G.R. No. 93262 December 29, 1991

DAVAO LIGHT & POWER CO., INC., petitioner, vs.THE COURT OF APPEALS, QUEENSLAND HOTEL or MOTEL or QUEENSLAND TOURIST INN, and TEODORICO ADARNA, respondents.

Breva & Breva Law Offices for petitioner.

Goc-Ong & Associates for private respondents.

 

NARVASA, J.:p

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

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

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

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

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

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

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

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

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

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

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

The Appellate Tribunal declared that —

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

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

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

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

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

It is incorrect to theorize that after an action or proceeding has been commenced and jurisdiction over the person of the plaintiff has been vested in the court, but before the acquisition of jurisdiction over the person of the defendant (either by service of summons or his voluntary submission to the court's authority), nothing can be validly done by the plaintiff or the court. It is wrong to assume that the validity of acts done during this period should

be defendant on, or held in suspension until, the actual obtention of jurisdiction over the defendant's person. The obtention by the court of jurisdiction over the person of the defendant is one thing; quite another is the acquisition of jurisdiction over the person of the plaintiff or over the subject-matter or nature of the action, or the res or object hereof.

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

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

summons by publication, 12 the dismissal of the action by the plaintiff on mere notice. 13

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

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

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

commencement of the action if it finds the application otherwise sufficient in form and substance.

In Toledo v. Burgos, 19 this Court ruled that a hearing on a motion or application for preliminary attachment is not generally necessary unless otherwise directed by the Trial Court in its discretion. 20 And in Filinvest Credit Corporation v. Relova, 21 the Court declared that "(n)othing in the Rules of Court makes notice and hearing indispensable and mandatory requisites for the issuance of a writ of attachment." The only pre-requisite is that the Court be satisfied, upon consideration of "the affidavit of the applicant or of some other person who personally knows the facts, that a sufficient cause of action exists, that the case is one of those mentioned in Section 1 . . . (Rule 57), that there is no other sufficient security for the claim sought to be enforced by the action, and that the amount due to the applicant, or the value of the property the possession of which he is entitled to recover, is as much as the sum for which the order (of attachment) is granted above all legal counterclaims." 22 If the court be so satisfied, the "order of attachment shall be granted," 23 and the writ shall issue upon the applicant's posting of "a bond executed to the adverse party in an amount to be fixed by the judge, not exceeding the plaintiffs claim, conditioned that the latter will pay all the costs which may be adjudged to the adverse party and all damages which he may sustain by reason of the attachment, if the court shall finally adjudge that the applicant was not entitled thereto." 24

In Mindanao Savings & Loan Association, Inc. v. Court of Appeals, decided on April 18, 1989, 25 this Court had occasion to emphasize the postulate that no hearing is required on an application for preliminary attachment, with notice to the defendant, for the reason that this "would defeat the objective of the remedy . . . (since the) time which such a hearing would take, could be enough to enable the defendant to abscond or dispose of his property before a writ of attachment issues." As observed

by a former member of this Court, 26 such a procedure would warn absconding debtors-defendants of the commencement of the suit against them and the probable seizure of their properties, and thus give them the advantage of time to hide their assets, leaving the creditor-plaintiff holding the proverbial empty bag; it would place the creditor-applicant in danger of losing any security for a favorable judgment and thus give him only an illusory victory.

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

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

1.0. The submission of a counterbond is an efficacious mode of lifting an attachment already enforced against property, or even of preventing its enforcement altogether.

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

Sec. 12. Discharge of attachment upon giving counterbond. — At any time after an order of attachment has been granted, the party whose property has been attached or the person appearing in his behalf, may, upon reasonable notice to the applicant, apply to the judge who granted the order, or to the judge of the court in which the action is pending, for an order discharging the attachment wholly or in part on the security given . . . in an amount equal to the value of

the property attached as determined by the judge to secure the payment of any judgment that the attaching creditor may recover in the action. . . .

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

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

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

Sec. 13. Discharge of attachment for improper or irregular issuance. — The party whose property has been attached may also, at any time either BEFORE or

AFTER the release of the attached property, or before any attachment shall have been actually levied, upon reasonable notice to the attaching creditor, apply to the judge who granted the order, or to the judge of the court in which the action is pending, for an order to discharge the attachment on the ground that the same was improperly or irregularly issued. If the motion be made on affidavits on the part of the party whose property has been attached, but not otherwise, the attaching creditor may oppose the same by counter-affidavits or other evidence in addition to that on which the attachment was made. . . . (Emphasis supplied)

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

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

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

. . . (W)hen the preliminary attachment is issued upon a ground which is at the same time the applicant's cause of action; e.g., "an action for money or property embezzled or fraudulently misapplied or converted to his own use by a public officer, or an officer of a corporation, or an attorney, factor, broker, agent, or

clerk, in the course of his employment as such, or by any other person in a fiduciary capacity, or for a willful violation of duty." (Sec. 1 [b], Rule 57), or "an action against a party who has been guilty of fraud m contracting the debt or incurring the obligation upon which the action is brought" (Sec. 1 [d], Rule 57), the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of Rule 57 by offering to show the falsity of the factual averments in the plaintiff's application and affidavits on which the writ was based — and consequently that the writ based thereon had been improperly or irregularly issued (SEE Benitez v. I.A.C., 154 SCRA 41) — the reason being that the hearing on such a motion for dissolution of the writ would be tantamount to a trial of the merits of the action. In other words, the merits of the action would be ventilated at a mere hearing of a motion, instead of at the regular trial. Therefore, when the writ of attachment is of this nature, the only way it can be dissolved is by a counterbond (G.B. Inc. v. Sanchez, 98 Phil. 886).

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

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

applicant's entitlement to the attachment, his bond must stand and cannot be with-drawn.

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

It goes without saying that whatever be the acts done by the Court prior to the acquisition of jurisdiction over the person of defendant, as above indicated — issuance of summons, order of attachment and writ of attachment (and/or appointments of guardian ad litem, or grant of authority to the plaintiff to prosecute the suit as a pauper litigant, or amendment of the complaint by the plaintiff as a matter of right without leave of court 30 — and however valid and proper they might otherwise be, these do not and cannot bind and affect the defendant until and unless jurisdiction over his person is eventually obtained by the court, either by service on him of summons or other coercive process or his voluntary submission to the court's authority. Hence, when the sheriff or other proper officer commences implementation of the writ of attachment, it is essential that he serve on the defendant not only a copy of the applicant's affidavit and attachment bond, and of the order of attachment, as explicity required by Section 5 of Rule 57, but also the summons addressed to said defendant as well as a copy of the complaint and order for appointment of guardian ad litem, if any, as also explicity directed by Section 3, Rule 14 of the Rules of Court. Service of all such documents is indispensable not only for the acquisition of jurisdiction over the person of the defendant, but also upon considerations of fairness, to apprise the defendant of the complaint against him, of the issuance of a writ of preliminary attachment and the grounds therefor and thus accord him the opportunity to prevent attachment of his property by the posting of a counterbond in an amount equal to the plaintiff's claim in the complaint pursuant to Section 5 (or Section 12), Rule 57, or dissolving it by causing

dismissal of the complaint itself on any of the grounds set forth in Rule 16, or demonstrating the insufficiency of the applicant's affidavit or bond in accordance with Section 13, Rule 57.

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

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

WHEREFORE, the petition is GRANTED; the challenged decision of the Court of Appeals is hereby REVERSED, and the order and

writ of attachment issued by Hon. Milagros C. Nartatez, Presiding Judge of Branch 8, Regional Trial Court of Davao City in Civil Case No. 19513-89 against Queensland Hotel or Motel or Queensland Tourist Inn and Teodorico Adarna are hereby REINSTATED. Costs against private respondents.

SO ORDERED.

Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea, Regalado and Romero, JJ., concur.

Fernan, C.J., is on leave.

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

 

# Footnotes

1 Jorge S. Imperial, J., ponente; Reynato J. Puno and Artemon Luna, JJ., concurring.

2 Branch 8, presided over by Hon. Milagros C. Nartatez.

3 G.R. No. 84034, Dec. 22, 1988, 168 SCRA 692 (1988).

4 Sec. 6, Rule 2, Rules of Court.

N.B. The action is not deemed commenced, however, and will not be deemed to interrupt the running of the period of prescription, unless and until the docket and other court fees are fully paid. SEE Manchester Development Corporation v. Court of Appeals, 149 SCRA 562 (1987); Sun Insurance Office, Ltd., et al. v. Asuncion, et al., G.R. No. 79937-38, Feb. 13, 1989; Tacay v. Regional Trial Court of Tagum, G.R. No. 88075-77, Dec. 20, 1989; Ayala Corporation, et al. v. Madayag, G.R. No. 88421, Jan. 30, 1990; Hodges v. Court of Appeals, G.R. No. 87617, April 6, 1990; SEE also Lacson v. Luis Reyes, etc., G.R. No. 86250, Feb.

26, 1990; Sapugay v. Court of Appeals, G.R. No. 86791, March 21, 1990.

5 Moran, Comments on the Rules, 1979 ed. Vol. 1, p. 54, citing Caluag v. Pecson, 82 Phil. 8; Francisco, The Revised Rules of Court, 1973 ed., Vol. 1, p. 120; Feria, Civil Procedure, 1969 ed., pp. 17-18.

6 Defined as the power to hear and determine cases of the general class to which the proceedings in question belong **, conferred by the sovereign authority which organizes the court and defines its powers. Francisco, The Revised Rules of Court, 1973 ed., Vol. I, p. 117, citing Reyes v. Diaz, 73 Phil. 484, 486.

7 Feria, op cit., p. 19, citing Manila Railroad Co. v. Attorney General, 20 Phil. 523, King Mau Wu v. Sycip, 94 Phil. 784, and 21 C.J.S., 122; Moran, op cit., p. 55, citing M.R.R. Co. v. Attorney-General, 20 Phil. 523 (in turn citing Ayers v. Watson, 133 U.S. 594), and Toledano v. Severino, 78 Phil. 783; Francisco, op cit., p. 125 citing, additionally, 21 C.J.S., 122.

8 Feria, op cit., p. 20, citing 21 C.J.S., 123; Pennoyer v. Neff, 95 U.S. 714, Banco Español-Filipino v. Palanca, 37 Phil. 921, and Perkins v. Dizon, 69 Phil. 186; Moran, op cit., citing Banco Español-Filipino v. Palanca, 37 Phil. 921, Infante v. Toledo, 44 Phil. 834, and Nilo v. Romero, L-15195, March 29, 1961; Francisco, op cit., p. 126; citing Sharruf v. Bubla, et al., No. L-17029, Sept. 30, 1964.

9 Sec. 5, Rule 3.

10 Sec. 22, Rule 3.

11 Sec. 2, Rule 10.

12 Sec. 16 or 17, Rule 14.

13 Sec. 1, Rule 17.

14 Rules 57, 58, 59 and 60, respectively; SEE footnote 29, infra.

15 Sec. 1, Rule 57, Rules of Court. Another definition, given in 4 Words and Phrases 727 (1940), citing cases, is that it is "a provisional remedy, auxiliary or incidental to the main action, whereby the debtor's property capable of being taken under levy and execution is placed under custody of the law pending the determination of the cause, to secure the payment of any judgment that may be recovered therein."

16 SEE Salas v. Adil, 90 SCRA 125, cited in Sievert v. C.A., 168 SCRA 698.

17 Sec. 1.

18 SEE footnote 6, supra.

19 168 SCRA 513 (Dec. 19, 1988). In this case, this Court ultimately ruled that the application for preliminary attachment ex parte should have been denied because the fundamental requisites under Rule 57, Section 1 did not exist, and not because ex parte applications are per se illegal.

20 La Granja, Inc. v. Samson, 58 Phil. 378, 380.

21 117 SCRA 420, 428-429, cited in Francisco, op cit., 1985 ed., "Provisional Remedies," pp. 31-32.

22 Sec. 3, Rule 57.

23 Id., SEE Central Capiz v. Salas, 43 Phil. 930, 931.

24 Sec. 4, Rule 57.

25 172 SCRA 480, 484 (April 18, 1989), per Griño-Aquino, J., citing Belisle Investment & Finance Co., Inc. v. State Investment House, Inc. 72927, June 30, 1987; Filinvest Credit Corp. v. Relova, 117 SCRA 420).

26 Hon. Abraham F. Sarmiento, who retired on October 9, 1991.

27 172 SCRA 480, 488.

28 At pp. 488-489.

29 (1) Sec. 5, Rule 58 declares that while, generally, "No preliminary injunction shall appear be granted without notice to the defendant," nevertheless, "If it shall appear from the facts shown by affidavits or by the verified complaint that great or irreparable injury would result to the applicant before the matter can be heard on notice, the judge to whom the application for preliminary injunction was made, may issue a restaining order to be effective only for a period of twenty days from date of its issuance. . . .

(2) Sec. 3, Rule 59 provides that, "if a receiver be appointed upon an ex parte application, the court, before making the order, may require the person applying for such appointment to file a bond executed to the party against whom the application is presented in an amount to be fixed by the court to the effect that the applicant will pay such party all damages he may sustain by reason of the appointment of such receiver in case the applicant shall have procured such appointment without sufficient cause . . .

(3) And Rule 60 provides that "Whenever the complaint in an action prays for the recovery of possession of personal property, the plaintiff may, at the commencement of action or at any time before answer, apply for an order for the delivery of such property to him . . ." (Sec. 1); and upon compliance by the plaintiff with the prescribed requisites (affidavit and bond [Sec. 2]), the judge . . . shall issue an order describing the property alleged to be wrongfully detained, and requiring the sheriff or other proper officer . . . forthwith to take such property into his custody" (Sec. 3).

30 SEE footnotes 9 to 13, supra.

31 168 SCRA 692 (1988).

32 G.R. No. 96784, Aug. 2, 1991.

the purpose of PI … the same provision, where thew defendant …. deem sufficient

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-29630 July 2, 1981

PHILIPPINE COMMERCIAL & INDUSTRIAL BANK, plaintiff-appellant, vs.PHILNABANK EMPLOYEES' ASSOCIATION, ROMEO G. ROY, DALUYONG GABRIEL, BAYANI A. BAUTISTA, DOMINGO VILLANUEVA, ALEJANDRO RICARDO, JESUS MANAHAN, MANUEL JACINTO, ERNESTO BATAC, LEONIDO CASPE PATRICIA GRANADOS and PANTALEON BERNARDO, defendants-appellees.

 

FERNANDO, C.J.:

There is a unique aspect to this action for libel against the Philippine National Bank Employees' Association. 1 It was filed by plaintiff Philippine Commercial and Industrial Bank as a result of placards and signboards along the Philippine National Bank building in Escolta, Manila, containing the following: "PCIB BAD ACCOUNTS TRANSFERRED TO PNB-NIDC?" Plaintiff considered the above "defamatory and libelous per se for at the very least [it] amounts to an "act tending to cause dishonor, discredit, or contempt of a juridical person." 2 The allegation of its being libelous was denied by defendants on the ground that such placards "containing the alleged writing were displayed during the strike on April 3 and April 4,1967 as a fair, legal labor strategy denouncing the lack of business foresight, incompetence, mismanagement, arbitrary and despotic acts of the Management to heed the legal and legitimate demands of the defendants, as a striking union, and against whom a strike was declared against the management of the Philippine National Bank" 3 and that moreover, "defendants, during the strike on April 3 to April 4, 1967, against the management of the Philippine National Bank, were only moved by good intention and justifiable motives and did not intend to injure any party not connected with the strike;" 4

constituting part "of their legal and fair labor strategy to enforce their demands" and to bolster their imputation of incompetence and arbitrariness of the Philippine National Bank management. 5

The lower court sustained such a defense and dismissed the complaint. Hence this appeal.

The decision of the then Judge Conrado Vasquez was to dismiss the complaint. He could not discern any libelous imputation in the alleged offending words. Such a ruling finds additional support in the sympathetic approach followed by courts to inaccuracies and imprecision in language in the use of placards as part of peaceful picketing in labor controversies.

The facts as found by the lower court, admitted by plaintiff-appellant as correct, follow: "On April 3, 1967, defendant Philnabank Employees' Association (PEMA), a labor organization composed of the rank and file employees of the Philippine National Bank, declared a strike. During the said strike, which lasted up to the following day, members of the (PEMA) paraded and displayed placards in front of the PNB building at Escolta, Manila, one of which contained the following words: "PCIB BAD ACCOUNTS TRANSFERRED TO PNB-NIDC?" It is an admitted fact that PCIB stands for plaintiff Philippine Commercial and Industrial Bank, while PNB refers to Philippine National Bank, and NIDC stands for National Investment Development Corporation, a subsidiary of the PNB." 6 To prove its claim for the recovery of damages both actual and exemplary, as well as for attorney's fees, plaintiff-appellant, as noted in the appealed decision, contended "that the writing on the placard in question is a baseless and malicious aspersion that the plaintiff was a party to a fraud, in that it was able to recoup on bad debts or other uncollected accounts by fraudulent, questionable and immoral transfer thereof to the PNB or NIDC. 7 Malice was likewise at- tributed to defendant labor union and its officers. Then the decision went on to state: "Plaintiff presented evidence to show that it is the largest 100% Filipino commercial bank in the Philippines; that at the time of the filing of the complaint, it had twenty-seven (27) branches all over the country and with foreign correspondent banks throughout the world; that the assets of the plaintiff amounted to P333,417,445.05 and it handles a quarterly volume of business amounting to P110,000,000.00; that it has several big companies among its clients; and that it has a reputation for honesty, reliability and trustworthiness, and has enjoyed domestic and international prominence and goodwill." 8

On that point, the lower court ruled: "The plaintiff has also miserably failed to prove any damage caused to it by the supposed libelous placard subject matter of this action. Plaintiff has admitted that its twenty-seven branches at the time of the

filing of the complaint (May 6, 1967) increased to twenty-nine branches in August of 1967. The defendants have shown that the number further increased to thirty-three branches as of September, 1967. Plaintiff's networth likewise increased from P46,000,000.00 in March, 1967 to P53,000,000.00 in August, 1967. Although plaintiff's witness Jovino Valenzuela testified that. after the display of the questioned placard, the deposits of the plaintiff bank decreased, no record was presented to sustain this claim, which is even inconsistent with the admission of the same witness that the Bank's networth increased since that time and has continued to increase up to the time he testified. The same thing is true with the testimony of plaintiff's witness Edmundo Ledesma to the effect that due to the placard in question his confidence in the plaintiff was shaken, thereby causing him to deposit P50,000.00 with other banks instead of with the PCIB. He admmitted moreover that, as an exporter, it was safer to be opening accounts in several banks instead of in only one." 9

As noted earlier, the decision must be affirmed.

1. The brief presented by the San Juan, Africa, Gonzales and San Agustin Law Offices is noted for its exhaustive and scholarly discussion of the law on libel relying on both the Philippine and American authorities. If the matter were viewed solely from what appeared in the placard, there is an element of plausibility in the assertion that while it was aimed at the Philippine National Bank, the way it was worded could reflect on a stranger to the controversy, plaintiff Philippine Commercial and Industrial Bank. It is understandable if there were an affront to the sensibilities of its officials, They were right to guard its reputation earned after many years of laudable and creditable performance in the field of banking. It is, however, precisely because of its well-deserved reputation that what could at first glance be for the most fastidious hurtful to its prestige could, if viewed with calmness and objectivity, be considered, as it was characterized in the appealed decision, as lacking in "libelous imputation. "

2. There is, as already indicated, another reinforcement to such a mode of appraising the matter. There was a labor controversy resulting in a strike, fortunately lasting only for one day. The labor union made use of its constitutional right to picket. From the time of Mortera v. Court of Industrial Relations, a 1947 decision, 10 this Court has been committed to the view that peaceful picketing is part of the freedom of speech guarantee of the Constitution. The latest case in point where such a principle was reaffirmed expressly is Associated Labor Union v. Gomez, 11 a 1980 decision. There is no mention of the other placards but it is not unlikely that to bolster its claim, mention was likewise made and in bold letters at that of such alleged failing of its management. That was the aim and intent as found by the lower court. That could not very well be disputed by plaintiff-appellant. Unfortunately, the offending imputation, but in the form of a question, was included. It was due to a former official of plaintiff-appellant's bank who was thereafter named as President of the Philippine National Bank. Should there be an automatic attitude of condemnation for such incident? If the realistic observation of Justice Frankfurter in Milk Wagon Drivers Union of Chicago v. Meadowmoor Dairies 12 be heeded that labor disputes give rise to strong emotional response, then the decision reached by the lower court becomes even more acceptable. It is a fact of industrial life, both in the Philippines as in the United States, that in the continuing confrontation between labor and management, it is far from likely that the language employed would be both courteous and polite. Such being the case. there is no affront either to reason or to the law in the complaint for libel being dismissed. In pricing reliance on the constitutional right of freedom of expression, 13 this Court once again makes manifest its adherence to the principle first announced by Justice Malcolm as ponente in the leading case of United States v. Bustos. 14 In no uncertain terms, it made clear that the judiciary, in deciding suits for libel, must ascertain whether or not the alleged offending words may be embraced by the guarantees of free speech and

free press. It cannot he too often said that Bustos was promulgated as far back as March 8, 1918. A doctrine analogous in character was enunciated by the United States Supreme Court only thirty-six years later in New York Times Co. v. Sullivan. 15

WHEREFORE, the appealed decision is affirmed. No costs.

Barredo, Aquino, Abad Santos and De Castro, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 155868             February 6, 2007

SPOUSES GREGORIO and JOSEFA YU, Petitioners, vs.NGO YET TE, doing business under the name and style, ESSENTIAL MANUFACTURING, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the March 21, 2001 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 522462 and its October 14, 2002 Resolution.3

The antecedent facts are not disputed.

Spouses Gregorio and Josefa Yu (Spouses Yu) purchased from Ngo Yet Te (Te) bars of detergent soap worth P594,240.00, and issued to the latter three postdated checks 4 as payment of the purchase price. When Te presented the checks at maturity for encashment, said checks were returned dishonored and stamped "ACCOUNT CLOSED".5 Te demanded6 payment from Spouses Yu but the latter did not heed her

demands. Acting through her son and attorney-in-fact, Charry Sy (Sy), Te filed with the Regional Trial Court (RTC), Branch 75, Valenzuela, Metro Manila, a Complaint,7 docketed as Civil Case No. 4061-V-93, for Collection of Sum of Money and Damages with Prayer for Preliminary Attachment.

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

Upon Te’s posting of an attachment bond,9 the RTC issued an Order of Attachment/Levy10 dated March 29, 1993 on the basis of which Sheriff Constancio Alimurung (Sheriff Alimurung) of RTC, Branch 19, Cebu City levied and attached Spouses Yu’s properties in Cebu City consisting of one parcel of land (known as Lot No. 11)11 and four units of motor vehicle, specifically, a Toyota Ford Fierra, a jeep, a Canter delivery van, and a passenger bus.12

On April 21, 1993, Spouses Yu filed an Answer13 with counterclaim for damages arising from the wrongful attachment of their properties, specifically, actual damages amounting to P1,500.00 per day; moral damages, P1,000,000.00; and exemplary damages, P50,000.00. They also sought payment of P120,000.00 as attorney’s fees and P80,000.00 as litigation expenses.14 On the same date, Spouses Yu filed an Urgent Motion to Dissolve Writ of Preliminary Attachment.15 They also filed a Claim Against Surety Bond16 in which they demanded payment from Visayan Surety and Insurance Corporation (Visayan Surety), the surety which issued the attachment bond, of the sum of P594,240.00, representing the damages they allegedly sustained as a consequence of the wrongful attachment of their properties.

While the RTC did not resolve the Claim Against Surety Bond, it issued an Order17 dated May 3, 1993, discharging from attachment the Toyota Ford Fierra, jeep, and Canter delivery van on humanitarian grounds, but

maintaining custody of Lot No. 11 and the passenger bus. Spouses Yu filed a Motion for Reconsideration18 which the RTC denied.19

Dissatisfied, they filed with the CA a Petition for Certiorari,20 docketed as CA-G.R. SP No. 31230, in which a Decision21 was rendered on September 14, 1993, lifting the RTC Order of Attachment on their remaining properties. It reads in part:

In the case before Us, the complaint and the accompanying affidavit in support of the application for the writ only contains general averments. Neither pleading states in particular how the fraud was committed or the badges of fraud purportedly committed by the petitioners to establish that the latter never had an intention to pay the obligation; neither is there a statement of the particular acts committed to show that the petitioners are in fact disposing of their properties to defraud creditors. x x x.

x x x x

Moreover, at the hearing on the motion to discharge the order of attachment x x x petitioners presented evidence showing that private respondent has been extending multi-million peso credit facilities to the petitioners for the past seven years and that the latter have consistently settled their obligations. This was not denied by private respondent. Neither does the private respondent contest the petitioners’ allegations that they have been recently robbed of properties of substantial value, hence their inability to pay on time. By the respondent court’s own pronouncements, it appears that the order of attachment was upheld because of the admitted financial reverses the petitioner is undergoing.

This is reversible error. Insolvency is not a ground for attachment especially when defendant has not been shown to have committed any act intended to defraud its creditors x x x.

For lack of factual basis to justify its issuance, the writ of preliminary attachment issued by the respondent court was improvidently issued and should be discharged.22

From said CA Decision, Te filed a Motion for Reconsideration but to no avail.23

Te filed with us a Petition for Review on Certiorari24 but we denied the same in a Resolution dated June 8, 1994 for having been filed late and for failure to show that a reversible error was committed by the CA.25

Entry of Judgment of our June 8, 1994 Resolution was made on July 22, 1994.26 Thus, the finding of the CA in its September 14, 1993 Decision in CA-G.R. SP No. 31230 on the wrongfulness of the attachment/levy of the properties of Spouses Yu became conclusive and binding.

However, on July 20, 1994, the RTC, apparently not informed of the SC Decision, rendered a Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the Court finds that the plaintiff has established a valid civil cause of action against the defendants, and therefore, renders this judgment in favor of the plaintiff and against the defendants, and hereby orders the following:

1) Defendants are hereby ordered or directed to pay the plaintiff the sum of P549,404.00, with interest from the date of the filing of this case (March 3, 1993);

2) The Court, for reasons aforestated, hereby denies the grant of damages to the plaintiff;

3) The Court hereby adjudicates a reasonable attorney’s fees and litigation expenses of P10,000.00 in favor of the plaintiff;

4) On the counterclaim, this Court declines to rule on this, considering that the question of the attachment which allegedly gave rise to the damages incurred by the defendants is being determined by the Supreme Court.

SO ORDERED.27 (Emphasis ours)

Spouses Yu filed with the RTC a Motion for Reconsideration28

questioning the disposition of their counterclaim. They also filed a Manifestation29 informing the RTC of our June 8, 1994 Resolution in G.R. No. 114700.

The RTC issued an Order dated August 9, 1994, which read:

x x x x

(2) With regard the counter claim filed by the defendants against the plaintiff for the alleged improvident issuance of this Court thru its former Presiding Judge (Honorable Emilio Leachon, Jr.), the same has been ruled with definiteness by the Supreme Court that, indeed, the issuance by the Court of the writ of preliminary attachment appears to have been improvidently done, but nowhere in the decision of the Supreme Court and for that matter, the Court of Appeal’s decision which was in effect sustained by the High Court, contains any ruling or directive or imposition, of any damages to be paid by the plaintiff to the defendants, in other words, both the High Court and the CA, merely declared the previous issuance of the writ of attachment by this Court thru its former presiding judge to be improvidently issued, but it did not award any damages of any kind to the defendants, hence, unless the High Court or the CA rules on this, this Court coud not grant any damages by virtue of the improvident attachment made by this Court thru its former presiding judge, which was claimed by the defendants in their counter claim.

(3) This Court hereby reiterates in toto its Decision in this case dated July 20, 1994. 30 (Emphasis ours)

The RTC also issued an Order dated December 2, 1994,31 denying the Motion for Reconsideration of Spouses Yu.32

In the same December 2, 1994 Order, the RTC granted two motions filed by Te, a Motion to Correct and to Include Specific Amount for Interest and a Motion for Execution Pending Appeal.33 The RTC also denied Spouses Yu’s Notice of Appeal34 from the July 20, 1994 Decision and August 9, 1994 Order of the RTC.

From said December 2, 1994 RTC Order, Spouses Yu filed another Notice of Appeal 35 which the RTC also denied in an Order36 dated January 5, 1995.

Spouses Yu filed with the CA a Petition37 for Certiorari, Prohibition and Mandamus, docketed as CA-G.R. SP No. 36205, questioning the denial of their Notices of Appeal; and seeking the modification of the July 20, 1994 Decision and the issuance of a Writ of Execution. The CA granted the Petition in a Decision38 dated June 22, 1995.

Hence, Spouses Yu filed with the CA an appeal39 docketed as CA-G.R. CV No. 52246, questioning only that portion of the July 20, 1994 Decision where the RTC declined to rule on their counterclaim for damages.40 However, Spouses Yu did not dispute the specific monetary awards granted to respondent Te; and therefore, the same have become final and executory.

Although in the herein assailed Decision41 dated March 21, 2001, the CA affirmed in toto the RTC Decision, it nonetheless made a ruling on the counterclaim of Spouses Yu by declaring that the latter had failed to adduce sufficient evidence of their entitlement to damages.

Spouses Yu filed a Motion for Reconsideration42 but the CA denied it in the herein assailed Resolution43 dated October 14, 2002.

Spouses Yu filed the present Petition raising the following issues:

I. Whether or not the appellate court erred in not holding that the writ of attachment was procured in bad faith, after it was established by final judgment that there was no true ground therefor.

II. Whether or not the appellate court erred in refusing to award actual, moral and exemplary damages after it was established by final judgment that the writ of attachment was procured with no true ground for its issuance.44

There is one preliminary matter to set straight before we resolve the foregoing issues.

According to respondent Te,45 regardless of the evidence presented by Spouses Yu, their counterclaim was correctly dismissed for failure to comply with the procedure laid down in Section 20 of Rule 57. Te contends that as Visayan Surety was not notified of the counterclaim, no judgment thereon could be validly rendered.

Such argument is not only flawed, it is also specious.

As stated earlier, Spouses Yu filed a Claim Against Surety Bond on the same day they filed their Answer and Urgent Motion to Dissolve Writ of Preliminary Attachment.46 Further, the records reveal that on June 18, 1993, Spouses Yu filed with the RTC a Motion to Give Notice to Surety.47 The RTC granted the Motion in an Order48 dated June 23, 1993. Accordingly, Visayan Surety was notified of the pre-trial conference to apprise it of a pending claim against its attachment bond. Visayan Surety received the notice on July 12, 1993 as shown by a registry return receipt attached to the records.49

Moreover, even if it were true that Visayan Surety was left in the proceedings a quo, such omission is not fatal to the cause of Spouses Yu. In Malayan Insurance Company, Inc. v. Salas,50 we held that "x x x if the surety was not given notice when the claim for damages against the principal in the replevin bond was heard, then as a matter of procedural due process the surety is entitled to be heard when the judgment for damages against the principal is sought to be enforced against the surety’s replevin bond."51 This remedy is applicable for the procedures governing claims for damages

on an attachment bond and on a replevin bond are the same.52

We now proceed to resolve the issues jointly.

Spouses Yu contend that they are entitled to their counterclaim for damages as a matter of right in view of the finality of our June 8, 1994 Resolution in G.R. No. 114700 which affirmed the finding of the CA in its September 14, 1993 Decision in CA-G.R. SP No. 31230 that respondent Te had wrongfully caused the attachment of their properties. Citing Javellana v. D.O. Plaza Enterprises, Inc.,53 they argue that they should be awarded damages based solely on the CA finding that the attachment was illegal for it already suggests that Te acted with malice when she applied for attachment. And even if we were to assume that Te did not act with malice, still she should be held liable for the aggravation she inflicted when she applied for attachment even when she was clearly not entitled to it.54

That is a rather limited understanding of Javellana. The counterclaim disputed therein was not for moral damages and therefore, there was no need to prove malice. As early as in Lazatin v. Twaño,55 we laid down the rule that where there is wrongful attachment, the attachment defendant may recover actual damages even without proof that the attachment plaintiff acted in bad faith in obtaining the attachment. However, if it is alleged and established that the attachment was not merely wrongful but also malicious, the attachment defendant may recover moral damages and exemplary damages as well. 56 Either way, the wrongfulness of the attachment does not warrant the automatic award of damages to the attachment defendant; the latter must first discharge the burden of proving the nature and extent of the loss or injury incurred by reason of the wrongful attachment.57

In fine, the CA finding that the attachment of the properties of Spouses Yu was wrongful did not relieve Spouses Yu of the burden of proving the factual basis of their counterclaim for damages.

To merit an award of actual damages arising from a wrongful attachment, the attachment defendant must prove, with the best evidence obtainable, the fact of loss or injury suffered and the amount thereof.58

Such loss or injury must be of the kind which is not only capable of proof but must actually be proved with a reasonable degree of certainty. As to its amount, the same must be measurable based on specific facts, and not on guesswork or speculation. 59 In particular, if the claim for actual damages covers unrealized profits, the amount of unrealized profits must be estalished and supported by independent evidence of the mean income of the business undertaking interrupted by the illegal seizure. 60

Spouses Yu insist that the evidence they presented met the foregoing standards. They point to the lists of their daily net income from the operation of said passenger bus based on used ticket stubs61 issued to their passengers. They also cite unused ticket stubs as proof of income foregone when the bus was wrongfully seized.62 They further cite the unrebutted testimony of Josefa Yu that, in the day-to-day operation of

their passenger bus, they use up at least three ticket stubs and earn a minimum daily income of P1,500.00.63

In ruling that Spouses Yu failed to adduce sufficient evidence to support their counterclaim for actual damages, the CA stated, thus:

In this case, the actual damages cannot be determined. Defendant-appellant Josefa Yu testified on supposed lost profits without clear and appreciable explanation. Despite her submission of the used and unused ticket stubs, there was no evidence on the daily net income, the routes plied by the bus and the average fares for each route. The submitted basis is too speculative and conjectural. No reports regarding the average actual profits and other evidence of profitability necessary to prove the amount of actual damages were presented. Thus, the Court a quo did not err in not awarding damages in favor of defendants-appellants.64

We usually defer to the expertise of the CA, especially when it concurs with the factual findings of the RTC.65 Indeed, findings of fact may be passed upon and reviewed by the Supreme Court in the following instances: (1) when the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) where there is a grave abuse of discretion in the appreciation of facts; (4) when judgment is based on a misapprehension of facts; (5) when the lower court, in making its findings, went beyond the issues of the case and such findings are contrary to the admissions of both appellant and appellee; (6) when the factual findings of the CA are contrary to those of the trial court; (7) when the findings of fact are themselves conflicting; (8) when the findings of fact are conclusions made without a citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondents; (10) when the findings of fact of the lower court are premised on the supposed absence of evidence and are contradicted by the evidence on record.66 However, the present case does not fall under any of the exceptions. We are in full accord with the CA that Spouses Yu failed to prove their counterclaim.

Spouses Yu’s claim for unrealized income of P1,500.00 per day was based on their computation of their average daily income for the year 1992. Said computation in turn is based on the value of three ticket stubs sold over only five separate days in 1992.67 By no stretch of the imagination can we consider ticket sales for five days sufficient evidence of the average daily income of the passenger bus, much less its mean income. Not even the unrebutted testimony of Josefa Yu can add credence to such evidence for the testimony itself lacks corroboration.68

Besides, based on the August 29, 1994 Manifestation69 filed by Sheriff Alimurung, it would appear that long before the passenger bus was placed under preliminary attachment in Civil Case No. 4061-V-93, the same had been previously attached by the Sheriff of Mandaue City in connection with another case and that it was placed in the Cebu Bonded Warehousing Corporation, Cebu City. Thus, Spouses Yu cannot complain that they were unreasonably deprived of the use of the passenger bus by reason of the subsequent wrongful attachment issued in Civil Case No. 4061-V-93. Nor can they also attribute to the wrongful attachment their failure to earn income or profit from the operation of the passenger bus.

Moreover, petitioners did not present evidence as to the damages they suffered by reason of the wrongful attachment of Lot No. 11.

Nonetheless, we recognize that Spouses Yu suffered some form of pecuniary loss when their properties were wrongfully seized, although the amount thereof cannot be definitively ascertained. Hence, an award of temperate or moderate damages in the amount of P50,000.00 is in order.70

As to moral and exemplary damages, to merit an award thereof, it must be shown that the wrongful attachment was obtained by the attachment plaintiff with malice or bad faith, such as by appending a false affidavit to his application.71

Spouses Yu argue that malice attended the issuance of the attachment bond as shown by the fact that Te deliberately appended to her application for preliminary attachment an Affidavit where Sy perjured

himself by stating that they had no intention to pay their obligations even when he knew this to be untrue given that they had always paid their obligations; and by accusing them of disposing of their properties to defraud their creditors even when he knew this to be false, considering that the location of said properties was known to him.72

The testimony of petitioner Josefa Yu herself negates their claim for moral and exemplary damages. On cross-examination she testified, thus:

Q: Did you ever deposit any amount at that time to fund the check?

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

COURT: Did you fund it or not?

Atty. Ferrer: The three checks involved?

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

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

A: We closed account with the bank because we transferred the account to another bank.

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

A: I don’t know how much was there but we transferred already to the Solid Bank.

Q: Who transferred?

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

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

As a rule, attorney’s fees cannot be awarded when moral and exemplary damages are not granted, the exception however is when a party incurred expenses to lift a wrongfully issued writ of attachment.1awphi1.net74

Without a doubt, Spouses Yu waged a protracted legal battle to fight off the illegal attachment of their properties and pursue their claims for damages. It is only just and equitable that they be awarded reasonable attorney’s fees in the amount of P30,000.00.

In sum, we affirm the dismissal of the counterclaim of petitioners Spouses Yu for actual, moral, and exemplary damages. However, we grant them temperate damages and attorney’s fees.

WHEREFORE, the petition is partly GRANTED. The March 21, 2001 Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that petitioners’ counterclaim is PARTLY GRANTED. Gregorio Yu and Josefa Yu are awarded P50,000.00 temperate damages and P30,000.00 attorney’s fees.

No costs.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 124642             February 23, 2004

ALFREDO CHING and ENCARNACION CHING, petitioners vs.THE HON. COURT OF APPEALS and ALLIED BANKING CORPORATION, respondents.

D E C I S I O N

CALLEJO, SR., J.:

This petition for review, under Rule 45 of the Revised Rules of Court, assails the Decision1 of the Court of Appeals (CA) dated November 27, 1995 in CA-G.R. SP No. 33585, as well as the Resolution2 on April 2, 1996 denying the petitioners’ motion for reconsideration. The impugned decision granted the private respondent’s petition for certiorari and set aside the Orders of the trial court dated December 15, 19933 and February 17, 19944 nullifying the attachment of 100,000 shares of stocks of the Citycorp Investment Philippines under the name of petitioner Alfredo Ching.

The following facts are undisputed:

On September 26, 1978, the Philippine Blooming Mills Company, Inc. (PBMCI) obtained a loan of P9,000,000.00 from the Allied Banking Corporation (ABC). By virtue of this loan, the PBMCI, through its Executive Vice-President Alfredo Ching, executed a promissory note for the said amount promising to pay on December 22, 1978 at an interest rate of 14% per annum.5 As added security for the said loan, on September 28, 1978, Alfredo Ching, together with Emilio Tañedo and Chung Kiat Hua, executed a continuing guaranty with the ABC binding themselves to jointly and severally guarantee the payment of all the PBMCI obligations owing the ABC to the extent of P38,000,000.00.6

The loan was subsequently renewed on various dates, the last renewal having been made on December 4, 1980.7

Earlier, on December 28, 1979, the ABC extended another loan to the PBMCI in the amount of P13,000,000.00 payable in eighteen months at 16% interest per annum. As in the previous loan, the PBMCI, through Alfredo Ching, executed a promissory note to evidence the loan maturing on June 29, 1981.8 This was renewed once for a period of one month.9

The PBMCI defaulted in the payment of all its loans. Hence, on August 21, 1981, the ABC filed a complaint for sum of money with prayer for a writ of preliminary attachment against the PBMCI to collect the P12,612,972.88 exclusive of interests, penalties and other bank charges. Impleaded as co-defendants in the complaint were Alfredo Ching,

Emilio Tañedo and Chung Kiat Hua in their capacity as sureties of the PBMCI.

The case was docketed as Civil Case No. 142729 in the Regional Trial Court of Manila, Branch XVIII.10 In its application for a writ of preliminary attachment, the ABC averred that the "defendants are guilty of fraud in incurring the obligations upon which the present action is brought11 in that they falsely represented themselves to be in a financial position to pay their obligation upon maturity thereof."12 Its supporting affidavit stated, inter alia, that the "[d]efendants have removed or disposed of their properties, or [are] ABOUT to do so, with intent to defraud their creditors."13

On August 26, 1981, after an ex-parte hearing, the trial court issued an Order denying the ABC’s application for a writ of preliminary attachment. The trial court decreed that the grounds alleged in the application and that of its supporting affidavit "are all conclusions of fact and of law" which do not warrant the issuance of the writ prayed for.14 On motion for reconsideration, however, the trial court, in an Order dated September 14, 1981, reconsidered its previous order and granted the ABC’s application for a writ of preliminary attachment on a bond of P12,700,000. The order, in relevant part, stated:

With respect to the second ground relied upon for the grant of the writ of preliminary attachment ex-parte, which is the alleged disposal of properties by the defendants with intent to defraud creditors as provided in Sec. 1(e) of Rule 57 of the Rules of Court, the affidavits can only barely justify the issuance of said writ as against the defendant Alfredo Ching who has allegedly bound himself jointly and severally to pay plaintiff the defendant corporation’s obligation to the plaintiff as a surety thereof.

WHEREFORE, let a writ of preliminary attachment issue as against the defendant Alfredo Ching requiring the sheriff of this Court to attach all the properties of said Alfredo Ching not exceeding P12,612,972.82 in value, which are within the jurisdiction of this Court and not exempt from execution upon, the filing by plaintiff of a bond duly approved by

this Court in the sum of Twelve Million Seven Hundred Thousand Pesos (P12,700,000.00) executed in favor of the defendant Alfredo Ching to secure the payment by plaintiff to him of all the costs which may be adjudged in his favor and all damages he may sustain by reason of the attachment if the court shall finally adjudge that the plaintiff was not entitled thereto.

SO ORDERED.15

Upon the ABC’s posting of the requisite bond, the trial court issued a writ of preliminary attachment. Subsequently, summonses were served on the defendants,16 save Chung Kiat Hua who could not be found.

Meanwhile, on April 1, 1982, the PBMCI and Alfredo Ching jointly filed a petition for suspension of payments with the Securities and Exchange Commission (SEC), docketed as SEC Case No. 2250, at the same time seeking the PBMCI’s rehabilitation.17

On July 9, 1982, the SEC issued an Order placing the PBMCI’s business, including its assets and liabilities, under rehabilitation receivership, and ordered that "all actions for claims listed in Schedule "A" of the petition pending before any court or tribunal are hereby suspended in whatever stage the same may be until further orders from the Commission."18 The ABC was among the PBMCI’s creditors named in the said schedule.

Subsequently, on January 31, 1983, the PBMCI and Alfredo Ching jointly filed a Motion to Dismiss and/or motion to suspend the proceedings in Civil Case No. 142729 invoking the PBMCI’s pending application for suspension of payments (which Ching co-signed) and over which the SEC had already assumed jurisdiction.19 On February 4, 1983, the ABC filed its Opposition thereto.20

In the meantime, on July 26, 1983, the deputy sheriff of the trial court levied on attachment the 100,000 common shares of Citycorp stocks in the name of Alfredo Ching.21

Thereafter, in an Order dated September 16, 1983, the trial court partially granted the aforementioned motion by suspending the

proceedings only with respect to the PBMCI. It denied Ching’s motion to dismiss the complaint/or suspend the proceedings and pointed out that P.D. No. 1758 only concerns the activities of corporations, partnerships and associations and was never intended to regulate and/or control activities of individuals. Thus, it directed the individual defendants to file their answers.22

Instead of filing an answer, Ching filed on January 14, 1984 a Motion to Suspend Proceedings on the same ground of the pendency of SEC Case No. 2250. This motion met the opposition from the ABC.23

On January 20, 1984, Tañedo filed his Answer with counterclaim and cross-claim.24 Ching eventually filed his Answer on July 12, 1984.25

On October 25, 1984, long after submitting their answers, Ching filed an Omnibus Motion,26 again praying for the dismissal of the complaint or suspension of the proceedings on the ground of the July 9, 1982 Injunctive Order issued in SEC Case No. 2250. He averred that as a surety of the PBMCI, he must also necessarily benefit from the defenses of his principal. The ABC opposed Ching’s omnibus motion.

Emilio Y. Tañedo, thereafter, filed his own Omnibus Motion27 praying for the dismissal of the complaint, arguing that the ABC had "abandoned and waived" its right to proceed against the continuing guaranty by its act of resorting to preliminary attachment.

On December 17, 1986, the ABC filed a Motion to Reduce the amount of his preliminary attachment bond from P12,700,000 to P6,350,000.28

Alfredo Ching opposed the motion,29 but on April 2, 1987, the court issued an Order setting the incident for further hearing on May 28, 1987 at 8:30 a.m. for the parties to adduce evidence on the actual value of the properties of Alfredo Ching levied on by the sheriff.30

On March 2, 1988, the trial court issued an Order granting the motion of the ABC and rendered the attachment bond of P6,350,000.31

On November 16, 1993, Encarnacion T. Ching, assisted by her husband Alfredo Ching, filed a Motion to Set Aside the levy on attachment. She alleged inter alia that the 100,000 shares of stocks levied on by the

sheriff were acquired by her and her husband during their marriage out of conjugal funds after the Citycorp Investment Philippines was established in 1974. Furthermore, the indebtedness covered by the continuing guaranty/comprehensive suretyship contract executed by petitioner Alfredo Ching for the account of PBMCI did not redound to the benefit of the conjugal partnership. She, likewise, alleged that being the wife of Alfredo Ching, she was a third-party claimant entitled to file a motion for the release of the properties.32 She attached therewith a copy of her marriage contract with Alfredo Ching.33

The ABC filed a comment on the motion to quash preliminary attachment and/or motion to expunge records, contending that:

2.1 The supposed movant, Encarnacion T. Ching, is not a party to this present case; thus, she has no personality to file any motion before this Honorable Court;

2.2 Said supposed movant did not file any Motion for Intervention pursuant to Section 2, Rule 12 of the Rules of Court;

2.3 Said Motion cannot even be construed to be in the nature of a Third-Party Claim conformably with Sec. 14, Rule 57 of the Rules of Court.

3. Furthermore, assuming in gracia argumenti that the supposed movant has the required personality, her Motion cannot be acted upon by this Honorable Court as the above-entitled case is still in the archives and the proceedings thereon still remains suspended. And there is no previous Motion to revive the same.34

The ABC also alleged that the motion was barred by prescription or by laches because the shares of stocks were in custodia legis.

During the hearing of the motion, Encarnacion T. Ching adduced in evidence her marriage contract to Alfredo Ching to prove that they were married on January 8, 1960;35 the articles of incorporation of Citycorp Investment Philippines dated May 14, 1979;36 and, the General Information Sheet of the corporation showing that petitioner Alfredo

Ching was a member of the Board of Directors of the said corporation and was one of its top twenty stockholders.

On December 10, 1993, the Spouses Ching filed their Reply/Opposition to the motion to expunge records.

Acting on the aforementioned motion, the trial court issued on December 15, 1993 an Order37 lifting the writ of preliminary attachment on the shares of stocks and ordering the sheriff to return the said stocks to the petitioners. The dispositive portion reads:

WHEREFORE, the instant Motion to Quash Preliminary Attachment, dated November 9, 1993, is hereby granted. Let the writ of preliminary attachment subject matter of said motion, be quashed and lifted with respect to the attached 100,000 common shares of stock of Citycorp Investment Philippines in the name of the defendant Alfredo Ching, the said shares of stock to be returned to him and his movant-spouse by Deputy Sheriff Apolonio A. Golfo who effected the levy thereon on July 26, 1983, or by whoever may be presently in possession thereof.

SO ORDERED.38

The plaintiff Allied Banking Corporation filed a motion for the reconsideration of the order but denied the same on February 17, 1994. The petitioner bank forthwith filed a petition for certiorari with the CA, docketed as CA-G.R. SP No. 33585, for the nullification of the said order of the court, contending that:

1. The respondent Judge exceeded his authority thereby acted without jurisdiction in taking cognizance of, and granting a "Motion" filed by a complete stranger to the case.

2. The respondent Judge committed a grave abuse of discretion in lifting the writ of preliminary attachment without any basis in fact and in law, and contrary to established jurisprudence on the matter.39

On November 27, 1995, the CA rendered judgment granting the petition and setting aside the assailed orders of the trial court, thus:

WHEREFORE, premises considered, the petition is GRANTED, hereby setting aside the questioned orders (dated December 15, 1993 and February 17, 1994) for being null and void.

SO ORDERED.40

The CA sustained the contention of the private respondent and set aside the assailed orders. According to the CA, the RTC deprived the private respondent of its right to file a bond under Section 14, Rule 57 of the Rules of Court. The petitioner Encarnacion T. Ching was not a party in the trial court; hence, she had no right of action to have the levy annulled with a motion for that purpose. Her remedy in such case was to file a separate action against the private respondent to nullify the levy on the 100,000 Citycorp shares of stocks. The court stated that even assuming that Encarnacion T. Ching had the right to file the said motion, the same was barred by laches.

Citing Wong v. Intermediate Appellate Court,41 the CA ruled that the presumption in Article 160 of the New Civil Code shall not apply where, as in this case, the petitioner-spouses failed to prove the source of the money used to acquire the shares of stock. It held that the levied shares of stocks belonged to Alfredo Ching, as evidenced by the fact that the said shares were registered in the corporate books of Citycorp solely under his name. Thus, according to the appellate court, the RTC committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed orders. The petitioners’ motion for reconsideration was denied by the CA in a Resolution dated April 2, 1996.

The petitioner-spouses filed the instant petition for review on certiorari, asserting that the RTC did not commit any grave abuse of discretion amounting to excess or lack of jurisdiction in issuing the assailed orders in their favor; hence, the CA erred in reversing the same. They aver that the source of funds in the acquisition of the levied shares of stocks is not the controlling factor when invoking the presumption of the conjugal nature of stocks under Art. 160,42 and that such presumption subsists even if the property is registered only in the name of one of the spouses,

in this case, petitioner Alfredo Ching.43 According to the petitioners, the suretyship obligation was not contracted in the pursuit of the petitioner-husband’s profession or business.44 And, contrary to the ruling of the CA, where conjugal assets are attached in a collection suit on an obligation contracted by the husband, the wife should exhaust her motion to quash in the main case and not file a separate suit.45

Furthermore, the petitioners contend that under Art. 125 of the Family Code, the petitioner-husband’s gratuitous suretyship is null and void ab initio,46 and that the share of one of the spouses in the conjugal partnership remains inchoate until the dissolution and liquidation of the partnership.47

In its comment on the petition, the private respondent asserts that the CA correctly granted its petition for certiorari nullifying the assailed order. It contends that the CA correctly relied on the ruling of this Court in Wong v. Intermediate Appellate Court. Citing Cobb-Perez v. Lantin and G-Tractors, Inc. v. Court of Appeals, the private respondent alleges that the continuing guaranty and suretyship executed by petitioner Alfredo Ching in pursuit of his profession or business. Furthermore, according to the private respondent, the right of the petitioner-wife to a share in the conjugal partnership property is merely inchoate before the dissolution of the partnership; as such, she had no right to file the said motion to quash the levy on attachment of the shares of stocks.

The issues for resolution are as follows: (a) whether the petitioner-wife has the right to file the motion to quash the levy on attachment on the 100,000 shares of stocks in the Citycorp Investment Philippines; (b) whether or not the RTC committed a grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed orders.

On the first issue, we agree with the petitioners that the petitioner-wife had the right to file the said motion, although she was not a party in Civil Case No. 142729.48

In Ong v. Tating,49 we held that the sheriff may attach only those properties of the defendant against whom a writ of attachment has been issued by the court. When the sheriff erroneously levies on attachment

and seizes the property of a third person in which the said defendant holds no right or interest, the superior authority of the court which has authorized the execution may be invoked by the aggrieved third person in the same case. Upon application of the third person, the court shall order a summary hearing for the purpose of determining whether the sheriff has acted rightly or wrongly in the performance of his duties in the execution of the writ of attachment, more specifically if he has indeed levied on attachment and taken hold of property not belonging to the plaintiff. If so, the court may then order the sheriff to release the property from the erroneous levy and to return the same to the third person. In resolving the motion of the third party, the court does not and cannot pass upon the question of the title to the property with any character of finality. It can treat the matter only insofar as may be necessary to decide if the sheriff has acted correctly or not. If the claimant’s proof does not persuade the court of the validity of the title, or right of possession thereto, the claim will be denied by the court. The aggrieved third party may also avail himself of the remedy of "terceria" by executing an affidavit of his title or right of possession over the property levied on attachment and serving the same to the office making the levy and the adverse party. Such party may also file an action to nullify the levy with damages resulting from the unlawful levy and seizure, which should be a totally separate and distinct action from the former case. The above-mentioned remedies are cumulative and any one of them may be resorted to by one third-party claimant without availing of the other remedies.50

In this case, the petitioner-wife filed her motion to set aside the levy on attachment of the 100,000 shares of stocks in the name of petitioner-husband claiming that the said shares of stocks were conjugal in nature; hence, not liable for the account of her husband under his continuing guaranty and suretyship agreement with the PBMCI. The petitioner-wife had the right to file the motion for said relief.

On the second issue, we find and so hold that the CA erred in setting aside and reversing the orders of the RTC. The private respondent, the petitioner in the CA, was burdened to prove that the RTC committed a

grave abuse of its discretion amounting to excess or lack of jurisdiction. The tribunal acts without jurisdiction if it does not have the legal purpose to determine the case; there is excess of jurisdiction where the tribunal, being clothed with the power to determine the case, oversteps its authority as determined by law. There is grave abuse of discretion where the tribunal acts in a capricious, whimsical, arbitrary or despotic manner in the exercise of its judgment and is equivalent to lack of jurisdiction.51

It was incumbent upon the private respondent to adduce a sufficiently strong demonstration that the RTC acted whimsically in total disregard of evidence material to, and even decide of, the controversy before certiorari will lie. A special civil action for certiorari is a remedy designed for the correction of errors of jurisdiction and not errors of judgment. When a court exercises its jurisdiction, an error committed while so engaged does not deprive it of its jurisdiction being exercised when the error is committed.52

After a comprehensive review of the records of the RTC and of the CA, we find and so hold that the RTC did not commit any grave abuse of its discretion amounting to excess or lack of jurisdiction in issuing the assailed orders.

Article 160 of the New Civil Code provides that all the properties acquired during the marriage are presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband, or to the wife. In Tan v. Court of Appeals,53 we held that it is not even necessary to prove that the properties were acquired with funds of the partnership. As long as the properties were acquired by the parties during the marriage, they are presumed to be conjugal in nature. In fact, even when the manner in which the properties were acquired does not appear, the presumption will still apply, and the properties will still be considered conjugal. The presumption of the conjugal nature of the properties acquired during the marriage subsists in the absence of clear, satisfactory and convincing evidence to overcome the same.54

In this case, the evidence adduced by the petitioners in the RTC is that the 100,000 shares of stocks in the Citycorp Investment Philippines were issued to and registered in its corporate books in the name of the petitioner-husband when the said corporation was incorporated on May 14, 1979. This was done during the subsistence of the marriage of the petitioner-spouses. The shares of stocks are, thus, presumed to be the conjugal partnership property of the petitioners. The private respondent failed to adduce evidence that the petitioner-husband acquired the stocks with his exclusive money.55 The barefaced fact that the shares of stocks were registered in the corporate books of Citycorp Investment Philippines solely in the name of the petitioner-husband does not constitute proof that the petitioner-husband, not the conjugal partnership, owned the same.56 The private respondent’s reliance on the rulings of this Court in Maramba v. Lozano57 and Associated Insurance & Surety Co., Inc. v. Banzon58 is misplaced. In the Maramba case, we held that where there is no showing as to when the property was acquired, the fact that the title is in the wife’s name alone is determinative of the ownership of the property. The principle was reiterated in the Associated Insurance case where the uncontroverted evidence showed that the shares of stocks were acquired during the marriage of the petitioners.

Instead of fortifying the contention of the respondents, the ruling of this Court in Wong v. Intermediate Appellate Court59 buttresses the case for the petitioners. In that case, we ruled that he who claims that property acquired by the spouses during their marriage is not conjugal partnership property but belongs to one of them as his personal property is burdened to prove the source of the money utilized to purchase the same. In this case, the private respondent claimed that the petitioner-husband acquired the shares of stocks from the Citycorp Investment Philippines in his own name as the owner thereof. It was, thus, the burden of the private respondent to prove that the source of the money utilized in the acquisition of the shares of stocks was that of the petitioner-husband alone. As held by the trial court, the private respondent failed to adduce evidence to prove this assertion.

The CA, likewise, erred in holding that by executing a continuing guaranty and suretyship agreement with the private respondent for the payment of the PBMCI loans, the petitioner-husband was in the exercise of his profession, pursuing a legitimate business. The appellate court erred in concluding that the conjugal partnership is liable for the said account of PBMCI under Article 161(1) of the New Civil Code.

Article 161(1) of the New Civil Code (now Article 121[2 and 3]60 of the Family Code of the Philippines) provides:

Art. 161. The conjugal partnership shall be liable for:

(1) All debts and obligations contracted by the husband for the benefit of the conjugal partnership, and those contracted by the wife, also for the same purpose, in the cases where she may legally bind the partnership.

The petitioner-husband signed the continuing guaranty and suretyship agreement as security for the payment of the loan obtained by the PBMCI from the private respondent in the amount of P38,000,000. In Ayala Investment and Development Corp. v. Court of Appeals,61 this Court ruled "that the signing as surety is certainly not an exercise of an industry or profession. It is not embarking in a business. No matter how often an executive acted on or was persuaded to act as surety for his own employer, this should not be taken to mean that he thereby embarked in the business of suretyship or guaranty."

For the conjugal partnership to be liable for a liability that should appertain to the husband alone, there must be a showing that some advantages accrued to the spouses. Certainly, to make a conjugal partnership responsible for a liability that should appertain alone to one of the spouses is to frustrate the objective of the New Civil Code to show the utmost concern for the solidarity and well being of the family as a unit. The husband, therefore, is denied the power to assume unnecessary and unwarranted risks to the financial stability of the conjugal partnership.62

In this case, the private respondent failed to prove that the conjugal partnership of the petitioners was benefited by the petitioner-husband’s act of executing a continuing guaranty and suretyship agreement with

the private respondent for and in behalf of PBMCI. The contract of loan was between the private respondent and the PBMCI, solely for the benefit of the latter. No presumption can be inferred from the fact that when the petitioner-husband entered into an accommodation agreement or a contract of surety, the conjugal partnership would thereby be benefited. The private respondent was burdened to establish that such benefit redounded to the conjugal partnership.63

It could be argued that the petitioner-husband was a member of the Board of Directors of PBMCI and was one of its top twenty stockholders, and that the shares of stocks of the petitioner-husband and his family would appreciate if the PBMCI could be rehabilitated through the loans obtained; that the petitioner-husband’s career would be enhanced should PBMCI survive because of the infusion of fresh capital. However, these are not the benefits contemplated by Article 161 of the New Civil Code. The benefits must be those directly resulting from the loan. They cannot merely be a by-product or a spin-off of the loan itself.64

This is different from the situation where the husband borrows money or receives services to be used for his own business or profession. In the Ayala case, we ruled that it is such a contract that is one within the term "obligation for the benefit of the conjugal partnership." Thus:

(A) If the husband himself is the principal obligor in the contract, i.e., he directly received the money and services to be used in or for his own business or his own profession, that contract falls within the term "… obligations for the benefit of the conjugal partnership." Here, no actual benefit may be proved. It is enough that the benefit to the family is apparent at the time of the signing of the contract. From the very nature of the contract of loan or services, the family stands to benefit from the loan facility or services to be rendered to the business or profession of the husband. It is immaterial, if in the end, his business or profession fails or does not succeed. Simply stated, where the husband contracts obligations on behalf of the family business, the law presumes, and rightly so, that such obligation will redound to the benefit of the conjugal partnership.65

The Court held in the same case that the rulings of the Court in Cobb-Perez and G-Tractors, Inc. are not controlling because the husband, in those cases, contracted the obligation for his own business. In this case, the petitioner-husband acted merely as a surety for the loan contracted by the PBMCI from the private respondent.

IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision and Resolution of the Court of Appeals are SET ASIDE AND REVERSED. The assailed orders of the RTC are AFFIRMED.

SO ORDERED.

Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 158997             October 6, 2008

FORT BONIFACIO DEVELOPMENT CORPORATION petitioner,

vs.YLLAS LENDING CORPORATION and JOSE S. LAURAYA, in his official capacity as President, respondents.

D E C I S I O N

CARPIO, J.:

The Case

This is a petition for review on certiorari1 of the Orders issued on 7 March 20032 and 3 July 20033 by Branch 59 of the Regional Trial Court of Makati City (trial court) in Civil Case No. 01-1452. The trial court's

orders dismissed Fort Bonifacio Development Corporation's (FBDC) third party claim and denied FBDC's Motion to Intervene and Admit Complaint in Intervention.

The Facts

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

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

Section 20. Default of the Lessee

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

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

x x x

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

(i) Terminate this Contract immediately upon written notice to the LESSEE, without need of any judicial action or declaration;

x x x

Section 22, on the other hand, reads:

Section 22. Lien on the Properties of the Lessee

Upon the termination of this Contract or the expiration of the Lease Period without the rentals, charges and/or damages, if any, being

fully paid or settled, the LESSOR shall have the right to retain possession of the properties of the LESSEE used or situated in the Leased Premises and the LESSEE hereby authorizes the LESSOR to offset the prevailing value thereof as appraised by the LESSOR against any unpaid rentals, charges and/or damages. If the LESSOR does not want to use said properties, it may instead sell the same to third parties and apply the proceeds thereof against any unpaid rentals, charges and/or damages.

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

On 4 March 2002, Yllas Lending Corporation and Jose S. Lauraya, in his official capacity as President, (respondents) caused the sheriff of Branch 59 of the trial court to serve an alias writ of seizure against FBDC. On the same day, FBDC served on the sheriff an affidavit of title and third party claim. FBDC found out that on 27 September 2001, respondents filed a complaint for Foreclosure of Chattel Mortgage with Replevin, docketed as Civil Case No. 01-1452, against Tirreno, Eloisa Poblete Todaro (Eloisa), and Antonio D. Todaro (Antonio), in their personal and individual capacities, and in Eloisa's official capacity as President. In their complaint, respondents alleged that they lent a total of

P1.5 million to Tirreno, Eloisa, and Antonio. On 9 November 2000, Tirreno, Eloisa and Antonio executed a Deed of Chattel Mortgage in favor of respondents as security for the loan. The following properties are covered by the Chattel Mortgage:

a. Furniture, Fixtures and Equipment of Savoia Ristorante and La Strega Bar, a restaurant owned and managed by [Tirreno], inclusive of the leasehold right of [Tirreno] over its rented building where [the] same is presently located.

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

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

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

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

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

a. The MORTGAGOR is the absolute owner of the above named properties subject of this mortgage, free from all liens and encumbrances.

b. There exist no transaction or documents affecting the same previously presented for, and/or pending transaction.5

Despite FBDC's service upon him of an affidavit of title and third party claim, the sheriff proceeded with the seizure of certain items from FBDC's premises. The sheriff's partial return indicated the seizure of the following items from FBDC:

A. FIXTURES

(2) - Smaller Murano Chandeliers

(1) - Main Murano Chandelier

B. EQUIPMENT

(13) - Uni-Air Split Type 2HP Air Cond.

(2) - Uni-Air Split Type 1HP Air Cond.

(3) - Uni-Air Window Type 2HP Air Cond.

(56) - Chairs

(1) - Table

(2) - boxes - Kitchen equipments [sic]6

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

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

Before this Court are two pending incidents, to wit: 1) [FBDC's] Third-Party Claim over the properties of [Tirreno] which were seized and delivered by the sheriff of this Court to [respondents]; and 2) FBDC's Motion to Intervene and to Admit Complaint in Intervention.

Third party claimant, FBDC, anchors its claim over the subject properties on Sections 20.2(i) and 22 of the Contract of Lease executed by [FBDC] with Tirreno. Pursuant to said Contract of Lease, FBDC took possession of the leased premises and proceeded to sell to third parties the properties found therein and appropriated the proceeds thereof to pay the unpaid lease rentals of [Tirreno].

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

In Opposition to the third-party claim and the motion to intervene, [respondents] posit that the basis of [FBDC's] third party claim being anchored on the aforesaid Contract [of] Lease is baseless. [Respondents] contend that the stipulation of the contract of lease partakes of a pledge which is void under Article 2088 of the Civil Code for being pactum commissorium.

x x x

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

The Ruling of the Trial Court

In its order dated 7 March 2003, the trial court stated that the present case raises the questions of who has a better right over the properties of Tirreno and whether FBDC has a right to intervene in respondents' complaint for foreclosure of chattel mortgage.

In deciding against FBDC, the trial court declared that Section 22 of the lease contract between FBDC and Tirreno is void under Article 2088 of the Civil Code.8 The trial court stated that Section 22 of the lease contract pledges the properties found in the leased premises as security for the payment of the unpaid rentals. Moreover, Section 22 provides for the automatic appropriation of the properties owned by Tirreno in the event of its default in the payment of monthly rentals to FBDC. Since Section 22 is void, it cannot vest title of ownership over the seized properties. Therefore, FBDC cannot assert that its right is superior to respondents, who are the mortgagees of the disputed properties.

The trial court quoted from Bayer Phils. v. Agana9 to justify its ruling that FBDC should have filed a separate complaint against respondents

instead of filing a motion to intervene. The trial court quoted from Bayer as follows:

In other words, construing Section 17 of Rule 39 of the Revised Rules of Court (now Section 16 of the 1997 Rules on Civil Procedure), the rights of third-party claimants over certain properties levied upon by the sheriff to satisfy the judgment may not be taken up in the case where such claims are presented but in a separate and independent action instituted by the claimants.10

The dispositive portion of the trial court's decision reads:

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

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

The Issues

FBDC alleges that the trial court erred in the following:

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

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

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

The Ruling of the Court

The petition has merit.

Taking of Lessee's Properties without Judicial Intervention

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

Section 22. Lien on the Properties of the Lessee

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

Respondents, as well as the trial court, contend that Section 22 constitutes a pactum commissorium, a void stipulation in a pledge contract. FBDC, on the other hand, states that Section 22 is merely a dacion en pago.

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

On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in payment, as the alienation of property to the creditor in satisfaction of a debt in money. Dacion en pago is governed by the law on sales. Philippine National Bank v. Pineda13 held that dation in payment requires delivery and transmission of ownership of a thing

owned by the debtor to the creditor as an accepted equivalent of the performance of the obligation. There is no dation in payment when there is no transfer of ownership in the creditor's favor, as when the possession of the thing is merely given to the creditor by way of security.

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

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

We agree with FBDC.

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

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

x x x

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

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

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

In Country Bankers, we allowed the forfeiture of the lessee's advance deposit of lease payment. Such a deposit may also be construed as a

guarantee of payment, and thus answerable for any unpaid rent or charges still outstanding at any termination of the lease.

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

Intervention versus Separate Action

Respondents posit that the right to intervene, although permissible, is not an absolute right. Respondents agree with the trial court's ruling that FBDC's proper remedy is not intervention but the filing of a separate action. Moreover, respondents allege that FBDC was accorded by the trial court of the opportunity to defend its claim of ownership in court through pleadings and hearings set for the purpose. FBDC, on the other hand, insists that a third party claimant may vindicate his rights over properties taken in an action for replevin by intervening in the replevin action itself.

We agree with FBDC.

Both the trial court and respondents relied on our ruling in Bayer Phils. v. Agana16 to justify their opposition to FBDC's intervention and to insist on FBDC's filing of a separate action. In Bayer, we declared that the rights of third party claimants over certain properties levied upon by the sheriff to satisfy the judgment may not be taken up in the case where such claims are presented, but in a separate and independent action instituted by the claimants. However, both respondents and the trial court overlooked the circumstances behind the ruling in Bayer, which makes the Bayer ruling inapplicable to the present case. The third party in Bayer filed his claim during execution; in the present case, FBDC filed for intervention during the trial.

The timing of the filing of the third party claim is important because the timing determines the remedies that a third party is allowed to file. A

third party claimant under Section 16 of Rule 39 (Execution, Satisfaction and Effect of Judgments)17 of the 1997 Rules of Civil Procedure may vindicate his claim to the property in a separate action, because intervention is no longer allowed as judgment has already been rendered. A third party claimant under Section 14 of Rule 57 (Preliminary Attachment)18 of the 1997 Rules of Civil Procedure, on the other hand, may vindicate his claim to the property by intervention because he has a legal interest in the matter in litigation.19

We allow FBDC's intervention in the present case because FBDC satisfied the requirements of Section 1, Rule 19 (Intervention) of the 1997 Rules of Civil Procedure, which reads as follows:

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

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

Indeed, contrary to respondents' contentions, we ruled in BA Finance Corporation v. Court of Appeals that where the mortgagee's right to the possession of the specific property is evident, the action need only be maintained against the possessor of the property. However, where the mortgagee's right to possession is put to great doubt, as when a contending party might contest the legal bases for mortgagee's cause of action or an adverse and independent claim of ownership or right of possession is raised by the contending party, it could become essential to

have other persons involved and accordingly impleaded for a complete determination and resolution of the controversy. Thus:

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

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

Sheriff's Indemnity Bond

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

Pursuant to Section 14 of Rule 57, the sheriff is not obligated to turn over to respondents the properties subject of this case in view of

respondents' failure to file a bond. The bond in Section 14 of Rule 57 (proceedings where property is claimed by third person) is different from the bond in Section 3 of the same rule (affidavit and bond). Under Section 14 of Rule 57, the purpose of the bond is to indemnify the sheriff against any claim by the intervenor to the property seized or for damages arising from such seizure, which the sheriff was making and for which the sheriff was directly responsible to the third party. Section 3, Rule 57, on the other hand, refers to the attachment bond to assure the return of defendant's personal property or the payment of damages to the defendant if the plaintiff's action to recover possession of the same property fails, in order to protect the plaintiff's right of possession of said property, or prevent the defendant from destroying the same during the pendency of the suit.

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

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

SO ORDERED.

ANTONIO T. CARPIOAssociate Justice

WE CONCUR:

REYNATO S. PUNOChief JusticeChairperson

ADOLFO S. AZCUNAAssociate Justice

RUBEN T. REYESAssociate Justice

TERESITA J. LEONARDO-DE CASTROAssociate Justice

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNOChief Justice

Footnotes* As replacement of Justice Renato C. Corona who is on official leave

per Special Order No. 520.1 Under Rule 45 of the 1997 Rules of Civil Procedure.2 Rollo, pp. 49-52. Penned by Judge Winlove M. Dumayas. 3 Id. at 53.4 Id. at 100-101.5 Id. at 101.6 Id. at 121.7 Id. at 49-50.

8 Article 2088 provides that "[t]he creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void."

9 159 Phil. 955 (1975).10 Rollo, p. 52.11 Id. 12 Id. at 19.13 274 Phil. 274 (1991).14 159-A Phil. 291, 298 (1975).15 G.R. No. 85161, 9 September 1991, 201 SCRA 458, 464-465.16 Supra note 9.17 Proceedings where property claimed by third person. - If the

property levied on is claimed by any person other than the judgment obligor or his agent, and such person makes an affidavit of his title thereto or right to the possession thereof, stating the grounds of such right or title, and serves the same upon the officer making the levy and a copy thereof upon the judgment obligee, the officer shall not be bound to keep the property, unless such judgment obligee, on demand of the officer, files a bond approved by the court to indemnify the third-party claimant in a sum not less than the value of the property levied on. In case of disagreement as to such value, the same shall be determined by the court issuing the writ of execution. No claim for damages for the taking or keeping of the property may be enforced against the bond unless the action therefor is filed within one hundred twenty (120) days from the date of the filing of the bond.

The officer shall not be liable for damages for the taking or keeping of the property, to any third-party claimant if such bond is filed. Nothing herein contained shall prevent such claimant or any third person from vindicating his claim to the property in a separate action, or prevent the judgment obligee from claiming damages in

the same or separate action against a third-party claimant who filed a frivolous or plainly spurious claim.

When the writ of execution is issued in favor of the Republic of the Philippines, or any officer duly representing it, the filing of such bond shall not be required, and in case the sheriff or levying officer is sued for damages as a result of the levy, he shall be represented by the Solicitor General and if held liable therefor, the actual damages adjudged by the court shall be paid by the National Treasurer out of such funds as may be appropriated for the purpose.

18 Proceedings where property claimed by third person. - If the property attached is claimed by any person other than the party against whom attachment had been issued or his agent, and such person makes an affidavit of his title thereto, or right to the possession thereof, stating the grounds of such right or title, and serves such affidavit upon the sheriff while the latter has possession of the attached property, and a copy thereof upon the attaching party, the sheriff shall not be bound to keep the property under attachment, unless the attaching party or his agent, on demand of the sheriff, shall file a bond approved by the court to indemnify the third-party claimant in a sum not less than the value of the property levied upon. In case of disagreement as to such value, the same shall be decided by the court issuing the writ of attachment. No claim for damages for the taking or keeping of the property may be enforced against the bond unless the action therefor is filed within one hundred twenty (120) days from the date of the filing of the bond.

The sheriff shall not be liable for damages, for the taking or keeping of such property, to any such third-party claimant if such bond shall be filed. Nothing herein contained shall prevent such claimant or any third person from vindicating his claim to the property, or prevent the applicant from claiming damages against a third-party claimant who filed a frivolous or plainly spurious claim, in the same or a separate action.

When the writ of attachment is issued in favor of the Republic of the Philippines, or any officer duly representing it, the filing of such bond shall not be required, and in case the sheriff is sued for damages as a result of the attachment, he shall be represented by the Solicitor General, and if held liable therefor, the actual damages adjudged by the court shall be paid by the National Treasurer out of the funds appropriated for the purpose.

19 Yllas Lending Corporation filed a complaint for Foreclosure of Chattel Mortgage with Replevin. However, Yllas Lending Corporation did not allege that it is the owner of the properties being claimed, which is a requirement in the issuance of a writ of replevin. Yllas Lending Corporation merely stated that it is Tirreno's chattel mortgagee.

20 G.R. No. 102998, 5 July 1996, 258 SCRA 102, 113-114.

Republic of the PhilippinesSUPREME COURT

Manila

 

Republic of the Philippines

class="SpellE"Baguio City

 

 

THIRD DIVISION 

 

CHINA BANKING CORPORATION,

  G.R. No. 158271

Petitioner,    

    Present:

     

    AUSTRIA-MARTINEZ, J.,

    Acting Chairperson,

- versus -   TINGA,*

    CHICO-NAZARIO,

    NACHURA, and

    REYES, JJ.

ASIAN CONSTRUCTION and    

DEVELOPMENT CORPORATION,

  Promulgated:

Respondent.   April 8, 2008

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

 

 

D E C I S I O N

 

 

AUSTRIA-MARTINEZ, J.:

 

 

Before the Court is a Petition for Review on Certiorari under Rule

45 of the Rules of Court filed by petitioner China Banking

Corporation (China Bank) seeking to annul the Resolution[1] dated

style="font-size: 11pt; line-height: 150%;"October 14, 2002 and the

Resolution[2] dated style="font-size: 11pt; line-height: 150%;"May 16,

2003 of the Court of Appeals (CA) in CA-G.R. CV No. 72175.

 

cralawThe facts of the case:

 

cralawOn July 24, 1996, China Bank granted respondent Asian

Construction and Development Corporation (ACDC) an Omnibus

Credit Line in the amount of

P90,000,000.00.[3]

 

cralawOn style="font-size: 11pt; line-height: 150%;"April 12, 1999,

alleging that ACDC failed to comply with its obligations under the

Omnibus Credit Line, China Bank filed a Complaint[4] for recovery

of sum of money and damages with prayer for the issuance of writ of

preliminary attachment before the Regional Trial Court (RTC) of

class="SpellE"Makati, Branch 138, docketed as Civil Case No. 99-

796. In the Complaint, China Bank claimed that ACDC, after

collecting and receiving the proceeds or receivables from the various

construction contracts and purportedly holding them in trust for

China Bank under several Deeds of Assignment, misappropriated,

converted, and used the funds for its own purpose and benefit,

instead of remitting or delivering them to China Bank.[5]

 

On style="font-size: 11pt; line-height: 150%;"April 22, 1999, the RTC

issued an Order[6] granting China Banks prayer for writ of

preliminary attachment. Consequently, as shown in the Sheriffs

Report[7] dated style="font-size: 11pt; line-height: 150%;"June 14,

1999, the writ of preliminary attachment was implemented levying

personal properties of ACDC, i.e., vans, dump trucks, cement

mixers, cargo trucks, utility vehicles, machinery, equipment and

office machines and fixtures.

 

On style="font-size: 11pt; line-height: 150%;"March 27, 2000, upon

motion of China Bank, the RTC issued a Summary Judgment[8] in

favor of China Bank. ACDC filed its Notice of Appeal[9] dated

style="font-size: 11pt; line-height: 150%;"April 24, 2000.

 

On style="font-size: 11pt; line-height: 150%;"June 15, 2000, China

Bank filed a Motion to Take Custody of Attached Properties with

Motion for Grant of Authority to Sell to the Branch Sheriff[10] with

the RTC, praying that it be allowed to take custody of ACDCs

properties for the purpose of selling them in an auction.[11] On June

20, 2000, ACDC filed its Opposition[12] to the June 15, 2000 Motion

arguing that there can be no sale of the latters attached properties in

the absence of a final and executory judgment against ACDC.

 

On style="font-size: 11pt; line-height: 150%;"August 25, 2000, China

Bank partially appealed the Summary Judgment for not awarding

interest on one of its promissory notes.[13] Records of the case were

elevated to the CA.[14]

 

On style="font-size: 11pt; line-height: 150%;"April 18, 2002, China

Bank filed a Motion for Leave for Grant of Authority to Sell

Attached Properties[15] which the CA denied in the herein assailed

Resolution dated style="font-size: 11pt; line-height: 150%;"October

14, 2002.

 

According to the CA, selling the attached properties prior to final

judgment of the appealed case is premature and contrary to the

intent and purpose of preliminary attachment for the following

reasons: first, the records reveal that the attached properties subject

of the motion are not perishable in nature; and second, while the

sale of the attached properties may serve the interest of China Bank,

it will not be so for ACDC. The CA recognized China Banks

apprehension that by the time a final judgment is rendered, the

attached properties would be worthless. However, the CA also

acknowledged that since ACDC is a corporation engaged in a

construction business, the preservation of the properties is of

paramount importance; and that in the event that the decision of the

lower court is reversed and a final judgment rendered in favor

ACDC, great prejudice will result if the attached properties were

already sold.

 

China Bank filed a Motion for Reconsideration[16] which was denied

in the herein assailed CA Resolution[17] dated style="font-size: 11pt;

line-height: 150%;"May 16, 2003.

Hence, the present petition for review on certiorari, on the following

ground:

 

THE HONORABLE COURT OF APPEALS RENDERED THE QUESTIONED RESOLUTIONS (ANNEXES A and B) IN A MANNER NOT IN ACCORD WITH THE PROVISIONS OF SECTION 11, RULE 57

OF THE RULES OF CIVIL PROCEDURE, AS IT SHELVED THE DEMANDS OF EQUITY BY ARBITRARILY DISALLOWING THE SALE OF THE ATTACHED PROPERTIES, UPHOLDING ONLY THE INTEREST OF RESPONDENT, IN UTTER PARTIALITY.[18]

 

Considering that the herein assailed CA Resolutions are

interlocutory in nature as they do not dispose of the case completely

but leave something to be done upon the merits,[19] the proper

remedy should have been by way of petition for certiorari under

Rule 65, as provided for in Section 1 (b), Rule 41 of the Rules of

Court, as amended by A.M. No. 07-7-12-SC,[20] which provides:

 Section 1. Subject of appeal. - An appeal may be taken from a judgment or final order that completely disposes of the case, or of a particular matter therein when declared by these Rules to be appealable. No appeal may be taken from: x x x x (b)     An interlocutory order;x x x x

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

 

The present petition for review on certiorari should have been

dismissed outright. However, in many instances, the Court has

treated a petition for review on certiorari under Rule 45 as a petition

for certiorari under Rule 65 of the Rules of Court, such as in cases

where the subject of the recourse was one of jurisdiction, or the act

complained of was perpetrated by a court with grave abuse of

discretion amounting to lack or excess of jurisdiction.[21] The

present petition does not involve any issue on jurisdiction, neither

does it show that the CA committed grave abuse of discretion in

denying the motion to sell the attached property.

 

cralawSection 11, Rule 57 of the Rules of Court provides:

 

Sec. 11. When attached property may be sold after levy on attachment and before entry of judgment.- Whenever it shall be made to appear to the court in which the action is pending, upon hearing with notice to both parties, that the property attached is perishable, or that the interests of all the parties to the action will be subserved by the sale thereof, the court may order such property to be sold at public auction in such manner as it may direct, and the proceeds of such sale to be deposited in court to abide the judgment in the action. (Emphasis supplied)

 

Thus, an attached property may be sold after levy on attachment

and before entry of judgment whenever it shall be made to appear

to the court in which the action is pending, upon hearing with notice

to both parties, that the attached property is perishable or that the

interests of all the parties to the action will be subserved by the sale

of the attached property.

 

cralawIn its Memorandum,[22] China Bank argues that the CAs

notion of perishable property, which pertains only to those goods

which rot and decay and lose their value if not speedily put to their

intended use,[23] is a strict and stringent interpretation that would

betray the purpose for which the preliminary attachment was

engrafted.[24] Citing Witherspoon v. Cross,[25] China Bank invokes

the definition of perishable property laid down by the Supreme

Court of California as goods which decay and lose their value if not

speedily put to their intended use; but where the time contemplated

is necessarily long, the term may embrace property liable merely to

material depreciation in value from other causes than such decay.

 

cralawAs stated in the Sheriffs Report[26] and Notices of Levy on

Properties,[27] all of

ACDCs properties which were levied are personal properties

consisting of used vehicles, i.e., vans, dump trucks, cement mixers,

cargo trucks, utility vehicles, machinery, equipment and office

machines and fixtures. China Bank insists that the attached

properties, all placed inside ACDCs stockyard located at Silang,

class="SpellE"Cavite and the branch office in Mayamot,

class="SpellE"Antipolo style="font-size: 11pt; line-height: 150%;"City,

are totally exposed to natural elements and adverse weather

conditions.[28] Thus, China Bank argues, that should the attached

properties be allowed to depreciate, perish or rot while the main

case is pending, the attached properties will continue losing their

worth thereby rendering the rules on preliminary attachment

nugatory.

 

The issue hinges on the determination whether the vehicles, office

machines and fixtures are perishable property under Section 11,

Rules 57 of the Rules of Court, which is actually one of first

impression. No local jurisprudence or authoritative work has

touched upon this matter. This being so, an examination of foreign

laws and jurisprudence, particularly those of the style="font-size:

11pt; line-height: 150%;"United States where some of our laws and

rules were patterned after, is in order.[29]

 

cralawIn Mossler Acceptance Co. v. Denmark,[30] an order of the

lower court in directing the sale of attached properties, consisting of

20 automobiles and 2 airplanes, was reversed by the Supreme Court

of Louisiana. In support of its contention that automobiles are

perishable, Mossler offered testimony to the effect that automobile

tires tend to dry-rot in storage, batteries to deteriorate, crankcases

to become damaged, paint and upholstery to fade, that generally

automobiles tend to depreciate while in storage.[31] Rejecting these

arguments, the Supreme Court of Louisiana held that while there

might be a depreciation in the value of a car during storage,

depending largely on existing economic conditions, there would be

no material deterioration of the car itself or any of its appurtenances

if the car was properly cared for, and therefore it could not be said

that automobiles were of a perishable nature within the intendment

of the statute, which could only be invoked when the property

attached and seized was of a perishable nature.[32]

 

cralawWith respect to the determination of the question on whether

the attached office furniture, office equipment, accessories and

supplies are perishable properties, the Supreme Court of Alabama

in McCreery v. Berney National Bank[33] discussed the perishable

nature of the attached properties, consisting of shelving, stock of

drygoods and a complete set of store fixtures, consisting of counters

iron safe, desk and showcases, to be within the meaning of

perishable property under the Alabama Code which authorizes a

court, on motion of either party, to order the sale, in advance of

judgment, of perishable property which had been levied on by a writ

of attachment.[34] cralaw

 

In McCreery, the Supreme Court of Alabama rejected the argument

that the sale of the attached property was void because the term

perishable property, as used in the statute, meant only such

property as contained in itself the elements of speedy decay, such as

fruits, fish, fresh meats, etc.[35] The Supreme Court of Alabama held

that whatever may be the character of the property, if the court is

satisfied that, either by reason of its perishable nature, or because of

the expense of keeping it until the termination of the litigation, it will

prove, or be likely to prove, fruitless to the creditor, and that the

purpose of its original seizure will probably be frustrated, the sale of

the attached property is justified.

 

McCreery applied the doctrine in Millards Admrs. v. Hall[36] where

the Supreme Court of Alabama held that an attached property is

perishable if it is shown that, by keeping the article, it will

necessarily become, or is likely to become, worthless to the creditor,

and by consequence to the debtor, then it is embraced by the statute.

It matters not, in our opinion, what the subject matter is. It may be

cotton bales, live stock, hardware provisions or dry goods. Although

the statute under which Millards was decided used the words likely

to waste or be destroyed by keeping, instead of the word perishable,

the reasons given for the construction placed on the statute apply

equally to the Alabama Code which uses the term perishable.[37]

 

In the Motion for Leave for Grant of Authority to Sell Attached

Properties[38] filed before the CA, China Bank alleged that the

attached properties are placed in locations where they are totally

exposed to the natural elements and adverse weather conditions

since their attachment in 1999;[39] that as a result, the attached

properties have gravely deteriorated with corrosions eating them

up, with weeds germinating and growing thereon and their engines

and motors stock up;[40] and that the same holds true to the office

furniture, office equipment, accessories and supplies.[41] No

evidence, however, were submitted by China Bank to support and

substantiate these claims before the CA.

 

Notably, in the Petition filed before the Court, China Bank, for the

first time, included as annexes,[42] photographs of the attached

properties which were alleged to be recently taken, in an attempt to

convince the Court of the deteriorated condition of the attached

properties.

 

The determination on whether the attached vehicles are properly

cared for, and the burden to show that, by keeping the attached

office furniture, office equipment and supplies, it will necessarily

become, or is likely to become, worthless to China Bank, and by

consequence to ACDC, are factual issues requiring reception of

evidence which the Court cannot do in a petition for certiorari.

Factual issues are beyond the scope of certiorari because they do not

involve any jurisdictional

issue.[43]

 

As a rule, only jurisdictional questions may be raised in a petition

for certiorari, including matters of grave abuse of discretion which

are equivalent to lack of jurisdiction.[44] The office of the writ of

certiorari has been reduced to the correction of defects of jurisdiction

solely and cannot legally be used for any other purpose.[45]

 

Certiorari is truly an extraordinary remedy and, in this jurisdiction,

its use is restricted to truly extraordinary cases - cases in which the

action of the inferior court is wholly void; where any further steps in

the case would result in a waste of time and money and would

produce no result whatever; where the parties, or their privies,

would be utterly deceived; where a final judgment or decree would

be nought but a snare and delusion, deciding nothing, protecting

nobody, a judicial pretension, a recorded falsehood, a standing

menace. It is only to avoid such results as these that a writ of

certiorari is issuable; and even here an appeal will lie if the

aggrieved party prefers to prosecute it.[46]

 

Moreover, the Court held in JAM Transportation Co., Inc. v.

Flores[47] that it is well-settled, too well-settled to require a citation

of jurisprudence, that this Court does not make findings of facts

specially on evidence raised for the first time on appeal.[48] The

Court will not make an exception in the case at bar. Hence, the

photographs of the attached properties presented before the Court,

for the first time on appeal, cannot be considered by the Court.

 

China Bank argues that if the CA allowed the attached properties to

be sold, whatever monetary value which the attached properties still

have will be realized and saved for both parties.[49] China Bank

further claims that should ACDC prevail in the final judgment[50] of

the collection suit, ACDC can proceed with the bond posted by

China Bank.[51] The Court finds said arguments to be specious and

misplaced.

 

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

 

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

 

It is clear from the foregoing provision that the bond posted by

China Bank answers only for the payment of all damages which

ACDC may sustain if the court shall finally adjudge that China

Bank was not entitled to attachment. The liability attaches if the

plaintiff is not entitled to the attachment because the requirements

entitling him to the writ are wanting, or if the plaintiff has no right

to the attachment because the facts stated in his affidavit, or some of

them are untrue.[52] Clearly, ACDC can only claim from the bond

for all the damages which it may sustain by reason of the

attachment and not because of the sale of the attached properties

prior to final judgment.

 

style="font-size: 11pt; line-height: 150%;"Sale of attached property

before final judgment is an equitable remedy provided for the

convenience of the parties and preservation of the property.[53] To

repeat, the Court finds that the issue of whether the sale of attached

properties is for the convenience of the parties and that the interests

of all the parties will be subserved by the said sale is a question of

fact. Again, the foregoing issue can only be resolved upon

examination of the evidence presented by both parties which the

Court cannot do in a petition for certiorari under Rule 65 of the

Rules of Court.

 

WHEREFORE, the petition is DENIED. The assailed Resolutions of

the Court of Appeals dated style="font-size: 11pt; line-height:

150%;"October 14, 2002 and style="font-size: 11pt; line-height:

150%;"May 16, 2003 in CA-G.R. CV No. 72175 are hereby

AFFIRMED.

 

SO ORDERED.