal is not allowed. 14

WHEREFORE, the petition is DISMISSED, with costs against

the petitioners. The petitioners may, if they see fit, move for
the lifting of the writ of preliminary attachment in the Court of
Appeals, to which that ancillary remedy is deemed elevated
along with the principal action.

SO ORDERED.

G.R. No. 72005 May 29, 1987

PHILIPPINE BRITISH ASSURANCE CO.,

INC., petitioner,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT;
SYCWIN COATING & WIRES, INC., and
DOMINADOR CACPAL, CHIEF DEPUTY SHERRIF
OF MANILA, respondents.

Remedial Law; Special Civil Actions; Certiorari; Motions,

General rule that a motion for reconsideration is a condition
sine qua non for grant of a writ of certiorari, does not apply
when special circumstances warrant immediate action; A
motion for reconsideration may be dispensed with in cases
where execution had been ordered and the need for relief was
extremely urgent.—It is the submission of private respondent
Sycwin that without a previous motion for reconsideration of
the questioned resolution, certiorari would not lie. While as a
general rule a motion for reconsideration has been considered
a condition sine qua non for the granting of a writ of certiorari,
this rule does not apply when special circumstances warrant
immediate or more direct action. It has been held further that a
motion for reconsideration may be dispensed with in cases like
this where execution had been ordered and the need for relief
was extremely urgent.
Same; Civil Procedure; Execution; Attachment; Counterbond
posted is intended to secure payment of any judgment that the
attaching creditor may recover in the action; Execution of any
judgment including one pending appeal if returned unsatisfied
may be charged against the counterbond.—Under sections 5
and 12, Rule 57 above reproduced it is provided that the
counterbond is intended to secure the payment of "any
judgment" that the attaching creditor may recover in the
action. Under Section 17 of same rule it provides that when
"the execution be returned unsatisfied in whole or in part" it is
only then that "payment of the judgment shall become charged
on such counterbond." The counterbond was issued in
accordance with the provisions of Section 5, Rule 57 of the
Rules of Court as provided in the second paragraph aforecited
which is deemed reproduced as part of the counterbond. In the
third paragraph it is also stipulated that the counterbond is to
be "applied for the payment of the judgment." Neither the
rules nor the provisions of the counterbond limited its
application to a final and executory judgment. Indeed, it is
specified that it applies to the payment of any judgment that
maybe recovered by plaintiff. Thus, the only logical
conclusion is that an execution of any judgment including one
pending appeal if returned unsatisfied maybe charged against
such a counterbond.
Same; Same; Same; Same; Courts; Statutory Construction;
Rule that when the law does not distinguish, courts should not
distinguish; The rule, founded on logic, is a corollary of the
principle that general words and phrases of a statute should
ordinarily be accorded their natural and general significance.
—lt is well recognized rule that where the law does not
distinguish, courts should not distinguish. Ubi lex non
distinguit nec nos distinguere debemos. The rule, founded on
logic, is a corollary of the principle that general words and
phrases in a statute should ordinarily be accorded their natural
and general significance. The rule requires that a general term
or phrase should not be reduced into parts and one part
distinguished from the other so as to justify its exclusion from
the operation of the law. In other words, there should be no
distinction in the application of a statute where none is
indicated. For courts are not authorized to distinguish where
the law makes no distinction. They should instead administer
the law not as they think it ought to be but as they find it and
without regard to consequences.
Same; Same; Same; Same; Same; Same; Rule that where the
law does not make any exception, courts may not except
something therefor unless compelling reasons exist to justify
it; Phrase "any land," interpreted.—A corollary of the
principle is the rule that where the law does not make any
exception, courts may not except something therefrom, unless
there is compelling reason apparent in the law to justify it.
Thus where a statute grants a person against whom possession
of "any land" is unlawfully withheld the right to bring an
action for unlawful detainer, this Court held that the phrase
"any land" includes all kinds of land, whether agricultural,
residential, or mineral. Since the law in this case does not
make any distinction nor intended to make any exception,
when it speaks of "any judgment" which maybe charged
against the counterbond, it should be interpreted to refer not
only to a final and executory judgment in the case but also a
judgment pending appeal.
Same; Same; Same; Same; Same; Rule is that the counterbond
to lift attachment shall be charged with the payment of any
judgment that is returned unsatisfied, and covers not only a
final and executory judgment but also execution of judgment
pending appeal—The rule therefore, is that the counterbond to
lift attachment that is issued in accordance with the provisions
of Section 5, Rule 57, of the Rules of Court, shall be charged
with the payment of any judgment that is returned unsatisfied.
It covers not only a final and executory judgment but also the
execution of a judgment pending appeal. Philippine British
Assurance Co., Inc. vs. Intermediate Appellate Court, 150
SCRA 520, No. L-72005 May 29, 1987
GANCAYCO, J.:
This is a Petition for Review on certiorari of the Resolution
dated September 12, 1985 of the Intermediate Appellate Court
in AC-G.R. No. CR-05409 1 granting private respondent's
motion for execution pending appeal and ordering the issuance
of the corresponding writ of execution on the counterbond to
lift attachment filed by petitioner. The focal issue that emerges
is whether an order of execution pending appeal of a judgment
maybe enforced on the said bond. In the Resolution of
September 25, 1985 2 this Court as prayed for, without
necessarily giving due course to the petition, issued a
temporary restraining order enjoining the respondents from
enforcing the order complaint of.
The records disclose that private respondent Sycwin Coating
& Wires, Inc., filed a complaint for collection of a sum of
money against Varian Industrial Corporation before the
Regional Trial Court of Quezon City. During the pendency of
the suit, private respondent succeeded in attaching some of the
properties of Varian Industrial Corporation upon the posting
of a supersedeas bond. 3 The latter in turn posted a
counterbond in the sum of P1,400, 000.00 4 thru petitioner
Philippine British Assurance Co., Inc., so the attached
properties were released.
On December 28, 1984, the trial court rendered a Decision, the
dispositive portion of which reads:
WHEREFORE, plaintiff's Motion for Summary Judgment
is hereby GRANTED, and judgment is rendered in favor
of the plaintiff and against the defendant Varian Industrial
Corporation, and the latter is hereby ordered:
1. To pay plaintiff the amount of P1,401,468.00, the
principal obligation with 12% interest per annum from the
date of default until fully paid;
2. To pay plaintiff 5% of the principal obligation as
liquidated damages;
3. To pay plaintiff P30,000.00 as exemplary damages;
4. To pay plaintiff 15% of P1,401,468.00, the principal
obligation, as and for attorney's fees; and
5. To pay the costs of suit.
Accordingly, the counterclaim of the defendant is hereby
DISMISSED for lack of merit.
SO ORDERED. 5
Varian Industrial Corporation appealed the decision to the
respondent Court. Sycwin then filed a petition for execution
pending appeal against the properties of Varian in respondent
Court. Varian was required to file its comment but none was
filed. In the Resolution of July 5, 1985, respondent Court
ordered the execution pending appeal as prayed
for. 6 However, the writ of execution was returned unsatisfied
as Varian failed to deliver the previously attached personal
properties upon demand. In a Petition dated August 13, 1985
filed with respondent Court Sycwin prayed that the surety
(herein petitioner) be ordered to pay the value of its bond. 7 In
compliance with the Resolution of August 23, 1985 of the
respondent Court herein petitioner filed its comment. 8 In the
Resolution of September 12, 1985, 9 the respondent Court
granted the petition. Hence this action.
It is the submission of private respondent Sycwin that without
a previous motion for reconsideration of the questioned
resolution, certiorari would not lie. While as a general rule a
motion for reconsideration has been considered a
condition sine qua non for the granting of a writ of certiorari,
this rule does not apply when special circumstances warrant
immediate or more direct action. 10 It has been held further
that a motion for reconsideration may be dispensed with in
cases like this where execution had been ordered and the need
for relief was extremely urgent. 11
The counterbond provides:
WHEREAS, in the above-entitled case pending in the
Regional Trial Court, National Capital Judicial Region,
Branch LXXXV, Quezon City, an order of Attachment
was issued against abovenamed Defendant;
WHEREAS, the Defendant, for the purpose of lifting
and/or dissolving the order of attachment issued against
them in the above-en-titled case, have offered to file a
counterbond in the sum of PESOS ONE MILLION
FOUR HUNDRED THOUSAND ONLY
(P1,400,000.00), Philippine Currency, as provided for in
Section 5, Rule 57 of the Revised Rules of Court.
NOW, THEREFORE, we, VARIAN INDUSTRIAL
CORPORATION, as Principal and the PHILIPPINE
BRITISH ASSURANCE COMPANY, INC., a
corporation duly organized and existing under and by
virtue of the laws of the Philippines, as Surety, in
consideration of the above and of the lifting or dissolution
of the order of attachment, hereby jointly and severally,
bind ourselves in favor of the above Plaintiff in the sum
of PESOS ONE MILLION FOUR HUNDRED
THOUSAND ONLY (P1,400,000.00), Philippine
Currency, under the condition that in case the Plaintiff
recovers judgment in the action, and Defendant will, on
demand, re-deliver the attached property so released to
the Officer of the Court and the same shall be applied to
the payment of the judgment, or in default thereof, the
defendant and Surety will, on demand, pay to the Plaintiff
the full value of the property released.
EXECUTED at Manila, Philippines, this 28th day of
June, 1984. 12
Sections 5, 12, and 17 of Rule 57 of the Revised Rules of
Court also provide:
SEC. 5. Manner of attaching property. — The officer
executing the order shall without delay attach, to await
judgment and execution in the action, all the properties of
the party against whom the order is issued in the province,
not exempt from execution, or so much thereof as may be
sufficient to satisfy the applicant's demand, unless the
former makes a deposit with the clerk or judge of the
court from which the order issued, or gives a counter-
bond executed to the applicant, in an amount sufficient to
satisfy such demand besides costs, or in an amount equal
to the value of the property which is about t o be
attached, to secure payment to the applicant of any
judgement ment which he may recover in the action. The
officer shall also forthwith serve a copy of the applicant's
affidavit and bond, and of the order of attachment, on the
adverse party, if he be found within the province.
SEC. 12. Discharge of attachment upon giving
counterbond. — At any time after an order of attachment
has been granted, the party whose property has been
attached, or the person appearing on his behalf, may, upon
reasonable notice to the applicant, apply to the judge who
granted the order, or to the judge of the court in which the
action is pending, for an order discharging the attachment
wholly or in part on the security given. The judge shall,
after hearing, order the discharge of the attachment if a
cash deposit is made, or a counter-bond executed to the
attaching creditor is filed, on behalf of the adverse party,
with the clerk or judge of the court where the application
is made, in an amount equal to the value of the property
attached as determined by the judge, to secure the
payment of any judgment that the attaching creditor may
recover in the action. Upon the filing of such counter-
bond, copy thereof shall forthwith be served on the
attaching creditor or his lawyer. Upon the discharge of an
attachment in accordance with the provisions of this
section the property attached, or the proceeds of any sale
thereof, shall be delivered to the party making the deposit
or giving the counterbond aforesaid standing in place of
the property so released. Should such counterbond for any
reason be found to be, or become, insufficient, and the
party furnishing the same fail to file an additional
counterbond, the attaching creditor may apply for a new
order of attachment.
SEC. 17. When execution returned unsatisfied, recovery
had upon bond. — If the execution be returned unsatisfied
in whole or in part, 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 to the
judgement creditor 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. (Emphasis supplied.)
Under Sections 5 and 12, Rule 57 above reproduced it is
provided that the counterbond is intended to secure the
payment of "any judgment" that the attaching creditor may
recover in the action. Under Section 17 of same rule it
provides that when "the execution be returned unsatisfied in
whole or in part" it is only then that "payment of
the judgment shall become charged on such counterbond."
The counterbond was issued in accordance with the provisions
of Section 5, Rule 57 of the Rules of Court as provided in the
second paragraph aforecited which is deemed reproduced as
part of the counterbond. In the third paragraph it is also
stipulated that the counterbond is to be "applied for the
payment of the judgment." Neither the rules nor the provisions
of the counterbond limited its application to a final and
executory judgment. Indeed, it is specified that it applies to the
payment of any judgment that maybe recovered by plaintiff.
Thus, the only logical conclusion is that an execution of any
judgment including one pending appeal if returned unsatisfied
maybe charged against such a counterbond.
It is well recognized rule that where the law does not
distinguish, courts should not distinguish. Ubi lex non
distinguish nec nos distinguere debemos. 13 "The rule,
founded on logic, is a corollary of the principle that general
words and phrases in a statute should ordinarily be accorded
their natural and general significance. 14 The rule requires that
a general term or phrase should not be reduced into parts and
one part distinguished from the other so as to justify its
exclusion from the operation of the law. 15 In other words,
there should be no distinction in the application of a statute
where none is indicated.16 For courts are not authorized to
distinguish where the law makes no distinction. They should
instead administer the law not as they think it ought to be but
as they find it and without regard to consequences. 17

A corollary of the principle is the rule that where the law does
not make any exception, courts may not except something
therefrom, unless there is compelling reason apparent in the
law to justify it.18 Thus where a statute grants a person
against whom possession of "any land" is unlawfully withheld
the right to bring an action for unlawful detainer, this Court
held that the phrase "any land" includes all kinds of land,
whether agricultural, residential, or mineral.19 Since the law
in this case does not make any distinction nor intended to
make any exception, when it speaks of "any judgment" which
maybe charged against the counterbond, it should be
interpreted to refer not only to a final and executory judgment
in the case but also a judgment pending appeal.

All that is required is that the conditions provided for by law

are complied with, as outlined in the case of Towers
Assurance Corporation v. Ororama Supermart, 20

Under Section 17, in order that the judgment creditor

might recover from the surety on the counterbond, it is
necessary (1) that the execution be first issued against the
principal debtor and that such execution was returned
unsatisfied in whole or in part; (2) that the creditor make a
demand upon the surety for the satisfaction of the
judgment, and (3) that the surety be given notice and a
summary hearing on the same action as to his liability for
the judgment under his counterbond.

The rule therefore, is that the counterbond to lift attachment

that is issued in accordance with the provisions of Section 5,
Rule 57, of the Rules of Court, shall be charged with the
payment of any judgment that is returned unsatisfied. It covers
not only a final and executory judgement but also the
execution of a judgment pending appeal.

WHEREFORE, the petition is hereby DISMISSED for lack of

merit and the restraining order issued on September 25, 1985
is hereby dissolved with costs against petitioner.

SO ORDERED.

Philippine British Assurance Co. Inc. vs. IAC [G.R. No. L-

72005. May 29, 1987]

15AUG

Ponente: GANCAYCO, J.