G.R. No.
144755 June 8, 2005 rate of interest, penalties and other charges, in accordance with the Truth in
SPOUSES ELISEO F. ESTARES and ROSENDA P. ESTARES, petitioners,
vs. COURT OF APPEALS, HON. DAMASO HERRERA as Presiding Judge of the
RTC, Branch 24, Biñan, Laguna PROMINENT LENDING & CREDIT
CORPORATION, PROVINCIAL SHERIFF OF LAGUNA and Sheriff IV ARNEL G.
MAGAT, respondents.
Before us is a petition for certiorari and prohibition under Rule 65 of the
Rules of Court which assails the Decision1 and Resolution of the Court of
Appeals dated April 17, 2000 and July 7, 2000, respectively, in CA-G.R. SP
No. 56123.
The factual background of the case is as follows:
On May 21, 1999, petitioner Spouses Eliseo F. Estares and Rosenda P. Estares
(Estares spouses for brevity) filed a complaint for "Damages and Preliminary
Prohibitory Injunction" against private respondent Prominent Lending &
Credit Corporation (PLCC) before the Regional Trial Court, Branch 24, Biñan,
Laguna, docketed as Civil Case No. B-5476.2
They alleged that: on January 12, 1998, they obtained a loan from PLCC for
₱800,000.00 secured by a real estate mortgage over a 363-square meter
parcel of land with improvements situated in the Municipality of Santa Rosa,
Laguna, covered by Transfer Certificate of Title (TCT) No. 99261; the
promissory note and the real estate mortgage were falsified because they
affixed their signatures on two blank documents; the monthly interest of
3.5% and 3% penalty on each delayed monthly interest are different from
the 18% interest per annum to which they agreed to; for failure to pay their
obligation despite repeated demands, PLCC filed a petition for extrajudicial
foreclosure with the Office of the Provincial Sheriff of Laguna; and on June
8, 1999, the Sheriff sent a Notice of Extrajudicial Sale to the Estares spouses.
Accordingly, the Estares spouses sought to declare as null and void the
promissory note and the real estate mortgage for not reflecting their true
agreement. In the interim, they prayed for a temporary restraining order
(TRO) and/or writ of preliminary injunction to enjoin PLCC from taking
possession of the mortgaged property and proceeding with the extrajudicial
sale scheduled on July 13, 1999 at 10:00 a.m.
On June 30, 1999, the Estares spouses amended their complaint to include
the Register of Deeds of Laguna-Calamba Branch, the Provincial Sheriff of
Laguna and Sheriff IV Arnel G. Magat as party-defendants.3
On July 12, 1999, the trial court issued a TRO in favor of the Estares spouses.4
The parties subsequently agreed to maintain the status quo until August 20,
1999.5
On August 6, 1999, PLCC filed its Answer with Counterclaim alleging that the
Estares spouses were duly apprised of the terms and conditions of the loan,
including the rate of interest, penalties and other charges, in accordance
with the Truth in Lending Act or Republic Act No. 3765. It opposed the
prayer for restraining order on the ground that there is no factual and legal
basis for its issuance since the Estares spouses’ fear of eviction is false.6
At the hearing on the Estares spouses’ application for a writ of preliminary
injunction, Rosenda P. Estares (Rosenda for brevity) testified that: the loan
proceeds of ₱637,000.00, received on January 12, 1998, was used in the
improvement and renovation of their boarding house; they did not question
PLCC in writing why they only received ₱637,000.00; when they received the
Statement of Account, they did not question the figures appearing therein;
when they received PLCC’s demand letter, they went to the former’s office
not to question the loan’s terms and conditions but merely to request for
extension of three months to pay their obligation. They adduced in evidence
the promissory note, real estate mortgage, statement of account, petition
for extrajudicial foreclosure and the notice of extrajudicial sale. The Estares
spouses then rested their case.
In opposition to the application for a writ of preliminary injunction, PLCC
presented its manager, Rey Arambulo, who testified that the Estares spouses
were duly apprised of the terms and conditions of the loan, including the
Lending Act or Republic Act No. 3765. It submitted the same evidence
offered by the Estares spouses, along with the latter’s credit application, the
credit investigation report, the receipts PLCC issued, and the disclosure
statement on the loan.
On August 18, 1999, the trial court denied the Estares spouses’ application
for a writ of preliminary injunction, holding that the latter failed to establish
the facts necessary for an injunction to issue.7
On August 31, 1999, the Estares spouses filed a motion for reconsideration.8
During the hearing on the motion for reconsideration on September 17,
1999, Eliseo P. Estares (Eliseo for brevity) moved that he be allowed to testify
on the circumstances of the loan but the trial court denied it. The trial court
deemed it best that he be presented during the trial on the merits.9 On
October 1, 1999, the trial court denied the motion for reconsideration.10
On December 7, 1999, the Estares spouses filed a petition for certiorari and
prohibition in the Court of Appeals ascribing grave abuse of discretion upon
the trial court in issuing the Orders dated August 18, 1999 and October 1,
1999 which denied their prayer for a writ of preliminary injunction and
motion for reconsideration, respectively.11
On December 14, 1999, without giving due course to the petition, the Court
of Appeals issued a Resolution requiring the PLCC to file its comment to the
petition. The action on the Estares spouses’ application for a TRO and writ
of preliminary injunction was deferred and held in abeyance until after
receipt of the comment.12
With no restraining order enjoining him, Sheriff Magat conducted an
auction sale on January 5, 2000, with PLCC as highest bidder for
₱1,500,000.00.13
In its Comment dated January 15, 2000, PLCC claimed that the trial court did
not commit grave abuse of discretion in denying the Estares spouses’
application for a writ of preliminary injunction since the latter failed to prove
their right to injunctive relief and the action sought to be enjoined has been
rendered moot by the auction sale conducted on January 5, 2000.14
On April 17, 2000, the Court of Appeals dismissed the petition for lack of
merit, holding that the trial court did not abuse its discretion in denying the
Estares spouses’ application for a writ of preliminary injunction since the
latter failed to prove the requisites for the issuance thereof. 15
The Estares spouses then moved for reconsideration of the April 17, 2000
decision. In addition, they prayed that the auction sale on January 5, 2000,
as well as the minutes of auction sale and certificate of sale, be declared null
and void not only because there was no publication of the notice of auction
sale but the auction sale preempted the Court of Appeals in the disposition
of the case and was conducted in defiance of the Resolution dated
December 14, 1999.16
On July 7, 2000, the Court of Appeals denied the Estares spouses’ motion
for reconsideration.17
On September 16, 2000, the Estares spouses filed the present petition for
certiorari and prohibition anchored on the following grounds:
I
THE COURT OF APPEALS ERRED IN NOT GRANTING A WRIT OF
PRELIMINARY INJUNCTION TO PREVENT RESPONDENTS PLCC AND
PROVINCIAL SHERIFF OF LAGUNA/ SHERIFF ARNEL MAGAT FROM
FORECLOSING THE MORTGAGE AND CONDUCTING THE AUCTION SALE OF
PETITIONERS’ PROPERTY AND/OR IN UPHOLDING THE ORDER DATED
AUGUST 18, 1999 OF JUDGE DAMASO A. HERRERA, RTC-BRANCH 24,
LAGUNA.
II
THE COURT OF APPEALS ERRED IN NOT DECLARING AS NULL AND VOID
AND/OR SETTING ASIDE THE AUCTION SALE OF THE PETITIONERS’ HOUSE
AND LOT CONDUCTED BY SHERIFF ARNEL MAGAT ON JANUARY 5, 2000
FOR LACK OF RE-PUBLICATION OF NOTICE OF EXTRA-JUDICIAL SALE, FOR
PRE-EMPTING THE COURT OF APPEALS IN DECIDING THE CASE, AND FOR
RENDERING THE PETITION IN CA-G.R. SP NO. 56123 MOOT AND
ACADEMIC.
III
THE COURT OF APPEALS ERRED IN NOT DECLARING DENIAL OF DUE
PROCESS TO OVERSEAS CONTRACT WORKER ELISEO ESTARES WHEN
JUDGE DAMASO A. HERRERA REFUSED TO ALLOW HIM TO TESTIFY ON THE
CIRCUMSTANCES OF THEIR LOAN WITH PLCC.18
Anent the first ground, the Estares spouses insist that they firmly established
their right to injunctive relief. They claim that the promissory note, credit
application, disbursement voucher, disclosure statement and real estate
mortgage are falsified; the promissory note is not reflective of the true
amount of the loan, as well as the term, interest and charges thereon; the
₱126,362.28 represent additional charges, not as part of the loan, that were
not agreed upon prior to or before the consummation of the loan; and the
amount of the loan and rate of interest stated in the falsified promissory
note are fictitious or simulated.
With respect to the second ground, they maintain that the auction sale
conducted on January 5, 2000 should be nullified because it lacked
republication of the notice of auction sale and it was conducted in violation
of the Court of Appeals’ Resolution dated December 14, 1999 which enjoined
the parties to maintain the status quo pending the filing by the respondents
of their Comment to the petition. They argue that PLCC and Sheriff Magat
preempted the Court of Appeals from resolving their petition by conducting
the auction sale on January 5, 2000.
As to the third ground, they aver that Eliseo was denied due process when
the trial court refused to allow him to testify during the hearing on the
motion for reconsideration. They contend that Eliseo, an overseas contract
worker, purposely took leave from work in the Middle East to testify on the
circumstances of the loan and his testimony was material to clarify the
matter of notarization of the real estate mortgage and show that said
document was falsified.
On October 2, 2000, the Court granted the TRO prayed for in the petition
and required the respondents to comment thereon. In its Comment dated
October 25, 2000, PLCC asserts that the petition should be dismissed for
being deficient on both procedural and substantive aspects.
As to the procedural aspect, PLCC posits that the petition is filed beyond the
sixty-day period required by the rules and therefore filed out of time. PLCC
further claims that the verification and certification of non-forum shopping
are both insufficient. The verification speaks of a "Pre-Trial Brief" while the
certification of non-forum shopping was executed only by Rosenda.
As to the substance of the petition, PLCC argues that the Estares spouses
failed to establish their right to injunctive relief; the validity of the January
5, 2000 auction sale was brought only in the motion for reconsideration
which is improper because it is a factual issue best addressed to the trial
court; Sheriff Magat did not preempt the Court of Appeals in deciding CA-
G.R. SP No. 56123 when he conducted the auction sale on January 5, 2000
because the Resolution dated December 14, 1999 of the said court did not
suspend or restrain the sheriff from conducting the foreclosure sale; Eliseo
was not denied due process because he sought to testify on factual matters
in the hearing on their motion for reconsideration which is improper as
factual matters are best brought and proved during the trial on the merits
of the case.
The Court gave due course to the petition and required the parties to submit
their respective memoranda20 which they complied with. Before ruling on
the issues raised in the petition, it is necessary to dwell on the procedural
aspects of the case.
From a reading of the grounds on which the instant petition for certiorari
and prohibition are based, it is readily apparent that the Estares spouses are
appealing a decision of the Court of Appeals by resorting to Rule 65, when
their remedy should be based on Rule 45 of the Rules of Court. A petition
for review under Rule 45 is not similar to a petition for certiorari under Rule
65.
Under Rule 45, decisions, final orders or resolutions of the Court of Appeals
in any case, i.e., regardless of the nature of the action or proceedings
involved, may be appealed to us by filing a petition for review on certiorari,
which would be but a continuation of the appellate process over the original
case.22 In contrast, a special civil action under Rule 65 is an independent
action based on the specific grounds therein provided and proper only if
there is no appeal or any plain, speedy and adequate remedy in the ordinary
course of law.23 Thus, certiorari cannot be availed of as a substitute for the
lost remedy of an ordinary appeal.24
By their own account, the Estares spouses received the Order dated July 7,
2000 denying their motion for reconsideration from the Court of Appeals
on July 18, 2000. Instead of filing a petition for review with this Court within
15 days thereof or until August 2, 2000, they filed this special civil action by
registered mail on September 16, 2000 or 60 days from receipt of the Order
dated July 7, 2000. By then, they had already lost the remedy of appeal. By
availing of a wrong remedy, the instant petition should have merited
outright dismissal.
Concerning the verification, we note that Rosenda stated therein that she
caused the preparation of the "foregoing Pre-Trial Brief" but we consider
the same as a slight error and honest mistake in the preparation of the
petition. In any event, the purpose of requiring a verification is simply to
secure an assurance that the allegations of the petition have been made in
good faith; or are true and correct, not merely speculative.25 This
requirement is simply a condition affecting the form of pleadings, and
noncompliance therewith does not necessarily render it fatally defective.26
Indeed, verification is only a formal, not a jurisdictional, requirement.27
With regard to the certification of non-forum shopping signed only by
Rosenda, the rule is that the certificate of non-forum shopping must be
signed by all the petitioners or plaintiffs in a case and the signing by only
one of them is insufficient because a lone signatory cannot be presumed to
have personal knowledge of the matters required to be stated in the
attestation.28
However, the Court has also stressed that the rules on forum shopping,
which were designed to promote and facilitate the orderly administration
of justice, should not be interpreted with such absolute literalness as to
subvert its own ultimate and legitimate objective which is simply to prohibit
and penalize the evils of forumshopping.29 The fact that the rules on
forumshopping require strict compliance merely underscores its mandatory
nature that it cannot be dispensed with or its requirements altogether
disregarded, but it does not thereby interdict substantial compliance with
its provisions under justifiable circumstances.30
We find that the execution by Rosenda of the certificate of non-forum
shopping in behalf of her co-petitioner and husband, Eliseo, constitutes
substantial compliance with the Rules. After all they share a common
interest in the property involved since it is conjugal property, and the
petition questioning the propriety of the decision of the Court of Appeals
originated from an action brought by the spouses, and is clearly intended
for the benefit of the conjugal partnership. Considering that the husband
was at that time an overseas contract worker working in Algeria, whereas
the petition was prepared in Sta. Rosa, Laguna, a rigid application of the
rules on forumshopping that would disauthorize the wife’s signing the
certification in her behalf and that of her husband is too harsh and clearly
uncalled for.31
In any event, we find that this petition must still be dismissed as the Court
of Appeals did not commit any grave abuse of discretion amounting to want
or excess of jurisdiction in dismissing the petition.
Generally, injunction is a preservative remedy for the protection of
substantive rights or interests. It is not a cause of action in itself but merely
a provisional remedy, an adjunct to a main suit. The controlling reason for
the existence of the judicial power to issue the writ is that the court may
thereby prevent a threatened or continuous irremediable injury to some of
the parties before their claims can be thoroughly investigated and advisedly
adjudicated. It is to be resorted to only when there is a pressing necessity
to avoid injurious consequences which cannot be remedied under any
standard of compensation. The application of the writ rests upon an alleged
existence of an emergency or of a special reason for such an order before
the case can be regularly heard, and the essential conditions for granting
such temporary injunctive relief are that the complaint alleges facts which
appear to be sufficient to constitute a cause of action for injunction and that
on the entire showing from both sides, it appears, in view of all the
circumstances, that the injunction is reasonably necessary to protect the
legal rights of plaintiff pending the litigation.32
The Estares spouses had the burden in the trial court to establish the
following requirements for them to be entitled to injunctive relief: (a) the
existence of their right to be protected; and (b) that the acts against which
the injunction is to be directed are violative of such right.33] To be entitled
to an injunctive writ, the petitioner must show, inter alia, the existence of a
clear and unmistakable right and an urgent and paramount necessity for the
writ to prevent serious damage.34 Thus, an injunctive remedy may only be
resorted to when there is a pressing necessity to avoid injurious
consequences which cannot be remedied under any standard
compensation.35
In the present case, the Estares spouses failed to establish their right to
injunctive relief. They do not deny that they are indebted to PLCC but only
question the amount thereof. Their property is by their own choice
encumbered by a real estate mortgage. Upon the nonpayment of the loan,
which was secured by the mortgage, the mortgaged property is properly
subject to a foreclosure sale.
Rosenda’s testimony sealed the fate of the necessity of the writ of
preliminary injunction. She admitted that: they did not question PLCC in
writing why they only received ₱637,000.00; they did not question the
figures appearing in the Statement of Account when they received it; and,
when they received PLCC’s demand letter, they went to the former’s office
not to question the loan’s terms and conditions but merely to request for
extension of three months to pay their obligation.36 She acknowledged that
they only raised the alleged discrepancy of the amount loaned and the
amount received, as well as the blank documents which they allegedly
signed, after PLCC initiated the foreclosure proceedings.37
It must be stressed that the assessment and evaluation of evidence in the
issuance of the writ of preliminary injunction involve findings of facts
ordinarily left to the trial court for its conclusive determination.38 As such,
a trial court’s decision to grant or to deny injunctive relief will not be set
aside on appeal unless the court abused its discretion. In granting or
denying injunctive relief, a court abuses its discretion when it lacks
jurisdiction, fails to consider and make a record of the factors relevant to its
determination, relies on clearly erroneous factual findings, considers clearly
irrelevant or improper factors, clearly gives too much weight to one factor,
relies on erroneous conclusions of law or equity, or misapplies its factual or
legal conclusions.39
In the present case, the Estares spouses clearly failed to prove that they have
a right protected and that the acts against which the writ is to be directed
are violative of said right. Hence, the Court of Appeals did not commit a
grave abuse of its discretion amounting to excess or lack of jurisdiction in
dismissing petitioners’ petition for certiorari.
There is likewise no merit to the claim that the Court of Appeals gravely
abused its discretion when it denied the prayer to nullify the auction sale
held on January 5, 2000 for lack of republication of the notice of auction
sale and for preempting the Court of Appeals in deciding the case and
rendering the petition in CA-G.R. SP No. 56123 moot and academic.
The absence of republication of the notice of auction sale is a factual matter
which by the weight of judicial precedents cannot be inquired into by this
Court in a petition for certiorari. It is best addressed to the attention of the
trial court and taken up in the trial of the case, necessitating presentation
of evidence by both parties. The propriety of the auction sale is a matter
which the trial court is in the best position to determine. For it is basic that
certiorari under Rule 65 is a remedy narrow in scope and inflexible in
character. It is not a general utility tool in the legal workshop.40 It offers
only a limited form of review. Its principal function is to keep an inferior
tribunal within its jurisdiction.41 It can be invoked only for an error of
jurisdiction, that is, one where the act complained of was issued by the
court, officer or a quasi-judicial body without or in excess of jurisdiction, or
with grave abuse of discretion which is tantamount to lack or in excess of
jurisdiction,42 not to be used for any other purpose,43 such as to cure errors
in proceedings or to correct erroneous conclusions of law or fact.44 Again
suffice it to say that the only issue settled here is the propriety of the non-
issuance of a writ of preliminary injunction pending the final outcome of the
case.
As to petitioners’ assertion that the Court of Appeals in its Resolution dated
December 14, 1999 impliedly directed the parties to maintain the status quo,
we deemed it worthy to quote in full the said Resolution, thus:
Without necessarily giving due course to the petition, the Court requires the
respondents to file their comment (not motion to dismiss) within ten (10)
days from notice, which may be treated as their Answer should the petition
be given due course. Respondents are likewise ordered to show cause in the
same Comment why a temporary restraining order and writ of preliminary
injunction should not be issued.
The action of the petitioners’ application for a temporary restraining order
and writ of preliminary injunction is deferred and held in abeyance until
after receipt of respondents’ Comment.45
Clearly, the Court of Appeals did not give due course to the petition but
merely required PLCC to comment thereon. The Court of Appeals did not
enjoin the conduct of the auction sale. In any case, the necessity for the
issuance of the writ of injunction has been found wanting.
Lastly, the Estares spouses’ claim that Eliseo was denied due process when
the trial court refused to allow him to testify during hearing on the motion
for reconsideration deserves scant consideration.
It must be remembered that a writ of preliminary injunction is generally
based solely on initial and incomplete evidence. The evidence submitted
during the hearing on an application for a writ of preliminary injunction is
not conclusive or complete for only a "sampling" is needed to give the trial
court an idea of the justification for the preliminary injunction pending the
decision of the case on the merits.46
We note that it was the Estares spouses’ choice to present only Rosenda to
testify on the circumstances of the loan at the hearing on their application
for a writ of preliminary injunction and they cannot assert that Eliseo should
have been accorded that opportunity during the hearing on the motion for
reconsideration. The essence of due process is found in the reasonable
opportunity to be heard and submit any evidence one may have in support
of one's defense. What the law proscribes is the lack of opportunity to be
heard.47 As long as a party is given the opportunity to defend his interests
in due course, he would have no reason to complain, for it is this opportunity
to be heard that makes up the essence of due process.48 Eliseo cannot
complain that he was deprived of due process since he is given the full
opportunity to testify on the circumstances of the loan during the trial of
the main case.49
All told, no grave abuse of discretion could therefore be imputed to the
Court of Appeals in dismissing petitioners’ petition for certiorari with
prohibition, for lack of merit.WHEREFORE, the instant petition for certiorari
and prohibition is DISMISSED. The assailed Decision and Resolution of the
Court of Appeals dated April 17, 2000 and July 7, 2000, respectively, in CA-
G.R. SP No. 56123 are AFFIRMED in all respects. The temporary restraining
order issued by this Court is lifted. Costs against petitioners.
SO ORDERED.
G.R. No. 203240, March 18, 2015
NORTHERN ISLANDS, CO., INC., Petitioner, v. SPOUSES DENNIS AND
CHERYLIN* GARCIA, DOING BUSINESS UNDER THE NAME AND STYLE
“ECOLAMP MULTI RESOURCES,”, Respondents.
Assailed in this petition for review on certiorari1 are the Decision2 dated
January 19, 2012 and the Resolution3 dated August 24, 2012 of the Court of
Appeals (CA) in CA-G.R. SP No. 97448, ordering the Regional Trial Court of
Quezon City, Branch 215 (RTC) to appoint a commissioner to determine the
value of the attached properties of respondents Spouses Dennis and
Cherylin Garcia (respondents), and to discharge any excessive attachment
found thereby.
The Facts
On September 23, 2005, petitioner Northern Islands Co., Inc. (petitioner)
filed a Complaint4 with application for a writ of preliminary attachment,
before the RTC against respondents, docketed as Civil Case No. Q-05-53699
(Main Case), which was subsequently amended5 on October 25, 2005.6 It
alleged that: (a) from March to July 2004, petitioner caused the delivery to
respondents of various appliances in the aggregate amount of
P8,040,825.17;7 (b) the goods were transported, shipped, and delivered by
Sulpicio Lines, Inc., and were accepted in good order and condition by
respondents’ representatives;8 (c) the parties agreed that the goods
delivered were payable within 120 days, and that the unpaid amounts would
earn interest at a rate of eighteen percent (18%) per annum;9 (d) however,
the value of the goods were not paid by respondents despite repeated
demands;10 and (e) respondents fraudulently asserted that petitioner had
no proof that they had indeed received the quantity of the subject goods.11
In connection with the application for a writ of preliminary attachment,
petitioner posted a bond, through Visayan Surety and Insurance
Corporation, in the amount of ?8,040,825.17. On November 7, 2005, the RTC
issued the writ sought for.12
Instead of filing an answer, respondents filed on November 11, 2001, an
Urgent Motion for Extension of Time to File Proper Pleading and Motion for
Discovery (Production and Inspection)13 (November 11, 2001 Motion),
asking the RTC to allow them to photocopy and personally examine the
original invoices, delivery cargo receipts, and bills of lading attached to the
Amended Complaint, claiming that they could not “come up with an
intelligent answer” without being presented with the originals of such
documents.14
Thereafter, or on January 11, 2006, respondents filed a Motion to Discharge
Excess Attachment,15 alleging that the attachment previously ordered by
the RTC exceeded by P9,232,564.56 given that the estimated value of the
attached properties, including the garnished bank accounts, as assessed by
their appraiser, Gaudioso W. Lapaz (Lapaz), amounted to P17,273,409.73,
while the attachment bond is only in the amount of P8,040,825.17.16
In an Order17 dated February 28, 2006, the RTC denied the November 11,
2001 Motion, and, instead, directed respondents to file their answer, which
the latter complied with through the filing of their Answer Ad Cautelam Ex
Abudante with Compulsory Counterclaim18 on April 3, 2006. Despite this,
respondents again filed a Motion for Leave of Court to File Motion for
Discovery (Production and Inspection)19 (Motion for Discovery) on April 7,
2006.20
The RTC Ruling
In an Order21 dated June 21, 2006, the RTC, among others, denied the
Motion to Discharge Excess Attachment, finding that the appraisal made by
Lapaz was not reflective of the true valuation of the properties, adding too
that the bond posted by petitioner stands as sufficient security for whatever
damages respondents may sustain by reason of the attachment.22
On the other hand, the RTC granted the Motion for Discovery in accordance
with Rule 27 of the Rules of Court, despite petitioner’s claim that it did not
have the originals of the documents being sought.23
However, no production or inspection was conducted on July 10, 2006 as
the RTC directed since respondents received the copy of the above order
only on July 11, 2006.24
On July 25, 2006, respondents filed a Motion for Partial Reconsideration of
the Order dated June 21, 2006, specifically assailing the denial of their
Motion to Discharge Excess Attachment. In this relation, they prayed that
the RTC refer to a commissioner, pursuant to Rule 32 of the Rules of Court,
the factual determination of the total aggregate amount of respondents’
attached properties so as to ascertain if the attachment was excessive. Also,
they prayed that the order for production and inspection be modified and
that petitioner be ordered to produce the original documents anew for their
inspection and copying. 25
The foregoing motion was, however, denied by the RTC in an Order26 dated
August 23, 2006 for lack of merit. Thus, respondents elevated the matter to
the CA via petition for certiorari and mandamus,27 docketed as CA-G.R. SP
No. 97448 (Certiorari Case).
In the interim, the RTC rendered a Decision28 dated September 21, 2011 in
the Main Case. Essentially, it dismissed petitioner’s Amended Complaint due
to the absence of any evidence to prove that respondents had agreed to the
pricing of the subject goods.29
The RTC’s September 21, 2011 Decision was later appealed30 by petitioner
before the CA on October 27, 2011. Finding that the Notice of Appeal was
seasonably filed, with the payment of the appropriate docket fees, the RTC,
in an Order31 dated January 25, 2012, ordered the elevation of the entire
records of the Main Case to the CA. The appeal was then raffled to the CA’s
Eighth Division, and docketed as CA-G.R. CV No. 98237. On the other hand,
records do not show that respondents filed any appeal.32
The CA Ruling in the Certiorari Case
Meanwhile, the CA, in a Decision33 dated January 19, 2012, partly granted
the certiorari petition of respondents, ordering the RTC to appoint a
commissioner as provided under Rule 32 of the Rules of Court as well as the
subsequent discharge of any excess attachment if so found therein, and, on
the other hand, denying respondents’ Motion for Discovery.34
It held that: (a) on the issue of attachment, trial by commissioners under
Rule 32 of the Rules of Court was proper so that the parties may finally settle
their conflicting valuations;35 and (b) on the matter of discovery, petitioner
could not be compelled to produce the originals sought by respondents for
inspection since they were not in the former’s possession.36
Aggrieved, petitioner filed a Motion for Partial Reconsideration37 on
February 13, 2012 but was, however, denied in a Resolution38 dated August
24, 2012, hence, the present petition.
The Issues Before the Court
The issues presented for the Court’s resolution are: (a) whether the RTC had
lost jurisdiction over the matter of the preliminary attachment after
petitioner appealed the decision in the Main Case, and thereafter ordered
the transmittal of the records to the CA; and (b) whether the CA erred in
ordering the appointment of a commissioner and the subsequent discharge
of any excess attachment found by said commissioner.
The Court’s Ruling
The petition is meritorious.
Section 9, Rule 41 of the Rules of Court provides that in appeals by notice
of appeal, the court loses jurisdiction over the case upon the perfection of
the appeals filed in due time and the expiration of the time to appeal of the
other parties.
In this case, petitioner had duly perfected its appeal of the RTC’s September
21, 2011 Decision resolving the Main Case through the timely filing of its
Notice of Appeal dated October 27, 2011, together with the payment of the
appropriate docket fees. The RTC, in an Order39 dated January 25, 2012, had
actually confirmed this fact, and thereby ordered the elevation of the entire
records to the CA. Meanwhile, records do not show that respondents filed
any appeal, resulting in the lapse of its own period to appeal therefrom.
Thus, based on Section 9, Rule 41, it cannot be seriously doubted that the
RTC had already lost jurisdiction over the Main Case.
With the RTC’s loss of jurisdiction over the Main Case necessarily comes its
loss of jurisdiction over all matters merely ancillary thereto. Thus, the
propriety of conducting a trial by commissioners in order to determine the
excessiveness of the subject preliminary attachment, being a mere ancillary
matter to the Main Case, is now mooted by its supervening appeal in CA-
G.R. CV No. 98237.
Note that in Sps. Olib v. Judge Pastoral,40 the Court, in view of the nature
of a preliminary attachment, definitively ruled that the attachment itself
cannot be the subject of a separate action independent of the principal
action because the attachment was only an incident of such action, viz.:
Attachment is defined as a provisional remedy by which the property of an
adverse party is taken into legal custody, either at the commencement of an
action or at any time thereafter, as a security for the satisfaction of any
judgment that may be recovered by the plaintiff or any proper party.
It is an auxiliary remedy and cannot have an independent existence apart
from the main suit or claim instituted by the plaintiff against the defendant.
Being merely ancillary to a principal proceeding, the attachment must fail if
the suit itself cannot be maintained as the purpose of the writ can no longer
be justified.
The consequence is that where the main action is appealed, the attachment
which may have been issued as an incident of that action, is also considered
appealed and so also removed from the jurisdiction of the court a quo. The
attachment itself cannot be the subject of a separate action independent of
the principal action because the attachment was only an incident of such
action.41 (Emphases supplied)
That being said, it is now unnecessary to discuss the other issues raised
herein. In fine, the petition is granted and the assailed CA rulings are set
aside.
WHEREFORE, the petition is GRANTED. The Decision dated January 19, 2012
and the Resolution dated August 24, 2012 of the Court of Appeals in CA-
G.R. SP No. 97448 are hereby SET ASIDE.
SO ORDERED.
G.R. No. 203530, April 13, 2015
LUZON DEVELOPMENT BANK, TOMAS CLEMENTE, JR., AND OSCAR
RAMIREZ, Petitioners, v. ERLINDA KRISHNAN, Respondent.
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of
Civil Procedure praying for the annulment of the Decision1 dated March 27,
2012 and Resolution2 dated September 11, 2012 of the Court of Appeals (CA)
in CA-G.R. SP No. 120664, which affirmed the Orders dated September 24,
2010 and May 26, 2011, respectively, of Branch 30, Regional Trial Court (RTC)
- Manila.
The factual antecedents, as found by the CA, are as follows:
Petitioners Luzon Development Bank, Tomas Clemente, and Oscar Ramirez
(hereafter petitioners) are the respondents in the complaint for Collection
of Sum of Money and Damages filed by respondent Erlinda Khrishnan
(hereafter respondent Erlinda) on February 7, 2001. Respondent Erlinda
claimed that she is a client of respondent bank wherein she maintained
several accounts including time deposits. On several occasions, when
respondent Erlinda presented her Time Deposits Certificates amounting to
P28,597,472.70 for payment because they have become due, petitioners
refused to honor them for the reason that they were fraudulent. Respondent
Erlinda likewise applied for a Preliminary Writ of Attachment which the RTC
granted on February 27, 2001.
By virtue of the writ, petitioner bank's accounts in BPI Family Bank, Calamba,
Laguna in the amount of P28,597,472.70 and its account amounting to
P49,000,000.00 in the Central Bank were garnished.
On March 9, 2001, petitioners filed an urgent ex-parte Motion to Recall
Quash and/or Lift Attachment or Garnishment (in excess of amounts in the
writ). Respondent Erlinda opposed the motion.
On August 15, 2001, petitioners filed an Omnibus Motion seeking the
substitution of their garnished account with government securities and the
immediate resolution of their motion to discharge attachment and setting
the motion for hearing, which respondent Erlinda opposed.
On May 22, 2002, the RTC resolved the pending incidents and required the
petitioners to justify their motion to discharge the attachment. During pre-
trial on May 23, 2002, respondents requested additional time to file a
supplemental motion to justify their earlier motions which was granted and
gave petitioners ten (10) days from receipt within which to comment or
opposed (sic) it.
On September 8, 2003, the RTC issued an order lifting the attachment to
which respondent Erlinda filed a motion for reconsideration. Respondent
Erlinda also filed a Motion for Inhibition. On December 18, 2003, the RTC
denied the motion for reconsideration but granted the motion for
inhibition. The said Order was questioned by respondent Erlinda by way of
Petition for Certiorari before the 7th Division which rendered a decision on
November 15, 2006, the dispositive portion of which reads as follows:
"WHEREFORE, the PETITION FOR CERTIORARI is GRANTED.
THE ORDERS dated September 8, 2003, and December 18, 2003 are
NULLIFIED and SET ASIDE.
The private respondents, as defendants in Civil Case No. 01-100046 entitled
Erlinda C. Krishnan v. Luzon Development Bank, et al., are ORDERED to file
a counterbond in accordance with Sec. 12, Rule 57, 1997 Rules of Civil
Procedure, within 10 days from the finality of this decision; otherwise, the
REGIONAL TRIAL COURT, BRANCH 36, in Manila shall immediately reinstate
the writ of attachment issued and implemented in Civil Case No. 01-100046.
Costs of suit to be paid by the respondents. SO ORDERED.
Petitioners' subsequent motion for reconsideration was denied. Thereafter,
their petition and motion for reconsideration before the Supreme Court
were likewise denied.
On May 09, 2008, respondent judge issued an Order directing respondent
Erlinda to file a new attachment bond in the amount of P35,000,000.00 and
petitioners to file a counterbond within ten days from notice of the filing
and approval of the bond of respondent Erlinda. Petitioners moved for the
reconsideration of the said Order which respondent judge denied and
granted a period of fifteen days for respondent Erlinda to file an attachment
bond.
Respondent Erlinda filed her attachment bond on June 25, 2009 in the
amount of P35,000,000.00 through Visayan Surety and Insurance
Corporation which was approved by respondent on July 7, 2009.
Meanwhile, on July 3, 2009, petitioners filed an Omnibus Motion praying
that a hearing be held to determine the sufficiency of the attachment bond
and they be allowed to deposit Certificates of Title of real property, and the
issuance of the writ of attachment be held in abeyance.
On July 20, 2009, petitioners filed a motion for extension of time to comply
and/or file the appropriate pleading and to hold in abeyance the
reinstatement of the writ of attachment.
On January 28, 2010, petitioners filed a motion to admit bank property in
lieu of counterbond which was opposed by respondent Erlinda.
On September 24, 2010, respondent judge denied petitioners' motion in the
assailed Order. Their subsequent motion for reconsideration was denied on
May 26, 2011.
On June 27, 2011, respondent judge issued an Order reinstating the Writ of
Attachment dated March 1, 2001 for failure of petitioners to file the required
counterbond. Respondent judge also issued an amended Reinstated Writ of
Attachment directing respondent Sheriff Oscar L. Rojas (hereafter
respondent Sheriff) to attach the real estate or personal properties of
petitioners in the amount of P28,597,472.70. On June 30, 2011, the sheriff
served the Notice of Garnishment and the Amended Reinstated Writ of
Attachment.
On July 4, 2011, petitioners filed an urgent motion to recall, suspend or hold
in abeyance and re-examination of the amended reinstated writ of
preliminary attachment of June 27, 2011 which was opposed by respondent
Erlinda.
On July 19, 2011, respondent Sheriff issued a Sheriffs Partial Report.
Thereafter, petitioners filed this petition for certiorari x x x.
In a Decision dated March 27, 2012, the CA dismissed petitioners' certiorari
petition and affirmed the Orders of the RTC reinstating the Writ of
Attachment for failure of petitioners to file the required counter-bond. The
CA ruled that the RTC judge committed no grave abuse of discretion in
denying petitioners' motion to admit bank property in lieu of counter-bond,
thus, it held:
WHEREFORE, premises considered, the petition is DISMISSED and
accordingly, DENIED DUE COURSE. The Orders dated September 24, 2010
and May 26, 2011 are hereby AFFIRMED.
SO ORDERED.3cralawlawlibrary
Petitioners filed a motion for reconsideration against said decision, but the
same was denied in a Resolution dated September 11, 2012.
Hence, petitioners filed this present petition raising the following grounds:
IN THE FIRST ASSAILED ORDER THE HONORABLE COURT OF APPEALS
ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT MISCONSTRUED
AND FAILED TO RULE ON THE CORRECT LEGAL ISSUE PRESENTED IN THE
PETITION FOR CERTIORARI.4
IN THE SECOND ASSAILED ORDER THE FIONORABLE COURT OF APPEALS
AGAIN ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT FAILED TO
PRESENT ANY LEGAL BASIS FOR STATING THAT RULE 39 OF THE REVISED
RULES OF COURT DOES NOT APPLY.5cralawlawlibrary
Simply stated, the issue for our resolution is whether the CA erred in
affirming the RTC's decision which denied petitioners' motion praying that
bank property be deposited in lieu of cash or a counter-bond.
In their petition, petitioners contend that it has the option to deposit real
property, in lieu of cash or a counter-bond, to secure any contingent lien on
its property in the event respondent wins the case. They argue that Section
2 of Rule 57 only mentions the term "deposit," thus, it cannot only be
confined or construed to refer to cash.
We rule in the negative.
Section 2, Rule 57 of the Rules of Court explicitly states that "[a]n order of
attachment may be issued either ex parte or upon motion with notice and
hearing by the court in which the action is pending, or by the Court of
Appeals or the Supreme Court, and must require the sheriff of the court to
attach so much of the property in the Philippines of the party against whom
it is issued, not exempt from execution, as may be sufficient to satisfy the
applicant's demand, unless such party makes deposit or gives a bond as
hereinafter provided in an amount equal to that fixed in the order, which
may be the amount sufficient to satisfy the applicant's demand or the value
of the property to be attached as stated by the applicant, exclusive of costs."
Section 5 of the same Rule likewise states that "[t]he sheriff enforcing the
writ shall without delay and with all reasonable diligence attach, to await
judgment and execution in the action, only so much of the property in the
Philippines of the party against whom the writ is issued, not exempt from
execution, as may be sufficient to satisfy the applicant's demand, unless the
former makes a deposit with the court from which the writ is issued, or gives
a counter-bond executed to the applicant, in an amount equal to the bond
fixed by the court in the order of attachment or to the value of the property
to be attached, exclusive of costs."
From the foregoing, it is evidently clear that once the writ of attachment has
been issued, the only remedy of the petitioners in lifting the same is through
a cash deposit or the filing of the counter-bond. Thus, the Court holds that
petitioner's argument that it has the option to deposit real property instead
of depositing cash or filing a counter-bond to discharge the attachment or
stay the implementation thereof is unmeritorious.
In fact, in Security Pacific Assurance Corporation v. Tria-Infante,6 we held
that one of the ways to secure the discharge of an attachment is for the
party whose property has been attached or a person appearing on his
behalf, to post a counterbond or make the requisite cash deposit in an
amount equal to that fixed by the court in the order of attachment.7
Apropos, the trial court aptly ruled that while it is true that the word deposit
cannot only be confined or construed to refer to cash, a broader
interpretation thereof is not justified in the present case for the reason that
a party seeking a stay of the attachment under Section 5 is required to make
a deposit in an amount equal to the bond fixed by the court in the order of
attachment or to the value of the property to be attached. The proximate
relation of the word "deposit" and "amount" is unmistakable in Section 5 of
Rule 57. Plainly, in construing said words, it can be safely concluded that
Section 5 requires the deposit of money as the word "amount" commonly
refers to or is regularly associated with a sum of money.
In Alcazar v. Arante,8 we held that in construing words and phrases used in
a statute, the general rule is that, in the absence of legislative intent to the
contrary, they should be given their plain, ordinary and common usage
meaning. The words should be read and considered in their natural,
ordinary, commonly-accepted and most obvious signification, according to
good and approved usage and without resorting to forced or subtle
construction. Words are presumed to have been employed by the lawmaker
in their ordinary and common use and acceptation.9 Thus, petitioners
should not give a special or technical interpretation to a word which is
otherwise construed in its ordinary sense by the law and broaden the
signification of the term "deposit" to include that of real properties.
WHEREFORE, premises considered, the instant petition is DENIED. The
Decision dated March 27, 2012 and Resolution dated September 11, 2012 of
the Court of Appeals are hereby AFFIRMED.
SO ORDERED.
G.R. No. 212025, July 01, 2015
EXCELLENT QUALITY APPAREL, INC., Petitioner, v. VISAYAN SURETY &
INSURANCE CORPORATION, AND FAR EASTERN SURETY & INSURANCE
CO., INC., Respondents.
The present case involves the wrongful attachment and release of the
petitioner's funds to the adverse party and its plight to recover the same. It
seems that when misfortune poured down from the skies, the petitioner
received a handful. The scales of justice, however, do not tilt based on
chance; rather on the proper application of law, jurisprudence and justice.
This is a petition for review on certiorari seeking to reverse and set aside the
October 21, 2013 Decision1 and the April 1, 2014 Resolution2 of the Court of
Appeals (CA), in CA-G.R. CV No. 95421, which affirmed the January 15, 20103
and May 19, 20104 Orders of the Regional Trial Court of Manila, Branch 32
(RTC), in Civil Case No. 04-108940.
The Facts
On March 26, 1996, petitioner Excellent Quality Apparel, Inc. (petitioner),
then represented by Max L.F. Ying (Ying), Vice-President for Productions,
and Alfiero R. Orden, Treasurer, entered into a contract with Multi-Rich
Builders (Multi-Rich), a single proprietorship, represented by Wilson G.
Chua, its President and General Manager, for the construction of a garment
factory within the Cavite Philippine Economic Zone Authority (CPEZA). The
duration of the project was for a maximum period of five (5) months or 150
consecutive calendar days. Included in the contract was an Arbitration
Clause in case of dispute.
On November 27, 1996, the construction of the factory building was
completed.
On February 20, 1997, Win Multi-Rich Builders, Inc. (Win Multi-Rich) was
incorporated with the Securities and Exchange Commission (SEC).
On January 26, 2004, Win Multi-Rich filed a complaint for sum of money
and damages against petitioner and Ying before the RTC.5 It also prayed for
the issuance of a writ of attachment, claiming that Ying was about to
abscond and that petitioner had an impending closure.
Win Multi-Rich then secured the necessary bond in the amount of
P8,634,448.20 from respondent Visayan Surety and Insurance Corporation
(Visayan Surety)6 In the Order,7 dated February 2, 2004, the RTC issued a
writ of preliminary attachment in favor of Win Multi-Rich.
To prevent the enforcement of the writ of preliminary attachment on its
equipment and machinery, petitioner issued Equitable PCI Bank Check No.
160149,8 dated February 16, 2004, in the amount of P8,634,448.20 payable
to the Clerk of Court of the RTC.
On February 19, 2004, petitioner filed its Omnibus Motion,9 seeking to
discharge the attachment. Petitioner also questioned the jurisdiction of the
RTC due to the presence of the Arbitration Clause in the contract. It asserted
that the case should have been referred first to the Construction Industry
Arbitration Commission (CIAC) pursuant to Executive Order (E.O.) No. 1008.
The motion, however, was denied by the RTC in its Order,10 dated April 12,
2004, because the issues of the case could be resolved after a full-blown
trial.
On April 26, 2004, petitioner filed its Answer with Compulsory
Counterclaim11 before the RTC. It denied the material allegation of the
complaint and sought the immediate lifting of the writ of attachment. It also
prayed that the bond filed by Win Multi-Rich to support its application for
attachment be held to satisfy petitioner's claim for damages due to the
improper issuance of such writ.
On April 29, 2004, the RTC issued another order12 directing the deposit of
the garnished funds of petitioner to the cashier of the Clerk of Court of the
RTC.
Win Multi-Rich then filed a motion,13 dated April 29, 2004, to release
petitioner's cash deposit to it. Notably, the motion was granted by the RTC
in the Order,14 dated May 3, 2004. Subsequently, on May 7, 2004, Win
Multi-Rich posted Surety Bond No. 1019815 issued by respondent Far
Eastern Surety and Insurance Co., Inc. (FESICO) for the amount of
P9,000,000.00, to secure the withdrawal of the cash deposited by petitioner.
Thus, Win Multi-Rich was able to receive the funds of petitioner even before
the trial began.
On June 18, 2004, petitioner filed a petition for certiorari16 under Rule 65 of
the 1997 Rules of Civil Procedure before the CA. The petition sought to.
annul and set aside the April 12, 2004 and April 29, 2004 Orders of the RTC.
Petitioner then filed its Supplemental Manifestation and Motion,17
asserting that its cash deposit with the RTC was turned over to Win Multi-
Rich.
On March 14, 2006, the CA rendered a decision,18annulling the April 12 2004
and April 29, 2004 Orders of the RTC. It ruled, however, that the RTC had
jurisdiction over the case inspite of the arbitration clause because it was a
suit for collection of sum of money. The dispositive portion of which reads:
IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby GRANTED.
The Orders dated April 12, 2004 and April 29, 2004 of respondent judge are
hereby ANNULLED and SET ASIDE. Accordingly, the writ of preliminary
injunction is hereby MADE PERMANENT.
SO ORDERED.
Petitioner filed a motion for reconsideration arguing, among others, that
the CA decision failed to state an order to return the garnished amount of
P8,634,448.[20], which was taken from its bank account and given to Win
Multi-Rich. In its Resolution,20 dated October 11, 2006, the CA denied the
motion.
Aggrieved, petitioner elevated the matter to the Court by way of a petition
for review on certiorari under Rule 45, docketed as G.R. No. 175048.
On February 10, 2009, in G.R. No. 175048, the Court promulgated a
decision21 in favor of petitioner and held: first, that Win Multi-Rich was not
a real party in interest; second, that the RTC should not have taken
cognizance of the collection suit because the presence of the arbitration
clause vested jurisdiction on the CIAC over all construction disputes
between petitioner and Multi-Rich; and lastly, that Win Multi-Rich could not
retain the garnished amount, as the RTC did not have jurisdiction to issue
the questioned writ of attachment and to order the release of the funds. The
dispositive portion reads:
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals
is hereby MODIFIED. Civil Case No. 04-108940 is DISMISSED. Win Multi-Rich
Builders, Inc. is ORDERED to return the garnished amount of EIGHT MILLION
SIX HUNDRED THIRTY FOUR THOUSAND FOUR HUNDRED FORTY-EIGHT
PESOS AND TWENTY CENTAVOS (P8,634,448.20), which was turned over by
the Regional Trial Court, to petitioner with legal interest of 12 percent (12%)
per annum upon finality of this Decision until payment.
SO ORDERED.22
Win Multi-Rich filed a motion for reconsideration but it was denied by the
Court in its April 20, 2009 Resolution.23 Pursuant to an entry of judgment,24
the Court's decision became final and executory on June 2, 2009.
On June 26, 2009, petitioner moved for execution thereof, praying for the
return of its cash deposit and, in the event of refusal of Win Multi-Rich to
comply, to hold Visayan Surety and FESICO liable under their respective
bonds.25redarclaw
Win Multi-Rich, Visayan Surety and FESICO were served with copies of the
motion for execution.26 During the August 7, 2009 hearing on the motion
for execution, counsels for petitioner, Win Multi-Rich and FESICO were
present.27 The hearing, however, was reset to September 16, 2009. On the
said date, Win Multi-Rich, Visayan Surety and FESICO were given fifteen (15)
days to submit their respective comments or oppositions to the motion for
execution.28redarclaw
On October 15, 2009, Win Multi-Rich opposed the motion for execution29
because the cash deposit awarded to it by the RTC had been paid to
suppliers and the said amount was long overdue and demandable.
The RTC granted the motion for execution in an Order,30 dated October 19,
2009, and issued a writ of execution.31 Visayan Surety and FESICO
separately moved for reconsideration of the RTC order.
The RTC Ruling
On January 15, 2010, the RTC issued the order,32 granting the surety
respondents' motion for reconsideration and lifting its October 19, 2009
Order insofar as it granted the motion for execution against Visayan Surety
and FESICO. The RTC absolved the surety respondents because petitioner
did not file a motion for judgment on the attachment bond before the
finality of judgment, thus, violating the surety respondents' right to due
process. It further held that the execution against the surety respondents
would go beyond the terms of the judgment sought to be executed
considering that the Court decision pertained to Win Multi-Rich only.
Petitioner moved for reconsideration, but its motion was denied by the RTC
in its May 19, 2010 Order.33redarclaw
Undaunted, petitioner appealed before the CA, arguing that there was no
violation of the right to due process because the liability of the surety
respondents were based on the bonds issued by them.
The CA Ruling
In the assailed decision, dated October 21, 2013, the CA found petitioner's
appeal without merit. Citing Section 20, Rule 57 of the 1997 Rules of Civil
Procedure (Section 20, Rule 57), the CA held that petitioner failed to timely
claim damages against the surety before the decision of the Court became
final and executory. It further stated that a court judgment could not bind
persons who were not parties to the action as the records showed that
Visayan Surety and FESICO were neither impleaded nor informed of the
proceedings before the Court in G.R. No. 175048. It was the view of the CA
that "[hjaving failed to observe very elementary rules of procedure which
are mandatory, [petitioner] caused its own predicament."
Petitioner filed a motion for reconsideration, but it was denied by the CA in
the assailed April 1, 2014 Resolution.
Hence, this present petition, anchored on the following
STATEMENT OF ISSUES
I Win Multi-Rich to secure the issuance of the writ of attachment. Hence, any
THE ASSAILED DECISION AND THE ASSAILED RESOLUTION OF THE COURT
OF APPEALS SHOULD BE REVERSED AND SET ASIDE FOR BEING CONTRARY
TO LAW AND JURISPRUDENCE CONSIDERING THAT THE RIGHT TO DUE
PROCESS OF THE TWO SURETY COMPANIES WILL NOT BE VIOLATED IF
EXECUTION OF THE JUDGMENT AGAINST THEM IS ALLOWED.
II
THE ASSAILED DECISION AND THE ASSAILED RESOLUTION OF THE COURT
OF APPEALS SHOULD BE REVERSED AND SET ASIDE FOR BEING CONTRARY
TO LAW AND JURISPRUDENCE CONSIDERING THAT TO ALLOW THE
EXECUTION AGAINST THE TWO SURETY COMPANIES WOULD GIVE FULL
EFFECT TO THE TERMS OF THE JUDGMENT.34
Petitioner contends that Visayan Surety and FESICO could be held liable
because the Court, in G.R. No. 175048, ruled that it cannot allow Win Multi-
Rich to retain the garnished amount turned over by the RTC, which had no
jurisdiction to issue the questioned writ of attachment. Petitioner argues
that if Win Multi-Rich fails or refuses to refund or return the cash deposit,
then Visayan Surety and FESICO must be held liable under their respective
bonds. Also, petitioner claims that the surety bond of FESICO is not covered
by Section 20, Rule 57 because it did not pertain to the writ of attachment
itself, but on the withdrawal of the cash deposit.
On October 3, 2014, Visayan Surety filed its Comment.35 It asserted that no
application for damages was filed before the Court in G.R. No. 175048. Thus,
there was no occasion to direct the RTC to hear and decide the claim for
damages, which constituted a violation of its right to due process. Also,
Visayan Surety contended that Section 20, Rule 57 provided a mandatory
rule that an application for damages must be filed before the judgment
becomes final and executory.
On October 8, 2014, FESICO filed its Comment.36 It averred that petitioner
failed to comply with Section 20, Rule 57 of the Rules of Court because the
hearing on the motion for execution was conducted after the decision in
G.R. No. 175048 had already become final and executory. It also stated that
petitioner failed to implead the surety respondents as parties in G.R. No.
175048.
On January 26, 2015, petitioner filed its Consolidated Reply.37 It stressed
that because the highest court of the land had directed the return of the
wrongfully garnished amount to petitioner, proceedings on the application
under Section 20, Rule 57, became no longer necessary.
The Court's Ruling
The petition is partly meritorious.
There was an application for damages; but there was no notice given to
Visayan Surety
By its nature, preliminary attachment, under Rule 57 of the Rules of Court,
"is an ancillary remedy applied for not for its own sake but to enable the
attaching party to realize upon relief sought and expected to be granted in
the main or principal action; it is a measure auxiliary or incidental to the
main action. As such, it is available during the pendency of the action which
may be resorted to by a litigant to preserve and protect certain rights and
interests therein pending rendition and for purposes of the ultimate effects,
of a final judgment in the case.38 In addition, attachment is also availed of
in order to acquire jurisdiction over the action by actual or constructive
seizure of the property in those instances where personal or substituted
service of summons on the defendant cannot be effected."39redarclaw
The party applying for the order of attachment must thereafter give a bond
executed to the adverse party in the amount fixed by the court in its order
granting the issuance of the writ.40 The purpose of an attachment bond is
to answer for all costs and damages which the adverse party may sustain by
reason of the attachment if the court finally rules that the applicant is not
entitled to the writ.41redarclaw
In this case, the attachment bond was issued by Visayan Surety in order for
application for damages arising from the improper, irregular or excessive
attachment shall be governed by Section 20, Rule 57, which provides:
Sec. 20. Claim for damages on account of improper, irregular or excessive
attachment.
An application for damages on account of improper, irregular or excessive
attachment must be filed before the trial or before appeal is perfected or
before the judgment becomes executory, with due notice to the attaching
party and his surety or sureties, setting forth the facts showing his right to
damages and the amount thereof. Such damages may be awarded only after
proper hearing and shall be included in the judgment on the main case.
If the judgment of the appellate court be favorable to the party against
whom the attachment was issued, he must claim damages sustained during
the pendency of the appeal by filing an application in the appellate court,
with notice to the party in whose favor the attachment was issued or his
surety or sureties, before the judgment of the appellate court becomes
executory. The appellate court may allow the application to be heard and
decided by the trial court.
Nothing herein contained shall prevent the party against whom the
attachment was issued from recovering in the same action the damages
awarded to him from any property of the attaching party not exempt from
execution should the bond or deposit given by the latter be insufficient or
fail to fully satisfy the award.
The history of Section 20, Rule 57 was discussed in Malayan Insurance, Inc.
v. Salas42 In that case, the Court explained that Section 20, Rule 57 was a
revised version of Section 20, Rule 59 of the 1940 Rules of Court, which, in
turn, was a consolidation of Sections 170, 177, 223, 272, and 439 of the Code
of Civil Procedure regarding the damages recoverable in case of wrongful
issuance of the writs of preliminary injunction, attachment, mandamus and
replevin and the appointment of a receiver.
Thus, the current provision of Section 20, Rule 57 of the 1997 Rules of Civil
Procedure covers application for damages against improper attachment,
preliminary injunction, receivership, and replevin.43 Consequently,
jurisprudence concerning application for damages against preliminary
injunction, receivership and replevin bonds can be equally applied in the
present case.
In a catena of cases,44 the Court has cited the requisites under Section 20,
Rule 57 in order to claim damages against the bond, as follows:
The application for damages must be filed in the same case where the bond
was issued;
Such application for damages must be filed before the entry of judgment;
and
After hearing with notice to the surety.
The first and second requisites, as stated above, relate to the application for
damages against the bond. An application for damages must be filed in the
same case where the bond was issued, either (a) before the trial or (b) before
the appeal is perfected or (c) before the judgment becomes executory.45
The usual procedure is to file an application for damages with due notice to
the other party and his sureties. The other method would be to incorporate
the application in the answer with compulsory counterclaim.46redarclaw
The purpose of requiring the application for damages to be filed in the same
proceeding is to avoid the multiplicity of suit and forum shopping. It is also
required to file the application against the bond before the finality of the
decision to prevent the alteration of the immutable judgment.47redarclaw
In Paramount Insurance Corp. v. CA,48 the Court allowed an application for
damages incorporated in the answer with compulsory counterclaim of the
defendant therein. The sureties were properly notified of the hearing and
were given their day in court.
Conversely, in the recent case of Advent Capital and Finance Corp. v.
Young,49 the application for damages against the bond was not allowed.
The respondent therein filed his omnibus motion claiming damages against
surety after the dismissal order issued by the trial court had attained finality.
In the present petition, the Court holds that petitioner sufficiently
incorporated an application for damages against the wrongful attachment
in its answer with compulsory counterclaim filed before the RTC. Petitioner
alleged that the issuance of the improper writ of attachment caused it actual
damages in the amount of at least P3,000,000.00. It added that the Equitable
PCI Bank Check No. 160149 it issued to the RTC Clerk of Court, to lift the
improper writ of attachment, should be returned to it.50 Evidently, these
allegations constitute petitioner's application for damages arising from the
wrongful attachment, and the said application was timely filed as it was filed
before the finality of judgment.
The next requisite that must be satisfied by petitioner to hold Visayan Surety
liable would be that the judgment against the wrongful attachment was
promulgated after the hearing with notice to the surety. Certainly, the surety
must be given prior notice and an opportunity to be heard with respect to
the application for damages before the finality of the judgment. The Court
rules that petitioner did not satisfy this crucial element.
Section 20, Rule 57 specifically requires that the application for damages
against the wrongful attachment, whether filed before the trial court or
appellate court, must be with due notice to the attaching party and his
surety or sureties. Such damages may be awarded only after proper hearing
and shall be included in the judgment on the main case.
Due notice to the adverse party and its surety setting forth the facts
supporting the applicant's right to damages and the amount thereof under
the bond is indispensable. The surety should be given an opportunity to be
heard as to the reality or reasonableness of the damages resulting from the
wrongful issuance of the writ. In the absence of due notice to the surety,
therefore, no judgment for damages may be entered and executed against
it.51redarclaw
In the old case of Visayan Surety and Insurance Corp. v. Pascual,52 the
application for damages was made before the finality of judgment, but the
surety was not given due notice. The Court allowed such application under
Section 20, Rule 59 of the 1940 Rules of Court because there was no rule
which stated that the failure to give to the surety due notice of the
application for damages would release the surety from the obligation of the
bond.53redarclaw
The case of Visayan Surety and Insurance Corp. v. Pascual, however, was
abandoned in the subsequent rulings of the Court because this was contrary
to the explicit provision of Section 20, Rule 57.54redarclaw
In People Surety and Insurance Co. v. CA,55 the defendant therein filed an
application for damages during the trial but the surety was not notified. The
Court denied the application and stated that "it is now well settled that a
court has no jurisdiction to entertain any proceeding seeking to hold a
surety liable upon its bond, where the surety has not been given notice of
the proceedings for damages against the principal and the judgment
holding the latter liable has already become final."56redarclaw
In Plaridel Surety & Insurance Co. v. De Los Angeles,57 a motion for
execution against the bond of the surety was filed after the finality of
judgment. The petitioner therein asserted that the motion for execution was
a sufficient notification to the surety of its application for damages. The
Court ruled, that "[t]his notification, however, which was made after almost
a year after the promulgation of the judgment by the Court of Appeals, did
not cure the tardiness of the claim upon the liability of the surety, which, by
mandate of the Rules, should have been included in the
judgment."58redarclaw
In the present case, petitioner's answer with compulsory counterclaim,
which contained the application for damages, was not served on Visayan
Surety.59 Also, a perusal of the records60 revealed that Visayan Surety was
not furnished any copies of the pleadings, motions, processes, and
judgments concerned with the application for damages against the surety
bond. Visayan Surety was only notified of the application when the motion
for execution was filed by petitioner on June 29, 2009, after the judgment
in G.R. No. 175048 had become final and executory on June 2, 2009.
Clearly, petitioner failed to comply with the requisites under Section 20, Rule
57 because Visayan Surety was not given due notice on the application for
damages before the finality of judgment. The subsequent motion for
execution, which sought to implicate Visayan Surety, cannot alter the
immutable judgment anymore.
FESICO's bond is not covered by Section 20, Rule 57
While Visayan Surety could not be held liable under Section 20, Rule 57, the
same cannot be said of FESICO. In the case at bench, to forestall the
enforcement of the writ of preliminary attachment, petitioner issued
Equitable PCI Bank Check No. 160149, dated February 16, 2004, in the
amount of P8,634,448.20 payable to the Clerk of Court of the RTC. Pursuant
to the RTC Order, dated April 29, 2004, the garnished funds of petitioner
were deposited to the cashier of the Clerk of Court of the RTC. The
procedure to discharge the writ of preliminary attachment is stated in
Section 12, Rule 57, to wit:
Sec. 12. Discharge of attachment upon giving counterbond.
After a writ of attachment has been enforced, the party whose property has
been attached, or the person appearing on his behalf, may move for the
discharge of the attachment wholly or in part on the security given. The
court shall, after due notice and hearing, order the discharge of the
attachment if the movant makes a cash deposit, or files a counter-bond
executed to the attaching party with the clerk of the court where the
application is made, in an amount equal to that fixed by the court in the
order of attachment, exclusive of costs. But if the attachment is sought to
be discharged with respect to a particular property, the counter-bond shall
be equal to the value of that property as determined by the court. In either
case, the cash deposit or the counter-bond shall secure the payment of any
judgment that the attaching party may recover in the action. A notice of the
deposit shall forthwith be served on the attaching party. Upon the discharge
of an attachment in accordance with the provisions of this section, the
property attached, or the proceeds of any sale thereof, shall be delivered to
the party making the deposit or giving the counter-bond, or to the person
appearing on his behalf, the deposit or counter-bond aforesaid standing in
place of the property so released. Should such counter-bond for any reason
to be found to be or become insufficient, and the party furnishing the same
fail to file an additional counter-bond, the attaching party may apply for a
new order of attachment.
[Emphasis Supplied]
Win Multi-Rich, however, took a step further and filed a motion to release
petitioner's cash deposit to it. Immediately, the RTC granted the motion and
directed Win Multi-Rich to post a bond in favor of petitioner in the amount
of P9,000,000.00 to answer for the damages which the latter may sustain
should the court decide that Win Multi-Rich was not entitled to the relief
sought. Subsequently, Win Multi-Rich filed a surety bond of FESICO before
the RTC and was able to obtain the P8,634,448.20 cash deposit of petitioner,
even before the trial commenced.
Strictly speaking, the surety bond of FESICO is not covered by any of the
provisions in Rule 57 of the Rules of Court because, in the first place, Win
Multi-Rich should not have filed its motion to release the cash deposit of
petitioner and the RTC should not have granted the same. The release of
the cash deposit to the attaching party is anathema to the basic tenets of a
preliminary attachment.
The chief purpose of the remedy of attachment is to secure a contingent
lien on defendant's property until plaintiff can, by appropriate proceedings,
obtain a judgment and have such property applied to its satisfaction, or to
make some provision for unsecured debts in cases where the means of
satisfaction thereof are liable to be removed beyond the jurisdiction, or
improperly disposed of or concealed, or otherwise placed beyond the reach
of creditors.61 The garnished funds or attached properties could only be
released to the attaching party after a judgment in his favor is obtained.
Under no circumstance, whatsoever, can the garnished funds or attached
properties, under the custody of the sheriff or the clerk of court, be released
to the attaching party before the promulgation of judgment.
Cash deposits and counterbonds posted by the defendant to lift the writ of
attachment is a security for the payment of any judgment that the attaching
party may obtain; they are, thus, mere replacements of the property
previously attached.62 Accordingly, the P8,634,448.20 cash deposit of
petitioner, as replacement of the properties to be attached, should never
have been released to Win Multi-Rich.
Nevertheless, the Court must determine the nature of the surety bond of
FESICO. The cash deposit or the counter-bond was supposed to secure the
payment of any judgment that the attaching party may recover in the
action.63 In this case, however, Win Multi-Rich was able to withdraw the
cash deposit and, in exchange, it posted a surety bond of FESICO in favor of
petitioner to answer for the damages that the latter may sustain. Corollarily,
the surety bond of FESICO substituted the cash deposit of petitioner as a
security for the judgment. Thus, to claim damages from the surety bond of
FESICO, Section 17, Rule 57 could be applied. It reads:
Sec. 17. Recovery upon the counter-bond.
When the judgment has become executory, the surety or sureties on any
counter-bond given pursuant to the provisions of this Rule to secure the
payment of the judgment shall become charged on such counter-bond and
bound to pay the judgment obligee upon demand the amount due under
the judgment, which amount may be recovered from such surety or sureties
after notice and summary hearing in the same action.
From a reading of the above-quoted provision, it is evident that a surety on
a counter-bond given to secure the payment of a judgment becomes liable
for the payment of the amount due upon: (1) demand made upon the surety;
and (2) notice and summary hearing on the same action.64 Noticeably,
unlike Section 20, Rule 57, which requires notice and hearing before the
finality of the judgment in an application for damages, Section 17, Rule 57
allows a party to claim damages on the surety bond after the judgment has
become executory.65redarclaw
The question remains, in contrast to Section 20, why does Section 17
sanction the notice and hearing to the surety after the finality of judgment?
The answer lies in the kind of damages sought to be enforced against the
bond.
Under Section 20, Rule 57, in relation to Section 4 therein,66 the surety bond
shall answer for all the costs which may be adjudged to the adverse party
and all damages which he may sustain by reason of the attachment. In other
words, the damages sought to be enforced against the surety bond are
unliquidated. Necessarily, a notice and hearing before the finality of
judgment must be undertaken to properly determine the amount of
damages that was suffered by the defendant due to the improper
attachment. These damages to be imposed against the attaching party and
his sureties are different from the principal case, and must be included in
the judgment.
On the other hand, under Section 17, Rule 57, in relation to Section 12
therein, the cash deposit or the counter-bond shall secure the payment of
any judgment that the attaching party may recover in the action. Stated
differently, the damages sought to be charged against the surety bond are
liquidated. The final judgment had already determined the amount to be
awarded to the winning litigant on the main action. Thus, there is nothing
left to do but to execute the judgment against the losing party, or in case
of insufficiency, against its sureties.
Here, the Court is convinced that a demand against FESICO had been made,
and that it was given due notice and an opportunity to be heard on its
defense. First, petitioner filed a motion for execution on June 29, 2009, a
copy of which was furnished to FESICO;67second, petitioner filed a
manifestation,68 dated July 13, 2009, that FESICO was duly served with the
said motion and notified of the hearing on August 7, 2009; third, during the
August 7, 2009 hearing on the motion for execution, the counsels for
petitioner, Win Multi-Rich and FESICO were all present;69fourth, in an
Order, dated September 16, 2009, FESICO was given fifteen (15) days to
submit its comment or opposition to the motion for execution;70 and lastly,
FESICO filed its comment71 on the motion on October 1, 2009. Based on the
foregoing, the requirements under Section 17, Rule 57 have been more than
satisfied.
Indeed, FESICO cannot escape liability on its surety bond issued in favor of
petitioner. The purpose of FESICO's bond was to secure the withdrawal of
the cash deposit and to answer any damages that would be inflicted against
petitioner in the course of the proceedings.72 Also, the undertaking73
signed by FESICO stated that the duration of the effeetivity of the bond shall
be from its approval by the court until the action is fully decided, resolved
or terminated.
FESICO cannot simply escape liability by invoking that it was not a party in
G.R. No. 175048. From the moment that FESICO issued Surety Bond No.
10198 to Win Multi-Rich and the same was posted before the RTC, the court
has acquired jurisdiction over the surety, and the provisions of Sections 12
and 17 of Rule 57 became operational. Thus, the Court holds that FESICO is
solidarity liable under its surety bond with its principal Win Multi-Rich.
On a final note, the Court reminds the bench and the bar that lawsuits,
unlike duels, are not to be won by a rapier's thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be
no vested rights in technicalities.74redarclaw
WHEREFORE, the petition is PARTIALLY GRANTED. The October 21, 2013
Decision and the April 1, 2014 Resolution of the Court of Appeals in CA-G.R.
CV No. 95421 are AFFIRMED WITH MODIFICATION. The Regional Trial Court
of Manila, Branch 32 in Civil Case No. 04-108940 is hereby ordered to
proceed with the execution against Far Eastern Surety & Insurance Co., Inc.,
to the extent of the amount of the surety bond.
SO ORDERED.
WATERCRAFT VENTURE CORPORATION, REPRESENTED BY ITS VICE-
PRESIDENT, ROSARIO E. RAÑOA, Petitioner, v. ALFRED RAYMOND WOLFE,
Respondent.
This is a petition for review on certiorari under Rule 45 of the Rules of Court,
seeking to reverse and set aside the Court of Appeals (CA) Resolution1 dated
January 24, 2008 denying the motion for reconsideration of its Decision2
dated September 27, 2007 in CA-G.R. SP No. 97804.
The facts are as follows:
Petitioner Watercraft Venture Corporation (Watercraft) is engaged in the
business of building, repairing, storing and maintaining yachts, boats and
other pleasure crafts at the Subic Bay Freeport Zone, Subic, Zambales. In
connection with its operations and maintenance of boat storage facilities, it
charges a boat storage fee of Two Hundred Seventy-Two US Dollars
(US$272.00) per month with interest of 4% per month for unpaid charges.
Sometime in June 1997, Watercraft hired respondent Alfred Raymond Wolfe
(Wolfe), a British national and resident of Subic Bay Freeport Zone,
Zambales, as its Shipyard Manager.
During his empolyment, Wolfe stored the sailboat, Knotty Gull, within
Watercraft1 s boat storage facilities, but never paid for the storage fees.
On March 7, 2002, Watercraft terminated the employment of Wolfe.
Sometime in June 2002, Wolfe pulled out his sailboat from Watercraft's
storage facilities after signing a Boat Pull-Out Clearance dated June 29, 2002
where he allegedly acknowledged the outstanding obligation of Sixteen
Thousand Three Hundred and Twenty-Four and 82/100 US Dollars
(US$16,324.82) representing unpaid boat storage fees for the period of June
1997 to June 2002. Despite repeated demands, he failed to pay the said
amount.
Thus, on July 7, 2005, Watercraft filed against Wolfe a Complaint for
Collection of Sum of Money with Damages with an Application for the
Issuance of a Writ of Preliminary Attachment. The case was docketed as Civil
Case No. 4534-MN, and raffled to Branch 1703 of the Regional Trial Court
(RTC) of Malabon City.
In his Answer, Wolfe claimed he was hired as Service and Repair Manager,
instead of Shipyard Manager. He denied owing Watercraft the amount of
US$16,324.82 representing storage fees for the sailboat. He explained that
the sailboat was purchased in February 1998 as part of an agreement
between him and Watercraft1 s then General Manager, Barry Bailey, and its
President, Ricky Sandoval, for it to be repaired and used as training or fill-
in project for the staff, and to be sold later on. He added that pursuant to a
central Listing Agreement for the sale of the sailboat, he was appointed as
agent, placed in possession thereof and entitled to a ten percent (10%) sales
commission. He insisted that nowhere in the agreement was there a
stipulation that berthing and storage fees will be charged during the entire
time that the sailboat was in Watercraft's dockyard. Thus, he claimed to have
been surprised when he received five (5) invoices billing him for the said
fees two (2) months after his services were terminated. Fie pointed out that
the complaint was an offshoot of an illegal dismissal case he filed against
Watercraft which had been decided in his favor by the Labor Arbiter.
Meanwhile, finding Watercraft's ex-parte application for writ of preliminary
attachment sufficient in form and in substance pursuant to Section 1 of Rule
57 of the Rules of Court, the RTC granted the same in the Order dated July
15, 2005, thus:
WHEREFORE, let a Writ of Preliminary Attachment be issued accordingly in
favor of the plaintiff, Watercraft Ventures Corporation conditioned upon the
filing of attachment bond in the amount of Three Million Two Hundred
Thirty-One Thousand Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served simultaneously with the
summons, copies of the complaint, application for attachment, applicant's
affidavit and bond, and this Order upon the defendant. SO ORDERED.4
Pursuant to the Order dated July 15, 2005, the Writ of Attachment dated
August 3, 2005 and the Notice of Attachment dated August 5, 2005 were
issued, and Wolfe's two vehicles, a gray Mercedes Benz with plate number
XGJ 819 and a maroon Toyota Corolla with plate number TFW 110, were
levied upon.
On August 12, 2005, Wolfe's accounts at the Bank of the Philippine Islands
were also garnished.
By virtue of the Notice of Attachment and Levy dated September 5, 2005, a
white Dodge pick-up truck with plate number XXL 111 was also levied upon.
However, a certain Jeremy Simpson filed a Motion for Leave of Court to
Intervene, claiming that he is the owner of the truck as shown by a duly-
notarized Deed of Sale executed on August 4, 2005, the Certificate of
Registration No. 3628665-1 and the Official Receipt No. 271839105.
On November 8, 2005, Wolfe filed a Motion to Discharge the Writ of
Attachment, arguing that Watercraft failed to show the existence of fraud
and that the mere failure to pay or perform an obligation does not amount
to fraud. Me also claimed that he is not a flight risk for the following reasons:
(1) contrary to the claim that his Special Working Visa expired in April 2005,
his Special Subic Working Visa and Alien Certificate of Registration are valid
until April 25, 2007 and May 11, 2006, respectively; (2) he and his family have
been residing in the Philippines since 1997; (3) he is an existing stockholder
and officer of Wolfe Marine Corporation which is registered with the
Securities and Exchange Commission, and a consultant of "Sudeco/Ayala"
projects in Subic, a member of the Multipartite Committee for the new port
development in Subic, and the Subic Chamber of Commerce; and (4) he
intends to finish prosecuting his pending labor case against Watercraft. On
even date, Watercraft also filed a Motion for Preliminary Hearing of its
affirmative defenses of forum shopping, litis pendentia, and laches.
In an Order dated March 20, 2006, the RTC denied Wolfe's Motion to
Discharge Writ of Attachment and Motion for Preliminary Hearing for lack
of merit.
Wolfe filed a motion for reconsideration, but the RTC also denied it for lack
of merit in an Order dated November 10, 2006. Aggrieved, Wolfe filed a
petition for certiorari before the CA.
The CA granted Wolfe's petition in a Decision dated September 2007, the
dispositive portion of which reads:
WHEREFORE, the Order dated March 20, 2006 and the Order dated
November 10, 2006 of respondent Judge are hereby ANNULLED and SET
ASIDE. Accordingly, the Writ of Attachment issued on August 3, 2005, the
Notice of Attachment dated August 5, 2005 and the Notice of Attachment
and Levy dated September 5, 2005 are hereby also declared NULL and VOID,
and private respondent is DIRECTED to return to their owners the vehicles
that were attached pursuant to the Writ.
SO ORDERED.
The CA ruled that the act of issuing the writ of preliminary attachment ex-
parte constitutes grave abuse of discretion on the part of the RTC, thus:
x x x In Cosiquien [v. Court of Appeals], the Supreme Court held that:
"Where a judge issues a fatally defective writ of preliminary attachment
based on an affidavit which failed to allege the requisites prescribed for the
issuance of the writ of preliminary attachment, renders the writ of
preliminary attachment issued against the property of the defendant fatally
defective. The judge issuing it is deemed to have acted in excess of
jurisdiction. In fact, the defect cannot even be cured by amendment. Since
the attachment is a harsh and rigorous remedy which exposed the debtor
to humiliation and annoyance, the rule authorizing its issuance must be
strictly construed in favor of defendant. It is the duty of the court before
issuing the Avrit to ensure that all the requisites of the law have been
complied with. Otherwise, a judge acquires no jurisdiction to issue the writ."
(emphasis supplied)
In the instant case, the Affidavit of Merit executed by Rosario E. Rañoa,
Watercraft's Vice-President, failed to show fraudulent intent on the part of
Wolfe to defraud the company. It merely enumerated the circumstances
tending to show the alleged possibility of Wolfe's flight from the country.
And upon Wolfe's filing of the Motion to Discharge the Writ, what the
respondent Judge should have done was to determine, through a hearing,
whether the allegations of fraud were true. As further held in Cosiquien:
"When a judge issues a writ of preliminary attachment ex-parte, it is
incumbent on him, upon proper challenge of his order to determine
whether or not the same was improvidently issued. If the party against
whom the writ is prayed for squarely controverts the allegation of fraud, it
is incumbent on the applicant to prove his allegation. The burden of proving
that there indeed was fraud lies with the party making such allegation. This
finds support in Section 1, Rule 131 Rules of Court. In this jurisdiction, fraud
is never presumed." (Emphasis supplied)
As correctly noted by Wolfe, although Sec. 1 of Rule 57 allows a party to
invoke fraud as a ground for the issuance of a writ of attachment, the Rules
require that in all averments of fraud, the circumstances constituting fraud
must be stated with particularity, pursuant to Rule 8, Section 5. The
Complaint merely stated, in paragraph 23 thereof that "For failing to pay
the use [of] facilities and services in the form of boat storage fees, the
Defendant is clearly guilty of fraud which entitles the Plaintiff to a Writ of
Preliminary Attachment upon the property of the Defendant as security for
the satisfaction of any judgment herein." This allegation does not constitute
fraud as contemplated by law, fraud being the "generic term embracing all
multifarious means which human ingenuity can devise, and which are
resorted to by one individual to secure an advantage over another by false
suggestions or by suppression of truth and includes all surprise, trick,
cunning, dissembling and any unfair way by which another is cheated." In
this instance, Wolfe's mere failure to pay the boat storage fees does not
necessarily amount to fraud, absent any showing that such failure was due
to [insidious] machinations and intent on his part to defraud Watercraft of
the amount due it.
As to the allegation that Wolfe is a flight risk, thereby warranting the
issuance of the writ, the same lacks merit. The mere fact that Wolfe is a
British national does not automatically mean that he would leave the
country at will. As Wolfe avers, he and his family had been staying in the
Philippines since 1997, with his daughters studying at a local school. He also
claims to be an existing stockholder and officer of Wolfe Marine
Corporation, a SEC-registered corporation, as well as a consultant of
projects in the Subic Area, a member of the Multipartite Committee for the
new port development in Subic, and a member of the Subic Chamber of
Commerce. More importantly, Wolfe has a pending labor case against
Watercraft - a fact which the company glaringly failed to mention in its
complaint - which Wolfe claims to want to prosecute until its very end. The
said circumstances, as well as the existence of said labor case where Wolfe
stands not only to be vindicated for his alleged illegal dismissal, but also to
receive recompense, should have convinced the trial court that Wolfe would
not want to leave the country at will just because a suit for the collection of
the alleged unpaid boat storage fees has been filed against him by
Watercraft.
Neither should the fact that Wolfe's Special Working Visa expired in April
2005 lead automatically to the conclusion that he would leave the country.
It is worth noting that all visas issued by the government to foreigners
staying in the Philippines have expiration periods. These visas, however,
may be renewed, subject to the requirements of the law. In Wolfe's case, he
indeed renewed his visa, as shown by Special Working Visa No. 05-WV-
0124P issued by the Subic Bay Metropolitan Authority Visa Processing Office
on April 25, 2005, and with validity of two (2) years therefrom. Moreover,
his Alien Certificate of Registration was valid up to May 11, 2006.
Based on the foregoing, it is therefore clear that the writ was improvidently
issued. It is well to emphasize that "[T]he rules on the issuance of a writ of
attachment must be construed strictly against the applicants. This
stringency is required because the remedy of attachment is harsh,
extraordinary and summary in nature. If all the requisites for the granting
of the writ are not present, then the court which issues it acts in excess of
its jurisdiction. Thus, in this case, Watercraft failed to meet all the requisites
for the issuance of the writ. Thus, in granting the same, respondent Judge
acted with grave abuse of discretion.6
In a Resolution dated January 24, 2008, the CA denied Watercraft's motion
for reconsideration of its Decision, there being no new or significant issues
raised in the motion.
Dissatisfied with the CA Decision and Resolution, Watercraft filed this
petition for review on certiorari, raising these two issues:
I.WHETHER THE EX-PARTE ISSUANCE OF THE PRELIMINARY ATTACHMENT
BY THE TRIAL COURT IN FAVOR OF THE PETITIONER IS VALID.
II. WHETHER THE ALLEGATIONS IN THE AFFIDAVIT OF MERIT CONCERNING
FRAUD ARE SUFFICIENT TO WARRANT THE ISSUANCE OF A PRELIMINARY
WRIT OF ATTACHMENT BY THE TRIAL COURT IN FAVOR OF THE
PETITIONER.
Watercraft argues that the CA erred in holding that the RTC committed
grave abuse of discretion in issuing the writ of preliminary attachment, and
in finding that the affidavit of merit only enumerated circumstances tending
to show the possibility of Wolfe's flight from the country, but failed to show
fraudulent intent on his part to defraud the company.
Stressing that its application for such writ was anchored on two (2) grounds
under Section 1,8 Rule 57, Watercraft insists that, contrary to the CA ruling,
its affidavit of merit sufficiently averred with particularity the circumstances
constituting fraud as a common element of said grounds.
Watercraft points out that its affidavit of merit shows that from 1997, soon
after Wolfe's employment as Shipyard Manager, up to 2002, when his
employment was terminated, or for a period of five (5) years, not once did
he pay the cost for the use of the company's boat storage facilities, despite
knowledge of obligation and obvious ability to pay by reason of his position.
Watercraft adds that its affidavit clearly stated that Wolfe, in an attempt to
avoid settling of his outstanding obligations to the company, signed a Boat
Pull-Out Clearance where he merely acknowledged but did not pay Sixteen
Thousand Three Hundred and Twenty-Four and 82/100 US Dollars
(US$16,324.82) representing unpaid boat storage fees for the period
commencing June 1997 to June 2002. It avers that the execution of such
clearance enabled Wolfe to pull out his boat from the company storage
facilities without payment of storage fees.
Watercraft also faults the CA in finding no merit in its allegation that Wolfe
is a flight risk. It avers that he was supposed to stay and work in the country
for a limited period, and will eventually leave; that despite the fact that his
wife and children reside in the country, he can still leave with them anytime;
and that his work in the country will not prevent him from leaving, thereby
defeating the purpose of the action, especially since he had denied
responsibility for his outstanding obligations. It submits that the CA
overlooked paragraph 28 of its Complaint which alleged that "[i]n support
of the foregoing allegations and the prayer for the issuance of a Writ of
Preliminary Attachment in the instant case, the Plaintiff has attached hereto
the Affidavit of the Vice-President of the Plaintiff, MS. ROSARIO E. RANOA
x x x."9
Watercraft asserts that it has sufficiently complied with the only requisites
for the issuance of the writ of preliminary attachment under Section 3, Rule
57 of the Rules of Court, i.e., affidavit of merit and bond of the applicant. It
posits that contrary to the CA ruling, there is no requirement that evidence
must first be offered before a court can grant such writ on the basis of
Section 1 (d) of Rule 57, and that the rules only require an affidavit showing
that the case is one of those mentioned in Section 1, Rule 57. It notes that
although a party is entitled to oppose an application for the issuance of the
writ or to move for the discharge thereof by controverting the allegations
of fraud, such rule does not apply when the same allegations constituting
fraud are the very facts disputed in the main action, as in this case.
Watercraft also points out the inconsistent stance of Wolfe with regard to
the ownership and possession of the sailboat. Contrary to Wolfe's Answer
that the purchase of the sailboat was made pursuant to a three (3)-way
partnership agreement between him and its General Manager and Executive
Vice-President, Barry Bailey, and its President, Ricky Sandoval, Watercraft
claims that he made a complete turnaround and exhibited acts of sole-
ownership by signing the Boat Pull-Out Clearance in order to retrieve the
sailboat. It argues that common sense and logic would dictate that he
should have invoked the existence of the partnership to answer the demand
for payment of the storage fees.
Watercraft contends that in order to pre-empt whatever action it may
decide to take with respect to the sailboat in relation to his liabilities, Wolfe
accomplished in no time the clearance that paved the way for its removal
from the company's premises without paying his outstanding obligations.
It claims that such act reveals a fraudulent intent to use the company
storage facilities without payment of storage fees, and constitutes unjust
enrichment.
The petition lacks merit.
A writ of preliminary attachment is defined as a provisional remedy issued
upon order of the court where an action is pending to be levied upon the
property or properties of the defendant therein, the same to be held
thereafter by the sheriff as security for the satisfaction of whatever
judgment that might be secured in the said action by the attaching creditor
against the defendant.10 However, it should be resorted to only when
necessary and as a last remedy because it exposes the debtor to humiliation
and annoyance.11 It must be granted only on concrete and specific grounds
and not merely on general averments quoting the words of the rules.12
Since attachment is harsh, extraordinary, and summary in nature,13 the rules
on the application of a writ of attachment must be strictly construed in favor
of the defendant.
For the issuance of an ex-parte issuance of the preliminary attachment to
be valid, an affidavit of merit and an applicant's bond must be filed with the
court14 in which the action is pending. Such bond executed to the adverse
party in the amount fixed by the court is subject to the conditions that the
applicant will pay: (1) all costs which may be adjudged to the adverse party;
and (2) all damages which such party may sustain by reason of the
attachment, if the court shall finally adjudge that the applicant was not
entitled thereto.15 As to the requisite affidavit of merit, Section 3,16 Rule 57
of the Rules of Court states that an order of attachment shall be granted
only when it appears in the affidavit of the applicant, or of some other
person who personally knows the facts:
that a sufficient cause of action exists;
that the case is one of those mentioned in Section 117 hereof;
that there is no other sufficient security for the claim sought to be enforced
by the action; and
that the amount due to the applicant, or the value of the property the
possession of which he is entitled to recover, is as much as the sum for which
the order is granted above all legal counterclaims.
The mere filing of an affidavit reciting the facts required by Section 3, Rule
57, however, is not enough to compel the judge to grant the writ of
preliminary attachment. Whether or not the affidavit sufficiently established
facts therein stated is a question to be determined by the court in the
exercise of its discretion.18 "The sufficiency or insufficiency of an affidavit
depends upon the amount of credit given it by the judge, and its acceptance
or rejection, upon his sound discretion."19 Thus, in reviewing the conflicting
findings of the CA and the RTC on the pivotal issue of whether or not
Watercraft's affidavit of merit sufficiently established facts which constitute
as grounds upon which attachment may be issued under Section 1 (a)20 and
(d),21 Rule 57, the Court will examine the Affidavit of Preliminary
Attachment22 of Rosario E. Rañoa, its Vice-President, which reiterated the
following allegations in its complaint to substantiate the application for a
writ of preliminary attachment:
4. Sometime in June 1997, the Defendant was hired as Watercraft's Shipyard
Manager.
5. Soon thereafter, the Defendant placed his sailboat, the Knotty Gull, within
the boat storage facilities of Watercraft for purposes of storage and
safekeeping.
6. Despite having been employed by Watercraft, the Defendant was not
exempted from paying Watercraft boat storage fees for the use of the said
storage facilities.
7. By virtue of his then position and employment with Watercraft, the
Defendant was very much knowledgeable of the foregoing fact.
8. All throughout his employment with Watercraft, the Defendant used the
boat storage facilities of Watercraft for his Knotty Gull.
9. However, all throughout the said period of his employment, the
Defendant never paid the boat storage fees in favor of the Plaintiff.
10. The Defendant's contract of employment with Watercraft was
terminated on 07 March 2002.
11. [Sometime] thereafter, that is, in or about June 2002, the Defendant
pulled out the Knotty Gull from the boat storage facilities of Watercraft.
12. Instead of settling in full his outstanding obligations concerning unpaid
storage fees before pulling our the Knotty Gull, the Defendant signed a Boat
Pull-Out Clearance dated 29 June 2002 wherein he merely acknowledged
the then outstanding balance of Sixteen Thousand Three Hundred and
Twenty-four and 82/100 US Dollars (US$16,324.82), representing unpaid
boat storage fees for the period commencing June 1997 to June 2002, that
he owed Watercraft.
13. By reason of Defendant's mere accomplishment of the said Boat Pull-
Out Clearance with acknowledgment of his outstanding obligation to
Watercraft in unpaid boat storage fees, Mr. Franz Urbanek, then the
Shipyard Manager who replaced the Defendant, contrary to company
policy, rules and regulations, permitted the latter to physically pull out his
boat from the storage facilities of the Plaintiff without paying any portion
of his outstanding obligation in storage fees.
14. Several demands were then made upon the Defendant for him to settle
his outstanding obligations to the Plaintiff in unpaid storage fees but the
same went unheeded.
15. As of 02 April 2005, the outstanding obligation of the Defendant to the
Plaintiff in unpaid boat storage fees stands at Three Million Two Hundred
Thirty-One Thousand Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) inclusive of interest charges.
16. For failing to pay for the use [of] facilities and services—in the form of
boat storage facilities—duly enjoyed by him and for failing and refusing to
fulfill his promise to pay for the said boat storage fees, the Defendant is
clearly guilty of fraud which entitles the Plaintiff to a Writ of Preliminary
Attachment upon the property of the Defendant as security for the
satisfaction of any judgment in its favor in accordance with the provisions
of Paragraph (d), Section 1, Rule 57 of the Rules of Court.
17. The instant case clearly falls under the said provision of law.
18. Furthermore, lawful factual and legal grounds exist which show that the
Defendant may have departed or is about to depart the country to defraud
his creditors thus rendering it imperative that a Writ of Preliminary
Attachment be issued in favor of the Plaintiff in the instant case.
19. The possibility of flight on the part of the Defendant is heightened by
the existence of the following circumstances:
a. The Special Working Visa issued in favor of the Defendant expired in April
2005;
b. The Defendant is a British national who may easily leave the country at
will;
c. The Defendant has no real properties and visible, permanent business or
employment in the Philippines; and
e. The house last known to have been occupied by the Defendant is merely
being rented by him.
20. All told, the Defendant is a very serious flight risk which fact will certainly
render for naught the capacity of the Plaintiff to recover in the instant
case.23
After a careful perusal of the foregoing; allegations, the Court agrees with
the CA that Watercraft failed to state with particularity the circumstances
constituting fraud, as required by Section 5,24 Rule 8 of the Rules of Court,
and that Wolfe's mere failure to pay the boat storage fees does not
necessarily amount to fraud, absent any showing that such failure was due
to insidious machinations and intent on his part to defraud Watercraft of
the amount due it.
In Liberty Insurance Corporation v. Court of Appeals,25 the Court explained
that to constitute a ground for attachment in Section 1(d), Rule 57 of the
Rules of Court, it must be shown that the debtor in contracting the debt or
incurring the obligation intended to defraud the creditor. A debt is
fraudulently contracted if at the time of contracting it, the debtor has a
preconceived plan or intention not to pay. "The fraud must relate to the
execution of the agreement and must have been the reason which induced
the other party into giving consent which he would not have otherwise
given."26
Fraudulent intent is not a physical entity, but a condition of the mind
beyond the reach of the senses, usually kept secret, very unlikely to be
confessed, and therefore, can only be proved by unguarded expressions,
conduct and circumstances.27 Thus, the applicant for a writ of preliminary
attachment must sufficiently show the factual circumstances of the alleged
fraud because fraudulent intent cannot be inferred from the debtor's mere
non-payment of the debt or failure to comply with his obligation.28 The
particulars of such circumstances necessarily include the time, persons,
places and specific acts of fraud committed.29 An affidavit which does not
contain concrete and specific grounds is inadequate to sustain the issuance
of such writ. In fact, mere general averments render the writ defective and
the court that ordered its issuance acted with grave abuse of discretion
amounting to excess of jurisdiction.30
In this case, Watercraft's Affidavit of Preliminary Attachment does not
contain specific allegations of other factual circumstances to show that
Wolfe, at the time of contracting the obligation, had a preconceived plan or
intention not to pay. Neither can it be inferred from such affidavit the
particulars of why he was guilty of fraud in the performance of such
obligation. To be specific, Watercraft's following allegation is unsupported
by any particular averment of circumstances that will show why or how such
inference or conclusion was arrived at, to wit: "16. For failing to pay for the
use [of] facilities and services - in the form of boat storage facilities - duly
enjoyed by him and for failing and refusing to fulfill his promise to pay for
the said boat storage fees, the Defendant is clearly guilty of fraud x x x."31
It is not an allegation of essential facts constituting Watercraft's causes of
action, but a mere conclusion of law.
With respect to Section 1 (a),32 Rule 57, the other ground invoked by
Watercraft for the issuance of the writ of preliminary attachment, the Court
finds no compelling reason to depart from the CA's exhaustive ruling to the
effect that such writ is unnecessary because Wolfe is not a flight risk, thus:
As to the allegation that Wolfe is a (light risk, thereby warranting the
issuance of the writ, the same lacks merit. The mere fact that Wolfe is a
British national does not automatically mean that he would leave the
country at will. As Wolfe avers, he and his family had been staying in the
Philippines since 1997, with his daughters studying at a local school. He also
claims to be an existing stockholder and officer of Wolfe Marine
Corporation, a SEC - registered corporation, as well as a consultant of
projects in the Subic Area, a member of the Multipartite Committee for the
new port development in Subic, and a member of the Subic Chamber of
Commerce. More importantly, Wolfe has a pending labor case against
Watercraft - a fact which the company glaringly failed to mention in its
complaint - which Wolfe claims to want to prosecute until its very end. The
said circumstances, as well as the existence of said labor case where Wolfe
stands not only to be vindicated for his alleged illegal dismissal, but also to
receive recompense, should have convinced the trial court that Wolfe would
not want to leave the country at will just because a suit for the collection of
the alleged unpaid boat storage fees has been filed against him by
Watercraft.
Neither should the fact that Wolfe's Special Working Visa expired in April
2005 lead automatically to the conclusion that he would leave the country.
It is worth noting that all visas issued by the government to foreigner
staying in the Philippines have expiration periods. These visas, however,
may be renewed, subject to the requirements of the law. In Wolfe's case, he
indeed renewed his visa, as shown by Special Working Visa No. 05-WV-
0124P issued by the Subic Bay Metropolitan Authority Visa Processing Office
on April 25, 2005, and with validity of two (2) years therefrom. Moreover,
his Alien Certificate of Registration was valid up to May 11, 2006.33
Meanwhile, Watercraft's reliance on Chuidian v. Sandiganbayan34 is
displaced. It is well settled that:
x x x when the preliminary attachment is issued upon a ground which is at
the same time the applicant's cause of action; e.g., "an action for money or
property embezzled or fraudulently misapplied or converted to his own use
by a public officer, or an officer of a corporation, or an attorney, factor,
broker, agent, or clerk, in the course of his employment as such, or by any
other person in a fiduciary capacity, or for a willful violation of duty," or "an
action against a party who has been guilty of fraud in contracting the debt
or incurring the obligation upon which the action is brought," the defendant
is not allowed to file a motion to dissolve the attachment under Section 13
of Rule 57 by offering to show the falsity of the factual averments in the
plaintiffs application and affidavits on which the writ was based - and
consequently that the writ based thereon had been improperly or irregularly
issued - the reason being that the hearing on such a motion for dissolution
of the writ would be tantamount to a trial of the merits of the action. In
other words, the merits of the action would be ventilated at a mere hearing
of a motion, instead of at the regular trial.35
Be that as it may, the foregoing rule is not applicable in this case because
when Wolfe filed a motion to dissolve the writ of preliminary attachment,
he did not offer to show the falsity of the factual averments in Watercraft's
application and affidavit on which the writ was based. Instead, he sought
the discharge of the writ on the ground that Watercraft failed to particularly
allege any circumstance amounting to fraud. No trial on the merits of the
action at a mere hearing of such motion will be had since only the sufficiency
of the factual averments in the application and affidavit of merit will be
examined in order to find out whether or not Wolfe was guilty of fraud in
contracting the debt or incurring the obligation upon which the action is
brought, or in the performance thereof.
Furthermore, the other ground upon which the writ of preliminary
attachment was issued by the RTC is not at the same time the applicant's
cause of action. Assuming arguendo that the RTC was correct in issuing such
writ on the ground that Watercraft's complaint involves an action for the
recovery of a specified amount of money or damages against a party, like
Wolfe, who is about to depart from the Philippines with intent to defraud
his creditors, the Court stresses that the circumstances36 cited in support
thereof are merely allegations in support of its application for such writ.37
Such circumstances, however, are neither the core of Watercraft's complaint
for collection of sum of money and damages, nor one of its three (3) causes
of action therein.38
All told, the CA correctly ruled that Watercraft failed to meet one of the
requisites for the issuance of a writ of preliminary attachment, i.e., that the
case is one of those mentioned in Section 1 of Rule 57, and that the RTC
gravely abused its discretion in improvidently issuing such writ. Watercraft
failed to particularly state in its affidavit of merit the circumstances
constituting intent to defraud creditors on the part of Wolfe in contracting
or in the performance of his purported obligation to pay boat storage fees,
as well as to establish that he is a flight risk. Indeed, if all the requisites for
granting such writ are not present, then the court which issues it acts in
excess of its jurisdiction.39chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the petition is DENIED. The Court of
Appeals Decision dated September 27, 2007 and its Resolution dated
January 24, 2008 in CA-G.R. SP No. 97804, are AFFIRMED.
SO ORDERED.
G.R. No. 179257, November 23, 2015
UNITED ALLOY PHILIPPINES CORPORATION, Petitioner, v. UNITED
COCONUT PLANTERS BANK [UCPB] AND/OR PHILIPPINE DEPOSIT
INSURANCE CORPORATION [PDIC], JAKOB VAN DER SLUIS AND ROBERT
T.CHUA, Respondent.
"[T]he dismissal of the principal action x x x [carries] with it the denial,
disallowance or revocation of all reliefs ancillary to the main remedy sought
in that action."1
Challenged in this Petition for Review on Certiorari2 is the August 17, 2007
Decision3 of the Court of Appeals, Cagayan de Oro City Station (CA CDO) in
CA-G.R. SP No. 67079 dismissing petitioner United Alloy Philippines
Corporation's (UniAlloy) Petition for Certiorari and Mandamus filed
therewith. In said Petition, UniAlloy sought to nullify the Orders dated
September 134 and 14,5 2001 of the Regional Trial Court (RTC), Branch 40,
Cagayan de Oro City in Civil Case No. 2001-219 that dismissed its Complaint
for Annulment and/or Reformation of Contract and Damages with Prayer
for A Writ of Preliminary Injunction or Temporary Restraining Order (TRO)6
and ordered it to surrender the possession of the disputed premises to
respondent United Coconut Planters Bank (UCPB).
Factual Antecedents
UniAlloy is a domestic corporation engaged in the business of
manufacturing and trading on wholesale basis of alloy products, such as
ferrochrome, ferrosilicon and ferromanganese. It has its principal office and
business address at Phividec Industrial Area, Tagaloan, Misamis Oriental.
Respondent UCPB, on the other hand, is a banking corporation while
respondent Robert T. Chua (Chua) is one of its Vice-Presidents. Respondent
Jakob Van Der Sluis is a Dutch citizen and was the Chairman of UniAlloy.
Respondent Philippine Deposit Insurance Corporation is the assignee-in-
interest of UCPB as regards the loan account of UniAlloy.
On September 10, 1999, UniAlloy and UCPB entered into a Lease Purchase
Agreement7 (LPA) wherein UniAlloy leased from UCPB several parcels of
land with a total area of 156,372 square meters located in Barangay Gracia,
Tagoloan, Misamis Oriental,8 The three-year lease commenced on August
1, 1999 to run until July 31, 2002 for a monthly rent: of P756/700.00. The
parties stipulated that upon the expiration of the lease, UniAlloy shall
purchase the leased properties for P300 million to be paid on staggered
basis. UniAlloy also obtained loans from UCPB.
On August 27, 2001, however, UniAlloy filed the aforesaid Complaint9
against respondents. It claimed that, thru misrepresentation and
manipulation, respondent Jakob Van Der Sluis took foil control of the
management and operation of UniAlloy; that respondents connived with
one another to obtain fictitious loans purportedly for UniAlloy as evidenced
by Promissory Note Nos. 8111-00-00110-6, 8111-00-20031-1, and 8111-01-
20005-6 for P6 million, US$10,000.00, and US$320,000.00, respectively; that
UCPB demanded payment of said loans; and, that UCPB unilaterally
rescinded the LPA. UniAlloy prayed that judgment be issued: (i) ordering the
annulment and/or reformation of the three Promissory Notes; (ii) nullifying
UCPB's unilateral rescission of the LPA; (iii) enjoining UCPB from taking
possession of the leased premises; and (iv) ordering respondents to jointly
and severally pay nominal and exemplary damages, as well as attorney's
fees of P500,000.00 each. As ancillary relief, UniAlloy prayed for the issuance
of a temporary restraining order and/or writ of preliminary injunction.
On the same day, the Executive Judge of the RTC, Cagayan de Oro City
issued a 72-hour TRO directing UCPB to cease and desist from taking
possession of the disputed premises.10 The following day, respondent Jakob
Van Der Sluis filed a Motion to Dismiss and Opposition to the Application
for Injunction or TRO11 on the grounds of improper venue, forum-
shopping,12 litis pendentia, and for being a harassment suit under the
Interim Rules of Procedure for Intra-Corporate Cases. He argued that the
LPA specifically provides that any legal action aiising therefrom should be
brought exclusively in the proper courts of Makati City. The Complaint did
not disclose the pendency of Civil Case No. 2001-156 entitled "Ernesto
Paraiso and United Alloy Philippines Corporation v. Jakob Van Der Sluis"
before Branch 40, as well as CA-G.R. SP No, 66240 entitled "Jakob Van Der
Sluis v. Honorable Epifanio T. Nacaya, et al." He further averred that what
UniAlloy sought to enjoin is already fait accompli.
Respondents UCPB and Chua, on the other hand, filed a Motion to Dismiss
& Motion to Recall Temporary Restraining Order.13 In addition to the
ground of improper venue, they raised the issue of lack of authority of the
person who verified the Complaint as no secretary's certificate or a board
resolution was attached thereto.
During the hearing on the writ of preliminary injunction on August 30, 2001,
the RTC directed the parties to maintain the status quo by not disturbing
the possession of the present occupants of the properties in question
pending resolution of respondents' motions,
On September 13, 2001, the RTC, acting as Special Commercial Court, issued
an Order14 granting the motions to dismiss and ordering the dismissal of
the case on the grounds of improper venue, forum-shopping and for being
a harassment suit. The RTC held that venue was improperly laid considering
that the Promissory Notes sought to be annulled were issued pursuant to a
Credit Agreement which, in turn, stipulates that any legal action relating
thereto shall be initiated exclusively in the proper courts of Makati City. It
also opined that UniAlloy committed forum-shopping for failing to disclose
in its certificate of non-forum-shopping the pendency of Civil Case No,
2001-156 which involves the same parties, the same transactions and the
same essential facts and circumstances. The cases, as ruled by the RTC, have
also identical causes of action, subject matter and issues. The dispositive
portion of the September 13, 2001 Order reads:
ACCORDINGLY, finding meritorious that the venue is improperly laid and
the complain[an]t engaged in forum-shopping and harassment of
defendant Jakob Van der Sluis, this case is hereby DISMISSED rendering the
prayer issuance of a writ of preliminary injunction moot and academic, and
ordering plaintiff to turn over possession of the subject premises of the
properties in question at Barangay Gracia, Tagoloan, Misamis Oriental to
defendant United Coconut Planters Bank.
SO ORDERED.
Upon UCPB's motion, the RTC issued another Order16 dated September 14,
2001 directing the issuance of a writ of execution to enforce its September
13, 2001 Order. Accordingly, a Writ of Execution17 was issued directing the
Sheriff to put UCPB in possession of the disputed premises. It was satisfied
on September 17, 2001.18 The employees of UniAlloy were evicted from the
leased premises and UCPB's representatives were placed in possession
thereof.
On September 25, 2001, UniAlloy received copies of the RTC Orders.19 And
on October 9, 2001, it filed with the Court of Appeals, Manila Station (CA
Manila) its petition in CA-G.R. SP No. 67079 attributing grave abuse of
discretion on the part of the court a quo in (i) dismissing its petition on the
grounds of improper venue, forum-shopping and harassment, (ii) ordering
the turnover of the property in question to UCPB after the dismissal of the
Complaint, and (iii) applying the Interim Rules of Procedure for Intra-
corporate Controversies.
On October 18,2001, the CA Manila issued a TRO. After hearing, the CA
Manila issued a Resolution20 dated February 18, 2002 granting UniAlloy's
ancillary prayer for the issuance of a writ of preliminary injunction upon
posting of a bond in the amount of P300,000.00.
UniAlloy posted the requisite bond.
However, no writ of preliminary injunction was actually issued by the CA
Manila because of this Court's March 18, 2002 Resolution21 in G.R. No.
152238 restraining it from enforcing its February 18, 2002 Resolution. G.RNo.
152238 is a Petition for Certiorari initiated by UCPB assailing said Resolution
of CA Manila. And, in deference to this Court, the CA Manila refrained from
taking further action in CA-G.R. SP No. 67079 until G.R. No. 152238 was
resolved.22
On January 28, 2005, this Court rendered its Decision23 in G.R. No. 152238
finding no grave abuse of discretion on the part of the CA in issuing its
February 18, 2002 Resolution and, consequently, denying UCPB's petition.
Thereafter, and since this Court's Decision in G.R. No. 152238 attained
finality, UniAUoy filed with the CA Manila a Motion to Issue and Implement
Writ of Preliminary Mandatory Injunction.24 In the meantime, the records
of CA-G.R. SP No. 67079 were forwarded to CA CDO pursuant to Republic
Act No. 8246.25cralawred
On May 31, 2006, the CA CDO issued a Resolution26 denying UniAlloy's
motion. It found that UniAUoy had lost its right to remain in possession of
the disputed premises because it defaulted in the payment of lease rentals
and it was duly served with a notice of extrajudicial termination of the LPA.
Said court also found that UniAUoy vacated the leased premises and UCPB
was already in actual physical possession thereof as of August 24, 2001, or
three days before UniAUoy filed its complaint with the RTC. Hence, it could
no longer avail of the remedy of preliminary injunction to regain possession
of the disputed premises.
UniAUoy filed a Motion for Reconsideration,27 which was denied in the CA
CDO's November 29,2006 Resolution.28
On August 17, 2007, the CA CDO issued the assailed Decision denying
UniAlloy's petition and affirming the RTC's questioned Orders. It opined
inter alia that UniAUoy erred in resorting to a Rule 65 petition because its
proper recourse should have been to appeal the questioned Orders of the
RTC, viz.:
It is plain from the record, though, that Unialloy had lost its right to appeal.
The time to make use of that remedy is gone. It is glaringly obvious that
Unialloy resorted to this extraordinary remedy of certiorari and mandamus
as a substitute vehicle for securing a review and reversal of the questioned
order of dismissal which it had, by its own fault, allowed to lapse into finality.
Unfortunately, none of the arguments and issues raised by Unialloy in its
petition can adequately brand the 13 September 2001 Order as void on its
face for being jurisdietionaily flawed, nor mask the fact that it became final
and executory by Unialloy's failure to file an appeal on time. And so, even if
the assailed order of dismissal might arguably not have been entirely free
from some errors in substance, or lapses in procedure or in findings of fact
or of law, and which that account could have been reversed or modified on
appeal, the indelible fact, however is that it was never appealed. It had
become final and executory. It is now beyond the power of this Court to
modify it.29ChanRoblesVirtualawlibrary
Hence, this Petition raising the following issues for Our resolution:
Whether the Court of Appeals (Cagayan de Oro City) erred, or acted without,
or in excess of jurisdiction, or committed grave abuse of discretion
arnounting to lack, or excess of jurisdiction in DENYING United Alloy's
Motion to Issue and Implement Writ of Preliminary Mandatory Injunction in
this case, DESPITE the earlier resolution dated February 18, 2002 issued by
the same Court of Appeals (Manila) of coordinate and co-equal jurisdiction
which granted United Alloy's Motion for Issuance of Preliminary Injunction
upon bond of P300,000.00, and DESPITE this Honorable Court's decision
dated January 28, 2005 in the certiorari case G.R. No. 152238 filed by UCPB
to assail the Court of Appeals's Resolution of February 18, 2002, which
decision sustained the said resolution of February 18, 2002, and DENIED
UCPB's petition in said G.R. No. 152238.
As sub-issue - Whether the Court of Appeals (Cagayan de Oro City)
disregarded the rule that every court must take cognizance of decisions the
Supreme Court has rendered, because they are proper subjects of
mandatory judicial notice. The said decisions more importantly, form part
of the legal system, and failure of any court to apply them shall constitute
an abdication of its duty to resolve a dispute in accordance with law and
shall be a ground for administrative action against an inferior court
magistrate x x x
Whether x x x the Court of Appeals (Cagayan de Qro City) decided this case
in accord with law and the evidence, and so far departed from the accepted
and usual course of judicial proceedings as to call for an exercise of the
supervisory power of this Honorable Court, and to entitle this petition to
allowance and the review sought in this case.30
Issue
The basic issue to be resolved in this case is whether the CA CDO erred in
dismissing UniAlloy's Petition for Certiorari and Mandamus. For if the said
court did not commit an error then it would be pointless to determine
whether UniAlloy is entitled to a writ of preliminary injunction pursuant to
CA Manila's February 18, 2002 Resolution which was issued as a mere
ancillary' remedy in said petition.
Our Ruling
The Petition is devoid of merit.
Before delving on the focal issue, the Court shall first pass upon some
procedural matters.
UniAlloy availed of the proper remedy
in assailing the RTC's September 13, 2001
Order dismissing its Complaint
In its Comment,31 UCPB defends the CA CDO in denying due course to
UniAlloy's Petition for Certiorari and Mandamus. It posits that UniAlloy
should have filed with the RTC a Notice of Appeal from the Order dated
September 13, 2001 instead of a Rule 65 petition before the CA, Respondents
Jakob Van der Sluis and Chua echo UCPB's contention that UniAlloy
resorted to a wrong mode of remedy and that the dismissal of its complaint
had become final and executory which, in turn, rendered UniAlloy's Rule 65
petition before the CA moot and academic.32
In its Consolidated Reply,33 UniAlloy counter-argues that it filed a Rule 65
petition with the CA because the remedy of appeal is inadequate as the RTC
had already directed the issuance of a writ of execution and that the RTC
Orders are patently illegal.
UniAlloy availed of the correct remedy. Under Section 1 Rule 16 of the Rules
of Court, the following may be raised as grounds in a motion to
dismiss:chanRoblesvirtualLawlibrary
SECTION 1. Grounds. — Within the time for but before filing the answer to
the complaint or pleading asserting a claim, a motion to dismiss may be
made on any of the following grounds:
(a) That the court has no jurisdiction over the person of the defending party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(c) That venue is improperly laid;
(d) That the plaintiff has no legal capacity to sue;
(e) That there is another action pending between the same parties for the
same cause;
(f) That the cause of action is barred by a prior judgment or by the statute
of limitations;
(g) That the pleading asserting the claim states no cause of action;
(h) That the claim or demand set forth in the plaintiffs pleading has been
paid, waived, abandoned, or otherwise extinguished;
(i) That the claim on which the action is founded is unenforceable under the
provisions of the statute of frauds; and
(j) That a condition precedent for filing the claim has not been complied
with.
Except for cases falling under paragraphs (f), (h), or (i), the dismissal of an
action based on the above-enumerated grounds is without prejudice and
does not preclude the refiling of the same action. And, under Section l(g) of
Rule 41,34 an order dismissing an action without prejudice is not appealable.
The proper remedy therefrom is a special civil action for certiorari under
Rule 65,35 But, if the reason for the dismissal is based on paragraphs (f), (h),
or (i) (i.e., res judicata, prescription, extinguishment of the claim or demand,
and unenforceability under the Statute of Frauds) the dismissal, under
Section 5,36 of Rule 16, is with prejudice and the remedy of the aggrieved
party is to appeal the order granting the motion to dismiss.

Here, the dismissal of UniAlloy's Complaint was without prejudice. The
September 13, 2001 Order of the RTC dismissing UniAlloy's Complaint was
based on the grounds of improper venue, forum-shopping and for being a
harassment suit, which do not fall under paragraphs (f), (h), or (i) of Section
1, Rule 16. Stated differently, none of the grounds for the dismissal of
UniAlloy's Complaint is included in Section 5 of Rule 16 of the Rules of Court.
Hence, since the dismissal of its Complaint was without prejudice, the
remedy then available to UniAlloy was a Rule 65 petition.
CA CDO did not err in affirming the
dismissal of UniAlloy's Complaint on the
grounds of improper venue, forum-shopping
and for being a harassment suit
The RTC was correct in dismissing UniAlloy's Complaint on the ground of
improper venue. In general, personal actions must be commenced and tried
(i) where the plaintiff or any of the principal plaintiffs resides, (ii) where the
defendant or any of the principal defendants resides, or (III) in the case of a
resident defendant where he may be found, at the election of the plaintiff.37
Nevertheless, the parties may agree in writing to limit the venue of future
actions between them to a specified place.38
In the case at bench, paragraph 18 of the LPA expressly provides that "[a]ny
legal action arising out of or in connection with this Agreement shall be
brought exclusively in the proper courts of Makati City, Metro Manila."39
Hence, UniAlloy should have filed its complaint before the RTC of Makati
City, and not with the RTC of Cagayan de Oro City.
But to justify its choice of venue, UniAlloy insists that the subject matter of
its Complaint in Civil Case No. 2001-219 is not the LPA, but the fictitious
loans that purportedly matured on April 17, 2001.40
UniAlloy's insistence lacks merit. Its Complaint unequivocally sought to
declare "as null and void the unilateral rescission made by defendant UCPB
of its subsisting Lease Purchase Agreement with [UniAlloy]."41 What UCPB
unilaterally rescinded is the LPA and without it there can be no unilateral
rescission to speak of. Hence, the LPA is the subject matter or at least one
of the subject matters of the Complaint. Moreover, and to paraphrase the
aforecited paragraph 18 of the LPA, as long as the controversy arises out of
or is connected therewith, any legal action should be filed exclusively before
the proper courts of Makati City. Thus, even assuming that the LPA is not
the main subject matter, considering that what is being sought to be
annulled is an act connected and inseparably related thereto, the Complaint
should have been filed before the proper courts in Makati City.
With regard forum-shopping, our review of the records of this case revealed
that UniAlloy did not disclose in the Verification/Certification of the
Complaint the pendency of Civil Case No. 2001-156 entitled "Ernesto Paraiso
and United Alloy Philippines Corporation v. Jakob Van Der Sluis." The trial
court took judicial notice of its pendency as said case is also assigned and
pending before it. Thus, we adopt the following unrebutted finding of the
RTC:
These two civil cases have identical causes of action or issues against
defendant Jakob Van Der Sluis for having misrepresented to plaintiff and its
stockholders that he can extend financial assistance in running the
operation of the corporation, such that on April 6, 2001 plaintiff adopted a
Stockholders Resolution making defendant Jakob chairman of the
corporation for having the financial capability to provide the financial needs
of plaintiff and willing to finance the operational needs thereof; that a
Memorandum of Agreement was subsequently entered between the parties
whereby defendant Jakob obligated to provide sufficient financial loan to
plaintiff to make it profitable; that Jakob maliciously and willfiilly reneged
[on] his financial commitments to plaintiff prompting the stockholders to
call his attention and warned him of avoiding the said agreement; that
defendant who had then complete control of plaintiffs bank account with
defendant UCPB, through fraudulent machinations and manipulations, was
able to maliciously convince David C. Chua to pre-sign several checks; that
defendant Jakob facilitated several huge loans purportedly obtained by
plaintiff which defendant himself could not even account and did not even
pay the debts of the corporation but instead abused and maliciously
manipulated plaintiffs account.
Forum-shopping indeed exists in this case, for both actions involve the same
transactions and same essential facts and circumstances as well as identical
causes of action, subject matter and issues, x x x42cralawlawlibrary
The dismissal of UniAlloy's main
action carries with it the dissolution of
any ancillary relief previously granted
therein.
UniAlloy argues that the CA CDO erred in denying its petition considering
that this Court has already sustained with finality the CA Manila's February
18, 2002 Resolution granting its prayer for the issuance of a writ of
preliminary mandatory injunction.
The contention is non sequitur.
"Provisional remedies [also known as ancillary or auxiliary remedies], are
writs and processes available during the pendency of the action which may
be resorted to by a litigant to preserve and protect certain rights and
interests pending rendition, and for purposes of the ultimate effects, of a
final judgment in the case. They are provisional because they constitute
temporary measures availed of during the pendency of the action, and they
are ancillary because they are mere incidents in and are dependent upon
the result of the main action."43 One of the provisional remedies provided
in the Rules of Court is preliminary injunction, which may be resorted to by
a litigant at any stage of an action or proceeding prior to the judgment or
final order to compel a party or a court, agency or a person to refrain from
doing a particular act or acts.44 In Bacolod City Water District v. Hon.
Labayen,45 this Court elucidated that the auxiliary remedy of preliminary
injunction persists only until it is dissolved or until the tepnination of the
main action without the court issuing a final injunction, viz.:
x x x Injunction is a judicial writ, process or proceeding whereby a party is
ordered to do or refrain from doing a certain act, It may be the main action
or merely a provisional remedy for and as an incident in the main action.
The main action for injunction is distinct from the provisional or ancillary
remedy of preliminary injunction which cannot exist except only as part or
an incident of an independent action or proceeding. As a matter of course,
in an action for injunction, the auxiliary remedy of preliminary injunction,
whether prohibitory or mandatory, may issue. Under the law, the main
action for injunction seeks a judgment embodying a final injunction which
is distinct from, and should not be confused with, the provisional remedy of
preliminary injunction, the sole object of which is to preserve the status quo
until the merits can be heard. A preliminary injunction is granted at any
stage of an action or proceeding prior to the judgment or final order. It
persists until it is dissolved or until the termination of the action without the
court issuing a final injunction.46cralawlawlibrary
Based on the foregoing, it is indubitably clear that the August 17, 2007
Decision of CA CDO dismissing UniAlloy's Petition for Certiorari and
Mandamus effectively superseded the February 18, 2002 Resolution of the
CA Manila granting UniAUoy's ancillary prayer for the issuance of a writ of
preliminary injunction. It wrote finis not only to the main case but also to
the ancillary relief of preliminary injunction issued in the main case.
For the same reason, there is no merit in UniAUoy's contention that the RTC
grievously erred in ordering it to turn over the possession of the subject
premises to UCPB considering that the latter never prayed for it. As borne
out by the records of the case, UCPB was already in actual possession of the
litigated premises prior to the filing of the Complaint on August 27, 2001.
This conforms with the finding of the CA CDO which pronounced that "an
actual turnover of the premises x x x was really effected on August 24, 2001,
prior to the institution of the complaint a quo."47 UniAlloy was able to
regain possession of the disputed premises only by virtue of the RTC's 72-
hour TRO. With the issuance of the RTC's September 13, 2001 Order
dismissing the Complaint of UniAlloy, however, the RTC's 72-hour TRO and
August 30, 2001 order to maintain status quo, which are mere incidents of
the main action, lost their efficacy. As discussed above, one of the inevitable
consequences of the dismissal of the main action is the dissolution of the
ancillary relief granted therein. Besides, the RTC issued the status quo order
with the express caveat that the same shall remain in force until it has
resolved respondents' motions to dismiss, which it subsequently granted.
Consequently, UniAlloy has no more bases to remain in possession of the
disputed premises. It must, therefore, restitute whatever it may have
possessed by virtue of the dissolved provisional remedy, even if the
opposing party did not pray for it.
The August 17, 2007 Decision neither
violated this Court's January 28, 2005
Decision in G.R. No. 152238 nor contradicted
the CA Manila's February 18, 2002 Resolution.
UniAlloy further argues that in denying its petition, CA CDO contradicted
the earlier Resolution of a coordinate court, the CA Manila, and the January
28, 2005 Decision of this Court in G.R. No. 152238. It insists that no court
can interfere with the judgment, orders or decrees of another court of
concurrent or coordinate jurisdiction.
We are not persuaded.
True, under the doctrine of judicial stability or non-interference, "no court
can interfere by injunction with the judgments or orders of another court of
concurrent jurisdiction having the power to grant the relief sought by
injunction. The rationale for the rule is founded on the concept of
jurisdiction: a court that acquires jurisdiction over the case and renders
judgment therein has jurisdiction over its judgment, to the exclusion of all
other coordinate courts, for its execution and over all its incidents, and to
control, in furtherance of justice,, the conduct of ministerial officers acting
in connection with this judgment."48 But said doctrine is not applicable to
this case. Here, the proceeding in CA CDO is a continuation of the
proceeding conducted in CA Manila. There is only one case as what was
resolved by CA CDO is the same case, CA-G.R. SP No. 67079 earlier filed with
and handled by CA Manila. It was referred to CA CDO pursuant to Republic
Act No. 8246 creating three divisions of the CA each in Cebu and Cagayan
de Qro. Section 5 thereof provides:
SECTION 5. Upon the effectivity of this Act, all pending cases, except those
which have been submitted for resolution, shall be referred to the proper
division of the Court of Appeals.
In fine, CA CDO did not intrude into an order issued by another co-equal
court in a different case. Rather, it continued to hear the petition until its
termination after the CA Manila referred the same to it by virtue of a law.
The fact that said February 18, 2002 Resolution of CA Manila was affirmed
by this Court in its January 28, 2005 Decision in G.R. No. 152238 is likewise
of no moment. Said Resolution of CA Manila only granted UniAlloy's
ancillary prayer for injunctive relief. It did not touch on the issues of
improper venue, forum-shopping, and harassment. Thus, neither did this
Court tackle said issues in its January 28, 2005 Decision. In fact, this Court
cautiously limited its discussions on the propriety of the CA's directive
temporarily restraining the RTC from placing UCPB in possession of the
disputed premises and deliberately reserved to the CA the determination of
whether the RTC erred in dismissing the main case. Thus:
The dismissal of Civil Case No. 2001-219 on the grounds of forum-shopping,
improper venue and harassment - although raised, too, by Unialloy in its
Petition before the Court of Appeals - was not passed upon in the assailed
interlocutory CA Resolution. As a consequence, it would be premature and
improper for us to pass upon the RTC's dismissal of the case. Hence, we shall
limit our discussion to the assailed Resolutions temporarily stopping the
trial court's turnover of the litigated property to petitioner.
WHEREFORE, the instant petition is hereby DENIED. SO ORDERED.
G.R. No. 193821, November 23, 2015
PHIL-AIR CONDITIONING CENTER, Petitioner, v. RCJ LINES AND ROLANDO
ABADILLA, JR., Respondent.
Phil-Air Conditioning Center (Phil-Air) filed this petition for review on
certiorari1 to assail the September 15, 2010 decision2 of the Court of Appeals
(CA) in CA-G.R. CV No. 85866.
The CA affirmed the September 8, 2004 decision of the Regional Trial Court
(RTC), Branch 119 of Pasay City, dismissing Phil-Air's complaint for sum of
money with prayer for a writ of preliminary attachment.3
Designated as Acting Member in lieu of Associate Justice Antonio T. Carpio,
per Special Order No. 2282 dated November 13, 2015.
Designated as Acting Chairperson in lieu of Associate Justice Antonio T.
Carpio, per Special Order No. 2281 dated November 13, 2015.
Antecedents
On various dates between March 5, 1990, and August 29, 1990, petitioner
Phil-Air sold to respondent RCJ Lines four Carrier Paris 240 air-conditioning
units for buses (units). The units included compressors, condensers,
evaporators, switches, wiring, circuit boards, brackets, and fittings.4
The total purchases amounted to P1,240,000.00 as shown on a sales invoice
dated November 5, 1990.5 RCJ Lines paid P400,000.00, leaving a balance of
P840,000.00.6
RCJ Lines accepted the delivery of the units, which Phil-Air then installed
after they were inspected by RCJ Lines president Rolando Abadilla, Sr.7
Phil-Air allegedly performed regular maintenance checks on the units
pursuant to the one-year warranty on parts and labor. After some months
from installation, Phil-Air supposedly boosted the capacity of the units by
upgrading them to the Carrier Paris 280 model.8 It also purportedly repaired
the control switch panel of one of the units for an additional cost of
P60,000.00.9
RCJ Lines issued three post-dated checks in favor of Phil-Air to partly cover
the unpaid balance:
Check No. 479759 Php 244,998.00 February 28, 1992
479760 Php 244,998.00 March 31, 1992
479761 Php 244,998.00 April 30, 1992
All the post-dated checks were dishonored when Phil-Air subsequently
presented them for payment. Check No. 479759 was returned because it
was drawn against insufficient funds, while Check Nos. 479760 and 479761
were returned because payments were stopped.10
Before presenting the third check for payment, Phil-Air sent a demand
letter11 to Rolando Abadilla, Sr. on April 7, 1992, asking him to fund the post-
dated checks.
On July 17, 1996, Phil-Air demanded payment from Rolando Abadilla, Jr., for
the total amount of P734,994.00 plus interest, and attorney's fees equivalent
to 25% of the amount due. Phil-Air warned that it would take court action
if payment is not made within five days from demand.12
In view of the failure of RCJ Lines to pay the balance despite demand, Phil-
Air filed on April 1, 1998 the complaint13 for sum of money with prayer for
the issuance of a writ of preliminary attachment.14 Phil-Air sought to
recover from RCJ Lines:
a)The total amount of P840,000.00 exclusive of interest for the unpaid
delivered air-conditioning units;
b)The amount of P60,000.00 for the unpaid repair services;
c)The total interest in the amount of P756,000.00 (P840,000.00 x 12% x 7
years + P60,000.00 x 12% x 7 years);
d)The sum equivalent to 25% of the total amount due as attorney's fees,
plus P3,000.00 per court appearance; and
e)Costs of the suit.
In its answer with compulsory counterclaim,15RCJ Lines admitted that it
purchased the units in the total amount of PI,240,000.00 and that it had only
paid P400,000.00. It refused to pay the balance because Phil-Air allegedly
breached its warranty.16
RCJ Lines averred that the units did not sufficiently cool the buses despite
repeated repairs. Phil-Air purportedly represented that the units were in
accord with RCJ Lines' cooling requirements as shown in Phil-Air's price
quotation17 dated August 4, 1989. The price quotation provided that full
payment should be made upon the units' complete installation. Complete
installation, according to RCJ Lines, is equivalent to being in operational
condition.
As it turned out, the Carrier Paris 240 model was not suited to the 45 to 49-
seater buses operated by RCJ Lines. The units, according to RCJ Lines, were
defective and did not attain full operational condition.18
Further, RCJ Lines claimed that it was also entitled to be reimbursed for costs
and damages occasioned by the enforcement of the writ of attachment.
RCJ Lines thus urged the RTC to order Phil-Air to pay (1) the replacement
costs of the units; (2) lost profits for nine days from April 22 to April 30,
1999, resulting from the attachment of its two buses amounting to
P207,000.00;19 and (3) P64,390.00 for the counter-bond premium, moral
damages, exemplary damages and attorney's fees.
The RTC Ruling
The RTC granted the application for the issuance of a writ of preliminary
attachment after Phil-Air posted an attachment bond in the amount of
P1,656,000.00.20 Two buses of RCJ Lines were attached pursuant to the writ
dated December 18, 1998.21 The writ was executed on April 21, 1999.22 The
attachment, however, was later lifted when the RTC granted RCJ Lines'
urgent motion to discharge the writ of attachment.23 RCJ Lines posted a
counter-bond in the same amount as the attachment bond.24
Ruling on the merits after trial, the RTC found that Phil-Air was guilty of
laches and estopped from pursuing its claim. It also sustained the allegation
that Phil-Air had breached its warranty.
The dispositive portion of the RTC judgment reads:
WHEREFORE, judgment is hereby rendered as follows:
Dismissing the complaint of plaintiff for lack of merit.
Directing the plaintiff to pay the defendants the amount of PI00,000.00 as
attorney's fees as they were forced to spend and hire a lawyer to litigate for
seven (7) years in this Court the unfounded and invalid cause of action of
plaintiff.
Directing the plaintiff to pay P82,274.00 as refund of the premium xxx for
defendant's counter-bond for the release of the two buses which were
attached per Writ of Attachment of this Court.
Directing the plaintiff to pay P216,000.00 for the lost profits of defendants
for the attachment of their two buses as there was no fraud in the
transaction of the parties and plaintiff had no sufficient cause of action for
the issuance of the writ of attachment.
Dismissing all other claims of defendants as stated in their counter-claims.
Costs against plaintiff. SO ORDERED.25
The CA Ruling
The CA affirmed the RTC decision in toto.26
First, the CA held that Phil-Air's cause of action was barred by laches.27
The CA concluded that "Phil-Air's inaction on RCJ Lines' repeated demands
and inexplicable failure to comply with its obligations had certainly led the
latter to believe [Phil-Air] was no longer interested in pursuing any claim"
and that "[Phil-Air] had been conspicuously silent for so long a time which
is disturbingly unusual for one claiming to have been aggrieved by
another."28
Second, the CA held that Phil-Air breached its warranty. The price quotation
supposedly warranted that the Carrier Paris 240 model was suitable for 50-
60-passenger coaches and especially recommended for operation in the
tropics.29
The CA gave credence to the testimony of the country manager of Carrier
Refrigeration Philippines Inc. (Carrier Philippines) who testified that the
Carrier Paris 240 model is suited for buses with a maximum seating capacity
of up to 35 persons; beyond that, the units would not function properly.30
The CA also found convincing the testimonies of two RCJ Lines employees
who testified that they experienced firsthand the inefficient cooling of the
Carrier Paris 240.31
Relying on these testimonies, the CA found that the four units did not meet
the cooling requirements of RCJ Lines.32
Third, the CA ordered Phil-Air to reimburse the premium on the counter-
bond amounting to P82,274.00 since the writ was improvidently issued.
Fourth, the CA affirmed the finding of the RTC that RCJ Lines suffered losses
when the RTC attached two of its buses.
The RTC and the CA relied on the testimony of Rolando Abadilla, Jr., who
claimed to be in charge of the daily operations of RCJ Lines. He testified that
they suffered losses for nine days as a result of the enforcement of the writ
of preliminary attachment. The lost profits purportedly amounted to
P227,280.00. To support this claim, RCJ Lines adduced as evidence the
summary of the daily cash collections33 from the buses that were not
attached, on various dates in August and September 2000.34
Finally, the CA sustained the award of attorney's fees for PI 00,000.00 in
favor of RCJ lines for having been compelled to litigate.
The Petition
First, Phil-Air argues that the doctrine of laches is not applicable when the
action is filed within the prescriptive period. Laches, being a doctrine of
equity, should only be applied to fill a void in the law.35
Phil-Air asserts that it filed the complaint on April 1, 1998, or less than eight
years from the execution of the sales invoice dated November 5, 1990. The
complaint was thus filed within the ten-year prescriptive period for actions
based upon a written contract.
Second, Phil-Air denies that it breached its warranty.
It maintains that all the units were brand new and were accepted by RCJ
Lines in good, working, and operational condition. The units were inspected,
tested, and approved by then RCJ Lines president, Rolando Abadilla, Sr., as
proved by the delivery receipts in which he affixed his signature.36
Phil-Air further avers that it was not notified of the alleged breach of
warranty. Assuming it breached its warranty, Phil-Air submits that the action
to enforce the warranty had already prescribed.
Third, Phil-Air rejects the CA's order that it must reimburse the premium
payment for the counter-bond and the alleged losses suffered by RCJ Lines.
The attachment bond should be answerable for damages, if any.
Respondent's Comment
RCJ Lines reiterates all the arguments it raised in its counterclaim. It admits
that it did not pay the balance of the purchase price.37 It maintains,
however, that it was justified in doing so because Phil-Air breached its
warranty. It insists that Phil-Air was guilty of laches because it waited for
eight years to file the collection case.38
Issues
Based on the foregoing, the Court resolves the following issues:
(1)Whether the claim of Phil-Air was barred by laches;
(2)Whether Phil-Air should reimburse RCJ Lines for the counter- bond
premium and its alleged unrealized profits;
(3)Whether RCJ Lines proved its alleged unrealized profits arising from the
enforcement of the preliminary writ of attachment; and
(4)Whether RCJ Lines proved that Phil-Air breached its warranty.
Our Ruling
We grant the petition. Phil-Air's claim is not barred by laches.
In general, there is no room to apply the concept of laches when the law
provides the period within which to enforce a claim or file an action in court.
Phil-Air's complaint for sum of money is based on a written contract of sale.
The ten-year prescriptive period under Article 1144 of the Civil Code thus
applies.39
In the present case, both parties admit the existence and validity of the
contract of sale. They recognize that the price quotation dated August 4,
1989, contained the terms and conditions of the sale contract. They also
agree that the price and description of the units were indicated on the sales
invoice dated November 5, 1990. The sales were in fact consummated on
various dates between March 5, 1990 and August 29, 1990, as proved by
several delivery receipts.
The Court therefore can resolve whether Phil-Air's action to enforce the
contract was timely filed even in the apparent absence of a formal or
notarized deed of sale.40 More significantly, Rolando Abadilla, Jr., admitted
under oath that the sale was in writing.41
We note that Phil-Air filed the complaint with the RTC on April 1, 1998.
Counting from the date of the sales invoice, or from the date of the delivery
receipts, or even from the date of the price quotation, it is clear that the
complaint was filed within the ten-year prescriptive period. Contrary to the
CA's ruling, laches does not apply.
Laches is defined as the failure or neglect for an unreasonable and
unexplained length of time, to do that which by exercising due diligence,
could or should have been done earlier; it is negligence or omission to assert
a right within a reasonable time, warranting a presumption that the party
entitled to assert it either has abandoned it or declined to assert it.42
While the CA correctly held that prescription and estoppel by laches are two
different concepts, it failed to appreciate the marked distinctions between
the two concepts.
On the one hand, the question of laches is addressed to the sound discretion
of the court.43 The court resolves whether the claimant asserted its claim
within a reasonable time and whether its failure to do so warrants the
presumption that it either has abandoned it or declined to assert it. The
court determines the claimant's intent to assert its claim based on its past
actions or lack of action. After all, what is invoked in instances where a party
raises laches as a defense is the equity jurisdiction of the court.44
On the other hand, if the law gives the period within which to enforce a
claim or file an action in court, the court confirms whether the claim is
asserted or the action is filed in court within the prescriptive period. The
court determines the claimant's intent to assert its claim by simply
measuring the time elapsed from the proper reckoning point (e.g., the date
of the written contract) to the filing of the action or assertion of the claim.
In sum, where the law provides the period within which to assert a claim or
file an action in court, the assertion of the claim or the filing of the action in
court at any time within the prescriptive period is generally deemed
reasonable, and thus, does not call for the application of laches. As we held
in one case, unless reasons of inequitable proportions are adduced, any
imputed delay within the prescriptive period is not delay in law that would
bar relief.45
In Agra, et al. v. Philippine National Bank,46 we held that "[l]aches is a
recourse in equity [and] is applied only in the absence, never in
contravention, of statutory law. Thus, laches cannot, as a rule, abate a
collection suit filed within the prescriptive period mandated by the Civil
Code."
Agra involved an action for collection of a sum of money arising from an
unpaid loan. In resisting payment, the sureties invoked laches and
maintained that the creditor-bank with full knowledge of the deteriorating
financial condition of the principal debtor did not take steps to collect from
the latter while still solvent. The sureties thus argued that the creditor-
bank's action was barred by laches.
We found that the sureties failed to prove all the elements of laches, namely:
(1)conduct on the part of the defendant or one under whom he claims,
giving rise to the situation of which complaint is made and for which the
complainant seeks a remedy;
(2)delay in asserting the complainant's right, the complainant having had
knowledge or notice of defendant's conduct and having been afforded an
opportunity to institute a suit;
(3)lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his claim; and
(4)injury or prejudice to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred.47
Examining these elements, we found that only the first element was present.
There was no delay (second element) because the creditor-bank filed the
action within the ten-year prescriptive period. Since the claim was timely
filed, the defendants did not lack notice that the creditor-bank would assert
its claim (third element). Nor was the assertion of the right deemed injurious
to the defendants (fourth element); the creditor-bank could assert its claim
at any time within the prescriptive period.
The same conclusion holds true in the present case; not all the elements of
laches are present. To repeat, Phil-Air filed the complaint with the RTC on
April 1, 1998. The time elapsed from August 4, 1989 (the date of the price
quotation, which is the earliest possible reckoning point), is eight years and
eight months, well within the ten-year prescriptive period. There was simply
no delay (second element of laches) where Phil-Air can be said to have
negligently slept on its rights.
More significantly, there is no basis for laches as the facts of the present
case do not give rise to an inequitable situation that calls for the application
of equity and the principle of laches.48
Phil-Air is not directly liablefor the counter-bond premium and RCJ Lines'
alleged unrealized profits.
The CA and the RTC erred when it held Phil-Air directly liable for the
counter-bond premium and RCJ Lines' alleged unrealized profits. Granting
that RCJ Lines suffered losses, the judgment award should have been first
executed on the attachment bond. Only if the attachment bond is
insufficient to cover the judgment award can Phil-Air be held liable.49
We explain below the purpose of a preliminary attachment, the procedure
in obtaining it, and the manner of having it lifted.
A writ of preliminary attachment is a provisional remedy issued by the court
where an action is pending to be levied upon the property or properties of
the defendant. The property is held by the sheriff as security for the
satisfaction of whatever judgment that might be secured by the attaching
party against the defendant.50
The grant of the writ is conditioned not only on the finding of the court that
there exists a valid ground for its issuance.51 The Rules also require the
applicant to post a bond.
Section 4 of Rule 57 of the Rules of Civil Procedure (Rules) provides that
"the party applying for the order must...give a bond executed to the adverse
party in the amount fixed by the court, in its order granting the issuance of
the writ, conditioned that the latter will pay all the costs that may be
adjudged to the adverse party and all damages that he may sustain by
reason of the attachment, if the court shall finally adjudge that the applicant
was not entitled thereto."
The enforcement of the writ notwithstanding, the party whose property is
attached is afforded relief to have the attachment lifted.
There are various modes of discharging an attachment under Rule 57, viz.:
(1) by depositing cash or posting a counter-bond under Section 12;52 (2) by
proving that the attachment bond was improperly or irregularly issued or
enforced, or that the bond is insufficient under Section 13;53 (3) by showing
that the attachment is excessive under Section 13; and (4) by claiming that
the property is exempt from execution under Section 2.54
RCJ Lines availed of the first mode by posting a counter-bond.
Under the first mode, the court will order the discharge of the attachment
after (1) the movant makes a cash deposit or posts a counter-bond and (2)
the court hears the motion to discharge the attachment with due notice to
the adverse party.55
The amount of the cash deposit or counter-bond must be equal to that fixed
by the court in the order of attachment, exclusive of costs. The cash deposit
or counter-bond shall secure the payment of any judgment that the
attaching party may recover in the action.56
The filing of a counter-bond to discharge the attachment applies when there
has already been a seizure of property by the sheriff and all that is entailed
is the presentation of a motion to the proper court, seeking approval of a
cash or surety bond in an amount equivalent to the value of the property
seized and the lifting of the attachment on the basis thereof. The counter-
bond stands in place of the property so released.57
To be clear, the discharge of the attachment by depositing cash or posting
a counter-bond under Section 12 should not be confused with the discharge
sanctioned under Section 13. Section 13 speaks of discharge on the ground
that the writ was improperly or irregularly issued or enforced, or that the
attachment bond is insufficient, or that the attachment is excessive.
To reiterate, the discharge under Section 12 takes effect upon posting of a
counter-bond or depositing cash, and after hearing to determine the
sufficiency of the cash deposit or counter-bond. On the other hand, the
discharge under Section 13 takes effect only upon showing that the plaintiffs
attachment bond was improperly or irregularly issued, or that the bond is
insufficient. The discharge of the attachment under Section 13 must be
made only after hearing.58
These differences notwithstanding, the discharge of the preliminary
attachment either through Section 12 or Section 13 has no effect on and
does not discharge the attachment bond. The dissolution of the preliminary
attachment does not result in the dissolution of the attachment bond.
Justice Narvasa, writing his separate opinion in one case, explained:
The dissolution of the preliminary attachment upon security given [Section
12], or a showing of its irregular or improper issuance [Section 13], does not
of course operate to discharge the sureties on plaintiffs own attachment
bond. The reason is simple. That bond is executed to the adverse party,. . .
conditioned that the ... (applicant) will pay all the costs which may be
adjudged to the adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge that the applicant
was not entitled thereto." Hence, until that determination is made, as to the
applicant's entitlement to the attachment, his bond must stand and cannot
be withdrawn.59 [emphasis and underscoring supplied, citations omitted]
In the present case, the RTC lifted the preliminary attachment after it heard
RCJ Lines' urgent motion to discharge attachment and the latter posted a
counter-bond. The RTC found that there was no fraud and Phil-Air had no
sufficient cause of action for the issuance of the writ of the attachment. As
a consequence, it ordered Phil-Air to refund the premium payment for the
counter-bond and the losses suffered by RCJ Lines resulting from the
enforcement of the writ. The CA affirmed the RTC ruling in toto.
We reverse the CA and RTC rulings.
As discussed above, it is patent that under the Rules, the attachment bond
answers for all damages incurred by the party against whom the attachment
was issued.60
Thus, Phil-Air cannot be held directly liable for the costs adjudged to and
the damages sustained by RCJ Lines because of the attachment. Section 4
of Rule 57 positively lays down the rule that the attachment bond 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."
The RTC, instead of declaring Phil-Air liable for the alleged unrealized profits
and counter-bond premium, should have ordered the execution of the
judgment award on the attachment bond. To impose direct liability to Phil-
Air would defeat the purpose of the attachment bond, which was not
dissolved despite the lifting of the writ of preliminary attachment.
The order to refund the counter-bond premium is likewise erroneous. The
premium payment may be deemed a cost incurred by RCJ Lines to lift the
attachment. Such cost may be charged against the attachment bond.
RCJ Lines failed to prove its alleged unrealized profits.
In finding that RCJ Lines suffered damages because of the attachment, the
RTC and the CA gave complete credence to the testimony of Rolando
Abadilla, Jr. He claimed that RCJ Lines lost P216,000.00 in unrealized profits
for nine days when the buses were wrongfully seized.
To arrive at this amount, RCJ Lines alleged that a bus travelling from Manila
to Ilocos and vice versa earned an average daily income of P12,000.00. To
back this claim, RCJ Lines prepared a summary of the daily cash collections
of its nine buses on certain days of August and September 2000.
The summary of daily cash collections apparently prepared by one RCJ Lines
employee was in turn based on the reports of the dispatchers indicating the
number of passengers and the amount of fare collected on a particular trip.
Except for one bus which travelled round-trip on August 22-23, 2000, the
daily cash collections all pertained to the round-trip of eight buses on
September 2-3, 2000.
These documents are insufficient to prove actual damages.
In Spouses Yu v. Ngo Yet Te,61 we held that if the claim for actual damages
covers unrealized profits, the amount of unrealized profits must be
established and supported by independent evidence of the mean income of
the business undertaking interrupted by the illegal seizure.
We explained in Spouses Yu that to merit an award of actual damages
arising from a wrongful attachment, the attachment defendant must prove,
with the best evidence obtainable, the fact of loss or injury suffered and the
amount thereof. Such loss or injury must be of the kind which is not only
capable of proof but must actually be proved with a reasonable degree of
certainty. As to its amount, the same must be measurable based on specific
facts, and not on guesswork or speculation.62
Spouses Yu is on all fours with the present dispute because it also involved
a claim for actual damages arising from the illegal attachment of the
claimant's properties, one of which was a passenger bus.
The claimants in that case attempted to prove actual damages by
computing the daily average income of its bus operation based on the value
of three ticket stubs sold over five separate days. The claimants likewise
cited unused ticket stubs as proof of income foregone when the bus was
wrongfully seized.
We found the claimant's evidence insufficient to prove actual damages.
While we recognized that they suffered some damages, we held that "[b]y
no stretch of the imagination can we consider ticket sales for five days
sufficient evidence of the average daily income of the passenger bus, much
less its mean income. Not even the unrebutted testimony of [the claimant]
can add credence to such evidence for the testimony itself lacks
corroboration."63
Similarly, the evidence adduced by RCJ Lines to show actual damages fell
short of the required proof. Its average daily income cannot be derived from
the summary of daily cash collections from only two separate occasions, i.e.,
August 22-23 and September 2-3, 2000. The data submitted is too meager
and insignificant to conclude that the buses were indeed earning an average
daily income of P12,000.00.
More significant, the person who prepared the unsigned summary of daily
cash collections was not presented before the RTC to verify and explain how
she arrived at the computation. The dispatchers who prepared the collection
reports were likewise not presented; some of the reports were also
unsigned. While the summary was approved by Rolando Abadilla, Jr., his
testimony on the alleged unrealized profits was uncorroborated and self-
serving.
Nonetheless, we recognize that RCJ Lines suffered some form of pecuniary
loss when two of its buses were wrongfully seized, although the amount
cannot be determined with certainty.
We note that in its prayer for the issuance of the writ of preliminary
attachment, Phil-Air alleged that RCJ Lines was guilty of fraud in entering
into the sale transaction. A perusal of the record, however, would show that
Phil-Air failed to prove this bare assertion. This justifies an award of
temperate or moderate damages in the amount of Php 50,000.00.64
The allegation of breachof express warranty was notproved.
We are not convinced that Phil-Air breached its express warranty. RCJ Lines
had no right to recoupment in diminution of the price.65
The Civil Code defines an express warranty as any affirmation of fact or any
promise by the seller relating to the thing if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same, and if
the buyer purchases the thing relying thereon.66
The question whether there was a breach of warranty is factual.
Consequently, the Court should rely on the factual findings of the CA and
RTC, which are generally deemed binding and conclusive to the Court. More
so in a Rule 45 petition where only questions of law can be raised. Further,
factual findings of the RTC, when affirmed by the CA, are conclusive on the
Court when supported by the evidence on record.67
The evidence on record does not support the findings of the CA and RTC.
We emphasize that there are recognized cases where the Court can
disregard the factual findings of the RTC and CA. In these cases, the Court
draws its own conclusion based on the evidence on record.68
In this case, Phil-Air denies that it breached its express warranty and
strongly argues that the CA and RTC completely ignored its evidence while
it sustained the bare allegations of Rolando Abadilla, Jr.
We agree with Phil-Air. Our examination of the record reveals that the RTC
and CA manifestly overlooked certain relevant facts not disputed by the
parties which, if properly considered, would justify a different conclusion.
To prove that Phil-Air breached its express warranty, RCJ Lines presented
the following testimonial and documentary evidence:
1)Rolando Abadilla, Jr. who claimed that their employees reported the
defect of the units to him and to his late father. His late father allegedly
demanded Phil-Air to repair the defects. But despite repeated verbal
demands, Phil-Air purportedly failed to comply with its one-year warranty
on parts and labor.
2)Two RCJ Lines employees who claimed that they experienced firsthand
the inefficient cooling of the units.
3)The general manager of Carrier Philippines who testified that the Carrier
240 model was not suitable for buses with a capacity of more than 35
passengers, like those operated by RCJ Lines.
4)Summary of expenses, sales invoices, provisional receipts, and statements
of accounts issued by other suppliers and shops (Car Cool Philippines, Inc.
and Sta. Rosa Motor Works, Inc.) engaged by RCJ Lines during the period of
warranty to repair the defective units, amounting to P208,132.00
5)Commercial invoice for the $68,780.00 US Dollars worth of new units
bought from another supplier after the lapse of warranty to replace the units
supplied by Phil-Air.69
In defense, Phil-Air claimed that it regularly checked the units and that
during the effectivity of the one-year warranty, RCJ Lines never once
complained of defects; if there were defects, the latter should have
demanded Phil-Air to perform its warranty in writing; the reason it had no
proof it made repairs and delivered spare parts was precisely because it was
not apprised of any defect; and that the testimonies of the RCJ Lines
witnesses were self-serving.70
The RTC noted that Phil-Air did not present evidence to rebut the allegation
of breach.71 Phil-Air instead opposed the admission of the documentary
evidence of RCJ Lines for failing to comply with the best evidence rule.72
We hold that the evidence that RCJ Lines submitted failed to prove breach
of express warranty.
As to the testimonial evidence
The testimonies of the RCJ Lines witnesses were self-serving and
uncorroborated.
The claim of Rolando Abadilla, Jr. that his late father verbally communicated
the defects of the units to Phil-Air was hearsay and not admissible.73 He
admitted that he was not around when his father phoned Phil-Air to
demand the repair of the units. He likewise admitted that they did not
attempt to personally meet with nor send a letter to Phil-Air to demand the
repairs.74
More tellingly, Rolando Abadilla, Jr. admitted that they issued the post-
dated checks to Phil-Air to cover the balance of the purchase price
sometime in 1992, viz-
Q.Mr. Witness is it not in this case that you personally issued three (3) checks
draws against the name Rolando Abadilla and Susan or Rolando Abadilla,
and this was some time in 1992?
A.Yes, Sir.
Q.And you confirm that these were all dated March 31, April 30 and February
29, 1992?
A.Yes, Sir.
Q.Despite your claim that these air-conditioning units were defective and
despite your claim that these air-conditioning units were not repaired by
plaintiff, hence you referred them for repair to other companies who are not
authorized, do you still affirm the fact that you issued the postdated checks,
the total of which is exactly the balance of the purchase price as quoted in
the price quotation, yes or no? [Emphasis supplied]
A.Yes, Sir.75
xxx
We note that the alleged repairs made by Car Cool Philippines, Inc. and Sta.
Rosa Motor Works, Inc. started in 1991.76 If RCJ Lines knew as early as 1991
that the units were defective and that Phil-Air refused to perform its
warranty despite repeated demands, we wonder why RCJ Lines still issued
the post-dated checks in 1992 to cover the balance of the purchase price.
The record also reveals that Car Cool Philippines, Inc. and Sta. Rosa Motor
Works, Inc. were not authorized by the Carrier brand to repair the units, a
fact not denied by Rolando Abadilla, Jr.77 It was likewise established that
some of the parts/items purportedly provided by the other suppliers were
expressly excluded from the list of parts/items that Phil-Air was supposed
to supply, again, a fact admitted by Rolando Abadilla, Jr.78 It was likewise
unclear that the repairs made by the other service providers were done on
the same buses on which the subject units were installed.79
We also find glaring the fact that RCJ Lines did not respond to the April 7,
1992 demand letter sent by Phil-Air, viz. -
Dear Mr. Abadilla,
I have been trying to get in touch with you and Junjun the past several weeks
but have been unsuccessful xxx The two checks that you used to partly pay
for the four units bus air conditions [sic] were all dishonored by the bank
[because they were drawn against insufficient funds].
We are but a small company and our cash flow was adversely affected by
the return of the checks, xxx It would mean so much if you could somehow
help us replenished these checks, xxx We look forward to hearing from you
Respectfully, we remain.
Yours truly,
Ricardo Cokieng
If RCJ Lines was aware all along that the units were defective and that Phil-
Air refused to heed its verbal demands to make repairs, we do not
understand why it ignored Phil-Air's written demand to replenish the
returned checks. We also find it unthinkable that RCJ Lines would spend for
parts and services from other suppliers and providers, during the period of
warranty, without demanding first in writing that Phil-Air make good its
express warranty.
In this regard, we note that the right of the buyer to the recoupment in the
diminution of the price under Article 1599 (1) should be read together with
Article 1586 of the Civil Code,80 which provides
that:chanRoblesvirtualLawlibrary
Art. 1586. In the absence of express or implied agreement of the parties,
acceptance of the goods by the buyer shall not discharge the seller from
liability in damages or other legal remedy for breach of any promise or
warranty in the contract of sale. But, if, after acceptance of the goods, the
buyer fails to give notice to the seller of the breach in any promise of
warranty within a reasonable time after the buyer knows, or ought to know
of such breach, the seller shall not be liable therefor.
The obvious purpose of the notice is to protect the seller against belated
claims. If the seller is not duly notified, he is prevented from making prompt
investigation to determine the cause and extent of his liability.81
Consequently, he is barred from repairing or rectifying whatever defects the
goods sold had.
RCJ Lines failed to convince us that it notified Phil-Air of the breach of
warranty within a reasonable time. In truth, we are not convinced at all that
it had even notified Phil-Air. Although Article 1586 does not require that the
notice to the seller be in writing, we cannot accept the claim of Rolando
Abadilla, Jr. that his late father verbally notified Phil-Air of the defects,
without violating the rule on hearsay.
Also, the testimonies of the two RCJ Lines employees that they experienced
firsthand the insufficient cooling of the units were self-serving and
uncorroborated by a disinterested party.
Further, the reliance of the CA and the RTC on the testimony82 of the
general manager of Carrier Philippines was misplaced and unwarranted. It
appears that the computation of the cooling efficiency of the Carrier 240
model was merely theoretical, based only on the specifications of the model
and not on actual test, viz. —
Q:Have you seen RCJ Bus?
A:I did see.
xxx
Q:With respect to car aircon Paris 240 installed, have you seen this bus?
A:No, I did not.
Q:Mr. Witness, this case involves a particular product a brand of the product
that you did not try [sic] but specifically Paris 240. Have you seen it
personally, the four units installed?
A:No I did not.
Q:Even one unit?
A:No Sir.
The meat of his testimony centered not on the subject units but on the
cooling capacity of the product that Carrier Philippines was then selling in
the market. In fact, he admitted that his role in the company had nothing to
do with repairs of air-conditioning units.
On this basis, we do not find his testimony conclusive as to the alleged
breach of express warranty. It was too tangential and speculative. We note
that he was not even presented as an expert witness. Even if we assume that
the computation of the cooling capacity of the Carrier 240 was accurate, RCJ
Lines still failed to prove that it duly and promptly informed Phil-Air of the
alleged breach.
On the documentary evidence
The pieces of documentary evidence submitted by RCJ Lines to prove
breach of express warranty failed to comply with the best evidence rule. It
is established on record that the sales invoices and provisional receipts
issued by the other suppliers and service providers were mere
photocopies.83 The counsel of Phil-Air objected to the admission of the
secondary evidence without proof that the originals were indeed lost. The
counsel for RCJ Lines requested that the evidence be conditionally accepted
and marked, which the trial court granted.
Nowhere on record, however, was it ever established that the originals were
later submitted. It was also not shown that the originals were indeed lost,
which could have justified the submission of secondary evidence.84 The RTC
simply ignored this fact when it finally decided the case.
Conclusion
Based on the foregoing analysis, we find- that RCJ Lines failed to prove its
allegation that Phil-Air breached its express warranty. RCJ Lines is thus held
liable to pay the balance of the purchase price plus interest and attorney's
fees.85 RCJ Lines, however, is entitled to temperate damages as a result of
the wrongful attachment of its buses and to the refund of the premium
payment for the counter-bond.
WHEREFORE, in view of the foregoing, we hereby GRANT the petition. The
September 15, 2010 decision of the Court of Appeals in CA-G.R. CV No.
85866 is REVERSED and SET ASIDE.
ACCORDINGLY, RCJ Lines is DIRECTED to pay:
Eight Hundred Forty Thousand Pesos (P840,000.00) representing the unpaid
balance of the purchase price;
Interest of twelve percent (12%) per annum on the unpaid balance to be
computed from November 5, 199086 until June 30, 2013;
Interest of six percent (6%) per annum on the unpaid balance to be
computed from July 1, 2013,87 until fully paid;
Attorney's fees in the fixed amount of P30,000.00.88
The total amount to be recovered shall further be subject to the legal
interest rate of six percent (6 %) per annum from the finality of this decision
until fully paid.89
The attachment bond posted by Phil-Air shall be levied upon to satisfy the
P50,000.00 temperate damages awarded to RCJ Lines and the P82,274.00
refund of the counter-bond premium.SO ORDERED.
G.R. No. 187922, September 21, 2016
MARPHIL EXPORT CORPORATION AND IRENEO LIM, Petitioners, v. ALLIED
BANKING CORPORATION, SUBSTITUTED BY PHILIPPINE NATIONAL BANK,
Respondent.
This is a petition1 seeking to nullify the Court of Appeals' (CA) January 12,
2009 Decision2 and May 12, 2009 Resolution3 in CA-G.R. CV No. 89481. The
CA modified4 the April 23, 2007 Omnibus Decision5 of Branch 61 of the
Regional Trial Court (RTC), Makati City in the consolidated cases of petition
for declaratory relief filed by petitioner Marphil Export Corporation
(Marphil) against Allied Banking Corporation (Allied Bank), and the
complaint for collection of sum of money with application for writ of
attachment filed by Allied Bank against Marphil's surety, petitioner Ireneo
Lim (Lim).
Facts
Marphil is a domestic company engaged in the exportation of cuttlefish,
cashew nuts and similar agricultural products.6 To finance its purchase and
export of these products, Allied Bank granted Marphil a credit line from
which Marphil availed of several loans evidenced by promissory notes (PN).7
These loans were in the nature of advances to finance the exporter's
working capital requirements and export bills.8 The loans were secured by
three (3) Continuing Guaranty or Continuing Surety (CG/CS) Agreements9
executed by Lim, Lim Shiao Tong and Enrique Ching.10 Apart from the
CG/CS Agreements, irrevocable letters of credits also served as collaterals
for the loans obtained to pay export bills.11 In turn, Allied Bank required
Marphil, through its authorized signatories Lim and Rebecca Lim So, to
execute a Letter of Agreement12 where they undertake to reimburse Allied
Bank in the event the export bills/drafts covering the letters of credit are
refused by the drawee. Upon negotiations of export bills/drafts that Allied
Bank purchases from Marphil, the amount of the face value of the letters of
credit is credited in favor of the latter.13chanrobleslaw
The transaction involved in this petition is the export of cashew nuts to Intan
Trading Ltd. Hongkong (Intan) in Llong Kong. Upon application of Intan,
Nanyang Commercial Bank (Nanyang Bank), a bank based in China, issued
irrevocable letters of credit. These were Letter of Credit (L/C) No. 22518 and
L/C No. 21970, with Marphil as beneficiary and Allied Bank as correspondent
bank.14 These covered two (2) separate purchase contracts/orders for
cashew nuts made by Intan.
The first order of cashew nuts was covered by L/C No. 22518. After the first
shipment was made, Marphil presented export documents including drafts
to Allied Bank. The latter credited Marphil's: credit line the peso equivalent
of the face value of L/C No. 22518 (in the amount of P1,986,702.70 and this
amount was deducted from the existing loans of Marphil.15 There were no
problems encountered for the shipment covered by L/C No. 22518. It was
the second order covered by L/C No. 21970 that encountered problems.
When Intan placed a second order for cashew nuts, Marphil availed
additional loans in their credit line evidenced by PN No. 0100-88-0246316
(PN No. 2463) for P500,000.00 and PN No. 0100-88-0273017 (PNNo. 2730)
for P500,000.00. Similar to the previous transaction, Intan applied for and
opened L/C No. 21970 with Nanyang Bank in the amount of US$185,000.00,
with Marphil as the beneficiary and Allied Bank as correspondent bank.18
After receiving the export; documents including the draft issued by Marphil,
Allied Bank credited Marphil in the amount of P1,913,763.45, the peso value
of the amount in the letter of credit.19chanrobleslaw
However, on July 2, 1988, Allied Bank informed Marphil that it received a
cable from Nanyang Bank noting some discrepancies in the shipping
documents.20 On July 16, 1988, Allied Bank again informed Marphil that it
received another cable from Nanyang Bank still noting the discrepancies
and that Intan refused to accept the discrepancies.21 Consequently,
Nanyang Bank refused to reimburse Allied Bank the amount the latter had
credited in Marphil's credit line. In its debit memo, Allied Bank informed
Marphil of the dishonor of L/C No. 21970 and that it was reversing the earlier
credit entry of P1,913,763.45.22 Lim was made to sign a blank promissory
note, PN No. 0100-88-04202,23 (PN No. 4202) on September 9, 1988 to
cover for the amount.24 This was later filled up by Allied Bank in the amount
of P1,505,391.36.
On March 6, 1990, Marphil filed a Complaint25cralawred for declaratory
relief and damages against Allied Bank (Declaratory' Relief Case) raffled to
Branch 61 of RTC Makati.26 In its Complaint, Marphil asked the court to
declare PN No. 4202 void, to declare as fully paid its other obligations to
Allied Bank, and to award it actual, moral and exemplary damages, and
attorney's fees.27 Marphil maintained that it had fully paid its account with
Allied Bank, and that PN No. 4202, which Lim executed on September 9,
1988, was void for lack of consideration. Marphil alleged that it was
constrained to send back the shipment to the Philippines thereby incurring
expenses and tremendous business losses. It attributed bad faith to Allied
Bank because the latter did nothing to protect its interest; Allied Bank
merely accepted Nanyang Bank's position despite L/C No. 21970 being
irrevocable, and Allied Bank allegedly confirmed Nanyang Bank's
revocation.
On May 7, 1990, Allied Bank filed its Answer with Compulsory Counterclaim
and Petition for Writ of Preliminary Attachment.28 Allied Bank maintained
that PN No. 4202 was supported by consideration, and denied that Marphil
has fully paid its obligation to it. As counterclaim, Allied bank sought to
collect on three (3) promissory notes, PN Nos. 2463, 2730 and
4202.29chanrobleslaw
On September 14, 1990, Allied Bank filed a Complaint with Petition for Writ
of Preliminary Attachment30 (Collection Case) against Lim and Lim Shao
Tong which was raffled to Branch 145 of RTC Makati. Allied Bank sued them
as sureties under the CG/CS Agreements for the loan obligations of Marphil
under three (3) promissory notes, PN Nos. 2463, 2730 and 4202, in the total
amount of P2,505,391.36. It also prayed for the issuance of a writ of
preliminary attachment on the ground that Lim was guilty of fraud in
contracting his obligations.
On February 7, 1992, Lim filed his Answer31 in the Collection Case. He raised
as defense that Marphil had fully paid the loans covered by PN Nos. 2463,
2730, while PN No. 4202 is null and void.32 He likewise maintained he could
not be held personally liable for the CG/CS Agreements because he could
not remember signing them. Lim claimed that the issuance of the writ of
preliminary attachment was improper because he never had any
preconceived intention not to pay his obligations with the bank. He had
been transacting with the bank for six (6) years arid the gross value of the
thirty-two (32) transactions between them amounted to
US$640,188.51.33chanrobleslaw
On March 15, 1994, Branch 145 of RTC Makati granted ex parte the prayer
for preliminary attachment in the Collection Case.34chanrobleslaw
On May 7, 1991, Allied Bank filed a Motion to Consolidate/Be Accepted35
with Branch 61 of RTC Makati, which was granted by Order dated June 25,
1991.36 The two civil cases were jointly heard before Branch 61 of RTC
Makati.
On April 23, 2007, the RTC rendered the Omnibus Decision.37 The RTC
granted Marphil's complaint for declaratory relief, and declared PN No.
4202 void. However, it held Marphil and/or Ireneo Lim jointly and severally
liable for any balance due on their obligation under PN Nos. 2463 and 2730,
and additionally for the amount of P1,913,763.45 with interest rate fixed at
12% per annum until fully paid.38chanrobleslaw
On May 9, 2007, petitioners filed a Notice of Appeal39 with the RTC. Allied
Bank did not appeal the RTC decision. Records were then forwarded to the
CA, which began proceedings.40chanrobleslaw
The CA rendered its Decision41 on January 12, 2009 modifying the RTC
decision. The CA declared PN Nos. 2463 and 2730 fully paid, but held
petitioners liable for the amount of P1,913,763.45, the amount equal to the
face value of L/C No. 21970.42chanrobleslaw
The CA found that Allied Bank is not directly liable for the P1,913,763.45
under L/C No. 21970 because it was not a confirming bank and did not
undertake to assume the obligation of Nanyang Bank to Marphil as its own.
At most, it could only be a discounting bank which bought drafts under the
letter of credit. Following the ruling in Bank of America, NT & SA v. Court of
Appeals,43 it held that Allied Bank, as the negotiating bank, has the ordinary
right of recourse against the exporter in the event of dishonor by the issuing
bank. A negotiating bank has a right of recourse against the issuing bank,
and until reimbursement is obtained, the drawer of the draft continues to
assume a contingent liability on the draft. That there is no assumption of
direct obligation is further affirmed by the terms of the Letter Agreement.
The CA also declared PN Nos. 2463 and 2730 as fully paid. The CA held that
with these payments, the only obligation left of Marphil was the amount of
the reversed credit of P1,913,763.45. On the writ of preliminary attachment,
the CA noted that petitioners did not file any motion to discharge it on the
ground of irregular issue. The CA found that no forum shopping existed
because the causes of actions for declaratory relief and collection suit are
different.44chanrobleslaw
In a Resolution45 dated May 12, 2009, the CA denied petitioners Motion for
Partial Reconsideration46 dated January 22, 2009.
Hence, this petition.
Meanwhile, Allied Bank and Philippine National Bank (PNB) jointly filed a
Motion for Substitution of Party with Notice of Change of Address47 on
October 22, 2013 informing this Court that the Securities and Exchange
Commission approved a merger between Allied Bank and PNB, with the
latter as the surviving corporation. They prayed that Allied Bank be dropped
and substituted by PNB as party respondent in this petition. This was
granted by this Court in a Resolution48 dated December 4, 2013.
Issues
The issues are as follows:
Whether Allied Bank's debit memo on Maprhil's credit line in the amount of
P1,913,763.45 is valid.
Whether the RTC and CA created a new obligation when it held Marphil
liable for the amount of P1,913,763.45.
Whether Allied Bank committed forum shopping in filing the Collection
Case.
Whether the writ of preliminary attachment should be dissolved.
Ruling
We partly grant the petition.
At the outset, Allied Bank did not appeal from the decisions of the RTC and
CA respecting the nullification of PN No. 4202, and the extinguishment by
payment of PN Nos. 2730 and 2463. Allied Bank (now PNB) can thus no
longer seek their modification or reversal, but may only oppose the
arguments of petitioners on grounds consistent with the judgment of the
RTC and CA.49 Bearing this in mind, we proceed to dispose of the issues.
I. Validity of the debit memo
a. Allied Bank as correspondent bank in L/C No. 21970
Both the RTC and CA found that Allied Bank is not a confirming bank which
undertakes Nanyang Bank's obligation as issuing bank, but at most, buys
the drafts drawn by Marphil as exporter at a discount.
Marphil, however, argues that the RTC and CA erred in ruling that Allied
Bank is not a confirming bank. It insists that Allied Bank as correspondent
bank assumed the risk when it confirmed L/C No. 21970. It invokes the ruling
in Feati Bank & Trust Company v. Court of Appeals50 on the rule of strict
compliance in letters of credit stating that "[a] correspondent bank which
departs from what has been stipulated under the letter of credit, as when it
accepts a faulty tender, acts on its own risks and it may not thereafter be
able to recover from the buyer or the issuing bank x x x."51 Thus, Marphil
claims that Allied Bank had no authority to debit the amount equivalent to
the face value of L/C No. 21970 since the latter is directly liable for it.
We affirm the RTC and CA's findings that Allied Bank did not act as
confirming bank in L/C No. 21970.
As noted by the CA, Feati is not in all fours with this case. The correspondent
bank in that case refused to negotiate the letter of credit precisely because
of the beneficiary's non-compliance with its terms. Here, it is Nanyang Bank,
the issuing bank, which refused to make payment on L/C No. 21970 because
there was no strict compliance by Marphil.52chanrobleslaw
Further, while we said in Feati that a correspondent bank may be held liable
for accepting a faulty tender under the rule of strict compliance, its liability
is necessarily defined by the role it assumed under the terms of the letter of
credit. In order to consider a correspondent bank as a confirming bank, it
must have assumed a direct obligation to the seller as if it had issued the
letter of credit itself.53 We said that "[i]f the [correspondent bank] was a
confirming bank, then a categorical declaration should have been stated in
the letter of credit that the [correspondent bank] is to honor all drafts drawn
in conformity with the letter of credit."54 Thus, if we were to hold Allied
Bank liable to Marphil (which would result in a finding that the former's
debit from the latter's account is wrong) based on the rule of strict
compliance, it must be because Allied Bank acted as confirming bank under
the language of L/C No. 21970.
In finding that Allied Bank, as correspondent bank, did not act as confirming
bank; the CA reviewed the instructions of Nanyang Bank to Allied Bank in
L/C No. 21970. It found that based on the instructions, there is nothing to
support Marphil's argument that Allied Bank undertook, as its own,
Nanyang Bank's obligations in the letter of
credit:ChanRoblesVirtualawlibrary
In the case of [Bank of America], the functions assumed by a correspondent
bank are classified according to the obligations taken up by it. In the case
of a notifying bank, the correspondent bank assumes no liability except to
notify and/or transmit to the beneficiary the existence of the L/C. A
negotiating bank is a correspondent bank which buys or discounts a draft
under the L/C. Its liability.is dependent upon the stage of the negotiation. If
before negotiation, it has no liability with respect to the seller but after
negotiation, a contractual relationship will then prevail between the
negotiating bank and the seller. A confirming bank is a correspondent bank
which assumes a direct obligation to the seller and its liability is a primary
one as if the correspondent bank itself had issued the L/C.
In the instant case, the letter of Nanyang to Allied provided the following
instructions: 1) the negotiating bank is kindly requested to forward all
documents to Nanyang in one lot; 2) in reimbursement for the
negotiation(s), Nanyang shall remit cover to Allied upon receipt of
documents in compliance with the terms and conditions of the credit; 3) the
drafts drawn must be marked "drawn under Nanyang Commercial Bank";
and 4) to advise beneficiary.
From the above-instructions, it is clear that Allied did not undertake to
assume the obligation of Nanyang to Marphil as its own, as if it had itself
issued the L/C. At most, it can only be a discounting bank which bought the
drafts under the L/C. Following then the rules laid down in the case of Bank
of America, a negotiating bank has a right of recourse against the issuing
bank, and until reimbursement is obtained, the drawer of the draft
continues to assume a contingent liability thereon. x x
x55chanroblesvirtuallawlibrary
In this regard, this issue of whether Allied Bank confirmed L/C No. 21970
and assumed direct obligation on it is a question of fact that was resolved
by both RTC and CA in the negative. This Court is not a trier of facts and
does not normally undertake the re-examination of the evidence.56 This is
especially true where the trial court's factual findings are adopted and
affirmed by the CA.57 Factual findings of the trial court affirmed by the CA
are final and conclusive and may not be reviewed on appeal.58 Here, there
is no reason to deviate from these findings of the RTC and CA.

In any event, we find that Allied Bank may seek reimbursement of the
amount credited to Marphil's account on an independent obligation it
undertook under the Letter Agreement.
b. Allied Bank's right to reimbursement under the Letter Agreement
To recall, Marphil and Allied Bank executed the Letter Agreement dated
June 24, 1988 the subject of which is the draft equivalent to the face value
of L/C No. 21970.
In the Letter Agreement, Marphil expressly bound itself to refund the
amount paid by Allied Bank in purchasing the export bill or draft, in case of
its dishonor by the drawee bank:ChanRoblesVirtualawlibrary
Purchase of the Draft shall be with recourse to me/us in the event of non-
payment for any reason whatsoever. Notice of dishonor, non-acceptance,
non-payment, protest and presentment for payment are hereby waived.
xxx
If, for any reason, my/our Draft is not finally honored or retired by the
drawee, I/we hereby further undertake and bind myself/ourselves to refund
to you, on demand, the full amount of this negotiation, together with the
corresponding interest thereon as well as your or your correspondent's
charges and expenses thereon, if any; and to compensate you fully for any
damages that you might incur arising out of any suit, action or proceedings,
whether judicial or extra-judicial that might be instituted by the buyer or
importer on the ground of lack of faithful performance of the contract
between said buyer or importer and myself/ourselves. Likewise, should
my/our Draft be dishonored for any cause whatsoever, I/we hereby
authorize you, at your discretion and without any responsibility on your part
to sell, or cause to be sold, either publicly or privately, the underlying goods,
wherever they may be found, and, from the proceeds thereof, I/we hereby
empower you to collect all expenses incident thereto, together with your
commission, interest and other charges, as well as to reimburse yourself
therefrom x x x the full amount of this negotiation, interest, charges and
other expenses thereon, returning to me/us only whatever amount that may
remain thereafter; and, should there be any deficiency still in your favor,
notwithstanding the sale made as herein authorized, I/we likewise bind
myself/ourselves to pay the said deficiency to you upon
demand.59chanroblesvirtuallawlibrary
The case of Velasquez v. Solidbank Corporation60 is instructive as to the
nature of obligations arising from this form of undertaking. In that case, we
ruled that the obligation under a letter of undertaking, where the drawer
undertakes to pay the full amount of the draft in case of dishonor, is
independent from the liability under the sight draft.61 The letter of
undertaking of this tenor is a separate contract the consideration for which
is the promise to pay the bank the value of the sight draft if it was
dishonored for any reason.62 The liability provided is direct and primary,
without need to establish collateral facts such as the violation of the letter
of credit connected to it.63chanrobleslaw
Similarly, the Letter of Agreement is a contract between Marphil and Allied
Bank where the latter agreed to purchase the draft and credit the former its
value on the undertaking that Allied Bank will be reimbursed in case the
draft is dishonored. This obligation is direct, and is independent, not only
from the obligation under the draft, but also from the obligation under L/C
No. 21970. In this connection, the CA is incorrect to say that the Letter
Agreement bolsters the bank's claim that it did not undertake direct
obligation under the letter of credit. The Letter Agreement simply creates a
separate obligation on Marphil's part to refund the amount of the proceeds,
in case of dishonor.64 As an independent obligation, Marphil is bound to
fulfill this obligation to reimburse Allied Bank.
However, a conflict arose because instead of waiting for Marphil's own
initiative to return the amount, Allied Bank on its own debited from the
former's credit line.
c. Allied Banti 's right to debit Marphil's account
We now proceed to determine whether Allied Bank may unilaterally debit
the amount it credited to Marphil's account.
In the case of Associated Bank v. Tan,65 we upheld the right of a collecting
bank to debit a client's account for; the value of a dishonored check it
previously credited by virtue of the principle of legal compensation. Since
the relationship between banks and depositors has been held to be that of
creditor and debtor in a simple loan, legal compensation may take place
when the conditions in Article 1279 of the Civil Code are present: (1) that
each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other; (2) that both debts consist in a sum of
money, or if the things due are consumable, they be of the same kind, and
also of the same quality if the latter has been stated; (3) that the two debts
be due; (4) that they be liquidated and demandable; and (5) that over
neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor.66chanrobleslaw
In this case, when Allied Bank credited the amount of P1,913,763.45 to
Marphil's account, it became the debtor of Marphil. However, once
Nanyang Bank dishonored the export documents and draft for L/C No.
21970, Marphil became the debtor of Allied Bank for the amount by virtue
of its obligation to reimburse the bank under the Letter Agreement. This
obligation consisting of sum of money became demandable upon notice of
the dishonor by Nanyang Bank. Thus, legal compensation may take place
between the two debts.
In Associated Bank, we nevertheless emphasized that while the bank has the
right to set off, the exercise of such right must be consistent with the
required degree of diligence from banks, i.e., highest degree of care. Thus,
the question that needs to be resolved now is whether Allied Bank properly
exercised its right to set off.67chanrobleslaw
We rule that Allied Bank properly exercised its right to set off. Firstly, having
signed the Letter Agreement, Marphil expressly undertook that in case of
dishonor of the draft for the letter of the credit, it will refund to Allied Bank
whatever the latter has credited in its favor. This places Marphil on its guard
that the dishonor will create an obligation to refund the amount credited.
Secondly, prior to debiting the amount, Allied Bank informed Marphil twice
of Nanyang Bank's refusal to honor the tender of documents on L/C No.
21970. Thirdly, it immediately informed Marphil that it was debiting the
amount of the dishonored draft from the credit line.
Most importantly, the debiting of the account was not the proximate cause
of the loss to Marphil brought about by the reshipment of goods back to
Manila. The proximate cause of the loss is the subsequent dishonor of the
documents by Nanyang Bank, which came before the debiting of the
account. The P1,913,763.45 subject of the debit memo was already the costs
incurred in relation to the financing and shipping of the goods to Hong
Kong, and do not refer to the loss incurred when the goods were shipped
back to Manila. Thus, the debiting of Marphil's account did not result in
additional losses for Marphil.
In sum, we affirm that Allied Bank is not a confirming bank under L/C No.
21970. In any case, whether Allied Bank is directly liable as confirming bank
will not affect Marphil's obligation to reimburse Allied Bank the amount;of
P1,913,763.45 because its liability to refund the amount arose under an
independent contract, i.e. the Letter Agreement. And while Allied Bank is
the debtor of Marphil for the amount it credited under the draft, the
obligation under the Letter Agreement made Allied Bank the creditor of
Marphil for the same amount. Being debtor and creditor of each other,
Allied Bank was entitled to legal compensation by debiting the amount,
which did not result in any loss to Marphil.
II. Obligation of P1,913,763.45 to Allied Bank
Marphil next argues that the RTC and CA erroneously held it liable to Allied
for P1,913,763.45 as a new obligation.
We rule that there is no new obligation created when1 both the RTC and CA
held petitioners liable for the P1,913,763.45. This was a prior and existing
obligation of Marphil separate from the amount covered by the draft under
L/C No. 21970. In filing the Declaratory Relief Case, Marphil asked the court
not only to determine the status of its obligations evidenced by PN Nos.
2463, 2730 and 4202, but also to determine the status of its existing loans
with Allied Bank, regardless of the counterclaim of the latter.
To recall, the arrangement between Marphil and Allied Bank is that
advances were made by the bank in the form of loans to finance the
exportation busiriess of Marphil. When Allied Bank purchases the drafts for
the letters of credit from Marphil, it credits the amount to the latter's credit
line and deducts; from the total amount of Marphil's existing loans from
Allied Bank. This is what Allied Bank did in this case; it credited to Marphil's
account the amount of P1,913,763.45 upon purchase of the draft. However,
when L/C No. 21970 was dishonored by Nanyang Bank, it reversed the credit
memo thereby leaving the parties in their situation prior to the credit memo
— that Marphil has existing loan obligations arising from the advances
made by Allied Bank. Simply put, Marphil is liable for the amount of
P1,913,763.45 because this is the only amount not proven to be paid in the
many loans obtained by Marphil in the credit line.
The CA imposed the legal interest rate of twelve percent (12%) on this loan
obligation. Notably, the CA made no factual determination that the amount
of P1,913,763.45 was subject to any stipulated interest between the parties.
Likewise, Allied Bank neither claimed for the application of a stipulated
interest nor questioned the imposition of legal interest on the loan, as it no
longer appealed the decision. Considering this, we are constrained to
uphold that the amount of P1,913,763.45, as a loan obligation, is only subject
to the legal interest applicable as of the time of this decision. This is in line
with our ruling in Nacar v. Gallery Frames68 that in the absence of a
stipulated interest, a loan obligation shall earn legal interest from the time
of default, i.e., from judicial or extrajudicial demand.69chanrobleslaw
We, however, modify the rate of legal interest imposed by the CA also in
conformity with Nacar. The amount of P1,913,763.45 shall earn legal interest
at the rate of six percent (6%) per annum computed from the time of judicial
demand, i.e. from the date of the filing of the counterclaim in the
Declaratory Relief Case on May 7, 1990, until the date of finality of this
judgment. The total amount shall thereafter earn interest at the rate of six
percent (6%) per annum from such finality of judgment until its
satisfaction.70chanrobleslaw
III. Forum Shopping
Marphil argues that in determining that Allied Bank committed forum
shopping upon filing the Collection Case, the RTC and CA should have
considered the counterclaim filed in the Declaratory Relief Case, and not the
main petition itself. Marphil contends that Allied Bank is collecting on the
same three promissory notes in its counterclaim in the two cases.
Forum shopping exists "when a party repetitively avails of several judicial
remedies in different courts, simultaneously or successively, all substantially
founded on the same transactions and the same essential facts and
circumstances, and all raising substantially the same issues either pending
in or already resolved adversely by some other court."71 Forum shopping is
proscribed by the rules because of the vexation caused to the courts and
parties-litigants by the filing of similar cases to claim the same reliefs.72 The
rule against forum shopping aims to avoid the grave evil that may result in
the rendition by two competent tribunals of two separate and contradictory
decisions.73 Thus, any violation of the rule against forum shopping results
in the dismissal of a case, or can result in holding of direct contempt against
the actor.74chanrobleslaw
There is forum shopping when the elements of litis pendentia are present,
or when a final judgment in one case amounts to res judicata in the other.75
It must be shown that the following elements are present: (a) identity of
parties, or at least such parties representing the same interests in both
actions; (b) identity of rights asserted and reliefs prayed for, the relief being
founded on the, same facts; and (c) the identity of the two preceding
particulars, such that any judgment rendered in the other action will,
regardless of which party is successful, amounts to res judicata in the action
under consideration.76chanrobleslaw
We rule that there is no forum shopping, albeit for a reason different from
that explained by the CA.
The CA concluded that there is no forum shopping because the cases
involve different causes of action: the first case is a petition for declaratory
relief while the second case is one of collection of sum of money. We find
this analysis too sweeping and erroneous. The CA failed to take into account
that it was Allied Bank who is being charged with violating the rule on forum
shopping. As such, the cause of action that should have been considered is
the counterclaim of Allied Bank in the Declaratory Relief Case, which is
essentially a collection suit against the principal debtor Marphil.
Subsequently, it also filed another Collection Case seeking to collect also on
the surety Lim under the same three (3) promissory notes. These cases are
the actions that the CA should have considered in deciding whether Allied
Bank committed forum shopping.
We rule that Allied Bank did not commit forum shopping when it initiated
the Collection Case against Lim despite the pendency of the counterclaim
in the Declaratory Relief Case, because there is no identity of parties and
cause1 of action.
In Gilat Satellite Networks, Ltd. v. United Coconut Planters Bank General
Insurance Co., Inc.,77 we explained that while a surety contract is merely
ancillary to a principal obligation, the surety's liability is direct, primary and
absolute. The surety's obligation is joint and solidary with that of the
principal, and he becomes liable for the debt and duty of the principal, even
without possessing a direct or personal interest in the principal obligation.
As such, a surety may be sued separately or together with principal.78 We
emphasized this in Ong v. Philippine Commercial International Bank79
where we held that the right to collect payment from the surety exists
independently of its right to proceed directly against the principal debtor.80
In fact, the creditor bank may go against the surety alone without prior
demand for payment on the principal debtor.81chanrobleslaw
Here, the parties in the counterclaim in the Declaratory Relief Case are Allied
Bank, as creditor, and Marphil, as principal debtor. On the other hand, the
parties in the Collection Case are Allied Bank, as creditor, and Lim, as surety.
There is no identity of parties. Also, the causes of action pleaded are
different because the counterclaim in the Declaratory Relief Case involves
collection on the loan obligations, while Allied Bank in its complaint in the
Collection Case seeks to collect on the surety obligation of Lim under the
CG/CS Agreements. Another reason why forum shopping does not obtain
here is the circumstance that the two cases were subsequently consolidated,
jointly heard, and a single decision was rendered. Thus, the evil that the rule
against forum shopping avoids, and the vexation on the court and parties-
litigant, are wanting.
IV. Validity of the writ of preliminary attachment
In its application for a writ of preliminary attachment in the Collection Case
against the surety Lim, Allied Bank alleged:ChanRoblesVirtualawlibrary
25.
Defendants in conspiracy with Marphil and with one another, committed
fraud in contracting the obligations upon which the first, second and third
causes of action are brought (Sec. 1, par. (d) Rule 57, Rules of Court) when:
a.)
There is a preconceived intention not to pay their obligations as further
manifested by the premature and unjust filing of a complaint by Marphil
against the plaintiff in Civil Case No. 90-640 before RTC, Makati, Branch 61;
b.)
To induce plaintiff to grant the credit accommodation, defendants and
Marphil represented to the plaintiff that they would present the proper and
sufficient documents to the issuing bank when in truth and in fact, there
were discrepancies noted in the documents presented to the issuing bank
by Marphil.
c.)
Further, defendants and Marphil committed misrepresentation in shipping
the cashew nuts at a volume less than that which was required by the foreign
buyer.82 (Emphasis supplied.)
Subsequently, Branch 145 of RTC Makati issued the writ of preliminary
attachment ex parte. When the case reached it, the CA summarily disposed
of the issue of the propriety of the writ by stating that petitioners did not
file any motion to discharge. However, the records show that Lim filed his
Motion to Discharge Attachment83 dated May 20, 1994 before Branch 61 of
RTC Makati where Lim raised that no ground exists for the writ of
attachment, making it irregularly and improperly issued.
We grant the petition as to the dissolution of the writ of preliminary
attachment.
A writ of preliminary attachment is "a provisional remedy issued upon order
of the court where an action is pending to be levied upon the property or
properties of the defendant therein, the same to be held thereafter by the
sheriff as security for the satisfaction of whatever judgment might be
secured in said action by the attaching creditor against the defendant."84
Section 1, Rule 57 of the Revised Rules of Court provides for the grounds
upon which the writ may issue. For this case, it is grounded under Section 1
(d) of Rule 57 of the Revised Rules of Court:ChanRoblesVirtualawlibrary
Sec. 1. Grounds upon which attachment may issue. — At the commencement
of the action or at any time before entry of judgment, a plaintiff or any
proper party may have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered in the
following cases:
(d)In an action against a party who has been guilty of a fraud in contracting
the debt or incurring the obligation upon which the action is brought, or in
the performance thereof;
xxx
Once issued, a writ of attachment may be dissolved or discharged on the
following grounds: (a) the debtor has posted, a counter-bond or has made
the requisite cash deposit; (b) the attachment was improperly or irregularly
issued as where there is no ground for attachment, or the affidavit and/or
bond filed therefor are defective or insufficient; (c) the attachment is
excessive, but the discharge shall be limited to the excess; (d) the property
attachment is exempt from preliminary attachment; or (e) the judgment is
rendered against the attaching creditor.85chanrobleslaw
In Ng Wee v. Tankiansee,86 we explained that to justify the attachment of
the debtor's property under Section 1(d) of Rule 57 of the Rules of Court,
the applicant must show that in incurring the obligation sued upon, fraud
must be the reason which induced the other party into giving its consent. In
addition, the particular acts constituting the fraud imputed to the defendant
must be alleged with specificity. We held:
In the case at bench, the basis of petitioner" s application for the issuance
of the writ of preliminary attachment against the properties of respondent
is Section 1(d) of Rule 57 of the Rules of Court which pertinently reads:
For a writ of attachment to issue under this rule, the applicant must
sufficiently show the factual circumstances of the alleged fraud because
fraudulent intent cannot be inferred from the debtor's mere non-payment
of the debt or failure to comply with his obligation. The applicant must then
be able to demonstrate that the debtor has intended to defraud the creditor.
In Liberty Insurance Corporation v. Court of Appeals, we explained as
follows:
"To sustain an attachment on triis ground, it must be shown that the debtor
in contracting the debt or incurring the obligation intended to defraud the
creditor. The fraud must relate to the execution of the agreement and must
have been the reason which induced the other party into giving consent
which he would not have otherwise given. To constitute a ground for
attachment in Section 1 (d), Rule 57 of the Rules of Court, fraud should be
committed upon contracting the obligation sued upon. A debt is
fraudulently contracted if at the time of contracting it the debtor has a
preconceived plan or intention not to pay, as it is in this case. Fraud is a state
of mind and need not be proved by direct evidence but may be inferred1
from the circumstances attendant in each case."
In the instant case, petitioner's October 12, 2000 Affidavit is bereft of any
factual statement that respondent committed a fraud. The affidavit narrated
only the alleged fraudulent transaction between Wincorp and Virata and/or
Power Merge, which, by the way, explains why this Court, in G.R. No. 162928,
affirmed the writ of attachment issued against the latter. As to the
participation of respondent in the said transaction, the affidavit merely
states that respondent, an officer and director of Wincorp, connived with
the other defendants in the civil case to defraud petitioner of his money
placements. No other factual averment or circumstance details how
respondent committed a fraud or how he connived with the other
defendants to commit a fraud in the transaction sued upon. In other words,
petitioner has not shown any specific act or deed to support the allegation
that respondent is guilty of fraud.
The affidavit, being the foundation of the writ, must contain such particulars
as to how the fraud imputed to respondent was committed for the court to
decide whether or not to issue the writ. Absent any statement of other
factual circumstances to show that respondent, at the time of contracting
the obligation, had a preconceived plan or intention not to pay, or without
any showing of how respondent committed the alleged fraud, the general
averment in the affidavit that respondent is an officer and director of
Wincorp who allegedly connived with the other defendants to commit a
fraud, is insufficient to support the issuance of a writ of preliminary
attachment. In the application for the writ under the said ground,
compelling is the need to give a hint about what constituted the fraud and
how it was perpetrated because established is the rule that fraud is never
presumed. Verily, the mere fact that respondent is an officer and director of
the company does not necessarily give rise to the inference that he
committed a fraud or that he connived with the other defendants to commit
a fraud. While under certain circumstances, courts may treat a corporation
as a mere aggroupment of persons, to whom liability will directly attach,
this is only done when the wrongdoing has been clearly and convincingly
established.87 (Citations omitted.)
We also reiterated in Ng Wee that the rules on the issuance of the writ of
preliminary attachment as a provisional remedy are strictly construed
against the applicant because it exposes the debtor to humiliation and
annoyance.88 The applicant must show that all requisites are present.89
Otherwise, if issued on false or insufficient allegations, the court acts in
excess of its jurisdiction which must be corrected.90chanrobleslaw
In this case, the writ of preliminary attachment was improperly or irregularly
issued because there is no ground for the attachment.
To begin with, Allied Bank filed the application for the writ of preliminary
attachment in the Collection Case against Lim as surety. However, the
allegations of fraud refer to the execution of the promissory notes, and not
on the surety agreement. The application was bereft of any allegation as to
Lim's participation in the alleged conspiracy of fraud. Also, the writ of
preliminary attachment was granted in the Collection Case against Lim as .
surety, yet there was no allegation on Lim's fraudulent intention in incurring
its obligation under the CG/CS Agreements. It cannot be inferred that Lim
had, at the time of contracting the obligation, the preconceived intention
to renege on his obligation under the CG/CS Agreements. Continuing
guaranty and surety agreements are normally required by a bank or
financing company anticipating to enter into a series of credit transactions
with a particular principal debtor.91 This avoids a need to execute a separate
surety contract or bond for each financing or credit accommodation
extended to the principal debtor.92 Here, the CG/CS Agreements were
executed prior to the issuance of L/C No. 21970, and were in force during
other transactions including the one involving L/C No. 22518 which
encountered no problem. Thus, this transaction cannot be singled out to
justify that the surety agreement has been contracted through fraud.
Moreover, the filing of the Declaratory Relief Case cannot be evidence of a
preconceived intention not to pay the surety's obligation because it was
filed by Marphil, and not Lim. In any case, the filing of the case is a legitimate
means resorted to by Marphil in, seeking to clarify its existing obligations
with Allied Bank. If its intention was to renege on its obligations, it would
not have submitted itself to the jurisdiction of the court where it can be
ordered to pay any existing obligations. The allegation that petitioners
made representations to induce it to grant them a credit line is belied by
the fact that it is only in the transaction involving L/C No. 21970 where Allied
Bank encountered problems, because of Nanyang Bank's dishonor of the
draft and documents. Also, the allegation that petitioners committed
misrepresentation in shipping the cashew nuts at a volume less than that
which was required by the foreign buyer, relates to the sale between Marphil
and Intan, and not to the loan between Marphil and Allied Bank.
From the foregoing, Allied Bank was not able to sufficiently establish the
factual circumstances of the alleged fraud in contracting the obligation.
Thus, there being no ground for its issuance, the writ of preliminary
attachment should be dissolved.
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The
January 12, 2009 Decision and May 12, 2009 Resolution of the Court of
Appeals are MODIFIED. Marphil Export Corporation and Ireneo Lim are
ordered to pay jointly and severally Allied Banking Corporation (now
Philippine National Bank) the principal amount of P1,913,763.45, with
interest at the rate of six percent (6%) per annum computed from May 7,
1990, until the date of finality of this judgment. The total amount shall
thereafter earn interest at the rate of six percent (6%) per annum from the
finality of judgment until its satisfaction. Let the writ of preliminary
attachment issued against Ireneo Lim's property be DISSOLVED. SO
ORDERED.
G.R. No. 195295, October 05, 2016
REPUBLIC OF THE PHILIPPINES, Petitioner, v. SANDIGANBAYAN, FOURTH
DIVISION, FERDINAND "BONGBONG" R. MARCOS, JR., MA. IMELDA "IMEE"
R. MARCOS-MANOTOC, GREGORIO MA. ARANETA III, AND IRENE R.
MARCOS ARANETA, Respondents.
This resolves a Petition1 for certiorari assailing the Sandiganbayan's
cancellation of a notice of lis pendens issued over property alleged to be ill-
gotten wealth of Former President Ferdinand E. Marcos (Former President
Marcos) and his associates.
Respondents Ferdinand "Bongbong" R. Marcos, Jr. (Marcos, Jr.), Maria
Imelda R. Marcos (Imee), and Irene Marcos Araneta (Irene) appear to be the
registered owners of a parcel of land located in the Municipality of Cabuyao,
Laguna (Cabuyao property) and covered by Transfer Certificate of Title (TCT)
No. T-85026.2
On July 16, 1987, petitioner Republic of the Philippines, through the
Presidential Commission on Good Government, filed before the
Sandiganbayan a Complaint for reversion, reconveyance, restitution,
accounting, and damages against Former President Marcos, Imelda R.
Marcos, their children, Marcos, Jr., Imee, and Irene, and their sons-in-law,
Tomas Manotoc and Gregorio Ma. Araneta III.3 This case was docketed as
Civil Case No. 0002 (Civil Case).4 The Complaint principally sought to
recover ill-gotten wealth acquired by the Marcoses during their incumbency
as public officers in active collaboration with their cronies, dummies, and
close business associates.5
On April 23, 1990, petitioner filed its Third Amended Complaint dated April
20, 1990, which was admitted by the Sandiganbayan (admitted Complaint).6
On June 1, 1994, the Presidential Commission on Good Government caused
the annotation of a notice of lis pendens on TCT No. T-85026 in relation to
the Civil Case,7 which reads:
Entry No. 268288 - NOTICE OF LIS PENDENS - filed by Commissioner
Herminio A. Mendoza for and in behalf of the Republic of the Philippines,
entitled Republic of the Philippines versus Ferdinand E. Marcos et al., in Civil
Case No. 0002 for Reconveyance, Reversion, Accounting, Restitution and
Damages of Office of the President, Presidential Commission on Good
Government, filed in Env. No. T-85026.
Date of Instrument - June 1, 1994
Date of Inscription-June 13, 1994 at 4:10 p.m.
(signed)
Dante A. Ariola
Register of Deeds8
On June 13, 1994, the Register of Deeds of Cabuyao, Laguna, annotated the
notice of lis pendens on TCT No. T-85026.9
Marcos, Jr. filed an Omnibus Motion10 dated June 5, 1997 praying for the
cancellation of the notice of lis pendens and pointing out that the Cabuyao
property was not specifically mentioned in the original and amended
Complaints or their annexes. Marcos, Jr. also prayed that petitioner be
directed to immediately vacate the property, cease from further interfering
with and exercising ownership over it, and return it to him and the other
registered owners.11
On July 15, 1997, petitioner filed a Motion for Leave to Admit Fourth
Amended Complaint;12 with an attached Fourth Amended Complaint.13 The
Fourth Amended Complaint was substantially identical to the admitted
Complaint, but with the amended annex List of Assets and Other Properties
of Ferdinand E. Marcos, Imelda R. Marcos and Immediate Family.14 The list
specifically mentioned the Cabuyao property as one among the assets of
the Marcoses.15
The Sandiganbayan denied the Motion to admit the Fourth Amended
Complaint:
[F]or failure of the plaintiff-movant to comply with the provision of Section
7, Rule 12 of the 1997 Rules of Civil Procedure which provides:
"Section 7. Filing of amended pleadings. When any pleading is amended, a
new copy of the entire pleading, incorporating the amendments which shall
be indicated by appropriate marks, shall be filed."
and for further reason that the original complaint in this case was filed with
this Court on July 16, 1987 yet, or more than 11 years ago, and this case has
not even reached the pre-trial stage because not all of the defendants have
been served with summons.16
Marcos, Jr. filed an Urgent Motion to Resolve dated July 29, 2002 seeking
the immediate resolution of the Omnibus Motion.17 Petitioner filed a
Comment/Opposition18 seeking an order of preliminary attachment over
the Cabuyao property. In the Resolution19 dated January 11, 2010, the
Sandiganbayan ordered the cancellation of the annotation of lis pendens on
TCT No. T-85026. It directed petitioner to immediately cease from further
interfering with and exercising ownership over the Cabuyao property and
to return its possession and control to the Marcoses.20 It held that because
the admitted Complaint did not specifically mention the Cabuyao property,
the Cabuyao property was not involved in the Civil Case; therefore,
petitioner has over the property no actionable claim that needs to be
protected via a notice oflis pendens.21
On the writ of preliminary attachment, the Sandiganbayan held that
petitioner's allegations were insufficient to support an application for a writ
of attachment.22 The Cabuyao property was never concealed, removed, or
disposed of by the Marcoses.23 There was seemingly no particular exigency
warranting the attachment of the Cabuyao property, considering that the
petitioner had been in exclusive possession of the property for more than a
decade and yet it did not promptly move for the issuance of a writ of
preliminary attachment.24
Petitioner's Motion for Reconsideration was denied in the Resolution25
dated December 1, 2010. Hence, this Petition26 was filed.
In the Resolution27 dated February 21, 2011, this Court issued a temporary
restraining order enjoining respondents from implementing the assailed
Sandiganbayan Resolutions in the Civil Case, and directed respondents to
comment.
Respondents Imelda R. Marcos,28 Marcos, Jr.,29 and Gregorio Ma. Araneta
III and Irene30 filed their respective Comments to the Petition. This Court
dispensed with the filing of the comment of respondent Imee.31 Petitioner
filed its Replies32 to respondents' Comments.
Petitioner argues that the Cabuyao property forms part of the assets alleged
to have been unlawfully acquired by Former President Marcos and his family
during the Marcos regime. It is sought to be reconveyed in favor of
petitioner in the Civil Case and was, thus, properly subject of the notice of
lis pendens. Petitioner further argues that the allegations in the admitted
Complaint relate to all properties, real or personal, acquired by Former
President Marcos and his family during the Marcos regime.33 The list of
assets and properties specified as forming part of the ill-gotten wealth of
the Marcoses is preceded by the words "include but are not limited" to those
already enumerated:34chanroblesvirtuallawlibrary
16. Among others, in furtherance of the plan and acting in the manner
referred to above, in unlawful concert with one another and with gross
abuse of power and authority, Defendants Ferdinand E. Marcos and Imelda
Marcos:
....
(f) extorted, demanded and received improper payments in the form of,
among others, commissions, bribes and kickbacks from persons and
corporations entering into contracts with the Government or its agencies or
instrumentalities for themselves, or for third persons, permits, licenses or
concessions which were then required in order to engage in particular
business activities;
...
(i) engaged in other illegal and improper acts and practices designed to
defraud Plaintiff and the Filipino people, or otherwise misappropriated and
converted to their own use, benefit and enrichment the lawful patrimony
and revenues of Plaintiff and the Filipino people.
....
17. Among the assets acquired by Defendants in the manner above
described and discovered by the Commission in the exercise of its official
responsibilities are funds and other property listed in Annex "A" hereof and
made an integral part of the complaint.
18 Defendants, with the active collaboration of third persons who are
subject of separate suits, after acquiring ill-gotten wealth consisting of
funds and other property as mentioned above:
....
19. As an integral element of their above mentioned scheme, acting upon
the advice and retaining the service of prominent lawyers, bankers,
accountants and other persons, Defendants employed numerous
stratagems, schemes, artifices and devices to prevent disclosure, conceal
and frustrate recovery of their ill-gotten wealth or the manner by which it
was acquired, including the use of (a) code names or pseudonyms, (b)
trustees, dummies, nominees or agents, (c) societies and foundations
organized in, among others, Liechtenstein, and/or (d) layers of offshore
companies and corporations in various places such as Netherlands, Antilles,
Panama, Hongkong and the Virgin Islands:
20. The assets and other properties of defendants in the Philippines include,
but are not limited to the following:
....
(b) Real Properties
....
28. (a) The 1935 Constitution, as well as the 1973 Marcos-promulgated
Constitution, provides that the President shall not be entitled to any
emolument in addition to a fixed salary which shall be neither increased nor
diminished during the period for which he shall have been elected.
(b) All income received by Defendant Ferdinand E. Marcos during his
incumbency as President in excess of his salary constitutes illegal income,
having been acquired in violation of the provisions of a Constitution which
he himself caused to be ratified.
29. Defendants Imelda (Imee) R. Marcos-Manotoc, Tomas Manotoc, Irene R.
Marcos Araneta, Gregorio Ma. Araneta III, and Ferdinand R. Marcos, Jr.,
actively collaborated, with Defendants Ferdinand E. Marcos and Imelda R.
Marcos among others, in confiscating and/or unlawfully appropriating
funds and other property, and in concealing the same as described above.
In addition, each of said Defendants, either by taking undue advantage of
their relationship with Defendants Ferdinand E. Marcos and Imelda R.
Marcos, or by reason of the above-described active collaboration,
unlawfully acquired or received property, shares of stocks in corporations,
illegal payments such as commissions, bribes or kick-backs, and other forms
of improper privileges, income, revenues and benefits[.]35
chanrobleslaw
Moreover, petitioner claims that the grounds for cancelling a notice of lis
pendens are not present.36
In any case, petitioner also insists that the amendment of the Complaint to
specifically include the Cabuyao property is a formal amendment that may
be done at any time. The Sandiganbayan should have been more liberal in
resolving the Motion to admit the Fourth Amended Complaint.37
Additionally, petitioner argues that the denial of a motion to admit an
amended complaint is an interlocutory one and cannot attain finality.38
As regards the entitlement to a writ of preliminary attachment, petitioner
argues that it has demonstrated entitlement to a writ of attachment over
the Cabuyao property. Sequestration is akin to preliminary attachment and
is among the other provisional remedies available to the Presidential
Commission on Good Government, which was essentially founded on
urgency and necessity to preserve ill-gotten wealth amassed during the
Marcos regime.39
The allegations in the admitted Complaint narrate in detail the manner by
which the Cabuyao property was amassed by the former dictator:
From the early years of his presidency, Defendant Ferdinand E. Marcos took
advantage of his powers as President all throughout the period from
September 21, 1972 to February [25,] 1986, he gravely abused his powers
under martial law and ruled as Dictator under the 1973 Marcos-promulgated
Constitution. Defendant Ferdinand E. Marcos, together with other
Defendants, acting singly or collectively, in unlawful concert with one
another, and with the active collaboration and participation of third persons
who are subject of separate suits, in flagrant breach of trust and of their
fiduciary obligations as public officers, with gross and scandalous abuse of
right and power and in brazen violation of the Constitution and laws of the
Philippines, embarked on a systematic plan to accumulate ill-gotten wealth
[.]
. . . Defendants Imelda [Imee] R. Marcos-Manotoc, Tomas Manotoc, Irene R.
[Marcos]-Araneta, Gregorio Ma. Araneta III, and Ferdinand [R.] Marcos, Jr.
actively collaborated with Defendants Ferdinand E. Marcos and Imelda R.
Marcos, among others, in confiscating and/or unlawfully appropriating
funds and other property, and in concealing the same as described above. .
. . [E]ach of the Defendants, either by taking undue advantage of their
relationship with Defendants Ferdinand E. Marcos and Imelda R. Marcos, or
by reason of the above-described active collaboration, unlawfully acquired
or received property, shares of stocks hi corporations, illegal payments such
as commissions, bribes or kickbacks, and other forms of improper privileges,
income, revenues and benefits[.]40
Petitioner asserts that the Cabuyao property covers a vast and valuable 25
hectares of prime lot. It is among the assets and properties acquired by the
Marcoses between 1972 and 1986. During the registration of the property,
respondents were minors who had no legitimate source of income. The
registration of the property in their names was obviously done to conceal
the truth that Former President Marcos was the true owner. Finally, the
Cabuyao property had been under the custody and administration of the
Government since 1986. Thus, respondents are guilty of laches for having
accepted said custody and administration for a long time.41cralawred
Respondents argue that the Petition should be dismissed outright for
procedural defects.42 They stress that the denial of the Motion to Admit the
Fourth Amended Complaint has attained finality.43 Further, the annotation
of the notice of lis pendens was improper as the Civil Case did not affect the
Cabuyao property.44 The properties involved in the Civil Case were
enumerated in the Complaint and made no mention of the Cabuyao
property.45 That the property is not part of the res in Civil Case No. 0002 is
apparent from petitioner's failure to adduce any evidence involving the
Cabuyao property during the trial of the case.46
Additionally, respondents claim that the petitioner is not entitled to the
preliminary remedy of attachment, there being no factual allegations
showing the ground relied upon exists.47
The Petition is granted.
I trial of cases for violations of laws involving the acquisition and
Rule 13, Section 14 of the Rules of Court provides that a notice of lis pendens
may be cancelled only upon order of the court, after proper showing that
the notice is to molest the adverse party, or that it is not necessary to protect
the right of the party who caused it to be
recorded:chanRoblesvirtualLawlibrary
RULE 13
Service and Filing of Pleadings and Other Papers
....
SEC. 14. Notice of Lis Pendens. — In an action affecting the title or the right
of possession of real property, the plaintiff and the defendant, when
affirmative relief is claimed in his answer, may record in the office of the
registry of deeds of the province hi which the property is situated a notice
of the pendency of the action. Said notice shall contain the names of the
parties and the object of the action or defense, and a description of the
property in that province affected thereby. Only from the time of filing such
notice for record shall a purchaser, or encumbrancer of the property
affected thereby, be deemed to have constructive notice of the pendency
of the action, and only of its pendency against the parties designated by
their real names.
The notice of lis pendens hereinabove mentioned may he cancelled only
upon order of the court, after proper showing that the notice is for the
purpose of molesting the adverse party, or that it is not necessary to protect
the rights of the party who caused it to be recorded. (Emphasis supplied)
chanrobleslaw
Although the Sandiganbayan found that the notice is not for the purpose
of molesting the adverse party, it cancelled the notice of lis pendens as it
was not necessary to protect the right of
petitioner:chanRoblesvirtualLawlibrary
Significantly, while there may be nothing on record to show that the notice
of lis pendens was for the purpose of molesting the defendants who are the
registered owners of the subject property, the record shows that plaintiff
has no claim over the subject property that needs to be protected. In fact,
plaintiff does not have any actionable right over the subject property
because the same is not involved in the instant case. Accordingly,
considering that the notice of lis pendens was erroneously annotated, its
cancellation is in order.48
Chanrobleslaw
The conclusion that the Cabuyao property is not involved in the Civil Case
is based on the belief that failure to specifically mention the property in the
amended Complaint automatically renders it beyond the scope of the Civil
Case.
Executive Order No. 14, which defines the jurisdiction over cases involving
the ill-gotten wealth of Former President Marcos and his family, associates,
dummies, agents, and nominees, specifically states that the technical rules
of procedure and evidence shall not be strictly applied to the civil cases filed
under it. Thus, this Court has emphasized this provision and pointed out
that strict adherence to technical rules will hamper the efforts of the
Presidential Commission on Good Government:chanRoblesvirtualLawlibrary
We note that the law governing the issues raised in this petition calls for the
setting aside of technical rules when necessary to achieve the purposes
behind the PCGG's creation.
It is to be reiterated that paragraph 2 of Section 3, of Executive Order No.
14 reads:cralawlawlibrary
....
"The technical rules of procedure and evidence shall not be strictly applied
to the civil cases filed hereunder."
Section 7 thereof also provides:cralawlawlibrary
"SECTION 7. The provisions of this Executive Order shall prevail over any
and all laws, or parts thereof, as regards the investigation, prosecution, and
accumulation of ill-gotten wealth as mentioned in Executive Order Nos. 1
and 2."
chanrobleslaw
A settled rule on construction is found in the case of Leveriza v. Intermediate
Appellate Court:
". . . that another basic principle of statutory construction mandates that
general legislation must give way to special legislation on the same subject,
and generally be so interpreted as to embrace only cases in which the
special provisions are not applicable, that a specific statute prevails over a
general statute and that where two statutes are of equal theoretical
application to a particular case, the one designed therefor specially should
prevail. ["]
chanrobleslaw
On this score alone, the Sandiganbayan's rejection of the petitioner's
motion on the ground that dropping Campos, Jr. as defendant in the civil
case would amount to a violation of the Rules of Court is based on shaky
ground.
The Sandiganbayan's objections will hamper PCGG efforts in this similar
cases.49
chanrobleslaw
The admitted Complaint was filed to recover, for the Republic of the
Philippines, all the properties that were illegally acquired by the Marcoses
during their incumbency as public officers and that were manifestly out of
proportion to their salaries, other lawful income, and income from
legitimately acquired property.50
The assailed Resolutions do not suggest that the Cabuyao property is not
part of the property illegally acquired by respondents. Thus, the conclusion
that the Cabuyao property is not affected by the Civil Case is based solely
on an inference from a procedural detail.
The present issue could have been averted had the Sandiganbayan granted
petitioner's Motion for Leave to Admit Fourth Amended Complaint.
Unfortunately, petitioner inexplicably neither filed a motion for
reconsideration to seek reversal of the Sandiganbayan's denial nor raised
the issue in a petition for certiorari. Nonetheless, an examination of the
denial of the Motion to admit the amended Complaint is necessary for a full
and complete resolution of the issues raised in this Petition.
The Sandiganbayan Resolution dated September 2, 1998
reads:chanRoblesvirtualLawlibrary
In Civil Case No. 0002 (Republic vs. Ferdinand E. Marcos, et al.), the Court
resolved to deny the Motion for Leave to Admit Fourth Amended
Complaint, dated July 8, 1997, filed by plaintiff, through counsel (with a copy
of the Fourth Amended Complaint thereto attached) for failure of the
plaintiff-movant to comply with the provision of Section 7, Rule 12 of the
1997 Rules of Civil Procedure which provides:chanRoblesvirtualLawlibrary
"Section 7. Filing of amended pleadings. When any pleading is amended, a
new copy of the entire pleading, incorporating the amendments which shall
be indicated by appropriate marks, shall be filed."
chanrobleslaw
and for further reason that the original complaint in this case was filed with
this Court on July 16, 1987 yet, or more than 11 years ago, and this case has
not even reached the pre-trial stage because not all of the defendants have
been served with summons.
Considering the constitutional rights of the parties to a speedy disposition
of this case, and the necessity to expedite the resolution of this case, the
parties, through cou[n]sel, are ordered to appear and attend a preliminary
conference of this case to be held in this Court on September 28, 1998, at
10:45 in the morning.51 (Underscoring in the original)
chanrobleslaw
This Resolution is based on patent errors of both fact and law.
The Sandiganbayan's denial was primarily based on a purported failure to
comply with a requirement under Rule 10, Section 752 of the Rules of Court,
that amendments in a pleading be indicated by appropriate marks.
The procedural rule, which requires that amendments to a pleading be
indicated with appropriate marks, has for its purpose the convenience of
the Court and the parties. It allows the reader to be able to immediately see
the modifications. However, failure to use the appropriate markings for the
deletions and intercalations will not affect any substantive right. Certainly,
its absence cannot cause the denial of any substantive right.53
The Sandiganbayan's view that a motion for leave to amend should be
denied on the basis of the rule on proper markings in an amended pleading
displays an utter lack of understanding of the function of this procedural
rule.
More importantly, a reading of the Fourth Amended Complaint reveals that
the Sandiganbayan's observation was patently wrong. Petitioner did not fail
to comply with Rule 10, Section 7 of the Rules of Court. There were no
portions in the body of the Fourth Amended Complaint itself that needed
to be underscored or marked, considering that the text was identical to the
text of the admitted Complaint. Annex A to the Fourth Amended Complaint,
the List of Assets and Other Properties of Ferdinand E. Marcos, Imelda R.
Marcos and Immediate Family, reveals that it was amended to include the
Cabuyao property in the list of assets. That entry was underscored to reflect
the amendment.
This oversight is so palpable that it can reasonably be interpreted as grave
and inexcusable arbitrariness on the part of the Sandiganbayan. Had the
Sandiganbayan simply read the proposed amended pleading correctly, the
inordinate time and resources expended by both parties in this case would
have been avoided.chanroblesvirtuallawlibrary
II
Rule 57, Section 1 of the Rules of Court allows for the attachment of the
property of the adverse party as security for any judgment that may be
recovered in the following cases, among others:chanRoblesvirtualLawlibrary
RULE 57
Attachment
SECTION 1. Grounds Upon Which Attachment May Issue. — At the
commencement of the action or at any time before entry of judgment, a
plaintiff or any proper party may have the property of the adverse party
attached as security for the satisfaction of any judgment that may be
recovered in the following cases:cralawlawlibrary
....
(b) In an action for money or property embezzled or fraudulently misapplied
or converted to his own use by a public officer, or an officer of a corporation,
or an attorney, factor, broker, agent, or clerk, in the course of his
employment as such, or by any other person in a fiduciary capacity, or for a
wilful violation of duty;ChanRoblesVirtualawlibrary
(c) In an action to recover the possession of property unjustly or
fraudulently taken, detained or converted, when the property, or any part
thereof, has been concealed, removed, or disposed of to prevent its being
found or taken by the applicant or an authorized person[.]
chanrobleslaw
The Sandiganbayan held that "the allegations in support of the grounds for
the issuance of a writ of preliminary attachment [were] couched in general
terms and devoid of particulars upon which [to] discern whether or not to
issue a writ."54 In relation to Rule 57, Section l(b) of the Rules of Court, the
Sandiganbayan required specific allegations of circumstances as to how the
money or property was allegedly embezzled or fraudulently misapplied or
converted to their own use by the respondents.55 As regards Section 1(c), it
held that the Cabuyao property was never concealed, removed, or disposed
of by respondents since it remains registered in their names up to the
present56, and petitioner "was easily able to identify and locate the
property by the mere checking of its title with the Registry of Deeds of the
Province of Laguna."57
The Sandiganbayan is mistaken. The allegations in the admitted Complaint
fall within Section 1(b) and (c) of Rule 57. Given the peculiarities of the
Marcos cases, the allegations of Former President Marcos taking advantage
of his powers as President, gravely abusing his powers under martial law,
and embarking on a systematic plan to accumulate ill-gotten wealth suffice
to constitute the case as one under Rule 57. The allegation that the Cabuyao
property was registered under the names of respondents—minors at the
time of registration—is sufficient to allege that the Cabuyao property was
concealed, thus satisfying Rule 57, Section 1(c) of the Rules of Court.
The Sandiganbayan should have issued an order of preliminary attachment
considering that the requisites of the law—including that of Executive Order
No. 14—have been substantially met, and that there is factual basis for the
issuance of the preliminary attachment. The Sandiganbayan committed
grave abuse of discretion in denying petitioner's Motion for issuance of a
writ of preliminary attachment.
Procedural rules are not mere technicalities that can be disregarded at whim
by the parties or by our courts. Neither should they be applied so
mechanically without any appreciation of their purpose and object.
Every part of our law—whether substantive or procedural—is the outcome
of reasonable deliberation. As the outcome of human agency, our laws are
to be interpreted and applied with meaning and purpose. The day that our
courts cease to breathe life to this fundamental principle is the day that we
erode the public's confidence in the ability of the law to render justice.
WHEREFORE, the Petition for Certiorari is GRANTED. The assailed
Resolutions dated January 11, 2010 and December 1, 2010, insofar as they
direct the cancellation of the notice of lis pendens, are ANNULLED and SET
ASIDE. The Register of Deeds of Cabuyao, Laguna is ORDERED to re-
annotate the notice of lis pendens on TCT No. T-85026.
SO ORDERED.
G.R. No. 184666, June 27, 2016
REPUBLIC OF THE PHILIPPINES, Petitioner, v. MEGA PACIFIC ESOLUTIONS,
INC., WILLY U. YU, BONNIE S. YU, ENRIQUE T. TANSIPEK, ROSITA Y.
TANSIPEK, PEDRO O. TAN, JOHNSON W. FONG, BERNARD I. FONG, AND
*LAURIANO A. BARRIOS, Respondents.
The instant case is an offshoot of this Court's Decision dated 13 January 2004
(2004 Decision) in a related case entitled Information Technology
Foundation of the Philippines v. Commission on Elections.1chanrobleslaw
In the 2004 case, We declared void the automation contract executed by
respondent Mega Pacific eSolutions, Inc. (MPEI) and the Commission on
Elections (COMELEC) for the supply of automated counting machines
(ACMs) for the 2004 national elections.
The present case involves the attempt of petitioner Republic of the
Philippines to cause the attachment of the properties owned by respondent
MPEI, as well as by its incorporators and stockholders (individual
respondents in this case), in order to secure petitioner's interest and to
ensure recovery of the payments it made to respondents for the invalidated
automation contract.
At bench is a Rule 45 Petition assailing the Amended Decision dated 22
September 2008 (Amended Decision) issued by the Court of Appeals (CA)
in CA-G.R. SP No. 95988.2 In said Amended Decision, the CA directed the
remand of the case to the Regional Trial Court of Makati City, Branch 59
(RTC Makati) for the reception of evidence in relation to petitioner's
application for the issuance of a writ of preliminary attachment. The CA had
reconsidered and set aside its previous Decision dated 31 January 2008 (First
Decision)3 entitling petitioner to the issuance of said writ.
Summarized below are the relevant facts of the case, some of which have
already been discussed in this Court's 2004 Decision:
The Facts
Republic Act No. 8436 authorized the COMELEC to use an automated
election system for the May 1998 elections. However, the automated system
failed to materialize and votes were canvassed manually during the 1998
and the 2001 elections.
For the 2004 elections, the COMELEC again attempted to implement the
automated election system. For this purpose, it invited bidders to apply for
the procurement of supplies, equipment, and services. Respondent MPEI, as
lead company, purportedly formed a joint venture - known as the Mega
Pacific Consortium (MPC) - together with We Solv, SK C & C, ePLDT,
Election.com and Oracle. Subsequently, MPEI, on behalf of MPC, submitted
its bid proposal to COMELEC.
The COMELEC evaluated various bid offers and subsequently found MPC
and another company eligible to participate in the next phase of the bidding
process.4 The two companies were referred to the Department of Science
and Technology (DOST) for technical evaluation. After due assessment, the
Bids and Awards Committee (BAC) recommended that the project be
awarded to MPC. The COMELEC favorably acted on the recommendation
and issued Resolution No. 6074, which awarded the automation project to
MPC.
Despite the award to MPC, the COMELEC and MPEI executed on 2 June 2003
the Automated Counting and Canvassing Project Contract (automation
contract)5 for the aggregate amount of P1,248,949,088. MPEI agreed to
supply and deliver 1,991 units of ACMs and such other equipment and
materials necessary for the computerized electoral system in the 2004
elections. Pursuant to the automation contract, MPEI delivered 1,991 ACMs
to the COMELEC. The latter, for its part, made partial payments to MPEI in
the aggregate amount of P1.05 billion.
The full implementation of the automation contract was rendered
impossible by the fact that, after a painstaking legal battle, this Court in its
2004 Decision declared the contract null and void.6 We held that the
COMELEC committed a clear violation of law and jurisprudence, as well as a
reckless disregard of its own bidding rules and procedure. In addition, the
COMELEC entered into the contract with inexplicable haste, and without
adequately checking and observing mandatory financial, technical, and
legal requirements. In a subsequent Resolution, We summarized the
COMELEC's grave abuse of discretion as having consisted of the following:7
By a formal Resolution, it awarded the project to "Mega Pacific Consortium,"
an entity that had not participated in the bidding. Despite this grant,
Comelec entered into the actual Contract with "Mega Pacific eSolutions,
Inc." (MPEI), a company that joined the bidding process but did not meet
the eligibility requirements.
Comelec accepted and irregularly paid for MPEI's ACMs that had failed the
accuracy requirement of 99.9995 percent set up by the Comelec bidding
rules. Acknowledging that this rating could have been too steep, the Court
nonetheless noted that "the essence of public bidding is violated by the
practice of requiring very high standards or unrealistic specifications that
cannot be met, x x x only to water them down after the award is made. Such
scheme, which discourages the entry of bona fide bidders, is in fact a sure
indication of fraud in the bidding, designed to eliminate fair competition."
The software program of the counting machines likewise failed to detect
previously downloaded precinct results and to prevent them from being
reentered. This failure, which has not been corrected x x x, would have
allowed unscrupulous persons to repeatedly feed into the computers the
results favorable to a particular candidate, an act that would have translated
into massive election fraud by just a few key strokes.
Neither were the ACMs able to print audit trails without loss of data - a
mandatory requirement under Section 7 of Republic Act No. 8436. Audit
trails would enable the Comelec to document the identities of the ACM
operators responsible for data entry and downloading, as well as the times
when the various data were processed, in order to forestall fraud and to
identify the perpetrators. The absence of audit trails would have posed a
serious threat to free and credible elections.
Comelec failed to explain satisfactorily why it had ignored its own bidding
rules and requirements. It admitted that the software program used to test
the ACMs was merely a "demo" version, and that the final one to be actually
used in the elections was still being developed. By awarding the Contract
and irregularly paying for the supply of the ACMs without having seen —
much less, evaluated — the final product being purchased, Comelec
desecrated the law on public bidding. It would have allowed the winner to
alter its bid substantially, without any public bidding.
All in all, Comelec subverted the essence of public bidding: to give the public
an opportunity for fair competition and a clear basis for a precise
comparison of bids.8 (Emphasis supplied)
As a consequence of the nullification of the automation contract, We
directed the Office of the Ombudsman to determine the possible criminal
liability of persons responsible for the contract.9 This Court likewise directed
the Office of the Solicitor General to protect the government from the ill
effects of the illegal disbursement of public funds in relation to the
automation contract.10chanrobleslaw
After the declaration of nullity of the automation contract, the following
incidents transpired:ChanRoblesVirtualawlibrary
Private respondents in the 2004 case moved for reconsideration of the 2004
Decision, but the motion was denied by this Court in a Resolution dated 17
February 2004 (2004 Resolution).11chanrobleslaw
The COMELEC filed a "Most Respectful Motion for Leave to Use the
Automated Counting Machines in the Custody of the Commission on
Elections for use in the 8 August 2005 Elections in the Autonomous Region
for Muslim Mindanao" dated 9 December 2004 (Motion for Leave to Use
ACMs), which was denied by this Court in its Resolution dated 15 June 2005
(2005 Resolution).
Atty. Romulo B. Macalintal (Macalintal) filed an "Omnibus Motion for Leave
of Court (1) to Reopen the Case; and (2) to Intervene and Admit the Attached
Petition in Intervention," which was denied by this Court in its Resolution
dated 22 August 2006 (2006 Resolution); and cralawlawlibrary
Respondent MPEI filed a Complaint for Damages12 (Complaint) with the
RTC Makati, from which the instant case arose.
The above-mentioned incidents are discussed in more detail below.
BACKGROUND PROCEEDINGS
Private respondents' Motion for Reconsideration
Private respondents in the 2004 case moved for reconsideration of the 2004
Decision. Aside from reiterating the procedural and substantive arguments
they had raised, they also argued that the 2004 Decision had exposed them
to possible criminal prosecution.13chanrobleslaw
This Court denied the motion in its 2004 Resolution and ruled that no
prejudgment had been made on private respondents' criminal liability. We
further ruled that although the 2004 Decision stated that the Ombudsman
shall "determine the criminal liability, if any, of the public officials (and
conspiring private individuals, if any) involved in the subject Resolution and
Contract," We did not make any premature conclusion on any wrongdoing,
but precisely directed the Ombudsman to make that determination after
conducting appropriate proceedings and observing due process.
Similarly, it appears from the record that several criminal and administrative
Complaints had indeed been filed with the Ombudsman in relation to the
declaration of nullity of the automation contract.14 The Complaints were
filed against several public officials and the individual respondents in this
case.15chanrobleslaw
In a Resolution issued on 28 June 2006,16 the Ombudsman recommended
the filing of informations before the Sandiganbayan against some of the
public officials and the individual respondents17 for violation of Section 3(e)
of Republic Act No. 3019 (the Anti-Graft and Corrupt Practices Act).
However, on 27 September 2006,18 upon reconsideration, the Ombudsman
reversed its earlier ruling in a Supplemental Resolution (September
Resolution), directing the dismissal of the criminal cases against the public
officials, as well as the individual respondents, for lack of probable
cause.19chanrobleslaw
With this development, a Petition for Certiorari was filed with this Court on
13 October 2006 and docketed as G.R. No. 174777.20 In the Petition, several
individuals21 assailed the September Resolution of the Ombudsman finding
no probable cause to hold respondents criminally liable. The case remains
pending with this Court as of this date.
COMELEC's Motion for Leave to Use ACMs in the ARMM Elections
The COMELEC filed a motion with this Court requesting permission to use
the 1,991 ACMs previously delivered by respondent MPEI, for the ARMM
elections, then slated to be held on 8 August 2005. In its motion, the
COMELEC claimed that automation of the ARMM elections was mandated
by Republic Act No. 9333, and since the government had no available funds
to finance the automation of those elections, the ACMs could be utilized for
the 2005 elections.
This Court denied the Motion in Our 2005 Resolution. We ruled that
allowing the use of the ACMs would have the effect of illegally reversing
and subverting a final decision We had promulgated. We further ruled that
the COMELEC was asking for permission to do what it had precisely been
prohibited from doing under the 2004 Decision. This Court also ruled that
the grant of the motion would bar or jeopardize the recovery of government
funds paid to respondents. Considering that the COMELEC did not present
any evidence to prove that the defects had been addressed, We held that
the use of the ACMs and the software would expose the ARMM elections to
the same electoral ills pointed out in the 2004 Decision.
Atty. Macalintal's Omnibus Motion
Atty. Romulo Macalintal sought to reopen the 2004 case in order that he
may be allowed to intervene as a taxpayer and citizen. His purpose for
intervening was to seek another testing of the ACMs with the ultimate
objective of allowing the COMELEC to use them, this time for the 2007
national elections.
This Court denied his motion in Our 2006 Resolution, ruling that Atty.
Macalintal failed to demonstrate that certain supervening events and legal
circumstances had transpired to justify the reliefs sought. We in fact found
that, after Our determination that the ACMs had failed to pass legally
mandated technical requirements in 2004, they were simply put in storage.
The ACMs had remained idle and unused since the last evaluation, at which
they failed to hurdle crucial tests. Consequently, We ruled that if the ACMs
were not good enough for the 2004 national elections or the 2005 ARMM
elections, then neither would they be good enough for the 2007 national
elections, considering that nothing was done to correct the flaws that had
been previously underscored in the 2004 Decision. We held that granting
the motion would be tantamount to rendering the 2004 Decision totally
ineffective and nugatory.
Moreover, because of our categorical ruling that the whole bidding process
was void and fraudulent, the proposal to use the illegally procured,
demonstratively defective, and fraud-prone ACMs was rendered
nonsensical. Thus:ChanRoblesVirtualawlibrary
We stress once again that the Contract entered into by the Comelec for the
supply of the ACMs was declared VOID by the Court in its Decision, because
of clear violations of law and jurisprudence, as well as the reckless disregard
by the Commission of its own bidding rules and procedure. In addition, the
poll body entered into the Contract with inexplicable haste, without
adequately checking and observing mandatory financial, technical and legal
requirements. As explained in our Decision, Comelec's gravely abusive acts
consisted of the following:
To muddle the issue, Comelec keeps on saying that the "winning" bidder
presented a lower price than the only other bidder. It ignored the fact that
the whole bidding process was VOID and FRAUDULENT. How then could
there have been a "winning" bid?22 (Emphasis supplied)
THE INSTANT CASE
Complaint for Damages filed by respondents with the RTC Makati and
petitioner's Answer with Counterclaim, with an application for a writ of
preliminary attachment, from which the instant case arose
Upon the finality of the declaration of nullity of the automation contract,
respondent MPEI filed a Complaint for Damages before the RTC Makati,
arguing that, notwithstanding the nullification of the automation contract,
the COMELEC was still bound to pay the amount of P200,165,681.89. This
amount represented the difference between the value of the ACMs and the
support services delivered on one hand, and on the other, the payment
previously made by the COMELEC.23chanrobleslaw
Petitioner filed its Answer with Counterclaim24 and argued that respondent
MPEI could no longer recover the unpaid balance from the void automation
contract, since the payments made were illegal disbursements of public
funds. It contended that a null and void contract vests no rights and creates
no obligations, and thus produces no legal effect at all. Petitioner further
posited that respondent MPEI could not hinge its claim upon the principles
of unjust enrichment and quasi-contract, because such presume that the
acts by which the authors thereof become obligated to each other are
lawful, which was not the case herein.25cralawredchanrobleslaw
By way of a counterclaim, petitioner demanded from respondents the return
of the payments made pursuant to the automation contract.26 It argued
that individual respondents, being the incorporators of MPEI, likewise ought
to be impleaded and held accountable for MPEI's liabilities. The creation of
MPC was, after all, merely an ingenious scheme to feign eligibility to
bid.27chanrobleslaw
Pursuant to Section 1(d) of Rule 57 of the Rules of Court, petitioner prayed
for the issuance of a writ of preliminary attachment against the properties
of MPEI and individual respondents. The application was grounded upon
the fraudulent misrepresentation of respondents as to their eligibility to
participate in the bidding for the COMELEC automation project and the
failure of the ACMs to comply with mandatory technical
requirements.28chanrobleslaw
Subsequently, the trial court denied the prayer for the issuance of a writ of
preliminary attachment,29 ruling that there was an absence of factual
allegations as to how the fraud was actually committed.
The allegations of petitioner were found to be unreliable, as the latter
merely copied from the declarations of the Supreme Court in Information
Technology Foundation of the Phils, v. COMELEC the factual allegations of
MPEI's lack of qualification and noncompliance with bidding requirements.
The trial court further ruled that the allegations of fraud on the part of MPEI
were not supported by the COMELEC, the office in charge of conducting the
bidding for the election automation contract. It was likewise held that there
was no evidence that respondents harbored a preconceived plan not to
comply with the obligation; neither was there any evidence that MPEI's
corporate fiction was used to perpetrate fraud. Thus, it found no sufficient
basis to pierce the veil of corporate fiction or to cause the attachment of the
properties owned by individual respondents.
Petitioner moved to set aside the trial court's Order denying the writ of
attachment,30 but its motion was denied.31chanrobleslaw
Appeal before the CA and the First Decision
Aggrieved, petitioner filed an appeal with the CA, arguing that the trial court
had acted with grave abuse of discretion in denying the application for a
writ of attachment.
As mentioned earlier, the CA in its First Decision32 reversed and set aside
the trial court's Orders and ruled that there was sufficient basis for the
issuance of a writ of attachment in favor of petitioner.
The appellate court explained that the averments of petitioner in support of
the latter's application actually reflected pertinent conclusions reached by
this Court in its 2004 Decision. It held that the trial court erred in
disregarding the following findings of fact, which remained unaltered and
unreversed: (1) COMELEC bidding rules provided that the eligibility and
capacity of a bidder may be proved through financial documents including,
among others, audited financial statements for the last three years; (2) MPEI
was incorporated only on 27 February 2003, or 11 days prior to the bidding
itself; (3) in an attempt to disguise its ineligibility, MPEI participated in the
bidding as lead company of MPC, a putative consortium, and submitted the
incorporation papers and financial statements of the members of the
consortium; and (4) no proof of the joint venture agreement, consortium
agreement, memorandum of agreement, or business plan executed among
the members of the purported consortium was ever submitted to the
COMELEC.33chanrobleslaw
According to the CA, the foregoing were glaring indicia or badges of fraud,
which entitled petitioner to the issuance of the writ. It further ruled that
there was sufficient reason to pierce the corporate veil of MPEI. Thus, the
CA allowed the attachment of the properties belonging to both MPEI and
individual respondents.34 The CA likewise ruled that even if the COMELEC
committed grave abuse of discretion in capriciously disregarding the rules
on public bidding, this should not preclude or deter petitioner from
pursuing its claim against respondents. After all, the State is not estopped
by the mistake of its officers and employees.35chanrobleslaw
Respondents moved for reconsideration36 of the First Decision of the CA.
Motion for Reconsideration before the CA and the Amended Decision
Upon review, the CA reconsidered its First Decision37 and directed the
remand of the case to the RTC Makati for the reception of evidence of
allegations of fraud and to determine whether attachment should
necessarily issue.38chanrobleslaw
The CA explained in its Amended Decision that respondents could not be
considered to have fostered a fraudulent intent to dishonor their obligation,
since they had delivered 1,991 units of ACMs.39 It directed petitioner to
present proof of respondents' intent to defraud COMELEC during the
execution of the automation contract.40 The CA likewise emphasized that
the Joint Affidavit submitted in support of petitioner's application for the
writ contained allegations that needed to be substantiated.41 It added that
proof must likewise be adduced to verify the requisite fraud that would
justify the piercing of the corporate veil of respondent
MPEI.42chanrobleslaw
The CA further clarified that the 2004 Decision did not make a definite
finding as to the identities of the persons responsible for the illegal
disbursement or of those who participated in the fraudulent dealings.43 It
instructed the trial court to consider, in its determination of whether the
writ of attachment should issue, the illegal, imprudent and hasty acts in
awarding the automation contract by the COMELEC. In particular, these acts
consisted of: (1) awarding the automation contract to MPC, an entity that
did not participate in the bidding; and (2) signing the actual automation
contract with respondent MPEI, the company that joined the bidding
without meeting the eligibility requirement.44chanrobleslaw
Rule 45 Petition before Us
Consequently, petitioner filed the instant Rule 45 Petition,45 arguing that
the CA erred in ordering the remand of the case to the trial court for the
reception of evidence to determine the presence of fraud. Petitioner
contends that this Court's 2004 Decision was sufficient proof of the fraud
committed by respondents in the execution of the voided automation
contract.46 Respondents allegedly committed fraud by securing the
automation contract, although MPEI was not qualified to bid in the first
place.47 Their claim that the members of MPC bound themselves to the
automation contract was an indication of bad faith as the contract was
executed by MPEI alone.48 Neither could they deny that the software
submitted during the bidding process was not the same one that would be
used on election day.49 They could not dissociate themselves from telltale
signs such as purportedly supplying software that later turned out to be
non-existent.50chanrobleslaw
In their respective Comments, respondents Willy Yu, Bonnie Yu, Enrique
Tansipek, and Rosita Tansipek counter51 that this Court never ruled that
individual respondents were guilty of any fraud or bad faith in connection
with the automation contract, and that it was incumbent upon petitioner to
present evidence on the allegations of fraud to justify the issuance of the
writ.52 They likewise argue that the 2004 Decision cannot be invoked
against them, since petitioner and MPEI were co-respondents in the 2004
case and not adverse parties therein.53 Respondents further contend that
the allegations of fraud are belied by their actual delivery of 1,991 units of
ACMs to the COMELEC, which they claim is proof that they never had any
intention to evade performance.54chanrobleslaw
They further allege that this Court, in its 2004 Decision, even recognized
that it had not found any wrongdoing on their part, and that the
Ombudsman had already made a determination that no probable cause
existed with respect to charges of violation of Anti-Graft and Corrupt
Practices Act.55chanrobleslaw
Echoing the other respondents' arguments on the lack of particularity in the
allegations of fraud,56 respondents MPEI, Johnson Wong, Bernard Fong,
Pedro Tan, and Lauriano Barrios likewise argue that they were not parties to
the 2004 case; thus, the 2004 Decision thereon is not binding on them.57
Individual respondents likewise argue that the findings of fact in the 2004
Decision were not conclusive,58 considering that eight (8) of the fifteen (15)
justices allegedly refused to go along with the factual findings as stated in
the majority opinion.59 Thereafter, petitioner filed its Reply to the
Comments.60chanrobleslaw
Based on the submissions of both parties, the following issues are presented
to this Court for resolution:
Whether petitioner has sufficiently established fraud on the part of
respondents to justify the issuance of a writ of preliminary attachment in its
favor; and cralawlawlibrary
Whether a writ of preliminary attachment may be issued against the
properties of individual respondents, considering that they were not parties
to the 2004 case.
The Court's Ruling
The Petition is meritorious. A writ of preliminary attachment should issue in
favor of petitioner over the properties of respondents MPEI, Willy Yu (Willy)
and the remaining individual respondents, namely: Bonnie S. Yu (Bonnie),
Enrique T. Tansipek (Enrique), Rosita Y. Tansipek (Rosita), Pedro O. Tan
(Pedro), Johnson W. Fong (Johnson), Bernard I. Fong (Bernard), and
Lauriano Barrios (Lauriano). The bases for the writ are the following:
Fraud on the part of respondent MPEI was sufficiently established by the
factual findings of this Court in its 2004 Decision and subsequent
pronouncements.
A writ of preliminary attachment may issue over the properties of the
individual respondents using the doctrine of piercing the corporate veil.

The factual findings of this Court that have become final cannot be modified
or altered, much less reversed, and are controlling in the instant case.
The delivery of 1,991 units of ACMs does not negate fraud on the part of
respondents MPEI and Willy.
Estoppel does not lie against the state when it acts to rectify mistakes, errors
or illegal acts of its officials and agents.
The findings of the Ombudsman are not controlling in the instant case.
DISCUSSION
I.
Fraud on the part of respondent MPEI was sufficiently established by the
factual findings of this Court in the latter's 2004 Decision and subsequent
pronouncements.
Petitioner argues that the findings of this Court in the 2004 Decision serve
as sufficient basis to prove that, at the time of the execution of the
automation contract, there was fraud on the part of respondents that
justified the issuance of a writ of attachment. Respondents, however, argue
the contrary. They claim that fraud had not been sufficiently established by
petitioner.
We rule in favor of petitioner. Fraud on the part of respondents MPEI and
Willy, as well as of the other individual respondents — Bonnie, Enrique,
Rosita, Pedro, Johnson, Bernard, and Lauriano — has been established.
A writ of preliminary attachment is a provisional remedy issued upon the
order of the court where an action is pending. Through the writ, the
property or properties of the defendant may be levied upon and held
thereafter by the sheriff as security for the satisfaction of whatever
judgment might be secured by the attaching creditor against the
defendant.61 The provisional remedy of attachment is available in order that
the defendant may not dispose of the property attached, and thus prevent
the satisfaction of any judgment that may be secured by the plaintiff from
the former.62chanrobleslaw
The purpose and function of an attachment or garnishment is twofold. First,
it seizes upon property of an alleged debtor in advance of final judgment
and holds it subject to appropriation, thereby preventing the loss or
dissipation of the property through fraud or other means. Second, it
subjects the property of the debtor to the payment of a creditor's claim, in
those cases in which personal service upon the debtor cannot be
obtained.63 This remedy is meant to secure a contingent lien on the
defendant's property until the plaintiff can, by appropriate proceedings,
obtain a judgment and have the property applied to its satisfaction, or to
make some provision for unsecured debts in cases in which the means of
satisfaction thereof are liable to be removed beyond the jurisdiction, or
improperly disposed of or concealed, or otherwise placed beyond the reach
of creditors.64chanrobleslaw
Petitioner relied upon Section 1(d), Rule 57 of the Rules of Court as basis for
its application for a writ of preliminary attachment. This provision
states:ChanRoblesVirtualawlibrary
Section 1. Grounds upon which attachment may issue. At the
commencement of the action or at any time before entry of judgment, a
plaintiff or any proper party may have the property of the adverse party
attached as security for the satisfaction of any judgment that may be
recovered in the following cases:
(d) In an action against a party who has been guilty of a fraud in contracting
the debt or incurring the obligation upon which the action is brought, or in
the performance thereof. (Emphasis supplied)
For a writ of preliminary attachment to issue under the above-quoted rule,
the applicant must sufficiently show the factual circumstances of the alleged
fraud.65 In Metro, Inc. v. Lara's Gift and Decors, Inc.,66 We
explained:ChanRoblesVirtualawlibrary
To sustain an attachment on this ground, it must be shown that the debtor
in contracting the debt or incurring the obligation intended to defraud the
creditor. The fraud must relate to the execution of the agreement and must
have been the reason which induced the other party into giving consent
which he would not have otherwise given. To constitute a ground for
attachment in Section 1(d), Rule 57 of the Rules of Court, fraud should be
committed upon contracting the obligation sued upon. A debt is
fraudulently contracted if at the time of contracting it the debtor has a
preconceived plan or intention not to pay, as it is in this case. x x x.
The applicant for a writ of preliminary attachment must sufficiently show
the factual circumstances of the alleged fraud because fraudulent intent
cannot be inferred from the debtor's mere non-payment of the debt or
failure to comply with his obligation. (Emphasis supplied)
An amendment to the Rules of Court added the phrase "in the performance
thereof" to include within the scope of the grounds for issuance of a writ of
preliminary attachment those instances relating to fraud in the performance
of the obligation.67chanrobleslaw
Fraud is a generic term that is used in various senses and assumes so many
different degrees and forms that courts are compelled to content
themselves with comparatively few general rules for its discovery and
defeat. For the same reason, the facts and circumstances peculiar to each
case are allowed to bear heavily on the conscience and judgment of the
court or jury in determining the presence or absence of fraud. In fact, the
fertility of man's invention in devising new schemes of fraud is so great that
courts have always declined to define it, thus, reserving for themselves the
liberty to deal with it in whatever form it may present itself.68chanrobleslaw
Fraud may be characterized as the voluntary execution of a wrongful act or
a wilful omission, while knowing and intending the effects that naturally and
necessarily arise from that act or omission.69 In its general sense, fraud is
deemed to comprise anything calculated to deceive—including all acts and
omission and concealment involving a breach of legal or equitable duty,
trust, or confidence justly reposed—resulting in damage to or in undue
advantage over another.70 Fraud is also described as embracing all
multifarious means that human ingenuity can device, and is resorted to for
the purpose of securing an advantage over another by false suggestions or
by suppression of truth; and it includes all surprise, trick, cunning,
dissembling, and any other unfair way by which another is
cheated.71chanrobleslaw
While fraud cannot be presumed, it need not be proved by direct evidence
and can well be inferred from attendant circumstances.72 Fraud by its
nature is not a thing susceptible of ocular observation or readily
demonstrable physically; it must of necessity be proved in many cases by
inferences from circumstances shown to have been involved in the
transaction in question.73chanrobleslaw
In the case at bar, petitioner has sufficiently discharged the burden of
demonstrating the commission of fraud by respondent MPEI in the
execution of the automation contract in the two ways that were enumerated
earlier and discussed below:
chanRoblesvirtualLawlibraryA. Respondent MPEI had perpetrated a scheme
against petitioner to secure the automation contract by using MPC as
supposed bidder and eventually succeeding in signing the automation
contract as MPEI alone, an entity which was ineligible to bid in the first place.
To avoid any confusion relevant to the basis of fraud, We quote herein the
pertinent portions of this Court's 2004 Decision with regard to the identity,
existence, and eligibility of MPC as bidder:74
On the question of the identity and the existence of the real bidder,
respondents insist that, contrary to petitioners' allegations, the bidder was
not Mega Pacific eSolutions, Inc. (MPEI), which was incorporated only on
February 27, 2003, or 11 days prior to the bidding itself. Rather, the bidder
was Mega Pacific Consortium (MPC), of which MPEI was but a part. As proof
thereof, they point to the March 7, 2003 letter of intent to bid, signed by
the president of MPEI allegedly for and on behalf of MPC. They also call
attention to the official receipt issued to MPC, acknowledging payment for
the bidding documents, as proof that it was the "consortium" that
participated in the bidding process.
We do not agree. The March 7, 2003 letter, signed by only one signatory —
"Willy U. Yu, President, Mega Pacific eSolutions, Inc., (Lead
Company/Proponent) For: Mega Pacific Consortium" — and without any
further proof, does not by itself prove the existence of the consortium. It
does not show that MPEI or its president have been duly pre-authorized by
the other members of the putative consortium to represent them, to bid on
their collective behalf and, more important, to commit them jointly and
severally to the bid undertakings. The letter is purely self-serving and
uncorroborated.
Neither does an official receipt issued to MPC, acknowledging payment for
the bidding documents, constitute proof that it was the purported
consortium that participated in the bidding. Such receipts are issued by
cashiers without any legally sufficient inquiry as to the real identity or
existence of the supposed payor.
To assure itself properly of the due existence (as well as eligibility and
qualification) of the putative consortium, Comelec's BAC should have
examined the bidding documents submitted on behalf of MPC. They would
have easily discovered the following fatal flaws.
xxxx
The Eligibility Envelope was to contain legal documents such as articles of
incorporation, x x x to establish the bidder's financial capacity.
In the case of a consortium or joint venture desirous of participating in the
bidding, it goes without saying that the Eligibility Envelope would
necessarily have to include a copy of the joint venture agreement, the
consortium agreement or memorandum of agreement — or a business plan
or some other instrument of similar import — establishing the due
existence, composition and scope of such aggrupation. Otherwise, how
would Comelec know who it was dealing with, and whether these parties
are qualified and capable of delivering the products and services being
offered for bidding?
In the instant case, no such instrument was submitted to Comelec during
the bidding process. x x x
xxxx
However, there is no sign whatsoever of any joint venture agreement,
consortium agreement, memorandum of agreement, or business plan
executed among the members of the purported consortium.
The only logical conclusion is that no such agreement was ever submitted
to the Comelec for its consideration, as part of the bidding process.
It thus follows that, prior the award of the Contract, there was no
documentary or other basis for Comelec to conclude that a consortium had
actually been formed amongst MPEI, SK C&C and WeSolv, along with
Election.com and ePLDT. Neither was there anything to indicate the exact
relationships between and among these firms; their diverse roles,
undertakings and prestations, if any, relative to the prosecution of the
project, the extent of their respective investments (if any) in the supposed
consortium or in the project; and the precise nature and extent of their
respective liabilities with respect to the contract being offered for bidding.
And apart from the self-serving letter of March 7, 2003, there was not even
any indication that MPEI was the lead company duly authorized to act on
behalf of the others.
xxxx
Hence, had the proponent MPEI been evaluated based solely on its own
experience, financial and operational track record or lack thereof, it would
surely not have qualified and would have been immediately considered
ineligible to bid, as respondents readily admit.
xxxx
At this juncture, one might ask: What, then, if there are four MOAs instead
of one or none at all? Isn't it enough that there are these corporations
coming together to carry out the automation project? Isn't it true, as
respondent aver, that nowhere in the RFP issued by Comelec is it required
that the members of the joint venture execute a single written agreement
to prove the existence of a joint venture. x x x
xxxx
The problem is not that there are four agreements instead of only one. The
problem is that Comelec never bothered to check. It never based its decision
on documents or other proof that would concretely establish the existence
of the claimed consortium or joint venture or agglomeration.
xxxx
True, copies of financial statements and incorporation papers of the alleged
"consortium" members were submitted. But these papers did not establish
the existence of a consortium, as they could have been provided by the
companies concerned for purposes other than to prove that they were part
of a consortium or joint venture.
xxxx
In brief, despite the absence of competent proof as to the existence and
eligibility of the alleged consortium (MPC), its capacity to deliver on the
Contract, and the members' joint and several liability therefor, Comelec
nevertheless assumed that such consortium existed and was eligible. It then
went ahead and considered the bid of MPC, to which the Contract was
eventually awarded, in gross violation of the former's own bidding rules and
procedures contained in its RFP. Therein lies Comclec's grave abuse of
discretion.
Sufficiency of the Four Agreements
Instead of one multilateral agreement executed by, and effective and
binding on, all the five "consortium members" — as earlier claimed by
Commissioner Tuason in open court — it turns out that what was actually
executed were four (4) separate and distinct bilateral Agreements.
Obviously, Comelec was furnished copies of these Agreements only after
the bidding process had been terminated, as these were not included in the
Eligibility Documents. x x x
xxxx
At this point, it must be stressed most vigorously that the submission of the
four bilateral Agreements to Comelec after the end of the bidding process
did nothing to eliminate the grave abuse of discretion it had already
committed on April 15, 2003.
Deficiencies Have Not Been "Cured"
In any event, it is also claimed that the automation Contract awarded by
Comelec incorporates all documents executed by the "consortium"
members, even if these documents are not referred to therein. x x x
xxxx
Thus, it is argued that whatever perceived deficiencies there were in the
supplementary contracts - those entered into by MPEI and the other
members of the "consortium" as regards their joint and several
undertakings — have been cured. Better still, such deficiencies have
supposedly been prevented from arising as a result of the above-quoted
provisions, from which it can be immediately established that each of the
members of MPC assumes the same joint and several liability as the other
members.
The foregoing argument is unpersuasive. First, the contract being referred
to, entitled "The Automated Counting and Canvassing Project Contract," is
between Comelec and MPEI, not the alleged consortium, MPC. To repeat, it
is MPEI - not MPC - that is a party to the Contract. Nowhere in that Contract
is there any mention of a consortium or joint venture, of members thereof,
much less of joint and several liability. Supposedly executed sometime in
May 2003, the Contract bears a notarization date of June 30, 2003, and
contains the signature of Willy U. Yu signing as president of MPEI (not for
and on behalf of MPC), along with that of the Comelec chair. It provides in
Section 3.2 that MPEI (not MPC) is to supply the Equipment and perform
the Services under the Contract, in accordance with the appendices thereof;
nothing whatsoever is said about any consortium or joint venture or
partnership.
xxxx
Eligibility of a Consortium Based on the Collective Qualifications of Its
Members
Respondents declare that, for purposes of assessing the eligibility of the
bidder, the members of MPC should be evaluated on a collective basis.
Therefore, they contend, the failure of MPEI to submit financial statements
(on account of its recent incorporation) should not by itself disqualify MPC,
since the other members of the "consortium" could meet the criteria set out
in the RFP.
xxxx
Unfortunately, this argument seems to assume that the "collective" nature
of the undertaking of the members of MPC, their contribution of assets and
sharing of risks, and the "community" of their interest in the performance
of the Contract entitle MPC to be treated as a joint venture or consortium;
and to be evaluated accordingly on the basis of the members' collective
qualifications when, in fact, the evidence before the Court suggest
otherwise.
xxxx
Going back to the instant case, it should be recalled that the automation
Contract with Comelec was not executed by the "consortium" MPC - or by
MPEI for and on behalf of MPC - but by MPEI, period. The said Contract
contains no mention whatsoever of any consortium or members thereof.
This fact alone seems to contradict all the suppositions about a joint
undertaking that would normally apply to a joint venture or consortium:
that it is a commercial enterprise involving a community of interest, a
sharing of risks, profits and losses, and so on.
xxxx
To the Court, this strange and beguiling arrangement of MPEI with the other
companies does not qualify them to be treated as a consortium or joint
venture, at least of the type that government agencies like the Comelec
should be dealing with. With more reason is it unable to agree to the
proposal to evaluate the members of MPC on a collective basis. (Emphases
supplied)
These findings found their way into petitioner's application for a writ of
preliminary attachment,75 in which it claimed the following as bases for
fraud: (1) respondents committed fraud by securing the election automation
contract and, in order to perpetrate the fraud, by misrepresenting the actual
bidder as MPC and MPEI as merely acting on MPC's behalf; (2) while
knowing that MPEI was not qualified to bid for the automation contract,
respondents still signed and executed the contract; and (3) respondents
acted in bad faith when they claimed that they had bound themselves to
the automation contract, because it was not executed by MPC—or by MPEI
on MPC's behalf—but by MPEI alone.76chanrobleslaw
We agree with petitioner that respondent MPEI committed fraud by
securing the election automation contract; and, in order to perpetrate the
fraud, by misrepresenting that the actual bidder was MPC and not MPEI,
which was only acting on behalf of MPC. We likewise rule that respondent
MPEI has defrauded petitioner, since the former still executed the
automation contract despite knowing that it was not qualified to bid for the
same.
The established facts surrounding the eligibility, qualification and existence
of MPC — and of MPEI for that matter — and the subsequent execution of
the automation contract with the latter, when all taken together, constitute
badges of fraud that We simply cannot ignore. MPC was considered an
illegitimate entity, because its existence as a joint venture had not been
established. Notably, the essential document/s that would have shown its
eligibility as a joint venture/consortium were not presented to the COMELEC
at the most opportune time, that is, during the qualification stage of the
bidding process. The concealment by respondent MPEI of the essential
documents showing its eligibility to bid as part a joint venture is too obvious
to be missed. How could it not have known that the very document showing
MPC as a joint venture should have been included in their eligibility
envelope?
Likewise notable is the fact that these supposed agreements, allegedly
among the supposed consortium members, were belatedly provided to the
COMELEC after the bidding process had been terminated; these were not
included in the Eligibility Documents earlier submitted by MPC. Similarly, as
found by this Court, these documents did not prove any joint venture
agreement among the parties in the first place, but were actually individual
agreements executed by each member of the supposed consortium with
respondent MPEI.
More startling to the dispassionate mind is the incongruence between the
supposed actual bidder MPC, on one hand, and, on the other, respondent
MPEI, which executed the automation contract. Significantly, respondent
MPEI was not even eligible and qualified to bid in the first place; and yet,
the automation contract itself was executed and signed singly by
respondent MPEI, not on behalf of the purported bidder MPC, without any
mention whatsoever of the members of the supposed consortium.
From these established facts, We can surmise that in order to secure the
automation contract, respondent MPEI perpetrated a scheme against
petitioner by using MPC as supposed bidder and eventually succeeding in
signing the automation contract as MPEI alone. Worse, it was respondent
MPEI alone, an entity that was ineligible to bid in the first place, that
eventually executed the automation contract.
To a reasonable mind, the entire situation reeks of fraud, what with the
misrepresentation of identity and misrepresentation as to creditworthiness.
It is in these kinds of fraudulent instances, when the ability to abscond is
greatest, to which a writ of attachment is precisely responsive.
Further, the failure to attach the eligibility documents is tantamount to
failure on the part of respondent MPEI to disclose material facts. That
omission constitutes fraud.
Pursuant to Article 1339 of the Civil Code,77 silence or concealment does
not, by itself, constitute fraud, unless there is a special duty to disclose
certain facts, or unless the communication should be made according to
good faith and the usages of commerce.78chanrobleslaw
Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot with
an evil or devious purpose. Deceit exists where the party, with intent to
deceive, conceals or omits to state material facts and, by reason of such
omission or concealment, the other party was induced to give consent that
would not otherwise have been given.79chanrobleslaw
One form of inducement is covered within the scope of the crime of estafa
under Article 315, paragraph 2, of the Revised Penal Code, in which, any
person who defrauds another by using fictitious name, or falsely pretends
to possess power, influence, qualifications, property, credit, agency,
business or imaginary transactions, or by means of similar deceits executed
prior to or simultaneously with the commission of fraud is held criminally
liable. In Joson v. People,80 this Court explained the element of
defraudation by means of deceit, by giving a definition of fraud and deceit,
in this wise:ChanRoblesVirtualawlibrary
What needs to be determined therefore is whether or not the element of
defraudation by means of deceit has been established beyond reasonable
doubt.
In the case of People v. Menil, Jr., the Court has defined fraud and deceit in
this wise:ChanRoblesVirtualawlibrary
Fraud, in its general sense, is deemed to comprise anything calculated to
deceive, including all acts, omissions, and concealment involving a breach
of legal or equitable duty, trust, or confidence justly reposed, resulting in
damage to another, or by which an undue and unconscientious advantage
is taken of another. It is a generic term embracing all multifarious means
which human ingenuity can devise, and which are resorted to by one
individual to secure an advantage over another by false suggestions or by
suppression of truth and includes all surprise, trick, cunning, dissembling
and any unfair way by which another is cheated. On the other hand, deceit
is the false representation of a matter of fact, whether by words or conduct,
by false or misleading allegations, or by concealment of that which should
have been disclosed which deceives or is intended to deceive another so
that he shall act upon it to his legal injury. (Emphases supplied)
For example, in People v. Comila,81 both accused-appellants therein
represented themselves to the complaining witnesses to have the capacity
to send them to Italy for employment, even as they did not have the
authority or license for the purpose. It was such misrepresentation that
induced the complainants to part with their hard-earned money for
placement and medical fees. Both accused-appellants were criminally held
liable for estafa.
In American jurisprudence, fraud may be predicated on a false introduction
or identification.82 In Union Co. v. Cobb,83 the defendant therein procured
the merchandise by misrepresenting that she was Mrs. Taylor Ray and at
another time she was Mrs. Ben W. Chiles, and she forged their name on
charge slips as revealed by the exhibits of the plaintiff. The sale of the
merchandise was induced by these representations, resulting in injury to the
plaintiff.
In Raser v. Moomaw,84 it was ruled that the essential elements necessary to
constitute actionable fraud and deceit were present in the complaint. It was
alleged that, to induce plaintiff to procure a loan, defendant introduced him
to a woman who was falsely represented to be Annie L. Knowles of Seattle,
Washington, the owner of the property, and that plaintiff had no means of
ascertaining her true identity. On the other hand, defendant knew, or in the
exercise of reasonable caution should have known, that she was an
impostor, and that plaintiff relied on the representations, induced his client
to make the loan, and had since been compelled to repay it. In the same
case, the Court ruled that false representations as to the identity of a person
are actionable, if made to induce another to act thereon, and such other
does so act thereon to his prejudice.85chanrobleslaw
In this case, analogous to the fraud and deceit exhibited in the above-
mentioned circumstances, respondent MPEI had no excuse not to be
forthright with the documents showing MPC's eligibility to bid as a joint
venture. The Invitation to Bid, as quoted in our 2004 Decision, could not
have been any clearer when it stated that only bids from qualified entities,
such as a joint venture, would be entertained:ChanRoblesVirtualawlibrary
INVITATION TO APPLY FOR ELIGIBILITY AND TO BID
The Commission on Elections (COMELEC), pursuant to the mandate of
Republic Act Nos. 8189 and 8436, invites interested offerers, vendors,
suppliers or lessors to apply for eligibility and to bid for the procurement
by purchase, lease, lease with option to purchase, or otherwise, supplies,
equipment, materials and services needed for a comprehensive Automated
Election System, consisting of three (3) phases: (a) registration/verification
of voters, (b) automated counting and consolidation of votes, and (c)
electronic transmission of election results, with an approved budget of TWO
BILLION FIVE HUNDRED MILLION (Php2,500,000,000) Pesos.
Only bids from the following entities shall be entertained:
xxxx
d. Manufacturers, suppliers and/or distributors forming themselves into a
joint venture, i.e., a group of two (2) or more manufacturers, suppliers
and/or distributors that intend to be jointly and severally responsible or
liable for a particular contract, provided that Filipino ownership thereof shall
be at least sixty percent (60%); and cralawlawlibrary
e. Cooperatives duly registered with the Cooperatives Development
Authority.86 (Emphases supplied)
No reasonable mind would argue that documents showing the very
existence of a joint venture need not be included in the bidding envelope
showing its existence, qualification, and eligibility to undertake the project,
considering that the purpose of prequalification in any public bidding is to
determine, at the earliest opportunity, the ability of the bidder to undertake
the project.87chanrobleslaw
As found by this Court in its 2004 Decision, it appears that the documents
that were submitted after the bidding, which respondents claimed would
prove the existence of the relationship among the members of the
consortium, were actually separate agreements individually executed by the
supposed members with MPEI. We had ruled that these documents were
highly irregular, considering that each of the four different and separate
bilateral Agreements was valid and binding only between MPEI and the
other contracting party, leaving the other "consortium" members total
strangers thereto. Consequently, the other consortium members had
nothing to do with one another, as each one dealt only with
MPEI.88chanrobleslaw
Considering that they merely showed MPEI's individual agreements with the
other supposed members, these agreements confirm to our mind the
fraudulent intent on the part of respondent MPEI to deceive the relevant
officials about MPC. The intent was to cure the deficiency of the winning
bid, which intent miserably failed. Said this Court:89
We are unconvinced, PBAC was guided by the rules, regulations or
guidelines existing before the bid proposals were opened on November 10,
1989. The basic rule in public bidding is that bids should be evaluated based
on the required documents submitted before and not after the opening of
bids. Otherwise, the foundation of a fair and competitive public bidding
would be defeated. Strict observance of the rules, regulations, and
guidelines of the bidding process is the only safeguard to a fair, honest and
competitive public bidding.
In underscoring the Court's strict application of the pertinent rules,
regulations and guidelines of the public bidding process, We have ruled in
C & C Commercial vs. Menor (L-28360, January 27, 1983, 120 SCRA 112), that
Nawasa properly rejected a bid of C & C Commercial to supply asbestos
cement pressure which bid did not include a tax clearance certificate as
required by Administrative Order No. 66 dated June 26, 1967. In Caltex
(Phil.) Inc., et. al. vs. Delgado Brothers, Inc. et. al., (96 Phil. 368, 375), We
stressed that public biddings are held for the protection of the public and
the public should be given the best possible advantages by means of open
competition among the bidders.
xxxx
INTER TECHNICAL's failure to comply with what is perceived to be an
elementary and customary practice in a public bidding process, that is, to
enclose the Form of Bid in the original and eight separate copies of the
bidding documents submitted to the bidding committee is fatal to its cause.
All the four pre-qualified bidders which include INTER TECHNICAL were
subject to Rule IB 2.1 of the Implementing Rules and Regulations of P.D.
1594 in the preparation of bids, bid bonds, and pre-qualification statement
and Rule IB 2.8 which states that the Form of Bid, among others, shall form
part of the contract. INTER TECHNICAL's explanation that its bid form was
inadvertently left in the office (p. 6, Memorandum for Private Respondent,
p. 355, Rollo) will not excuse compliance with such a simple and basic
requirement in the public bidding process involving a multi-million project
of the Government. There should be strict application of the pertinent public
bidding rules, otherwise the essential requisites of fairness, good faith, and
competitiveness in the public bidding process would be rendered
meaningless. (Emphases supplied)
All these circumstances, taken together, reveal a scheme on the part of
respondent MPEI to perpetrate fraud against the government. The purpose
of the scheme was to ensure that MPEI, an entity that was ineligible to bid
in the first place, would eventually be awarded the contract. While
respondent argues that it was merely a passive participant in the bidding
process, We cannot ignore its cavalier disregard of its participation in the
now voided automation contract.
B. Fraud on the part of respondent MPEI was further shown by the fact that
despite the failure of its ACMs to pass the tests conducted by the DOST,
respondent still acceded to being awarded the automation contract.
Another token of fraud is established by Our findings in relation to the
failure of the ACMs to pass the tests of the DOST. We quote herein the
pertinent portions of this Court's 2004 Decision in relation
thereto:ChanRoblesVirtualawlibrary
After respondent "consortium" and the other bidder, TIM, had submitted
their respective bids on March 10, 2003, the Comelec's BAC — through its
Technical Working Group (TWG) and the DOST — evaluated their technical
proposals.
xxxx
According to respondents, it was only after the TWG and the DOST had
conducted their separate tests and submitted their respective reports that
the BAC, on the basis of these reports formulated its
comments/recommendations on the bids of the consortium and TIM.
The BAG, in its Report dated April 21, 2003, recommended that the Phase II
project involving the acquisition of automated counting machines be
awarded to MPEI. x x x
xxxx
The BAC, however, also stated on page 4 of its Report: "Based on the 14
April 2003 report (Table 6) of the DOST, it appears that both Mega-Pacific
and TIM (Total Information Management Corporation) failed to meet some
of the requirements. x x x
xxxx
Failure to Meet the Required Accuracy Rating
The first of the key requirements was that the counting machines were to
have an accuracy rating of at least 99.9995 percent. The BAC Report
indicates that both Mega Pacific and TIM failed to meet this standard.
The key requirement of accuracy rating happens to be part and parcel of
the Comelec's Request for Proposal (RFP). x x x
xxxx
x x x Whichever accuracy rating is the right standard — whether 99.995 or
99.9995 percent — the fact remains that the machines of the so-called
"consort him" failed to even reach the lesser of the two. On this basis alone,
it ought to have been disqualified and its bid rejected outright.
At this point, the Court stresses that the essence of public bidding is violated
by the practice of requiring very high standards or unrealistic specifications
that cannot be met — like the 99.9995 percent accuracy rating in this case
— only to water them down after the bid has been award.[sic] Such scheme,
which discourages the entry of prospective bona fide bidders, is in fact a
sure indication of fraud in the bidding, designed to eliminate fair
competition. Certainly, if no bidder meets the mandatory requirements,
standards or specifications, then no award should be made and a failed
bidding declared.
xxxx
Failure of Software to Detect Previously Downloaded Data
Furthermore, on page 6 of the BAC Report, it appears that the "consortium"
as well as TIM failed to meet another key requirement — for the counting
machine's software program to be able to detect previously downloaded
precinct results and to prevent these from being entered again into the
counting machine. This same deficiency on the part of both bidders
reappears on page 7 of the BAC Report, as a result of the recurrence of their
failure to meet the said key requirement.
That the ability to detect previously downloaded data at different
canvassing or consolidation levels is deemed of utmost importance can be
seen from the fact that it is repeated three times in the RFP. x x x.
Once again, though, Comelec chose to ignore this crucial deficiency, which
should have been a cause for the gravest concern. x x x.
xxxx
Inability to Print the Audit Trail
But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate
that the ACMs of both bidders were unable to print the audit trail without
any loss of data. In the case of MPC, the audit trail system was "not yet
incorporated" into its ACMs.
xxxx
Thus, the RFP on page 27 states that the ballot counting machines and ballot
counting software must print an audit trail of all machine operations for
documentation and verification purposes. Furthermore, the audit trail must
be stored on the internal storage device and be available on demand for
future printing and verifying. On pages 30-31, the RFP also requires that the
city/municipal canvassing system software be able to print an audit trail of
the canvassing operations, including therein such data as the date and time
the canvassing program was started, the log-in of the authorized users (the
identity of the machine operators), the date and time the canvass data were
downloaded into the canvassing system, and so on and so forth. On page
33 of the RFP, we find the same audit trail requirement with respect to the
provincial/district canvassing system software; and again on pages 35-36
thereof, the same audit trail requirement with respect to the national
canvassing system software.
xxxx
The said provision which respondents have quoted several times, provides
that ACMs are to possess certain features divided into two classes: those
that the statute itself considers mandatory and other features or capabilities
that the law deems optional. Among those considered mandatory are
"provisions for audit trails"! x x x.
In brief, respondents cannot deny that the provision requiring audit trails is
indeed mandatory, considering the wording of Section 7 of RA 8436.
Neither can Respondent Comelec deny that it has relied on the BAC Report,
which indicates that the machines or the software was deficient in that
respect. And yet, the Commission simply disregarded this shortcoming and
awarded the Contract to private respondent, thereby violating the very law
it was supposed to implement.90 (Emphases supplied)
The above-mentioned findings were further echoed by this Court in its 2006
Resolution with a categorical conclusion that the bidding process was void
and fraudulent.91chanrobleslaw
Again, these factual findings found their way into the application of
petitioner for a writ of preliminary attachment,92 as it claimed that
respondents could not dissociate themselves from their telltale acts of
supplying defective machines and nonexistent software.93 The latter
offered no defense in relation to these claims.
We see no reason to deviate from our finding of fraud on the part of
respondent MPEI in the 2004 Decision and 2006 Resolution. Despite its
failure to meet the mandatory requirements set forth in the bidding
procedure, respondent still acceded to being awarded the contract. These
circumstances reveal its ploy to gain undue advantage over the other
bidders in general, even to the extent of cheating the government.
The word "bidding" in its comprehensive sense means making an offer or
an invitation to prospective contractors, whereby the government manifests
its intention to make proposals for the purpose of securing supplies,
materials, and equipment for official business or public use, or for public
works or repair.94 Three principles involved in public bidding are as follows:
(1) the offer to the public; (2) an opportunity for competition, and (3) a basis
for an exact comparison of bids. A regulation of the matter, which excludes
any of these factors, destroys the distinctive character of the system and
thwarts the purpose of its adoption.95chanrobleslaw
In the instant case, We infer from the circumstances that respondent MPEI
welcomed and allowed the award of the automation contract, as it executed
the contract despite the full knowledge that it had not met the mandatory
requirements set forth in the RFP. Respondent acceded to and benefitted
from the watering down of these mandatory requirements, resulting in
undue advantage in its favor. The fact that there were numerous mandatory
requirements that were simply set aside to pave the way for the award of
the automation contract does not escape the attention of this Court.
Respondent MPEI, through respondent Willy, signed and executed the
automation contract with COMELEC. It is therefore preposterous for
respondent argue that it was a "passive participant" in the whole bidding
process.
We reject the CA's denial of petitioner's plea for the ancillary remedy of
preliminary attachment, considering that the cumulative effect of the
factual findings of this Court establishes a sufficient basis to conclude that
fraud had attended the execution of the automation contract. Such fraud is
deducible from the 2004 Decision and further upheld in the 2006
Resolution. It was incongruous, therefore, for the CA to have denied the
application for a writ of preliminary attachment, when the evidence on
record was the same that was used to demonstrate the propriety of the
issuance of the writ of preliminary attachment. This was the same evidence
that We had already considered and passed upon, and on which We based
Our 2004 Decision to nullify the automation contract. It would not be right
for this Court to ignore these illegal transactions, as to do so would be
tantamount to abandoning its constitutional duty of safeguarding public
interest.
II.
Application of the piercing doctrine justifies the issuance of a writ of
preliminary attachment over the properties of the individual respondents.
Individual respondents argue that since they were not parties to the 2004
case, any factual findings or conclusions therein should not be binding upon
them.96 Since they were strangers to that case, they are not bound by the
judgment rendered by this Court.97 They claim that their fundamental right
to due process would be violated if their properties were to be attached for
a purported corporate debt on the basis of a court ruling in a case in which
they were not given the right or opportunity to be heard.98chanrobleslaw
We cannot subscribe to this argument. In the first place, it could not be
reasonably expected that individual respondents would be impleaded in the
2004 case. As admitted by respondents, the issues resolved in the 2004
Decision were limited to the following: (1) whether to declare Resolution No.
6074 of the COMELEC null and void; (2) whether to enjoin the
implementation of any further contract that may have been entered into by
COMELEC with MPC or MPEI; and (3) whether to compel COMELEC to
conduct a rebidding of the project. To implead individual respondents then
was improper, considering that the automation contract was entered into
by respondent MPEI. This Court even acknowledged this fact by directing
that the liabilities of persons responsible for the nullity of the contract be
determined in another appropriate proceeding and by directing the OSG to
undertake measures to protect the interests of the government.
At any rate, individual respondents have been fully afforded the right to due
process by being impleaded and heard in the subsequent proceedings
before the courts a quo. Finally, they cannot argue violation of due process,
as respondent MPEI, of which they are incorporators/stockholders, remains
vulnerable to the piercing of its corporate veil.
A. There are red flags indicating that MPEI was used to perpetrate the fraud
against petitioner, thus allowing the piercing of its corporate veil.
Petitioner seeks the issuance of a writ of preliminary attachment over the
personal assets of the individual respondents, notwithstanding the doctrine
of separate juridical personality.99 It invokes the use of the doctrine of
piercing the corporate veil, to which the canon of separate juridical
personality is vulnerable, as a way to reach the personal properties of the
individual respondents. Petitioner paints a picture of a sham corporation set
up by all the individual respondents for the purpose of securing the
automation contract.
We agree with petitioner.
Veil-piercing in fraud cases requires that the legal fiction of separate
juridical personality is used for fraudulent or wrongful ends.100 For reasons
discussed below, We see red flags of fraudulent schemes in public
procurement, all of which were established in the 2004 Decision, the totality
of which strongly indicate that MPEI was a sham corporation formed merely
for the purpose of perpetrating a fraudulent scheme.
The red flags are as follows: (1) overly narrow specifications; (2) unjustified
recommendations and unjustified winning bidders; (3) failure to meet the
terms of the contract; and (4) shell or fictitious company. We shall discuss
each in detail.
Overly Narrow Specifications
The World Bank's Fraud and Corruption Awareness Handbook: A Handbook
for Civil Servants Involved in Public Procurement, (Handbook) identifies an
assortment of fraud and corruption indicators and relevant schemes in
public procurement.101 One of the schemes recognized by the Handbook is
rigged specifications:ChanRoblesVirtualawlibrary
Scheme: Rigged specifications. In a competitive market for goods and
services, any specifications that seem to be drafted in a way that favors a
particular company deserve closer scrutiny. For example, specifications that
are too narrow can be used to exclude other qualified bidders or justify
improper sole source awards. Unduly vague or broad specifications can
allow an unqualified bidder to compete or justify fraudulent change orders
after the contract is awarded. Sometimes, project officials will go so far as
to allow the favored bidder to draft the
specifications.102chanroblesvirtuallawlibrary
In Our 2004 Decision, We identified a red flag of rigged bidding in the form
of overly narrow specifications. As already discussed, the accuracy
requirement of 99.9995 percent was set up by COMELEC bidding rules. This
Court recognized that this rating was "too high and was a sure indication of
fraud in the bidding, designed to eliminate fair competition."103 Indeed,
"the essence of public bidding is violated by the practice of requiring very
high standards or unrealistic specifications that cannot be met...only to
water them down after the bid has been award(ed)."104chanrobleslaw
Unjustified Recommendations and Unjustified Winning Bidders
Questionable evaluation in a Bid Evaluation Report (BER) is an indicator of
bid rigging. The Handbook expounds:ChanRoblesVirtualawlibrary
Questionable evaluation and unusual bid patterns may emerge in the BER.
After the completion of the evaluation process, the Bid Evaluation
Committee should present to the implementing agency its BER, which
describes the results and the process by which the BEC has evaluated the
bids received. The BER may include a number of indicators of bid rigging,
e.g., questionable disqualifications, and unusual bid
patterns.105chanroblesvirtuallawlibrary
The Handbook lists unjustified recommendations and unjustified winning
bidders as red flags of a rigged bidding.106chanrobleslaw
The red flags of questionable recommendation and unjustified awards are
raised in this case. As earlier discussed, the project was awarded to MPC,
which proved to be a nonentity. It was MPEI that actually participated in the
bidding process, but it was not qualified to be a bidder in the first place.
Moreover, its ACMs failed the accuracy requirement set by COMELEC. Yet,
MPC — the nonentity — obtained a favorable recommendation from the
BAC, and the automation contract was awarded to the former.
Failure to Meet Contract Terms
Failure to meet the terms of a contract is regarded as a fraud by the
Handbook:ChanRoblesVirtualawlibrary
Scheme: Failure to meet contract terms. Firms may deliberately fail to
comply with contract requirements. The contractor will attempt to conceal
such actions often by falsifying or forging supporting documentation and
bill for the work as if it were done in accordance with specifications. In many
cases, the contractors must bribe inspection or project personnel to accept
the substandard goods or works, or supervision agents are coerced to
approve substandard work. x x x107chanroblesvirtuallawlibrary
As mentioned earlier, this Court already found the ACMs to be below the
standards set by the COMELEC. We reiterated their noncompliant status in
Our 2005 and 2006 Resolutions.
As early as 2005, when the COMELEC sought permission from this Court to
utilize the ACMs in the then scheduled ARMM elections, We declared that
the proposed use of the machines would expose the ARMM elections to the
same dangers of massive electoral fraud that would have been inflicted by
the projected automation of the 2004 national elections. We based this
pronouncement on the fact that the COMELEC failed to show that the
deficiencies had been cured.108 Yet again, this Court in 2006 blocked
another attempt to use the ACMs, this time for the 2007 elections. We
reiterated that because the ACMs had merely remained idle and unused
since their last evaluation, in which they failed to hurdle the crucial tests,
then their defects and deficiencies could not have been cured by
then.109chanrobleslaw
Based on the foregoing, the ACMs delivered were plagued with defects that
made them fail the requirements set for the automation project.
Shell or fictitious company
The Handbook regards a shell or fictitious company as a "serious red flag,"
a concept that it elaborates upon:ChanRoblesVirtualawlibrary
Fictitious companies are by definition fraudulent and may also serve as
fronts for government officials. The typical scheme involves corrupt
government officials creating a fictitious company that will serve as a
"vehicle" to secure contract awards. Often, the fictitious—or ghost—
company will subcontract work to lower cost and sometimes unqualified
firms. The fictitious company may also utilize designated losers as
subcontractors to deliver the work, thus indicating collusion.
Shell companies have no significant assets, staff or operational capacity.
They pose a serious red flag as a bidder on public contracts, because they
often hide the interests of project or government officials, concealing a
conflict of interest and opportunities for money laundering. Also, by
definition, they have no experience.110chanroblesvirtuallawlibrary
MPEI qualifies as a shell or fictitious company. It was nonexistent at the time
of the invitation to bid; to be precise, it was incorporated only 11 days before
the bidding. It was a newly formed corporation and, as such, had no track
record to speak of.
Further, MPEI misrepresented itself in the bidding process as "lead
company" of the supposed joint venture. The misrepresentation appears to
have been an attempt to justify its lack of experience. As a new company, it
was not eligible to participate as a bidder. It could do so only by pretending
that it was acting as an agent of the putative consortium.
The timing of the incorporation of MPEI is particularly noteworthy. Its close
nexus to the date of the invitation to bid and the date of the bidding (11
days) provides a strong indicium of the intent to use the corporate vehicle
for fraudulent purposes. This proximity unmistakably indicates that the
automation contract served as motivation for the formation of MPEI: a
corporation had to be organized so it could participate in the bidding by
claiming to be an agent of a pretended joint venture.
The timing of the formation of MPEI did not escape the scrutiny of Justice
Angelina Sandoval-Gutierrez, who made this observation in her Concurring
Opinion in the 2004 Decision:ChanRoblesVirtualawlibrary
At this juncture, it bears stressing that MPEI was incorporated only on
February 27, 2003 as evidenced by its Certificate of Incorporation. This goes
to show that from the time the COMELEC issued its Invitation to Bid (January
28, 2003) and Request for Proposal (February 17, 2003) up to the time it
convened the Pre-bid Conference (February 18, 2003), MPEI was literally a
non-existent entity. It came into being only on February 27, 2003 or eleven
(11) days prior to the submission of its bid, i.e. March 10, 2003. This poses a
legal obstacle to its eligibility as a bidder. The Request for Proposal requires
the bidder to submit financial documents that will establish to the BAC's
satisfaction its financial capability which
include:ChanRoblesVirtualawlibrary
(1) audited financial statements of the Bidder's firm for the last three (3)
calendar years, stamped "RECEIVED" by the appropriate government
agency, to show its capacity to finance the manufacture and supply of
Goods called for and a statement or record of volumes of sales;
(2) Balance Sheet;
(3) Income Statement; and cralawlawlibrary
(4) Statement of Cash Flow.
As correctly pointed out by petitioners, how could MPEI comply with the
above requirement of audited financial statements for the last three (3)
calendar years if it came into existence only eleven (11) days prior to the
bidding?
To do away with such complication, MPEI asserts that it was MP
CONSORTIUM who submitted the bid on March 10, 2003. It pretends
compliance with the requirements by invoking the financial capabilities and
long time existence of the alleged members of the MP CONSORTIUM,
namely, Election.Com, WeSolv, SK CeC, ePLDT and Oracle. It wants this Court
to believe that it is MP CONSORTIUM who was actually dealing with the
COMELEC and that its (MPEI) participation is merely that of a "lead company
and proponent" of the joint venture. This is hardly convincing. For one, the
contract for the supply and delivery of ACM was between COMELEC and
MPEI, not MP CONSORTIUM. As a matter of fad, there cannot be found in
the contract any reference to the MP CONSORTIUM or any member thereof
for that matter. For another, the agreements among the alleged members
of MP CONSORTIUM do not show the existence of a joint-venture
agreement. Worse, MPEI cannot produce the agreement as to the "joint and
several liability" of the alleged members of the MP CONSORTIUM as
required by this Court in its Resolution dated October 7,
2003.111chanroblesvirtuallawlibrary
Respondent MPEI was formed to perpetrate the fraud against petitioner.
The totality of the red flags found in this case leads Us to the inevitable
conclusion that MPEI was nothing but a sham corporation formed for the
purpose of defrauding petitioner. Its ultimate objective was to secure the
P1,248,949,088 automation contract. The scheme was to put up a
corporation that would participate in the bid and enter into a contract with
the COMELEC, even if the former was not qualified or authorized to do so.
Without the incorporation of MPEI, the defraudation of the government
would not have been possible. The formation of MPEI paved the way for its
participation in the bid, through its claim that it was an agent of a supposed
joint venture, its misrepresentations to secure the automation contract, its
misrepresentation at the time of the execution of the contract, its delivery
of the defective ACMs, and ultimately its acceptance of the benefits under
the automation contract.
The foregoing considered, veil-piercing is justified in this case.
We shall next consider the question of whose assets shall be reached by the
application of the piercing doctrine.
B. Because all the individual respondents actively participated in the
perpetration of the fraud against petitioner, their personal assets may be
subject to a writ of preliminary attachment by piercing the corporate veil.
A corporation's privilege of being treated as an entity distinct and separate
from the stockholders is confined to legitimate uses, and is subject to
equitable limitations to prevent its being exercised for fraudulent, unfair, or
illegal purposes.112 As early as the 19th century, it has been held
that:ChanRoblesVirtualawlibrary
The general proposition that a corporation is to be regarded as a legal
entity, existing separate and apart from the natural persons composing it, is
not disputed; but that the statement is a mere fiction, existing only in idea,
is well understood, and not controverted by any one who pretends to
accurate knowledge on the subject. It has been introduced for the
convenience of the company in making contracts, in acquiring property for
corporate purposes, in suing and being sued, and to preserve the limited
liability of the stockholder by distinguishing between the corporate debts
and property of the company and of the stockholders in their capacity as
individuals. All fictions of law have been introduced for the purpose of
convenience, and to subserve the ends of justice. It is in this sense that the
maxim in fictione juris subsistit aequitas is used, and the doctrine of fictions
applied. But when they are urged to an intent and purpose not within the
reason and policy of the fiction, they have always been disregarded by the
courts. Broom's, Legal Maxims 130. "It is a certain rule," says Lord Mansfield,
C.J., "that a fiction of law never be contradicted so as to defeat the end for
which it was invented, but for every other purpose it may be contradicted."
Johnson v. Smith, 2 Burr, 962.113chanroblesvirtuallawlibrary
The main effect of disregarding the corporate fiction is that stockholders
will be held personally liable for the acts and contracts of the corporation,
whose existence, at least for the purpose of the particular situation involved,
is ignored.114chanrobleslaw
We have consistently held that when the notion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the
law will regard the corporation as an association of persons.115 Thus,
considering that We find it justified to pierce the corporate veil in the case
before Us, MPEI must, perforce, be treated as a mere association of persons
whose assets are unshielded by corporate fiction. Such persons' individual
liability shall now be determined with respect to the matter at hand.
Contrary to respondent Willy's claims, his participation in the fraud is clearly
established by his unequivocal agreement to the execution of the
automation contract with the COMELEC, and his signature that appears on
the voided contract. As far back as in the 2004 Decision, his participation as
a signatory' to the automation contract was already
established:ChanRoblesVirtualawlibrary
The foregoing argument is unpersuasive. First, the contract being referred
to, entitled "The Automated Counting and Canvassing Project Contract," is
between Comelec and MPEI, not the alleged consortium, MPC. To repeat, it
is MPEI - not MPC - that is a party to the Contract. Nowhere in that Contract
is there any mention of a consortium or joint venture, of members thereof
much less of joint and several liability. Supposedly executed sometime in
May 2003, the Contract bears a notarization date of June 30, 2003, and
contains the signature of Willy U. Yu signing as president of MPEI (not for
and on behalf of MPC), along with that of the Comelec chair. It provides in
Section 3.2 that MPEI (not MPC) is to supply the Equipment and perform
the Services under the Contract, in accordance with the appendices thereof;
nothing whatsoever is said about any consortium or joint venture or
partnership. x x x (Emphasis supplied)
That his signature appears on the automation contract means that he
agreed and acceded to its terms.116 His participation in the fraud involves
his signing and executing the voided contract.
The execution of the automation contract with a non-eligible entity and the
subsequent award of the contract despite the failure to meet the mandatory
requirements were "badges of fraud" in the procurement process that
should have been recognized by the CA to justify the issuance of the writ of
preliminary attachment against the properties of respondent Willy.
With respect to the other individual respondents, petitioner, in its Answer
with Counterclaim, alleged:ChanRoblesVirtualawlibrary
30. Also, inasmuch as MPEI is in truth a mere shell corporation with no real
assets in its name, incorporated merely to feign eligibility for the bidding of
the automated contract when it in fact had none, to the great prejudice of
the Republic, plaintiffs individual incorporators should likewise be made
liable together with MPEI for the automated contract amount paid to and
received by the latter. The following circumstances altogether manifest that
the individual incorporators merely cloaked themselves with the veil of
corporate fiction to perpetrate a fraud and to eschew liability therefor, thus:
f.From the time it was incorporated until today, MPEI has not complied with
the reportorial requirements of the Securities and Exchange Commission;
g.Individual incorporators, acting fraudulently through MPEI, and in
violation of the bidding rules, then subcontracted the automation contract
to four (4) other corporations, namely: WeSolve Corporation, SK C&C, ePLDT
and election.com, to comply with the capital requirements, requisite five (5)-
year corporate standing and the technical qualifications of the Request for
Proposal;
x x x x117chanroblesvirtuallawlibrary
In response to petitioner's allegations, respondents Willy and Bonnie stated
in their Reply and Answer (Re: Answer with Counterclaim dated 28 June
2004):118
3.3 As far as plaintiff MPEI and defendants-in-counterclaim are concerned,
they dealt with the COMELEC with full transparency and in utmost good
faith. All documents support its eligibility to bid for the supply of the ACMs
and their peripheral services, were submitted to the COMELEC for its
evaluation in full transparency. Pertinently, neither plaintiff MPEI nor any of
its directors, stockholders, officers or employees had any participation in the
evaluation of the bids and eventual choice of the winning
bidder.119chanroblesvirtuallawlibrary
Respondents Johnson's and Bernard's denials were made in paragraphs 2.17
and 3.3 of their Answer with Counterclaim to the Republic's Counterclaim,
to wit:120
2.17 The erroneous conclusion of fact and law in paragraph 30 (f) and (g) of
the Republic's answer is denied, having been pleaded in violation of the
requirement, that only ultimate facts arc to be stated in the pleadings and
they are falsehoods. The truth of the matter is that there could not have
been fraud, as these agreements were submitted to the COMELEC for its
evaluation and assessment, as to the qualification of the Consortium as a
bidder, a showing of transparency in plaintiffs dealings with the
Republic.121chanrobleslaw
3.3 As far as plaintiff MPEI and defendants-in-counterclaim are concerned,
they dealt with the COMELEC with full transparency and in utmost good
faith. All documents support its eligibility to bid for the supply of the
automated counting machines and its peripheral services, were submitted
to the COMELEC for its evaluation in full transparency. Pertinently, the
plaintiff or any of its directors, stockholders, officers or employees had no
participation in the evaluation of the bids and eventual choice of the
winning bidder.122chanroblesvirtuallawlibrary
As regards Enrique and Rosita, the relevant paragraphs in the Answer with
Counterclaim to the Republic's Counterclaim123 are quoted
below:ChanRoblesVirtualawlibrary
2.17. The erroneous conclusion of fact and law in paragraph 30 (F) and (G)
of the Republic's answer is denied, having been pleaded in violation of the
requirement, that only ultimate facts are to be stated in the pleadings and
they are falsehoods. The truth of the matter is that there could not have
been fraud, as these agreements were submitted to the COMELEC for its
evaluation and assessment, as to the qualification of the Consortium as a
bidder, a showing of transparency in plaintiffs dealings with the
Republic.124chanrobleslaw
3.3. As far as the plaintiff and herein answering defendants-in-counterclaim
are concerned, they dealt with the Commission on Elections with full
transparency and in utmost good faith. All documents in support of its
eligibility to bid for the supply of the automated counting machines and its
peripheral services were submitted to the Commission on Elections for its
evaluation in full transparency. Pertinently, the plaintiff or any of its
directors, stockholders, officers or employees had no participation in the
evaluation of the bids and eventual choice of the winning
bidder.125chanroblesvirtuallawlibrary
Pedro and Laureano offer a similar defense in paragraph 3.3 of their Reply
and Answer with Counterclaim to the Republic's Counterclaim126 dated 28
June 2004, which reads:ChanRoblesVirtualawlibrary
3.3. As far as plaintiff MPEI and defendants-in-counterclaim are concerned,
they dealt with the COMELEC with full transparency and in utmost good
faith. All documents support its eligibility to bid for the supply of the ACMs
and their peripheral services, were submitted to the COMELEC for its
evaluation in full transparency. Pertinently, neither plaintiff MPEI nor any of
its directors, stockholders, officers or employees had any participation in the
evaluation of the bids and eventual choice of the winning
bidder.127chanroblesvirtuallawlibrary
It can be seen from the above-quoted paragraphs that the individual
respondents never denied their participation in the questioned transactions
of MPEI, merely raising the defense of good faith and shifting the blame to
the COMELEC. The individual respondents have, in effect, admitted that they
had knowledge of and participation in the fraudulent subcontracting of the
automation contract to the four corporations.
It bears stressing that the remaining individual respondents, together with
respondent Willy, incorporated MPEI. As incorporators, they are expected
to be involved in the management of the corporation and they are charged
with the duty of care. This is one of the reasons for the requirement of
ownership of at least one share of stock by an
incorporator:ChanRoblesVirtualawlibrary
The reason for this, as explained by the lawmakers, is to avoid the confusion
and/or ambiguities arising in a situation under the old corporation law
where there exists one set of incorporators who are not even shareholders
and another set of directors/incorporators who must all be shareholders of
the corporation. The people who deal with said corporation at such an early
stage are confused as to who are the persons or group really authorized to
act in behalf of the corporation. (Proceedings of the Batasan Pambansa on
the Proposed Corporation Code). Another reason may be anchored on the
presumption that when an incorporator has pecuniary interest in the
corporation, no matter how minimal, he will be more involved in the
management of corporate affairs and to a greater degree, be concerned
with the welfare of the corporation.128chanroblesvirtuallawlibrary
As incorporators and businessmen about to embark on a new business
venture involving a sizeable capital (P300 million), the remaining individual
respondents should have known of Willy's scheme to perpetrate the fraud
against petitioner, especially because the objective was a billion peso
automation contract. Still, they proceeded with the illicit business venture.
It is clear to this Court that inequity would result if We do not attach
personal liability to all the individual respondents. With a definite finding
that MPEI was used to perpetrate the fraud against the government, it
would be a great injustice if the remaining individual respondents would
enjoy the benefits of incorporation despite a clear finding of abuse of the
corporate vehicle. Indeed, to allow the corporate fiction to remain intact
would not subserve, but instead subvert, the ends of justice.
III.
The factual findings of this Court that have become final cannot be modified
or altered, much less reversed, and are controlling in the instant case.
Respondents argue that the 2004 Decision did not resolve and could not
have resolved the factual issue of whether they had committed any fraud,
as the Supreme Court is not a trier of facts; and the 2004 case, being a
certiorari case, did not deal with questions of fact.129chanrobleslaw
Further, respondents argue that the findings of this Court ought to be
confined only to those issues actually raised and resolved in the 2004 case,
in accordance with the principle of conclusiveness of judgment.130 They
explain that the issues resolved in the 2004 Decision were only limited to
the following: (1) whether to declare COMELEC Resolution No. 6074 null and
void; (2) whether to enjoin the implementation of any further contract that
may have been entered into by COMELEC with MPC or MPEI; and (3)
whether to compel COMELEC to conduct a rebidding of the
project.131chanrobleslaw
It is obvious that respondents are merely trying to escape the implications
or effects of the nullity of the automation contract that they had executed.
Section 1, Rule 65 of the Rules of Court, clearly sets forth the instances when
a petition for certiorari can be used as a proper
remedy:ChanRoblesVirtualawlibrary
Section 1. Petition for certiorari. — When any tribunal, board or officer
exercising judicial or quasi-judicial functions has acted without or in excess
of its jurisdiction, or with grave abuse of discretion amounting to lack or
excess of jurisdiction, and there is no appeal, or any plain, speedy, and
adequate remedy in the ordinary course of law. a person aggrieved thereby
may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or modifying
the proceedings of such tribunal, board or officer, and granting such
incidental reliefs as law and justice may require.
The term "grave abuse of discretion" has a specific meaning. An act of a
court or tribunal can only be considered to have been committed with grave
abuse of discretion when the act is done in a "capricious or whimsical
exercise of judgment as is equivalent to lack of jurisdiction."132 The abuse
of discretion must be so patent and gross as to amount to an "evasion of a
positive duty or to a virtual refusal to perform a duty enjoined by law, or to
act at all in contemplation of law, as where the power is exercised in an
arbitrary and despotic manner by reason of passion and hostility."133
Furthermore, the use of a petition for certiorari is restricted only to "truly
extraordinary cases wherein the act of the lower court or quasi-judicial body
is wholly void."134 From the foregoing definition, it is clear that the special
civil action of certiorari under Rule 65 can only strike down an act for having
been done with grave abuse of discretion if the petitioner could manifestly
show that such act was patent and gross.135chanrobleslaw
We had to ascertain from the evidence whether the COMELEC committed
grave abuse of discretion, and in the process, were justified in making some
factual findings. The conclusions derived from the factual findings are
inextricably intertwined with this Court's determination of grave abuse of
discretion. They have a direct bearing and are in fact necessary to illustrate
that the award of the automation contract was done hastily and in direct
violation of law. This Court has indeed made factual findings based on the
evidence presented before it; in turn, these factual findings constitute the
controlling legal rule between the parties that cannot be modified or
amended by any of them. This Court is bound to consider the factual
findings made in the 2004 Decision in order to declare that there is fraud
for the purpose of issuing the writ of preliminary attachment.
Respondents appear to have misunderstood the implications of the
principle of conclusiveness of judgment on their cause. Contrary to their
claims, the factual findings are conclusive and have been established as the
controlling legal rule in the instant case, on the basis of the principle of res
judicata—more particularly, the principle of conclusiveness of judgment.
This doctrine of res judicata which is set forth in Section 47 of Rule 39 of the
Rules of Court136 lays down two main rules, namely: (1) the judgment or
decree of a court of competent jurisdiction on the merits concludes the
litigation between the parties and their privies and constitutes a bar to a
new action or suit involving the same cause of action either before the same
or any other tribunal; and (2) any right, fact, or matter in issue directly
adjudicated or necessarily involved in the determination of an action before
a competent court in which a judgment or decree is rendered on the merits
is conclusively settled by the judgment therein and cannot again be litigated
between the parties and their privies whether or not the claims or demands,
purposes, or subject matters of the two suits are the same.137chanrobleslaw
These two main rules mark the distinction between the principles governing
the two typical cases in which a judgment may operate as evidence.138 The
first general rule stated above and corresponding to the afore-quoted
paragraph (b) of Section 47, Rule 39 of the Rules of Court, is referred to as
"bar by former judgment"; while the second general rule, which is embodied
in paragraph (c) of the same section and rule, is known as "conclusiveness
of judgment."139chanrobleslaw
In Calalang v. Register of Deeds of Quezon City,140 We discussed the
concept of conclusiveness of judgment as pertaining even to those matters
essentially connected with the subject of litigation in the first action. This
Court explained therein that the bar on re-litigation extends to those
questions necessarily implied in the final judgment, although no specific
finding may have been made in reference thereto, and although those
matters were directly referred to in the pleadings and were not actually or
formally presented. If the record of the former trial shows that the judgment
could not have been rendered without deciding a particular matter, it will
be considered as having settled that matter as to all future actions between
the parties; and if a judgment necessarily presupposes certain premises,
they are as conclusive as the judgment itself:ChanRoblesVirtualawlibrary
The second concept — conclusiveness of judgment — states that a fact or
question which was in issue in a former suit and was there judicially passed
upon and determined by a court of competent jurisdiction, is conclusively
settled by the judgment therein as far as the parties to that action and
persons in privity with them are concerned and cannot be again litigated in
any future action between such parties or their privies, in the same court or
any other court of concurrent jurisdiction on either the same or different
cause of action, while the judgment remains unreversed by proper
authority. It has been held that in order that a judgment in one action can
be conclusive as to a particular matter in another action between the same
parties or their privies, it is essential that the issue be identical. If a particular
point or question is in issue in the second action, and the judgment will
depend on the determination of that particular point or question, a former
judgment between the same parties or their privies will be final and
conclusive in the second if that same point or question was in issue and
adjudicated in the first suit (Nabus v. Court of Appeals, 193 SCRA 732 [1991]).
Identity of cause of action is not required but merely identity of issue.
Justice Fcliciano, in Smith Bell & Company (Phils.), Inc. v. Court of Appeals
(197 SCRA 201, 210 [1991]), reiterated Lopez v. Reyes (76 SCRA 179 [1977]) in
regard to the distinction between bar by former judgment which bars the
prosecution of a second action upon the same claim, demand, or cause of
action, and conclusiveness of judgment which bars the relitigation of
particular facts or issues in another litigation between the same parties on
a different claim or cause of action.
The general rule precluding the re-litigation of material facts or questions
which were in issue and adjudicated in former action are commonly applied
to all matters essentially connected with the subject matter of the litigation.
Thus, it extends to questions necessarily implied in the final judgment,
although no specific finding may have been made in reference thereto and
although such matters were directly referred to in the pleadings and were
not actually or formally presented. Under this rule, if the record of the
former trial shows that the judgment could not have been rendered without
deciding the particular matter, it will be considered as having settled that
matter as to all future actions between the parties and if a judgment
necessarily presupposes certain premises, they are as conclusive as the
judgment itself.141 (Emphases supplied)
The foregoing disquisition finds application to the case at bar.
Undeniably, the present case is merely an adjunct of the 2004 case, in which
the automation contract was declared to be a nullity. Needless to say, the
2004 Decision has since become final. As earlier explained, this Court arrived
at several factual findings showing the illegality of the automation contract;
in turn, these findings were used as basis to justify the declaration of nullity.
A closer scrutiny of the 2004 Decision would reveal that the judgment could
not have been rendered without deciding particular factual matters in
relation to the following: (1) identity, existence and eligibility of MPC as a
bidder; (2) failure of the ACMs to pass DOST technical tests; and (3) remedial
measures undertaken by the COMELEC after the award of the automation
contract. Under the principle of conclusiveness of judgment, We are
precluded from re-litigating these facts, as these were essential to the
question of nullity. Otherwise stated, the judgment could not have been
rendered without necessarily deciding on the above-enumerated factual
matters.
Thus, under the principle of conclusiveness of judgment, those material
facts became binding and conclusive on the parties, in this case MPEI and,
ultimately, the persons that comprised it. When a right or fact has been
judicially tried and determined by a court of competent jurisdiction, or when
an opportunity for that trial has been given, the judgment of the court—as
long as it remains unreversed—should be conclusive upon the parties and
those in privity with them.142 Thus, the CA should not have required
petitioner to present further evidence of fraud on the part of respondent
Willy and MPEI, as it was already necessarily adjudged in the 2004 case.
To allow respondents to argue otherwise would be violative of the principle
of immutability of judgment. When a final judgment becomes executory, it
becomes immutable and unalterable and may no longer undergo any
modification, much less any reversal.143 In Navarro v. Metropolitan Bank &
Trust Company144 this Court explained that the underlying reason behind
this principle is to avoid delay in the administration of justice and to avoid
allowing judicial controversies to drag on indefinitely,
viz.:ChanRoblesVirtualawlibrary
No other procedural law principle is indeed more settled than that once a
judgment becomes final, it is no longer subject to change, revision,
amendment or reversal, except only for correction of clerical errors, or the
making of nunc pro tunc entries which cause no prejudice to any party, or
where the judgment itself is void. The underlying reason for the rule is two-
fold: (1) to avoid delay in the administration of justice and thus make orderly
the discharge of judicial business, and (2) to put judicial controversies to an
end, at the risk of occasional errors, inasmuch as controversies cannot be
allowed to drag on indefinitely and the rights and obligations of every
litigant must not hang in suspense for an indefinite period of time. As the
Court declared in Yau v. Silverio,
Litigation must end and terminate sometime and somewhere, and it is
essential to an effective and efficient administration of justice that, once a
judgment has become final, the winning party be, not through a mere
subterfuge, deprived of the fruits of the verdict. Courts must therefore
guard against any scheme calculated to bring about that result. Constituted
as they are to put an end to controversies, courts should frown upon any
attempt to prolong them.
Indeed, just as a losing party has the right to file an appeal within the
prescribed period, the winning party also has the correlative right to enjoy
the finality of the resolution of his case by the execution and satisfaction of
the judgment. Any attempt to thwart this rigid rule and deny the prevailing
litigant his right to savor the fruit of his victory must immediately be struck
down. x x x. (Emphasis supplied)145chanroblesvirtuallawlibrary
In the instant case, adherence to respondents' position would mean a
complete disregard of the factual findings We made in the 2004 Decision,
and would certainly be tantamount to reversing the same. This would
invariably cause further delay in the efforts to recover the amounts of
government money illegally disbursed to respondents back in 2004.
Next, respondents argue that the findings of fact in the 2004 Decision are
not conclusive146 considering that eight (8) of the fifteen (15) justices of this
Court refused to go along with the factual findings as stated in the majority
opinion.147 This argument fails to convince.
Fourteen (14) Justices participated in the promulgation of the 2004 Decision.
Out of the fourteen (14) Justices, three (3) Justices registered their
dissent,148 and two (2) Justices wrote their Separate Opinions, each
recommending the dismissal of the Petition.149 Of the nine (9) Justices who
voted to grant the Petition, four (4) joined the ponente in his disposition of
the case,150 and two (2) Justices wrote Separate Concurring Opinions.151 As
to the remaining two (2) Justices, one (1) Justice152 merely concurred in the
result, while the other joined another Justice in her Separate
Opinion.153chanrobleslaw
Contrary to the allegations of respondents, an examination of the voting
shows that nine (9) Justices voted in favor of the majority opinion, without
any qualification regarding the factual findings made therein. In fact, the
two (2) Justices who wrote their own Concurring Opinions echoed the lack
of eligibility of MPC and the failure of the ACMs to pass the mandatory
requirements.
Finally, respondents cannot argue that, from the line of questioning of then
Justice Leonardo A. Quisumbing during the oral arguments in the 2004 case,
he did not agree with the factual findings of this Court. Oral arguments
before this Court are held precisely to test the soundness of each
proponent's contentions. The questions and statements propounded by
Justices during such an exercise are not to be construed as their definitive
opinions. Neither are they indicative of how a Justice shall vote on a
particular issue; indeed, Justice Quisumbing clearly states in the 2004
Decision that he concurs in the results. At any rate, statements made by Our
Members during oral arguments are not stare decisis; what is conclusive are
the decisions reached by the majority of the Court.
IV.The delivery of 1,991 units of ACMs does not negate fraud on the part of
respondents Willy and MPEI.
The CA in its Amended Decision explained that respondents could not be
considered to have fostered a fraudulent intent to not honor their
obligation, since they delivered 1,991 units of ACMs.154 In turn, respondents
argue that respondent MPEI had every intention of fulfilling its obligation,
because it in fact delivered the ACMs as required by the automation
contract.155chanrobleslaw
We disagree with the CA and respondents. The fact that the ACMs were
delivered cannot induce this Court to disregard the fraud respondent MPEI
had employed in securing the award of the automation contract, as
established above. Furthermore, they cannot cite the fact of delivery in their
favor, considering that the ACMs delivered were substandard and
noncompliant with the requirements initially set for the automation project.
In Our 2004 Decision, We already found the ACMs to be below the standards
set by the COMELEC. The noncompliant status of these ACMs was reiterated
by this Court in its 2005 and 2006 Resolutions. The CA therefore gravely
erred in considering the delivery of 1,991 ACMs as evidence of respondents'
willingness to perform the obligation (and thus, their lack of fraud)
considering that, as exhaustively discussed earlier, the ACMs delivered were
plagued with defects and failed to meet the requirements set for the
automation project.
Under Article 1233 of the New Civil Code, a debt shall not be understood to
have been paid, unless the thing or service in which the obligation consists
has been completely delivered or rendered. In this case, respondents cannot
be considered to have performed their obligation, because the ACMs were
defective.
V.Estoppel does not lie against the State when it acts to rectify the mistakes,
errors or illegal acts of its officials and agents.
Respondents claim that the 2004 Decision may not be invoked against them,
since the petitioner and the respondents were co-respondents and not
adverse parties in the 2004 case. Respondents further explain that since
petitioner and respondents were on the same side at the time, had the same
interest, and took the same position on the validity and regularity of the
automation contract, petitioner cannot now invoke the 2004 Decision
against them.156chanrobleslaw
Contrary to respondents' contention, estoppel generally finds no
application against the State when it acts to rectify mistakes, errors,
irregularities, or illegal acts of its officials and agents, irrespective of rank.
This principle ensures the efficient conduct of the affairs of the State without
any hindrance to the implementation of laws and regulations by the
government. This holds true even if its agents' prior mistakes or illegal acts
shackle government operations and allow others—some by malice—to
profit from official error or misbehavior, and even if the rectification
prejudices parties who have meanwhile received benefit.157 Indeed, in the
2004 Decision, this Court even directed the Ombudsman to determine the
possible criminal liability of public officials and private persons responsible
for the contract, and the OSG to undertake measures to protect the
government from the ill effects of the illegal disbursement of public
funds.158chanrobleslaw
The equitable doctrine of estoppel for the prevention of injustice and is for
the protection of those who have been misled by that which on its face was
fair and whose character, as represented, parties to the deception will not,
in the interest of justice, be heard to deny.159 It cannot therefore be utilized
to insulate from liability the very perpetrators of the injustice complained
of.
VI.The findings of the Office of the Ombudsman are not controlling in the
instant case.
Respondents further claim that this Court has recognized the fact that it did
not determine or adjudge any fraud that may have been committed by
individual respondents. Rather, it referred the matter to the Ombudsman
for the determination of criminal liability.160 The Ombudsman in fact made
its own determination that there was no probable cause to hold individual
respondents criminally liable.161chanrobleslaw
Respondents miss the point. The main issue in the instant case is whether
respondents are guilty of fraud in obtaining and executing the automation
contract, to justify the issuance of a writ of preliminary attachment in
petitioner's favor. Meanwhile, the issue relating to the proceedings before
the Ombudsman (and this Court in G.R. No. 174777) pertains to the finding
of lack of probable cause for the possible criminal liability of respondents
under the Anti-Graft and Corrupt Practices Act.
The matter before Us involves petitioner's application for a writ of
preliminary attachment in relation to its recovery of the expended amount
under the voided contract, and not the determination of whether there is
probable cause to hold respondents liable for possible criminal liability due
to the nullification of the automation contract. Whether or not the
Ombudsman has found probable cause for possible criminal liability on the
part of respondents is not controlling in the instant case.
CONCLUSION
If the State is to be serious in its obligation to develop and implement
coordinated anti-corruption policies that promote proper management of
public affairs and public property, integrity, transparency and
accountability,162 it needs to establish and promote effective practices
aimed at the prevention of corruption,163 as well as strengthen our efforts
at asset recovery.164chanrobleslaw
As a signatory to the United Nations Convention Against Corruption
(UNCAC),165 the Philippines acknowledges its obligation to establish
appropriate systems of procurement based on transparency, competition
and objective criteria in decision-making that are effective in preventing
corruption.166 To promote transparency, and in line with the country's
efforts to curb corruption, it is useful to identify certain fraud indicators or
"red flags" that can point to corrupt activity.167 This case - arguably the first
to provide palpable examples of what could be reasonably considered as
"red flags" of fraud and malfeasance in public procurement - is the Court's
contribution to the nation's continuing battle against corruption, in
accordance with its mandate to dispense justice and safeguard the public
interest.
WHEREFORE, premises considered, the Petition is GRANTED. The Amended
Decision dated 22 September 2008 of the Court of Appeals in CA-G.R. SP.
No. 95988 is ANNULLED AND SET ASIDE. A new one is entered DIRECTING
the Regional Trial Court of Makati City, Branch 59, to ISSUE in Civil Case No.
04-346, entitled Mega Pacific eSolutions, Inc., vs. Republic of the
Philippines, the Writ of Preliminary Attachment prayed for by petitioner
Republic of the Philippines against the properties of respondent Mega
Pacific eSolutions, Inc., and Willy U. Yu, Bonnie S. Yu, Enrique T. Tansipek,
Rosita Y. Tansipek, Pedro O. Tan, Johnson W. Fong, Bernard I. Fong and
Lauriano Barrios.
No costs.
SO ORDERED.
[G.R. No. 111685. August 20, 2001.]
DAVAO LIGHT & POWER CO., INC., Petitioner, v. THE HON. COURT OF
APPEALS, HON. RODOLFO M. BELLAFLOR, Presiding Judge of Branch 11,
RTC-Cebu and FRANCISCO TESORERO, Respondents.
Before us is a petition for review on certiorari assailing the Decision dated
August 31, 1993 rendered by the Sixteenth Division 1 of the Court of Appeals
in CA-G.R. SP No. 29996, the dispositive portion of which states:
WHEREFORE, the petition for review filed by Davao Light & Power Co., Inc.
is hereby DENIED DUE COURSE and the same is DISMISSED.
IT IS SO ORDERED.
The antecedent facts are:chanrob1es virtual 1aw library
On April 10, 1992, petitioner Davao Light & Power Co., Inc. filed a complaint
for damages 2 against private respondent Francisco Tesorero before the
Regional Trial Court of Cebu City, Branch 11. Docketed as CEB-11578, the
complaint prayed for damages in the amount of P11,000,000.00.
In lieu of an answer, private respondent filed a motion to dismiss 3 claiming
that: (a) the complaint did not state a cause of action; (b) the plaintiff’s claim
has been extinguished or otherwise rendered moot and academic; (c) there
was non-joinder of indispensable parties; and (d) venue was improperly laid.
Of these four (4) grounds, the last mentioned is most material in this case
at bar.
On August 3, 1992, the trial court issued a Resolution 4 dismissing
petitioner’s complaint on the ground of improper venue. The trial court
stated that:chanrob1es virtual 1aw library
The plaintiff being a private corporation undoubtedly Banilad, Cebu City is
the plaintiff’s principal place of business as alleged in the complaint and
which for purposes of venue is considered as its residence.
x x x prohibition exists against their alteration. 11
However, in defendant’s motion to dismiss, it is alleged and submitted that
the principal office of plaintiff is at "163-165 P. Reyes Street, Davao City as
borne out by the Contract of Lease (Annex 2 of the motion) and another
Contract of Lease of Generating Equipment (Annex 3 of the motion)
executed by the plaintiff with the NAPOCOR.
The representation made by the plaintiff in the 2 aforementioned Lease
Contracts stating that its principal office is at "163-165 P. Reyes Street, Davao
City" bars the plaintiff from denying the same.chanrob1es virtua1 1aw 1ibrary
The choice of venue should not be left to plaintiff’s whim or caprises [sic].
He may be impelled by some ulterior motivation in choosing to file a case
in a court even if not allowed by the rules of venue.
Another factor considered by the Courts in deciding controversies regarding
venue are considerations of judicial economy and administration, as well as
the convenience of the parties for which the rules of procedure and venue
were formulated . . . .
Considering the foregoing, the Court is of the opinion that the principal
office of plaintiff is at Davao City which for purposes of venue is the
residence of plaintiff.
Hence, the case should be filed in Davao City.
The motion on the ground of improper venue is granted and the complaint
DISMISSED on that ground.
SO ORDERED.
Petitioner’s motion for reconsideration 5 was denied in an Order 6 dated
October 1, 1992.
From the aforesaid resolution and order, petitioner originally filed before
this Court on November 20, 1992 a petition for review on certiorari docketed
as G.R. No. 107381. 7 We declined to take immediate cognizance of the case,
and in a Resolution dated January 11, 1993, 8 referred the same to the Court
of Appeals for resolution. The petition was docketed in the appellate court
as CA-G.R. SP No. 29996.
On August 31, 1993, the Court of Appeals rendered the assailed judgment 9
denying due course and dismissing the petition. Counsel for petitioner
received a copy of the decision on September 6, 1993. 10 Without filing a
motion for reconsideration, petitioner filed the instant petition, assailing the
judgment of the Court of Appeals on the following grounds:chanrob1es
virtual 1aw library
5.01. Respondent Court of Appeals denied petitioner procedural due process
by failing to resolve the third of the above-stated issues.
5.02. Petitioner’s right to file its action for damages against private
respondent in Cebu City where its principal office is located, and for which
it paid P55,398.50 in docket fees, may not be negated by a supposed
estoppel absent the essential elements of the false statement having been
made to private respondent and his reliance on good faith on the truth
thereof, and private respondent’s action or inaction based thereon of such
character as to change his position or status to his injury, detriment or
prejudice.
The principal issue in the case at bar involves a question of venue. It is to be
distinguished from jurisdiction, as follows:
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be
conferred by consent or waiver upon a court which otherwise would have
no jurisdiction over the subject-matter of an action; but the venue of an
action as fixed by statute may be changed by the consent of the parties and
an objection that the plaintiff brought his suit in the wrong county may be
waived by the failure of the defendant to make a timely objection. In either
case, the court may render a valid judgment. Rules as to jurisdiction can
never be left to the consent or agreement of the parties, whether or not a
It is private respondent’s contention that the proper venue is Davao City,
and not Cebu City where petitioner filed Civil Case No. CEB-11578. Private
respondent argues that petitioner is estopped from claiming that its
residence is in Cebu City, in view of contradictory statements made by
petitioner prior to the filing of the action for damages. First, private
respondent adverts to several contracts 12 entered into by petitioner with
the National Power Corporation (NAPOCOR) where in the description of
personal circumstances, the former states that its principal office is at "163-
165 P. Reyes St., Davao City." According to private respondent the
petitioner’s address in Davao City, as given in the contracts, is an admission
which should bind petitioner.
In addition, private respondent points out that petitioner made several
judicial admissions as to its principal office in Davao City consisting
principally of allegations in pleadings filed by petitioner in a number of civil
cases pending before the Regional Trial Court of Davao in which it was
either a plaintiff or a defendant. 13
Practically the same issue was addressed in Young Auto Supply Co. v. Court
of Appeals. 14 In the aforesaid case, the defendant therein sought the
dismissal of an action filed by the plaintiff, a corporation, before the
Regional Trial Court of Cebu City, on the ground of improper venue. The
trial court denied the motion to dismiss; on certiorari before the Court of
Appeals, the denial was reversed and the case was dismissed. According to
the appellate tribunal, venue was improperly laid since the address of the
plaintiff was supposedly in Pasay City, as evidenced by a contract of sale,
letters and several commercial documents sent by the plaintiff to the
defendant, even though the plaintiff’s articles of incorporation stated that
its principal office was in Cebu City. On appeal, we reversed the Court of
Appeals. We reasoned out thus:chanrob1es virtua1 1aw 1ibrary
In the Regional Trial Courts, all personal actions are commenced and tried
in the province or city where the defendant or any of the defendants resides
or may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff. . .
There are two plaintiffs in the case at bench: a natural person and a domestic
corporation. Both plaintiffs aver in their complaint that they are residents of
Cebu City, thus:chanrob1es virtual 1aw library
x x x
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
"THIRD. That the place where the principal office of the corporation is to be
established or located is at Cebu City, Philippines (as amended on December
20, 1980 and further amended on December 20, 1984)." . .
A corporation has no residence in the same sense in which this term is
applied to a natural person. But for practical purposes, a corporation is in a
metaphysical sense a resident of the place where its principal office is
located as stated in the articles of incorporation (Cohen v. Benguet
Commercial Co., Ltd., 34 Phil. 526 [1916] Clavecilla Radio System v. Antillo,
19 SCRA 379 [1967]). The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14[3]). The purpose of this requirement is to fix the
residence of a corporation in a definite place, instead of allowing it to be
ambulatory.
In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court
explained why actions cannot be filed against a corporation in any place
where the corporation maintains its branch offices. The Court ruled that to
allow an action to be instituted in any place where the corporation has
branch offices, would create confusion and work untold inconvenience to
said entity. By the same token, a corporation cannot be allowed to file
personal actions in a place other than its principal place of business unless
such a place is also the residence of a co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned the
venue on the ground that its principal place of business was in Cebu City,
Roxas could argue that YASCO was in estoppel because it misled Roxas to
believe that Pasay City was its principal place of business. But this is not the
case before us.
With the finding that the residence of YASCO for purposes of venue is in
Cebu City, where its principal place of business is located, it becomes
unnecessary to decide whether Garcia is also a resident of Cebu City and
whether Roxas was in estoppel from questioning the choice of Cebu City as
the venue. [Emphasis supplied]
The same considerations apply to the instant case. It cannot be disputed
that petitioner’s principal office is in Cebu City, per its amended articles of
incorporation 15 and by-laws. 16 An action for damages being a personal
action, 17 venue is determined pursuant to Rule 4, section 2 of the Rules of
Court, to wit:
Venue of personal actions. — All other actions may be commenced and tied
where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, or in the case of a non-
resident defendant where he may be found, at the election of the plaintiff.
Private respondent is not a party to any of the contracts presented before
us. He is a complete stranger to the covenants executed between petitioner
and NAPOCOR, despite his protestations that he is privy thereto, on the
rather flimsy ground that he is a member of the public for whose benefit
the electric generating equipment subject of the contracts were leased or
acquired. We are likewise not persuaded by his argument that the allegation
or representation made by petitioner in either the complaints or answers it
filed in several civil cases that its residence is in Davao City should estop it
from filing the damage suit before the Cebu courts. Besides there is no
showing that private respondent is a party in those civil cases or that he
relied on such representation by petitioner.
WHEREFORE, the instant petition is hereby GRANTED. The appealed
decision is hereby REVERSED and SET ASIDE. The Regional Trial Court of
Cebu City, Branch 11 is hereby directed to proceed with Civil Case No. CEB-
11578 with all deliberate dispatch. No pronouncement as to costs.
G.R. No. 175350 June 13, 2012
EQUITABLE BANKING CORPORATION, INC. Petitioner,
vs.SPECIAL STEEL PRODUCTS, and AUGUSTO L. PARDO, Respondents.
A crossed check with the notation "account payee only" can only be
deposited in the named payee’s account. It is gross negligence for a bank
to ignore this rule solely on the basis of a third party’s oral representations
of having a good title thereto.
Before the Court is a Petition for Review on Certiorari of the October 13,
2006 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 62425. The
dispositive portion of the assailed Decision reads:
WHEREFORE, premises considered, the May 4, 1998 Decision of the Regional
Trial Court of Pasig City, Branch 168, in Civil Case No. 63561, is hereby
AFFIRMED.
SO ORDERED.
Factual Antecedents
Respondent Special Steel Products, Inc. (SSPI) is a private domestic
corporation selling steel products. Its co-respondent Augusto L. Pardo
(Pardo) is SSPI’s President and majority stockholder.2
International Copra Export Corporation (Interco) is its regular customer.3
Jose Isidoro4 Uy, alias Jolly Uy (Uy), is an Interco employee, in charge of the
purchasing department, and the son-in-law of its majority stockholder.5
Petitioner Equitable Banking Corporation (Equitable or bank) is a private
domestic corporation engaged in banking6 and is the depository bank of
Interco and of Uy.
In 1991, SSPI sold welding electrodes to Interco, as evidenced by the
following sales invoices:
Sales Invoice No. 65042 dated February 14, 1991 for ₱325,976.347
Sales Invoice No. 65842 dated April 11, 1991 for ₱345,412.808
Sales Invoice No. 65843 dated April 11, 1991 for ₱313,845.849
The due dates for these invoices were March 16, 1991 (for the first sales
invoice) and May 11, 1991 (for the others). The invoices provided that Interco
would pay interest at the rate of 36% per annum in case of delay.
In payment for the above welding electrodes, Interco issued three checks
payable to the order of SSPI on July 10, 1991,10 July 16, 1991,11 and July 29,
1991.12 Each check was crossed with the notation "account payee only" and
was drawn against Equitable. The records do not identify the signatory for
these three checks, or explain how Uy, Interco’s purchasing officer, came
into possession of these checks.
The records only disclose that Uy presented each crossed check to Equitable
on the day of its issuance and claimed that he had good title thereto.13 He
demanded the deposit of the checks in his personal accounts in Equitable,
Account No. 18841-2 and Account No. 03474-0.14
Equitable acceded to Uy’s demands on the assumption that Uy, as the son-
in-law of Interco’s majority stockholder,15 was acting pursuant to Interco’s
orders. The bank also relied on Uy’s status as a valued client.16 Thus,
Equitable accepted the checks for deposit in Uy’s personal accounts17 and
stamped "ALL PRIOR ENDORSEMENT AND/OR LACK OF ENDORSEMENT
GUARANTEED" on their dorsal portion.18 Uy promptly withdrew the
proceeds of the checks.
In October 1991, SSPI reminded Interco of the unpaid welding electrodes,
amounting to ₱985,234.98.19 It reiterated its demand on January 14, 1992.20
SSPI explained its immediate need for payment as it was experiencing some
financial crisis of its own. Interco replied that it had already issued three
checks payable to SSPI and drawn against Equitable. SSPI denied receipt of
these checks.
On August 6, 1992, SSPI requested information from Equitable regarding
the three checks. The bank refused to give any information invoking the
confidentiality of deposits.21
The records do not disclose the circumstances surrounding Interco’s and
SSPI’s eventual discovery of Uy’s scheme. Nevertheless, it was determined
that Uy, not SSPI, received the proceeds of the three checks that were
payable to SSPI. Thus, on June 30, 1993 (twenty-three months after the
issuance of the three checks), Interco finally paid the value of the three
checks to SSPI, plus a portion of the accrued interests. Interco refused to
pay the entire accrued interest of ₱767,345.64 on the ground that it was not
responsible for the delay. Thus, SSPI was unable to collect ₱437,040.35 (at
the contracted rate of 36% per annum) in interest income.22
SSPI and its president, Pardo, filed a complaint for damages with application
for a writ of preliminary attachment against Uy and Equitable Bank. The
complaint alleged that the three crossed checks, all payable to the order of
SSPI and with the notation "account payee only," could be deposited and
encashed by SSPI only. However, due to Uy’s fraudulent representations,
and Equitable’s indispensable connivance or gross negligence, the
restrictive nature of the checks was ignored and the checks were deposited
in Uy’s account. Had the defendants not diverted the three checks in July
1991, the plaintiffs could have used them in their business and earned money
from them. Thus, the plaintiffs prayed for an award of actual damages
consisting of the unrealized interest income from the proceeds of the checks
for the two-year period that the defendants withheld the proceeds from
them (from July 1991 up to June 1993).23
In his personal capacity, Pardo claimed an award of ₱3 million as moral
damages from the defendants. He allegedly suffered hypertension, anxiety,
and sleepless nights for fear that the government would charge him for tax
evasion or money laundering. He maintained that defendants’ actions
amounted to money laundering and that it unfairly implicated his company
in the scheme. As for his fear of tax evasion, Pardo explained that the Bureau
of Internal Revenue might notice a discrepancy between the financial
reports of Interco (which might have reported the checks as SSPI’s income
in 1991) and those of SSPI (which reported the income only in 1993). Since
Uy and Equitable were responsible for Pardo’s worries, they should
compensate him jointly and severally therefor.24
SSPI and Pardo also prayed for exemplary damages and attorney’s fees.25
In support of their application for preliminary attachment, the plaintiffs
alleged that the defendants are guilty of fraud in incurring the obligation
upon which the action was brought and that there is no sufficient security
for the claim sought to be enforced in this action.26
The trial court granted plaintiffs’ application.27 It issued the writ of
preliminary attachment on September 20, 1993,28 upon the filing of
plaintiffs’ bond for ₱500,000.00. The sheriff served and implemented the
writ against the personal properties of both defendants.29
Upon Equitable’s motion and filing of a counter-bond, however, the trial
court eventually discharged the attachment30 against it.31
Equitable then argued for the dismissal of the complaint for lack of cause of
action. It maintained that interest income is due only when it is expressly
stipulated in writing. Since Equitable and SSPI did not enter into any
contract, Equitable is not liable for damages, in the form of unobtained
interest income, to SSPI.32 Moreover, SSPI’s acceptance of Interco’s
payment on the sales invoices is a waiver or extinction of SSPI’s cause of
action based on the three checks.33
Equitable further argued that it is not liable to SSPI because it accepted the
three crossed checks in good faith.34 Equitable averred that, due to Uy’s
close relations with the drawer of the checks, the bank had basis to assume
that the drawer authorized Uy to countermand the original order stated in
the check (that it can only be deposited in the named payee’s account).
Since only Uy is responsible for the fraudulent conversion of the checks, he
should reimburse Equitable for any amounts that it may be made liable to
plaintiffs.35
The bank counter-claimed that SSPI is liable to it in damages for the
wrongful and malicious attachment of Equitable’s personal properties. The
bank maintained that SSPI knew that the allegation of fraud against the
bank is a falsehood. Further, the bank is financially capable to meet the
plaintiffs’ claim should the latter receive a favorable judgment. SSPI was
aware that the preliminary attachment against the bank was unnecessary,
and intended only to humiliate or destroy the bank’s reputation.36
Meanwhile, Uy answered that the checks were negotiated to him; that he is
a holder for value of the checks and that he has a good title thereto.37 He
did not, however, explain how he obtained the checks, from whom he
obtained his title, and the value for which he received them. During trial, Uy
did not present any evidence but adopted Equitable’s evidence as his own.
Ruling of the Regional Trial Court 38
The RTC clarified that SSPI’s cause of action against Uy and Equitable is for
quasi-delict. SSPI is not seeking to enforce payment on the undelivered
checks from the defendants, but to recover the damage that it sustained
from the wrongful non-delivery of the checks.39
The crossed checks belonged solely to the payee named therein, SSPI. Since
SSPI did not authorize anyone to receive payment in its behalf, Uy clearly
had no title to the checks and Equitable had no right to accept the said
checks from Uy. Equitable was negligent in permitting Uy to deposit the
checks in his account without verifying Uy’s right to endorse the crossed
checks. The court reiterated that banks have the duty to scrutinize the
checks deposited with it, for a determination of their genuineness and
regularity. The law holds banks to a high standard because banks hold
themselves out to the public as experts in the field. Thus, the trial court
found Equitable’s explanation regarding Uy’s close relations with the drawer
unacceptable.40
Uy’s conversion of the checks and Equitable’s negligence make them liable
to compensate SSPI for the actual damage it sustained. This damage
consists of the income that SSPI failed to realize during the delay.41 The trial
court then equated this unrealized income with the interest income that
SSPI failed to collect from Interco. Thus, it ordered Uy and Equitable to pay,
jointly and severally, the amount of ₱437,040.35 to SSPI as actual
damages.42
It also ordered the defendants to pay exemplary damages of ₱500,000.00,
attorney’s fees amounting to ₱200,000.00, as well as costs of suit.43
The trial court likewise found merit in Pardo’s claim for moral damages. It
found that Pardo suffered anxiety, sleepless nights, and hypertension in fear
that he would face criminal prosecution. The trial court awarded Pardo the
amount of ₱3 million in moral damages.44
The dispositive portion of the trial court’s Decision reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Special Steel
Products, Inc., and Augusto L. Pardo and against defendants Equitable
Banking Corporation [and] Jose Isidoro Uy, alias "Jolly Uy," ordering
defendants to jointly and severally pay plaintiffs the following:
1. ₱437,040.35 as actual damages;
2. ₱3,000,000.00 as moral damages to Augusto L. Pardo;
3. ₱500,000.00 as exemplary damages;
4. ₱200,000.00 as attorney’s fees; and
5. Costs of suit.
Defendant EBC’s counterclaim is hereby DISMISSED for lack of factual and
legal basis.
Likewise, the crossclaim filed by defendant EBC against defendant Jose
Isidoro Uy and the crossclaim filed by defendant Jose Isidoro Uy against
defendant EBC are hereby DISMISSED for lack of factual and legal basis.
SO ORDERED.
Pasig City, May 4, 1998.45
The trial court denied Equitable’s motion for reconsideration in its Order
dated November 19, 1998.46
Only Equitable appealed to the CA,47 reiterating its defenses below.
Appealed Ruling of the Court of Appeals48
The appellate court found no merit in Equitable’s appeal.
It affirmed the trial court’s ruling that SSPI had a cause of action for quasi-
delict against Equitable.49 The CA noted that the three checks presented by
Uy to Equitable were crossed checks, and strictly made payable to SSPI only.
This means that the checks could only be deposited in the account of the
named payee.50 Thus, the CA found that Equitable had the responsibility of
ensuring that the crossed checks are deposited in SSPI’s account only.
Equitable violated this duty when it allowed the deposit of the crossed
checks in Uy’s account.51
The CA found factual and legal basis to affirm the trial court’s award of
moral damages in favor of Pardo.52
It likewise affirmed the award of exemplary damages and attorney’s fees in
favor of SSPI.53
Issues
1. Whether SSPI has a cause of action against Equitable for quasi-delict;
2. Whether SSPI can recover, as actual damages, the stipulated 36% per
annum interest from Equitable;
3. Whether speculative fears and imagined scenarios, which cause sleepless
nights, may be the basis for the award of moral damages; and
4. Whether the attachment of Equitable’s personal properties was wrongful.
Our Ruling
SSPI’s cause of action
This case involves a complaint for damages based on quasi-delict. SSPI
asserts that it did not receive prompt payment from Interco in July 1991
because of Uy’s wilful and illegal conversion of the checks payable to SSPI,
and of Equitable’s gross negligence, which facilitated Uy’s actions. The
combined actions of the defendants deprived SSPI of interest income on the
said moneys from July 1991 until June 1993. Thus, SSPI claims damages in
the form of interest income for the said period from the parties who wilfully
or negligently withheld its money from it.
Equitable argues that SSPI cannot assert a right against the bank based on
the undelivered checks.54 It cites provisions from the Negotiable
Instruments Law and the case of Development Bank of Rizal v. Sima Wei55
to argue that a payee, who did not receive the check, cannot require the
drawee bank to pay it the sum stated on the checks.
Equitable’s argument is misplaced and beside the point. SSPI’s cause of
action is not based on the three checks. SSPI does not ask Equitable or Uy
to deliver to it the proceeds of the checks as the rightful payee. SSPI does
not assert a right based on the undelivered checks or for breach of contract.
Instead, it asserts a cause of action based on quasi-delict. A quasi-delict is
an act or omission, there being fault or negligence, which causes damage to
another. Quasi-delicts exist even without a contractual relation between the
parties. The courts below correctly ruled that SSPI has a cause of action for
quasi-delict against Equitable.
The checks that Interco issued in favor of SSPI were all crossed, made
payable to SSPI’s order, and contained the notation "account payee only."
This creates a reasonable expectation that the payee alone would receive
the proceeds of the checks and that diversion of the checks would be
averted. This expectation arises from the accepted banking practice that
crossed checks are intended for deposit in the named payee’s account only
and no other.56 At the very least, the nature of crossed checks should place
a bank on notice that it should exercise more caution or expend more than
a cursory inquiry, to ascertain whether the payee on the check has
authorized the holder to deposit the same in a different account. It is well
to remember that "[t]he banking system has become an indispensable
institution in the modern world and plays a vital role in the economic life of
every civilized society. Whether as mere passive entities for the safe-keeping
and saving of money or as active instruments of business and commerce,
banks have attained an [sic] ubiquitous presence among the people, who
have come to regard them with respect and even gratitude and, above all,
trust and confidence. In this connection, it is important that banks should
guard against injury attributable to negligence or bad faith on its part. As
repeatedly emphasized, since the banking business is impressed with public
interest, the trust and confidence of the public in it is of paramount
importance. Consequently, the highest degree of diligence is expected, and
high standards of integrity and performance are required of it."57
Equitable did not observe the required degree of diligence expected of a
banking institution under the existing factual circumstances.
The fact that a person, other than the named payee of the crossed check,
was presenting it for deposit should have put the bank on guard. It should
have verified if the payee (SSPI) authorized the holder (Uy) to present the
same in its behalf, or indorsed it to him. Considering however, that the
named payee does not have an account with Equitable (hence, the latter has
no specimen signature of SSPI by which to judge the genuineness of its
indorsement to Uy), the bank knowingly assumed the risk of relying solely
on Uy’s word that he had a good title to the three checks. Such misplaced
reliance on empty words is tantamount to gross negligence, which is the
"absence of or failure to exercise even slight care or diligence, or the entire
absence of care, evincing a thoughtless disregard of consequences without
exerting any effort to avoid them."58
Equitable contends that its knowledge that Uy is the son-in-law of the
majority stockholder of the drawer, Interco, made it safe to assume that the
drawer authorized Uy to countermand the order appearing on the check. In
other words, Equitable theorizes that Interco reconsidered its original order
and decided to give the proceeds of the checks to Uy.59 That the bank
arrived at this conclusion without anything on the face of the checks to
support it is demonstrative of its lack of caution. It is troubling that
Equitable proceeded with the transaction based only on its knowledge that
Uy had close relations with Interco. The bank did not even make inquiries
with the drawer, Interco (whom the bank considered a "valued client"), to
verify Uy’s representation. The banking system is placed in peril when
bankers act out of blind faith and empty promises, without requiring proof
of the assertions and without making the appropriate inquiries. Had it only
exercised due diligence, Equitable could have saved both Interco and the
named payee, SSPI, from the trouble that the bank’s mislaid trust wrought
for them.
Equitable’s pretension that there is nothing under the circumstances that
rendered Uy’s title to the checks questionable is outrageous. These are
crossed checks, whose manner of discharge, in banking practice, is
restrictive and specific. Uy’s name does not appear anywhere on the crossed
checks. Equitable, not knowing the named payee on the check, had no way
of verifying for itself the alleged genuineness of the indorsement to Uy. The
checks bear nothing on their face that supports the belief that the drawer
gave the checks to Uy. Uy’s relationship to Interco’s majority stockholder
will not justify disregarding what is clearly ordered on the checks.
Actual damages
For its role in the conversion of the checks, which deprived SSPI of the use
thereof, Equitable is solidarily liable with Uy to compensate SSPI for the
damages it suffered.
Among the compensable damages are actual damages, which encompass
the value of the loss sustained by the plaintiff, and the profits that the
plaintiff failed to obtain.60 Interest payments, which SSPI claims, fall under
the second category of actual damages.
SSPI computed its claim for interest payments based on the interest rate
stipulated in its contract with Interco. It explained that the stipulated
interest rate is the actual interest income it had failed to obtain from Interco
due to the defendants’ tortious conduct.
The Court finds the application of the stipulated interest rate erroneous.
SSPI did not recover interest payments at the stipulated rate from Interco
because it agreed that the delay was not Interco’s fault, but that of the
defendants’. If that is the case, then Interco is not in delay (at least not after
issuance of the checks) and the stipulated interest payments in their
contract did not become operational. If Interco is not liable to pay for the
36% per annum interest rate, then SSPI did not lose that income. SSPI
cannot lose something that it was not entitled to in the first place. Thus,
SSPI’s claim that it was entitled to interest income at the rate stipulated in
its contract with Interco, as a measure of its actual damage, is fallacious.
More importantly, the provisions of a contract generally take effect only
among the parties, their assigns and heirs.61 SSPI cannot invoke the
contractual stipulation on interest payments against Equitable because it is
neither a party to the contract, nor an assignee or an heir to the contracting
parties.
Nevertheless, it is clear that defendants’ actions deprived SSPI of the present
use of its money for a period of two years. SSPI is therefore entitled to
obtain from the tortfeasors the profits that it failed to obtain from July 1991
to June 1993. SSPI should recover interest at the legal rate of 6% per
annum,62 this being an award for damages based on quasi-delict and not
for a loan or forbearance of money.
Moral damages
Both the trial and appellate courts awarded Pardo ₱3 million in moral
damages. Pardo claimed that he was frightened, anguished, and seriously
anxious that the government would prosecute him for money laundering
and tax evasion because of defendants’ actions.63 In other words, he was
worried about the repercussions that defendants’ actions would have on
him.
Equitable argues that Pardo’s fears are all imagined and should not be
compensated. The bank points out that none of Pardo’s fears panned out.64
Moral damages are recoverable only when they are the proximate result of
the defendant’s wrongful act or omission.65 Both the trial and appellate
courts found that Pardo indeed suffered as a result of the diversion of the
three checks. It does not matter that the things he was worried and anxious
about did not eventually materialize. It is rare for a person, who is beset with
mounting problems, to sift through his emotions and distinguish which
fears or anxieties he should or should not bother with. So long as the injured
party’s moral sufferings are the result of the defendants’ actions, he may
recover moral damages.
The Court, however, finds the award of ₱3 million excessive. Moral damages
are given not to punish the defendant but only to give the plaintiff the
means to assuage his sufferings with diversions and recreation.66 We find
that the award of ₱50,000.0067 as moral damages is reasonable under the
circumstances.
Equitable to recover amounts from Uy
Equitable then insists on the allowance of their cross-claim against Uy. The
bank argues that it was Uy who was enriched by the entire scheme and
should reimburse Equitable for whatever amounts the Court might order it
to pay in damages to SSPI.68
Equitable is correct. There is unjust enrichment when (1) a person is unjustly
benefited, and (2) such benefit is derived at the expense of or with damages
to another.69 In the instant case, the fraudulent scheme concocted by Uy
allowed him to improperly receive the proceeds of the three crossed checks
and enjoy the profits from these proceeds during the entire time that it was
withheld from SSPI. Equitable, through its gross negligence and mislaid
trust on Uy, became an unwitting instrument in Uy’s scheme. Equitable’s
fault renders it solidarily liable with Uy, insofar as respondents are
concerned. Nevertheless, as between Equitable and Uy, Equitable should be
allowed to recover from Uy whatever amounts Equitable may be made to
pay under the judgment. It is clear that Equitable did not profit in Uy’s
scheme. Disallowing Equitable’s cross-claim against Uy is tantamount to
allowing Uy to unjustly enrich himself at the expense of Equitable. For this
reason, the Court allows Equitable’s cross-claim against Uy.
Preliminary attachment
Equitable next assails as error the trial court’s dismissal of its counter-claim
for wrongful preliminary attachment. It maintains that, contrary to SSPI’s
allegation in its application for the writ, there is no showing whatsoever that
Equitable was guilty of fraud in allowing Uy to deposit the checks. Thus, the
trial court should not have issued the writ of preliminary attachment in favor
of SSPI. The wrongful attachment compelled Equitable to incur expenses for
a counter-bond, amounting to ₱30,204.26, and caused it to sustain damage,
amounting to ₱5 million, to its goodwill and business credit.70
SSPI submitted the following affidavit in support of its application for a writ
of preliminary attachment:
I, Augusto L. Pardo, of legal age, under oath hereby depose and declare:
1. I am one of the plaintiffs in the above-entitled case; the other plaintiff is
our family corporation, Special Steel Products, Inc., of which I am the
president and majority stockholder; I caused the preparation of the
foregoing Complaint, the allegations of which I have read, and which I
hereby affirm to be true and correct out of my own personal knowledge;
2. The corporation and I have a sufficient cause of action against defendants
Isidoro Uy alias Jolly Uy and Equitable Banking Corporation, who are guilty
of fraud in incurring the obligation upon which this action is brought, as
particularly alleged in the Complaint, which allegations I hereby adopt and
reproduce herein;
3. There is no sufficient security for our claim in this action and that the
amount due us is as much as the sum for which the order is granted above
all legal counterclaims;
4. We are ready and able to put up a bond executed to the defendants in an
amount to be fixed by the Court[,] conditioned on the payment of all costs[,]
which may be adjudged to defendants[,] and all damages[,] which they may
sustain by reason of the attachment of the court, should [the court] finally
adjudge that we are not entitled thereto.71
The complaint (to which the supporting affidavit refers) cites the following
factual circumstances to justify SSPI’s application:
6. x x x Yet, notwithstanding the fact that SPECIAL STEEL did not open an
account with EQUITABLE BANK as already alleged, thru its connivance with
defendant UY in his fraudulent scheme to defraud SPECIAL STEEL, or at least
thru its gross negligence EQUITABLE BANK consented to or allowed the
opening of Account No. 18841-2 at its head office and Account No. 03474-
0 at its Ermita Branch in the name of SPECIAL STEEL without the latter’s
knowledge, let alone authority or consent, but obviously on the bases of
spurious or falsified documents submitted by UY or under his authority,
which documents EQUITABLE BANK did not bother to verify or check their
authenticity with SPECIAL STEEL.72
xxxx
9. On August 6, 1992, plaintiffs, thru counsel, wrote EQUITABLE BANK about
the fraudulent transactions involving the aforesaid checks, which could not
have been perpetrated without its indispensable participation and
cooperation, or gross negligence, and therein solicited its cooperation in
securing information as to the anomalous and irregular opening of the false
accounts maintained in SPECIAL STEEL’s name, but EQUITABLE BANK
malevolently shirking from its responsibility to prevent the further
perpetration of fraud, conveniently, albeit unjustifiably, invoked the
confidentiality of the deposits and refused to give any information, and
accordingly denied SPECIAL STEEL’s valid request, thereby knowingly
shielding the identity of the ma[le]factors involved [in] the unlawful and
fraudulent transactions.73
The above affidavit and the allegations of the complaint are bereft of
specific and definite allegations of fraud against Equitable that would justify
the attachment of its properties. In fact, SSPI admits its uncertainty whether
Equitable’s participation in the transactions involved fraud or was a result
of its negligence. Despite such uncertainty with respect to Equitable’s
participation, SSPI applied for and obtained a preliminary attachment of
Equitable’s properties on the ground of fraud. We believe that such
preliminary attachment was wrongful. "[A] writ of preliminary attachment is
too harsh a provisional remedy to be issued based on mere abstractions of
fraud. Rather, the rules require that for the writ to issue, there must be a
recitation of clear and concrete factual circumstances manifesting that the
debtor practiced fraud upon the creditor at the time of the execution of
their agreement in that said debtor had a preconceived plan or intention
not to pay the creditor."74 No proof was adduced tending to show that
Equitable had a preconceived plan not to pay SSPI or had knowingly
participated in Uy’s scheme.
That the plaintiffs eventually obtained a judgment in their favor does not
detract from the wrongfulness of the preliminary attachment.1âwphi1 While
"the evidence warrants [a] judgment in favor of [the] applicant, the proofs
may nevertheless also establish that said applicant’s proffered ground for
attachment was inexistent or specious, and hence, the writ should not have
issued at all x x x."75
For such wrongful preliminary attachment, plaintiffs may be held liable for
damages. However, Equitable is entitled only to such damages as its
evidence would allow,76 for the wrongfulness of an attachment does not
automatically warrant the award of damages. The debtor still has the burden
of proving the nature and extent of the injury that it suffered by reason of
the wrongful attachment.77
The Court has gone over the records and found that Equitable has duly
proved its claim for, and is entitled to recover, actual damages. In order to
lift the wrongful attachment of Equitable’s properties, the bank was
compelled to pay the total amount of ₱30,204.26 in premiums for a counter-
bond.78 However, Equitable failed to prove that it sustained damage to its
"goodwill and business credit" in consequence of the alleged wrongful
attachment. There was no proof of Equitable’s contention that respondents’
actions caused it public embarrassment and a bank run.
WHEREFORE, premises considered, the Petition is PARTIALLY GRANTED. The
assailed October 13, 2006 Decision of the Court of Appeals in CA-G.R. CV
No. 62425 is MODIFIED by:
1. REDUCING the award of actual damages to respondents to the rate of 6%
per annum of the value of the three checks from July 1991 to June 1993 or a
period of twenty-three months;
2. REDUCING the award of moral damages in favor of Augusto L. Pardo from
₱3,000,000.00 to ₱ 50,000.00; and
3. REVERSING the dismissal of Equitable Banking Corporation’s cross-claim
against Jose Isidoro Uy, alias Jolly Uy. Jolly Uy is hereby ORDERED to
REIMBURSE Equitable Banking Corporation the amounts that the latter will
pay to respondents.
Additionally, the Court hereby REVERSES the dismissal of Equitable Banking
Corporation’s counterclaim for damages against Special Steel Products, Inc.
This Court ORDERS Special Steel Products, Inc. to PAY Equitable Banking
Corporation actual damages in the total amount of ₱30,204.36, for the
wrongful preliminary attachment of its properties.
The rest of the assailed Decision is AFFIRMED.
SO ORDERED.
G.R. No. L-63225 April 3, 1990
ELEAZAR V. ADLAWAN, petitioner, vs.
HON. JUDGE VALERIANO P. TOMOL, as Presiding Judge of Branch XI of RTC-
Cebu (formerly Branch XI, CFI-Cebu), Branch XXVII of RTC-Cebu, with
Station in Lapu-Lapu City (formerly Branch XVI, CFI-Cebu, Presided over by
former Judge Ceferino E. Dulay), and ABOITIZ COMPANY, INC.,
respondents.
This is a special civil action for certiorari and mandamus seeking to annul :
[a] the Order dated December 20, 1982 of respondent Judge Valeriano P.
Tomol, Branch XI of CFI-Cebu, now Branch XI, RTC-Cebu, in Civil Case No.
R-21761, entitled "Aboitiz and Company, Inc. v. Adlawan, et al" denying the
motion of the defendant to require the Provincial Sheriff of Cebu to deliver
to him the properties seized by the Sheriff of Davao City and [b] the Order
dated September 4, 1982 of Judge Ceferino F. Dulay, Branch XVI of the Court
of First Instance of Cebu, now Branch XXVII, RTC-Cebu, Lapu-Lapu City, in
Civil Case No. 619-L between the same parties, denying for lack of merit
petitioner's Omnibus Motion to reconsider, dissolve and set aside the Writ
of seizure and Replevin.
The antecedent facts are as follows:
Petitioner Eleazar A. Adlawan, a private contractor, was awarded by the
National Irrigation Administration (NIA) and the Bureau of Public Highways
(BPH) contracts for the construction of various infrastructure projects of the
government to perform his obligations thereunder, petitioner sought
financial assistance and support from private respondent Aboitiz and
Company, Inc. For failure of petitioner to pay the installments and
amortizations, private respondent filed on May 13, 1982 before the Court of
First Instance of Cebu a complaint 1 for the collection of a sum of money
and damages including an ex-parte application for the issuance of a writ of
preliminary attachment against the property of petitioner as defendant
therein. The Executive Judge without notice and hearing issued an order 2
on May 14, 1982 directing the issuance of a writ of preliminary attachment
against all the properties of petitioner, real and personal, upon the filing of
an attachment bond for Four Million Pesos. The case, docketed as Civil Case
No. R21761 was raffled and later assigned to Branch XI of the Court of First
Instance of Cebu, presided by respondent Judge Valeriano P. Tomol. On
May 26, 1982, writs of preliminary attachment were issued addressed to the
Sheriffs of Cebu, Davao City, Quezon City, Davao del Sur and Davao del
Norte, directing them to attach the real and personal properties of
petitioner within their respective jurisdictions. On the strength of the writ of
preliminary attachment, the bulk of petitioner's property in Davao City was
attached.
Subsequently, private respondent filed an Urgent Ex-parte Motions 3 asking
the court that it be allowed to take possession and custody of the attached
properties to protect its interest and to avoid any damage or deterioration
considering that the sheriff has no proper place to store or deposit said
properties. This was granted by respondent Judge on May 28, 1982 for being
meritorious.
Meanwhile, petitioner before submitting an answer to the complaint, filed
a Motion for a Bill of Particulars 4 and to Set Aside the Ex-Parte Writ of
Preliminary Attachment 5 which was opposed by private respondent.
Finding that the discharge of the writ of attachment is unavoidable on the
ground that it was issued ex-parte, without notice and hearing, based
principally on the alleged removal or disposition by the defendants of their
properties with intent to defraud the plaintiff, which allegation was limited
to a bare assertion and not persuasively substantial, respondent Judge
issued an Orders 6 dated July 6, 1982, the dispositive portion of which reads:
Accordingly, the Order of May 14, 1982 granting the writ of preliminary
attachment is lifted and vacated. The writs issued on 26 May 1982, are
dissolved and recalled and the properties levied and seized by the Sheriffs
of Cebu and Davao City are discharged and released.
SO ORDERED. (Emphasis supplied)
In view of the foregoing, private respondent Aboitiz and Company, Inc. filed
an Urgent Ex-Parte Motion 7 dated July 7, 1982 praying for a stay of the July
6, 1982 Order dissolving the writ of preliminary attachment, thus
maintaining the status quo. Private respondent further prayed for the court
to direct the sheriff of Davao City to desist and/or stop the enforcement or
implementation of the order lifting the attachment and to grant them
fifteen (15) days to elevate the matter to the Appellate Court. Consequently,
respondent Judge Tomol issued on the same day an Orders 8 granting the
motion prayed for by private respondent Aboitiz and Company, Inc. Thus,
the July 6, 1982 Order was stayed.
In the meantime, three (3) Deputy Sheriffs of Cebu implemented the Order
lifting the Writ of Attachment and were able to pull out some personal
properties of petitioner Adlawan. They were not able to take out all the
attached properties in view of the subsequent Order of respondent judge
to stay its implementation.
As petitioner's Motion for a Bill of Particulars was not immediately acted
upon, he was not able to file an answer or interpose any counterclaim. For
this reason, petitioner filed an Application for Award of Damages dated July
9, 1982 asking for a reasonable rental on the attached heavy construction
equipment, machineries and other properties at the rate of P30,000.00 per
day from the date of seizure until said properties are actually returned to
his possession and control.9
Before the court a quo could act on the motions of petitioner Adlawan, and
before he could file an answer, his motion for a bill of particulars not having
been acted upon, private respondent Aboitiz and Company, Inc., filed on
July 13, 1982 a Notice of Dismissal or Withdrawal of Complaint 10 as a matter
of right in accordance with Section 1, Rule 17 of the Rules of Court.
Respondent Judge Tomol issued an Order 11 dated July 15, 1982, the
dispositive portion of which reads:
Accordingly, the termination of this case upon the notice of dismissal
voluntarily filed by the plaintiff is hereby confirmed. For emphasis, all orders
of this Court issued prior to the filing of said notice of dismissal are each
and all rendered functus officio. By the same token, all pending incidents,
particularly the defendant's motion for a bill of particulars and their petition
for damages against the Plaintiffs attachment bond, are now beyond the
competence of this Court to consider for being moot and academic.
SO ORDERED
Petitioner Adlawan filed a Motion 12 dated July 28, 1982 praying for the
issuance of an order to the Provincial Sheriff of Cebu to implement and
enforce the Order of respondent Judge dated July 6, 1982 dissolving the writ
of preliminary attachment and to secure the delivery of the attached
properties to the petitioner. Respondent Judge issued an Order 13 dated
December 20, 1982 denying the Motion in view of the institution by private
respondent Aboitiz and Company, Inc. of a civil case (No. 619-L) for delivery
of Personal Properties with Replevin and Damages before the Court of First
Instance of Cebu, Branch XVI in Lapu-Lapu City on July 13, 1982 and the filing
of petitioner Adlawan of a case for damages (Civil Case No. 22265) before
the Court of First Instance of Cebu, Branch X, in connection with the seizure
of his properties under the writ of preliminary attachment.
With regard to the replevin case filed by private respondent Aboitiz and
Company, Inc., the Court of First Instance of Cebu, Branch XVI, Lapu-Lapu
City, issued an Order 14 for the seizure and delivery of the properties
described therein to the private respondent. The seized properties were thus
delivered to private respondent by the Clerk of Court and Ex-officio
Provincial Sheriff on July 24, 1982. Petitioner filed an Omnibus Motion 15
dated July 17, 1982 to reconsider, dissolve and set aside the Writ of Seizure
and Replevin and to direct that the properties seized be returned to
petitioner as well as to dismiss the complaint. In support of this motion,
petitioner alleged, among others, that private respondent's office is situated
in Cebu City while petitioner is a resident of mainland Cebu, particularly
Minglanilla therefore the Court of First Instance of Cebu stationed in Lapu-
Lapu should not accept the case. Furthermore, he alleged that the same
personal properties seized are in custodia legis by virtue of a writ of
preliminary attachment issued by the Court of First Instance of Cebu, Branch
XI, presided by respondent Judge Tomol. The Court of First Instance of
Cebu, Branch XVI in Lapu-Lapu City, presided by Judge Ceferino E. Dulay
denied the Omnibus Motion for lack of merit on September 4, 1982.
Petitioner Adlawan filed a Motion for Reconsideration but the same was
denied.
Hence, the present petition for certiorari and mandamus impleading
respondent Judge Valeriano P. Tomol as Presiding Judge of Branch XI of the
Court of First Instance of Cebu (now Branch XI, RTC-Cebu) and Branch XVI,
CFI-Cebu presided by Judge Ceferino E. Dulay in Lapu-Lapu City (now
Branch XXVII of RTC Cebu in Lapu-Lapu) and private respondent Aboitiz and
Company, Inc.
The issues raised by petitioner Adlawan are the following, to wit:
1) After the attachment of petitioner's properties was dissolved and
discharged because it was found by respondent Judge to be wrongful and
illegal, does it not constitute grave and manifest abuse of discretion on the
part of the same respondent judge TO REFUSE to implement his own order
for the return of the attached properties to petitioner simply because
private respondent suddenly dismissed its complaint?
2) On the other hand, the court, after having deprived petitioner
possession and enjoyment of his properties, by reason of an attachment
which, subsequently, was dissolved and discharged, was it not the clear,
specific and inescapable duty of that same court, to order that said
properties be returned and restored to the possession and enjoyment of
petitioner?
3) Are not the attached properties of petitioner under the custodia
legis of the attaching court — Branch XI, CFI-Cebu (now Branch XI, RTC-
Cebu) and, therefore, subject to its jurisdiction and control? If so, does it not
constitute grave and manifest abuse of discretion on the part of the
attaching court to literally wash his (sic) hands off any duty or responsibility
by considering himself (sic) as having been divested of authority to deal
with such properties?
4) Did not the Lapu-Lapu Branch of CFI-Cebu act, without or in
excess of his (sic) jurisdiction or, at least, with grave abuse of discretion, in
taking cognizance of the replevin case which involves properties already in
custodia legis of Branch XI of CFI-Cebu?
5) On the other hand, was it not the clear, specific and inescapable
duty of the Lapu-Lapu Branch of CFI-Cebu, to dismiss the replevin case and
dissolve the writ of replevin, not only because of the principle of custodia
legis but also because it was in clear violation of Adm. Order No. 6 of this
Honorable Supreme Court, which amends Adm. Orders No. 147 and 328 of
the Department (now Ministry) of Justice? 16
From the recital of facts may be gleamed a series of peculiar events and
circumstances requiring examination and looking into in order that justice
and equity may be subserved.
Petitioner's properties were attached on the strength of the writs of
preliminary attachment issued without notice and hearing by the executive
judge. These attached properties were given to the custody of private
respondent, Aboitiz and Company, Inc. Petitioner then filed a Motion to
Dissolve the Writ of Attachment which was granted by respondent Judge
Tomol. Thus, petitioner was able to recover some of his properties. But on
the following day, this order was stayed by the same respondent judge
leaving the rest of petitioner's properties with private respondent. Later,
private respondent withdrew its complaint which was confirmed by
respondent Judge Tomol. Petitioner Adlawan filed a motion to have the rest
of his properties returned but respondent judge refused to act on said
motion due to cases filed by both parties in the different branches of the
Court of First Instance of Cebu relating to the same case.
After a careful examination of the records of the case We rule in favor of
petitioner Adlawan.
There is no question that the order dated July 6, 1982 of respondent Judge
Valeriano P. Tomol, Jr. lifting and vacating the order granting the writ of
preliminary attachment is a valid order, issued while he had jurisdiction over
the case. The execution of aforesaid order of July 6, 1982 was stayed for a
period of fifteen (15) days on motion of the plaintiff to enable the latter to
question the propriety or impropriety of the same in the appellate court.
Instead, plaintiff filed a civil case for delivery of Personal Properties with
Replevin and Damages with another branch of the CFI of Cebu. Accordingly,
having failed to appeal or question the aforementioned order in the
appellate court as originally manifested, the same became final and
executory.
Section 1, Rule 39 of the Revised Rules of Court provides:
Execution upon final judgment or orders. — Execution shall issue upon a
judgment or order that finally disposes of the action or proceeding. Such
execution shall issue as a matter of right upon the expiration of the period
to appeal therefrom if no appeal has been perfected.
It is basic that once a judgment becomes final, the prevailing party is
entitled as a matter of right to a Writ of Execution, and the issuance thereof
is the Court's ministerial duty."17
But as earlier stated, the reasons advanced by respondent Judge Tomol for
denying the enforcement of his order dated July 6, 1982 which lifted the writ
of attachment and the restoration of the seized properties to the defendant
petitioner herein are: [a] the filing by private respondent of Civil Case No.
619-L with Branch XVI of CFI-Lapu-Lapu City for delivery of Personal
Properties with Replevin and Damages which as a consequence, the same
properties involved in this case were seized under a writ of replevin upon
order of aforesaid court and [b] the filing by petitioner of Civil Case No.
22265 before Branch X of the Court of First Instance of Cebu, for damages.
Hence, the issues in this case center on the nature and purpose of the writ
of attachment.
A writ of preliminary attachment is a provisional remedy issued upon order
of the court where an action is pending to be levied upon the property or
properties of the defendant therein, the same to be held thereafter by the
Sheriff as security for the satisfaction of whatever judgment might be
secured in said action by the attaching creditor against the defendant. 18
The provisional remedy of attachment is available in order that the
defendant may not dispose of his property attached, and thus secure the
satisfaction of any judgment that may be secured by plaintiff from
defendant. 19 The purpose and function of an attachment or garnishment is
two-fold. First, it seizes upon property of an alleged debtor in advance of
final judgment and holds it subject to appropriation thus prevents the loss
or dissipation of the property by fraud or otherwise. Second, it subjects to
the payment of a creditor's claim property of the debtor in those cases
where personal service cannot be obtained upon the debtor. 20 This remedy
is to secure a contingent lien on defendant's property until plaintiff can, by
appropriate proceedings, obtain a judgment and have such property
applied to its satisfaction, or to make some provision for unsecured debts
in cases where the means of satisfaction thereof are liable to be removed
beyond the jurisdiction, or improperly disposed of or concealed, or
otherwise placed beyond the reach of creditors. 21
Attachment is an ancillary remedy. It is not sought for its own sake but
rather to enable the attaching party to realize upon relief sought and
expected to be granted in the main or principal pal action. 22
The remedy of attachment is adjunct to the main suit, therefore, it can have
no independent existence apart from a suit on a claim of the plaintiff against
the defendant. In other words, a attachment or garnishment is generally
ancillary to, and dependent on, a principal proceeding, either at law or in
equity, which has for its purpose a determination of the justice of creditor's
demand. 23
Thus, this Court ruled that upon levy by attachment of the property in
question by order of the Court, said property fell into custodia legis of that
court for purposes of that civil case only. Any relief against such attachment
and the execution an issuance of a writ of possession that ensued
subsequently could be disposed of only in that case. 24
More specifically, it was held that courts have no jurisdiction to order the
delivery of personal property (replevin) to the plaintiff if the property is
under attachment. 25 Only courts having supervisory control or superior
jurisdiction in the premises, have the right to interfere with and change
possession of property in custodia legis. 26
More recently, this Court ruled that the garnishment of property to satisfy
a writ of execution operates as an attachment and fastens upon the property
a lien by which the property is brought under the jurisdiction of the court
issuing the writ. It is brought into custodia legis under the sole control of
such court. 27
During the life of the attachment, the attached property continues in the
custody of the law, the attaching officer being entitled to its possession and
liability for its safe keeping. 28
Based on the above-cited principles, it is obvious that the writ of preliminary
attachment issued is already dissolved and rendered non-existent in view of
the withdrawal of the complaint by Aboitiz and Company, Inc. More
importantly, even if the writ of attachment can be considered independently
of the main case, the same, having been improperly issued as found by
respondent Judge Tomol himself, is null and void and cannot be a
justification for holding petitioners' properties in custodia legis any longer.
To reiterate, an attachment is but an incident to a suit; and unless the suit
can be maintained, the attachment must fall.
When Aboitiz and Company, Inc. withdrew its complaint, the attachment
ceased to have a leg to stand on. The attached properties of petitioner
Adlawan which are in the custody of private respondent Aboitiz should be
returned to petitioner. This is only proper and equitable and in consonance
with the rules and principles of law. The parties, by the withdrawal of the
complaint, should be placed in the same standing as they were before the
filing of the same.
Petitioner also questions the jurisdiction of the CFI of Cebu stationed in
Lapu-Lapu City to hear the replevin case filed by private respondent in view
of the fact that petitioner is a resident of Minglanilla, Cebu while private
respondent's principal place of business is in Cebu City. Obviously, the
question posed by petitioner is venue.
A reading of the Omnibus Motion filed by petitioner, then defendant
therein, would reveal that he not only questioned the jurisdiction of the
court but likewise alleged non-jurisdictional grounds for dismissing the
replevin case, such as the amount of the bond put up by Aboitiz & Co. as
grossly insufficient and that the same properties are involved both in the
replevin case and in the original collection case with preliminary
attachment. Thus, in so doing, the court acquired jurisdiction over him. In
the case of Wang Laboratories, Inc. vs. Mendoza 29 this Court held:
Even though the defendant objects to the jurisdiction of the court, if at the
same time he alleges any non-jurisdictional ground for dismissing the
action, the court acquires jurisdiction over him.
Furthermore, in the case of City of Cebu v. Consolacion, 30 We held that:
. . . any of the branches of the Court of First Instance of the Province of Cebu,
whether stationed in the city of the same name or in any of the
municipalities of the province would be proper venue for its trial and
determination, it being admitted that the parties are residents of the
Province of Cebu . . .
Finally, the employment by counsel for private respondent of dubious
procedural maneuvers as what transpired in the case at bar obviously to
continue the wrongful and illegal possession and custody of petitioner's
properties even after the dissolution of the attachment is to say the least,
hardly commendable if not a form of "forum shopping", to seek the court
where he may possibly obtain favorable judgment. 31
It may therefore be stated that the right to come before the Courts to
redress a grievance or right a wrong should be exercised with prudence and
good faith. In the case of Indianapolis v. Chase National Bank, Trustee, 314
U.S. 69, it is opined that "Litigation is the pursuit of practical ends, not a
game of chess."
WHEREFORE, in view of the foregoing, this Court rules that the attached
properties left in the custody of private respondent Aboitiz and Company,
Inc. be returned to petitioner Eleazar V. Adlawan without prejudice to the
outcome of the cases filed by both parties.
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.
This is a special civil action for certiorari, with prayer for restraining order or
preliminary injunction, filed by petitioner Filinvest Credit Corporation
seeking to annul the Orders issued by respondent Judge dated February 2,
1979 and April 4, 1979 in Civil Case No. 109900.
As shown by the records, the antecedents of the instant Petition are as
follows:
On August 2, 1977, Filinvest Credit Corporation (hereinafter referred to as
FILINVEST) filed a complaint in the lower court against defendants Rallye
Motor Co., Inc. (hereinafter referred to as RALLYE) and Emesto Salazar for
the collection of a sum of money with damages and preliminary writ of
attachment. From the allegations of the complaint, 1 it appears that in
payment of a motor vehicle described as: "One (1) Unit MAZDA DIESEL
SCHOOL BUS, Model: E4100, Serial No.: EXC43P-02356, Motor No.: Y-
13676," Salazar executed a promissory note dated May 5, 1977 in favor of
RALLYE for the amount of P99,828.00. To secure the note, Salazar also
executed in favor of RALLYE a deed of chattel mortgage over the above
described motor vehicle. On May 7, 1977, RALLYE, for valuable
consideration, assigned all its rights, title and interest to the
aforementioned note and mortgage to FILINVEST. Thereafter, FILINVEST
came to know that RALLYE had not delivered the motor vehicle subject of
the chattel mortgage to Salazar, "as the said vehicle (had) been the subject
of a sales agreement between the codefendants." Salazar defaulted in
complying with the terms and conditions of the aforesaid promissory note
and chattel mortgage. RALLYE, as assignor who guaranteed the validity of
the obligation, also failed and refused to pay FILINVEST despite demand.
According to FILINVEST, the defendants intentionally, fraudulently and with
malice concealed from it the fact that there was no vehicle delivered under
the documents negotiated and assigned to it, otherwise, it would not have
accepted the negotiation and assignment of the rights and interest covered
by the promissory note and chattel mortgage. Praying for a writ of
preliminary attachment, FILINVEST submitted with its complaint the
affidavit of one Gil Mananghaya, pertinent portions of which read thus:
That he is the Collection Manager, Automotive Division of Filinvest Credit
Corporation;
That in the performance of his duties, he came to know of the account of
Ernesto Salazar, which is covered by a Promissory Note and secured by a
Chattel Mortgage, which documents together with all the rights and interest
thereto were assigned by Rallye Motor Co., Inc.;
That for failure to pay a stipulated installment, and the fact that the principal
debtor, Ernesto Salazar, and the assignor, Rallye Motor Co., Inc. concealed
the fact that there was really no motor vehicle mortgaged under the terms
of the Promissory Note and the Chattel Mortgage, the entire amount of the
obligation stated in the Promissory Note becomes due and demandable,
which Ernesto Salazar and Rallye Motor Co., Inc. failed and refused to pay,
so much so that a sufficient cause of action really exists for Filinvest Credit
Corporation to institute the corresponding complaint against said person
and entity;
That the case is one of those mentioned in Section 1, Rule 57 of his Rules of
Court, particularly an action against parties who have been guilty of a fraud
in contracting the debt or incurring the obligation upon which the action is
brought;
That there is no other sufficient security for the claim sought to be enforced
by the action, and that the amount due to the applicant Filinvest Credit
Corporation is as much as the sum for which the order is granted above all
legal counterclaims;
That this affidavit is executed for the purpose of securing a writ of
attachment from the court. 2
The specific provision adverted to in the above Affidavit is Section 1(d) of
Rule 57 which includes "an action against a party who has been guilty of
fraud in contracting the debt or incurring the obligation upon which the
action is brought, or in concealing or disposing of the property for the
taking, detention or conversion of which the action is brought" as one of
the cases in which a "plaintiff or any proper party may, at the
commencement of the action or at any time thereafter, have the property
of the adverse party attached as security for the satisfaction of any
judgment that may be recovered."
Judge Jorge R. Coquia (now Justice of the Court of Appeals), then presiding
Judge of the lower court, granted the prayer for a writ of attachment in an
Order dated August 17, 1977 stating that:
Finding the complaint sufficient in form and substance, and in view of the
sworn statement of Gil Mananghaya, Collection Manager of the plaintiff that
defendants have committed fraud in securing the obligation and are now
avoiding payment of the same, let a writ of attachment issue upon the
plaintiff's filing of a bond in the sum of P97,000.00.
In the meantime, let summons issue on the defendants. 3
More than a year later, in an Urgent Motion dated December 11, 1978, 4
defendant Salazar prayed that the writ of preliminary attachment issued ex
parte and implemented solely against his property be recalled and/or
quashed. He argued that when he signed the promissory note and chattel
mortgage on May 5, 1977 in favor of RALLYE, FILINVEST was hot vet his
creditor or obligee, therefore, he could not be said to have committed fraud
when he contracted the obligation on May 5, 1977. Salazar added that as
the motor vehicle which was the object of the chattel mortgage and the
consideration for the promissory note had admittedly not been delivered to
him by RALLYE, his repudiation of the loan and mortgage is more justifiable.
FILINVEST filed an Opposition, but on February 2, 1979, the court a quo, this
time presided over by herein respondent Judge, ordered the dissolution and
setting aside of the writ of preliminary attachment issued on August 17, 1977
and the return to defendant Salazar of all his properties attached by the
Sheriff by virtue of the said writ. In this Order, respondent Judge explained
that:
When the incident was called for hearing, the Court announced that, as a
matter of procedure, when a motion to quash a writ of preliminary
attachment is filed, it is incumbent upon the plaintiff to prove the truth of
the allegations which were the basis for the issuance of said writ. In this
hearing, counsel for the plaintiff manifested that he was not going to
present evidence in support of the allegation of fraud. He maintained that
it should be the defendant who should prove the truth of his allegation in
the motion to dissolve the said writ. The Court disagrees. 5
FILINVEST filed a Motion for Reconsideration of the above Order, and was
subsequently allowed to adduce evidence to prove that Salazar committed
fraud as alleged in the affidavit of Gil Mananghaya earlier quoted. This
notwithstanding, respondent Judge denied the Motion in an Order dated
April 4, 1979 reasoning thus:
The plaintiff's evidence show that the defendant Rallye Motor assigned to
the former defendant Salazar's promissory note and chattel mortgage by
virtue of which plaintiff discounted the note. Defendant Salazar refused to
pay the plaintiff for the reason that Rallye Motor has not delivered to Salazar
the motor vehicle which he bought from Rallye. It is the position of plaintiff
that defendant Salazar was in conspiracy with Rallye Motor in defrauding
plaintiff.
Ernesto Salazar, on his part complained that he was himself defrauded,
because while he signed a promissory note and chattel mortgage over the
motor vehicle which he bought from Rallye Motor, Rallye Motor did not
deliver to him the personal property he bought; that the address and
existence of Rallye Motor can no longer be found.
While it is true that the plaintiff may have been defrauded in this
transaction, it having paid Rallye Motor the amount of the promissory note,
there is no evidence that Ernesto Salazar had connived or in any way
conspired with Rallye Motor in the assignment of the promissory note to
the plaintiff, because of which the plaintiff paid Rallye Motor the amount of
the promissory note. Defendant Ernesto Salazar was himself a victim of
fraud. Rallye Motor was the only party which committed it. 6
From the above order denying reconsideration and ordering the sheriff to
return to Salazar the personal property attached by virtue of the writ of
preliminary attachment issued on August 17, 1977, FILINVEST filed the
instant Petition on April 19, 1979. On July 16, 1979, petitioner FILINVEST also
filed an Urgent Petition for Restraining Order 7 alleging, among others, that
pending this certiorari proceeding in this court, private respondent Salazar
filed a Motion for Contempt of Court in the court below directed against
FILINVEST and four other persons allegedly for their failure to obey the
Order of respondent Judge dated April 4, 1979, which Order is the subject
of this Petition. On July 23, 1979, this Court issued a temporary restraining
order "enjoining respondent Judge or any person or persons acting in his
behalf from hearing private respondent's motion for contempt in Civil Case
No. 109900, entitled, 'Filinvest Credit Corporation, Plaintiff, versus The
Rallye Motor Co., Inc., et al., Defendants' of the Court of First Instance of
Manila, Branch XI. " 8
Petitioner FILINVEST in its MEMORANDUM contends that respondent Judge
erred:
(1) In dissolving the writ of preliminary attachment already enforced
by the Sheriff of Manila without Salazar's posting a counter-replevin bond
as required by Rule 57, Section 12; and
(2) In finding that there was no fraud on the part of Salazar, despite
evidence in abundance to show the fraud perpetrated by Salazar at the very
inception of the contract.
It is urged in petitioner's first assignment of error that the writ of preliminary
attachment having been validly and properly issued by the lower court on
August 17, 1977, the same may only be dissolved, quashed or recalled by the
posting of a counter-replevin bond under Section 12, Rule 57 of the Revised
Rules of Court which provides that:
Section 12. Discharge of Attachment upon, gluing counterbond.—At any
time after an order of attachment has been granted, the party whose
property has been attached, or the person appearing on his behalf, may,
upon reasonable notice to the applicant, apply to the judge who granted
the order, or to the judge of the court, in which the action is pending, for an
order discharging the attachment wholly or in part on the security given.
The judge shall, after hearing, order the discharge of the attachment if a
cash deposit is made, or a counter-bond executed to the attaching creditor
is filed, on behalf of the adverse party, with the clerk or judge of the court
where the application is made, in an amount equal to the value of the
property attached as determined by the judge, to secure the payment of
any judgment that the attaching creditor may recover in the action. ...
Citing the above provision, petitioner contends that the court below should
not have issued the Orders dated February 2, 1979 and April 4, 1979 for
failure of private respondent Salazar to make a cash deposit or to file a
counter-bond.
On the other hand, private respondent counters that the subject writ of
preliminary attachment was improperly or irregularly issued in the first
place, in that it was issued ex parte without notice to him and without
hearing.
We do not agree with the contention of private respondent. Nothing in the
Rules of Court makes notice and hearing indispensable and mandatory
requisites for the issuance of a writ of attachment. The statement in the case
of Blue Green Waters, Inc. vs. Hon. Sundiam and Tan 9 cited by private
respondent, to the effect that the order of attachment issued without notice
to therein petitioner Blue Green Waters, Inc. and without giving it a chance
to prove that it was not fraudulently disposing of its properties is irregular,
gives the wrong implication. As clarified in the separate opinion of Mr.
Justice Claudio Teehankee in the same cited case, 10 a writ of attachment
may be issued ex parte. Sections 3 and 4, Rule 57, merely require that an
applicant for an order of attachment file an affidavit and a bond: the
affidavit to be executed by the applicant himself or some other person who
personally knows the facts and to show that (1) there is a sufficient cause of
action, (2) the case is one of those mentioned in Section 1 of Rule 57, (3)
there is no other sufficient security for the claim sought to be enforced, and
(4) the amount claimed in the action is as much as the sum for which the
order is granted above all legal counterclaims; and the bond to be "executed
to the adverse party in an amount fixed by the judge, not exceeding the
applicant's claim, conditioned that the latter will pay all the costs which may
be adjudged to the adverse party and all damages which he may sustain by
reason of the attachment, if the court shall finally adjudge that the applicant
was not entitled thereto."
We agree, however, with private respondents contention that a writ of
attachment may be discharged without the necessity of filing the cash
deposit or counter-bond required by 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 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 restraining order issued by Us on July 23,
1979 is hereby made permanent. No costs.
Petition granted.
SO ORDERED.
G.R. No. 92813 July 31, 1991
PEROXIDE PHILIPPINES CORPORATION, EASTMAN CHEMICAL INDUSTRIES,
INC., EDMUNDO O. MAPUA and ROSE U. MAPUA, petitioners,
vs.HON. COURT OF APPEALS and BANK OF THE PHILIPPINE, ISLANDS,
respondents.
Assailed in this petition for review on certiorari are the decision1 of
respondent Court of Appeals, promulgated on September 4, 1989 in CA-G.
R. SP No. 15672, granting the petition for certiorari filed by private
respondent, and its resolution2 of March 29, 1990 denying petitioners'
motion for reconsideration. On December 6, 1982, herein private
respondent Bank of the Philippine Islands (BPI) sued herein petitioners
Peroxide Philippines Corporation (Peroxide), Eastman Chemical Industries,
Inc. (Eastman), and the spouses Edmund O. Mapua and Rose U. Mapua
(Mapuas) in Civil Case No. 48849 of the then Court of First Instance of Pasig,
Metro Manila for the collection of an indebtedness of Peroxide wherein
Eastman and the Mapuas bound themselves to be solidarily liable.
Upon the filing of said action, the trial court, then presided over by Judge
Gregorio G. Pineda, ordered the issuance of a writ of preliminary attachment
which was actually done on January 7, 1983 after BPI filed an attachment
bond in the amount of P32,700,000.00. Petitioners' properties were
accordingly attached by the sheriff.
On January 11, 1983, Eastman and the Mapuas moved to lift the attachment,
which motion was set for hearing on January 14, 1983. On said date and on
motion of BPI, it was granted up to January 17, 1983 to file a written
opposition to the motion to lift the writ of attachment. BPI also filed a
motion to set for hearing the said motion to lift attachment and its
opposition thereto.
However, on January 17, 1983, Judge Pineda issued two (2) orders, the first,
denying BPI's motion for a hearing, and, the second, lifting the writ of
attachment as prayed for by Eastman and the Mapuas. BPI filed a motion
for reconsideration but, consequent to the then judiciary reorganization, the
case was re-raffled and assigned to the sala of Judge Pastor Reyes.
On November 28, 1983, Judge Reyes issued an order with an explicit finding
that the attachment against the properties of Eastman and the Mapuas was
proper on the ground that they had disposed of their properties in fraud of
BPI. It also directed the sheriff to implement the writ of attachment upon
the finality of said order.
After a motion for partial reconsideration by BPI and some exchanges
between the parties, on December 17, 1984 the trial court, this time with
Judge Eficio B. Acosta presiding, issued an order granting BPI's motion for
partial reconsideration by finding, inter alia, that "(c)onsidering the lapse of
more than a year since the Order of November 28, 1983 and the nature and
purpose of attachment, the writ of attachment revived in the Order of
November 28, 1983 and hereby re-affirmed may be executed and
implemented immediately," and directing the sheriff to execute said writ
which "is hereby declared immediately executory."3
Contending that said order of December 17, 1984 was rendered with grave
abuse of discretion amounting to lack of jurisdiction, petitioners sought the
annulment thereof in a petition for certiorari and prohibition in AC-G.R. SP
No. 05043 of the Intermediate Appellate Court, wherein a temporary
restraining order was issued. This restraining order was lifted when said
court rendered its decision in said case on March 14, 19864 dismissing the
petition and holding, among others, that:
We find nothing wrong with the attachment of the properties of PEROXIDE.
Even were We to assume that the original petition for attachment was
defective for failure to specify the particular transactions involved in the
alleged "alienation" of PEROXIDE's properties, the fact is that the defect, if
any, was cured by the other pleadings (like the opposition or virtual
amendment) filed by BANK With such amendment, the specific properties
concerned were distinctly enumerated.5
Petitioners then sought the review of said decision by this Court in G.R. No.
74558, but no temporary restraining order was granted therein. In the
meantime, on May 29, 1986, Judge Acosta issued an order6 suspending the
writ of preliminary attachment in the aforesaid Civil Case No. 48849
pursuant to an ex parte motion filed by herein petitioners.
Thereafter, in its resolution dated October 27, 1986, this Court denied the
aforesaid petition for review on certiorari "considering that the writ of
preliminary attachment issued was in accordance with law and applicable
jurisprudence."7 Petitioners' motion for reconsideration was denied with
finality in our resolution of October 6, 1987.8
Dissatisfied, petitioners again filed an urgent motion for clarification
submitting that the Court failed to pass upon two issues, namely: (1) whether
Eastman and the Mapuas were sureties or mere guarantors of Peroxide, and
(2) whether Rose U. Mapua was bound by the "Continuing Guarantee"
executed by her husband, Edmund O. Mapua. Acting upon said motion, on
November 10, 1987 the Court resolved to deny the same for the reason,
among others, that the clarification sought regarding the propriety of the
attachment of the properties of Eastman and the Mapuas involves questions
of fact.9
On July 30, 1987, BPI filed a motion to order Bataan Pulp and Paper Mills,
Inc. (Bataan), jointly and severally with petitioners, to deliver to the sheriff
the cash dividends declared on the garnished shares of stock of said
petitioners with said paper company, and to cite for contempt the officers
of Bataan for releasing and/or paying the dividends to petitioners in
disregard of the notice of garnishment.
In an exhaustive order dated December 16, 1987,10 the trial court, now
presided over by Judge Fernando L. Gerona, Jr. and wherein Civil Case No.
48849 was then pending, addressing all the issues raised by the parties,
granted BPI's motion for delivery of the dividends. Judge Gerona sustained
the position of BPI that dividends are but incidents or mere fruits of the
shares of stock and as such the attachment of the stock necessarily included
the dividends declared thereon if they were declared subsequent to the
notice of garnishment.
He further held that the preliminary attachment, being a provisional
remedy, must necessarily become effective immediately upon the issuance
thereof and must continue to be effective even during the pendency of an
appeal from a judgment of the court which issued the said provisional
remedy and will only cease to have effect when the judgment is satisfied or
the attachment is discharged or vacated in some manner provided by law.
The motion to cite the officers of Bataan was, however, denied.
Petitioners moved for reconsideration but the same was denied for the
reason that the order of May 29, 1986 of Judge Acosta was based on an ex
parte motion without reasonable notice, hence a patent nullity for lack of
due process. Accordingly, the aforesaid order of December 16, 1987 held
that the writ of attachment continued to be effective.11
Petitioners thereafter filed a second motion for reconsideration which,
however, remained pending and unresolved when Judge Gerona inhibited
himself from further sitting in the case. Said case was then re-raffled to the
sala of Judge Jainal D. Rasul who required the parties to re-summarize their
respective positions upon the issue of the attachment.
Then, resolving the pending incidents before it, the court a quo issued the
disputed order of August 23, 1988, which states, inter alia that:
THIS Court thru Judge Gerona had arrived at the correct conclusion that the
contempt charge against the Officers of the Garnishee Corporation cannot
be sustained, for the reason that they relied on the Order of the Court thru
Judge Acosta under date of May 29, 1986 suspending the Writ of
Attachment and since said order was not then set aside, there was no order
or writ violated by said officers. It follows a fortiori that the release of the
cash dividends was valid, legal and not contemptuous. Consequently, there
is no reason to justify or deserve the return of cash dividends prayed for by
the plaintiff.
Besides, the propriety of the attachment of the properties of the defendant
Eastman Chemical Industries, Inc., and defendant Mapua Spouses should
still be determined by this Court as a question of fact, pursuant to the
Supreme Court resolution dated November 23, 1987. Meanwhile, it is only
fair that the properties of the Eastman Chemical Industries, Inc. and the
defendants Mapua spouses should not, pending such proper determination,
be attached as to give life and meaning to the Supreme Court resolution of
November 23, 1987.
SO ORDERED.12
BPI moved for the reconsideration of said order. Thereafter, it learned that
Bataan had again declared a cash dividend on its shares payable on or
before September 30, 1988. Furthermore, Bataan informed BPI that it would
be releasing to Eastman and Edmund O. Mapua the cash dividends on their
shares on September 23, 1988 on the strength of the order of the trial court
of August 23, 1988.
Consequently, BPI filed an urgent ex parte motion on September 19, 1988
for the suspension of the effects of the trial court's order of August 23, 1988
in view of the pending motion for reconsideration it had filed against said
order. In an order likewise dated September 19, 1988, the trial court denied
BPI's motion for suspension of the order of August 23, 1988.13
BPI then filed a petition for certiorari in respondent court, docketed therein
as CA-G.R. SP No. 15672, invoking the following grounds:
1. The trial court acted with grave abuse of discretion in denying
BPI's urgent ex parte motion to suspend the order of August 23, 1988;
2. The order of September 19, 1988 renders moot and academic BPI's
pending motion for reconsideration;
3. The lower court erroneously held that the writ of attachment
secured by BPI had ceased to be valid and effective or had been suspended
by virtue of its orders of January 17, 1983 and May 29, 1986;
4. The trial court committed grave abuse of discretion when it
nullified the writ of attachment as against Eastman and the Mapuas;
5. There is no inconsistency between the resolution of the Supreme
Court dated October 27, 1986 and its subsequent resolution of November
10, 1987;
6. The attachment can validly issue against the conjugal properties
of the Mapuas; and
7. The trial court disregarded the clear and unequivocal records of
the case when it issued its order of August 23, 1988.14
Ruling on these issues, respondent Court of Appeals declared:
WHEREFORE, the petition for certiorari is hereby GRANTED. Judgment is
hereby rendered as follows:
(a) Declaring the writ of preliminary attachment against the
defendants Eastman Chemical Industries, Inc. and the spouses, Edmund and
Rose Mapua valid and enforceable from the beginning, without prejudice
to determining the solidary liability of said defendants with defendant
Peroxide Philippines Corporation;
(b) Setting aside the Order of August 23, 1988 insofar as it decreed
that the cash dividends declared or the garnished shares of stocks (sic) of
the defendants with Bataan Pulp and Paper Mills, Inc. are not subject to
attachment;
(c) Ordering the defendants and the Bataan Pulp and Paper Mills,
Inc., jointly and severally, to deliver to the sheriff the cash dividends as may
hereafter be declared and paid on the garnished shares of stock;
(d) Setting aside the Order of September 19, 1988.
With costs against private respondents.
SO ORDERED.15
Their motion for reconsideration having been denied, petitioners are once
again before us on this spin-off facet of the same case, contending that
respondent court has departed from the accepted and usual course of
judicial proceedings.
1. As correctly formulated by respondent court, the threshold issue
is the validity of the attachment of the properties of Eastman and the
Mapuas, from which arises the correlative question of whether or not the
disputed cash dividends on the garnished shares of stock are likewise
subject thereto. Necessarily involved is the matter of the continuing validity
of the writ or whether or not the same was validly lifted and suspended by
the lower court's orders dated January 17, 1983 and May 29, 1986,
respectively.
BPI asserts that the discharge is illegal and void because the order lifting the
same is violative of Section 13, Rule 57 of the Rules of Court which requires,
among others, a prior hearing before the judge may order the discharge of
the attachment upon proof adduced therein of the impropriety or
irregularity in the issuance of the writ and the defect is not cured forthwith.
We may mention in this regard that if the petition for the discharge of the
writ violates the requirements of the law, the trial judge does not acquire
jurisdiction to act thereon.16
It is true that petitioner's motion to discharge was set for hearing with notice
to BPI but it is likewise true that counsel for the latter asked for an
opportunity to file a written opposition and for a hearing to which he asked
that petitioner Edmund O. Mapua be subpoenaed. Said counsel was allowed
to file a written opposition which he seasonably did, but Judge Pineda
denied both the requested subpoena and hearing and, instead, granted the
discharge of the attachment. These are the bases for BPI's complaint that it
was denied due process.17
Now, it is undeniable that when the attachment is challenged for having
been illegally or improperly issued, there must be a hearing with the burden
of proof to sustain the writ being on the attaching creditor.18 That hearing
embraces not only the right to present evidence but also a reasonable
opportunity to know the claims of the opposing parties and meet them. The
right to submit arguments implies that opportunity, otherwise the right
would be a barren one. It means a fair and open hearing.19 And, as provided
by the aforecited Section 13 of Rule 57, the attaching creditor should be
allowed to oppose the application for the discharge of the attachment by
counter-affidavit or other evidence, in addition to that on which the
attachment was made.
Respondent court was, therefore, correct in holding that, on the above-
stated premises, the attachment of the properties of Eastman and the
Mapuas remained valid from its issuance since the judgment had not been
satisfied, nor has the writ been validly discharged either by the filing of a
counterbond or for improper or irregular issuance.
We likewise affirm the findings and conclusion of respondent court that the
order of Judge Acosta, dated May 29, 1986, suspending the writ of
attachment was in essence a lifting of said writ which order, having likewise
been issued ex parte and without notice and hearing in disregard of Section
13 of Rule 57, could not have resulted in the discharge of the attachment.
Said attachment continued unaffected by the so-called order or suspension
and could not have been deemed inefficacious until and only by reason of
its supposed restoration in the order of December 16, 1987 of Judge Gerona.
Under the facts of this case, the ex parte discharge or suspension of the
attachment is a disservice to the orderly administration of justice and
nullifies the underlying role and purpose of preliminary attachment in
preserving the rights of the parties pendente lite as an ancillary remedy.
We, therefore, sustain the position of BPI that the Court of Appeals, in its
judgment presently under challenge, did not err in upholding the
continuing and uninterrupted validity and enforceability of the writ of
preliminary attachment issued in Civil Case No. 48849 since the order of
discharge and, later, the order of suspension of the trial court were void and
could not have created the operational lacuna in its effectivity as claimed by
petitioners. Further, the cancellation of the annotations regarding the levy
on attachment of petitioners' properties, procured by the sheriff pursuant
to the aforesaid invalid orders, is likewise a nullity and another levy thereon
is not required. We observe, however, that the records do not disclose the
lifting of the levy on the Bataan shares of Eastman and the Mapuas and on
their real properties in Caloocan City.
2. Petitioners next call attention to the fact that when the order of
Judge Acosta of December 17, 1984, which directed the immediate
execution and implementation of the writ of attachment, was brought on a
petition for certiorari and prohibition to the Intermediate Appellate Court
in AC-G.R. SP No. 05043, said court issued a temporary restraining order.
They allege that although the restraining order was lifted by said appellate
court in its decision in the case on March 14, 1986, the same was reinstated
by the court "until further orders" in its order of April 24, 1986 in connection
with petitioners' motion for reconsideration therein. On May 14, 1986,
respondent court denied the motion for reconsideration but, so petitioners
insist, "without, however, stating that it was lifting its restraining order."
When the case went on review to this Court in G.R. No. 74558, no mention
was made regarding said restraining order. Hence, petitioners assert, the
said restraining order had not been lifted, in effect arguing that the writ of
attachment cannot be implemented as a consequence.
This misleading argument is confuted by the records in AC-G.R. SP No.
05043. In its aforesaid resolution of April 24, 1986, the appellate court stated
that "(a)s of this date, April 23, 1986, the motion for reconsideration could
not be considered in view of the absence of the comment of the private
respondents." Hence, the court directed that "(i)n order to maintain the
status quo of the parties, . . . the restraining order issued by us on December
28, 1984 is hereby revived and made effective until further orders."20
Thereafter, finding no merit in the motion for reconsideration, the court
denied the same, declaring that "(w)ith this resolution, we find no need in
resolving the Urgent Motion to Reconsider and set aside Resolution of April
24, 1985 (sic, 1986) filed by the private respondent BPI and the other
incidents still pending resolution."21
All incidents in AC-G.R. SP No. 05043 having been disposed of, it follows
that the temporary restraining order which had been expressly lifted in the
decision therein, and which was merely temporarily reinstated for purposes
of the motion for reconsideration that was ultimately denied, was also
necessarily lifted. Parenthetically, said temporary restraining order, not
having been supplanted by a writ of preliminary injunction, could not have
had an effectivity of more than twenty (20) days,22 and this limitation
applies to temporary restraining orders issued by the Court of Appeals.23
3. We reject petitioners' theory that the preliminary attachment is
not applicable to Eastman and the Mapuas. The writ was issued in Civil Case
No. 48849 against the properties of all the petitioners herein. Eastman and
the Mapuas moved for the discharge of the attachment on the ground that
they were not disposing of their properties in fraud of creditors, but they
did not raise the issue of their liabilities as being allegedly those of mere
guarantors. They did so only when this Court resolved on October 27, 1986
that the writ of preliminary attachment was issued in accordance with law
and applicable jurisprudence.24
Also, what was considered in AC-G.R. SP No. 05043 and thereafter in G.R.
No. 74558 was the matter of the validity of the attachment against Eastman
and the Mapuas, considering that, even before the proceedings had reached
the Intermediate Appellate Court in AC-G.R. SP No. 05043, BPI no longer
had any attachment against Peroxide whose only remaining asset in Bulacan
had been levied upon and acquired by its other creditors when Judge Pineda
lifted the attachment obtained by BPI.
Petitioners seek to capitalize on a passage in the decision in AC-G.R. SP No.
05043, hereinbefore quoted, where the appellate court stated that "(w)e
find nothing wrong with the attachment of the properties of PEROXIDE,"
without mentioning Eastman and the Mapuas. This was clearly in the nature
of peccata minuta, a plain case of harmless oversight, since the properties
referred to in the decision as having been alienated in fraud of BPI were
properties of Eastman and the Mapuas, not of Peroxide.
In fact, as pointed out by private respondent, petitioners' own motion for
reconsideration of March 24, 1986 filed in said case specifically adverted to
that prefatory statement as being equivocal, with the following observation:
"Actually no properties of Peroxide had been attached. What were attached
were properties of Eastman and Rose Mapua."25 Private respondent further
invites attention to the petition for certiorari in G.R. No. 74558, against the
decision in AC-G.R. SP No. 05043, wherein, assailing the aforequoted
statement therein, petitioners aver:
As can be seen the paragraph begins with the holding that there is nothing
wrong with the attachment of properties of Peroxide. This holding on its
face is limited only to the upholding of attachment against the properties
of petitioner Peroxide. And yet the alienations mentioned in the subsequent
sentences do not refer to dispositions of properties of Peroxide and by
Peroxide. A cursory glance of records will show that they refer to
dispositions alleged to have been fraudulently made by Eastman Chemical
Industries, Inc. and Edmund Mapua. Relating this point to the dispositive
portion which in effect sustains the attachment issued by the trial court not
only against Peroxide, but also against Eastman and Mapua spouses.26
4. As earlier narrated, this Court denied the petition for review on
certiorari in G.R. No. 74558, and when petitioners persisted in seeking a
clarification as to the nature of the liability of Eastman and the Mapuas, the
Court denied the same on the ground that the clarification sought involves
questions of fact. As observed by respondent Court of Appeals, the
aforesaid ruling was erroneously construed by the lower court when it
declared that the properties of Eastman and the Mapuas should not,
pending proper determination, be attached. In doing so, the court below
virtually lifted or discharged the attachment even before its propriety had
been determined.
We sustain respondent court's ratiocination in its decision under review that
when petitioners sought clarification from us regarding the propriety of the
attachment on the properties of Eastman and the Mapuas, and we said that
this involves a question of fact, what this means is that the court a quo
should determine the propriety or regularity thereof, and such
determination can only be had in appropriate proceedings conducted for
that purpose. However, until such attachment has been found to be
improper and irregular, the attachment is valid and subsisting.
Thus, as correctly posited by BPI, before the determination of the liability of
Eastman and the Mapuas after trial on the merits, the writ of preliminary
attachment may properly issue. Even assuming that when Eastman and the
Mapuas asked for the lifting of the attachment they presented evidence that
they were guarantors and not sureties of Peroxide, the trial court could not
have admitted such evidence or ruled upon that issue since the same could
be entertained only after a full-blown trial and not before then.27
Otherwise, we would have the procedural absurdity wherein the trial court
would be forced to decide in advance and preempt in an auxiliary
proceeding an issue which can and should be determined only in a trial on
the merits.
The proceeding in the issuance of a writ of preliminary attachment, as a
mere provisional remedy, is ancillary to an action commenced at or before
the time when the attachment is sued out. Accordingly the attachment does
not affect the decision of the case on the merits, the right to recover
judgment on the alleged indebtedness and the right to attach the property
of the debtor being entirely separate and distinct. As a rule, the judgment
in the main action neither changes the nature nor determines the validity of
the attachment.28 At any rate, whether said petitioners are guarantors or
sureties, there exists a valid cause of action against them and their
properties were properly attached on the basis of that indubitable
circumstance.1âwphi1
5. Petitioners bewail the fact that respondent court allegedly
handled the certiorari case, CA-G.R. SP No. 15672 now on appeal before us,
as if it were a petition for review on certiorari by passing upon what they
submit should be considered as errors of judgment and not errors of
jurisdiction. From the foregoing disquisition, however, it is readily apparent
that the petition in said case faults the orders of the trial court as tainted
with grave abuse of discretion equivalent to a jurisdictional flaw. The errors
assigned necessarily involved a discussion of erroneous conclusions and/or
lack of factual bases much beyond the pale of mere errors of judgment or
misperception of evidence, and dwelt on the improvident issuance of orders
clearly arbitrary and oppressive for being in defiance of the rules and devoid
of justifying factual moorings. We cannot, therefore, share the sentiments
and stance of petitioners on this score.
Neither do we subscribe to petitioners' charge that respondent court
injudiciously gave due course to the aforesaid petition for certiorari without
requiring the prior filing and resolution of a motion for the reconsideration
of the questioned orders of the trial court. There are, admittedly, settled
exceptions to that requisite and which obtain in the present case. A motion
for reconsideration was correctly dispensed with by respondent court since
the questions raised in the certiorari proceeding had been duly raised and
passed upon by the lower court.29 Also, under the circumstances therein, a
motion for reconsideration would serve no practical purpose since the trial
judge had already had the opportunity to consider and pass upon the
questions elevated on certiorari to respondent court.30
FOR ALL THE FOREGOING CONSIDERATIONS, the petition at bar is DENIED
and the judgment of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.
G.R. No. 144740 August 31, 2005
SECURITY PACIFIC ASSURANCE CORPORATION, Petitioners,
vs. THE HON. AMELIA TRIA-INFANTE, In her official capacity as Presiding
Judge, Regional Trial Court, Branch 9, Manila; THE PEOPLE OF THE
PHILIPPINES, represented by Spouses REYNALDO and ZENAIDA ANZURES;
and REYNALDO R. BUAZON, In his official capacity as Sheriff IV, Regional
Trial Court, Branch 9, Manila, Respondents.
Before Us is a petition for review on certiorari, assailing the Decision1 and
Resolution2 of the Court of Appeals in CA-G.R. SP No. 58147, dated 16 June
2000 and 22 August 2000, respectively. The said Decision and Resolution
declared that there was no grave abuse of discretion on the part of
respondent Judge in issuing the assailed order dated 31 March 2000, which
was the subject in CA-G.R. SP No. 58147.
THE FACTS
The factual milieu of the instant case can be traced from this Court’s decision
in G.R. No. 106214 promulgated on 05 September 1997.
On 26 August 1988, Reynaldo Anzures instituted a complaint against
Teresita Villaluz (Villaluz) for violation of Batas Pambansa Blg. 22. The
criminal information was brought before the Regional Trial Court, City of
Manila, and raffled off to Branch 9, then presided over by Judge Edilberto
G. Sandoval, docketed as Criminal Case No. 89-69257.
An Ex-Parte Motion for Preliminary Attachment3 dated 06 March 1989 was
filed by Reynaldo Anzures praying that pending the hearing on the merits
of the case, a Writ of Preliminary Attachment be issued ordering the sheriff
to attach the properties of Villaluz in accordance with the Rules.
On 03 July 1989, the trial court issued an Order4 for the issuance of a writ of
preliminary attachment "upon complainant’s posting of a bond which is
hereby fixed at ₱2,123,400.00 and the Court’s approval of the same under
the condition prescribed by Sec. 4 of Rule 57 of the Rules of Court…."
An attachment bond5 was thereafter posted by Reynaldo Anzures and
approved by the court. Thereafter, the sheriff attached certain properties of
Villaluz, which were duly annotated on the corresponding certificates of
title.
On 25 May 1990, the trial court rendered a Decision6 on the case acquitting
Villaluz of the crime charged, but held her civilly liable. The dispositive
portion of the said decision is reproduced hereunder:
WHEREFORE, premises considered, judgment is hereby rendered
ACQUITTING the accused TERESITA E. VILLALUZ with cost de oficio. As to
the civil aspect of the case however, accused is ordered to pay complainant
Reynaldo Anzures the sum of TWO MILLION ONE HUNDRED TWENTY
THREE THOUSAND FOUR HUNDRED (P2,123,400.00) PESOS with legal rate
of interest from December 18, 1987 until fully paid, the sum of P50,000.00
as attorney’s fees and the cost of suit.7
Villaluz interposed an appeal with the Court of Appeals, and on 30 April
1992, the latter rendered its Decision,8 the dispositive portion of which
partly reads:
WHEREFORE, in CA-G.R. CV No. 28780, the Decision of the Regional Trial
Court of Manila, Branch 9, dated May 25, 1990, as to the civil aspect of
Criminal Case No. 89-69257, is hereby AFFIRMED, in all respects….
The case was elevated to the Supreme Court (G.R. No. 106214), and during
its pendency, Villaluz posted a counter-bond in the amount of
₱2,500,000.00 issued by petitioner Security Pacific Assurance Corporation.9
Villaluz, on the same date10 of the counter-bond, filed an Urgent Motion to
Discharge Attachment.11
On 05 September 1997, we promulgated our decision in G.R. No. 106214,
affirming in toto the decision of the Court of Appeals.
In view of the finality of this Court’s decision in G.R. No. 106214, the private
complainant moved for execution of judgment before the trial court.12
On 07 May 1999, the trial court, now presided over by respondent Judge,
issued a Writ of Execution.13
Sheriff Reynaldo R. Buazon tried to serve the writ of execution upon Villaluz,
but the latter no longer resided in her given address. This being the case,
the sheriff sent a Notice of Garnishment upon petitioner at its office in
Makati City, by virtue of the counter-bond posted by Villaluz with said
insurance corporation in the amount of ₱2,500,000.00. As reported by the
sheriff, petitioner refused to assume its obligation on the counter-bond it
posted for the discharge of the attachment made by Villaluz.14
Reynaldo Anzures, through the private prosecutor, filed a Motion to
Proceed with Garnishment,15 which was opposed by petitioner16
contending that it should not be held liable on the counter-attachment
bond.
The trial court, in its Order dated 31 March 2000,17 granted the Motion to
Proceed with Garnishment. The sheriff issued a Follow-Up of Garnishment18
addressed to the President/General Manager of petitioner dated 03 April
2000.
On 07 April 2000, petitioner filed a Petition for Certiorari with Preliminary
Injunction and/or Temporary Restraining Order19 with the Court of Appeals,
seeking the nullification of the trial court’s order dated 31 March 2000
granting the motion to proceed with garnishment. Villaluz was also named
as petitioner. The petitioners contended that the respondent Judge, in
issuing the order dated 31 March 2000, and the sheriff committed grave
abuse of discretion and grave errors of law in proceeding against the
petitioner corporation on its counter-attachment bond, despite the fact that
said bond was not approved by the Supreme Court, and that the condition
by which said bond was issued did not happen.20
On 16 June 2000, the Court of Appeals rendered a Decision,21 the dispositive
portion of which reads:
WHEREFORE, premises considered, the Court finds no grave abuse of
discretion on the part of respondent judge in issuing the assailed order.
Hence, the petition is dismissed.
A Motion for Reconsideration22 was filed by petitioner, but was denied for
lack of merit by the Court of Appeals in its Resolution23 dated 22 August
2000.
Undeterred, petitioner filed the instant petition under Rule 45 of the 1997
Rules of Civil Procedure, with Urgent Application for a Writ of Preliminary
Injunction and/or Temporary Restraining Order.24
On 13 December 2000, this Court issued a Resolution25 requiring the private
respondents to file their Comment to the Petition, which they did. Petitioner
was required to file its Reply26 thereafter.
Meanwhile, on 17 January 2001, petitioner and the spouses Reynaldo and
Zenaida Anzures executed a Memorandum of Understanding (MOU).27 In
it, it was stipulated that as of said date, the total amount garnished from
petitioner had amounted to ₱1,541,063.85, and so the remaining amount
still sought to be executed was ₱958,936.15.28 Petitioner tendered and paid
the amount of ₱300,000.00 upon signing of the MOU, and the balance of
₱658,936.15 was to be paid in installment at ₱100,000.00 at the end of each
month from February 2001 up to July 2001. At the end of August 2001, the
amount of ₱58,936.00 would have to be paid. This would make the
aggregate amount paid to the private respondents ₱2,500,000.00.29 There
was, however, a proviso in the MOU which states that "this contract shall
not be construed as a waiver or abandonment of the appellate review
pending before the Supreme Court and that it will be subject to all such
interim orders and final outcome of said case."
On 13 August 2001, the instant petition was given due course, and the
parties were obliged to submit their respective Memoranda.30
ISSUES
The petitioner raises the following issues for the resolution of this Court:
Main Issue - WHETHER OR NOT THE COURT OF Appeals committed
reversible error in affirming the 31 march 2000 order of public respondent
judge which allowed execution on the counter-bond issued by the
petitioner.
Corollary Issues – (1) WHETHER OR NOT THE COURT OF APPEALS
CORRECTLY RULED THAT THE ATTACHMENT ON THE PROPERTY OF
VILLALUZ WAS DISCHARGED WITHOUT NEED OF COURT APPROVAL OF
THE COUNTER-BOND POSTED; and (2) WHETHER OR NOT THE COURT OF
APPEALS CORRECTLY RULED THAT THE ATTACHMENT ON THE PROPERTY
OF VILLALUZ WAS DISCHARGED BY THE MERE ACT OF POSTING THE
COUNTER-BOND.
THE COURT’S RULING
Petitioner seeks to escape liability by contending, in the main, that the writ
of attachment which was earlier issued against the real properties of Villaluz
was not discharged. Since the writ was not discharged, then its liability did
not accrue. The alleged failure of this Court in G.R. No. 106214 to approve
the counter-bond and to cause the discharge of the attachment against
Villaluz prevented the happening of a condition upon which the counter-
bond’s issuance was premised, such that petitioner should not be held liable
thereon.31
Petitioner further asserts that the agreement between it and Villaluz is not
a suretyship agreement in the sense that petitioner has become an
additional debtor in relation to private respondents. It is merely waiving its
right of excussion32 that would ordinarily apply to counter-bond
guarantors as originally contemplated in Section 12, Rule 57 of the 1997
Rules.
In their Comment,33 the private respondents assert that the filing of the
counter-bond by Villaluz had already ipso facto discharged the attachment
on the properties and made the petitioner liable on the bond. Upon
acceptance of the premium, there was already an express contract for surety
between Villaluz and petitioner in the amount of ₱2,500,000.00 to answer
for any adverse judgment/decision against Villaluz.
Petitioner filed a Reply34 dated 09 May 2001 to private respondents’
Comment, admitting the binding effect of the bond as between the parties
thereto. What it did not subscribe to was the theory that the attachment
was ipso facto or automatically discharged by the mere filing of the bond in
court. Such theory, according to petitioner, has no foundation. Without an
order of discharge of attachment and approval of the bond, petitioner
submits that its stipulated liability on said bond, premised on their
occurrence, could not possibly arise, for to hold otherwise would be to
trample upon the statutorily guaranteed right of the parties to contractual
autonomy.
Based on the circumstances present in this case, we find no compelling
reason to reverse the ruling of the Court of Appeals.
Over the years, in a number of cases, we have made certain pronouncements
about counter-bonds.
In Tijam v. Sibonghanoy,35 as reiterated in Vanguard Assurance Corp. v.
Court of Appeals,36 we held:
. . . [A]fter the judgment for the plaintiff has become executory and the
execution is ‘returned unsatisfied,’ as in this case, the liability of the bond
automatically attaches and, in failure of the surety to satisfy the judgment
against the defendant despite demand therefore, writ of execution may
issue against the surety to enforce the obligation of the bond.
In Luzon Steel Coporation v. Sia, et al.: 37
. . . [C]ounterbonds posted to obtain the lifting of a writ of attachment is
due to these bonds being security for the payment of any judgment that
the attaching party may obtain; they are thus mere replacements of the
property formerly attached, and just as the latter may be levied upon after
final judgment in the case in order to realize the amount adjudged, so is the
liability of the countersureties ascertainable after the judgment has become
final. . . .
In Imperial Insurance, Inc. v. De Los Angeles,38 we ruled:
. . . Section 17, Rule 57 of the Rules of Court cannot be construed that an
"execution against the debtor be first returned unsatisfied even if the bond
were a solidary one, for a procedural may not amend the substantive law
expressed in the Civil Code, and further would nullify the express stipulation
of the parties that the surety’s obligation should be solidary with that of the
defendant.
In Philippine British Assurance Co., Inc. v. Intermediate Appellate Court,39
we further held that "the counterbond is intended to secure the payment of
‘any judgment’ that the attaching creditor may recover in the action."
Petitioner does not deny that the contract between it and Villaluz is one of
surety. However, it points out that the kind of surety agreement between
them is one that merely waives its right of excussion. This cannot be so. The
counter-bond itself states that the parties jointly and severally bind
themselves to secure the payment of any judgment that the plaintiff may
recover against the defendant in the action. A surety is considered in law as
being the same party as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their liabilities are interwoven as
to be inseparable.40
Suretyship is a contractual relation resulting from an agreement whereby
one person, the surety, engages to be answerable for the debt, default or
miscarriage of another, known as the principal. The surety’s obligation is not
an original and direct one for the performance of his own act, but merely
accessory or collateral to the obligation contracted by the principal.
Nevertheless, although the contract of a surety is in essence secondary only
to a valid principal obligation, his liability to the creditor or promise of the
principal is said to be direct, primary and absolute; in other words, he is
directly and equally bound with the principal. The surety therefore becomes
liable for the debt or duty of another although he possesses no direct or
personal interest over the obligations nor does he receive any benefit
therefrom.41
In view of the nature and purpose of a surety agreement, petitioner, thus, is
barred from disclaiming liability.
Petitioner’s argument that the mere filing of a counter-bond in this case
cannot automatically discharge the attachment without first an order of
discharge and approval of the bond, is lame.
Under the Rules, there are two (2) ways to secure the discharge of an
attachment. First, the party whose property has been attached or a person
appearing on his behalf may post a security. Second, said party may show
that the order of attachment was improperly or irregularly issued.42 The
first applies in the instant case. Section 12, Rule 57,43 provides:
SEC. 12. Discharge of attachment upon giving counter-bond. – After a writ
of attachment has been enforced, the party whose property has been
attached, or the person appearing on his behalf, may move for the discharge
of the attachment wholly or in part on the security given. The court shall,
after due notice and hearing, order the discharge of the attachment if the
movant makes a cash deposit, or files a counter-bond executed to the
attaching party with the clerk of the court where the application is made, in
an amount equal to that fixed by the court in the order of attachment,
exclusive of costs. But if the attachment is sought to be discharged with
respect to a particular property, the counter-bond shall be equal to the
value of that property as determined by the court. In either case, the cash
deposit or the counter-bond shall secure the payment of any judgment that
the attaching party may recover in the action. A notice of the deposit shall
forthwith be served on the attaching party. Upon the discharge of an
attachment in accordance with the provisions of this section, the property
attached, or the proceeds of any sale thereof, shall be delivered to the party
making the deposit or giving the counter-bond, or to the person appearing
on his behalf, the deposit or counter-bond aforesaid standing in place of
the property so released. Should such counter-bond for any reason be
found to be or become insufficient, and the party furnishing the same fail
to file an additional counter-bond, the attaching party may apply for a new
order of attachment.
It should be noted that in G.R. No. 106214, per our Resolution dated 15
January 1997,44 we permitted Villaluz to file a counter-attachment bond.
On 17 February 1997,45 we required the private respondents to comment
on the sufficiency of the counter-bond posted by Villaluz.
It is quite palpable that the necessary steps in the discharge of an
attachment upon giving counter-bond have been taken. To require a
specific order for the discharge of the attachment when this Court, in our
decision in G.R. No. 106214, had already declared that the petitioner is
solidarily bound with Villaluz would be mere surplusage. Thus:
During the pendency of this petition, a counter-attachment bond was filed
by petitioner Villaluz before this Court to discharge the attachment earlier
issued by the trial court. Said bond amounting to P2.5 million was furnished
by Security Pacific Assurance, Corp. which agreed to bind itself "jointly and
severally" with petitioner for "any judgment" that may be recovered by
private respondent against the former.46
We are not unmindful of our ruling in the case of Belisle Investment and
Finance Co., Inc. v. State Investment House, Inc.,47 where we held:
. . . [T]he Court of Appeals correctly ruled that the mere posting of a
counterbond does not automatically discharge the writ of attachment. It is
only after hearing and after the judge has ordered the discharge of the
attachment if a cash deposit is made or a counterbond is executed to the
attaching creditor is filed, that the writ of attachment is properly discharged
under Section 12, Rule 57 of the Rules of Court.
The ruling in Belisle, at first glance, would suggest an error in the assailed
ruling of the Court of Appeals because there was no specific resolution
discharging the attachment and approving the counter-bond. As above-
explained, however, consideration of our decision in G.R. No. 106214 in its
entirety will readily show that this Court has virtually discharged the
attachment after all the parties therein have been heard on the matter.
On this score, we hew to the pertinent ratiocination of the Court of Appeals
as regards the heretofore cited provision of Section 12, Rule 57 of the 1997
Rules of Civil Procedure, on the discharge of attachment upon giving
counter-bond:
. . . The filing of the counter-attachment bond by petitioner Villaluz has
discharged the attachment on the properties and made the petitioner
corporation liable on the counter-attachment bond. This can be gleaned
from the "DEFENDANT’S BOND FOR THE DISSOLUTION OF ATTACHMENT",
which states that Security Pacific Assurance Corporation, as surety, in
consideration of the dissolution of the said attachment jointly and severally,
binds itself with petitioner Villaluz for any judgment that may be recovered
by private respondent Anzures against petitioner Villaluz.
The contract of surety is only between petitioner Villaluz and petitioner
corporation. The petitioner corporation cannot escape liability by stating
that a court approval is needed before it can be made liable. This defense
can only be availed by petitioner corporation against petitioner Villaluz but
not against third persons who are not parties to the contract of surety. The
petitioners hold themselves out as jointly and severally liable without any
conditions in the counter-attachment bond. The petitioner corporation
cannot impose requisites before it can be made liable when the law clearly
does not require such requisites to be fulfilled.48 (Emphases supplied.)
Verily, a judgment must be read in its entirety, and it must be construed as
a whole so as to bring all of its parts into harmony as far as this can be done
by fair and reasonable interpretation and so as to give effect to every word
and part, if possible, and to effectuate the intention and purpose of the
Court, consistent with the provisions of the organic law.49
Insurance companies are prone to invent excuses to avoid their just
obligation.50 It seems that this statement very well fits the instant case.
WHEREFORE, in view of all the foregoing, the Decision and Resolution of
the Court of Appeals dated 16 June 2000 and 22 August 2000, respectively,
are both AFFIRMED. Costs against petitioner.
SO ORDERED.