1
G.R. No. L-34548 November 29, 1988
RIZAL COMMERCIAL BANKING
CORPORATION, petitioner,
vs.
THE HONORABLE PACIFICO P. DE CASTRO and
PHILIPPINE VIRGINIA TOBACCO
ADMINISTRATION, respondents
Meer, Meer & Meer for petitioner.
The Solicitor General for respondents.
CORTES, J.:
The crux of the instant controversy dwells on the liability of a
bank for releasing its depositor's funds upon orders of the
court, pursuant to a writ of garnishment. If in compliance with
the court order, the bank delivered the garnished amount to
the sheriff, who in turn delivered it to the judgment creditor,
but subsequently, the order of the court directing payment
was set aside by the same judge, should the bank be held
solidarily liable with the judgment creditor to its depositor for
reimbursement of the garnished funds? The Court does not
think so.
In Civil Case No. Q-12785 of the Court of First Instance of
Rizal, Quezon City Branch IX entitled "Badoc Planters, Inc.
versus Philippine Virginia Tobacco Administration, et al.,"
which was an action for recovery of unpaid tobacco deliveries,
an Order (Partial Judgment) was issued on January 15, 1970
by the Hon. Lourdes P. San Diego, then Presiding Judge,
ordering the defendants therein to pay jointly and severally,
the plaintiff Badoc Planters, Inc. (hereinafter referred to as
"BADOC") within 48 hours the aggregate amount of
P206,916.76, with legal interests thereon.
On January 26,1970, BADOC filed an Urgent Ex-Parte Motion
for a Writ of Execution of the said Partial Judgment which was
granted on the same day by the herein respondent judge who
acted in place of the Hon. Judge San Diego who had just been
elevated as a Justice of the Court of Appeals. Accordingly, the
Branch Clerk of Court on the very same day, issued a Writ of
Execution addressed to Special Sheriff Faustino Rigor, who
then issued a Notice of Garnishment addressed to the General
Manager and/or Cashier of Rizal Commercial Banking
Corporation (hereinafter referred to as RCBC), the petitioner
in this case, requesting a reply within five (5) days to said
garnishment as to any property which the Philippine Virginia
Tobacco Administration (hereinafter referred to as "PVTA")
might have in the possession or control of petitioner or of any
debts owing by the petitioner to said defendant. Upon receipt
of such Notice, RCBC notified PVTA thereof to enable the
PVTA to take the necessary steps for the protection of its own
interest [Record on Appeal, p. 36]
Upon an Urgent Ex-Parte Motion dated January 27, 1970 filed
by BADOC, the respondent Judge issued an Order granting
the Ex-Parte Motion and directing the herein petitioner "to
deliver in check the amount garnished to Sheriff Faustino
Rigor and Sheriff Rigor in turn is ordered to cash the check
and deliver the amount to the plaintiff's representative and/or
counsel on record." [Record on Appeal, p. 20; Rollo, p. 5.] In
compliance with said Order, petitioner delivered to Sheriff
Rigor a certified check in the sum of P 206,916.76.
Respondent PVTA filed a Motion for Reconsideration dated
February 26,1970 which was granted in an Order dated April
6,1970, setting aside the Orders of Execution and of Payment
and the Writ of Execution and ordering petitioner and BADOC
"to restore, jointly and severally, the account of PVTA with
the said bank in the same condition and state it was before
the issuance of the aforesaid Orders by reimbursing the PVTA
of the amount of P 206, 916.76 with interests at the legal rate
from January 27, 1970 until fully paid to the account of the
PVTA This is without prejudice to the right of plaintiff to move
for the execution of the partial judgment pending appeal in
case the motion for reconsideration is denied and appeal is
taken from the said partial judgment." [Record on Appeal, p.
58]
The Motion for Reconsideration of the said Order of April 6,
1970 filed by herein petitioner was denied in the Order of
respondent judge dated June 10, 1970 and on June 19, 1970,
which was within the period for perfecting an appeal, the
herein petitioner filed a Notice of Appeal to the Court of
Appeals from the said Orders.
This case was then certified by the Court of Appeals to this
Honorable Court, involving as it does purely questions of law.
The petitioner raises two principal queries in the instant case:
1) Whether or not PVTA funds are public funds not subject to
garnishment; and 2) Whether or not the respondent Judge
correctly ordered the herein petitioner to reimburse the
amount paid to the Special Sheriff by virtue of the execution
issued pursuant to the Order/Partial Judgment dated January
15, 1970.
The record reveals that on February 2, 1970, private
respondent PVTA filed a Motion for Reconsideration of the
Order/ Partial Judgment of January 15, 1970. This was
granted and the aforementioned Partial Judgment was set
aside. The case was set for hearings on November 4, 9 and
11, 1970 [Rollo, pp. 205-207.] However, in view of the failure
of plaintiff BADOC to appear on the said dates, the lower
court ordered the dismissal of the case against PVTA for
failure to prosecute [Rollo, p. 208.]
It must be noted that the Order of respondent Judge dated
April 6, 1970 directing the plaintiff to reimburse PVTA t e
amount of P206,916.76 with interests became final as to said
plaintiff who failed to even file a motion for reconsideration,
much less to appeal from the said Order. Consequently, the
order to restore the account of PVTA with RCBC in the same
condition and state it was before the issuance of the
questioned orders must be upheld as to the plaintiff, BADOC.
However, the questioned Order of April 6, 1970 must be set
aside insofar as it ordered the petitioner RCBC, jointly and
severally with BADOC, to reimburse PVTA.
The petitioner merely obeyed a mandatory directive from the
respondent Judge dated January 27, 1970, ordering petitioner
94 "to deliver in check the amount garnished to Sheriff
Faustino Rigor and Sheriff Rigor is in turn ordered to cash the
check and deliver the amount to the plaintiffs representative
and/or counsel on record." [Record on Appeal, p. 20.]
PVTA however claims that the manner in which the bank
complied with the Sheriffs Notice of Garnishment indicated
breach of trust and dereliction of duty on the part of the bank
as custodian of government funds. It insistently urges that
the premature delivery of the garnished amount by RCBC to
the special sheriff even in the absence of a demand to deliver

made by the latter, before the expiration of the five-day
period given to reply to the Notice of Garnishment, without
any reply having been given thereto nor any prior
authorization from its depositor, PVTA and even if the court's
order of January 27, 1970 did not require the bank to
immediately deliver the garnished amount constitutes such
lack of prudence as to make it answerable jointly and
severally with the plaintiff for the wrongful release of the
money from the deposit of the PVTA. The respondent Judge in
his controverted Order sustained such contention and blamed
RCBC for the supposed "hasty release of the amount from the
deposit of the PVTA without giving PVTA a chance to take
proper steps by informing it of the action being taken against
its deposit, thereby observing with prudence the five-day
period given to it by the sheriff." [Rollo, p. 81.]
Such allegations must be rejected for lack of merit. In the
first place, it should be pointed out that RCBC did not deliver
the amount on the strength solely of a Notice of Garnishment;
rather, the release of the funds was made pursuant to the
aforesaid Order of January 27, 1970. While the Notice of
Garnishment dated January 26, 1970 contained no demand of
payment as it was a mere request for petitioner to withold
any funds of the PVTA then in its possession, the Order of
January 27, 1970 categorically required the delivery in check
of the amount garnished to the special sheriff, Faustino Rigor.
In the second place, the bank had already filed a reply to the
Notice of Garnishment stating that it had in its custody funds
belonging to the PVTA, which, in fact was the basis of the
plaintiff in filing a motion to secure delivery of the garnished
amount to the sheriff. [See Rollo, p. 93.]
Lastly, the bank, upon the receipt of the Notice of
Garnishment, duly informed PVTA thereof to enable the latter
to take the necessary steps for the protection of its own
interest [Record on Appeal, p. 36]
It is important to stress, at this juncture, that there was
nothing irregular in the delivery of the funds of PVTA by check
to the sheriff, whose custody is equivalent to the custody of
the court, he being a court officer. The order of the court
dated January 27, 1970 was composed of two parts,
requiring: 1) RCBC to deliver in check the amount garnished
to the designated sheriff and 2) the sheriff in turn to cash the
check and deliver the amount to the plaintiffs representative
and/or counsel on record. It must be noted that in delivering
the garnished amount in check to the sheriff, the RCBC did
not thereby make any payment, for the law mandates that
delivery of a check does not produce the effect of payment
until it has been cashed. [Article 1249, Civil Code.]
Moreover, by virtue of the order of garnishment, the same
was placed in custodia legis and therefore, from that time on,
RCBC was holding the funds subject to the orders of the
court a quo. That the sheriff, upon delivery of the check to
him by RCBC encashed it and turned over the proceeds
thereof to the plaintiff was no longer the concern of RCBC as
the responsibility over the garnished funds passed to the
court. Thus, no breach of trust or dereliction of duty can be
attributed to RCBC in delivering its depositor's funds pursuant
to a court order which was merely in the exercise of its power
of control over such funds.
... The garnishment of property to satisfy a
writ of execution operates as an attachment
and fastens upon the property a lien by
which the property is brought under the
jurisdiction of the court issuing the writ. It is
brought into custodia legis, under the sole
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control of such court [De Leon v. Salvador,
G.R. Nos. L-30871 and L-31603, December
28,1970, 36 SCRA 567, 574.]
The respondent judge however, censured the petitioner for
having released the funds "simply on the strength of the
Order of the court which. far from ordering an immediate
release of the amount involved, merely serves as a standing
authority to make the release at the proper time as
prescribed by the rules." [Rollo, p. 81.]
This argument deserves no serious consideration. As stated
earlier, the order directing the bank to deliver the amount to
the sheriff was distinct and separate from the order directing
the sheriff to encash the said check. The bank had no choice
but to comply with the order demanding delivery of the
garnished amount in check. The very tenor of the order called
for immediate compliance therewith. On the other hand, the
bank cannot be held liable for the subsequent encashment of
the check as this was upon order of the court in the exercise
of its power of control over the funds placed in custodia
legis by virtue of the garnishment.
In a recent decision [Engineering Construction Inc., v.
National Power Corporation, G.R. No. L-34589, June 29,
1988] penned by the now Chief Justice Marcelo Fernan, this
Court absolved a garnishee from any liability for prompt
compliance with its order for the delivery of the garnished
funds. The rationale behind such ruling deserves emphasis in
the present case:
But while partial restitution is warranted in
favor of NPC, we find that the Appellate
Court erred in not absolving MERALCO, the
garnishee, from its obligations to NPC with
respect to the payment of ECI of P
1,114,543.23, thus in effect subjecting
MERALCO to double liability. MERALCO
should not have been faulted for its prompt
obedience to a writ of garnishment. Unless
there are compelling reasons such as: a
defect on the face of the writ or actual
knowledge on the part of the garnishee of
lack of entitlement on the part of the
garnisher, it is not incumbent upon the
garnishee to inquire or to judge for itself
whether or not the order for the advance
execution of a judgment is valid.
Section 8, Rule 57 of the Rules of Court
provides:
Effect of attachment of
debts and credits.—All
persons having in their
possession or under their
control any credits or
other similar personal
property belonging to the
party against whom
attachment is issued, or
owing any debts to the
same, all the time of
service upon them of a
copy of the order of
attachment and notice as
provided in the last
preceding section, shall be
liable to the applicant for
the amount of such

credits, debts or other
property, until the
attachment be discharged,
or any judgment
recovered by him be
satisfied, unless such
property be delivered or
transferred, or such debts
be paid, to the clerk,
sheriff or other proper
officer of the court issuing
the attachment.
Garnishment is considered as a specie of
attachment for reaching credits belonging to
the judgment debtor and owing to him from
a stranger to the litigation. Under the
above-cited rule, the garnishee [the third
person] is obliged to deliver the credits, etc.
to the proper officer issuing the writ and
"the law exempts from liability the person
having in his possession or under his control
any credits or other personal property
belonging to the defendant, ..., if such
property be delivered or transferred, ..., to
the clerk, sheriff, or other officer of the
court in which the action is pending. [3
Moran, Comments on the Rules of Court 34
(1970 ed.)]
Applying the foregoing to the case at bar, MERALCO, as
garnishee, after having been judicially compelled to pay the
amount of the judgment represented by funds in its
possession belonging to the judgment debtor or NPC, should
be released from all responsibilities over such amount after
delivery thereof to the sheriff. The reason for the rule is self-
evident. To expose garnishees to risks for obeying court
orders and processes would only undermine the
administration of justice. [Emphasis supplied.]
The aforequoted ruling thus bolsters RCBC's stand that its
immediate compliance with the lower court's order should not
have been met with the harsh penalty of joint and several
liability. Nor can its liability to reimburse PVTA of the amount
delivered in check be premised upon the subsequent
declaration of nullity of the order of delivery. As correctly
pointed out by the petitioner:
xxx xxx xxx
That the respondent Judge, after his Order
was enforced, saw fit to recall said Order
and decree its nullity, should not prejudice
one who dutifully abided by it, the
presumption being that judicial orders are
valid and issued in the regular performance
of the duties of the Court" [Section 5(m)
Rule 131, Revised Rules of Court]. This
should operate with greater force in relation
to the herein petitioner which, not being a
party in the case, was just called upon to
perform an act in accordance with a judicial
flat. A contrary view will invite disrespect for
the majesty of the law and induce
reluctance in complying with judicial orders
out of fear that said orders might be
subsequently invalidated and thereby
expose one to suffer some penalty or
prejudice for obeying the same. And this is
what will happen were the controversial
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orders to be sustained. We need not
underscore the danger of this as a
precedent.
xxx xxx xxx
[ Brief for the Petitioner, Rollo, p. 212;
Emphasis supplied.]
From the foregoing, it may be concluded that the charge of
breach of trust and/or dereliction of duty as well as lack of
prudence in effecting the immediate payment of the
garnished amount is totally unfounded. Upon receipt of the
Notice of Garnishment, RCBC duly informed PVTA thereof to
enable the latter to take the necessary steps for its
protection. However, right on the very next day after its
receipt of such notice, RCBC was already served with the
Order requiring delivery of the garnished amount. Confronted
as it was with a mandatory directive, disobedience to which
exposed it to a contempt order, it had no choice but to
comply.
The respondent Judge nevertheless held that the liability of
RCBC for the reimbursement of the garnished amount is
predicated on the ruling of the Supreme Court in the case
of Commissioner of Public Highways v. Hon. San Diego[G.R.
No. L-30098, February 18, 1970, 31 SCRA 616] which he
found practically on all fours with the case at bar.
The Court disagrees.
The said case which reiterated the rule in Republic v.
Palacio [G.R. No. L-20322, May 29, 1968, 23 SCRA 899] that
government funds and properties may not be seized under
writs of execution or garnishment to satisfy such judgment is
definitely distinguishable from the case at bar.
In the Commissioner of Public Highways case [supra], the
bank which precipitately allowed the garnishment and
delivery of the funds failed to inform its depositor thereof,
charged as it was with knowledge of the nullity of the writ of
execution and notice of garnishment against government
funds. In the aforementioned case, the funds involved
belonged to the Bureau of Public Highways, which being an
arm of the executive branch of the government, has no
personality of its own separate from the National
Government. The funds involved were government
funds covered by the rule on exemption from execution.
This brings us to the first issue raised by the petitioner: Are
the PVTA funds public funds exempt from garnishment? The
Court holds that they are not.
Republic Act No. 2265 created the PVTA as an ordinary
corporation with all the attributes of a corporate entity
subject to the provisions of the Corporation Law. Hence, it
possesses the power "to sue and be sued" and "to acquire
and hold such assets and incur such liabilities resulting
directly from operations authorized by the provisions of this
Act or as essential to the proper conduct of such operations."
[Section 3, Republic Act No. 2265.]
Among the specific powers vested in the PVTA are: 1) to buy
Virginia tobacco grown in the Philippines for resale to local
bona fide tobacco manufacturers and leaf tobacco dealers
[Section 4(b), R.A. No. 2265]; 2) to contracts of any kind as
may be necessary or incidental to the attainment of its
purpose with any person, firm or corporation, with the

Government of the Philippines or with any foreign
government, subject to existing laws [Section 4(h), R.A. No.
22651; and 3) generally, to exercise all the powers of a
corporation under the Corporation Law, insofar as they are
not inconsistent with the provisions of this Act [Section 4(k),
R.A. No. 2265.]
From the foregoing, it is clear that PVTA has been endowed
with a personality distinct and separate from the government
which owns and controls it. Accordingly, this Court has
heretofore declared that the funds of the PVTA can be
garnished since "funds of public corporation which can sue
and be sued were not exempt from garnishment" [Philippine
National Bank v. Pabalan, G.R. No. L-33112, June 15, 1978,
83 SCRA 595, 598.]
In National Shipyards and Steel Corp. v. CIR [G.R. No. L-
17874, August 31, 1964, 8 SCRA 781], this Court held that
the allegation to the effect that the funds of the NASSCO are
public funds of the government and that as such, the same
may not be garnished, attached or levied upon is untenable
for, as a government-owned or controlled corporation, it has
a personality of its own, distinct and separate from that of the
government. This court has likewise ruled that other
govemment-owned and controlled corporations like National
Coal Company, the National Waterworks and Sewerage
Authority (NAWASA), the National Coconut Corporation
(NACOCO) the National Rice and Corn Corporation (NARIC)
and the Price Stabilization Council (PRISCO) which possess
attributes similar to those of the PVTA are clothed with
personalities of their own, separate and distinct from that of
the government [National Coal Company v. Collector of
Internal Revenue, 46 Phil. 583 (1924); Bacani and Matoto v.
National Coconut Corporation et al., 100 Phil. 471 (1956);
Reotan v. National Rice & Corn Corporation, G.R. No. L-
16223, February 27, 1962, 4 SCRA 418.] The rationale in
vesting it with a separate personality is not difficult to find. It
is well-settled that when the government enters into
commercial business, it abandons its sovereign capacity and
is to be treated like any other corporation [Manila Hotel
Employees' Association v. Manila Hotel Co. and CIR, 73 Phil.
734 (1941).]
Accordingly, as emphatically expressed by this Court in a
1978 decision, "garnishment was the appropriate remedy for
the prevailing party which could proceed against the funds of
a corporate entity even if owned or controlled by the
government" inasmuch as "by engaging in a particular
business thru the instrumentality of a corporation, the
government divests itself pro hac vice of its sovereign
character, so as to render the corporation subject to the rules
of law governing private corporations" [Philippine National
Bank v. CIR, G.R No. L-32667, January 31, 1978, 81 SCRA
314, 319.]
Furthermore, in the case of PVTA, the law has expressly
allowed it funds to answer for various obligations, including
the one sought to be enforced by plaintiff BADOC in this case
(i.e. for unpaid deliveries of tobacco). Republic Act No. 4155,
which discounted the erstwhile support given by the Central
Bank to PVTA, established in lieu thereof a "Tobacco Fund" to
be collected from the proceeds of fifty per centum of the tariff
or taxes of imported leaf tobacco and also fifty per centum of
the specific taxes on locally manufactured Virginia type
cigarettes.
Section 5 of Republic Act No. 4155 provides that this fund
shall be expended for the support or payment of:
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1. Indebtedness of the Philippine Virginia
Tobacco Administration and the former
Agricultural Credit and Cooperative
Financing Administration to FACOMAS and
farmers and planters regarding Virginia
tobacco transactions in previous years;
2. Indebtedness of the Philippine Virginia
Tobacco Administration and the former
Agricultural Credit and Cooperative
Financing Administration to the Central
Bank in gradual amounts regarding Virginia
tobacco transactions in previous years;
3. Continuation of the Philippine Virginia
Tobacco Administration support and subsidy
operations including the purchase of locally
grown and produced Virginia leaf tobacco,
at the present support and subsidy prices,
its procurement, redrying, handling,
warehousing and disposal thereof, and the
redrying plants trading within the purview of
their contracts;
4. Operational, office and field expenses,
and the establishment of the Tobacco
Research and Grading Institute. [Emphasis
supplied.]
Inasmuch as the Tobacco Fund, a special fund, was by law,
earmarked specifically to answer obligations incurred by PVTA
in connection with its proprietary and commercial operations
authorized under the law, it follows that said funds may be
proceeded against by ordinary judicial processes such as
execution and garnishment. If such funds cannot be executed
upon or garnished pursuant to a judgment sustaining the
liability of the PVTA to answer for its obligations, then the
purpose of the law in creating the PVTA would be defeated.
For it was declared to be a national policy, with respect to the
local Virginia tobacco industry, to encourage the production of
local Virginia tobacco of the qualities needed and in quantities
marketable in both domestic and foreign markets, to establish
this industry on an efficient and economic basis, and to create
a climate conducive to local cigarette manufacture of the
qualities desired by the consuming public, blending imported
and native Virginia leaf tobacco to improve the quality of
locally manufactured cigarettes [Section 1, Republic Act No.
4155.]
The Commissioner of Public Highways case is thus
distinguishable from the case at bar. In said case, the
Philippine National Bank (PNB) as custodian of funds
belonging to the Bureau of Public Highways, an agency of the
government, was chargeable with knowledge of the
exemption of such government funds from execution and
garnishment pursuant to the elementary precept that public
funds cannot be disbursed without the appropriation required
by law. On the other hand, the same cannot hold true for
RCBC as the funds entrusted to its custody, which belong to a
public corporation, are in the nature of private funds insofar
as their susceptibility to garnishment is concerned. Hence,
RCBC cannot be charged with lack of prudence for
immediately complying with the order to deliver the garnished
amount. Since the funds in its custody are precisely meant for
the payment of lawfully-incurred obligations, RCBC cannot
rightfully resist a court order to enforce payment of such
obligations. That such court order subsequently turned out to
have been erroneously issued should not operate to the
detriment of one who complied with its clear order.

Finally, it is contended that RCBC was bound to inquire into
the legality and propriety of the Writ of Execution and Notice
of Garnishment issued against the funds of the PVTA
deposited with said bank. But the bank was in no position to
question the legality of the garnishment since it was not even
a party to the case. As correctly pointed out by the petitioner,
it had neither the personality nor the interest to assail or
controvert the orders of respondent Judge. It had no choice
but to obey the same inasmuch as it had no standing at all to
impugn the validity of the partial judgment rendered in favor
of the plaintiff or of the processes issued in execution of such
judgment.
RCBC cannot therefore be compelled to make restitution
solidarily with the plaintiff BADOC. Plaintiff BADOC alone was
responsible for the issuance of the Writ of Execution and
Order of Payment and so, the plaintiff alone should bear the
consequences of a subsequent annulment of such court
orders; hence, only the plaintiff can be ordered to restore the
account of the PVTA.
WHEREFORE, the petition is hereby granted and the petitioner
is ABSOLVED from any liability to respondent PVTA for
reimbursement of the funds garnished. The questioned Order
of the respondent Judge ordering the petitioner, jointly and
severally with BADOC, to restore the account of PVTA are
modified accordingly.
SO ORDERED.
G.R. No. L-60887 November 13, 1991
PERLA COMPANIA DE SEGUROS, INC., petitioner,
vs.
HON. JOSE R. RAMOLETE, PRIMITIVA Y. PALMES,
HONORATO BORBON, SR., OFFICE OF THE PROVINCIAL
SHERIFF, PROVINCE OF CEBU, respondents.
Hector L. Fernandez for petitioner.
Domingo Quibranza and Vicente A. Quibranza for private
respondents.
FELICIANO, J.:
The present Petition for Certiorari seeks to annul: (a) the
Order dated 6 August 1979 1 which ordered the Provincial
Sheriff to garnish the third-party liability insurance policy
issued by petitioner Perla Compania de Seguros, Inc. ("Perla")
in favor of Nelia Enriquez, judgment debtor in Civil Case No.
R-15391; (b) the Order dated 24 October 1979 2 which
denied the motion for reconsideration of the 6 August 1979
Order; and (c) the Order dated 8 April 19803 which ordered
the issuance of an alias writ of garnishment against
petitioner.
In the afternoon of 1 June 1976, a Cimarron PUJ owned and
registered in the name of Nelia Enriquez, and driven by
Cosme Casas, was travelling from Cebu City to Danao City.
While passing through Liloan, Cebu, the Cimarron PUJ collided
with a private jeep owned by the late Calixto Palmes
(husband of private respondent Primitiva Palmes) who was
then driving the private jeep. The impact of the collision was
such that the private jeep was flung away to a distance of
5
about thirty (30) feet and then fell on its right side pinning
down Calixto Palmes. He died as a result of cardio-respiratory
arrest due to a crushed chest. 4 The accident also caused
physical injuries on the part of Adeudatus Borbon who was
then only two (2) years old.
On 25 June 1976, private respondents Primitiva Palmes
(widow of Calixto Palmes) and Honorato Borbon, Sr. (father of
minor Adeudatus Borbon) filed a complaint 5 against Cosme
Casas and Nelia Enriquez (assisted by her husband Leonardo
Enriquez) before the then Court of First Instance of Cebu,
Branch 3, claiming actual, moral, nominal and exemplary
damages as a result of the accident.
The claim of private respondent Honorato Borbon, Sr., being
distinct and separate from that of co-plaintiff Primitiva
Palmes, and the amount thereof falling properly within the
jurisdiction of the inferior court, respondent Judge Jose R.
Ramolete ordered the Borbon claim excluded from the
complaint, without prejudice to its being filed with the proper
inferior court.
On 4 April 1977, the Court of First Instance rendered a
Decision 6 in favor of private respondent Primitiva Palmes,
ordering common carrier Nelia Enriquez to pay her
P10,000.00 as moral damages, P12,000.00 as compensatory
damages for the death of Calixto Palmes, P3,000.00 as
exemplary damages, P5,000.00 as actual damages, and
P1,000.00 as attorney's fees.
The judgment of the trial court became final and executory
and a writ of execution was thereafter issued. The writ of
execution was, however, returned unsatisfied. Consequently,
the judgment debtor Nelia Enriquez was summoned before
the trial court for examination on 23 July 1979. She declared
under oath that the Cimarron PUJ registered in her name was
covered by a third-party liability insurance policy issued by
petitioner Perla.
Thus, on 31 July 1979, private respondent Palmes filed a
motion for garnishment 7 praying that an order of
garnishment be issued against the insurance policy issued by
petitioner in favor of the judgment debtor. On 6 August 1979,
respondent Judge issued an Order 8 directing the Provincial
Sheriff or his deputy to garnish the third-party liability
insurance policy.
Petitioner then appeared before the trial court and moved for
reconsideration of the 6 August 1979 Order and for quashal of
the writ of garnishment, 9 alleging that the writ was void on
the ground that it (Perla) was not a party to the case and that
jurisdiction over its person had never been acquired by the
trial court by service of summons or by any process. The trial
court denied petitioner's motion. 10 An Order for issuance of
an alias writ of garnishment was subsequently issued on 8
April 1980. 11
More than two (2) years later, the present Petition for Certiorari and Prohibition was filed with this
Court on 25 June 1982 alleging grave abuse of discretion on the part of respondent Judge
Ramolete in ordering garnishment of the third-party liability insurance contract issued by petitioner
Perla in favor of the judgment debtor, Nelia Enriquez. The Petition should have been dismissed
forthwith for having been filed way out of time but, for reasons which do not appear on the record,
was nonetheless entertained.
 6
In this Petition, petitioner Perla reiterates its contention that its insurance contract cannot be xxx xxx xxx
subjected to garnishment or execution to satisfy the judgment in Civil Case No. R-15391 because
petitioner was not a party to the case and the trial court did not acquire jurisdiction over
(Emphasis supplied)
petitioner's person. Perla further argues that the writ of garnishment had been issued solely on the
basis of the testimony of the judgment debtor during the examination on 23 July 1979 to the effect
that the Cimarron PUJ was covered by a third-party liability insurance issued by Perla, without
granting it the opportunity to set up any defenses which it may have under the insurance contract;
and that the proceedings taken against petitioner are contrary to the procedure laid down
Through service of the writ of garnishment, the garnishee becomes a "virtual party" to, or a "forced
which held that under
in Economic Insurance Company, Inc. v. Torres, et al., 12
intervenor" in, the case and the trial court thereby acquires jurisdiction to bind him to compliance
Rule 39, Section 45, the Court "may only authorize" the with all orders and processes of the trial court with a view to the complete satisfaction of the
judgment creditor to institute an action against a third person judgment of the court. In Bautista v. Barredo, 16
the Court, through Mr. Justice
who holds property belonging to the judgment debtor. Bautista Angelo, held:

We find no grave abuse of discretion or act in excess of or While it is true that defendant Jose M. Barredo was
without jurisdiction on the part of respondent Judge Ramolete not a party in Civil Case No. 1636 when it was
in ordering the garnishment of the judgment debtor's third- instituted by appellant against the Philippine Ready
party liability insurance. Mix Concrete Company, Inc., however, jurisdiction
was acquired over him by the court and he became a
Garnishment has been defined as a species of attachment for virtual party to the case when, after final judgment
reaching any property or credits pertaining or payable to a was rendered in said case against the company, the
judgment debtor. 13 In legal contemplation, it is a forced sheriff served upon him a writ of garnishment in
novation by the substitution of creditors: 14 the judgment behalf of appellant. Thus, as held by this Court in the
debtor, who is the original creditor of the garnishee is, case of Tayabas Land Company vs. Sharruf, 41 Phil.
through service of the writ of garnishment, substituted by the 382, the proceeding by garnishment is a species of
judgment creditor who thereby becomes creditor of the attachment for reaching credits belonging to the
garnishee. Garnishment has also been described as a warning judgment debtor and owing to him from a stranger
to a person having in his possession property or credits of the to the litigation. By means of the citation, the
judgment debtor, not to pay the money or deliver the stranger becomes a forced intervenor; and the court,
property to the latter, but rather to appear and answer the having acquired jurisdiction over him by means of
plaintiff's suit. 15 the citation, requires him to pay his debt, not to his
former creditor, but to the new creditor, who is
creditor in the main litigation. (Emphasis supplied).

In order that the trial court may validly acquire jurisdiction to bind the person of the garnishee, it is In Rizal Commercial Banking Corporation v. De Castro, 17 the
not necessary that summons be served upon him. The garnishee need not be impleaded as a party Court stressed that the asset or credit garnished is thereupon
to the case. All that is necessary for the trial court lawfully to bind the person of the garnishee or
subjected to a specific lien:
any person who has in his possession credits belonging to the judgment debtor is service upon him
of the writ of garnishment. The garnishment of property to satisfy a writ of
execution operates as an attachment and fastens
The Rules of Court themselves do not require that the garnishee be served with summons or upon the property a lien by which the property is
impleaded in the case in order to make him liable. brought under the jurisdiction of the court issuing
the writ. It is brought into custodia legis, under the
sole control of such
Rule 39, Section 15 provides:
court. 18 (Emphasis supplied)

Sec. 15. Execution of money judgments. — The officer must enforce an execution of
a money judgment by levying on all the property, real or personal of every name and
nature whatsoever, and which may be disposed of for value, of the judgment debtor
In the present case, there can be no doubt, therefore, that the trial court actually acquired
not exempt from execution . . .
jurisdiction over petitioner Perla when it was served with the writ of garnishment of the third-party
liability insurance policy it had issued in favor of judgment debtor Nelia Enriquez. Perla cannot
Real property, stocks, shares, debts, credits, and other personal property, or any successfully evade liability thereon by such a contention.
interest in either real or personal property, may be levied on in like manner and with
like effect as under a writ of attachment.(Emphasis supplied).

Rule 57, Section 7(e) in turn reads:

Every interest which the judgment debtor may have in property may be subjected to

In the instant case, the judgment debtor Nelia

Sec. 7. Attachment of real and personal property; recording thereof. — Properties
shall be attached by the officer executing the order in the following manner:
xxx xxx xxx
(e) Debts and credits, and other personal property not capable of manual delivery,
by leaving with the person owing such debts, or having his possession or under his
control such credits or other personal property, or with his agent, a copy of the
order, and notice that the debts owing by him to the party against whom attachment
is issued, and the credits and other personal property in his possession, or under his
control, belonging to said party, are attached in pursuance of such order;
execution. 19
Enriquez clearly had an interest in the proceeds of the third-
party liability insurance contract. In a third-party liability
insurance contract, the insurer assumes the obligation of
paying the injured third party to whom the insured is
liable.20 The insurer becomes liable as soon as the liability of
the insured to the injured third person attaches. Prior
payment by the insured to the injured third person is not
necessary in order that the obligation of the insurer may
arise. From the moment that the insured became liable to the
third person, the insured acquired an interest in the insurance
contract, which interest may be garnished like any other
credit. 21

Petitioner also contends that in order that it may be held liable under the third-party liability
insurance, a separate action should have been commenced by private respondents to establish
petitioner's liability. Petitioner invokes Economic Insurance Company, Inc. vs. Torres, 22
which
stated:
It is clear from Section 45, Rule 39 that if a persons
alleged to have property of the judgment debtor or
to be indebted to him claims an interest in the
property adverse to him or denies the debt, the court
may only authorize the judgment creditor to institute
an action against such person for the recovery of
such interest or debt. Said section does not authorize
the court to make a finding that the third person has
in his possession property belonging to the judgment
debtor or is indebted to him and to order said third
person to pay the amount to the judgment creditor.
It has been held that the only power of the court in
proceedings supplemental to execution is to niake an
order authorizing the creditor to sue in the proper
court to recover an indebtedness due to the
judgment debtor. The court has no jurisdiction to try
summarily the question whether the third party
served with notice of execution and levy is indebted
to defendant when such indebtedness is denied. To
make an order in relation to property which the
garnishee claimed to own in his own right, requiring
its application in satisfaction of judgment of another,
would be to deprive the garnishee of property upon
summary proceeding and without due process of law.
(Emphasis supplied)
But reliance by petitioner on the case of Economic Insurance
Company, Inc. v. Torres (supra) is misplaced. The Court there
held that a separate action needs to be commenced when the
garnishee "claims an interest in the property adverse to him
(judgment debtor) or denies the debt." In the instant case,
petitioner Perla did not deny before the trial court that it had
indeed issued a third-party liability insurance policy in favor of
the judgment debtor. Petitioner moreover refrained from
setting up any substantive defense which it might have
against the insured-judgment debtor. The only ground
asserted by petitioner in its "Motion for Reconsideration of the
Order dated August 6, 1979 and to Quash Notice of
Garnishment" was lack of jurisdiction of the trial court for
failure to implead it in the case by serving it with summons.
Accordingly, Rule 39, Section 45 of the Rules of Court is not
applicable in the instant case, and we see no need to require
a separate action against Perla: a writ of garnishment suffices
to hold petitioner answerable to the judgment creditor. If
Perla had any substantive defenses against the judgment
debtor, it is properly deemed to have waived them by laches.
WHEREFORE, the Petition for Certiorari and Prohibition is
hereby DISMISSED for having been filed out of time and for
lack of merit. The assailed Orders of the trial court are hereby
AFFIRMED. Costs against petitioner. This Decision is
immediately executory.
SO ORDERED.
G.R. No. L-35990 June 17, 1981
ABOITIZ & COMPANY, INC., HONORABLE VICENTE N.
CUSI JR., Judge of the Court of First Instance of Davao,
and the PROVINCIAL SHERIFF OF DAVAO DEL
SUR, petitioners,
vs.
COTABATO BUS COMPANY, INC., respondent.
7
DE CASTRO, J.:
The instant petition stemmed from Civil Case No. 7329 of the
Court of First Instance of Davao (Branch 1) in which a writ of
preliminary attachment was issued ex-parte by the Court on
the strength of an affidavit of merit attached to the verified
complaint filed by petitioner herein, Aboitiz & Co., Inc., on
November 2, 1971, as plaintiff in said case, for the collection
of money in the sum of P 155,739.41, which defendant
therein, the respondent in the instant case, Cotabato Bus Co.,
owed the said petitioner.
By virtue of the writ of preliminary attachment, the provincial
sheriff attached personal properties of the defendant bus
company consisting of some buses, machinery and
equipment. The ground for the issuance of the writ is, as
alleged in the complaint and the affidavit of merit executed by
the Assistant Manager of petitioner, that the defendant "has
removed or disposed of its properties or assets, or is about to
do so, with intent to defraud its creditors."
Respondent company filed in the lower court an "Urgent
Motion to Dissolve or Quash Writ of Attachment" to which was
attached an affidavit executed by its Assistant Manager,
Baldovino Lagbao, alleging among other things that "the
Cotabato Bus Company has not been selling or disposing of
its properties, neither does it intend to do so, much less to
defraud its creditors; that also the Cotabato Bus Company,
Inc. has been acquiring and buying more assets". An
opposition and a supplemental opposition were filed to the
urgent motion. The lower court denied the motion stating in
its Order that "the testimony of Baldovino Lagbao, witness for
the defendant, corroborates the facts in the plaintiff's affidavit
instead of disproving or showing them to be untrue."
A motion for reconsideration was filed by the defendant bus
company but the lower court denied it. Hence, the defendant
went to the Court of Appeals on a petition for certiorari
alleging grave abuse of discretion on the part of herein
respondent Judge, Hon. Vicente R. Cusi Jr. On giving due
course to the petition, the Court of Appeals issued a
restraining order restraining the trial court from enforcing
further the writ of attachment and from proceeding with the
hearing of Civil Case No. 7329. In its decision promulgated on
October 3, 1971, the Court of Appeals declared "null and void
the order/writ of attachment dated November 3, 1971 and
the orders of December 2, 1971, as well as that of December
11, 1971, ordered the release of the attached properties, and
made the restraining order originally issued permanent.
The present recourse is an appeal by certiorari from the
decision of the Court of Appeals reversing the assailed orders
of the Court of First Instance of Davao, (Branch I), petitioner
assigning against the lower court the following errors:
ERROR I
THE COURT OF APPEALS ERRED IN HASTILY
AND PERFUNCTORILY RENDERING, ON
OCTOBER 3, 1971, A DECISION WITHOUT
CONSIDERING MOST OF THE EVIDENCE
SUCH THAT —
l) EVEN AN IMPORTANT FACT,
ESTABLISHED BY DOCUMENTARY
EVIDENCE AND NOT DENIED BY

RESPONDENT, IS MENTIONED ONLY AS A
"CLAIM" OF PETITIONER COMPANY;
2) THE DECISION CONTAINS NO
DISCUSSION AND APPRECIATION OF THE
FACTS AS PROVED, ASSEMBLED AND
PRESENTED BY PETITIONER COMPANY
SHOWING IN — THEIR TOTALITY — THAT
RESPONDENT HAS REMOVED, DIVERTED
OR DISPOSED OF ITS BANK DEPOSITS,
INCOME AND OTHER LIQUID ASSETS WITH
INTENT TO DEFRAUD ITS CREDITORS,
ESPECIALLY ITS UNSECURED SUPPLIERS;
3) THE DECISION IGNORES THE
SIGNIFICANCE OF THE REFUSAL OF
RESPONDENT TO PERMIT, UNDER REP. ACT
NO. 1405, THE METROPOLITAN BANK &
TRUST CO. TO BRING, IN COMPLIANCE
WITH A subpoena DUCES TECUM TO THE
TRIAL COURT ALL THE RECORDS OF
RESPONDENT'S DEPOSITS AND
WITHDRAWALS UNDER ITS CURRENT AND
SAVINGS ACCOUNTS (NOW NIL) FOR
EXAMINATION BY PETITIONER COMPANY
FOR THE PURPOSE OF SHOWING DIRECTLY
THE REMOVAL, DIVERSION OR DISPOSAL
OF RESPONDENT'S DEPOSITS AND INCOME
WITH INTENT TO DEFRAUD ITS
CREDITORS.
ERROR II
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THE FACTS THAT
RESPONDENT'S BANK DEPOSITS ARE NIL
AS PROOF WHICH - TOGETHER WITH
RESPONDENT'S ADMISSION OF AN INCOME
OF FROM P10,000.00 to P 14,000.00 A DAY
AND THE EVIDENCE THAT IT CANNOT
PRODUCE P 634.00 WITHOUT USING A
PERSONAL CHECK OF ITS PRESIDENT AND
MAJORITY STOCKHOLDER, AND OTHER
EVIDENCE — SHOWS THE REMOVAL OR
CHANNELING OF ITS INCOME TO THE
LATTER.
ERROR III
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THE RESCUE AND REMOVAL
BY RESPONDENT OF FIVE ATTACHED
BUSES, DURING THE DEPENDENCY OF ITS
MOTION TO DISSOLVE THE ATTACHMENT
IN THE, TRIAL COURT, AS A FURTHER ACT
OF REMOVAL OF PROPERTIES BY
RESPONDENT WITH INTENT TO DEFRAUD
PETITIONER COMPANY, FOR WHOSE
BENEFIT SAID BUSES HAD BEEN
ATTACHED.
The questions raised are mainly, if not solely, factual
revolving on whether respondent bus company has in fact
removed its properties, or is about to do so, in fraud of its
creditors. This being so, the findings of the Court of Appeals
on said issues of facts are generally considered conclusive
and final, and should no longer be disturbed. However, We
gave due course to the petition because it raises also a legal
question of whether the writ of attachment was properly
8
issued upon a showing that defendant is on the verge of
insolvency and may no longer satisfy its just debts without
issuing the writ. This may be inferred from the emphasis laid
by petitioner on the fact that even for the measly amount of P
634.00 payment thereof was made with a personal check of
the respondent company's president and majority
stockholder, and its debts to several creditors, including
secured ones like the DBP, have remained unpaid, despite its
supposed daily income of an average of P 12,000.00, as
declared by its assistant manager, Baldovino Lagbao. 1
Going forthwith to this question of whether insolvency, which
petitioners in effect claims to have been proven by the
evidence, particularly by company's bank account which has
been reduced to nil, may be a ground for the issuance of a
writ of attachment, the respondent Court of Appeals correctly
took its position in the negative on the strength of the explicit
ruling of this Court in Max Chamorro & Co. vs. Philippine
Ready Mix Concrete Company, Inc. and Hon. Manuel P.
Barcelona. 2
Petitioner, however, disclaims any intention of advancing the
theory that insolvency is a ground for the issuance of a writ of
attachment , 3 and insists that its evidence -is intended to
prove his assertion that respondent company has disposed, or
is about to dispose, of its properties, in fraud of its creditors.
Aside from the reference petitioner had made to respondent
company's "nil" bank account, as if to show removal of
company's funds, petitioner also cited the alleged non-
payment of its other creditors, including secured creditors like
the DBP to which all its buses have been mortgaged, despite
its daily income averaging P12,000.00, and the rescue and
removal of five attached buses.
It is an undisputed fact that, as averred by petitioner itself,
the several buses attached are nearly junks. However, upon
permission by the sheriff, five of them were repaired, but
they were substituted with five buses which were also in the
same condition as the five repaired ones before the repair.
This cannot be the removal intended as ground for the
issuance of a writ of attachment under section 1 (e), Rule 57,
of the Rules of Court. The repair of the five buses was
evidently motivated by a desire to serve the interest of the
riding public, clearly not to defraud its creditors, as there is
no showing that they were not put on the run after their
repairs, as was the obvious purpose of their substitution to be
placed in running condition.
Moreover, as the buses were mortgaged to the DBP, their
removal or disposal as alleged by petitioner to provide the
basis for its prayer for the issuance of a writ of attachment
should be very remote, if not nil. If removal of the buses had
in fact been committed, which seems to exist only in
petitioner's apprehensive imagination, the DBP should not
have failed to take proper court action, both civil and
criminal, which apparently has not been done.
The dwindling of respondent's bank account despite its daily
income of from P10,000.00 to P14,000.00 is easily explained
by its having to meet heavy operating expenses, which
include salaries and wages of employees and workers. If,
indeed the income of the company were sufficiently profitable,
it should not allow its buses to fall into disuse by lack of
repairs. It should also maintain a good credit standing with its
suppliers of equipment, and other needs of the company to
keep its business a going concern. Petitioner is only one of
the suppliers.
It is, indeed, extremely hard to remove the buses, machinery
and other equipments which respondent company have to

own and keep to be able to engage and continue in the
operation of its transportation business. The sale or other
form of disposition of any of this kind of property is not
difficult of detection or discovery, and strangely, petitioner,
has adduced no proof of any sale or transfer of any of them,
which should have been easily obtainable.
In the main, therefore, We find that the respondent Court of
Appeals has not committed any reversible error, much less
grave abuse of discretion, except that the restraining order
issued by it should not have included restraining the trial
court from hearing the case, altogether. Accordingly, the
instant petition is hereby denied, but the trial court is hereby
ordered to immediately proceed with the hearing of Civil Case
No. 7329 and decide it in accordance with the law and the
evidence. No special pronouncement as to costs.
SO ORDERED.
G.R. No. L-28297 March 30, 1970
ELPIDIO JAVELLANA, plaintiff-appellant,
vs.
D. O. PLAZA ENTERPRISES, INC., defendant-appellee.
Ramon A. Gonzales for plaintiff-appellant.
Hermosisima, Maramara and Sol for defendant-appellee.
REYES, J.B.L., J.:
Direct appeal, on points of law, from an order of the Court of
First Instance of Manila, in its Civil Case No. 46762, modifying
an earlier decision for the plaintiff by reducing the rate of
interest on the sum adjudged, and also the attorney's fees;
and by ordering the plaintiff to pay damages to the defendant
on account of a preliminary attachment obtained by the
former upon the latter's counterclaim.
The complaint in the aforesaid civil case was for collection of
the sum of P43,017.32 representing balance due on
purchases of wire ropes, tractors and diesel parts made by
the defendant-appellee, D. O. Plaza Enterprises, Inc., from
the plaintiff-appellant, Elpidio Javellana. The complaint prayed
that the defendant be ordered to pay the said sum of
P43,017.32, with legal interest, plus attorney's fees in the
sum of P5,000.00; it also prayed for a writ of preliminary
attachment.
Upon plaintiff's putting up a bond, the trial court, on 15 April
1961, issued a writ of attachment. On 20 May 1961, the
defendant moved to discharge the attachment on the ground
that it was improperly issued. The motion was denied.
On 7 November 1961, the defendant filed its answer and
counter-claimed for damages arising from the attachment.
The plaintiff answered and interposed a counterclaim to the
counterclaim.
After some years, or on 27 April 1966, the defendant moved
for the dissolution of the preliminary attachment. Upon its
filing a counterbond, the court, on 7 May 1966, dissolved the
attachment.
9
On 3 November 1966, the plaintiff filed a motion to admit his
amended complaint, which the court granted on 12 November
1966. In this amended complaint, the plaintiff averred that of
the sum of P43,017.32 alleged in the original complaint, the
defendant has paid P3,900.00, thereby leaving a balance of
P39,117.32 unpaid, but that, as indicated by invoices,
defendant's purchases were payable within thirty (30) days
and were to bear interest of 12% per annum plus 25%
attorney's fees. The amended complaint accordingly prayed
for the increased amounts. Defendant did not answer this
amended complaint.
After trial, the court, on 15 June 1967, rendered judgment. It
found the following facts:
.... During the period from 23 July 1959 to
30 July 1960, defendant, in a series of
transactions, purchased from plaintiff wire
ropes, tractors and diesel spare parts, (in)
payment for which he issued several checks
amounting to P43,017.32, which, when
presented to the bank, were dishonored for
lack of funds. Defendant substituted these
checks with another set of checks for the
same amount, but again, the same were
dishonored for lack of funds, as evidenced
by Exhibits A to M, except for one check in
the amount of P3,900.00 as evidenced by
Exhibit C. Thus, the principal obligation was
reduced to P39,117.32. At the time of the
issuance of the said checks, the defendant
never informed plaintiff that it had funds to
back them up. Plaintiff made demands to
defendant for payment, but defendant
pleaded for time and liberalization of
payment, which was rejected by the
plaintiff. The transactions in question were
covered by invoices listed in Exhibit P, a
sample of which is evidenced by Exhibit C,
wherein said transactions were for 30-day
term, 12% interest per annum to be
charged from date of invoice, and 25%
attorney's fees in case of litigation.
The defendant claims that there were other
transactions between plaintiff and defendant
involving the amount of P196,828.58; that
it had no intention not to pay the checks it
issued upon presentment; and that it
suffered damages in the amount of
P14,800.00 by reason of the attachment.
xxx xxx xxx
The counterclaim for damages arising from
the attachment is without merit. The
defendant was manifestly in bad faith when
it issued two sets of bouncing checks.
Hence, the attachment was not improper,
contrary to defendant's claim.
The dispositive portion of the decision decreed:
WHEREFORE, judgment is hereby rendered
for the plaintiff and against the defendant,
ordering the latter to pay the former the
sum of P39,117.32 with interest at 12% per
annum from 14 April 1961, the date of the
filing of the original complaint, until final

payment, plus 25% of the principal
indebtedness as attorney's fees and costs of
suit.
The counterclaim as well as the
counterclaim to the counter claim are
hereby dismissed for lack of merit.
On 28 June 1967, the defendant moved to reconsider. Over
the objection of the plaintiff, the court issued an order dated
10 August 1967, now the subject of the present appeal,
modifying the previous decision, in the manner following:
WHEREFORE, the dispositive part of the
decision rendered in this case is hereby
modified as follows:
(a) By ordering the defendant to pay
plaintiff the sum of P39,117.20 plus the
legal interest therein from the filing of the
complaint until the amount is fully paid.
(b) Ordering the plaintiff to pay defendant
the sum of P16,190.00, the amount of
damages suffered by the defendant on
account of the preliminary attachment of
the defendant; and
(c) By ordering the defendant to pay
P5,000.00 as attorney's fees.
Without pronouncement as to costs.
Plaintiff-appellant assigns the following errors: the reduction
of the attorney's fees, the reduction of the interest, and the
grant to the defendant of damages arising from the
attachment.
The first two assigned errors are well taken. The court a
quo reduced the interest stated in its previous decision from
12% to mere legal interest and the attorney's fees from 25%
to P5,000.00 on the basis of estoppel, the ground therefor
being that the reduced amounts were those alleged, hence
admitted, by the plaintiff in his original complaint. This was
error. The original complaint was not formally offered in
evidence. Having been amended, the original complaint lost
its character as a judicial admission, which would have
required no proof, and became merely an extrajudicial
admission, the admissibility of which, as evidence, requires its
formal offer.
Pleadings superseded or amended disappear
from the record as judicial admissions.
However, any statement contained therein
may be considered as an extrajudicial
admission, and as such, in order that the
court may take it into consideration, it
should be offered formality in evidence. (5
Moran 58, citing Lucido v. Calupitan, 27
Phil. 148; Bastida v. Menzi, 58 Phil. 188.)
Where amended pleadings have been filed,
allegations in the original pleadings can
have no effect, unless formally offered in
evidence. (Jones on Evidence, Sec. 273.)
10
Since the record does not show that the complaint (marked
as Exhibit 115) was admitted in evidence, there is no proof of
estoppel on the part of the plaintiff on his allegations in the
complaint. Not only this, but since the stipulation for 12%
interest on balance due and the 25% counsel fees appear on
the invoices themselves, appellee Plaza Enterprises cannot
fairly claim that it was deceived or misled by the pleadings of
appellant. Even more, the original plea for P5,000.00 as
attorney's fees is only contained in the prayer of the original
complaint, and it is a well established rule that the prayer for
relief, although part of the complaint, is no part of the cause
of action and does not give character, the plaintiff being
entitled to as much relief as the facts warrant (Rosales vs.
Reyes, 25 Phil. 495; Aguilar vs. Rubiato, 40 Phil. 470).
But the appellant's last assigned error is without merit.
Although the defendant was found to be in bad faith in issuing
two (2) sets of bouncing checks in payment for its
indebtedness, such bad faith was not related to his having
incurred the obligation in favor of the plaintiff but to
defendant's failure to perform said obligation. There was,
therefore, no ground for the plaintiff to attach the defendant's
properties on the ground of fraud. That the plaintiff acted in
good faith in securing attachment does not relieve him from
the damages that the defendant sustained by reason of the
attachment because he, the plaintiff, was, in the first place,
not entitled to attachments, the element of malice was
unnecessary (3 Moran, Rules of Court, 19).
FOR THE FOREGOING REASONS, the appealed order is hereby
reversed insofar as it reduced the amount of attorney's fees
and the interest on the principal sum adjudged in the original
decision dated 15 June 1967; but the order is affirmed in all
other respects. No costs.
G.R. No. 121413 January 29, 2001
PHILIPPINE COMMERCIAL INTERNATIONAL BANK
(formerly INSULAR BANK OF ASIA AND
AMERICA),petitioner,
vs.
COURT OF APPEALS and FORD PHILIPPINES, INC. and
CITIBANK, N.A., respondents.
G.R. No. 121479 January 29, 2001
FORD PHILIPPINES, INC., petitioner-plaintiff,
vs.
COURT OF APPEALS and CITIBANK, N.A. and
PHILIPPINE COMMERCIAL INTERNATIONAL
BANK, respondents.
G.R. No. 128604 January 29, 2001
FORD PHILIPPINES, INC., petitioner,
vs.
CITIBANK, N.A., PHILIPPINE COMMERCIAL
INTERNATIONAL BANK and COURT OF
APPEALS, respondents.
QUISUMBING, J.:

These consolidated petitions involve several fraudulently
negotiated checks.
The original actions a quo were instituted by Ford Philippines
to recover from the drawee bank, CITIBANK, N.A. (Citibank)
and collecting bank, Philippine Commercial International Bank
(PCIBank) [formerly Insular Bank of Asia and America], the
value of several checks payable to the Commissioner of
Internal Revenue, which were embezzled allegedly by an
organized syndicate.1âwphi1.nêt
G.R. Nos. 121413 and 121479 are twin petitions for review of
the March 27, 1995 Decision1 of the Court of Appeals in CA-
G.R. CV No. 25017, entitled "Ford Philippines, Inc. vs.
Citibank, N.A. and Insular Bank of Asia and America (now
Philipppine Commercial International Bank), and the August
8, 1995 Resolution,2 ordering the collecting bank, Philippine
Commercial International Bank, to pay the amount of Citibank
Check No. SN-04867.
In G.R. No. 128604, petitioner Ford Philippines assails the
October 15, 1996 Decision3 of the Court of Appeals and its
March 5, 1997 Resolution4 in CA-G.R. No. 28430 entitled
"Ford Philippines, Inc. vs. Citibank, N.A. and Philippine
Commercial International Bank," affirming in toto the
judgment of the trial court holding the defendant drawee
bank, Citibank, N.A., solely liable to pay the amount of
P12,163,298.10 as damages for the misapplied proceeds of
the plaintiff's Citibanl Check Numbers SN-10597 and 16508.
I. G.R. Nos. 121413 and 121479
The stipulated facts submitted by the parties as accepted by
the Court of Appeals are as follows:
"On October 19, 1977, the plaintiff Ford drew and
issued its Citibank Check No. SN-04867 in the
amount of P4,746,114.41, in favor of the
Commissioner of Internal Revenue as payment of
plaintiff;s percentage or manufacturer's sales taxes
for the third quarter of 1977.
The aforesaid check was deposited with the
degendant IBAA (now PCIBank) and was
subsequently cleared at the Central Bank. Upon
presentment with the defendant Citibank, the
proceeds of the check was paid to IBAA as collecting
or depository bank.
The proceeds of the same Citibank check of the
plaintiff was never paid to or received by the payee
thereof, the Commissioner of Internal Revenue.
As a consequence, upon demand of the Bureau
and/or Commissioner of Internal Revenue, the
plaintiff was compelled to make a second payment to
the Bureau of Internal Revenue of its
percentage/manufacturers' sales taxes for the third
quarter of 1977 and that said second payment of
plaintiff in the amount of P4,746,114.41 was duly
received by the Bureau of Internal Revenue.
It is further admitted by defendant Citibank that
during the time of the transactions in question,
plaintiff had been maintaining a checking account
with defendant Citibank; that Citibank Check No. SN-
04867 which was drawn and issued by the plaintiff in
favor of the Commissioner of Internal Revenue was a
11
crossed check in that, on its face were two parallel
lines and written in between said lines was the
phrase "Payee's Account Only"; and that defendant
Citibank paid the full face value of the check in the
amount of P4,746,114.41 to the defendant IBAA.
It has been duly established that for the payment of
plaintiff's percentage tax for the last quarter of 1977,
the Bureau of Internal Revenue issued Revenue Tax
Receipt No. 18747002, dated October 20, 1977,
designating therein in Muntinlupa, Metro Manila, as
the authorized agent bank of Metrobanl, Alabang
branch to receive the tax payment of the plaintiff.
On December 19, 1977, plaintiff's Citibank Check No.
SN-04867, together with the Revenue Tax Receipt
No. 18747002, was deposited with defendant IBAA,
through its Ermita Branch. The latter accepted the
check and sent it to the Central Clearing House for
clearing on the samd day, with the indorsement at
the back "all prior indorsements and/or lack of
indorsements guaranteed." Thereafter, defendant
IBAA presented the check for payment to defendant
Citibank on same date, December 19, 1977, and the
latter paid the face value of the check in the amount
of P4,746,114.41. Consequently, the amount of
P4,746,114.41 was debited in plaintiff's account with
the defendant Citibank and the check was returned
to the plaintiff.
Upon verification, plaintiff discovered that its
Citibank Check No. SN-04867 in the amount of
P4,746,114.41 was not paid to the Commissioner of
Internal Revenue. Hence, in separate letters dated
October 26, 1979, addressed to the defendants, the
plaintiff notified the latter that in case it will be re-
assessed by the BIR for the payment of the taxes
covered by the said checks, then plaintiff shall hold
the defendants liable for reimbursement of the face
value of the same. Both defendants denied liability
and refused to pay.
In a letter dated February 28, 1980 by the Acting
Commissioner of Internal Revenue addressed to the
plaintiff - supposed to be Exhibit "D", the latter was
officially informed, among others, that its check in
the amount of P4, 746,114.41 was not paid to the
government or its authorized agent and instead
encashed by unauthorized persons, hence, plaintiff
has to pay the said amount within fifteen days from
receipt of the letter. Upon advice of the plaintiff's
lawyers, plaintiff on March 11, 1982, paid to the
Bureau of Internal Revenue, the amount of
P4,746,114.41, representing payment of plaintiff's
percentage tax for the third quarter of 1977.
As a consequence of defendant's refusal to
reimburse plaintiff of the payment it had made for
the second time to the BIR of its percentage taxes,
plaintiff filed on January 20, 1983 its original
complaint before this Court.
On December 24, 1985, defendant IBAA was merged
with the Philippine Commercial International Bank
(PCI Bank) with the latter as the surviving entity.
Defendant Citibank maintains that; the payment it
made of plaintiff's Citibank Check No. SN-04867 in
the amount of P4,746,114.41 "was in due course"; it

merely relied on the clearing stamp of the
depository/collecting bank, the defendant IBAA that
"all prior indorsements and/or lack of indorsements
guaranteed"; and the proximate cause of plaintiff's
injury is the gross negligence of defendant IBAA in
indorsing the plaintiff's Citibank check in question.
It is admitted that on December 19, 1977 when the
proceeds of plaintiff's Citibank Check No. SN-048867
was paid to defendant IBAA as collecting bank,
plaintiff was maintaining a checking account with
defendant Citibank."5
Although it was not among the stipulated facts, an
investigation by the National Bureau of Investigation (NBI)
revealed that Citibank Check No. SN-04867 was recalled by
Godofredo Rivera, the General Ledger Accountant of Ford. He
purportedly needed to hold back the check because there was
an error in the computation of the tax due to the Bureau of
Internal Revenue (BIR). With Rivera's instruction, PCIBank
replaced the check with two of its own Manager's Checks
(MCs). Alleged members of a syndicate later deposited the
two MCs with the Pacific Banking Corporation.
Ford, with leave of court, filed a third-party complaint before
the trial court impleading Pacific Banking Corporation (PBC)
and Godofredo Rivera, as third party defendants. But the
court dismissed the complaint against PBC for lack of cause of
action. The course likewise dismissed the third-party
complaint against Godofredo Rivera because he could not be
served with summons as the NBI declared him as a "fugitive
from justice".
On June 15, 1989, the trial court rendered its decision, as
follows:
"Premises considered, judgment is hereby rendered
as follows:
"1. Ordering the defendants Citibank and
IBAA (now PCI Bank), jointly and severally,
to pay the plaintiff the amount of
P4,746,114.41 representing the face value
of plaintiff's Citibank Check No. SN-04867,
with interest thereon at the legal rate
starting January 20, 1983, the date when
the original complaint was filed until the
amount is fully paid, plus costs;
"2. On defendant Citibank's cross-claim:
ordering the cross-defendant IBAA (now PCI
Bank) to reimburse defendant Citibank for
whatever amount the latter has paid or may
pay to the plaintiff in accordance with next
preceding paragraph;
"3. The counterclaims asserted by the
defendants against the plaintiff, as well as
that asserted by the cross-defendant
against the cross-claimant are dismissed,
for lack of merits; and
"4. With costs against the defendants.
SO ORDERED."6
12
Not satisfied with the said decision, both defendants, Citibank
and PCIBank, elevated their respective petitions for review on
certiorari to the Courts of Appeals. On March 27, 1995, the
appellate court issued its judgment as follows:
"WHEREFORE, in view of the foregoing, the court
AFFIRMS the appealed decision with modifications.
The court hereby renderes judgment:
1. Dismissing the complaint in Civil Case
No. 49287 insofar as defendant Citibank
N.A. is concerned;
2. Ordering the defendant IBAA now PCI
Bank to pay the plaintiff the amount of
P4,746,114.41 representing the face value
of plaintiff's Citibank Check No. SN-04867,
with interest thereon at the legal rate
starting January 20, 1983, the date when
the original complaint was filed until the
amount is fully paid;
3. Dismissing the counterclaims asserted by
the defendants against the plaintiff as well
as that asserted by the cross-defendant
against the cross-claimant, for lack of
merits.
Costs against the defendant IBAA (now PCI
Bank).
IT IS SO ORDERED."7
PCI Bank moved to reconsider the above-quoted decision of
the Court of Appeals, while Ford filed a "Motion for Partial
Reconsideration." Both motions were denied for lack of merit.
Separately, PCIBank and Ford filed before this Court, petitions
for review by certiorari under Rule 45.
In G.R. No. 121413, PCIBank seeks the reversal of the
decision and resolution of the Twelfth Division of the Court of
Appeals contending that it merely acted on the instruction of
Ford and such casue of action had already prescribed.
PCIBank sets forth the following issues for consideration:
I. Did the respondent court err when, after finding
that the petitioner acted on the check drawn by
respondent Ford on the said respondent's
instructions, it nevertheless found the petitioner
liable to the said respondent for the full amount of
the said check.
II. Did the respondent court err when it did not find
prescription in favor of the petitioner.8
In a counter move, Ford filed its petition docketed as G.R. No.
121479, questioning the same decision and resolution of the
Court of Appeals, and praying for the reinstatement in toto of
the decision of the trial court which found both PCIBank and
Citibank jointly and severally liable for the loss.
In G.R. No. 121479, appellant Ford presents the following
propositions for consideration:

I. Respondent Citibank is liable to petitioner Ford
considering that:
1. As drawee bank, respondent Citibank
owes to petitioner Ford, as the drawer of
the subject check and a depositor of
respondent Citibank, an absolute and
contractual duty to pay the proceeds of the
subject check only to the payee thereof, the
Commissioner of Internal Revenue.
2. Respondent Citibank failed to observe its
duty as banker with respect to the subject
check, which was crossed and payable to
"Payee's Account Only."
3. Respondent Citibank raises an issue for
the first time on appeal; thus the same
should not be considered by the Honorable
Court.
4. As correctly held by the trial court, there
is no evidence of gross negligence on the
part of petitioner Ford.9
II. PCI Bank is liable to petitioner Ford considering
that:
1. There were no instructions from
petitioner Ford to deliver the proceeds of
the subject check to a person other than the
payee named therein, the Commissioner of
the Bureau of Internal Revenue; thus,
PCIBank's only obligation is to deliver the
proceeds to the Commissioner of the
Bureau of Internal Revenue.10
2. PCIBank which affixed its indorsement on
the subject check ("All prior indorsement
and/or lack of indorsement guaranteed"), is
liable as collecting bank.11
3. PCIBank is barred from raising issues of
fact in the instant proceedings.12
4. Petitioner Ford's cause of action had not
prescribed.13
II. G.R. No. 128604
The same sysndicate apparently embezzled the proceeds of
checks intended, this time, to settle Ford's percentage taxes
appertaining to the second quarter of 1978 and the first
quarter of 1979.
The facts as narrated by the Court of Appeals are as follows:
Ford drew Citibank Check No. SN-10597 on July 19, 1978 in
the amount of P5,851,706.37 representing the percentage tax
due for the second quarter of 1978 payable to the
Commissioner of Internal Revenue. A BIR Revenue Tax
Receipt No. 28645385 was issued for the said purpose.
On April 20, 1979, Ford drew another Citibank Check No. SN-
16508 in the amount of P6,311,591.73, representing the
payment of percentage tax for the first quarter of 1979 and
13
payable to the Commissioner of Internal Revenue. Again a
BIR Revenue Tax Receipt No. A-1697160 was issued for the
said purpose.
Both checks were "crossed checks" and contain two diagonal
lines on its upper corner between, which were written the
words "payable to the payee's account only."
The checks never reached the payee, CIR. Thus, in a letter
dated February 28, 1980, the BIR, Region 4-B, demanded for
the said tax payments the corresponding periods above-
mentioned.
As far as the BIR is concernced, the said two BIR Revenue
Tax Receipts were considered "fake and spurious". This
anomaly was confirmed by the NBI upon the initiative of the
BIR. The findings forced Ford to pay the BIR a new, while an
action was filed against Citibank and PCIBank for the recovery
of the amount of Citibank Check Numbers SN-10597 and
16508.
The Regional Trial Court of Makati, Branch 57, which tried the
case, made its findings on the modus operandi of the
syndicate, as follows:
"A certain Mr. Godofredo Rivera was employed by
the plaintiff FORD as its General Ledger Accountant.
As such, he prepared the plaintiff's check marked Ex.
'A' [Citibank Check No. Sn-10597] for payment to
the BIR. Instead, however, fo delivering the same of
the payee, he passed on the check to a co-
conspirator named Remberto Castro who was a pro-
manager of the San Andres Branch of PCIB.* In
connivance with one Winston Dulay, Castro himself
subsequently opened a Checking Account in the
name of a fictitious person denominated as
'Reynaldo reyes' in the Meralco Branch of PCIBank
where Dulay works as Assistant Manager.
After an initial deposit of P100.00 to validate the
account, Castro deposited a worthless Bank of
America Check in exactly the same amount as the
first FORD check (Exh. "A", P5,851,706.37) while
this worthless check was coursed through PCIB's
main office enroute to the Central Bank for clearing,
replaced this worthless check with FORD's Exhibit 'A'
and accordingly tampered the accompanying
documents to cover the replacement. As a result,
Exhibit 'A' was cleared by defendant CITIBANK, and
the fictitious deposit account of 'Reynaldo Reyes' was
credited at the PCIB Meralco Branch with the total
amount of the FORD check Exhibit 'A'. The same
method was again utilized by the syndicate in
profiting from Exh. 'B' [Citibank Check No. SN-
16508] which was subsequently pilfered by Alexis
Marindo, Rivera's Assistant at FORD.
From this 'Reynaldo Reyes' account, Castro drew
various checks distributing the sahres of the other
participating conspirators namely (1) CRISANTO
BERNABE, the mastermind who formulated the
method for the embezzlement; (2) RODOLFO R. DE
LEON a customs broker who negotiated the initial
contact between Bernabe, FORD's Godofredo Rivera
and PCIB's Remberto Castro; (3) JUAN VASTILLO
who assisted de Leon in the initial arrangements; (4)
GODOFREDO RIVERA, FORD's accountant who
passed on the first check (Exhibit "A") to Castro; (5)
REMERTO CASTRO, PCIB's pro-manager at San

Andres who performed the switching of checks in the
clearing process and opened the fictitious Reynaldo
Reyes account at the PCIB Meralco Branch; (6)
WINSTON DULAY, PCIB's Assistant Manager at its
Meralco Branch, who assisted Castro in switching the
checks in the clearing process and facilitated the
opening of the fictitious Reynaldo Reyes' bank
account; (7) ALEXIS MARINDO, Rivera's Assistant at
FORD, who gave the second check (Exh. "B") to
Castro; (8) ELEUTERIO JIMENEZ, BIR Collection
Agent who provided the fake and spurious revenue
tax receipts to make it appear that the BIR had
received FORD's tax payments.
Several other persons and entities were utilized by
the syndicate as conduits in the disbursements of the
proceeds of the two checks, but like the
aforementioned participants in the conspiracy, have
not been impleaded in the present case. The manner
by which the said funds were distributed among
them are traceable from the record of checks drawn
against the original "Reynaldo Reyes" account and
indubitably identify the parties who illegally benefited
therefrom and readily indicate in what amounts they
did so."14
On December 9, 1988, Regional Trial Court of Makati, Branch
57, held drawee-bank, Citibank, liable for the value of the two
checks while adsolving PCIBank from any liability, disposing
as follows:
"WHEREFORE, judgment is hereby rendered
sentencing defendant CITIBANK to reimburse
plaintiff FORD the total amount of P12,163,298.10
prayed for in its complaint, with 6% interest thereon
from date of first written demand until full payment,
plus P300,000.00 attorney's fees and expenses
litigation, and to pay the defendant, PCIB (on its
counterclaim to crossclaim) the sum of P300,000.00
as attorney's fees and costs of litigation, and pay the
costs.
SO ORDERED."15
Both Ford and Citibank appealed to the Court of Appeals
which affirmed, in toto, the decision of the trial court. Hence,
this petition.
Petitioner Ford prays that judgment be rendered setting aside
the portion of the Court of Appeals decision and its resolution
dated March 5, 1997, with respect to the dismissal of the
complaint against PCIBank and holding Citibank solely
responsible for the proceeds of Citibank Check Numbers SN-
10597 and 16508 for P5,851,706.73 and P6,311,591.73
respectively.
Ford avers that the Court of Appeals erred in dismissing the
complaint against defendant PCIBank considering that:
I. Defendant PCIBank was clearly negligent when it
failed to exercise the diligence required to be
exercised by it as a banking insitution.
II. Defendant PCIBank clearly failed to observe the
diligence required in the selection and supervision of
its officers and employees.
14
III. Defendant PCIBank was, due to its negligence,
clearly liable for the loss or damage resulting to the
plaintiff Ford as a consequence of the substitution of
the check consistent with Section 5 of Central Bank
Circular No. 580 series of 1977.
IV. Assuming arguedo that defedant PCIBank did not
accept, endorse or negotiate in due course the
subject checks, it is liable, under Article 2154 of the
Civil Code, to return the money which it admits
having received, and which was credited to it its
Central bank account.16
The main issue presented for our consideration by these
petitions could be simplified as follows: Has petitioner Ford
the right to recover from the collecting bank (PCIBank) and
the drawee bank (Citibank) the value of the checks intended
as payment to the Commissioner of Internal Revenue? Or has
Ford's cause of action already prescribed?
Note that in these cases, the checks were drawn against the
drawee bank, but the title of the person negotiating the same
was allegedly defective because the instrument was obtained
by fraud and unlawful means, and the proceeds of the checks
were not remitted to the payee. It was established that
instead of paying the checks to the CIR, for the settlement of
the approprite quarterly percentage taxes of Ford, the checks
were diverted and encashed for the eventual distribution
among the mmbers of the syndicate. As to the unlawful
negotiation of the check the applicable law is Section 55 of
the Negotiable Instruments Law (NIL), which provides:
"When title defective -- The title of a person who
negotiates an instrument is defective within the
meaning of this Act when he obtained the
instrument, or any signature thereto, by fraud,
duress, or fore and fear, or other unlawful means, or
for an illegal consideration, or when he negotiates it
in breach of faith or under such circumstances as
amount to a fraud."
Pursuant to this provision, it is vital to show that the
negotiation is made by the perpetator in breach of faith
amounting to fraud. The person negotiating the checks must
have gone beyond the authority given by his principal. If the
principal could prove that there was no negligence in the
performance of his duties, he may set up the personal
defense to escape liability and recover from other parties
who. Though their own negligence, alowed the commission of
the crime.
In this case, we note that the direct perpetrators of the
offense, namely the embezzlers belonging to a syndicate, are
now fugitives from justice. They have, even if temporarily,
escaped liability for the embezzlement of millions of pesos.
We are thus left only with the task of determining who of the
present parties before us must bear the burden of loss of
these millions. It all boils down to thequestion of liability
based on the degree of negligence among the parties
concerned.
Foremost, we must resolve whether the injured party, Ford, is
guilty of the "imputed contributory negligence" that would
defeat its claim for reimbursement, bearing ing mind that its
employees, Godofredo Rivera and Alexis Marindo, were
among the members of the syndicate.
Citibank points out that Ford allowed its very own employee,
Godofredo Rivera, to negotiate the checks to his co-

conspirators, instead of delivering them to the designated
authorized collecting bank (Metrobank-Alabang) of the payee,
CIR. Citibank bewails the fact that Ford was remiss in the
supervision and control of its own employees, inasmuch as it
only discovered the syndicate's activities through the
information given by the payee of the checks after an
unreasonable period of time.
PCIBank also blames Ford of negligence when it allegedly
authorized Godofredo Rivera to divert the proceeds of
Citibank Check No. SN-04867, instead of using it to pay the
BIR. As to the subsequent run-around of unds of Citibank
Check Nos. SN-10597 and 16508, PCIBank claims that the
proximate cause of the damge to Ford lies in its own officers
and employees who carried out the fradulent schemes and
the transactions. These circumstances were not checked by
other officers of the company including its comptroller or
internal auditor. PCIBank contends that the inaction of Ford
despite the enormity of the amount involved was a sheer
negligence and stated that, as between two innocent persons,
one of whom must suffer the consequences of a breach of
trust, the one who made it possible, by his act of negligence,
must bear the loss.
For its part, Ford denies any negligence in the performance of
its duties. It avers that there was no evidence presented
before the trial court showing lack of diligence on the part of
Ford. And, citing the case of Gempesaw vs. Court of
Appeals,17 Ford argues that even if there was a finding therein
that the drawer was negligent, the drawee bank was still
ordered to pay damages.
Furthermore, Ford contends the Godofredo rivera was not
authorized to make any representation in its behalf,
specifically, to divert the proceeds of the checks. It adds that
Citibank raised the issue of imputed negligence against Ford
for the first time on appeal. Thus, it should not be considered
by this Court.
On this point, jurisprudence regarding the imputed negligence
of employer in a master-servant relationship is instructive.
Since a master may be held for his servant's wrongful act, the
law imputes to the master the act of the servant, and if that
act is negligent or wrongful and proximately results in injury
to a third person, the negligence or wrongful conduct is the
negligence or wrongful conduct of the master, for which he is
liable.18 The general rule is that if the master is injured by the
negligence of a third person and by the concuring
contributory negligence of his own servant or agent, the
latter's negligence is imputed to his superior and will defeat
the superior's action against the third person, asuming, of
course that the contributory negligence was the proximate
cause of the injury of which complaint is made.19
Accordingly, we need to determine whether or not the action
of Godofredo Rivera, Ford's General Ledger Accountant,
and/or Alexis Marindo, his assistant, was the proximate cause
of the loss or damage. AS defined, proximate cause is that
which, in the natural and continuous sequence, unbroken by
any efficient, intervening cause produces the injury and
without the result would not have occurred.20
It appears that although the employees of Ford initiated the
transactions attributable to an organized syndicate, in our
view, their actions were not the proximate cause of encashing
the checks payable to the CIR. The degree of Ford's
negligence, if any, could not be characterized as the
proximate cause of the injury to the parties.
15
The Board of Directors of Ford, we note, did not confirm the
request of Godofredo Rivera to recall Citibank Check No. SN-
04867. Rivera's instruction to replace the said check with
PCIBank's Manager's Check was not in theordinary course of
business which could have prompted PCIBank to validate the
same.
As to the preparation of Citibank Checks Nos. SN-10597 and
16508, it was established that these checks were made
payable to the CIR. Both were crossed checks. These checks
were apparently turned around by Ford's emploees, who were
acting on their own personal capacity.
Given these circumstances, the mere fact that the forgery
was committed by a drawer-payor's confidential employee or
agent, who by virtue of his position had unusual facilities for
perpertrating the fraud and imposing the forged paper upon
the bank, does notentitle the bank toshift the loss to the
drawer-payor, in the absence of some circumstance raising
estoppel against the drawer.21 This rule likewise applies to the
checks fraudulently negotiated or diverted by the confidential
employees who hold them in their possession.
With respect to the negligence of PCIBank in the payment of
the three checks involved, separately, the trial courts found
variations between the negotiation of Citibank Check No. SN-
04867 and the misapplication of total proceeds of Checks SN-
10597 and 16508. Therefore, we have to scrutinize,
separately, PCIBank's share of negligence when the syndicate
achieved its ultimate agenda of stealing the proceeds of these
checks.
G.R. Nos. 121413 and 121479
Citibank Check No. SN-04867 was deposited at PCIBank
through its Ermita Branch. It was coursed through the
ordinary banking transaction, sent to Central Clearing with
the indorsement at the back "all prior indorsements and/or
lack of indorsements guaranteed," and was presented to
Citibank for payment. Thereafter PCIBank, instead of
remitting the proceeds to the CIR, prepared two of its
Manager's checks and enabled the syndicate to encash the
same.
On record, PCIBank failed to verify the authority of Mr. Rivera
to negotiate the checks. The neglect of PCIBank employees to
verify whether his letter requesting for the replacement of the
Citibank Check No. SN-04867 was duly authorized, showed
lack of care and prudence required in the circumstances.
Furthermore, it was admitted that PCIBank is authorized to
collect the payment of taxpayers in behalf of the BIR. As an
agent of BIR, PCIBank is duty bound to consult its principal
regarding the unwarranted instructions given by the payor or
its agent. As aptly stated by the trial court, to wit:
"xxx. Since the questioned crossed check was
deposited with IBAA [now PCIBank], which claimed
to be a depository/collecting bank of BIR, it has the
responsibility to make sure that the check in
question is deposited in Payee's account only.
xxx xxx xxx
As agent of the BIR (the payee of the check),
defendant IBAA should receive instructions only from
its principal BIR and not from any other person
especially so when that person is not known to the

defendant. It is very imprudent on the part of the
defendant IBAA to just rely on the alleged telephone
call of the one Godofredo Rivera and in his signature
considering that the plaintiff is not a client of the
defendant IBAA."
It is a well-settled rule that the relationship between the
payee or holder of commercial paper and the bank to which it
is sent for collection is, in the absence of an argreement to
the contrary, that of principal and agent.22 A bank which
receives such paper for collection is the agent of the payee or
holder.23
Even considering arguendo, that the diversion of the amount
of a check payable to the collecting bank in behalf of the
designated payee may be allowed, still such diversion must
be properly authorized by the payor. Otherwise stated, the
diversion can be justified only by proof of authority from the
drawer, or that the drawer has clothed his agent with
apparent authority to receive the proceeds of such check.
Citibank further argues that PCI Bank's clearing stamp
appearing at the back of the questioned checks stating that
ALL PRIOR INDORSEMENTS AND/OR LACK OF
INDORSEMENTS GURANTEED should render PCIBank liable
because it made it pass through the clearing house and
therefore Citibank had no other option but to pay it. Thus,
Citibank had no other option but to pay it. Thus, Citibank
assets that the proximate cause of Ford's injury is the gross
negligence of PCIBank. Since the questione dcrossed check
was deposited with PCIBank, which claimed to be a
depository/collecting bank of the BIR, it had the responsibility
to make sure that the check in questions is deposited in
Payee's account only.
Indeed, the crossing of the check with the phrase "Payee's
Account Only," is a warning that the check should be
deposited only in the account of the CIR. Thus, it is the duty
of the collecting bank PCIBank to ascertain that the check be
deposited in payee's account only. Therefore, it is the
collecting bank (PCIBank) which is bound to scruninize the
check and to know its depositors before it could make the
clearing indorsement "all prior indorsements and/or lack of
indorsement guaranteed".
In Banco de Oro Savings and Mortgage Bank vs. Equitable
Banking Corporation,24 we ruled:
"Anent petitioner's liability on said instruments, this
court is in full accord with the ruling of the PCHC's
Board of Directors that:
'In presenting the checks for clearing and for
payment, the defendant made an express guarantee
on the validity of "all prior endorsements." Thus,
stamped at the back of the checks are the defedant's
clear warranty: ALL PRIOR ENDORSEMENTS AND/OR
LACK OF ENDORSEMENTS GUARANTEED. Without
such warranty, plaintiff would not have paid on the
checks.'
No amount of legal jargon can reverse the clear
meaning of defendant's warranty. As the warranty
has proven to be false and inaccurate, the defendant
is liable for any damage arising out of the falsity of
its representation."25
16
Lastly, banking business requires that the one who first
cashes and negotiates the check must take some percautions
to learn whether or not it is genuine. And if the one cashing
the check through indifference or othe circumstance assists
the forger in committing the fraud, he should not be
permitted to retain the proceeds of the check from the
drawee whose sole fault was that it did not discover the
forgery or the defect in the title of the person negotiating the
instrument before paying the check. For this reason, a bank
which cashes a check drawn upon another bank, without
requiring proof as to the identity of persons presenting it, or
making inquiries with regard to them, cannot hold the
proceeds against the drawee when the proceeds of the checks
were afterwards diverted to the hands of a third party. In
such cases the drawee bank has a right to believe that the
cashing bank (or the collecting bank) had, by the usual
proper investigation, satisfied itself of the authenticity of the
negotiation of the checks. Thus, one who encashed a check
which had been forged or diverted and in turn received
payment thereon from the drawee, is guilty of negligence
which proximately contributed to the success of the fraud
practiced on the drawee bank. The latter may recover from
the holder the money paid on the check.26
Having established that the collecting bank's negligence is the
proximate cause of the loss, we conclude that PCIBank is
liable in the amount corresponding to the proceeds of Citibank
Check No. SN-04867.
G.R. No. 128604
The trial court and the Court of Appeals found that PCIBank
had no official act in the ordinary course of business that
would attribute to it the case of the embezzlement of Citibank
Check Numbers SN-10597 and 16508, because PCIBank did
not actually receive nor hold the two Ford checks at all. The
trial court held, thus:
"Neither is there any proof that defendant PCIBank
contributed any official or conscious participation in
the process of the embezzlement. This Court is
convinced that the switching operation (involving the
checks while in transit for "clearing") were the
clandestine or hidden actuations performed by the
members of the syndicate in their own personl,
covert and private capacity and done without the
knowledge of the defendant PCIBank…"27
In this case, there was no evidence presented confirming the
conscious particiapation of PCIBank in the embezzlement. As
a general rule, however, a banking corporation is liable for
the wrongful or tortuous acts and declarations of its officers
or agents within the course and scope of their
employment.28 A bank will be held liable for the negligence of
its officers or agents when acting within the course and scope
of their employment. It may be liable for the tortuous acts of
its officers even as regards that species of tort of which
malice is an essential element. In this case, we find a
situation where the PCIBank appears also to be the victim of
the scheme hatched by a syndicate in which its own
management employees had particiapted.
The pro-manager of San Andres Branch of PCIBank,
Remberto Castro, received Citibank Check Numbers SN-
10597 and 16508. He passed the checks to a co-conspirator,
an Assistant Manager of PCIBank's Meralco Branch, who
helped Castro open a Checking account of a fictitious person
named "Reynaldo Reyes." Castro deposited a worthless Bank
of America Check in exactly the same amount of Ford checks.
The syndicate tampered with the checks and succeeded in

replacing the worthless checks and the eventual encashment
of Citibank Check Nos. SN 10597 and 16508. The PCIBank
Ptro-manager, Castro, and his co-conspirator Assistant
Manager apparently performed their activities using facilities
in their official capacity or authority but for their personal and
private gain or benefit.
A bank holding out its officers and agents as worthy of
confidence will not be permitted to profit by the frauds these
officers or agents were enabled to perpetrate in the apparent
course of their employment; nor will t be permitted to shirk
its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom. For the general rule is that a
bank is liable for the fraudulent acts or representations of an
officer or agent acting within the course and apparent scope
of his employment or authority.29 And if an officer or
employee of a bank, in his official capacity, receives money to
satisfy an evidence of indebetedness lodged with his bank for
collection, the bank is liable for his misappropriation of such
sum.30
Moreover, as correctly pointed out by Ford, Section 531 of
Central Bank Circular No. 580, Series of 1977 provides that
any theft affecting items in transit for clearing, shall be for
the account of sending bank, which in this case is PCIBank.
But in this case, responsibility for negligence does not lie on
PCIBank's shoulders alone.
The evidence on record shows that Citibank as drawee bank
was likewise negligent in the performance of its duties.
Citibank failed to establish that its payment of Ford's checjs
were made in due course and legally in order. In its defense,
Citibank claims the genuineness and due execution of said
checks, considering that Citibank (1) has no knowledge of any
informity in the issuance of the checks in question (2) coupled
by the fact that said checks were sufficiently funded and (3)
the endorsement of the Payee or lack thereof was guaranteed
by PCI Bank (formerly IBAA), thus, it has the obligation to
honor and pay the same.
For its part, Ford contends that Citibank as the drawee bank
owes to Ford an absolute and contractual duty to pay the
proceeds of the subject check only to the payee thereof, the
CIR. Citing Section 6232 of the Negotiable Instruments Law,
Ford argues that by accepting the instrument, the acceptro
which is Citibank engages that it will pay according to the
tenor of its acceptance, and that it will pay only to the payee,
(the CIR), considering the fact that here the check was
crossed with annotation "Payees Account Only."
As ruled by the Court of Appeals, Citibank must likewise
answer for the damages incurred by Ford on Citibank Checks
Numbers SN 10597 and 16508, because of the contractual
relationship existing between the two. Citibank, as the drawee
bank breached its contractual obligation with Ford and such
degree of culpability contributed to the damage caused to the
latter. On this score, we agree with the respondent court's
ruling.
Citibank should have scrutinized Citibank Check Numbers SN
10597 and 16508 before paying the amount of the proceeds
thereof to the collecting bank of the BIR. One thing is clear
from the record: the clearing stamps at the back of Citibank
Check Nos. SN 10597 and 16508 do not bear any initials.
Citibank failed to notice and verify the absence of the clearing
stamps. Had this been duly examined, the switching of the
worthless checks to Citibank Check Nos. 10597 and 16508
would have been discovered in time. For this reason, Citibank
17
had indeed failed to perform what was incumbent upon it,
which is to ensure that the amount of the checks should be
paid only to its designated payee. The fact that the drawee
bank did not discover the irregularity seasonably, in our view,
consitutes negligence in carrying out the bank's duty to its
depositors. The point is that as a business affected with public
interest and because of the nature of its functions, the bank is
under obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship.33
Thus, invoking the doctrine of comparative negligence, we are
of the view that both PCIBank and Citibank failed in their
respective obligations and both were negligent in the
selection and supervision of their employees resulting in the
encashment of Citibank Check Nos. SN 10597 AND 16508.
Thus, we are constrained to hold them equally liable for the
loss of the proceeds of said checks issued by Ford in favor of
the CIR.
Time and again, we have stressed that banking business is so
impressed with public interest where the trust and confidence
of the public in general is of paramount umportance such that
the appropriate standard of diligence must be very high, if not
the highest, degree of diligence.34 A bank's liability as obligor
is not merely vicarious but primary, wherein the defense of
exercise of due diligence in the selection and supervision of
its employees is of no moment.35
Banks handle daily transactions involving millions of
pesos.36 By the very nature of their work the degree of
responsibility, care and trustworthiness expected of their
employees and officials is far greater than those of ordinary
clerks and employees.37 Banks are expected to exercise the
highest degree of diligence in the selection and supervision of
their employees.38
On the issue of prescription, PCIBank claims that the action of
Ford had prescribed because of its inability to seek judicial
relief seasonably, considering that the alleged negligent act
took place prior to December 19, 1977 but the relief was
sought only in 1983, or seven years thereafter.
The statute of limitations begins to run when the bank gives
the depositor notice of the payment, which is ordinarily when
the check is returned to the alleged drawer as a voucher with
a statement of his account,39 and an action upon a check is
ordinarily governed by the statutory period applicable to
instruments in writing.40
Our laws on the matter provide that the action upon a written
contract must be brought within ten year from the time the
right of action accrues.41 hence, the reckoning time for the
prescriptive period begins when the instrument was issued
and the corresponding check was returned by the bank to its
depositor (normally a month thereafter). Applying the same
rule, the cause of action for the recovery of the proceeds of
Citibank Check No. SN 04867 would normally be a month
after December 19, 1977, when Citibank paid the face value
of the check in the amount of P4,746,114.41. Since the
original complaint for the cause of action was filed on January
20, 1984, barely six years had lapsed. Thus, we conclude that
Ford's cause of action to recover the amount of Citibank
Check No. SN 04867 was seasonably filed within the period
provided by law.
Finally, we also find thet Ford is not completely blameless in
its failure to detect the fraud. Failure on the part of the
depositor to examine its passbook, statements of account,

and cancelled checks and to give notice within a reasonable
time (or as required by statute) of any discrepancy which it
may in the exercise of due care and diligence find therein,
serves to mitigate the banks' liability by reducing the award
of interest from twelve percent (12%) to six percent (6%) per
annum. As provided in Article 1172 of the Civil Code of the
Philippines, respondibility arising from negligence in the
performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according to
the circumstances. In quasi-delicts, the contributory
negligence of the plaintiff shall reduce the damages that he
may recover.42
WHEREFORE, the assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 25017
are AFFIRMED. PCIBank, know formerly as Insular Bank of
Asia and America, id declared solely responsible for the loss of
the proceeds of Citibank Check No SN 04867 in the amount
P4,746,114.41, which shall be paid together with six percent
(6%) interest thereon to Ford Philippines Inc. from the date
when the original complaint was filed until said amount is fully
paid.
However, the Decision and Resolution of the Court of Appeals
in CA-G.R. No. 28430 are MODIFIED as follows: PCIBank
and Citibank are adjudged liable for and must share the loss,
(concerning the proceeds of Citibank Check Numbers SN
10597 and 16508 totalling P12,163,298.10) on a fifty-fifty
ratio, and each bank is ORDERED to pay Ford Philippines Inc.
P6,081,649.05, with six percent (6%) interest thereon, from
the date the complaint was filed until full payment of said
amount.1âwphi1.nêt
Costs against Philippine Commercial International Bank and
Citibank N.A.
SO ORDERED.
G.R. No. L-50378 September 30, 1982
FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE HONORABLE JUDGE BENJAMIN RELOVA (In his
capacity as Presiding Judge of the Court of First
Instance of Manila, Branch XI) and ERNESTO
SALAZAR, respondents.
Labaquis, Loyola & Angara Law Offices for petitioner.
Cecilio D. Ignacio for respondents.
GUERRERO, J.:
This is a special civil action for certiorari, with prayer for
restraining order or preliminary injunction, filed by petitioner
Filinvest Credit Corporation seeking to annul the Orders
issued by respondent Judge dated February 2, 1979 and April
4, 1979 in Civil Case No. 109900.
As shown by the records, the antecedents of the instant
Petition are as follows:
On August 2, 1977, Filinvest Credit Corporation (hereinafter
referred to as FILINVEST) filed a complaint in the lower court
18
against defendants Rallye Motor Co., Inc. (hereinafter
referred to as RALLYE) and Emesto Salazar for the collection
of a sum of money with damages and preliminary writ of
attachment. From the allegations of the complaint, 1 it
appears that in payment of a motor vehicle described as:
"One (1) Unit MAZDA DIESEL SCHOOL BUS, Model: E4100,
Serial No.: EXC43P-02356, Motor No.: Y-13676," Salazar
executed a promissory note dated May 5, 1977 in favor of
RALLYE for the amount of P99,828.00. To secure the note,
Salazar also executed in favor of RALLYE a deed of chattel
mortgage over the above described motor vehicle. On May 7,
1977, RALLYE, for valuable consideration, assigned all its
rights, title and interest to the aforementioned note and
mortgage to FILINVEST. Thereafter, FILINVEST came to know
that RALLYE had not delivered the motor vehicle subject of
the chattel mortgage to Salazar, "as the said vehicle (had)
been the subject of a sales agreement between the
codefendants." Salazar defaulted in complying with the terms
and conditions of the aforesaid promissory note and chattel
mortgage. RALLYE, as assignor who guaranteed the validity of
the obligation, also failed and refused to pay FILINVEST
despite demand. According to FILINVEST, the defendants
intentionally, fraudulently and with malice concealed from it
the fact that there was no vehicle delivered under the
documents negotiated and assigned to it, otherwise, it would
not have accepted the negotiation and assignment of the
rights and interest covered by the promissory note and
chattel mortgage. Praying for a writ of preliminary
attachment, FILINVEST submitted with its complaint the
affidavit of one Gil Mananghaya, pertinent portions of which
read thus:
That he is the Collection Manager,
Automotive Division of Filinvest Credit
Corporation;
That in the performance of his duties, he
came to know of the account of Ernesto
Salazar, which is covered by a Promissory
Note and secured by a Chattel Mortgage,
which documents together with all the
rights and interest thereto were assigned by
Rallye Motor Co., Inc.;
That for failure to pay a stipulated
installment, and the fact that the principal
debtor, Ernesto Salazar, and the assignor,
Rallye Motor Co., Inc. concealed the fact
that there was really no motor vehicle
mortgaged under the terms of the
Promissory Note and the Chattel Mortgage,
the entire amount of the obligation stated in
the Promissory Note becomes due and
demandable, which Ernesto Salazar and
Rallye Motor Co., Inc. failed and refused to
pay, so much so that a sufficient cause of
action really exists for Filinvest Credit
Corporation to institute the corresponding
complaint against said person and entity;
That the case is one of those mentioned in
Section 1, Rule 57 of his Rules of Court,
particularly an action against parties who
have been guilty of a fraud in contracting
the debt or incurring the obligation upon
which the action is brought;
That there is no other sufficient security for
the claim sought to be enforced by the
action, and that the amount due to the

applicant Filinvest Credit Corporation is as
much as the sum for which the order is
granted above all legal counterclaims;
That this affidavit is executed for the
purpose of securing a writ of attachment
from the court. 2
The specific provision adverted to in the above Affidavit is
Section 1(d) of Rule 57 which includes "an action against a
party who has been guilty of fraud in contracting the debt or
incurring the obligation upon which the action is brought, or
in concealing or disposing of the property for the taking,
detention or conversion of which the action is brought" as one
of the cases in which a "plaintiff or any proper party may, at
the commencement of the action or at any time thereafter,
have the property of the adverse party attached as security
for the satisfaction of any judgment that may be recovered."
Judge Jorge R. Coquia (now Justice of the Court of Appeals),
then presiding Judge of the lower court, granted the prayer
for a writ of attachment in an Order dated August 17, 1977
stating that:
Finding the complaint sufficient in form and
substance, and in view of the sworn
statement of Gil Mananghaya, Collection
Manager of the plaintiff that defendants
have committed fraud in securing the
obligation and are now avoiding payment of
the same, let a writ of attachment issue
upon the plaintiff's filing of a bond in the
sum of P97,000.00.
In the meantime, let summons issue on the
defendants. 3
More than a year later, in an Urgent Motion dated December
11, 1978, 4 defendant Salazar prayed that the writ of
preliminary attachment issued ex parte and implemented
solely against his property be recalled and/or quashed. He
argued that when he signed the promissory note and chattel
mortgage on May 5, 1977 in favor of RALLYE, FILINVEST was
hot vet his creditor or obligee, therefore, he could not be said
to have committed fraud when he contracted the obligation
on May 5, 1977. Salazar added that as the motor vehicle
which was the object of the chattel mortgage and the
consideration for the promissory note had admittedly not
been delivered to him by RALLYE, his repudiation of the loan
and mortgage is more justifiable.
FILINVEST filed an Opposition, but on February 2, 1979, the
court a quo, this time presided over by herein respondent
Judge, ordered the dissolution and setting aside of the writ of
preliminary attachment issued on August 17, 1977 and the
return to defendant Salazar of all his properties attached by
the Sheriff by virtue of the said writ. In this Order,
respondent Judge explained that:
When the incident was called for hearing,
the Court announced that, as a matter of
procedure, when a motion to quash a writ of
preliminary attachment is filed, it is
incumbent upon the plaintiff to prove the
truth of the allegations which were the basis
for the issuance of said writ. In this hearing,
counsel for the plaintiff manifested that he
was not going to present evidence in
support of the allegation of fraud. He
19
maintained that it should be the defendant
who should prove the truth of his allegation
in the motion to dissolve the said writ. The
Court disagrees. 5
FILINVEST filed a Motion for Reconsideration of the above
Order, and was subsequently allowed to adduce evidence to
prove that Salazar committed fraud as alleged in the affidavit
of Gil Mananghaya earlier quoted. This notwithstanding,
respondent Judge denied the Motion in an Order dated April
4, 1979 reasoning thus:
The plaintiff's evidence show that the
defendant Rallye Motor assigned to the
former defendant Salazar's promissory note
and chattel mortgage by virtue of which
plaintiff discounted the note. Defendant
Salazar refused to pay the plaintiff for the
reason that Rallye Motor has not delivered
to Salazar the motor vehicle which he
bought from Rallye. It is the position of
plaintiff that defendant Salazar was in
conspiracy with Rallye Motor in defrauding
plaintiff.
Ernesto Salazar, on his part complained that
he was himself defrauded, because while he
signed a promissory note and chattel
mortgage over the motor vehicle which he
bought from Rallye Motor, Rallye Motor did
not deliver to him the personal property he
bought; that the address and existence of
Rallye Motor can no longer be found.
While it is true that the plaintiff may have
been defrauded in this transaction, it having
paid Rallye Motor the amount of the
promissory note, there is no evidence that
Ernesto Salazar had connived or in any way
conspired with Rallye Motor in the
assignment of the promissory note to the
plaintiff, because of which the plaintiff paid
Rallye Motor the amount of the promissory
note. Defendant Ernesto Salazar was
himself a victim of fraud. Rallye Motor was
the only party which committed it. 6
From the above order denying reconsideration and ordering
the sheriff to return to Salazar the personal property attached
by virtue of the writ of preliminary attachment issued on
August 17, 1977, FILINVEST filed the instant Petition on April
19, 1979. On July 16, 1979, petitioner FILINVEST also filed an
Urgent Petition for Restraining Order 7 alleging, among
others, that pending this certiorari proceeding in this court,
private respondent Salazar filed a Motion for Contempt of
Court in the court below directed against FILINVEST and four
other persons allegedly for their failure to obey the Order of
respondent Judge dated April 4, 1979, which Order is the
subject of this Petition. On July 23, 1979, this Court issued a
temporary restraining order "enjoining respondent Judge or
any person or persons acting in his behalf from hearing
private respondent's motion for contempt in Civil Case No.
109900, entitled, 'Filinvest Credit Corporation, Plaintiff,
versus The Rallye Motor Co., Inc., et al., Defendants' of the
Court of First Instance of Manila, Branch XI. " 8
Petitioner FILINVEST in its MEMORANDUM contends that
respondent Judge erred:

(1) In dissolving the writ of preliminary
attachment already enforced by the Sheriff
of Manila without Salazar's posting a
counter-replevin bond as required by Rule
57, Section 12; and
(2) In finding that there was no fraud on
the part of Salazar, despite evidence in
abundance to show the fraud perpetrated
by Salazar at the very inception of the
contract.
It is urged in petitioner's first assignment of error that the
writ of preliminary attachment having been validly and
properly issued by the lower court on August 17, 1977, the
same may only be dissolved, quashed or recalled by the
posting of a counter-replevin bond under Section 12, Rule 57
of the Revised Rules of Court which provides that:
Section 12. Discharge of Attachment upon,
gluing counterbond.—At any time after an
order of attachment has been granted, the
party whose property has been attached, or
the person appearing on his behalf, may,
upon reasonable notice to the applicant,
apply to the judge who granted the order,
or to the judge of the court, in which the
action is pending, for an order discharging
the attachment wholly or in part on the
security given. The judge shall, after
hearing, order the discharge of the
attachment if a cash deposit is made, or a
counter-bond executed to the attaching
creditor is filed, on behalf of the adverse
party, with the clerk or judge of the court
where the application is made, in an
amount equal to the value of the property
attached as determined by the judge, to
secure the payment of any judgment that
the attaching creditor may recover in the
action. ...
Citing the above provision, petitioner contends that the court
below should not have issued the Orders dated February 2,
1979 and April 4, 1979 for failure of private respondent
Salazar to make a cash deposit or to file a counter-bond.
On the other hand, private respondent counters that the
subject writ of preliminary attachment was improperly or
irregularly issued in the first place, in that it was issued ex
parte without notice to him and without hearing.
We do not agree with the contention of private respondent.
Nothing in the Rules of Court makes notice and hearing
indispensable and mandatory requisites for the issuance of a
writ of attachment. The statement in the case of Blue Green
Waters, Inc. vs. Hon. Sundiam and Tan 9 cited by private
respondent, to the effect that the order of attachment issued
without notice to therein petitioner Blue Green Waters, Inc.
and without giving it a chance to prove that it was not
fraudulently disposing of its properties is irregular, gives the
wrong implication. As clarified in the separate opinion of Mr.
Justice Claudio Teehankee in the same cited case, 10 a writ of
attachment may be issued ex parte. Sections 3 and 4, Rule
57, merely require that an applicant for an order of
attachment file an affidavit and a bond: the affidavit to be
executed by the applicant himself or some other person who
personally knows the facts and to show that (1) there is a
sufficient cause of action, (2) the case is one of those
mentioned in Section 1 of Rule 57, (3) there is no other
20
sufficient security for the claim sought to be enforced, and (4)
the amount claimed in the action is as much as the sum for
which the order is granted above all legal
counterclaims; and the bond to be "executed to the adverse
party in an amount fixed by the judge, not exceeding the
applicant's claim, conditioned that the latter will pay all the
costs which may be adjudged to the adverse party and all
damages which he may sustain by reason of the attachment,
if the court shall finally adjudge that the applicant was not
entitled thereto."
We agree, however, with private respondents contention that
a writ of attachment may be discharged without the necessity
of filing the cash deposit or counter-bond required by Section
12, Rule 57, cited by petitioner. The following provision of the
same Rule allows it:
Sec. 13. Discharge of attachment for
improper or irregular issuance.—The party
whose property has been attached may
also, at any time either before or after the
release of the attached property, or before
any attachment shall have been actually
levied, upon reasonable notice to the
attaching creditor, apply to the judge who
granted the order, or to the judge of the
court in which the action is pending, for an
order to discharge the attachment on the
ground that the same was improperly or
irregularly issued. If the motion be made on
affidavits on the part of the party whose
property has been attached, but not
otherwise, the attaching creditor may
oppose the same by counter-affidavits or
other evidence in addition to that on which
the attachment was made. After hearing,
the judge shall order the discharge of the
attachment if it appears that it was
improperly or irregularly issued and the
defect is not cured forthwith."(Emphasis
supplied)
The foregoing provision grants an aggrieved party relief from
baseless and unjustifiable attachments procured, among
others, upon false allegations, without having to file any cash
deposit or counter-bond. In the instant case the order of
attachment was granted upon the allegation of petitioner, as
plaintiff in the court below, that private respondent RALLYE,
the defendants, had committed "fraud in contracting the debt
or incurring the obligation upon which the action is brought,"
covered by Section i(d), Rule 57, earlier quoted. Subsequent
to the issuance of the attachment order on August 17, 1977,
private respondent filed in the lower court an "Urgent Motion
for the Recall and Quashal of the Writ of Preliminary
Attachment on (his property)" dated December 11,
1978 11 precisely upon the assertion that there was
"absolutely no fraud on (his) part" in contracting the
obligation sued upon by petitioner. Private respondent was in
effect claiming that petitioner's allegation of fraud was false,
that hence there was no ground for attachment, and that
therefore the attachment order was "improperly or irregularly
issued." This Court was held that "(i)f the grounds upon which
the attachment was issued were not true ..., the defendant
has his remedy by immediately presenting a motion for the
dissolution of the same. 12 We find that private respondent's
abovementioned Urgent Motion was filed under option 13,
Rule 57.
The last sentence of the said provision, however, indicates
that a hearing must be conducted by the judge for the

purpose of determining whether or not there reality was a
defect in the issuance of the attachment. The question is: At
this hearing, on whom does the burden of proof lie? Under
the circumstances of the present case, We sustain the ruling
of the court a quo in its questioned Order dated February 2,
1979 that it should be the plaintiff (attaching creditor), who
should prove his allegation of fraud. This pronouncement
finds support in the first sentence of Section 1, Rule 131,
which states that: "Each party must prove his own affirmative
allegations." The last part of the same provision also provides
that: "The burden of proof lies on the party who would be
defeated if no evidence were given on either side." It must be
b•rne in mind that in this jurisdiction, fraud is never
presumed. FRAUS EST IdIOS ET NON
PRAESUMENDA. 13 Indeed, private transactions are presumed
to have been fair and regular. 14 Likewise, written contracts
such as the documents executed by the parties in the instant
case, are presumed to have been entered into for a sufficient
consideration. 15
In a similar case of Villongco, et al., vs. Hon. Panlilio, et
al., 16 a writ of preliminary attachment was issued ex parte in
a case for damages on the strength of the affidavit of therein
petitioners to the effect that therein respondents had
concealed, removed or disposed of their properties, credits or
accounts collectible to defraud their creditors. Subsequently,
the lower court dissolved the writ of attachment. This was
questioned in a certiorari proceeding wherein this Court held,
inter alia, that:
The affidavit supporting the petition for the
issuance of the preliminary attachment may
have been sufficient to justify the issuance
of the preliminary writ, but it cannot be
considered as proof of the allegations
contained in the affidavit. The reason is
obvious. The allegations are mere
conclusions of law, not statement of facts.
No acts of the defendants are ever
mentioned in the affidavit to show or prove
the supposed concealment to defraud
creditors. Said allegations are affirmative
allegations, which plaintiffs had the
obligation to prove ... 17
It appears from the records that both herein private parties
did in fact adduce evidence to support their respective
claims. 18 Attached to the instant Petition as its Annex
"H" 19 is a Memorandum filed by herein petitioner FILINVEST
in the court below on March 20, 1979. After private
respondent filed his Comment to the Petition, 20 petitioner
filed a Reply 21,attaching another copy of the aforesaid
Memorandum as Annex "A" 22 In this case on February 28,
1979 and March 1, 1979, the plaintiff (FILINVEST) presented
in evidence documentary exhibits "marked Exhibit A, A- I, B,
B-1, B-2, B-3, B-4, C, C-1, D, E, F, G and G-1. The
Memorandum goes on to state that FILINVEST presented as
its witness defendant Salazar himself who testified that he
signed Exhibits A, B, C, D, E and G; that he is a holder of a
master's degree in Business Administration and is himself a
very careful and prudent person; that he does not sign post-
dated documents; that he does not sign contracts which do
not reflect the truth or which are irregular on their face, that
he intended to purchase a school bus from Rallye Motors Co.,
Inc. from whom he had already acquired one unit; that he
had been dealing with Abel Sahagun, manager of RALLYE,
whom he had known for a long time that he intended to
purchase the school bus on installment basis so he applied for
financing with the FILINVEST; that he knew his application
was approved; that with his experience as a business
executive, he knew that under a financing arrangement, upon
21
approval of his application, when he signed Exhibits A, B, C,
D, E and G, the financing company (FILINVEST) would release
the proceeds of the loan to RALLYE and that he would be
obligated to pay the installments to FILINVEST; that he
signed Exhibits A, B and C simultaneously; that it was his wife
who was always transacting business with RALLYE and Abel
Sahagun. 23
Without disputing the above summary of evidence, private
respondent Salazar states in his Comment that "the same
evidence proferred by (petitioner's) counsel was adopted by
(private respondent) Ernesto Salazar during the
proceedings. 24
According to the court a quo in its assailed order of April 4,
1979, Emesto Salazar "was himself defrauded because while
he signed the promissory note and the chattel mortgage over
the vehicle which he bought from Rallye Motors, RALLYE did
not deliver to him the personal property he bought." And
since no fraud was committed by Salazar, the court
accordingly ordered the sheriff to return to Salazar the
properties attached by virtue of the writ of preliminary
attachment issued on August 17, 1977.
We do not agree. Considering the claim of respondent Salazar
that Rallye Motors did not deliver the motor vehicle to him, it
follows that the Invoice, Exhibit "C", for the motor vehicle and
the Receipt, Exhibit "G", for its delivery and both signed by
Salazar, Exhibits "C-1 " and "G-1", were fictitious. It also
follows that the Promissory Note, Exhibit "A", to pay the price
of the undelivered vehicle was without consideration and
therefore fake; the Chattel Mortgage, Exhibit "B", over the
non-existent vehicle was likewise a fraud; the registration of
the vehicle in the name of Salazar was a falsity and the
assignment of the promissory note by RALLYE with the
conforme of respondent Salazar in favor of petitioner over the
undelivered motor vehicle was fraudulent and a falsification.
Respondent Salazar, knowing that no motor vehicle was
delivered to him by RALLYE, executed and committed all the
above acts as shown the exhibits enumerated above. He
agreed and consented to the assignment by RALLYE of the
fictitious promissory note and the fraudulent chattel
mortgage, affixing his signature thereto, in favor of petitioner
FILINVEST who, in the ordinary course of business, relied on
the regularity and validity of the transaction. Respondent had
previously applied for financing assistance from petitioner
FILINVEST as shown in Exhibits "E " and "E-1 " and his
application was approved, thus he negotiated for the
acquisition of the motor vehicle in question from Rallye
Motors. Since he claimed that the motor vehicle was not
delivered to him, then he was duty-bound to reveal that to
FILINVEST, it being material in inducing the latter to accept
the assignment of the promissory note and the chattel
mortgage. More than that, good faith as well as commercial
usages or customs require the disclosure of facts and
circumstances which go into the very object and consideration
of the contractual obligation. We rule that the failure of
respondent Salazar to disclose the material fact of non-
delivery of the motor vehicle, there being a duty on his part
to reveal them, constitutes fraud. (Article 1339, New Civil
Code).
We hold that the court a quo committed grave abuse of
discretion in dissolving and setting aside the writ of
preliminary attachment issued on August 17, 1977.
WHEREFORE, IN VIEW OF THE FOREGOING, the appealed
Orders of the lower court dated February 2, 1979 and April 4,
1979 are hereby REVERSED and SET ASIDE. The temporary
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restraining order issued by Us on July 23, 1979 is hereby
made permanent. No costs.

Petition granted.

SO ORDERED.