Phil-Air Conditioning Center vs.

RCJ Lines, 775 SCRA 265,

G.R. No. 193821 November 23, 2015
There are various modes of discharging an attachment under Rule 57, viz.: (1) by depositing cash or posting
a counter-bond under Section 12; (2) by proving that the attachment bond was improperly or irregularly
issued or enforced, or that the bond is insufficient under Section 13; (3) by showing that the attachment is
excessive under Section 13; and (4) by claiming that the property is exempt from execution under Section
2.

DECISION

BRION, J.:

Phil-Air Conditioning Center (Phil-Air) filed this petition for review on certiorari[1] to assail the September
15, 2010 decision[2] of the Court of Appeals (CA) in CA-G.R. CV No. 85866.

The CA affirmed the September 8, 2004 decision of the Regional Trial Court (RTC), Branch 119 of Pasay
City, dismissing Phil-Air's complaint for sum of money with prayer for a writ of preliminary attachment.[3]

Designated as Acting Member in lieu of Associate Justice Antonio T. Carpio, per Special Order No. 2282
dated November 13, 2015.

Designated as Acting Chairperson in lieu of Associate Justice Antonio T. Carpio, per Special Order No.
2281 dated November 13, 2015.

Antecedents

On various dates between March 5, 1990, and August 29, 1990, petitioner Phil-Air sold to respondent RCJ
Lines four Carrier Paris 240 air-conditioning units for buses (units). The units included compressors,
condensers, evaporators, switches, wiring, circuit boards, brackets, and fittings.[4]

The total purchases amounted to P1,240,000.00 as shown on a sales invoice dated November 5, 1990.[5]
RCJ Lines paid P400,000.00, leaving a balance of P840,000.00.[6]

RCJ Lines accepted the delivery of the units, which Phil-Air then installed after they were inspected by
RCJ Lines president Rolando Abadilla, Sr.[7]

Phil-Air allegedly performed regular maintenance checks on the units pursuant to the one-year warranty on
parts and labor. After some months from installation, Phil-Air supposedly boosted the capacity of the units
by upgrading them to the Carrier Paris 280 model.[8] It also purportedly repaired the control switch panel
of one of the units for an additional cost of P60,000.00.[9]

RCJ Lines issued three post-dated checks in favor of Phil-Air to partly cover the unpaid balance:
Check No.

Amount

Post-dated

479759

Php 244,998.00

February 28, 1992

479760

Php 244,998.00

March 31, 1992

479761

Php 244,998.00

April 30, 1992

TOTAL

Php 734,994.00

All the post-dated checks were dishonored when Phil-Air subsequently presented them for payment. Check
No. 479759 was returned because it was drawn against insufficient funds, while Check Nos. 479760 and
479761 were returned because payments were stopped.[10]

Before presenting the third check for payment, Phil-Air sent a demand letter[11] to Rolando Abadilla, Sr.
on April 7, 1992, asking him to fund the post-dated checks.

On July 17, 1996, Phil-Air demanded payment from Rolando Abadilla, Jr., for the total amount of
P734,994.00 plus interest, and attorney's fees equivalent to 25% of the amount due. Phil-Air warned that it
would take court action if payment is not made within five days from demand.[12]
In view of the failure of RCJ Lines to pay the balance despite demand, Phil-Air filed on April 1, 1998 the
complaint[13] for sum of money with prayer for the issuance of a writ of preliminary attachment.[14] Phil-
Air sought to recover from RCJ Lines:

a)

The total amount of P840,000.00 exclusive of interest for the unpaid delivered air-conditioning units;

b)

The amount of P60,000.00 for the unpaid repair services;

c)

The total interest in the amount of P756,000.00 (P840,000.00 x 12% x 7 years + P60,000.00 x 12% x 7
years);

d)

The sum equivalent to 25% of the total amount due as attorney's fees, plus P3,000.00 per court appearance;
and

e)

Costs of the suit.

In its answer with compulsory counterclaim,[15] RCJ Lines admitted that it purchased the units in the total
amount of PI,240,000.00 and that it had only paid P400,000.00. It refused to pay the balance because Phil-
Air allegedly breached its warranty.[16]

RCJ Lines averred that the units did not sufficiently cool the buses despite repeated repairs. Phil-Air
purportedly represented that the units were in accord with RCJ Lines' cooling requirements as shown in
Phil-Air's price quotation[17] dated August 4, 1989. The price quotation provided that full payment should
be made upon the units' complete installation. Complete installation, according to RCJ Lines, is equivalent
to being in operational condition.

As it turned out, the Carrier Paris 240 model was not suited to the 45 to 49-seater buses operated by RCJ
Lines. The units, according to RCJ Lines, were defective and did not attain full operational condition.[18]
Further, RCJ Lines claimed that it was also entitled to be reimbursed for costs and damages occasioned by
the enforcement of the writ of attachment.

RCJ Lines thus urged the RTC to order Phil-Air to pay (1) the replacement costs of the units; (2) lost profits
for nine days from April 22 to April 30, 1999, resulting from the attachment of its two buses amounting to
P207,000.00;[19] and (3) P64,390.00 for the counter-bond premium, moral damages, exemplary damages
and attorney's fees.

The RTC Ruling

The RTC granted the application for the issuance of a writ of preliminary attachment after Phil-Air posted
an attachment bond in the amount of P1,656,000.00.[20] Two buses of RCJ Lines were attached pursuant
to the writ dated December 18, 1998.[21] The writ was executed on April 21, 1999.[22] The attachment,
however, was later lifted when the RTC granted RCJ Lines' urgent motion to discharge the writ of
attachment.[23] RCJ Lines posted a counter-bond in the same amount as the attachment bond.[24]

Ruling on the merits after trial, the RTC found that Phil-Air was guilty of laches and estopped from pursuing
its claim. It also sustained the allegation that Phil-Air had breached its warranty.

The dispositive portion of the RTC judgment reads:

WHEREFORE, judgment is hereby rendered as follows:

A.Dismissing the complaint of plaintiff for lack of merit.

B.Directing the plaintiff to pay the defendants the amount of PI00,000.00 as attorney's fees as they were
forced to spend and hire a lawyer to litigate for seven (7) years in this Court the unfounded and invalid
cause of action of plaintiff.

C.Directing the plaintiff to pay P82,274.00 as refund of the premium xxx for defendant's counter-bond for
the release of the two buses which were attached per Writ of Attachment of this Court.

D.Directing the plaintiff to pay P216,000.00 for the lost profits of defendants for the attachment of their
two buses as there was no fraud in the transaction of the parties and plaintiff had no sufficient cause of
action for the issuance of the writ of attachment.

E.Dismissing all other claims of defendants as stated in their counter-claims.

F.Costs against plaintiff. SO ORDERED.[25]

The CA Ruling
The CA affirmed the RTC decision in toto.[26]

First, the CA held that Phil-Air's cause of action was barred by laches.[27]

The CA concluded that "Phil-Air's inaction on RCJ Lines' repeated demands and inexplicable failure to
comply with its obligations had certainly led the latter to believe [Phil-Air] was no longer interested in
pursuing any claim" and that "[Phil-Air] had been conspicuously silent for so long a time which is
disturbingly unusual for one claiming to have been aggrieved by another."[28]

Second, the CA held that Phil-Air breached its warranty. The price quotation supposedly warranted that the
Carrier Paris 240 model was suitable for 50-60-passenger coaches and especially recommended for
operation in the tropics.[29]

The CA gave credence to the testimony of the country manager of Carrier Refrigeration Philippines Inc.
(Carrier Philippines) who testified that the Carrier Paris 240 model is suited for buses with a maximum
seating capacity of up to 35 persons; beyond that, the units would not function properly.[30] The CA also
found convincing the testimonies of two RCJ Lines employees who testified that they experienced firsthand
the inefficient cooling of the Carrier Paris 240.[31]

Relying on these testimonies, the CA found that the four units did not meet the cooling requirements of
RCJ Lines.[32]

Third, the CA ordered Phil-Air to reimburse the premium on the counter-bond amounting to P82,274.00
since the writ was improvidently issued.

Fourth, the CA affirmed the finding of the RTC that RCJ Lines suffered losses when the RTC attached two
of its buses.

The RTC and the CA relied on the testimony of Rolando Abadilla, Jr., who claimed to be in charge of the
daily operations of RCJ Lines. He testified that they suffered losses for nine days as a result of the
enforcement of the writ of preliminary attachment. The lost profits purportedly amounted to P227,280.00.
To support this claim, RCJ Lines adduced as evidence the summary of the daily cash collections[33] from
the buses that were not attached, on various dates in August and September 2000.[34]

Finally, the CA sustained the award of attorney's fees for PI 00,000.00 in favor of RCJ lines for having been
compelled to litigate.

The Petition

First, Phil-Air argues that the doctrine of laches is not applicable when the action is filed within the
prescriptive period. Laches, being a doctrine of equity, should only be applied to fill a void in the law.[35]
Phil-Air asserts that it filed the complaint on April 1, 1998, or less than eight years from the execution of
the sales invoice dated November 5, 1990. The complaint was thus filed within the ten-year prescriptive
period for actions based upon a written contract.

Second, Phil-Air denies that it breached its warranty.

It maintains that all the units were brand new and were accepted by RCJ Lines in good, working, and
operational condition. The units were inspected, tested, and approved by then RCJ Lines president, Rolando
Abadilla, Sr., as proved by the delivery receipts in which he affixed his signature.[36]

Phil-Air further avers that it was not notified of the alleged breach of warranty. Assuming it breached its
warranty, Phil-Air submits that the action to enforce the warranty had already prescribed.

Third, Phil-Air rejects the CA's order that it must reimburse the premium payment for the counter-bond and
the alleged losses suffered by RCJ Lines. The attachment bond should be answerable for damages, if any.

Respondent's Comment

RCJ Lines reiterates all the arguments it raised in its counterclaim. It admits that it did not pay the balance
of the purchase price.[37] It maintains, however, that it was justified in doing so because Phil-Air breached
its warranty. It insists that Phil-Air was guilty of laches because it waited for eight years to file the collection
case.[38]

Issues

Based on the foregoing, the Court resolves the following issues:

(1)

Whether the claim of Phil-Air was barred by laches;

(2)

Whether Phil-Air should reimburse RCJ Lines for the counter- bond premium and its alleged unrealized
profits;

(3)
Whether RCJ Lines proved its alleged unrealized profits arising from the enforcement of the preliminary
writ of attachment; and

(4)

Whether RCJ Lines proved that Phil-Air breached its warranty.

Our Ruling

We grant the petition.

Phil-Air's claim is not

barred by laches.

In general, there is no room to apply the concept of laches when the law provides the period within which
to enforce a claim or file an action in court. Phil-Air's complaint for sum of money is based on a written
contract of sale. The ten-year prescriptive period under Article 1144 of the Civil Code thus applies.[39]

In the present case, both parties admit the existence and validity of the contract of sale. They recognize that
the price quotation dated August 4, 1989, contained the terms and conditions of the sale contract. They also
agree that the price and description of the units were indicated on the sales invoice dated November 5, 1990.
The sales were in fact consummated on various dates between March 5, 1990 and August 29, 1990, as
proved by several delivery receipts.

The Court therefore can resolve whether Phil-Air's action to enforce the contract was timely filed even in
the apparent absence of a formal or notarized deed of sale.[40] More significantly, Rolando Abadilla, Jr.,
admitted under oath that the sale was in writing.[41]

We note that Phil-Air filed the complaint with the RTC on April 1, 1998. Counting from the date of the
sales invoice, or from the date of the delivery receipts, or even from the date of the price quotation, it is
clear that the complaint was filed within the ten-year prescriptive period. Contrary to the CA's ruling, laches
does not apply.

Laches is defined as the failure or neglect for an unreasonable and unexplained length of time, to do that
which by exercising due diligence, could or should have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either
has abandoned it or declined to assert it.[42]

While the CA correctly held that prescription and estoppel by laches are two different concepts, it failed to
appreciate the marked distinctions between the two concepts.

On the one hand, the question of laches is addressed to the sound discretion of the court.[43] The court
resolves whether the claimant asserted its claim within a reasonable time and whether its failure to do so
warrants the presumption that it either has abandoned it or declined to assert it. The court determines the
claimant's intent to assert its claim based on its past actions or lack of action. After all, what is invoked in
instances where a party raises laches as a defense is the equity jurisdiction of the court.[44]

On the other hand, if the law gives the period within which to enforce a claim or file an action in court, the
court confirms whether the claim is asserted or the action is filed in court within the prescriptive period.
The court determines the claimant's intent to assert its claim by simply measuring the time elapsed from the
proper reckoning point (e.g., the date of the written contract) to the filing of the action or assertion of the
claim.

In sum, where the law provides the period within which to assert a claim or file an action in court, the
assertion of the claim or the filing of the action in court at any time within the prescriptive period is generally
deemed reasonable, and thus, does not call for the application of laches. As we held in one case, unless
reasons of inequitable proportions are adduced, any imputed delay within the prescriptive period is not
delay in law that would bar relief.[45]

In Agra, et al. v. Philippine National Bank,[46] we held that "[l]aches is a recourse in equity [and] is applied
only in the absence, never in contravention, of statutory law. Thus, laches cannot, as a rule, abate a
collection suit filed within the prescriptive period mandated by the Civil Code."

Agra involved an action for collection of a sum of money arising from an unpaid loan. In resisting payment,
the sureties invoked laches and maintained that the creditor-bank with full knowledge of the deteriorating
financial condition of the principal debtor did not take steps to collect from the latter while still solvent.
The sureties thus argued that the creditor-bank's action was barred by laches.

We found that the sureties failed to prove all the elements of laches, namely:

(1)

conduct on the part of the defendant or one under whom he claims, giving rise to the situation of which
complaint is made and for which the complainant seeks a remedy;

(2)

delay in asserting the complainant's right, the complainant having had knowledge or notice of defendant's
conduct and having been afforded an opportunity to institute a suit;

(3)

lack of knowledge or notice on the part of the defendant that the complainant would assert the right on
which he bases his claim; and

(4)
injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held
barred.[47]

Examining these elements, we found that only the first element was present. There was no delay (second
element) because the creditor-bank filed the action within the ten-year prescriptive period. Since the claim
was timely filed, the defendants did not lack notice that the creditor-bank would assert its claim (third
element). Nor was the assertion of the right deemed injurious to the defendants (fourth element); the
creditor-bank could assert its claim at any time within the prescriptive period.

The same conclusion holds true in the present case; not all the elements of laches are present. To repeat,
Phil-Air filed the complaint with the RTC on April 1, 1998. The time elapsed from August 4, 1989 (the
date of the price quotation, which is the earliest possible reckoning point), is eight years and eight months,
well within the ten-year prescriptive period. There was simply no delay (second element of laches) where
Phil-Air can be said to have negligently slept on its rights.

More significantly, there is no basis for laches as the facts of the present case do not give rise to an
inequitable situation that calls for the application of equity and the principle of laches.[48]

Phil-Air is not directly liable

for the counter-bond premium and
RCJ Lines' alleged unrealized profits.

The CA and the RTC erred when it held Phil-Air directly liable for the counter-bond premium and RCJ
Lines' alleged unrealized profits. Granting that RCJ Lines suffered losses, the judgment award should have
been first executed on the attachment bond. Only if the attachment bond is insufficient to cover the judgment
award can Phil-Air be held liable.[49]

We explain below the purpose of a preliminary attachment, the procedure in obtaining it, and the manner
of having it lifted.

A writ of preliminary attachment is a provisional remedy issued by the court where an action is pending to
be levied upon the property or properties of the defendant. The property is held by the sheriff as security
for the satisfaction of whatever judgment that might be secured by the attaching party against the
defendant.[50]

The grant of the writ is conditioned not only on the finding of the court that there exists a valid ground for
its issuance.[51] The Rules also require the applicant to post a bond.

Section 4 of Rule 57 of the Rules of Civil Procedure (Rules) provides that "the party applying for the order
must...give a bond executed to the adverse party in the amount fixed by the court, in its order granting the
issuance of the writ, conditioned that the latter will pay all the costs that may be adjudged to the adverse
party and all damages that he may sustain by reason of the attachment, if the court shall finally adjudge that
the applicant was not entitled thereto."
The enforcement of the writ notwithstanding, the party whose property is attached is afforded relief to have
the attachment lifted.

There are various modes of discharging an attachment under Rule 57, viz.: (1) by depositing cash or posting
a counter-bond under Section 12;[52] (2) by proving that the attachment bond was improperly or irregularly
issued or enforced, or that the bond is insufficient under Section 13;[53] (3) by showing that the attachment
is excessive under Section 13; and (4) by claiming that the property is exempt from execution under Section
2.[54]

RCJ Lines availed of the first mode by posting a counter-bond.

Under the first mode, the court will order the discharge of the attachment after (1) the movant makes a cash
deposit or posts a counter-bond and (2) the court hears the motion to discharge the attachment with due
notice to the adverse party.[55]

The amount of the cash deposit or counter-bond must be equal to that fixed by the court in the order of
attachment, exclusive of costs. The cash deposit or counter-bond shall secure the payment of any judgment
that the attaching party may recover in the action.[56]

The filing of a counter-bond to discharge the attachment applies when there has already been a seizure of
property by the sheriff and 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 in place of the property so released.[57]

To be clear, the discharge of the attachment by depositing cash or posting a counter-bond under Section 12
should not be confused with the discharge sanctioned under Section 13. Section 13 speaks of discharge on
the ground that the writ was improperly or irregularly issued or enforced, or that the attachment bond is
insufficient, or that the attachment is excessive.

To reiterate, the discharge under Section 12 takes effect upon posting of a counter-bond or depositing cash,
and after hearing to determine the sufficiency of the cash deposit or counter-bond. On the other hand, the
discharge under Section 13 takes effect only upon showing that the plaintiffs attachment bond was
improperly or irregularly issued, or that the bond is insufficient. The discharge of the attachment under
Section 13 must be made only after hearing.[58]

These differences notwithstanding, the discharge of the preliminary attachment either through Section 12
or Section 13 has no effect on and does not discharge the attachment bond. The dissolution of the
preliminary attachment does not result in the dissolution of the attachment bond. Justice Narvasa, writing
his separate opinion in one case, explained:

The dissolution of the preliminary attachment upon security given [Section 12], or a showing of its irregular
or improper issuance [Section 13], does not of course operate to discharge the sureties on plaintiffs own
attachment bond. The reason is simple. That bond is executed to the adverse party,. . . conditioned that the
... (applicant) 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." Hence, until that determination is made, as to the applicant's entitlement to the attachment, his
bond must stand and cannot be withdrawn.[59] [emphasis and underscoring supplied, citations omitted]

In the present case, the RTC lifted the preliminary attachment after it heard RCJ Lines' urgent motion to
discharge attachment and the latter posted a counter-bond. The RTC found that there was no fraud and Phil-
Air had no sufficient cause of action for the issuance of the writ of the attachment. As a consequence, it
ordered Phil-Air to refund the premium payment for the counter-bond and the losses suffered by RCJ Lines
resulting from the enforcement of the writ. The CA affirmed the RTC ruling in toto.

We reverse the CA and RTC rulings.

As discussed above, it is patent that under the Rules, the attachment bond answers for all damages incurred
by the party against whom the attachment was issued.[60]

Thus, Phil-Air cannot be held directly liable for the costs adjudged to and the damages sustained by RCJ
Lines because of the attachment. Section 4 of Rule 57 positively lays down the rule that the attachment
bond 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."

The RTC, instead of declaring Phil-Air liable for the alleged unrealized profits and counter-bond premium,
should have ordered the execution of the judgment award on the attachment bond. To impose direct liability
to Phil-Air would defeat the purpose of the attachment bond, which was not dissolved despite the lifting of
the writ of preliminary attachment.

The order to refund the counter-bond premium is likewise erroneous. The premium payment may be
deemed a cost incurred by RCJ Lines to lift the attachment. Such cost may be charged against the attachment
bond.

RCJ Lines failed to prove its

alleged unrealized profits.

In finding that RCJ Lines suffered damages because of the attachment, the RTC and the CA gave complete
credence to the testimony of Rolando Abadilla, Jr. He claimed that RCJ Lines lost P216,000.00 in
unrealized profits for nine days when the buses were wrongfully seized.

To arrive at this amount, RCJ Lines alleged that a bus travelling from Manila to Ilocos and vice versa earned
an average daily income of P12,000.00. To back this claim, RCJ Lines prepared a summary of the daily
cash collections of its nine buses on certain days of August and September 2000.

The summary of daily cash collections apparently prepared by one RCJ Lines employee was in turn based
on the reports of the dispatchers indicating the number of passengers and the amount of fare collected on a
particular trip. Except for one bus which travelled round-trip on August 22-23, 2000, the daily cash
collections all pertained to the round-trip of eight buses on September 2-3, 2000.

These documents are insufficient to prove actual damages.

In Spouses Yu v. Ngo Yet Te,[61] we held that if the claim for actual damages covers unrealized profits,
the amount of unrealized profits must be established and supported by independent evidence of the mean
income of the business undertaking interrupted by the illegal seizure.

We explained in Spouses Yu that to merit an award of actual damages arising from a wrongful attachment,
the attachment defendant must prove, with the best evidence obtainable, the fact of loss or injury suffered
and the amount thereof. Such loss or injury must be of the kind which is not only capable of proof but must
actually be proved with a reasonable degree of certainty. As to its amount, the same must be measurable
based on specific facts, and not on guesswork or speculation.[62]

Spouses Yu is on all fours with the present dispute because it also involved a claim for actual damages
arising from the illegal attachment of the claimant's properties, one of which was a passenger bus.

The claimants in that case attempted to prove actual damages by computing the daily average income of its
bus operation based on the value of three ticket stubs sold over five separate days. The claimants likewise
cited unused ticket stubs as proof of income foregone when the bus was wrongfully seized.

We found the claimant's evidence insufficient to prove actual damages. While we recognized that they
suffered some damages, we held that "[b]y no stretch of the imagination can we consider ticket sales for
five days sufficient evidence of the average daily income of the passenger bus, much less its mean income.
Not even the unrebutted testimony of [the claimant] can add credence to such evidence for the testimony
itself lacks corroboration."[63]

Similarly, the evidence adduced by RCJ Lines to show actual damages fell short of the required proof. Its
average daily income cannot be derived from the summary of daily cash collections from only two separate
occasions, i.e., August 22-23 and September 2-3, 2000. The data submitted is too meager and insignificant
to conclude that the buses were indeed earning an average daily income of P12,000.00.

More significant, the person who prepared the unsigned summary of daily cash collections was not
presented before the RTC to verify and explain how she arrived at the computation. The dispatchers who
prepared the collection reports were likewise not presented; some of the reports were also unsigned. While
the summary was approved by Rolando Abadilla, Jr., his testimony on the alleged unrealized profits was
uncorroborated and self-serving.

Nonetheless, we recognize that RCJ Lines suffered some form of pecuniary loss when two of its buses were
wrongfully seized, although the amount cannot be determined with certainty.

We note that in its prayer for the issuance of the writ of preliminary attachment, Phil-Air alleged that RCJ
Lines was guilty of fraud in entering into the sale transaction. A perusal of the record, however, would show
that Phil-Air failed to prove this bare assertion. This justifies an award of temperate or moderate damages
in the amount of Php 50,000.00.[64]

The allegation of breach

of express warranty was
notproved.
We are not convinced that Phil-Air breached its express warranty. RCJ Lines had no right to recoupment
in diminution of the price.[65]

The Civil Code defines an express warranty as any affirmation of fact or any promise by the seller relating
to the thing if the natural tendency of such affirmation or promise is to induce the buyer to purchase the
same, and if the buyer purchases the thing relying thereon.[66]

The question whether there was a breach of warranty is factual. Consequently, the Court should rely on the
factual findings of the CA and RTC, which are generally deemed binding and conclusive to the Court. More
so in a Rule 45 petition where only questions of law can be raised. Further, factual findings of the RTC,
when affirmed by the CA, are conclusive on the Court when supported by the evidence on record.[67]

The evidence on record does not support the findings of the CA and RTC.

We emphasize that there are recognized cases where the Court can disregard the factual findings of the
RTC and CA. In these cases, the Court draws its own conclusion based on the evidence on record.[68]

In this case, Phil-Air denies that it breached its express warranty and strongly argues that the CA and RTC
completely ignored its evidence while it sustained the bare allegations of Rolando Abadilla, Jr.

We agree with Phil-Air. Our examination of the record reveals that the RTC and CA manifestly overlooked
certain relevant facts not disputed by the parties which, if properly considered, would justify a different
conclusion.

To prove that Phil-Air breached its express warranty, RCJ Lines presented the following testimonial and
documentary evidence:

1)

Rolando Abadilla, Jr. who claimed that their employees reported the defect of the units to him and to his
late father. His late father allegedly demanded Phil-Air to repair the defects. But despite repeated verbal
demands, Phil-Air purportedly failed to comply with its one-year warranty on parts and labor.

2)

Two RCJ Lines employees who claimed that they experienced firsthand the inefficient cooling of the units.

3)

The general manager of Carrier Philippines who testified that the Carrier 240 model was not suitable for
buses with a capacity of more than 35 passengers, like those operated by RCJ Lines.
4)

Summary of expenses, sales invoices, provisional receipts, and statements of accounts issued by other
suppliers and shops (Car Cool Philippines, Inc. and Sta. Rosa Motor Works, Inc.) engaged by RCJ Lines
during the period of warranty to repair the defective units, amounting to P208,132.00

5)

Commercial invoice for the $68,780.00 US Dollars worth of new units bought from another supplier after
the lapse of warranty to replace the units supplied by Phil-Air.[69]

In defense, Phil-Air claimed that it regularly checked the units and that during the effectivity of the one-
year warranty, RCJ Lines never once complained of defects; if there were defects, the latter should have
demanded Phil-Air to perform its warranty in writing; the reason it had no proof it made repairs and
delivered spare parts was precisely because it was not apprised of any defect; and that the testimonies of
the RCJ Lines witnesses were self-serving.[70]

The RTC noted that Phil-Air did not present evidence to rebut the allegation of breach.[71] Phil-Air instead
opposed the admission of the documentary evidence of RCJ Lines for failing to comply with the best
evidence rule.[72]

We hold that the evidence that RCJ Lines submitted failed to prove breach of express warranty.

As to the testimonial evidence

The testimonies of the RCJ Lines witnesses were self-serving and uncorroborated.

The claim of Rolando Abadilla, Jr. that his late father verbally communicated the defects of the units to
Phil-Air was hearsay and not admissible.[73] He admitted that he was not around when his father phoned
Phil-Air to demand the repair of the units. He likewise admitted that they did not attempt to personally meet
with nor send a letter to Phil-Air to demand the repairs.[74]

More tellingly, Rolando Abadilla, Jr. admitted that they issued the post-dated checks to Phil-Air to cover
the balance of the purchase price sometime in 1992, viz-

Q.

Mr. Witness is it not in this case that you personally issued three (3) checks draws against the name Rolando
Abadilla and Susan or Rolando Abadilla, and this was some time in 1992?

A.

Yes, Sir.
Q.

And you confirm that these were all dated March 31, April 30 and February 29, 1992?

A.

Yes, Sir.

Q.

Despite your claim that these air-conditioning units were defective and despite your claim that these air-
conditioning units were not repaired by plaintiff, hence you referred them for repair to other companies
who are not authorized, do you still affirm the fact that you issued the postdated checks, the total of which
is exactly the balance of the purchase price as quoted in the price quotation, yes or no? [emphasis supplied]

A.

Yes, Sir.[75]

xxx

We note that the alleged repairs made by Car Cool Philippines, Inc. and Sta. Rosa Motor Works, Inc. started
in 1991.[76] If RCJ Lines knew as early as 1991 that the units were defective and that Phil-Air refused to
perform its warranty despite repeated demands, we wonder why RCJ Lines still issued the post-dated checks
in 1992 to cover the balance of the purchase price.

The record also reveals that Car Cool Philippines, Inc. and Sta. Rosa Motor Works, Inc. were not authorized
by the Carrier brand to repair the units, a fact not denied by Rolando Abadilla, Jr.[77] It was likewise
established that some of the parts/items purportedly provided by the other suppliers were expressly
excluded from the list of parts/items that Phil-Air was supposed to supply, again, a fact admitted by Rolando
Abadilla, Jr.[78] It was likewise unclear that the repairs made by the other service providers were done on
the same buses on which the subject units were installed.[79]

We also find glaring the fact that RCJ Lines did not respond to the April 7, 1992 demand letter sent by Phil-
Air, viz. -

Dear Mr. Abadilla,

I have been trying to get in touch with you and Junjun the past several weeks but have been unsuccessful
xxx The two checks that you used to partly pay for the four units bus air conditions [sic] were all dishonored
by the bank [because they were drawn against insufficient funds].

We are but a small company and our cash flow was adversely affected by the return of the checks, xxx It
would mean so much if you could somehow help us replenished these checks, xxx We look forward to
hearing from you Respectfully, we remain.

Yours truly,
Ricardo Cokieng

If RCJ Lines was aware all along that the units were defective and that Phil-Air refused to heed its verbal
demands to make repairs, we do not understand why it ignored Phil-Air's written demand to replenish the
returned checks. We also find it unthinkable that RCJ Lines would spend for parts and services from other
suppliers and providers, during the period of warranty, without demanding first in writing that Phil-Air
make good its express warranty.

In this regard, we note that the right of the buyer to the recoupment in the diminution of the price under
Article 1599 (1) should be read together with Article 1586 of the Civil Code,[80] which provides that:

Art. 1586. In the absence of express or implied agreement of the parties, acceptance of the goods by the
buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise
or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to give notice to
the seller of the breach in any promise of warranty within a reasonable time after the buyer knows, or ought
to know of such breach, the seller shall not be liable therefor.

The obvious purpose of the notice is to protect the seller against belated claims. If the seller is not duly
notified, he is prevented from making prompt investigation to determine the cause and extent of his
liability.[81] Consequently, he is barred from repairing or rectifying whatever defects the goods sold had.

RCJ Lines failed to convince us that it notified Phil-Air of the breach of warranty within a reasonable time.
In truth, we are not convinced at all that it had even notified Phil-Air. Although Article 1586 does not
require that the notice to the seller be in writing, we cannot accept the claim of Rolando Abadilla, Jr. that
his late father verbally notified Phil-Air of the defects, without violating the rule on hearsay.

Also, the testimonies of the two RCJ Lines employees that they experienced firsthand the insufficient
cooling of the units were self-serving and uncorroborated by a disinterested party.

Further, the reliance of the CA and the RTC on the testimony[82] of the general manager of Carrier
Philippines was misplaced and unwarranted. It appears that the computation of the cooling efficiency of the
Carrier 240 model was merely theoretical, based only on the specifications of the model and not on actual
test, viz. —
Q:
Have you seen RCJ Bus?

A:
I did see.

xxx

Q:
With respect to car aircon Paris 240 installed, have you seen this bus?

A:
No, I did not.

Q:
Mr. Witness, this case involves a particular product a brand of the product that you did not try [sic] but
specifically Paris 240. Have you seen it personally, the four units installed?

A:
No I did not.

Q:
Even one unit?

A:
No Sir.

The meat of his testimony centered not on the subject units but on the cooling capacity of the product that
Carrier Philippines was then selling in the market. In fact, he admitted that his role in the company had
nothing to do with repairs of air-conditioning units.

On this basis, we do not find his testimony conclusive as to the alleged breach of express warranty. It was
too tangential and speculative. We note that he was not even presented as an expert witness. Even if we
assume that the computation of the cooling capacity of the Carrier 240 was accurate, RCJ Lines still failed
to prove that it duly and promptly informed Phil-Air of the alleged breach.

On the documentary evidence

The pieces of documentary evidence submitted by RCJ Lines to prove breach of express warranty failed to
comply with the best evidence rule. It is established on record that the sales invoices and provisional receipts
issued by the other suppliers and service providers were mere photocopies.[83] The counsel of Phil-Air
objected to the admission of the secondary evidence without proof that the originals were indeed lost. The
counsel for RCJ Lines requested that the evidence be conditionally accepted and marked, which the trial
court granted.
Nowhere on record, however, was it ever established that the originals were later submitted. It was also not
shown that the originals were indeed lost, which could have justified the submission of secondary
evidence.[84] The RTC simply ignored this fact when it finally decided the case.

Conclusion

Based on the foregoing analysis, we find- that RCJ Lines failed to prove its allegation that Phil-Air breached
its express warranty. RCJ Lines is thus held liable to pay the balance of the purchase price plus interest and
attorney's fees.[85] RCJ Lines, however, is entitled to temperate damages as a result of the wrongful
attachment of its buses and to the refund of the premium payment for the counter-bond.

WHEREFORE, in view of the foregoing, we hereby GRANT the petition. The September 15, 2010 decision
of the Court of Appeals in CA-G.R. CV No. 85866 is REVERSED and SET ASIDE.

ACCORDINGLY, RCJ Lines is DIRECTED to pay:

1.Eight Hundred Forty Thousand Pesos (P840,000.00) representing the unpaid balance of the purchase
price;

2.Interest of twelve percent (12%) per annum on the unpaid balance to be computed from November 5,
1990[86] until June 30, 2013;

3.Interest of six percent (6%) per annum on the unpaid balance to be computed from July 1, 2013,[87] until
fully paid;

4.Attorney's fees in the fixed amount of P30,000.00.[88]

The total amount to be recovered shall further be subject to the legal interest rate of six percent (6 %) per
annum from the finality of this decision until fully paid.[89]

The attachment bond posted by Phil-Air shall be levied upon to satisfy the P50,000.00 temperate damages
awarded to RCJ Lines and the P82,274.00 refund of the counter-bond premium.

SO ORDERED.
Security Bank Corporation vs. Great Wall Commercial Press Company, Inc.,
816 SCRA 224, G.R. No. 219345 January 30, 2017

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

For a writ of preliminary attachment to issue under the above quoted rule, the applicant must sufficiently
show the factual circumstances of the alleged fraud. It is settled that fraudulent intent cannot be inferred
from the debtor’s mere nonpayment of the debt or failure to comply with his obligation. While fraud cannot
be presumed, it need not be proved by direct evidence and can well be inferred from attendant
circumstances. Fraud by its nature is not a thing susceptible of ocular observation or readily demonstrable
physically; it must of necessity be proved in many cases by inferences from circumstances shown to have
been involved in the transaction in question.

Previously, Section 1(d), Rule 57 of the 1964 Rules of Court provided that a writ of preliminary attachment
may be issued “[i]n an action against a party who has been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought x x x” Thus, the fraud that justified the issuance
of a writ of preliminary attachment then was only fraud committed in contracting an obligation (dolo
casuante). When the 1997 Rules of Civil Procedure was issued by the Court, Section 1(d) of Rule 57
conspicuously included the phrase “in the performance thereof.” Hence, the fraud committed in the
performance of the obligation (dolo incidente) was included as a ground for the issuance of a writ of
preliminary attachment. This significant change in Section 1(d) of Rule 57 was recognized recently in
Republic v. Mega Pacific eSolutions, Inc., 794 SCRA 414 (2016). The Court stated therein that “[a]n
amendment to the Rules of Court added the phrase “in the performance thereof” to include within the scope
of the grounds for issuance of a writ of preliminary attachment those instances relating to fraud in the
performance of the obligation.”

DECISION

MENDOZA, J.:

This is a petition for review on certiorari seeking to reverse and set aside the December 12, 2014 Decision[1]
and June 26, 2015 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 131714, which lifted the
writ of preliminary attachment issued by the Regional Trial Court, Branch 59, Makati City (RTC), in Civil
Case No. 13-570, in favor of petitioner Security Bank Corporation (Security Bank).
The Antecedents

On May 15, 2013, Security Bank filed a Complaint for Sum of Money (with Application for Issuance of a
Writ of Preliminary Attachment)[3] against respondents Great Wall Commercial Press Company, Inc.
(Great Wall) and its sureties, Alfredo Buriel Atienza, Fredino Cheng Atienza, and Spouses Frederick Cheng
Atienza and Monica Cu Atienza (respondents), before the RTC. The complaint sought to recover from
respondents their unpaid obligations under a credit facility covered by several trust receipts and surety
agreements, as well as interests, attorney's fees and costs. Security Bank argued that in spite of the lapse of
the maturity date of the obligations from December 11, 2012 to May 7, 2013, respondents failed to pay
their obligations. The total principal amount sought was P10,000,000.00. On May 31, 2013, after due
hearing, the RTC granted the application for a writ of preliminary attachment of Security Bank, which then
posted a bond in the amount of P10,000,000.00.

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

The RTC Orders

In its Order,[6] dated July 4, 2013, the RTC denied respondents' motion to lift, explaining that the Credit
Agreement[7] and the Continuing Suretyship Agreement[8] contained provisions on representations and
warranties; that the said representations and warranties were the very reasons why Security Bank decided
to extend the loan; that respondents executed various trust receipt agreements but did not pay or return the
goods covered by the trust receipts in violation thereof; that they failed to explain why the goods subject of
the trust receipts were not returned and the proceeds of sale thereof remitted; and that it was clear that
respondents committed fraud in the performance of the obligation.[9]

Respondents filed a motion for reconsideration, but it was denied by the RTC in its Order,[10] dated August
12, 2013.

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

The CA Ruling

In its assailed decision, dated December 12, 2014, the CA lifted the writ of preliminary attachment. The
appellate court explained that the allegations of Security Bank were insufficient to warrant the provisional
remedy of preliminary attachment. It pointed out that fraudulent intent could not be inferred from a debtor's
inability to pay or comply with its obligations. The CA opined that the non-return of the proceeds of the
sale and/or the goods subject of the trust receipts did not, by itself, constitute fraud and that, at most, these
were only averments for the award of damages once substantiated by competent evidence. It also stressed
that respondents' act of offering a repayment proposal negated the allegation of fraud. The CA held that
fraud must be present at the time of contracting the obligation, not thereafter, and that the rules on the
issuance of a writ of attachment must be construed strictly against the applicant. It disposed the case in this
wise:
WHEREFORE, for the foregoing reasons, the instant petition is GRANTED. Accordingly, the attachment
over any property of petitioners by the writ of preliminary attachment is ordered LIFTED effective upon
the finality of this Decision. No costs.

SO ORDERED.[11]

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

Hence, this petition raising the lone

ISSUE

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NULLIFYING THE WRIT OF

PRELIMINARY ATTACHMENT ISSUED BY THE TRIAL COURT.[12]

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

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

In their Comment,[14] respondents countered that there was insufficient basis for the issuance of the writ
of preliminary attachment against them; that the mere failure to pay their obligation was not an act of fraud;
that the application for the issuance of the writ of preliminary attachment, the affidavit of merit and judicial
affidavit merely cited general allegations of fraud and Security Bank failed to sufficiently show the factual
circumstances constituting fraud. Moreover, respondents claimed that they did not commit fraud because
they were earnestly negotiating with Security Bank for a loan restructuring as shown by their Letter,[15]
dated January 23, 2013, and email correspondences.

In its Reply,[16] Security Bank stressed that respondents misled them on their financial capacity and ability
to pay their obligations. It emphasized that there were specific allegations in its complaint and its witness
testified that respondents committed fraud, specifically their failure to comply with the trust receipt
agreements, that they would turn over the goods covered by the trust receipt agreements or the proceeds
thereof to Security Bank.

The Court's Ruling

The Court finds merit in the petition.

Preliminary Attachment

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

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

RULE 57

Preliminary Attachment

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

xxx

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

xxx

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

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

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

15. During the negotiation for the approval of the loan application/ renewal of Respondents the latter
through Alfredo Buriel Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng Atienza and Monica Cu
Atienza, assured SBC that the loan obligation covered by the several Trust Receipts shall be paid in full on
or before its maturity date pursuant to the terms and conditions of the aforesaid trust receipts. However,
Respondents as well as the sureties failed to pay the aforesaid obligation.

16. In addition, the assurance to pay in full the obligation is further solidified by the warranty of solvency
provisions of the Credit Agreement, the pertinent portion of which states that:

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

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

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

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

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

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

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

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

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

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

To support its allegation of fraud, Security Bank attached the Affidavit[21] of German Vincent Pulgar IV
(Pulgar), the Manager of the Remedial Management Division of the said bank. He detailed how respondents
represented to Security Bank that they would pay the loans upon their maturity date. Pulgar added that
respondents signed the Credit Agreement which contained the Warranty of Solvency and several Trust
Receipt Agreements in favor of Security Bank. The said trust receipts were attached to the complaint which
stated that respondents were obligated to turn over to Security Bank the proceeds of the sale of the good or
to return the goods. The several demand letters sent by Security Bank to respondents, which were unheeded,
were likewise attached to the complaint. These pieces of evidence were presented by Security Bank during
the hearing of the application for the issuance of a writ of preliminary attachment in the RTC.

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

There were violations of the

trust receipts agreements

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

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

Failure of the entrustee to turn over the proceeds of the sale of the goods, covered by the trust receipt to the
entruster or to return said goods if they were not disposed of in accordance with the terms of the trust receipt
shall be punishable as estafa under Article 315 (1) of the Revised Penal Code, without need of proving
intent to defraud.[23] The offense punished under P.D. No. 115 is in the nature of malum prohibitum. Mere
failure to deliver the proceeds of the sale or the goods, if not sold, constitutes a criminal offense that causes
prejudice not only to another, but more to the public interest.[24]

The present case, however, only deals with the civil fraud in the non-compliance with the trust receipts to
warrant the issuance of a writ of preliminary attached. A fortiori, in a civil case involving a trust receipt,
the entrustee's failure to comply with its obligations under the trust receipt constitute as civil fraud provided
that it is alleged, and substantiated with specificity, in the complaint, its attachments and supporting
evidence.

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

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

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

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

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

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

Q: What happened in this case?

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

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

The CA cited Philippine Bank of Communications v. Court of Appeals[26] (PBCom) to bolster its argument
that fraudulent intent cannot be inferred from a debtor's inability to pay or comply with its obligations and
that there must be proof of a preconceived plan not to pay.[27]

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

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

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

Fraud in the performance of

the obligation must be
considered

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

In this regard, the CA erred.

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

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

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

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

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

Final Note

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

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

SO ORDERED.
 Watercraft Venture Corporation vs. Wolfe,
770 SCRA 179, G.R. No. 181721 September 9, 2015
A writ of preliminary attachment is defined as a provisional remedy issued upon order of the court where
an action is pending to be levied upon the property or properties of the defendant therein, the same to be
held thereafter by the sheriff as security for the satisfaction of whatever judgment that might be secured in
the said action by the attaching creditor against the defendant. However, it should be resorted to only when
necessary and as a last remedy because it exposes the debtor to humiliation and annoyance. It must be
granted only on concrete and specific grounds and not merely on general averments quoting the words of
the rules. Since attachment is harsh, extraordinary, and summary in nature, the rules on the application of
a writ of attachment must be strictly construed in favor of the defendant.

For the issuance of an ex parte issuance of the preliminary attachment to be valid, an affidavit of merit and
an applicant’s bond must be filed with the court in which the action is pending. Such bond executed to the
adverse party in the amount fixed by the court is subject to the conditions that the applicant will pay: (1) all
costs which may be adjudged to the adverse party; and (2) all damages which such party may sustain by
reason of the attachment, if the court shall finally adjudge that the applicant was not entitled thereto. As to
the requisite affidavit of merit, Section 3, Rule 57 of the Rules of Court states that an order of attachment
shall be granted only when it appears in the affidavit of the applicant, or of some other person who
personally knows the facts: 1. that a sufficient cause of action exists; 2. that the case is one of those
mentioned in Section 1 hereof; 3. that there is no other sufficient security for the claim sought to be enforced
by the action; and 4. 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.

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

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse and set
aside the Court of Appeals (CA) Resolution[1] dated January 24, 2008 denying the motion for
reconsideration of its Decision[2] dated September 27, 2007 in CA-G.R. SP No. 97804.

The facts are as follows:

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

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

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

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

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

Thus, on July 7, 2005, Watercraft filed against Wolfe a Complaint for Collection of Sum of Money with
Damages with an Application for the Issuance of a Writ of Preliminary Attachment. The case was docketed
as Civil Case No. 4534-MN, and raffled to Branch 170[3] of the Regional Trial Court (RTC) of Malabon
City.

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

Meanwhile, finding Watercraft's ex-parte application for writ of preliminary attachment sufficient in form
and in substance pursuant to Section 1 of Rule 57 of the Rules of Court, the RTC granted the same in the
Order dated July 15, 2005, thus:

WHEREFORE, let a Writ of Preliminary Attachment be issued accordingly in favor of the plaintiff,
Watercraft Ventures Corporation conditioned upon the filing of attachment bond in the amount of Three
Million Two Hundred Thirty-One Thousand Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served simultaneously with the summons, copies of the complaint,
application for attachment, applicant's affidavit and bond, and this Order upon the defendant.

SO ORDERED.[4]

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

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

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

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

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

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

The CA granted Wolfe's petition in a Decision dated September 2007, the dispositive portion of which
reads:

WHEREFORE, the Order dated March 20, 2006 and the Order dated November 10, 2006 of respondent
Judge are hereby ANNULLED and SET ASIDE. Accordingly, the Writ of Attachment issued on August 3,
2005, the Notice of Attachment dated August 5, 2005 and the Notice of Attachment and Levy dated
September 5, 2005 are hereby also declared NULL and VOID, and private respondent is DIRECTED to
return to their owners the vehicles that were attached pursuant to the Writ.

SO ORDERED.[5]
The CA ruled that the act of issuing the writ of preliminary attachment ex-parte constitutes grave abuse of
discretion on the part of the RTC, thus:

x x x In Cosiquien [v. Court of Appeals], the Supreme Court held that:

"Where a judge issues a fatally defective writ of preliminary attachment based on an affidavit which failed
to allege the requisites prescribed for the issuance of the writ of preliminary attachment, renders the writ of
preliminary attachment issued against the property of the defendant fatally defective. The judge issuing it
is deemed to have acted in excess of jurisdiction. In fact, the defect cannot even be cured by amendment.
Since the attachment is a harsh and rigorous remedy which exposed the debtor to humiliation and
annoyance, the rule authorizing its issuance must be strictly construed in favor of defendant. It is the duty
of the court before issuing the Avrit to ensure that all the requisites of the law have been complied with.
Otherwise, a judge acquires no jurisdiction to issue the writ." (emphasis supplied)

In the instant case, the Affidavit of Merit executed by Rosario E. Rañoa, Watercraft's Vice-President, failed
to show fraudulent intent on the part of Wolfe to defraud the company. It merely enumerated the
circumstances tending to show the alleged possibility of Wolfe's flight from the country. And upon Wolfe's
filing of the Motion to Discharge the Writ, what the respondent Judge should have done was to determine,
through a hearing, whether the allegations of fraud were true. As further held in Cosiquien:

"When a judge issues a writ of preliminary attachment ex-parte, it is incumbent on him, upon proper
challenge of his order to determine whether or not the same was improvidently issued. If the party against
whom the writ is prayed for squarely controverts the allegation of fraud, it is incumbent on the applicant to
prove his allegation. The burden of proving that there indeed was fraud lies with the party making such
allegation. This finds support in Section 1, Rule 131 Rules of Court. In this jurisdiction, fraud is never
presumed." (Emphasis supplied)

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

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

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

Based on the foregoing, it is therefore clear that the writ was improvidently issued. It is well to emphasize
that "[T]he rules on the issuance of a writ of attachment must be construed strictly against the applicants.
This stringency is required because the remedy of attachment is harsh, extraordinary and summary in nature.
If all the requisites for the granting of the writ are not present, then the court which issues it acts in excess
of its jurisdiction. Thus, in this case, Watercraft failed to meet all the requisites for the issuance of the writ.
Thus, in granting the same, respondent Judge acted with grave abuse of discretion.[6]
In a Resolution dated January 24, 2008, the CA denied Watercraft's motion for reconsideration of its
Decision, there being no new or significant issues raised in the motion.

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

I.

WHETHER THE EX-PARTE ISSUANCE OF THE PRELIMINARY ATTACHMENT BY THE TRIAL

COURT IN FAVOR OF THE PETITIONER IS VALID.

II.

WHETHER THE ALLEGATIONS IN THE AFFIDAVIT OF MERIT CONCERNING FRAUD ARE

SUFFICIENT TO WARRANT THE ISSUANCE OF A PRELIMINARY WRIT OF ATTACHMENT BY
THE TRIAL COURT IN FAVOR OF THE PETITIONER.[7]
Watercraft argues that the CA erred in holding that the RTC committed grave abuse of discretion in issuing
the writ of preliminary attachment, and in finding that the affidavit of merit only enumerated circumstances
tending to show the possibility of Wolfe's flight from the country, but failed to show fraudulent intent on
his part to defraud the company.
Stressing that its application for such writ was anchored on two (2) grounds under Section 1,[8] Rule 57,
Watercraft insists that, contrary to the CA ruling, its affidavit of merit sufficiently averred with particularity
the circumstances constituting fraud as a common element of said grounds.

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

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

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

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

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

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

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

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

2.that the case is one of those mentioned in Section 1[17] hereof;

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

4.that the amount due to the applicant, or the value of the property the possession of which he is entitled to
recover, is as much as the sum for which the order is granted above all legal counterclaims.

The mere filing of an affidavit reciting the facts required by Section 3, Rule 57, however, is not enough to
compel the judge to grant the writ of preliminary attachment. Whether or not the affidavit sufficiently
established facts therein stated is a question to be determined by the court in the exercise of its
discretion.[18] "The sufficiency or insufficiency of an affidavit depends upon the amount of credit given it
by the judge, and its acceptance or rejection, upon his sound discretion."[19] Thus, in reviewing the
conflicting findings of the CA and the RTC on the pivotal issue of whether or not Watercraft's affidavit of
merit sufficiently established facts which constitute as grounds upon which attachment may be issued under
Section 1 (a)[20] and (d),[21] Rule 57, the Court will examine the Affidavit of Preliminary Attachment[22]
of Rosario E. Rañoa, its Vice-President, which reiterated the following allegations in its complaint to
substantiate the application for a writ of preliminary attachment:

xxxx

4. Sometime in June 1997, the Defendant was hired as Watercraft's Shipyard Manager.
5. Soon thereafter, the Defendant placed his sailboat, the Knotty Gull, within the boat storage facilities of
Watercraft for purposes of storage and safekeeping.

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

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

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

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

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

11. [Sometime] thereafter, that is, in or about June 2002, the Defendant pulled out the Knotty Gull from the
boat storage facilities of Watercraft.

12. Instead of settling in full his outstanding obligations concerning unpaid storage fees before pulling our
the Knotty Gull, the Defendant signed a Boat Pull-Out Clearance dated 29 June 2002 wherein he merely
acknowledged the then outstanding balance of Sixteen Thousand Three Hundred and Twenty-four and
82/100 US Dollars (US$16,324.82), representing unpaid boat storage fees for the period commencing June
1997 to June 2002, that he owed Watercraft.

13. By reason of Defendant's mere accomplishment of the said Boat Pull-Out Clearance with
acknowledgment of his outstanding obligation to Watercraft in unpaid boat storage fees, Mr. Franz
Urbanek, then the Shipyard Manager who replaced the Defendant, contrary to company policy, rules and
regulations, permitted the latter to physically pull out his boat from the storage facilities of the Plaintiff
without paying any portion of his outstanding obligation in storage fees.

14. Several demands were then made upon the Defendant for him to settle his outstanding obligations to
the Plaintiff in unpaid storage fees but the same went unheeded.

15. As of 02 April 2005, the outstanding obligation of the Defendant to the Plaintiff in unpaid boat storage
fees stands at Three Million Two Hundred Thirty-One Thousand Five Hundred and Eighty-Nine and 25/100
Pesos (Php3,231,589.25) inclusive of interest charges.

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

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

19. The possibility of flight on the part of the Defendant is heightened by the existence of the following
circumstances:

a. The Special Working Visa issued in favor of the Defendant expired in April 2005;

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

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

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

20. All told, the Defendant is a very serious flight risk which fact will certainly render for naught the
capacity of the Plaintiff to recover in the instant case.[23]
After a careful perusal of the foregoing; allegations, the Court agrees with the CA that Watercraft failed to
state with particularity the circumstances constituting fraud, as required by Section 5,[24] Rule 8 of the
Rules of Court, and that Wolfe's mere failure to pay the boat storage fees does not necessarily amount to
fraud, absent any showing that such failure was due to insidious machinations and intent on his part to
defraud Watercraft of the amount due it.

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

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

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

With respect to Section 1 (a),[32] Rule 57, the other ground invoked by Watercraft for the issuance of the
writ of preliminary attachment, the Court finds no compelling reason to depart from the CA's exhaustive
ruling to the effect that such writ is unnecessary because Wolfe is not a flight risk, thus:

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

Neither should the fact that Wolfe's Special Working Visa expired in April 2005 lead automatically to the
conclusion that he would leave the country. It is worth noting that all visas issued by the government to
foreigner staying in the Philippines have expiration periods. These visas, however, may be renewed, subject
to the requirements of the law. In Wolfe's case, he indeed renewed his visa, as shown by Special Working
Visa No. 05-WV-0124P issued by the Subic Bay Metropolitan Authority Visa Processing Office on April
25, 2005, and with validity of two (2) years therefrom. Moreover, his Alien Certificate of Registration was
valid up to May 11, 2006.[33]

Meanwhile, Watercraft's reliance on Chuidian v. Sandiganbayan[34] is displaced. It is well settled that:

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

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

Furthermore, the other ground upon which the writ of preliminary attachment was issued by the RTC is not
at the same time the applicant's cause of action. Assuming arguendo that the RTC was correct in issuing
such writ on the ground that Watercraft's complaint involves an action for the recovery of a specified
amount of money or damages against a party, like Wolfe, who is about to depart from the Philippines with
intent to defraud his creditors, the Court stresses that the circumstances[36] cited in support thereof are
merely allegations in support of its application for such writ.[37] Such circumstances, however, are neither
the core of Watercraft's complaint for collection of sum of money and damages, nor one of its three (3)
causes of action therein.[38]

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

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

SO ORDERED.
Tsuneishi Heavy Industries (Cebu), Inc. vs. MIS Maritime Corporation,
860 SCRA 259, G.R. No. 193572 April 4, 2018
A writ of preliminary attachment is a provisional remedy issued by a court where an action is pending. In
simple terms, a writ of preliminary attachment allows the levy of a property which shall then be held by the
sheriff. This property will stand as security for the satisfaction of the judgment that the court may render in
favor of the attaching party. In Republic v. Mega Pacific eSolutions (Republic), 794 SCRA 414 (2016), we
explained that the purpose of a writ of preliminary attachment is twofold: First, it seizes upon property of
an alleged debtor in advance of final judgment and holds it subject to appropriation, thereby preventing the
loss or dissipation of the property through fraud or other means. Second, it subjects the property of the
debtor to the payment of a creditor’s claim, in those cases in which personal service upon the debtor cannot
be obtained. This remedy is meant to secure a contingent lien on the defendant’s property until the plaintiff
can, by appropriate proceedings, obtain a judgment and have the property applied to its satisfaction, or to
make some provision for unsecured debts in cases in which 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.

We emphasize that when fraud is invoked as a ground for the issuance of a writ of preliminary attachment
under Rule 57 of the Rules of Court, there must be evidence clearly showing the factual circumstances of
the alleged fraud. Fraud cannot be presumed from a party’s mere failure to comply with his or her
obligation. Moreover, the Rules of Court require that in all averments of fraud, the circumstances
constituting it must be stated with particularity.

There is a reason why a writ of preliminary attachment is available only in specific cases enumerated under
Section 1 of Rule 57. As it entails interfering with property prior to a determination of actual liability, it is
issued with great caution and only when warranted by the circumstances. As we said in Ng Wee v.
Tankiansee, 545 SCRA 263 (2008), the rules on the issuance of the writ of preliminary attachment as a
provisional remedy are strictly construed against the applicant because it exposes the debtor to humiliation
and annoyance.

Jurisprudence has consistently held that a court that issues a writ of preliminary attachment when the
requisites are not present acts in excess of its jurisdiction. In Philippine Bank of Communications v. Court
of Appeals, 352 SCRA 616 (2001), we highlighted: Time and again, we have held that the rules on the
issuance of a writ of attachment must be construed strictly against the applicants. This stringency is required
because the remedy of attachment is harsh, extraordinary and summary in nature. If all the requisites for
the granting of the writ are not present, then the court which issues it acts in excess of its jurisdiction.

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari[1] under Rule 45 of the Rules of Court filed by petitioner Tsuneishi
Heavy Industries (Cebu), Inc. (Tsuneishi) challenging the Decision[2] of the Court of Appeals (CA) in CA-
G.R. CEB-SP No. 03956 dated October 7, 2009 and its Resolution[3] dated August 26, 2010. The CA
Decision reversed three Orders of Branch 7 of the Regional Trial Court (RTC), Cebu City dated April 15,
2008, July 7, 2008, and December 11, 2008, respectively.[4] The Resolution denied Tsuneishi's motion for
reconsideration.

Respondent MIS Maritime Corporation (MIS) contracted Tsuneishi to dry dock and repair its vessel M/T
MIS-1 through an Agreement dated March 22, 2006.[5] On March 23, 2006, the vessel dry docked in
Tsuneishi's shipyard. Tsuneishi rendered the required services. However, about a month later and while the
vessel was still dry docked, Tsuneishi conducted an engine test on M/T MIS-1. The vessel's engine emitted
smoke. The parties eventually discovered that this was caused by a burnt crank journal. The crankpin also
showed hairline cracks due to defective lubrication or deterioration. Tsuneishi insists that the damage was
not its fault while MIS insists on the contrary. Nevertheless, as an act of good will, Tsuneishi paid for the
vessel's new engine crankshaft, crankpin, and main bearings.[6]

Tsuneishi billed MIS the amount of US$318,571.50 for payment of its repair and dry docking services. MIS
refused to pay this amount. Instead, it demanded that Tsuneishi pay US$471,462.60 as payment for the
income that the vessel lost in the six months that it was not operational and dry docked at Tsuneishi's
shipyard. It also asked that its claim be set off against the amount billed by Tsuneishi. MIS further insisted
that after the set off, Tsuneishi still had the obligation to pay it the amount of US$152,891.10.[7] Tsuneishi
rejected MIS' demands. It delivered the vessel to MIS in September 2006.[8] On November 6, 2006, MIS
signed an Agreement for Final Price.[9] However, despite repeated demands, MIS refused to pay Tsuneishi
the amount billed under their contract.

Tsuneishi claims that MIS also caused M/T White Cattleya, a vessel owned by Cattleya Shipping Panama
S.A. (Cattleya Shipping), to stop its payment for the services Tsuneishi rendered for the repair and dry
docking of the vessel.[10]

MIS argued that it lost revenues because of the engine damage in its vessel. This damage occurred while
the vessel was dry docked and being serviced at Tsuneishi's yard. MIS insisted that since this arose out of
Tsuneishi's negligence, it should pay for MIS' lost income. Tsuneishi offered to pay 50% of the amount
demanded but MIS refused any partial payment.[11]

On April 10, 2008, Tsuneishi filed a complaint[12] against MIS before the RTC. This complaint stated that
it is invoking the admiralty jurisdiction of the RTC to enforce a maritime lien under Section 21 of the Ship
Mortgage Decree of 1978[13] (Ship Mortgage Decree). It also alleged as a cause of action MIS' unjustified
refusal to pay the amount it owes Tsuneishi under their contract. The complaint included a prayer for the
issuance of arrest order/writ of preliminary attachment. To support this prayer, the complaint alleged that
Section 21 of the Ship Mortgage Decree as well as Rule 57 of the Rules of Court on attachment authorize
the issuance of an order of arrest of vessel and/or writ of preliminary attachment.[14]

In particular, Tsuneishi argued that Section 21 of the Ship Mortgage Decree provides for a maritime lien in
favor of any person who furnishes repair or provides use of a dry dock for a vessel. Section 21 states that
this may be enforced through an action in rem. Further, Tsuneishi and MIS' contract granted Tsuneishi the
right to take possession, control and custody of the vessel in case of default of payment. Paragraph 9 of this
contract further states that Tsuneishi may dispose of the vessel and apply the proceeds to the unpaid repair
bill.[15]
Finally, Tsuneishi's complaint alleges that there are sufficient grounds for the issuance of a writ of
preliminary attachment. In particular, it claims that MIS is guilty of fraud in the performance of its
obligation. The complaint states:

40. x x x Under the factual milieu, it is wrongful for defendant MIS Maritime to take undue advantage of
an unfortunate occurrence by withholding payment of what is justly due to plaintiff under law and contract.
Defendant MIS Maritime knew or ought to have known that its claim for lost revenues was unliquidated
and could not be set-off or legally compensated against the dry-docking and repair bill which was liquidated
and already fixed and acknowledged by the parties.

41. Defendant CATTLEYA SHIPPING'S actions and actuations in performing its obligation were clearly
fraudulent because, firstly, it had no business getting involved as far as the M/T MIS-1 incident was
concerned; secondly, no incident of any sort occurred when its vessel M/T WHITE CATTLEYA was dry
docked and repaired. It had no claim against the plaintiff. Yet, it (defendant Cattleya Shipping) allowed
itself to be used by defendant MIS Maritime when it willfully and unlawfully stopped paying plaintiff, and
conspired to make good defendant MIS Maritime's threat to "withhold payment of any and all billings that
you (plaintiff) may have against our fleet of vessels which include those registered under Cattleya Shipping
Panama S.A. (MT White Cattleya) x x x.[16]

Tsuneishi also filed the Affidavit[17] of its employee Lionel T. Bitera (Bitera Affidavit), in accordance
with the requirement for the issuance of a writ of preliminary attachment under Rule 57 of the Rules of
Court. The Bitera Affidavit stated that Tsuneishi performed dry docking and repair services for M/T MIS-
1 and M/T White Cattleya. It also alleged that after Tsuneishi performed all the services required, MIS and
Cattleya refused to pay their obligation. According to the Bitera Affidavit, this refusal to pay constitutes
fraud because:

d. The breach of the obligation was willful. In the case of M/T MIS-1 no single installment payment was
made despite the fact that the vessel was accepted fully dry docked and with a brand new engine crankshaft
installed by the yard free of charge to the Owner. MIS Maritime Corporation was blaming the yard for the
damage sustained by the engine crank shaft on 25 April 2006 when the engine was started in preparation
for sea trial. When the incident happened the drydocking had already been completed and the vessel was
already in anchorage position for sea trial under the management and supervisory control of the Master and
engineers of the vessel. Besides, the incident was not due to the fault of the yard. It was eventually traced
to dirty lube oil or defective main engine lubricating oil which was the lookout and responsibility of the
vessel's engineers.

xxxx

e. The action taken by MIS Maritime Corporation in setting off its drydocking obligation against their claim
for alleged lost revenues was unilaterally done, and without legal and factual basis for while, on one hand,
the drydocking bill was for a fixed and agreed amount, the claim of MIS Maritime for lost revenues, on the
other hand, was not liquidated as it was for a gross amount, x x x

f. Cattleya Shipping for its part had nothing to do with the dry docking of M/T MIS-1. There was no incident
whatsoever during the dry docking of its vessel M/T WHITE CATTLEYA. In fact, after this vessel was
satisfactorily dry docked and delivered to its Owner (Cattleya Shipping) the latter started paying the
monthly installments without any complaint whatsoever, x x x[18]

The RTC issued a writ of preliminary attachment in an Order[19] dated April 15, 2008 (First Order) without
hearing. Consequently, MIS' condominium units located in the financial district of Makati, cash deposits
with various banks, charter hire receivables from Shell amounting to P26.6 Million and MT MIS-1 were
attached.[20]

MIS filed a motion to discharge the attachment.[21] The RTC denied this motion in an Order[22] dated
July 7, 2008 (Second Order). MIS filed a motion for reconsideration which the RTC also denied in an
Order[23] dated December 11, 2008 (Third Order).

MIS then filed a special civil action for certiorari[24] before the CA assailing the three Orders. MIS argued
that the RTC acted with grave abuse of discretion when it ordered the issuance of a preliminary writ of
attachment and denied MIS' motion to discharge and motion for reconsideration.

The CA ruled in favor of MIS. It reversed the three assailed Orders after finding that the RTC acted with
grave abuse of discretion in issuing the writ of preliminary attachment.[25]

According to the CA, the Bitera Affidavit lacked the required allegation that MIS has no sufficient security
for Tsuneishi's claim. In fact, the CA held that the evidence on record shows that MIS has sufficient
properties to cover the claim. It also relied on jurisprudence stating that when an affidavit does not contain
the allegations required under the rules for the issuance of a writ of attachment and the court nevertheless
issues the writ, the RTC is deemed to have acted with grave abuse of discretion. Consequently, the writ of
preliminary attachment is fatally defective.[26] The CA further highlighted that a writ of preliminary
attachment is a harsh and rigorous remedy. Thus, the rules must be strictly construed. Courts have the duty
to ensure that all the requisites are complied with.[27]

The CA also found that the RTC ordered the issuance of the writ of preliminary attachment despite
Tsuneishi's failure to prove the presence of fraud. It held that the bare and unsubstantiated allegation in the
Bitera Affidavit that MIS willfully refused to pay its obligation is not sufficient to establish prima facie
fraud. The CA emphasized that a debtor's mere inability to pay is not fraud. Moreover, Tsuneishi's
allegations of fraud were general. Thus, they failed to comply with the requirement in the Rules of Court
that in averments of fraud, the circumstances constituting it must be alleged with particularity. The CA
added that while notice and hearing are not required for the issuance of a writ of preliminary attachment, it
may become necessary in instances where the applicant makes grave accusations based on grounds alleged
in general terms. The CA also found that Tsuneishi failed to comply with the requirement that the affidavit
must state that MIS has no other sufficient security to cover the amount of its obligation.[28]

The CA disposed of the case, thus:

WHEREFORE, the petition is GRANTED. The three (3) Orders dated April 15, 2008, July 7, 2008 and
December 11, 2008, respectively, of the Regional Trial Court, Branch 7, Cebu City, in Civil Case No. CEB-
34250, are ANNULLED and SET ASIDE.[29] (Emphasis in the original, citations omitted.)

Tsuneishi filed this petition for review on certiorari under Rule 45 of the Rules of Court challenging the
CA's ruling. Tsuneishi pleads that this case involves a novel question of law. It argues that while Section
21 of the Ship Mortgage Decree grants it a maritime lien, the law itself, unfortunately, does not provide for
the procedure for its enforcement. It posits that to give meaning to this maritime lien, this Court must rule
that the procedure for its enforcement is Rule 57 of the Rules of Court on the issuance of the writ of
preliminary attachment. Thus, it proposes that aside from the identified grounds for the issuance of a writ
of preliminary attachment in the Rules of Court, the maritime character of this action should be considered
as another basis to issue the writ.[30]

To support its application for the issuance of a writ of preliminary attachment, Tsuneishi also invokes a
provision in its contract with MIS which states that:

In case of default, either in payment or in violation of the warranties stated in Section 11, by the Owner,
the Owner hereby appoints the Contractor as its duly authorized attorney in fact with full power and
authority to take possession, control, and custody of the said Subject Vessel and / or any of the Subject
Vessel's accessories and equipment, or other assets of the Owner, without resorting to court action; and that
the Owner hereby empowers the Contractor to take custody of the same until the obligation of the Owner
to the Contractor is fully paid and settled to the satisfaction of the Contractor. x x x[31] (Underscoring
omitted.)

It insists that the writ of preliminary attachment must be issued so as to give effect to this provision in the
contract.

Tsuneishi also disputes the CA's finding that it Failed to show fraud in MIS' performance of its obligation.
It opines that MIS' failure to comply with its obligation does not arise from a mere inability to pay. If that
were the case, then the CA would be correct in saying that MIS committed no fraud. However, MIS' breach
of its obligation in this case amounts to a gross unwillingness to pay amounting to fraud.[32]

Tsuneishi adds that the CA erred in holding that the RTC acted with grave abuse of discretion when it failed
to conduct a hearing prior to the issuance of the writ of preliminary attachment. It insisted that the Rules of
Court, as well as jurisprudence, does not require a hearing prior to issuance.[33]

Finally, Tsuneishi disagrees with the ruling of the CA that it did not comply with the requirements under
the rules because the Bitera Affidavit did not state that MIS has no other sufficient security. This was
already stated in Tsuneishi's complaint filed before the RTC. Thus, the rules should be applied liberally in
favor of rendering justice.[34]
In its comment,[35] MIS challenges Tsuneishi's argument that its petition raises a novel question of law.
According to MIS, the issue in this case is simple. A reading of Tsuneishi's complaint shows that it prayed
for the issuance of a writ of preliminary attachment under Rule 57 of the Rules of Court or arrest of vessel
to enforce its maritime lien under the Ship Mortgage Decree.[36] Thus, Tsuneishi knew from the start that
a remedy exists for the enforcement of its maritime lien—through an arrest of vessel under the Ship
Mortgage Decree. However, the RTC itself characterized the complaint as a collection of sum of money
with prayer for the issuance of a writ of preliminary attachment. Thus, what it issued was a writ of
preliminary attachment. Unfortunately for Tsuneishi, the CA reversed the RTC because it found that the
element of fraud was not duly established. Thus, there was no ground for the issuance of a writ of
preliminary attachment.[37]

MIS insists that Tsuneishi is raising this alleged novel question of law for the first time before this Court in
an attempt to skirt the issue that it failed to sufficiently establish that MIS acted with fraud in the
performance of its obligation. MIS contends that fraud cannot be inferred from a debtor's mere inability to
pay. There is no distinction between inability and a refusal to pay where the refusal is based on its claim
that Tsuneishi damaged its vessel. According to MIS, its vessel arrived at Tsuneishi's shipyard on its own
power. Its engine incurred damage while it was under Tsuneishi's custody. Thus, Tsuneishi is presumed
negligent.[38]

MIS further highlights that Tsuneishi completed the dry docking in April 2006. It was during this time that
the damage in the vessel's engine was discovered. The vessel was turned over to MIS only in September
2006. Thus, it had lost a significant amount of revenue during the period that it was off-hire. Because of
this, it demanded payment from Tsuneishi which the latter rejected.[39]

Hence, MIS argues that this is not a situation where, after Tsuneishi rendered services, MIS simply
absconded. MIS has the right to demand for the indemnification of its lost revenue due to Tsuneishi's
negligence.[40]

MIS further adds that the CA correctly held that there was no statement in the Bitera Affidavit that MIS
had no adequate security to cover the amount being demanded by Tsuneishi. Tsuneishi cannot validly argue
that this allegation is found in its complaint and that this should be deemed compliance with the requirement
under Rule 57.[41]

Further, in its motion to discharge the preliminary attachment, MIS presented proof that it has the financial
capacity to pay any liability arising from Tsuneishi's claims. In fact, there was an excessive levy of MIS'
properties. This is proof in itself that MIS has adequate security to cover Tsuneishi's claims. Finally, MIS
agrees with the CA that the RTC should have conducted a hearing. While it is true that a hearing is not
required by the Rules of Court, jurisprudence provides that a hearing is necessary where the allegations in
the complaint and the affidavit are mere general averments. Further, where a motion to discharge directly
contests the allegation in the complaint and affidavit, the applicant has the burden of proving its claims of
fraud.[42]

There are two central questions presented for the Court to resolve, namely: (1) whether a maritime lien
under Section 21 of the Ship Mortgage Decree may be enforced through a writ of preliminary attachment
under Rule 57 of the Rules of Court; and (2) whether the CA correctly ruled that Tsuneishi failed to comply
with the requirements for the issuance of a writ of preliminary injunction.
We deny the petition.

We begin by classifying the legal concepts of lien, maritime lien and the provisional remedy of preliminary
attachment.

A lien is a "legal claim or charge on property, either real or personal, as a collateral or security for the
payment of some debt or obligation."[43] It attaches to a property by operation of law and once attached, it
follows the property until it is discharged. What it does is to give the party in whose favor the lien exists
the right to have a debt satisfied out of a particular thing. It is a legal claim or charge on the property which
functions as a collateral or security for the payment of the obligation.[44]

Section 21 of the Ship Mortgage Decree establishes a lien. It states:

Sec. 21. Maritime Lien for Necessaries; Persons entitled to such Lien. – Any person furnishing repairs,
supplies, towage, use of dry dock or marine railway, or other necessaries to any vessel, whether foreign or
domestic, upon the order of the owner of such vessel, or of a person authorized by the owner, shall have a
maritime lien on the vessel, which may be enforced by suit in rem and it shall be necessary to allege or
prove that credit was given to the vessel.

In practical terms, this means that the holder of the lien has the right to bring an action to seek the sale of
the vessel and the application of the proceeds of this sale to the outstanding obligation. Through this lien, a
person who furnishes repair, supplies, towage, use of dry dock or marine railway, or other necessaries to
any vessel, in accordance with the requirements under Section 21, is able to obtain security for the payment
of the obligation to him.

A party who has a lien in his or her favor has a remedy in law to hold the property liable for the payment
of the obligation. A lienholder has the remedy of filing an action in court for the enforcement of the lien.
In such action, a lienholder must establish that the obligation and the corresponding lien exist before he or
she can demand that the property subject to the lien be sold for the payment of the obligation. Thus, a lien
functions as a form of security for an obligation.

Liens, as in the case of a maritime lien, arise in accordance with the provision of particular laws providing
for their creation, such as the Ship Mortgage Decree which clearly states that certain persons who provide
services or materials can possess a lien over a vessel. The Rules of Court also provide for a provisional
remedy which effectively operates as a lien. This is found in Rule 57 which governs the procedure for the
issuance of a writ of preliminary attachment.

A writ of preliminary attachment is a provisional remedy issued by a court where an action is pending. In
simple terms, a writ of preliminary attachment allows the levy of a property which shall then be held by the
sheriff. This property will stand as security for the satisfaction of the judgment that the court may render in
favor of the attaching party. In Republic v. Mega Pacific eSolutions (Republic),[45] we explained that the
purpose of a writ of preliminary attachment is twofold:

First, it seizes upon property of an alleged debtor in advance of final judgment and holds it subject to
appropriation, thereby preventing the loss or dissipation of the property through fraud or other means.
Second, it subjects the property of the debtor to the payment of a creditor's claim, in those cases in which
personal service upon the debtor cannot be obtained. This remedy is meant to secure a contingent lien on
the defendant's property until the plaintiff can, by appropriate proceedings, obtain a judgment and have the
property applied to its satisfaction, or to make some provision for unsecured debts in cases in which the
means of satisfaction thereof arc liable to be removed beyond the jurisdiction, or improperly disposed of or
concealed, or otherwise placed beyond the reach of creditors.[46] (Citations omitted, emphasis supplied.
Italics in the original.)

As we said, a writ of preliminary attachment effectively functions as a lien. This is crucial to resolving
Tsuneishi's alleged novel question of law in this case. Tsuneishi is correct that the Ship Mortgage Decree
does not provide for the specific procedure through which a maritime lien can be enforced. Its error is in
insisting that a maritime lien can only be operationalized by granting a writ of preliminary attachment under
Rule 57 of the Rules of Court. Tsuneishi argues that the existence of a maritime lien should be considered
as another ground for the issuance of a writ of preliminary attachment under the Rules of Court.

Tsuneishi's argument is rooted on a faulty understanding of a lien and a writ of preliminary attachment. As
we said, a maritime lien exists in accordance with the provision of the Ship Mortgage Decree. It is enforced
by filing a proceeding in court. When a maritime lien exists, this means that the party in whose favor the
lien was established may ask the court to enforce it by ordering the sale of the subject property and using
the proceeds to settle the obligation.

On the other hand, a writ of preliminary attachment is issued precisely to create a lien. When a party moves
for its issuance, the party is effectively asking the court to attach a property and hold it liable for any
judgment that the court may render in his or her favor. This is similar to what a lien does. It functions as a
security for the payment of an obligation. In Quasha Asperilla Ancheta Valmonte Peña & Marcos v.
Juan,[47] we held:

An attachment proceeding is for the purpose of creating a lien on the property to serve as security for the
payment of the creditors' claim. Hence, where a lien already exists, as in this case a maritime lien, the same
is already equivalent to an attachment. x x x[48]

To be clear, we repeat that when a lien already exists, this is already equivalent to an attachment. This is
where Tsuneishi's argument fails. Clearly, because it claims a maritime lien in accordance with the Ship
Mortgage Decree, all Tsuneishi had to do is to file a proper action in court for its enforcement. The issuance
of a writ of preliminary attachment on the pretext that it is the only means to enforce a maritime lien is
superfluous. The reason that the Ship Mortgage Decree does not provide for a detailed procedure for the
enforcement of a maritime lien is because it is not necessary. Section 21 already provides for the simple
procedure—file an action in rem before the court.

To our mind, this alleged novel question of law is a mere device to remedy the error committed by Tsuneishi
in the proceedings before the trial court regarding the issuance of a writ of preliminary attachment. We note
that the attachment before the trial court extended to other properties other than the lien itself, such as bank
accounts and real property. Clearly, what was prayed for in the proceedings below was not an attachment
for the enforcement of a maritime lien but an attachment, plain and simple.

II

Tsuneishi's underlying difficulty is whether it succeeded in proving that it complied with the requirements
lor the issuance of a writ of preliminary attachment. This is the only true question before us. In particular,
we must determine whether the Bitera Affidavit stated that MIS lacked sufficient properties to cover the
obligation and whether MIS acted with fraud in refusing to pay.

At the onset, we note that these questions dwell on whether there was sufficient evidence to prove that
Tsuneishi complied with the requirements for the issuance of a writ of preliminary attachment. Sufficiency
of evidence is a question of fact which this Court cannot review in a Rule 45 petition. We are not a trier of
fact.

Nevertheless, we have examined the record before us and we agree with the factual findings of the CA.

The record clearly shows that the Bitera Affidavit does not state that MIS has no other sufficient security
for the claim sought to be enforced. This is a requirement under Section 3, Rule 57 of the Rules of Court.
We cannot agree with Tsuneishi's insistence that this allegation need not be stated in the affidavit since it
was already found in the complaint. The rules are clear and unequivocal. There is no basis for Tsuneishi's
position. Nor is it entitled to the liberal application of the rules. Not only has Tsuneishi failed to justify its
omission to include this allegation, the facts also do not warrant the setting aside of technical rules. Further,
rules governing the issuance of a writ of preliminary attachment are strictly construed.

We also agree with the CA's factual finding that MIS did not act with fraud in refusing to pay the obligation.
We emphasize that when fraud is invoked as a ground for the issuance of a writ of preliminary attachment
under Rule 57 of the Rules of Court, there must be evidence clearly showing the factual circumstances of
the alleged fraud.[49] Fraud cannot be presumed from a party's mere failure to comply with his or her
obligation. Moreover, the Rules of Court require that in all averments of fraud, the circumstances
constituting it must be stated with particularity.[50]

In Republic, we defined fraud as:

[A]s the voluntary execution of a wrongful act or a wilful omission, while knowing and intending the effects
that naturally and necessarily arise from that act or omission. In its general sense, fraud is deemed to
comprise anything calculated to deceive — including all acts and omission and concealment involving a
breach of legal or equitable duty, trust, or confidence justly reposed — resulting in damage to or in undue
advantage over another. Fraud is also described as embracing all multifarious means that human ingenuity
can device, and is resorted to for the purpose of securing an advantage over another by false suggestions or
by suppression of truth; and it includes all surprise, trick, cunning, dissembling, and any other unfair way
by which another is cheated.[51] (Citations omitted.)

By way of example, in Metro, Inc. v. Lara's Gifts and Decors, Inc.,[52] we ruled that the factual
circumstances surrounding the parties' transaction clearly showed fraud. In this case, the petitioners entered
into an agreement with respondents where the respondents agreed that they will endorse their purchase
orders from their foreign buyers to the petitioners in order to help the latter's export business. The petitioners
initially promised that they will transact only with the respondents and never directly contact respondents'
foreign buyers. To convince respondents that they should trust the petitioners, petitioners even initially
remitted shares to the respondents in accordance with their agreement. However, as soon as there was a
noticeable increase in the volume of purchase orders from respondents' foreign buyers, petitioners
abandoned their contractual obligation to respondents and directly transacted with respondents' foreign
buyers. We found in this case that the respondents' allegation (that the petitioners undertook to sell
exclusively through respondents but then transacted directly with respondents' foreign buyer) is sufficient
allegation of fraud to support the issuance of a writ of preliminary attachment.[53]

In contrast, in PCL Industries Manufacturing Corporation v. Court of Appeals,[54] we found no fraud that
would warrant the issuance of a writ of preliminary attachment. In that case, petitioner purchased printing
ink materials from the private respondent. However, petitioner found that the materials delivered were
defective and thus refused to pay its obligation under the sales contract. Private respondent insisted that
petitioner's refusal to pay after the materials were delivered to it amounted to fraud. We disagreed. We
emphasized our repeated and consistent ruling that the mere fact of failure to pay after the obligation to do
so has become due and despite several demands is not enough to warrant the issuance of a writ of
preliminary attachment.[55]

An examination of the Bitera Affidavit reveals that it failed to allege the existence of fraud with sufficient
specificity. The affidavit merely states that MIS refused to pay its obligation because it demanded a set off
between its obligation to Tsuneishi and Tsuneishi's liability for MIS' losses caused by the delay in the turn-
over of the vessel. The affidavit insists that this demand for set off was not legally possible. Clearly, there
is nothing in the affidavit that even approximates any act of fraud which MIS committed in the performance
of its obligation. MIS' position was clear: Tsuneishi caused the damage in the vessel's engine which delayed
its trip and should thus be liable for its losses. There is no showing that MIS performed any act to deceive
or defraud Tsuneishi.

In Watercraft Venture Corporation v. Wolfe,[56] we ruled that an affidavit which does not contain concrete
and specific grounds showing fraud is inadequate to sustain the issuance of the writ of preliminary
attachment.[57]

Moreover, the record tells a different story.

The record shows that Tsuneishi released the vessel in September 2006. MIS signed the Agreement of the
Final Price only in November 2006. Thus, Tsuneishi's claim that MIS' act of signing the document and
making it believe that MIS will pay the amount stated is the fraudulent act which induced it to release the
vessel cannot stand. Tsuneishi agreed to release the vessel even before MIS signed the document. It was
thus not the act which induced Tsuneishi to turn over the vessel.

Further, Tsuneishi is well aware of MIS' claims. It appears from the record, and as admitted by MIS in its
pleadings, that the reason for its refusal to pay is its claim that its obligation should be set off against
Tsuneishi's liability for the losses that MIS incurred for the unwarranted delay in the turn-over of the vessel.
MIS insists that Tsuneishi is liable for the damage on the vessel. This is not an act of fraud. It is not an
intentional act or a willful omission calculated to deceive and injure Tsuneishi. MIS is asserting a claim
which it believes it has the right to do so under the law. Whether MIS' position is legally tenable is a
different matter. It is an issue fit for the court to decide. Notably, MIS filed this as a counterclaim in the
case pending before the RTC.[58] Whether MIS is legally correct should be threshed out there.

Even assuming that MIS is wrong in refusing to pay Tsuneishi, this is nevertheless not the fraud
contemplated in Section 1(d), Rule 57 of the Rules of Court. Civil law grants Tsuneishi various remedies
in the event that the trial court rules in its favor such as the payment of the obligation, damages and legal
interest. The issuance of a writ of preliminary attachment is not one of those remedies.

There is a reason why a writ of preliminary attachment is available only in specific cases enumerated under
Section 1 of Rule 57. As it entails interfering with property prior to a determination of actual liability, it is
issued with great caution and only when warranted by the circumstances. As we said in Ng Wee v.
Tankiansee,[59] the rules on the issuance of the writ of preliminary attachment as a provisional remedy are
strictly construed against the applicant because it exposes the debtor to humiliation and annoyance.[60]

Moreover, we highlight that this petition for review on certiorari arose out of a Decision of the CA in a
Rule 65 petition. In cases like this, this Court's duty is only to ascertain whether the CA was correct in
ruling that the RTC acted with grave abuse of discretion amounting to lack or excess of jurisdiction.

Jurisprudence has consistently held that a court that issues a writ of preliminary attachment when the
requisites are not present acts in excess of its jurisdiction.[61] In Philippine Bank of Communications v.
Court of Appeals,[62] we highlighted:

Time and again, we have held that the rules on the issuance of a writ of attachment must be construed
strictly against the applicants. This stringency is required because the remedy of attachment is harsh,
extraordinary and summary in nature. If all the requisites for the granting of the writ are not present, then
the court which issues it acts in excess of its jurisdiction.[63] (Citation omitted.)

In accordance with consistent jurisprudence, we must thus affirm the ruling of the CA that the RTC, in
issuing a writ of preliminary attachment when the requisites under the Rules of Court were clearly not
present, acted with grave abuse of discretion.

WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals
dated October 7, 2009 and its Resolution dated August 26, 2010 are AFFIRMED.

SO ORDERED.