Republic of the Philippines Lim, Jr. the amount of ₱2,351,064.
80 on an installment basis,
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185734 July 3, 2013
ALFREDO C. LIM, JR., PETITIONER,
vs.
SPOUSES TITO S. LAZARO AND CARMEN T.
LAZARO, RESPONDENTS.
RESOLUTION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the July 10,
2008 Decision2 and December 18, 2008 Resolution3 of the
Court of Appeals (CA) in CA-G.R. SP No. 100270, affirming the
March 29, 2007 Order4 of the Regional Trial Court of Quezon
City, Branch 223 (RTC), which lifted the writ of preliminary
attachment issued in favor of petitioner Alfredo C. Lim, Jr. (Lim,
Jr.).
The Facts
On August 22, 2005, Lim, Jr. filed a complaint5 for sum of money
with prayer for the issuance of a writ of preliminary attachment
before the RTC, seeking to recover from respondents-spouses
Tito S. Lazaro and Carmen T. Lazaro (Sps. Lazaro) the sum of
₱2,160,000.00, which represented the amounts stated in
several dishonored checks issued by the latter to the former, as
well as interests, attorney’s fees, and costs. The RTC granted
the writ of preliminary attachment application6 and upon the
posting of the required ₱2,160,000.00 bond,7 issued the
corresponding writ on October 14, 2005.8 In this accord, three
(3) parcels of land situated in Bulacan, covered by Transfer
Certificates of Title (TCT) Nos. T-64940, T-64939, and T-86369
(subject TCTs), registered in the names of Sps. Lazaro, were
levied upon.9
In their Answer with Counterclaim,10 Sps. Lazaro averred,
among others, that Lim, Jr. had no cause of action against them
since: (a) Colim Merchandise (Colim), and not Lim, Jr., was the
payee of the fifteen (15) Metrobank checks; and (b) the PNB and
Real Bank checks were not drawn by them, but by Virgilio
Arcinas and Elizabeth Ramos, respectively. While they admit
their indebtedness to Colim, Sps. Lazaro alleged that the same
had already been substantially reduced on account of previous
payments which were apparently misapplied. In this regard, they
sought for an accounting and reconciliation of records to
determine the actual amount due. They likewise argued that no
fraud should be imputed against them as the aforesaid checks
issued to Colim were merely intended as a form of
collateral.11 Hinged on the same grounds, Sps. Lazaro equally
opposed the issuance of a writ of preliminary attachment.12
Nonetheless, on September 22, 2006, the parties entered into a
Compromise Agreement13 whereby Sps. Lazaro agreed to pay
following a schedule of payments covering the period from
September 2006 until October 2013, under the following terms,
among others: (a) that should the financial condition of Sps.
Lazaro improve, the monthly installments shall be increased in
order to hasten the full payment of the entire obligation;14 and
(b) that Sps. Lazaro’s failure to pay any installment due or the
dishonor of any of the postdated checks delivered in payment
thereof shall make the whole obligation immediately due and
demandable.
The aforesaid compromise agreement was approved by the
RTC in its October 31, 2006 Decision15 and January 5, 2007
Amended Decision.16
Subsequently, Sps. Lazaro filed an Omnibus Motion,17 seeking
to lift the writ of preliminary attachment annotated on the subject
TCTs, which the RTC granted on March 29, 2007.18 It ruled that
a writ of preliminary attachment is a mere provisional or ancillary
remedy, resorted to by a litigant to protect and preserve certain
rights and interests pending final judgment. Considering that the
case had already been considered closed and terminated by the
rendition of the January 5, 2007 Amended Decision on the basis
of the September 22, 2006 compromise agreement, the writ of
preliminary attachment should be lifted and quashed.
Consequently, it ordered the Registry of Deeds of Bulacan to
cancel the writ’s annotation on the subject TCTs.
Lim, Jr. filed a motion for reconsideration19 which was, however,
denied on July 26, 2007,20 prompting him to file a petition for
certiorari21 before the CA.
The CA Ruling
On July 10, 2008, the CA rendered the assailed
decision,22 finding no grave abuse of discretion on the RTC’s
part. It observed that a writ of preliminary attachment may only
be issued at the commencement of the action or at any time
before entry of judgment. Thus, since the principal cause of
action had already been declared closed and terminated by the
RTC, the provisional or ancillary remedy of preliminary
attachment would have no leg to stand on, necessitating its
discharge.23
Aggrieved, Lim, Jr. moved for reconsideration24 which was
likewise denied by the CA in its December 18, 2008
Resolution.25
Hence, the instant petition.
The Issue Before the Court
The sole issue in this case is whether or not the writ of
preliminary attachment was properly lifted.
The Court’s Ruling
The petition is meritorious.
By its nature, preliminary attachment, under Rule 57 of the Rules
of Court (Rule 57), is an ancillary remedy applied for not for its
own sake but to enable the attaching party to realize upon the
relief sought and expected to be granted in the main or principal
action; it is a measure auxiliary or incidental to the main action.
As such, it is available during its pendency which may be
resorted to by a litigant to preserve and protect certain rights and
interests during the interim, awaiting the ultimate effects of a
final judgment in the case.26 In addition, attachment is also
availed of in order to acquire jurisdiction over the action by actual
or constructive seizure of the property in those instances where
personal or substituted service of summons on the defendant
cannot be effected.27
In this relation, while the provisions of Rule 57 are silent on the
length of time within which an attachment lien shall continue to
subsist after the rendition of a final judgment, jurisprudence
dictates that the said lien continues until the debt is paid, or the
sale is had under execution issued on the judgment or until the
judgment is satisfied, or the attachment discharged or vacated
in the same manner provided by law.28
Applying these principles, the Court finds that the discharge of
the writ of preliminary attachment against the properties of Sps.
Lazaro was improper.
Records indicate that while the parties have entered into a
compromise agreement which had already been approved by
the RTC in its January 5, 2007 Amended Decision, the
obligations thereunder have yet to be fully complied with –
particularly, the payment of the total compromise amount of
₱2,351,064.80. Hence, given that the foregoing debt remains
unpaid, the attachment of Sps. Lazaro’s properties should have
continued to subsist.
In Chemphil Export & Import Corporation v. CA,29 the Court
pronounced that a writ of attachment is not extinguished by the
execution of a compromise agreement between the parties, viz:
Did the compromise agreement between Antonio Garcia and the
consortium discharge the latter’s attachment lien over the
disputed shares?
CEIC argues that a writ of attachment is a mere auxiliary remedy
which, upon the dismissal of the case, dies a natural death.
Thus, when the consortium entered into a compromise
agreement, which resulted in the termination of their case, the
disputed shares were released from garnishment.
We disagree. To subscribe to CEIC’s contentions would be to
totally disregard the concept and purpose of a preliminary
attachment.
xxxx
The case at bench admits of peculiar character in the sense that
it involves a compromise agreement. Nonetheless, x x x. The
parties to the compromise agreement should not be deprived of
the protection provided by an attachment lien especially in an
instance where one reneges on his obligations under the
agreement, as in the case at bench, where Antonio Garcia failed
to hold up his own end of the deal, so to speak.
xxxx
If we were to rule otherwise, we would in effect create a back
door by which a debtor can easily escape his creditors.
Consequently, we would be faced with an anomalous situation
where a debtor, in order to buy time to dispose of his properties,
would enter into a compromise agreement he has no intention
of honoring in the first place. The purpose of the provisional
remedy of attachment would thus be lost. It would become, in
analogy, a declawed and toothless tiger. (Emphasis and
underscoring supplied; citations omitted)
In fine, the Court holds that the writ of preliminary attachment
subject of this case should be restored and its annotation
revived in the subject TCTs, re-vesting unto Lim, Jr. his
preferential lien over the properties covered by the same as it
were before the cancellation of the said writ. Lest it be
misunderstood, the lien or security obtained by an attachment
even before judgment, is in the nature of a vested interest which
affords specific security for the satisfaction of the debt put in
suit.30 Verily, the lifting of the attachment lien would be
tantamount to an abdication of Lim, Jr.’s rights over Sps.
Lazaro’s properties which the Court, absent any justifiable
ground therefor, cannot allow.
WHEREFORE, the petition is GRANTED. The July 10, 2008
Decision and the December 18, 2008 Resolution of the Court of
Appeals in CA-G.R. SP No. 100270 are REVERSED and SET
ASIDE, and the March 29, 2007 Order of the Regional Trial
Court of Quezon City, Branch 223 is NULLIFIED. Accordingly,
the trial court is directed to RESTORE the attachment lien over
Transfer Certificates of Title Nos. T-64940, T-64939, and T-
86369, in favor of petitioner Alfredo C. Lim, Jr.
SO ORDERED.
Carpio, (Chairperson), Brion, Del Castillo, Perez, and
Perlas-Bernabe, JJ., concur.
 FIRST DIVISION
APRIL 4, 2018
G.R. No. 193572
TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., Petitioner
vs
MIS MARITIME CORPORATION, Respondent
DECISION
JARDELEZA, J.:
This is a petition for review on certiorari1 under Rule 45 of the
Rules of Court filed by petitioner Tsuneishi Heavy Industries
(Cebu), Inc. (Tsuneishi) challenging the Decision2 of the Court
of Appeals (CA) in CAG.R. CEB-SP No. 03956 dated October
7, 2009 and its Resolution3 dated August 26, 2010. The CA
Decision reversed three Orders of Branch 7 of the Regional Trial
Court (RTC), Cebu City dated April 15, 2008, July 7, 2008, and
December 11, 2008, respectively.4 The Resolution denied
Tsuneishi's motion for reconsideration.
Respondent MIS Maritime Corporation (MIS) contracted
Tsuneishi to dry dock and repair its vessel M/T MIS-1 through
an Agreement dated March 22, 2006.5 On March 23, 2006, the
vessel dry docked in Tsuneishi's shipyard. Tsuneishi rendered
the required services. However, about a month later and while
the vessel was still dry docked, Tsuneishi conducted an engine
test on M/T MIS-1. The vessel's engine emitted smoke. The
parties eventually discovered that this was caused by a burnt
crank journal. The crankpin also showed hairline cracks due to
defective lubrication or deterioration, Tsuneishi insists that the
damage was not its fault while MIS insists on the contrary.
Nevertheless, as an act of good will, Tsuneishi paid for the
vessel's new engine crankshaft, crankpin, and main bearings.6
Tsuneishi billed MIS the amount of US$318,571.50 for payment
of its repair and dry docking services. MIS refused to pay this
amount. Instead, it demanded that Tsuneishi pay
US$471,462.60 as payment for the income that the vessel lost
in the six months that it was not operational and dry docked at
Tsuneishi's shipyard. It also asked that its claim be set off
against the amount billed by Tsuneishi. MIS further insisted that
after the set off, Tsuneishi still had the obligation to pay it the
amount of US$152,891.10.7 Tsuneishi rejected MIS' demands.
It delivered the vessel to MIS in September 2006.8 On
November 6, 2006, MIS signed an Agreement for Final
Price.9 However, despite repeated demands, MIS refused to pay
Tsuneishi the amount billed under their contract.
Tsuneishi claims that MIS also caused M/T White Cattleya, a
vessel owned by Cattleya Shipping Panama S.A. (Cattleya
Shipping), to stop its payment for the services Tsuneishi
rendered for the repair and dry docking of the vessel.10
MIS argued that it lost revenues because of the engine damage
in its vessel. This damage occurred while the vessel was dry
docked and being serviced at Tsuneishi's yard. MIS insisted that
since this arose out of Tsuneishi's negligence, it should pay for
MIS' lost income. Tsuneishi offered to pay 50% of the amount
demanded but MIS refused any partial payment.11
On April 10, 2008, Tsuneishi filed a complaint12 against MIS
before the RTC. This complaint stated that it is invoking the
admiralty jurisdiction of the RTC to enforce a maritime lien under
Section 21 of the Ship Mortgage Decree of 197813 (Ship
Mortgage Decree). It also alleged as a cause of action MIS'
unjustified refusal to pay the amount it owes Tsuneishi under
their contract. The complaint included a prayer for the issuance
of arrest order/writ of preliminary attachment. To support this
prayer, the complaint alleged that Section 21 of the Ship
Mortgage Decree as well as Rule 57 of the Rules of Court on
attachment authorize the issuance of an order of arrest of vessel
and/or writ of preliminary attachment.14
In particular, Tsuneishi argued that Section 21 of the Ship
Mortgage Decree provides for a maritime lien in favor of any
person who furnishes repair or provides use of a dry dock for a
vessel. Section 21 states that this may be enforced through an
action in rem. Further, Tsuneishi and MIS' contract granted
Tsuneishi the right to take possession, control and custody of
the vessel in case of default of payment. Paragraph 9 of this
contract further states that Tsuneishi may dispose of the vessel
and apply the proceeds to the unpaid repair bill.15
Finally, Tsuneishi's complaint alleges that there are sufficient
grounds for the issuance of a writ of preliminary attachment. In
particular, it claims that MIS is guilty of fraud in the performance
of its obligation. The complaint states:
40. X X X Under the factual milieu, it is wrongful for defendant
MIS Maritime to take undue advantage of an unfortunate
occurrence by withholding payment of what is justly due to
plaintiff under law and contract. Defendant MIS Maritime knew
or ought to have known that its claim for lost revenues was
unliquidated and could not be set-off or legally compensated
against the dry-docking and repair bill which was liquidated and
already fixed and acknowledged by the parties.
41. Defendant CATTLEYA SHIPPING's actions and actuations
in performing its obligation were clearly fraudulent because,
firstly, it had no business getting involved as far as the M/T MIS-
1 incident was concerned; secondly, no incident of any sort
occurred when its vessel M/T WHITE CATTLEYA was dry
docked and repaired. It had no claim against the plaintiff. Yet, it
(defendant Cattleya Shipping) allowed itself to be used by
defendant MIS Maritime when it willfully and unlawfully stopped
paying plaintiff, and conspired to make good defendant MIS
Maritime's threat to "withhold payment of any and all billings that
you (plaintiff) may have against our fleet of vessels which
include those registered under Cattleya Shipping Panama S.A.
(MT White Cattleya) x x x.16
Tsuneishi also filed the Affidavit17 of its employee Lionel T.
Bitera (Bitera Affidavit), in accordance with the requirement for
the issuance of a writ of preliminary attachment under Rule 57
of the Rules of Court. The Bitera Affidavit stated that Tsuneishi
performed dry docking and repair services for M/T MIS-1 and
M/T White Cattleya. It also alleged that after Tsuneishi
performed all the services required, MIS and Cattleya refused to
pay their obligation. According to the Bitera Affidavit, this refusal
to pay constitutes fraud because:
d. The breach of the obligation was willful. In the case of M/T
MIS-1 no single installment payment was made despite the fact
that the vessel was accepted fully dry docked and with a brand
new engine crankshaft installed by the yard free of charge to the
Owner. MIS Maritime Corporation was blaming the yard for the
damage sustained by the engine crank shaft on 25 April 2006
when the engine was started in preparation for sea trial. When
the incident happened the dry docking had already been
completed and the vessel was already in anchorage position for
sea trial under the management and supervisory control of the
Master and engineers of the vessel. Besides, the incident was
not due to the fault of the yard. It was eventually traced to dirty
lube oil or defective main engine lubricating oil which was the
lookout and responsibility of the vessel's engineers.
xxxx
e. The action taken by MIS Maritime Corporation in setting off its
drydocking obligation against their claim for alleged lost
revenues was unilaterally done, and without legal and factual
basis for while, on one hand, the drydocking bill was for a fixed
and agreed amount, the claim of MIS Maritime for lost revenues,
on the other hand, was not liquidated as it was for a gross
amount. X X X
f. Cattleya Shipping for its part had nothing to do with the dry
docking of M/T MIS-1. There was no incident whatsoever during
the dry docking of its vessel M/T WHITE CATTLEYA. In fact,
after this vessel was satisfactorily dry docked and delivered to
its Owner (Cattleya Shipping) the latter started paying the
monthly installments without any complaint whatsoever. X X X18
The RTC issued a writ of preliminary attachment in an
Order19 dated April 15, 2008 (First Order) without hearing.
Consequently, MIS' condominium units located in the financial
district of Makati, cash deposits with various banks, charter hire
receivables from Shell amounting to ₱26.6 Million and MT MIS-
1 were attached.20
MIS filed a motion to discharge the attachment.21 The RTC
denied this motion in an Order22 dated July 7, 2008 (Second
Order). MIS filed a motion for reconsideration which the RTC
also denied in an Order23 dated December 11, 2008 (Third
Order).
MIS then filed a special civil action for certiorari24 before the CA
assailing the three Orders. MIS argued that the RTC acted with
grave abuse of discretion when it ordered the issuance of a
preliminary writ of attachment and denied MIS’ motion to
discharge and motion for reconsideration.
The CA ruled in favor of MIS. It reversed the three assailed
Orders after finding that the RTC acted with grave abuse of
discretion in issuing the writ of preliminary attachment.25
According to the CA, the Bitera Affidavit lacked the required
allegation that MIS has no sufficient security for Tsuneishi's
claim. In fact, the CA held that the evidence on record shows
that MIS has sufficient properties to cover the claim. It also relied
on jurisprudence stating that when an affidavit does not contain
the allegations required under the rules for the issuance of a writ
of attachment and the court nevertheless issues the writ, the
RTC is deemed to have acted with grave abuse of discretion.
Consequently, the writ of preliminary attachment is fatally
defective.26 The CA further highlighted that a writ of preliminary
attachment is a harsh and rigorous remedy. Thus, the rules must
be strictly construed. Courts have the duty to ensure that all the
requisites are complied with.27
The CA also found that the RTC ordered the issuance of the writ
of preliminary attachment despite Tsuneishi's failure to prove the
presence of fraud. It held that the bare and unsubstantiated
allegation in the Bitera Affidavit that MIS willfully refused to pay
its obligation is not sufficient to establish prima facie fraud. The
CA emphasized that a debtor's mere inability to pay is not fraud.
Moreover, Tsuneishi's allegations of fraud were general. Thus,
they failed to comply with the requirement in the Rules of Court
that in averments of fraud, the circumstances constituting it must
be alleged with particularity. The CA added that while notice and
hearing are not required for the issuance of a writ of preliminary
attachment, it may become necessary in instances where the
applicant makes grave accusations based on grounds alleged in
general terms. The CA also found that Tsuneishi failed to comply
with the requirement that the affidavit must state that MIS has
no other sufficient security to cover the amount of its obligation.28
The CA disposed of the case, thus:
WHEREFORE, the petition is GRANTED. The three (3) Orders
dated April 15, 2008, July 7, 2008 and December 11, 2008,
respectively, of the Regional Trial Court, Branch 7, Cebu City, in
Civil Case No. CEB-34250, are ANNULLED and SET
ASIDE.29 (Emphasis in the original, citations omitted.)
Tsuneishi filed this petition for review on certiorari under Rule 45
of the Rules of Court challenging the CA's ruling. Tsuneishi
pleads that this case involves a novel question of law. It argues
that while Section 21 of the Ship Mortgage Decree grants it a
maritime lien, the law itself, unfortunately, does not provide for
the procedure for its enforcement. It posits that to give meaning
to this maritime lien, this Court must rule that the procedure for
its enforcement is Rule 57 of the Rules of Court on the issuance
of the writ of preliminary attachment. Thus, it proposes that aside
from the identified grounds for the issuance of a writ of
preliminary attachment in the Rules of Court, the maritime
character of this action should be considered as another basis
to issue the writ.30
To support its application for the issuance of a writ of preliminary
attachment, Tsuneishi also invokes a provision in its contract
with MIS which states that:
In case of default, either in payment or in violation of the
warranties stated in Section 11. by the Owner, the Owner hereby
appoints the Contractor as its duly authorized attorney in fact
with full power and authority to take possession, control, and
custody of the said Subject Vessel and / or any of the Subject
Vessel's accessories and equipment, or other assets of the
Owner, without resorting to court action, and that the Owner
hereby empowers the Contractor to take custody of the same
until the obligation of the Owner to the Contractor is fully paid
and settled to the satisfaction of the Contractor. x x
x31(Underscoring omitted.)
It insists that the writ of preliminary attachment must be issued
so as to give effect to this provision in the contract.
Tsuneishi also disputes the CA's finding that it failed to show
fraud in MIS' performance of its obligation. It opines that MIS'
failure to comply with its obligation does not arise from a mere
inability to pay. If that were the case, then the CA would be
correct in saying that MIS committed no fraud. However, MIS'
breach of its obligation in this case amounts to a gross
unwillingness to pay amounting to fraud.32
Tsuneishi adds that the CA erred in holding that the RTC acted
with grave abuse of discretion when it failed to conduct a hearing
prior to the issuance of the writ of preliminary attachment. It
insisted that the Rules of Court, as well as jurisprudence, does
not require a hearing prior to issuance.33
Finally, Tsuneishi disagrees with the ruling of the CA that it did
not comply with the requirements under the rules because the
Bitera Affidavit did not state that MIS has no other sufficient
security. This was already stated in Tsuneishi's complaint filed
before the RTC. Thus, the rules should be applied liberally in
favor of rendering justice.34
In its comment,35 MIS challenges Tsuneishi's argument that its
petition raises a novel question of law. According to MIS, the
issue in this case is simple. A reading of Tsuneishi's complaint
shows that it prayed for the issuance of a writ of preliminary
attachment under Rule 57 of the Rules of Court or arrest of
vessel to enforce its maritime lien under the Ship Mortgage
Decree.36 Thus, Tsuneishi knew from the start that a remedy
exists for the enforcement of its maritime lien-through an arrest
of vessel under the Ship Mortgage Decree. However, the RTC
itself characterized the complaint as a collection of sum of
money with prayer for the issuance of a writ of preliminary
attachment. Thus, what it issued was a writ of preliminary
attachment. Unfortunately for Tsuneishi, the CA reversed the
RTC because it found that the element of fraud was not duly
established. Thus, there was no ground for the issuance of a writ
of preliminary attachment. 37
MIS insists that Tsuneishi is raising this alleged novel question
of law for the first time before this Court in an attempt to skirt the
issue that it failed to sufficiently establish that MIS acted with
fraud in the performance of its obligation. MIS contends that
fraud cannot be inferred from a debtor's mere inability to pay.
There is no distinction between inability and a refusal to pay
where the refusal is based on its claim that Tsuneishi damaged
its vessel. According to MIS, its vessel arrived at Tsuneishi's
shipyard on its own power. Its engine incurred damage while it
was under Tsuneishi's custody. Thus, Tsuneishi is presumed
negligent.38
MIS further highlights that Tsuneishi completed the dry docking
in April 2006. It was during this time that the damage in the
vessel's engine was discovered. The vessel was turned over to
MIS only in September 2006. Thus, it had lost a significant
amount of revenue during the period that it was off-hire.
Because of this, it demanded payment from Tsuneishi which the
latter rejected.39
Hence, MIS argues that this is not a situation where, after
Tsuneishi rendered services, MIS simply
absconded.1âwphi1 MIS has the right to demand for the
indemnification of its lost revenue due to Tsuneishi's
negligence.40
MIS further adds that the CA correctly held that there was no
statement in the Bitera Affidavit that MIS had no adequate
security to cover the amount being demanded by Tsuneishi.
Tsuneishi cannot validly argue that this allegation is found in its
complaint and that this should be deemed compliance with the
requirement under Rule 57.41
Further, in its motion to discharge the preliminary attachment,
MIS presented proof that it has the financial capacity to pay any
liability arising from Tsuneishi's claims. In fact, there was an
excessive levy of MIS' properties. This is proof in itself that MIS
has adequate security to cover Tsuneishi's claims. Finally, MIS
agrees with the CA that the RTC should have conducted a
hearing. While it is true that a hearing is not required by the
Rules of Court, jurisprudence provides that a hearing is
necessary where the allegations in the complaint and the
affidavit are mere general averments. Further, where a motion
to discharge directly contests the allegation in the complaint and
affidavit, the applicant has the burden of proving its claims of
fraud.42
There are two central questions presented for the Court to
resolve, namely: (1) whether a maritime lien under Section 21 of
the Ship Mortgage Decree may be enforced through a writ of
preliminary attachment under Rule 57 of the Rules of Court; and
(2) whether the CA correctly ruled that Tsuneishi failed to comply
with the requirements for the issuance of a writ of preliminary
injunction.
We deny the petition.
I
We begin by classifying the legal concepts of lien, maritime lien
and the provisional remedy of preliminary attachment.
Alien is a "legal claim or charge on property, either real or
personal, as a collateral or security for the payment of some debt
or obligation.43 It attaches to a property by operation of law and
once attached, it follows the property until it is discharged. What
it does is to give the party in whose favor the lien exists the right
to have a debt satisfied out of a particular thing. It is a legal claim
or charge on the property which functions as a collateral or
security for the payment of the obligation.44
Section 21 of the Ship Mortgage Decree establishes a lien. It
states:
Sec. 21. Maritime Lien for Necessaries; Persons entitled to such
Lien. - Any person furnishing repairs, supplies, towage, use of
dry dock or marine railway, or other necessaries to any vessel,
whether foreign or domestic, upon the order of the owner of such
vessel, or of a person authorized by the owner, shall have a
maritime lien on the vessel, which may be enforced by suit in
rem, and it shall be necessary to allege or prove that credit was
given to the vessel.
In practical terms, this means that the holder of the lien has the
right to bring an action to seek the sale of the vessel and the
application of the proceeds of this sale to the outstanding
obligation. Through this lien, a person who furnishes repair,
supplies, towage, use of dry dock or marine railway, or other
necessaries to any vessel, in accordance with the requirements
under Section 21, is able to obtain security for the payment of
the obligation to him.
A party who has a lien in his or her favor has a remedy in law to
hold the property liable for the payment of the obligation. A
lienholder has the remedy of filing an action in court for the
enforcement of the lien. In such action, a lienholder must
establish that the obligation and the corresponding lien exist
before he or she can demand that the property subject to the
lien be sold for the payment of the obligation. Thus, a lien
functions as a form of security for an obligation.
Liens, as in the case of a maritime lien, arise in accordance with
the provision of particular laws providing for their creation, such
as the Ship Mortgage Decree which clearly states that certain
persons who provide services or materials can possess a lien
over a vessel. The Rules of Court also provide for a provisional
remedy which effectively operates as a lien. This is found in Rule
57 which governs the procedure for the issuance of a writ of
preliminary attachment.
A writ of preliminary attachment is a provisional remedy issued
by a court where an action is pending. In simple terms, a writ of
preliminary attachment allows the levy of a property which shall
then be held by the sheriff. This property will stand as security
for the satisfaction of the judgment that the court may render in
favor of the attaching party. In Republic v. Mega Pacific
eSolutions (Republic),45 we explained that the purpose of a writ
of preliminary attachment is twofold:
First, it seizes upon property of an alleged debtor in advance of
final judgment and holds it subject to appropriation, thereby
preventing the loss or dissipation of the property through fraud
or other means. Second, it subjects the property of the debtor to
the payment of a creditor's claim, in those cases in which
personal service upon the debtor cannot be obtained. This
remedy is meant to secure a contingent lien on the
defendant's property until the plaintiff can, by appropriate
proceedings, obtain a judgment and have the property
applied to its satisfaction, or to make some provision for
unsecured debts in cases in which the means of
satisfaction thereof are liable to be removed beyond the
jurisdiction, or improperly disposed of or concealed, or
otherwise placed beyond the reach of creditors.46 (Citations
omitted, emphasis supplied. Italics in the original.)
As we said, a writ of preliminary attachment effectively functions
as a lien. This is crucial to resolving Tsuneishi's alleged novel
question of law in this case. Tsuneishi is correct that the Ship
Mortgage Decree does not provide for the specific procedure
through which a maritime lien can be enforced. Its error is in
insisting that a maritime lien can only be operationalized by
granting a writ of preliminary attachment under Rule 57 of the
Rules of Court. Tsuneishi argues that the existence of a
maritime lien should be considered as another ground for the
issuance of a writ of preliminary attachment under the Rules of
Court.
Tsuneishi's argument is rooted on a faulty understanding of a
lien and a writ of preliminary attachment. As we said, a maritime
lien exists in accordance with the provision of the Ship Mortgage
Decree. It is enforced by filing a proceeding in court. When a
maritime lien exists, this means that the party in whose favor the
lien was established may ask the court to enforce it by ordering
the sale of the subject property and using the proceeds to settle
the obligation.
On the other hand, a writ of preliminary attachment is issued
precisely to create a lien. When a party moves for its issuance,
the party is effectively asking the court to attach a property and
hold it liable for any judgment that the court may render in his or
her favor. This is similar to what a lien does. It functions as a
security for the payment of an obligation. In Quasha Asperilla
Ancheta Valmonte Peña & Marcos v. Juan,47 we held:
An attachment proceeding is for the purpose of creating a lien
on the property to serve as security for the payment of the
creditors' claim. Hence, where a lien already exists, as in this
case a maritime lien, the same is already equivalent to an
attachment. X X X48
To be clear, we repeat that when a lien already exists, this is
already equivalent to an attachment. This is where Tsuneishi's
argument fails.
Clearly, because it claims a maritime lien in accordance with the
Ship Mortgage Decree, all Tsuneishi had to do is to file a proper
action in court for its enforcement. The issuance of a writ of
preliminary attachment on the pretext that it is the only means to
enforce a maritime lien is superfluous. The reason that the Ship
Mortgage Decree does not provide for a detailed procedure for
the enforcement of a maritime lien is because it is not necessary.
Section 21 already provides for the simple procedure-file an
action in rem before the court.
To our mind, this alleged novel question of law is a mere device
to remedy the error committed by Tsuneishi in the proceedings
before the trial court regarding the issuance of a writ of
preliminary attachment. We note that the attachment before the
trial court extended to other properties other than the lien itself,
such as bank accounts and real property. Clearly, what was
prayed for in the proceedings below was not an attachment for
the enforcement of a maritime lien but an attachment, plain and
simple.
II
Tsuneishi's underlying difficulty is whether it succeeded in
proving that it complied with the requirements for the issuance
of a writ of preliminary attachment. This is the only true question
before us. In particular, we must determine whether the Bitera
Affidavit stated that MIS lacked sufficient properties to cover the
obligation and whether MIS acted with fraud in refusing to pay.
At the onset, we note that these questions dwell on whether
there was sufficient evidence to prove that Tsuneishi complied
with the requirements for the issuance of a writ of preliminary
attachment. Sufficiency of evidence is a question of fact which
this Court cannot review in a Rule 45 petition. We are not a trier
of fact.
Nevertheless, we have examined the record before us and we
agree with the factual findings of the CA.
The record clearly shows that the Bitera Affidavit does not state
that MIS has no other sufficient security for the claim sought to
be enforced. This is a requirement under Section 3, Rule 57 of
the Rules of Court. We cannot agree with Tsuneishi's insistence
that this allegation need not be stated in the affidavit since it was
already found in the complaint. The rules are clear and
unequivocal. There is no basis for Tsuneishi's position. Nor is it
entitled to the liberal application of the rules. Not only has
Tsuneishi failed to justify its omission to include this allegation,
the facts also do not warrant the setting aside of technical rules.
Further, rules governing the issuance of a writ of preliminary
attachment are strictly construed.
We also agree with the CA's factual finding that MIS did not act
with fraud in refusing to pay the obligation.1âwphi1 We
emphasize that when fraud is invoked as a ground for the
issuance of a writ of preliminary attachment under Rule 57 of the
Rules of Court, there must be evidence clearly showing the
factual circumstances of the alleged fraud.49Fraud cannot be
presumed from a party's mere failure to comply with his or her
obligation. Moreover, the Rules of Court require that in all
averments of fraud, the circumstances constituting it must be
stated with particularity.50
In Republic, we defined fraud as:
[A]s the voluntary execution of a wrongful act or a wilful
omission, while knowing and intending the effects that naturally
and necessarily arise from that act or omission. In its general
sense, fraud is deemed to comprise anything calculated to
deceive -- including all acts and omission and concealment
involving a breach of legal or equitable duty, trust, or confidence
justly reposed ---- resulting in damage to or in undue advantage
over another. Fraud is also described as embracing all
multifarious means that human ingenuity can device, and is
resorted to for the purpose of securing an advantage over
another by false suggestions or by suppression of truth; and it
includes all surprise, trick, cunning, dissembling, and any other
unfair way by which another is cheated.51 (Citations omitted.)
By way of example, in Metro, Inc. v. Lara's Gifts and Decors,
Inc.,52 we ruled that the factual circumstances surrounding the
parties' transaction clearly showed fraud. In this case, the
petitioners entered into an agreement with respondents where
the respondents agreed that they will endorse their purchase
orders from their foreign buyers to the petitioners in order to help
the latter's export business. The petitioners initially promised
that they will transact only with the respondents and never
directly contact respondents' foreign buyers. To convince
respondents that they should trust the petitioners, petitioners
even initially remitted shares to the respondents in accordance
with their agreement. However, as soon as there was a
noticeable increase in the volume of purchase orders from
respondents' foreign buyers, petitioners abandoned their
contractual obligation to respondents and directly transacted
with respondents' foreign buyers. We found in this case that the
respondents' allegation (that the petitioners undertook to sell
exclusively through respondents but then transacted directly
with respondents' foreign buyer) is sufficient allegation of fraud
to support the issuance of a writ of preliminary attachment.53
In contrast, in PCL Industries Manufacturing Corporation v.
Court of Appeals,54 we found no fraud that would warrant the
issuance of a writ of preliminary attachment. In that case,
petitioner purchased printing ink materials from the private
respondent. However, petitioner found that the materials
delivered were defective and thus refused to pay its obligation
under the sales contract. Private respondent insisted that
petitioner's refusal to pay after the materials were delivered to it
amounted to fraud. We disagreed. We emphasized our repeated
and consistent ruling that the mere fact of failure to pay after the
obligation to do so has become due and despite several
demands is not enough to warrant the issuance of a writ of
preliminary attachment.55
An examination of the Bitera Affidavit reveals that it failed to
allege the existence of fraud with sufficient specificity. The
affidavit merely states that MIS refused to pay its obligation
because it demanded a set off between its obligation to
Tsuneishi and Tsuneishi's liability for MIS' losses caused by the
delay in the turn-over of the vessel. The affidavit insists that this
demand for set off was not legally possible. Clearly, there is
nothing in the affidavit that even approximates any act of fraud
which MIS committed in the performance of its obligation. MIS'
position was clear: Tsuneishi caused the damage in the vessel's
engine which delayed its trip and should thus be liable for its
losses. There is no showing that MIS performed any act to
deceive or defraud Tsuneishi.
In Watercraft Venture Corporation v. Wolfe,56 we ruled that an
affidavit which does not contain concrete and specific grounds
showing fraud is inadequate to sustain the issuance of the writ
of preliminary attachment.57
Moreover, the record tells a different story.
The record shows that Tsuneishi released the vessel in
September 2006. MIS signed the Agreement of the Final Price
only in November 2006. Thus, Tsuneishi's claim that MIS'act of
signing the document and making it believe that MIS will pay the
amount stated is the fraudulent act which induced it to release
the vessel cannot stand. Tsuneishi agreed to release the vessel
even before MIS signed the document. It was thus not the act
which induced Tsuneishi to turn over the vessel.
Further, Tsuneishi is well aware of MIS' claims. It appears from WHEREFORE, in view of the foregoing, the petition is DENIED.
the record, and as admitted by MIS in its pleadings, that the The Decision of the Court of Appeals dated October 7, 2009 and
reason for its refusal to pay is its claim that its obligation should its Resolution dated August 26, 2010 are AFFIRMED.
be set off against Tsuneishi's liability for the losses that MIS
incurred for the unwarranted delay in the turn-over of the vessel. SO ORDERED.
MIS insists that Tsuneishi is liable for the damage on the vessel.
This is not an act of fraud. It is not an intentional act or a willful
omission calculated to deceive and injure Tsuneishi. MIS is
asserting a claim which it believes it has the right to do so under
the law. Whether MIS' position is legally tenable is a different
matter. It is an issue fit for the court to decide. Notably, MIS filed
this as a counterclaim in the case pending before the
RTC.58 Whether MIS is legally correct should be threshed out
there.

Even assuming that MIS is wrong in refusing to pay Tsuneishi,

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

There is a reason why a writ of preliminary attachment is

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

Moreover, we highlight that this petition for review

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

Jurisprudence has consistently held that a court that issues a

writ of preliminary attachment when the requisites are not
present acts in excess of its jurisdiction.61 In Philippine Bank of
Communications v. Court of Appeals,62 we highlighted:

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

In accordance with consistent jurisprudence, we must thus

affirm the ruling of the CA that the RTC, in issuing a writ of
preliminary attachment when the requisites under the Rules of
Court were clearly not present, acted with grave abuse of
discretion.
 THIRD DIVISION
Sometime in 1997, Nicanor Satsatin (Nicanor) asked petitioners

mother, Agripina Aledia, if she wanted to sell their lands. After

SOFIA TORRES, FRUCTOSA G.R. No.
consultation with her daughters, daughter-in-law, and
TORRES, HEIRS OF MARIO TORRES 166759
and SOLAR RESOURCES, INC., grandchildren, Agripina agreed to sell the
Petitioners,
Present: properties. Petitioners, thus, authorized Nicanor, through a

- versus - Special Power of Attorney, to negotiate for the sale of the

CORONA,
properties.[6]
J.,
Chairperso
NICANOR SATSATIN, n,
EMILINDA AUSTRIA SATSATIN, NIKKI CHICO- Sometime in 1999, Nicanor offered to sell the properties to Solar
NORMEL SATSATIN and NIKKI NAZARIO,
NORLIN SATSATIN, VELASCO, Resources, Inc. (Solar). Solar allegedly agreed to purchase the
Respondents. JR., three parcels of land, together with the 10,000-square-meter
NACHURA,
and property owned by a certain Rustica Aledia,
PERALTA,
JJ. for P35,000,000.00. Petitioners alleged that Nicanor was

Promulgat supposed to remit to them the total amount of P28,000,000.00

ed: or P9,333,333.00 each to Sofia, Fructosa, and the heirs of
November
25, 2009 Mario.

x -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
Petitioners claimed that Solar has already paid the entire

purchase price of P35,000,000.00 to Nicanor in Thirty-Two (32)

DECISION
post-dated checks which the latter encashed/deposited on their

respective due dates. Petitioners added that they also learned

PERALTA, J.:
that during the period from January 2000 to April 2002, Nicanor

allegedly acquired a house and lot at Vista Grande BF Resort

This is a petition for review on certiorari assailing the
Village, Las Pias City and a car, which he registered in the
Decision[1] dated November 23, 2004 of the Court of Appeals
names of his unemployed children, Nikki Normel Satsatin and
(CA) in CA-G.R. SP No. 83595, and its
Nikki Norlin Satsatin. However, notwithstanding the receipt of
Resolution[2] dated January 18, 2005, denying petitioners
the entire payment for the subject property, Nicanor only
motion for reconsideration.
remitted the total amount of P9,000,000.00, leaving an
The factual and procedural antecedents are as follows:
unremitted balance of P19,000,000.00. Despite repeated verbal

and written demands, Nicanor failed to remit to them the balance

The siblings Sofia Torres (Sofia), Fructosa Torres (Fructosa),
of P19,000,000.00.
and Mario Torres (Mario) each own adjacent 20,000 square

meters track of land situated at Barrio Lankaan,

Consequently, on October 25, 2002, petitioners filed before the
Dasmarias, Cavite, covered by Transfer Certificate of Title
regional trial court (RTC) a Complaint[7] for sum of money and
(TCT) Nos. 251267,[3] 251266,[4] and 251265,[5] respectively.
damages, against Nicanor, Ermilinda Satsatin, Nikki Normel

Satsatin, and Nikki Norlin Satsatin. The case was docketed as

Civil Case No. 2694-02, and raffled to RTC, Branch 90,
Dasmarias, Cavite.
On October 30, 2002, petitioners filed an Ex-Parte Motion for the
Issuance of a Writ of Attachment,[8] alleging among other things:
that respondents are about to depart the Philippines; that they
have properties, real and personal in Metro Manila and in the
nearby provinces; that the amount due them is P19,000,000.00
above all other claims; that there is no other sufficient security
for the claim sought to be enforced; and that they are willing to
post a bond fixed by the court to answer for all costs which may
be adjudged to the respondents and all damages which
respondents may sustain by reason of the attachment prayed
for, if it shall be finally adjudged that petitioners are not entitled
thereto.
On October 30, 2002, the trial court issued an Order[9] directing
the petitioners to post a bond in the amount of P7,000,000.00
before the court issues the writ of attachment, the dispositive
portion of which reads as follows:
WHEREFORE, premises considered,
and finding the present complaint and motion
sufficient in form and substance, this Court
hereby directs the herein plaintiffs to post a
bond, pursuant to Section 3, Rule 57 of the
1997 Rules of Civil Procedure, in the amount
of Seven Million Pesos (P7,000,000.00),
before the Writ of Attachment issues.[10]
On November 15, 2002, petitioners filed a Motion for Deputation
of Sheriff,[11] informing the court that they have already filed an
attachment bond. They also prayed that a sheriff be deputized
to serve the writ of attachment that would be issued by the court.
In the Order[12] dated November 15, 2002, the RTC
granted the above motion and deputized the sheriff, together
with police security assistance, to serve the writ of attachment.
Thereafter, the RTC issued a Writ
Attachment[13] dated November 15, 2002, directing the sheriff to
attach the estate, real or personal, of the respondents, the
decretal portion of which reads:
WE, THEREFORE, command you to
attach the estate, real or personal, not exempt
from execution, of the said defendants, in your
province, to the value of said demands, and
that you safely keep the same according to
the said Rule, unless the defendants give
security to pay such judgment as may be
recovered on the said action, in the manner
provided by the said Rule, provided that your
legal fees and all necessary expenses are
fully paid.
You shall return this writ with your
proceedings indorsed hereon within twenty
(20) days from the date of receipt hereof.
GIVEN UNDER MY HAND AND SEAL
of this Court, this 15th day of November, 2002,
at Imus for Dasmarias, Cavite, Philippines.[14]
On November 19, 2002, a copy of the writ of
attachment was served upon the respondents. On the same
date, the sheriff levied the real and personal properties of the
respondent, including household appliances, cars, and a parcel
of land located at Las Pias, Manila.[15]
On November 21, 2002, summons, together with a
copy of the complaint, was served upon the respondents.[16]
On November 29, 2002, respondents filed their
Answer.[17]
On the same day respondents filed their answer, they
also filed a Motion to Discharge Writ of Attachment[18] anchored
on the following grounds: the bond was issued before the
issuance of the writ of attachment; the writ of attachment was
issued before the summons was received by the respondents;
the sheriff did not serve copies of the application for attachment,
order of attachment, plaintiffs affidavit, and attachment bond, to
the respondents; the sheriff did not submit a sheriffs return in
violation of the Rules; and the grounds cited for the issuance of
of
the writ are baseless and devoid of merit. In the alternative,
respondents offered to post a counter-bond for the lifting of the
writ of attachment.[19]
On March 11, 2003, after the parties filed their
respective pleadings, the RTC issued an Order[20] denying the
motion, but at the same time, directing the respondents to file a
counter-bond, to wit:
WHEREFORE, premises considered,
after the pertinent pleadings of the parties
have been taken into account, the herein
defendants are hereby directed to file a
counter-bond executed to the attaching party,
in the amount of Seven Million Pesos
(P7,000,000.00), to secure the payment of
any judgment that the attaching party may
recover in the action, with notice on the
attaching party, whereas, the Motion to
Discharge Writ of Attachment is DENIED.
SO ORDERED.[21]
Thereafter, respondents filed a motion
reconsideration and/or motion for clarification of the above
order. On April 3, 2003, the RTC issued another Order[22] which
reads:
In view of the Urgent Motion For
Reconsideration And/Or Motion For
Clarification of the Order of this Court dated
March 11, 2003, denying their Motion to
Discharge Writ of Attachment filed by the
defendants through counsel Atty. Franco L.
Loyola, the Motion to Discharge Writ of
Attachment is denied until after the
defendants have posted the counter-bond in
the amount of Seven Million Pesos
(P7,000,000.00).
The defendants, once again, is directed
to file their counter-bond of Seven Million
Pesos (P7,000,000.00), if it so desires, in
order to discharge the Writ of Attachment.
SO ORDERED.
On December 15, 2003, respondents filed an Urgent
Motion to Lift/Set Aside Order Dated March [11], 2003,[23] which
the RTC denied in an Order[24] of even date, the dispositive
portion of which reads:
WHEREFORE, premises
considered, defendants Urgent Motion to
Lift/Set Aside Order Dated March 23,
2003 (With Manifestation to Dissolve Writ of
Attachment) is hereby DENIED for lack of
Merit.
SO ORDERED.
Respondents filed an Urgent Motion for
Reconsideration,[25] but it was denied in the
Order[26] dated March 3, 2004.
Aggrieved, respondents filed before the CA a Petition
for Certiorari, Mandamus and Prohibition with Preliminary
Injunction and Temporary Restraining Order[27] under Rule 65 of
the Rules of Court, docketed as CA-G.R. SP No. 83595,
anchored on the following grounds:
(1) public respondents committed grave
for
abuse of discretion amounting to lack of or in
excess of jurisdiction in failing to notice that
the lower court has no jurisdiction over the
person and subject matter of the complaint
when the subject Writ of Attachment was
issued;
(2) public respondents committed grave
abuse of discretion amounting to lack of or in
excess of jurisdiction in granting the issuance
of the Writ of Attachment despite non-
compliance with the formal requisites for the
issuance of the bond and the Writ of
Attachment.[28]
Respondents argued that the subject writ was improper
and irregular having been issued and enforced without the lower
court acquiring jurisdiction over the persons of the
respondents.They maintained that the writ of attachment was
implemented without serving upon them the summons together
with the complaint. They also argued that the bond issued in
favor of the petitioners was defective, because the bonding
company failed to obtain the proper clearance that it can
transact business with the RTC of Dasmarias, Cavite. They
added that the various clearances which were issued in favor of
 HOLDING THAT THE WRIT OF
the bonding company were applicable only in the courts of the ATTACHMENT WAS IMPROPERLY AND
IRREGULARLY ENFORCED IN VIOLATION
cities of Pasay, Pasig, Manila, and Makati, but not in the RTC,
OF SECTION 5, RULE 57 OF THE REVISED
Imus, Cavite.[29] RULES OF COURT.

IV.
On November 23, 2003, the CA rendered the assailed THE HONORABLE COURT OF APPEALS
ERRED IN HOLDING THAT THE PRINCIPLE
Decision in favor of the respondents, finding grave abuse of
OF ESTOPPEL WILL NOT LIE AGAINST
discretion amounting to lack of or in excess of jurisdiction on the RESPONDENTS.

part of the RTC in issuing the Orders dated December 15,

2003 and March 3, 2004. The decretal portion of the Decision Petitioners maintain that in the case at bar, as in the

reads: case of FCY Construction Group, Inc. v. Court of Appeals,[33] the

only way the subject writ of attachment can be dissolved is by a

WHEREFORE, the instant petition is
hereby GRANTED. Accordingly, the assailed counter-bond. They claim that the respondents are not allowed
Orders are hereby nullified and set aside. The to file a motion to dissolve the attachment under Section 13,
levy on the properties of the petitioners
pursuant to the Writ of Attachment issued by Rule 57 of the Rules of Court. Otherwise, the hearing on the
the lower court is hereby LIFTED.
motion for the dissolution of the writ would be tantamount to a

SO ORDERED.[30] trial on the merits, considering that the writ of preliminary

attachment was issued upon a ground which is, at the same

Petitioners filed a Motion for Reconsideration,[31] but it time, the applicants cause of action.

was denied in the Resolution[32] dated January 18, 2005.

Petitioners insist that the determination of the existence

Hence, this petition assigning the following errors: of grounds to discharge a writ of attachment rests in the sound

discretion of the lower court. They argue that the

I.
Certification[34] issued by the Office of the Administrator and the
THE HONORABLE COURT OF APPEALS
ERRED IN ORDERING THE LIFTING OF Certifications[35] issued by the clerks of court of the RTCs of
THE WRIT OF ATTACHMENT PURSUANT
TO SECTION 13, RULE 57 OF THE Dasmarias and Imus, Cavite, would show that the bonds offered
REVISED RULES OF CIVIL PROCEDURE.
by Western Guaranty Corporation, the bonding company which
II. issued the bond, may be accepted by the RTCs of Dasmarias

THE HONORABLE COURT OF APPEALS and Imus, Cavite, and that the said bonding company has no
ERRED IN HOLDING THAT PUBLIC
RESPONDENT COMMITTED GRAVE pending liability with the government.
ABUSE OF DISCRETION AMOUNTING TO
LACK OF OR IN EXCESS OF
JURISDICTION IN GRANTING THE WRIT Petitioners contend that respondents are barred by
OF ATTACHMENT DESPITE THE BOND
BEING INSUFFICIENT AND HAVING BEEN estoppel, laches, and prescription from questioning the orders
IMPROPERLY ISSUED.
of the RTC issuing the writ of attachment. They also maintain
III. that the issue whether there was impropriety or irregularity in the
THE HONORABLE COURT OF APPEALS issuance of the orders is moot and academic, considering that
ERRED IN NOT DISMISSING THE
PETITION BY REASON OF ESTOPPEL, the attachment bond questioned by the respondent had already
LACHES AND PRESCRIPTION AND IN
expired on November 14, 2003 and petitioners have renewed
the attachment bond covering the period from November 14,
2003 to November 14, 2004, and further renewed to cover the
period of November 14, 2004 to November 14, 2005.
The petition is bereft of merit.
A writ of preliminary attachment is defined as a
provisional remedy issued upon order of the court where an
action is pending to be levied upon the property or properties of
the defendant therein, the same to be held thereafter by the
sheriff as security for the satisfaction of whatever judgment that
might be secured in the said action by the attaching creditor
against the defendant.[36]
In the case at bar, the CA correctly found that there was
grave abuse of discretion amounting to lack of or in excess of
jurisdiction on the part of the trial court in approving the bond
posted by petitioners despite the fact that not all the requisites
for its approval were complied with. In accepting a surety bond,
it is necessary that all the requisites for its approval are met;
otherwise, the bond should be rejected.[37]
Every bond should be accompanied by a clearance
from the Supreme Court showing that the company concerned
is qualified to transact business which is valid only for thirty (30)
days from the date of its issuance.[38] However, it is apparent
that the Certification[39] issued by the Office of the Court
Administrator (OCA) at the time the bond was issued would
clearly show that the bonds offered by Western Guaranty
Corporation may be accepted only in the RTCs of the cities
of Makati, Pasay, and Pasig. Therefore, the surety bond issued
by the bonding company should not have been accepted by the
RTC of Dasmarias, Branch 90, since the certification secured by
the bonding company from the OCA at the time of the issuance
of the bond certified that it may only be accepted in the above-
mentioned cities. Thus, the trial court acted with grave abuse of
discretion amounting to lack of or in excess of jurisdiction when
it issued the writ of attachment founded on the said bond.
Moreover, in provisional remedies, particularly that of
preliminary attachment, the distinction between the issuance
and the implementation of the writ of attachment is of utmost
importance to the validity of the writ. The distinction is
indispensably necessary to determine when jurisdiction over the
person of the defendant should be acquired in order to validly
implement the writ of attachment upon his person.
This Court has long put to rest 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 before
entry of judgment.[40] This phrase refers to the date of the 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.[41]
In Davao Light & Power Co., Inc. v. Court of
Appeals,[42] 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 x x x
issuance of summons, order of attachment and
writ of attachment x x x 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 x x x. (Emphasis supplied.)
In Cuartero v. Court of Appeals,[43] this Court 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
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.[44]
Thus, it is indispensable not only for the acquisition of
jurisdiction over the person of the defendant, but also upon
consideration of fairness, to apprise the defendant of the
complaint against him and the issuance of a writ of preliminary
attachment and the grounds therefor that prior
contemporaneously to the serving of the writ of attachment,
service of summons, together with a copy of the complaint, the
application for attachment, the applicants affidavit and bond, and
the order must be served upon him.
In the instant case, assuming arguendo that the trial
court validly issued the writ of attachment on November 15,
2002, which was implemented on November 19, 2002, it is to be
noted that the summons, together with a copy of the complaint,
was served only on November 21, 2002.
At the time the trial court issued the writ of attachment
on November 15, 2002, it can validly to do so since the motion
for its issuance can be filed at the commencement of the action
or at any time before entry of judgment. However, at the time the
writ was implemented, the trial court has not acquired jurisdiction
over the persons of the respondent since no summons was yet
served upon them. The proper officer should have previously or
simultaneously with the implementation of the writ of
attachment, served a copy of the summons upon the
respondents in order for the trial court to have acquired
jurisdiction upon them and for the writ to have binding
effect. Consequently, even if the writ of attachment was validly
issued, it was improperly or irregularly enforced and, therefore,
cannot bind and affect the respondents.
the
Moreover, although there is truth in the petitioners
contention that an attachment may not be dissolved by a
showing of its irregular or improper issuance if it is upon a
ground which is at the same time the applicants cause of action
in the main case, since an anomalous situation would result if
the issues of the main case would be ventilated and resolved in
a mere hearing of a motion. However, the same is not applicable
in the case bar. It is clear from the respondents pleadings that
the grounds on which they base the lifting of the writ of
attachment are the irregularities in its issuance and in the
or
service of the writ; not petitioners cause of action.
Further, petitioners contention that respondents are
barred by estoppel, laches, and prescription from questioning
the orders of the RTC issuing the writ of attachment and that the
issue has become moot and academic by the renewal of the
attachment bond covering after its expiration, is devoid of
merit. As correctly held by the CA:
There are two ways of discharging the
attachment. First, to file a counter-bond in
accordance with Section 12 of Rule
57. Second[,] [t]o quash the attachment on
the ground that it was irregularly or
improvidently issued, as provided for in
Section 13 of the same rule. Whether the
attachment was discharged by either of the
two ways indicated in the law, 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. The filing of a counter-bond is merely a
speedier way of discharging the attachment
writ instead of the other way.[45]
Moreover, again assuming arguendo that the writ of
attachment was validly issued, although the trial court later
acquired jurisdiction over the respondents by service of the
summons upon them, such belated service of summons on
respondents 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 respondents without first obtaining
jurisdiction over their 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. 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.[46]
WHEREFORE, premises considered, the petition
is DENIED. The Decision and Resolution of the Court of
Appeals dated November 23, 2004 and January 18, 2005,
respectively, in CA-G.R. SP No. 83595 are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175587 September 21, 2007
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, Petitioner,
vs.
JOSEPH ANTHONY M. ALEJANDRO, Respondent.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the May 31, 2006 Decision1 of the
Court of Appeals in CA-G.R. CV No. 78200 affirming the August
30, 2000 Decision2 of the Regional Trial Court of Makati, which
granted respondent Joseph Anthony M. Alejandro’s claim for
damages arising from petitioner Philippine Commercial
International Bank’s (PCIB) invalid garnishment of respondent’s
deposits.
On October 23, 1997, petitioner filed against respondent a
complaint3 for sum of money with prayer for the issuance of a
writ of preliminary attachment. Said complaint alleged that on
September 10, 1997, respondent, a resident of Hong Kong,
executed in favor of petitioner a promissory note obligating
himself to pay ₱249,828,588.90 plus interest. In view of the
fluctuations in the foreign exchange rates which resulted in the
insufficiency of the deposits assigned by respondent as security
for the loan, petitioner requested the latter to put up additional
security for the loan. Respondent, however, sought a
reconsideration of said request pointing out petitioner’s alleged
mishandling of his account due to its failure to carry out his
instruction to close his account as early as April 1997, when the
prevailing rate of exchange of the US Dollar to Japanese yen
was US$1.00:JPY127.50.4 It appears that the amount of
₱249,828,588.90 was the consolidated amount of a series of
yen loans granted by petitioner to respondent during the months
of February and April 1997.5
In praying for the issuance of a writ of preliminary attachment
under Section 1 paragraphs (e) and (f) of Rule 57 of the Rules
of Court, petitioner alleged that (1) respondent fraudulently
withdrew his unassigned deposits notwithstanding his verbal
promise to PCIB Assistant Vice President Corazon B.
Nepomuceno not to withdraw the same prior to their assignment
as security for the loan; and (2) that respondent is not a resident
of the Philippines. The application for the issuance of a writ was
supported with the affidavit of Nepomuceno.6
On October 24, 1997, the trial court granted the application and
issued the writ ex parte7 after petitioner posted a bond in the
amount of ₱18,798,734.69, issued by Prudential Guarantee &
Assurance Inc., under Bond No. HO-46764-97. On the same
date, the bank deposits of respondent with Rizal Commercial
Banking Corporation (RCBC) were garnished. On October 27,
1997, respondent, through counsel, filed a manifestation
informing the court that he is voluntarily submitting to its
jurisdiction.8
Subsequently, respondent filed a motion to quash 9 the writ
contending that the withdrawal of his unassigned deposits was
not fraudulent as it was approved by petitioner. He also alleged
that petitioner knew that he maintains a permanent residence at
Calle Victoria, Ciudad Regina, Batasan Hills, Quezon City, and
an office address in Makati City at the Law Firm Romulo
Mabanta Buenaventura Sayoc & De los Angeles, 10 where he is
a partner. In both addresses, petitioner regularly communicated
with him through its representatives. Respondent added that he
is the managing partner of the Hong Kong branch of said Law
Firm; that his stay in Hong Kong is only temporary; and that he
frequently travels back to the Philippines.
On December 24, 1997, the trial court issued an order quashing
the writ and holding that the withdrawal of respondent’s
unassigned deposits was not intended to defraud petitioner. It
also found that the representatives of petitioner personally
transacted with respondent through his home address in
Quezon City and/or his office in Makati City. It thus concluded
that petitioner misrepresented and suppressed the facts
regarding respondent’s residence considering that it has
personal and official knowledge that for purposes of service of
summons, respondent’s residence and office addresses are
located in the Philippines. The dispositive portion of the court’s
decision is as follows:
WHEREFORE, the URGENT MOTION TO QUASH, being
meritorious, is hereby GRANTED, and the ORDER of 24
October 1997 is hereby RECONSIDERED and SET ASIDE and
the WRIT OF attachment of the same is hereby DISCHARGED.
SO ORDERED.11
With the denial12 of petitioner’s motion for reconsideration, it
elevated the case to the Court of Appeals (CA-G.R. SP No.
50748) via a petition for certiorari. On May 10, 1999, the petition
was dismissed for failure to prove that the trial court abused its
discretion in issuing the aforesaid order. 13 Petitioner filed a
motion for reconsideration but was denied on October 28,
1999.14 On petition with this Court, the case was dismissed for
late filing in a minute resolution (G.R. No. 140605) dated
January 19, 2000.15 Petitioner filed a motion for reconsideration
but was likewise denied with finality on March 6, 2000.16
Meanwhile, on May 20, 1998, respondent filed a claim for
damages in the amount of P25 Million17 on the attachment bond
(posted by Prudential Guarantee & Assurance, Inc., under
JCL(4) No. 01081, Bond No. HO-46764-97) on account of the
wrongful garnishment of his deposits. He presented evidence
showing that his ₱150,000.00 RCBC check payable to his
counsel as attorney’s fees, was dishonored by reason of the
garnishment of his deposits. He also testified that he is a
graduate of the Ateneo de Manila University in 1982 with a
double degree of Economics and Management Engineering and
of the University of the Philippines in 1987 with the degree of
Bachelor of Laws. Respondent likewise presented witnesses to
prove that he is a well known lawyer in the business community
both in the Philippines and in Hong Kong.18 For its part, the lone
witness presented by petitioner was Nepomuceno who claimed
that she acted in good faith in alleging that respondent is a
resident of Hong Kong.19
On August 30, 2000, the trial court awarded damages to
respondent in the amount of P25 Million without specifying the
basis thereof, thus:
WHEREFORE, premises above considered, and defendant
having duly established his claim in the amount of
₱25,000,000.00, judgment is hereby rendered ordering
Prudential Guarantee & [Assurance] Co., which is solidarily
liable with plaintiff to pay defendant the full amount of bond
under Prudential Guarantee & Assurance, Inc. JCL(4) No.
01081, [Bond No. HO-46764-97], dated 24 October 1997 in the
amount of ₱18,798,734.69. And, considering that the amount of
the bond is insufficient to fully satisfy the award for damages,
plaintiff is hereby ordered to pay defendant the amount of
₱6,201,265.31.
SO ORDERED.20
The trial court denied petitioner’s motion for reconsideration on
October 24, 2000.21
Petitioner elevated the case to the Court of Appeals which
affirmed the findings of the trial court. It held that in claiming that
respondent was not a resident of the Philippines, petitioner
cannot be said to have been in good faith considering that its
knowledge of respondent’s Philippine residence and office
address goes into the very issue of the trial court’s jurisdiction
which would have been defective had respondent not voluntarily
appeared before it.
The Court of Appeals, however, reduced the amount of
damages awarded to petitioner and specified their basis. The
dispositive portion of the decision of the Court of Appeals states:
WHEREFORE, the appeal is PARTIALLY GRANTED and the
decision appealed from is hereby MODIFIED. The award of
damages in the amount of ₱25,000,000.00 is deleted. In lieu
thereof, Prudential Guarantee & [Assurance, Inc.], which is
solidarily liable with appellant [herein petitioner], is ORDERED
to pay appellee [herein respondent] ₱2,000,000.00 as nominal
damages; ₱5,000,000.00 as moral damages; and
₱1,000,000.00 as attorney’s fees, to be satisfied against the
attachment bond under Prudential Guarantee & Assurance, Inc.
JCL (4) No. 01081.
SO ORDERED.22
Both parties moved for reconsideration. On November 21, 2006,
the Court of Appeals denied petitioner’s motion for
reconsideration but granted that of respondent’s by ordering
petitioner to pay additional ₱5Million as exemplary damages. 23
Hence, the instant petition.
At the outset, it must be noted that the ruling of the trial court
that petitioner is not entitled to a writ of attachment because
respondent is a resident of the Philippines and that his act of
withdrawing his deposits with petitioner was without intent to
defraud, can no longer be passed upon by this Court. More
importantly, the conclusions of the court that petitioner bank
misrepresented that respondent was residing out of the
Philippines and suppressed the fact that respondent has a
permanent residence in Metro Manila where he may be served
with summons, are now beyond the power of this Court to review
having been the subject of a final and executory order. Said
findings were sustained by the Court of Appeals in CA-G.R. SP
No. 50784 and by this Court in G.R. No. 140605. The rule on
conclusiveness of judgment, which obtains under the premises,
precludes the relitigation of a particular fact or issue in another
action between the same parties even if based on a different
claim or cause of action. The judgment in the prior action
operates as estoppel as to those matters in issue or points
controverted, upon the determination of which the finding or
judgment was rendered. The previous judgment is conclusive in
the second case, as to those matters actually and directly
controverted and determined.24 Hence, the issues of
misrepresentation by petitioner and the residence of respondent
for purposes of service of summons can no longer be
questioned by petitioner in this case.
The core issue for resolution is whether petitioner bank is liable
for damages for the improper issuance of the writ of attachment
against respondent.
We rule in the affirmative.
Notwithstanding the final judgment that petitioner is guilty of
misrepresentation and suppression of a material fact, the latter
contends that it acted in good faith. Petitioner also contends that
even if respondent is considered a resident of the Philippines,
attachment is still proper under Section 1, paragraph (f), Rule 57
of the Rules of Court since he (respondent) is a resident who is
temporarily out of the Philippines upon whom service of
summons may be effected by publication.
Petitioner’s contentions are without merit.
While the final order of the trial court which quashed the writ did
not categorically use the word "bad faith" in characterizing the
representations of petitioner, the tenor of said order evidently
considers the latter to have acted in bad faith by resorting to a
deliberate strategy to mislead the court. Thus –
In the hearings of the motion, and oral arguments of counsels
before the Court, it appears that plaintiff BANK through its
contracting officers Vice President Corazon B. Nepomuceno
and Executive Vice President Jose Ramon F. Revilla, personally
transacted with defendant mainly through defendant’s
permanent residence in METRO-MANILA, either in defendant’s
home address in Quezon City or his main business address at
the Romulo Mabanta Buenaventura Sayoc & Delos Angeles in
MAKATI and while at times follow ups were made through
defendant’s temporary home and business addresses in
Hongkong. It is therefore clear that plaintiff could not deny their
personal and official knowledge that defendant’s permanent and
official residence for purposes of service of summons is in the
Philippines. In fact, this finding is further confirmed by the letter
of Mr. JOHN GOKONGWEI, JR. Chairman, Executive
Committee of plaintiff BANK, in his letter dated 6 October 1997
on the subject loan to defendant of the same law firm was
addressed to the ROMULO LAW FIRM in MAKATI.
[Anent the] second ground of attachment x x x [t]he Court finds
that the amount withdrawn was not part of defendant’s peso
deposits assigned with the bank to secure the loan and as proof
that the withdrawal was not intended to defraud plaintiff as
creditor is that plaintiff approved and allowed said withdrawals.
It is even noted that when the Court granted the prayer for
attachment it was mainly on the first ground under Section 1(f)
of Rule 57 of the 1997 Rules of Civil Procedure, that defendant
resides out of the Philippines.
On the above findings, it is obvious that plaintiff already knew
from the beginning the deficiency of its second ground for
attachment [i.e.,] disposing properties with intent to defraud his
creditors, and therefore plaintiff had to resort to this
misrepresentation that defendant was residing out of the
Philippines and suppressed the fact that defendant’s permanent
residence is in METRO MANILA where he could be served with
summons.
On the above findings, and mainly on the misrepresentations
made by plaintiff on the grounds for the issuance of the
attachment in the verified complaint, the Court concludes that
defendant has duly proven its grounds in the MOTION and that
plaintiff is not entitled to the attachment.25
Petitioner is therefore barred by the principle of conclusiveness
of judgment from again invoking good faith in the application for
the issuance of the writ. Similarly, in the case of Hanil
Development Co., Ltd. v. Court of Appeals,26the Court debunked
the claim of good faith by a party who maliciously sought the
issuance of a writ of attachment, the bad faith of said party
having been previously determined in a final decision which
voided the assailed writ. Thus –
Apropos the Application for Judgment on the Attachment Bond,
Escobar claims in its petition that the award of attorney’s fees
and injunction bond premium in favor of Hanil is [contrary] to law
and jurisprudence. It contends that no malice or bad faith may
be imputed to it in procuring the writ.
Escobar’s protestation is now too late in the day. The question
of the illegality of the attachment and Escobar’s bad faith in
obtaining it has long been settled in one of the earlier incidents
of this case. The Court of Appeals, in its decision rendered on
February 3, 1983 in C.A.-G.R. No. SP-14512, voided the
challenged writ, having been issued with grave abuse of
discretion. Escobar’s bad faith in procuring the writ cannot be
doubted. Its Petition for the Issuance of Preliminary Attachment
made such damning allegations that: Hanil was already able to
secure a complete release of its final collection from the MPWH;
it has moved out some of its heavy equipments for unknown
destination, and it may leave the country anytime. Worse, its Ex
Parte Motion to Resolve Petition alleged that "after personal
verification by (Escobar) of (Hanil’s) equipment in Cagayan de
Oro City, it appears that the equipments were no longer existing
from their compound." All these allegations of Escobar were
found to be totally baseless and untrue.
Even assuming that the trial court did not make a categorical
pronouncement of misrepresentation and suppression of
material facts on the part of petitioner, the factual backdrop of
this case does not support petitioner’s claim of good faith. The
facts and circumstances omitted are highly material and relevant
to the grant or denial of writ of attachment applied for.
Finally, there is no merit in petitioner’s contention that
respondent can be considered a resident who is temporarily out
of the Philippines upon whom service of summons may be
effected by publication, and therefore qualifies as among those
against whom a writ of attachment may be issued under Section
1, paragraph (f), Rule 57 of the Rules of Court which provides:
(f) In an action against a party x x x on whom summons may be
served by publication.
In so arguing, petitioner attempts to give the impression that
although it erroneously invoked the ground that respondent does
not reside in the Philippines, it should not be made to pay
damages because it is in fact entitled to a writ of attachment had
it invoked the proper ground under Rule 57. However, even on
this alternative ground, petitioner is still not entitled to the
issuance of a writ of attachment.
The circumstances under which a writ of preliminary attachment
may be issued are set forth in Section 1, Rule 57 of the Rules of
Court, to wit:
SEC. 1. Grounds upon which attachment may issue. — At the
commencement of the action or at any time before entry of
judgment, a plaintiff or any proper party may have the property
of the adverse party attached as security for the satisfaction of
any judgment that may be recovered in the following cases:
(a) In an action for the recovery of a specified amount
of money or damages, other than moral and
exemplary, on a cause of action arising from law,
contract, quasi-contract, delict or quasi-delict against a
party who is about to depart from the Philippines with
intent to defraud his creditors;
(b) In an action for money or property embezzled or
fraudulently misapplied or converted to his own use by
a public officer, or an officer of a corporation or an
attorney, factor, broker, agent, or clerk, in the course of
his employment as such, or by any other person in a
fiduciary capacity, or for a willful violation of duty;
(c) In an action to recover the possession of personal
property unjustly or fraudulently taken, detained, or
converted, when the property, or any part thereof, has
been concealed, removed, or disposed of to prevent its
being found or taken by the applicant or an authorized
person;
(d) In an action against a party who has been guilty of
a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in the
performance thereof;
(e) In an action against a party who has removed or
disposed of his property, or is about to do so, with intent
to defraud his creditors;
(f) In an action against a party who resides out of the
Philippines, or on whom summons may be served by
publication.
The purposes of preliminary attachment are: (1) to seize the
property of the debtor in advance of final judgment and to hold it
for purposes of satisfying said judgment, as in the grounds
stated in paragraphs (a) to (e) of Section 1, Rule 57 of the Rules
of Court; or (2) to acquire jurisdiction over the action by actual
or constructive seizure of the property in those instances where
personal or substituted service of summons on the defendant
cannot be effected, as in paragraph (f) of the same provision.27
Corollarily, in actions in personam, such as the instant case for
collection of sum of money,28 summons must be served by
personal or substituted service, otherwise the court will not
acquire jurisdiction over the defendant. In case the defendant
does not reside and is not found in the Philippines (and hence
personal and substituted service cannot be effected), the
remedy of the plaintiff in order for the court to acquire jurisdiction
to try the case is to convert the action into a proceeding in rem or
quasi in rem by attaching the property of the defendant.29 Thus,
in order to acquire jurisdiction in actions in personam where
defendant resides out of and is not found in the Philippines, it
becomes a matter of course for the court to convert the action
into a proceeding in rem or quasi in rem by attaching the
defendant’s property. The service of summons in this case
(which may be by publication coupled with the sending by
registered mail of the copy of the summons and the court order
to the last known address of the defendant), is no longer for the
purpose of acquiring jurisdiction but for compliance with the
requirements of due process.30
However, where the defendant is a resident who is temporarily
out of the Philippines, attachment of his/her property in an action
in personam, is not always necessary in order for the court to
acquire jurisdiction to hear the case.
Section 16, Rule 14 of the Rules of Court reads:
Sec. 16. Residents temporarily out of the Philippines. – When
an action is commenced against a defendant who ordinarily
resides within the Philippines, but who is temporarily out of it,
service may, by leave of court, be also effected out of the
Philippines, as under the preceding section.
The preceding section referred to in the above provision is
Section 15 which provides for extraterritorial service – (a)
personal service out of the Philippines, (b) publication coupled
with the sending by registered mail of the copy of the summons
and the court order to the last known address of the defendant;
or (c) in any other manner which the court may deem sufficient.
In Montalban v. Maximo,31 however, the Court held that
substituted service of summons (under the present Section 7,
Rule 14 of the Rules of Court) is the normal mode of service of
summons that will confer jurisdiction on the court over the
person of residents temporarily out of the Philippines. Meaning,
service of summons may be effected by (a) leaving copies of the
summons at the defendant’s residence with some person of
suitable discretion residing therein, or (b) by leaving copies at
the defendant’s office or regular place of business with some
competent person in charge thereof.32 Hence, the court may
acquire jurisdiction over an action in personam by mere
substituted service without need of attaching the property of the
defendant.
The rationale in providing for substituted service as the normal
mode of service for residents temporarily out of the Philippines,
was expounded in Montalban v. Maximo, 33 in this wise:
A man temporarily absent from this country leaves a definite
place of residence, a dwelling where he lives, a local base, so to
speak, to which any inquiry about him may be directed and
where he is bound to return. Where one temporarily absents
himself, he leaves his affairs in the hands of one who may be
reasonably expected to act in his place and stead; to do all that
is necessary to protect his interests; and to communicate with
him from time to time any incident of importance that may affect
him or his business or his affairs. It is usual for such a man to
leave at his home or with his business associates information as
to where he may be contacted in the event a question that
affects him crops up.
Thus, in actions in personam against residents temporarily out
of the Philippines, the court need not always attach the
defendant’s property in order to have authority to try the case.
Where the plaintiff seeks to attach the defendant’s property and
to resort to the concomitant service of summons by publication,
the same must be with prior leave, precisely because, if the sole
purpose of the attachment is for the court to acquire jurisdiction,
the latter must determine whether from the allegations in the
complaint, substituted service (to persons of suitable discretion
at the defendant’s residence or to a competent person in charge
of his office or regular place of business) will suffice, or whether
there is a need to attach the property of the defendant and resort
to service of summons by publication in order for the court to
acquire jurisdiction over the case and to comply with the
requirements of due process.
In the instant case, it must be stressed that the writ was issued
by the trial court mainly on the representation of petitioner that
respondent is not a resident of the Philippines.34 Obviously, the
trial court’s issuance of the writ was for the sole purpose of
acquiring jurisdiction to hear and decide the case. Had the
allegations in the complaint disclosed that respondent has a
residence in Quezon City and an office in Makati City, the trial
court, if only for the purpose of acquiring jurisdiction, could have
served summons by substituted service on the said addresses,
instead of attaching the property of the defendant. The rules on
the application of a writ of attachment must be strictly construed
in favor of the defendant. For attachment is harsh, extraordinary,
and summary in nature; it is a rigorous remedy which exposes
the debtor to humiliation and annoyance.35 It should be resorted
to only when necessary and as a last remedy.
It is clear from the foregoing that even on the allegation that
respondent is a resident temporarily out of the Philippines,
petitioner is still not entitled to a writ of attachment because the
trial court could acquire jurisdiction over the case by substituted
service instead of attaching the property of the defendant. The
misrepresentation of petitioner that respondent does not reside
in the Philippines and its omission of his local addresses was
thus a deliberate move to ensure that the application for the writ
will be granted.
In light of the foregoing, the Court of Appeals properly sustained
the finding of the trial court that petitioner is liable for damages
for the wrongful issuance of a writ of attachment against
respondent.
Anent the actual damages, the Court of Appeals is correct in not
awarding the same inasmuch as the respondent failed to
establish the amount garnished by petitioner. It is a well settled
rule that one who has been injured by a wrongful attachment can
recover damages for the actual loss resulting therefrom. But for
such losses to be recoverable, they must constitute actual
damages duly established by competent proofs, which are,
however, wanting in the present case.36
Nevertheless, nominal damages may be awarded to a plaintiff
whose right has been violated or invaded by the defendant, for
the purpose of vindicating or recognizing that right, and not for
indemnifying the plaintiff for any loss suffered by him. Its award
is thus not for the purpose of indemnification for a loss but for
the recognition and vindication of a right. Indeed, nominal
damages are damages in name only and not in fact. 37 They are
recoverable where some injury has been done but the pecuniary
value of the damage is not shown by evidence and are thus
subject to the discretion of the court according to the
circumstances of the case.38
In this case, the award of nominal damages is proper
considering that the right of respondent to use his money has
been violated by its garnishment. The amount of nominal
damages must, however, be reduced from ₱2 million to
₱50,000.00 considering the short period of 2 months during
which the writ was in effect as well as the lack of evidence as to
the amount garnished.1âwphi1
Likewise, the award of attorney’s fees is proper when a party is
compelled to incur expenses to lift a wrongfully issued writ of
attachment. The basis of the award thereof is also the amount
of money garnished, and the length of time respondents have
been deprived of the use of their money by reason of the
wrongful attachment.39 It may also be based upon (1) the
amount and the character of the services rendered; (2) the labor,
time and trouble involved; (3) the nature and importance of the
litigation and business in which the services were rendered; (4)
the responsibility imposed; (5) the amount of money and the
value of the property affected by the controversy or involved in
the employment; (6) the skill and the experience called for in the
performance of the services; (7) the professional character and
the social standing of the attorney; (8) the results secured, it
being a recognized rule that an attorney may properly charge a
much larger fee when it is contingent than when it is not.40
All the aforementioned weighed, and considering the short
period of time it took to have the writ lifted, the favorable
decisions of the courts below, the absence of evidence as to the
professional character and the social standing of the attorney
handling the case and the amount garnished, the award of
attorney’s fees should be fixed not at ₱1 Million, but only at
₱200,000.00.
The courts below correctly awarded moral damages on account
of petitioner’s misrepresentation and bad faith; however, we find
the award in the amount of ₱5 Million excessive. Moral damages
are to be fixed upon the discretion of the court taking into
consideration the educational, social and financial standing of
the parties.41 Moral damages are not intended to enrich a
complainant at the expense of a defendant. 42 They are awarded
only to enable the injured party to obtain means, diversion or
amusements that will serve to obviate the moral suffering he has
undergone, by reason of petitioner’s culpable action. Moral
damages must be commensurate with the loss or injury suffered.
Hence, the award of moral damages is reduced to ₱500,000.00.
Considering petitioner’s bad faith in securing the writ of
attachment, we sustain the award of exemplary damages by
way of example or correction for public good. This should deter
parties in litigations from resorting to baseless and preposterous
allegations to obtain writs of attachments. While as a general
rule, the liability on the attachment bond is limited to actual (or
in some cases, temperate or nominal) damages, exemplary
damages may be recovered where the attachment was
established to be maliciously sued out. 43 Nevertheless, the
award of exemplary damages in this case should be reduced
from ₱5M to ₱500,000.00.
Finally, contrary to the claim of petitioner, the instant case for
damages by reason of the invalid issuance of the writ, survives
the dismissal of the main case for sum of money. Suffice it to
state that the claim for damages arising from such wrongful
attachment may arise and be decided separately from the merits
of the main action.44
WHEREFORE, the petition is PARTIALLY GRANTED. The May
31, 2006 Decision of the Court of Appeals in CA-G.R. CV No.
78200 is AFFIRMED with MODIFICATIONS. As modified,
petitioner Philippine Commercial International Bank is ordered
to pay respondent Joseph Anthony M. Alejandro the following
amounts: ₱50,000.00 as nominal damages, ₱200,000.00 as
attorney’s fees; and ₱500,000.00 as moral damages, and
₱500,000.00 as exemplary damages, to be satisfied against the
attachment bond issued by Prudential Guarantee & Assurance
Inc.,45 under JCL (4) No. 01081, Bond No. HO-46764-97.
No pronouncement as to costs.
SO ORDERED.
SECOND DIVISION
January 30, 2017
G.R. No. 219345
SECURITY BANK CORPORATION, Petitioner
vs.
GREAT WALL COMMERCIAL PRESS COMPANY, INC.,
ALFREDO BURIEL ATIENZA, FREDINO CHENG ATIENZA
and SPS. FREDERICK CHENG ATIENZA and MONICA CU
ATIENZA, Respondents
DECISION
mendoza, J.:
This is a petition for review on certiorari seeking to reverse and
set aside the December 12, 2014 Decision1 and June 26, 2015
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
131714, which lifted the writ of preliminary attachment issued by
the Regional Trial Court, Branch 59, Makati City (RTC), in Civil
Case No. 13-570, in favor of petitioner Security Bank
Corporation (Security Bank).
The Antecedents
On May 15, 2013, Security Bank filed a Complaint for Sum of
Money (with Application for Issuance of a Writ of Preliminary
Attachment)3 against respondents Great Wall Commercial
Press Company, Inc. (Great Wall) and its sureties, Alfredo Buriel
Atienza, Fredino Cheng Atienza, and Spouses Frederick Cheng
Atienza and Monica Cu Atienza (respondents), before the RTC.
The complaint sought to recover from respondents their unpaid
obligations under a credit facility covered by several trust
receipts and surety agreements, as well as interests, attorney's
fees and costs. Security Bank argued that in spite of the lapse
of the maturity date of the obligations from December 11, 2012
to May 7, 2013, respondents failed to pay their obligations. The
total principal amount sought was ₱10,000,000.00.
On May 31, 2013, after due hearing, the RTC granted the
application for a writ of preliminary attachment of Security Bank,
which then posted a bond in the amount of ₱10,000,000.00.
On June 3, 2013, respondents filed their Motion to Lift Writ of
Preliminary Attachment Ad Cautelam,4 claiming that the writ
was issued with grave abuse of discretion based on the following
grounds: (1) Security Bank's allegations in its application did not
show a prima facie basis therefor; (2) the application and the
accompanying affidavits failed to allege at least one
circumstance which would show fraudulent intent on their part;
and (3) the general imputation of fraud was contradicted by their
efforts to secure an approval for a loan restructure. 5
The RTC Orders
In its Order,6 dated July 4, 2013, the RTC denied respondents'
motion to lift, explaining that the Credit Agreement7and the
Continuing Suretyship Agreement8 contained provisions on
representations and warranties; that the said representations
and warranties were the very reasons why Security Bank
decided to extend the loan; that respondents executed various
trust receipt agreements but did not pay or return the goods
covered by the trust receipts in violation thereof; that they failed
to explain why the goods subject of the trust receipts were not
returned and the proceeds of sale thereof remitted; and that it
was clear that respondents committed fraud in the performance
of the obligation. 9
Respondents filed a motion for reconsideration, but it was
denied by the RTC in its Order, 10 dated August 12, 2013.
Dissatisfied, respondents filed a petition for certiorari before the
CA seeking to reverse and set aside the RTC orders denying
their motion to lift the writ of preliminary attachment issued.
The CA Ruling
In its assailed decision, dated December 12, 2014, the CA lifted
the writ of preliminary attachment. The appellate court explained
that the allegations of Security Bank were insufficient to warrant
the provisional remedy of preliminary attachment. It pointed out
that fraudulent intent could not be inferred from a debtor's
inability to pay or comply with its obligations. The CA opined that
the non-return of the proceeds of the sale and/or the goods
subject of the trust receipts did not, by itself, constitute fraud and
that, at most, these were only averments for the award of
damages once substantiated by competent evidence. It also
stressed that respondents' act of offering a repayment proposal
negated the allegation of fraud. The CA held that fraud must be
present at the time of contracting the obligation, not thereafter,
and that the rules on the issuance of a writ of attachment must
be construed strictly against the applicant. It disposed the case
in this wise:
WHEREFORE, for the foregoing reasons, the instant petition is
GRANTED. Accordingly, the attachment over any property of
petitioners by the writ of preliminary attachment is ordered
LIFTED effective upon the finality of this Decision. No costs.
SO ORDERED. 11
Security Bank moved for reconsideration but its motion was
denied by the CA in its assailed resolution, dated June 26, 2015.
Hence, this petition raising the lone
ISSUE
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
NULLIFYING THE WRIT OF PRELIMINARY ATTACHMENT
ISSUED BY THE TRIAL COURT. 12
Security Bank argues that there are sufficient factual and legal
bases to justify the issuance of the writ of preliminary
attachment. It claims that it was misled by respondents, who
employed fraud in contracting their obligation, as they made the
bank believe that they had the capacity to pay; that respondents
also committed fraud in the performance of their obligation when
they failed to tum over the goods subject of the trust receipt
agreements,13 or remit the proceeds thereof despite demands;
and that these were not mere allegations in the complaint but
facts that were testified to by its witness and supported by written
documents.
Security Bank added that respondents' effort to settle their
outstanding obligation was just a subterfuge to conceal their real
intention of not honoring their commitment and to delay any legal
action that the bank would take against them; that respondents
submitted a repayment proposal through a letter, dated January
23, 2013, knowing fully well that they were already in default;
that they requested a meeting to discuss their proposal but they
failed to show up and meet with the bank's representative; and
that respondents did not submit any supporting documents to
back up their repayment proposal.
In their Comment,14 respondents countered that there was
insufficient basis for the issuance of the writ of preliminary
attachment against them; that the mere failure to pay their
obligation was not an act of fraud; that the application for the
issuance of the writ of preliminary attachment, the affidavit of
merit and judicial affidavit merely cited general allegations of
fraud and Security Bank failed to sufficiently show the factual
circumstances constituting fraud. Moreover, respondents
claimed that they did not commit fraud because they were
earnestly negotiating with Security Bank for a loan restructuring
as shown by their Letter, 15 dated January 23, 2013, and email
correspondences.
In its Reply,16 Security Bank stressed that respondents misled
them on their financial capacity and ability to pay their
obligations. It emphasized that there were specific allegations in
its complaint and its witness testified that respondents
committed fraud, specifically their failure to comply with the trust
receipt agreements, that they would turn over the goods covered
by the trust receipt agreements or the proceeds thereof to
Security Bank.
The Court’s Ruling
The Court finds merit in the petition.
Preliminary Attachment
A writ of preliminary attachment is a provisional remedy issued
upon the order of the court where an action is pending. Through
the writ, the property or properties of the defendant may be
levied upon and held thereafter by the sheriff as security for the
satisfaction of whatever judgment might be secured by the
attaching creditor against the defendant. The provisional remedy
of attachment is available in order that the defendant may not
dispose of the property attached, and thus prevent the
satisfaction of any judgment that may be secured by the plaintiff
from the former.17
In this case, Security Bank relied on Section 1 (d), Rule 57 of
the Rules of Court as basis of its application for a writ of
preliminary attachment. It reads:
RULE 57
Preliminary Attachment
Section 1. Grounds upon which attachment may issue. - At the
commencement of the action or at any time before entry of
judgment, a plaintiff or any proper party may have the property
of the adverse party attached as security for the satisfaction of
any judgment that may be recovered in the following cases:
xxx
(d) In an action against a party who has been guilty of a fraud in
contracting the debt or incurring the obligation upon which the
action is brought, or in the performance thereof;
xxx
For a writ of preliminary attachment to issue under the above-
quoted rule, the applicant must sufficiently show the factual
circumstances of the alleged fraud. It is settled that fraudulent
intent cannot be inferred from the debtor's mere non-payment of
the debt or failure to comply with his obligation. 18
While fraud cannot be presumed, it need not be proved by direct
evidence and can well be inferred from attendant circumstances.
Fraud by its nature is not a thing susceptible of ocular
observation or readily demonstrable physically; it must of
necessity be proved in many cases by inferences from
circumstances shown to have been involved in the transaction
in question. 19
The allegations of Security Bank in support of its application for
a writ of preliminary attachment are as follow:
15. During the negotiation for the approval of the loan
application/ renewal of Respondents the latter through Alfredo
Buriel Atienza, Fredino Cheng Atienza and Sps. Frederick
Cheng Atienza and Monica Cu Atienza, assured SBC that the
loan obligation covered by the several Trust Receipts shall be
paid in full on or before its maturity date pursuant to the terms
and conditions of the aforesaid trust receipts. However,
Respondents as well as the sureties failed to pay the aforesaid
obligation.
16. In addition, the assurance to pay in full the obligation is
further solidified by the warranty of solvency provisions of the
Credit Agreement, the pertinent portion of which states that:
"5. Representations at Warranties. - The Borrower further
represents and warrants that xx:xe) The maintenance of the
Credit Facility is premised on the Borrower's continued ability to
service its obligations to its creditors. Accordingly, the Borrower
hereby warrants that while any of the Credit Obligations remain
unpaid, the Borrower shall at all times have sufficient liquid
assets to meet operating requirements and pay all its/his debts
as they fall due. Failure of the Borrower to pay any maturing
interest, principal or other charges under the Credit Facility shall
be conclusive evidence of violation of this warranty."
17. To allay whatever fear or apprehension of herein plaintiff on
the commitment of Respondents to honor its obligations,
defendants-sureties likewise executed a "Continuing Suretyship
Agreement.
18. Under paragraph 3 of the said Suretyship Agreement, it is
provided that:
"3. Liability of the Surety - The liability of the Surety is solidary,
direct and immediate and not contingent upon the pursuit by
SBC of whatever remedies it may have against the Borrower or
the collateral/liens it may possess. If any of the Guaranteed
Obligations is not paid or performed on due date (at stated
maturity or by acceleration), or upon the occurrence of any of
the events of default under Section 5 hereof and/or under the
Credit Instruments, the Surety shall without need for any notice,
demand or any other act or deed, immediately and automatically
become liable therefor and the Surety shall pay and perform the
same."
19. Thus, in the light of the representation made by
Respondents Commercial Press Co, Inc., Alfredo Buriel Atienza,
Fredino Cheng Atienza and Sps. Frederick Cheng Atienza and
Monica Cu Atienza that the loan shall be paid in full on or before
maturity, coupled by the warranty of solvency embodied in the
Credit Agreement as well as the execution of the Continuing
Suretyship Agreement, the loan application was eventually
approved.
20. Needless to say that without said representations and
warranties, including the Continuing Suretyship Agreement, the
plaintiff would not have approved and granted the credit facility
to Respondents. It is thus clear that Respondents, Alfredo Buriel
Atienza, Fredino Cheng Atienza and Sps. Frederick Cheng
Atienza and Monica Cu Atienza, misled SBC and employed
fraud in contracting said obligation.
21. Respondents, through its Vice President Fredino Cheng
Atienza, likewise executed various Trust Receipt Agreements
with the plaintiff whereby it bound itself under the following
provision:
"2. In consideration of the delivery to the Entrustee of the
possession of the Goods/Documents, the Entrustee hereby
agrees and undertakes, in accordance with the provisions of the
Presidential Decree No. 115; (i) to hold in trust for the Bank the
Goods/Documents; (ii) to sell the Goods for cash only for the
account and benefit of the Bank, and without authority to make
any other disposition of the Goods/Documents or any part
thereof, or to create a lien thereon; (iii) to turn over to the Bank,
without need of demand, the proceeds of the sale of the Goods
to the extent of the amount of obligation specified above (the
"Obligation"), including the interest thereon, and other amounts
owing by the Entrustee to the Bank under this Trust Receipt, on
or before the maturity date above-mentioned (the "Maturity
Date"); or (iv) to return, on or before Maturity Date, without need
of demand and at the Entrustee's expense, the
Goods/Documents to the Bank, in the event of non-sale of the
Goods."
Despite the above covenants, defendants failed to pay nor
return the goods subject of the Trust Receipt Agreements.
22. Knowing fully well that they are already in default,
Respondents and defendants sureties submitted a repayment
proposal through their letter dated January 23, 2013. Through
their lawyer, they likewise requested the bank for a meeting to
discuss their proposal. However, as it turned out, the proposed
repayment proposal for their loan was only intended to delay
legal action against them. They failed to meet with the Bank's
representative and neither did they submit supporting
documents to back up their repayment proposal.20
To support its allegation of fraud, Security Bank attached the
Affidavit21 of German Vincent Pulgar IV (Pu/gar), the Manager
of the Remedial Management Division of the said bank. He
detailed how respondents represented to Security Bank that
they would pay the loans upon their maturity date. Pulgar added
that respondents signed the Credit Agreement which contained
the Warranty of Solvency and several Trust Receipt Agreements
in favor of Security Bank. The said trust receipts were attached
to the complaint which stated that respondents were obligated
to tum over to Security Bank the proceeds of the sale of the good
or to return the goods. The several demand letters sent by
Security Bank to respondents, which were unheeded, were
likewise attached to the complaint. These pieces of evidence
were presented by Security Bank during the hearing of the
application for the issuance of a writ of preliminary attachment
in the RTC.
After a judicious study of the records, the Court finds that
Security Bank was able to substantiate its factual allegation of
fraud, particularly, the violation of the trust receipt agreements,
to warrant the issuance of the writ of preliminary attachment.
There were violations of the
trust receipts agreements
While the Court agrees that mere violations of the warranties
and representations contained in the credit agreement and the
continuing suretyship agreement do not constitute fraud under
Section 1(d) of Rule 57 of the Rules of Court, the same cannot
be said with respect to the violation of the trust receipts
agreements.
A trust receipt transaction is one where the entrustee has the
obligation to deliver to the entruster the price of the sale, or if the
merchandise is not sold, to return the merchandise to the
entruster. There are, therefore, two obligations in a trust receipt
transaction: the first refers to money received under the
obligation involving the duty to turn it over (entregarla) to the
owner of the merchandise sold, while the second refers to the
merchandise received under the obligation to "return" it
(devolvera) to the owner. 22 The obligations under the trust
receipts are governed by a special law, Presidential Decree
(P.D.) No. 115, and non-compliance have particular legal
consequences.
Failure of the entrustee to tum over the proceeds of the sale of
the goods, covered by the trust receipt to the entruster or to
return said goods if they were not disposed of in accordance with
the terms of the trust receipt shall be punishable as es ta fa
under Article 315 (1) of the Revised Penal Code, without need
of proving intent to defraud. 23 The offense punished under P.D.
No. 115 is in the nature of malum prohibitum. Mere failure to
deliver the proceeds of the sale or the goods, if not sold,
constitutes a criminal offense that causes prejudice not only to
another, but more to the public interest.24 The present case,
however, only deals with the civil fraud in the noncompliance
with the trust receipts to warrant the issuance of a writ of
preliminary attached. A fortiori, in a civil case involving a trust
receipt, the entrustee's failure to comply with its obligations
under the trust receipt constitute as civil fraud provided that it is
alleged, and substantiated with specificity, in the complaint, its
attachments and supporting evidence.
Security Bank's complaint stated that Great Wall, through its
Vice President Fredino Cheng Atienza, executed various trust
receipt agreements in relation to its loan transactions. The trust
receipts stated that in consideration of the delivery to the
entrustee (Great Wall) of the possession of the goods, it
obligates itself to hold in trust for the bank the goods, to sell the
goods for the benefit of the bank, to tum over the proceeds of
the sale to the bank, and to return the goods to the bank in the
event of non-sale. By signing the trust receipt agreements,
respondents fully acknowledged the consequences under the
law once they failed to abide by their obligations therein. The
said trust receipt agreements were attached to the complaint.
Upon the maturity date, however, respondents failed to deliver
the proceeds of the sale to Security Bank or to return the goods
in case of nonsale. Security Bank sent a final demand letter to
respondents, which was also attached to the complaint, but it
was unheeded. Curiously, in their letter, dated January 23, 2013,
respondents did not explain their reason for noncompliance with
their obligations under the trust receipts; rather, they simply
stated that Great Wall was having a sudden drop of its income.
Such unsubstantiated excuse cannot vindicate respondents
from their failure to fulfill their duties under the trust receipts.
In addition, Security Bank attached Pulgar's affidavit, which
substantiated its allegation that respondents failed to comply
with its obligations under the trust receipts. During the hearing
before the RTC, Security Bank presented him and his judicial
affidavit. Regarding the trust receipts, he testified:
Q: Do you have any other basis in saying that you have grounds
for attachment?
A: Yes, defendants not only failed to pay but they also failed to
return the goods covered by the Trust Receipt.
Q: What do you mean by failure to return the goods?
A: They executed several TRs where they obligated to turn over
the proceeds of sale of goods or pay the value thereof or return
the goods themselves if they are unable to pay.
Q: What happened in this case?
A: Defendants failed to pay the value of the goods covered by
the TRs and they likewise failed to return the goods without any
explanation. Hence, obviously they misappropriated the
proceeds of the sale of goods.25
The Court is of the view that Security Bank's allegations of
violation of the trust receipts in its complaint was specific and
sufficient to assert fraud on the part of respondents. These
allegations were duly substantiated by the attachments thereto
and the testimony of Security Bank's witness.
The case of Philippine Bank of
Communications v. Court of
Appeals is inapplicable
The CA cited Philippine Bank of Communications v. Court of
Appeals26 (PBCom) to bolster its argument that fraudulent intent
cannot be inferred from a debtor's inability to pay or comply with
its obligations and that there must be proof of a preconceived
plan not to pay.27
At face value, PBCom and the present case may show a
semblance of similarity. Thus, the CA cannot be faulted for
relying on the said case.1âwphi1 A closer scrutiny of these two
cases, however, shows that their similarity is more apparent
than real.
In PBCom, the applicant for the writ of preliminary attachment
simply stated in its motion that the defendant therein failed to
remit the proceeds or return the goods subject of the trust receipt
and attached an ambiguous affidavit stating that the case was
covered by Sections 1 (b) and (d) of Rule 57. Obviously, these
allegations and attachments are too general and vague to prove
that the defendant committed fraud. Likewise, there was no
hearing conducted in the RTC before it granted the issuance of
the writ of preliminary attachment. Thus, the Court had no option
but to lift the said writ.
In contrast, the complaint in the present case explained in detail
the factual circumstances surrounding the execution of the trust
receipts, its contents and the subsequent violation thereof.
Security Bank attached supporting annexes and presented its
witness during the hearing in the R TC to substantiate the
specific violation of trust receipts by respondents. Security Bank
took great lengths to explain the contents of the trust receipt and
show that respondents expressed their conformity to it. When
the obligation became due, respondents did not satisfactorily
explain the non-compliance of their obligations, and. despite a
final demand, they did not fulfill their obligations under the trust
receipts. Clearly, PBCom is inapplicable in the present case.
Fraud in the performance of
the obligation must be
considered
The CA stated in the assailed decision that under Section 1 (d)
of Rule 57, fraud must only be present at the time of contracting
the obligation, and not thereafter. Hence, the CA did not
consider the allegation of fraud - that respondents offered a
repayment proposal but questionably failed to attend the
meeting with Security Bank regarding the said proposal -
because these acts were done after contracting the obligation.
In this regard, the CA erred.
Previously, Section 1 (d), Rule 57 of the 1964 Rules of Court
provided that a writ of preliminary attachment may be issued "[i]n
an action against a party who has been guilty of a fraud in
contracting the debt or incurring the obligation upon which the
action is brought xxx" Thus, the fraud that justified the issuance
of a writ of preliminary attachment then was only fraud
committed in contracting an obligation (dolo casuante). 28 When
the 1997 Rules of Civil Procedure was issued by the Court,
Section l(d) of Rule 57 conspicuously included the phrase "in the
performance thereof." Hence, the fraud committed in the
performance of the obligation (dolo incidente) was included as a
ground for the issuance of a writ of preliminary attachment.29
This significant change in Section 1 (d) of Rule 57 was
recognized recently in Republic v. Mega Pacific eSolutions,
Inc. 30 The Court stated therein that "[a]n amendment to the
Rules of Court added the phrase "in the performance thereof' to
include within the scope of the grounds for issuance of a writ of
preliminary attachment those instances relating to fraud in the
performance of the obligation."
Accordingly, the alleged fraud committed by respondents in the
performance of their obligation should have been considered by
the CA. Security Bank detailed in its complaint that respondents,
knowing fully well that they were in default, submitted a
Repayment Proposal. 31 Then, they requested for a meeting
with the bank to discuss their proposal. For unknown reasons,
they did not meet the representatives of the Security Bank.
Respondents even attached to its Motion to Lift Writ of
Preliminary Attachment Ad Cautelam32 the correspondence
they had with Security Bank, which revealed that they did not
meet the representatives of the latter despite providing a specific
date to discuss the proposed repayment scheme. Respondents
merely offered lame excuses to justify their absence in the
arranged meeting and, ultimately, they failed to clarify the non-
compliance with their commitments. Such acts bared that
respondents were not sincere in paying their obligation despite
their maturity, substantiating the allegations of fraud in the
performance thereof.
These circumstances of the fraud committed by respondents in
the performance of their obligation undoubtedly support the
issuance of a writ of preliminary attachment in favor of Security
Bank.
Final Note
While the Court finds that Security Bank has substantiated its
allegation of fraud against respondents to warrant the issuance
of writ or preliminary attachment, this finding should not in any
manner affect the merits of the principal case. The writ of
preliminary attachment is only a provisional remedy, which is not
a cause of action in itself but is merely adjunct to a main suit.33
WHEREFORE, the December 12, 2014 Decision and the June
26, 2015 Resolution of the Court of Appeals in CA-G.R. SP No.
131714 are REVERSED and SET ASIDE. The issuance of the
writ of preliminary attachment by the Regional Trial Court,
Branch 59, Makati City, in Civil Case No. 13-570, pursuant to its
May 31, 2013 Order, is upheld.
SO ORDERED. Republic of the Philippines
SUPREME COURT
JOSE CATRAL MENDOZA Manila
Associate Justice
SECOND DIVISION

G.R. No. 171741 November 27, 2009

METRO, INC. and SPOUSES FREDERICK JUAN and LIZA

JUAN, Petitioners,
vs.
LARA'S GIFTS AND DECORS, INC., LUIS VILLAFUERTE,
JR. and LARA MARIA R. VILLAFUERTE,Respondents.

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 29 September 2004

Decision2 and 2 March 2006 Resolution3 of the Court of Appeals
in CA-G.R. SP No. 79475. In its 29 September 2004 Decision,
the Court of Appeals granted the petition for certiorari of
respondents Lara’s Gifts and Decors, Inc., Luis Villafuerte, Jr.,
and Lara Maria R. Villafuerte (respondents). In its 2 March 2006
Resolution, the Court of Appeals denied the motion for
reconsideration of petitioners Metro, Inc., Frederick Juan and
Liza Juan (petitioners).

The Facts

Lara’s Gifts and Decors Inc. (LGD) and Metro, Inc. are
corporations engaged in the business of manufacturing,
producing, selling and exporting handicrafts. Luis Villafuerte, Jr.
and Lara Maria R. Villafuerte are the president and vice-
president of LGD respectively. Frederick Juan and Liza Juan are
the principal officers of Metro, Inc.

Sometime in 2001, petitioners and respondents agreed that

respondents would endorse to petitioners purchase orders
received by respondents from their buyers in the United States
of America in exchange for a 15% commission, to be shared
equally by respondents and James R. Paddon (JRP), LGD’s
agent. The terms of the agreement were later embodied in an e-
mail labeled as the "2001 Agreement."4

In May 2003, respondents filed with the Regional Trial Court,

Branch 197, Las Piñas City (trial court) a complaint against
petitioners for sum of money and damages with a prayer for the
issuance of a writ of preliminary attachment. Subsequently,
respondents filed an amended complaint5 and alleged that, as
of July 2002, petitioners defrauded them in the amount of
$521,841.62. Respondents also prayed for ₱1,000,000 as moral
damages, ₱1,000,000 as exemplary damages and 10% of the
judgment award as attorney’s fees. Respondents also prayed
for the issuance of a writ of preliminary attachment.
In its 23 June 2003 Order,6 the trial court granted respondents’
prayer and issued the writ of attachment against the properties
and assets of petitioners. The 23 June 2003 Order provides:
WHEREFORE, let a Writ of Preliminary Attachment issue
against the properties and assets of Defendant METRO, INC.
and against the properties and assets of Defendant SPOUSES
FREDERICK AND LIZA JUAN not exempt from execution, as
may be sufficient to satisfy the applicants’ demand of
US$521,841.62 US Dollars or its equivalent in Pesos upon
actual attachment, which is about ₱27 Million, unless such
Defendants make a deposit or give a bond in an amount equal
to ₱27 Million to satisfy the applicants’ demand exclusive of
costs, upon posting by the Plaintiffs of a Bond for Preliminary
Attachment in the amount of twenty five million pesos
(₱25,000,000.00), subject to the approval of this Court.
SO ORDERED.7
On 26 June 2003, petitioners filed a motion to discharge the writ
of attachment. Petitioners argued that the writ of attachment
should be discharged on the following grounds: (1) that the 2001
agreement was not a valid contract because it did not show that
there was a meeting of the minds between the parties; (2)
assuming that the 2001 agreement was a valid contract, the
same was inadmissible because respondents failed to
authenticate it in accordance with the Rules on Electronic
Evidence; (3) that respondents failed to substantiate their
allegations of fraud with specific acts or deeds showing how
petitioners defrauded them; and (4) that respondents failed to
establish that the unpaid commissions were already due and
demandable.
After considering the arguments of the parties, the trial court
granted petitioners’ motion and lifted the writ of attachment. The
12 August 2003 Order8 of the trial court provides:
Premises considered, after having taken a second hard look at
the Order dated June 23, 2003 granting plaintiff’s application for
the issuance of a writ of preliminary attachment, the Court holds
that the issuance of a writ of preliminary attachment in this case
is not justified.
WHEREFORE, the writ of preliminary attachment issued in the
instant case is hereby ordered immediately discharged and/or
lifted.
SO ORDERED.9
Respondents filed a motion for reconsideration. In its 10
September 2003 Order, the trial court denied the motion.
Respondents filed a petition for certiorari before the Court of
Appeals. Respondents alleged that the trial court gravely
abused its discretion when it ordered the discharge of the writ of
attachment without requiring petitioners to post a counter-bond.
In its 29 September 2004 Decision, the Court of Appeals granted
respondents’ petition. The 29 September 2004 Decision
provides:
WHEREFORE, finding merit in the petition, We GRANT the
same. The assailed Orders are hereby ANNULLED and SET
ASIDE. However, the issued Writ of Preliminary Attachment may
be ordered discharged upon the filing by the private respondents
of the proper counter-bond pursuant to Section 12, Rule 57 of
the Rules of Civil Procedure.
SO ORDERED.10
Petitioners filed a motion for reconsideration. In its 2 March 2006
Resolution, the Court of Appeals denied the motion.
Hence, this petition.
The 12 August 2003 Order of the Trial Court
According to the trial court, respondents failed to sufficiently
show that petitioners were guilty of fraud either in incurring the
obligation upon which the action was brought, or in the
performance thereof. The trial court found no proof that
petitioners were motivated by malice in entering into the 2001
agreement. The trial court also declared that petitioners’ failure
to fully comply with their obligation, absent other facts or
circumstances to indicate evil intent, does not automatically
amount to fraud. Consequently, the trial court ordered the
discharge of the writ of attachment for lack of evidence of fraud.
The 29 September 2004 Decision of the Court of Appeals
According to the Court Appeals, the trial court gravely abused
its discretion when it ordered the discharge of the writ of
attachment without requiring petitioners to post a counter-bond.
The Court of Appeals said that when the writ of attachment is
issued upon a ground which is at the same time also the
applicant’s cause of action, courts are precluded from hearing
the motion for dissolution of the writ when such hearing would
necessarily force a trial on the merits of a case on a mere
motion.11 The Court of Appeals pointed out that, in this case,
fraud was not only alleged as the ground for the issuance of the
writ of attachment, but was actually the core of respondents’
complaint. The Court of Appeals declared that the only way that
the writ of attachment can be discharged is by posting a counter-
bond in accordance with Section 12,12 Rule 57 of the Rules of
Court.
The Issue
Petitioners raise the question of whether the writ of attachment
issued by the trial court was improperly issued such that it may
be discharged without the filing of a counter-bond.
The Ruling of the Court
The petition has no merit.
Petitioners contend that the writ of attachment was improperly
issued because respondents’ amended complaint failed to
allege specific acts or circumstances constitutive of fraud.
Petitioners insist that the improperly issued writ of attachment
may be discharged without the necessity of filing a counter-
bond. Petitioners also argue that respondents failed to show that
the writ of attachment was issued upon a ground which is at the
same time also respondents’ cause of action. Petitioners
maintain that respondents’ amended complaint was not an
action based on fraud but was a simple case for collection of
sum of money plus damages.
On the other hand, respondents argue that the Court of Appeals
did not err in ruling that the writ of attachment can only be
discharged by filing a counter-bond. According to respondents,
petitioners cannot avail of Section 13,13 Rule 57 of the Rules of
Court to have the attachment set aside because the ground for
the issuance of the writ of attachment is also the basis of
respondents’ amended complaint. Respondents assert that the
amended complaint is a complaint for damages for the breach
of obligation and acts of fraud committed by petitioners.1 a vv p
hi1
In this case, the basis of respondents’ application for the
issuance of a writ of preliminary attachment is Section 1(d), Rule
57 of the Rules of Court which provides:
SEC. 1. Grounds upon which attachment may issue. — At the
commencement of the action or at any time before entry of
judgment, a plaintiff or any proper party may have the property
of the adverse party attached as security for the satisfaction of
any judgment that maybe recovered in the following cases: x x
x endorse more POs and increase the volume of the orders,
(d) In an action against a party who has been guilty of fraud in
contracting the debt or incurring the obligation upon which the
action is brought, or in the performance thereof; x x x
In Liberty Insurance Corporation v. Court of Appeals,14 we
explained:
To sustain an attachment on this ground, it must be shown that
the debtor in contracting the debt or incurring the obligation
intended to defraud the creditor. The fraud must relate to the
execution of the agreement and must have been the reason
which induced the other party into giving consent which he
would not have otherwise given. To constitute a ground for
attachment in Section 1(d), Rule 57 of the Rules of Court, fraud
should be committed upon contracting the obligation sued upon.
A debt is fraudulently contracted if at the time of contracting it
the debtor has a preconceived plan or intention not to pay, as it
is in this case.15
The applicant for a writ of preliminary attachment must
sufficiently show the factual circumstances of the alleged fraud
because fraudulent intent cannot be inferred from the debtor’s
mere non-payment of the debt or failure to comply with his
obligation.16
In their amended complaint, respondents alleged the following
in support of their prayer for a writ of preliminary attachment:
5. Sometime in early 2001, defendant Frederick Juan
approached plaintiff spouses and asked them to help
defendants’ export business. Defendants enticed plaintiffs to
enter into a business deal. He proposed to plaintiff spouses the
following:
a. That plaintiffs transfer and endorse to defendant
Metro some of the Purchase Orders (PO’s) they will
receive from their US buyers;
b. That defendants will sell exclusively and "only thru"
plaintiffs for their US buyer;
xxx
6. After several discussions on the matter and further
inducement on the part of defendant spouses, plaintiff spouses
agreed. Thus, on April 21, 2001, defendant spouses confirmed
and finalized the agreement in a letter-document entitled "2001
Agreement" they emailed to plaintiff spouses, a copy of which is
hereto attached as Annex "A".
xxx
20. Defendants are guilty of fraud committed both at the
inception of the agreement and in the performance of the
obligation. Through machinations and schemes, defendants
successfully enticed plaintiffs to enter into the 2001 Agreement.
In order to secure plaintiffs’ full trust in them and lure plaintiffs to
defendants during the early part, remitted to plaintiffs shares
under the Agreement.
21. However, soon thereafter, just when the orders increased
and the amount involved likewise increased, defendants
suddenly, without any justifiable reasons and in pure bad faith
and fraud, abandoned their contractual obligations to remit to
plaintiffs their shares. And worse, defendants transacted directly
with plaintiffs’ foreign buyer to the latter’s exclusion and damage.
Clearly, defendants planned everything from the beginning,
employed ploy and machinations to defraud plaintiffs, and
consequently take from them a valuable client.
22. Defendants are likewise guilty of fraud by violating the trust
and confidence reposed upon them by plaintiffs. Defendants
received the proceeds of plaintiffs’ LCs with the clear obligation
of remitting 15% thereof to the plaintiffs. Their refusal and failure
to remit the said amount despite demand constitutes a breach
of trust amounting to malice and fraud.17 (Emphasis and
underscoring in the original) (Boldfacing and italicization
supplied)
We rule that respondents’ allegation that petitioners undertook
to sell exclusively and only through JRP/LGD for Target Stores
Corporation but that petitioners transacted directly with
respondents’ foreign buyer is sufficient allegation of fraud to
support their application for a writ of preliminary attachment.
Since the writ of preliminary attachment was properly issued, the
only way it can be dissolved is by filing a counter-bond in
accordance with Section 12, Rule 57 of the Rules of Court.
Moreover, the reliance of the Court of Appeals in the cases of THIRD DIVISION
Chuidian v. Sandiganbayan,18 FCY Construction Group, Inc. v.
Court of Appeals,19 and Liberty Insurance Corporation v. Court September 9, 2015
of Appeals20 is proper. The rule that "when the writ of attachment
is issued upon a ground which is at the same time the applicant’s
cause of action, the only other way the writ can be lifted or G.R. No. 181721
dissolved is by a counter-bond"21 is applicable in this case. It is
clear that in respondents’ amended complaint of fraud is not only WATERCRAFT VENTURE CORPORATION, represented by
alleged as a ground for the issuance of the writ of preliminary its Vice-President, ROSARIO E. RANOA,Petitioners,
attachment, but it is also the core of respondents’ complaint. The vs.
fear of the Court of Appeals that petitioners could force a trial on ALFRED RAYMOND WOLFE, Respondent.
the merits of the case on the strength of a mere motion to
dissolve the attachment has a basis. DECISION

WHEREFORE, we DENY the petition. We AFFIRM the 29 PERALTA, J.:

September 2004 Decision and 2 March 2006 Resolution of the
Court of Appeals in CA-G.R. SP No. 79475.
This is a petition for review on certiorari under Rule 45 of the
Rules of Court, seeking to reverse and set aside the Court of
SO ORDERED. Appeals (CA) Resolution1 dated January 24, 2008 denying the
motion for reconsideration of its Decision2dated September 27,
ANTONIO T. CARPIO 2007 in CA-G.R. SP No. 97804.
Associate Justice
The facts are as follows:

Petitioner Watercraft Venture Corporation (Watercraft) is

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

Sometime in June 1997, Watercraft hired respondent Alfred

Raymond Wolfe (Wolfe), a British national and resident of Subic
Bay Freeport Zone, Zambales, as its Shipyard Manager.

During his empolyment, Wolfe stored the sailboat, Knotty Gull,

within Watercraft's boat storage facilities, but never paid for the
storage fees.

On March 7, 2002, Watercraft terminated the employment of

Wolfe.

Sometime in June 2002, Wolfe pulled out his sailboat from

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

Thus, on July 7, 2005, Watercraft filed against Wolfe a

Complaint for Collection of Sum of Money with Damages with an
Application for the Issuance of a Writ of Preliminary Attachment.
The case was docketed as Civil Case No. 4534-MN, and raffled
to Branch 1703 of the Regional Trial Court (RTC) of Malabon
City.
In his Answer, Wolfe claimed he was hired as Service and
Repair Manager, instead of Shipyard Manager. He denied owing
Watercraft the amount of US$16,324.82 representing storage
fees for the sailboat. He explained that the sailboat was
purchased in February 1998 as part of an agreement between
him and Watercraft's then General Manager, Barry Bailey, and
its President, Ricky Sandoval, for it to be repaired and used as
training or fill-in project for the staff, and to be sold later on. He
added that pursuant to a central Listing Agreement for the sale
of the sailboat, he was appointed as agent, placed in possession
thereof and entitled to a ten percent (10%) sales commission.
He insisted that nowhere in the agreement was there a
stipulation that berthing and storage fees will be charged during
the entire time that the sailboat was in Watercraft's dockyard.
Thus, he claimed to have been surprised when he received five
(5) invoices billing him for the said fees two (2) months after his
services were terminated. He pointed out that the complaint was
an offshoot of an illegal dismissal case he filed against
Watercraft which had been decided in his favor by the Labor
Arbiter.
Meanwhile, finding Watercraft's ex-parte application for writ of
preliminary attachment sufficient in form and in substance
pursuant to Section 1 of Rule 57 of the Rules of Court, the RTC
granted the same in the Order dated July 15, 2005, thus:
WHEREFORE, let a Writ of Preliminary Attachment be issued
accordingly in favor of the plaintiff, Watercraft Ventures
Corporation conditioned upon the filing of attachment bond in
the amount of Three Million Two Hundred Thirty-One Thousand
Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served simultaneously
with the summons, copies of the complaint, application for
attachment, applicant's affidavit and bond, and this Order upon
the defendant.
SO ORDERED.4
Pursuant to the Order dated July 15, 2005, the Writ of
Attachment dated August 3, 2005 and the Notice of Attachment
dated August 5, 2005 were issued, and Wolfe's two vehicles, a
gray Mercedes Benz with plate number XGJ 819 and a maroon
Toyota Corolla with plate number TFW 110, were levied upon.
On August 12, 2005, Wolfe's accounts at the Bank of the
Philippine Islands were also garnished.
By virtue of the Notice of Attachment and Levy dated September
5, 2005, a white Dodge pick-up truck with plate number XXL 111
was also levied upon. However, a certain Jeremy Simpson filed
a Motion for Leave of Court to Intervene, claiming that he is the
owner of the truck as shown by a duly-notarized Deed of Sale
executed on August 4, 2005, the Certificate of Registration No.
3628665-1 and the Official Receipt No. 271839105.
On November 8, 2005, Wolfe filed a Motion to Discharge the
Writ of Attachment, arguing that Watercraft failed to show the
existence of fraud and that the mere failure to pay or perform an
obligation does not amount to fraud. He also claimed that he is
not a flight risk for the following reasons: (1) contrary to the claim
that his Special Working Visa expired in April 2005, his Special
Subic Working Visa and Alien Certificate of Registration are
valid until April 25, 2007 and May 11, 2006, respectively; (2) he
and his family have been residing in the Philippines since 1997;
(3) he is an existing stockholder and officer of Wolfe Marine
Corporation which is registered with the Securities and
Exchange Commission, and a consultant of "Sudeco/Ayala"
projects in Subic, a member of the Multipartite Committee for the
new port development in Subic, and the Subic Chamber of
Commerce; and (4) he intends to finish prosecuting his pending
labor case against Watercraft. On even date, Watercraft also
filed a Motion for Preliminary Hearing of its affirmative defenses
of forum shopping, litis pendentia, and laches.
In an Order dated March 20, 2006, the RTC denied Wolfe's
Motion to Discharge Writ of Attachment and Motion for
Preliminary Hearing for lack of merit.
Wolfe filed a motion for reconsideration, but the RTC also denied
it for lack of merit in an Order dated November 10, 2006.
Aggrieved, Wolfe filed a petition for certiorari before the CA.
The CA granted Wolfe's petition in a Decision dated September
27, 2007, the dispositive portion of which reads:
WHEREFORE, the Order dated March 20, 2006 and the Order
dated November 10, 2006 of respondent Judge are hereby
ANNULLED and SET ASIDE. Accordingly, the Writ of
Attachment issued on August 3, 2005, the Notice of Attachment
dated August 5, 2005 and the Notice of Attachment and Levy
dated September 5, 2005 are hereby also declared NULL and
VOID, and private respondent is DIRECTED to return to their
owners the vehicles that were attached pursuant to the Writ.
SO ORDERED.5
The CA ruled that the act of issuing the writ of preliminary
attachment ex-parte constitutes grave abuse of discretion on the
part of the RTC, thus:
x x x In Cosiquien [v. Court of Appeals], the Supreme Court held
that:
"Where a judge issues a fatally defective writ of preliminary
attachment based on an affidavit which failed to allege the
requisites prescribed for the issuance of the writ of preliminary
attachment, renders the writ of preliminary attachment issued
against the property of the defendant fatally defective. The judge
issuing it is deemed to have acted in excess of jurisdiction. In
fact, the defect cannot even be cured by amendment. Since the
attachment is a harsh and rigorous remedy which exposed the
debtor to humiliation and annoyance, the rule authorizing its
issuance must be strictly construed in favor of defendant. It is
the duty of the court before issuing the writ to ensure that all the
requisites of the law have been complied with. Otherwise, a
judge acquires no jurisdiction to issue the writ." (emphasis
supplied)
In the instant case, the Affidavit of Merit executed by Rosario E.
Rañoa, Watercraft's Vice-President, failed to show fraudulent
intent on the part of Wolfe to defraud the company. It merely
enumerated the circumstances tending to show the alleged
possibility of Wolfe's flight from the country. And upon Wolfe's
filing of the Motion to Discharge the Writ, what the respondent
Judge should have done was to determine, through a hearing,
whether the allegations of fraud were true. As further held in
Cosiquien:
"When a judge issues a writ of preliminary attachment ex-parte,
it is incumbent on him, upon proper challenge of his order to
determine whether or not the same was improvidently issued. If
the party against whom the writ is prayed for squarely
controverts the allegation of fraud, it is incumbent on the
applicant to prove his allegation. The burden of proving that
there indeed was fraud lies with the party making such
allegation. This finds support in Section 1, Rule 131 Rules of
Court. In this jurisdiction, fraud is never presumed." (Emphasis
supplied) As correctly noted by Wolfe, although Sec. 1 of Rule
57 allows a party to invoke fraud as a ground for the issuance of
a writ of attachment, the Rules require that in all averments of
fraud, the circumstances constituting fraud must be stated with
particularity, pursuant to Rule 8, Section 5. The Complaint
merely stated, in paragraph 23 thereof that "For failing to pay the
use [of] facilities and services – in the form of boat storage fees,
the Defendant is clearly guilty of fraud which entitles the Plaintiff
to a Writ of Preliminary Attachment upon the property of the
Defendant as security for the satisfaction of any judgment
herein." This allegation does not constitute fraud as
contemplated by law, fraud being the "generic term embracing
all multifarious means which human ingenuity can devise, and
which are resorted to by one individual to secure an advantage
over another by false suggestions or by suppression of truth and
includes all surprise, trick, cunning, dissembling and any unfair
way by which another is cheated." In this instance, Wolfe's mere
failure to pay the boat storage fees does not necessarily amount
to fraud, absent any showing that such failure was due to
[insidious] machinations and intent on his part to defraud
Watercraft of the amount due it.
As to the allegation that Wolfe is a flight risk, thereby warranting
the issuance of the writ, the same lacks merit. The mere fact that
Wolfe is a British national does not automatically mean that he
would leave the country at will. As Wolfe avers, he and his family
had been staying in the Philippines since 1997, with his
daughters studying at a local school. He also claims to be an
existing stockholder and officer of Wolfe Marine Corporation, a
SEC-registered corporation, as well as a consultant of projects
in the Subic Area, a member of the Multipartite Committee for
the new port development in Subic, and a member of the Subic
Chamber of Commerce. More importantly, Wolfe has a pending
labor case against Watercraft – a fact which the company
glaringly failed to mention in its complaint – which Wolfe claims
to want to prosecute until its very end. The said circumstances,
as well as the existence of said labor case where Wolfe stands
not only to be vindicated for his alleged illegal dismissal, but also
to receive recompense, should have convinced the trial court
that Wolfe would not want to leave the country at will just
because a suit for the collection of the alleged unpaid boat
storage fees has been filed against him by Watercraft.
Neither should the fact that Wolfe's Special Working Visa
expired in April 2005 lead automatically to the conclusion that he
would leave the country. It is worth noting that all visas issued
by the government to foreigners staying in the Philippines have
expiration periods. These visas, however, may be renewed,
subject to the requirements of the law. In Wolfe's case, he
indeed renewed his visa, as shown by Special Working Visa No.
05-WV-0124P issued by the Subic Bay Metropolitan Authority
Visa Processing Office on April 25, 2005, and with validity of two
(2) years therefrom. Moreover, his Alien Certificate of
Registration was valid up to May 11, 2006.
Based on the foregoing, it is therefore clear that the writ was
improvidently issued. It is well to emphasize that "[T]he rules on
the issuance of a writ of attachment must be construed strictly
against the applicants. This stringency is required because the
remedy of attachment is harsh, extraordinary and summary in
nature. If all the requisites for the granting of the writ are not
present, then the court which issues it acts in excess of its
jurisdiction. Thus, in this case, Watercraft failed to meet all the
requisites for the issuance of the writ. Thus, in granting the
same, respondent Judge acted with grave abuse of discretion. 6
In a Resolution dated January 24, 2008, the CA denied
Watercraft's motion for reconsideration of its Decision, there
being no new or significant issues raised in the motion.
Dissatisfied with the CA Decision and Resolution, Watercraft
filed this petition for review on certiorari, raising these two
issues:
I.
WHETHER THE EX-PARTE ISSUANCE OF THE
PRELIMINARY ATTACHMENT BY THE TRIAL COURT IN
FAVOR OF THE PETITIONER IS VALID.
II.
WHETHER THE ALLEGATIONS IN THE AFFIDAVIT OF
MERIT CONCERNING FRAUD ARE SUFFICIENT TO
WARRANT THE ISSUANCE OF A PRELIMINARY WRIT OF
ATTACHMENT BY THE
TRIAL COURT IN FAVOR OF THE PETITIONER.7
Watercraft argues that the CA erred in holding that the RTC
committed grave abuse of discretion in issuing the writ of
preliminary attachment, and in finding that the affidavit of merit
only enumerated circumstances tending to show the possibility
of Wolfe's flight from the country, but failed to show fraudulent
intent on his part mpany.
Stressing that its application for such writ was anchored on two
(2) grounds under Section 1,8 Rule 57, Watercraft insists that,
contrary to the CA ruling, its affidavit of merit sufficiently averred
with particularity the circumstances constituting fraud as a
common element of said grounds.
Watercraft points out that its affidavit of merit shows that from
1997, soon after Wolfe's employment as Shipyard Manager, up
to 2002, when his employment was terminated, or for a period
of five (5) years, not once did he pay the cost for the use of the
company's boat storage facilities, despite knowledge of
obligation and obvious ability to pay by reason of his position.
Watercraft adds that its affidavit clearly stated that Wolfe, in an
attempt to avoid settling of his outstanding obligations to the
company, signed a Boat Pull-Out Clearance where he merely
acknowledged but did not pay Sixteen Thousand Three Hundred
and Twenty-Four and 82/100 US Dollars (US$16,324.82)
representing unpaid boat storage fees for the period
commencing June 1997 to June 2002. It avers that the execution
of such clearance enabled Wolfe to pull out his boat from the
company storage facilities without payment of storage fees.
Watercraft also faults the CA in finding no merit in its allegation
that Wolfe is a flight risk. It avers that he was supposed to stay
and work in the country for a limited period, and will eventually
leave; that despite the fact that his wife and children reside in
the country, he can still leave with them anytime; and that his
work in the country will not prevent him from leaving, thereby
defeating the purpose of the action, especially since he had
denied responsibility for his outstanding obligations. It submits
that the CA overlooked paragraph 28 of its Complaint which
alleged that "[i]n support of the foregoing allegations and the
prayer for the issuance of a Writ of Preliminary Attachment in the
instant case, the Plaintiff has attached hereto the Affidavit of the
Vice-President of the Plaintiff, MS. ROSARIO E. RAÑOA x x x."9
Watercraft asserts that it has sufficiently complied with the only
requisites for the issuance of the writ of preliminary attachment
under Section 3, Rule 57 of the Rules of Court, i.e., affidavit of
merit and bond of the applicant. It posits that contrary to the CA
ruling, there is no requirement that evidence must first be offered
before a court can grant such writ on the basis of Section 1 (d)
of Rule 57, and that the rules only require an affidavit showing
that the case is one of those mentioned in Section 1, Rule 57. It
notes that although a party is entitled to oppose an application
for the issuance of the writ or to move for the discharge thereof
by controverting the allegations of fraud, such rule does not
apply when the same allegations constituting fraud are the very
facts disputed in the main action, as in this case.
Watercraft also points out the inconsistent stance of Wolfe with
regard to the ownership and possession of the sailboat. Contrary
to Wolfe's Answer that the purchase of the sailboat was made
pursuant to a three (3)-way partnership agreement between him
and its General Manager and Executive Vice-President, Barry
Bailey, and its President, Ricky Sandoval, Watercraft claims that
he made a complete turnaround and exhibited acts of
soleownership by signing the Boat Pull-Out Clearance in order
to retrieve the sailboat. It argues that common sense and logic
would dictate that he should have invoked the existence of the
partnership to answer the demand for payment of the storage
fees.
Watercraft contends that in order to pre-empt whatever action it
may decide to take with respect to the sailboat in relation to his
liabilities, Wolfe accomplished in no time the clearance that
paved the way for its removal from the company's premises
without paying his outstanding obligations. It claims that such
act reveals a fraudulent intent to use the company storage
facilities without payment of storage fees, and constitutes unjust
enrichment.
The petition lacks merit.
A writ of preliminary attachment is defined as a provisional
remedy issued upon order of the court where an action is
pending to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the sheriff
as security for the satisfaction of whatever judgment that might
be secured in the said action by the attaching creditor against
the defendant.10 However, it should be resorted to only when
necessary and as a last remedy because it exposes the debtor
to humiliation and annoyance.11 It must be granted only on
concrete and specific grounds and not merely on general
averments quoting the words of the rules.12 Since attachment is
harsh, extraordinary, and summary in nature,13 the rules on the
application of a writ of attachment must be strictly construed in
favor of the defendant. the court14 in which the action is pending.
Such bond executed to the adverse party in the amount fixed by
the court is subject to the conditions that the applicant will pay:
(1) all costs which may be adjudged to the adverse party; and
(2) all damages which such party may sustain by reason of the
attachment, if the court shall finally adjudge that the applicant
was not entitled thereto.15 As to the requisite affidavit of merit,
Section 3,16 Rule 57of the Rules of Court states that an order of
attachment shall be granted only when it appears in the affidavit
of the applicant, or of some other person who personally knows
the facts:
1. that a sufficient cause of action exists;
2. that the case is one of those mentioned in Section
117 hereof;
3. that there is no other sufficient security for the claim
sought to be enforced by the action; and
4. that the amount due to the applicant, or the value of
the property the possession of which he is entitled to
recover, is as much as the sum for which the order is
granted above all legal counterclaims.
The mere filing of an affidavit reciting the facts required
by Section 3, Rule 57, however, is not enough to
compel the judge to grant the writ of preliminary
attachment. Whether or not the affidavit sufficiently
established facts therein stated is a question to be
determined by the court in the exercise of its
discretion.18"The sufficiency or insufficiency of an
affidavit depends upon the amount of credit given it by
the judge, and its acceptance or rejection, upon his
sound discretion."19 Thus, in reviewing the conflicting
findings of the CA and the RTC on the pivotal issue of
whether or not Watercraft's affidavit of merit sufficiently
established facts which constitute as grounds upon
which attachment may be issued under Section 1
(a)20 and (d),21 Rule 57, the Court will examine the
Affidavit of Preliminary Attachment22 of Rosario E.
Rañoa, its Vice-President, which reiterated the
following allegations in its complaint to substantiate the
application for a writ of preliminary attachment:
xxxx
4. Sometime in June 1997, the Defendant was hired as
Watercraft's Shipyard Manager.
5. Soon thereafter, the Defendant placed his sailboat,
the Knotty Gull, within the boat storage facilities of
Watercraft for purposes of storage and safekeeping.
6. Despite having been employed by Watercraft, the
Defendant was not exempted from paying Watercraft
boat storage fees for the use of the said storage
facilities.
7. By virtue of his then position and employment with
Watercraft, the Defendant was very much
knowledgeable of the foregoing fact.
8. All throughout his employment with Watercraft, the
Defendant used the boat storage facilities of Watercraft
for his Knotty Gull.
9. However, all throughout the said period of his
employment, the Defendant never paid the boat
storage fees in favor of the Plaintiff.
10. The Defendant's contract of employment with
Watercraft was terminated on 07 March 2002.
11. [Sometime] thereafter, that is, in or about June
2002, the Defendant pulled out the Knotty Gull from the
boat storage facilities of Watercraft.
12. Instead of settling in full his outstanding obligations
concerning unpaid storage fees before pulling our the
Knotty Gull, the Defendant signed a Boat Pull-Out
Clearance dated 29 June 2002 wherein he merely
acknowledged the then outstanding balance of Sixteen
Thousand Three Hundred and Twenty-four and 82/100
US Dollars (US$16,324.82), representing unpaid boat
storage fees for the period commencing June 1997 to
June 2002, that he owed Watercraft.
13. By reason of Defendant's mere accomplishment of
the said Boat Pull-Out Clearance with acknowledgment
of his outstanding obligation to Watercraft in unpaid
boat storage fees, Mr. Franz Urbanek, then the
Shipyard Manager who replaced the Defendant,
contrary to company policy, rules and regulations,
permitted the latter to physically pull out his boat from
the storage facilities of the Plaintiff without paying any
portion of his outstanding obligation in storage fees.
14. Several demands were then made upon the
Defendant for him to settle his outstanding obligations
to the Plaintiff in unpaid storage fees but the same went
unheeded.
15. As of 02 April 2005, the outstanding obligation of
the Defendant to the Plaintiff in unpaid boat storage
fees stands at Three Million Two Hundred Thirty-One
Thousand Five Hundred and Eighty-Nine and 25/100
Pesos (Php 3,231,589.25) inclusive of interest
charges.
16. For failing to pay for the use [of] facilities and
services—in the form of boat storage facilities—duly
enjoyed by him and for failing and refusing to fulfill his
promise to pay for the said boat storage fees, the
Defendant is clearly guilty of fraud which entitles the
Plaintiff to a Writ of Preliminary Attachment upon the
property of the Defendant as security for the
satisfaction of any judgment in its favor in accordance
with the provisions of Paragraph (d), Section 1, Rule 57
of the Rules of Court.
17. The instant case clearly falls under the said
provision of law.
18. Furthermore, lawful factual and legal grounds exist
which show that the Defendant may have departed or
is about to depart the country to defraud his creditors
thus rendering it imperative that a Writ of Preliminary
Attachment be issued in favor of the Plaintiff in the
instant case.
19. The possibility of flight on the part of the Defendant
is heightened by the existence of the following
circumstances:
a. The Special Working Visa issued in favor of
the Defendant expired in April 2005;
b. The Defendant is a British national who
may easily leave the country at will;
c. The Defendant has no real properties and
visible, permanent business or employment in
the Philippines; and
e. The house last known to have been
occupied by the Defendant is merely being
rented by him.
20. All told, the Defendant is a very serious flight risk
which fact will certainly render for naught the capacity
of the Plaintiff to recover in the instant case.23
After a careful perusal of the foregoing allegations, the Court
agrees with the CA that Watercraft failed to state with
particularity the circumstances constituting fraud, as required by
Section 5,24 Rule 8 of the Rules of Court, and that Wolfe's mere
failure to pay the boat storage fees does not necessarily amount
to fraud, absent any showing that such failure was due to
insidious machinations and intent on his part to defraud
Watercraft of the amount due it.
In Liberty Insurance Corporation v. Court of Appeals,25 the Court
explained that to constitute a ground for attachment in Section
1(d), Rule 57 of the Rules of Court, it must be shown that the
debtor in contracting the debt or incurring the obligation intended
to defraud the creditor. A debt is fraudulently contracted if at the
time of contracting it, the debtor has a preconceived plan or
intention not to pay. "The fraud must relate to the execution of
the agreement and must have been the reason which induced
the other party into giving consent which he would not have
otherwise given."26
Fraudulent intent is not a physical entity, but a condition of the
mind beyond the reach of the senses, usually kept secret, very
unlikely to be confessed, and therefore, can only be proved by
unguarded expressions, conduct and circumstances.27 Thus,
the applicant for a writ of preliminary attachment must
sufficiently show the factual circumstances of the alleged fraud
because fraudulent intent cannot be inferred from the debtor's
mere non-payment of the debt or failure to comply with his
obligation.28 The particulars of such circumstances necessarily
include the time, persons, places and specific acts of fraud
committed.29 An affidavit which does not contain concrete and
specific grounds is inadequate to sustain the issuance of such
writ. In fact, mere general averments render the writ defective
and the court that ordered its issuance acted with grave abuse
of discretion amounting to excess of jurisdiction. 30
In this case, Watercraft's Affidavit of Preliminary Attachment
does not contain specific allegations of other factual
circumstances to show that Wolfe, at the time of contracting the
obligation, had a preconceived plan or intention not to pay.
Neither can it be inferred from such affidavit the particulars of
why he was guilty of fraud in the performance of such obligation.
To be specific, Watercraft's following allegation is unsupported
by any particular averment of circumstances that will show why
or how such inference or conclusion was arrived at, to wit: "16.
For failing to pay for the use [of] facilities and services - in the
form of boat storage facilities – duly enjoyed by him and for
failing and refusing to fulfill his promise to pay for the said boat
storage fees, the Defendant is clearly guilty of fraud x x x." 31 It is
not an allegation of essential facts constituting Watercraft's
causes of action, but a mere conclusion of law.
With respect to Section 1 (a),32 Rule 57, the other ground
invoked by Watercraft for the issuance of the writ of preliminary
attachment, the Court finds no compelling reason to depart from
the CA's exhaustive ruling to the effect that such writ is
unnecessary because Wolfe is not a flight risk, thus:
As to the allegation that Wolfe is a flight risk, thereby warranting
the issuance of the writ, the same lacks merit. The mere fact that
Wolfe is a British national does not automatically mean that he
would leave the country at will. As Wolfe avers, he and his family
had been staying in the Philippines since 1997, with his
daughters studying at a local school. He also claims to be an
existing stockholder and officer of Wolfe Marine Corporation, a
SEC-registered corporation, as well as a consultant of projects
in the Subic Area, a member of the Multipartite Committee for
the new port development in Subic, and a member of the Subic
Chamber of Commerce. More importantly, Wolfe has a pending
labor case against Watercraft – a fact which the company
glaringly failed to mention in its complaint – which Wolfe claims
to want to prosecute until its very end. The said circumstances,
as well as the existence of said labor case where Wolfe stands
not only to be vindicated for his alleged illegal dismissal, but also
to receive recompense, should have convinced the trial court
that Wolfe would not want to leave the country at will just
because a suit for the collection of the alleged unpaid boat
storage fees has been filed against him by Watercraft.
Neither should the fact that Wolfe's Special Working Visa
expired in April 2005 lead automatically to the conclusion that he
would leave the country.1âwphi1 It is worth noting that all visas
issued by the government to
foreigner staying in the Philippines have expiration periods.
These visas, however, may be renewed, subject to the
requirements of the law. In Wolfe's case, he indeed renewed his
visa, as shown by Special Working Visa No. 05-WV-0124P
issued by the Subic Bay Metropolitan Authority Visa Processing
Office on April 25, 2005, and with validity of two (2) years
therefrom. Moreover, his Alien Certificate of Registration was
valid up to May 11, 2006.33
Meanwhile, Watercraft's reliance on Chuidian v.
Sandiganbayan34 is misplaced. It is well settled that:
x x x when the preliminary attachment is issued upon a ground
which is at the same time the applicant's cause of action; e.g.,
"an action for money or property embezzled or fraudulently
misapplied or converted to his own use by a public officer, or an
officer of a corporation, or an attorney, factor, broker, agent, or
clerk, in the course of his employment as such, or by any other
person in a fiduciary capacity, or for a willful violation of duty," or
"an action against a party who has been guilty of fraud in
contracting the debt or incurring the obligation upon which the
action is brought," the defendant is not allowed to file a motion
to dissolve the attachment under Section 13 of Rule 57 by
offering to show the falsity of the factual averments in the
plaintiff's application and affidavits on which the writ was based
– and consequently that the writ based thereon had been
improperly or irregularly issued – the reason being that the
hearing on such a motion for dissolution of the writ would be
tantamount to a trial of the merits of the action. In other words,
the merits of the action would be ventilated at a mere hearing of
a motion, instead of at the regular trial.35
Be that as it may, the foregoing rule is not applicable in this case
because when Wolfe filed a motion to dissolve the writ of
preliminary attachment, he did not offer to show the falsity of the
factual averments in Watercraft's application and affidavit on
which the writ was based. Instead, he sought the discharge of
the writ on the ground that Watercraft failed to particularly allege
any circumstance amounting to fraud. No trial on the merits of
the action at a mere hearing of such motion will be had since
only the sufficiency of the factual averments in the application
and affidavit of merit will be examined in order to find out whether
or not Wolfe was guilty of fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in
the performance thereof.
Furthermore, the other ground upon which the writ of preliminary
attachment was issued by the RTC is not at the same time the
applicant's cause of action. Assuming arguendo that the RTC
was correct in issuing such writ on the ground that Watercraft's
complaint involves an action for the recovery of a specified
amount of money or damages against a party, like Wolfe, who
is about to depart from the Philippines with intent to defraud his
creditors, the Court stresses that the circumstances36 cited in
support thereof are merely allegations in support of its
application for such writ.37 Such circumstances, however, are
neither the core of Watercraft's complaint for collection of sum
of money and damages, nor one of its three (3) causes of action
therein.38
All told, the CA correctly ruled that Watercraft failed to meet one
of the requisites for the issuance of a writ of preliminary
attachment, i.e., that the case is one of those mentioned in
Section 1 of Rule 57, and that the RTC gravely abused its
discretion in improvidently issuing such writ. Watercraft failed to
particularly state in its affidavit of merit the circumstances
constituting intent to defraud creditors on the part of Wolfe in
contracting or in the performance of his purported obligation to
pay boat storage fees, as well as to establish that he is a flight
risk. Indeed, if all the requisites for granting such writ are not
present, then the court which issues it acts in excess of its
jurisdiction.39
WHEREFORE, premises considered, the petition is DENIED.
The Court of Appeals Decision dated September 27, 2007 and
its Resolution dated January 24, 2008 in CA-G.R. SP No. 97804,
are AFFIRMED.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G. R. No. 173333 August 13, 2008
LUCIA MAGALING, PARALUMAN R. MAGALING,
MARCELINA MAGALING-TABLADA, and BENITO R.
MAGALING (Heirs of the late Reynaldo
Magaling), petitioners,
vs.
PETER ONG, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari1 filed
under Rule 45 of the Rules of Court, as amended, seeking the
reversal of the Decision2 and Amended Decision3 both of the
Court of Appeals, dated 31 August 2005 and 28 June 2006,
respectively, in CA-G.R. CV No. 70954, entitled, "Peter Ong v.
Spouses Reynaldo Magaling and Lucia Magaling, and Thermo
Loans and Credit Corporation." The assailed rulings reversed
and set aside the Decision4 of the Regional Trial Court (RTC),
Branch 13, Lipa City, Batangas, which made petitioner Lucia
Magaling, together with her spouse, Reynaldo Magaling, 5 and
Termo6 Loans & Credit Corporation, jointly and severally liable
to respondent Peter Ong for the corporate obligation of the
aforenamed corporation as adjudged in the RTC Decision dated
23 June 1999.
As culled from the record, the antecedent facts of the present
petition are as follows:
On 30 September 1998, respondent Peter Ong (Ong) instituted
with the RTC a Complaint7 for the collection of the sum
of P389,000.00, with interest, attorney’s fees and costs of suit,
with prayer for issuance of a writ of preliminary attachment
against the spouses Reynaldo Magaling and Lucila Magaling
(Spouses Magaling) and Termo Loans & Credit Corporation
(Termo Loans). The Complaint alleged that:
3. Defendants Sps. Reynaldo Magaling and Lucila
Magaling are the controlling stockholders/owners of
Thermo (sic) Loans and Credit Corp. and had used the
corporation as mere alter ego or adjunct to evade the
payment of valid obligation;
4. On or about December 1994, defendant Reynaldo
Magaling, (sic) approached plaintiff in his store at Lipa
City and induced him to lend him money and/or his
company Thermo (sic) Loans and Credit Corp. with
undertaking to pay interest at the rate of two and a half
(2 ½%) percent per month. Defendant gave assurance
that he and his company Thermo (sic) Loans and
Credit Corp. will be able to pay the loan. Without the
assurance plaintiff would not have lent the money;
 5. Based on the assurance and representation of
Reynaldo Magaling, Peter Ong extended loan to
defendants. As of September 1997, the principal loan
extended to defendants stands at P350,000.00. The
interest thereon computed at 2 ½ % per month
is P8,750.00 per month;
6. In acknowledgment of the loan, on or about
September 1997, defendants issued and tendered to
plaintiff series of postdated checks more particularly
described as follows:
Planters Bank
Check No. Date
0473400 Sept. 22, 1997
0473401 Oct. 22, 1997
0473402 Nov. 22, 1997
0473403 Dec. 22, 1997
0473404 Jan. 22, 1998
0473405 Feb. 22, 1998
0473406 Feb. 22, 1998
which were issued for payment of interest and principal
loan of P350,000.00. However, only check nos.
473400 and 473401 were cleared by the bank. Check
no. 473402 was likewise dishonored but it was
subsequently replaced with cash x x x;
7. Despite demands, oral and written, defendants Sps.
Reynaldo and Lucila Magaling and/or Thermo (sic)
Loans and Credit Corp. unjustifiably and illegally failed,
refused and neglected and still fail, refuse and neglect
to pay to the prejudice and damage of plaintiff. As of
June 30, 1998, defendants’ obligation stands
at P389,043.96 inclusive of interest;
It was alleged further that Reynaldo Magaling, as President of
Termo Loans, together with the corporation’s treasurer, a certain
Mrs. L. Rosita, signed a Promissory Note8 in favor of Ong for the
amount of P300,000.00 plus a monthly interest of 2.5%.
Because of the failure of Termo Loans to pay its outstanding
obligation despite demand, Ong filed the above-mentioned
complaint praying that Spouses Magaling and Termo Loans be
ordered to pay, jointly and severally, the principal amount
of P389,000.00, plus interest, attorney’s fees and costs of suit.
In addition to the preceding entreaty, Ong asked for the issuance
of the writ of preliminary attachment pursuant to Section 1(d),
Rule 57 of the Rules of Court, as amended.
On 7 October 1998, acting on Ong’s prayer for the issuance of
a writ of preliminary attachment grounded on the allegation that
Spouses Magaling "were guilty of fraud in contracting the
obligation subject of the complaint for sum of money" 9; and
finding the same to be impressed with merit, the RTC issued
an Order10 directing the issuance of the writ11 prayed for upon
the filing of a bond in the amount of P390,000.00.
Meanwhile, on 3 November 1998, Ong moved to amend the
above complaint "to correct the name of Lucila Magaling
to Lucia Magaling."12 In an Order13 dated 9 November 1998, the
RTC granted the aforesaid motion and admitted
Ong’s Amended Complaint14 dated 29 October 1998.
In their defense, Spouses Magaling alleged in their Answer with
Counterclaim15 dated 12 November 1998, that:
Amount
[P]laintiff (Peter Ong) on its (sic) own invested money
P8,750.00
with Termo Loans and Credit Corp. x x x without any
inducement from answering defendants much less
8,750.00
assurance that Termo Loans will be able to pay the
loan. Plaintiff got attracted with the rate of interest
being given 8,750.00
by Termo Loans to money placements and
this is the reason why plaintiff, at its own risk, invested
money with Termo Loans.
8,750.00
xxxx 8,750.00
The alleged checks appear to have been issued by
8,750.00
Termo Loans as a corporation and answering
defendants are not even signatories thereto.
350,000.00
Furthermore, the Promissory Note x x x was issued by
Termo Loans and not by defendants in their individual
capacity.
The Spouses Magaling further clarified that:
There could be no fraud on the part of Reynaldo
Magaling regarding the post-dated checks because he
is not even a signatory thereto. The alleged
assurances/warranties to plaintiff are mere after
thoughts to make answering defendants personally
answerable for corporate obligations of Termo Loans,
and to give semblance of merit to plaintiff’s application
for attachment.
For its part, Termo Loans failed to file an Answer; thus, upon
Ong’s motion, the RTC declared said corporation in default and
allowed Ong to present evidence ex parte.
Pursuant to the writ of preliminary attachment earlier issued, and
evidenced by the Sheriff’s Return16 dated 27 November 1998,
the Sheriff17 of RTC, Br. 13 of Lipa City, caused the attachment
of two (2) parcels of land covered by Transfer Certificates of Title
No. T-109347 and No. T-75559, both in the names of the
Spouses Magaling.
The Spouses Magaling expectedly moved for the
reconsideration of the 7 October 1998 Order of the RTC granting
the writ of preliminary attachment, arguing that:
 The Writ of Preliminary Attachment x x x was
improperly or irregularly issued as there is no existing
ground to support the issuance of an attachment.
Plaintiff nakedly alleged that the individual defendants
are guilty of fraud in contracting the obligation.
Nevertheless, a perusal of the Amended
Complaint and the annexes thereto readily reveals that
the obligation subject of the present case is corporate
in character and not personal obligations of the
individual defendants.18
In an Order19 dated 19 February 1999, the RTC found that
Spouses Magaling’s Motion to Discharge Attachment20 was
impressed with merit based on the following reasons:
FIRSTLY, it appears that the obligation was incurred by
Termo Loans and Credit Corporation x x x. It is
therefore a corporate liability and not the personal
obligation of herein movants. As correctly stated by the
movants, a corporation has a personality separate and
distinct from that of the stockholders and officers.
SECONDLY, the checks which bounced do not bear
the signatures of herein movants. It is indeed
implausible that movants will give assurances
concerning checks they did not sign.
THIRDLY, the obligation appears to have been
incurred in 1994 x x x. "Fraud" was alleged in
connection with the checks that bounced, and which
appear to have been issued only in 1998 by way of
renewal of plaintiff’s money placement. It appears
therefore that if there was indeed fraud, the same was
not committed simultaneously with the inception of the
obligation.
On 23 June 1999, the RTC promulgated the first of two decisions
in this case. Ruling in favor of Ong, and against Termo Loans,
the dispositive portion reads:
WHEREFORE, the Court finds for the plaintiff and
against the defendant-corporation and hereby orders
the latter to pay the former the following amounts:
1. The sum of P350,000.00 representing principal
obligation;
2. Interest at the rate of 2.5% per month from date of
default until full payment (sic)
3. P20,000.00 as and for attorney’s fees;
4. The expenses of litigation; and
5. The cost of suit.21
On 11 August 1999, Ong filed a motion22 for execution of the
above, which the RTC granted23 on 18 October 1999. The Writ
of Execution24 was subsequently issued by the RTC on 1 March
2000. On 26 April 2000, the Sheriff’s Return25 was filed before
the RTC manifesting that the Writ of Execution earlier issued
was being returned unsatisfied in view of the fact that Termo
Loans had ceased to exist or had been dissolved.
In a parallel development, trial on the merits concerning Ong’s
cause of action against the Spouses Magaling ensued.
On 5 February 2001, in complete contrast to its first decision, the
RTC promulgated its second decision holding the Spouses
Magaling free and clear of any obligation or liability with respect
to the sum of money claimed by Ong. The trial court ruled in this
wise:
Records show that the subject obligation is the
obligation of defendant corporation. The Non-
negotiable Promissory Note No. 551 dated November
25, 1994 (Exh. B, p. 3) evidencing plaintiff’s money
placement belongs to/or is owned by defendant
Thermo (sic) Loans and Credit Corporation. Defendant
Reynaldo Magaling only signed said Promissory Note
in his capacity as President of the corporation. Even
plaintiff’s documentary evidence shows that the
obligation subject matter of the instant case is a
corporate one for which the stockholders and officers
of Thermo (sic) Loans and Credit Corporation are not
personally answerable. For being its President,
defendant Magaling’s act of convincing the plaintiff in
investing money with the corporation granting without
admitting it to be true is an act in usual course of
business of said corporation. Thus, Thermo (sic) Loans
and Credit Corporation has a personality separate and
distinct from that of Reynaldo Magaling who happens
to be only a stockholder thereof and president at that
time.
xxxx
Furthermore, the Planters Development Bank Checks
(Exh. A – A-3) which were allegedly issued by
defendant Reynaldo Magaling to herein plaintiff were
corporate checks under the account name of Thermo
(sic) Loans and Credit Corporation with defendant
Reynaldo Magaling not even a signatory thereof. In
fact, plaintiff’s demand letter dated February 24, 1998
(Exh. F) is addressed to the corporation and not to
Reynaldo Magaling. A stockholder as a rule is not
directly, individually and/or personally liable for the
indebtedness of the corporation (citation omitted).
Hence, Reynaldo Magaling being a mere stockholder
of Thermo (sic) Loans and Credit Corporation cannot
be held personally liable for the corporate debt incurred
by it.26
The fallo of the foregoing decision thus states:
WHEREFORE, foregoing premises considered, the
instant Complaint against defendants-spouses
Magaling is hereby DISMISSED for lack of merit.27
Ong appealed the instant case to the Court of Appeals.
In a Decision dated 31 August 2005, the appellate court
reversed and set aside the ruling of the RTC, viz:
WHEREFORE, the foregoing considered, the instant
appeal is hereby GRANTED. The assailed decision is
REVERSED and SET ASIDE and a new one entered
declaring appellee spouses Magaling jointly and
severally liable to appellant Peter Ong for the corporate
obligation of Thermo (sic) Loans adjudged in the
decision of the trial court dated 23 June 1999.28
The Court of Appeals, in reversing the 5 February 2001 Decision
of the RTC, found that the general rule that corporate officers
cannot be held personally liable for corporate debt when they
act in good faith and within the scope of their authority in
executing a contract for and in behalf of the corporation, cannot
apply to the spouses Magaling. The Court of Appeals pierced
the veil of corporate fiction and held the spouses Magaling
solidarily liable with Termo Loans for the corporate obligations
of the latter since it found that Reynaldo Magaling was grossly
negligent in managing the affairs of the said corporation.
The Spouses Magaling moved for the reconsideration of the
aforequoted decision. But not to be outdone, Ong likewise filed
a motion for reconsideration, albeit partial, that is, insofar as the
issue of the propriety of the discharge of the writ of preliminary
attachment was concerned.
The Spouses Magaling’s motion for reconsideration was denied
by the Court of Appeals in its Amended Decision dated 28 June
2006. Deciding affirmatively on Ong’s propositions, the Court of
Appeals explained in the same Amended Decision that:
With respect to appellant’s prayer, he invited Our
attention to his assignment of error in his Appellant’s
Brief where he sought the nullification of the Order of
the trial court discharging the writ of attachment. He
argued that the said Order granting such discharge had
the effect of prejudging the merits of the case at a time
when Thermo (sic) Loans and Credit Corp. had not
even filed its answer to the complaint. Indeed, We find
that such discharge, even before the issues were
joined, prematurely adjudicated the merits of the case
on the lack of personal liability of appellees, and
without the latter even posting a counter bond.
Therefore, as prayed for by appellant, the discharge of
attachment is declared illegal and the writ of
attachment is declared effective and subsisting.29
And the dispositive part of the Amended Decision provides:
WHEREFORE, the foregoing considered, the partial
motion for reconsideration of appellant is GRANTED.
Accordingly, the Order discharging the writ of
attachment is SET ASIDE and the Writ of Attachment
is hereby declared effective and subsisting. Appellees’
motion for reconsideration is DENIED.30
Hence, the present petition premised on the following
arguments31:
I.
THE COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AND IN EXCESS OF
JURISDICTION IN RELYING ON A GROUND RAISED
ONLY FOR THE FIRST TIME ON APPEAL, TO MAKE
REYNALDO MAGALING PERSONALLY LIABLE FOR
CORPORATE LIABILITY; and
II.
THE COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AND IN EXCESS OF
JURISDICTION IN REINSTATING THE
PRELIMINARY ATTACHMENT.
At the outset, we note that while the instant suit is denominated
as a "Petition for Review on Certiorari," under Rule 45 of the
Revised Rules of Court, the allegations for the allowance of this
petition are that the appellate court committed grave abuse of
discretion amounting to lack or excess of jurisdiction in reversing
the decision dated 5 February 2001 of the RTC. This is a
procedural error. This being an appeal by certiorari, under Rule
45 of the Revised Rules of Court, this Court’s power to review is
generally limited to questions of law and errors of
judgment.32 Under this mode of appeal, this Court is precluded
from entertaining errors of jurisdiction or grave abuse of
discretion – a question which may be appropriately addressed
through a petition for certiorari under Rule 65 of the Revised
Rules of Court. In any case, to put an end to the present
controversy, in accordance with the liberal spirit pervading the
Revised Rules of Court and in the interest of justice, this Court
decided to treat the present petition for certiorari as an appeal
by certiorari, considering that it was filed33 within 15 days from
receipt of the Amended Decision of the Court of Appeals
denying petitioners’ motion for reconsideration.
In the case at bar, the Spouses Magaling claim that the Court of
Appeals gravely abused its discretion when it (1) held the
Spouses Magaling equally liable with Termo Loans with regard
to the financial liability of the latter; and (2) reinstated the writ of
preliminary attachment.
In ruling against the Spouses Magaling on the sole issue of
whether or not they "may be held personally liable for the
corporate obligation of Thermo (sic) Loans in favor of Peter
Ong,"34 the Court of Appeals debunked the ratiocination of the
RTC that "the checks issued by appellee Reynaldo Magaling
were all corporate checks under the account name of Thermo
(sic) Loans to which he was not even a signatory (of) x x x (and)
that the demand letter was addressed to Thermo (sic) Loans and
not to Reynaldo Magaling."35 It took note of the following:
 Appellee Reynaldo Magaling testified that as president
of Thermo (sic) Loans from 1994 up to 1997, it was his
duty and responsibility to supervise the personnel and
the operation of the corporation. (Citation omitted.) The
Articles of Incorporation of Thermo (sic) Loans where
he was incorporator and director states its primary
purpose was to engage in the business of a lending
investor, lending money to persons and entities under
the terms and conditions allowed by law. Renaldo (sic)
Magaling likewise admitted that there are other twenty
more different companies also dealing in financing or
lending business. (Citation omitted.) Thus, while it is
true that there may have been no fraud at the inception
of the transaction with appellant Peter Ong, and from
1994 to 1997, he was paid his monthly interest of 2.5%
on his investment or P8,750.00 monthly, the degree of
diligence required of Reynaldo Magaling as director
and president of Thermo (sic) Loans was not shown to
have been exercised by him as expected from the
highest officer of the said company.
Reynaldo Magaling resigned as president of Thermo
(sic) Loans in 1998 when the company already became
insolvent. He admitted that when he resigned, nobody
took over as president of the company. Neither were
the investors informed about the bankruptcy thereof,
and nor was any bankruptcy or insolvency or
suspension of payments proceedings instituted to
protect the assets of the corporation and the interest of
its investors. As director and president of the company,
he seemed to know nothing at all about its operations,
nor could he produce any financial document like the
company’s financial statement, and in his own words,
he conveniently gave all the responsibilities to the
manager x x x.
Considering the nature of the business of Thermo (sic)
Loans and other lending companies of appellee
Reynaldo Magaling. It behooved him to have exercised
utmost diligence in running the affairs of Thermo (sic)
Loans to protect its interest and its investors.
Miserably, he failed in this respect that the trial court
even commented that he seemed not to know anything
about the operation of his business. (Citation omitted.)
It then concluded that:
Clearly, Reynaldo Magaling was grossly negligent in
directing the affairs of Thermo (sic) Loans without due
regard to the plight of its investors and thus should be
held jointly and severally liable for the corporate
obligation of Thermo (sic) Loans to appellant Peter
Ong.36
In asking this Court to reverse and set aside the above-
quoted Decision, as well as the Amended Decision, of the Court
of Appeals, the petitioners contend that the appellate court failed
to appreciate several important facts: 1) that the issue of
whether or not a corporate debt or credit can be the debt or credit
of a stockholder was alleged for the first time on appeal; 2) that
"the Amended Complaint did not allege that Reynaldo Magaling
was guilty of gross negligence or bad faith in directing the affairs
of the corporation"37; 3) that the solvency of Termo Loans was
never put in issue or raised by Ong; and 4) that negligence "is
not one of the grounds provided for by Rule 57 of the Rules of
Court that will warrant (the) issuance of preliminary
attachment."38
Ong, in traversing the allegations in support of the present
petition, argues in his Comment that he brought up the issue of
Reynaldo Magaling’s negligence in managing the affairs of
Termo Loans in his Memorandum before the RTC where he
stated that:
Being President, it is incumbent upon Reynaldo
Magaling to know the financial condition of his
company. He was found wanting and did not know the
financial condition of his company. How many creditors
does the company have? He was supposed to know
that as President but he does not know. One glaring
fact that stands out is that these creditors are left with
an empty bag and cannot collect because of the
negligence of Reynaldo Magaling in running his
financing companies.39
From the preceding arguments and counter-arguments, the
threshold issues proper for this Court’s consideration are, given
the facts of the case, whether or not the Court of Appeals erred
in: 1) making the Spouses Magaling and Termo Loans jointly
and severally liable to Ong for the obligation incurred by the
corporation; and 2) reinstating the writ of preliminary attachment
issued against two (2) real properties of the Spouses Magaling.
The petition is not meritorious.
It is basic that a corporation is a juridical entity with legal
personality separate and distinct from those acting for and in its
behalf and, in general, from the people comprising it.40 The
general rule is that obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole
liabilities, and vice versa.
There are times, however, when solidary liabilities may be
incurred and the veil of corporate fiction may be pierced.
Exceptional circumstances warranting such disregard of a
separate personality are summarized as follows:
1. When directors and trustees or, in appropriate case,
the officers of a corporation:
(a) vote for or assent to patently unlawful acts
of the corporation;
(b) act in bad faith or with gross negligence in
directing the corporate affairs;
(c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders
or members, and other persons;41
2. When a director or officer has consented to the
issuance of watered down stocks or who, having
 knowledge thereof, did not forthwith file with the
corporate secretary his written objection thereto;42
3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation;43 or
4. When a director, trustee or officer is made, by
specific provision of law, personally liable for his
corporate action.44
In making the Spouses Magaling co-defendants of Termo
Loans, Ong alleged in his Complaint for Sum of Money filed with
the RTC that the spouses Reynaldo Magaling and Lucia
Magaling were the controlling stockholders and/or owners of
Termo Loans, and that they had used the corporation to evade
the payment of a valid obligation. The appellate court eventually
found the Spouses Magaling equally liable with Termo Loans for
the sum of money sought to be collected by Ong.
As explained above, to hold a director, a trustee or an officer
personally liable for the debts of the corporation and, thus,
pierce the veil of corporate fiction, bad faith or gross negligence
by the director, trustee or officer in directing the corporate affairs
must be established clearly and convincingly. Bad faith is a
question of fact and is evidentiary. Bad faith does not connote
bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious wrongdoing. It means
breach of a known duty through some ill motive or interest. It
partakes of the nature of fraud.45
In the present case, there is nothing substantial on record to
show that Reynaldo Magaling, as President of Termo Loans,
has, indeed, acted in bad faith in inviting Ong to invest in Termo
Loans and/or in obtaining a loan from Ong for said corporation
in order to warrant his personal liability. From all indications, the
proceeds of the investment and/or loan were indeed utilized by
Termo Loans. Likewise, bad faith does not arise just because a
corporation fails to pay its obligations, because the inability to
pay one’s obligation is not synonymous with fraudulent intent not
to honor the obligations.46
The foregoing discussion notwithstanding, this Court still cannot
totally absolve Reynaldo Magaling from any liability considering
his gross negligence in directing the affairs of Termo Loans;
thus, he must be made personally liable for the debt of Termo
Loans to Ong.
In order to pierce the veil of corporate fiction, for reasons of
negligence by the director, trustee or officer in the conduct of the
transactions of the corporation, such negligence must be gross.
Gross negligence is one that is characterized by the want of
even slight care, acting or omitting to act in a situation where
there is a duty to act, not inadvertently but willfully and
intentionally with a conscious indifference to consequences
insofar as other persons may be affected;47 and must be
established by clear and convincing evidence. Parenthetically,
gross or willful negligence could amount to bad faith.48
In the case at bar, in their Memorandum filed before the RTC,
the Spouses Magaling argued that "the Amended Complaintdid
not allege that Reynaldo Magaling was guilty of gross
negligence or bad faith in directing the affairs of the corporation";
and that respondent Ong was not able to adduce evidence to
offset the effect of the particular allegation. Hence, they insist
that it was unfair for the appellate court to conclude that
Reynaldo Magaling failed to exercise the necessary diligence in
running Termo Loans.
We disagree.
Petitioners’ argument is that Ong failed to actually allege in the
complaint Reynaldo Magaling’s gross negligence in running
Termo Loans as basis for making the subject sum of money a
personal liability of Reynaldo. For them, it is, thus, too late in the
day to raise the alleged gross negligence of Termo Loans’
President, Reynaldo Magaling, as this matter has not been
pleaded before the RTC. Or simply put, issues raised for the first
time on appeal and not raised timely in the proceedings in the
lower court are barred for being violative of basic due process.
Generally, laws, theories, issues and arguments not adequately
brought to the attention of the lower court need not be, and
ordinarily will not be, considered by a reviewing court, as they
cannot be raised for the first time on appeal 49 and, as such, are
deemed to have been waived. Basic consideration of due
process impels this rule.50 In the case at bar, however, the issue
respecting Reynaldo Magaling’s gross negligence was
seasonably raised in the proceedings before the RTC. The
testimonial evidence elicited from Reynaldo Magaling himself
during his cross-examination in the RTC bears out his wanton
disregard of the transactions of Termo Loans, particularly in
consideration of the fact that he was the latter’s President.
It cannot be said that the Spouses Magaling were not given an
opportunity to refute the issue of his supposed gross negligence
in directing the affairs of Termo Loans when the same, having
been established by his own testimony during cross-
examination, could have been objected to at the time it was
made. Objection to evidence cannot be raised for the first time
on appeal; when a party desires the court to reject the evidence
offered, he must so state in the form of objection. Without such
objection, he cannot raise the question for the first time on
appeal. That the Spouses Magaling were not able to present
evidence to the contrary was solely due to the ineffectiveness of
their counsel in rebutting the evidence unearthed and brought to
light during the witness’ presentation in court. Their counsel
could have clarified in the re-direct examination the matters
revealed during cross-examination, but he did not do so.
Reynaldo Magaling’s gross negligence became apparent,
undeniable and proven during the course of the proceedings in
the trial court. Reynaldo Magaling was the lone witness
presented in court to belie the claim of Ong. On cross-
examination, he (Reynaldo Magaling) clearly and plainly shed
light on how Termo Loans was run under his aegis, to wit:
ATTY. NG:
Q. Mr. witness, this company that you have, this
Flagship Lending Corporation, you said …. When was
this established, Mr. witness?
A. I think it is in 1998, more or less, sir. xxxx

Q. 1998. How about this First Solid Lending ATTY. NG:

Corporation, when was this put up?
Q. Mr. Witness, was there a formal bankruptcy
A. I cannot remember also when it started proceedings filed in dissolving the company?
operating, sir.
xxxx
COURT:
WITNESS:
Q. So, when did you first realize that you have
difficulty in receiving payments from borrowers? A. I do not know, sir.

A. In the later part of …. ATTY. NG:

Q. 19 …..? Q. Being the President, you do not know or you

refused to know?
A. In 1998, Your Honor.
A. No, sir. I resigned at that time in 1998, sir.
Q. And in 1998 you did not tell Peter Ong that there
was difficulty in receiving payments from the COURT:
borrowers?
Q. And who took over as President?
A. He knew about it, Your Honor.
A. Nobody took over, Your Honor.
Q. You cannot presume that the investor knows that
you have difficulty. You have to tell the investor. Did
you tell him? Q. How about the investors? Did they get all their
money?
A. It was told to him by our manager, what was
happening, Your Honor. WITNESS:

Q. Your Manager. But you, yourself did not tell him? A. I do not know, Your Honor.

A. I cannot remember, Your Honor. ATTY. NG:

COURT: Q. As of the time that you were still the President,

were there other investors in the company, is it not,
aside from Peter Ong?
Q. So, there was absolutely no occasion for you to
tell him even in passing in his store that there is danger
in the P300,000.00 investment? A. Yes, sir.

A. No, Your Honor. Q. Do you know how much was the investment of
the other persons aside from Peter Ong?
Q. How about the other investors? Did you not also
tell them of such a situation that you were in in your xxxx
company?
WITNESS:
A. No, Your Honor.
A. Like me, I have invested, sir.
Q. Why not?
ATTY. NG:
A. I did not tell that to investors, what is going on
for fear that they might be afraid of what is Q. How much?
happening, Your Honor.51
A. P1.8 Million, sir.
Q. That is your share in the company? COURT:

A. No. That is not a share, sir. Q. Upon insolvency, the fact that Thermo (sic) Loans
became insolvent in 1998, did all the investors get their
Q. So, that is your investment in the company? money?

A. That is my investment, sir. A. Many are saying that they will get their money,
Your Honor.
Q. How about the other persons who also invested
money with your company? Q. But did they actually get their money investment?

A. I do not know that, sir. A. The others were not able to get back, Your Honor.

Q. Can you produce the financial statement of Q. Did they file a case against you?
Thermo (sic) Loans, Mr. witness?
A. No charges were filed against me, Your Honor.
A. (No answer).
Q. How about Thermo (sic) Loans?
COURT:
A. I do not know, Your Honor.
Q. So, as President, you do not know who are the
other investor? Q. So, this is the only case filed by an investor
against Thermo (sic) Loans?
A. I know the Directors, but the other investors, I do
not know, Your Honor. A. Yes, Your Honor.

Q. Who is in-charged (sic) of the company? ATTY. NG:

A. As of now, Your Honor? Q. Mr. Witness, going back to your relationship with
Mr. Peter Ong, were you the one who convinced Peter
Q. As of now? Ong to invest in your company, the Thermo (sic)
Loans?
A. Our manager, Your Honor.
A. I do not remember that, sir.
ATTY. NG:
COURT:
Q. But because you were the President, you also
supervised your manager, is it not? Q. But you talked to him about the interest and the
principal?
A. Yes, sir.
A. Yes, Your Honor.
Q. To your knowledge, can you name some of the
other persons who also invested in your company, if Q. But you did not mention to him that you have other
you know? lending companies?

A. Yes, sir. A. In that matter, I do not remember, Your Honor.

Q. Can you name them? ATTY. NG:

A. The Directors listed there, sir. Q. Mr. Witness, when this company, Thermo (sic)
Loans pulled (sic) it up, "nagsarado," it was a de facto,
there was no…. who got hold of the assets of the
Q. How much did the Directors invest in this company?
company?
A. I do not know that, sir.
A. That I do not know, sir.
Q. Why? A. I do not know where it was placed, sir.

A. Because I am not only attending to that Q. So, you are telling this Court that you cannot
company, I have so many other companies, sir. produce anymore the financial statement related to this
company, is it?
COURT:
A. No, sir. Not like that.
Q. You did not go after your P1.8 Million?
Q. Where you tried to retrieve or will you try to
A. Nomore (sic), Your Honor, because "ako’y retrieve the financial statement of this company?
kinukunsensya rin ng aking sarili, bilang Katoliko’y
ayaw ko nang makasali pa sa ibang bagay na sa A. I gave all the responsibilities to the manager,
banda roo’y pera lang ho iyon." sir.52

Q. "Nakukunsiyensya ka" but you were not being
bothered for the money of the other investors? How
can that be? Your conscience bothers you?
A. If I will think about it, I might get sick. I did not
bother to run after my investment for reason of
health x x x.
ATTY. NG:
Q. Okay, Mr. Witness, considering that you are a
businessman engaged in similar lines of lending
company and being the President, the former President
of Themo (sic) Loans, you had …. you were furnished
with final…. with financial statement of the company
was it not?
A. I do not remember that, sir.
COURT:
Reynaldo Magaling’s very own testimony gave reason for the
appellate court’s finding of gross negligence on his part. Instead
of the intended effect of refuting the supposition that Termo
Loans was assiduously managed, Reynaldo Magaling’s
foregoing testimony only convincingly displayed his gross
negligence in the conduct of the affairs of Termo Loans. From
our standpoint, his casual manner, insouciance and
nonchalance, nay, indifference, to the predicament of the
distressed corporation glaringly exhibited a lackadaisical
attitude from a top office of a corporation, a conduct totally
abhorrent in the corporate world.
Reynaldo Magaling is not a novice in the field of commerce. He
is a seasoned businessman running several lending companies.
During his cross- examination, he admitted that he had, aside
from Termo Loans, various other lending companies, to wit:
ATTY. NG:
Q. Mr. witness, you said that you are a businessman
by profession?

Q. You did not call a meeting of the Directors and WITNESS:

other stock holders that your company is going down?
A. Yes, sir.
A. No more, Your Honor, because no Directors
attended the meeting.
xxxx
Q. But you called a meeting?
ATTY. NG:
A. Yes, Your Honor. I called a meeting but nobody
attended the meeting. Q. In 1994 when you got this alleged investment from
Peter Ong, what were the businesses that you own or
control at that time?
ATTY. NG:
xxxx
Q. Where are now the financial records of the
company?
WITNESS:
A. That I do not know, sir.
A. I did not receive the investment of Peter Ong, it
was the company who received, sir.
Q. How about your own personal records? Your
personal copy of the financial statement of the
company, considering that your classification in Rotary ATTY. NG:
Club is financial services?
Q. Okay. But what were your businesses that you Q. So, what happened to all these lending
had at that time? companies now?

A. Lending companies, sir. A. They are okay, Your Honor.

Q. What are the names of that lending companies ATTY. NG:

that you had?
Q. Do you mean to tell this Honorable Court that all
A. Thermo Loans, sir. these companies are now doing well and still existing
including Thermo Loans?
Q. Aside from Thermo Loans?
A. Thermo Loans was insolvent at that time, sir. But
A. First Solid Lending Company, sir. you did not ask those insolvent. I have so many
companies that are already insolvent. But you did
not ask about the company that are solvent.
Q. What else?
COURT:
A. Mediator Lending Company, sir.
Q. Among those companies which you
Q. What else? mentioned, which of those are solvent and which
are not?
A. Beneficial Lending Company, sir.
A. All of those I mentioned except Thermo Loans,
Q. What else? Your Honor.53

A. Vintage Lending Company, sir. xxxx

Q. What else? COURT:

A. New Profile Lending Company, sir. Q. And Peter Ong could have not parted with the
Three Hundred Thousand pesos (P300,000.00)
Q. What else? investment if he did not talk to you?

A. Smart Cash Lending Company, sir. A. He talked to me, Your Honor.

Q. What else? ATTY. NG:

A. Cash Line Lending Company, sir. Q. He talked to you? Now, that you admitted ….

Q. What else? COURT:

A. Insight Lending Company, sir. Q. Who was the one who made the offer for him to
invest? Was he the one who voluntarily invested the
money or you were the one who convinced him to
Q. What else? invest the P300,000.00 money to Thermo Loans
Lending and Credit Corporation?
A. Antigo Lending Company, sir.
A. I cannot remember, Your Honor, because due to
Q. What else? the lapse of time. It was in 1994.54

A. Flagship Lending Company, sir. xxxx

Q. What else? COURT:

COURT: Q. So, what you are saying now is that, your

manager and Peter Ong made preliminary talks about
Peter Ong investing in Thermo Loans and Credit
 Corporation and thereafter, you also talked with Peter
Ong about Peter Ong’s investing in Thermo Loans?
A. Yes, Your Honor.
Q. What about after that?
A. After four (4) years … that investment was in 1994
up to 1998, Your Honor, and this last … in the year
1999, the corporation became insolvent, Your Honor.55
xxxx
ATTY. NG:
xxxx
Q. What happened when … Mr. witness, how did
Thermo Loans become bankrupt?
A. The reason is that, the borrowers did not pay, sir.56
Accordingly, the Court of Appeals observed correctly when it
succinctly stated that, "[c]learly, Reynaldo Magaling was grossly
negligent in directing the affairs of Thermo (sic) Loans without
due regard to the plight of its investors and thus should be held
jointly and severally liable for the corporate obligation of Thermo
(sic) Loans to appellant Peter Ong."
On the propriety of the RTC’s discharge of the preliminary
attachment, we hew to the provisions of the law and
jurisprudence.
A writ of preliminary attachment is a provisional remedy by virtue
of which a plaintiff or other proper party may, at the
commencement of the action or at any time thereafter, have the
property of the adverse party taken into the custody of the court
as security for the satisfaction of the judgment that may be
recovered.57 The chief purpose of the remedy of attachment is
to secure a contingent lien on defendant’s property until plaintiff
can, by appropriate proceedings, obtain a judgment and have
such property applied to its satisfaction, or to make some
provision for unsecured debts in cases where the means of
satisfaction thereof are liable to be removed beyond the
jurisdiction, or improperly disposed of or concealed, or otherwise
placed beyond the reach of creditors.58
For the provisional remedy to issue, Sec. 1, Rule 57 of the Rules
of Court, as amended, provides that:
SECTION 1. Grounds upon which attachment may
issue. – At the commencement of the action or at any
time before entry of judgment, a plaintiff or any proper
party may have the property of the adverse party
attached as security for the satisfaction of any
judgment that may be recovered in the following cases:
(a) In an action for the recovery of a specified amount
of money or damages, other than moral and
exemplary, on a cause of action arising from law,
contract, quasi-contract, delict or quasi-delict against a
party who is about to depart from the Philippines with
intent to defraud his creditors;
(b) In an action for money or property embezzled or
fraudulently misapplied or converted to his own use by
a public officer, or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in the course of
his employment as such, or by any other person in a
fiduciary capacity, or for a willful violation of duty;
(c) In an action to recover possession of property
unjustly or fraudulently taken, detained or converted,
when the property, or any part thereof, has been
concealed, removed, or disposed of to prevent its being
found or taken by the applicant or an authorized
person;
(d) In an action against a party who has been guilty of
a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in the
performance thereof;
(e) In an action against a party who has removed or
disposed of his property, or is about to do so, with intent
to defraud his creditors; or
(f) In an action against a party who does not reside and
is not found in the Philippines, or on whom summons
may be served by publication.
Once the writ of preliminary attachment is issued, the same rule
provides for two ways by which it can be dissolved or
discharged.
First, the writ of preliminary attachment may be discharged upon
a security given, i.e., a counter-bond, viz:
SEC. 12. Discharge of attachment upon giving
counter-bound. – After a writ of attachment has been
enforced, the party whose property has been attached,
or the person appearing on his behalf, may move for
the discharge of the attachment wholly or in part on the
security given. The court shall, after due notice and
hearing, order the discharge of the attachment if
the movant makes a cash deposit, or files a
counter-bond executed to the attaching party with
the clerk of the court where the application is
made, in an amount equal to that fixed by the court
in the order of attachment, exclusive of costs. But
if the attachment is sought to be discharged with
respect to a particular property, the counter-bond shall
be equal to the value of that property as determined by
the court. In either case, the cash deposit or the
counter-bond shall secure the payment of any
judgment that the attaching party may recover in the
action. A notice of the deposit shall forthwith be served
on the attaching party. 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 the Court of Appeals in CA-G.R. CV No. 70954, are
deposit or giving the counter-bond, or to the person hereby AFFIRMED. Costs against petitioners, heirs of Reynaldo
appearing on his behalf, the deposit or counter-bond Magaling.
aforesaid standing in place of the property so released.
Should such counter-bond for any reason be found to SO ORDERED.
be, or become insufficient, and the party furnishing the
same fail to file an additional counter-bond, the
attaching party may apply for a new order of
attachment. (Emphasis supplied.)

Second, said provisional remedy must be shown to have been

irregularly or improperly issued, to wit:

SEC. 13. Discharge of attachment on other grounds. –

The party whose property has been ordered attached
may file a motion with the court in which the action is
pending, before or after levy or even after the release
of the attached property, for an order to set aside or
discharge the attachment on the ground that the
same was improperly or irregularly issued or
enforced, or that the bond is insufficient. If the
attachment is excessive, the discharge shall be limited
to the excess. If the motion be made on affidavits on
the part of the movant but not otherwise, the attaching
party may oppose the motion by counter-affidavits or
other evidence in addition to that on which the
attachment was made. After due notice and hearing,
the court shall order the setting aside or the
corresponding discharge of the attachment if it
appears that it was improperly or irregularly issued
or enforced, or that the bond is insufficient, or that
the attachment is excessive, and the defect is not
cured forthwith. (Emphasis supplied.)

In the case at bar, there is no question that no counter bond was

given by the Spouses Magaling for the discharge or dissolution
of the writ of preliminary attachment, as their position is that the
provisional remedy was irregularly or improperly issued. They
sought the discharge or dissolution of the writ based on Sec. 13,
Rule 57 of the Rules of Court, as amended. Under said
provision, 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.59 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. It means a fair and open
hearing.60 Herein, there is no showing that a hearing was
conducted prior to the issuance of the 19 February 1999 Order
of the RTC discharging or dissolving the writ of preliminary
attachment. That Ong was able to file an opposition to the
motion of the Spouses Magaling to discharge the preliminary
attachment is of no moment. The written opposition filed is not
equivalent to a hearing. The absence of a hearing before the
RTC bars the discharge of the writ of preliminary attachment for
the simple reason that the discharge or dissolution of said writ,
whether under Sec. 12 or Sec. 13 of Rule 57 of the Rules of
Court, as amended, shall be granted only "after due notice and
hearing."

WHEREFORE, premises considered, the instant petition

is DENIED. Accordingly, the assailed 31 August
2005 Decision and 28 June 2006 Amended Decision, both of
 [ GR No. 203530, Apr 13, 2015 ] on November 15, 2006, the dispositive portion of which reads as
follows:
LUZON DEVELOPMENT BANK v. ERLINDA KRISHNAN +
"WHEREFORE, the PETITION FOR CERTIORARI is
GRANTED.
DECISION
THE ORDERS dated September 8, 2003, and December 18,
PERALTA, J.: 2003 are NULLIFIED and SET ASIDE.

This is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure praying for the annulment of the
Decision[1]dated March 27, 2012 and Resolution[2] dated
September 11, 2012 of the Court of Appeals (CA) in CA-G.R.
SP No. 120664, which affirmed the Orders dated September 24,
2010 and May 26, 2011, respectively, of Branch 30, Regional
Trial Court (RTC) - Manila.
The factual antecedents, as found by the CA, are as follows:
Petitioners Luzon Development Bank, Tomas Clemente, and
Oscar Ramirez (hereafter petitioners) are the respondents in the
complaint for Collection of Sum of Money and Damages filed by
respondent Erlinda Khrishnan (hereafter respondent Erlinda) on
February 7, 2001. Respondent Erlinda claimed that she is a
client of respondent bank wherein she maintained several
accounts including time deposits. On several occasions, when
respondent Erlinda presented her Time Deposits Certificates
amounting to P28,597,472.70 for payment because they have
become due, petitioners refused to honor them for the reason
that they were fraudulent. Respondent Erlinda likewise applied
for a Preliminary Writ of Attachment which the RTC granted on
February 27, 2001.
By virtue of the writ, petitioner bank's accounts in BPI Family
Bank, Calamba, Laguna in the amount of P28,597,472.70 and
its account amounting to P49,000,000.00 in the Central Bank
were garnished.
On March 9, 2001, petitioners filed an urgent ex-parte Motion to
Recall Quash and/or Lift Attachment or Garnishment (in excess
of amounts in the writ). Respondent Erlinda opposed the motion.
On August 15, 2001, petitioners filed an Omnibus Motion
seeking the substitution of their garnished account with
government securities and the immediate resolution of their
motion to discharge attachment and setting the motion for
hearing, which respondent Erlinda opposed.
On May 22, 2002, the RTC resolved the pending incidents and
required the petitioners to justify their motion to discharge the
attachment. During pre-trial on May 23, 2002, respondents
requested additional time to file a supplemental motion to justify
their earlier motions which was granted and gave petitioners ten
(10) days from receipt within which to comment or opposed (sic)
it.
On September 8, 2003, the RTC issued an order lifting the
attachment to which respondent Erlinda filed a motion for
reconsideration. Respondent Erlinda also filed a Motion for
Inhibition. On December 18, 2003, the RTC denied the motion
for reconsideration but granted the motion for inhibition. The said
Order was questioned by respondent Erlinda by way of Petition
for Certiorari before the 7th Division which rendered a decision
The private respondents, as defendants in Civil Case No. 01-
100046 entitled Erlinda C. Krishnan v. Luzon Development
Bank, et al., are ORDERED to file a counterbond in accordance
with Sec. 12, Rule 57, 1997 Rules of Civil Procedure, within 10
days from the finality of this decision; otherwise, the REGIONAL
TRIAL COURT, BRANCH 36, in Manila shall immediately
reinstate the writ of attachment issued and implemented in Civil
Case No. 01-100046.
Costs of suit to be paid by the respondents. SO ORDERED.
Petitioners' subsequent motion for reconsideration was denied.
Thereafter, their petition and motion for reconsideration before
the Supreme Court were likewise denied.
On May 09, 2008, respondent judge issued an Order directing
respondent Erlinda to file a new attachment bond in the amount
of P35,000,000.00 and petitioners to file a counterbond within
ten days from notice of the filing and approval of the bond of
respondent Erlinda. Petitioners moved for the reconsideration of
the said Order which respondent judge denied and granted a
period of fifteen days for respondent Erlinda to file an attachment
bond.
Respondent Erlinda filed her attachment bond on June 25, 2009
in the amount of P35,000,000.00 through Visayan Surety and
Insurance Corporation which was approved by respondent on
July 7, 2009.
Meanwhile, on July 3, 2009, petitioners filed an Omnibus Motion
praying that a hearing be held to determine the sufficiency of the
attachment bond and they be allowed to deposit Certificates of
Title of real property, and the issuance of the writ of attachment
be held in abeyance.
On July 20, 2009, petitioners filed a motion for extension of time
to comply and/or file the appropriate pleading and to hold in
abeyance the reinstatement of the writ of attachment.
On January 28, 2010, petitioners filed a motion to admit bank
property in lieu of counterbond which was opposed by
respondent Erlinda.
On September 24, 2010, respondent judge denied petitioners'
motion in the assailed Order. Their subsequent motion for
reconsideration was denied on May 26, 2011.
On June 27, 2011, respondent judge issued an Order reinstating
the Writ of Attachment dated March 1, 2001 for failure of
petitioners to file the required counterbond. Respondent judge
also issued an amended Reinstated Writ of Attachment directing
respondent Sheriff Oscar L. Rojas (hereafter respondent Sheriff)
to attach the real estate or personal properties of petitioners in
the amount of P28,597,472.70. On June 30, 2011, the sheriff
served the Notice of Garnishment and the Amended Reinstated
Writ of Attachment.

On July 4, 2011, petitioners filed an urgent motion to recall,
suspend or hold in abeyance and re-examination of the
amended reinstated writ of preliminary attachment of June 27,
2011 which was opposed by respondent Erlinda.
On July 19, 2011, respondent Sheriff issued a Sheriffs Partial
Report. Thereafter, petitioners filed this petition for certiorari x x
x.
In a Decision dated March 27, 2012, the CA dismissed
petitioners' certiorari petition and affirmed the Orders of the RTC
reinstating the Writ of Attachment for failure of petitioners to file
the required counter-bond. The CA ruled that the RTC judge
committed no grave abuse of discretion in denying petitioners'
motion to admit bank property in lieu of counter-bond, thus, it
held:
WHEREFORE, premises considered, the petition is
DISMISSED and accordingly, DENIED DUE COURSE. The
Orders dated September 24, 2010 and May 26, 2011 are hereby
AFFIRMED.
SO ORDERED.[3]
Petitioners filed a motion for reconsideration against said
decision, but the same was denied in a Resolution dated
September 11, 2012.
Hence, petitioners filed this present petition raising the following
grounds:
IN THE FIRST ASSAILED ORDER THE HONORABLE COURT
OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION
WHEN IT MISCONSTRUED AND FAILED TO RULE ON THE
CORRECT LEGAL ISSUE PRESENTED IN THE PETITION
FOR CERTIORARI.[4]
IN THE SECOND ASSAILED ORDER THE FIONORABLE
COURT OF APPEALS AGAIN ACTED WITH GRAVE ABUSE
OF DISCRETION WHEN IT FAILED TO PRESENT ANY
LEGAL BASIS FOR STATING THAT RULE 39 OF THE
REVISED RULES OF COURT DOES NOT APPLY.[5]
Simply stated, the issue for our resolution is whether the CA
erred in affirming the RTC's decision which denied petitioners'
motion praying that bank property be deposited in lieu of cash
or a counter-bond.
In their petition, petitioners contend that it has the option to
deposit real property, in lieu of cash or a counter-bond, to secure
any contingent lien on its property in the event respondent wins
the case. They argue that Section 2 of Rule 57 only mentions
the term "deposit," thus, it cannot only be confined or construed
to refer to cash.
We rule in the negative.
Section 2, Rule 57 of the Rules of Court explicitly states that
"[a]n order of attachment may be issued either ex parte or upon
motion with notice and hearing by the court in which the action
is pending, or by the Court of Appeals or the Supreme Court,
and must require the sheriff of the court to attach so much of the
property in the Philippines of the party against whom it is issued,
not exempt from execution, as may be sufficient to satisfy the
applicant's demand, unless such party makes deposit or
gives a bond as hereinafter provided in an amount equal to
that fixed in the order, which may be the amount sufficient to
satisfy the applicant's demand or the value of the property to be
attached as stated by the applicant, exclusive of costs."
Section 5 of the same Rule likewise states that "[t]he sheriff
enforcing the writ shall without delay and with all reasonable
diligence attach, to await judgment and execution in the action,
only so much of the property in the Philippines of the party
against whom the writ is issued, not exempt from execution, as
may be sufficient to satisfy the applicant's demand, unless the
former makes a deposit with the court from which the writ
is issued, or gives a counter-bond executed to the
applicant, in an amount equal to the bond fixed by the court
in the order of attachment or to the value of the property to
be attached, exclusive of costs."
From the foregoing, it is evidently clear that once the writ of
attachment has been issued, the only remedy of the petitioners
in lifting the same is through a cash deposit or the filing of the
counter-bond. Thus, the Court holds that petitioner's argument
that it has the option to deposit real property instead of
depositing cash or filing a counter-bond to discharge the
attachment or stay the implementation thereof is unmeritorious.
In fact, in Security Pacific Assurance Corporation v. Tria-
Infante,[6] we held that one of the ways to secure the discharge
of an attachment is for the party whose property has been
attached or a person appearing on his behalf, to post a
counterbond or make the requisite cash deposit in an amount
equal to that fixed by the court in the order of attachment.[7]
Apropos, the trial court aptly ruled that while it is true that the
word deposit cannot only be confined or construed to refer to
cash, a broader interpretation thereof is not justified in the
present case for the reason that a party seeking a stay of the
attachment under Section 5 is required to make a deposit in an
amount equal to the bond fixed by the court in the order of
attachment or to the value of the property to be attached. The
proximate relation of the word "deposit" and "amount" is
unmistakable in Section 5 of Rule 57. Plainly, in construing said
words, it can be safely concluded that Section 5 requires the
deposit of money as the word "amount" commonly refers to or is
regularly associated with a sum of money.
In Alcazar v. Arante,[8] we held that in construing words and
phrases used in a statute, the general rule is that, in the absence
of legislative intent to the contrary, they should be given their
plain, ordinary and common usage meaning. The words should
be read and considered in their natural, ordinary, commonly-
accepted and most obvious signification, according to good and
approved usage and without resorting to forced or subtle
construction. Words are presumed to have been employed by
the lawmaker in their ordinary and common use and
acceptation.[9] Thus, petitioners should not give a special or
technical interpretation to a word which is otherwise construed
in its ordinary sense by the law and broaden the signification of
the term "deposit" to include that of real properties.
WHEREFORE, premises considered, the instant petition
is DENIED. The Decision dated March 27, 2012 and Resolution
dated September 11, 2012 of the Court of Appeals are
hereby AFFIRMED.
SO ORDERED.
 Republic of the Philippines
Velasco, Jr., (Chairperson), Mendoza,* Reyes, and Jardeleza, SUPREME COURT
JJ., concur. Manila

THIRD DIVISION

G.R. No. 155868 February 6, 2007

SPOUSES GREGORIO and JOSEFA YU, Petitioners,

vs.
NGO YET TE, doing business under the name and style,
ESSENTIAL MANUFACTURING, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of

the Rules of Court assailing the March 21, 2001 Decision1 of the
Court of Appeals (CA) in CA-G.R. CV No. 522462 and its
October 14, 2002 Resolution.3

The antecedent facts are not disputed.

Spouses Gregorio and Josefa Yu (Spouses Yu) purchased from

Ngo Yet Te (Te) bars of detergent soap worth ₱594,240.00, and
issued to the latter three postdated checks 4 as payment of the
purchase price. When Te presented the checks at maturity for
encashment, said checks were returned dishonored and
stamped "ACCOUNT CLOSED".5 Te demanded6 payment from
Spouses Yu but the latter did not heed her demands. Acting
through her son and attorney-in-fact, Charry Sy (Sy), Te filed
with the Regional Trial Court (RTC), Branch 75, Valenzuela,
Metro Manila, a Complaint,7 docketed as Civil Case No. 4061-
V-93, for Collection of Sum of Money and Damages with Prayer
for Preliminary Attachment.

In support of her prayer for preliminary attachment, Te attached

to her Complaint an Affidavit executed by Sy that Spouses Yu
were guilty of fraud in entering into the purchase agreement for
they never intended to pay the contract price, and that, based
on reliable information, they were about to move or dispose of
their properties to defraud their creditors.8

Upon Te’s posting of an attachment bond, 9 the RTC issued an

Order of Attachment/Levy10 dated March 29, 1993 on the basis
of which Sheriff Constancio Alimurung (Sheriff Alimurung) of
RTC, Branch 19, Cebu City levied and attached Spouses Yu’s
properties in Cebu City consisting of one parcel of land (known
as Lot No. 11)11 and four units of motor vehicle, specifically, a
Toyota Ford Fierra, a jeep, a Canter delivery van, and a
passenger bus.12

On April 21, 1993, Spouses Yu filed an Answer13 with

counterclaim for damages arising from the wrongful attachment
of their properties, specifically, actual damages amounting to
₱1,500.00 per day; moral damages, ₱1,000,000.00; and
exemplary damages, ₱50,000.00. They also sought payment of
₱120,000.00 as attorney’s fees and ₱80,000.00 as litigation
expenses.14 On the same date, Spouses Yu filed an Urgent
Motion to Dissolve Writ of Preliminary Attachment.15 They also
filed a Claim Against Surety Bond16 in which they demanded
payment from Visayan Surety and Insurance Corporation
(Visayan Surety), the surety which issued the attachment bond,
of the sum of ₱594,240.00, representing the damages they
allegedly sustained as a consequence of the wrongful
attachment of their properties.
While the RTC did not resolve the Claim Against Surety Bond, it
issued an Order17 dated May 3, 1993, discharging from
attachment the Toyota Ford Fierra, jeep, and Canter delivery
van on humanitarian grounds, but maintaining custody of Lot No.
11 and the passenger bus. Spouses Yu filed a Motion for
Reconsideration18 which the RTC denied.19
Dissatisfied, they filed with the CA a Petition
for Certiorari,20 docketed as CA-G.R. SP No. 31230, in which a
Decision21 was rendered on September 14, 1993, lifting the RTC
Order of Attachment on their remaining properties. It reads in
part:
In the case before Us, the complaint and the accompanying
affidavit in support of the application for the writ only contains
general averments. Neither pleading states in particular how the
fraud was committed or the badges of fraud purportedly
committed by the petitioners to establish that the latter never had
an intention to pay the obligation; neither is there a statement of
the particular acts committed to show that the petitioners are in
fact disposing of their properties to defraud creditors. x x x.
xxxx
Moreover, at the hearing on the motion to discharge the order of
attachment x x x petitioners presented evidence showing that
private respondent has been extending multi-million peso credit
facilities to the petitioners for the past seven years and that the
latter have consistently settled their obligations. This was not
denied by private respondent. Neither does the private
respondent contest the petitioners’ allegations that they have
been recently robbed of properties of substantial value, hence
their inability to pay on time. By the respondent court’s own
pronouncements, it appears that the order of attachment was
upheld because of the admitted financial reverses the petitioner
is undergoing.
This is reversible error. Insolvency is not a ground for
attachment especially when defendant has not been shown to
have committed any act intended to defraud its creditors x x x.
For lack of factual basis to justify its issuance, the writ of
preliminary attachment issued by the respondent court was
improvidently issued and should be discharged.22
From said CA Decision, Te filed a Motion for Reconsideration
but to no avail.23
Te filed with us a Petition for Review on Certiorari24 but we
denied the same in a Resolution dated June 8, 1994 for having
been filed late and for failure to show that a reversible error was
committed by the CA.25 Entry of Judgment of our June 8, 1994
Resolution was made on July 22, 1994.26 Thus, the finding of
the CA in its September 14, 1993 Decision in CA-G.R. SP No.
31230 on the wrongfulness of the attachment/levy of the
properties of Spouses Yu became conclusive and binding.
However, on July 20, 1994, the RTC, apparently not informed of
the SC Decision, rendered a Decision, the dispositive portion of
which reads:
WHEREFORE, premises considered, the Court finds that the
plaintiff has established a valid civil cause of action against the
defendants, and therefore, renders this judgment in favor of the
plaintiff and against the defendants, and hereby orders the
following:
1) Defendants are hereby ordered or directed to pay
the plaintiff the sum of ₱549,404.00, with interest from
the date of the filing of this case (March 3, 1993);
2) The Court, for reasons aforestated, hereby denies
the grant of damages to the plaintiff;
3) The Court hereby adjudicates a reasonable
attorney’s fees and litigation expenses of ₱10,000.00
in favor of the plaintiff;
4) On the counterclaim, this Court declines to rule on
this, considering that the question of the attachment
which allegedly gave rise to the damages incurred by
the defendants is being determined by the Supreme
Court.
SO ORDERED.27 (Emphasis ours)
Spouses Yu filed with the RTC a Motion for
Reconsideration28 questioning the disposition of their
counterclaim. They also filed a Manifestation 29 informing the
RTC of our June 8, 1994 Resolution in G.R. No. 114700.
The RTC issued an Order dated August 9, 1994, which read:
xxxx
(2) With regard the counter claim filed by the
defendants against the plaintiff for the alleged
improvident issuance of this Court thru its former
Presiding Judge (Honorable Emilio Leachon, Jr.), the
same has been ruled with definiteness by the Supreme
Court that, indeed, the issuance by the Court of the writ
of preliminary attachment appears to have been
improvidently done, but nowhere in the decision of
the Supreme Court and for that matter, the Court of
Appeal’s decision which was in effect sustained by
the High Court, contains any ruling or directive or
imposition, of any damages to be paid by the
plaintiff to the defendants, in other words, both the
High Court and the CA, merely declared the previous
issuance of the writ of attachment by this Court thru its
former presiding judge to be improvidently issued, but
it did not award any damages of any kind to the
 defendants, hence, unless the High Court or the CA
rules on this, this Court coud not grant any damages
by virtue of the improvident attachment made by this
Court thru its former presiding judge, which was
claimed by the defendants in their counter claim.
(3) This Court hereby reiterates in toto its Decision in
this case dated July 20, 1994. 30 (Emphasis ours)
The RTC also issued an Order dated December 2,
1994,31 denying the Motion for Reconsideration of Spouses
Yu.32
In the same December 2, 1994 Order, the RTC granted two
motions filed by Te, a Motion to Correct and to Include Specific
Amount for Interest and a Motion for Execution Pending
Appeal.33 The RTC also denied Spouses Yu’s Notice of
Appeal34 from the July 20, 1994 Decision and August 9, 1994
Order of the RTC.
From said December 2, 1994 RTC Order, Spouses Yu filed
another Notice of Appeal 35 which the RTC also denied in an
Order36 dated January 5, 1995.
Spouses Yu filed with the CA a Petition37 for Certiorari,
Prohibition and Mandamus, docketed as CA-G.R. SP No.
36205, questioning the denial of their Notices of Appeal; and
seeking the modification of the July 20, 1994 Decision and the
issuance of a Writ of Execution. The CA granted the Petition in
a Decision38 dated June 22, 1995.
Hence, Spouses Yu filed with the CA an appeal 39 docketed as
CA-G.R. CV No. 52246, questioning only that portion of the July
20, 1994 Decision where the RTC declined to rule on their
counterclaim for damages.40 However, Spouses Yu did not
dispute the specific monetary awards granted to respondent Te;
and therefore, the same have become final and executory.
Although in the herein assailed Decision41 dated March 21,
2001, the CA affirmed in toto the RTC Decision, it nonetheless
made a ruling on the counterclaim of Spouses Yu by declaring
that the latter had failed to adduce sufficient evidence of their
entitlement to damages.
Spouses Yu filed a Motion for Reconsideration 42 but the CA
denied it in the herein assailed Resolution43 dated October 14,
2002.
Spouses Yu filed the present Petition raising the following
issues:
I. Whether or not the appellate court erred in not
holding that the writ of attachment was procured in bad
faith, after it was established by final judgment that
there was no true ground therefor.
II. Whether or not the appellate court erred in refusing
to award actual, moral and exemplary damages after it
was established by final judgment that the writ of
attachment was procured with no true ground for its
issuance.44
There is one preliminary matter to set straight before we resolve
the foregoing issues.
According to respondent Te,45 regardless of the evidence
presented by Spouses Yu, their counterclaim was correctly
dismissed for failure to comply with the procedure laid down in
Section 20 of Rule 57. Te contends that as Visayan Surety was
not notified of the counterclaim, no judgment thereon could be
validly rendered.
Such argument is not only flawed, it is also specious.
As stated earlier, Spouses Yu filed a Claim Against Surety Bond
on the same day they filed their Answer and Urgent Motion to
Dissolve Writ of Preliminary Attachment.46 Further, the records
reveal that on June 18, 1993, Spouses Yu filed with the RTC a
Motion to Give Notice to Surety.47 The RTC granted the Motion
in an Order48 dated June 23, 1993. Accordingly, Visayan Surety
was notified of the pre-trial conference to apprise it of a pending
claim against its attachment bond. Visayan Surety received the
notice on July 12, 1993 as shown by a registry return receipt
attached to the records.49
Moreover, even if it were true that Visayan Surety was left in the
proceedings a quo, such omission is not fatal to the cause of
Spouses Yu. In Malayan Insurance Company, Inc. v.
Salas,50 we held that "x x x if the surety was not given notice
when the claim for damages against the principal in the replevin
bond was heard, then as a matter of procedural due process the
surety is entitled to be heard when the judgment for damages
against the principal is sought to be enforced against the
surety’s replevin bond."51 This remedy is applicable for the
procedures governing claims for damages
on an attachment bond and on a replevin bond are the same.52
We now proceed to resolve the issues jointly.
Spouses Yu contend that they are entitled to their counterclaim
for damages as a matter of right in view of the finality of our June
8, 1994 Resolution in G.R. No. 114700 which affirmed the
finding of the CA in its September 14, 1993 Decision in CA-G.R.
SP No. 31230 that respondent Te had wrongfully caused the
attachment of their properties. Citing Javellana v. D.O. Plaza
Enterprises, Inc.,53 they argue that they should be awarded
damages based solely on the CA finding that the attachment
was illegal for it already suggests that Te acted with malice when
she applied for attachment. And even if we were to assume that
Te did not act with malice, still she should be held liable for the
aggravation she inflicted when she applied for attachment even
when she was clearly not entitled to it.54
That is a rather limited understanding of Javellana. The
counterclaim disputed therein was not for moral damages and
therefore, there was no need to prove malice. As early as in
Lazatin v. Twaño,55 we laid down the rule that where there is
wrongful attachment, the attachment defendant may recover
actual damages even without proof that the attachment plaintiff
acted in bad faith in obtaining the attachment. However, if it is
alleged and established that the attachment was not merely
wrongful but also malicious, the attachment defendant may
recover moral damages and exemplary damages as
well. 56 Either way, the wrongfulness of the attachment does not
warrant the automatic award of damages to the attachment
defendant; the latter must first discharge the burden of proving
the nature and extent of the loss or injury incurred by reason of
the wrongful attachment.57
In fine, the CA finding that the attachment of the properties of
Spouses Yu was wrongful did not relieve Spouses Yu of the
burden of proving the factual basis of their counterclaim for
damages.
To merit an award of actual damages arising from a wrongful
attachment, the attachment defendant must prove, with the best
evidence obtainable, the fact of loss or injury suffered and the
amount thereof.58 Such loss or injury must be of the kind which
is not only capable of proof but must actually be proved with a
reasonable degree of certainty. As to its amount, the same must
be measurable based on specific facts, and not on guesswork
or speculation. 59 In particular, if the claim for actual damages
covers unrealized profits, the amount of unrealized profits must
be estalished and supported by independent evidence of the
mean income of the business undertaking interrupted by the
illegal seizure. 60
Spouses Yu insist that the evidence they presented met the
foregoing standards. They point to the lists of their daily net
income from the operation of said passenger bus based on used
ticket stubs61 issued to their passengers. They also cite unused
ticket stubs as proof of income foregone when the bus was
wrongfully seized.62 They further cite the unrebutted testimony
of Josefa Yu that, in the day-to-day operation of their passenger
bus, they use up at least three ticket stubs and earn a minimum
daily income of ₱1,500.00.63
In ruling that Spouses Yu failed to adduce sufficient evidence to
support their counterclaim for actual damages, the CA stated,
thus:
In this case, the actual damages cannot be determined.
Defendant-appellant Josefa Yu testified on supposed lost profits
without clear and appreciable explanation. Despite her
submission of the used and unused ticket stubs, there was no
evidence on the daily net income, the routes plied by the bus
and the average fares for each route. The submitted basis is too
speculative and conjectural. No reports regarding the average
actual profits and other evidence of profitability necessary to
prove the amount of actual damages were presented. Thus, the
Court a quodid not err in not awarding damages in favor of
defendants-appellants.64
We usually defer to the expertise of the CA, especially when it
concurs with the factual findings of the RTC.65Indeed, findings
of fact may be passed upon and reviewed by the Supreme Court
in the following instances: (1) when the conclusion is a finding
grounded entirely on speculations, surmises, or conjectures; (2)
when the inference made is manifestly mistaken, absurd, or
impossible; (3) where there is a grave abuse of discretion in the
appreciation of facts; (4) when judgment is based on a
misapprehension of facts; (5) when the lower court, in making
its findings, went beyond the issues of the case and such
findings are contrary to the admissions of both appellant and
appellee; (6) when the factual findings of the CA are contrary to
those of the trial court; (7) when the findings of fact are
themselves conflicting; (8) when the findings of fact are
conclusions made without a citation of specific evidence on
which they are based; (9) when the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not
disputed by the respondents; (10) when the findings of fact of
the lower court are premised on the supposed absence of
evidence and are contradicted by the evidence on
record.66 However, the present case does not fall under any of
the exceptions. We are in full accord with the CA that Spouses
Yu failed to prove their counterclaim.
Spouses Yu’s claim for unrealized income of ₱1,500.00 per day
was based on their computation of their average daily income
for the year 1992. Said computation in turn is based on the value
of three ticket stubs sold over only five separate days in
1992.67 By no stretch of the imagination can we consider ticket
sales for five days sufficient evidence of the average daily
income of the passenger bus, much less its mean income. Not
even the unrebutted testimony of Josefa Yu can add credence
to such evidence for the testimony itself lacks corroboration.68
Besides, based on the August 29, 1994 Manifestation 69 filed by
Sheriff Alimurung, it would appear that long before the
passenger bus was placed under preliminary attachment in Civil
Case No. 4061-V-93, the same had been previously attached by
the Sheriff of Mandaue City in connection with another case and
that it was placed in the Cebu Bonded Warehousing
Corporation, Cebu City. Thus, Spouses Yu cannot complain that
they were unreasonably deprived of the use of the passenger
bus by reason of the subsequent wrongful attachment issued in
Civil Case No. 4061-V-93. Nor can they also attribute to the
wrongful attachment their failure to earn income or profit from
the operation of the passenger bus.
Moreover, petitioners did not present evidence as to the
damages they suffered by reason of the wrongful attachment of
Lot No. 11.
Nonetheless, we recognize that Spouses Yu suffered some form
of pecuniary loss when their properties were wrongfully seized,
although the amount thereof cannot be definitively ascertained.
Hence, an award of temperate or moderate damages in the
amount of ₱50,000.00 is in order.70
As to moral and exemplary damages, to merit an award thereof,
it must be shown that the wrongful attachment was obtained by
the attachment plaintiff with malice or bad faith, such as by
appending a false affidavit to his application.71
Spouses Yu argue that malice attended the issuance of the
attachment bond as shown by the fact that Te deliberately
appended to her application for preliminary attachment an
Affidavit where Sy perjured himself by stating that they had no
intention to pay their obligations even when he knew this to be
untrue given that they had always paid their obligations; and by However, we grant them temperate damages and attorney’s
accusing them of disposing of their properties to defraud their fees.
creditors even when he knew this to be false, considering that
the location of said properties was known to him.72 WHEREFORE, the petition is partly GRANTED. The March 21,
2001 Decision of the Court of Appeals is AFFIRMED with
The testimony of petitioner Josefa Yu herself negates their claim the MODIFICATION that petitioners’ counterclaim
for moral and exemplary damages. On cross-examination she is PARTLY GRANTED. Gregorio Yu and Josefa Yu are
testified, thus: awarded ₱50,000.00 temperate damages and ₱30,000.00
attorney’s fees.
Q: Did you ever deposit any amount at that time to fund the
check? No costs.

A: We requested that it be replaced and staggered into smaller SO ORDERED.

amounts.

COURT: Did you fund it or not?

Atty. Ferrer: The three checks involved?

Atty. Florido: Already answered. She said that they were not
able to fund it.

Atty. Ferrer: And as a matter of fact, you went to the bank to

close your account?

A: We closed account with the bank because we transferred the

account to another bank.

Q: How much money did you transfer from that bank to which
the three checks were drawn to this new bank?

A: I don’t know how much was there but we transferred already

to the Solid Bank.

Q: Who transferred?

A: My daughter, sir.73 (Emphasis ours)

Based on the foregoing testimony, it is not difficult to understand

why Te concluded that Spouses Yu never intended to pay their
obligation for they had available funds in their bank but chose to
transfer said funds instead of cover the checks they issued.
Thus, we cannot attribute malice nor bad faith to Te in applying
for the attachment writ. We cannot hold her liable for moral and
exemplary damages.

As a rule, attorney’s fees cannot be awarded when moral and

exemplary damages are not granted, the exception however is
when a party incurred expenses to lift a wrongfully issued writ of
attachment.1awphi1.net74 Without a doubt, Spouses Yu waged
a protracted legal battle to fight off the illegal attachment of their
properties and pursue their claims for damages. It is only just
and equitable that they be awarded reasonable attorney’s fees
in the amount of ₱30,000.00.

In sum, we affirm the dismissal of the counterclaim of petitioners

Spouses Yu for actual, moral, and exemplary damages.