To: CBL

From: Justine
Re: attachment
Date: March 7, 2011

X and Y are co-owners of a house and lot. Y is in control of the property and has been
leasing out the property to a third party and has also been receiving all the rentals from the latter.
X and Y, after some time, agreed in writing to sell and dispose of the house and lot and
thereafter to share on the proceeds thereof. Unfortunately, Y reneged on his obligation under the
agreement and refused to communicate with X.
After several unheeded demands made by X, the latter intends to file a claim for specific
performance against Y so the property will be sold and the proceeds be shared by them as
agreed.

Questions:

1. Can X avail of the provisional remedy of attachment as against the properties of Y? On

what grounds?

X may avail of the ground under Rule 57, Sec. 1(d), provided he can prove fraud of the other
party in incurring the obligation. As outlined below, the other grounds for preliminary
attachment are unavailing.

To sustain attachment on this ground, the intent to defraud must be clearly shown. 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. To constitute a ground
for attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon
contracting the obligation sued upon. Fraudulent intent must also be present. Fraud can be
gleaned from a preconceived plan or intention not to pay, although fraudulent intent cannot be
inferred from a debtor's inability to pay or comply with obligations. Factual basis for fraud must
be clearly averred.

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:
 
(a) In an action for the recovery of a specified amount of money or damages,
other than moral and exemplary, on a cause of action arising from law,
contract, quasi-contract, delict or quasi-delict against a party who is about to
depart from the Philippines which intent to defraud his creditors;
(b) In 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 other person in a fiduciary capacity, or for a willful violation of
duty;
(c) In an action to recover the possession of property unjustly or fraudulently
taken, detained or converted, when the property, or any part thereof, has
been concealed, removed, or disposed of to prevent its being found or taken
by the applicant or an authorized person;
(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;
(e) In an action against a party who has removed or disposed of his property,
or is about to do so, with intent to defraud his creditors; or
(f) In an action against a party who does not reside and is not found in the
Philippines, or on whom summons may be served by publication.

Grounds for attachment:

1. departure of party from the Philippines
The requisites for this ground of attachment are:
(a) that the party is about to depart from the Philippines with intent to defraud his
creditors
(b) that there is an action for the recovery of money or damages
(c) that such action arises from law, contract, quasi-contract, delict or quasi-delict

2. embezzlement or misappropriation of money or property

The requisites for this ground of attachment are:
(a) the party is a public officer or an officer of a corporation, or is an attorney,
factor, broker, agent or clerk
 (b) such embezzlement or misappropriation was committed by the party in the
course of his employment as such
(c) the action is for the money or property embezzled or fraudulently misapplied
or converted to his own use by the party

3. concealment, removal or disposal of property

The requisites for this ground of attachment are:
(a) the property or any part thereof has been concealed, removed or disposed of
by the party,
(b) such concealment, removal or disposal was committed for the purpose of
preventing its being found or taken by the applicant or an authorized
person
(c) the action is for recovery of the possession of the property

4. fraud in contracting debt or incurring obligation or its performance

Fraud may be a ground for attachment if:

(a) the party has been guilty of fraud in contracting the debt or incurring the
obligation upon which the action is brought; or
(b) the party has been guilty of fraud in the performance of the obligation

5. fraudulent removal or disposal of property

Removal or disposal of property may be a ground for attachment when with intent to
defraud his creditors:
(a) the party has removed or disposed of his property, or
(b) the party is about to remove or dispose of his property

6. defendant who resides out of the Philippines

Attachment may be issued in an action against a party:

(a) who does not reside in the Philippines
(b) who is not found in the Philippines
(c) who on whom summons may be served by publication

Actual fraud is meant dishonesty of some sort. It includes specific, intentional acts to
decieve and deprive another of his right or in some manner injure him. Constructive fraud is
meant legal fraud, unintentional deception, transactions which equity regards as wrongful and to
which it attributes the same or similar effects as those which follow from actual fraud.
(Francisco, 26 citing Grey Alba vs. La Cruz, 17 Phil. 49 and Estrellado and Alcantara vs.
Martinez, 48 Phil. 264).

[G.R. No. 123358. February 1, 2000.]

FCY CONSTRUCTION GROUP, INC., and FRANCIS C. YU, petitioners, vs. THE COURT
OF APPEALS, THE HON. JOSE C. DE LA RAMA, Presiding Judge, Branch 139, Regional
Trial Court, NCJR, Makati City, Metro-Manila, and LEY CONSTRUCTION AND
DEVELOPMENT CORPORATION, respondents.

Ley Construction filed a complaint for collection of sum of money with preliminary attachment
against FCY Construction and Francis Yu. The former alleged that the latter were guilty of fraud
in their joint venture agreement over the Tandang Sora Commonwealth Flyover government
project, for which Ley Construction had provided funds and construction materials. Ley
Construction was asking for its half share in the collections received as well as those yet to be
received. When the lower court issued an Order for the issuance of a writ of preliminary
attachment, petitioners moved for the lifting thereof, but to no avail.

The fraud of which petitioners are accused of and which was the basis for the issuance of the
questioned attachment, is fraud alleged to have been committed upon contracting the obligation
sued upon. In Liberty Insurance Corporation vs. Court of Appeals, this Court, discussing Section
1(d), Rule 57, cautioned as follows — To sustain an attachment on this ground, it must be shown
that the debtor in contracting the debt or incurring the obligation intended to defraud the creditor.
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. To
constitute a ground for attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should
be committed upon contracting the obligation sued upon.

[G.R. No. 104405. May 13, 1993.]

LIBERTY INSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF
APPEALS, HON. NAPOLEON K. FLOJO, Presiding Judge of Branch II, RTC Manila;
ATILLA ARKIN, the CITY SHERIFF OF MANILA, the REGISTER OF DEEDS OF MANILA
and the REGISTER OF DEEDS OF MAKATI, METRO MANILA, respondents.

1. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; REMEDY

AGAINST A PARTY GUILTY IN CONTRACTING DEBT OR INCURRING AN
OBLIGATION. — In an action against a party who has been guilty of fraud in contracting the
debt or incurring the obligation upon which the action is brought, Section 1 (d) of Rule 57
authorizes the plaintiff or any proper party to have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered therein. To sustain an
attachment on this ground, it must be shown that the debtor in contracting the debt or incurring
the obligation intended to defraud the creditor. 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. To constitute a ground for attachment in Section 1 (d),
Rule 57 of the Rules of Court, fraud should be committed upon contracting the obligation sued
upon.

2. ID.; ID.; ID.; ID.; CASE AT BAR. — A debt is fraudulently contracted if at the time of
contracting it the debtor has a preconceived plan or intention not to pay, as it is in this case.
Fraud is a state of mind and need not be proved by direct evidence but may be inferred from the
circumstances attendant in each case (Republic v. Gonzales, 13 SCRA 633 [1965]). Here, it has
been established that all the collaterals given by the respondent Arkin as security for the bond
were either fraudulent or heavily encumbered. Records show that Transfer Certificate of Title
No. 300011 supposedly issued by the Register of Deeds of Rizal covering a parcel of land with
an area of 25,750 square meters located at Muntinlupa, Las Piñas, M.M. and registered in the
name of Carmen Madlangbayan, used as one of the collaterals, turned out to be fake and spurious
as the genuine TCT No. 300011 of the Office of the Register of Deeds of Rizal covers a parcel of
land located in Angono, Rizal with an area of 514 square meters registered in the name of
persons other than respondents Imperial, Arkin, and Madlangbayan. Likewise, the supposed lien-
free motor vehicle offered as collateral turned out to be heavily mortgaged and was even
disposed of without informing petitioner. Furthermore, it has also been proven that subsequent to
the issuance of the May 30, 1988 surety bond, respondent Arkin started disposing of his other
properties. Prior to the filing of the complaint, respondent not only had sold the motor vehicle
given as collateral but that his two other condominium units, were also alienated in favor of a
company of which respondent Arkin is the president. All these circumstances unerringly point to
the devious scheme of respondent Arkin to defraud petitioner.

[G.R. No. 147970. March 31, 2006.]

PCL INDUSTRIES MANUFACTURING CORPORATION, petitioner, vs. THE COURT OF
APPEALS and ASA COLOR & CHEMICAL INDUSTRIES, INC., respondents.

On October 10, 1995, private respondent filed a complaint with the RTC for Sum of Money with
Preliminary Attachment against herein petitioner. Private respondent claims that during the
period from January 18, 1994 to April 14, 1994, petitioner purchased and received from it
various printing ink materials with a total value of P504,906.00, payable within 30 days from the
respective dates of invoices; and that petitioner, in bad faith, failed to comply with the terms of
the sale and failed to pay its obligations despite repeated verbal and written demands.
Petitioner was served with summons together with the Writ of Preliminary Attachment on
October 20, 1995. On October 23, 1995, petitioner filed a Motion to Dissolve and/or Discharge
Writ of Preliminary Attachment. On November 20, 1995, the trial court issued an Order denying
petitioner's motion to dissolve the writ of preliminary attachment. Petitioner's motion for
reconsideration of said order was also denied per Order dated January 2, 1996. Petitioner no
longer elevated to the higher courts the matter of the propriety of the issuance of the writ of
preliminary attachment.

The Court, however, finds the issuance of the Writ of Preliminary Attachment to be improper. In
Philippine Bank of Communications v. Court of Appeals, 6 the Court held thus:
Petitioner cannot insist that its allegation that private respondents failed to remit the proceeds of
the sale of the entrusted goods nor to return the same is sufficient for attachment to issue. We
note that petitioner anchors its application upon Section 1(d), Rule 57. This particular provision
was adequately explained in Liberty Insurance Corporation v. Court of Appeals, as follows —
To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt
or incurring the obligation intended to defraud the creditor. 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. To constitute a ground for attachment
in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the
obligation sued upon. A debt is fraudulently contracted if at the time of contracting it the debtor
has a preconceived plan or intention not to pay, as it is in this case. Fraud is a state of mind and
need not be proved by direct evidence but may be inferred from the circumstances attendant in
each case (Republic v. Gonzales, 13 SCRA 633). (Emphasis ours) aETADI
We find an absence of factual allegations as to how the fraud alleged by petitioner was
committed. As correctly held by respondent Court of Appeals, such fraudulent intent not to
honor the admitted obligation cannot be inferred from the debtor's inability to pay or to comply
with the obligations. 7 (Emphasis supplied)
More recently, in Philippine National Construction Corporation v. Dy, 8 the Court ruled that the
following allegations in an affidavit to support the application for a Writ of Preliminary
Attachment is insufficient, to wit:
Radstock grounded its application for a Writ of Preliminary Attachment on Section 1 (d) and (e)
of Rule 57 of the Rules of Court.
In support of these grounds, the affidavit of merit alleged the following:
3. Despite repeated demands and periodic statements of accounts sent to PNCC for the
settlement of the credit obligation Yen 5.46 Billion, its interests and penalties within three (3)
days from demand in writing, and in the case of credit obligation for P20,000,000 which PNCC
had agreed to punctually liquidate the said advances to its subsidiary, PNCC failed to pay and
honor its obligations herein stated. cHaCAS
xxx xxx xxx
5. That PNCC knowing that it is bankrupt and that it does not have enough assets to meet its
existing obligations is now offering for sale its assets as shown in the reports published in
newspapers of general circulation.
6. That the above series of acts as enumerated in paragraphs 3, 4 and 5[,] Marubeni
believes, constitute fraud on the part of PNCC in contracting the obligations mentioned herein
and will surely prejudice its creditors.
xxx xxx xxx
We do not see how the above allegations, even on the assumption they are all true, can be
considered as falling within sub-paragraphs (d) and (e). The first three assert, in essence, that
PNCC has failed to pay its debt and is offering for sale its assets knowing that it does not have
enough to pay its obligations. As previously held, fraudulent intent cannot be inferred from a
debtor's inability to pay or comply with obligations. Also, the fact that PNCC has insufficient
assets to cover its obligations is no indication of fraud even if PNCC attempts to sell them
because it is quite possible that PNCC was entering into a bona fide good faith sale where at least
fair market value for the assets will be received. In such a situation, Marubeni would not be in a
worse position than before as the assets will still be there but just liquidated. Also, that the
Financial Statements do not reflect the loan obligation cannot be construed as a scheme to
defraud creditors.

[G.R. No. 115678. February 23, 2001.]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS
and BERNARDINO VILLANUEVA, respondents.

We find an absence of factual allegations as to how the fraud alleged by petitioner was
committed. As correctly held by respondent Court of Appeals, such fraudulent intent not to
honor the admitted obligation cannot be inferred from the debtor's inability to pay or to comply
with the obligations. 9 On the other hand, as stressed, above, fraud may be gleaned from a
preconceived plan or intention not to pay. This does not appear to be so in the case at bar. In fact,
it is alleged by private respondents that out of the total P419,613.96 covered by the subject trust
receipts, the amount of P400,000.00 had already been paid, leaving only P19,613.96 as balance.
Hence, regardless of the arguments regarding penalty and interest, it can hardly be said that
private respondents harbored a preconceived plan or intention not to pay petitioner.

[A.M. No. RTJ-98-1409. February 18, 1999.]

SPOUSES BENEDICTO & ROSE GODINEZ, complainants, vs. HON. ANTONIO S. ALANO
and SHERIFF ALBERTO RICARDO C. ALANO, Regional Trial Court, Branch 36, General
Santos City, respondents.

In Adlawan vs. Torres, the Court has said: ". . . . Proof of fraud is mandated by paragraphs (d)
and (e) of Section 1, Rule 57 of the Revised Rules of Court on the grounds upon which
attachment may issue. Thus, the factual basis on defendant's intent to defraud must be clearly
alleged in the affidavit in support of the prayer for the writ of attachment if not so specifically
alleged in the verified complaint. . . . Bare allegation that an encumbrance of a property is in
fraud of the creditor does not suffice. Factual bases for such conclusion must be clearly averred."
 2. Can X pray for the deposit of the rentals with the court pending litigation? If it is
allowed, on what legal basis?

Deposit with the court pending litigation is not among the provisional remedies enumerated
in the Rules of Court. Deposit of rentals is allowed only in cases of forcible entry and unlawful
detainer to stay the immediate execution of judgment (Rule 70, Sec. 19). This is not applicable in
this case. Consignation under the Civil Code is also not applicable.

However, in the case of Reyes vs. Lim (G.R. No. 134241, August 11, 2003), the court
allowed deposit with the cashier of the RTC as a provisional remedy to fill in the hiatus left in
the law and in the Rules of Court. The Court allowed the deposit in the exercise of its equity
jurisdiction and to prevent unjust enrichment.

G.R. No. 134241            August 11, 2003

DAVID REYES (Substituted by Victoria R. Fabella), petitioner, 
vs.
JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million
down payment with the cashier of the Regional Trial Court of Parañaque. The trial court
granted this motion.
On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the
ground the Order practically granted the reliefs Lim prayed for in his Amended Answer.11 The
trial court denied Reyes’ motion in an Order12 dated 3 July 1997. Citing Article 1385 of the Civil
Code, the trial court ruled that an action for rescission could prosper only if the party
demanding rescission can return whatever he may be obliged to restore should the court grant
the rescission.
The trial court denied Reyes’ Motion for Reconsideration in its Order13 dated 3 October 1997.
In the same order, the trial court directed Reyes to deposit the P10 million down payment with
the Clerk of Court on or before 30 October 1997.
On 8 December 1997, Reyes14 filed a Petition for Certiorari15 with the Court of Appeals. Reyes
prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997
be set aside for having been issued with grave abuse of discretion amounting to lack of
jurisdiction. On 12 May 1998, the Court of Appeals dismissed the petition for lack of merit.
Hence, this petition for review.
 The Court’s Ruling
Reyes’ contentions are without merit.
Reyes points out that deposit is not among the provisional remedies enumerated in the 1997
Rules of Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive. Not one of
the provisional remedies in Rules 57 to 6118 applies to this case. Reyes argues that a court
cannot apply equity and require deposit if the law already prescribes the specific provisional
remedies which do not include deposit. Reyes invokes the principle that equity is "applied only
in the absence of, and never against, statutory law or x x x judicial rules of procedure."19Reyes
adds the fact that the provisional remedies do not include deposit is a matter of dura lex sed
lex.20
The instant case, however, is precisely one where there is a hiatus in the law and in the Rules of
Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the expense of Lim.
The hiatus may also imperil restitution, which is a precondition to the rescission of the Contract
to Sell that Reyes himself seeks. This is not a case of equity overruling a positive provision of law
or judicial rule for there is none that governs this particular case. This is a case of silence or
insufficiency of the law and the Rules of Court. In this case, Article 9 of the Civil Code expressly
mandates the courts to make a ruling despite the "silence, obscurity or insufficiency of the
laws."21This calls for the application of equity,22 which "fills the open spaces in the law."23
Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit of the
P10 million down payment in court. The purpose of the exercise of equity jurisdiction in this
case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do
complete justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.24 Equity
is the principle by which substantial justice may be attained in cases where the prescribed or
customary forms of ordinary law are inadequate.25
xxxx
The principle that no person may unjustly enrich himself at the expense of another is embodied
in Article 2238 of the Civil Code. This principle applies not only to substantive rights but also to
procedural remedies. One condition for invoking this principle is that the aggrieved party has no
other action based on contract, quasi-contract, crime, quasi-delict or any other provision of
law.39 Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved
party, during the pendency of the case, has no other recourse based on the provisional
remedies of the Rules of Court.
Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the
seller himself seeks rescission of the sale because he has subsequently sold the same property
to another buyer.40 By seeking rescission, a seller necessarily offers to return what he has
received from the buyer. Such a seller may not take back his offer if the court deems it
equitable, to prevent unjust enrichment and ensure restitution, to put the money in judicial
deposit.
There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental principles of
justice, equity and good conscience. In this case, it was just, equitable and proper for the trial
court to order the deposit of the P10 million down payment to prevent unjust enrichment by
Reyes at the expense of Lim.