Republic of the Philippines

Supreme Court
Baguio City

THIRD DIVISION

CHINA BANKING CORPORATION, G.R. No. 158271

Petitioner,
Present:

AUSTRIA-MARTINEZ, J.,
Acting Chairperson,
- versus - TINGA,*
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
ASIAN CONSTRUCTION and
DEVELOPMENT CORPORATION, Promulgated:
Respondent. April 8, 2008
x----------------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by
petitioner China Banking Corporation (China Bank) seeking to annul the Resolution[1]dated October 14,
2002 and the Resolution[2] dated May 16, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 72175.

The facts of the case:

On July 24, 1996, China Bank granted respondent Asian Construction and
Development Corporation (ACDC) an Omnibus Credit Line in the amount of
P90,000,000.00.[3]

On April 12, 1999, alleging that ACDC failed to comply with its obligations under the Omnibus Credit Line,
China Bank filed a Complaint[4] for recovery of sum of money and damages with prayer for the issuance of
writ of preliminary attachment before the Regional Trial Court (RTC) of Makati, Branch 138, docketed as Civil
Case No. 99-796. In the Complaint, China Bank claimed that ACDC, after collecting and receiving the
proceeds or receivables from the various construction contracts and purportedly holding them in trust for
China Bank under several Deeds of Assignment, misappropriated, converted, and used the funds for its own
purpose and benefit, instead of remitting or delivering them to China Bank.[5]

On April 22, 1999, the RTC issued an Order[6] granting China Banks prayer for writ of preliminary
attachment. Consequently, as shown in the Sheriffs Report[7] dated June 14, 1999, the writ of preliminary
attachment was implemented levying personal properties of ACDC, i.e., vans, dump trucks, cement mixers,
cargo trucks, utility vehicles, machinery, equipment and office machines and fixtures.
 On March 27, 2000, upon motion of China Bank, the RTC issued a Summary Judgment[8] in favor
of China Bank. ACDC filed its Notice of Appeal[9] dated April 24, 2000.

On June 15, 2000, China Bank filed a Motion to Take

On August 25, 2000, China Bank partially appealed the Summary Judgment for not awarding
interest on one of its promissory notes.[13] Records of the case were elevated to the CA.[14]

On April 18, 2002, China Bank filed a Motion for Leave for Grant of Authority to Sell Attached
Properties[15] which the CA denied in the herein assailed Resolution dated October 14, 2002.

According to the CA, selling the attached properties prior to final judgment of the appealed case is
premature and contrary to the intent and purpose of preliminary attachment for the following
reasons: first, the records reveal that the attached properties subject of the motion are not perishable in
nature; and second, while the sale of the attached properties may serve the interest of China Bank, it will
not be so for ACDC. The CA recognized China Banks apprehension that by the time a final judgment is
rendered, the attached properties would be worthless. However, the CA also acknowledged that since
ACDC is a corporation engaged in a construction business, the preservation of the properties is of paramount
importance; and that in the event that the decision of the lower court is reversed and a final judgment
rendered in favor ACDC, great prejudice will result if the attached properties were already sold.

China Bank filed a Motion for Reconsideration[16] which was denied in the herein assailed CA
Resolution[17] dated May 16, 2003.
Hence, the present petition for review on certiorari, on the following ground:

THE HONORABLE COURT OF APPEALS RENDERED THE QUESTIONED

RESOLUTIONS (ANNEXES A and B) IN A MANNER NOT IN ACCORD WITH THE
PROVISIONS OF SECTION 11, RULE 57 OF THE RULES OF CIVIL PROCEDURE, AS
IT SHELVED THE DEMANDS OF EQUITY BY ARBITRARILY DISALLOWING THE
SALE OF THE ATTACHED PROPERTIES, UPHOLDING ONLY THE INTEREST OF
RESPONDENT, IN UTTER PARTIALITY.[18]

Considering that the herein assailed CA Resolutions are interlocutory in nature as they do not
dispose of the case completely but leave something to be done upon the merits,[19] the proper remedy should
have been by way of petition for certiorari under Rule 65, as provided for in Section 1 (b), Rule 41 of the
Rules of Court, as amended by A.M. No. 07-7-12-SC,[20] which provides:

Section 1. Subject of appeal. - An appeal may be taken from a judgment or final

order that completely disposes of the case, or of a particular matter therein when declared
by these Rules to be appealable.

No appeal may be taken from:

xxxx

(b) An interlocutory order;

xxxx
 In any of the foregoing instances, the aggrieved party may file an appropriate special civil
action as provided in Rule 65. (Emphasis supplied).

The present petition for review on certiorari should have been dismissed outright. However, in many
instances, the Court has treated a petition for review on certiorari under Rule 45 as a petition
for certiorari under Rule 65 of the Rules of Court, such as in cases where the subject of the recourse was
one of jurisdiction, or the act complained of was perpetrated by a court with grave abuse of discretion
amounting to lack or excess of jurisdiction.[21] The present petition does not involve any issue on jurisdiction,
neither does it show that the CA committed grave abuse of discretion in denying the motion to sell the
attached property.

In its Memorandum,[22] China Bank argues that the CAs notion of perishable property, which pertains only to
those goods which rot and decay and lose their value if not speedily put to their intended use,[23] is a strict
and stringent interpretation that would betray the purpose for which the preliminary attachment was
engrafted.[24] Citing Witherspoon v. Cross,[25] China Bank invokes the definition of perishable property laid
down by the Supreme Court of California as goods which decay and lose their value if not speedily put to
their intended use; but where the time contemplated is necessarily long, the term may embrace property
liable merely to material depreciation in value from other causes than such decay.

As stated in the Sheriffs Report[26] and Notices of Levy on Properties,[27] all of

ACDCs properties which were levied are personal properties consisting of used vehicles, i.e., vans, dump
trucks, cement mixers, cargo trucks, utility vehicles, machinery, equipment and office machines and fixtures.
China Bank insists that the attached properties, all placed inside ACDCs stockyard located
at Silang, Cavite and the branch office in Mayamot, Antipolo City, are totally exposed to natural elements
and adverse weather conditions.[28] Thus, China Bank argues, that should the attached properties be allowed
to depreciate, perish or rot while the main case is pending, the attached properties will continue losing their
worth thereby rendering the rules on preliminary attachment nugatory.

The issue hinges on the determination whether the vehicles, office machines and fixtures are
perishable property under Section 11, Rules 57 of the Rules of Court, which is actually one of first
impression. No local jurisprudence or authoritative work has touched upon this matter. This being so, an
examination of foreign laws and jurisprudence, particularly those of the United Stateswhere some of our laws
and rules were patterned after, is in order.[29]

In Mossler Acceptance Co. v. Denmark,[30] an order of the lower court in directing the sale of attached
properties, consisting of 20 automobiles and 2 airplanes, was reversed by the Supreme Court of
Louisiana. In support of its contention that automobiles are perishable, Mossler offered testimony to the effect
that automobile tires tend to dry-rot in storage, batteries to deteriorate, crankcases to become damaged,
paint and upholstery to fade, that generally automobiles tend to depreciate while in storage.[31] Rejecting
these arguments, the Supreme Court of Louisiana held that while there might be a depreciation in the value
of a car during storage, depending largely on existing economic conditions, there would be no material
deterioration of the car itself or any of its appurtenances if the car was properly cared for, and therefore it
could not be said that automobiles were of a perishable nature within the intendment of the statute, which
could only be invoked when the property attached and seized was of a perishable nature.[32]

With respect to the determination of the question on whether the attached office furniture, office equipment,
accessories and supplies are perishable properties, the Supreme Court of Alabama
in McCreery v. Berney National Bank[33] discussed the perishable nature of the attached properties,
consisting of shelving, stock of drygoods and a complete set of store fixtures, consisting of counters iron safe,
desk and showcases, to be within the meaning of perishable property under the Alabama Code which
authorizes a court, on motion of either party, to order the sale, in advance of judgment, of perishable property
which had been levied on by a writ of attachment.[34]

In McCreery, the Supreme Court of Alabama rejected the argument that the sale of the attached
property was void because the term perishable property, as used in the statute, meant only such property
as contained in itself the elements of speedy decay, such as fruits, fish, fresh meats, etc.[35] The Supreme
Court of Alabama held that whatever may be the character of the property, if the court is satisfied that, either
by reason of its perishable nature, or because of the expense of keeping it until the termination of the litigation,
it will prove, or be likely to prove, fruitless to the creditor, and that the purpose of its original seizure will
probably be frustrated, the sale of the attached property is justified.

McCreery applied the doctrine in Millards Admrs. v. Hall[36] where the Supreme Court of Alabama
held that an attached property is perishable if it is shown that, by keeping the article, it will necessarily become,
or is likely to become, worthless to the creditor, and by consequence to the debtor, then it is embraced by
the statute. It matters not, in our opinion, what the subject matter is. It may be cotton bales, live stock,
hardware provisions or dry goods. Although the statute under which Millards was decided used the words
likely to waste or be destroyed by keeping, instead of the word perishable, the reasons given for the
construction placed on the statute apply equally to the Alabama Code which uses the term perishable.[37]

In the Motion for Leave for Grant of Authority to Sell Attached Properties[38] filed before the
CA, China Bank alleged that the attached properties are placed in locations where they are totally
exposed to the natural elements and adverse weather conditions since their attachment in
1999;[39] that as a result, the attached properties have gravely deteriorated with corrosions eating
them up, with weeds germinating and growing thereon and their engines and motors stock
up;[40] and that the same holds true to the office furniture, office equipment, accessories and
supplies.[41] No evidence, however, were submitted by China Bank to support and substantiate these
claims before the CA.

Notably, in the Petition filed before the Court, China Bank, for the first time, included as
annexes,[42] photographs of the attached properties which were alleged to be recently taken, in an attempt to
convince the Court of the deteriorated condition of the attached properties.

The determination on whether the attached vehicles are properly cared for, and the burden to show
that, by keeping the attached office furniture, office equipment and supplies, it will necessarily become, or is
likely to become, worthless to China Bank, and by consequence to ACDC, are factual issues requiring
reception of evidence which the Court cannot do in a petition for certiorari. Factual issues
are beyond the scope of certiorari because they do not involve any jurisdictional
issue.[43]

As a rule, only jurisdictional questions may be raised in a petition for certiorari, including matters of
grave abuse of discretion which are equivalent to lack of jurisdiction.[44] The office of the writ of certiorari has
been reduced to the correction of defects of jurisdiction solely and cannot legally be used for any other
purpose.[45]

Certiorari is truly an extraordinary remedy and, in this jurisdiction, its use is restricted to truly
extraordinary cases - cases in which the action of the inferior court is wholly void; where any further steps in
the case would result in a waste of time and money and would produce no result whatever; where the parties,
or their privies, would be utterly deceived; where a final judgment or decree would be nought but a snare and
delusion, deciding nothing, protecting nobody, a judicial pretension, a recorded falsehood, a standing
menace. It is only to avoid such results as these that a writ of certiorari is issuable; and even here an appeal
will lie if the aggrieved party prefers to prosecute it.[46]

Moreover, the Court held in JAM Transportation Co., Inc. v. Flores[47] that it is well-settled, too well-
settled to require a citation of jurisprudence, that this Court does not make findings of facts specially on
evidence raised for the first time on appeal.[48] The Court will not make an exception in the case at bar. Hence,
the photographs of the attached properties presented before the Court, for the first time on appeal, cannot
be considered by the Court.

China Bank argues that if the CA allowed the attached properties to be sold, whatever monetary
value which the attached properties still have will be realized and saved for both parties.[49]China Bank further
claims that should ACDC prevail in the final judgment[50] of the collection suit, ACDC can proceed with the
bond posted by China Bank.[51] The Court finds said arguments to be specious and misplaced.

Section 4, Rule 57 of the Rules of Court provides:

Section 4. Condition of applicants bond. - The party applying for the order must
thereafter give a bond executed to the adverse party in the amount fixed by the court in its
order granting the issuance of the writ, conditioned that the latter will pay all the costs which
may be adjudged to the adverse party and all the damages which he may sustain by reason
of the attachment, if the court shall finally adjudge that the applicant was not entitled thereto.

It is clear from the foregoing provision that the bond posted by China Bank answers only for the
payment of all damages which ACDC may sustain if the court shall finally adjudge that China Bank was not
entitled to attachment. The liability attaches if the plaintiff is not entitled to the attachment because the
requirements entitling him to the writ are wanting, or if the plaintiff has no right to the attachment because the
facts stated in his affidavit, or some of them are untrue.[52] Clearly, ACDC can only claim from the bond for all
the damages which it may sustain by reason of the attachment and not because of the sale of the attached
properties prior to final judgment.
 Sale of attached property before final judgment is an equitable remedy provided for the convenience
of the parties and preservation of the property.[53] To repeat, the Court finds that the issue of whether the sale
of attached properties is for the convenience of the parties and that the interests of all the parties will
be subserved by the said sale is a question of fact. Again, the foregoing issue can only be resolved upon
examination of the evidence presented by both parties which the Court cannot do in a petition
for certiorari under Rule 65 of the Rules of Court.

WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals
dated October 14, 2002 and May 16, 2003 in CA-G.R. CV No. 72175 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 93262 December 29, 1991

DAVAO LIGHT & POWER CO., INC., petitioner,

vs.
THE COURT OF APPEALS, QUEENSLAND HOTEL or MOTEL or QUEENSLAND TOURIST
INN, and TEODORICO ADARNA, respondents.

Breva & Breva Law Offices for petitioner.

Goc-Ong & Associates for private respondents.

NARVASA, J.:

Subject of the appellate proceedings at bar is the decision of the Court of Appeals in CA-G.R.
Sp. No. 1967 entitled "Queensland Hotel, Inc., etc. and Adarna v. Davao Light & Power
Co., Inc.," promulgated on May 4, 1990. 1 That decision nullified and set aside the writ of
preliminary attachment issued by the Regional Trial Court of Davao City 2in Civil Case No.
19513-89 on application of the plaintiff (Davao Light & Power Co.), before the service of
summons on the defendants (herein respondents Queensland Co., Inc. and Adarna).

Following is the chronology of the undisputed material facts culled from the Appellate Tribunal's
judgment of May 4, 1990.

1. On May 2, 1989 Davao Light & Power Co., Inc. (hereafter, simply Davao Light) filed a verified
complaint for recovery of a sum of money and damages against Queensland Hotel, etc. and
Teodorico Adarna (docketed as Civil Case No. 19513-89). The complaint contained an ex
parte application for a writ of preliminary attachment.

2. On May 3, 1989 Judge Nartatez, to whose branch the case was assigned by raffle, issued an
Order granting the ex parte application and fixing the attachment bond at P4,600,513.37.

3. On May 11, 1989 the attachment bond having been submitted by Davao Light, the writ of
attachment issued.

4. On May 12, 1989, the summons and a copy of the complaint, as well as the writ of
attachment and a copy of the attachment bond, were served on defendants Queensland and
Adarna; and pursuant to the writ, the sheriff seized properties belonging to the latter.

5. On September 6, 1989, defendants Queensland and Adarna filed a motion to discharge the
attachment for lack of jurisdiction to issue the same because at the time the order of attachment
was promulgated (May 3, 1989) and the attachment writ issued (May 11, 1989), the Trial Court
had not yet acquired jurisdiction over the cause and over the persons of the defendants.

6. On September 14, 1989, Davao Light filed an opposition to the motion to discharge
attachment.

7. On September 19, 1989, the Trial Court issued an Order denying the motion to discharge.

This Order of September 19, 1989 was successfully challenged by Queensland and Adarna in a
special civil action of certiorari instituted by them in the Court of Appeals. The Order was, as
aforestated, annulled by the Court of Appeals in its Decision of May 4, 1990. The Appellate
Court's decision closed with the following disposition:

. . . the Orders dated May 3, 1989 granting the issuance of a writ of preliminary
attachment, dated September 19, 1989 denying the motion to discharge attachment;
dated November 7, 1989 denying petitioner's motion for reconsideration; as well as all
other orders emanating therefrom, specially the Writ of Attachment dated May 11, 1989
and Notice of Levy on Preliminary Attachment dated May 11, 1989, are hereby declared
null and void and the attachment hereby ordered DISCHARGED.

The Appellate Tribunal declared that —

. . . While it is true that a prayer for the issuance of a writ of preliminary attachment may
be included m the complaint, as is usually done, it is likewise true that the Court does not
acquire jurisdiction over the person of the defendant until he is duly summoned or
voluntarily appears, and adding the phrase that it be issued "ex parte" does not confer
said jurisdiction before actual summons had been made, nor retroact jurisdiction upon
summons being made. . . .

It went on to say, citing Sievert v. Court of Appeals, 3 that "in a proceedings in attachment," the
"critical time which must be identified is . . . when the trial court acquires authority under law to
act coercively against the defendant or his property . . .;" and that "the critical time is the of the
vesting of jurisdiction in the court over the person of the defendant in the main case."

Reversal of this Decision of the Court of Appeals of May 4, 1990 is what Davao Light seeks in
the present appellate proceedings.

The question is whether or not a writ of preliminary attachment may issue ex parte against a
defendant before acquisition of jurisdiction of the latter's person by service of summons or his
voluntary submission to the Court's authority.

The Court rules that the question must be answered in the affirmative and that consequently,
the petition for review will have to be granted.

It is incorrect to theorize that after an action or proceeding has been commenced and
jurisdiction over the person of the plaintiff has been vested in the court, but before the
acquisition of jurisdiction over the person of the defendant (either by service of summons or his
voluntary submission to the court's authority), nothing can be validly done by the plaintiff or the
court. It is wrong to assume that the validity of acts done during this period should be defendant
on, or held in suspension until, the actual obtention of jurisdiction over the defendant's person.
The obtention by the court of jurisdiction over the person of the defendant is one thing; quite
another is the acquisition of jurisdiction over the person of the plaintiff or over the subject-matter
or nature of the action, or the res or object hereof.

An action or proceeding is commenced by the filing of the complaint or other initiatory

pleading. 4 By that act, the jurisdiction of the court over the subject matter or nature of the action or proceeding is invoked or called into
activity; 5
and it is thus that the court acquires jurisdiction over said subject matter or nature of the
action. 6 And it is by that self-same act of the plaintiff (or petitioner) of filing the complaint (or
other appropriate pleading) — by which he signifies his submission to the court's power and
authority — that jurisdiction is acquired by the court over his person. 7 On the other hand,
jurisdiction over the person of the defendant is obtained, as above stated, by the service of
summons or other coercive process upon him or by his voluntary submission to the authority of
the court. 8

The events that follow the filing of the complaint as a matter of routine are well known. After the complaint is filed,
summons issues to the defendant, the summons is then transmitted to the sheriff, and finally, service of the summons
is effected on the defendant in any of the ways authorized by the Rules of Court. There is thus ordinarily some
appreciable interval of time between the day of the filing of the complaint and the day of service of summons of the
defendant. During this period, different acts may be done by the plaintiff or by the Court, which are unquestionable
validity and propriety. Among these, for example, are the appointment of a guardian ad litem, 9
the grant of
authority to the plaintiff to prosecute the suit as a pauper litigant, 10 the amendment of the
complaint by the plaintiff as a matter of right without leave of court, 11 authorization by the Court
of service of summons by publication, 12 the dismissal of the action by the plaintiff on mere
notice. 13

This, too, is true with regard to the provisional remedies of preliminary attachment, preliminary injunction, receivership or replevin. 14
They may
be validly and properly applied for and granted even before the defendant is summoned or is
heard from.

A preliminary attachment may be defined, paraphrasing the Rules of Court, as the provisional
remedy in virtue of which a plaintiff or other party may, at the commencement of the action or at
any time thereafter, have the property of the adverse party taken into the custody of the court as
security for the satisfaction of any judgment that may be recovered. 15 It is a remedy which is
purely statutory in respect of which the law requires a strict construction of the provisions
granting it. 16 Withal no principle, statutory or jurisprudential, prohibits its issuance by any court
before acquisition of jurisdiction over the person of the defendant.

Rule 57 in fact speaks of the grant of the remedy "at the commencement of the action or at any
time thereafter." 17The phase, "at the commencement of the action," obviously refers to the date
of the filing of the complaint — which, as above pointed out, is the date that marks "the
commencement of the action;" 18 and the reference plainly is to a time before summons is
served on the defendant, or even before summons issues. What the rule is saying quite clearly
is that after an action is properly commenced — by the filing of the complaint and the payment
of all requisite docket and other fees — the plaintiff may apply for and obtain a writ of
preliminary attachment upon fulfillment of the pertinent requisites laid down by law, and that he
may do so at any time, either before or after service of summons on the defendant. And this
indeed, has been the immemorial practice sanctioned by the courts: for the plaintiff or other
proper party to incorporate the application for attachment in the complaint or other appropriate
pleading (counter-claim, cross-claim, third-party claim) and for the Trial Court to issue the
writ ex-parte at the commencement of the action if it finds the application otherwise sufficient in
form and substance.

In Toledo v. Burgos, 19 this Court ruled that a hearing on a motion or application for preliminary
attachment is not generally necessary unless otherwise directed by the Trial Court in its
discretion. 20 And in Filinvest Credit Corporation v. Relova, 21 the Court declared that "(n)othing
in the Rules of Court makes notice and hearing indispensable and mandatory requisites for the
issuance of a writ of attachment." The only pre-requisite is that the Court be satisfied, upon
consideration of "the affidavit of the applicant or of some other person who personally knows the
facts, that a sufficient cause of action exists, that the case is one of those mentioned in Section
1 . . . (Rule 57), 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 (of attachment) is
granted above all legal counterclaims." 22 If the court be so satisfied, the "order of attachment
shall be granted," 23 and the writ shall issue upon the applicant's posting of "a bond executed to
the adverse party in an amount to be fixed by the judge, not exceeding the plaintiffs 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." 24

In Mindanao Savings & Loan Association, Inc. v. Court of Appeals, decided on April 18, 1989, 25
this Court had occasion to
emphasize the postulate that no hearing is required on an application for preliminary
attachment, with notice to the defendant, for the reason that this "would defeat the objective of
the remedy . . . (since the) time which such a hearing would take, could be enough to enable the
defendant to abscond or dispose of his property before a writ of attachment issues." As
observed by a former member of this Court, 26 such a procedure would warn absconding
debtors-defendants of the commencement of the suit against them and the probable seizure of
their properties, and thus give them the advantage of time to hide their assets, leaving the
creditor-plaintiff holding the proverbial empty bag; it would place the creditor-applicant in
danger of losing any security for a favorable judgment and thus give him only an illusory victory.

Withal, ample modes of recourse against a preliminary attachment are secured by law to the
defendant. The relative ease with which a preliminary attachment may be obtained is matched
and paralleled by the relative facility with which the attachment may legitimately be prevented or
frustrated. These modes of recourse against preliminary attachments granted by Rule 57 were
discussed at some length by the separate opinion in Mindanao Savings & Loans Asso. Inc. v.
CA., supra.

That separate opinion stressed that there are two (2) ways of discharging an
attachment: first, by the posting of a counterbond; and second, by a showing of its improper or
irregular issuance.

1.0. The submission of a counterbond is an efficacious mode of lifting an attachment already

enforced against property, or even of preventing its enforcement altogether.

1.1. When property has already been seized under attachment, the attachment may be
discharged upon counterbond in accordance with Section 12 of Rule 57.

Sec. 12. Discharge of attachment upon giving counterbond. — At any time after an order
of attachment has been granted, the party whose property has been attached or the
person appearing in 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 .
. . 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. . . .

1.2. But even before actual levy on property, seizure under attachment may be prevented also
upon counterbond. The defendant need not wait until his property is seized before seeking the
discharge of the attachment by a counterbond. This is made possible by Section 5 of Rule 57.

Sec. 5. Manner of attaching property. — The officer executing the order shall without
delay attach, to await judgment and execution in the action, all the properties of the party
against whom the order is issued in the province, not exempt from execution, or so much
thereof as may be sufficient to satisfy the applicant's demand, unless the former makes
a deposit with the clerk or judge of the court from which the order issued, or gives a
counter-bond executed to the applicant, in an amount sufficient to satisfy such demand
besides costs, or in an amount equal to the value of the property which is about to be
attached, to secure payment to the applicant of any judgment which he may recover in
the action. . . . (Emphasis supplied)

2.0. Aside from the filing of a counterbond, a preliminary attachment may also be lifted or
discharged on the ground that it has been irregularly or improperly issued, in accordance with
Section 13 of Rule 57. Like the first, this second mode of lifting an attachment may be resorted
to even before any property has been levied on. Indeed, it may be availed of after property has
been released from a levy on attachment, as is made clear by said Section 13, viz.:

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. . . . (Emphasis
supplied)

This is so because "(a)s pointed out in Calderon v. I.A.C., 155 SCRA 531 (1987), The
attachment debtor cannot be deemed to have waived any defect in the issuance of the
attachment writ by simply availing himself of one way of discharging the attachment writ, instead
of the other. Moreover, the filing of a counterbond is a speedier way of discharging the
attachment writ maliciously sought out by the attaching creditor instead of the other way, which,
in most instances . . . would require presentation of evidence in a fullblown trial on the merits,
and cannot easily be settled in a pending incident of the case." 27

It may not be amiss to here reiterate other related principles dealt with in Mindanao Savings & Loans Asso. Inc. v. C.A., supra., 28
to wit:

(a) When an attachment may not be dissolved by a showing of its irregular or improper
issuance:

. . . (W)hen 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." (Sec. 1 [b], Rule 57), or "an action against a party who has been guilty
of fraud m contracting the debt or incurring the obligation upon which the action is
brought" (Sec. 1 [d], Rule 57), 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 plaintiff's application and affidavits on which the writ was based — and
consequently that the writ based thereon had been improperly or irregularly issued (SEE
Benitez v. I.A.C., 154 SCRA 41) — 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. Therefore, when the writ of attachment is of this nature, the
only way it can be dissolved is by a counterbond (G.B. Inc. v. Sanchez, 98 Phil. 886).

(b) Effect of the dissolution of a preliminary attachment on the plaintiffs attachment bond:

. . . The dissolution of the preliminary attachment upon security given, or a showing of its
irregular or improper issuance, does not of course operate to discharge the sureties on
plaintiff's own attachment bond. The reason is simple. That bond is "executed to the
adverse party, . . . conditioned that the . . . (applicant) will pay all the costs which may be
adjudged to the adverse party and all damages which he may sustain by reason of the
attachment, if the court shall finally adjudge that the applicant was not entitled thereto"
(SEC. 4, Rule 57). Hence, until that determination is made, as to the applicant's
entitlement to the attachment, his bond must stand and cannot be with-drawn.

With respect to the other provisional remedies, i.e., preliminary injunction (Rule 58), receivership
(Rule 59), replevin or delivery of personal property (Rule 60), the rule is the same: they may
also issue ex parte. 29

It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of defendant, as above
indicated — issuance of summons, order of attachment and writ of attachment (and/or appointments of guardian ad litem, or grant of authority to the

— and
plaintiff to prosecute the suit as a pauper litigant, or amendment of the complaint by the plaintiff as a matter of right without leave of court 30

however valid and proper they might otherwise be, these do not and cannot bind and affect the
defendant until and unless jurisdiction over his person is eventually obtained by the court, either
by service on him of summons or other coercive process or his voluntary submission to the
court's authority. Hence, when the sheriff or other proper officer commences implementation of
the writ of attachment, it is essential that he serve on the defendant not only a copy of the
applicant's affidavit and attachment bond, and of the order of attachment, as explicity required
by Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy
of the complaint and order for appointment of guardian ad litem, if any, as also explicity directed
by Section 3, Rule 14 of the Rules of Court. Service of all such documents is indispensable not
only for the acquisition of jurisdiction over the person of the defendant, but also upon
considerations of fairness, to apprise the defendant of the complaint against him, of the
issuance of a writ of preliminary attachment and the grounds therefor and thus accord him the
opportunity to prevent attachment of his property by the posting of a counterbond in an amount
equal to the plaintiff's claim in the complaint pursuant to Section 5 (or Section 12), Rule 57, or
dissolving it by causing dismissal of the complaint itself on any of the grounds set forth in Rule
16, or demonstrating the insufficiency of the applicant's affidavit or bond in accordance with
Section 13, Rule 57.

It was on account of the failure to comply with this fundamental requirement of service of
summons and the other documents above indicated that writs of attachment issued by the Trial
Court ex parte were struck down by this Court's Third Division in two (2) cases, namely: Sievert
v. Court of Appeals, 31 and BAC Manufacturing and Sales Corporation v. Court of Appeals, et
al. 32 In contrast to the case at bar — where the summons and a copy of the complaint, as well
as the order and writ of attachment and the attachment bond were served on the defendant —
in Sievert, levy on attachment was attempted notwithstanding that only the petition for issuance
of the writ of preliminary attachment was served on the defendant, without any prior or
accompanying summons and copy of the complaint; and in BAC Manufacturing and Sales
Corporation, neither the summons nor the order granting the preliminary attachment or the writ
of attachment itself was served on the defendant "before or at the time the levy was made."

For the guidance of all concerned, the Court reiterates and reaffirms the proposition that writs of
attachment may properly issue ex parte provided that the Court is satisfied that the relevant
requisites therefor have been fulfilled by the applicant, although it may, in its discretion, require
prior hearing on the application with notice to the defendant; but that levy on property pursuant
to the writ thus issued may not be validly effected unless preceded, or contemporaneously
accompanied, by service on the defendant of summons, a copy of the complaint (and of the
appointment of guardian ad litem, if any), the application for attachment (if not incorporated in
but submitted separately from the complaint), the order of attachment, and the plaintiff's
attachment bond.

WHEREFORE, the petition is GRANTED; the challenged decision of the Court of Appeals is
hereby REVERSED, and the order and writ of attachment issued by Hon. Milagros C. Nartatez,
Presiding Judge of Branch 8, Regional Trial Court of Davao City in Civil Case No. 19513-89
against Queensland Hotel or Motel or Queensland Tourist Inn and Teodorico Adarna are hereby
REINSTATED. Costs against private respondents.

SO ORDERED.

Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Griño-Aquino,

Medialdea, Regalado and Romero, JJ., concur.
Fernan, C.J., is on leave.

Davide, Jr., J., took no part.

THIRD DIVISION

[G.R. No. 125027. August 12, 2002]

ANITA MANGILA, petitioner, vs. COURT OF APPEALS and LORETA GUINA, respondents.

DECISION
CARPIO, J.:

The Case
 This is a petition fore review on certiorari under Rule 45 of the Rules of Court, seeking to set
aside the Decision[1] of the Court of Appeals affirming the Decision[2] of the Regional Trial Court,
Branch 108, Pasay City. The trial court upheld the writ of attachment and the declaration of default
on petitioner while ordering her to pay private respondent P109,376.95 plus 18 percent interest
per annum, 25 percent attorneys fees and costs of suit.

The Facts

Petitioner Anita Mangila (petitioner for brevity) is an exporter of sea foods and doing business
under the name and style of Seafoods Products. Private respondent Loreta Guina (private
respondent for brevity) is the President and General Manager of Air Swift International, a single
registered proprietorship engaged in the freight forwarding business.
Sometime in January 1988, petitioner contracted the freight forwarding services of private
respondent for shipment of petitioners products, such as crabs, prawns and assorted fishes, to
Guam (USA) where petitioner maintains an outlet. Petitioner agreed to pay private respondent
cash on delivery. Private respondents invoice stipulates a charge of 18 percent interest per annum
on all overdue accounts. In case of suit, the same invoice stipulates attorneys fees equivalent to
25 percent of the amount due plus costs of suit.[3]
On the first shipment, petitioner requested for seven days within which to pay private
respondent. However, for the next three shipments, March 17, 24 and 31, 1988, petitioner failed
to pay private respondent shipping charges amounting to P109, 376.95.[4]
Despite several demands, petitioner never paid private respondent. Thus, on June 10, 1988,
private respondent filed Civil Case No. 5875 before the Regional Trial Court of Pasay City for
collection of sum of money.
On August 1, 1988, the sheriff filed his Sheriffs Return showing that summons was not served
on petitioner. A woman found at petitioners house informed the sheriff that petitioner transferred
her residence to Sto. Nio, Guagua, Pampanga. The sheriff found out further that petitioner had
left the Philippines for Guam.[5]
Thus, on September 13, 1988, construing petitioners departure from the Philippines as done
with intent to defraud her creditors, private respondent filed a Motion for Preliminary Attachment.
On September 26, 1988, the trial court issued an Order of Preliminary Attachment [6] against
petitioner. The following day, the trial court issued a Writ of Preliminary Attachment.
The trial court granted the request of its sheriff for assistance from their counterparts in RTC,
Pampanga. Thus, on October 28, 1988, Sheriff Alfredo San Miguel of RTC Pampanga served on
petitioners household help in San Fernando, Pampanga, the Notice of Levy with the Order,
Affidavit and Bond.[7]
On November 7, 1988, petitioner filed an Urgent Motion to Discharge Attachment[8] without
submitting herself to the jurisdiction of the trial court. She pointed out that up to then, she had not
been served a copy of the Complaint and the summons. Hence, petitioner claimed the court had
not acquired jurisdiction over her person.[9]
In the hearing of the Urgent Motion to Discharge Attachment on November 11, 1988, private
respondent sought and was granted a re-setting to December 9, 1988. On that date, private
respondents counsel did not appear, so the Urgent Motion to Discharge Attachment was deemed
submitted for resolution.[10]
The trial court granted the Motion to Discharge Attachment on January 13, 1989 upon filing
of petitioners counter-bond. The trial court, however, did not rule on the question of jurisdiction
and on the validity of the writ of preliminary attachment.
On December 26, 1988, private respondent applied for an alias summons, which the trial
court issued on January 19, 1989.[11] It was only on January 26, 1989 that summons was finally
served on petitioner.[12]
On February 9, 1989, petitioner filed a Motion to Dismiss the Complaint on the ground of
improper venue. Private respondents invoice for the freight forwarding service stipulates that if
court litigation becomes necessary to enforce collection xxx the agreed venue for such action is
Makati, Metro Manila.[13] Private respondent filed an Opposition asserting that although Makati
appears as the stipulated venue, the same was merely an inadvertence by the printing press
whose general manager executed an affidavit[14] admitting such inadvertence. Moreover, private
respondent claimed that petitioner knew that private respondent was holding office in Pasay City
and not in Makati.[15] The lower court, finding credence in private respondents assertion, denied
the Motion to Dismiss and gave petitioner five days to file her Answer. Petitioner filed a Motion for
Reconsideration but this too was denied.
Petitioner filed her Answer[16] on June 16, 1989, maintaining her contention that the venue
was improperly laid.
On June 26, 1989, the trial court issued an Order setting the pre-trial for July 18, 1989 at 8:30
a.m. and requiring the parties to submit their pre-trial briefs. Meanwhile, private respondent filed
a Motion to Sell Attached Properties but the trial court denied the motion.
On motion of petitioner, the trial court issued an Order resetting the pre-trial from July 18,
1989 to August 24, 1989 at 8:30 a.m..
On August 24, 1989, the day of the pre-trial, the trial court issued an Order[17] terminating the
pre-trial and allowing the private respondent to present evidence ex-parte on September 12, 1989
at 8:30 a.m.. The Order stated that when the case was called for pre-trial at 8:31 a.m., only the
counsel for private respondent appeared. Upon the trial courts second call 20 minutes later,
petitioners counsel was still nowhere to be found. Thus, upon motion of private respondent, the
pre-trial was considered terminated.
On September 12, 1989, petitioner filed her Motion for Reconsideration of the Order
terminating the pre-trial. Petitioner explained that her counsel arrived 5 minutes after the second
call, as shown by the transcript of stenographic notes, and was late because of heavy traffic.
Petitioner claims that the lower court erred in allowing private respondent to present evidence ex-
parte since there was no Order considering the petitioner as in default. Petitioner contends that
the Order of August 24, 1989 did not state that petitioner was declared as in default but still the
court allowed private respondent to present evidence ex-parte.[18]
On October 6, 1989, the trial court denied the Motion for Reconsideration and scheduled the
presentation of private respondents evidence ex-parte on October 10, 1989.
On October 10, 1989, petitioner filed an Omnibus Motion stating that the presentation of
evidence ex-parte should be suspended because there was no declaration of petitioner as in
default and petitioners counsel was not absent, but merely late.
On October 18, 1989, the trial court denied the Omnibus Motion.[19]
On November 20, 1989, the petitioner received a copy of the Decision of November 10, 1989,
ordering petitioner to pay respondent P109,376.95 plus 18 percent interest per annum, 25 percent
attorneys fees and costs of suit. Private respondent filed a Motion for Execution Pending Appeal
but the trial court denied the same.

The Ruling of the Court of Appeals

On December 15, 1995, the Court of Appeals rendered a decision affirming the decision of
the trial court. The Court of Appeals upheld the validity of the issuance of the writ of attachment
and sustained the filing of the action in the RTC of Pasay. The Court of Appeals also affirmed the
declaration of default on petitioner and concluded that the trial court did not commit any reversible
error.
Petitioner filed a Motion for Reconsideration on January 5, 1996 but the Court of Appeals
denied the same in a Resolution dated May 20, 1996.
Hence, this petition.

The Issues

The issues raised by petitioner may be re-stated as follows:

 I.

WHETHER RESPONDENT COURT ERRED IN NOT HOLDING THAT THE WRIT OF

ATTACHMENT WAS IMPROPERLY ISSUED AND SERVED;

II.

WHETHER THERE WAS A VALID DECLARATION OF DEFAULT;

III.

WHETHER THERE WAS IMPROPER VENUE.

IV.

WHETHER RESPONDENT COURT ERRED IN DECLARING THAT PETITIONER IS OBLIGED

TO PAY P109, 376.95, PLUS ATTORNEYS FEES.[20]

The Ruling of the Court

Improper Issuance and Service of Writ of Attachment

Petitioner ascribes several errors to the issuance and implementation of the writ of
attachment. Among petitioners arguments are: first, there was no ground for the issuance of the
writ since the intent to defraud her creditors had not been established; second, the value of the
properties levied exceeded the value of private respondents claim. However, the crux of
petitioners arguments rests on the question of the validity of the writ of attachment. Because of
failure to serve summons on her before or simultaneously with the writs implementation, petitioner
claims that the trial court had not acquired jurisdiction over her person and thus the service of the
writ is void.
As a preliminary note, a distinction should be made between issuance and implementation
of the writ of attachment. It is necessary to distinguish between the two to determine when
jurisdiction over the person of the defendant should be acquired to validly implement the writ. This
distinction is crucial in resolving whether there is merit in petitioners argument.
This Court has long settled the issue of when jurisdiction over the person of the defendant
should be acquired in cases where a party resorts to provisional remedies. A party to a suit may,
at any time after filing the complaint, avail of the provisional remedies under the Rules of Court.
Specifically, Rule 57 on preliminary attachment speaks of the grant of the remedy at the
commencement of the action or at any time thereafter.[21] This phrase refers to the date of
filing of the complaint which is the moment that marks the commencement of the action. The
reference plainly is to a time before summons is served on the defendant, or even before
summons issues.
In Davao Light & Power Co., Inc. v. Court of Appeals,[22] this Court clarified the actual time
when jurisdiction should be had:

It goes without saying that whatever be the acts done by the Court prior to the acquisition of
jurisdiction over the person of defendant - issuance of summons, order of attachment and writ
of attachment - these do not and cannot bind and affect the defendant until and unless
jurisdiction over his person is eventually obtained by the court, either by service on him of
summons or other coercive process or his voluntary submission to the courts authority. Hence,
when the sheriff or other proper officer commences implementation of the writ of attachment, it
is essential that he serve on the defendant not only a copy of the applicants affidavit and
attachment bond, and of the order of attachment, as explicitly required by Section 5 of Rule 57,
but also the summons addressed to said defendant as well as a copy of the complaint xxx.
(Emphasis supplied.)
Furthermore, we have held that the grant of the provisional remedy of attachment involves three
stages: first, the court issues the order granting the application; second, the writ of attachment
issues pursuant to the order granting the writ; and third, the writ is implemented. For the initial
two stages, it is not necessary that jurisdiction over the person of the defendant be first
obtained. However, once the implementation of the writ commences, the court must have
acquired jurisdiction over the defendant for without such jurisdiction, the court has no power and
authority to act in any manner against the defendant. Any order issuing from the Court will not
bind the defendant.[23]
In the instant case, the Writ of Preliminary Attachment was issued on September 27, 1988
and implemented on October 28, 1988. However, the alias summons was served only on
January 26, 1989 or almost three months after the implementation of the writ of
attachment.
The trial court had the authority to issue the Writ of Attachment on September 27 since a
motion for its issuance can be filed at the commencement of the action. However, on the day the
writ was implemented, the trial court should have, previously or simultaneously with the
implementation of the writ, acquired jurisdiction over the petitioner. Yet, as was shown in the
records of the case, the summons was actually served on petitioner several months after the writ
had been implemented.
Private respondent, nevertheless, claims that the prior or contemporaneous service of
summons contemplated in Section 5 of Rule 57 provides for exceptions. Among such exceptions
are where the summons could not be served personally or by substituted service despite diligent
efforts or where the defendant is a resident temporarily absent therefrom x x x. Private respondent
asserts that when she commenced this action, she tried to serve summons on petitioner but the
latter could not be located at her customary address in Kamuning, Quezon City or at her new
address in Guagua, Pampanga.[24] Furthermore, respondent claims that petitioner was not even
in Pampanga; rather, she was in Guam purportedly on a business trip.
Private respondent never showed that she effected substituted service on petitioner after her
personal service failed. Likewise, if it were true that private respondent could not ascertain the
whereabouts of petitioner after a diligent inquiry, still she had some other recourse under the
Rules of Civil Procedure.
The rules provide for certain remedies in cases where personal service could not be effected
on a party. Section 14, Rule 14 of the Rules of Court provides that whenever the defendants
whereabouts are unknown and cannot be ascertained by diligent inquiry, service may, by leave
of court, be effected upon him by publication in a newspaper of general circulation x x x. Thus, if
petitioners whereabouts could not be ascertained after the sheriff had served the summons at her
given address, then respondent could have immediately asked the court for service of summons
by publication on petitioner.[25]
Moreover, as private respondent also claims that petitioner was abroad at the time of the
service of summons, this made petitioner a resident who is temporarily out of the country. This is
the exact situation contemplated in Section 16,[26] Rule 14 of the Rules of Civil Procedure,
providing for service of summons by publication.
In conclusion, we hold that the alias summons belatedly served on petitioner cannot
be deemed to have cured the fatal defect in the enforcement of the writ. The trial court cannot
enforce such a coercive process on petitioner without first obtaining jurisdiction over her person.
The preliminary writ of attachment must be served after or simultaneous with the service
of summons on the defendant whether by personal service, substituted service or by
publication as warranted by the circumstances of the case.[27] The subsequent service of
summons does not confer a retroactive acquisition of jurisdiction over her person because the
law does not allow for retroactivity of a belated service.

Improper Venue

Petitioner assails the filing of this case in the RTC of Pasay and points to a provision in private
respondents invoice which contains the following:
3. If court litigation becomes necessary to enforce collection, an additional equivalent (sic) to
25% of the principal amount will be charged. The agreed venue for such action is Makati, Metro
Manila, Philippines.[28]

Based on this provision, petitioner contends that the action should have been instituted in the
RTC of Makati and to do otherwise would be a ground for the dismissal of the case.
We resolve to dismiss the case on the ground of improper venue but not for the reason
stated by petitioner.
The Rules of Court provide that parties to an action may agree in writing on the venue on
which an action should be brought.[29] However, a mere stipulation on the venue of an action is
not enough to preclude parties from bringing a case in other venues.[30] The parties must be able
to show that such stipulation is exclusive. Thus, absent words that show the parties intention to
restrict the filing of a suit in a particular place, courts will allow the filing of a case in any venue,
as long as jurisdictional requirements are followed. Venue stipulations in a contract, while
considered valid and enforceable, do not as a rule supersede the general rule set forth in Rule 4
of the Revised Rules of Court.[31] In the absence of qualifying or restrictive words, they should be
considered merely as an agreement on additional forum, not as limiting venue to the specified
place.[32]
In the instant case, the stipulation does not limit the venue exclusively to Makati. There are
no qualifying or restrictive words in the invoice that would evince the intention of the parties that
Makati is the only or exclusive venue where the action could be instituted. We therefore agree
with private respondent that Makati is not the only venue where this case could be filed.
Nevertheless, we hold that Pasay is not the proper venue for this case.
Under the 1997 Rules of Civil Procedure, the general rule is venue in personal actions is
where the defendant or any of the defendants resides or may be found, or where the plaintiff or
any of the plaintiffs resides, at the election of the plaintiff.[33] The exception to this rule is when the
parties agree on an exclusive venue other than the places mentioned in the rules. But, as we
have discussed, this exception is not applicable in this case. Hence, following the general rule,
the instant case may be brought in the place of residence of the plaintiff or defendant, at the
election of the plaintiff (private respondent herein).
In the instant case, the residence of private respondent (plaintiff in the lower court) was not
alleged in the complaint. Rather, what was alleged was the postal address of her sole
proprietorship, Air Swift International. It was only when private respondent testified in court, after
petitioner was declared in default, that she mentioned her residence to be in Better Living
Subdivision, Paraaque City.
In the earlier case of Sy v. Tyson Enterprises, Inc.,[34] the reverse happened. The plaintiff in
that case was Tyson Enterprises, Inc., a corporation owned and managed by Dominador Ti. The
complaint, however, did not allege the office or place of business of the corporation, which was in
Binondo, Manila. What was alleged was the residence of Dominador Ti, who lived in San Juan,
Rizal. The case was filed in the Court of First Instance of Rizal, Pasig. The Court there held that
the evident purpose of alleging the address of the corporations president and manager was to
justify the filing of the suit in Rizal, Pasig instead of in Manila. Thus, the Court ruled that there was
no question that venue was improperly laid in that case and held that the place of business of
Tyson Enterpises, Inc. is considered as its residence for purposes of venue. Furthermore, the
Court held that the residence of its president is not the residence of the corporation because a
corporation has a personality separate and distinct from that of its officers and stockholders.
In the instant case, it was established in the lower court that petitioner resides in San
Fernando, Pampanga[35] while private respondent resides in Paraaque City.[36] However, this case
was brought in Pasay City, where the business of private respondent is found. This would have
been permissible had private respondents business been a corporation, just like the case in Sy v.
Tyson Enterprises, Inc. However, as admitted by private respondent in her Complaint[37] in the
lower court, her business is a sole proprietorship, and as such, does not have a separate juridical
personality that could enable it to file a suit in court.[38] In fact, there is no law authorizing sole
proprietorships to file a suit in court.[39]
A sole proprietorship does not possess a juridical personality separate and distinct from the
personality of the owner of the enterprise.[40] The law merely recognizes the existence of a sole
proprietorship as a form of business organization conducted for profit by a single individual and
requires its proprietor or owner to secure licenses and permits, register its business name, and
pay taxes to the national government.[41] The law does not vest a separate legal personality on
the sole proprietorship or empower it to file or defend an action in court.[42]
Thus, not being vested with legal personality to file this case, the sole proprietorship is not
the plaintiff in this case but rather Loreta Guina in her personal capacity. In fact, the complaint in
the lower court acknowledges in its caption that the plaintiff and defendant are Loreta Guina and
Anita Mangila, respectively. The title of the petition before us does not state, and rightly so, Anita
Mangila v. Air Swift International, but rather Anita Mangila v. Loreta Guina. Logically then, it is the
residence of private respondent Guina, the proprietor with the juridical personality, which should
be considered as one of the proper venues for this case.
All these considered, private respondent should have filed this case either in San
Fernando, Pampanga (petitioners residence) or Paraaque (private respondents residence).
Since private respondent (complainant below) filed this case in Pasay, we hold that the
case should be dismissed on the ground of improper venue.
Although petitioner filed an Urgent Motion to Discharge Attachment in the lower court,
petitioner expressly stated that she was filing the motion without submitting to the jurisdiction of
the court. At that time, petitioner had not been served the summons and a copy of the
complaint.[43] Thereafter, petitioner timely filed a Motion to Dismiss[44] on the ground of improper
venue. Rule 16, Section 1 of the Rules of Court provides that a motion to dismiss may be filed
[W]ithin the time for but before filing the answer to the complaint or pleading asserting a claim.
Petitioner even raised the issue of improper venue in his Answer[45] as a special and affirmative
defense. Petitioner also continued to raise the issue of improper venue in her Petition for
Review[46] before this Court. We thus hold that the dismissal of this case on the ground of improper
venue is warranted.
The rules on venue, like other procedural rules, are designed to insure a just and orderly
administration of justice or the impartial and evenhanded determination of every action and
proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted
freedom to choose where to file the complaint or petition.[47]
We find no reason to rule on the other issues raised by petitioner.
WHEREFORE, the petition is GRANTED on the grounds of improper venue and invalidity of
the service of the writ of attachment. The decision of the Court of Appeals and the order of
respondent judge denying the motion to dismiss are REVERSED and SET ASIDE. Civil Case No.
5875 is hereby dismissed without prejudice to refiling it in the proper venue. The attached
properties of petitioner are ordered returned to her immediately.
SO ORDERED.
Puno, (Chairman), and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., on leave.

SECOND DIVISION

June 30, 1987

G.R. No. 71917

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

This is a petition for review on certiorari seeking the reversal of: (a) the decision of the
Intermediate Appellate Court * (now Court of Appeals) dated April 30, 1985, denying due course
to the petition for certiorari, prohibition and mandamus with preliminary injunction and temporary
restraining order, filed with said appellate court without a certified copy of the order being
assailed but obviously referring to an order issued ex-parte by the lower court to attach
petitioners' properties and (b) the resolution of the same appellate court denying petitioners'
motion for reconsideration.

In November 1982 and May 1983 State Investment House, Inc. (HOUSE, for short) and Belisle
Investment and Finance Co., Inc. (FINANCE, for short), executed agreements whereby the
former agreed to extend financial assistance to the latter, who in turn shall execute in favor of
HOUSE promissory notes to evidence its indebtedness under each availment and, whenever
necessary and applicable in such form and tenor as prescribed by law and other rules and
regulations promulgated by the Securities and Exchange Commission and the Central Bank of
the Philippines (Complaint; Rollo, pp. 44-45).

Smith, Bell & Co., Inc., owner of 93% of the outstanding stock of FINANCE, executed in favor of
HOUSE Comprehensive Surety Agreements whereby Smith, Bell guaranteed jointly and
severally with FINANCE the full and punctual payment at maturity to HOUSE of any and all such
instruments, loans, advances, credits and/or other obligations and also any and all other
indebtedness of every kind which together with any and all expenses, interests or penalties
which may be incurred by HOUSE in collecting all or any such instruments or other
indebtedness or obligations (Ibid, Rollo, P. 45).

Smith, Bell also executed a Letter of Conformity, confirming that it is in fact the owner of the
abovementioned shares of stock and that it has full knowledge of the obligations being
undertaken by FINANCE with HOUSE (Ibid, Rollo, p. 46).

On May 27 and August 27, 1984, FINANCE failed to pay its obligations with HOUSE despite
demands. As of October 10, 1984, the obligations of FINANCE remaining outstanding and
unpaid, amounted to P6,838,358.00 (Rollo, p. 48).

On December 6, 1984, a complaint with preliminary attachment was filed by HOUSE against
FINANCE and Smith, Bell & Co., Inc. with the Regional Trial Court of Manila, Branch 49,
docketed therein as Civil Case No. 84-28167. Acting on the prayer for writ of preliminary
attachment, respondent Judge on January 23, 1985 issued an Order directing the Branch Clerk
of Court to receive plaintiff's evidence on the application for writ of preliminary attachment to be
enforced against the properties of defendants (petitioners herein) not exempt from execution to
the extent of P6,838,358.00 the amount claimed in plaintiff's complaint. On January 29, 1985,
an order of attachment was issued and addressed to public respondents, Deputy Sheriffs Gerry
C. Duncan and Germiliano G. Tengco, who were directed to attach real and personal properties,
of the defendants not exempt from execution. On January 31, 1985, personal properties of
petitioner FINANCE and the real and personal properties of Smith, Bell & Co., Inc. were levied
upon (Decision, AC-G.R. Sp. No. 05745, Rollo, p. 128).

On January 31, 1985, petitioners filed a motion to discharge attachment and posted a
counterbond in the amount of P6,838,358.00. On February 4, 1985 the motion to discharge
attachment and an urgent ex parte motion for issuance of restraining order filed by defendants
were heard and argued before the respondent court. At the hearing, the parties were given a
total of nine (9) days to file their written pleadings after which the motion to discharge
attachment shall be deemed submitted for resolution (Ibid, p. 129).

On February 7, 1985, private respondent filed its opposition to petitioners' motion to discharge
attachment. Petitioners in turn filed their reply to opposition. On February 11, 1985 petitioners
filed a supplement to motion to discharge attachment and on the same day filed their answer
with counterclaim. On February 21, 1985, private respondent filed its reply and answer to
counter-claim.

From the chronology of events, it will be observed that before respondent Judge could resolve
the motion to discharge and the supplement to the motion to discharge attachment, petitioners
filed on February 8, 1985 a petition for certiorari, prohibition and mandamus with preliminary
injunction and temporary restraining order in the Supreme Court docketed as Special Civil
Action G.R. No. 69819. On March 7, 1985, petitioners filed an Urgent Motion in Reiteration of
Petition praying for the Issuance of a Writ of Preliminary Injunction and/or Temporary
Restraining Order. In the resolution of March 13, 1985, the Supreme Court issued a temporary
restraining order and referred the case to the Intermediate Appellate Court (now Court of
Appeals) for proper determination of the case and an pending incidents (Rollo, G.R. No. 71917,
pp. 20; 128-132, Rollo, G.R. No. 69819).

As aforestated, the petition was denied due course by the Court of Appeals and dismissed
without pronouncement as to costs. (Decision, AC-G.R. SP No. 05745; Rollo, pp. 128-132). In
like manner, petitioners' motion for reconsideration of said decision was denied for lack of merit,
in the resolution of August 16, 1985 of the same Appellate Court.

Hence, this petition. Petitioners raise the following questions of law:

(a) WHETHER THE HONORABLE INTERMEDIATE APPELLATE COURT (SECOND DIVISION

HAS DECIDED A QUESTION NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE
DECISIONS OF THE SUPREME COURT; or

(b) WHETHER THE HONORABLE INTERMEDIATE APPELLATE COURT (SECOND

DIVISION) HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS OR SO FAR SANCTIONED SUCH DEPARTURE BY THE LOWER
COURT BY FAILING TO TIMELY RESTRAIN ENFORCEMENT OF A WRIT OF ATTACHMENT
PENDING APPROVAL OF SUFFICIENT COUNTERBOND RESULTING TO EXCESSIVE
LEVY.

In the resolution of October 14, 1985, the First Division of this Court, without giving due course
to the petition, required the respondents to comment thereon (Rollo, p. 174) which was
compelled with on November 14, 1985 (Rollo, pp. 178-179).

In the resolution of December 16, 1985, the Court Resolved to require the petitioners to file a
reply thereto, which was filed on February 12, 1986 (Rollo, pp. 217-228).

A careful perusal of the records as well as the arguments adduced by both parties, reveals that
the Court of Appeals correctly denied due course to subject petition.

As ably demonstrated by said Appellate Court, the issues raised by the petitioners had long
been laid to rest by the Supreme Court.

The main thrust of this petition is the alleged failure of the Intermediate Appellate Court to rule
among others on the inaction of the lower court to timely resolve petitioners' motion for the
issuance of temporary restraining order pending the resolution of said petitioners' motion to
discharge the writ of preliminary attachment by posting a counterbond equal to the amount of
plaintiff's claim. Otherwise stated, petitioners appear to be of the view that upon their posting of
a counterbond which accompanies their motion to discharge the writ of preliminary attachment,
it is mandatory for the respondent Judge to stay the enforcement of said writ.

It will be recalled that the Supreme Court has already issued a temporary restraining order as
prayed for by the petitioners in G.R. No. 69819 "Balisle Investment and Finance Co., Inc., et al.
vs. State Investment House, Inc., et al." In the resolution of the First Division dated March 13,
1985, before subject petition for Certiorari, Prohibition and mandamus with preliminary
injunction and temporary restraining order was referred to the Court of Appeals for proper
determination of the case and all pending incidents.
In the determination of the case and pending incidents, the Court of Appeals cannot be faulted
for not having ruled on the alleged inaction of respondent Judge to issue the preliminary
injunction or restraining order in the lower court to stop the enforcement of the writ of preliminary
attachment.

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

As correctly found by the Court of Appeals, no grave abuse of discretion can be ascribed to
respondent Judge either in the issuance of the writ of attachment without notice to petitioner
petitioners as there is nothing in the Rules of Court which makes notice and hearing
indispensable and mandatory requisites in the issuance of a writ of attachment (Filinvest Credit
Corporation vs. Relova, 117 SCRA 420) or in the failure of respondent Judge to immediately
restrain the enforcement of the writ of preliminary attachment upon petitioners' posting of a
counterbond for indeed, the rules and jurisprudence require that no preliminary injunction shall
issue without hearing. In fact the issuance of injunction ex parte is discouraged and the Court
has repeatedly held that preliminary injunction is an extra ordinary peremptory remedy that
should be dispensed with circumspection, and both sides should first be heard whenever
possible (Ramos vs. Court of Appeals, 95 SCRA 360 [1980]; Palaman Lumber & Plywood Co.,
Inc., et al. vs. Arranz, et al., L-27106, 22 SCRA 1194 [1968]).

Moreover, the Court of Appeals correctly ruled that the mere posting of a counterbond does not
automatically discharge the writ of attachment. It is only after hearing and after the judge has
ordered the discharge of the attachment if a cash deposit is made or a counterbond is executed
to the attaching creditor is filed, that the writ of attachment is properly discharged under Section
12, Rule 57 of the Rules of Court. While it is undisputed that respondent court heard the parties
on February 4, 1985, they were thereafter given a total of nine (9) days to file their written
pleadings after which the motion would be deemed submitted for resolution.

Thus, both the motion to discharge attachment and the motion for the issuance of preliminary
injunction to stay the enforcement thereof, were still pending consideration by the lower court
with both parties still filing pleadings up to February 14, 1985, when petitioners filed subject
petition with the Supreme Court on February 8, 1985. To say the least, the petition in the instant
case was premature.

This Court has ruled that before filing a petition for certiorari in a higher court, the attention of
the lower court should generally be first called to its supposed error and its correction should be
sought. If this is not done, the petition for certiorari should be denied. The reason for this rule is
that issues which Courts of First Instance are bound to decide should not summarily be taken
from them and submitted to an appellate court without first giving such lower courts the
opportunity to dispose of the same with due deliberation (Butuan Bay Wood Export Corp. vs.
Court of Appeals, 97 Phil. 297-298 [1980]).

Under the circumstances, the lower court should be the proper forum to thresh out the question
of whether or not private respondents should continue to be enjoined or restrained from the
enforcement of the questioned attachment order (Rubio vs. Mariano, 52 SCRA 344 [1973]), as
well as the matter of whether or not the writ of attachment issued by the lower court should be
discharged.

PREMISES CONSIDERED, (a) the instant petition is hereby DENIED and the decision of the
Court of Appeals is hereby AFFIRMED, and (b) this case is REMANDED to the lower court for
trial on the merits and for the determination of all pending incidents.

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila
 THIRD DIVISION

BANGKO SENTRAL NG PILIPINAS, A.M. No. RTJ-06-1999 (FormerlyOCA IPI No.

Complainant, 03-1903-RTJ)

Present:
- versus -
CARPIO MORALES, J., Chairperson,
BRION,
Executive Judge ENRICO A. LANZANAS, BERSAMIN,
Regional Trial Court, Branch 7, Manila, VILLARAMA, JR., and
Clerk of Court JENNIFER DELA CRUZ- SERENO, JJ.
BUENDIA and Deputy Sheriff CARMELO
V. CACHERO, Regional Trial Court,
Office of the Clerk of Court, Manila, Promulgated:
Respondents. -- - December 8, 2010
x-----------------------------------------------------------------------------------------x

DECISION

BRION, J.:

Before the Court is the administrative complaint instituted, on November 12, 2003,[1] by
the Bangko Sentral ng Pilipinas (BSP) against Executive Judge Enrico A. Lanzanas,[2] Regional
Trial Court (RTC), Branch 7, Manila; Clerk of Court Jennifer dela Cruz-Buendia and Sheriff
Carmelo V. Cachero, RTC, Office of the Clerk of Court (OCC), for their culpable violation of the
duties of their office when they usurped the functions of the Presiding Judge of RTC-Manila, Br.
12 Pairing Judge Hon. Cesar Solis[,] by allowing the withdrawal and release from the custody of
the court garnished funds in the total amount of PESOS: NINETY-SEVEN MILLION THREE
HUNDRED EIGHTY-EIGHT THOUSAND FOUR HUNDRED SIXTY-EIGHT & 35/100
(P97,388,468.35) to Philippine Bank of Communications (PBCOM) and its counsel of record who
are not parties to the case.[3]

Specifically, the BSP asked that the respondents be made liable, as follows:

1. Cachero
a. fraudulently causing the release of the P97,388,468.35 from the custody of
the RTC, Manila, Branch 12, in Civil Case No. 99-95993;
b. usurpation of authority;
c. malversation of public funds;
d. causing undue injury to the government;
e. disclosing or using confidential information; and
 f. falsification of public records.

2. Dela Cruz-Buendia
a. usurpation of judicial functions;
b. malversation of public funds;
c. violation of her duties as clerk of court;
d. causing undue injury to the government;
e. disclosing or using confidential information; and
f. falsification of public records.

3. Judge Lanzanas for gross negligence in the performance of his duties.

The Antecedents

The Office of the Court Administrator (OCA) conducted an investigation of the complaint and
submitted a report/recommendation to then Chief Justice Artemio V. Panganiban on March 27,
2006.[4] The facts, based on the report and the records, are summarized below.
The BSP is the plaintiff in Civil Case No. 99-95993, entitled Bangko Sentral ng Pilipinas v.
Orient Commercial Banking Corporation, et al. The BSP alleged that, on January 19, 2000, Judge
Rosmari D. Carandang (presently Court of Appeals Associate Justice) of the RTC, Branch 12,
Manila, issued a Writ of Attachment[5] against the assets and properties of the defendants, Orient
Commercial Banking Corporation, Jose C. Go, Vicente C. Go, Gotesco Properties, Inc. and Go
Tong Electrical Supply, Inc. The writ was served, among others, on the various malls owned by
the defendants, resulting in the garnishment of the rentals of the tenants. By order of the court,
the corresponding check payments of the mall tenants were deposited to the Land Bank of the
Philippines (LBP) account of the RTC, Manila, under the management and custody of dela Cruz-
Buendia.
Defendant Jose C. Go and his wife Elvy T. Go are also the defendants in Civil Case No.
01-101190, filed by PBCOM, which was pending before the RTC, Branch 42, Manila.
On May 23, 2003, when the BSPs counsel, Fe B. Macalino, inquired into the status of Civil
Case No. 99-95993, she was allegedly informed by the personnel of the RTC, Branch 12, Manila,
that portions of the subject funds (P85,631,690.38) had been withdrawn and released to PBCOM
on the basis of a Notice to Deliver Garnished Amount, dated May 12, 2003, served by
Cachero,[6] based on the writ of execution issued by Judge Guillermo G. Purganan of the RTC,
Branch 42, Manila, in Civil Case No. 01-101190, Philippine Bank of Communications v. Spouses
Jose C. Go and Elvy T. Go.
In compliance with the notice, Lilia C. Santiago, then cashier of the RTC, Manila, prepared
a disbursement voucher, dated May 14, 2003,[7] in the amount of P82,634,281.23. The amount
was covered by LBP Check No. 175255, also dated May 14, 2003, and co-signed by Judge
Lanzanas and dela Cruz-Buendia. The voucher named PBCOM as the claimant, and receipt of
the money was acknowledged by Atty. Cesar D. Ramirez, PBCOMs Vice-President for the Legal
Division.
The BSP noted that the disbursement voucher contained a certification which states:

CERTIFIED: Adequate available funds/budgetary allotment in the amount

of P(illegible) expenditure properly certified; supported by documents marked (x)
per checklist on back hereof[.]
 The BSP questioned the certification, claiming that as of the date of the disbursement
voucher (May 14, 2003), the records of the case had been brought to the Court of Appeals on
April 22, 2003, in view of the defendants appeal in Civil Case No. 01-101190.[8]

On May 15, 2003, Cachero, issued notice to deliver garnished amount of P11,756,777.97
in favor of PBCOMs lawyer, Atty. Crisostomo M. Delos Reyes, in Civil Case No. 01-101190. The
notice, like the first one, was addressed to the Clerk of Court and Ex-Officio Sheriff of the RTC,
Manila (Dela Cruz-Buendia), with a notation that the garnishment was effected on the deposit
made in Civil Case No. 99-95993.[9]
On May 16, 2003, LBP Check No. 175239 for P11,344,990.74, signed by Judge
Lanzanas, was issued in the name of PBCOM. Atty. delos Reyes acknowledged receipt of the
check.[10]

On the same day, May 16, 2003, dela Cruz-Buendia made another withdrawal from the
garnished funds for the amount of P29,491.94, covered by LBP Check No. 175296 dated June 4,
2003, and signed by Judge Lanzanas and dela Cruz-Buendia. The payee was the Clerk of Court
RTC-Manila on General Fund. The BSP claimed that on the official receipt covering the payment
of the commission, Atty. delos Reyes was named as the payor, although the receipt referred to
LBP Check No. 175296 which was issued by Judge Lanzanas and dela Cruz-Buendia. The BSP
also claimed that the receipt was falsified by making it appear that Atty. Delos Reyes was the
payee when he did not pay any amount as beneficiary of the award.

The BSP further alleged that on May 14, 2003, Santiago issued another disbursement
voucher,[11] amounting to P214,179.22, representing withdrawal of commission on deposit for the
garnished amount of P85,631,690.38, in favor of PBCOM. The withdrawal was made through LBP
Check No. 175292 dated June 4, 2003. On June 5, 2003, a certain Rodrigo Tan was named payor
in the official receipt which indicated the mode of payment to be LBP Check No. 175292 dated
June 4, 2003.[12]

On June 5, 2003, the office of dela Cruz-Buendia again issued a disbursement voucher,
for P1,712,713.00, allegedly representing withdrawal of the Sheriff Percentage of Collections of
the Garnished Account of P85,631,690.38,[13] which was covered by LBP Check No. 175292
dated June 4, 2003. Official receipt no. 18269397 bore the name of Tan as payor.[14]
Also on June 5, 2003, dela Cruz-Buendia issued another disbursement voucher,
for P428,178.45, allegedly representing the withdrawal of the Sheriff Percentage of Collection,
and covered by LBP Check No. 175293 dated June 4, 2003,[15] as indicated in the official receipt
which, again, made Tan as the payor.[16]

The BSP wondered what the connection of Tan was with the unauthorized release of its
garnished funds considering that Tan was not a party to the PBCOM case; neither was he a party
to the BSP case.
The BSP protested that the withdrawals from the garnished rental payments in Civil Case
No. 99-95993 were irregular as a court has no power to lift a writ of preliminary attachment by a
co-equal court. It stressed that the RTC, Manila, Branch 42, no longer had jurisdiction over the
case involving PBCOM and the Spouses Go because the case records were transmitted to the
Court of Appeals on March 7, 2003.[17]

The Respondents Comments

Judge Lanzanas
On January 28, 2004, Judge Lanzanas filed his comment[18] to the complaint. He strongly denied
that he had committed any improper or illegal act in connection with the withdrawal of the funds
in dispute.

He claimed that the checks he signed were personally brought to his office by dela Cruz-
Buendia and Cachero, but he had nothing to do with the preparation of the checks, vouchers and
other supporting documents. He allegedly signed the checks as a matter of duty and out of respect
for the writ of execution issued by Judge Purganan of the RTC, Manila, Branch 42. He saw nothing
in the checks or in the supporting documents which would invite suspicion that something was
wrong. He signed the checks in a ministerial capacity as executive judge, especially as he was
not told that there was any controversy regarding the amount to be paid to PBCOM.

Additionally, Judge Lanzanas explained that the amount released to PBCOM is still intact,
and a Manifestation with Urgent Motion to Return and Restrain[19] had already been filed by the
BSP to recover the amount. He stressed that the manifestation did not include his office as
respondent. Lastly, he pointed out that he was also a respondent in a similar complaint, with the
same facts and issues, filed by Gotesco Properties, Inc., through Imelda P. delos Santos,
docketed as OCA IPI No. 03-1809-RTJ.

Clerk of Court Dela Cruz-Buendia

Dela Cruz-Buendia filed her comment on March 29, 2004.[20] She explained that on May 12, 2003,
the OCC, RTC, Manila, was served with a copy of a Notice to Deliver Garnished Amount
for P85,631,690.38, signed by Cachero. Attached to the notice was the order of Judge Purganan
of the RTC, Manila, Branch 42, granting PBCOMs Motion for Execution Pending Appeal and the
corresponding writ of execution. On May 15, 2003, a second Notice to Deliver Garnished Amount
for P11,344,990.74 was served on the OCC.

Finding the two notices and their supporting papers to be in order, dela Cruz-Buendia referred the
documents to the OCC cashier for proper disposition. The cashier then prepared the check
vouchers, one for P82,634,281.23, net of the legal fees paid by PBCOM, and the other
for P11,344,990.74, after having been satisfied that money deposits did exist.

Thereafter, and in accordance with the OCC standard operating procedures, the checks, including
the supporting attachments, were brought to the Office of Judge Lanzanas for his approval and
signature. After Judge Lanzanas signed the checks, they were brought back to the OCC for
release.

Dela Cruz-Buendia argued that her act of preparing the two (2) checks, as well as other related
acts, cannot be the basis of the charges BSP brought against her. She claimed that she acted in
good faith in preparing the checks for the approval and signature of Judge Lanzanas, considering,
as she alleged, that all the documents that were submitted to the OCC were complete and in
order; she was mandated to comply with the writ of execution, a court order which on its face was
regular, having been issued by competent authority.In signing the checks in question, she strictly
observed the procedure prescribed under the 2002 Revised Manual for Clerks of Court. She
argued that for this reason, she could not be made liable for usurpation of judicial functions, nor
for violation of her official duties as clerk of court.

Dela Cruz-Buendia further alleged that the release of the questioned funds to PBCOM was done
in line with her ministerial duty as clerk of court. Therefore, the release was in good faith,
especially after she had been assured that the amount was garnished and identified as belonging
to parties against whom the notice of garnishment was enforced.
Dela Cruz-Buendia likewise denied BSPs charge of malversation of public funds as the bank had
not shown that she had appropriated or misappropriated, nor had she consented to or permitted
any other person to take the garnished funds in question, even by BSPs admission that all the
amounts covered by the issued checks were all released to PBCOM.She stressed that she did
not conspire with the sheriff and the executive judge in committing the acts complained of as it
was clearly shown that she had no participation whatsoever in the disposition of Civil Case No.
99-95993, except to obey lawful orders of the court.

The respondent clerk of court likewise denied the charge of disclosing or using confidential
information, claiming that the information regarding the deposit of the garnished funds in the OCC
was not confidential as it was furnished to the sheriff, upon his request, by the previous clerk of
court. Neither could she be made liable for falsification of public records for certifying documents;
it was her ministerial duty to sign these documents considering that they had been checked and
initialed by court personnel.

Sheriff Cachero
On March 8, 2004, the respondent sheriff submitted his comment.[21] Like the clerk of
court, he professed good faith for his role in the implementation of the writ of execution issued by
Judge Purganan in Civil Case No. 01-101190. He added that it was his ministerial duty to see to
the writs implementation. A writ of execution is enforceable even pending appeal, conditioned on
the posting of a surety bond to answer for damages in the event of a reversal by the appellate
court. In this instance, there was in fact a surety bond. Additionally, Cachero contended that the
compromise agreement entered into by the BSP and the Orient Commercial Banking Corporation,
and the claim or lien made by PBCOM on the interests of Jose C. Go and Elvy T. Go on the
garnished deposits indicated that the Gotesco group of companies funds and Jose C. Gos funds
referred to one and the same garnished amount, thereby validating PBCOMs claim.

The OCA Report and Related Incidents

In a Memorandum dated March 24, 2006,[22] the OCA recommended that:

1. The complaint be re-docketed as a regular administrative matter;

2. The charges against Judge Enrico Lanzanas be dismissed for insufficiency of evidence;
3. Respondent Deputy Sheriff Carmelo V. Cachero be suspended for six (6) months for
simple misconduct;
4. Respondent Clerk of Court Jennifer H. dela Cruz-Buendia be penalized with a fine
of P10,000.00 for simple neglect of duty; and
5. Both Cachero and dela Cruz-Buendia be sternly warned against the commission of a
similar offense.

On June 7, 2006, [23] the Court resolved to: (1) re-docket the complaint as a regular
administrative matter; (2) dismiss the charge against Judge Lanzanas for insufficiency of
evidence; and (3) require the parties to manifest whether they were willing to submit the case for
decision.

On July 17, 2006, Cachero filed a Manifestation before the Court,[24] stating that the amount
released to PBCOM in Civil Case No. 01-101190, in the amount of P103,184,629.44, was
returned to the RTC, Manila, Branch 12, by virtue of an order of the same Court; [25] the BSP and
the Ever Gotesco Resources Holdings, Inc. withdrew the entire amount on the strength of another
court order dated January 14, 2004[26] and after the release of the amount, this Court considered
closed and terminated the administrative complaint filed by the Gotesco Properties, Inc. in OCA
IPI No. 03-1809-RTJ. Cachero prayed that the present complaint be dismissed.

In a parallel move, dela Cruz-Buendia filed, on September 21, 2006, a Manifestation,

Supplemental Comment and Partial Motion for Reconsideration.[27] She reiterated that the acts
complained of in this case were ministerial and, for this reason, she could not look beyond the
face of the issued writ and the subsequent notices of garnishment, and determine the legality or
regularity of the documents. She argued that there is no particular law or rule which categorically
prohibits the garnishment of property in custodia legis.In any event, she maintained that it was
Cachero who effected the writ of execution and the garnishment.

In her partial motion for reconsideration, dela Cruz-Buendia called attention to the Courts
Resolution dated June 7, 2006,[28] stating that it dismissed all the administrative charges against
Judge Lanzanas. She posited that such dismissal should have carried with it also the dismissal
of the charges against her because she committed the acts complained of in the performance of
ministerial duty the same justification given by Judge Lanzanas in signing the checks.

The Courts Ruling

In our Resolution of June 7, 2006,[29] we made the following observations: (1) the present
administrative matter involves the alleged irregular withdrawals of funds in custodia legis; (2) the
funds consist of the garnished amounts representing rental payments from lessees of defendants
Orient Commercial Banking Corporation, et al. in Civil Case No. 99-95993 (Bangko Sentral ng
Pilipinas v. Orient Commercial Banking Corporation, et al.) held in custodia legis by the RTC,
Branch 12, Manila, by virtue of a writ of attachment; (3) said garnished amounts, totaling
about P85M, were subsequently released in favor of the PBCOM in Civil Case No. 01-101190
(PBCOM v. Jose C. Go, et al.), pursuant to a writ of execution pending appeal issued by Judge
Guillermo Purganan, RTC, Branch 42, Manila; (4) clearly, said release was irregular as the
garnished amounts were under the custody of the RTC, Branch 12, Manila, pursuant to the writ
of attachment earlier issued by Judge Carandang of the same court against the defendants in
Civil Case No. 99-95993, which cannot be interfered with without the permission of the proper
court (Branch 12); (5) respondent Judge Lanzanas inadvertence was not gross enough to merit
sanction as he had no participation in the preparation of the checks; he merely signed them in a
ministerial capacity as executive judge, but (6) the same conclusion cannot be said of his co-
respondents who are claiming good faith and compliance with the procedure, set forth in the Rules
of Court, in the withdrawal and subsequent release of the subject funds.

Rule 57, Section 7(e) of the Rules of Court provides:

xxxx
If the property sought to be attached is in custodia legis, a copy of the writ
of attachment shall be filed with the proper court or quasi-judicial agency, and
notice of the attachment served upon the custodian of such property.

No evidence or record in the present case exists showing that the above provision had been
complied with when Cachero asked for the release of the garnished funds. No copy of the writ of
attachment was filed with the proper court, the RTC, Branch 12, Manila, in Civil Case No. 99-
95993. The disputed funds were clearly under the custody of Branch 12, not Branch 42.

As the OCA noted, the respondent sheriff should have known that the funds he garnished were
in custodia legis and do not belong to the defendants in Civil Case No. 01-101190, considering
that he (Cachero) himself was among a group of sheriffs deputized to implement the writ of
garnishment issued by the RTC, Branch 12, Manila, in Civil Case No. 99-95993.
Dela Cruz-Buendia, on the other hand, cannot claim that she was not aware that the garnished
amounts do not belong to Spouses Jose C. Go and Elvy T. Go. The notice of garnishment, dated
July 23, 2001,[30] issued by Cachero was addressed to the Clerk of Court, RTC, Manila. The notice
covered the goods, effects, money and other properties belonging to Spouses Jose C. Go and
Elvy T. Go in her possession or control that were deposited under Civil Case No. 99-95993. The
reply, dated July 27, 2001, of then Clerk of Court[31] Jesusa P. Maningas reads:

In reply to the Notice of Garnishment received by this office on July 26, 2001
pursuant to the Writ of Attachment in Civil Case No. 01-101190, entitled Philippine
Bank of Communication versus Spouses Jose C. Go and Elvy T. Go, please be
informed that this office is in receipt of an order from the Hon. [Rosmari] D.
Carandang dated February 7, 2000 in connection with Civil Case No. 99-95993
entitled Bangko Sentral ng Pilipinas versus Orient Commercial Banking
Corporation, et al., (Please see attached copy of the said Order and Writ of
Attachment).

Judge Carandangs order, dated February 7, 2000,[32] mentioned in the above reply states:

The Clerk of Court, acting as ex-officio Sheriff of Regional Trial Court of Manila, is
hereby directed that before any rental payment from the lessees of any one or all
of the above-named defendants shall be received in accordance with the Notice of
Garnishment pursuant to the Writ of Attachment issued by this Court on January
19, 2000 x x x the said payment should be referred first to this Court for the
issuance of appropriate Order to Receive Payment for the Courts proper control
and accounting of the amount garnished; payments shall be turned over by the
Branch Sheriff of this Court to your office for issuance of appropriate official receipt.

Without doubt, the funds that were released by the OCC, at the time the Notices to Deliver
Garnished Amount were filed by Cachero, were in custodia legis, by virtue of the Writ of
Attachment issued by Judge Carandang, RTC, Branch 12, Manila, against the defendants in Civil
Case No. 99-95993.

In Traders Royal Bank v. Intermediate Appellate Court,[33] we declared that property in the custody
of the law cannot be interfered with without the custody of the proper court and properly legally
attached is property in custodia legis.

Sheriff Cachero cannot feign ignorance of the true nature of the funds he garnished. Cachero
himself was deputized, among other sheriffs, to implement the writ of garnishment issued by
Judge Carandang of the RTC, Branch 12, Manila, in Civil Case No. 99-95993, a case where Jose
Go was one among several defendants, unlike in Civil Case No. 01-101190 where only he and
his wife Elvy were the defendants. The garnished funds, therefore, in Civil Case No. 99-95993
cannot be said to belong to the spouses Go or, at the very least, do not belong to them
solely. Further, Cachero received official notification that the funds in question were already the
subject of a notice of garnishment issued, on January 19, 2000, by Judge Carandang in Civil
Case No. 99-95993, as contained in the Order of the Judge,[34] attached to the reply[35] of RTC
Clerk of Court Jesusa P. Maningas to Cacheros notice of garnishment.[36]

Cachero erred in garnishing the funds in dispute, in his haste to enforce the writ of execution
issued by Judge Purganan of the RTC, Branch 42, Manila, in Civil Case No. 01-101190, for
reasons only known to him. He forgot that the very same funds were under the custody of another
court, the RTC, Branch 12, Manila, which earlier issued a writ of attachment over the same
funds. He cannot now be heard that he was just performing a ministerial function. He knew or
should have known about the true character of the funds he garnished. As the OCA noted, he
was among a group of sheriffs who were deputized to implement the writ of attachment issued by
Judge Carandang of the RTC, Branch 12, Manila.
For garnishing funds in custodia legis, in violation of the Rules of Court and jurisprudence,
Cachero deserves to be sanctioned. He exhibited incompetence in the performance of his
duties. Under the Civil Service rules,[37] inefficiency and incompetence are punishable with
suspension for six (6) months and one (1) day to one (1) year for the first offense, and dismissal
for the second offense. Considering that several incidents are involved and the nature of the
infractions, i.e., on a matter so basic for a sheriff to miss, we deem a penalty in the middle of the
range, or nine (9) months suspension, to be the appropriate penalty.
Clerk of Court and Ex-Officio Sheriff dela Cruz-Buendia likewise cannot avoid liability by hiding
behind the mantle of performance of a ministerial duty. She cannot merely say that she found the
supporting papers for the release of the funds to be in order. Like Cachero, she knew or should
have known that the funds were under the custody of Judge Carandang of the RTC, Branch 12,
Manila, who, as early as February 7, 2000, issued an order[38] directing the Clerk of Court, RTC,
Manila, to refer to the court all payments from lessees of the defendants in Civil Case No. 99-
95993 to the court, for its proper control. If as she said, her 15 years of service in the judiciary
have been marked by competence on her part,[39] we wonder why she did not check the
background of the documents presented to her, especially in light of Judge Carandangs order
and the big amounts involved.

Dela Cruz-Buendia simply overlooked the need for her to carefully examine the papers brought
to her by Cachero. She should have exercised prudence before taking action on the
papers. Funds in custodia legis pass through her office en route to safekeeping (in depository
banks) and for purpose of release. We, thus, find her liable for neglect in the performance of her
duties. Under the Rules, simple neglect of duty is a less grave offense penalized with suspension
for one month and one day to six months for the first offense, and dismissal for the
second.[40] Suspension in the middle of the range or three months likewise appears to be in order
for dela Cruz-Buendia.

For the foregoing reasons, the charges of usurpation of authority, malversation of public funds,
causing undue injury to the government, disclosing or using confidential information and
falsification of public records against Cachero and dela Cruz-Buendia are dismissed for lack of
evidence.
In conclusion, we reiterate the rule that the conduct of every employee of the judiciary must be at
all times characterized with propriety and decorum and, above all else, it must be above and
beyond suspicion.[41] This must be the benchmark by which all personnel in the courts should be
measured for the image of a court of justice is necessarily mirrored in the conduct, official or
otherwise, of the men and women, who work thereat, from the judge to the last and lowest of its
personnel.[42]

WHEREFORE, premises considered, Deputy Sheriff Carmelo V. Cachero is

found GUILTY OF INEFFICIENCY AND INCOMPETENCE IN THE PERFORMANCE OF
OFFICIAL DUTIES, and is SUSPENDED for nine (9) months without pay. Clerk of Court Jennifer
H. dela Cruz-Buendia is declared GUILTY OF SIMPLE NEGLECT OF DUTY and
is SUSPENDED for three (3) months without pay.

Both of them are STERNLY WARNED against the commission of a similar offense.

The other charges against Cachero and dela Cruz-Buendia are DISMISSED for lack of evidence.

FIRST DIVISION
FORT BONIFACIO DEVELOPMENT G.R. No. 158997
CORPORATION,
Petitioner, Present:

PUNO, C.J., Chairperson,

CARPIO,
- versus - AZCUNA,
REYES,* and
LEONARDO-DE CASTRO, JJ.

YLLAS LENDING CORPORATION and JOSE

S. LAURAYA, in his Promulgated:
official capacity as President,
Respondents. October 6, 2008

x--------------------------------------------------x

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari[1] of the Orders issued on 7 March 2003[2] and 3 July
2003[3] by Branch 59 of the Regional Trial Court of Makati City (trial court) in Civil Case No. 01-
1452. The trial courts orders dismissed Fort Bonifacio Development Corporations (FBDC) third
party claim and denied FBDCs Motion to Intervene and Admit Complaint in Intervention.

The Facts

On 24 April 1998, FBDC executed a lease contract in favor of Tirreno, Inc. (Tirreno) over a unit at
the Entertainment Center Phase 1 of the Bonifacio Global City in Taguig, Metro Manila. The
parties had the lease contract notarized on the day of its execution. Tirreno used the leased
premises for Savoia Ristorante and La Strega Bar.

Two provisions in the lease contract are pertinent to the present case: Section 20, which is about
the consequences in case of default of the lessee, and Section 22, which is about the lien on the
properties of the lease. The pertinent portion of Section 20 reads:

Section 20. Default of the Lessee

20.1 The LESSEE shall be deemed to be in default within the meaning of this
Contract in case:

(i) The LESSEE fails to fully pay on time any rental, utility and service
charge or other financial obligation of the LESSEE under this Contract;
 xxx

20.2 Without prejudice to any of the rights of the LESSOR under this Contract, in
case of default of the LESSEE, the lessor shall have the right to:

(i) Terminate this Contract immediately upon written notice to the

LESSEE, without need of any judicial action or declaration;

xxx

Section 22, on the other hand, reads:

Section 22. Lien on the Properties of the Lessee

Upon the termination of this Contract or the expiration of the Lease Period without
the rentals, charges and/or damages, if any, being fully paid or settled, the
LESSOR shall have the right to retain possession of the properties of the LESSEE
used or situated in the Leased Premises and the LESSEE hereby authorizes the
LESSOR to offset the prevailing value thereof as appraised by the LESSOR
against any unpaid rentals, charges and/or damages. If the LESSOR does not
want to use said properties, it may instead sell the same to third parties and apply
the proceeds thereof against any unpaid rentals, charges and/or damages.

Tirreno began to default in its lease payments in 1999. By July 2000, Tirreno was already in
arrears by P5,027,337.91. FBDC and Tirreno entered into a settlement agreement on 8 August
2000. Despite the execution of the settlement agreement, FBDC found need to send Tirreno a
written notice of termination dated 19 September 2000 due to Tirrenosalleged failure to settle its
outstanding obligations. On 29 September 2000, FBDC entered and occupied the leased
premises. FBDC also appropriated the equipment and properties left by Tirreno pursuant to
Section 22 of their Contract of Lease as partial payment for Tirrenos outstanding
obligations. Tirreno filed an action for forcible entry against FBDC before the Municipal Trial Court
of Taguig. Tirreno also filed a complaint for specific performance with a prayer for the issuance of
a temporary restraining order and/or a writ of preliminary injunction against FBDC before the
Regional Trial Court (RTC) of Pasig City. The RTC of Pasig City dismissed Tirrenos complaint for
forum-shopping.

On 4 March 2002, Yllas Lending Corporation and Jose S. Lauraya, in his official capacity as
President, (respondents) caused the sheriff of Branch 59 of the trial court to serve an alias writ of
seizure against FBDC. On the same day, FBDC served on the sheriff an affidavit of title and third
party claim. FBDC found out that on 27 September 2001, respondents filed a complaint for
Foreclosure of Chattel Mortgage with Replevin, docketed as Civil Case No. 01-1452,
against Tirreno, Eloisa Poblete Todaro (Eloisa), and Antonio D. Todaro (Antonio), in their
personal and individual capacities, and in Eloisas official capacity as President. In their complaint,
respondents alleged that they lent a total of P1.5 million to Tirreno, Eloisa, and Antonio. On 9
November 2000, Tirreno, Eloisa and Antonio executed a Deed of Chattel Mortgage in favor
of respondents as security for the loan. The following properties are covered by the Chattel
Mortgage:
 a. Furniture, Fixtures and Equipment of Savoia Ristorante and La Strega Bar, a
restaurant owned and managed by [Tirreno], inclusive of the leasehold right of
[Tirreno] over its rented building where [the] same is presently located.

b. Goodwill over the aforesaid restaurant, including its business name, business
sign, logo, and any and all interest therein.

c. Eighteen (18) items of paintings made by Florentine Master, Gino Tili, which are
fixtures in the above-named restaurant.

The details and descriptions of the above items are specified in Annex A which is
hereto attached and forms as an integral part of this Chattel Mortgage instrument. [4]

In the Deed of Chattel Mortgage, Tirreno, Eloisa, and Antonio made the following warranties to
respondents:

1. WARRANTIES: The MORTGAGOR hereby declares and warrants that:

a. The MORTGAGOR is the absolute owner of the above named properties

subject of this mortgage, free from all liens and encumbrances.

b. There exist no transaction or documents affecting the same previously

presented for, and/or pending transaction.[5]
Despite FBDCs service upon him of an affidavit of title and third party claim, the sheriff proceeded
with the seizure of certain items from FBDCs premises. The sheriffs partial return indicated the
seizure of the following items from FBDC:

A. FIXTURES
(2) Smaller Murano Chandeliers
(1) Main Murano Chandelier
B. EQUIPMENT
(13) Uni-Air Split Type 2HP Air Cond.
(2) Uni-Air Split Type 1HP Air Cond.
(3) Uni-Air Window Type 2HP Air Cond.
(56) Chairs
(1) Table
(2) boxes Kitchen equipments [sic][6]

The sheriff delivered the seized properties to respondents. FBDC questioned the propriety of the
seizure and delivery of the properties to respondents without an indemnity bond before the trial
court. FBDC argued that when respondents and Tirreno entered into the chattel mortgage
agreement on 9 November 2000, Tirreno no longer owned the mortgaged properties as FBDC
already enforced its lien on 29 September 2000.

In ruling on FBDCs motion for leave to intervene and to admit complaint in intervention, the trial
court stated the facts as follows:

Before this Court are two pending incidents, to wit: 1) [FBDCs] Third-Party Claim
over the properties of [Tirreno] which were seized and delivered by the sheriff of
this Court to [respondents]; and 2) FBDCs Motion to Intervene and to Admit
Complaint in Intervention.
 Third party claimant, FBDC, anchors its claim over the subject properties on
Sections 20.2(i) and 22 of the Contract of Lease executed by [FBDC]
with Tirreno. Pursuant to said Contract of Lease, FBDC took possession of the
leased premises and proceeded to sell to third parties the properties found therein
and appropriated the proceeds thereof to pay the unpaid lease rentals of [Tirreno].

FBDC, likewise filed a Motion to Admit its Complaint-in-Intervention.

In Opposition to the third-party claim and the motion to intervene, [respondents]

posit that the basis of [FBDCs] third party claim being anchored on the aforesaid
Contract [of] Lease is baseless. [Respondents] contend that the stipulation of the
contract of lease partakes of a pledge which is void under Article 2088 of the Civil
Code for being pactum commissorium.

xxx

By reason of the failure of [Tirreno] to pay its lease rental and fees due in the
amount of P5,027,337.91, after having notified [Tirreno] of the termination of the
lease, x x x FBDC took possession of [Tirreno.s] properties found in the premises
and sold those which were not of use to it. Meanwhile, [respondents], as
mortgagee of said properties, filed an action for foreclosure of the chattel mortgage
with replevin and caused the seizure of the same properties which [FBDC] took
and appropriated in payment of [Tirrenos] unpaid lease rentals.[7]

The Ruling of the Trial Court

In its order dated 7 March 2003, the trial court stated that the present case raises the questions
of who has a better right over the properties of Tirreno and whether FBDC has a right to intervene
in respondents complaint for foreclosure of chattel mortgage.
In deciding against FBDC, the trial court declared that Section 22 of the lease contract between
FBDC and Tirreno is void under Article 2088 of the Civil Code.[8] The trial court stated that Section
22 of the lease contract pledges the properties found in the leased premises as security for the
payment of the unpaid rentals. Moreover, Section 22 provides for the automatic appropriation of
the properties owned by Tirreno in the event of its default in the payment of monthly rentals to
FBDC. Since Section 22 is void, it cannot vest title of ownership over the seized
properties. Therefore, FBDC cannot assert that its right is superior to respondents, who are the
mortgagees of the disputed properties.
The trial court quoted from Bayer Phils. v. Agana[9] to justify its ruling that FBDC should have filed
a separate complaint against respondents instead of filing a motion to intervene. The trial court
quoted from Bayer as follows:

In other words, construing Section 17 of Rule 39 of the Revised Rules of Court

(now Section 16 of the 1997 Rules on Civil Procedure), the rights of third-party
claimants over certain properties levied upon by the sheriff to satisfy the judgment
may not be taken up in the case where such claims are presented but in a separate
and independent action instituted by the claimants.[10]

The dispositive portion of the trial courts decision reads:

 WHEREFORE, premises considered, [FBDCs] Third Party Claim is hereby
DISMISSED. Likewise, the Motion to Intervene and Admit Complaint in
Intervention is DENIED.[11]

FBDC filed a motion for reconsideration on 9 May 2003. The trial court denied FBDCs motion for
reconsideration in an order dated 3 July 2003. FBDC filed the present petition before this Court
to review pure questions of law.

The Issues

FBDC alleges that the trial court erred in the following:

1. Dismissing FBDCs third party claim upon the trial courts erroneous
interpretation that FBDC has no right of ownership over the subject
properties because Section 22 of the contract of lease is void for being a
pledge and a pactum commissorium;

2. Denying FBDC intervention on the ground that its proper remedy as third
party claimant over the subject properties is to file a separate action; and

3. Depriving FBDC of its properties without due process of law when the trial
court erroneously dismissed FBDCs third party claim,
denied FBDCs intervention, and did not require the posting of an indemnity
bond for FBDCs protection.[12]

The Ruling of the Court

The petition has merit.

Taking of Lessees Properties

without Judicial Intervention

We reproduce Section 22 of the Lease Contract below for easy reference:

Section 22. Lien on the Properties of the Lessee

Upon the termination of this Contract or the expiration of the Lease Period without
the rentals, charges and/or damages, if any, being fully paid or settled, the
LESSOR shall have the right to retain possession of the properties of the LESSEE
used or situated in the Leased Premises and the LESSEE hereby authorizes the
LESSOR to offset the prevailing value thereof as appraised by the LESSOR
against any unpaid rentals, charges and/or damages. If the LESSOR does not
want to use said properties, it may instead sell the same to third parties and apply
the proceeds thereof against any unpaid rentals, charges and/or damages.

Respondents, as well as the trial court, contend that Section 22 constitutes

a pactum commissorium, a void stipulation in a pledge contract. FBDC, on the other hand, states
that Section 22 is merely a dacion en pago.
Articles 2085 and 2093 of the Civil Code enumerate the requisites essential to a contract of
pledge: (1) the pledge is constituted to secure the fulfillment of a principal obligation; (2)
the pledgor is the absolute owner of the thing pledged; (3) the persons constituting the pledge
have the free disposal of their property or have legal authorization for the purpose; and (4) the
thing pledged is placed in the possession of the creditor, or of a third person by common
agreement. Article 2088 of the Civil Code prohibits the creditor from appropriating or disposing
the things pledged, and any contrary stipulation is void.

On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in payment,
as the alienation of property to the creditor in satisfaction of a debt in money.Dacion en pago is
governed by the law on sales. Philippine National Bank v. Pineda[13] held that dation in payment
requires delivery and transmission of ownership of a thing owned by the debtor to the creditor as
an accepted equivalent of the performance of the obligation. There is no dation in payment when
there is no transfer of ownership in the creditors favor, as when the possession of the thing is
merely given to the creditor by way of security.

Section 22, as worded, gives FBDC a means to collect payment from Tirreno in case of
termination of the lease contract or the expiration of the lease period and there are unpaid rentals,
charges, or damages. The existence of a contract of pledge, however, does not arise just because
FBDC has means of collecting past due rent from Tirreno other than direct payment. The trial
court concluded that Section 22 constitutes a pledge because of the presence of the first three
requisites of a pledge: Tirrenos properties in the leased premises secure Tirrenos lease
payments; Tirreno is the absolute owner of the said properties; and the persons
representing Tirreno have legal authority to constitute the pledge.However, the fourth requisite,
that the thing pledged is placed in the possession of the creditor, is absent. There is non-
compliance with the fourth requisite even if Tirrenospersonal properties are found in FBDCs real
property. Tirrenos personal properties are in FBDCs real property because of the Contract of
Lease, which gives Tirreno possession of the personal properties. Since Section 22 is not a
contract of pledge, there is no pactum commissorium.

FBDC admits that it took Tirrenos properties from the leased premises without judicial intervention
after terminating the Contract of Lease in accordance with Section 20.2.FBDC further justifies its
action by stating that Section 22 is a forfeiture clause in the Contract of Lease and that Section
22 gives FBDC a remedy against Tirrenos failure to comply with its obligations. FBDC claims that
Section 22 authorizes FBDC to take whatever properties that Tirreno left to pay
off Tirrenos obligations.

We agree with FBDC.

A lease contract may be terminated without judicial intervention. Consing v. Jamandre upheld the
validity of a contractually-stipulated termination clause:

This stipulation is in the nature of a resolutory condition, for upon the exercise by
the [lessor] of his right to take possession of the leased property, the contract is
 deemed terminated. This kind of contractual stipulation is not illegal, there being
nothing in the law proscribing such kind of agreement.

xxx

Judicial permission to cancel the agreement was not, therefore necessary because
of the express stipulation in the contract of [lease] that the [lessor], in case of failure
of the [lessee] to comply with the terms and conditions thereof, can take-over the
possession of the leased premises, thereby cancelling the contract of sub-
lease. Resort to judicial action is necessary only in the absence of a special
provision granting the power of cancellation.[14]

A lease contract may contain a forfeiture clause. Country Bankers Insurance Corp. v. Court of
Appeals upheld the validity of a forfeiture clause as follows:

A provision which calls for the forfeiture of the remaining deposit still in the
possession of the lessor, without prejudice to any other obligation still owing, in the
event of the termination or cancellation of the agreement by reason of the lessees
violation of any of the terms and conditions of the agreement is a penal clause that
may be validly entered into. A penal clause is an accessory obligation which the
parties attach to a principal obligation for the purpose of insuring the performance
thereof by imposing on the debtor a special prestation (generally consisting in the
payment of a sum of money) in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled.[15]

In Country Bankers, we allowed the forfeiture of the lessees advance deposit of lease
payment. Such a deposit may also be construed as a guarantee of payment, and thus answerable
for any unpaid rent or charges still outstanding at any termination of the lease.

In the same manner, we allow FBDCs forfeiture of Tirrenos properties in the leased premises. By
agreement between FBDC and Tirreno, the properties are answerable for any unpaid rent or
charges at any termination of the lease. Such agreement is not contrary to law, morals, good
customs, or public policy. Forfeiture of the properties is the only security that FBDC may apply in
case of Tirrenos default in its obligations.

Intervention versus Separate Action

Respondents posit that the right to intervene, although permissible, is not an absolute right.
Respondents agree with the trial courts ruling that FBDCs proper remedy is not intervention but
the filing of a separate action. Moreover, respondents allege that FBDC was accorded by the trial
court of the opportunity to defend its claim of ownership in court through pleadings and hearings
set for the purpose. FBDC, on the other hand, insists that a third party claimant may vindicate his
rights over properties taken in an action for replevin by intervening in the replevin action itself.
We agree with FBDC.
Both the trial court and respondents relied on our ruling in Bayer Phils. v. Agana[16] to justify their
opposition to FBDCs intervention and to insist on FBDCs filing of a separate action. In Bayer, we
declared that the rights of third party claimants over certain properties levied upon by the sheriff
to satisfy the judgment may not be taken up in the case where such claims are presented, but in
a separate and independent action instituted by the claimants. However, both respondents and
the trial court overlooked the circumstances behind the ruling in Bayer, which makes
the Bayer ruling inapplicable to the present case. The third party in Bayer filed his claim during
execution; in the present case, FBDC filed for intervention during the trial.

The timing of the filing of the third party claim is important because the timing determines the
remedies that a third party is allowed to file. A third party claimant under Section 16 of Rule 39
(Execution, Satisfaction and Effect of Judgments)[17] of the 1997 Rules of Civil Procedure may
vindicate his claim to the property in a separate action, because intervention is no longer allowed
as judgment has already been rendered. A third party claimant under Section 14 of Rule 57
(Preliminary Attachment)[18] of the 1997 Rules of Civil Procedure, on the other hand, may vindicate
his claim to the property by intervention because he has a legal interest in the matter in litigation. [19]
We allow FBDCs intervention in the present case because FBDC satisfied the requirements of
Section 1, Rule 19 (Intervention) of the 1997 Rules of Civil Procedure, which reads as follows:

Section 1. Who may intervene. A person who has a legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or is
so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may, with leave of court,
be allowed to intervene in the action. The court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the rights of the
original parties, and whether or not the intervenors rights may be fully protected in
a separate proceeding.

Although intervention is not mandatory, nothing in the Rules proscribes intervention. The trial
courts objection against FBDCs intervention has been set aside by our ruling that Section 22 of
the lease contract is not pactum commissorium.

Indeed, contrary to respondents contentions, we ruled in BA Finance Corporation v. Court of

Appeals that where the mortgagees right to the possession of the specific property is evident, the
action need only be maintained against the possessor of the property. However, where the
mortgagees right to possession is put to great doubt, as when a contending party might contest
the legal bases for mortgagees cause of action or an adverse and independent claim of ownership
or right of possession is raised by the contending party, it could become essential to have other
persons involved and accordingly impleaded for a complete determination and resolution of the
controversy. Thus:

A chattel mortgagee, unlike a pledgee, need not be in, nor entitled to, the
possession of the property, unless and until the mortgagor defaults and the
mortgagee thereupon seeks to foreclose thereon. Since the mortgagees right of
possession is conditioned upon the actual default which itself may be controverted,
the inclusion of other parties, like the debtor or the mortgagor himself, may be
required in order to allow a full and conclusive determination of the case. When
the mortgagee seeks a replevin in order to effect the eventual foreclosure of the
mortgage, it is not only the existence of, but also the mortgagors default on, the
chattel mortgage that, among other things, can properly uphold the right
to replevy the property. The burden to establish a valid justification for that action
 lies with the plaintiff [-mortgagee]. An adverse possessor, who is not the
mortgagor, cannot just be deprived of his possession, let alone be bound by
the terms of the chattel mortgage contract, simply because the mortgagee
brings up an action for replevin.[20] (Emphasis added)

FBDC exercised its lien to Tirrenos properties even before respondents and Tirreno executed
their Deed of Chattel Mortgage. FBDC is adversely affected by the disposition of the properties
seized by the sheriff. Moreover, FBDCs intervention in the present case will result in a complete
adjudication of the issues brought about by Tirrenos creation of multiple liens on the same
properties and subsequent default in its obligations.

Sheriffs Indemnity Bond

FBDC laments the failure of the trial court to require respondents to file an
indemnity bond for FBDCs protection. The trial court, on the other hand, did not mention the
indemnity bond in its Orders dated 7 March 2003 and 3 July 2003.

Pursuant to Section 14 of Rule 57, the sheriff is not obligated to turn over to respondents the
properties subject of this case in view of respondents failure to file a bond. The bond in Section
14 of Rule 57 (proceedings where property is claimed by third person) is different from the bond
in Section 3 of the same rule (affidavit and bond). Under Section 14 of Rule 57, the purpose of
the bond is to indemnify the sheriff against any claim by the intervenor to the property seized or
for damages arising from such seizure, which the sheriff was making and for which the sheriff was
directly responsible to the third party. Section 3, Rule 57, on the other hand, refers to the
attachment bond to assure the return of defendants personal property or the payment of damages
to the defendant if the plaintiffs action to recover possession of the same property fails, in order
to protect the plaintiffs right of possession of said property, or prevent the defendant from
destroying the same during the pendency of the suit.

Because of the absence of the indemnity bond in the present case, FBDC may also hold the
sheriff for damages for the taking or keeping of the properties seized from FBDC.

WHEREFORE, we GRANT the petition. We SET ASIDE the Orders dated 7 March 2003 and 3
July 2003 of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. 01-1452
dismissing Fort Bonifacio Development Corporations Third Party Claim and denying
Fort Bonifacio Development Corporations Motion to Intervene and Admit Complaint in
Intervention. We REINSTATE Fort Bonifacio Development Corporations Third Party Claim
and GRANT its Motion to Intervene and Admit Complaint in
Intervention. Fort Bonifacio Development Corporation may hold the Sheriff liable for the seizure
and delivery of the properties subject of this case because of the lack of an indemnity bond.

SO ORDERED.
 SECOND DIVISION

[G.R. No. 110844. April 27, 2000]

ALFREDO CHING, petitioner, vs. HON. COURT OF APPEALS, HON. ZOSIMO Z. ANGELES,
RTC - BR. 58, MAKATI, METRO MANILA, PEOPLE OF THE PHILIPPINES AND ALLIED
BANKING CORPORATION, respondents.

DECISION

BUENA, J.:

Confronting the Court in this instant petition for review on certiorari under Rule 45 is the task of
resolving the issue of whether the pendency of a civil action for damages and declaration of
nullity of documents, specifically trust receipts, warrants the suspension of criminal proceedings
instituted for violation of Article 315 1(b) of the Revised Penal Code, in relation to P.D. 115,
otherwise known as the "Trust Receipts Law".xl-aw

Petitioner Alfredo Ching challenges before us the decision[1] of the Court of Appeals
promulgated on 27 January 1993 in CA G.R. SP No. 28912, dismissing his "Petition
for Certiorari and Prohibition with Prayer for Issuance of Temporary Restraining Order/
Preliminary Injunction", on the ground of lack of merit.

Assailed similarly is the resolution[2] of the Court of Appeals dated 28 June 1993 denying
petitioners motion for reconsideration.

As borne by the records, the controversy arose from the following facts:

On 04 February 1992,[3] petitioner was charged before the Regional Trial Court of Makati (RTC-
Makati), Branch 58, with four counts of estafa punishable under Article 315 par. 1(b) of the
Revised Penal Code, in relation to Presidential Decree 115, otherwise known as the "Trust
Receipts Law".

The four separate informations[4] which were couched in similar language except for the date,
subject goods and amount thereof, charged herein petitioner in this wise:

"That on or about the (18th day of May 1981; 3rd day of June 1981; 24th day of
June 1981 and 24th day of June 1981), in the Municipality of Makati, Metro
Manila, Philippines and within the jurisdiction of this Honorable Court, the above-
named accused having executed a trust receipt agreement in favor of Allied
Banking Corporation in consideration of the receipt by the said accused of goods
described as 12 Containers (200 M/T) Magtar Brand Dolomites; 18 Containers
(Zoom M/T) Magtar Brand Dolomites; High Fired Refractory Sliding Nozzle
Bricks; and High Fired Refractory Sliding Nozzle Bricks for which there is now
due the sum of (P 278, 917.80; P 419,719.20; P 387, 551. 95; and P389, 085.14
respectively) under the terms of which the accused agreed to sell the same for
cash with the express obligation to remit to the complainant bank the proceeds of
the sale and/or to turn over the goods, if not sold, on demand, but the accused,
once in possession of said goods, far from complying with his obligation and with
grave abuse of confidence, did then and there, willfully, unlawfully and feloniously
misappropriate, misapply and convert to his own personal use and benefit the
said goods and/or the proceeds of the sale thereof, and despite repeated
demands, failed and refused and still fails and refuses, to account for and/or
remit the proceeds of sale thereof to the Allied Banking Corporation to the
damage and prejudice of the said complainant bank in the aforementioned
amount of ( P 278,917.80; P 419,719.20; P 387,551.95; and P389,085.14)." x-sc

On 10 February 1992, an "Omnibus Motion[5] to Strike Out Information, or in the Alternative to

Require Public Prosecutor to Conduct Preliminary Investigation, and to Suspend in the
Meantime Further Proceedings in these Cases," was filed by the petitioner.
In an order dated 13 February 1992, the Regional Trial Court of Makati, Branch 58, acting on
the omnibus motion, required the prosecutors office to conduct a preliminary investigation and
suspended further proceedings in the criminal cases.

On 05 March 1992, petitioner Ching, together with Philippine Blooming Mills Co. Inc., filed a
case[6] before the Regional Trial Court of Manila (RTC-Manila), Branch 53, for declaration of
nullity of documents and for damages docketed as Civil Case No. 92-60600, entitled "Philippine
Blooming Mills, Inc. et. al. vs. Allied Banking Corporation."

On 07 August 1992, Ching filed a petition[7] before the RTC-Makati, Branch 58, for the
suspension of the criminal proceedings on the ground of prejudicial question in a civil action.

The prosecution then filed an opposition to the petition for suspension, against which opposition,
herein petitioner filed a reply.[8]

On 26 August 1992, the RTC-Makati issued an order[9] which denied the petition for suspension
and scheduled the arraignment and pre-trial of the criminal cases. As a result, petitioner moved
to reconsider[10] the order to which the prosecution filed an opposition.

In an order[11] dated 04 September 1992, the RTC-Makati, before which the criminal cases are
pending, denied petitioner's motion for reconsideration and set the criminal cases for
arraignment and pre-trial.

Aggrieved by these orders[12] of the lower court in the criminal cases, petitioner brought before
the Court of Appeals a petition for certiorari and prohibition which sought to declare the nullity of
the aforementioned orders and to prohibit the RTC-Makati from conducting further proceedings
in the criminal cases.

In denying the petition,[13] the Court of Appeals, in CA G.R. SP No. 28912, ruled:

"X X X Civil Case No. 90-60600 pending before the Manila Regional Trial Court
seeking(sic) the declaration of nullity of the trust receipts in question is not a
prejudicial question to Criminal Case Nos. 92-0934 to 37 pending before the
respondent court charging the petitioner with four counts of violation of Article
315, par. 1(b), RPC, in relation to PD 115 as to warrant the suspension of the
proceedings in the latter X X X." Sc

Consequently, petitioner filed a motion for reconsideration of the decision which the appellate
court denied for lack of merit, via a resolution[14] dated 28 June 1993.

Notwithstanding the decision rendered by the Court of Appeals, the RTC-Manila, Branch 53 in
an order dated 19 November 1993 in Civil Case No. 92-60600, admitted petitioners amended
complaint[15] which, inter alia, prayed the court for a judgment:

"X X X

"1. Declaring the Trust Receipts, annexes D, F, H and J hereof, null and void, or
otherwise annulling the same, for failure to express the true intent and agreement
of the parties;

"2. Declaring the transaction subject hereof as one of pure and simple loan
without any trust receipt agreement and/or not one involving a trust receipt,
and accordingly declaring all the documents annexed hereto as mere loan
documents XXX"(emphasis ours)

In its amended answer,[16] herein private respondent Allied Banking Corporation submitted in
riposte that the transaction applied for was a "letter of credit/trust receipt accommodation" and
not a "pure and simple loan with the trust receipts as mere additional or side documents", as
asserted by herein petitioner in its amended complaint.[17]

Through the expediency of Rule 45, petitioner seeks the intervention of this Court and prays:
 "After due consideration, to render judgment reversing the decision and
resolution, Annexes A and B hereof, respectively, and ordering the suspension of
Criminal Cases (sic) Nos. 92-0934 to 92-0937, inclusive, entitled "People of the
Philippines vs. Alfredo Ching" pending before Branch 58 of the Regional Trial
Court of Makati, Metro Manila, until final determination of Civil Case No. 92-600
entitled Philippine Blooming Mills Co. Inc. and Alfredo Ching vs. Allied Banking
Corporation" pending before Branch 53 of the Regional Trial Court of Manila."

The instant petition is bereft of merit.

We agree with the findings of the trial court, as affirmed by the Court of Appeals, that no
prejudicial question exists in the present case. Scmis

As defined, a prejudicial question is one that arises in a case the resolution of which is a logical
antecedent of the issue involved therein, and the cognizance of which pertains to another
tribunal. The prejudicial question must be determinative of the case before the court but the
jurisdiction to try and resolve the question must be lodged in another court or tribunal.[18]

It is a question based on a fact distinct and separate from the crime but so intimately connected
with it that it determines the guilt or innocence of the accused, and for it to suspend the criminal
action, it must appear not only that said case involves facts intimately related to those upon
which the criminal prosecution would be based but also that in the resolution of the issue or
issues raised in the civil case, the guilt or innocence of the accused would necessarily be
determined.[19] It comes into play generally in a situation where a civil action and a criminal
action are both pending and there exists in the former an issue which must be preemptively
resolved before the criminal action may proceed, because howsoever the issue raised in the
civil action is resolved would be determinative juris et de jure of the guilt or innocence of the
accused in the criminal case.[20]

More simply, for the court to appreciate the pendency of a prejudicial question, the law,[21] in no
uncertain terms, requires the concurrence of two essential requisites, to wit:

a) The civil action involves an issue similar or intimately related to the issue
raised in the criminal action; and

b) The resolution of such issue determines whether or not the criminal action
may proceed.

Verily, under the prevailing circumstances, the alleged prejudicial question in the civil case for
declaration of nullity of documents and for damages, does not juris et de jure determine the guilt
or innocence of the accused in the criminal action for estafa. Assuming arguendo that the court
hearing the civil aspect of the case adjudicates that the transaction entered into between the
parties was not a trust receipt agreement, nonetheless the guilt of the accused could still be
established and his culpability under penal laws determined by other evidence. To put it
differently, even on the assumption that the documents are declared null, it does not ipso
facto follow that such declaration of nullity shall exonerate the accused from criminal
prosecution and liability.

Accordingly, the prosecution may adduce evidence to prove the criminal liability of the accused
for estafa, specifically under Article 315 1(b) of the Revised Penal Code which explicitly
provides that said crime is committed: Missc

"X X X (b) By misappropriating or converting, to the prejudice of another, money,

goods, or any other personal property received by the offender in trust or on
commission, or for administration, or any other obligation involving the duty to
make delivery of or to return the same, even though such obligation be totally or
partially guaranteed by a bond; or by denying having received such money,
goods, or other property."

Applying the foregoing principles, the criminal liability of the accused for violation of Article 315
1(b) of the Revised Penal Code, may still be shown through the presentation of evidence to the
effect that: (a) the accused received the subject goods in trust or under the obligation to sell the
same and to remit the proceeds thereof to Allied Banking Corporation, or to return the goods, if
not sold; (b) that accused Ching misappropriated or converted the goods and/or the proceeds of
the sale; (c) that accused Ching performed such acts with abuse of confidence to the damage
and prejudice of Allied Banking Corporation; and (d) that demand was made by the bank to
herein petitioner.

Presidential Decree 115, otherwise known as the "Trust Receipts Law", specifically Section 13
thereof, provides:

"The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount
owing to the entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in accordance with
the terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred fifteen, paragraph one (b) of Act
Numbered Three thousand eight hundred and fifteen, as amended, otherwise
known as the Revised Penal Code."

We must stress though, that an act violative of a trust receipt agreement is only one mode of
committing estafa under the abovementioned provision of the Revised Penal Code. Stated
differently, a violation of a trust receipt arrangement is not the sole basis for incurring liability
under Article 315 1(b) of the Code.

In Jimenez vs. Averia,[22] where the accused was likewise charged with estafa, this Court had
occasion to rule that a civil case contesting the validity of a certain receipt is not a prejudicial
question that would warrant the suspension of criminal proceedings for estafa.

In the abovementioned case, a criminal charge for estafa was filed in the Court of First Instance
of Cavite against the two accused. The information alleged that the accused, having received
the amount of P20,000.00 from Manuel Jimenez for the purchase of a fishing boat, with the
obligation on the part of the former to return the money in case the boat was not purchased,
misappropriated the said amount to the damage and prejudice of Jimenez.[23] Misspped

Before arraignment, the accused filed a civil case contesting the validity of a certain receipt
signed by them. In the receipt, the accused acknowledged having received the aforesaid sum,
in addition to the amount of P240.00 as agents commission. The complaint, however, alleged
that the accused never received any amount from Jimenez and that the signatures on the
questioned receipt were secured by means of fraud, deceit and intimidation.

In ruling out the existence of prejudicial question, we declared:

"X X X It will be readily seen that the alleged prejudicial question is not
determinative of the guilt or innocence of the parties charged with estafa,
because even on the assumption that the execution of the receipt whose
annulment they sought in the civil case was vitiated by fraud, duress or
intimidation, their guilt could still be established by other evidence showing, to the
degree required by law, that they had actually received from the complainant the
sum of P20,000.00 with which to buy for him a fishing boat, and that, instead of
doing so, they misappropriated the money and refused or otherwise failed to
return it to him upon demand. X X X "Spped

Furthermore, petitioner submits that the truth or falsity of the parties respective claims as
regards the true nature of the transactions and of the documents, shall have to be first
determined by the Regional Trial Court of Manila, which is the court hearing the civil case.

While this may be true, it is no less true that the Supreme Court may, on certain exceptional
instances, resolve the merits of a case on the basis of the records and other evidence before it,
most especially when the resolution of these issues would best serve the ends of justice and
promote the speedy disposition of cases.
Thus, considering the peculiar circumstances attendant in the instant case, this Court sees the
cogency to exercise its plenary power:

"It is a rule of procedure for the Supreme Court to strive to settle the entire
controversy in a single proceeding leaving no root or branch to bear the seeds of
future litigation. No useful purpose will be served if a case or the determination of
an issue in a case is remanded to the trial court only to have its decision raised
again to the Court of Appeals and from there to the Supreme Court (citing Board
of Commissioners vs. Judge Joselito de la Rosa and Judge Capulong, G.R. Nos.
95122-23).

"We have laid down the rule that the remand of the case or of an issue to the
lower court for further reception of evidence is not necessary where the Court is
in position to resolve the dispute based on the records before it and particularly
where the ends of justice would not be subserved by the remand thereof
(Escudero vs. Dulay, 158 SCRA 69). Moreover, the Supreme Court is clothed
with ample authority to review matters, even those not raised on appeal if it finds
that their consideration is necessary in arriving at a just disposition of the
case."[24]

On many occasions, the Court, in the public interest and for the expeditious administration of
justice, has resolved actions on the merits instead of remanding them to the trial court for further
proceedings, such as where the ends of justice would not be subserved by the remand of the
case.[25]

Inexorably, the records would show that petitioner signed and executed an application and
agreement for a commercial letter of credit to finance the purchase of imported goods. Likewise,
it is undisputed that petitioner signed and executed trust receipt documents in favor of private
respondent Allied Banking Corporation. Josp-ped

In its amended complaint, however, which notably was filed only after the Court of Appeals
rendered its assailed decision, petitioner urges that the transaction entered into between the
parties was one of "pure loan without any trust receipt agreement". According to petitioner, the
trust receipt documents were intended merely as "additional or side documents covering the
said loan" contrary to petitioners allegation in his original complaint that the trust receipts were
executed as collateral or security.

We do not agree. As Mr. Justice Story succinctly puts it: "Naked statements must be entitled to
little weight when the parties hold better evidence behind the scenes."[26]

Hence, with affirmance, we quote the findings of the Court of Appeals:

"The concept in which petitioner signed the trust receipts, that is whether he
signed the trust receipts as such trust receipts or as a mere evidence of a pure
and simple loan transaction is not decisive because precisely, a trust receipt is a
security agreement of an indebtedness."

Contrary to petitioners assertions and in view of jurisprudence established in this jurisdiction, a

trust receipt is not merely an additional or side document to a principal contract, which in the
instant case is alleged by petitioner to be a pure and simple loan.

As elucidated in Samo vs. People,[27] a trust receipt is considered a security transaction

intended to aid in financing importers and retail dealers who do not have sufficient funds or
resources to finance the importation or purchase of merchandise, and who may not be able to
acquire credit except through utilization, as collateral, of the merchandise imported or
purchased.

Further, a trust receipt is a document in which is expressed a security transaction whereunder

the lender, having no prior title in the goods on which the lien is to be given and not having
possession which remains in the borrower, lends his money to the borrower on security of the
goods which the borrower is privileged to sell clear of the lien with an agreement to pay all or
part of the proceeds of the sale to the lender.[28] It is a security agreement pursuant to which a
bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no
such thing as security interest that secures no obligation.[29]

Clearly, a trust receipt partakes the nature of a security transaction. It could never be a mere
additional or side document as alleged by petitioner. Otherwise, a party to a trust receipt
agreement could easily renege on its obligations thereunder, thus undermining the importance
and defeating with impunity the purpose of such an indispensable tool in commercial
transactions. Spp-edjo

Of equal importance is the fact that in his complaint in Civil Case No. 92-60600, dated 05 March
1992, petitioner alleged that the trust receipts were executed and intended as collateral or
security. Pursuant to the rules, such particular allegation in the complaint is tantamount to a
judicial admission on the part of petitioner Ching to which he must be bound.

Thus, the Court of Appeals in its resolution dated 28 June 1993, correctly observed:

"It was petitioner himself who acknowledged the trust receipts as mere collateral
and security for the payment of the loan but kept on insisting that the real and
true transaction was one of pure loan. X X X"

"In his present motion, the petitioner alleges that the trust receipts are evidence
of a pure loan or that the same were additional or side documents that actually
stood as promissory notes and not a collateral or security agreement. He cannot
assume a position inconsistent with his previous allegations in his civil complaint
that the trust receipts were intended as mere collateral or security X X X."

Perhaps, realizing such flaw, petitioner, in a complete turn around, filed a motion
to admit amended complaint before the RTC-Manila. Among others, the
amended complaint alleged that the trust receipts stood as additional or side
documents, the real transaction between the parties being that of a pure loan
without any trust receipt agreement.

In an order dated 19 November 1993, the RTC-Manila, Branch 53, admitted the amended
complaint. Accordingly, with the lower courts admission of the amended complaint, the judicial
admission made in the original complaint was, in effect, superseded. Mi-so

Under the Rules, pleadings superseded or amended disappear from the record, lose their status
as pleadings and cease to be judicial admissions. While they may nonetheless be utilized
against the pleader as extrajudicial admissions, they must, in order to have such effect, be
formally offered in evidence. If not offered in evidence, the admission contained therein will not
be considered.[30]

Consequently, the original complaint, having been amended, 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, required its formal offer.[31]

In virtue thereof, the amended complaint takes the place of the original. The latter is regarded
as abandoned and ceases to perform any further function as a pleading. The original complaint
no longer forms part of the record.[32]

Thus, in the instant case, the original complaint is deemed superseded by the amended
complaint. Corollarily, the judicial admissions in the original complaint are considered
abandoned. Nonetheless, we must stress that the actuations of petitioner, as sanctioned by the
RTC-Manila, Branch 53 through its order admitting the amended complaint, demands stern
rebuke from this Court.

Certainly, this Court is not unwary of the tactics employed by the petitioner specifically in filing
the amended complaint only after the promulgation of the assailed decision of the Court of
Appeals. It bears noting that a lapse of almost eighteen months (from March 1992 to September
1993), from the filing of the original complaint to the filing of the amended complaint, is too
lengthy a time sufficient to enkindle suspicion and enflame doubts as to the true intentions of
petitioner regarding the early disposition of the pending cases. Ne-xold

Although the granting of leave to file amended pleadings is a matter peculiarly within the sound
discretion of the trial court and such discretion would not normally be disturbed on appeal, it is
also well to mention that this rule is relaxed when evident abuse thereof is apparent.[33]

Hence, in certain instances we ruled that amendments are not proper and should be denied
when delay would arise,[34] or when the amendments would result in a change of cause of action
or defense or change the theory of the case,[35] or would be inconsistent with the allegations in
the original complaint.[36]

Applying the foregoing rules, petitioner, by filing the amended complaint, in effect, altered the
theory of his case. Likewise, the allegations embodied in the amended complaint are
inconsistent with that of the original complaint inasmuch as in the latter, petitioner alleged that
the trust receipts were intended as mere collateral or security, the principal transaction being
one of pure loan.

Yet, in the amended complaint, petitioner argued that the said trust receipts were executed as
additional or side documents, the transaction being strictly one of pure loan without any trust
receipt arrangement. Obviously these allegations are in discord in relation to each other and
therefore cannot stand in harmony.

These circumstances, taken as a whole, lead this Court to doubt the genuine purpose of
petitioner in filing the amended complaint. Again, we view petitioners actuations with abhorrence
and displeasure. Man-ikx

Moreover, petitioner contends that the transaction between Philippine Blooming Mills (PBM) and
private respondent Allied Banking Corporation does not fall under the category of a trust receipt
arrangement claiming that the goods were not to be sold but were to be used, consumed and
destroyed by the importer PBM.

To our mind, petitioners contention is a stealthy attempt to circumvent the principle enunciated
in the case of Allied Banking Corporation vs. Ordonez,[37] thus:

"X X X In an attempt to escape criminal liability, private respondent claims P.D.

115 covers goods which are ultimately destined for sale and not goods for use in
manufacture. But the wording of Section 13 covers failure to turn over the
proceeds of the sale of the entrusted goods, or to return said goods if unsold or
disposed of in accordance with the terms of the trust receipts. Private respondent
claims that at the time of PBMs application for the issuance of the LCs, it was not
represented to the petitioner that the items were intended for sale, hence, there
was no deceit resulting in a violation of the trust receipts which would constitute a
criminal liability. Again we cannot uphold this contention. The non-payment of the
amount covered by a trust receipt is an act violative of the entrustees obligation
to pay. There is no reason why the law should not apply to all transactions
covered by trust receipts, except those expressly excluded (68 Am. Jur. 125).

"The Court takes judicial notice of customary banking and business practices
where trust receipts are used for importation of heavy equipment, machineries
and supplies used in manufacturing operations. We are perplexed by the
statements in the assailed DOJ resolution that the goods subject of the instant
case are outside the ambit of the provisions of PD 115 albeit covered by trust
receipt agreements ( 17 February 1988 resolution) and that not all transactions
covered by trust receipts may be considered as trust receipt transactions defined
and penalized under P.D. 115 (11 January 1988 resolution). A construction
should be avoided when it affords an opportunity to defeat compliance with the
terms of a statute. Manik-s

xxx......xxx......xxx
 "The penal provision of P.D. 115 encompasses any act violative of an obligation
covered by the trust receipt; it is not limited to transactions in goods which are to
be sold (retailed), reshipped, stored or processed as a component of a product
ultimately sold."

An examination of P.D. 115 shows the growing importance of trust receipts in Philippine
business, the need to provide for the rights and obligations of parties to a trust receipt
transaction, the study of the problems involved and the action by monetary authorities, and the
necessity of regulating the enforcement of rights arising from default or violations of trust receipt
agreements. The legislative intent to meet a pressing need is clearly expressed.[38]

In fine, we reiterate that the civil action for declaration of nullity of documents and for damages
does not constitute a prejudicial question to the criminal cases for estafa filed against petitioner
Ching.

WHEREFORE, premises considered, the assailed decision and resolution of the Court of
Appeals are hereby AFFIRMED and the instant petition is DISMISSED for lack of merit.
Accordingly, the Regional Trial Court of Makati, Branch 58, is hereby directed to proceed with
the hearing and trial on the merits of Criminal Case Nos. 92-0934 to 92-0937, inclusive, and to
expedite proceedings therein, without prejudice to the right of the accused to due process.

SO ORDERED. Man-ikan

Bellosillo, (Chairman), Mendoza, Quisumbing, and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 92813 July 31, 1991

PEROXIDE PHILIPPINES CORPORATION, EASTMAN CHEMICAL INDUSTRIES, INC.,

EDMUNDO O. MAPUA and ROSE U. MAPUA, petitioners,
vs.
HON. COURT OF APPEALS and BANK OF THE PHILIPPINE, ISLANDS, respondents.

Antonio P. Barredo for petitioners.

Padilla Law Office for private respondent.

REGALADO, J.:

Assailed in this petition for review on certiorari are the decision1 of respondent Court of Appeals,
promulgated on September 4, 1989 in CA-G. R. SP No. 15672, granting the petition
for certiorari filed by private respondent, and its resolution2 of March 29, 1990 denying
petitioners' motion for reconsideration. On December 6, 1982, herein private respondent Bank
of the Philippine Islands (BPI) sued herein petitioners Peroxide Philippines Corporation
(Peroxide), Eastman Chemical Industries, Inc. (Eastman), and the spouses Edmund O. Mapua
and Rose U. Mapua (Mapuas) in Civil Case No. 48849 of the then Court of First Instance of
Pasig, Metro Manila for the collection of an indebtedness of Peroxide wherein Eastman and the
Mapuas bound themselves to be solidarily liable.

Upon the filing of said action, the trial court, then presided over by Judge Gregorio G. Pineda,
ordered the issuance of a writ of preliminary attachment which was actually done on January 7,
1983 after BPI filed an attachment bond in the amount of P32,700,000.00. Petitioners'
properties were accordingly attached by the sheriff.
On January 11, 1983, Eastman and the Mapuas moved to lift the attachment, which motion was
set for hearing on January 14, 1983. On said date and on motion of BPI, it was granted up to
January 17, 1983 to file a written opposition to the motion to lift the writ of attachment. BPI also
filed a motion to set for hearing the said motion to lift attachment and its opposition thereto.

However, on January 17, 1983, Judge Pineda issued two (2) orders, the first, denying BPI's
motion for a hearing, and, the second, lifting the writ of attachment as prayed for by Eastman
and the Mapuas. BPI filed a motion for reconsideration but, consequent to the then judiciary
reorganization, the case was re-raffled and assigned to the sala of Judge Pastor Reyes.

On November 28, 1983, Judge Reyes issued an order with an explicit finding that the
attachment against the properties of Eastman and the Mapuas was proper on the ground that
they had disposed of their properties in fraud of BPI. It also directed the sheriff to implement the
writ of attachment upon the finality of said order.

After a motion for partial reconsideration by BPI and some exchanges between the parties, on
December 17, 1984 the trial court, this time with Judge Eficio B. Acosta presiding, issued an
order granting BPI's motion for partial reconsideration by finding, inter alia, that "(c)onsidering
the lapse of more than a year since the Order of November 28, 1983 and the nature and
purpose of attachment, the writ of attachment revived in the Order of November 28, 1983 and
hereby re-affirmed may be executed and implemented immediately," and directing the sheriff to
execute said writ which "is hereby declared immediately executory."3

Contending that said order of December 17, 1984 was rendered with grave abuse of discretion
amounting to lack of jurisdiction, petitioners sought the annulment thereof in a petition
for certiorari and prohibition in AC-G.R. SP No. 05043 of the Intermediate Appellate Court,
wherein a temporary restraining order was issued. This restraining order was lifted when said
court rendered its decision in said case on March 14, 19864 dismissing the petition and holding,
among others, that:

We find nothing wrong with the attachment of the properties of PEROXIDE. Even were
We to assume that the original petition for attachment was defective for failure to specify
the particular transactions involved in the alleged "alienation" of PEROXIDE's properties,
the fact is that the defect, if any, was cured by the other pleadings (like the opposition or
virtual amendment) filed by BANK With such amendment, the specific properties
concerned were distinctly enumerated.5

Petitioners then sought the review of said decision by this Court in G.R. No. 74558, but no
temporary restraining order was granted therein. In the meantime, on May 29, 1986, Judge
Acosta issued an order6 suspending the writ of preliminary attachment in the aforesaid Civil
Case No. 48849 pursuant to an ex parte motion filed by herein petitioners.

Thereafter, in its resolution dated October 27, 1986, this Court denied the aforesaid petition for
review on certiorari "considering that the writ of preliminary attachment issued was in
accordance with law and applicable jurisprudence."7 Petitioners' motion for reconsideration was
denied with finality in our resolution of October 6, 1987.8

Dissatisfied, petitioners again filed an urgent motion for clarification submitting that the Court
failed to pass upon two issues, namely: (1) whether Eastman and the Mapuas were sureties or
mere guarantors of Peroxide, and (2) whether Rose U. Mapua was bound by the "Continuing
Guarantee" executed by her husband, Edmund O. Mapua. Acting upon said motion, on
November 10, 1987 the Court resolved to deny the same for the reason, among others, that the
clarification sought regarding the propriety of the attachment of the properties of Eastman and
the Mapuas involves questions of fact.9

On July 30, 1987, BPI filed a motion to order Bataan Pulp and Paper Mills, Inc. (Bataan), jointly
and severally with petitioners, to deliver to the sheriff the cash dividends declared on the
garnished shares of stock of said petitioners with said paper company, and to cite for contempt
the officers of Bataan for releasing and/or paying the dividends to petitioners in disregard of the
notice of garnishment.
In an exhaustive order dated December 16, 1987,10 the trial court, now presided over by Judge
Fernando L. Gerona, Jr. and wherein Civil Case No. 48849 was then pending, addressing all
the issues raised by the parties, granted BPI's motion for delivery of the dividends. Judge
Gerona sustained the position of BPI that dividends are but incidents or mere fruits of the
shares of stock and as such the attachment of the stock necessarily included the dividends
declared thereon if they were declared subsequent to the notice of garnishment.

He further held that the preliminary attachment, being a provisional remedy, must necessarily
become effective immediately upon the issuance thereof and must continue to be effective even
during the pendency of an appeal from a judgment of the court which issued the said provisional
remedy and will only cease to have effect when the judgment is satisfied or the attachment is
discharged or vacated in some manner provided by law. The motion to cite the officers of
Bataan was, however, denied.

Petitioners moved for reconsideration but the same was denied for the reason that the order of
May 29, 1986 of Judge Acosta was based on an ex parte motion without reasonable notice,
hence a patent nullity for lack of due process. Accordingly, the aforesaid order of December 16,
1987 held that the writ of attachment continued to be effective.11

Petitioners thereafter filed a second motion for reconsideration which, however, remained
pending and unresolved when Judge Gerona inhibited himself from further sitting in the case.
Said case was then re-raffled to the sala of Judge Jainal D. Rasul who required the parties to
re-summarize their respective positions upon the issue of the attachment.

Then, resolving the pending incidents before it, the court a quo issued the disputed order of
August 23, 1988, which states, inter alia that:

THIS Court thru Judge Gerona had arrived at the correct conclusion that the contempt
charge against the Officers of the Garnishee Corporation cannot be sustained, for the
reason that they relied on the Order of the Court thru Judge Acosta under date of May
29, 1986 suspending the Writ of Attachment and since said order was not then set aside,
there was no order or writ violated by said officers. It follows a fortiori that the release of
the cash dividends was valid, legal and not contemptuous. Consequently, there is no
reason to justify or deserve the return of cash dividends prayed for by the plaintiff.

Besides, the propriety of the attachment of the properties of the defendant Eastman
Chemical Industries, Inc., and defendant Mapua Spouses should still be determined by
this Court as a question of fact, pursuant to the Supreme Court resolution dated
November 23, 1987. Meanwhile, it is only fair that the properties of the Eastman
Chemical Industries, Inc. and the defendants Mapua spouses should not, pending such
proper determination, be attached as to give life and meaning to the Supreme Court
resolution of November 23, 1987.

SO ORDERED.12

BPI moved for the reconsideration of said order. Thereafter, it learned that Bataan had again
declared a cash dividend on its shares payable on or before September 30, 1988. Furthermore,
Bataan informed BPI that it would be releasing to Eastman and Edmund O. Mapua the cash
dividends on their shares on September 23, 1988 on the strength of the order of the trial court of
August 23, 1988.

Consequently, BPI filed an urgent ex parte motion on September 19, 1988 for the suspension of
the effects of the trial court's order of August 23, 1988 in view of the pending motion for
reconsideration it had filed against said order. In an order likewise dated September 19, 1988,
the trial court denied BPI's motion for suspension of the order of August 23, 1988.13

BPI then filed a petition for certiorari in respondent court, docketed therein as CA-G.R. SP No.
15672, invoking the following grounds:

1. The trial court acted with grave abuse of discretion in denying BPI's urgent ex parte
motion to suspend the order of August 23, 1988;
 2. The order of September 19, 1988 renders moot and academic BPI's pending motion
for reconsideration;

3. The lower court erroneously held that the writ of attachment secured by BPI had
ceased to be valid and effective or had been suspended by virtue of its orders of
January 17, 1983 and May 29, 1986;

4. The trial court committed grave abuse of discretion when it nullified the writ of
attachment as against Eastman and the Mapuas;

5. There is no inconsistency between the resolution of the Supreme Court dated October
27, 1986 and its subsequent resolution of November 10, 1987;

6. The attachment can validly issue against the conjugal properties of the Mapuas; and

7. The trial court disregarded the clear and unequivocal records of the case when it
issued its order of August 23, 1988.14

Ruling on these issues, respondent Court of Appeals declared:

WHEREFORE, the petition for certiorari is hereby GRANTED. Judgment is hereby

rendered as follows:

(a) Declaring the writ of preliminary attachment against the defendants Eastman
Chemical Industries, Inc. and the spouses, Edmund and Rose Mapua valid and
enforceable from the beginning, without prejudice to determining the solidary liability of
said defendants with defendant Peroxide Philippines Corporation;

(b) Setting aside the Order of August 23, 1988 insofar as it decreed that the cash
dividends declared or the garnished shares of stocks (sic) of the defendants with Bataan
Pulp and Paper Mills, Inc. are not subject to attachment;

(c) Ordering the defendants and the Bataan Pulp and Paper Mills, Inc., jointly and
severally, to deliver to the sheriff the cash dividends as may hereafter be declared and
paid on the garnished shares of stock;

(d) Setting aside the Order of September 19, 1988.

With costs against private respondents.

SO ORDERED.15

Their motion for reconsideration having been denied, petitioners are once again before us on
this spin-off facet of the same case, contending that respondent court has departed from the
accepted and usual course of judicial proceedings.

1. As correctly formulated by respondent court, the threshold issue is the validity of the
attachment of the properties of Eastman and the Mapuas, from which arises the correlative
question of whether or not the disputed cash dividends on the garnished shares of stock are
likewise subject thereto. Necessarily involved is the matter of the continuing validity of the writ or
whether or not the same was validly lifted and suspended by the lower court's orders dated
January 17, 1983 and May 29, 1986, respectively.

BPI asserts that the discharge is illegal and void because the order lifting the same is violative
of Section 13, Rule 57 of the Rules of Court which requires, among others, a prior hearing
before the judge may order the discharge of the attachment upon proof adduced therein of the
impropriety or irregularity in the issuance of the writ and the defect is not cured forthwith. We
may mention in this regard that if the petition for the discharge of the writ violates the
requirements of the law, the trial judge does not acquire jurisdiction to act thereon. 16
It is true that petitioner's motion to discharge was set for hearing with notice to BPI but it is
likewise true that counsel for the latter asked for an opportunity to file a written opposition and
for a hearing to which he asked that petitioner Edmund O. Mapua be subpoenaed. Said counsel
was allowed to file a written opposition which he seasonably did, but Judge Pineda denied both
the requested subpoena and hearing and, instead, granted the discharge of the attachment.
These are the bases for BPI's complaint that it was denied due process.17

Now, it is undeniable that when the attachment is challenged for having been illegally or
improperly issued, there must be a hearing with the burden of proof to sustain the writ being on
the attaching creditor.18 That hearing embraces not only the right to present evidence but also a
reasonable opportunity to know the claims of the opposing parties and meet them. The right to
submit arguments implies that opportunity, otherwise the right would be a barren one. It means
a fair and open hearing.19 And, as provided by the aforecited Section 13 of Rule 57, the
attaching creditor should be allowed to oppose the application for the discharge of the
attachment by counter-affidavit or other evidence, in addition to that on which the attachment
was made.

Respondent court was, therefore, correct in holding that, on the above-stated premises, the
attachment of the properties of Eastman and the Mapuas remained valid from its issuance since
the judgment had not been satisfied, nor has the writ been validly discharged either by the filing
of a counterbond or for improper or irregular issuance.

We likewise affirm the findings and conclusion of respondent court that the order of Judge
Acosta, dated May 29, 1986, suspending the writ of attachment was in essence a lifting of said
writ which order, having likewise been issued ex parte and without notice and hearing in
disregard of Section 13 of Rule 57, could not have resulted in the discharge of the attachment.
Said attachment continued unaffected by the so-called order or suspension and could not have
been deemed inefficacious until and only by reason of its supposed restoration in the order of
December 16, 1987 of Judge Gerona. Under the facts of this case, the ex parte discharge or
suspension of the attachment is a disservice to the orderly administration of justice and nullifies
the underlying role and purpose of preliminary attachment in preserving the rights of the
parties pendente lite as an ancillary remedy.

We, therefore, sustain the position of BPI that the Court of Appeals, in its judgment presently
under challenge, did not err in upholding the continuing and uninterrupted validity and
enforceability of the writ of preliminary attachment issued in Civil Case No. 48849 since the
order of discharge and, later, the order of suspension of the trial court were void and could not
have created the operational lacuna in its effectivity as claimed by petitioners. Further, the
cancellation of the annotations regarding the levy on attachment of petitioners' properties,
procured by the sheriff pursuant to the aforesaid invalid orders, is likewise a nullity and another
levy thereon is not required. We observe, however, that the records do not disclose the lifting of
the levy on the Bataan shares of Eastman and the Mapuas and on their real properties in
Caloocan City.

2. Petitioners next call attention to the fact that when the order of Judge Acosta of December
17, 1984, which directed the immediate execution and implementation of the writ of attachment,
was brought on a petition for certiorari and prohibition to the Intermediate Appellate Court in AC-
G.R. SP No. 05043, said court issued a temporary restraining order.

They allege that although the restraining order was lifted by said appellate court in its decision in
the case on March 14, 1986, the same was reinstated by the court "until further orders" in its
order of April 24, 1986 in connection with petitioners' motion for reconsideration therein. On May
14, 1986, respondent court denied the motion for reconsideration but, so petitioners insist,
"without, however, stating that it was lifting its restraining order." When the case went on review
to this Court in G.R. No. 74558, no mention was made regarding said restraining order. Hence,
petitioners assert, the said restraining order had not been lifted, in effect arguing that the writ of
attachment cannot be implemented as a consequence.

This misleading argument is confuted by the records in AC-G.R. SP No. 05043. In its aforesaid
resolution of April 24, 1986, the appellate court stated that "(a)s of this date, April 23, 1986, the
motion for reconsideration could not be considered in view of the absence of the comment of
the private respondents." Hence, the court directed that "(i)n order to maintain the status quo of
the parties, . . . the restraining order issued by us on December 28, 1984 is hereby revived and
made effective until further orders."20

Thereafter, finding no merit in the motion for reconsideration, the court denied the same,
declaring that "(w)ith this resolution, we find no need in resolving the Urgent Motion to
Reconsider and set aside Resolution of April 24, 1985 (sic, 1986) filed by the private respondent
BPI and the other incidents still pending resolution."21

All incidents in AC-G.R. SP No. 05043 having been disposed of, it follows that the temporary
restraining order which had been expressly lifted in the decision therein, and which was merely
temporarily reinstated for purposes of the motion for reconsideration that was ultimately denied,
was also necessarily lifted. Parenthetically, said temporary restraining order, not having been
supplanted by a writ of preliminary injunction, could not have had an effectivity of more than
twenty (20) days,22 and this limitation applies to temporary restraining orders issued by the
Court of Appeals.23

3. We reject petitioners' theory that the preliminary attachment is not applicable to Eastman and
the Mapuas. The writ was issued in Civil Case No. 48849 against the properties of all the
petitioners herein. Eastman and the Mapuas moved for the discharge of the attachment on the
ground that they were not disposing of their properties in fraud of creditors, but they did not
raise the issue of their liabilities as being allegedly those of mere guarantors. They did so only
when this Court resolved on October 27, 1986 that the writ of preliminary attachment was
issued in accordance with law and applicable jurisprudence.24

Also, what was considered in AC-G.R. SP No. 05043 and thereafter in G.R. No. 74558 was the
matter of the validity of the attachment against Eastman and the Mapuas, considering that, even
before the proceedings had reached the Intermediate Appellate Court in AC-G.R. SP No.
05043, BPI no longer had any attachment against Peroxide whose only remaining asset in
Bulacan had been levied upon and acquired by its other creditors when Judge Pineda lifted the
attachment obtained by BPI.

Petitioners seek to capitalize on a passage in the decision in AC-G.R. SP No. 05043,

hereinbefore quoted, where the appellate court stated that "(w)e find nothing wrong with the
attachment of the properties of PEROXIDE," without mentioning Eastman and the Mapuas. This
was clearly in the nature of peccata minuta, a plain case of harmless oversight, since the
properties referred to in the decision as having been alienated in fraud of BPI were properties of
Eastman and the Mapuas, not of Peroxide.

In fact, as pointed out by private respondent, petitioners' own motion for reconsideration of
March 24, 1986 filed in said case specifically adverted to that prefatory statement as being
equivocal, with the following observation: "Actually no properties of Peroxide had been attached.
What were attached were properties of Eastman and Rose Mapua."25 Private respondent further
invites attention to the petition for certiorari in G.R. No. 74558, against the decision in AC-G.R.
SP No. 05043, wherein, assailing the aforequoted statement therein, petitioners aver:

As can be seen the paragraph begins with the holding that there is nothing wrong with
the attachment of properties of Peroxide. This holding on its face is limited only to the
upholding of attachment against the properties of petitioner Peroxide. And yet the
alienations mentioned in the subsequent sentences do not refer to dispositions of
properties of Peroxide and by Peroxide. A cursory glance of records will show that they
refer to dispositions alleged to have been fraudulently made by Eastman Chemical
Industries, Inc. and Edmund Mapua. Relating this point to the dispositive portion which in
effect sustains the attachment issued by the trial court not only against Peroxide, but
also against Eastman and Mapua spouses.26

4. As earlier narrated, this Court denied the petition for review on certiorari in G.R. No. 74558,
and when petitioners persisted in seeking a clarification as to the nature of the liability of
Eastman and the Mapuas, the Court denied the same on the ground that the clarification sought
involves questions of fact. As observed by respondent Court of Appeals, the aforesaid ruling
was erroneously construed by the lower court when it declared that the properties of Eastman
and the Mapuas should not, pending proper determination, be attached. In doing so, the court
below virtually lifted or discharged the attachment even before its propriety had been
determined.

We sustain respondent court's ratiocination in its decision under review that when petitioners
sought clarification from us regarding the propriety of the attachment on the properties of
Eastman and the Mapuas, and we said that this involves a question of fact, what this means is
that the court a quo should determine the propriety or regularity thereof, and such determination
can only be had in appropriate proceedings conducted for that purpose. However, until such
attachment has been found to be improper and irregular, the attachment is valid and subsisting.

Thus, as correctly posited by BPI, before the determination of the liability of Eastman and the
Mapuas after trial on the merits, the writ of preliminary attachment may properly issue. Even
assuming that when Eastman and the Mapuas asked for the lifting of the attachment they
presented evidence that they were guarantors and not sureties of Peroxide, the trial court could
not have admitted such evidence or ruled upon that issue since the same could be entertained
only after a full-blown trial and not before then.27 Otherwise, we would have the procedural
absurdity wherein the trial court would be forced to decide in advance and preempt in an
auxiliary proceeding an issue which can and should be determined only in a trial on the merits.

The proceeding in the issuance of a writ of preliminary attachment, as a mere provisional

remedy, is ancillary to an action commenced at or before the time when the attachment is sued
out. Accordingly the attachment does not affect the decision of the case on the merits, the right
to recover judgment on the alleged indebtedness and the right to attach the property of the
debtor being entirely separate and distinct. As a rule, the judgment in the main action neither
changes the nature nor determines the validity of the attachment.28 At any rate, whether said
petitioners are guarantors or sureties, there exists a valid cause of action against them and their
properties were properly attached on the basis of that indubitable circumstance.1âwphi1

5. Petitioners bewail the fact that respondent court allegedly handled the certiorari case, CA-
G.R. SP No. 15672 now on appeal before us, as if it were a petition for review on certiorari by
passing upon what they submit should be considered as errors of judgment and not errors of
jurisdiction. From the foregoing disquisition, however, it is readily apparent that the petition in
said case faults the orders of the trial court as tainted with grave abuse of discretion equivalent
to a jurisdictional flaw. The errors assigned necessarily involved a discussion of erroneous
conclusions and/or lack of factual bases much beyond the pale of mere errors of judgment or
misperception of evidence, and dwelt on the improvident issuance of orders clearly arbitrary and
oppressive for being in defiance of the rules and devoid of justifying factual moorings. We
cannot, therefore, share the sentiments and stance of petitioners on this score.

Neither do we subscribe to petitioners' charge that respondent court injudiciously gave due
course to the aforesaid petition for certiorari without requiring the prior filing and resolution of a
motion for the reconsideration of the questioned orders of the trial court. There are, admittedly,
settled exceptions to that requisite and which obtain in the present case. A motion for
reconsideration was correctly dispensed with by respondent court since the questions raised in
the certiorari proceeding had been duly raised and passed upon by the lower court.29 Also,
under the circumstances therein, a motion for reconsideration would serve no practical purpose
since the trial judge had already had the opportunity to consider and pass upon the questions
elevated on certiorari to respondent court.30

FOR ALL THE FOREGOING CONSIDERATIONS, the petition at bar is DENIED and the
judgment of respondent Court of Appeals is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera and Sarmiento, JJ., concur.

Padilla and Paras,* J., took no part.

Republic of the Philippines

Supreme Court
 Manila

THIRD DIVISION

JUAN DE DIOS CARLOS, G.R. No. 179922

Petitioner,
Present:

- versus - YNARES-SANTIAGO, J.,

Chairperson,
AUSTRIA-MARTINEZ,
FELICIDAD SANDOVAL, also CHICO-NAZARIO,
known as FELICIDAD S. VDA. NACHURA, and
DE CARLOS or FELICIDAD REYES, JJ.
SANDOVAL CARLOS or
FELICIDAD SANDOVAL VDA.
DE CARLOS, and TEOFILO Promulgated:
CARLOS II,
Respondents. December 16, 2008

x--------------------------------------------------x

DECISION

REYES, R.T., J.:

ONLY a spouse can initiate an action to sever the marital bond for marriages solemnized
during the effectivity of the Family Code, except cases commenced prior to March 15, 2003. The
nullity and annulment of a marriage cannot be declared in a judgment on the pleadings, summary
judgment, or confession of judgment.

We pronounce these principles as We review on certiorari the Decision[1] of the Court of

Appeals (CA) which reversed and set aside the summary judgment[2] of the Regional Trial Court
(RTC) in an action for declaration of nullity of marriage, status of a child, recovery of property,
reconveyance, sum of money, and damages.

The Facts

The events that led to the institution of the instant suit are unveiled as follows:

Spouses Felix B. Carlos and Felipa Elemia died intestate. They left six
parcels of land to their compulsory heirs, Teofilo Carlos and petitioner Juan De Dios Carlos. The
lots are particularly described as follows:

Parcel No. 1

Lot No. 162 of the MUNTINLUPA ESTATE SUBDIVISION, Case No. 6137 of the
Court of Land Registration.

Exemption from the provisions of Article 567 of the Civil Code is specifically
reserved.
 Area: 1 hectare, 06 ares, 07 centares.

Parcel No. 2

A parcel of land (Lot No. 159-B), being a portion of Lot 159, situated in the Bo. of
Alabang, Municipality of Muntinlupa, Province of Rizal, x x x containing an area of
Thirteen Thousand Four Hundred Forty One (13,441) square meters.

Parcel No. 3

A parcel of land (Lot 159-B-2 of the subd. plan [LRC] Psd-325903, approved as a
non-subd. project), being a portion of Lot 159-B [LRC] Psd- Alabang, Mun. of
Muntinlupa, Metro Manila, Island of Luzon. Bounded on the NE, points 2 to 4 by
Lot 155, Muntinlupa Estate; on the SE, point 4 to 5 by Lot 159-B-5; on the S, points
5 to 1 by Lot 159-B-3; on the W, points 1 to 2 by Lot 159-B-1 (Road widening) all
of the subd. plan, containing an area of ONE HUNDRED THIRTY (130) SQ.
METERS, more or less.

PARCEL No. 4

A parcel of land (Lot 28-C of the subd. plan Psd-13-007090, being a portion of Lot
28, Muntinlupa Estate, L.R.C. Rec. No. 6137), situated in the Bo. of Alabang, Mun.
of Muntinlupa, Metro Manila. Bounded on the NE, along lines 1-2 by Lot 27,
Muntinlupa Estate; on the East & SE, along lines 2 to 6 by Mangangata River; and
on the West., along line 6-1, by Lot 28-B of the subd. plan x x x containing an area
of ONE THUSAND AND SEVENTY-SIX (1,076) SQUARE METERS.

PARCEL No. 5

PARCELA DE TERRENO No. 50, Manzana No. 18, de la subd. de Solocan. Linda
por el NW, con la parcela 49; por el NE, con la parcela 36; por el SE, con la parcela
51; y por el SW, con la calle Dos Castillas. Partiendo de un punto marcado 1 en el
plano, el cual se halla a S. gds. 01'W, 72.50 mts. Desde el punto 1 de esta
manzana, que es un mojon de concreto de la Ciudad de Manila, situado on el
esquina E. que forman las Calles Laong Laan y Dos. Castillas, continiendo un
extension superficial de CIENTO CINCUENTA (150) METROS CUADRADOS.

PARCEL No. 6

PARCELA DE TERRENO No. 51, Manzana No. 18, de la subd. De Solocon. Linda
por el NW, con la parcela 50; por el NE, con la parcela 37; por el SE, con la parcela
52; por el SW, con la Calle Dos Castillas. Partiendo de un punto Marcado 1 en el
plano, el cual se halla at S. 43 gds. 01'E, 82.50 mts. Desde el punto 1 de esta
manzana, que es un mojon de concreto de la Ciudad de Manila, situado on el
esquina E. que forman las Calles Laong Laan y Dos. Castillas, continiendo una
extension superficial de CIENTO CINCUENTA (150) METROS CUADRADOS.[3]

During the lifetime of Felix Carlos, he agreed to transfer his estate to Teofilo. The
agreement was made in order to avoid the payment of inheritance taxes. Teofilo, in turn,
undertook to deliver and turn over the share of the other legal heir, petitioner Juan
De Dios Carlos.
 Eventually, the first three (3) parcels of land were transferred and registered in the name
of Teofilo. These three (3) lots are now covered by Transfer Certificate of Title (TCT) No. 234824
issued by the Registry of Deeds of Makati City; TCT No. 139061 issued by the Registry of Deeds
of Makati City; and TCT No. 139058 issued by the Registry of Deeds of Makati City.

Parcel No. 4 was registered in the name of petitioner. The lot is now covered by TCT No.
160401 issued by the Registry of Deeds of Makati City.

On May 13, 1992, Teofilo died intestate. He was survived by respondents Felicidad and
their son, Teofilo Carlos II (Teofilo II). Upon Teofilos death, Parcel Nos. 5 & 6 were registered in
the name of respondent Felicidad and co-respondent, Teofilo II. The said two (2) parcels of land
are covered by TCT Nos. 219877 and 210878, respectively, issued by the Registry of Deeds of
Manila.

In 1994, petitioner instituted a suit against respondents before the RTC in Muntinlupa City,
docketed as Civil Case No. 94-1964. In the said case, the parties submitted and caused the
approval of a partial compromise agreement. Under the compromise, the parties acknowledged
their respective shares in the proceeds from the sale of a portion of the first parcel of land. This
includes the remaining 6,691-square-meter portion of said land.

On September 17, 1994, the parties executed a deed of extrajudicial partition, dividing
the remaining land of the first parcel between them.

Meanwhile, in a separate case entitled Rillo v. Carlos,[4] 2,331 square meters

of the second parcel of land were adjudicated in favor of plaintiffs Rillo. The remaining 10,000-
square meter portion was later divided between petitioner and respondents.

The division was incorporated in a supplemental compromise agreement executed

on August 17, 1994, with respect to Civil Case No. 94-1964. The parties submitted the
supplemental compromise agreement, which was approved accordingly.
Petitioner and respondents entered into two more contracts in August 1994. Under the
contracts, the parties equally divided between them the third and fourth parcels of land.

In August 1995, petitioner commenced an action, docketed as Civil Case No. 95-135,
against respondents before the court a quo with the following causes of action: (a) declaration of
nullity of marriage; (b) status of a child; (c) recovery of property; (d) reconveyance; and (e) sum
of money and damages. The complaint was raffled to Branch 256 of the RTC in Muntinlupa.

In his complaint, petitioner asserted that the marriage between his late brother Teofilo and
respondent Felicidad was a nullity in view of the absence of the required marriage license. He
likewise maintained that his deceased brother was neither the natural nor the adoptive father of
respondent Teofilo Carlos II.
 Petitioner likewise sought the avoidance of the contracts he entered into with respondent
Felicidad with respect to the subject real properties. He also prayed for the cancellation of the
certificates of title issued in the name of respondents. He argued that the properties covered by
such certificates of title, including the sums received by respondents as proceeds, should be
reconveyed to him.

Finally, petitioner claimed indemnification as and by way of moral and exemplary

damages, attorneys fees, litigation expenses, and costs of suit.

On October 16, 1995, respondents submitted their answer. They denied the material
averments of petitioners complaint. Respondents contended that the dearth of details regarding
the requisite marriage license did not invalidate Felicidads marriage to Teofilo. Respondents
declared that Teofilo II was the illegitimate child of the deceased TeofiloCarlos with another
woman.

On the grounds of lack of cause of action and lack of jurisdiction over the subject matter,
respondents prayed for the dismissal of the case before the trial court. They also asked that their
counterclaims for moral and exemplary damages, as well as attorneys fees, be granted.

But before the parties could even proceed to pre-trial, respondents moved for summary
judgment. Attached to the motion was the affidavit of the justice of the peace who solemnized the
marriage. Respondents also submitted the Certificate of Live Birth of respondent Teofilo II. In the
certificate, the late Teofilo Carlos and respondent Felicidad were designated as parents.

On January 5, 1996, petitioner opposed the motion for summary judgment on the ground
of irregularity of the contract evidencing the marriage. In the same breath, petitioner lodged his
own motion for summary judgment. Petitioner presented a certification from the Local Civil
Registrar of Calumpit, Bulacan, certifying that there is no record of birth of respondent Teofilo II.

Petitioner also incorporated in the counter-motion for summary judgment the testimony of
respondent Felicidad in another case. Said testimony was made in Civil Case No. 89-2384,
entitled Carlos v. Gorospe, before the RTC Branch 255, Las Pias. In her testimony, respondent
Felicidad narrated that co-respondent Teofilo II is her child with Teofilo.[5]

Subsequently, the Office of the City Prosecutor of Muntinlupa submitted to the trial court
its report and manifestation, discounting the possibility of collusion between the parties.
RTC and CA Dispositions

On April 8, 1996, the RTC rendered judgment, disposing as follows:

WHEREFORE, premises considered, defendants (respondents) Motion for

Summary Judgment is hereby denied. Plaintiffs (petitioners) Counter-Motion for
Summary Judgment is hereby granted and summary judgment is hereby rendered
in favor of plaintiff as follows:
 1. Declaring the marriage between defendant Felicidad Sandoval and
Teofilo Carlos solemnized at Silang, Cavite on May 14, 1962, evidenced by the
Marriage Certificate submitted inthis case, null and void ab initio for lack of the
requisite marriage license;

2. Declaring that the defendant minor, Teofilo S. Carlos II, is not the natural,
illegitimate, or legally adopted child of the late Teofilo E. Carlos;
3. Ordering defendant Sandoval to pay and restitute to plaintiff the sum
of P18,924,800.00 together with the interest thereon at the legal rate from date of
filing of the instant complaint until fully paid;

4. Declaring plaintiff as the sole and exclusive owner of the parcel of land,
less the portion adjudicated to plaintiffs in Civil Case No. 11975, covered
by TCT No. 139061 of the Register of Deeds of Makati City, and ordering said
Register of Deeds to cancel said title and to issue another title in the sole name of
plaintiff herein;

5. Declaring the Contract, Annex K of complaint, between plaintiff and

defendant Sandoval null and void, and ordering the Register of Deeds of Makati
City to cancel TCT No. 139058 in the name of Teofilo Carlos, and to issue another
title in the sole name of plaintiff herein;

6. Declaring the Contract, Annex M of the complaint, between plaintiff and

defendant Sandoval null and void;

7. Ordering the cancellation of TCT No. 210877 in the names of defendant

Sandoval and defendant minor Teofilo S. Carlos II and ordering the Register of
Deeds of Manila to issue another title in the exclusive name of plaintiff herein;

8. Ordering the cancellation of TCT No. 210878 in the name of defendant

Sandoval and defendant Minor Teofilo S. Carlos II and ordering the Register of
Deeds of Manila to issue another title in the sole name of plaintiff herein.

Let this case be set for hearing for the reception of plaintiffs evidence on
his claim for moral damages, exemplary damages, attorneys fees, appearance
fees, and litigation expenses on June 7, 1996 at 1:30 o'clock in the afternoon.

SO ORDERED.[6]

Dissatisfied, respondents appealed to the CA. In the appeal, respondents argued, inter
alia, that the trial court acted without or in excess of jurisdiction in rendering summary judgment
annulling the marriage of Teofilo, Sr. and Felicidad and in declaring Teofilo II as not an illegitimate
child of Teofilo, Sr.

On October 15, 2002, the CA reversed and set aside the RTC ruling, disposing as follows:

WHEREFORE, the summary judgment appealed from

is REVERSED and SET ASIDE and in lieu thereof, a new
one is entered REMANDING the case to the court of origin for further proceedings.

SO ORDERED.[7]

The CA opined:

We find the rendition of the herein appealed summary judgment by the

court a quo contrary to law and public policy as ensconced in the aforesaid
safeguards. The fact that it was appellants who first sought summary judgment
from the trial court, did not justify the grant thereof in favor of appellee. Not being
an action to recover upon a claim or to obtain a declaratory relief, the rule on
summary judgment apply (sic) to an action to annul a marriage. The mere
fact that no genuine issue was presented and the desire to expedite the disposition
of the case cannot justify a misinterpretation of the rule. The first paragraph of
Article 88 and 101 of the Civil Code expressly prohibit the rendition of decree of
annulment of a marriage upon a stipulation of facts or a confession of judgment.
Yet, the affidavits annexed to the petition for summary judgment practically amount
to these methods explicitly proscribed by the law.

We are not unmindful of appellees argument that the foregoing safeguards

have traditionally been applied to prevent collusion of spouses in the matter of
dissolution of marriages and that the death of Teofilo Carlos on May 13, 1992 had
effectively dissolved the marriage herein impugned. The fact, however, that
appellees own brother and appellant Felicidad Sandoval lived together as husband
and wife for thirty years and that the annulment of their marriage is the very means
by which the latter is sought to be deprived of her participation in the estate left by
the former call for a closer and more thorough inquiry into the circumstances
surrounding the case. Rather that the summary nature by which the court a
quo resolved the issues in the case, the rule is to the effect that the material facts
alleged in the complaint for annulment of marriage should always be proved.
Section 1, Rule 19 of the Revised Rules of Court provides:

Section 1. Judgment on the pleadings. Where an answer

fails to tender an issue, or otherwise admits the material allegations
of the adverse party's pleading, the court may, on motion of that
party, direct judgment on such pleading. But in actions for
annulment of marriage or for legal separation, the material facts
alleged in the complaint shall always be proved. (Underscoring
supplied)

Moreover, even if We were to sustain the applicability of the rules on

summary judgment to the case at bench, Our perusal of the record shows that the
finding of the court a quo for appellee would still not be warranted. While it may be
readily conceded that a valid marriage license is among the formal requisites of
marriage, the absence of which renders the marriage void ab initio pursuant to
Article 80(3) in relation to Article 58 of the Civil Code the failure to reflect the serial
number of the marriage license on the marriage contract evidencing the marriage
between Teofilo Carlos and appellant Felicidad Sandoval, although irregular, is not
as fatal as appellee represents it to be. Aside from the dearth of evidence to the
contrary, appellant Felicidad Sandovals affirmation of the existence of said
marriage license is corroborated by the following statement in the affidavit
executed by Godofredo Fojas, then Justice of the Peace who officiated the
impugned marriage, to wit:

That as far as I could remember, there was a marriage

license issued at Silang, Cavite on May 14, 1962 as basis of the
said marriage contract executed by Teofilo Carlos and Felicidad
Sandoval, but the number of said marriage license was
inadvertently not placed in the marriage contract for the reason that
it was the Office Clerk who filled up the blanks in the Marriage
Contract who in turn, may have overlooked the same.

Rather than the inferences merely drawn by the trial court, We are of the
considered view that the veracity and credibility of the foregoing statement as well
as the motivations underlying the same should be properly threshed out in a trial
of the case on the merits.

If the non-presentation of the marriage contract the primary evidence of

marriage is not proof that a marriage did not take place, neither should appellants
non-presentation of the subject marriage license be taken as proof that the same
was not procured. The burden of proof to show the nullity of the marriage, it must
 be emphasized, rests upon the plaintiff and any doubt should be resolved in favor
of the validity of the marriage.

Considering that the burden of proof also rests on the party who disputes
the legitimacy of a particular party, the same may be said of the trial courts rejection
of the relationship between appellant Teofilo Carlos II and his putative father on
the basis of the inconsistencies in appellant Felicidad Sandovals
statements. Although it had effectively disavowed appellants prior claims
regarding the legitimacy of appellant Teofilo Carlos II, the averment in the answer
that he is the illegitimate son of appellees brother, to Our mind, did not altogether
foreclose the possibility of the said appellants illegitimate filiation, his right to prove
the same or, for that matter, his entitlement to inheritance rights as such.

Without trial on the merits having been conducted in the case, We find
appellees bare allegation that appellant Teofilo Carlos II was merely purchased
from an indigent couple by appellant Felicidad Sandoval, on the whole, insufficient
to support what could well be a minors total forfeiture of the rights arising from his
putative filiation. Inconsistent though it may be to her previous statements,
appellant Felicidad Sandovals declaration regarding the illegitimate filiation of
Teofilo Carlos II is more credible when considered in the light of the fact that, during
the last eight years of his life, Teofilo Carlos allowed said appellant the use of his
name and the shelter of his household. The least that the trial court could have
done in the premises was to conduct a trial on the merits in order to be able to
thoroughly resolve the issues pertaining to the filiation of appellant Teofilo Carlos
II.[8]

On November 22, 2006, petitioner moved for reconsideration and for the inhibition of
the ponente, Justice Rebecca De Guia-Salvador. The CA denied the twin motions.

Issues

In this petition under Rule 45, petitioner hoists the following issues:

1. That, in reversing and setting aside the Summary Judgment under the
Decision, Annex A hereof, and in denying petitioners Motion for reconsideration
under the Resolution, Annex F hereof, with respect to the nullity of the impugned
marriage, petitioner respectfully submits that the Court of Appeals committed a
grave reversible error in applying Articles 88 and 101 of the Civil Code, despite the
fact that the circumstances of this case are different from that contemplated and
intended by law, or has otherwise decided a question of substance not theretofore
decided by the Supreme Court, or has decided it in a manner probably not in
accord with law or with the applicable decisions of this Honorable Court;

2. That in setting aside and reversing the Summary Judgment and, in lieu
thereof, entering another remanding the case to the court of origin for further
proceedings, petitioner most respectfully submits that the Court of Appeals
committed a serious reversible error in applying Section 1, Rule 19 (now Section
1, Rule 34) of the Rules of Court providing for judgment on the pleadings, instead
of Rule 35 governing Summary Judgments;

3. That in reversing and setting aside the Summary Judgment and, in lieu
thereof, entering another remanding the case to the court of origin for further
proceedings, petitioner most respectfully submits that the Court of
Appeals committed grave abuse of discretion, disregarded judicial admissions,
made findings on ground of speculations, surmises, and conjectures, or otherwise
committed misapplications of the laws and misapprehension of the
facts.[9] (Underscoring supplied)
Essentially, the Court is tasked to resolve whether a marriage may be declared void ab
initio through a judgment on the pleadings or a summary judgment and without the benefit of a
trial. But there are other procedural issues, including the capacity of one who is not a spouse in
bringing the action for nullity of marriage.

Our Ruling

I. The grounds for declaration of absolute nullity of marriage must be

proved. Neither judgment on the pleadings nor summary judgment is allowed. So is
confession of judgment disallowed.

Petitioner faults the CA in applying Section 1, Rule 19[10] of the Revised Rules of Court,
which provides:

SECTION 1. Judgment on the pleadings. Where an answer fails to tender

an issue, or otherwise admits the material allegations of the adverse partys
pleading, the court may, on motion of that party, direct judgment on such
pleading. But in actions for annulment of marriage or for legal separation, the
material facts alleged in the complaint shall always be proved.

He argues that the CA should have applied Rule 35 of the Rules of Court governing summary
judgment, instead of the rule on judgment on the pleadings.

Petitioner is misguided. The CA did not limit its finding solely within the provisions of the Rule on
judgment on the pleadings. In disagreeing with the trial court, the CA likewise considered the
provisions on summary judgments, to wit:

Moreover, even if We are to sustain the applicability of the rules on

summary judgment to the case at bench, Our perusal of the record shows that the
finding of the court a quo for appellee would still not be warranted. x x x[11]

But whether it is based on judgment on the pleadings or summary judgment, the CA was correct
in reversing the summary judgment rendered by the trial court. Both the rules on judgment on the
pleadings and summary judgments have no place in cases of declaration of absolute nullity of
marriage and even in annulment of marriage.

With the advent of A.M. No. 02-11-10-SC, known as Rule on Declaration of Absolute Nullity of
Void Marriages and Annulment of Voidable Marriages, the question on the application of summary
judgments or even judgment on the pleadings in cases of nullity or annulment of marriage has
been stamped with clarity. The significant principle laid down by the said Rule, which took effect
on March 15, 2003[12] is found in Section 17, viz.:

SEC. 17. Trial. (1) The presiding judge shall personally conduct the trial of
the case. No delegation of evidence to a commissioner shall be allowed except as
to matters involving property relations of the spouses.

(2) The grounds for declaration of absolute nullity or annulment of marriage

must be proved. No judgment on the pleadings, summary judgment, or confession
of judgment shall be allowed. (Underscoring supplied)

Likewise instructive is the Courts pronouncement in Republic v. Sandiganbayan.[13] In that case,

We excluded actions for nullity or annulment of marriage from the application of summary
judgments.
 Prescinding from the foregoing discussion, save for annulment of marriage
or declaration of its nullity or for legal separation, summary judgment is applicable
to all kinds of actions.[14](Underscoring supplied)

By issuing said summary judgment, the trial court has divested the State of its lawful right
and duty to intervene in the case. The participation of the State is not terminated by the declaration
of the public prosecutor that no collusion exists between the parties. The State should have been
given the opportunity to present controverting evidence before the judgment was rendered.[15]

Both the Civil Code and the Family Code ordain that the court should order the prosecuting
attorney to appear and intervene for the State. It is at this stage when the public prosecutor sees
to it that there is no suppression of evidence. Concomitantly, even if there is no suppression of
evidence, the public prosecutor has to make sure that the evidence to be presented or laid down
before the court is not fabricated.

To further bolster its role towards the preservation of marriage, the Rule on Declaration of
Absolute Nullity of Void Marriages reiterates the duty of the public prosecutor, viz.:

SEC. 13. Effect of failure to appear at the pre-trial. (a) x x x

(b) x x x If there is no collusion, the court shall require the public prosecutor to
intervene for the State during the trial on the merits to prevent suppression or
fabrication of evidence.(Underscoring supplied)
Truly, only the active participation of the public prosecutor or the Solicitor General will ensure that
the interest of the State is represented and protected in proceedings for declaration of nullity of
marriages by preventing the fabrication or suppression of evidence.[16]

II. A petition for declaration of absolute nullity of void marriage may be filed solely
by the husband or wife. Exceptions: (1) Nullity of marriage cases commenced before the
effectivity of A.M. No. 02-11-10-SC; and (2) Marriages celebrated during the effectivity of
the Civil Code.

Under the Rule on Declaration of Absolute Nullity of Void Marriages and Annulment of
Voidable Marriages, the petition for declaration of absolute nullity of marriage may not be filed by
any party outside of the marriage. The Rule made it exclusively a right of the spouses by stating:

SEC. 2. Petition for declaration of absolute nullity of void marriages.

(a) Who may file. A petition for declaration of absolute nullity of void
marriage may be filed solely by the husband or the wife. (Underscoring supplied)

Section 2(a) of the Rule makes it the sole right of the husband or the wife to file a petition
for declaration of absolute nullity of void marriage. The rationale of the Rule is enlightening, viz.:

Only an aggrieved or injured spouse may file a petition for annulment of

voidable marriages or declaration of absolute nullity of void marriages. Such
petition cannot be filed by compulsory or intestate heirs of the spouses or by the
State. The Committee is of the belief that they do not have a legal right to file the
petition. Compulsory or intestate heirs have only inchoate rights prior to the death
of their predecessor, and, hence, can only question the validity of the marriage of
the spouses upon the death of a spouse in a proceeding for the settlement of the
estate of the deceased spouse filed in the regular courts. On the other hand, the
concern of the State is to preserve marriage and not to seek its
dissolution.[17] (Underscoring supplied)
 The new Rule recognizes that the husband and the wife are the sole architects of a
healthy, loving, peaceful marriage. They are the only ones who can decide when and how to build
the foundations of marriage. The spouses alone are the engineers of their marital life. They are
simultaneously the directors and actors of their matrimonial true-to-life play. Hence, they alone
can and should decide when to take a cut, but only in accordance with the grounds allowed by
law.

The innovation incorporated in A.M. No. 02-11-10-SC sets forth a demarcation line
between marriages covered by the Family Code and those solemnized under the Civil Code. The
Rule extends only to marriages entered into during the effectivity of the Family Code which took
effect on August 3, 1988.[18]

The advent of the Rule on Declaration of Absolute Nullity of Void Marriages marks
the beginning of the end of the right of the heirs of the deceased spouse to bring a nullity of
marriage case against the surviving spouse. But the Rule never intended to deprive the
compulsory or intestate heirs of their successional rights.

While A.M. No. 02-11-10-SC declares that a petition for declaration of absolute nullity
of marriage may be filed solely by the husband or the wife, it does not mean that the compulsory
or intestate heirs are without any recourse under the law. They can still protect
their successional right, for, as stated in the Rationale of the Rules on Annulment of Voidable
Marriages and Declaration of Absolute Nullity of Void Marriages, compulsory or intestate heirs
can still question the validity of the marriage of the spouses, not in a proceeding for declaration
of nullity but upon the death of a spouse in a proceeding for the settlement of the
estate of the deceased spouse filed in the regular courts.[19]

It is emphasized, however, that the Rule does not apply to cases already commenced
before March 15, 2003 although the marriage involved is within the coverage of the Family
Code. This is so, as the new Rule which became effective on March 15, 2003[20] is prospective in
its application. Thus, the Court held in Enrico v. Heirs of Sps. Medinaceli,[21] viz.:

As has been emphasized, A.M. No. 02-11-10-SC covers marriages under

the Family Code of the Philippines, and is prospective in its
application.[22] (Underscoring supplied)

Petitioner commenced the nullity of marriage case against respondent Felicidad in

1995. The marriage in controversy was celebrated on May 14, 1962. Which law would govern
depends upon when the marriage took place.[23]

The marriage having been solemnized prior to the effectivity of the Family Code, the
applicable law is the Civil Code which was the law in effect at the time of its
celebration.[24] But the Civil Code is silent as to who may bring an action to declare the marriage
void. Does this mean that any person can bring an action for the declaration of nullity of marriage?

We respond in the negative. The absence of a provision in the Civil Code cannot be
construed as a license for any person to institute a nullity of marriage case. Such person must
appear to be the party who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit.[25] Elsewise stated, plaintiff must be the real party-in-
interest. For it is basic in procedural law that every action must be prosecuted and defended in
the name of the real party-in-interest.[26]
 Interest within the meaning of the rule means material interest or an interest in issue to be
affected by the decree or judgment of the case, as distinguished from mere curiosity about the
question involved or a mere incidental interest. One having no material interest to protect cannot
invoke the jurisdiction of the court as plaintiff in an action. When plaintiff is not the real party-in-
interest, the case is dismissible on the ground of lack of cause of action.[27]

Illuminating on this point is Amor-Catalan v. Court of Appeals,[28] where the Court held:

True, under the New Civil Code which is the law in force at the time the
respondents were married, or even in the Family Code, there is no
specific provision as to who can file a petition to declare the nullity of marriage;
however, only a party who can demonstrate proper interest can file the same. A
petition to declare the nullity of marriage, like any other actions, must be
prosecuted or defended in the name of the real party-in-interest and must be
based on a cause of action. Thus, in Nial v. Badayog, the Court held that the
children have the personality to file the petition to declare the nullity of marriage of
their deceased father to their stepmother as it affects their successional rights.

xxxx

In fine, petitioners personality to file the petition to declare the nullity of

marriage cannot be ascertained because of the absence of the divorce decree and
the foreign law allowing it.Hence, a remand of the case to the trial court for
reception of additional evidence is necessary to determine whether
respondent Orlando was granted a divorce decree and whether the foreign law
which granted the same allows or restricts remarriage. If it is proved that a valid
divorce decree was obtained and the same did not allow respondent Orlandos
remarriage, then the trial court should declare respondents marriage as bigamous
and void ab initio but reduced the amount of moral damages from P300,000.00
to P50,000.00 and exemplary damages from P200,000.00 to P25,000.00. On the
contrary, if it is proved that a valid divorce decree was obtained which
allowed Orlando to remarry, then the trial court must dismiss the instant petition to
declare nullity of marriage on the ground that petitioner Felicitas Amor-
Catalan lacks legal personality to file the same.[29] (Underscoring supplied)

III. The case must be remanded to determine whether or not petitioner is a real-
party-in-interest to seek the declaration of nullity of the marriage in controversy.

In the case at bench, the records reveal that when Teofilo died intestate in 1992, his only surviving
compulsory heirs are respondent Felicidad and their son, Teofilo II. Under the law on succession,
successional rights are transmitted from the moment of death of the decedent and the compulsory
heirs are called to succeed by operation of law.[30]

Upon Teofilos death in 1992, all his property, rights and obligations to the extent of the value of
the inheritance are transmitted to his compulsory heirs. These heirs were respondents Felicidad
and Teofilo II, as the surviving spouse and child, respectively.

Article 887 of the Civil Code outlined who are compulsory heirs, to wit:

(1) Legitimate children and descendants, with respect to their legitimate parents
and ascendants;

(2) In default of the foregoing, legitimate parents and ascendants, with respect to
their legitimate children and descendants;

(3) The widow or widower;

 (4) Acknowledged natural children, and natural children by legal fiction;

(5) Other illegitimate children referred to in Article 287 of the Civil Code.[31]

Clearly, a brother is not among those considered as compulsory heirs. But although a collateral
relative, such as a brother, does not fall within the ambit of a compulsory heir, he
still has a right to succeed to the estate. Articles 1001 and 1003 of the New Civil Code provide:

ART. 1001. Should brothers and sisters or their children survive with the
widow or widower, the latter shall be entitled to one-half of the inheritance and
the brothers and sisters or their children to the other half.

ART. 1003. If there are no descendants, ascendants, illegitimate children,

or a surviving spouse, the collateral relatives shall succeed to the entire estate of
the deceased in accordance with the following articles. (Underscoring supplied)

Indeed, only the presence of descendants, ascendants or illegitimate children excludes

collateral relatives from succeeding to the estate of the decedent. The presence of legitimate,
illegitimate, or adopted child or children of the deceased precludes succession by collateral
relatives.[32] Conversely, if there are no descendants, ascendants, illegitimate children, or a
surviving spouse, the collateral relatives shall succeed to the entire estate of the decedent.[33]

If respondent Teofilo II is declared and finally proven not to be the legitimate, illegitimate,
or adopted son of Teofilo, petitioner would then have a personality to seek the nullity of marriage
of his deceased brother with respondent Felicidad. This is so, considering that collateral relatives,
like a brother and sister, acquire successional right over the estate if the decedent dies without
issue and without ascendants in the direct line.

The records reveal that Teofilo was predeceased by his parents. He had no other
siblings but petitioner. Thus, if Teofilo II is finally found and proven to be not a
legitimate, illegitimate, or adopted son of Teofilo, petitioner succeeds to the other half of the
estate of his brother, the first half being allotted to the widow pursuant to Article 1001 of the New
Civil Code. This makes petitioner a real-party-interest to seek the declaration of absolute nullity
of marriage of his deceased brother with respondent Felicidad. If the subject marriage is found to
be void ab initio, petitioner succeeds to the entire estate.

It bears stressing, however, that the legal personality of petitioner to bring the nullity of
marriage case is contingent upon the final declaration that Teofilo II is not a legitimate, adopted, or
illegitimate son of Teofilo.

If Teofilo II is proven to be a legitimate, illegitimate, or legally adopted son of Teofilo, then

petitioner has no legal personality to ask for the nullity of marriage of his deceased brother and
respondent Felicidad. This is based on the ground that he has no successional right to be
protected, hence, does not have proper interest. For although the marriage in controversy may
be found to be void from the beginning, still, petitioner would not inherit. This is because the
presence of descendant, illegitimate,[34] or even an adopted child[35] excludes the collateral
relatives from inheriting from the decedent.

Thus, the Court finds that a remand of the case for trial on the merits to determine the
validity or nullity of the subject marriage is called for. But the RTC is strictly instructed to
dismiss the nullity of marriage case for lack of cause of action if it is proven by evidence
that Teofilo II is a legitimate, illegitimate, or legally adopted son of Teofilo Carlos, the
deceased brother of petitioner.
 IV. Remand of the case regarding the question of filiation of respondent Teofilo II is
proper and in order. There is a need to vacate the disposition of the trial court as to the
other causes of action before it.

Petitioner did not assign as error or interpose as issue the ruling of the CA on the remand of the
case concerning the filiation of respondent Teofilo II. This notwithstanding, We should not leave
the matter hanging in limbo.

This Court has the authority to review matters not specifically raised or assigned as error
by the parties, if their consideration is necessary in arriving at a just resolution of the case. [36]

We agree with the CA that without trial on the merits having been conducted in the case,
petitioners bare allegation that respondent Teofilo II was adopted from an indigent couple is
insufficient to support a total forfeiture of rights arising from his putative filiation. However, We are
not inclined to support its pronouncement that the declaration of respondent Felicidad as to the
illegitimate filiation of respondent Teofilo II is more credible. For the guidance of the appellate
court, such declaration of respondent Felicidad should not be afforded credence. We remind the
CA of the guaranty provided by Article 167 of the Family Code to protect the status of legitimacy
of a child, to wit:

ARTICLE 167. The child shall be considered legitimate although the mother may
have declared against its legitimacy or may have been sentenced as an
adulteress. (Underscoring supplied)

It is stressed that Felicidads declaration against the legitimate status of Teofilo II is the very act
that is proscribed by Article 167 of the Family Code. The language of the law is unmistakable. An
assertion by the mother against the legitimacy of her child cannot affect the legitimacy of a child
born or conceived within a valid marriage.[37]

Finally, the disposition of the trial court in favor of petitioner for causes of action concerning
reconveyance, recovery of property, and sum of money must be vacated. This has to be so, as
said disposition was made on the basis of its finding that the marriage in controversy was null and
void ab initio.
WHEREFORE, the appealed Decision is MODIFIED as follows:

1. The case is REMANDED to the Regional Trial Court in regard to the action on the
status and filiation of respondent Teofilo Carlos II and the validity or nullity of
marriage between respondent Felicidad Sandoval and the late Teofilo Carlos;

2. If Teofilo Carlos II is proven to be the legitimate, or illegitimate, or legally adopted son

of the late Teofilo Carlos, the RTC is strictly INSTRUCTED to DISMISS the action
for nullity of marriage for lack of cause of action;

3. The disposition of the RTC in Nos. 1 to 8 of the fallo of its decision

is VACATED AND SET ASIDE.

The Regional Trial Court is ORDERED to conduct trial on the merits with dispatch and to
give this case priority in its calendar.

No costs.

SO ORDERED.
 Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION

THE MUNICIPALITY OF HAGONOY, G.R. No. 168289

BULACAN, represented by the HON. FELIX
V. OPLE, Municipal Mayor, and FELIX V.
OPLE, in his personal capacity, Present:
Petitioners,
CORONA, J., Chairperson,
- versus - VELASCO, JR.,
NACHURA,
HON. SIMEON P. DUMDUM, JR., in his PERALTA, and
capacity as the Presiding Judge of the MENDOZA, JJ.
REGIONAL TRIAL COURT, BRANCH 7,
CEBU CITY; HON. CLERK OF COURT & EX-
OFFICIO SHERIFF of the REGIONAL TRIAL
COURT of CEBU CITY; HON. CLERK OF
COURT & EX-OFFICIO SHERIFF of the
REGIONAL TRIAL COURT of BULACAN and
his DEPUTIES; and EMILY ROSE GO KO LIM
CHAO, doing business under the name and
style KD SURPLUS,
Respondents. Promulgated:

March 22, 2010

x-----------------------------------------------------------------------------------------x

DECISION

PERALTA, J.:

This is a Joint Petition[1] under Rule 45 of the Rules of Court brought by the Municipality of
Hagonoy, Bulacan and its former chief executive, Mayor Felix V. Ople in his official and personal
capacity, from the January 31, 2005 Decision[2] and the May 23, 2005 Resolution[3] of the Court
of Appeals in CA-G.R. SP No. 81888. The assailed decision affirmed the October 20,
2003 Order[4] issued by the Regional Trial Court of Cebu City, Branch 7 in Civil Case No. CEB-
28587 denying petitioners motion to dismiss and motion to discharge/dissolve the writ of
preliminary attachment previously issued in the case. The assailed resolution denied
reconsideration.

The case stems from a Complaint[5] filed by herein private respondent Emily Rose Go Ko Lim
Chao against herein petitioners, the Municipality of Hagonoy, Bulacan and its chief executive,
Felix V. Ople (Ople) for collection of a sum of money and damages. It was alleged that sometime
in the middle of the year 2000, respondent, doing business as KD Surplus and as such engaged
in buying and selling surplus trucks, heavy equipment, machinery, spare parts and related
supplies, was contacted by petitioner Ople.Respondent had entered into an agreement with
petitioner municipality through Ople for the delivery of motor vehicles, which supposedly were
needed to carry out certain developmental undertakings in the municipality. Respondent claimed
that because of Oples earnest representation that funds had already been allocated for the
project, she agreed to deliver from her principal place of business in Cebu City twenty-one motor
vehicles whose value totaled P5,820,000.00. To prove this, she attached to the complaint copies
of the bills of lading showing that the items were consigned, delivered to and received by petitioner
municipality on different dates.[6] However, despite having made several deliveries, Ople allegedly
did not heed respondents claim for payment. As of the filing of the complaint, the total obligation
of petitioner had already totaled P10,026,060.13exclusive of penalties and damages. Thus,
respondent prayed for full payment of the said amount, with interest at not less than 2% per month,
plus P500,000.00 as damages for business losses, P500,000.00 as exemplary damages,
attorneys fees of P100,000.00 and the costs of the suit.

On February 13, 2003, the trial court issued an Order[7] granting respondents prayer for a writ of
preliminary attachment conditioned upon the posting of a bond equivalent to the amount of the
claim. On March 20, 2003, the trial court issued the Writ of Preliminary Attachment[8] directing the
sheriff to attach the estate, real and personal properties of petitioners.

Instead of addressing private respondents allegations, petitioners filed a Motion to Dismiss[9] on

the ground that the claim on which the action had been brought was unenforceable under the
statute of frauds, pointing out that there was no written contract or document that would evince
the supposed agreement they entered into with respondent. They averred that contracts of this
nature, before being undertaken by the municipality, would ordinarily be subject to several
preconditions such as a public bidding and prior approval of the municipal council which, in this
case, did not obtain. From this, petitioners impress upon us the notion that no contract was ever
entered into by the local government with respondent.[10] To address the claim that respondent
had made the deliveries under the agreement, they advanced that the bills of lading attached to
the complaint were hardly probative, inasmuch as these documents had been accomplished and
handled exclusively by respondent herself as well as by her employees and agents.[11]

Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary
Attachment Already Issued,[12] invoking immunity of the state from suit, unenforceability of the
contract, and failure to substantiate the allegation of fraud.[13]
On October 20, 2003, the trial court issued an Order[14] denying the two motions. Petitioners
moved for reconsideration, but they were denied in an Order[15] dated December 29, 2003.

Believing that the trial court had committed grave abuse of discretion in issuing the two orders,
petitioners elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In
it, they faulted the trial court for not dismissing the complaint despite the fact that the alleged
contract was unenforceable under the statute of frauds, as well as for ordering the filing of an
answer and in effect allowing private respondent to prove that she did make several deliveries of
the subject motor vehicles. Additionally, it was likewise asserted that the trial court committed
grave abuse of discretion in not discharging/dissolving the writ of preliminary attachment, as
prayed for in the motion, and in effect disregarding the rule that the local government is immune
from suit.

On January 31, 2005, following assessment of the parties arguments, the Court of Appeals,
finding no merit in the petition, upheld private respondents claim and affirmed the trial courts
order.[16] Petitioners moved for reconsideration, but the same was likewise denied for lack of merit
and for being a mere scrap of paper for having been filed by an unauthorized counsel.[17] Hence,
this petition.

In their present recourse, which raises no matter different from those passed upon by the Court
of Appeals, petitioners ascribe error to the Court of Appeals for dismissing their challenge against
the trial courts October 20 and December 29, 2003 Orders. Again, they reason that the complaint
should have been dismissed at the first instance based on unenforceability and that the motion to
dissolve/discharge the preliminary attachment should have been granted.[18]

Commenting on the petition, private respondent notes that with respect to the Court of Appeals
denial of the certiorari petition, the same was rightly done, as the fact of delivery may be properly
and adequately addressed at the trial of the case on the merits; and that the dissolution of the writ
of preliminary attachment was not proper under the premises inasmuch as the application for the
writ sufficiently alleged fraud on the part of petitioners. In the same breath, respondent laments
that the denial of petitioners motion for reconsideration was rightly done by the Court of Appeals,
because it raised no new matter that had not yet been addressed.[19]

After the filing of the parties respective memoranda, the case was deemed submitted for decision.

We now rule on the petition.

To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil
[20]
Code, requires for enforceability certain contracts enumerated therein to be evidenced by some
note or memorandum. The term Statute of Frauds is descriptive of statutes that require certain
classes of contracts to be in writing; and that do not deprive the parties of the right to contract with
respect to the matters therein involved, but merely regulate the formalities of the contract
necessary to render it enforceable.[21]

In other words, the Statute of Frauds only lays down the method by which the enumerated
contracts may be proved. But it does not declare them invalid because they are not reduced to
writing inasmuch as, by law, contracts are obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present. [22] The object is to
prevent fraud and perjury in the enforcement of obligations depending, for evidence thereof, on
the unassisted memory of witnesses by requiring certain enumerated contracts and transactions
to be evidenced by a writing signed by the party to be charged. [23] The effect of noncompliance
with this requirement is simply that no action can be enforced under the given contracts.[24] If an
action is nevertheless filed in court, it shall warrant a dismissal under Section 1(i),[25] Rule 16 of
the Rules of Court, unless there has been, among others, total or partial performance of the
obligation on the part of either party.[26]

It has been private respondents consistent stand, since the inception of the instant case
that she has entered into a contract with petitioners. As far as she is concerned, she has already
performed her part of the obligation under the agreement by undertaking the delivery of the 21
motor vehicles contracted for by Ople in the name of petitioner municipality. This claim is well
substantiated at least for the initial purpose of setting out a valid cause of action against petitioners
by copies of the bills of lading attached to the complaint, naming petitioner municipality as
consignee of the shipment. Petitioners have not at any time expressly denied this allegation and,
hence, the same is binding on the trial court for the purpose of ruling on the motion to dismiss. In
other words, since there exists an indication by way of allegation that there has been performance
of the obligation on the part of respondent, the case is excluded from the coverage of the rule on
dismissals based on unenforceability under the statute of frauds, and either party may then
enforce its claims against the other.

No other principle in remedial law is more settled than that when a motion to dismiss is
filed, the material allegations of the complaint are deemed to be hypothetically admitted. [27] This
hypothetical admission, according to Viewmaster Construction Corporation v.
Roxas[28] and Navoa v. Court of Appeals,[29] extends not only to the relevant and material facts
well pleaded in the complaint, but also to inferences that may be fairly deduced from them. Thus,
where it appears that the allegations in the complaint furnish sufficient basis on which the
complaint can be maintained, the same should not be dismissed regardless of the defenses that
may be raised by the defendants.[30] Stated differently, where the motion to dismiss is predicated
on grounds that are not indubitable, the better policy is to deny the motion without prejudice to
taking such measures as may be proper to assure that the ends of justice may be served. [31]

It is interesting to note at this point that in their bid to have the case dismissed, petitioners
theorize that there could not have been a contract by which the municipality agreed to be bound,
because it was not shown that there had been compliance with the required bidding or that the
municipal council had approved the contract. The argument is flawed. By invoking
unenforceability under the Statute of Frauds, petitioners are in effect acknowledging the existence
of a contract between them and private respondent only, the said contract cannot be enforced by
action for being non-compliant with the legal requisite that it be reduced into writing. Suffice it to
say that while this assertion might be a viable defense against respondents claim, it is principally
a matter of evidence that may be properly ventilated at the trial of the case on the merits.

Verily, no grave abuse of discretion has been committed by the trial court in denying
petitioners motion to dismiss this case. The Court of Appeals is thus correct in affirming the same.

We now address the question of whether there is a valid reason to deny petitioners motion
to discharge the writ of preliminary attachment.
 Petitioners, advocating a negative stance on this issue, posit that as a municipal
corporation, the Municipality of Hagonoy is immune from suit, and that its properties are by law
exempt from execution and garnishment. Hence, they submit that not only was there an error
committed by the trial court in denying their motion to dissolve the writ of preliminary attachment;
they also advance that it should not have been issued in the first place. Nevertheless, they believe
that respondent has not been able to substantiate her allegations of fraud necessary for the
issuance of the writ.[32]

Private respondent, for her part, counters that, contrary to petitioners claim, she has amply
discussed the basis for the issuance of the writ of preliminary attachment in her affidavit; and that
petitioners claim of immunity from suit is negated by Section 22 of the Local Government Code,
which vests municipal corporations with the power to sue and be sued. Further, she contends that
the arguments offered by petitioners against the writ of preliminary attachment clearly touch on
matters that when ruled upon in the hearing for the motion to discharge, would amount to a trial
of the case on the merits.[33]

The general rule spelled out in Section 3, Article XVI of the Constitution is that the state
and its political subdivisions may not be sued without their consent. Otherwise put, they are open
to suit but only when they consent to it. Consent is implied when the government enters into a
business contract, as it then descends to the level of the other contracting party; or it may be
embodied in a general or special law[34] such as that found in Book I, Title I, Chapter 2, Section
22 of the Local Government Code of 1991, which vests local government units with certain
corporate powers one of them is the power to sue and be sued.

Be that as it may, a difference lies between suability and liability. As held in City of
Caloocan v. Allarde,[35] where the suability of the state is conceded and by which liability is
ascertained judicially, the state is at liberty to determine for itself whether to satisfy the judgment
or not. Execution may not issue upon such judgment, because statutes waiving non-suability do
not authorize the seizure of property to satisfy judgments recovered from the action. These
statutes only convey an implication that the legislature will recognize such judgment as final and
make provisions for its full satisfaction. Thus, where consent to be sued is given by general or
special law, the implication thereof is limited only to the resultant verdict on the action before
execution of the judgment.[36]

Traders Royal Bank v. Intermediate Appellate Court,[37] citing Commissioner of Public

Highways v. San Diego,[38] is instructive on this point. In that case which involved a suit on a
contract entered into by an entity supervised by the Office of the President, the Court held that
while the said entity opened itself to suit by entering into the subject contract with a private entity;
still, the trial court was in error in ordering the garnishment of its funds, which were public in nature
and, hence, beyond the reach of garnishment and attachment proceedings. Accordingly, the
Court ordered that the writ of preliminary attachment issued in that case be lifted, and that the
parties be allowed to prove their respective claims at the trial on the merits. There, the Court
highlighted the reason for the rule, to wit:
 The universal rule that where the State gives its consent to be sued by
private parties either by general or special law, it may limit claimants action only
up to the completion of proceedings anterior to the stage of execution and that the
power of the Courts ends when the judgment is rendered, since government funds
and properties may not be seized under writs of execution or garnishment to satisfy
such judgments, is based on obvious considerations of public
policy. Disbursements of public funds must be covered by the corresponding
appropriations as required by law. The functions and public services rendered by
the State cannot be allowed to be paralyzed or disrupted by the diversion of public
funds from their legitimate and specific objects. x x x[39]

With this in mind, the Court holds that the writ of preliminary attachment must be dissolved
and, indeed, it must not have been issued in the very first place. While there is merit in private
respondents position that she, by affidavit, was able to substantiate the allegation of fraud in the
same way that the fraud attributable to petitioners was sufficiently alleged in the complaint and,
hence, the issuance of the writ would have been justified. Still, the writ of attachment in this case
would only prove to be useless and unnecessary under the premises, since the property of the
municipality may not, in the event that respondents claim is validated, be subjected to writs of
execution and garnishment unless, of course, there has been a corresponding appropriation
provided by law.[40]

Anent the other issues raised by petitioners relative to the denial of their motion to dissolve
the writ of attachment, i.e., unenforceability of the contract and the veracity of private respondents
allegation of fraud, suffice it to say that these pertain to the merits of the main action. Hence,
these issues are not to be taken up in resolving the motion to discharge, lest we run the risk of
deciding or prejudging the main case and force a trial on the merits at this stage of the
proceedings.[41]

There is one final concern raised by petitioners relative to the denial of their motion for
reconsideration. They complain that it was an error for the Court of Appeals to have denied the
motion on the ground that the same was filed by an unauthorized counsel and, hence, must be
treated as a mere scrap of paper.[42]

It can be derived from the records that petitioner Ople, in his personal capacity, filed his
Rule 65 petition with the Court of Appeals through the representation of the law firm Chan Robles
& Associates. Later on, municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his
official capacity and for petitioner municipality, filed with the Court of Appeals a Manifestation with
Entry of Appearance[43] to the effect that he, as counsel, was adopting all the pleadings filed for
and in behalf of [Oples personal representation] relative to this case.[44]

It appears, however, that after the issuance of the Court of Appeals decision, only Oples
personal representation signed the motion for reconsideration. There is no showing that the
municipal legal officer made the same manifestation, as he previously did upon the filing of the
petition.[45] From this, the Court of Appeals concluded that it was as if petitioner municipality and
petitioner Ople, in his official capacity, had never moved for reconsideration of the assailed
decision, and adverts to the ruling in Ramos v. Court of Appeals[46] and Municipality of Pililla, Rizal
v. Court of Appeals[47] that only under well-defined exceptions may a private counsel be engaged
in lawsuits involving a municipality, none of which exceptions obtains in this case.[48]

The Court of Appeals is mistaken. As can be seen from the manner in which the
Manifestation with Entry of Appearance is worded, it is clear that petitioner municipalitys legal
officer was intent on adopting, for both the municipality and Mayor Ople, not only
the certiorari petition filed with the Court of Appeals, but also all other pleadings that may be filed
thereafter by Oples personal representation, including the motion for reconsideration subject of
this case. In any event, however, the said motion for reconsideration would warrant a denial,
because there seems to be no matter raised therein that has not yet been previously addressed
in the assailed decision of the Court of Appeals as well as in the proceedings below, and that
would have otherwise warranted a different treatment of the issues involved.

WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the
Court of Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20,
2003 Decision of the Regional Trial Court of Cebu City, Branch 7 denying petitioners motion to
dismiss in Civil Case No. CEB-28587. The assailed decision is REVERSED insofar as it affirmed
the said trial courts denial of petitioners motion to discharge the writ of preliminary attachment
issued in that case. Accordingly, the August 4, 2003 Writ of Preliminary Attachment issued in Civil
Case No. CEB-28587 is ordered lifted

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 71535 September 15, 1987

HELENA Z. T. BENITEZ, petitioner-appellee,

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

YAP, J.:

This is a petition for review on certiorari of the decision of respondent Intermediate Appellate
Court dated July 25, 1985, affirming the questioned orders of the Regional Trial Court of Makati,
to wit: (a) the order dated December 11, 1984, granting the private respondents' petition for a
writ of attachment ex-parte; (b) the order dated January 31, 1985, denying petitioner's urgent
motion to discharge attachment; and (c) the order dated April 24, 1985, denying petitioner's
motion for reconsideration.

The records show that on December 6, 1984, private respondent Casa Filipina Development
Corporation (Casa Filipina for brevity) filed a complaint against herein petitioner Helena T.
Benitez for recission of contract, plus damages, with a prayer for preliminary attachment. The
complaint alleged that sometime on April 16, 1983, the plaintiff Casa Filipina, a real estate
corporation, represented by Renato P. Dragon, and defendant Benitez (the petitioner herein),
entered into a verbal contract whereby Benitez allegedly agreed to undertake to
purchase/convey land for Casa Filipina in the total value of One Million Pesos (P1,000,000.00)
within the period of four (4) months from receipt of the total amount. On the same date, Casa
Filipina tendered a check payment in the amount of Five Hundred Thousand Pesos
(P500,000.00) in the name of Benitez. On August 26, 1983, to complete the amount of One
Million Pesos as allegedly agreed upon, Casa Filipina issued again another check in the amount
of Five Hundred Thousand Pesos (P500,000.00). Both checks were deposited and credited in
petitioner's bank account. The four-month period allegedly elapsed without Benitez having
purchased nor conveyed any real estate in the total value of One Million Pesos (P1,000,000.00)
in favor of Casa Filipina, but instead Benitez converted the entrusted money for her own
personal use in violation of her fiduciary relationship with plaintiff and that despite repeated
demands for the refund or return of the aforementioned amount, Benitez chose to ignore the
same. Praying for a writ of preliminary attachment, Casa Filipina submitted with its complaint,
the affidavit of one Nestor P. Borromeo, the corporate secretary and acting treasurer of the
corporation.

The writ of attachment was granted by respondent court exparte in an order dated December
11, 1985.

On December 27, 1984, the Clerk of Court issued a writ of preliminary attachment, by virtue of
which the respondent Sheriff served notices of garnishment to the Philippine Women's
University, Taft Avenue, Manila, the Unlad Development Resources Corporation and Bank of
the Philippine Islands, Unlad Condominium, Taft Avenue, Manila, thereby garnishing the
deposits, shares of stocks, salaries and other personal property of the petitioner. Likewise on
January 30, 1984, petitioner was advised by the Acting Register of Deeds of Quezon City that a
notice of levy was filed with the Registrar's Office affecting two parcels of prime land at
Mariposa Street, with an aggregate area of 4,304 square meters which are owned by and
registered in the name of the petitioner.

Earlier on January 21, 1985, Benitez filed an answer with counterclaim and opposition to the
petition for issuance of a writ of preliminary attachment. On the same date, Benitez also filed an
Urgent Motion to Discharge Writ of Preliminary Attachment under Section 13, Rule 57 of the
Rules of Court, on the ground that the same was improperly or irregularly issued. Benitez
alleged that sometime in March 1983, Mr. Renato Dragon, acting for himself and Casa Filipina
agreed to buy ten (10) hectares of petitioner's land in Dasmarinas, Cavite, for a price of P15.00
per square meter or for a total consideration of One Million Five Hundred Thousand Pesos
(P1,500,000.00); that it was agreed upon by the parties that it is only upon full payment of the
amount of P1,500,000.00 that delivery of the ten-hectare property of the petitioner will be made;
that Casa Filipina was not able to comply with the obligation to pay the balance of P500,000.00
despite repeated demands and instead filed the present action for recission.

In support of its urgent motion to discharge the writ of preliminary attachment, petitioner
attached thereto the affidavit of her technical assistant and attorney-in-fact by the name of
Virginia Real, who alleged. among other things, that she knows for a fact that the transaction
between Benitez and Dragon for Casa Filipina, was one of purchase and sale; that a copy of
TCT No. 9833 covering the land to be purchased was furnished the office of Mr. Dragon on
February 28, 1984; that petitioner is willing and able to execute a deed of absolute sale in favor
of Casa Filipina upon full payment of the balance of P500,000.00.

The said motion was set for hearing on January 25, 1985 but the private respondent and its
counsel failed to appear despite notice. Consequently, the motion was deemed submitted for
resolution.

On January 31, 1985, respondent Court denied petitioner's motion to discharge writ of
preliminary attachment. The said order reads:

Considering defendant's motion to quash and/or lift the writ of preliminary attachment issued by
this Court upon properties of defendant on the ground that the same was predicated upon false
and untrue allegations, the Court believes and so rules that the issue cannot be determined
without adducing evidence at the same time going into the merits of the case which in the
opinion of the Court could not be done at this stage of the proceedings.
Considering that the writ of preliminary attachment was issued after having satisfied the
requirements of the rules, the same may not be lifted or discharged without the defendant filing
a counterbond.

WHEREFORE, the motion to lift and/or discharge the writ of preliminary attachment is hereby
denied.

SO ORDERED.

On February 5, 1985, despite the lower court's denial of petitioner's motion to discharge
preliminary attachment, the private respondent filed a belated opposition to the said motion, to
which the petitioner filed a reply a February 18, 1985.

On March 14, 1985, petitioner discovered that her motion to discharge preliminary attachment
was denied. Hence, on March 20, 1985, petitioner filed a motion for reconsideration which was
likewise denied by respondent judge on April 24, 1985, Whereupon, a petition for certiorari,
mandamus and prohibition was filed by the petitioner before respondent Intermediate Appellate
Court, which, as stated earlier, was dismissed for I acknowledge of merit. Hence, this petition.

On January 8, 1986, the Court gave due course to the petition and required the parties to
submit their memoranda.

Petitioner poses the following questions for resolution, to wit:

1. Whether a counter-attachment bond is necessary and indispensable under the circumstances

before the subject writ of preliminary attachment may be recalled, quashed and/or discharged?

2. Whether or not the issue on the propriety of the issuance of the subject writ may be resolved
without going into the merits of the principal action?

We find the petition meritorious.

The attachment was granted by the lower court ex-parte under Section 1 (b), Rule 57, Rules of
Court, upon the allegation of respondent Casa Filipina, that petitioner Helena Benitez, the
defendant, had violated their alleged fiduciary relationship and had unlawfully converted the
amount of P1,000,000.00 for her own use. Petitioner promptly filed an urgent motion to
discharge writ of preliminary attachment for improper or irregular issuance, supported by the
affidavit of Virginia Real, who alleged that there was no fiduciary relationship between the
plaintiff and defendant inasmuch as the transaction between them was one of sale of real
property. Thus, in effect, the petitioner claims that the private respondent's allegation of fraud
was false, that hence there was no ground for the attachment, and that consequently, the
attachment order was improperly or irregularly issued.

In Villongco, et al. vs. Hon. Panlilio, et al., 1 we held that the affidavit supporting the petition for
the issuance of the preliminary attachment may have been sufficient to justify the issuance of
the preliminary writ, but it cannot be considered as proof of the allegations contained in the
affidavit, which are mere conclusions of law, not statement of facts. Petitioner in the instant case
having squarely controverted the private respondent's allegation of fraud, it was incumbent on
the latter to prove its allegation. The burden of proving that there indeed was fraud lies with the
party making such allegation. This finds support in Section 1, Rule 131 of the Rules of Court
which provides: "Each party must prove his own affirmation allegations. . . . The burden of proof
lies on the party who would be defeated if no evidence were given on either side." In this
jurisdiction, fraud is never presumed. 2

The petitioner's Urgent Motion to Discharge Writ of Preliminary Attachment was filed under
Section 13, Rule 57. The last sentence of said provision indicates that a hearing must be
conducted by the judge for the purpose of determining whether or not there really was a defect
in the issuance of the attachment.
It appears from the records that no hearing was conducted by the lower court. Indeed, when the
case was called for hearing, the plaintiff (private respondent herein), failed to appear and the
petitioner's motion was considered submitted for resolution.

Private respondent has alleged in its memorandum that petitioner did not file an affidavit in
support of her Urgent Motion to Discharge Attachment, as required under Section 13 of Rule 57,
hence, it was not necessary or imperative that a hearing be held. The Court finds private
respondent's allegation to be irresponsible, for attached to petitioner's motion was the
supporting affidavit of Virginia L. Real, the technical assistant of petitioner Benitez. In her
affidavit, she stated that she had personal knowledge of the transaction between respondent
Casa Filipina and petitioner Benitez; that Mr. Renato Dragon, for himself and/or Casa Filipina,
agreed to buy a portion consisting of 10 hectares of a parcel of land belonging to Benitez in
Dasmarinas, Cavite, for the total price of P1,500,000.00 of which private respondent made a
downpayment of P500,000.00 on April 16, 1983; and a second payment of P500,000.00 on
August 27, 1983; that private respondent having failed to pay the balance of P500,000.00, the
deed of sale could not be executed in favor of private respondent. The record amply supports
petitioner's version, as against the private respondent's allegation that Benitez had acted as
agent in receiving the money and converted the same for her own use in violation of the
fiduciary relationship existing between her and private respondent. Private respondent
acknowledged the receipt of a xerox copy of TCT No. 9833 covering petitioner's land in
Dasmarinas, Cavite, 3 and the check voucher issued by private respondent on April 16, 1983
showed that the check for P500,000.00 was for "Payment for downpayment of lot to be
purchased" 4 and the check voucher dated August 27, 1983 for P500,000.00 was for "Second
payment for lot to be purchased."5

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

We agree with petitioner that a writ of attachment may be discharged pursuant to Section 13,
Rule 57, without the necessity of filing a cash deposit or counterbond. The provisions of the
aforesaid section grants an aggrieved party relief from baseless and unjustifiable attachments
procured, among others, upon false allegations, without having to file any cash deposit or
counterbond.

WHEREFORE, in view of the foregoing, the appealed decision is hereby reversed and the ex
parte writ of preliminary attachment issued by the respondent Regional Trial Court on December
11, 1984 is ANNULLED and SET ASIDE. Costs against private respondent.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.

FIRST DIVISION

[G.R. No. 139941. January 19, 2001]

VICENTE B. CHUIDIAN, petitioner, vs. SANDIGANBAYAN (Fifth Division) and the

REPUBLIC OF THE PHILIPPINES, respondents.

DECISION
YNARES-SANTIAGO, J.:

The instant petition arises from transactions that were entered into by the government in the
penultimate days of the Marcos administration. Petitioner Vicente B. Chuidian was alleged to be
a dummy or nominee of Ferdinand and Imelda Marcos in several companies said to have been
illegally acquired by the Marcos spouses. As a favored business associate of the Marcoses,
Chuidian allegedly used false pretenses to induce the officers of the Philippine Export and Foreign
Loan Guarantee Corporation (PHILGUARANTEE), the Board of Investments (BOI) and the
Central Bank, to facilitate the procurement and issuance of a loan guarantee in favor of the Asian
Reliability Company, Incorporated (ARCI) sometime in September 1980. ARCI, 98% of which was
allegedly owned by Chuidian, was granted a loan guarantee of Twenty-Five Million U.S. Dollars
(US$25,000,000.00).
While ARCI represented to Philguarantee that the loan proceeds would be used to establish
five inter-related projects in the Philippines, Chuidian reneged on the approved business plan and
instead invested the proceeds of the loan in corporations operating in the United States, more
particularly Dynetics, Incorporated and Interlek, Incorporated. Although ARCI had received the
proceeds of the loan guaranteed by Philguarantee, the former defaulted in the payments thereof,
compelling Philguarantee to undertake payments for the same. Consequently, in June 1985,
Philguarantee sued Chuidian before the Santa Clara County Superior Court, [1] charging that in
violation of the terms of the loan, Chuidian not only defaulted in payment, but also misused the
funds by investing them in Silicon Valley corporations and using them for his personal benefit.
For his part, Chuidian claimed that he himself was a victim of the systematic plunder
perpetrated by the Marcoses as he was the true owner of these companies, and that he had in
fact instituted an action before the Federal Courts of the United States to recover the companies
which the Marcoses had illegally wrested from him.[2]
On November 27, 1985, or three (3) months before the successful peoples revolt that toppled
the Marcos dictatorship, Philguarantee entered into a compromise agreement with Chuidian
whereby petitioner Chuidian shall assign and surrender title to all his companies in favor of the
Philippine government. In return, Philguarantee shall absolve Chuidian from all civil and criminal
liability, and in so doing, desist from pursuing any suit against Chuidian concerning the payments
Philguarantee had made on Chuidians defaulted loans.
It was further stipulated that instead of Chuidian reimbursing the payments made by
Philguarantee arising from Chuidians default, the Philippine government shall pay Chuidian the
amount of Five Million Three Hundred Thousand Dollars (US$5,300,000.00). Initial payment of
Five Hundred Thousand Dollars (US$500,000.00) was actually received by Chuidian, as well as
succeeding payment of Two Hundred Thousand Dollars (US$200,000.00). The remaining
balance of Four Million Six Hundred Thousand Dollars (US$4,600,000.00) was to be paid through
an irrevocable Letter of Credit (L/C) from which Chuidian would draw One Hundred Thousand
Dollars (US$100,000.00) monthly.[3] Accordingly, on December 12, 1985, L/C No. SSD-005-85
was issued for the said amount by the Philippine National Bank (PNB). Subsequently, Chuidian
was able to make two (2) monthly drawings from said L/C at the Los Angeles branch of the PNB. [4]
With the advent of the Aquino administration, the newly-established Presidential Commission
on Good Government (PCGG) exerted earnest efforts to search and recover money, gold,
properties, stocks and other assets suspected as having been illegally acquired by the Marcoses,
their relatives and cronies.
Petitioner Chuidian was among those whose assets were sequestered by the PCGG. On
May 30, 1986, the PCGG issued a Sequestration Order[5] directing the PNB to place under its
custody, for and in behalf of the PCGG, the irrevocable L/C (No. SSD-005-85). Although Chuidian
was then residing in the United States, his name was placed in the Department of Foreign Affairs
Hold Order list.[6]
In the meantime, Philguarantee filed a motion before the Superior Court of Santa Clara
County of California in Civil Case Nos. 575867 and 577697 seeking to vacate the stipulated
judgment containing the settlement between Philguarantee and Chuidian on the grounds that: (a)
Philguarantee was compelled by the Marcos administration to agree to the terms of the settlement
which was highly unfavorable to Philguarantee and grossly disadvantageous to the government;
(b) Chuidian blackmailed Marcos into pursuing and concluding the settlement agreement by
threatening to expose the fact that the Marcoses made investments in Chuidians American
enterprises; and (c) the Aquino administration had ordered Philguarantee not to make further
payments on the L/C to Chuidian. After considering the factual matters before it, the said court
concluded that Philguarantee had not carried its burden of showing that the settlement between
the parties should be set aside.[7] On appeal, the Sixth Appellate District of the Court of Appeal of
the State of California affirmed the judgment of the Superior Court of Sta. Clara County denying
Philguarantees motion to vacate the stipulated judgment based on the settlement agreement.[8]
After payment on the L/C was frozen by the PCGG, Chuidian filed before the United States
District Court, Central District of California, an action against PNB seeking, among others, to
compel PNB to pay the proceeds of the L/C. PNB countered that it cannot be held liable for a
breach of contract under principles of illegality, international comity and act of state, and thus it is
excused from payment of the L/C. Philguarantee intervened in said action, raising the same
issues and arguments it had earlier raised in the action before the Santa Clara Superior Court,
alleging that PNB was excused from making payments on the L/C since the settlement was void
due to illegality, duress and fraud.[9]
The Federal Court rendered judgment ruling: (1) in favor of PNB excusing the said bank from
making payment on the L/C; and (2) in Chuidians favor by denying intervenor Philguarantees
action to set aside the settlement agreement.[10]
Meanwhile, on February 27, 1987, a Deed of Transfer[11] was executed between then
Secretary of Finance Jaime V. Ongpin and then PNB President Edgardo B. Espiritu, to facilitate
the rehabilitation of PNB, among others, as part of the governments economic recovery
program. The said Deed of Transfer provided for the transfer to the government of certain assets
of PNB in exchange for which the government would assume certain liabilities of PNB. [12] Among
those liabilities which the government assumed were unused commercial L/Cs and Deferred L/Cs,
including SSD-005-85 listed under Dynetics, Incorporated in favor of Chuidian in the amount of
Four Million Four Hundred Thousand Dollars (US$4,400,000.00).[13]
On July 30, 1987, the government filed before the Sandiganbayan Civil Case No. 0027
against the Marcos spouses, several government officials who served under the Marcos
administration, and a number of individuals known to be cronies of the Marcoses, including
Chuidian. The complaint sought the reconveyance, reversion, accounting and restitution of all
forms of wealth allegedly procured illegally and stashed away by the defendants.
In particular, the complaint charged that Chuidian, by himself and/or in conspiracy with the
Marcos spouses, engaged in devices, schemes and stratagems by: (1) forming corporations for
the purpose of hiding and avoiding discovery of illegally obtained assets; (2) pillaging the coffers
of government financial institutions such as the Philguarantee; and (3) executing the court
settlement between Philguarantee and Chuidian which was grossly disadvantageous to the
government and the Filipino people.
In fine, the PCGG averred that the above-stated acts of Chuidian committed in unlawful
concert with the other defendants constituted gross abuse of official position of authority, flagrant
breach of public trust and fiduciary obligations, brazen abuse of right and power, unjust
enrichment, violation of the Constitution and laws of the land.[14]
While the case was pending, on March 17, 1993, the Republic of the Philippines filed a motion
for issuance of a writ of attachment[15] over the L/C, citing as grounds therefor the following:
(1) Chuidian embezzled or fraudulently misapplied the funds of ARCI acting in a fiduciary
capacity, justifying issuance of the writ under Section 1(b), Rule 57 of the Rules of
Court;
(2) The writ is justified under Section 1(d) of the same rule as Chuidian is guilty of fraud
in contracting the debt or incurring the obligation upon which the action was brought,
or that he concealed or disposed of the property that is the subject of the action;
(3) Chuidian has removed or disposed of his property with the intent of defrauding the
plaintiff as justified under Section 1(c) of Rule 57; and
(4) Chuidian is residing out of the country or one on whom summons may be served by
publication, which justifies the writ of attachment prayed for under Section 1(e) of the
same rule.
The Republic also averred that should the action brought by Chuidian before the U.S. District
Court of California to compel payment of the L/C prosper, inspite of the sequestration of the said
L/C, Chuidian can ask the said foreign court to compel the PNB Los Angeles branch to pay the
proceeds of the L/C. Eventually, Philguarantee will be made to shoulder the expense resulting in
further damage to the government. Thus, there was an urgent need for the writ of attachment to
place the L/C under the custody of the Sandiganbayan so the same may be preserved as security
for the satisfaction of judgment in the case before said court.
Chuidian opposed the motion for issuance of the writ of attachment, contending that:
(1) The plaintiffs affidavit appended to the motion was in form and substance fatally
defective;
(2) Section 1(b) of Rule 57 does not apply since there was no fiduciary relationship
between the plaintiff and Chuidian;
(3) While Chuidian does not admit fraud on his part, if ever there was breach of contract,
such fraud must be present at the time the contract is entered into;
(4) Chuidian has not removed or disposed of his property in the absence of any intent to
defraud plaintiff;
(5) Chuidians absence from the country does not necessarily make him a non-resident;
and
(6) Service of summons by publication cannot be used to justify the issuance of the writ
since Chuidian had already submitted to the jurisdiction of the Court by way of a
motion to lift the freeze order filed through his counsel.
On July 14, 1993, the Sandiganbayan issued a Resolution ordering the issuance of a writ of
attachment against L/C No. SSD-005-85 as security for the satisfaction of judgment.[16] The
Sandiganbayans ruling was based on its disquisition of the five points of contention raised by the
parties. On the first issue, the Sandiganbayan found that although no separate affidavit was
attached to the motion, the motion itself contained all the requisites of an affidavit, and the
verification thereof is deemed a substantial compliance of Rule 57, Section 3 of the Rules of Court.
Anent the second contention, the Sandiganbayan ruled that there was no fiduciary
relationship existing between Chuidian and the Republic, but only between Chuidian and
ARCI. Since the Republic is not privy to the fiduciary relationship between Chuidian and ARCI, it
cannot invoke Section 1(b) of Rule 57.
On the third issue of fraud on the part of Chuidian in contracting the loan, or in concealing or
disposing of the subject property, the Sandiganbayan held that there was a prima facie case of
fraud committed by Chuidian, justifying the issuance of the writ of attachment. The
Sandiganbayan also adopted the Republics position that since it was compelled to pay, through
Philguarantee, the bank loans taken out by Chuidian, the proceeds of which were fraudulently
diverted, it is entitled to the issuance of the writ of attachment to protect its rights as creditor.
Assuming that there is truth to the governments allegation that Chuidian has removed or
disposed of his property with the intent to defraud, the Sandiganbayan held that the writ of
attachment is warranted, applying Section 1(e) of Rule 57. Besides, the Rules provide for
sufficient security should the owner of the property attached suffer damage or prejudice caused
by the attachment.[17]
Chuidians absence from the country was considered by the Sandiganbayan to be the most
potent insofar as the relief being sought is concerned.[18] Taking judicial notice of the admitted fact
that Chuidian was residing outside of the country, the Sandiganbayan observed that:

x x x no explanation whatsoever was given by him as to his absence from the country, or as to
his homecoming plans in the future. It may be added, moreover, that he has no definite or
clearcut plan to return to the country at this juncture given the manner by which he has
submitted himself to the jurisdiction of the court.[19]

Thus, the Sandiganbayan ruled that even if Chuidian is one who ordinarily resides in the
Philippines, but is temporarily living outside, he is still subject to the provisional remedy of
attachment.
Accordingly, an order of attachment[20] was issued by the Sandiganbayan on July 19, 1993,
ordering the Sandiganbayan Sheriff to attach PNB L/C No. SSD-005-85 for safekeeping pursuant
to the Rules of Court as security for the satisfaction of judgment in Sandiganbayan Civil Case No.
0027.
 On August 11, 1997, or almost four (4) years after the issuance of the order of attachment,
Chuidian filed a motion to lift the attachment based on the following grounds: First, he had
returned to the Philippines; hence, the Sandiganbayans most potent ground for the issuance of
the writ of preliminary attachment no longer existed. Since his absence in the past was the very
foundation of the Sandiganbayans writ of preliminary attachment, his presence in the country
warrants the immediate lifting thereof. Second, there was no evidence at all of initial fraud or
subsequent concealment except for the affidavit submitted by the PCGG Chairman citing mere
belief and information and not on knowledge of the facts. Moreover, this statement is hearsay
since the PCGG Chairman was not a witness to the litigated incidents, was never presented as a
witness by the Republic and thus was not subject to cross-examination.
Third, Chuidian denies that he ever disposed of his assets to defraud the Republic, and there
is nothing in the records that support the Sandiganbayans erroneous conclusion on the
matter. Fourth, Chuidian belied the allegation that he was also a defendant in other related
criminal action, for in fact, he had never been a defendant in any prosecution of any sort in the
Philippines.[21] Moreover, he could not have personally appeared in any other action because he
had been deprived of his right to a travel document by the government.
Fifth, the preliminary attachment was, in the first place, unwarranted because he was not
guilty of fraud in contracting the debt or incurring the obligation. In fact, the L/C was not a product
of fraudulent transactions, but was the result of a US Court-approved settlement. Although he
was accused of employing blackmail tactics to procure the settlement, the California Supreme
Court ruled otherwise. And in relation thereto, he cites as a sixth ground the fact that all these
allegations of fraud and wrongdoing had already been dealt with in actions before the State and
Federal Courts of California. While it cannot technically be considered as forum shopping, it is
nevertheless a form of suit multiplicity over the same issues, parties and subject matter.[22] These
foreign judgments constitute res judicata which warrant the dismissal of the case itself.
Chuidian further contends that should the attachment be allowed to continue, he will be
deprived of his property without due process. The L/C was payment to Chuidian in exchange for
the assets he turned over to the Republic pursuant to the terms of the settlement in Case No.
575867. Said assets, however, had already been sold by the Republic and cannot be returned to
Chuidian should the government succeed in depriving him of the proceeds of the L/C. Since said
assets were disposed of without his or the Sandiganbayans consent, it is the Republic who is
fraudulently disposing of assets.
Finally, Chuidian stressed that throughout the four (4) years that the preliminary attachment
had been in effect, the government had not set the case for hearing. Under Rule 17, Section 3,
the case itself should be dismissed for laches owing to the Republics failure to prosecute its action
for an unreasonable length of time. Accordingly, the preliminary attachment, being only a
temporary or ancillary remedy, must be lifted and the PNB ordered to immediately pay the
proceeds of the L/C to Chuidian.
Subsequently, on August 20, 1997, Chuidian filed a motion to require the Republic to deposit
the L/C in an interest bearing account.[23] He pointed out to the Sandiganbayan that the face
amount of the L/C had, since its attachment, become fully demandable and payable. However,
since the amount is just lying dormant in the PNB, without earning any interest, he proposed that
it would be to the benefit of all if the Sandiganbayan requires PNB to deposit the full amount to a
Sandiganbayan trust account at any bank in order to earn interest while awaiting judgment of the
action.
The Republic opposed Chuidians motion to lift attachment, alleging that Chuidians absence
was not the only ground for the attachment and, therefore, his belated appearance before the
Sandiganbayan is not a sufficient reason to lift the attachment. Moreover, allowing the foreign
judgment as a basis for the lifting of the attachment would essentially amount to an abdication of
the jurisdiction of the Sandiganbayan to hear and decide the ill gotten wealth cases lodged before
it in deference to the judgment of foreign courts.
In a Resolution promulgated on November 13, 1998, the Sandiganbayan denied Chuidians
motion to lift attachment.[24]
On the same day, the Sandiganbayan issued another Resolution denying Chuidians motion
to require deposit of the attached L/C in an interest bearing account.[25]
In a motion seeking a reconsideration of the first resolution, Chuidian assailed the
Sandiganbayans finding that the issues raised in his motion to lift attachment had already been
dealt with in the earlier resolution dated July 14, 1993 granting the application for the writ of
preliminary attachment based on the following grounds: First, Chuidian was out of the country in
1993, but is now presently residing in the country. Second, the Sandiganbayan could not have
known then that his absence was due to the non-renewal of his passport at the instance of the
PCGG. Neither was it revealed that the Republic had already disposed of Chuidians assets ceded
to the Republic in exchange for the L/C. The foreign judgment was not an issue then because at
that time, said judgment had not yet been issued and much less final. Furthermore, the authority
of the PCGG Commissioner to subscribe as a knowledgeable witness relative to the issuance of
the writ of preliminary attachment was raised for the first time in the motion to lift the
attachment. Finally, the issue of laches could not have been raised then because it was the
Republics subsequent neglect or failure to prosecute despite the passing of the years that gave
rise to laches.[26]
Chuidian also moved for a reconsideration of the Sandiganbayan resolution denying the
motion to require deposit of the L/C into an interest bearing account. He argued that contrary to
the Sandiganbayans pronouncement, allowing the deposit would not amount to a virtual
recognition of his right over the L/C, for he is not asking for payment but simply requesting that it
be deposited in an account under the control of the Sandiganbayan. He further stressed that the
Sandiganbayan abdicated its bounden duty to rule on an issue when it found that his motion will
render nugatory the purpose of sequestration and freeze orders over the L/C. Considering that
his assets had already been sold by the Republic, he claimed that the Sandiganbayans refusal to
exercise its fiduciary duty over attached assets will cause him irreparable injury. Lastly, the
Sandiganbayans position that Chuidian was not the owner but a mere payee-beneficiary of the
L/C issued in his favor negates overwhelming jurisprudence on the Negotiable Instruments Law,
while at the same time obliterating his rights of ownership under the Civil Code.[27]
On July 13, 1999, the Sandiganbayan gave due course to Chuidians plea for the attached
L/C to be deposited in an interest-bearing account, on the ground that it will redound to the benefit
of both parties.
The Sandiganbayan declared the national government as the principal obligor of the L/C even
though the liability remained in the books of the PNB for accounting and monitoring purposes.
The Sandiganbayan, however, denied Chuidians motion for reconsideration of the denial of
his motion to lift attachment, agreeing in full with the governments apriorisms that:

x x x (1) it is a matter of record that the Court granted the application for writ of attachment upon
grounds other than defendants absence in the Philippine territory. In its Resolution dated July
14, 1993, the Court found a prima facie case of fraud committed by defendant Chuidian, and
that defendant has recovered or disposed of his property with the intent of defrauding plaintiff;
(2) Chuidians belated presence in the Philippines cannot be invoked to secure the lifting of
attachment. The rule is specific that it applies to a party who is about to depart from the
Philippines with intent to defraud his creditors. Chuidians stay in the country is uncertain and he
may leave at will because he holds a foreign passport; and (3) Chuidians other ground,
sufficiency of former PCGG Chairman Gunigundos verification of the complaint, has been met
fairly and squarely in the Resolution of July 14, 1993.[28]

Hence, the instant petition for certiorari contending that the respondent Sandiganbayan
committed grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that:
1) Most of the issues raised in the motion to lift attachment had been substantially
addressed in the previous resolutions dated July 14, 1993 and August 26, 1998, while
the rest were of no imperative relevance as to affect the Sandiganbayans disposition;
and
2) PNB was relieved of the obligation to pay on its own L/C by virtue of Presidential
Proclamation No. 50.
The Rules of Court specifically provide for the remedies of a defendant whose property or
asset has been attached. As has been consistently ruled by this Court, the determination of the
existence of grounds to discharge a writ of attachment rests in the sound discretion of the lower
courts.[29]
The question in this case is: What can the herein petitioner do to quash the attachment of the
L/C? There are two courses of action available to the petitioner:
 First. To file a counterbond in accordance with Rule 57, Section 12, which provides:

SEC. 12. Discharge of attachment upon giving counterbond. At anytime 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 counterbond executed to
the attaching creditor is filed, on behalf of the adverse party, with the clerk or judge of the court
where the application is made, in an amount equal to the value of the property attached as
determined by the judge, to secure the payment of any judgment that the attaching creditor may
recover in the action. Upon the filing of such counter-bond, copy thereof shall forthwith be
served on the attaching creditor or his lawyer. Upon the discharge of an attachment in
accordance with the provisions of this section the property attached, or the proceeds of any sale
thereof, shall be delivered to the party making the deposit or giving the counter-bond, or the
person appearing on his behalf, the deposit or counter-bond aforesaid standing in place of the
property so released. Should such counterbond for any reason be found to be, or become,
insufficient, and the party furnishing the same fail to file an additional counter-bond, the
attaching creditor may apply for a new order of attachment.

or
Second. To quash the attachment on the ground that it was irregularly or improvidently
issued, as provided for in Section 13 of the same Rule:

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.

It would appear that petitioner chose the latter because the grounds he raised assail the
propriety of the issuance of the writ of attachment. By his own admission, however, he repeatedly
acknowledged that his justifications to warrant the lifting of the attachment are facts or events that
came to light or took place after the writ of attachment had already been implemented.
More particularly, petitioner emphasized that four (4) years after the writ was issued, he had
returned to the Philippines. Yet while he noted that he would have returned earlier but for the
cancellation of his passport by the PCGG, he was not barred from returning to the Philippines.
Then he informed the Sandiganbayan that while the case against him was pending, but after the
attachment had already been executed, the government lost two (2) cases for fraud lodged
against him before the U.S. Courts, thus invoking res judicata. Next, he also pointed out that the
government is estopped from pursuing the case against him for failing to prosecute for the number
of years that it had been pending litigation.
It is clear that these grounds have nothing to do with the issuance of the writ of
attachment. Much less do they attack the issuance of the writ at that time as improper or
irregular. And yet, the rule contemplates that the defect must be in the very issuance of the
attachment writ. For instance, the attachment may be discharged under Section 13 of Rule 57
when it is proven that the allegations of the complaint were deceptively framed,[30] or when the
complaint fails to state a cause of action.[31] Supervening events which may or may not justify the
discharge of the writ are not within the purview of this particular rule.
In the instant case, there is no showing that the issuance of the writ of attachment was
attended by impropriety or irregularity. Apart from seeking a reconsideration of the resolution
granting the application for the writ, petitioner no longer questioned the writ itself. For four (4) long
years he kept silent and did not exercise any of the remedies available to a defendant whose
property or asset has been attached. It is rather too late in the day for petitioner to question the
propriety of the issuance of the writ.
Petitioner also makes capital of the two foreign judgments which he claims warrant the
application of the principle of res judicata. The first judgment, in Civil Case Nos. 575867 and
577697 brought by Philguarantee before the Santa Clara Country Superior Court, denied
Philguarantees prayer to set aside the stipulated judgment wherein Philguarantee and Chuidian
agreed on the subject attached L/C. On March 14, 1990, the Court of Appeal of the State of
California affirmed the Superior Courts judgment. The said judgment became the subject of a
petition for review by the California Supreme Court. There is no showing, however, of any final
judgment by the California Supreme Court. The records, including petitioners pleadings, are
bereft of any evidence to show that there is a final foreign judgment which the Philippine courts
must defer to. Hence, res judicata finds no application in this instance because it is a requisite
that the former judgment or order must be final.[32]
Second, petitioner cites the judgment of the United States District Court in Civil Case 86-
2255 RSWL brought by petitioner Chuidian against PNB to compel the latter to pay the L/C. The
said Courts judgment, while it ruled in favor of petitioner on the matter of Philguarantees action-
in-intervention to set aside the settlement agreement, also ruled in favor of PNB, to wit:

Under Executive Order No. 1, the PCGG is vested by the Philippine President with the power to
enforce its directives and orders by contempt proceedings. Under Executive Order No. 2, the
PCGG is empowered to freeze any, and all assets, funds and property illegally acquired by
former President Marcos or his close friends and business associates.

On March 11, 1986, PNB/Manila received an order from the PCGG ordering PNB to freeze any
further drawings on the L/C. The freeze order has remained in effect and was followed by a
sequestration order issued by the PCGG. Subsequently, Chuidians Philippine counsel filed a
series of challenges to the freeze and sequestration orders, which challenges were
unsuccessful as the orders were found valid by the Philippine Supreme Court. The freeze and
sequestration orders are presently in effect. Thus, under the PCGG order and Executive Orders
Nos. 1 and 2, performance by PNB would be illegal under Philippine Law. Therefore PNB is
excused from performance of the L/C agreement as long as the freeze and sequestration orders
remain in effect. (Underscoring ours)

xxxxxxxxx

Chuidian argues that the fact that the L/C was issued pursuant to a settlement in California, that
the negotiations for which occurred in California, and that two of the payments were made at
PNB/LA, compels the conclusion that the act of prohibiting payment of the L/C occurred in Los
Angeles. However, the majority of the evidence and Tchacosh and Sabbatino compel the
opposite conclusion. The L/C was issued in Manila, such was done at the request of a
Philippine government instrumentality for the benefit of a Philippine citizen, the L/C was to be
performed in the Philippines, all significant events relating to the issuance and implementation
of the L/C occurred in the Philippines, the L/C agreement provided that the L/C was to be
construed according to laws of the Philippines, and the Philippine government certainly has an
interest in preventing the L/C from being remitted in that it would be the release of funds that are
potentially illgotten gains. Accordingly, the Court finds that the PCGG orders are acts of state
that must be respected by this Court, and thus PNB is excused from making payment on the
L/C as long as the freeze and sequestration orders remain in effect.[33] (Underscoring ours)

Petitioners own evidence strengthens the governments position that the L/C is under the
jurisdiction of the Philippine government and that the U.S. Courts recognize the authority of the
Republic to sequester and freeze said L/C. Hence, the foreign judgments relied upon by petitioner
do not constitute a bar to the Republics action to recover whatever alleged ill-gotten wealth
petitioner may have acquired.
Petitioner may argue, albeit belatedly, that he also raised the issue that there was no
evidence of fraud on record other than the affidavit of PCGG Chairman Gunigundo. This issue of
fraud, however, touches on the very merits of the main case which accuses petitioner of
committing fraudulent acts in his dealings with the government. Moreover, this alleged fraud was
one of the grounds for the application of the writ, and the Sandiganbayan granted said application
after it found a prima facie case of fraud committed by petitioner.
 In fine, fraud was not only one of the grounds for the issuance of the preliminary attachment,
it was at the same time the governments cause of action in the main case.
We have uniformly held that:

x x x when the preliminary attachment is issued upon a ground which is at the same time the
applicants cause of action; e.g., an action for money or property embezzled or fraudulently
misapplied or converted to his own use by a public officer, or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in the course of his employment as such, or by any
other person in a fiduciary capacity, or for a willful violation of duty, or an action against a party
who has been guilty of fraud in contracting the debt or incurring the obligation upon which the
action is brought, the defendant is not allowed to file a motion to dissolve the attachment under
Section 13 of Rule 57 by offering to show the falsity of the factual averments in the plaintiffs
application and affidavits on which the writ was based and consequently that the writ based
thereon had been improperly or irregularly issued the reason being that the hearing on such a
motion for dissolution of the writ would be tantamount to a trial of the merits of the action. In
other words, the merits of the action would be ventilated at a mere hearing of a motion, instead
of at the regular trial.[34] (Underscoring ours)

Thus, this Court has time and again ruled that the merits of the action in which a writ of
preliminary attachment has been issued are not triable on a motion for dissolution of the
attachment, otherwise an applicant for the lifting of the writ could force a trial of the merits of the
case on a mere motion.[35]
It is not the Republics fault that the litigation has been protracted. There is as yet no evidence
of fraud on the part of petitioner. Petitioner is only one of the twenty-three (23) defendants in the
main action.As such, the litigation would take longer than most cases. Petitioner cannot invoke
this delay in the proceedings as an excuse for not seeking the proper recourse in having the writ
of attachment lifted in due time. If ever laches set in, it was petitioner, not the government, who
failed to take action within a reasonable time period. Challenging the issuance of the writ of
attachment four (4) years after its implementation showed petitioners apparent indifference
towards the proceedings before the Sandiganbayan.
In sum, petitioner has failed to convince this Court that the Sandiganbayan gravely abused
its discretion in a whimsical, capricious and arbitrary manner. There are no compelling reasons
to warrant the immediate lifting of the attachment even as the main case is still pending. On the
other hand, allowing the discharge of the attachment at this stage of the proceedings would put
in jeopardy the right of the attaching party to realize upon the relief sought and expected to be
granted in the main or principal action. It would have the effect of prejudging the main case.
The attachment is a mere provisional remedy to ensure the safety and preservation of the
thing attached until the plaintiff can, by appropriate proceedings, obtain a judgment and have such
property applied to its satisfaction.[36] To discharge the attachment at this stage of the proceedings
would render inutile any favorable judgment should the government prevail in the principal action
against petitioner.Thus, the Sandiganbayan, in issuing the questioned resolutions, which are
interlocutory in nature, committed no grave abuse of discretion amounting to lack or excess of
jurisdiction. As long as the Sandiganbayan acted within its jurisdiction, any alleged errors
committed in the exercise of its jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by special civil action of certiorari.[37]
Moreover, we have held that when the writ of attachment is issued upon a ground which is at
the same time the applicants cause of action, the only other way the writ can be lifted or dissolved
is by a counterbond, in accordance with Section 12 of the same rule. [38] This recourse, however,
was not availed of by petitioner, as noted by the Solicitor General in his comment.[39]
To reiterate, there are only two ways of quashing a writ of attachment: (a) by filing a
counterbond immediately; or (b) by moving to quash on the ground of improper and irregular
issuance.[40] These grounds for the dissolution of an attachment are fixed in Rule 57 of the Rules
of Court and the power of the Court to dissolve an attachment is circumscribed by the grounds
specified therein.[41] Petitioners motion to lift attachment failed to demonstrate any infirmity or
defect in the issuance of the writ of attachment; neither did he file a counterbond.
Finally, we come to the matter of depositing the Letter of Credit in an interest-bearing
account. We agree with the Sandiganbayan that any interest that the proceeds of the L/C may
earn while the case is being litigated would redound to the benefit of whichever party will prevail,
the Philippine government included. Thus, we affirm the Sandiganbayans ruling that the proceeds
of the L/C should be deposited in an interest bearing account with the Land Bank of the Philippines
for the account of the Sandiganbayan in escrow until ordered released by the said Court.
We find no legal reason, however, to release the PNB from any liability thereunder. The Deed
of Transfer, whereby certain liabilities of PNB were transferred to the national government, cannot
affect the said L/C since there was no valid substitution of debtor. Article 1293 of the New Civil
Code provides:

Novation which consists in substituting a new debtor in the place of the original one, may be
made without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.

Accordingly, any substitution of debtor must be with the consent of the creditor, whose
consent thereto cannot just be presumed. Even though Presidential Proclamation No. 50 can be
considered an insuperable cause, it does not necessarily make the contracts and obligations
affected thereby exceptions to the above-quoted law, such that the substitution of debtor can be
validly made even without the consent of the creditor. Presidential Proclamation No. 50 was not
intended to set aside laws that govern the very lifeblood of the nations commerce and economy. In
fact, the Deed of Transfer that was executed between PNB and the government pursuant to the
said Presidential Proclamation specifically stated that it shall be deemed effective only upon
compliance with several conditions, one of which requires that:

(b) the BANK shall have secured such governmental and creditors approvals as may be
necessary to establish the consummation, legality and enforceability of the transactions
contemplated hereby.

The validity of this Deed of Transfer is not disputed. Thus, PNB is estopped from denying its
liability thereunder considering that neither the PNB nor the government bothered to secure
petitioners consent to the substitution of debtors. We are not unmindful that any effort to secure
petitioners consent at that time would, in effect, be deemed an admission that the L/C is valid and
binding. Even the Sandiganbayan found that:

x x x Movant has basis in pointing out that inasmuch as the L/C was issued in his favor, he is
presumed to be the lawful payee-beneficiary of the L/C until such time that the plaintiff
successfully proves that said L/C is ill-gotten and he has no right over the same.[42]

In Republic v. Sandiganbayan,[43] we held that the provisional remedies, such as freeze

orders and sequestration, were not meant to deprive the owner or possessor of his title or any
right to the property sequestered, frozen or taken over and vest it in the sequestering agency, the
Government or other person.
Thus, until such time that the government is able to successfully prove that petitioner has no
right to claim the proceeds of the L/C, he is deemed to be the lawful payee-beneficiary of said
L/C, for which any substitution of debtor requires his consent. The Sandiganbayan thus erred in
relieving PNB of its liability as the original debtor.
WHEREFORE, in view of all the foregoing, the petition is DISMISSED. The Resolutions of
the Sandiganbayan dated November 6, 1998 and July 2, 1999 are AFFIRMED. The PNB is
DIRECTED to remit to the Sandiganbayan the proceeds of Letter of Credit No. SFD-005-85 in the
amount of U.S. $4.4 million within fifteen (15) days from notice hereof, the same to be placed
under special time deposit with the Land Bank of the Philippines, for the account of
Sandiganbayan in escrow for the person or persons, natural or juridical, who shall eventually be
adjudged lawfully entitled thereto, the same to earn interest at the current legal bank rates. The
principal and its interest shall remain in said account until ordered released by the Court in
accordance with law.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
FIRST DIVISION
 [G.R. No. 110086. July 19, 1999]

PARAMOUNT INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and

DAGUPAN ELECTRIC CORPORATION, respondents.

DECISION
YNARES-SANTIAGO, J.:

Before this Court is a petition for review on certiorari assailing the Decision of the Court of
Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 which dismissed petitioner Paramount
Insurance Corporations (PARAMOUNT) appeal, thereby affirming the decision of the court a
quo finding petitioner liable on its injunction bond.
McAdore Finance and Investment, Inc. (McADORE) was the owner and operator of the
McAdore International Palace Hotel in Dagupan City. Private respondent Dagupan Electric
Corporation (DECORP), on the other hand, was the grantee of a franchise to operate and maintain
electric services in the province of Pangasinan, including Dagupan City.
On February 2, 1978, McADORE and DECORP entered into a contract whereby DECORP
shall provide electric power to McADOREs Hotel. During the term of their contract for power
service, DECORP noticed discrepancies between the actual monthly billings and the estimated
monthly billings of McADORE. Upon inspection, it was discovered that the terminal in the
transformers connected to the meter had been interchanged resulting in the slow rotation of the
meter. Consequently, DECORP issued a corrected bill but McADORE refused to pay. As a result
of McADOREs failure and continued refusal to pay the corrected electric bills, DECORP
disconnected power supply to the hotel on November 27, 1978.
Aggrieved, McADORE commenced a suit against DECORP for damages with prayer for a
writ of preliminary injunction. McADORE posted injunction bonds from several sureties, one of
which was herein petitioner PARAMOUNT, which issued an injunction bond on July 7, 1980 with
a face amount of P500,000.00. Accordingly, a writ of preliminary injunction was issued wherein
DECORP was ordered to continue supplying electric power to the hotel and restrained from further
disconnecting it.
After due hearing, the Regional Trial Court of Quezon City, Branch 106, rendered judgment
in favor of DECORP, the dispositive portion of which reads:

WHEREFORE, there being preponderance of evidence, the court hereby dismisses the
amended complaint. Further, the court rescinds the service contract between the parties, and
orders McAdore to pay Decorp the following:

1. Actual damages consisting of total arrearages for electric services rendered from
February 1978 to January 1983, in the sum of P3,834,489.62, plus interest at the legal
rate, computed from the date of demand until full payment;
2. Moral damages in the sum of P600,000.00;
3. Exemplary damages in the sum of P400,000.00;
4. Attorneys fees in the sum of P100,000.00; and
5. Costs of the suit.

While this case was under litigation, the court issued a number of restraining orders or
injunctions. During these incidents, McAdore filed the following bonds: Policy No. 8022709 by
Paramount Insurance Corporation for P500,000.00; No. 00007 and No. 00008 by Sentinel
Insurance Company, Inc. for P100,000.00 and P50,000.00; and No. 1213 by the Travelers
Multi-Indemnity Corporation for P225,000.00.

Pursuant to the dispositive portion of this decision, the court holds that these bonding
companies are jointly and severally liable with McAdore, to the extent of the value of their
bonds, to pay the damages adjudged to Decorp.
Send this decision to: plaintiffs counsel Atty. Pagapong; defendants counsel Atty. Vera Cruz;
and to each of the bondsman.

It is so ordered.[1]

McADORE did not appeal the above decision. PARAMOUNT, however, appealed to the
Court of Appeals assigning the following errors, to wit:
I. APPELLANT SURETY WAS NOT GRANTED DUE PROCESS NOR GIVEN ITS DAY
IN COURT.
II. APPELLANTS SURETY BOND, BEING AN INJUNCTION OR TEMPORARY
RESTRAINING ORDER BOND, THE MANDATORY PROCEDURE IN SEC. 20,
RULE 57, IN RELATION TO SEC. 9, RULE 58, RULES OF COURT WAS NOT
OBSERVED IN THIS CASE;
III. NO EVIDENCE NOR PROOF HAD BEEN PRESENTED TO SHOW THAT HEREIN
APPELLANT SURETY BOND SHOULD BE HELD LIABLE FOR TOTAL DAMAGES
AS ADJUDGED IN THE CHALLENGED DECISION.[2]
In essence, PARAMOUNT contended that it was not given its day in court because it was not
notified by DECORP of its intention to present evidence of damages against its injunction bond,
as mandated by Sec. 9 of Rule 58, in relation to Sec. 20 of Rule 57 of the Revised Rules of Court.
The Court of Appeals was not convinced with petitioners contentions. On April 30, 1993, it
affirmed the decision of the trial court.
In the instant petition, PARAMOUNT seeks to reverse and set aside the decision of the Court
of Appeals on the following assignment of errors:

FIRSTLY, THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NOTICE TO

PETITIONER AND ITS PRESENCE THROUGH COUNSEL IN ONE HEARING WHERE NO
EVIDENCE IN SUPPORT OF THE DAMAGES GUARANTEED BY PETITIONERS BOND
RENDERS THE NEED FOR ANOTHER HEARING ON THAT MATTER A SUPERFLUITY.

SECONDLY, THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE COURT A QUO THAT PETITIONER IS JOINTLY AND SEVERALLY
LIABLE WITH McADORE TO THE EXTENT OF ITS BOND, WHICH DECISION IS NOT
SUPPORTED BY THE EVIDENCE.[3]

PARAMOUNT asserts that (t)he bone of contention in the instant case is the matter of
evidence (or lack thereof) presented by private respondent during the hearing of the case a quo,
notice (or lack thereof) to the surety relative to the proceedings before the court a quo during
which said evidence was presented, as well as the actual proceedings
themselves.[4] PARAMOUNT further asseverates that no evidence relative to damages suffered
by private respondent as a result of the injunction was ever presented, or that if any such evidence
was presented, the same was done without notice to petitioner and in violation of its right to due
process.[5] Moreover, petitioner maintains that the injunction bond was issued and approved
sometime in April 1980 to guarantee actual and material damages as may be sustained and duly
proved by private respondent. Thus, it can only cover the period prospectively from the date of its
issuance and does not retroact to the date of the initial controversy.
In its Comment, DECORP claims that PARAMOUNT participated in the proceedings and was
given its day in court. This is evidenced by the Notice of Hearing dated February 26, 1985
addressed to the three sureties. In fact, at the hearing on March 22, 1985, PARAMOUNT was in
attendance represented by Atty. Nonito Q. Cordero. Likewise, PARAMOUNT was notified of the
next hearing scheduled for April 26, 1985. DECORP further stressed that the hearing on April 26,
1985 proceeded as scheduled without any comment, objection, opposition or reservation from
PARAMOUNT.
The core issue to be resolved here is whether or not petitioner Paramount Insurance
Corporation was denied due process when the trial court found the injunction bond it issued in
favor of McADORE liable to DECORP. Stated otherwise, was there sufficient evidence to
establish the liability of the petitioner on its injunction bond?
 The petition is devoid of merit.
Petitioners submissions necessitates going into the nature of an injunction as well as over
the procedure in claiming, ascertaining and awarding damages upon the injunction bond.
Injunction is an extraordinary remedy calculated to preserve the status quo of things and to
prevent actual or threatened acts violative of the rules of equity and good conscience as would
consequently afford an injured party a cause of action resulting from the failure of the law to
provide for an adequate or complete relief.[6] A preliminary injunction is an order granted at any
stage of an action or proceeding prior to the judgment or final order, requiring a party or a court,
agency or a person to refrain from a particular act or acts. It may also require the performance of
a particular act or acts, in which case it shall be known as a preliminary mandatory injunction.[7] Its
sole purpose is not to correct a wrong of the past, in the sense of redress for injury already
sustained, but to prevent further injury.[8]
A preliminary injunction or temporary restraining order may be granted only when, among
others, the applicant, unless exempted by the court, files with the court where the action or
proceeding is pending, a bond executed to the party or person enjoined, in an amount to be fixed
by the court, to the effect that the applicant will pay such party or person all damages which he
may sustain by reason of the injunction or temporary restraining order if the court should finally
decide that the applicant was not entitled thereto. Upon approval of the requisite bond, a writ of
preliminary injunction shall be issued.[9] At the trial, the amount of damages to be awarded to
either party, upon the bond of the adverse party, shall be claimed, ascertained, and awarded
under the same procedure prescribed in Section 20 of Rule 57.[10]
Rule 57, Section 20, of the 1997 Rules of Civil Procedure, which is similarly applicable to
preliminary injunction, pertinently provides:

Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An
application for damages on account of improper, irregular or excessive attachment must be filed
before the trial or before appeal is perfected or before the judgment becomes executory, with
due notice to the attaching obligee or his surety or sureties, setting forth the facts showing his
right to damages and the amount thereof. Such damages may be awarded only after proper
hearing and shall be included in the judgment on the main case.

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

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

The above rule comes into play when the plaintiff-applicant for injunction fails to sustain his
action, and the defendant is thereby granted the right to proceed against the bond posted by the
former. In the case at bench, the trial court dismissed McADOREs action for damages with prayer
for writ of preliminary injunction and eventually adjudged the payment of actual, moral, and
exemplary damages against plaintiff-applicant. Consequently, private respondent DECORP can
proceed against the injunction bond posted by plaintiff-applicant to recover the damages
occasioned by the issuance by the trial court of the writ of injunction.
In order for the injunction bond to become answerable for the above-described damages, the
following requisites must concur:[11]
1. The application for damages must be filed in the same case where the bond was
issued;
2. Such application for damages must be filed before the entry of judgment; and
3. After hearing with notice to the surety.
 The records of this case reveal that during its pendency in the trial court, DECORP filed its
Answer raising compulsory counterclaims for rescission of contract, moral damages, exemplary
damages, attorneys fees and litigation expenses.[12] During the trial, Atty. Nonito Cordero
appeared[13] as counsel for petitioner. PARAMOUNT as well as the other sureties were properly
notified of the hearing and given their day in court. Specifically, notice was sent to Atty. Cordero
of the hearing on April 27, 1985, which was set for the purpose of determining the liability of the
sureties. The counterclaims for damages of DECORP were proven at the trial and yet
PARAMOUNT did not exert any effort to controvert the evidence presented by DECORP. Given
these circumstances, PARAMOUNT cannot hide under the cloak of non-liability on its injunction
bond on the mere expediency that it was deprived of due process. It bears stressing that what the
law abhors is not the absence of previous notice but rather the absolute lack of opportunity to
ventilate a partys side.[14] In other words, petitioner cannot successfully invoke denial of due
process where it was given the chance to be heard. As aptly held by the Court of Appeals, viz.:

The records of the case disclose that during the trial of the case, PARAMOUNT was present
and represented by its counsel Atty. Nonito Q. Cordero as shown in the trial courts order dated
March 22, 1985 (Annex A of Appellees Brief). In the said order, PARAMOUNT was duly notified
of the next hearing which was scheduled on April 26, 1985. Evidently, PARAMOUNT was well-
apprised of the next hearing and it cannot feign lack of notice. Having been given an opportunity
to be heard during the main hearing for the matter of damages, PARAMOUNT therefore, cannot
bewail that it was not given an opportunity to be heard upon denial of its motion to cancel its
injunction bond. Of what use, therefore, is there to conduct another hearing when the issue of
damages has been the subject of the main action of which PARAMOUNT had been duly
notified? A new notice and hearing prescribed by Sec. 20, Rule 57, is therefore a repetition and
a superfluity.

Moreover, PARAMOUNT has only itself to blame when it did not make any opposition or
objection during the hearing for the reception of DECORPs evidence. Having manifested its
desire to cancel its bond, it should have asked for a deferment of hearing on DECORPs
evidence but PARAMOUNT did not do anything of this sort. Only when an adverse judgment
was rendered by the trial court against its principal McAdore did it whimper a denial of
procedural due process.[15]

On the same point, PARAMOUNT argues that contrary to the ruling of the Court of Appeals,
there is a need for a separate hearing for the purpose of presenting evidence on the alleged
damages claimed by DECORP on petitioners injunction bond. PARAMOUNT contends that a
separate hearing is needed as no evidence dealing with DECORPs claim for damages on
petitioners bond was presented during the hearing wherein petitioners counsel attended nor in
the next hearing wherein petitioner was notified but failed to attend. Since no hearing was held
for the purpose of establishing its liability on the injunction bond, PARAMOUNT concludes that it
is released from its obligation as surety.
Contrary to petitioners thesis, it is neither mandatory nor fatal that there should be
a separate hearing in order that damages upon the bond can be claimed, ascertained and
awarded, as can be gleaned from a cursory reading of the provisions of Rule 57, Section 20. This
Court agrees with the appellate courts ruling that:

Jurisprudential findings laid down the doctrine that a final adjudication that the applicant is not
entitled to the injunction does not suffice to make the surety liable. It is necessary, in addition,
that the surety be accorded due process, that is, that it be given an opportunity to be heard on
the question of its solidary liability for damages arising from a wrongful injunction order. Withal,
the fact that the matter of damages was among the issues tried during the hearings on the
merits will not render unnecessary or superfluous a summary hearing to determine the extent of
a suretys liability unless of course, the surety had been impleaded as a party, or otherwise
earlier notified and given opportunity to be present and ventilate its side on the matter
during the trial.

The exception under the doctrinal ruling abovenoted is extant in the case at bar.[16]

What is necessary only is for the attaching party and his surety or sureties to be duly notified
and given the opportunity to be heard. In the case at bench, this Court accords due respect to the
factual finding of the Court of Appeals that PARAMOUNT was present and represented by its
counsel Atty. Nonito Q. Cordero as shown in the trial courts order dated March 22, 1985 x x x.[17]
As stated, PARAMOUNT also argues that assuming it is liable on its injunction bond, its
liability should be limited only to the amount of damages accruing from the time the injunction
bond was issued until the termination of the case, and not from the time the suit was
commenced. In short, it claims that the injunction bond is prospective and not retroactive in
application.
This Court does not agree. Rule 58, Section 4(b), provides that a bond is executed in favor
of the party enjoined to answer for all damages which he may sustain by reason of the
injunction. This Court already had occasion to rule on this matter in Mendoza v. Cruz,[18] where it
held that (t)he injunction bond is intended as a security for damages in case it is finally decided
that the injunction ought not to have been granted. It is designed to cover all damages which the
party enjoined can possibly suffer. Its principal purpose is to protect the enjoined party
against loss or damage by reason of an injunction. No distinction was made as to when the
damages should have been incurred.
Moreover, when petitioner issued its injunction bond in favor of DECORP, it was done with
the full knowledge of the relevant facts obtaining in the controversy between DECORP and
McADORE. At the time the injunction bond was issued, DECORP was already claiming arrears
in electric bills and damages from McADORE.
It bears stressing that McADORE was found liable to pay actual damages, moral damages,
exemplary damages, attorneys fees and costs of the suit. To argue therefore that PARAMOUNT
is only liable on its injunction bond from the time of its issuance and not from the time the suit was
commenced is preposterous if not absurd. Indeed, it would be impossible to determine the
reckoning point when moral damages, exemplary damages, attorneys fees and costs of the suit
were supposed to have been incurred. Consequently, it can be safely deduced that the bond
answers for any and all damages arising from the injunction, regardless of whether it was
sustained before or after the filing of the injunction bond.
PARAMOUNT further maintains that it is liable to pay actual damages only. [19] However, Rule
58, Section 4(b), clearly provides that the injunction bond is answerable for all damages. The
bond insures with all practicable certainty that the defendant may sustain no ultimate loss in the
event that the injunction could finally be dissolved. Consequently, the bond may obligate the
bondsmen to account to the defendant in the injunction suit for all: (1) such damages; (2) costs
and damages; (3) costs, damages and reasonable attorneys fees as shall be incurred or sustained
by the person enjoined in case it is determined that the injunction was wrongfully issued.[20] Thus,
PARAMOUNT is liable, jointly and severally, for actual damages, moral damages, exemplary
damages, attorneys fees and costs of the suit, to the extent of the amount of the bond.
Be that as it may, a scrutiny of petitioners Indemnity Agreement [21] with McADORE shows
that the former agreed to become surety for the stated amount in favor of Dagupan Electric Corp.
It should be noted that McADORE was already in arrears starting from June 1979[22] up to the
time it entered into an Indemnity Agreement with PARAMOUNT on July 17, 1980.
It may not be amiss to point out that by the contract of suretyship, it is not for the obligee to
see to it that the principal pays the debt or fulfills the contract, but for the surety to see to it that
the principal pay or perform.[23] The purpose of the injunction bond is to protect the defendant
against loss or damage by reason of the injunction in case the court finally decides that the plaintiff
was not entitled to it, and the bond is usually conditioned accordingly. Thus, the bondsmen are
obligated to account to the defendant in the injunction suit for all damages, or costs and
reasonable counsels fees, incurred or sustained by the latter in case it is determined that the
injunction was wrongfully issued.[24]
The posting of a bond in connection with a preliminary injunction (or attachment under Rule
57, or receivership under Rule 59, or seizure or delivery of personal property under Rule 60) does
not operate to relieve the party obtaining an injunction from any and all responsibility for the
damages that the writ may thereby cause. It merely gives additional protection to the party against
whom the injunction is directed. It gives the latter a right of recourse against either the applicant
or his surety, or against both.[25] In the same manner, when petitioner PARAMOUNT issued the
bond in favor of its principal, it undertook to assume all the damages that may be suffered after
finding that the principal is not entitled to the relief being sought.
 WHEREFORE, based on the foregoing, the instant petition is DENIED. The decision of the
Court of Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 is AFFIRMED. With costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Melo, Kapunan, and Pardo, JJ., concur.