RIZAL COMMERCIAL BANKING CORPORATION, and deliver the amount to the plaintiff's representative and/or
petitioner, counsel on record." [Record on Appeal, p. 20; Rollo, p. 5.] In
vs.
THE HONORABLE PACIFICO P. DE CASTRO and
PHILIPPINE VIRGINIA TOBACCO ADMINISTRATION,
respondents
The crux of the instant controversy dwells on the liability of a
bank for releasing its depositor's funds upon orders of the
court, pursuant to a writ of garnishment. If in compliance with
the court order, the bank delivered the garnished amount to
the sheriff, who in turn delivered it to the judgment creditor,
but subsequently, the order of the court directing payment
was set aside by the same judge, should the bank be held
solidarily liable with the judgment creditor to its depositor for
reimbursement of the garnished funds? The Court does not
think so.
In Civil Case No. Q-12785 of the Court of First Instance of
Rizal, Quezon City Branch IX entitled "Badoc Planters, Inc.
versus Philippine Virginia Tobacco Administration, et al.,"
which was an action for recovery of unpaid tobacco deliveries,
an Order (Partial Judgment) was issued on January 15, 1970
by the Hon. Lourdes P. San Diego, then Presiding Judge,
ordering the defendants therein to pay jointly and severally,
the plaintiff Badoc Planters, Inc. (hereinafter referred to as
"BADOC") within 48 hours the aggregate amount of
P206,916.76, with legal interests thereon.
On January 26,1970, BADOC filed an Urgent Ex-Parte Motion
for a Writ of Execution of the said Partial Judgment which was
granted on the same day by the herein respondent judge
who acted in place of the Hon. Judge San Diego who had just
been elevated as a Justice of the Court of Appeals.
Accordingly, the Branch Clerk of Court on the very same day,
issued a Writ of Execution addressed to Special Sheriff
Faustino Rigor, who then issued a Notice of Garnishment
addressed to the General Manager and/or Cashier of Rizal
Commercial Banking Corporation (hereinafter referred to as
RCBC), the petitioner in this case, requesting a reply within
five (5) days to said garnishment as to any property which the
Philippine Virginia Tobacco Administration (hereinafter
referred to as "PVTA") might have in the possession or
control of petitioner or of any debts owing by the petitioner
to said defendant. Upon receipt of such Notice, RCBC notified
PVTA thereof to enable the PVTA to take the necessary steps
for the protection of its own interest [Record on Appeal, p.
36]
Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed
by BADOC, the respondent Judge issued an Order granting
the Ex-Parte Motion and directing the herein petitioner "to
deliver in check the amount garnished to Sheriff Faustino
Rigor and Sheriff Rigor in turn is ordered to cash the check
compliance with said Order, petitioner delivered to Sheriff
Rigor a certified check in the sum of P 206,916.76.
Respondent PVTA filed a Motion for Reconsideration dated
February 26,1970 which was granted in an Order dated April
6,1970, setting aside the Orders of Execution and of Payment
and the Writ of Execution and ordering petitioner and BADOC
"to restore, jointly and severally, the account of PVTA with the
said bank in the same condition and state it was before the
issuance of the aforesaid Orders by reimbursing the PVTA of
the amount of P 206, 916.76 with interests at the legal rate
from January 27, 1970 until fully paid to the account of the
PVTA This is without prejudice to the right of plaintiff to move
for the execution of the partial judgment pending appeal in
case the motion for reconsideration is denied and appeal is
taken from the said partial judgment." [Record on Appeal, p.
58]
The Motion for Reconsideration of the said Order of April 6,
1970 filed by herein petitioner was denied in the Order of
respondent judge dated June 10, 1970 and on June 19, 1970,
which was within the period for perfecting an appeal, the
herein petitioner filed a Notice of Appeal to the Court of
Appeals from the said Orders.
This case was then certified by the Court of Appeals to this
Honorable Court, involving as it does purely questions of law.
The petitioner raises two principal queries in the instant case:
1) Whether or not PVTA funds are public funds not subject to
garnishment; and 2) Whether or not the respondent Judge
correctly ordered the herein petitioner to reimburse the
amount paid to the Special Sheriff by virtue of the execution
issued pursuant to the Order/Partial Judgment dated January
15, 1970.
The record reveals that on February 2, 1970, private
respondent PVTA filed a Motion for Reconsideration of the
Order/ Partial Judgment of January 15, 1970. This was
granted and the aforementioned Partial Judgment was set
aside. The case was set for hearings on November 4, 9 and
11, 1970 [Rollo, pp. 205-207.] However, in view of the failure
of plaintiff BADOC to appear on the said dates, the lower
court ordered the dismissal of the case against PVTA for
failure to prosecute [Rollo, p. 208.]
It must be noted that the Order of respondent Judge dated
April 6, 1970 directing the plaintiff to reimburse PVTA t e
amount of P206,916.76 with interests became final as to said
plaintiff who failed to even file a motion for reconsideration,
much less to appeal from the said Order. Consequently, the
order to restore the account of PVTA with RCBC in the same
Page 1 of 25
condition and state it was before the issuance of the
questioned orders must be upheld as to the plaintiff, BADOC.
However, the questioned Order of April 6, 1970 must be set
aside insofar as it ordered the petitioner RCBC, jointly and
severally with BADOC, to reimburse PVTA.
The petitioner merely obeyed a mandatory directive from the
respondent Judge dated January 27, 1970, ordering petitioner
94 "to deliver in check the amount garnished to Sheriff
Faustino Rigor and Sheriff Rigor is in turn ordered to cash the
check and deliver the amount to the plaintiffs representative
and/or counsel on record." [Record on Appeal, p. 20.]
PVTA however claims that the manner in which the bank
complied with the Sheriffs Notice of Garnishment indicated
breach of trust and dereliction of duty on the part of the bank
as custodian of government funds. It insistently urges that the
premature delivery of the garnished amount by RCBC to the
special sheriff even in the absence of a demand to deliver
made by the latter, before the expiration of the five-day
period given to reply to the Notice of Garnishment, without
any reply having been given thereto nor any prior
authorization from its depositor, PVTA and even if the court's
order of January 27, 1970 did not require the bank to
immediately deliver the garnished amount constitutes such
lack of prudence as to make it answerable jointly and
severally with the plaintiff for the wrongful release of the
money from the deposit of the PVTA. The respondent Judge
in his controverted Order sustained such contention and
blamed RCBC for the supposed "hasty release of the amount
from the deposit of the PVTA without giving PVTA a chance
to take proper steps by informing it of the action being taken
against its deposit, thereby observing with prudence the five-
day period given to it by the sheriff." [Rollo, p. 81.]
Such allegations must be rejected for lack of merit. In the first
place, it should be pointed out that RCBC did not deliver the
amount on the strength solely of a Notice of Garnishment;
rather, the release of the funds was made pursuant to the
aforesaid Order of January 27, 1970. While the Notice of
Garnishment dated January 26, 1970 contained no demand of
payment as it was a mere request for petitioner to withold
any funds of the PVTA then in its possession, the Order of
January 27, 1970 categorically required the delivery in check
of the amount garnished to the special sheriff, Faustino Rigor.
In the second place, the bank had already filed a reply to the
Notice of Garnishment stating that it had in its custody funds
belonging to the PVTA, which, in fact was the basis of the
plaintiff in filing a motion to secure delivery of the garnished
amount to the sheriff. [See Rollo, p. 93.]
Lastly, the bank, upon the receipt of the Notice of
Garnishment, duly informed PVTA thereof to enable the latter
to take the necessary steps for the protection of its own
interest [Record on Appeal, p. 36]
It is important to stress, at this juncture, that there was
nothing irregular in the delivery of the funds of PVTA by
check to the sheriff, whose custody is equivalent to the
custody of the court, he being a court officer. The order of
the court dated January 27, 1970 was composed of two parts,
requiring: 1) RCBC to deliver in check the amount garnished
to the designated sheriff and 2) the sheriff in turn to cash the
check and deliver the amount to the plaintiffs representative
and/or counsel on record. It must be noted that in delivering
the garnished amount in check to the sheriff, the RCBC did
not thereby make any payment, for the law mandates that
delivery of a check does not produce the effect of payment
until it has been cashed. [Article 1249, Civil Code.]
Moreover, by virtue of the order of garnishment, the same
was placed in custodia legis and therefore, from that time on,
RCBC was holding the funds subject to the orders of the court
a quo. That the sheriff, upon delivery of the check to him by
RCBC encashed it and turned over the proceeds thereof to
the plaintiff was no longer the concern of RCBC as the
responsibility over the garnished funds passed to the court.
Thus, no breach of trust or dereliction of duty can be
attributed to RCBC in delivering its depositor's funds pursuant
to a court order which was merely in the exercise of its power
of control over such funds.
... The garnishment of property to satisfy a writ of execution
operates as an attachment and fastens upon the property a
lien by which the property is brought under the jurisdiction of
the court issuing the writ. It is brought into custodia legis,
under the sole control of such court [De Leon v. Salvador, G.R.
Nos. L-30871 and L-31603, December 28,1970, 36 SCRA 567,
574.]
The respondent judge however, censured the petitioner for
having released the funds "simply on the strength of the
Order of the court which. far from ordering an immediate
release of the amount involved, merely serves as a standing
authority to make the release at the proper time as
prescribed by the rules." [Rollo, p. 81.]
This argument deserves no serious consideration. As stated
earlier, the order directing the bank to deliver the amount to
the sheriff was distinct and separate from the order directing
the sheriff to encash the said check. The bank had no choice
but to comply with the order demanding delivery of the
garnished amount in check. The very tenor of the order called
for immediate compliance therewith. On the other hand, the
bank cannot be held liable for the subsequent encashment of
Page 2 of 25
the check as this was upon order of the court in the exercise
of its power of control over the funds placed in custodia legis
by virtue of the garnishment.
In a recent decision [Engineering Construction Inc., v. National
Power Corporation, G.R. No. L-34589, June 29, 1988] penned
by the now Chief Justice Marcelo Fernan, this Court absolved
a garnishee from any liability for prompt compliance with its
order for the delivery of the garnished funds. The rationale
behind such ruling deserves emphasis in the present case:
But while partial restitution is warranted in favor of NPC, we
find that the Appellate Court erred in not absolving
MERALCO, the garnishee, from its obligations to NPC with
respect to the payment of ECI of P 1,114,543.23, thus in effect
subjecting MERALCO to double liability. MERALCO should not
have been faulted for its prompt obedience to a writ of
garnishment. Unless there are compelling reasons such as: a
defect on the face of the writ or actual knowledge on the part
of the garnishee of lack of entitlement on the part of the
garnisher, it is not incumbent upon the garnishee to inquire
or to judge for itself whether or not the order for the advance
execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court provides:
Effect of attachment of debts and credits.—All persons having
in their possession or under their control any credits or other
similar personal property belonging to the party against
whom attachment is issued, or owing any debts to the same,
all the time of service upon them of a copy of the order of
attachment and notice as provided in the last preceding
section, shall be liable to the applicant for the amount of such
credits, debts or other property, until the attachment be
discharged, or any judgment recovered by him be satisfied,
unless such property be delivered or transferred, or such
debts be paid, to the clerk, sheriff or other proper officer of
the court issuing the attachment.
Garnishment is considered as a specie of attachment for
reaching credits belonging to the judgment debtor and
owing to him from a stranger to the litigation. Under the
above-cited rule, the garnishee [the third person] is obliged
to deliver the credits, etc. to the proper officer issuing the writ
and "the law exempts from liability the person having in his
possession or under his control any credits or other personal
property belonging to the defendant, ..., if such property be
delivered or transferred, ..., to the clerk, sheriff, or other
officer of the court in which the action is pending. [3 Moran,
Comments on the Rules of Court 34 (1970 ed.)]
Applying the foregoing to the case at bar, MERALCO, as
garnishee, after having been judicially compelled to pay the
amount of the judgment represented by funds in its
possession belonging to the judgment debtor or NPC, should
be released from all responsibilities over such amount after
delivery thereof to the sheriff. The reason for the rule is self-
evident. To expose garnishees to risks for obeying court
orders and processes would only undermine the
administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's stand that its
immediate compliance with the lower court's order should
not have been met with the harsh penalty of joint and several
liability. Nor can its liability to reimburse PVTA of the amount
delivered in check be premised upon the subsequent
declaration of nullity of the order of delivery. As correctly
pointed out by the petitioner:
xxx xxx xxx
That the respondent Judge, after his Order was enforced, saw
fit to recall said Order and decree its nullity, should not
prejudice one who dutifully abided by it, the presumption
being that judicial orders are valid and issued in the regular
performance of the duties of the Court" [Section 5(m) Rule
131, Revised Rules of Court]. This should operate with greater
force in relation to the herein petitioner which, not being a
party in the case, was just called upon to perform an act in
accordance with a judicial flat. A contrary view will invite
disrespect for the majesty of the law and induce reluctance in
complying with judicial orders out of fear that said orders
might be subsequently invalidated and thereby expose one to
suffer some penalty or prejudice for obeying the same. And
this is what will happen were the controversial orders to be
sustained. We need not underscore the danger of this as a
precedent.
xxx xxx xxx
[ Brief for the Petitioner, Rollo, p. 212; Emphasis supplied.]
From the foregoing, it may be concluded that the charge of
breach of trust and/or dereliction of duty as well as lack of
prudence in effecting the immediate payment of the
garnished amount is totally unfounded. Upon receipt of the
Notice of Garnishment, RCBC duly informed PVTA thereof to
enable the latter to take the necessary steps for its protection.
However, right on the very next day after its receipt of such
notice, RCBC was already served with the Order requiring
delivery of the garnished amount. Confronted as it was with a
mandatory directive, disobedience to which exposed it to a
contempt order, it had no choice but to comply.
The respondent Judge nevertheless held that the liability of
RCBC for the reimbursement of the garnished amount is
predicated on the ruling of the Supreme Court in the case of
Commissioner of Public Highways v. Hon. San Diego [G.R. No.
Page 3 of 25
L-30098, February 18, 1970, 31 SCRA 616] which he found
practically on all fours with the case at bar.
The Court disagrees.
The said case which reiterated the rule in Republic v. Palacio
[G.R. No. L-20322, May 29, 1968, 23 SCRA 899] that
government funds and properties may not be seized under
writs of execution or garnishment to satisfy such judgment is
definitely distinguishable from the case at bar.
In the Commissioner of Public Highways case [supra], the
bank which precipitately allowed the garnishment and
delivery of the funds failed to inform its depositor thereof,
charged as it was with knowledge of the nullity of the writ of
execution and notice of garnishment against government
funds. In the aforementioned case, the funds involved
belonged to the Bureau of Public Highways, which being an
arm of the executive branch of the government, has no
personality of its own separate from the National
Government. The funds involved were government funds
covered by the rule on exemption from execution.
This brings us to the first issue raised by the petitioner: Are
the PVTA funds public funds exempt from garnishment? The
Court holds that they are not.
Republic Act No. 2265 created the PVTA as an ordinary
corporation with all the attributes of a corporate entity
subject to the provisions of the Corporation Law. Hence, it
possesses the power "to sue and be sued" and "to acquire
and hold such assets and incur such liabilities resulting
directly from operations authorized by the provisions of this
Act or as essential to the proper conduct of such operations."
[Section 3, Republic Act No. 2265.]
Among the specific powers vested in the PVTA are: 1) to buy
Virginia tobacco grown in the Philippines for resale to local
bona fide tobacco manufacturers and leaf tobacco dealers
[Section 4(b), R.A. No. 2265]; 2) to contracts of any kind as
may be necessary or incidental to the attainment of its
purpose with any person, firm or corporation, with the
Government of the Philippines or with any foreign
government, subject to existing laws [Section 4(h), R.A. No.
22651; and 3) generally, to exercise all the powers of a
corporation under the Corporation Law, insofar as they are
not inconsistent with the provisions of this Act [Section 4(k),
R.A. No. 2265.]
From the foregoing, it is clear that PVTA has been endowed
with a personality distinct and separate from the government
which owns and controls it. Accordingly, this Court has
heretofore declared that the funds of the PVTA can be
garnished since "funds of public corporation which can sue
and be sued were not exempt from garnishment" [Philippine
National Bank v. Pabalan, G.R. No. L-33112, June 15, 1978, 83
SCRA 595, 598.]
In National Shipyards and Steel Corp. v. CIR [G.R. No. L-17874,
August 31, 1964, 8 SCRA 781], this Court held that the
allegation to the effect that the funds of the NASSCO are
public funds of the government and that as such, the same
may not be garnished, attached or levied upon is untenable
for, as a government-owned or controlled corporation, it has
a personality of its own, distinct and separate from that of the
government. This court has likewise ruled that other
govemment-owned and controlled corporations like National
Coal Company, the National Waterworks and Sewerage
Authority (NAWASA), the National Coconut Corporation
(NACOCO) the National Rice and Corn Corporation (NARIC)
and the Price Stabilization Council (PRISCO) which possess
attributes similar to those of the PVTA are clothed with
personalities of their own, separate and distinct from that of
the government [National Coal Company v. Collector of
Internal Revenue, 46 Phil. 583 (1924); Bacani and Matoto v.
National Coconut Corporation et al., 100 Phil. 471 (1956);
Reotan v. National Rice & Corn Corporation, G.R. No. L-
16223, February 27, 1962, 4 SCRA 418.] The rationale in
vesting it with a separate personality is not difficult to find. It
is well-settled that when the government enters into
commercial business, it abandons its sovereign capacity and
is to be treated like any other corporation [Manila Hotel
Employees' Association v. Manila Hotel Co. and CIR, 73 Phil.
734 (1941).]
Accordingly, as emphatically expressed by this Court in a
1978 decision, "garnishment was the appropriate remedy for
the prevailing party which could proceed against the funds of
a corporate entity even if owned or controlled by the
government" inasmuch as "by engaging in a particular
business thru the instrumentality of a corporation, the
government divests itself pro hac vice of its sovereign
character, so as to render the corporation subject to the rules
of law governing private corporations" [Philippine National
Bank v. CIR, G.R No. L-32667, January 31, 1978, 81 SCRA 314,
319.]
Furthermore, in the case of PVTA, the law has expressly
allowed it funds to answer for various obligations, including
the one sought to be enforced by plaintiff BADOC in this case
(i.e. for unpaid deliveries of tobacco). Republic Act No. 4155,
which discounted the erstwhile support given by the Central
Bank to PVTA, established in lieu thereof a "Tobacco Fund" to
be collected from the proceeds of fifty per centum of the
tariff or taxes of imported leaf tobacco and also fifty per
centum of the specific taxes on locally manufactured Virginia
type cigarettes.
Page 4 of 25
Section 5 of Republic Act No. 4155 provides that this fund
shall be expended for the support or payment of:
1. Indebtedness of the Philippine Virginia Tobacco
Administration and the former Agricultural Credit and
Cooperative Financing Administration to FACOMAS and
farmers and planters regarding Virginia tobacco transactions
in previous years;
2. Indebtedness of the Philippine Virginia Tobacco
Administration and the former Agricultural Credit and
Cooperative Financing Administration to the Central Bank in
gradual amounts regarding Virginia tobacco transactions in
previous years;
3. Continuation of the Philippine Virginia Tobacco
Administration support and subsidy operations including the
purchase of locally grown and produced Virginia leaf tobacco,
at the present support and subsidy prices, its procurement,
redrying, handling, warehousing and disposal thereof, and
the redrying plants trading within the purview of their
contracts;
4. Operational, office and field expenses, and the
establishment of the Tobacco Research and Grading Institute.
[Emphasis supplied.]
Inasmuch as the Tobacco Fund, a special fund, was by law,
earmarked specifically to answer obligations incurred by
PVTA in connection with its proprietary and commercial
operations authorized under the law, it follows that said funds
may be proceeded against by ordinary judicial processes such
as execution and garnishment. If such funds cannot be
executed upon or garnished pursuant to a judgment
sustaining the liability of the PVTA to answer for its
obligations, then the purpose of the law in creating the PVTA
would be defeated. For it was declared to be a national
policy, with respect to the local Virginia tobacco industry, to
encourage the production of local Virginia tobacco of the
qualities needed and in quantities marketable in both
domestic and foreign markets, to establish this industry on an
efficient and economic basis, and to create a climate
conducive to local cigarette manufacture of the qualities
desired by the consuming public, blending imported and
native Virginia leaf tobacco to improve the quality of locally
manufactured cigarettes [Section 1, Republic Act No. 4155.]
The Commissioner of Public Highways case is thus
distinguishable from the case at bar. In said case, the
Philippine National Bank (PNB) as custodian of funds
belonging to the Bureau of Public Highways, an agency of the
government, was chargeable with knowledge of the
exemption of such government funds from execution and
garnishment pursuant to the elementary precept that public
funds cannot be disbursed without the appropriation
required by law. On the other hand, the same cannot hold
true for RCBC as the funds entrusted to its custody, which
belong to a public corporation, are in the nature of private
funds insofar as their susceptibility to garnishment is
concerned. Hence, RCBC cannot be charged with lack of
prudence for immediately complying with the order to deliver
the garnished amount. Since the funds in its custody are
precisely meant for the payment of lawfully-incurred
obligations, RCBC cannot rightfully resist a court order to
enforce payment of such obligations. That such court order
subsequently turned out to have been erroneously issued
should not operate to the detriment of one who complied
with its clear order.
Finally, it is contended that RCBC was bound to inquire into
the legality and propriety of the Writ of Execution and Notice
of Garnishment issued against the funds of the PVTA
deposited with said bank. But the bank was in no position to
question the legality of the garnishment since it was not even
a party to the case. As correctly pointed out by the petitioner,
it had neither the personality nor the interest to assail or
controvert the orders of respondent Judge. It had no choice
but to obey the same inasmuch as it had no standing at all to
impugn the validity of the partial judgment rendered in favor
of the plaintiff or of the processes issued in execution of such
judgment.
RCBC cannot therefore be compelled to make restitution
solidarily with the plaintiff BADOC. Plaintiff BADOC alone was
responsible for the issuance of the Writ of Execution and
Order of Payment and so, the plaintiff alone should bear the
consequences of a subsequent annulment of such court
orders; hence, only the plaintiff can be ordered to restore the
account of the PVTA.
WHEREFORE, the petition is hereby granted and the
petitioner is ABSOLVED from any liability to respondent PVTA
for reimbursement of the funds garnished. The questioned
Order of the respondent Judge ordering the petitioner, jointly
and severally with BADOC, to restore the account of PVTA are
modified accordingly.
PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES,
HONORATO BORBON, SR., OFFICE OF THE PROVINCIAL
SHERIFF, PROVINCE OF CEBU, respondents.
The present Petition for Certiorari seeks to annul: (a) the
Order dated 6 August 1979 1 which ordered the Provincial
Sheriff to garnish the third-party liability insurance policy
issued by petitioner Perla Compania de Seguros, Inc. ("Perla")
Page 5 of 25
in favor of Nelia Enriquez, judgment debtor in Civil Case No.
R-15391; (b) the Order dated 24 October 1979 2 which
denied the motion for reconsideration of the 6 August 1979
Order; and (c) the Order dated 8 April 1980 3 which ordered
the issuance of an alias writ of garnishment against petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ owned and
registered in the name of Nelia Enriquez, and driven by
Cosme Casas, was travelling from Cebu City to Danao City.
While passing through Liloan, Cebu, the Cimarron PUJ
collided with a private jeep owned by the late Calixto Palmes
(husband of private respondent Primitiva Palmes) who was
then driving the private jeep. The impact of the collision was
such that the private jeep was flung away to a distance of
about thirty (30) feet and then fell on its right side pinning
down Calixto Palmes. He died as a result of cardio-respiratory
arrest due to a crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon who was
then only two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes
(widow of Calixto Palmes) and Honorato Borbon, Sr. (father of
minor Adeudatus Borbon) filed a complaint 5 against Cosme
Casas and Nelia Enriquez (assisted by her husband Leonardo
Enriquez) before the then Court of First Instance of Cebu,
Branch 3, claiming actual, moral, nominal and exemplary
damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being
distinct and separate from that of co-plaintiff Primitiva
Palmes, and the amount thereof falling properly within the
jurisdiction of the inferior court, respondent Judge Jose R.
Ramolete ordered the Borbon claim excluded from the
complaint, without prejudice to its being filed with the proper
inferior court.
On 4 April 1977, the Court of First Instance rendered a
Decision 6 in favor of private respondent Primitiva Palmes,
ordering common carrier Nelia Enriquez to pay her
P10,000.00 as moral damages, P12,000.00 as compensatory
damages for the death of Calixto Palmes, P3,000.00 as
exemplary damages, P5,000.00 as actual damages, and
P1,000.00 as attorney's fees.
The judgment of the trial court became final and executory
and a writ of execution was thereafter issued. The writ of
execution was, however, returned unsatisfied. Consequently,
the judgment debtor Nelia Enriquez was summoned before
the trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was
covered by a third-party liability insurance policy issued by
petitioner Perla.
Thus, on 31 July 1979, private respondent Palmes filed a
motion for garnishment 7 praying that an order of
garnishment be issued against the insurance policy issued by
petitioner in favor of the judgment debtor. On 6 August 1979,
respondent Judge issued an Order 8 directing the Provincial
Sheriff or his deputy to garnish the third-party liability
insurance policy.
Petitioner then appeared before the trial court and moved for
reconsideration of the 6 August 1979 Order and for quashal
of the writ of garnishment, 9 alleging that the writ was void
on the ground that it (Perla) was not a party to the case and
that jurisdiction over its person had never been acquired by
the trial court by service of summons or by any process. The
trial court denied petitioner's motion. 10 An Order for
issuance of an alias writ of garnishment was subsequently
issued on 8 April 1980. 11
More than two (2) years later, the present Petition for
Certiorari and Prohibition was filed with this Court on 25 June
1982 alleging grave abuse of discretion on the part of
respondent Judge Ramolete in ordering garnishment of the
third-party liability insurance contract issued by petitioner
Perla in favor of the judgment debtor, Nelia Enriquez. The
Petition should have been dismissed forthwith for having
been filed way out of time but, for reasons which do not
appear on the record, was nonetheless entertained.
In this Petition, petitioner Perla reiterates its contention that
its insurance contract cannot be subjected to garnishment or
execution to satisfy the judgment in Civil Case No. R-15391
because petitioner was not a party to the case and the trial
court did not acquire jurisdiction over petitioner's person.
Perla further argues that the writ of garnishment had been
issued solely on the basis of the testimony of the judgment
debtor during the examination on 23 July 1979 to the effect
that the Cimarron PUJ was covered by a third-party liability
insurance issued by Perla, without granting it the opportunity
to set up any defenses which it may have under the insurance
contract; and that the proceedings taken against petitioner
are contrary to the procedure laid down in Economic
Insurance Company, Inc. v. Torres, et al., 12 which held that
under Rule 39, Section 45, the Court "may only authorize" the
judgment creditor to institute an action against a third person
who holds property belonging to the judgment debtor.
We find no grave abuse of discretion or act in excess of or
without jurisdiction on the part of respondent Judge
Ramolete in ordering the garnishment of the judgment
debtor's third-party liability insurance.
Garnishment has been defined as a species of attachment for
reaching any property or credits pertaining or payable to a
judgment debtor. 13 In legal contemplation, it is a forced
Page 6 of 25
novation by the substitution of creditors: 14 the judgment
debtor, who is the original creditor of the garnishee is,
through service of the writ of garnishment, substituted by the
judgment creditor who thereby becomes creditor of the
garnishee. Garnishment has also been described as a warning
to a person having in his possession property or credits of the
judgment debtor, not to pay the money or deliver the
property to the latter, but rather to appear and answer the
plaintiff's suit. 15
In order that the trial court may validly acquire jurisdiction to
bind the person of the garnishee, it is not necessary that
summons be served upon him. The garnishee need not be
impleaded as a party to the case. All that is necessary for the
trial court lawfully to bind the person of the garnishee or any
person who has in his possession credits belonging to the
judgment debtor is service upon him of the writ of
garnishment.
The Rules of Court themselves do not require that the
garnishee be served with summons or impleaded in the case
in order to make him liable.
Rule 39, Section 15 provides:
Sec. 15. Execution of money judgments. — The officer must
enforce an execution of a money judgment by levying on all
the property, real or personal of every name and nature
whatsoever, and which may be disposed of for value, of the
judgment debtor not exempt from execution . . .
Real property, stocks, shares, debts, credits, and other
personal property, or any interest in either real or personal
property, may be levied on in like manner and with like effect
as under a writ of attachment. (Emphasis supplied).
Rule 57, Section 7(e) in turn reads:
Sec. 7. Attachment of real and personal property; recording
thereof. — Properties shall be attached by the officer
executing the order in the following manner:
xxx xxx xxx
(e) Debts and credits, and other personal property not
capable of manual delivery, by leaving with the person owing
such debts, or having his possession or under his control such
credits or other personal property, or with his agent, a copy
of the order, and notice that the debts owing by him to the
party against whom attachment is issued, and the credits and
other personal property in his possession, or under his
control, belonging to said party, are attached in pursuance of
such order;
xxx xxx xxx
(Emphasis supplied)
Through service of the writ of garnishment, the garnishee
becomes a "virtual party" to, or a "forced intervenor" in, the
case and the trial court thereby acquires jurisdiction to bind
him to compliance with all orders and processes of the trial
court with a view to the complete satisfaction of the
judgment of the court. In Bautista v. Barredo, 16 the Court,
through Mr. Justice Bautista Angelo, held:
While it is true that defendant Jose M. Barredo was not a
party in Civil Case No. 1636 when it was instituted by
appellant against the Philippine Ready Mix Concrete
Company, Inc., however, jurisdiction was acquired over him
by the court and he became a virtual party to the case when,
after final judgment was rendered in said case against the
company, the sheriff served upon him a writ of garnishment
in behalf of appellant. Thus, as held by this Court in the case
of Tayabas Land Company vs. Sharruf, 41 Phil. 382, the
proceeding by garnishment is a species of attachment for
reaching credits belonging to the judgment debtor and
owing to him from a stranger to the litigation. By means of
the citation, the stranger becomes a forced intervenor; and
the court, having acquired jurisdiction over him by means of
the citation, requires him to pay his debt, not to his former
creditor, but to the new creditor, who is creditor in the main
litigation. (Emphasis supplied).
In Rizal Commercial Banking Corporation v. De Castro, 17 the
Court stressed that the asset or credit garnished is thereupon
subjected to a specific lien:
The garnishment of property to satisfy a writ of execution
operates as an attachment and fastens upon the property a
lien by which the property is brought under the jurisdiction of
the court issuing the writ. It is brought into custodia legis,
under the sole control of such
court. 18 (Emphasis supplied)
In the present case, there can be no doubt, therefore, that the
trial court actually acquired jurisdiction over petitioner Perla
when it was served with the writ of garnishment of the third-
party liability insurance policy it had issued in favor of
judgment debtor Nelia Enriquez. Perla cannot successfully
evade liability thereon by such a contention.
Every interest which the judgment debtor may have in
property may be subjected to execution. 19 In the instant
case, the judgment debtor Nelia Enriquez clearly had an
interest in the proceeds of the third-party liability insurance
contract. In a third-party liability insurance contract, the
insurer assumes the obligation of paying the injured third
Page 7 of 25
party to whom the insured is liable. 20 The insurer becomes
liable as soon as the liability of the insured to the injured
third person attaches. Prior payment by the insured to the
injured third person is not necessary in order that the
obligation of the insurer may arise. From the moment that
the insured became liable to the third person, the insured
acquired an interest in the insurance contract, which interest
may be garnished like any other credit. 21
Petitioner also contends that in order that it may be held
liable under the third-party liability insurance, a separate
action should have been commenced by private respondents
to establish petitioner's liability. Petitioner invokes Economic
Insurance Company, Inc. vs. Torres, 22 which stated:
It is clear from Section 45, Rule 39 that if a persons alleged to
have property of the judgment debtor or to be indebted to
him claims an interest in the property adverse to him or
denies the debt, the court may only authorize the judgment
creditor to institute an action against such person for the
recovery of such interest or debt. Said section does not
authorize the court to make a finding that the third person
has in his possession property belonging to the judgment
debtor or is indebted to him and to order said third person to
pay the amount to the judgment creditor.
It has been held that the only power of the court in
proceedings supplemental to execution is to niake an order
authorizing the creditor to sue in the proper court to recover
an indebtedness due to the judgment debtor. The court has
no jurisdiction to try summarily the question whether the
third party served with notice of execution and levy is
indebted to defendant when such indebtedness is denied. To
make an order in relation to property which the garnishee
claimed to own in his own right, requiring its application in
satisfaction of judgment of another, would be to deprive the
garnishee of property upon summary proceeding and without
due process of law. (Emphasis supplied)
But reliance by petitioner on the case of Economic Insurance
Company, Inc. v. Torres (supra) is misplaced. The Court there
held that a separate action needs to be commenced when the
garnishee "claims an interest in the property adverse to him
(judgment debtor) or denies the debt." In the instant case,
petitioner Perla did not deny before the trial court that it had
indeed issued a third-party liability insurance policy in favor
of the judgment debtor. Petitioner moreover refrained from
setting up any substantive defense which it might have
against the insured-judgment debtor. The only ground
asserted by petitioner in its "Motion for Reconsideration of
the Order dated August 6, 1979 and to Quash Notice of
Garnishment" was lack of jurisdiction of the trial court for
failure to implead it in the case by serving it with summons.
Accordingly, Rule 39, Section 45 of the Rules of Court is not
applicable in the instant case, and we see no need to require
a separate action against Perla: a writ of garnishment suffices
to hold petitioner answerable to the judgment creditor. If
Perla had any substantive defenses against the judgment
debtor, it is properly deemed to have waived them by laches.
WHEREFORE, the Petition for Certiorari and Prohibition is
hereby DISMISSED for having been filed out of time and for
lack of merit. The assailed Orders of the trial court are hereby
AFFIRMED. Costs against petitioner. This Decision is
immediately executory.
ABOITIZ & COMPANY, INC., HONORABLE VICENTE N.
CUSI JR., Judge of the Court of First Instance of Davao,
and the PROVINCIAL SHERIFF OF DAVAO DEL SUR,
petitioners,
vs.
COTABATO BUS COMPANY, INC., respondent.
The instant petition stemmed from Civil Case No. 7329 of the
Court of First Instance of Davao (Branch 1) in which a writ of
preliminary attachment was issued ex-parte by the Court on
the strength of an affidavit of merit attached to the verified
complaint filed by petitioner herein, Aboitiz & Co., Inc., on
November 2, 1971, as plaintiff in said case, for the collection
of money in the sum of P 155,739.41, which defendant
therein, the respondent in the instant case, Cotabato Bus Co.,
owed the said petitioner.
By virtue of the writ of preliminary attachment, the provincial
sheriff attached personal properties of the defendant bus
company consisting of some buses, machinery and
equipment. The ground for the issuance of the writ is, as
alleged in the complaint and the affidavit of merit executed
by the Assistant Manager of petitioner, that the defendant
"has removed or disposed of its properties or assets, or is
about to do so, with intent to defraud its creditors."
Respondent company filed in the lower court an "Urgent
Motion to Dissolve or Quash Writ of Attachment" to which
was attached an affidavit executed by its Assistant Manager,
Baldovino Lagbao, alleging among other things that "the
Cotabato Bus Company has not been selling or disposing of
its properties, neither does it intend to do so, much less to
defraud its creditors; that also the Cotabato Bus Company,
Inc. has been acquiring and buying more assets". An
opposition and a supplemental opposition were filed to the
urgent motion. The lower court denied the motion stating in
its Order that "the testimony of Baldovino Lagbao, witness for
the defendant, corroborates the facts in the plaintiff's affidavit
instead of disproving or showing them to be untrue."
Page 8 of 25
A motion for reconsideration was filed by the defendant bus
company but the lower court denied it. Hence, the defendant
went to the Court of Appeals on a petition for certiorari
alleging grave abuse of discretion on the part of herein
respondent Judge, Hon. Vicente R. Cusi Jr. On giving due
course to the petition, the Court of Appeals issued a
restraining order restraining the trial court from enforcing
further the writ of attachment and from proceeding with the
hearing of Civil Case No. 7329. In its decision promulgated on
October 3, 1971, the Court of Appeals declared "null and void
the order/writ of attachment dated November 3, 1971 and
the orders of December 2, 1971, as well as that of December
11, 1971, ordered the release of the attached properties, and
made the restraining order originally issued permanent.
The present recourse is an appeal by certiorari from the
decision of the Court of Appeals reversing the assailed orders
of the Court of First Instance of Davao, (Branch I), petitioner
assigning against the lower court the following errors:
ERROR I
THE COURT OF APPEALS ERRED IN HASTILY AND
PERFUNCTORILY RENDERING, ON OCTOBER 3, 1971, A
DECISION WITHOUT CONSIDERING MOST OF THE EVIDENCE
SUCH THAT —
l) EVEN AN IMPORTANT FACT, ESTABLISHED BY
DOCUMENTARY EVIDENCE AND NOT DENIED BY
RESPONDENT, IS MENTIONED ONLY AS A "CLAIM" OF
PETITIONER COMPANY;
2) THE DECISION CONTAINS NO DISCUSSION AND
APPRECIATION OF THE FACTS AS PROVED, ASSEMBLED AND
PRESENTED BY PETITIONER COMPANY SHOWING IN —
THEIR TOTALITY — THAT RESPONDENT HAS REMOVED,
DIVERTED OR DISPOSED OF ITS BANK DEPOSITS, INCOME
AND OTHER LIQUID ASSETS WITH INTENT TO DEFRAUD ITS
CREDITORS, ESPECIALLY ITS UNSECURED SUPPLIERS;
3) THE DECISION IGNORES THE SIGNIFICANCE OF THE
REFUSAL OF RESPONDENT TO PERMIT, UNDER REP. ACT NO.
1405, THE METROPOLITAN BANK & TRUST CO. TO BRING, IN
COMPLIANCE WITH A subpoena DUCES TECUM TO THE
TRIAL COURT ALL THE RECORDS OF RESPONDENT'S
DEPOSITS AND WITHDRAWALS UNDER ITS CURRENT AND
SAVINGS ACCOUNTS (NOW NIL) FOR EXAMINATION BY
PETITIONER COMPANY FOR THE PURPOSE OF SHOWING
DIRECTLY THE REMOVAL, DIVERSION OR DISPOSAL OF
RESPONDENT'S DEPOSITS AND INCOME WITH INTENT TO
DEFRAUD ITS CREDITORS.
ERROR II
THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE
FACTS THAT RESPONDENT'S BANK DEPOSITS ARE NIL AS
PROOF WHICH - TOGETHER WITH RESPONDENT'S
ADMISSION OF AN INCOME OF FROM P10,000.00 to P
14,000.00 A DAY AND THE EVIDENCE THAT IT CANNOT
PRODUCE P 634.00 WITHOUT USING A PERSONAL CHECK OF
ITS PRESIDENT AND MAJORITY STOCKHOLDER, AND OTHER
EVIDENCE — SHOWS THE REMOVAL OR CHANNELING OF
ITS INCOME TO THE LATTER.
ERROR III
THE COURT OF APPEALS ERRED IN NOT APPRECIATING THE
RESCUE AND REMOVAL BY RESPONDENT OF FIVE ATTACHED
BUSES, DURING THE DEPENDENCY OF ITS MOTION TO
DISSOLVE THE ATTACHMENT IN THE, TRIAL COURT, AS A
FURTHER ACT OF REMOVAL OF PROPERTIES BY
RESPONDENT WITH INTENT TO DEFRAUD PETITIONER
COMPANY, FOR WHOSE BENEFIT SAID BUSES HAD BEEN
ATTACHED.
The questions raised are mainly, if not solely, factual revolving
on whether respondent bus company has in fact removed its
properties, or is about to do so, in fraud of its creditors. This
being so, the findings of the Court of Appeals on said issues
of facts are generally considered conclusive and final, and
should no longer be disturbed. However, We gave due course
to the petition because it raises also a legal question of
whether the writ of attachment was properly issued upon a
showing that defendant is on the verge of insolvency and
may no longer satisfy its just debts without issuing the writ.
This may be inferred from the emphasis laid by petitioner on
the fact that even for the measly amount of P 634.00 payment
thereof was made with a personal check of the respondent
company's president and majority stockholder, and its debts
to several creditors, including secured ones like the DBP, have
remained unpaid, despite its supposed daily income of an
average of P 12,000.00, as declared by its assistant manager,
Baldovino Lagbao. 1
Going forthwith to this question of whether insolvency, which
petitioners in effect claims to have been proven by the
evidence, particularly by company's bank account which has
been reduced to nil, may be a ground for the issuance of a
writ of attachment, the respondent Court of Appeals correctly
took its position in the negative on the strength of the
explicit ruling of this Court in Max Chamorro & Co. vs.
Philippine Ready Mix Concrete Company, Inc. and Hon.
Manuel P. Barcelona. 2
Petitioner, however, disclaims any intention of advancing the
theory that insolvency is a ground for the issuance of a writ of
attachment , 3 and insists that its evidence -is intended to
prove his assertion that respondent company has disposed,
Page 9 of 25
or is about to dispose, of its properties, in fraud of its
creditors. Aside from the reference petitioner had made to
respondent company's "nil" bank account, as if to show
removal of company's funds, petitioner also cited the alleged
non-payment of its other creditors, including secured
creditors like the DBP to which all its buses have been
mortgaged, despite its daily income averaging P12,000.00,
and the rescue and removal of five attached buses.
It is an undisputed fact that, as averred by petitioner itself, the
several buses attached are nearly junks. However, upon
permission by the sheriff, five of them were repaired, but they
were substituted with five buses which were also in the same
condition as the five repaired ones before the repair. This
cannot be the removal intended as ground for the issuance of
a writ of attachment under section 1 (e), Rule 57, of the Rules
of Court. The repair of the five buses was evidently motivated
by a desire to serve the interest of the riding public, clearly
not to defraud its creditors, as there is no showing that they
were not put on the run after their repairs, as was the obvious
purpose of their substitution to be placed in running
condition.
Moreover, as the buses were mortgaged to the DBP, their
removal or disposal as alleged by petitioner to provide the
basis for its prayer for the issuance of a writ of attachment
should be very remote, if not nil. If removal of the buses had
in fact been committed, which seems to exist only in
petitioner's apprehensive imagination, the DBP should not
have failed to take proper court action, both civil and
criminal, which apparently has not been done.
The dwindling of respondent's bank account despite its daily
income of from P10,000.00 to P14,000.00 is easily explained
by its having to meet heavy operating expenses, which
include salaries and wages of employees and workers. If,
indeed the income of the company were sufficiently
profitable, it should not allow its buses to fall into disuse by
lack of repairs. It should also maintain a good credit standing
with its suppliers of equipment, and other needs of the
company to keep its business a going concern. Petitioner is
only one of the suppliers.
It is, indeed, extremely hard to remove the buses, machinery
and other equipments which respondent company have to
own and keep to be able to engage and continue in the
operation of its transportation business. The sale or other
form of disposition of any of this kind of property is not
difficult of detection or discovery, and strangely, petitioner,
has adduced no proof of any sale or transfer of any of them,
which should have been easily obtainable.
In the main, therefore, We find that the respondent Court of
Appeals has not committed any reversible error, much less
grave abuse of discretion, except that the restraining order
issued by it should not have included restraining the trial
court from hearing the case, altogether. Accordingly, the
instant petition is hereby denied, but the trial court is hereby
ordered to immediately proceed with the hearing of Civil
Case No. 7329 and decide it in accordance with the law and
the evidence. No special pronouncement as to costs.
ELPIDIO JAVELLANA, PLAINTIFF-APPELLANT, VS. D. O.
PLAZA ENTERPRISES, INC., DEFENDANT-APPELLEE.
Direct appeal, on points of law, from an order of the Court of
First Instance of Manila, in its Civil Case No. 46762, modifying
an earlier decision for the plaintiff by reducing the rate of
interest on the sum adjudged, and also the attorney's fees;
and by ordering the plaintiff to pay damages to the
defendant on account of a preliminary attachment obtained
by the former upon the latter's counterclaim.
The complaint in the aforesaid civil case was for collection of
the sum of P43,017.32, representing balance due on
purchases of wire ropes, tractors and diesel parts made by
the defendant-appellee, D. O. Plaza Enterprises, Inc., from the
plaintiff-appellant, Elpidio Javellana. The complaint prayed
that the defendant be ordered to pay the said sum of
P43,017.32, with legal interest, plus attorney's fees in the sum
of P5,000.00; it also prayed for a writ of preliminary
attachment.
Upon plaintiff's putting up a bond, the trial court, on 15 April
1961, issued a writ of attachment. On 20 May 1961, the
defendant moved to discharge the attachment on the ground
that it was improperly issued. The motion was denied.
On 7 November 1961, the defendant filed its answer and
counterclaimed for damages arising from the attachment.
The plaintiff answered and interposed a counterclaim to the
counterclaim.
After some years, or on 27 April 1966, the defendant moved
for the dissolution of the preliminary attachment. Upon its
filing a counterbond, the court, on 7 May 1966, dissolved the
attachment.
On 3 November 1966, the plaintiff filed a motion to admit his
amended complaint, which the court granted on 12
November 1966. In this amended complaint, the plaintiff
averred that of the sum of P43,017.32 alleged in the original
complaint, the defendant has paid P3,900.00, thereby leaving
Page 10 of 25
a balance of P39,117.32 unpaid, but that, as indicated by
invoices, defendant's purchases were payable within thirty
(30) days and were to bear interest of 12% per annum plus
25% attorney's fees. The amended complaint accordingly
prayed for the increased amounts. Defendant did not answer
this amended complaint.
After trial, the court, on 15 June 1967, rendered judgment. It
found the following facts:
" - - - - - - - - - . During the period from 23 July 1959 to 30
July 1960, defendant, in a series of transactions, purchased
from plaintiff wire ropes, tractors and diesel spare parts, (in)
payment for which he issued several checks amounting to
P43,017.32, which, when presented to the bank, were
dishonored for lack of funds. Defendant substituted these
checks with another set of checks for the same amount, but
again, the same were dishonored for lack of funds, as
evidenced by Exhibits A to M., except for one check in the
amount of P3,900.00, as evidenced by Exhibit C. Thus, the
principal obligation was reduced to P39,117.32. At the time
of the issuance of the said checks, the defendant never
informed plaintiff that it had funds to back them up. Plaintiff
made demands to defendant for payment, but defendant
pleaded for time and liberalization of payment, which was
rejected by the plaintiff. The transactions in question were
covered by invoices listed in Exhibit P, a sample or which is
evidenced by Exhibit C, wherein said transactions were for 30-
days term, 12% interest per annum to be charged from date
of invoice, and 25% attorney's fees in case of litigation.
"The defendant claims that there were other transactions
between plaintiff and defendant involving the amount of
P196,828.58; that it had no intention not to pay the checks it
issued upon presentment; and that it suffered damages in the
amount of P14,800.00 by reason of the attachment.
" ---------------------------------.
" ---------------------------------.
"The counterclaim for damages arising from the attachment is
without merit. The defendant was manifestly in bad faith
when it issued two sets of bouncing checks. Hence, the
attachment was not improper, contrary to defendant's claim."
The dispositive portion of the decision decreed:
"WHEREFORE, judgment is hereby rendered for the plaintiff
and against the defendant, ordering the latter to pay the
former the sum of P39,117.32 with interest at 12% per annum
from 14 April 1961, the date of the filing of the original
complaint, until final payment, plus 25% of the principal
indebtedness as attorney's fees and costs of suit.
"The counterclaim as well as the counterclaim to the
counterclaim are hereby dismissed for lack of merit."
On 28 June 1967, the defendant moved to reconsider. Over
the objection of the plaintiff, the court issued an order dated
10 August 1967, now the subject of the present appeal,
modifying the previous decision, in the manner following:
"WHEREFORE, the dispositive part of the decision rendered in
this case is hereby modified as follows:
"(a) By ordering the defendant to pay plaintiff the sum of
P39,117.20 plus the legal interest therein from the filing of
the complaint until the amount is fully paid.
"(b) Ordering the plaintiff to pay defendant the sum of
P16,190.00, the amount of damages suffered by the
defendant on account of the preliminary attachment of the
defendant; and
"(c) By ordering the defendant to pay P5,000.00 as attorney's
fees.
"Without pronouncement as to costs."
Plaintiff-appellant assigns the following errors: the reduction
of the attorney's fees, the reduction of the interest, and the
grant to the defendant of damages arising from the
attachment.
The first two assigned errors are well-taken. The court a quo
reduced the interest stated in its previous decision from 12%
to mere legal interest and the attorney's fees from 25% to
P5,000.00 on the basis of estoppel, the ground therefor being
that the reduced amounts were those alleged, hence
admitted, by the plaintiff in his original complaint. This was
error. The original complaint was not formally offered in
evidence. Having been amended, the original complaint lost
its character as a judicial admission, which would have
required no proof, and became merely an extrajudicial
admission, the admissibility of which, as evidence, requires its
formal offer.
"Pleadings superseded or amended disappear from the
record as judicial admissions. However, any statement
contained therein may be considered as an extrajudicial
admission, and as such, in order that the court may take it
into consideration, it should be offered formally in evidence."
(5 Moran 58, citing Lucido v. Calupitan, 27 Phil. 148; Bastida v.
Menzi, 58 Phil. 188)
"Where amended pleadings have been filed, allegations in
the original pleadings can have no effect, unless formally
offered in evidence." (Jones on Evidence, Sec. 273)
Since the record does not show that the complaint (marked
as Exhibit 115) was admitted in evidence, there is no proof of
estoppel on the part of the plaintiff on his allegations in the
complaint. Not only this, but since the stipulation for 12%
interest on balance due and the 25% counsel fees appear on
the invoices themselves, appellee Plaza Enterprises can not
fairly claim that it was deceived or misled by the pleadings of
appellant. Even more, the original plea for P5,000.00 as
attorney's fees is only contained in the prayer of the original
complaint, and it is a well established rule that the prayer for
relief, although part of the complaint, is no part of the cause
Page 11 of 25
of action and does not give it character, the plaintiff being
entitled to as much relief as the facts warrant (Rosales vs.
Reyes, 25 Phil. 495; Aguilar vs. Rubiato, 40 Phil. 470).
But the appellant's last assigned error is without merit.
Although the defendant was found to be in bad faith in
issuing two (2) sets of bouncing checks in payment for its
indebtedness, such bad faith was not related to his having
incurred the obligation in favor of the plaintiff but to
defendant's failure to perform said Obligation. There was,
therefore, no ground for the plaintiff to attach the defendant'
s properties on the ground of fraud. That the plaintiff acted
in good faith in securing attachment does not relieve him
from the damages that the defendant sustained by reason of
the attachment because he, the plaintiff, was, in the first
place, not entitled to attachment; the element of malice was
unnecessary (3 Moran, Rules of Court, 19).
FOR THE FOREGOING REASONS, the appealed order is
hereby reversed insofar as it reduced the amount of attorney'
s fees and the interest on the principal sum adjudged in the
original decision dated, 15 June 1967; but the order is
affirmed in all other respects. No costs.
PHILIPPINES BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS and BERNARDINO
VILLANUEVA, respondents.
x ---------------------------------------- x
G.R. No. 119723 February 23, 2001
PHILIPPINE BANK OF COMMUNICATIONS, petitioner,
vs.
HON. COURT OF APPEALS and FILIPINAS TEXTILE MILLS,
INC., respondents.
YNARES-SANTIAGO, J.:
Before us are consolidated petitions for review both filed by
Philippine Bank of Communications; one against the May 24,
1994 Decision of respondent Court of Appeals in CA-G.R. SP
No. 328631 and the other against its March 31, 1995 Decision
in CA-G.R. SP No. 32762.2 Both Decisions set aside and
nullified the August 11, 1993 Order3 of the Regional Trial
Court of Manila, Branch 7, granting the issuance of a writ of
preliminary attachment in Civil Case No. 91-56711.
The case commenced with the filing by petitioner, on April 8,
1991, of a Complaint against private respondent Bernardino
Villanueva, private respondent Filipinas Textile Mills and one
Sochi Villanueva (now deceased) before the Regional Trial
Court of Manila. In the said Complaint, petitioner sought the
payment of P2,244,926.30 representing the proceeds or value
of various textile goods, the purchase of which was covered
by irrevocable letters of credit and trust receipts executed by
petitioner with private respondent Filipinas Textile Mills as
obligor; which, in turn, were covered by surety agreements
executed by private respondent Bernardino Villanueva and
Sochi Villanueva. In their Answer, private respondents
admitted the existence of the surety agreements and trust
receipts but countered that they had already made payments
on the amount demanded and that the interest and other
charges imposed by petitioner were onerous.
On May 31, 1993, petitioner filed a Motion for Attachment,4
contending that violation of the trust receipts law constitutes
estafa, thus providing ground for the issuance of a writ of
preliminary attachment; specifically under paragraphs "b" and
"d," Section 1, Rule 57 of the Revised Rules of Court.
Petitioner further claimed that attachment was necessary
since private respondents were disposing of their properties
to its detriment as a creditor. Finally, petitioner offered to
post a bond for the issuance of such writ of attachment.
The Motion was duly opposed by private respondents and,
after the filing of a Reply thereto by petitioner, the lower
court issued its August 11, 1993 Order for the issuance of a
writ of preliminary attachment, conditioned upon the filing of
an attachment bond. Following the denial of the Motion for
Reconsideration filed by private respondent Filipinas Textile
Mills, both private respondents filed separate petitions for
certiorari before respondent Court assailing the order
granting the writ of preliminary attachment.1âwphi1.nêt
Both petitions were granted, albeit on different grounds. In
CA-G.R. SP No. 32762, respondent Court of Appeals ruled
that the lower court was guilty of grave abuse of discretion in
not conducting a hearing on the application for a writ of
preliminary attachment and not requiring petitioner to
substantiate its allegations of fraud, embezzlement or
misappropriation. On the other hand, in CA-G.R. SP No.
32863, respondent Court of Appeals found that the grounds
cited by petitioner in its Motion do not provide sufficient
basis for the issuance of a writ of preliminary attachment,
they being mere general averments. Respondent Court of
appeals held that neither embezzlement, misappropriation
nor incipient fraud may be presumed; they must be
established in order for a writ of preliminary attachment to
issue.
Hence, the instant consolidated5 petitions charging that
respondent Court of Appeals erred in –
"1. Holding that there was no sufficient basis for the issuance
of the writ of preliminary attachment in spite of the
Page 12 of 25
allegations of fraud, embezzlement and misappropriation of
the proceeds or goods entrusted to the private respondents;
2. Disregarding the fact that the failure of FTMI and
Villanueva to remit the proceeds or return the goods
entrusted, in violation of private respondents' fiduciary duty
as entrustee, constitute embezzlement or misappropriation
which is a valid ground for the issuance of a writ of
preliminary attachment."6
We find no merit in the instant petitions.
To begin with, we are in accord with respondent Court of
Appeals in CA-G.R. SP No. 32863 that the Motion for
Attachment filed by petitioner and its supporting affidavit did
not sufficiently establish the grounds relied upon in applying
for the writ of preliminary attachment.
The Motion for Attachment of petitioner states that –
1. The instant case is based on the failure of defendants as
entrustee to pay or remit the proceeds of the goods
entrusted by plaintiff to defendant as evidenced by the trust
receipts (Annexes "B", "C" and "D" of the complaint), nor to
return the goods entrusted thereto, in violation of their
fiduciary duty as agent or entrustee;
2. Under Section 13 of P.D. 115, as amended, violation of the
trust receipt law constitute(s) estafa (fraud and/or deceit)
punishable under Article 315 par. 1[b] of the Revised Penal
Code;
3. On account of the foregoing, there exist(s) valid ground for
the issuance of a writ of preliminary attachment under
Section 1 of Rule 57 of the Revised Rules of Court particularly
under sub-paragraphs "b" and "d", i.e. for embezzlement or
fraudulent misapplication or conversion of money (proceeds)
or property (goods entrusted) by an agent (entrustee) in
violation of his fiduciary duty as such, and against a party
who has been guilty of fraud in contracting or incurring the
debt or obligation;
4. The issuance of a writ of preliminary attachment is likewise
urgently necessary as there exist(s) no sufficient security for
the satisfaction of any judgment that may be rendered
against the defendants as the latter appears to have disposed
of their properties to the detriment of the creditors like the
herein plaintiff;
5. Herein plaintiff is willing to post a bond in the amount
fixed by this Honorable Court as a condition to the issuance
of a writ of preliminary attachment against the properties of
the defendants.
Section 1 (b) and (d), Rule 57 of the then controlling Revised
Rules of Court, provides, to wit –
SECTION 1. Grounds upon which attachment may issue. – A
plaintiff or any proper party may, at the commencement of
the action or at any time thereafter, have the property of the
adverse party attached as security for the satisfaction of any
judgment that may be recovered in the following cases:
xxx xxx xxx
(b) In an action for money or property embezzled or
fraudulently misapplied or converted to his us by a public
officer, or an officer of a corporation, or an attorney, factor,
broker, agent or clerk, in the course of his employment as
such, or by any other person in a fiduciary capacity, or for a
willful violation of duty;
xxx xxx xxx
(d) In an action against a party who has been guilty of fraud
in contracting the debt or incurring the obligation upon
which the action is brought, or in concealing or disposing of
the property for the taking, detention or conversion of which
the action is brought;
xxx xxx xxx
While the Motion refers to the transaction complained of as
involving trust receipts, the violation of the terms of which is
qualified by law as constituting estafa, it does not follow that
a writ of attachment can and should automatically issue.
Petitioner cannot merely cite Section 1(b) and (d), Rule 57, of
the Revised Rules of Court, as mere reproduction of the rules,
without more, cannot serve as good ground for issuing a writ
of attachment. An order of attachment cannot be issued on a
general averment, such as one ceremoniously quoting from a
pertinent rule.7
The supporting Affidavit is even less instructive. It merely
states, as follows –
I, DOMINGO S. AURE, of legal age, married, with address at
No. 214-216 Juan Luna Street, Binondo, Manila, after having
been sworn in accordance with law, do hereby depose and
say, THAT:
1. I am the Assistant Manager for Central Collection Units
Acquired Assets Section of the plaintiff, Philippine Bank of
Communications, and as such I have caused the preparation
of the above motion for issuance of a writ of preliminary
attachment;
Page 13 of 25
2. I have read and understood its contents which are true
and correct of my own knowledge;
3. There exist(s) sufficient cause of action against the
defendants in the instant case;
4. The instant case is one of those mentioned in Section 1
of Rule 57 of the Revised Rules of Court wherein a writ of
preliminary attachment may be issued against the
defendants, particularly subparagraphs "b" and "d" of said
section;
5. There is no other sufficient security for the claim sought
to be enforced by the instant case and the amount due to
herein plaintiff or the value of the property sought to be
recovered is as much as the sum for which the order for
attachment is granted, above all legal counterclaims.
Again, it lacks particulars upon which the court can discern
whether or not a writ of attachment should issue.
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,8 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)
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.
The Court of Appeals was correct, therefore, in its finding in
CA-G.R. SP No. 32863 that neither petitioner's Motion or its
supporting Affidavit provides sufficient basis for the issuance
of the writ of attachment prayed for.
We also agree with respondent Court of Appeals in CA-G.R.
SP No. 32762 that the lower court should have conducted a
hearing and required private petitioner to substantiate its
allegations of fraud, embezzlement and misappropriation.
To reiterate, petitioner's Motion for Attachment fails to meet
the standard set in D.P. Lub Oil Marketing Center, Inc. v.
Nicolas,10 in applications for attachment. In the said case, this
Court cautioned –
The petitioner's prayer for a writ of preliminary attachment
hinges on the allegations in paragraph 16 of the complaint
and paragraph 4 of the affidavit of Daniel Pe which are
couched in general terms devoid of particulars of time,
persons and places to support support such a serious
assertion that "defendants are disposing of their properties in
fraud of creditors." There is thus the necessity of giving to the
private respondents an opportunity to ventilate their side in a
hearing, in accordance with due process, in order to
determine the truthfulness of the allegations. But no hearing
was afforded to the private respondents the writ having been
issued ex parte. A writ of attachment can only be granted on
concrete and specific grounds and not on general averments
merely quoting the words of the rules.
As was frowned upon in D.P. Lub Oil Marketing Center, Inc.,11
not only was petitioner's application defective for having
merely given general averments; what is worse, there was no
hearing to afford private respondents an opportunity to
ventilate their side, in accordance with due process, in order
to determine the truthfulness of the allegations of petitioner.
As already mentioned, private respondents claimed that
substantial payments were made on the proceeds of the trust
receipts sued upon. They also refuted the allegations of fraud,
embezzlement and misappropriation by averring that private
respondent Filipinas Textile Mills could not have done these
as it had ceased its operations starting in June of 1984 due to
workers' strike. These are matters which should have been
addressed in a preliminary hearing to guide the lower court
to a judicious exercise of its discretion regarding the
attachment prayed for. On this score, respondent Court of
Appeals was correct in setting aside the issued writ of
preliminary attachment.
Page 14 of 25
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.12
WHEREFORE, for the foregoing reasons, the instant petitions
are DENIED. The decision of the Court of Appeals in CA-G.R.
SP No. 32863 and CA-G.R. SP No. 32762 are AFFIRMED. No
pronouncement as to costs
WATERCRAFT VENTURE CORPORATION, REPRESENTED
BY ITS VICE-PRESIDENT, ROSARIO E. RAÑOA, Petitioner,
v. ALFRED RAYMOND WOLFE, Respondent.
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, seeking to reverse and set aside the Court of
Appeals (CA) Resolution1 dated January 24, 2008 denying the
motion for reconsideration of its Decision2 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 1703 of the Regional Trial Court
(RTC) of Malabon City.
In his Answer, Wolfe claimed he was hired as Service and
Repair Manager, instead of Shipyard Manager. He denied
owing Watercraft the amount of US$16,324.82 representing
storage fees for the sailboat. He explained that the sailboat
was purchased in February 1998 as part of an agreement
between him and Watercraft1 s then General Manager, Barry
Bailey, and its President, Ricky Sandoval, for it to be repaired
and used as training or fill-in project for the staff, and to be
sold later on. He added that pursuant to a central Listing
Agreement for the sale of the sailboat, he was appointed as
agent, placed in possession thereof and entitled to a ten
percent (10%) sales commission. He insisted that nowhere in
the agreement was there a stipulation that berthing and
storage fees will be charged during the entire time that the
sailboat was in Watercraft's dockyard. Thus, he claimed to
have been surprised when he received five (5) invoices billing
him for the said fees two (2) months after his services were
terminated. Fie pointed out that the complaint was an
offshoot of an illegal dismissal case he filed against
Watercraft which had been decided in his favor by the Labor
Arbiter.
Meanwhile, finding Watercraft's ex-parte application for writ
of preliminary attachment sufficient in form and in substance
pursuant to Section 1 of Rule 57 of the Rules of Court, the
RTC granted the same in the Order dated July 15, 2005, thus:
WHEREFORE, let a Writ of Preliminary Attachment be issued
accordingly in favor of the plaintiff, Watercraft Ventures
Corporation conditioned upon the filing of attachment bond
in the amount of Three Million Two Hundred Thirty-One
Thousand Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served simultaneously
with the summons, copies of the complaint, application for
attachment, applicant's affidavit and bond, and this Order
upon the defendant.
SO ORDERED.4
Pursuant to the Order dated July 15, 2005, the Writ of
Attachment dated August 3, 2005 and the Notice of
Attachment dated August 5, 2005 were issued, and Wolfe's
two vehicles, a gray Mercedes Benz with plate number XGJ
Page 15 of 25
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
Page 16 of 25
"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.
Page 17 of 25

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 court14 in which the
action is pending. Such bond executed to the adverse party in
the amount fixed by the court is subject to the conditions
that the applicant will pay: (1) all costs which may be
adjudged to the adverse party; and (2) all damages which
such party may sustain by reason of the attachment, if the
court shall finally adjudge that the applicant was not entitled
thereto.15 As to the requisite affidavit of merit, Section 3,16
Rule 57 of the Rules of Court states that an order of
attachment shall be granted only when it appears in the
affidavit of the applicant, or of some other person who
personally knows the facts:
that a sufficient cause of action exists;
that the case is one of those mentioned in Section 117
hereof;
that there is no other sufficient security for the claim sought
to be enforced by the action; and
that the amount due to the applicant, or the value of the
property the possession of which he is entitled to recover, is
as much as the sum for which the order is granted above all
legal counterclaims.
The 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
Page 18 of 25
affidavit of merit sufficiently established facts which
constitute as grounds upon which attachment may be issued
under Section 1 (a)20 and (d),21 Rule 57, the Court will
examine the Affidavit of Preliminary Attachment22 of Rosario
E. Rañoa, its Vice-President, which reiterated the following
allegations in its complaint to substantiate the application for
a writ of preliminary attachment:
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
Page 19 of 25
amount to fraud, absent any showing that such failure was
due to insidious machinations and intent on his part to
defraud Watercraft of the amount due it.
In Liberty Insurance Corporation v. Court of Appeals,25 the
Court explained that to constitute a ground for attachment in
Section 1(d), Rule 57 of the Rules of Court, it must be shown
that the debtor in contracting the debt or incurring the
obligation intended to defraud the creditor. A debt is
fraudulently contracted if at the time of contracting it, the
debtor has a preconceived plan or intention not to pay. "The
fraud must relate to the execution of the agreement and
must have been the reason which induced the other party
into giving consent which he would not have otherwise
given."26
Fraudulent intent is not a physical entity, but a condition of
the mind beyond the reach of the senses, usually kept secret,
very unlikely to be confessed, and therefore, can only be
proved by unguarded expressions, conduct and
circumstances.27 Thus, the applicant for a writ of preliminary
attachment must sufficiently show the factual circumstances
of the alleged fraud because fraudulent intent cannot be
inferred from the debtor's mere non-payment of the debt or
failure to comply with his obligation.28 The particulars of
such circumstances necessarily include the time, persons,
places and specific acts of fraud committed.29 An affidavit
which does not contain concrete and specific grounds is
inadequate to sustain the issuance of such writ. In fact, mere
general averments render the writ defective and the court
that ordered its issuance acted with grave abuse of discretion
amounting to excess of jurisdiction.30
In this case, Watercraft's Affidavit of Preliminary Attachment
does not contain specific allegations of other factual
circumstances to show that Wolfe, at the time of contracting
the obligation, had a preconceived plan or intention not to
pay. Neither can it be inferred from such affidavit the
particulars of why he was guilty of fraud in the performance
of such obligation. To be specific, Watercraft's following
allegation is unsupported by any particular averment of
circumstances that will show why or how such inference or
conclusion was arrived at, to wit: "16. For failing to pay for the
use [of] facilities and services - in the form of boat storage
facilities - duly enjoyed by him and for failing and refusing to
fulfill his promise to pay for the said boat storage fees, the
Defendant is clearly guilty of fraud x x x."31 It is not an
allegation of essential facts constituting Watercraft's causes
of action, but a mere conclusion of law.
With respect to Section 1 (a),32 Rule 57, the other ground
invoked by Watercraft for the issuance of the writ of
preliminary attachment, the Court finds no compelling reason
to depart from the CA's exhaustive ruling to the effect that
such writ is unnecessary because Wolfe is not a flight risk,
thus:
As to the allegation that Wolfe is a (light risk, thereby
warranting the issuance of the writ, the same lacks merit. The
mere fact that Wolfe is a British national does not
automatically mean that he would leave the country at will. As
Wolfe avers, he and his family had been staying in the
Philippines since 1997, with his daughters studying at a local
school. He also claims to be an existing stockholder and
officer of Wolfe Marine Corporation, a SEC - registered
corporation, as well as a consultant of projects in the Subic
Area, a member of the Multipartite Committee for the new
port development in Subic, and a member of the Subic
Chamber of Commerce. More importantly, Wolfe has a
pending labor case against Watercraft - a fact which the
company glaringly failed to mention in its complaint - which
Wolfe claims to want to prosecute until its very end. The said
circumstances, as well as the existence of said labor case
where Wolfe stands not only to be vindicated for his alleged
illegal dismissal, but also to receive recompense, should have
convinced the trial court that Wolfe would not want to leave
the country at will just because a suit for the collection of the
alleged unpaid boat storage fees has been filed against him
by Watercraft.
Neither should the fact that Wolfe's Special Working Visa
expired in April 2005 lead automatically to the conclusion
that he would leave the country. It is worth noting that all
visas issued by the government to foreigner staying in the
Philippines have expiration periods. These visas, however,
may be renewed, subject to the requirements of the law. In
Wolfe's case, he indeed renewed his visa, as shown by Special
Working Visa No. 05-WV-0124P issued by the Subic Bay
Metropolitan Authority Visa Processing Office on April 25,
2005, and with validity of two (2) years therefrom. Moreover,
his Alien Certificate of Registration was valid up to May 11,
2006.33
Meanwhile, Watercraft's reliance on Chuidian v.
Sandiganbayan34 is displaced. It is well settled that:
x x x when the preliminary attachment is issued upon a
ground which is at the same time the applicant's cause of
action; e.g., "an action for money or property embezzled or
fraudulently misapplied or converted to his own use by a
public officer, or an officer of a corporation, or an attorney,
factor, broker, agent, or clerk, in the course of his
employment as such, or by any other person in a fiduciary
capacity, or for a willful violation of duty," or "an action
against a party who has been guilty of fraud in contracting
the debt or incurring the obligation upon which the action is
brought," the defendant is not allowed to file a motion to
dissolve the attachment under Section 13 of Rule 57 by
offering to show the falsity of the factual averments in the
plaintiffs application and affidavits on which the writ was
based - and consequently that the writ based thereon had
Page 20 of 25
been improperly or irregularly issued - the reason being that
the hearing on such a motion for dissolution of the writ
would be tantamount to a trial of the merits of the action. In
other words, the merits of the action would be ventilated at a
mere hearing of a motion, instead of at the regular trial.35
Be that as it may, the foregoing rule is not applicable in this
case because when Wolfe filed a motion to dissolve the writ
of preliminary attachment, he did not offer to show the falsity
of the factual averments in Watercraft's application and
affidavit on which the writ was based. Instead, he sought the
discharge of the writ on the ground that Watercraft failed to
particularly allege any circumstance amounting to fraud. No
trial on the merits of the action at a mere hearing of such
motion will be had since only the sufficiency of the factual
averments in the application and affidavit of merit will be
examined in order to find out whether or not Wolfe was
guilty of fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in the
performance thereof.
Furthermore, the other ground upon which the writ of
preliminary attachment was issued by the RTC is not at the
same time the applicant's cause of action. Assuming
arguendo that the RTC was correct in issuing such writ on the
ground that Watercraft's complaint involves an action for the
recovery of a specified amount of money or damages against
a party, like Wolfe, who is about to depart from the
Philippines with intent to defraud his creditors, the Court
stresses that the circumstances36 cited in support thereof are
merely allegations in support of its application for such
writ.37 Such circumstances, however, are neither the core of
Watercraft's complaint for collection of sum of money and
damages, nor one of its three (3) causes of action therein.38
All told, the CA correctly ruled that Watercraft failed to meet
one of the requisites for the issuance of a writ of preliminary
attachment, i.e., that the case is one of those mentioned in
Section 1 of Rule 57, and that the RTC gravely abused its
discretion in improvidently issuing such writ. Watercraft failed
to particularly state in its affidavit of merit the circumstances
constituting intent to defraud creditors on the part of Wolfe
in contracting or in the performance of his purported
obligation to pay boat storage fees, as well as to establish
that he is a flight risk. Indeed, if all the requisites for granting
such writ are not present, then the court which issues it acts
in excess of its jurisdiction.
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.
FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE HONORABLE JUDGE BENJAMIN RELOVA (In his
capacity as Presiding Judge of the Court of First Instance
of Manila, Branch XI) and ERNESTO SALAZAR,
respondents.
This is a special civil action for certiorari, with prayer for
restraining order or preliminary injunction, filed by petitioner
Filinvest Credit Corporation seeking to annul the Orders
issued by respondent Judge dated February 2, 1979 and April
4, 1979 in Civil Case No. 109900.
As shown by the records, the antecedents of the instant
Petition are as follows:
On August 2, 1977, Filinvest Credit Corporation (hereinafter
referred to as FILINVEST) filed a complaint in the lower court
against defendants Rallye Motor Co., Inc. (hereinafter referred
to as RALLYE) and Emesto Salazar for the collection of a sum
of money with damages and preliminary writ of attachment.
From the allegations of the complaint, 1 it appears that in
payment of a motor vehicle described as: "One (1) Unit
MAZDA DIESEL SCHOOL BUS, Model: E4100, Serial No.:
EXC43P-02356, Motor No.: Y-13676," Salazar executed a
promissory note dated May 5, 1977 in favor of RALLYE for the
amount of P99,828.00. To secure the note, Salazar also
executed in favor of RALLYE a deed of chattel mortgage over
the above described motor vehicle. On May 7, 1977, RALLYE,
for valuable consideration, assigned all its rights, title and
interest to the aforementioned note and mortgage to
FILINVEST. Thereafter, FILINVEST came to know that RALLYE
had not delivered the motor vehicle subject of the chattel
mortgage to Salazar, "as the said vehicle (had) been the
subject of a sales agreement between the codefendants."
Salazar defaulted in complying with the terms and conditions
of the aforesaid promissory note and chattel mortgage.
RALLYE, as assignor who guaranteed the validity of the
obligation, also failed and refused to pay FILINVEST despite
demand. According to FILINVEST, the defendants
intentionally, fraudulently and with malice concealed from it
the fact that there was no vehicle delivered under the
documents negotiated and assigned to it, otherwise, it would
not have accepted the negotiation and assignment of the
rights and interest covered by the promissory note and
chattel mortgage. Praying for a writ of preliminary
attachment, FILINVEST submitted with its complaint the
affidavit of one Gil Mananghaya, pertinent portions of which
read thus:
That he is the Collection Manager, Automotive Division of
Filinvest Credit Corporation;
That in the performance of his duties, he came to know of the
account of Ernesto Salazar, which is covered by a Promissory
Page 21 of 25
Note and secured by a Chattel Mortgage, which documents
together with all the rights and interest thereto were assigned
by Rallye Motor Co., Inc.;
That for failure to pay a stipulated installment, and the fact
that the principal debtor, Ernesto Salazar, and the assignor,
Rallye Motor Co., Inc. concealed the fact that there was really
no motor vehicle mortgaged under the terms of the
Promissory Note and the Chattel Mortgage, the entire
amount of the obligation stated in the Promissory Note
becomes due and demandable, which Ernesto Salazar and
Rallye Motor Co., Inc. failed and refused to pay, so much so
that a sufficient cause of action really exists for Filinvest Credit
Corporation to institute the corresponding complaint against
said person and entity;
That the case is one of those mentioned in Section 1, Rule 57
of his Rules of Court, particularly an action against parties
who have been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought;
That there is no other sufficient security for the claim sought
to be enforced by the action, and that the amount due to the
applicant Filinvest Credit Corporation is as much as the sum
for which the order is granted above all legal counterclaims;
That this affidavit is executed for the purpose of securing a
writ of attachment from the court. 2
The specific provision adverted to in the above Affidavit is
Section 1(d) of Rule 57 which includes "an action against a
party who has been guilty of fraud in contracting the debt or
incurring the obligation upon which the action is brought, or
in concealing or disposing of the property for the taking,
detention or conversion of which the action is brought" as
one of the cases in which a "plaintiff or any proper party may,
at the commencement of the action or at any time thereafter,
have the property of the adverse party attached as security
for the satisfaction of any judgment that may be recovered."
Judge Jorge R. Coquia (now Justice of the Court of Appeals),
then presiding Judge of the lower court, granted the prayer
for a writ of attachment in an Order dated August 17, 1977
stating that:
Finding the complaint sufficient in form and substance, and in
view of the sworn statement of Gil Mananghaya, Collection
Manager of the plaintiff that defendants have committed
fraud in securing the obligation and are now avoiding
payment of the same, let a writ of attachment issue upon the
plaintiff's filing of a bond in the sum of P97,000.00.
In the meantime, let summons issue on the defendants. 3
More than a year later, in an Urgent Motion dated December
11, 1978, 4 defendant Salazar prayed that the writ of
preliminary attachment issued ex parte and implemented
solely against his property be recalled and/or quashed. He
argued that when he signed the promissory note and chattel
mortgage on May 5, 1977 in favor of RALLYE, FILINVEST was
hot vet his creditor or obligee, therefore, he could not be said
to have committed fraud when he contracted the obligation
on May 5, 1977. Salazar added that as the motor vehicle
which was the object of the chattel mortgage and the
consideration for the promissory note had admittedly not
been delivered to him by RALLYE, his repudiation of the loan
and mortgage is more justifiable.
FILINVEST filed an Opposition, but on February 2, 1979, the
court a quo, this time presided over by herein respondent
Judge, ordered the dissolution and setting aside of the writ of
preliminary attachment issued on August 17, 1977 and the
return to defendant Salazar of all his properties attached by
the Sheriff by virtue of the said writ. In this Order, respondent
Judge explained that:
When the incident was called for hearing, the Court
announced that, as a matter of procedure, when a motion to
quash a writ of preliminary attachment is filed, it is incumbent
upon the plaintiff to prove the truth of the allegations which
were the basis for the issuance of said writ. In this hearing,
counsel for the plaintiff manifested that he was not going to
present evidence in support of the allegation of fraud. He
maintained that it should be the defendant who should prove
the truth of his allegation in the motion to dissolve the said
writ. The Court disagrees. 5
FILINVEST filed a Motion for Reconsideration of the above
Order, and was subsequently allowed to adduce evidence to
prove that Salazar committed fraud as alleged in the affidavit
of Gil Mananghaya earlier quoted. This notwithstanding,
respondent Judge denied the Motion in an Order dated April
4, 1979 reasoning thus:
The plaintiff's evidence show that the defendant Rallye Motor
assigned to the former defendant Salazar's promissory note
and chattel mortgage by virtue of which plaintiff discounted
the note. Defendant Salazar refused to pay the plaintiff for
the reason that Rallye Motor has not delivered to Salazar the
motor vehicle which he bought from Rallye. It is the position
of plaintiff that defendant Salazar was in conspiracy with
Rallye Motor in defrauding plaintiff.
Ernesto Salazar, on his part complained that he was himself
defrauded, because while he signed a promissory note and
chattel mortgage over the motor vehicle which he bought
from Rallye Motor, Rallye Motor did not deliver to him the
Page 22 of 25
personal property he bought; that the address and existence
of Rallye Motor can no longer be found.
While it is true that the plaintiff may have been defrauded in
this transaction, it having paid Rallye Motor the amount of
the promissory note, there is no evidence that Ernesto Salazar
had connived or in any way conspired with Rallye Motor in
the assignment of the promissory note to the plaintiff,
because of which the plaintiff paid Rallye Motor the amount
of the promissory note. Defendant Ernesto Salazar was
himself a victim of fraud. Rallye Motor was the only party
which committed it. 6
From the above order denying reconsideration and ordering
the sheriff to return to Salazar the personal property attached
by virtue of the writ of preliminary attachment issued on
August 17, 1977, FILINVEST filed the instant Petition on April
19, 1979. On July 16, 1979, petitioner FILINVEST also filed an
Urgent Petition for Restraining Order 7 alleging, among
others, that pending this certiorari proceeding in this court,
private respondent Salazar filed a Motion for Contempt of
Court in the court below directed against FILINVEST and four
other persons allegedly for their failure to obey the Order of
respondent Judge dated April 4, 1979, which Order is the
subject of this Petition. On July 23, 1979, this Court issued a
temporary restraining order "enjoining respondent Judge or
any person or persons acting in his behalf from hearing
private respondent's motion for contempt in Civil Case No.
109900, entitled, 'Filinvest Credit Corporation, Plaintiff, versus
The Rallye Motor Co., Inc., et al., Defendants' of the Court of
First Instance of Manila, Branch XI. " 8
Petitioner FILINVEST in its MEMORANDUM contends that
respondent Judge erred:
(1) In dissolving the writ of preliminary attachment already
enforced by the Sheriff of Manila without Salazar's posting a
counter-replevin bond as required by Rule 57, Section 12; and
(2) In finding that there was no fraud on the part of Salazar,
despite evidence in abundance to show the fraud perpetrated
by Salazar at the very inception of the contract.
It is urged in petitioner's first assignment of error that the writ
of preliminary attachment having been validly and properly
issued by the lower court on August 17, 1977, the same may
only be dissolved, quashed or recalled by the posting of a
counter-replevin bond under Section 12, Rule 57 of the
Revised Rules of Court which provides that:
Section 12. Discharge of Attachment upon, gluing
counterbond.—At any time after an order of attachment has
been granted, the party whose property has been attached,
or the person appearing on his behalf, may, upon reasonable
notice to the applicant, apply to the judge who granted the
order, or to the judge of the court, in which the action is
pending, for an order discharging the attachment wholly or in
part on the security given. The judge shall, after hearing,
order the discharge of the attachment if a cash deposit is
made, or a counter-bond executed to the attaching creditor is
filed, on behalf of the adverse party, with the clerk or judge of
the court where the application is made, in an amount equal
to the value of the property attached as determined by the
judge, to secure the payment of any judgment that the
attaching creditor may recover in the action. ...
Citing the above provision, petitioner contends that the court
below should not have issued the Orders dated February 2,
1979 and April 4, 1979 for failure of private respondent
Salazar to make a cash deposit or to file a counter-bond.
On the other hand, private respondent counters that the
subject writ of preliminary attachment was improperly or
irregularly issued in the first place, in that it was issued ex
parte without notice to him and without hearing.
We do not agree with the contention of private respondent.
Nothing in the Rules of Court makes notice and hearing
indispensable and mandatory requisites for the issuance of a
writ of attachment. The statement in the case of Blue Green
Waters, Inc. vs. Hon. Sundiam and Tan 9 cited by private
respondent, to the effect that the order of attachment issued
without notice to therein petitioner Blue Green Waters, Inc.
and without giving it a chance to prove that it was not
fraudulently disposing of its properties is irregular, gives the
wrong implication. As clarified in the separate opinion of Mr.
Justice Claudio Teehankee in the same cited case, 10 a writ of
attachment may be issued ex parte. Sections 3 and 4, Rule 57,
merely require that an applicant for an order of attachment
file an affidavit and a bond: the affidavit to be executed by
the applicant himself or some other person who personally
knows the facts and to show that (1) there is a sufficient cause
of action, (2) the case is one of those mentioned in Section 1
of Rule 57, (3) there is no other sufficient security for the
claim sought to be enforced, and (4) the amount claimed in
the action is as much as the sum for which the order is
granted above all legal counterclaims; and the bond to be
"executed to the adverse party in an amount fixed by the
judge, not exceeding the applicant's claim, conditioned that
the latter will pay all the costs which may be adjudged to the
adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge
that the applicant was not entitled thereto."
We agree, however, with private respondents contention that
a writ of attachment may be discharged without the necessity
of filing the cash deposit or counter-bond required by
Page 23 of 25
Section 12, Rule 57, cited by petitioner. The following
provision of the same Rule allows it:
Sec. 13. Discharge of attachment for improper or irregular
issuance.—The party whose property has been attached may
also, at any time either before or after the release of the
attached property, or before any attachment shall have been
actually levied, upon reasonable notice to the attaching
creditor, apply to the judge who granted the order, or to the
judge of the court in which the action is pending, for an order
to discharge the attachment on the ground that the same
was improperly or irregularly issued. If the motion be made
on affidavits on the part of the party whose property has
been attached, but not otherwise, the attaching creditor may
oppose the same by counter-affidavits or other evidence in
addition to that on which the attachment was made. After
hearing, the judge shall order the discharge of the
attachment if it appears that it was improperly or irregularly
issued and the defect is not cured forthwith."(Emphasis
supplied)
The foregoing provision grants an aggrieved party relief from
baseless and unjustifiable attachments procured, among
others, upon false allegations, without having to file any cash
deposit or counter-bond. In the instant case the order of
attachment was granted upon the allegation of petitioner, as
plaintiff in the court below, that private respondent RALLYE,
the defendants, had committed "fraud in contracting the debt
or incurring the obligation upon which the action is brought,"
covered by Section i(d), Rule 57, earlier quoted. Subsequent
to the issuance of the attachment order on August 17, 1977,
private respondent filed in the lower court an "Urgent Motion
for the Recall and Quashal of the Writ of Preliminary
Attachment on (his property)" dated December 11, 1978 11
precisely upon the assertion that there was "absolutely no
fraud on (his) part" in contracting the obligation sued upon
by petitioner. Private respondent was in effect claiming that
petitioner's allegation of fraud was false, that hence there was
no ground for attachment, and that therefore the attachment
order was "improperly or irregularly issued." This Court was
held that "(i)f the grounds upon which the attachment was
issued were not true ..., the defendant has his remedy by
immediately presenting a motion for the dissolution of the
same. 12 We find that private respondent's abovementioned
Urgent Motion was filed under option 13, Rule 57.
The last sentence of the said provision, however, indicates
that a hearing must be conducted by the judge for the
purpose of determining whether or not there reality was a
defect in the issuance of the attachment. The question is: At
this hearing, on whom does the burden of proof lie? Under
the circumstances of the present case, We sustain the ruling
of the court a quo in its questioned Order dated February 2,
1979 that it should be the plaintiff (attaching creditor), who
should prove his allegation of fraud. This pronouncement
finds support in the first sentence of Section 1, Rule 131,
which states that: "Each party must prove his own affirmative
allegations." The last part of the same provision also provides
that: "The burden of proof lies on the party who would be
defeated if no evidence were given on either side." It must be
brne in mind that in this jurisdiction, fraud is never
presumed. FRAUS EST IdIOS ET NON PRAESUMENDA. 13
Indeed, private transactions are presumed to have been fair
and regular. 14 Likewise, written contracts such as the
documents executed by the parties in the instant case, are
presumed to have been entered into for a sufficient
consideration. 15
In a similar case of Villongco, et al., vs. Hon. Panlilio, et al., 16
a writ of preliminary attachment was issued ex parte in a case
for damages on the strength of the affidavit of therein
petitioners to the effect that therein respondents had
concealed, removed or disposed of their properties, credits or
accounts collectible to defraud their creditors. Subsequently,
the lower court dissolved the writ of attachment. This was
questioned in a certiorari proceeding wherein this Court held,
inter alia, that:
The affidavit supporting the petition for the issuance of the
preliminary attachment may have been sufficient to justify the
issuance of the preliminary writ, but it cannot be considered
as proof of the allegations contained in the affidavit. The
reason is obvious. The allegations are mere conclusions of
law, not statement of facts. No acts of the defendants are
ever mentioned in the affidavit to show or prove the
supposed concealment to defraud creditors. Said allegations
are affirmative allegations, which plaintiffs had the obligation
to prove ... 17
It appears from the records that both herein private parties
did in fact adduce evidence to support their respective claims.
18 Attached to the instant Petition as its Annex "H" 19 is a
Memorandum filed by herein petitioner FILINVEST in the
court below on March 20, 1979. After private respondent filed
his Comment to the Petition, 20 petitioner filed a Reply
21 ,attaching another copy of the aforesaid Memorandum as
Annex "A" 22 In this case on February 28, 1979 and March 1,
1979, the plaintiff (FILINVEST) presented in evidence
documentary exhibits "marked Exhibit A, A- I, B, B-1, B-2, B-3,
B-4, C, C-1, D, E, F, G and G-1. The Memorandum goes on to
state that FILINVEST presented as its witness defendant
Salazar himself who testified that he signed Exhibits A, B, C, D,
E and G; that he is a holder of a master's degree in Business
Administration and is himself a very careful and prudent
person; that he does not sign post-dated documents; that he
does not sign contracts which do not reflect the truth or
which are irregular on their face, that he intended to purchase
a school bus from Rallye Motors Co., Inc. from whom he had
Page 24 of 25
already acquired one unit; that he had been dealing with Abel
Sahagun, manager of RALLYE, whom he had known for a long
time that he intended to purchase the school bus on
installment basis so he applied for financing with the
FILINVEST; that he knew his application was approved; that
with his experience as a business executive, he knew that
under a financing arrangement, upon approval of his
application, when he signed Exhibits A, B, C, D, E and G, the
financing company (FILINVEST) would release the proceeds of
the loan to RALLYE and that he would be obligated to pay the
installments to FILINVEST; that he signed Exhibits A, B and C
simultaneously; that it was his wife who was always
transacting business with RALLYE and Abel Sahagun. 23
Without disputing the above summary of evidence, private
respondent Salazar states in his Comment that "the same
evidence proferred by (petitioner's) counsel was adopted by
(private respondent) Ernesto Salazar during the proceedings.
24
FILINVEST as shown in Exhibits "E " and "E-1 " and his
application was approved, thus he negotiated for the
acquisition of the motor vehicle in question from Rallye
Motors. Since he claimed that the motor vehicle was not
delivered to him, then he was duty-bound to reveal that to
FILINVEST, it being material in inducing the latter to accept
the assignment of the promissory note and the chattel
mortgage. More than that, good faith as well as commercial
usages or customs require the disclosure of facts and
circumstances which go into the very object and
consideration of the contractual obligation. We rule that the
failure of respondent Salazar to disclose the material fact of
non-delivery of the motor vehicle, there being a duty on his
part to reveal them, constitutes fraud. (Article 1339, New Civil
Code).
We hold that the court a quo committed grave abuse of
discretion in dissolving and setting aside the writ of
preliminary attachment issued on August 17, 1977.

According to the court a quo in its assailed order of April 4, WHEREFORE, IN VIEW OF THE FOREGOING, the appealed
1979, Emesto Salazar "was himself defrauded because while Orders of the lower court dated February 2, 1979 and April 4,
he signed the promissory note and the chattel mortgage over 1979 are hereby REVERSED and SET ASIDE. The temporary
the vehicle which he bought from Rallye Motors, RALLYE did restraining order issued by Us on July 23, 1979 is hereby
not deliver to him the personal property he bought." And made permanent. No costs
since no fraud was committed by Salazar, the court
accordingly ordered the sheriff to return to Salazar the
properties attached by virtue of the writ of preliminary
attachment issued on August 17, 1977.

We do not agree. Considering the claim of respondent

Salazar that Rallye Motors did not deliver the motor vehicle
to him, it follows that the Invoice, Exhibit "C", for the motor
vehicle and the Receipt, Exhibit "G", for its delivery and both
signed by Salazar, Exhibits "C-1 " and "G-1", were fictitious. It
also follows that the Promissory Note, Exhibit "A", to pay the
price of the undelivered vehicle was without consideration
and therefore fake; the Chattel Mortgage, Exhibit "B", over the
non-existent vehicle was likewise a fraud; the registration of
the vehicle in the name of Salazar was a falsity and the
assignment of the promissory note by RALLYE with the
conforme of respondent Salazar in favor of petitioner over
the undelivered motor vehicle was fraudulent and a
falsification.

Respondent Salazar, knowing that no motor vehicle was

delivered to him by RALLYE, executed and committed all the
above acts as shown the exhibits enumerated above. He
agreed and consented to the assignment by RALLYE of the
fictitious promissory note and the fraudulent chattel
mortgage, affixing his signature thereto, in favor of petitioner
FILINVEST who, in the ordinary course of business, relied on
the regularity and validity of the transaction. Respondent had
previously applied for financing assistance from petitioner

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