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[G.R. No. 115678.

February 23, 2001]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS


and BERNARDINO VILLANUEVA, respondents.

[G.R. No. 119723. February 23, 2001]

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs. HON. COURT OF APPEALS


and FILIPINAS TEXTILE MILLS, INC., respondents.

Before us are consolidated petitions for review both filed by Philippine Bank of
Communications; one against the May 24, 1994 Decision of respondent Court of Appeals in CA-
G.R. SP No. 32863i[1] and the other against its March 31, 1995 Decision in CA-G.R. SP No.
32762.ii[2] Both Decisions set aside and nullified the August 11, 1993 Orderiii[3] of the
Regional Trial Court of Manila, Branch 7, granting the issuance of a writ of preliminary
attachment in Civil Case No. 91-56711.

The case commenced with the filing by petitioner, on April 8, 1991, of a Complaint against
private respondent Bernardino Villanueva, private respondent Filipinas Textile Mills and one
Sochi Villanueva (now deceased) before the Regional Trial Court of Manila. In the said
Complaint, petitioner sought the payment of P2,244,926.30 representing the proceeds or value of
various textile goods, the purchase of which was covered by irrevocable letters of credit and trust
receipts executed by petitioner with private respondent Filipinas Textile Mills as obligor; which,
in turn, were covered by surety agreements executed by private respondent Bernardino
Villanueva and Sochi Villanueva. In their Answer, private respondents admitted the existence of
the surety agreements and trust receipts but countered that they had already made payments on
the amount demanded and that the interest and other charges imposed by petitioner were
onerous.

On May 31, 1993, petitioner filed a Motion for Attachment,iv[4] contending that violation of the
trust receipts law constitutes estafa, thus providing ground for the issuance of a writ of
preliminary attachment; specifically under paragraphs b and d, Section 1, Rule 57 of the
Revised Rules of Court. Petitioner further claimed that attachment was necessary since private
respondents were disposing of their properties to its detriment as a creditor. Finally, petitioner
offered to post a bond for the issuance of such writ of attachment.

The Motion was duly opposed by private respondents and, after the filing of a Reply thereto by
petitioner, the lower court issued its August 11, 1993 Order for the issuance of a writ of
preliminary attachment, conditioned upon the filing of an attachment bond. Following the denial
of the Motion for Reconsideration filed by private respondent Filipinas Textile Mills, both
private respondents filed separate petitions for certiorari before respondent Court assailing the
order granting the writ of preliminary attachment.
Both petitions were granted, albeit on different grounds. In CA-G.R. SP No. 32762, respondent
Court of Appeals ruled that the lower court was guilty of grave abuse of discretion in not
conducting a hearing on the application for a writ of preliminary attachment and not requiring
petitioner to substantiate its allegations of fraud, embezzlement or misappropriation. On the
other hand, in CA-G.R. SP No. 32863, respondent Court of Appeals found that the grounds cited
by petitioner in its Motion do not provide sufficient basis for the issuance of a writ of
preliminary attachment, they being mere general averments. Respondent Court of Appeals held
that neither embezzlement, misappropriation nor incipient fraud may be presumed; they must be
established in order for a writ of preliminary attachment to issue.

Hence, the instant consolidatedv[5] petitions charging that respondent Court of Appeals erred in

1. Holding that there was no sufficient basis for the issuance of the writ of preliminary
attachment in spite of the allegations of fraud, embezzlement and misappropriation of the
proceeds or goods entrusted to the private respondents;

2. Disregarding the fact that that the failure of FTMI and Villanueva to remit the proceeds or
return the goods entrusted, in violation of private respondents fiduciary duty as entrustee,
constitute embezzlement or misappropriation which is a valid ground for the issuance of a writ of
preliminary attachment.vi[6]

We find no merit in the instant petitions.

To begin with, we are in accord with respondent Court of Appeals in CA-G.R. SP No. 32863 that
the Motion for Attachment filed by petitioner and its supporting affidavit did not sufficiently
establish the grounds relied upon in applying for the writ of preliminary attachment.

The Motion for Attachment of petitioner states that

1. The instant case is based on the failure of defendants as entrustee to pay or remit the
proceeds of the goods entrusted by plaintiff to defendant as evidenced by the trust receipts
(Annexes B, C and D of the complaint), nor to return the goods entrusted thereto, in
violation of their fiduciary duty as agent or entrustee;

2. Under Section 13 of P.D. 115, as amended, violation of the trust receipt law constitute(s)
estafa (fraud and/or deceit) punishable under Article 315 par. 1[b] of the Revised Penal Code;

3. On account of the foregoing, there exist(s) valid ground for the issuance of a writ of
preliminary attachment under Section 1 of Rule 57 of the Revised Rules of Court particularly
under sub-paragraphs b and d, i.e. for embezzlement or fraudulent misapplication or
conversion of money (proceeds) or property (goods entrusted) by an agent (entrustee) in
violation of his fiduciary duty as such, and against a party who has been guilty of fraud in
contracting or incurring the debt or obligation;
4. The issuance of a writ of preliminary attachment is likewise urgently necessary as there
exist(s) no sufficient security for the satisfaction of any judgment that may be rendered against
the defendants as the latter appears to have disposed of their properties to the detriment of the
creditors like the herein plaintiff;

5. Herein plaintiff is willing to post a bond in the amount fixed by this Honorable Court as a
condition to the issuance of a writ of preliminary attachment against the properties of the
defendants.

Section 1(b) and (d), Rule 57 of the then controlling Revised Rules of Court, provides, to wit

SECTION 1. Grounds upon which attachment may issue. A plaintiff or any proper party may,
at the commencement of the action or at any time thereafter, have the property of the adverse
party attached as security for the satisfaction of any judgment that may be recovered in the
following cases:

xxx xxx xxx

(b) In an action for money or property embezzled or fraudulently misapplied or converted to


his 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;

xxx xxx xxx

(d) In an action against a party who has been guilty of fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in concealing or disposing of the
property for the taking, detention or conversion of which the action is brought;

xxx xxx xxx

While the Motion refers to the transaction complained of as involving trust receipts, the violation
of the terms of which is qualified by law as constituting estafa, it does not follow that a writ of
attachment can and should automatically issue. Petitioner cannot merely cite Section 1(b) and
(d), Rule 57, of the Revised Rules of Court, as mere reproduction of the rules, without more,
cannot serve as good ground for issuing a writ of attachment. An order of attachment cannot be
issued on a general averment, such as one ceremoniously quoting from a pertinent rule.vii[7]

The supporting Affidavit is even less instructive. It merely states, as follows --

I, DOMINGO S. AURE, of legal age, married, with address at No. 214-216 Juan Luna Street,
Binondo, Manila, after having been sworn in accordance with law, do hereby depose and say,
THAT:
1. I am the Assistant Manager for Central Collection Units Acquired Assets Section of the
plaintiff, Philippine Bank of Communications, and as such I have caused the preparation of the
above motion for issuance of a writ of preliminary attachment;

2. I have read and understood its contents which are true and correct of my own knowledge;

3. There exist(s) sufficient cause of action against the defendants in the instant case;

4. The instant case is one of those mentioned in Section 1 of Rule 57 of the Revised Rules
of Court wherein a writ of preliminary attachment may be issued against the defendants,
particularly sub-paragraphs b and d of said section;

5. There is no other sufficient security for the claim sought to be enforced by the instant
case and the amount due to herein plaintiff or the value of the property sought to be recovered is
as much as the sum for which the order for attachment is granted, above all legal counterclaims.

Again, it lacks particulars upon which the court can discern whether or not a writ of attachment
should issue.

Petitioner cannot insist that its allegation that private respondents failed to remit the proceeds of
the sale of the entrusted goods nor to return the same is sufficient for attachment to issue. We
note that petitioner anchors its application upon Section 1(d), Rule 57. This particular provision
was adequately explained in Liberty Insurance Corporation v. Court of Appeals,viii[8] as
follows

To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt
or incurring the obligation intended to defraud the creditor. The fraud must relate to the
execution of the agreement and must have been the reason which induced the other party into
giving consent which he would not have otherwise given. To constitute a ground for attachment
in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the
obligation sued upon. A debt is fraudulently contracted if at the time of contracting it the
debtor has a preconceived plan or intention not to pay, as it is in this case. Fraud is a state of
mind and need not be proved by direct evidence but may be inferred from the circumstances
attendant in each case (Republic v. Gonzales, 13 SCRA 633). (Emphasis ours)

We find an absence of factual allegations as to how the fraud alleged by petitioner was
committed. As correctly held by respondent Court of Appeals, such fraudulent intent not to
honor the admitted obligation cannot be inferred from the debtors inability to pay or to comply
with the obligations.ix[9] On the other hand, as stressed, above, fraud may be gleaned from a
preconceived plan or intention not to pay. This does not appear to be so in the case at bar. In
fact, it is alleged by private respondents that out of the total P419,613.96 covered by the subject
trust receipts, the amount of P400,000.00 had already been paid, leaving only P19,613.96 as
balance. Hence, regardless of the arguments regarding penalty and interest, it can hardly be said
that private respondents harbored a preconceived plan or intention not to pay petitioner.
The Court of Appeals was correct, therefore, in its finding in CA-G.R. SP No. 32863 that neither
petitioners Motion or its supporting Affidavit provides sufficient basis for the issuance of the
writ of attachment prayed for.

We also agree with respondent Court of Appeals in CA-G.R. SP No. 32762 that the lower court
should have conducted a hearing and required private petitioner to substantiate its allegations of
fraud, embezzlement and misappropriation.

To reiterate, petitioners Motion for Attachment fails to meet the standard set forth in D.P. Lub
Oil Marketing Center, Inc. v. Nicolas,x[10] in applications for attachment. In the said case, this
Court cautioned --

The petitioners prayer for a writ of preliminary attachment hinges on the allegations in
paragraph 16 of the complaint and paragraph 4 of the affidavit of Daniel Pe which are couched in
general terms devoid of particulars of time, persons and places to support such a serious assertion
that defendants are disposing of their properties in fraud of creditors. There is thus the
necessity of giving to the private respondents an opportunity to ventilate their side in a hearing,
in accordance with due process, in order to determine the truthfulness of the allegations. But no
hearing was afforded to the private respondents the writ having been issued ex parte. A writ of
attachment can only be granted on concrete and specific grounds and not on general averments
merely quoting the words of the rules.

As was frowned upon in D.P. Lub Oil Marketing Center, Inc.,xi[11] not only was petitioners
application defective for having merely given general averments; what is worse, there was no
hearing to afford private respondents an opportunity to ventilate their side, in accordance with
due process, in order to determine the truthfulness of the allegations of petitioner. As already
mentioned, private respondents claimed that substantial payments were made on the proceeds of
the trust receipts sued upon. They also refuted the allegations of fraud, embezzlement and
misappropriation by averring that private respondent Filipinas Textile Mills could not have done
these as it had ceased its operations starting in June of 1984 due to workers strike. These are
matters which should have been addressed in a preliminary hearing to guide the lower court to a
judicious exercise of its discretion regarding the attachment prayed for. On this score,
respondent Court of Appeals was correct in setting aside the issued writ of preliminary
attachment.

Time and again, we have held that the rules on the issuance of a writ of attachment must be
construed strictly against the applicants. This stringency is required because the remedy of
attachment is harsh, extraordinary and summary in nature. If all the requisites for the granting of
the writ are not present, then the court which issues it acts in excess of its jurisdiction.xii[12]

WHEREFORE, for the foregoing reasons, the instant petitions are DENIED. The decision of
the Court of Appeals in CA-G.R. SP No. 32863 and CA-G.R. SP No. 32762 are AFFIRMED.
No pronouncement as to costs.

SO ORDERED.
[G.R. No. 123358. February 1, 2000]

FCY CONSTRUCTION GROUP, INC., and FRANCIS C. YU, petitioners, vs.


THE COURT OF APPEALS, THE HON. JOSE C. DE LA RAMA, Presiding
Judge, Branch 139, Regional Trial Court, NCJR, Makati City, Metro Manila,
and LEY CONSTRUCTION AND DEVELOPMENT CORPORATION,
respondents.

On June 29, 1993, private respondent Ley Construction and Development Corporation filed a
Complaint for collection of a sum of money with application for preliminary attachment against
petitioner FCY Construction Group, Inc. and Francis C. Yu with the Makati Regional Trial Court
which was docketed as Civil Case No. 93-2112. Private respondent alleged that it had a joint
venture agreement with petitioner FCY Construction Group, Inc. (wherein petitioner Francis C.
Yu served as President) over the Tandang Sora Commonwealth Flyover government project for
which it had provided funds and construction materials. The Complaint was filed in order to
compel petitioners to pay its half share in the collections received in the project as well as those
yet to be received therein. In support of its application for a writ of attachment, private
respondent alleged that petitioners were guilty of fraud in incurring the obligation and had
fraudulently misapplied or converted the money paid them, to which it had an equal share.

On July 6, 1993, following an ex-parte hearing, the lower court issued an Order for the issuance
of a writ of preliminary attachment, conditioned upon the filing of a P7,000,000.00 attachment
bond.

Petitioners moved for the lifting of the writ of preliminary attachment on the following grounds:
(1) the attachment was heard, issued and implemented even before service of summons upon
them; (2) failure of the attaching officer to serve a copy of the affidavit of merit upon them; and
(3) that there was no fraud in incurring the obligation. As an alternative prayer in their Motion,
petitioners prayed that the attachment be limited to their receivables with the Department of
Public Works and Highways. This alternative prayer was later withdrawn by petitioners in a
Manifestation and Motion.

On May 25, 1994, the lower court issued another Order denying petitioners' Motion to Lift
Attachment.1[1] It, however, reduced and confined the attachment to receivables due petitioners
from the Tandang Sora commonwealth Flyover project.

Subsequently, petitioners filed a Motion for Reconsideration2[2] as well as an Omnibus Motion


for Leave to file Amended Answer and/or to delete Francis C. Yu as party-defendant.3[3]
With the denial of both Motions by the lower court on September 4, 1994,4[4] petitioners filed a
Petition for Certiorari before the Court of Appeals on September 16, 1994.5[5] The Petition was,
however, denied on July 31, 1995;6[6] so was petitioners' Motion for Reconsideration.7[7]

Hence, the instant Petition.

It is evident that the questioned writ of attachment was anchored upon Section 1(d), Rule 57 of
the Revised Rules of Court, to wit -

"SECTION 1. Grounds upon which attachment may issue. - A plaintiff or any


proper party may, at the commencement of the action or at any time thereafter,
have the property of the adverse party attached as security for the satisfaction of
any judgment that may be recovered in the following cases:

xxx xxx x x x.

(d) In an action against a party who has been guilty of a fraud in contracting the
debt or incurring the obligation upon which the action is brought, or in concealing
or disposing of the property for the taking, detention or conversion of which the
action is brought;

xxx xxx x x x."

Petitioners, however, insist that the writ of preliminary attachment was irregularly issued
inasmuch as there was no evidence of fraud in incurring the obligations sued upon.
In support of their stand, petitioners alleged that private respondent's principal witness admitted
that it was the Department of Public Works and Highways (DPWH) that induced it to deliver
materials and cash for the Tandang Sora Commonwealth Flyover project, to wit -

COURT: Now . . . as of January 5, 1993 you delivered to him (referring to


defendant FCY corporation) in cash and in kind amounting to Fifteen Million
Pesos (P15,000,000.00), now why did you keep on delivering cash and materials
to him if you were not paid a single centavo?

A Because of every need for the project, and the Public Works official
assured me that I will be given a new project after the Tandang Sora will be
finished.

Q Who is this public official that promised you?

A Director Pendosa, Teodoro Encarnacion and Secretary de Jesus your


Honor. (TSN, 6 July 1993, pp. 47-48)

xxx xxx xxx

Q What about these officials of the Department of Public Highways, what


would they do to project their sub alleged project?

A Secretary de Jesus is no longer connected there, your Honor.

Q At the time?

A At that time, he resigned.

Q Before he resigned.

A He gave me assurance that they will soon give assurance, they will soon
give me another project . . . (TSN, 6 July 1993, p. 55)8[8]

A cursory reading of the above-cited testimony, however, readily shows that said reassurance
from the DPWH officials came, not at the inception of the obligation or contract, but during its
performance. On the other hand, the fraud of which petitioners are accused of and which was the
basis for the issuance of the questioned attachment, is fraud alleged to have been committed
upon contracting the obligation sued upon. Thus, petitioners argument that "the inducement was
the mouth-watering temptation of a DPWH promise of a 'new project after the Tandang Sora
Flyover project will be finished"' is clearly off-tangent as such inducement, if any, came not at
the inception of the obligation.
Similarly, petitioners' arguments that it was private respondent who admittedly prepared the
letter embodying the alleged joint venture agreement9[9] and had petitioner Francis Yu sign it
must fail. The written agreement referred to was signed by petitioner Francis Yu only on January
5, 1993, long after the project had commenced. Thus, It was only a written confirmation of an
arrangement that had already been existing and operational. Similarly then, such written
confirmation did not occur at the inception of the obligation sued upon.

In Liberty Insurance Corporation vs. Court of Appeals,10[10] this Court, discussing Section 1(d),
Rule 57, cautioned as follows --

To sustain an attachment on this ground, it must be shown that the debtor in


contracting the debt or incurring the obligation intended to defraud the creditor.
The fraud must relate to the execution of the agreement and must have been the
reason which induced the other party into giving consent which he would not
have otherwise given. To constitute a ground for attachment in Section 1 (d), Rule
57 of the Rules of Court, fraud should be committed upon contracting the
obligation sued upon. A debt is fraudulently contracted if at the time of
contracting it the debtor has a preconceived plan or intention not to pay, as it is in
this case. Fraud is a state of mind and need not be proved by direct evidence but
may be inferred from the circumstances attendant in each case. (Republic v.
Gonzales, 13 SCRA 633).

From the foregoing, therefore, the alleged inducement by the DPWH officials upon private
respondent as well as the circumstances surrounding the execution of the joint venture
agreement, both appear immaterial as they were not committed upon contracting the obligation
sued upon but occurred long after the obligation has been established.

The fact that petitioners have paid a substantial amount of money to private respondent cannot
save the day for them either. As per their own accounting, such payments were for accounts
payable for labor supplied, construction materials and cash advances. 11[11] It is not denied that no
payment of profits has been given to private respondent, which is precisely what it is suing for.

Finally, considering that the writ of preliminary attachment has been issued on account of
allegations of fraud in contracting the obligation upon which the action is brought petitioners'
efforts to have the writ of preliminary attachment dissolved on the ground that it was improperly
or irregularly issued is in vain. Indeed, in Liberty Insurance Corporation, supra, which cited
Mindanao Savings and Loan Assoc. vs. Court of Appeals (172 SCRA 480), we ruled -

"x x x, when the preliminary attachment is issued upon a ground which is at the
same time the applicant's cause of action: e.g., x x x an action against a party who
has been guilty of fraud in contracting the debt or incurring the obligation upon
which the action is brought, the defendant is not allowed to file a motion to
dissolve the attachment under Section 13 of Rule 57 by offering to show the
falsity of the factual averments in the plaintiffs application and affidavits on
which the writ was based and consequently that the writ based therein had been
improperly or irregularly issued - the reason being that the hearing on such
motion for dissolution of the writ would be tantamount to a trial on the merits. In
other words, the merits of the action would be ventilated at a mere hearing of a
motion; instead of the regular trial. Therefore, when the writ of attachment is of
this nature, the only way it can be dissolved is by a counterbond."

We now come to the issue of whether or not petitioner Francis Yu should remain as party-
defendant. Petitioners argue that since the transactions were corporation to corporation only,
petitioner Francis Yu should be dropped as party-defendant considering the hornbook law that
corporate personality is a shield against personal liability of its officers. We agree that petitioner
Francis Yu cannot be made liable in his individual capacity if he indeed entered into and signed
the contract in his official capacity as President, in the absence of stipulation to that effect, due to
the personality of the corporation being separate and distinct from the persons composing it.12[12]
However, while we agree that petitioner Francis Yu cannot be held solidarily liable with
petitioner corporation merely because he is the President thereof and was involved in the
transactions with private corporation, we also note that there exists instances when corporate
officers may be held personally liable for corporate acts. Such exceptions were outlined in
Tramat Mercantile, Inc. vs. Court of Appeals,13[13] as follows --

"Personal liability of a corporate director, trustee or officer along (although not


necessarily) with the corporation may so validly attach, as a rule, only when -

1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith
or gross negligence in directing its affairs, or (c) for conflict of interest, resulting
in damages to the corporation, its stockholders or other persons;
2. He consents to the issuance of watered down stocks or who, having knowledge
thereof, does not forthwith file with the corporate secretary his written objection
thereto;

3. He agrees to hold himself personally and solidarily liable with the corporation;
or

4. He is made, by a specific provision of law, to personally answer for his


corporate action."

The attendance of these circumstances, however, cannot be determined at this stage and should
properly be threshed out during the trial on the merits. Stated differently, whether or not
petitioner Francis Yu should be held personally and solidarily liable with petitioner corporation
is a matter that should be left to the trial court's discretion, dependent as it is on evidence during
trial.

WHEREFORE, in view of the foregoing, the instant Petition is hereby DISMISSED. No


pronouncement as to costs.

SO ORDERED.

Law

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.

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.

G.R. Nos. 65957-58 July 5, 1994

ELEAZAR V. ADLAWAN and ELENA S. ADLAWAN, petitioners,


vs.
Hon. Judge RAMON AM. TORRES, as Presiding Judge of Branch 6, Regional Trial
Court Cebu City, ABOITIZ & COMPANY, INC. and THE PROVINCIAL SHERIFFS OF
CEBU, DAVAO, RIZAL and METRO MANILA, Respectively, respondents.

Pablo P. Garcia for petitioners.

Isaias P. Dicdican and Sylva G. Aguirre-Paderanga for Aboitiz & Co., Inc.

This is a petitioner for certiorari and mandamus with preliminary injunction or restraining
order to nullify: (1) the Order dated September 14, 1983 of respondent Judge Ramon
Am. Torres of the Regional Trial Court, Branch 6, Cebu City, in Civil Case No. CEB-
1185 and the Order dated September 26, 1983 of Judge Emilio A. Jacinto of Branch 23
of the same court in Civil Case No. CEB-1186, which granted the motion for the
issuance of writs of preliminary attachment for the seizure of the property of petitioners
by respondent Provincial Sheriffs; and (2) the Order dated December 12, 1983 of
respondent Judge Ramon Am. Torres in the consolidated cases, Civil Case No. CEB-
1185 and Civil Case No. CEB-1186.
I

In a complaint dated April 24, 1982 filed with the Court of First Instance of Cebu, now
Regional Trial Court, (Civil Case No. R-21761), respondent Aboitiz and Company, Inc.
(Aboitiz) sought to collect from petitioners a sum of money representing payments for:
(1) the unpaid amortizations of a loan; (2) technical and managerial services rendered;
and (3) the unpaid installments of the equipment provided by respondent Aboitiz to
petitioners (Rollo, p. 37).

Acting on the ex parte application for attachment, the Executive Judge of the Court of
First Instance of Cebu, issued on May 14, 1982, an order directing the issuance of the
writ of preliminary attachment against the property of petitioners upon the filing by
respondent Aboitiz of an attachment bond.

Subsequently, the case was raffled to Branch 11 of the Court of First Instance of Cebu,
which issued a writ of attachment addressed to the Provincial Sheriffs of Cebu and the
City Sheriff of Davao City. It was the Sheriff of Davao City who enforced the writ of
attachment, resulting in the seizure of heavy construction equipment, motor vehicle
spare parts, and other personal property with the aggregate value of P15,000,000.00.
The said court also granted the motion of respondent Aboitiz to take possession and
custody of the attached property of petitioners and ordered the Provincial Sheriff of
Davao to deliver the property to respondent Aboitiz.

Petitioners moved for a bill of particulars and to set aside the ex parte writ of
attachment. Finding merit in the motion to set aside the writ, Branch 11 ordered on July
6, 1982 the lifting of the writ and, consequently, the discharge of the property levied
upon.

Respondent Aboitiz filed an urgent ex parte motion, praying for the stay of the July 6,
1982 Order for a period of 15 days for it to be able to appeal the order. The motion was
favorably acted upon.

However, on July 13, 1982, respondent Aboitiz filed a notice of dismissal of its
complaint in accordance with Section 1, Rule 17 of the Revised Rules of Court.
Consequently, Branch 11 issued an order confirming the notice of dismissal,
emphasizing that all orders of the court issued prior to the filing of said notice of
dismissal had been rendered functus oficio, and considering all pending incidents in the
case as moot and academic.

Petitioner Eleazar Adlawan filed a motion praying that the July 6, 1982 Order be
implemented and enforced. On December 20, however, Branch 11 denied the motion
on account of the filing by respondent Aboitiz before Branch 16 of the Court of First
Instance of Cebu in Lapu-lapu City of an action for delivery of personal property (Civil
Case No. 619-L), and the filing by petitioner Eleazar Adlawan before Branch 10 of the
same court of an action for damages in connection with the seizure of his property
under the writ of attachment.
In the replevin suit, Branch 16 ordered the seizure and delivery of the property
described in the complaint. Said property were later delivered by the provincial sheriff to
respondent Aboitiz. Alleging that while his office was situated in Cebu City, Adlawan
was a resident of Minglanilla, and therefore, the Lapu-lapu City court should not
entertain the action for replevin. Petitioner Eleazar Adlawan filed an omnibus motion
praying for the reconsideration and dissolution of the writ of seizure, the retrieval of the
property seized, and the dismissal of the complaint. He also averred that the property
seized were in custodia legis by virtue of the writ of attachment issued by Branch 11.
His omnibus motion was denied. Subsequently, he filed a motion for reconsideration
which was not granted.

The denial of his omnibus motion led petitioner Eleazar Adlawan to file a petition for
certiorari and mandamus in the Supreme Court (G.R. No. 63225). The Third Division of
this Court ruled on April 3, 1990 that since attachment is an ancillary remedy, the
withdrawal of the complaint left it with no leg to stand on. Thus, the Court disposed of
the case as follows:

WHEREFORE, in view of the foregoing, this Court rules that the attached properties left
in the custody of private respondent Aboitiz and Company, Inc. be returned to petitioner
Eleazar V. Adlawan without prejudice to the outcome of the cases filed by both parties
(Rollo, p. 324).

Respondent Aboitiz filed a motion for reconsideration of the decision, contending that
the replevin case was distinct and separate from the case where the writ of attachment
was issued. It argued that the writ of replevin, therefore, remained in force as the Third
Division of the Supreme Court had not found it illegal. The motion was, however, denied
with finality in the Resolution of July 11, 1990.

Undaunted, respondent Aboitiz filed a second motion for reconsideration with a prayer
that the dispositive portion of the decision be clarified. It asserted that because the writ
of preliminary attachment was different from the writ of replevin, we should rule that the
property subject of the latter writ should remain in custodia legis of the court issuing the
said writ.

In the Resolution dated September 10, 1990, the Third Division stated that "the
properties to be returned to petitioner are only those held by private respondent
(Aboitiz) by virtue of the writ of attachment which has been declared non-existent."
Accordingly, the dispositive portion of the April 3, 1990 decision of the Third Division of
this Court was modified to read as follows:

WHEREFORE, in view of the foregoing, this Court rules that the properties in the custody
of the private respondent Aboitiz & Company by virtue of the writ of attachment issued in
Civil Case No. R-21761 be returned to the petitioner, but properties in the custody of the
private respondent by virtue of the writ of replevin issued in Civil Case No. 619-L be
continued in custodia legis of said court pending litigation therein.

The Decision in G.R. No. 63225 having become final and executory, entry of judgment
was made on November 15, 1990. This should have terminated the controversy
between petitioners and respondent Aboitiz insofar as the Supreme Court was
concerned, but that was not to be. On September 9, 1983 respondent Aboitiz filed
against petitioners two complaints for collection of sums of money with prayers for the
issuance of writs of attachment in the Regional Trail Court, Branch 23, Cebu City,
docketed as Civil Cases Nos. CEB-1185 and CEB-1186. The complaint in Civil Case
No. CEB-1185 alleged that petitioner Eleazar Adlawan (defendant therein) was awarded
a contract for the construction of the Tago Diversion Works for the Tago River Irrigation
Project by the National Irrigation Administration and that respondent Aboitiz (plaintiff
therein) loaned him money and equipment, which indebtedness as of June 30, 1983
totaled P13,430,259.14. Paragraph 16 of the complaint states:

16. That, in view of the enormous liabilities which the defendants have with the plaintiff,
defendants executed a real estate mortgage covering eleven (11) parcels of land in favor
of Philippine Commercial and Industrial Bank (PCIB) to secure a P1,000,000.00 loan with
said bank and was able to remove, conceal and dispose of their properties, obviously to
defraud the plaintiff, . . . (Rollo, pp. 65-66).

The complaint in Civil Case No. CEB-1186 alleged that petitioner Eleazar Adlawan
(defendant therein) was awarded a contract for the construction of the Lasang River
Irrigation Project by the National Irrigation Administration and that respondent Aboitiz
(plaintiff therein) loaned him money and equipment, which indebtedness as of June 30,
1983 totalled P5,370,672.08. Paragraph 15 of the complaint is similarly worded as
paragraph 16 of the complaint in Civil Case No. CEB-1185.

Civil Case No. CEB-1185 was raffled to the Regional Trial Court, Branch 6, presided by
respondent Judge Ramon Am. Torres. On September 14, 1983, respondent Judge
ordered the issuance of a writ of attachment upon respondent Aboitiz' filing of a bond of
P5,000,000.00. Similarly, in Civil Case No. CEB-1186, which was raffled to Branch 23,
presiding Judge Emilio A. Jacinto ordered the issuance of a writ of attachment upon the
filing of a bond of P2,500,000.00. Accordingly, in Civil Case No. CEB-1185, the Acting
Provincial Sheriff of Cebu issued separate writs dated September 26, 1983 addressed
to the Sheriffs of Cebu, Davao and Metro Manila. No writ of preliminary attachment was,
however, issued in Civil Case No. CEB-1186.

Petitioners then filed in Civil Cases Nos. CEB-1185 and CEB-1186 urgent motions to
hold in abeyance the enforcement of the writs of attachments. They alleged in the main
that since their property had been previously attached and said attachment was being
questioned before the Supreme Court in G.R. No. 63225, the filing of the two cases, as
well as the issuance of the writs of attachment, constituted undue interference with the
processes of this court in the then pending petition involving the same property.

Upon motion of respondent Aboitiz, Branch 23 issued on October 13, 1983, an order
directing the transfer to Branch 6 of Civil Case No. CEB-1186 for consolidation with Civil
Case No. CEB-1185.

Meanwhile, in its comment on petitioners' motion to withhold the enforcement of the


writs of attachment, respondent Aboitiz alleged that the voluntary dismissal of Civil Case
No. R-21761 under Section 1, Rule 17 of the Revised Rules of Court was without
prejudice to the institution of another action based on the same subject matter. It
averred that the issuance of the writ of attachment was justified because petitioners
were intending to defraud respondent Aboitiz by mortgaging 11 parcels of land to the
Philippine Commercial and Industrial Bank (PCIB) in consideration of the loan of
P1,100,000.00, thereby making PCIB a preferred creditor to the prejudice of respondent
Aboitiz, which had an exposure amounting to P13,430,259.14.

Petitioners then filed a rejoinder to said comment, contending that since the property
subject of the writ of attachment have earlier been attached or replevied, the same
property were under custodia legis and therefore could not be the subject of other writs
of attachment.

On December 12, 1983, respondent Judge issued an order finding no merit in


petitioners' motion for reconsideration and directing the sheriffs of Cebu, Davao and
Metro Manila "to proceed with the enforcement and implementation of the writs of
preliminary attachment." Respondent Judge ruled that the writs of attachment were
issued on the basis of the supporting affidavits alleging that petitioner had removed or
disposed of their property with intent to defraud respondent Aboitiz (Rollo, pp. 109-113).

On December 15, petitioners filed an ex parte motion praying: (1) that the December 12,
1983 Order be set for hearing; (2) that they be given 15 days within which to either file a
motion for reconsideration or elevate the matter to this Court or the then Intermediate
Appellate Court; and (3) that within the same 15-day period the implementation or
enforcement of the writs of attachment be held in abeyance.

On the same day, respondent Judge issued an order holding in abeyance the
enforcement of the writs of preliminary attachment in order to afford petitioners an
opportunity to seek their other remedies (Rollo, p. 116).

On December 27, petitioners filed the instant petition for certiorari and mandamus. They
alleged that respondent Judge gravely abused his discretion in ordering the issuance of
the writs of preliminary attachment inasmuch as the real estate mortgage executed by
them in favor of PCIB did not constitute fraudulent removal, concealment or disposition
of property. They argued that granting the mortgage constituted removal or disposition
of property, it was not per se a ground for attachment lacking proof of intent to defraud
the creditors of the defendant.

Petitioners contended that in Civil Case No. 21761, Branch 11 had ruled that the loan
for which the mortgage was executed was contracted in good faith, as it was necessary
for them to continue their business operations even after respondent Aboitiz had
stopped giving them financial aid.

Petitioners also contended that respondent Judge exceeded his jurisdiction when he
issued the Order of December 12, 1983, without first hearing the parties on the motion
for attachment and the motion to dissolve the attachment. Moreover, they argued that
respondent Judge gravely abused his discretion in proceeding with the case,
notwithstanding that his attention had been called with regard to the pendency of G.R.
No. 63225 in this Court.

As prayed for by petitioners, we issued a temporary restraining order on January 6,


1984 "enjoining the respondents from enforcing or implementing the writs of preliminary
attachment against the property of petitioners, all dated September 26, 1983 and issued
in Civil Cases Nos. CEB 1185 and 1186" (Rollo, p. 118).

II

The resolution of this case centers on the issue of the legality of the writ of attachment
issued by respondent Judge in the consolidated cases for collection of sums of money.

The affidavit submitted by respondent Aboitiz in support of its prayer for the writ of
attachment does not meet the requirements of Rule 57 of the Revised Rules of Court
regarding the allegations on impending fraudulent removal, concealment and disposition
of defendant's property. As held in Carpio v. Macadaeg, 9 SCRA 552 (1963), to justify a
preliminary attachment, the removal or disposal must have been made with intent to
defraud defendant's creditors. Proof of fraud is mandated by paragraphs (d) and (e) of
Section 1, Rule 57 of the Revised Rules of Court on the grounds upon which
attachment may issue. Thus, the factual basis on defendant's intent to defraud must be
clearly alleged in the affidavit in support of the prayer for the writ of attachment if not so
specifically alleged in the verified complaint. The affidavit submitted by respondent
Aboitiz states:

REPUBLIC OF THE PHILIPPINES


CITY OF CEBU ...............) S.S.

I, ROMAN S. RONQUILLO, of legal age, married and a resident of Cebu City, after being
sworn in accordance with law, hereby depose and say:

That I am the Vice-President of the plaintiff corporation in the above-entitled case;

That a sufficient cause of action exists against the defendants named therein because
the said defendants are indebted to the plaintiffs in the amount of P13,430,259.14
exclusive of interests thereon and damages claimed;

That the defendants have removed or disposed of their properties with intent to defraud
the plaintiff, their creditor, because on May 27, 1982 they executed a real estate
mortgage in favor of Philippine Commercial and Industrial Bank (PCIB) covering eleven
(11) of their fifteen (15) parcels of land in Cebu to secure a P1,000,000.00 loan with the
same bank;

That this action is one of those specifically mentioned in Section 1, Rule 57 of the Rules
of Court, whereby a writ preliminary attachment may lawfully issue because the action
therein is one against parties who have removed or disposed of their properties with
intent to defraud their creditor, plaintiff herein;
That there is no sufficient security for the claims sought to be enforced by the present
action;

That the total amount due to the plaintiff in the above-entitled case is P13,430,259.14,
excluding interests and claim for damages and is as much the sum for which an order of
attachment is herein sought to be granted; above all legal counter-claims on the part of
the defendants.

IN VIEW WHEREOF, I hereunto set my hand this 24th day of August 1983 at Cebu City,
Philippines.

(
S
g
d
.
)

R
A
M
O
N

S
.

R
O
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I
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L
O

A
f
f
i
a
n
t

(Rollo, pp. 171-172)

It is evident from said affidavit that the prayer for attachment rests on the mortgage by petitioners of 11
parcels of land in Cebu, which encumbrance respondent Aboitiz considered as fraudulent concealment of
property to its prejudice. We find, however, that there is no factual allegation which may constitute as a
valid basis for the contention that the mortgage was in fraud of respondent Aboitiz. As this Court said in
Jardine-Manila Finance, Inc. v. Court of Appeals, 171 SCRA 636 (1989), "[T]he general rule is that the
affidavit is the foundation of the writ, and if none be filed or one be filed which wholly fails to set out some
facts required by law to be stated therein, there is no jurisdiction and the proceedings are null and void."
Bare allegation that an encumbrance of a property is in fraud of the creditor does not suffice. Factual
bases for such conclusion must be clearly averred.

The execution of a mortgage in favor of another creditor is not conceived by the Rules as one of the
means of fraudulently disposing of one's property. By mortgaging a piece of property, a debtor merely
subjects it to a lien but ownership thereof is not parted with.

Furthermore, the inability to pay one's creditors is not necessarily synonymous with fraudulent intent not
to honor an obligation (Insular Bank of Asia & America, Inc. v. Court of Appeals, 190 SCRA 629 [1990]).

Consequently, when petitioners filed a motion for the reconsideration of the order directing the issuance
of the writ of attachment, respondent Judge should have considered it as a motion for the discharge of
the attachment and should have conducted a hearing or required submission of counter-affidavits from
the petitioners, if only to gather facts in support of the allegation of fraud (Jopillo, Jr. v. Court of Appeals,
167 SCRA 247 [1988]). This is what Section 13 of Rule 57 mandates.

This procedure should be followed because, as the Court has time and again said, attachment is a harsh,
extraordinary and summary remedy and the rules governing its issuance must be construed strictly
against the applicant. Verily, a writ of attachment can only be granted on concrete and specific grounds
and not on general averments quoting perfunctorily the words of the Rules (D.P. Lub Oil Marketing
Center, Inc. v. Nicolas, 191 SCRA 423 [1990]).

The judge before whom the application is made exercises full discretion in considering the supporting
evidence proffered by the applicant. One overriding consideration is that a writ of attachment is
substantially a writ of execution except that it emanates at the beginning, instead of at the termination of
the suit (Santos v. Aquino, Jr., 205 SCRA 127 [1992]; Tay Chun Suy v. Court of Appeals, 212 SCRA 713
[1992]).

We need not discuss the issue of whether or not Civil Cases Nos. CEB-1185 and CEB-1186 constituted
undue interference with the proceedings in G.R. No. 63225 in view of the entry of judgment in the latter
case.

WHEREFORE, the petition is GRANTED and the Temporary Restraining Order issued on January 6,
1984 is made PERMANENT. Respondent Judge or whoever is the presiding judge of the Regional Trial
Court, Branch 6, Cebu City, is DIRECTED to PROCEED with the resolution of Civil Cases Nos. CEB-
1185 and CEB-1186 with deliberate dispatch.

SO ORDERED.
G.R. No. 102448 August 5, 1992

RICARDO CUARTERO, petitioner,


vs.
COURT OF APPEALS, ROBERTO EVANGELISTA and FELICIA EVANGELISTA,
respondents.

Abesamis, Medialdea & Abesamis for petitioner.

Eufemio Law Offices for private respondent.

This is a petition for review on certiorari seeking to annul the decision of the Court of
Appeals promulgated on June 27, 1991 as well as the subsequent resolution dated
October 22, 1991 denying the motion for reconsideration in CA-G.R. SP No. 23199
entitled "Spouses Roberto and Felicia Evangelista v. Honorable Cezar C. Peralejo,
Presiding Judge Regional Trial Court of Quezon City, Branch 98, and Ricardo
Cuartero," which nullified the orders of the trial court dated August 24, 1990 and
October 4, 1990 and cancelled the writ of preliminary attachment issued on September
19, 1990.

Following are the series of events giving rise to the present controversy.

On August 20, 1990, petitioner Ricardo Cuartero filed a complaint before the Regional
Trial Court of Quezon City against the private respondents, Evangelista spouses, for a
sum of money plus damages with a prayer for the issuance of a writ of preliminary
attachment. The complaint was docketed as Civil Case No. Q-90-6471.
On August 24, 1990, the lower court issued an order granting ex-parte the petitioner's
prayer for the issuance of a writ of preliminary attachment.

On September 19, 1990, the writ of preliminary attachment was issued pursuant to the
trial court's order dated August 24, 1990. On the same day, the summons for the
spouses Evangelista was likewise prepared.

The following day, that is, on September 20, 1990, a copy of the writ of preliminary
attachment, the order dated August 24, 1990, the summons and the complaint were all
simultaneously served upon the private respondents at their residence. Immediately
thereafter, Deputy Sheriff Ernesto L. Sula levied, attached and pulled out the properties
in compliance with the court's directive to attach all the properties of private respondents
not exempt from execution, or so much thereof as may be sufficient to satisfy the
petitioner's principal claim in the amount of P2,171,794.91.

Subsequently, the spouses Evangelista filed motion to set aside the order dated August
24, 1990 and discharge the writ of preliminary attachment for having been irregularly
and improperly issued. On October 4, 1990, the lower court denied the motion for lack
of merit.

Private respondents, then, filed a special civil action for certiorari with the Court of
Appeals questioning the orders of the lower court dated August 24, 1990 and October 4,
1990 with a prayer for a restraining order or writ of preliminary injunction to enjoin the
judge from taking further proceedings below.

In a Resolution dated October 31, 1990, the Court of Appeals resolved not to grant the
prayer for restraining order or writ of preliminary injunction, there being no clear showing
that the spouses Evangelista were entitled thereto.

On June 27, 1991, the Court of Appeals granted the petition for certiorari and rendered
the questioned decision. The motion for reconsideration filed by herein petitioner
Cuartero was denied for lack of merit in a resolution dated October 22, 1991. Hence,
the present recourse to this Court.

The petitioner raises the following assignment of errors:

THE COURT OF APPEALS ERRED AND COMMITTED A GRAVE ABUSE OF


DISCRETION, AMOUNTING TO LACK OF JURISDICTION WHEN IT HELD THAT THE
REGIONAL TRIAL COURT DID NOT ACQUIRE JURISDICTION OVER RESPONDENT
SPOUSES.

II

THE COURT OF APPEALS ERRED AND ACTED WITH GRAVE ABUSE OF


DISCRETION WHEN IT HELD THAT THE REGIONAL TRIAL COURT COULD NOT
VALIDLY ISSUE THE SUBJECT WRIT OF PRELIMINARY ATTACHMENT WHICH IS
AN ANCILLARY REMEDY. (Rollo, p. 13)

The Court of Appeals' decision is grounded on its finding that the trial court did not
acquire any jurisdiction over the person of the defendants (private respondents herein).
It declared that:

. . . the want of jurisdiction of the trial court to proceed in the main case as well as the
ancillary remedy of attachment is quite clear. It is not disputed that neither service of
summons with a copy of the complaint nor voluntary appearance of petitioners was had
in this case before the trial court issued the assailed order dated August 24, 1990, as well
as the writ of preliminary attachment dated September 19, 1990. This is reversible error
and must be corrected on certiorari. (Rollo, p. 24)

The appellate tribunal relied on the case of Sievert v. Court of Appeals, 168 SCRA 692
(1988) in arriving at the foregoing conclusion. It stated that:

Valid service of summons and a copy of the complaint vest jurisdiction in the court over
the defendant both for the purpose of the main case and for purposes of the ancillary
remedy of attachment and a court which has not acquired jurisdiction over the person of
defendant, cannot bind the defendant whether in the main case or in any ancillary
proceeding such as attachment proceedings (Sievert v. Court of Appeals, 168 SCRA
692). (Rollo, p. 24)

The private respondents, in their comment, adopted and reiterated the aforementioned
ruling of the Court of Appeals. They added that aside from the want of jurisdiction, no
proper ground also existed for the issuance of the writ of preliminary attachment. They
stress that the fraud in contracting the debt or incurring the obligation upon which the
action is brought which comprises a ground for attachment must have already been
intended at the inception of the contract. According to them, there was no intent to
defraud the petitioner when the postdated checks were issued inasmuch as the latter
was aware that the same were not yet funded and that they were issued only for
purposes of creating an evidence to prove a pre-existing obligation.

Another point which the private respondents raised in their comment is the alleged
violation of their constitutionally guaranteed right to due process when the writ was
issued without notice and hearing.

In the later case of Davao Light and Power Co., Inc. v. Court of Appeals, G.R. No.
93262, November 29, 1991, we had occasion to deal with certain misconceptions which
may have arisen from our Sievert ruling. The question which was resolved in the Davao
Light case is whether or not a writ of preliminary attachment may issue ex-parte against
a defendant before the court acquires jurisdiction over the latter's person by service of
summons or his voluntary submission to the court's authority. The Court answered in
the affirmative. This should have clarified the matter but apparently another ruling is
necessary.

A writ of preliminary attachment is defined as a provisional remedy issued upon order of


the court where an action is pending to be levied upon the property or properties of the
defendant therein, the same to be held thereafter by the sheriff as security for the
satisfaction of whatever judgment might be secured in said action by the attaching
creditor against the defendant (Adlawan v. Tomol, 184 SCRA 31 [1990] citing Virata v.
Aquino, 53 SCRA 30-31 [1973]).

Under section 3, Rule 57 of the Rules of Court, the only requisites for the issuance of
the writ are the affidavit and bond of the applicant. As has been expressly ruled in BF
Homes, Inc. v. Court of Appeals, 190 SCRA 262 (1990), citing Mindanao Savings and
Loan Association, Inc. v. Court of Appeals, 172 SCRA 480 (1989), no notice to the
adverse party or hearing of the application is required inasmuch as the time which the
hearing will take could be enough to enable the defendant to abscond or dispose of his
property before a writ of attachment issues. In such a case, a hearing would render
nugatory the purpose of this provisional remedy. The ruling remains good law. There is,
thus, no merit in the private respondents' claim of violation of their constitutionally
guaranteed right to due process.

The writ of preliminary attachment can be applied for and granted at the
commencement of the action or at any time thereafter (Section 1, Rule 57, Rules of
Court). In Davao Light and Power, Co., Inc. v. Court of Appeals, supra, the phrase "at
the commencement of the action" is interpreted as referring to the date of the filing of
the complaint which is a time before summons is served on the defendant or even
before summons issues. The Court added that

. . . after an action is properly commenced by filing of the complaint and the payment
of all requisite docket and other fees the plaintiff may apply and obtain a writ of
preliminary attachment upon the 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.

The Court also pointed out that:

. . . 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
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 the period
should be dependent on, or held in suspension until, the actual obtention of jurisdiction
over the defendants 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
thereof.

It is clear from our pronouncements that a writ of preliminary attachment may issue
even before summons is served upon the defendant. However, we have likewise ruled
that the writ cannot bind and affect the defendant. However, we have likewise ruled that
the writ cannot bind and affect the defendant until jurisdiction over his person is
eventually obtained. Therefore, it is required that when the proper officer commences
implementation of the writ of attachment, service of summons should be simultaneously
made.

It must be emphasized that the grant of the provisional remedy of attachment practically
involves three stages: first, the court issues the order granting the application; second,
the writ of attachment issues pursuant to the order granting the writ; and third, the writ is
implemented. For the initial two stages, it is not necessary that jurisdiction over the
person of the defendant should first be obtained. However, once the implementation
commences, it is required that the court must have acquired jurisdiction over the
defendant for without such jurisdiction, the court has no power and authority to act in
any manner against the defendant. Any order issuing from the Court will not bind the
defendant.

In Sievert v. Court of Appeals, supra, cited by the Court of Appeals in its questioned
decision, the writ of attachment issued ex-parte was struck down because when the writ
of attachment was being implemented, no jurisdiction over the person of the defendant
had as yet been obtained. The court had failed to serve the summons to the defendant.

The circumstances in Sievert are different from those in the case at bar. When the writ
of attachment was served on the spouses Evangelista, the summons and copy of the
complaint were also simultaneously served.

It is appropriate to reiterate this Court's exposition in the Davao Light and Power case
cited earlier, to wit:

. . . writs of attachment may properly issue ex-parte provided that the Court is satisfied
that the relevant requisites therefore 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.

The question as to whether a proper ground existed for the issuance of the writ is a
question of fact the determination of which can only be had in appropriate proceedings
conducted for the purpose (Peroxide Philippines Corporation V. Court of Appeals, 199
SCRA 882 [1991]). It must be noted that the spouses Evangelista's motion to discharge
the writ of preliminary attachment was denied by the lower court for lack of merit. There
is no showing that there was an abuse of discretion on the part of the lower court in
denying the motion.

Moreover, an attachment may not be dissolved by a showing of its irregular or improper


issuance if it is upon a ground which is at the same time the applicant's cause of action
in the main case since an anomalous situation would result if the issues of the main
case would be ventilated and resolved in a mere hearing of a motion (Davao Light and
Power Co., Inc. v. Court of Appeals, supra, The Consolidated Bank and Trust Corp.
(Solidbank) v. Court of Appeals, 197 SCRA 663 [1991]).

In the present case, one of the allegations in petitioner's complaint below is that the
defendant spouses induced the plaintiff to grant the loan by issuing postdated checks to
cover the installment payments and a separate set of postdated cheeks for payment of
the stipulated interest (Annex "B"). The issue of fraud, then, is clearly within the
competence of the lower court in the main action.

WHEREFORE, premises considered, the Court hereby GRANTS the petition. The
challenged decision of the Court of Appeals is REVERSED, and the order and writ of
attachment issued by Hon. Cezar C. Peralejo, Presiding Judge of Branch 98, Regional
Trial Court of Quezon City against spouses Evangelista are hereby REINSTATED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. 84034 December 22, 1988

ALBERTO SIEVERT, petitioner,


vs.
COURT OF APPEALS, HON. JUDGE ARTEMON D. LUNA and AURELIO
CAMPOSANO, respondents.

King & Adorio Law Offices for petitioner.

Moises C. Kallos for private respondent.

On 18 May 1988 petitioner Alberto Sievert a citizen and resident of the Philippines
received by mail a Petition for Issuance of a Preliminary Attachment filed with the
Regional Trial Court of Manila Branch 32 in Civil Case No. 88-44346. Petitioner had not
previously received any summons and any copy of a complaint against him in Civil
Case No. 88-44346.

On the day set for hearing of the Petition for a Preliminary Writ of Attachment,
petitioner's counsel went before the trial court and entered a special appearance for the
limited purpose of objecting to the jurisdiction of the court. He simultaneously filed a
written objection to the jurisdiction of the trial court to hear or act upon the Petition for
Issuance of a Preliminary Writ of Attachment. In this written objection, petitioner prayed
for denial of that Petition for lack of jurisdiction over the person of the petitioner
(defendant therein) upon the ground that since no summons had been served upon him
in the main case, no jurisdiction over the person of the petitioner had been acquired by
the trial court.

The trial court denied the petitioner's objection and issued in open court an order which,
in relevant part, read as follows:

Under Section 1, Rule 57, Rules of Court, it is clear that a plaintiff or any proper party
may "... at the commencement of the action or at any time thereafter, have the property of
the adverse party attached as the security for the satisfaction of any judgment ..." This
rule would overrule the contention that this Court has no jurisdiction to act on the
application, although if counsel for defendant so desire, she is given five (5) days from
today within which to submit her further position why the writ should not be issued, upon
the receipt of which or expiration of the period, the pending incident shall be considered
submitted for resolution. (Underscoring in the original) 1

Thereupon, on the same day, petitioner filed a Petition for certiorari with the Court of
Appeals. On 13 July 1988, the respondent appellate court rendered a decision, notable
principally for its brevity, dismissing the Petition. The relevant portion of the Court of
Appeals' decision is quoted below:

The grounds raised in this petition state that the court a quo had not acquired jurisdiction
over defendant (now petitioner) since no summons had been served on him, and that
respondent Judge had committed a grave abuse of discretion in issuing the questioned
order without jurisdiction.

In short, the issue presented to us is whether respondent Judge may issue a writ of
preliminary attachment against petitioner before summons is served on the latter.

We rule for respondent Judge.

Under Sec. 1, Rule 57, it is clear that, at the commencement of the action, a party may
have the property of the adverse party attached as security. The resolution of this issue
depends, therefore, on what is meant by "Commencement of the action." Moran, citing
American jurisprudence on this point, stated thus: "Commencement of action. Action is
commenced by filing of the complaint, even though summons is not issued until a later
date." (Comment on the Rules of Court, Vol. I, p. 150, 1979). Thus, a writ of preliminary
attachment may issue upon filing of the complaint even before issuance of the summons.

WHEREFORE, for lack of merit, the petition is hereby denied and, accordingly,
dismissed. (Emphasis supplied) 2

The petitioner is now before this Court on a Petition for Review on Certiorari, assailing
the above-quoted decision of the Court of Appeals. The petitioner assigns two (2)
errors:

1. The proceedings taken and the order issued on plaintiffs petition for attachment prior to
the service of summons on the defendant were contrary to law and jurisprudence and
violated the defendant's right to due process.
2. The Court of Appeals committed a grave abuse of discretion amounting to lack of
jurisdiction in ruling that a writ of preliminary attachment may issue upon filing of the
complaint even prior to issuance of the summons. 3

The two (2) assignments of error relate to the single issue which we perceive to be at
stake here, that is, whether a court which has not acquired jurisdiction over the person
of the defendant in the main case, may bind such defendant or his property by issuing a
writ of preliminary attachment.

Both the trial court and the Court of Appeals held that the defendant may be bound by a
writ of preliminary attachment even before summons together with a copy of the
complaint in the main case has been validly served upon him.

We are unable to agree with the respondent courts.

There is no question that a writ of preliminary attachment may be applied for a plaintiff
"at the commencement of the action or at any time thereafter" in the cases enumerated
in Section 1 of Rule 57 of the Revised Rules of Court. The issue posed in this case,
however, is not to be resolved by determining when an action may be regarded as
having been commenced, a point in time which, in any case, is not necessarily fixed and
Identical regardless of the specific purpose for which the deter. nation is to be made.
The critical time which must be Identified is, rather, when the trial court acquires
authority under law to act coercively against the defendant or his property in a
proceeding in attachment. We believe and so hold that critical time is the time of the
vesting of jurisdiction in the court over the person of the defendant in the main case.

Attachment is an ancillary remedy. It is not sought for its own sake but rather to
enable the attaching party to realize upon relief sought and expected to be
granted in the main or principal action . 4 A court which has not acquired
jurisdiction over the person of defendant, cannot bind that defendant whether in
the main case or in any ancillary proceeding such as attachment proceedings.
The service of a petition for preliminary attachment without the prior or
simultaneous service of summons and a copy of the complaint in the main
case and that is what happened in this case does not of course confer
jurisdiction upon the issuing court over the person of the defendant.

Ordinarily, the prayer in a petition for a writ of preliminary attachment is embodied or


incorporated in the main complaint itself as one of the forms of relief sought in such
complaint. Thus, valid service of summons and a copy of the complaint will in such case
vest jurisdiction in the court over the defendant both for purposes of the main case and
for purposes of the ancillary remedy of attachment. In such case, notice of the main
case is at the same time notice of the auxiliary proceeding in attachment. Where,
however, the petition for a writ of preliminary attachment is embodied in a discrete
pleading, such petition must be served either simultaneously with service of summons
and a copy of the main complaint, or after jurisdiction over the defendant has already
been acquired by such service of summons. Notice of the separate attachment petition
is not notice of the main action. Put a little differently, jurisdiction whether ratione
personae or ratione materiae in an attachment proceeding is ancillary to jurisdiction
ratione personae or ratione materiae in the main action against the defendant. If a court
has no jurisdiction over the subject matter or over the person of the defendant in the
principal action, it simply has no jurisdiction to issue a writ of preliminary attachment
against the defendant or his property.

It is basic that the requirements of the Rules of Court for issuance of preliminary
attachment must be strictly and faithfully complied with in view of the nature of this
provisional remedy. In Salas v. Adil, 5 this Court described preliminary attachment as

a rigorous remedy which exposes the debtor to humiliation and annoyance, such [that] it
should not be abused as to cause unnecessary prejudice. It is, therefore; the duty of the
court, before issuing the writ, to ensure that all the requisites of the law have been
complied with; otherwise the judge acts in excess of his jurisdiction and the writ so issued
shall be null and void. (Emphasis supplied ) 6

The above words apply with greater force in respect of that most fundamental of
requisites, the jurisdiction of the court issuing attachment over the person of the
defendant.

In the case at bar, the want of jurisdiction of the trial court to proceed in the main case
against the defendant is quite clear. It is not disputed that neither service of summons
with a copy of the complaint nor voluntary appearance of petitioner Sievert was had in
this case. Yet, the trial court proceeded to hear the petition for issuance of the writ. This
is reversible error and must be corrected on certiorari.

WHEREFORE, the Petition for Review on certiorari is GRANTED due course and the
Order of the trial court dated 20 May 1988 and the Decision of the Court of Appeals
dated 13 July 1988 are hereby SET ASIDE and ANNULLED. No pronouncement as to
costs.

SO ORDERED.
K.O. Glass Const. Co., Inc. v. Valenzuela

116 SCRA

Facts:

Held: In pleading for attachment against a foreigner, allegation must not be merely that
defendant is a foreigner; there must also be a showing that defendant is about to leave the
Philippines with intent to defraud their creditor, or that he is a non-resident alien.

Requisites for issuance of writ of attachment:

1. a sufficient cause of action exists;

2. case is one of those mentioned in Sec 1(a) of Rule 57;

3. there is no other sufficient security for the claim sought to be enforced by the action;
4. the amount due to the applicant for attachment or the value of the property of which he is
entitled to recover is as much as the sum for which the order is granted above all legal
counterclaims.

Once defendant files a counter-bond, the writ of attachment should be dissolved.

G.R. No. L-48756 September 11, 1982

K.O. GLASS CONSTRUCTION CO., INC., petitioner,


vs.
THE HONORABLE MANUEL VALENZUELA, Judge of the Court of First Instance of
Rizal, and ANTONIO D. PINZON, respondents.

Guillermo E. Aragones for petitioner.

Ruben V. Lopez for respondent Antonio D. Pinzon.

Petition for certiorari to annul and set aside the writ of preliminary attachment issued by
the respondent Judge in Civil Case No. 5902-P of the Court of First Instance of Rizal,
entitled: Antonio D. Pinzon plaintiff, versus K.O. Glass Construction Co., Inc., and
Kenneth O. Glass, defendants, and for the release of the amount of P37,190.00, which
had been deposited with the Clerk of Court, to the petitioner.

On October 6, 1977, an action was instituted in the Court of First Instance of Rizal by
Antonio D. Pinzon to recover from Kenneth O. Glass the sum of P37,190.00, alleged to
be the agreed rentals of his truck, as well as the value of spare parts which have not
been returned to him upon termination of the lease. In his verified complaint, the plaintiff
asked for an attachment against the property of the defendant consisting of collectibles
and payables with the Philippine Geothermal, Inc., on the grounds that the defendant is
a foreigner; that he has sufficient cause of action against the said defendant; and that
there is no sufficient security for his claim against the defendant in the event a judgment
is rendered in his favor. 1

Finding the petition to be sufficient in form and substance, the respondent Judge
ordered the issuance of a writ of attachment against the properties of the defendant
upon the plaintiff's filing of a bond in the amount of P37,190.00. 2

Thereupon, on November 22, 1977, the defendant Kenneth O. Glass moved to quash
the writ of attachment on the grounds that there is no cause of action against him since
the transactions or claims of the plaintiff were entered into by and between the plaintiff
and the K.O. Glass Construction Co., Inc., a corporation duly organized and existing
under Philippine laws; that there is no ground for the issuance of the writ of preliminary
attachment as defendant Kenneth O. Glass never intended to leave the Philippines, and
even if he does, plaintiff can not be prejudiced thereby because his claims are against a
corporation which has sufficient funds and property to satisfy his claim; and that the
money being garnished belongs to the K.O. Glass Corporation Co., Inc. and not to
defendant Kenneth O. Glass. 3

By reason thereof, Pinzon amended his complaint to include K.O. Glass Construction
Co., Inc. as co-defendant of Kenneth O. Glass. 4

On January 26, 1978, the defendants therein filed a supplementary motion to discharge
and/or dissolve the writ of preliminary attachment upon the ground that the affidavit filed
in support of the motion for preliminary attachment was not sufficient or wanting in law
for the reason that: (1) the affidavit did not state that the amount of plaintiff's claim was
above all legal set-offs or counterclaims, as required by Sec. 3, Rule 57 of the Revised
Rules of Court; (2) the affidavit did not state that there is no other sufficient security for
the claim sought to be recovered by the action as also required by said Sec. 3; and (3)
the affidavit did not specify any of the grounds enumerated in Sec. 1 of Rule 57, 5 but,
the respondent Judge denied the motion and ordered the Philippine Geothermal, Inc. to
deliver and deposit with the Clerk of Court the amount of P37,190.00 immediately upon
receipt of the order which amount shall remain so deposited to await the judgment to be
rendered in the case. 6

On June 19, 1978, the defendants therein filed a bond in the amount of P37,190.00 and
asked the court for the release of the same amount deposited with the Clerk of Court, 7
but, the respondent Judge did not order the release of the money deposited. 8

Hence, the present recourse. As prayed for, the Court issued a temporary restraining
order, restraining the respondent Judge from further proceeding with the trial of the
case. 9

We find merit in the petition. The respondent Judge gravely abused his discretion in
issuing the writ of preliminary attachment and in not ordering the release of the money
which had been deposited with the Clerk of Court for the following reasons:

First, there was no ground for the issuance of the writ of preliminary attachment. Section
1, Rule 57 of the Revised Rules of Court, which enumerates the grounds for the
issuance of a writ of preliminary attachment, reads, as follows:

Sec. 1. Grounds upon which attachment may issue. A plaintiff or any proper party may,
at the commencement of the action or at any time thereafter, have the property of the
adverse party attached as security for the satisfaction of any judgment that may be
recovered in the following cases:

(a) In an action for the recovery of money or damages on a cause of action arising from
contract, express or implied, against a party who is about to depart from the Philippines
with intent to defraud his creditor;

(b) In an action for money or property embezzled or fraudulently misapplied or converted


to his own use by a public officer, or an officer of a corporation, or an attorney, factor,
broker, agent, or clerk, in the course of his employment as such, or by any other person
in a fiduciary capacity, or for a willful violation of duty;

(c) In an action to recover the possession of personal property unjustly detained, when
the property, or any part thereof, has been concealed, removed, or disposed of to prevent
its being found or taken by the applicant or an officer;

(d) In an action against the party who has been guilty of a fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in concealing or disposing of
the property for the taking, detention or conversion of which the action is brought;

(e) In an action against a party who has removed or disposed of his property, or is about
to do so, with intent to defraud his creditors;

(f) In an action against a party who resides out of the Philippines, or on whom summons
may be served by publication.

In ordering the issuance of the controversial writ of preliminary attachment, the


respondent Judge said and We quote:

The plaintiff filed a complaint for a sum of money with prayer for Writ of Preliminary
Attachment dated September 14, 1977, alleging that the defendant who is a foreigner
may, at any time, depart from the Philippines with intent to defraud his creditors including
the plaintiff herein; that there is no sufficient security for the claim sought to be enforced
by this action; that the amount due the plaintiff is as much as the sum for which an order
of attachment is sought to be granted; and that defendant has sufficient leviable assets in
the Philippines consisting of collectibles and payables due from Philippine Geothermal,
Inc., which may be disposed of at any time, by defendant if no Writ of Preliminary
Attachment may be issued. Finding said motion and petition to be sufficient in form and
substance. 10

Pinzon however, did not allege that the defendant Kenneth O. Glass "is a foreigner
(who) may, at any time, depart from the Philippines with intent to defraud his creditors
including the plaintiff." He merely stated that the defendant Kenneth O. Glass is a
foreigner. The pertinent portion of the complaint reads, as follows:

15. Plaintiff hereby avers under oath that defendant is a foreigner and that said defendant
has a valid and just obligation to plaintiff in the total sum of P32,290.00 arising out from
his failure to pay (i) service charges for the hauling of construction materials; (ii) rentals
for the lease of plaintiff's Isuzu Cargo truck, and (iii) total cost of the missing/destroyed
spare parts of said leased unit; hence, a sufficient cause of action exists against said
defendant. Plaintiff also avers under oath that there is no sufficient security for his claim
against the defendant in the event a judgment be rendered in favor of the plaintiff.
however, defendant has sufficient assets in the Philippines in the form of collectible and
payables due from the Philippine Geothermal, Inc. with office address at Citibank Center,
Paseo de Roxas, Makati, Metro Manila, but which properties, if not timely attached, may
be disposed of by defendants and would render ineffectual the reliefs prayed for by
plaintiff in this Complaint. 11

In his Amended Complaint, Pinzon alleged the following:


15. Plaintiff hereby avers under oath that defendant GLASS is an American citizen who
controls most, if not all, the affairs of defendant CORPORATION. Defendants
CORPORATION and GLASS have a valid and just obligation to plaintiff in the total sum
of P32,290.00 arising out for their failure to pay (i) service charges for hauling of
construction materials, (ii) rentals for the lease of plaintiff's Isuzu Cargo truck, and (iii)
total cost of the missing/destroyed spare parts of said leased unit: hence, a sufficient
cause of action exist against said defendants. Plaintiff also avers under oath that there is
no sufficient security for his claim against the defendants in the event a judgment be
rendered in favor of the plaintiff. however, defendant CORPORATION has sufficient
assets in the Philippines in the form of collectibles and payables due from the Philippine
Geothermal., Inc. with office address at Citibank Center, Paseo de Roxas, Makati, Metro
Manila, but which properties, if not timely attached, may be disposed of by defendants
and would render ineffectual the reliefs prayed for by plaintiff in this Complaint. 12

There being no showing, much less an allegation, that the defendants are about to
depart from the Philippines with intent to defraud their creditor, or that they are non-
resident aliens, the attachment of their properties is not justified.

Second, the affidavit submitted by Pinzon does not comply with the Rules. Under the
Rules, an affidavit for attachment must state that (a) sufficient cause of action exists, (b)
the case is one of those mentioned in Section I (a) of Rule 57; (c) there is no other
sufficient security 'or the claim sought to be enforced by the action, and (d) the amount
due to the applicant for attachment or the value of the property the possession of which
he is entitled to recover, is as much as the sum for which the order is granted above all
legal counterclaims. Section 3, Rule 57 of the Revised Rules of Court reads. as follows:

Section 3. Affidavit and bond required.An order of attachment shall be granted only
when it is made to appear by the affidavit of the applicant, or of some person who
personally knows the facts, that a sufficient cause of action exists that the case is one of
those mentioned in Section 1 hereof; that there is no other sufficient security for the claim
sought to be enforced by the action, and that the amount due to the applicant, or the
value of the property the possession of which he is entitled to recover, is as much as the
sum for which the order is granted above all legal counterclaims. The affidavit, and the
bond required by the next succeeding section, must be duly filed with the clerk or judge of
the court before the order issues.

In his affidavit, Pinzon stated the following:

I, ANTONIO D. PINZON Filipino, of legal age, married and with residence and postal
address at 1422 A. Mabini Street, Ermita, Manila, subscribing under oath, depose and
states that.

1. On October 6,1977,I filed with the Court of First Instance of Rizal, Pasay City Branch,
a case against Kenneth O. Glass entitled 'ANTONIO D. PINZON vs. KENNETH O.
GLASS', docketed as Civil Case No. 5902-P;

2. My Complaint against Kenneth O. Glass is based on several causes of action, namely:

(i) On February 15, 1977, we mutually agreed that I undertake to haul his construction
materials from Manila to his construction project in Bulalo, Bay, Laguna and vice-versa,
for a consideration of P50.00 per hour;
(ii) Also, on June 18, 1977, we entered into a separate agreement whereby my Isuzu
cargo truck will be leased to him for a consideration of P4,000.00 a month payable on the
15th day of each month;

(iii) On September 7, 1977, after making use of my Isuzu truck, he surrendered the same
without paying the monthly rentals for the leased Isuzu truck and the peso equivalent of
the spare parts that were either destroyed or misappropriated by him;

3. As of today, October 11, 1977, Mr. Kenneth 0. Glass still owes me the total sum of
P32,290.00 representing his obligation arising from the hauling of his construction
materials, monthly rentals for the lease Isuzu truck and the peso equivalent of the spare
parts that were either destroyed or misappropriated by him;

4. I am executing this Affidavit to attest to the truthfulness of the foregoing and in


compliance with the provisions of Rule 57 of the Revised Rules of Court. 13

While Pinzon may have stated in his affidavit that a sufficient cause of action exists
against the defendant Kenneth O. Glass, he did not state therein that "the case is one of
those mentioned in Section 1 hereof; that there is no other sufficient security for the
claim sought to be enforced by the action; and that the amount due to the applicant is
as much as the sum for which the order granted above all legal counter-claims." It has
been held that the failure to allege in the affidavit the requisites prescribed for the
issuance of a writ of preliminary attachment, renders the writ of preliminary attachment
issued against the property of the defendant fatally defective, and the judge issuing it is
deemed to have acted in excess of his jurisdiction. 14

Finally, it appears that the petitioner has filed a counterbond in the amount of
P37,190.00 to answer for any judgment that may be rendered against the defendant.
Upon receipt of the counter-bond the respondent Judge should have discharged the
attachment pursuant to Section 12, Rule 57 of the Revised Rules of Court which reads,
as follows:

Section 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 on his behalf, may upon reasonable notice to the applicant, apply
to the judge who granted the order, or to the judge of the court in which the action is
pending, for an order discharging the attachment wholly or in part on the security given.
The judge shall, after hearing, order the discharge of the attachment if a cash deposit is
made or a counterbond executed to the attaching creditor is filed, on behalf of the
adverse party, with the clerk or judge of the court where the application is made, in an
amount equal to the value of the property attached as determined by the judge, to secure
the payment of any judgment that the attaching creditor may recover in the action. Upon
the filing of such counter-bond, copy thereof shall forthwith be served on the attaching
creditor or his lawyer. Upon the discharge of an attachment in accordance with the
provisions of this section the property attached, or the proceeds of any sale thereof, shall
be delivered to the party making the deposit or giving the counter-bond, or the person
appearing on his behalf, the deposit or counter-bond aforesaid standing in the place of
the property so released. Should such counter-bond for any reason be found to be, or
become, insufficient, and the party furnishing the same fail to file an additional counter-
bond the attaching creditor may apply for a new order of attachment.
The filing of the counter-bond will serve the purpose of preserving the defendant's
property and at the same time give the plaintiff security for any judgment that may be
obtained against the defendant. 15

WHEREFORE, the petition is GRANTED and the writ prayed for is issued. The orders
issued by the respondent Judge on October 11, 19719, January 26, 1978, and February
3, 1978 in Civil Case No. 5902-P of the Court of First Instance of Rizal, insofar as they
relate to the issuance of the writ of preliminary attachment, should be as they are
hereby ANNULLED and SET ASIDE and the respondents are hereby ordered to
forthwith release the garnished amount of P37,190.00 to the petitioner. The temporary
restraining order, heretofore issued, is hereby lifted and set aside. Costs against the
private respondent Antonio D. Pinzon.

SO ORDERED.
G.R. No. 55272 April 10, 1989

JARDINE-MANILA FINANCE, INC., petitioner,


vs.
COURT OF APPEALS, IMPACT CORPORATION, RICARDO DE LEON and
EDUARDO DE LEON, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Ramon Quisumbing, Jr. & Associates for private respondents.

This is a petition for review on certiorari seeking to reverse and set aside: (a) the August
29, 1980 decision of the Court of Appeals 1 in Special Proceedings CA-G.R. No. SP-
09972-R entitled "Impact Corporation, et al. v. Hon. Buenaventura Guerrero, etc., et al."
annulling the order and the writ of attachment issued by the Court of First Instance of
Rizal in Civil Case No. 34617 entitled "Jardine-Manila Finance, Inc. v. Impact
Corporation, et al." 2 and (b) the Resolution dated October 7, 1980 denying herein
petitioners motion for reconsideration. 3

On September 28, 1979, petitioner Jardine-Manila Finance, Inc. (JARDINE) filed a


complaint in the then Court of First Instance (CFI) of Rizal, docketed as Civil Case No.
34617, against private respondents Impact Corporation (IMPACT), Ricardo de Leon and
Eduardo de Leon, to collect various sums of money allegedly due from therein
defendant IMPACT under a credit accomodation by way of a discounting line
agreement. 4 Herein private respondents Ricardo de Leon and Eduardo de Leon were
included as defendants by virtue of their undertaking covered by a Surety Agreement
under which they bound themselves jointly and severally with defendant IMPACT to pay
herein petitioner all of IMPACT's obligations under the aforesaid agreement. 5

It was alleged that in April and May 1979, IMPACT assigned its receivables to JARDINE
on the condition that IMPACT was to collect them on their due dates from their issuers
and remit the collected amounts to JARDINE and/or repurchase the assigned
receivables; 6 but despite the fact that IMPACT had collected the amounts due on said
receivables, it failed or refused to turn over the amounts so collected to JARDINE.

JARDINE thus demanded payment of P 1,000,212.64, the total amount due under said
various deeds of assignment, plus interest of P 16,614.64 as of September 6, 1979 and
25 % of the aforesaid amount as attorney's fees, exemplary damages and other
expenses of litigation.
Likewise contained in said complaint is petitioner's application for a writ of preliminary
attachment against private respondents. The allegations in support of said petition for a
writ of preliminary attachment are quoted in full:

Special Allegations for Preliminary Attachment

A. The foregoing allegations are hereby repleaded and made integral


parts hereof.

B. The defendant corporation at the time of the execution of the


aforesaid deeds of assignment had reservation not to remit to plaintiff the
proceeds of the receivables assigned to plaintiff as confirmed by their
refusal to remit the same to plaintiff although the issuers of the
receivables assigned to plaintiff had already paid to defendant
corporation their obligations on said receivables to the latter.

C. Defendants Ricardo de Leon and Eduardo de Leon who are likewise


officers of defendant corporation in order to elicit plaintiffs approval to
enter into said deeds of assignment with defendant corporation,
executed the aforesaid surety agreement (Annex L), likewise, with
reservation in their minds not to honor their obligations under the same
as what they actually did when they refused to pay the obligations of
defendant corporation to plaintiff pursuant to the provisions of said surety
agreement. (Annex L)

D. Defendant corporation, Ricardo de Leon and Eduardo de Leon have


no visible other sufficient security for the claim sought to be enforced by
this action of plaintiff other than their real and personal properties which
are located in Metro Manila and in the province of Rizal, Province of
Nueva Ecija or elsewhere. (Emphasis supplied)

E. Plaintiffs action against defendant corporation is based upon


documents and therefrom a sufficient cause of action exists.

F. Plaintiff is willing to post a bond in an amount to be fixed by the


Honorable Court, not exceeding plaintiffs claim which will be conditioned
to the effect that plaintiff will pay all the costs which may be adjudged to
the adverse party and all damages which they may sustain by reason of
attachment, if the Honorable Court should finally adjudge that the
applicant plaintiff is not entitled thereto.7

On the basis of the foregoing allegations, the lower court granted JARDINE's petition for
the issuance of a writ of preliminary attachment on October 16, 1979. 8

On October 19, 1979, therein defendants filed a motion to set aside the writ of
preliminary attachment. They also submitted to the court a quo a memorandum in
support of their motion to dissolve the attachment contending that the grounds alleged
by the plaintiff in its application for a writ of attachment are not among the grounds
specified under Section 1 of Rule 57; that the defendants have other sufficient security;
that there was no affidavit of merit to support the application for attachment as required
by Section 3 of Rule 57 and that the verification of the complaint was defective as it did
not state that the amount due to the plaintiff above all legal set-ups or counterclaims is
as much as the sum for which the order is sought. 9

JARDINE opposed the motion arguing that the mental reservation of defendants at the
time of the execution of the deeds of assignment constituted fraud; that such fraud was
further confirmed by the fact that defendants actually failed to remit the proceeds of the
collection of receivables assigned by them; that defendants failed to disclose to the
plaintiff the fact that they had already collected the receivables assigned by them; that
the amounts collected by defendant corporation were received by defendants in trust for
plaintiff and defendant corporation appropriated for itself said collection. 10

On November 7, 1979, the trial court denied defendant's motion to annul the writ of
preliminary attachment. Thereupon, defendant Impact Corporation went to the appellate
court on a petition for certiorari seeking to annul said writ. 11

The findings of the Court of Appeals are as follows:

To our mind there is no question that the allegations of the complaint proper which were
repleaded and made integral part of the application for preliminary attachment (paragraph
A) made out a case of conversion or misappropriation of property held in trust which is
the subject of the complaint for the allegations stated that IMPACT had assigned to
JARDINE certain receivables with the understanding that it was to collect the same from
the issuers of said receivables and deliver the amounts collected to JARDINE, but in
spite of the fact that IMPACT had actually collected said amounts, it failed to turn over
said receivables to JARDINE. There was, therefore, in the allegations of said complaint
true conversion of the amounts received by defendant in trust for plaintiff. Defendants in
their motion to discharge the attachment and the memorandum filed by them in support
of said motion had in effect, admitted the conversion of the amounts collected by
defendant IMPACT, but justified the use of said amounts to meet its operational
expenses to prevent a complete shutdown of its operations.

While we find that the grounds alleged by plaintiff, the herein private respondent, to
support its application for preliminary attachment are among those enumerated in Section
1 of Rule 57 as grounds upon which an attachment may be issued, we are constrained
nonetheless to rule against the regularity or legality of the attachment issued by
respondent Court because there was no allegation made by plaintiff in its application for
the issuance of a writ of attachment to the effect 'that there is no sufficient security for the
claim sought to be enforced, by the action, and the amount due to the applicant or the
value of the property on the basis of which is entitled to recover, is as much as the sum
for which the order is granted above all legal counterclaims, a requirement for the
granting of an order of attachment under Section 3 of Rule 57. 12

Thus, on August 29, 1980, the Court of Appeals annulled the assailed writ of attachment
for having been issued improperly and irregularly, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, the petition to annul the order and the writ of attachment
issued by respondent Court is hereby GRANTED and judgment is rendered declaring
said order and writ of attachment null and void for having been issued improperly and
regularly. The restraining order issued by this Court on November 9, 1979 restraining
respondents from enforcing the writ of attachment issued by respondent Judge on
October 16, 1979 is hereby made PERMANENT. With costs against private respondents.
13
Hence this recourse.

Reduced to bare essentials, the records show that in the exercise of its discretion, the
lower court found justification in the issuance of the attachment. On the other hand, the
Court of Appeals while in accord with the lower court that a sufficient cause of action
exists for petitioner and that the ground for its application for attachment is one of those
mentioned in Section 1, Rule 57 of the Rules of Court, found the issuance of the
attachment irregular or illegal in the absence of the following allegations in the
application for attachment: (1) that "there is no sufficient security for the claim sought to
be enforced by the action; and (2) that the amount due to the applicant or the value of
the property on the basis of which he is entitled to recover, is as much as the sum for
which the order is granted above all legal counterclaims."

Ultimately, the issue therefore, is whether or not non-compliance with the formal
requirements invalidate the writ of attachment.

On both counts, petitioner admits not having used the exact words of the Rules in
making the requisite allegations, but nonetheless it alleged that it presented ultimate
and specific facts, first-in showing that there is indeed no other sufficient security for the
claim sought to be enforced as shown in paragraph D of the Complaint earlier quoted;
and second-while it did not specifically state that the sum due is above all legal
counterclaims, such conclusion of fact is no longer necessary in the face of actual proof
in the answer which did not carry any counterclaim. In fine, petitioner stresses that mere
forms must not be given more weight than substance. 14

In excusing the deficiencies of its application for a writ of preliminary attachment,


petitioner relies heavily on the case of De Borja v. Platon, 15 where this Court sustained
the writ of attachment issued by the lower court in favor of the defendants based on the
counterclaim of the latter despite the lack of allegations in the affidavit attached to the
petition for the issuance of the writ of attachment that the amount due the counterclaim
was as much as the sum for which the order is granted above all legal counterclaims.

It will be noted however, that the trial court found that the counterclaim of the
defendants exceeded the claims of the plaintiff. Thus, this Court held that "as the trial
court had before it the evidence adduced by both sides, the petition for a writ of
preliminary attachment having been filed four years after the trial court had begun, we
presume that the lower court having in mind such evidence, ordered the attachment
accordingly." 16

In sharp contrast, in the case at bar, where the records undeniably reveal that: (1) the
complaint was filed on September 28, 1979; 17 (2) the writ of preliminary attachment was
issued on October 16, 1979; 18 (3) the motion to annul preliminary attachment dated
October 19, 1979 was filed on the same day; 19 (4) the answer of defendant IMPACT
dated October 30, 1979 20 was received by the RTC Pasig only on November 5, 1979, 21
it is evident that the questioned writ was issued ex parte; and at a time when the Court a
quo had yet no basis for concluding that the amount due to petitioner is as much as the
sum for which the order is granted above all legal counterclaims.

It is therefore, readily apparent that the conclusions in the De Borja case cannot be
applied to the case at bar. In fact even petitioner's plea for liberality as it vigorously
invokes the doctrine on said case which refused "to sanction that formalism and that
technicality which are discountenanced by the modern laws of procedure" is an obvious
misreading of the ruling of this Court which states:

On the first point, we believe a writ of preliminary attachment may be issued in favor of a
defendant who sets up a counterclaim. For the purpose of the protection afforded by such
attachment, it is immaterial whether the defendants Borja and wife simply presented a
counterclaim or brought a separate civil action against Jose de Borja, plaintiff in the
previous case and petitioner herein. To lay down a subtle distinction would be to sanction
that formalism and that technicality which are discountenanced by the modern laws of
procedure for the sake of speedy and substantial justice. . . . 22

as a liberal approach to the required allegations in the application for a writ of


preliminary attachment when what this Court actually allowed was the presentation of a
counterclaim by the defendant instead of a separate civil action in compliance with one
of the basic requirements for the issuance of said writ.

The authority to issue an attachment, like the jurisdiction of the court over such
proceedings rests on express statutory provisions and unless there is authority in the
statute, there is no power to issue the writ, and such authority as the statute confers
must be strictly construed.23 In fact, "(E)ven where liberal construction is the rule, the
statute or the right to attachment thereby granted may not be extended by judicial
interpretation beyond the meaning conveyed by the words of the statute." 24 Petitioner's
application for a writ of preliminary attachment must therefore be scrutinized and
assessed by the requisites and conditions specifically prescribed by law for the
issuance of such writ.

Section 3, Rule 57 of the Revised Rules of Court governs the issuance of a writ of
attachment, to wit:

Sec. 3. Affidavit and bond required.-An order of attachment shall be granted only when it
is made to appear by the affidavit of the applicant or some other person who personally
knows of the facts, that a sufficient cause of action exists, that the case is one of those
mentioned in section 1 hereof, that there is no sufficient security for the claim sought to
be enforced by the action, and that the amount due to applicant or the value of the
property the possession of which he is entitled to recover is as much as the sum for
which the order is granted above all legal counterclaims.

The stringent conditions for the issuance of the writ have been echoed in all subsequent
cases, even as late as K.O. Glass Construction Co. Inc. vs. Valenzuela, 25 wherein the
writ of preliminary attachment issued was annulled and set aside on the findings that
while the plaintiff "may have stated in his affidavit that a sufficient cause of action exists
against the defendant Kenneth O. Glass, he did not state therein that the case is one of
those mentioned in Section 1 hereof; that there is no other sufficient security for the
claim sought to be enforced by the action; and that the amount due to the applicant is
as much as the sum for which the order is granted above all legal counterclaims."

More specifically, it has been held that the failure to allege in the affidavit the requisites
prescribed for the issuance of the writ of preliminary attachment, renders the writ of
preliminary attachment issued against the property of the defendant fatally defective,
and the judge issuing it is deemed to have acted in excess of his jurisdiction. 26 In fact,
in such cases, the defect cannot even be cured by amendment. 27

Since the attachment is a harsh and rigorous remedy which exposes the debtor to
humiliation and annoyance, the rule authorizing its issuance must be strictly construed
in favor of defendant. It is the duty of the court before issuing the writ to ensure that all
the requisites of the law have been complied with. 28 Otherwise, a judge acquires no
jurisdiction to issue the writ.

The general rule is that the affidavit is the foundation of the writ, and if none be filed or
one be filed which wholly fails to set out some facts required by law to be stated therein,
there is no jurisdiction and the proceedings are null and void. Thus, while not unmindful
of the fact that the property seized under the writ and brought into court is what the
court finally exercises jurisdiction over, the court cannot subscribe to the proposition that
the steps pointed out by statutes to obtain such writ are inconsequential, and in no
sense jurisdictional. 29

Considering that petitioner's application for the subject writ of preliminary attachment did
not fully comply with the requisites prescribed by law, said writ is, as it is hereby
declared null and void and of no effect whatsoever.

This conclusion renders a discussion of petitioner's other argument unnecessary.

WHEREFORE, the decision of the Court of Appeals dated August 29, 1980 is hereby
AFFIRMED. Costs against petitioner.

SO ORDERED.
A.M. No. RTJ-93-1008 November 14, 1994

TERESITA P. ARELLANO, petitioner,


vs.
JUDGE NAPOLEON R. FLOJO, FELINO BANGALAN, Clerk of Court III, HERMINIO
DEL CASTILLO, RTC-OCC.; LUCINO JOVE, Deputy Sheriff, respondents.

Wilfredo O. Paraiso for petitioner.

Tumaru, Guerrero & Tumaru Law Offices for respondents Judge Bangalan and Sheriff
Jove.

RESOLUTION

Teresita P. Arellano, defendant in Civil Case No. 11-1041 then pending before Branch 6
of the Regional Trial Court of the Second Judicial Region and stationed in Aparri,
Cagayan, filed a verified complaint for neglect of duty, misconduct, bias, and partiality
against

(a) Judge Napoleon R. Flojo, then Presiding Judge of the aforementioned Branch 6,
now assigned as Presiding Judge of Branch 2 of the Regional Trial Court of Manila, for
having irregularly issued an order dated January 21, 1986 for the issuance of a writ of
attachment in the said case on the same date despite the lack of legal basis therefor.

(b) Felino Bangalan, then Acting Clerk of Court III, of the Aparri RTC (now Presiding
Judge, MTC, Branch 1, Aparri, Cagayan) for issuing the writ of attachment in the said
case despite the failure of the plaintiffs to post the required attachment bond of
P100,000.00 and for deliberately delaying the issuance of service of summons to the
defendant in that although the case was filed on January 21, 1986, the defendant
(complainant herein) was served summons only on May 13, 1986 or four (4) months
thereafter, and that she was not even furnished a copy of the Order authorizing the
issuance of a writ of attachment, the so-called attachment bond, as well as the writ of
attachment itself.

(c) Herminio del Castillo, Branch Clerk of Court of the Aparri RTC for deliberately
delaying the issuance of service of summons on the defendant.

(d) Luciano Jove, Deputy Sheriff, Aparri, Cagayan for seizing a vehicle not owned by
the defendant and entrusting the custody thereof to Sheriff Guards Rodolfo Auringan
and Dioniso Co., Jr., instead of personally keeping it under his custody, resulting in the
said vehicle being cannibalized to the damage and prejudice of the complainant and the
heirs of the late Ruperto Arellano.

The complaint against Clerk of Court Herminio del Castillo was dismissed for lack of
merit by the Court in its Resolution dated June 28, 1993, as he did not appear to have
had any participation in the issuance and service of summons on the defendant in the
aforementioned civil case (pp. 42-43, Rollo.)

With respect to Judge Napoleon R. Flojo, inasmuch as the charges against him were
mere reiterations of the charges filed by the same complainant in A.M. Case No. RTJ-
86-52 which had been earlier dismissed for lack of merit by the Court en banc on March
24, 1987, the instant complaint against him was likewise dismissed in the resolution of
the Court dated November 8, 1993
(p. 83, Rollo).

Thereafter, the case was referred to Justice Ramon A. Barcelona of the Court of
Appeals, for investigation, report, and recommendation in regard to the remaining
respondents.

Justice Barcelona finds Judge Bangalan (then Clerk of Court III) guilty of negligence for
(1) having issued the writ of attachment on January 21, 1986 in spite of the applicants'
failure to post an acceptable bond as required under Section 4, Rule 57 of the Rules of
Court for what appears in the record is only a promissory note in the form of an affidavit
executed by Victor Suguitan, Andres Langaman, and Mariano Retreta; having caused
the implementation through Sheriff Jove, of the said writ of attachment on January 23,
1986, knowingly fully well that no summons had as yet been issued and served as of
said date upon defendant therein in violation of Section 5, Rule 57 of the Rules of Court
and Section 3, Rule 14 of the same rules.

As for Sheriff Jove, Justice Barcelona found that in serving the writ of attachment, the
sheriff did not serve the same on the defendant but on somebody whom he suspected
only as holding the property of the complainant. He failed to verify the ownership of the
cargo truck he attached. To compound the sheriff's failure to exercise diligence in the
execution of the writ of attachment, he surrendered the custody of the property to the
two alleged guards instead of depositing the same in a bonded warehouse.

Finding both Judge Bangalan and Sheriff Jove remiss in the performance of their duties,
Justice Barcelona recommends that they each be suspended for one (1) month (not
chargeable to their accumulated leave) without pay. However, this Court is of the
opinion and thus hereby holds that a fine of P5,000.00 each for Judge Bangalan and
Sheriff Jove is the commensurate penalty for the irregularity that attended the civil case
below. In this respect, we agree with the factual findings and analysis of the Office of
the Court Administrator, thus:

Indeed, he issued the Writ of Attachment although the plaintiffs have not yet posted the
required attachment bond. It is explicitly stated in his Comment that what was filed was
merely an undertaking. The fact that the "Undertaking" was subscribed by the branch
clerk of court does not necessarily follow that it carried the imprimatur of the presiding
judge thereof. As a lawyer, respondent Bangalan, who is now a Judge should have
known the glaring distinctions between a plain undertaking and a real attachment bond.
The difference between the two is not that hard to discern. As ruled by Judge Ernesto A.
Talamayan in his order of April 23, 1993 (Rollo, pp. 18-19), no bond can be confiscated
to answer for the damages sustained by defendants. He discovered that only a
promissory note in the form of an affidavit executed by the bondsmen denominated as an
attachment bond appears on the record. Had respondent Bangalan carefully examined
the undertaking filed before he issued the writ of attachment, such a situation could have
been obviated. Where a statute authorizing attachment requires, as a condition to the
issuance of the writ, that a bond shall be given by plaintiff to indemnify defendant for any
loss or injury resulting from the attachment in case it proves to be wrongful, a failure to
give such bond is fatal, and an attachment issued without the necessary bond is invalid
(7 C.J.S. 326). However, we do not find that the delay in the issuance and service of
summons was deliberately done to prejudice the defendant. Bad faith cannot be inferred
by the mere fact of delay considering that it was issued by the Office of the Clerk of Court
and not by the branch clerk to whom the case was already assigned.

For seizing a vehicle which is not owned by the defendant, respondent Sheriff Jove may
be held administratively liable. Although his actuation may not have been tainted with bad
faith or malice, he failed to exercise due prudence in attaching the truck. He should have
verified first if the truck he seized was owned by the judgment debtor, especially in this
case where it was found in the possession of a person other than its real owner.
Consequently, the writ of attachment was ordered dissolved in the Decision of Judge
Tumacder dated August 9, 1989 (Rollo, pp. 25 to 41) as the property attached does not
belong to the judgment debtor but to her father, Ruperto Arellano. A sheriff incurs liability
if he wrongfully levies upon the property of a third person (47 Am Jr 857). A sheriff has no
authority to attach the property of any person under execution except that of the
judgment debtor. If he does so, the writ of execution affords him no justification, for the
action is not in obedience to the mandate of the writ (Codesal and Ocampo vs. Ascue, 38
Phil. 902). The sheriff maybe liable for enforcing execution on property belonging to a
third party (Sec. 17, Rule 39, Rules of Court). However, he cannot be faulted for
entrusting the custody thereof to the sheriff guards considering that he can not physically
keep the cargo truck under his custody. His stand is sustained by the Court in its Order of
October 10, 1989 (Rollo, pp. 110 to 111), holding the two (2) sheriff guards liable for the
cannibalism of the truck.

(pp. 132-133. Rollo)

WHEREFORE, premises considered, Judge Felino Bangalan and Sheriff Lucinio Jove
are hereby each fined the amount of FIVE THOUSAND PESOS (P5,000.00), with the
severe warning that a repetition of the same or similar acts in the future will be dealt
with more severely.

SO ORDERED.
G.R. No. 106989 May 10, 1994

H.B. ZACHRY COMPANY INTERNATIONAL, petitioner,


vs.
HON. COURT OF and VINNEL-BELVOIR CORPORATION, respondents.

G.R. No. 107124 May 10, 1994

VINNEL-BELVOIR CORPORATION, petitioner,


vs.
THE COURT OF APPEALS and H.B. ZACHRY COMPANY INTERNATIONAL,
respondents.

Quisumbing, Torres & Evangelista for H.B. Zachry Co.

Feria, Feria, Lustu & La O' for Vinnel Belvoir Corp.

Challenged in these petitions for review, which were ordered consolidated on 9


December 1992, 1 is the decision of the Court of Appeals in CA-G.R. SP No. 24174,
2
promulgated on 1 July 1992, the dispositive portion of which reads:

WHEREFORE, premises considered, this Petition for Certiorari and Prohibition is


hereby granted in so far as it prayed for the dissolution of the writ of preliminary
attachment inasmuch as it was issued prior to the service of summons and a copy
of the complaint on petitioner. The writ of preliminary attachment issued by
respondent Court on March 21, 1990 is hereby ordered lifted and dissolved as
having been issued in grave abuse of discretion by respondent Court.

With respect to the issue of whether or not parties should submit the instant
dispute [to] arbitration, We hereby order public respondent to conduct a hearing
for the determination of the proper interpretation of the provisions of the
Subcontract Agreement.

No pronouncement as to costs. 3

and its 2 September 1992 Resolution 4 which denied the motion for partial
reconsideration of H.B. Zachry Company International (hereinafter Zachry) and
the motion for reconsideration of Vinnel-Belvoir Corporation (hereinafter VBC).

The pleadings of the parties and the challenged decision disclose the following
material facts:

On 17 July 1987, VBC entered into a written Subcontract Agreement 5 with Zachry,
a foreign corporation. The latter had been engaged by the United States Navy to
design and construct 264 Family Housing Units at the US Naval Base at Subic,
Zambales. Under the agreement, specifically under Section 3 on Payment, VBC
was to perform all the construction work on the housing project and would be
paid "for the performance of the work the sum of Six Million Four Hundred Sixty-
eight Thousand U.S. Dollars (U.S. $6,468,000.00), subject to additions and
deductions for changes as hereinafter provided." This "lump sum price is based
on CONTRACTOR'S proposal, dated 21 May 1987 (including drawings), submitted
to OWNER for Alternate Design-Apartments." It was also provided "that
substantial differences between the proposal and the final drawings and
Specification approved by the OWNER may be grounds for an equitable
adjustment in price and/or time of performance if requested by either party in
accordance with Section 6 [on] Changes." 6 Section 27 of the agreement reads:

Section 27. DISPUTES PROCEDURE

A. In case of any dispute, except those that are specifically provided for in this
SUBCONTRACT, between the SUBCONTRACTOR and the CONTRACTOR, the
SUBCONTRACTOR agrees to be bound to the CONTRACTOR to the same extent
that the CONTRACTOR is bound to the OWNER by the terms of the GENERAL
CONTRACT and by any and all decisions or determinations made thereunder by
the party or boards so authorized in the GENERAL CONTRACT. The
SUBCONTRACTOR, on items or issues relating or attributable to the
SUBCONTRACTOR, also agrees to be bound to the CONTRACTOR to the same
extent that the CONTRACTOR is bound to the OWNER by the final decision of a
court of competent jurisdiction, whether or not the SUBCONTRACTOR is a party to
such proceeding. If such a dispute is prosecuted or defended by the
CONTRACTOR against the OWNER under the terms of the GENERAL CONTRACT
or in court action, the SUBCONTRACTOR agrees to furnish all documents,
statements, witnesses and other information required by the CONTRACTOR for
such purpose. It is expressly understood that as to any and all work done and
agreed to be done by the CONTRACTOR and as to any and all materials,
equipment or services furnished or agreed to be furnished by the
SUBCONTRACTOR, and as to any and all damages incurred by the
SUBCONTRACTOR in connection with this SUBCONTRACT, the CONTRACTOR
shall not be liable to the SUBCONTRACTOR to any greater extent than the OWNER
is liable to and pays the CONTRACTOR for the use and benefit of the
SUBCONTRACTOR for such claims, except those claims arising from acts of the
CONTRACTOR. No dispute shall interfere with the progress of the WORK and the
SUBCONTRACTOR agrees to proceed with his WORK as directed, despite any
disputes it may have with the CONTRACTOR, the OWNER, or other parties.

B. If at any time any controversy should arise between the CONTRACTOR and the
SUBCONTRACTOR, with respect to any matter or thing involved in, related to or
arising out of this SUBCONTRACT, which controversy is not controlled or
determined by subparagraph 27.A. above or other provisions in this
SUBCONTRACT, then said controversy shall be decided as follows:

1. The SUBCONTRACTOR shall be conclusively bound and abide by the


CONTRACTOR'S written decision respecting said controversy, unless the
SUBCONTRACTOR shall commence arbitration proceedings as hereinafter
provided within thirty (30) days following receipt of such written decision.
2. If the SUBCONTRACTOR decides to appeal from the written decision of the
CONTRACTOR, then the controversy shall be decided by arbitration in accordance
with the then current rules of the Construction Industry Arbitration Rules of the
American Arbitration Association, and the arbitration decision shall be final and
binding on both parties; provided, however, that proceedings before the American
Arbitration Association shall be commenced by the SUBCONTRACTOR not later
than thirty (30) days following the CONTRACTOR'S written decision pursuant to
subparagraph 27.B.1 above. If the SUBCONTRACTOR does not file a demand for
arbitration with the American Arbitration Association and CONTRACTOR within
this thirty (30) day period, then the CONTRACTOR'S written decision is final and
binding.

3. This agreement to arbitrate shall be specifically enforceable. 7

When VBC had almost completed the project, Zachry complained of the quality of
work, making it a reason for its decision to take over the management of the
project, which paragraph c, Section 7 of the Subcontract Agreement authorized.
However, prior to such take-over, the parties executed on 18 December 1989 a
Supplemental Agreement, 8 pertinent portions of which read as follows:

2. All funds for progress as computed by the schedule of prices under the
subcontract will be retained by ZACHRY to insure sufficiency of funds to finish the
lump sum project as scoped by the subcontract. However, one month after the
date of this agreement, when ZACHRY shall have determined the cost to complete
the subcontract, ZACHRY shall as appropriate, release to VBC the corresponding
portion of the amounts retained.

xxx xxx xxx

7. All costs incurred by ZACHRY chargeable to VBC under the subcontract from
the date of the takeover to complete the scope of the subcontract will be to the
account of VBC and/or its sureties. Zachry will advise both VBC and its sureties on
a periodic basis as to progress and accumulated costs.

xxx xxx xxx

9. VBC will be invited to participate in negotiations with the Navy in Change Orders
concerning its scope of work. VBC will accept as final, without recourse against
ZACHRY the Navy's decision regarding its interest in these Change Orders or
modifications.

In accordance with the above conditions, VBC submitted to Zachry on 10 January


1990 a detailed computation of the cost to complete the subcontract on the
housing project. According to VBC's computation, there remains a balance of
$1,103,000.00 due in its favor as of 18 January 1990. This amount includes the
sum of $200,000.00 allegedly withheld by Zachry and the labor escalation
adjustment granted earlier by the US Navy in the amount of $282,000.00 due VBC.
Zachry, however, not only refused to acknowledge the indebtedness but
continually failed to submit to VBC a statement of accumulated costs, as a result
of which VBC was prevented from checking the accuracy of the said costs. On 2
March 1990, VBC wrote Zachry a letter demanding compliance with its
obligations. 9 Zachry still failed to do so. VBC made representations to pursue its
claim, including a formal claim with the Officer-in-Charge of Construction,
NAVFAC Contracts, Southwest Pacific, 10 which also failed.

Hence, on 20 March 1990, VBC filed a Complaint 11 with the Regional Trial Court
(RTC) of Makati against Zachry for the collection of the payments due it with a
prayer for a writ of preliminary attachment over Zachry's bank account in Subic
Base and over the remaining thirty-one undelivered housing units which were to
be turned over to the US Navy by Zachry on 30 March 1990. The case was
docketed as Civil Case No. 90-772 and was raffled to Branch 142 of the said court
presided over by Judge Salvador P. de Guzman, Jr. Paragraph 2 of the Complaint
alleges that defendant Zachry "is a foreign corporation with address at 527
Longwood Street, San Antonio, Texas, U.S.A. and has some of its officers
working at U.S. Naval Base, Subic Bay, Zambales where it may be served with
summons."

On 21 March 1990, the trial court issued an order granting the application for the
issuance of the writ of preliminary attachment and fixing the attachment bond at
P24,266,000.00. 12 VBC put up the required bond and on 26 March 1990, the trial
court issued the writ of attachment, 13 which was served, together with the
summons, a copy of the complaint with annexes, the bond, and a copy of the
order of attachment, on 27 March 1990 in the manner described in the Sheriff's
Partial Return 14 of 29 March 1990:

upon defendant H.B. Zachry Company (International) at its field office in U.S. Naval
Base, Subic Bay, Zambales thru Ruby Apostol who acknowledged receipt thereof.
Mr. James M. Cupit, defendant's authorized officer was in their Manila office at the
time of service.

The return further states:

That on March 28, 1990, the undersigned sheriff went to the office of defendant H.
B. Zachry Company (International) at c/o A.M. Oreta & Co. at 5th Floor, Ermita
Building, Arquiza corner Alhambra streets, Ermita, Manila to serve the Court's
processes but was informed by Atty. Felix Lobiro of A.M. Oreta & Co., that
defendant H.B. Zachry Company has its own office at Room 600, 6th Floor of the
same building (Ermita Building). However, said defendant's office was closed and
defendant company (ZACHRY) only holds office during Mondays and Tuesdays of
the week as per information gathered from the adjacent office.

On 27 March 1990, VBC filed an Amended Complaint 15 in Civil Case No. 90-772 to
implead as additional defendants the US Navy Treasury Office-Subic Naval Base
and Captain A.L. Wynn, an officer of the US Navy, against whom VBC prayed for a
restraining order or preliminary injunction to restrain the latter from preparing the
treasury warrant checks to be paid to Zachry and the former from signing the said
checks and to restrain both from making any further payments to Zachry. It also
amended paragraph 2 on the status and circumstances of Zachry as follows:
2. Defendant, H.B. Zachry Co. (International) . . . is a foreign corporation with
address at 527 Longwood Street, San Antonio, Texas, U.S.A. and may be served
with summons and all other legal processes at the following addresses: a) H.B.
Zachry Company (International), U.S. Naval Base, Subic Bay, Zambales; and b)
H.B. Zachry Company (International) c/o A.M. Oreta & Co., 5th Floor Ermita
Building, Arquiza corner Alhambra Streets, Ermita, Manila, through its authorized
officer James C. Cupit. 16

On 6 April 1990, Zachry filed a motion to dismiss the complaint 17 on the ground of
lack of jurisdiction over its person because the summons was not validly served
on it. It alleges that it is a foreign corporation duly licensed on 13 November 1989
by the Securities and Exchange Commission to do business in the Philippines 18
and, pursuant to Section 128 of the Corporation Code of the Philippines, had
appointed Atty. Lucas Nunag 19 as its resident agent on whom any summons and
legal processes against it may be served. Atty. Nunag's address is at the 10th
Floor, Shell House, 156 Valero St., Makati, Metro Manila.

Summons and a copy of the Amended Complaint were served on 24 April 1990 on
Zachry through Atty. Nunag as shown in the sheriff's return dated 24 April 1990. 20

On 26 April 1990, VBC filed a Manifestation 21 to inform the court of the above
service of summons on Zachry which it claimed rendered moot and academic the
motion to dismiss.

On 24 May 1990, Zachry filed an Omnibus Motion 22 (a) to dismiss the complaint
for lack of jurisdiction over its person since the subsequent service of summons
did not cure the jurisdictional defect it earlier pointed out and, in the alternative,
to dismiss the case or suspend the proceedings therein for failure of the plaintiff
to submit the controversy in question to arbitration as provided for in its contract
with Zachry; and (b) to dissolve the writ of attachment of 26 March 1990 "for
having been issued without jurisdiction, having been issued prior to the service
of summons." The arbitration provision referred to is Section 27.B of the
Subcontract Agreement quoted earlier. In support of its alternative prayer for the
suspension of proceedings, it cited Section 7 of R.A. No. 876, otherwise known as
the Arbitration Act which provides:

Sec. 7. Stay of Civil Action If any suit or proceeding be brought upon an issue,
arising out of an agreement providing for the arbitration thereof, the Court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in accordance with the terms of the
agreement. . . .

This provision is almost identical with Section 3 of the United States Arbitration
Act.

As to the invalidity of the writ of attachment, Zachry avails of the decision in


Sievert vs. Court of Appeals 23 wherein this Court said:
Attachment is an ancillary remedy. It is not sought for its own sake but rather to
enable the attaching party to realize upon relief sought and expected to be granted
in the main or principal action. A court which has not acquired jurisdiction over the
person of the defendant, cannot bind that defendant whether in the main case or in
any ancillary proceeding such as attachment proceedings. The service of a petition
for preliminary attachment without the prior or simultaneous service of summons
and a copy of the complaint in the main case and that is what happened in this
casedoes not of course confer jurisdiction upon the issuing court over the
person of the defendant. 24

VBC opposed the Omnibus Motion. Pleadings related to the Omnibus Motion
were subsequently filed. 25

In its Order of 19 September 1990, 26 the trial court resolved the Omnibus Motion
and the related incidents by declaring that "the merits of the case can only [be]
reached after due presentation of evidence." Hence, it denied the motion and
directed the defendants to file their answer within the period provided by law.

On 8 October 1990, Zachry filed a motion for the reconsideration 27 of the above
order assailing the court's inaction on the second and third issues raised in its
Omnibus Motion, viz., the necessity of arbitration and the invalidity of the writ of
attachment. VBC opposed the motion. 28 On 9 January 1991, the court issued an
order denying the motion for reconsideration by ruling that the writ of preliminary
attachment was regularly issued and that the violations of the Subcontract
Agreement can be "tranced [sic] only after the case is heard on the merits."

Dissatisfied with the denial, Zachry filed with the Court of Appeals on 14 February
1991 a petition for certiorari and prohibition, 29 which was docketed as CA-G.R. SP
No. 24174. Zachry contends therein that:

1. The proceedings before respondent trial court should be suspended, pending


submission of the dispute to arbitration pursuant to Section 27-B of the
Subcontract Agreement;

2. Alternatively, the complaint should be dismissed, pending arbitration pursuant


to Section 27-B of the Subcontract Agreement;

3. As a third alternative, the complaint should be dismissed, because the dispute


has been resolved with finality under Section 27-B of the Subcontract Agreement;
and

4. The writ of preliminary attachment should be dissolved, as having been outside,


or in excess of respondent court's jurisdiction, having been issued prior to the
service of summons on petitioner.

It then prays that (a) the orders of the trial court of 19 September 1990 and 9
January 1991 be annulled for having been issued without or in excess of
jurisdiction or with grave abuse of discretion; and (b) the trial court be directed to
immediately suspend the proceedings in Civil Case No. 90-772 pending
arbitration proceedings in accordance with the terms of Section 27.B of the
Subcontract Agreement or, alternatively, to dismiss the amended complaint and
dissolve the writ of attachment. It also prays for the issuance of a temporary
restraining order and a writ of preliminary injunction to restrain the trial court
from proceeding further in Civil Case No. 90-772.

On 18 February 1991, the Court of Appeals issued a temporary restraining order.


30

On 1 July 1991, the Court of Appeals promulgated the challenged decision 31


dissolving the writ of preliminary attachment issued by the trial court and
ordering it to conduct a hearing to determine the proper interpretation of the
provisions of the Subcontract Agreement. As to the writ of attachment, the Court
of Appeals held that summons was served on Zachry only on 24 April 1990;
hence, applying Sievert vs. Court of Appeals, 32 the trial court "had no authority
yet to act coercively against the defendant" when it issued the writ of attachment
on 21 March 1990. As to arbitration, it ruled:

We are of the reasoned opinion that unlike in the factual situation in the cases
cited by petitioner, the contract involved in the case at bar is, with respect to its
arbitration clause, vogue [sic] and uncertain. Section 27.B which is the provision
upon which petitioner anchors its claims is ambiguous in its terminology when it
states that "if at anytime any controversy should arise between the contractor and
the subcontractor . . . which controversy is not controlled or determined by
Section 27.A above or other provision of this subcontract . . . ." This provision
states that only when a controversy arises between the contractor and the
subcontractor which is not covered by Section 27.A or any provision of the
Subcontract Agreement will the parties submit to arbitration. As to what
controversies fall under Section 27.B, it is not clear from a mere perusal of the
provisions. It is therefore not correct for petitioner to say that any and all dispute
arising between the contracting parties should be resolved by arbitration prior to a
filing of a suit in court. 33

VBC and Zachry filed a motion for reconsideration and a partial motion for
reconsideration, respectively. 34 The former urged the Court of Appeals to
consider the decision of this Court of 29 November 1991 in Davao Light & Power
Co. vs. Court of Appeals 35 wherein this Court ruled that a writ of preliminary
attachment may be issued ex-parte prior to the service of summons and a copy of
the complaint on the defendants. On the other hand, Zachry insists that "[t]here is
nothing 'vague' or 'ambiguous about' " the provision on dispute procedures set
forth in Subsections 27.B.1 to 27.B.3 of the Subcontract Agreement.

In its Resolution of 2 September 1992, 36


the Court of Appeals denied the above
motions of the parties.

Hence, these petitions which were given due course in this Court's Resolution of
8 March 1993. 37
In G.R. No. 106989, petitioner Zachry reiterates all the issues it raised before the
Court of Appeals, except that regarding the validity of the writ of attachment
which was decided in its favor.

In G.R. No. 107124, petitioner VBC raises the following issues:

A. WHETHER THE ISSUANCE OF THE WRIT OF PRELIMINARY ATTACHMENT


PRIOR TO THE SERVICE OF THE SUMMONS AND A COPY OF THE AMENDED
COMPLAINT ON THE RESPONDENT IS VALID.

B. WHETHER RESORT TO ARBITRATION PRIOR TO FILING A SUIT IN COURT IS


REQUIRED BY THE SUBCONTRACT AGREEMENT UNDER THE FACTS OBTAINING
IN THE PRESENT CASES.

As to the first issue, VBC takes refuge in the ruling in Davao Light & Power Co.
vs. Court of Appeals 38 and argues that the issuance of the writ of attachment on
21 March 1990, although before the service of the summons, was valid. Its
issuance and implementation are two different and separate things; the first is
not affected by any defect in the implementation which may be corrected.
Moreover, assuming arguendo that the initial service of summons was defective,
it was cured by the numerous pleadings thereafter filed. Finally, whatever doubts
existed on the effectiveness of the implementation of the writ was erased by its
re-service on the resident agent of Zachry.

As to the issue on arbitration, VBC maintains that arbitration is not required


under the facts obtaining in the present case because the applicable provision of
the Subcontract Agreement is Section 3 on Payment and not Section 27.B on
Arbitration. Zachry's fraudulent actuations and gross violation of the Subcontract
Agreement render prior resort to arbitration futile and useless. The preliminary
attachment, which was essential to secure the interest of the petitioner, could not
have been obtained through arbitration proceedings.

Zachry, in its Comment, 39 contends that pursuant to the Sievert and Davao Light
rulings, the issuance of the writ of attachment before the service of summons on
Zachry's resident agent was invalid and that the various pleadings filed by the
parties did not cure its invalidity. It argues that the arbitration procedure is set
forth in Section 27.B of the Subcontract Agreement. It further maintains that
pursuant to General Insurance vs. Union Insurance, 40 the alleged fraudulent
actuations which relate to the merits of the case may be properly addressed to
the arbitrators and that there is no merit to the claim that arbitration would be
useless since the arbitration proceeding would be presided over by an
independent and competent arbitral tribunal.

The issues in these petitions are properly defined by VBC in G.R. No. 107124.

We find for petitioner VBC.


It was error for the Court of Appeals to declare, on the ground of grave abuse of
discretion, the nullity of the writ of attachment issued by the trial court on 21
March 1990. In the first place, the writ was in fact issued only on 26 March 1990
and served, together with the summons, copy of the complaint, the Order of 21
March 1990, and the bond, on 27 March 1990 on Zachry at its field office in Subic
Bay, Zambales, through one Ruby Apostol. What the Court of Appeals referred to
as having been issued on 21 March 1990 is the order granting the application for
the issuance of a writ of preliminary attachment upon the posting of a bond of
P24,266,000.00. 41 In the second place, even granting arguendo that the Court of
Appeals had indeed in mind the 26 March 1990 writ of attachment, its issuance,
as well as the issuance of the 21 March 1990 Order, did not suffer from any
procedural or jurisdictional defect; the trial court could validly issue both.

However, the writ of attachment cannot be validly enforced through the levy of
Zachry's property before the court had acquired jurisdiction over Zachry's person
either through its voluntary appearance or the valid service of summons upon it.
42
To put it in another way, a distinction should be made between the issuance
and the enforcement of the writ. The trial court has unlimited power to issue the
writ upon the commencement of the action even before it acquires jurisdiction
over the person of the defendant, but enforcement thereof can only be validly
done after it shall have acquired such jurisdiction. This is the rule enunciated in
Davao Light & Power Co. vs. Court of
Appeals. 43 In that case, this Court stated:

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 dependent 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 thereof. 44

xxx xxx xxx

A preliminary attachment may be defined, paraphrasing the Rules of Court, as the


provisional remedy in virtue of which a plaintiff or other proper party may, at the
commencement of the action or at any time thereafter, have the property of the
adverse party taken into the custody of the court as security for the satisfaction of
any judgment that may be recovered. It is a remedy which is purely statutory in
respect of which the law requires a strict construction of the provisions granting it.
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." The phrase "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;" 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 (counterclaim, 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. 45

xxx xxx xxx

It goes without saying that whatever be the acts done by the Court prior to the
acquisition of jurisdiction over the person of the defendant, as above indicated
issuance of summons, order of attachment and writ of attachment (and/or
appointment 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) 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 explicitly 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 explicitly 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. 46

xxx xxx xxx

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. 47

We reiterated the rule laid down in Davao Light in the subsequent case of
Cuartero vs. Court of Appeals 48 wherein we stated:

It must be emphasized that the grant of the provisional remedy of attachment


practically involves three stages: first, the court issues the order granting the
application; second, the writ of attachment issues pursuant to the order granting
the writ; and third, the writ is implemented. For the initial two stages, it is not
necessary that jurisdiction over the person of the defendant should first be
obtained. However, once the implementation commences, it is required that the
court must have acquired jurisdiction over the person of the defendant for without
such jurisdiction, the court has no power and authority to act in any manner
against the defendant. Any order issuing from the Court will not bind the
defendant.

The validity then of the order granting the application for a writ of preliminary
attachment on 21 March 1990 and of the issuance of the writ of preliminary
attachment on 26 March 1990 is beyond dispute. However, the enforcement of the
preliminary attachment on 27 March 1990, although simultaneous with the service
of the summons and a copy of the complaint, did not bind Zachry because the
service of the summons was not validly made. When a foreign corporation has
designated a person to receive service of summons pursuant to the Corporation
Code, that designation is exclusive and service of summons on any other person
is inefficacious. 49 The valid service of summons and a copy of the amended
complaint was only made upon it on 24 April 1990, and it was only then that the
trial court acquired jurisdiction over Zachry's person. Accordingly, the levy on
attachment made by the sheriff on 27 April 1990 was invalid. However, the writ of
preliminary attachment may be validly served anew.

As to the second issue of arbitration, we find that although the order of the trial
court denying the motion to dismiss did not clearly state so, it is evident that the
trial court perceived the ground of the motion to be not indubitable; hence, it
could defer its resolution thereon until the trial of the case. In deciding a motion
to dismiss, Section 3, Rule 16 of the Rules of Court grants the court four options:
(1) to deny the motion, (2) to grant the motion, (3) to allow amendment of
pleadings, or (4) to defer the hearing and determination of the motion until the
trial, if the ground alleged therein does not appear to be indubitable. Under the
fourth option, the court is under no obligation to immediately hold a hearing on
the motion; it is vested with discretion to defer such hearing and the
determination of the motion until the trial of the case. 50 The lack of indubitability
of the ground involved in Zachry's motion to dismiss is confirmed by the Court of
Appeals when it declared:
Section 27. B which is the provision upon which petitioner [Zachry] anchors its
claim is ambiguous in its terminology when it states that "if at any time any
controversy should arise between the contractor and the subcontractor . . . which
controversy is not controlled or determined by Section 27.A above or other
provisions of this subcontract' . . . . This provision states that only when a
controversy arises between the contractor and subcontractor which is not covered
by Section 27.A or any provision of the Subcontract will the parties submit to
arbitration. As to what controversies fall under Section 27.B, it is not clear from a
mere perusal of the provisions.

Indeed, the parties could not even agree on what controversies fall within Section
27.B, and, perhaps, rightly so because the said Section 27.B excludes
controversies controlled or determined by Section 27.A and other provisions of
the Subcontract Agreement, which are themselves unclear. For that reason, VBC
insists that its cause of action in Civil Case No. 90-772 is based on Section 3 of
the Subcontract Agreement. It may further be emphasized that VBC's complaint
was precipitated by Zachry's refusal to comply with the Supplemental Agreement.
Evidently, Section 3 of the Subcontract Agreement and the Supplemental
Agreement are excluded by Section 27.B. The trial court was, therefore, correct in
denying Zachry's motion to dismiss.

However, we cannot give our assent to the Court of Appeals' order directing the
trial court to conduct a hearing for the determination of the proper interpretation
of the provisions of the Subcontract Agreement. It would re-open the motion to
dismiss which, upon the trial court's exercise of its discretion, was properly
denied for lack of indubitability of the ground invoked and thereby unduly
interfere with the trial court's discretion. The proper interpretation could only be
done by the trial court after presentation of evidence during trial on the merits
pursuant to the tenor of its order denying the motion to dismiss. If the trial court
should find that, indeed, arbitration is in order, then it could apply Section 7 of
R.A. No. 876 which reads as follows:

Sec. 7. Stay of civil action. If any suit or proceeding be brought upon an issue
arising out of an agreement providing for the arbitration thereof, the court in which
such suit or proceeding is pending, upon being satisfied that the issue involved in
such suit or proceeding is referable to arbitration, shall stay the action or
proceeding until an arbitration has been had in accordance with the terms of the
agreement: Provided, That the applicant for the stay is not in default in proceeding
with such arbitration.

WHEREFORE, the petition in G.R. No. 107124 is GRANTED while that in G.R. No.
106989 is DENIED for lack of merit. The challenged Decision of 1 July 1992 and
Resolution of 2 September 1992 are hereby SET ASIDE. The orders of Branch 142
of the Regional Trial Court of Makati in Civil Case No. 90-772 of 19 September
1990 denying the motion to dismiss and of 8 October 1990 denying the motion to
reconsider the former are REINSTATED. However, the service of the writ of
preliminary attachment on 26 March 1990 is hereby declared invalid. The writ
may, nevertheless, be served anew.
No pronouncement as to costs.

SO ORDERED.

G.R. No. 147970 March 31, 2006

PCL Industries Manufacturing Corporation, Petitioner,


vs.
The COURT OF APPEALS and ASA Color & Chemical Industries, Inc., Respondents.

This resolves the petition for certiorari seeking the reversal of the Decision1 of the Court of
Appeals (CA) promulgated on February 21, 2001, which affirmed the Decision of the Regional
Trial Court (RTC) of Quezon City, Branch 226; and the CA Resolution dated May 9, 2001
denying petitioners motion for reconsideration.

The antecedent facts are as follows:

On October 10, 1995, private respondent filed a complaint with the RTC for Sum of Money with
Preliminary Attachment against herein petitioner. Private respondent claims that during the
period from January 18, 1994 to April 14, 1994, petitioner purchased and received from it
various printing ink materials with a total value of P504,906.00, payable within 30 days from the
respective dates of invoices; and that petitioner, in bad faith, failed to comply with the terms of
the sale and failed to pay its obligations despite repeated verbal and written demands.

Petitioner was served with summons together with the Writ of Preliminary Attachment on
October 20, 1995. On October 23, 1995, petitioner filed a Motion to Dissolve and/or Discharge
Writ of Preliminary Attachment. On November 20, 1995, the trial court issued an Order denying
petitioners motion to dissolve the writ of preliminary attachment. Petitioners motion for
reconsideration of said order was also denied per Order dated January 2, 1996. Petitioner no
longer elevated to the higher courts the matter of the propriety of the issuance of the writ of
preliminary attachment.

In the meantime, on October 30, 1995, petitioner filed its Answer with Counterclaim. Petitioner
claims that the various printing ink materials delivered to it by private respondent were defective
and sometime in August, October, and November of 1993, they have returned ink materials to
private respondent as shown by several Transmittal Slips. Nevertheless, petitioner admits that it
continued to buy ink materials from private respondent in 1994 despite having rejected ink
materials delivered by private respondent in 1993. Petitioner, however, insists that the ink
materials delivered by private respondent in 1994 were also defective and they made known their
complaints to Frankie, the authorized representative of private respondent. In a letter dated June
30, 1995, petitioner informed private respondent that it had been complaining to its (private
respondents) representative about the quality of the ink materials but nothing was done to solve
the matter. Private respondent replied through a letter dated July 16, 1995, that it was giving
petitioner the option to return the products delivered, "sealed and unused" within one week from
receipt of said letter or pay the full amount of its obligation. Petitioner answered in a letter dated
September 26, 1995, that private respondent should pick up at its plant the remaining unused
defective ink materials, and requested to meet with private respondent to thresh out the matter.
No meeting was ever held. Petitioner further claims that it suffered damages in the amount of
P1,592,794.50 because its customers rejected the finished plastic products it delivered,
complaining of the bad smell, which, according to petitioner, was caused by the defective ink
materials supplied by private respondent.

After trial on the merits, the trial court rendered its Decision dated January 8, 1999, the
dispositive portion of which reads thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff.


Defendant PCL Industries Manufacturing Corporation is hereby ordered to pay plaintiff:

1) P504,906.00 plus 20% interest per annum from April 1994 until fully paid;

2) 25% of the above amount as and for attorneys fees; and

3) cost of suit.

The counterclaim of defendant is hereby dismissed for insufficiency of evidence.

SO ORDERED.2

The RTC Decision was appealed by herein petitioner to the CA. On February 21, 2001, the CA
promulgated its Decision affirming the RTC judgment. The CA held that there was sufficient
evidence to prove that herein petitioner had the intention of defrauding private respondent when
it contracted the obligation because it agreed to pay within 30 days from the date of purchase but
once the merchandise was in its possession, it refused to pay. Furthermore, the CA ruled that the
issue on the propriety of the issuance of the writ of preliminary attachment should be laid to rest
since petitioner no longer questioned the trial courts orders before the higher courts.

As to the alleged defect of the ink delivered by private respondent, both the trial court and the
CA found that the evidence presented by petitioner was insufficient to prove that it was indeed
the ink from private respondent which caused the unwanted smell in petitioners finished plastic
products. The trial courts analysis of the evidence led it to the following conclusions, to wit:

[D]efendant presented transmittal receipts, which allegedly represent the items returned by
defendant [herein petitioner] to plaintiff [herein respondent].

xxxx

A closer look at these three transmittal receipts would readily show that they are all for deliveries
made in 1993, whereas the items admittedly received by defendant and listed in paragraph 2 of
the Complaint are all delivered and dated from January 18, 1994 to April 14, 1994.
The items, therefore, returned for being defective and communicated by defendant to plaintiff are
for those printing ink materials delivered in 1993 and these are not the items left unpaid and in
issue in this present Complaint.

There is no other proof of demand made by defendant to plaintiff corporation as to communicate


to plaintiff any defect in the printing ink materials delivered in 1994 except the demand letter
(Exhibit "42") which is dated September 26, 1995.

As admitted by defendants witness, Eleno Cayabyab, the demands made by Mr. Jovencio Lim
to plaintiff had been oral or verbal only and made only on two occasions. In fact said witness
cannot remember exactly when these oral demands were made by Mr. Jovencio Lim, x x x

xxxx

As regards the testimony of defendants witness Jovencio Lim that defendants end-users
returned the plastic packaging materials to defendant and defendant had to reimburse its clients
of the amount paid by them and defendant allegedly suffered damages, defendant failed to
present sufficient evidence of this allegation. x x x3

Affirming the foregoing findings of the trial court, the CA further noted that:

As may be observed, as early as January 31, 1994, the appellant [herein petitioner] had received
complaints from its customers about the alleged unwanted smell of their plastic products.
However, no steps were taken to investigate which of its several suppliers delivered the defective
ink and, if indeed, the appellees ink materials were the cause of the smell, no immediate
communications were sent to the latter. On the contrary, it (appellant) continued to place orders
and receive deliveries from the appellee. Worse, the appellant failed to convincingly show
that the appellant stopped using the subject ink materials upon notice of its customers of
the alleged unwanted smell of the products. Conversely, the appellant continued using the
same in their production of plastic materials which would only show that the cause of the
alleged stinking smell cannot be attributed to the subject ink materials used. The appellant
tried to convince us that the subject ink materials were the same ink delivered by the appellee
and used in the products that were returned because of the unwanted smell. However, its
evidence fails to impress us.

There is no indication that the plasticized pouches printed by the defendant-appellant and
returned by its customers were printed with the use of the paint delivered by the plaintiff-
appellee. The formers evidence on this point are either self-serving or unreliable, or totally
unworthy of credence, as shown by the following:

1) The "work process" forms contain the names of two (2) or three (3) suppliers, as
shown by the following:

Exh. "12" STOCK/ASA

"13" SIMCOR/ASA
"14" - SIMCOR/ASA

"15" - SIMCOR/ASA

"16" - SYNPAC/ASA

"17" - SYNPAC/ASA

"18" - SYNPAC/ASA

"19" - SYNPAC/ASA

"20" - SYNPAC/ASA/CDI

"21" - SYNPAC/ASA

This is an indication that the supplier of the obnoxious paint materials has not been
properly identified or pinpointed.

2) The "Memorandum" to the appellants Production Department from its


Records/Receiving Section is an internal memo that does not indicate which of their
several suppliers delivered the "inferior quality of ink". No witness from the
appellants Production Department was presented to attest that the ink supplied by
the appellee was found defective. Not even the person who prepared the said "Work
Process" sheets was presented to explain the entries thereon.

3) Exhibits "30", "31" and "32" are supposedly memos from Frank F. Tanos of the
Omega Manufacturing (one of the appellants customers), alleging that they have rejected
certain printed materials due to "unwanted smell". Again, these memos do not indicate
the source of such unwanted smell. In any case, the memos were respectively dated June
15, 1994, July 15, 1994 and March 30, 1995 - - which dates are too far away from the
deliveries made by the appellee.

4) The defendant-appellant made returns of ink products to the appellee much earlier on
August 3, 1993, August 6, 1993, October 13, 1993 and November 3, 1993 as shown by
the delivery receipts/return slips of such dates. According to the appellee, these were
samples that were really returnable if not acceptable. This explanation appears to be
plausible, since the quantity involved appears to be unusually low, compared to the
questioned and unpaid deliveries. At any rate, no similar delivery receipts or return slips
were presented to show that the subject ink materials were indeed rejected and returned
by the appellant to the appellee. On the contrary, the appellant admits that they still have
them in their possession for the reason that they were not picked up by the appellees
representative. Such reasoning appears to be shallow and unworthy of credence. For if
the materials were indeed not picked up within a reasonable time by the appellees
representative, the appellant should have taken steps to return them; otherwise they will
be held liable for the value thereof.
5) The defendant-appellant never made any written or formal complaint about the alleged
inferior quality ink and no steps were taken to demand restitution or rectification.

Its letter dated June 30, 1995 was the first time it made a communication to the appellee
about the alleged inferior quality of the ink delivered by the latter. This letter was its
answer to the appellees letter of demand for payment. Obviously, the appellants letter
was written to serve as an excuse for its failure to pay for its contractual obligations. In any
case, as a reaction to such letter, the appellee dared the appellant to return the materials within
one week, through its letter of July 16, 1995. Obviously, no such return was made.4 (Emphasis
supplied)

Petitioner then filed the present petition for review on certiorari on the following grounds:

I.

THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF


DISCRETION IN ISSUING A WRIT OF PRELIMINARY ATTACHMENT EX PARTE
WITHOUT ANY LEGAL BASIS AND ON GROUNDS NOT AUTHORIZED UNDER
RULE 57 OF THE RULES OF COURT

II.

THE RESPONDENT COURT OF APPEALS ACTED WITH GRAVE ABUSE OF


DISCRETION AS ITS JUDGMENT WAS BASED ON A MISAPPREHENSION OF
FACTS AND ITS FINDINGS ARE NOT SUPPORTED BY THE EVIDENCE
EXTANT IN THE RECORDS OF THIS CASE

III.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF


DISCRETION IN NOT REVERSING THE RULING OF THE TRIAL COURT 5

First of all, although the petition states that it is one for certiorari under Rule 65 of the Rules of
Court as it imputes grave abuse of discretion committed by the CA, the Court shall treat the
petition as one for review on certiorari under Rule 45, considering that it was filed within the
reglementary period for filing a petition for review on certiorari and the issues and arguments
raised basically seek the review of the CA judgment.

Secondly, it should be pointed out that petitioner mistakenly stated that it was the CA that issued
the writ of preliminary attachment. Said writ was issued by the trial court. On appeal, the CA
merely upheld the trial courts order, ruling that the applicants (herein private respondents)
affidavit was sufficient basis for the issuance of the writ because it stated that petitioner had the
intention of defrauding private respondent by agreeing to pay its purchases within 30 days but
then refused to pay the same once in possession of the merchandise.
The Court, however, finds the issuance of the Writ of Preliminary Attachment to be improper. In
Philippine Bank of Communications v. Court

of Appeals,6 the Court held thus:

Petitioner cannot insist that its allegation that private respondents failed to remit the
proceeds of the sale of the entrusted goods nor to return the same is sufficient for
attachment to issue. We note that petitioner anchors its application upon Section 1(d), Rule 57.
This particular provision was adequately explained in Liberty Insurance Corporation v. Court of
Appeals, as follows

To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt
or incurring the obligation intended to defraud the creditor. The fraud must relate to the
execution of the agreement and must have been the reason which induced the other party into
giving consent which he would not have otherwise given. To constitute a ground for attachment
in Section 1 (d), Rule 57 of the Rules of Court, fraud should be committed upon contracting the
obligation sued upon. A debt is fraudulently contracted if at the time of contracting it the
debtor has a preconceived plan or intention not to pay, as it is in this case. Fraud is a state of
mind and need not be proved by direct evidence but may be inferred from the circumstances
attendant in each case (Republic v. Gonzales, 13 SCRA 633). (Emphasis ours)

We find an absence of factual allegations as to how the fraud alleged by petitioner was
committed. As correctly held by respondent Court of Appeals, such fraudulent intent not to
honor the admitted obligation cannot be inferred from the debtors inability to pay or to
comply with the obligations.7 (Emphasis supplied)

More recently, in Philippine National Construction Corporation v. Dy,8 the Court ruled that the
following allegations in an affidavit to support the application for a Writ of Preliminary
Attachment is insufficient, to wit:

Radstock grounded its application for a Writ of Preliminary Attachment on Section 1 (d) and (e)
of Rule 57 of the Rules of Court which provides:

SECTION 1. Grounds upon which attachment may issue. A plaintiff or any proper party may,
at the commencement of the action or at any time thereafter, have the property of the adverse
party attached as security for the satisfaction of any judgment that may be recovered in the
following cases:

...

(d) In an action against a party who has been guilty of fraud in contracting the debt or incurring
the obligation upon which the action is brought, or in the performance thereof;

(e) In an action against a party who has removed or disposed of his property, or is about to do so,
with intent to defraud his creditors;
...

In support of these grounds, the affidavit of merit alleged the following:

3. Despite repeated demands and periodic statements of accounts sent to PNCC for the
settlement of the credit obligation Yen 5.46 Billion, its interests and penalties within three (3)
days from demand in writing, and in the case of credit obligation for P20,000,000 which PNCC
had agreed to punctually liquidate the said advances to its subsidiary, PNCC failed to pay and
honor its obligations herein stated.

xxxx

5. That PNCC knowing that it is bankrupt and that it does not have enough assets to meet its
existing obligations is now offering for sale its assets as shown in the reports published in
newspapers of general circulation.

6. That the above series of acts as enumerated in paragraphs 3, 4 and 5[,] Marubeni believes,
constitute fraud on the part of PNCC in contracting the obligations mentioned herein and will
surely prejudice its creditors.

xxxx

We do not see how the above allegations, even on the assumption they are all true, can be
considered as falling within sub-paragraphs (d) and (e). The first three assert, in essence, that
PNCC has failed to pay its debt and is offering for sale its assets knowing that it does not have
enough to pay its obligations. As previously held, fraudulent intent cannot be inferred from a
debtors inability to pay or comply with obligations. Also, the fact that PNCC has
insufficient assets to cover its obligations is no indication of fraud even if PNCC attempts to
sell them because it is quite possible that PNCC was entering into a bona fide good faith
sale where at least fair market value for the assets will be received. In such a situation,
Marubeni would not be in a worse position than before as the assets will still be there but
just liquidated. Also, that the Financial Statements do not reflect the loan obligation cannot be
construed as a scheme to defraud creditors.

As to the last two paragraphs, these merely stated that while PNCC continued to receive
revenues from toll charges and other loan obligations the debt to Marubeni remained
unpaid. Again, no fraud can be deduced from these acts. While these may be sufficient
averments to be awarded damages once substantiated by competent evidence and for which a
writ of execution will issue, they are not sufficient to obtain the harsh provisional remedy of
preliminary attachment which requires more than mere deliberate failure to pay a debt.
(Emphasis supplied)

Similarly, in this case, the bare allegations in the applicants affidavit, to wit:
6. PCL Industries Manufacturing Corporation, after receiving the above printing ink materials
acted in bad faith when it failed to comply with the terms and conditions of the sale thereby
prejudicing the interest of Asa Color & Chemical Industries, Inc.

xxxx

10. Defendant [herein petitioner] was guilty of fraud in contracting the obligation when he [sic]
agreed to pay the purchases within 30 days from date of purchases but once in possession of the
merchandise, refused to pay his just and valid obligation thereby using the capital of plaintiff
[herein private respondent] to the latters prejudices [sic]. 9

are insufficient to prove that petitioner was guilty of fraud in contracting the debt or incurring the
obligation. The affidavit does not contain statements of other factual circumstances to show that
petitioner, at the time of contracting the obligation, had a preconceived plan or intention not to
pay. Verily, in this case, the mere fact that petitioner failed to pay its purchases upon falling due
and despite several demands made by private respondent, is not enough to warrant the issuance
of the harsh provisional remedy of preliminary attachment.

However, with regard to the other issues raised in this petition, the Court finds the same
unmeritorious.

This Court reiterated in Child Learning Center, Inc. v. Tagario,10 the well-settled rule that:

Generally, factual findings of the trial court, affirmed by the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. The established exceptions are: (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of
discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures;
(4) when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (8) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties and which, if properly considered, would justify a different
conclusion; and (9) when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record. (Emphasis supplied)

Petitioner insists that the CA should have given weight to its evidence, i.e., the work processes
(Exhibits "12" to "21"), which supposedly proved that respondent ASA supplied the ink that
caused the unpleasant smell of petitioners finished products. Petitioner argues that the CA erred
in concluding that the work processes failed to prove that the defective ink definitely came from
respondent because said documents showed not only the name of respondent ASA Color as
supplier, but also the names of several other suppliers. Petitioner now tries to explain that the
other names of suppliers appearing on the work processes were suppliers of plastic materials, so
the only supplier of ink appearing on said documents is respondent ASA. It is further pointed out
that, as testified by Jovencio Lim (Lim), petitioners President, during the period covered by the
Work Processes, they had only two suppliers of ink, CDI Sakada and respondent ASA Color.
The Court subjected the records of this case to close scrutiny, but found that petitioners
allegation that the CA judgment is based on misapprehension of facts, is absolutely unfounded.

There is no testimonial evidence whatsoever to support petitioners belated explanation


that the other names of suppliers appearing on the work processes are suppliers of plastic
materials and not ink. Moreover, petitioners witnesses contradict each other. Lim claims that
during the period covered by the work processes, they had only 2 suppliers of ink, namely, CDI
Sakada and ASA Color.11 On the other hand, contrary to Lims claim, Victor Montaez,
petitioners Head of the Accounting Department, testified that at that time, they had three or four
suppliers of ink materials.12 The work process form dated April 29, 1994 marked as Exhibit "20"
also listed the suppliers as "SYNPAC/ASA/ CDI," and the colors used as "Brown-ASA" and
"Yellow-CDI." Hence, petitioners own evidence reveals that there were at least two suppliers of
ink for that batch of production, as Lim has stated that both ASA and CDI are suppliers of ink
materials.13 Hence, the CA was correct in ruling that petitioners evidence failed to prove that it
was indeed respondent ASA Color who supplied the defective ink.

Having failed to prove that the ink materials delivered by respondent were defective, petitioner
does not have any basis for claiming the right to return and not pay for the materials it purchased
from respondent. It is, therefore, no longer necessary to discuss whether it was the obligation of
respondent to pick-up the ink from petitioners warehouse.

Petitioner is likewise wrong in assuming that the CA totally disregarded the testimony of Frank
Tanos (Tanos) who withdrew his testimony on February 24, 1998, or almost a year after
testifying that petitioners plastic products were rejected by customers due to the bad smell of
paint. The CA made no ruling on the admissibility of Tanos testimony. The appellate court
merely stated that the memos (Exhibits "30"-"32") from said witness also do not prove the source
of the unwanted smell. Thus, the CA obviously considered Tanos testimony and the documents
he identified for whatever they were worth, but still found them unconvincing to prove
petitioners claim that it was respondent who delivered defective ink materials.

Clearly, the findings of fact of both the trial court and the CA, as quoted above, are strongly
rooted on testimonial and documentary evidence submitted by both parties. This case evidently
does not fall under any of the enumerated exceptions to the general rule that factual findings of
the trial court, affirmed by the CA, are final and conclusive and may not be reviewed on appeal.

IN VIEW OF THE FOREGOING, the petition is partly GRANTED. Insofar as the issuance
of the Writ of Attachment is concerned, the Court finds the same improper, hence, the
attachment over any property of petitioner by the writ of preliminary attachment is ordered
LIFTED effective upon the finality of this Decision. In all other respects, the Decision of the
Court of Appeals dated February 21, 2001 and its Resolution dated May 9, 2001 are
AFFIRMED.

SO ORDERED.
Davao Light & Power Co. Inc. v CA (204 SCRA 343)

Facts:
Davao Light and Power Inc, Co. filed a complaint for recovery of sum of money and damages
against Queensland Hotel and Teodorico Adarna. The complaint contained an ex parte
application for a writ of preliminary attachment.

Judge Nartatez granted the writ and fixed the attachment bond at around P4Million. The
summons, copy of complaint, writ of attachment, copy of attachment bond were served upon
Queensland and Adarna. Pursuant to the writ, the Sheriff seized the properties of the latter.

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
cause and person of defendants.

Trial Court denied the motion to discharge.

CA annulled the Trial Courts Order. Davao seeks to reverse CAs order.

Issue:
Whether or not preliminary attachment may issue ex parte against a defendant before acquiring
jurisdiction over his person.

Held:
Yes. Rule 57 speaks of the grant of the remedy at the commencement of the action or at any
time thereafter What the rule is saying is that after an action is properly commenced (by filing
of the complaint and payment of all requisite docket and other fees), the plaintiff may apply for
and obtain a writ of preliminary attachment. This he may do so, before or after, the summons to
the defendant.
The CA decision is reversed and the writ of attachment issued by Judge Nartatez is reinstated.

**
Preliminary Attachment 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 custody of court as security for satisfaction of judgment to be recovered.

Nature of Attachment: a remedy which is purely statutory in respect of which the law requires a
strict of construction of the provisions granting it. No principle, whether statutory or through
jurisprudence, prohibits its issuance by any court before the acquisition of jurisdiction over the
person.