PRELIMINARY ATTACHMENT

G.R. No. 158271 April 8, 2008

CHINA BANKING CORPORATION, petitioner,

vs.
ASIAN CONSTRUCTION and DEVELOPMENT CORPORATION, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by
petitioner China Banking Corporation (China Bank) seeking to annul the Resolution1 dated October
14, 2002 and the Resolution2 dated May 16, 2003 of the Court of Appeals (CA) in CA-G.R. CV No.
72175.

The facts of the case:

On July 24, 1996, China Bank granted respondent Asian Construction and Development Corporation
(ACDC) an Omnibus Credit Line in the amount of P90,000,000.00.3

On April 12, 1999, alleging that ACDC failed to comply with its obligations under the Omnibus Credit
Line, China Bank filed a Complaint4 for recovery of sum of money and damages with prayer for the
issuance of writ of preliminary attachment before the Regional Trial Court (RTC) of Makati, Branch
138, docketed as Civil Case No. 99-796. In the Complaint, China Bank claimed that ACDC, after
collecting and receiving the proceeds or receivables from the various construction contracts and
purportedly holding them in trust for China Bank under several Deeds of Assignment,
misappropriated, converted, and used the funds for its own purpose and benefit, instead of remitting
or delivering them to China Bank.5

On April 22, 1999, the RTC issued an Order6 granting China Bank’s prayer for writ of preliminary
attachment. Consequently, as shown in the Sheriff’s Report7 dated June 14, 1999, the writ of
preliminary attachment was implemented levying personal properties of ACDC, i.e., vans, dump
trucks, cement mixers, cargo trucks, utility vehicles, machinery, equipment and office machines and
fixtures.

On March 27, 2000, upon motion of China Bank, the RTC issued a Summary Judgment8 in favor of
China Bank. ACDC filed its Notice of Appeal9 dated April 24, 2000.

On June 15, 2000, China Bank filed a Motion to Take Custody of Attached Properties with Motion for
Grant of Authority to Sell to the Branch Sheriff10 with the RTC, praying that it be allowed to take
custody of ACDC’s properties for the purpose of selling them in an auction.11 On June 20, 2000,
ACDC filed its Opposition12 to the June 15, 2000 Motion arguing that there can be no sale of the
latter’s attached properties in the absence of a final and executory judgment against ACDC.

On August 25, 2000, China Bank partially appealed the Summary Judgment for not awarding
interest on one of its promissory notes.13 Records of the case were elevated to the CA.14

On April 18, 2002, China Bank filed a Motion for Leave for Grant of Authority to Sell Attached
Properties15 which the CA denied in the herein assailed Resolution dated October 14, 2002.

According to the CA, selling the attached properties prior to final judgment of the appealed case is
premature and contrary to the intent and purpose of preliminary attachment for the following
reasons: first, the records reveal that the attached properties subject of the motion are not perishable
in nature; and second, while the sale of the attached properties may serve the interest of China
Bank, it will not be so for ACDC. The CA recognized China Bank’s apprehension that by the time a
final judgment is rendered, the attached properties would be worthless. However, the CA also
acknowledged that since ACDC is a corporation engaged in a construction business, the
preservation of the properties is of paramount importance; and that in the event that the decision of
the lower court is reversed and a final judgment rendered in favor ACDC, great prejudice will result if
the attached properties were already sold.

China Bank filed a Motion for Reconsideration16 which was denied in the herein assailed CA
Resolution17 dated May 16, 2003.

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

THE HONORABLE COURT OF APPEALS RENDERED THE QUESTIONED

RESOLUTIONS (ANNEXES "A" and "B") IN A MANNER NOT IN ACCORD WITH THE
PROVISIONS OF SECTION 11, RULE 57 OF THE RULES OF CIVIL PROCEDURE, AS IT
SHELVED THE DEMANDS OF EQUITY BY ARBITRARILY DISALLOWING THE SALE OF
THE ATTACHED PROPERTIES, UPHOLDING ONLY THE INTEREST OF RESPONDENT,
IN UTTER PARTIALITY.18

Considering that the herein assailed CA Resolutions are interlocutory in nature as they do not
dispose of the case completely but leave something to be done upon the merits,19 the proper remedy
should have been by way of petition for certiorari under Rule 65, as provided for in Section 1 (b),
Rule 41 of the Rules of Court, as amended by A.M. No. 07-7-12-SC,20 which provides:

Section 1. Subject of appeal. - An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these
Rules to be appealable.

No appeal may be taken from:

xxxx

(b) An interlocutory order;

xxxx

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

The present petition for review on certiorari should have been dismissed outright. However, in many
instances, the Court has treated a petition for review on certiorari under Rule 45 as a petition
for certiorari under Rule 65 of the Rules of Court, such as in cases where the subject of the recourse
was one of jurisdiction, or the act complained of was perpetrated by a court with grave abuse of
discretion amounting to lack or excess of jurisdiction.21 The present petition does not involve any
issue on jurisdiction, neither does it show that the CA committed grave abuse of discretion in
denying the motion to sell the attached property.

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

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

Thus, an attached property may be sold after levy on attachment and before entry of judgment
whenever it shall be made to appear to the court in which the action is pending, upon hearing with
notice to both parties, that the attached property is perishable or that the interests of all the
parties to the action will be subserved by the sale of the attached property.

In its Memorandum,22 China Bank argues that the CA’s notion of perishable property, which pertains
only to those goods which rot and decay and lose their value if not speedily put to their intended
use,23 is a strict and stringent interpretation that would betray the purpose for which the preliminary
attachment was engrafted.24 Citing Witherspoon v. Cross,25 China Bank invokes the definition of
"perishable property" laid down by the Supreme Court of California as goods which decay and lose
their value if not speedily put to their intended use; but where the time contemplated is necessarily
long, the term may embrace property liable merely to material depreciation in value from other
causes than such decay.

As stated in the Sheriff’s Report26 and Notices of Levy on Properties,27 all of

ACDC’s properties which were levied are personal properties consisting of used vehicles, i.e., vans,
dump trucks, cement mixers, cargo trucks, utility vehicles, machinery, equipment and office
machines and fixtures. China Bank insists that the attached properties, all placed inside ACDC’s
stockyard located at Silang, Cavite and the branch office in Mayamot, Antipolo City, are totally
exposed to natural elements and adverse weather conditions.28 Thus, China Bank argues, that
should the attached properties be allowed to depreciate, perish or rot while the main case is
pending, the attached properties will continue losing their worth thereby rendering the rules on
preliminary attachment nugatory.

The issue hinges on the determination whether the vehicles, office machines and fixtures are
"perishable property" under Section 11, Rules 57 of the Rules of Court, which is actually one of first
impression. No local jurisprudence or authoritative work has touched upon this matter. This being so,
an examination of foreign laws and jurisprudence, particularly those of the United States where
some of our laws and rules were patterned after, is in order.29

In Mossler Acceptance Co. v. Denmark,30 an order of the lower court in directing the sale of attached
properties, consisting of 20 automobiles and 2 airplanes, was reversed by the Supreme Court of
Louisiana. In support of its contention that automobiles are perishable, Mossler offered testimony to
the effect that automobile tires tend to dry-rot in storage, batteries to deteriorate, crankcases to
become damaged, paint and upholstery to fade, that generally automobiles tend to depreciate while
in storage.31 Rejecting these arguments, the Supreme Court of Louisiana held that while there might
be a depreciation in the value of a car during storage, depending largely on existing economic
conditions, there would be no material deterioration of the car itself or any of its appurtenances if the
car was properly cared for, and therefore it could not be said that automobiles were of a perishable
nature within the intendment of the statute, which could only be invoked when the property attached
and seized was of a perishable nature.32

With respect to the determination of the question on whether the attached office furniture, office
equipment, accessories and supplies are perishable properties, the Supreme Court of Alabama
in McCreery v. Berney National Bank33 discussed the "perishable" nature of the attached properties,
consisting of shelving, stock of drygoods and a complete set of store fixtures, consisting of counters
iron safe, desk and showcases, to be within the meaning of "perishable" property under the Alabama
Code which authorizes a court, on motion of either party, to order the sale, in advance of judgment,
of perishable property which had been levied on by a writ of attachment.34

In McCreery, the Supreme Court of Alabama rejected the argument that the sale of the attached
property was void because the term "perishable" property, as used in the statute, meant only such
property as contained in itself the elements of speedy decay, such as fruits, fish, fresh
meats, etc.35 The Supreme Court of Alabama held that whatever may be the character of the
property, if the court is satisfied that, either by reason of its perishable nature, or because of the
expense of keeping it until the termination of the litigation, it will prove, or be likely to prove, fruitless
to the creditor, and that the purpose of its original seizure will probably be frustrated, the sale of the
attached property is justified.

McCreery applied the doctrine in Millard’s Admrs. v. Hall36 where the Supreme Court of Alabama
held that an attached property is perishable "if it is shown that, by keeping the article, it will
necessarily become, or is likely to become, worthless to the creditor, and by consequence to the
debtor, then it is embraced by the statute. It matters not, in our opinion, what the subject matter is. It
may be cotton bales, live stock, hardware provisions or dry goods." Although the statute under
which Millard’s was decided used the words "likely to waste or be destroyed by keeping," instead of
the word "perishable," the reasons given for the construction placed on the statute apply equally to
the Alabama Code which uses the term "perishable."37

In the Motion for Leave for Grant of Authority to Sell Attached Properties38 filed before the CA, China
Bank alleged that the attached properties are placed in locations where they are totally exposed to
the natural elements and adverse weather conditions since their attachment in 1999;39 that as a
result, the attached properties have gravely deteriorated with corrosions eating them up, with weeds
germinating and growing thereon and their engines and motors stock up;40 and that the same holds
true to the office furniture, office equipment, accessories and supplies.41 No evidence, however, were
submitted by China Bank to support and substantiate these claims before the CA.

Notably, in the Petition filed before the Court, China Bank, for the first time, included as
annexes,42 photographs of the attached properties which were alleged to be recently taken, in an
attempt to convince the Court of the deteriorated condition of the attached properties.

The determination on whether the attached vehicles are properly cared for, and the burden to show
that, by keeping the attached office furniture, office equipment and supplies, it will necessarily
become, or is likely to become, worthless to China Bank, and by consequence to ACDC, are factual
issues requiring reception of evidence which the Court cannot do in a petition for certiorari. Factual
issues are beyond the scope of certiorari because they do not involve any jurisdictional issue.43

As a rule, only jurisdictional questions may be raised in a petition for certiorari, including matters of
grave abuse of discretion which are equivalent to lack of jurisdiction.44 The office of the writ of
certiorari has been reduced to the correction of defects of jurisdiction solely and cannot legally be
used for any other purpose.45

Certiorari is truly an extraordinary remedy and, in this jurisdiction, its use is restricted to truly
extraordinary cases - cases in which the action of the inferior court is wholly void; where any further
steps in the case would result in a waste of time and money and would produce no result whatever;
where the parties, or their privies, would be utterly deceived; where a final judgment or decree would
be nought but a snare and delusion, deciding nothing, protecting nobody, a judicial pretension, a
recorded falsehood, a standing menace. It is only to avoid such results as these that a writ of
certiorari is issuable; and even here an appeal will lie if the aggrieved party prefers to prosecute it.46

Moreover, the Court held in JAM Transportation Co., Inc. v. Flores47 that it is well-settled, too well-
settled to require a citation of jurisprudence, that this Court does not make findings of facts specially
on evidence raised for the first time on appeal.48 The Court will not make an exception in the case at
bar. Hence, the photographs of the attached properties presented before the Court, for the first time
on appeal, cannot be considered by the Court.

China Bank argues that if the CA allowed the attached properties to be sold, whatever monetary
value which the attached properties still have will be realized and saved for both parties.49 China
Bank further claims that should ACDC prevail in the final judgment50 of the collection suit, ACDC can
proceed with the bond posted by China Bank.51 The Court finds said arguments to be specious and
misplaced.

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

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

It is clear from the foregoing provision that the bond posted by China Bank answers only for the
payment of all damages which ACDC may sustain if the court shall finally adjudge that China Bank
was not entitled to attachment. The liability attaches if "the plaintiff is not entitled to the attachment
because the requirements entitling him to the writ are wanting," or "if the plaintiff has no right to the
attachment because the facts stated in his affidavit, or some of them are untrue."52 Clearly, ACDC
can only claim from the bond for all the damages which it may sustain by reason of the attachment
and not because of the sale of the attached properties prior to final judgment.

Sale of attached property before final judgment is an equitable remedy provided for the convenience
of the parties and preservation of the property.53 To repeat, the Court finds that the issue of whether
the sale of attached properties is for the convenience of the parties and that the interests of all the
parties will be subserved by the said sale is a question of fact. Again, the foregoing issue can only
be resolved upon examination of the evidence presented by both parties which the Court cannot do
in a petition for certiorari under Rule 65 of the Rules of Court.

WHEREFORE, the petition is DENIED. The assailed Resolutions of the Court of Appeals dated
October 14, 2002 and May 16, 2003 in CA-G.R. CV No. 72175 are hereby AFFIRMED.
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.

YNARES-SANTIAGO, J.:

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 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 as well as an Omnibus Motion for
Leave to file Amended Answer and/or to delete Francis C. Yu as party-defendant.3

With the denial of both Motions by the lower court on September 4, 1994,4 petitioners filed a Petition
for Certiorari before the Court of Appeals on September 16, 1994.5 The Petition was, however,
denied on July 31, 1995;6 so was petitioners' Motion for Reconsideration.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 —

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:

xxx xxx xxx

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

xxx xxx xxx

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 &nsbp 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 &nsbp Who is this public official that promised you?

A &nsbp Director Pendosa, Teodoro Encarnacion and Secretary de Jesus your Honor. (TSN, 6 July
1993, pp. 47-48).

xxx xxx xxx

Q &nsbp What about these officials of the Department of Public Highways, what would they do to
project their sub alleged project?

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

Q &nsbp At the time?

A &nsbp At that time, he resigned.

Q &nsbp Before he resigned.

A &nsbp He gave me assurance that they will soon give assurance, they will soon give me another
project . . . (TSN, 6 July 1993, p. 55)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 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 Appeals,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 It is not denied that no payment of
profits has been given to private respondent, which is precisely what it issuing 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 —

. . ., when the preliminary attachment is issued upon a ground which is at the same time the
applicant's cause of action: e.g., . . . an action against a party who has been guilty of fraud in
contracting the debtor 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 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 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. 1âw phi1.nêt

SO ORDERED.

G.R. No. 144740 August 31, 2005

SECURITY PACIFIC ASSURANCE CORPORATION, Petitioners,

vs.
THE HON. AMELIA TRIA-INFANTE, In her official capacity as Presiding Judge, Regional Trial
Court, Branch 9, Manila; THE PEOPLE OF THE PHILIPPINES, represented by Spouses
REYNALDO and ZENAIDA ANZURES; and REYNALDO R. BUAZON, In his official capacity as
Sheriff IV, Regional Trial Court, Branch 9, Manila, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review on certiorari, assailing the Decision1 and Resolution2 of the Court of
Appeals in CA-G.R. SP No. 58147, dated 16 June 2000 and 22 August 2000, respectively. The said
Decision and Resolution declared that there was no grave abuse of discretion on the part of
respondent Judge in issuing the assailed order dated 31 March 2000, which was the subject in CA-
G.R. SP No. 58147.

THE FACTS

The factual milieu of the instant case can be traced from this Court’s decision in G.R. No. 106214
promulgated on 05 September 1997.

On 26 August 1988, Reynaldo Anzures instituted a complaint against Teresita Villaluz (Villaluz) for
violation of Batas Pambansa Blg. 22. The criminal information was brought before the Regional Trial
Court, City of Manila, and raffled off to Branch 9, then presided over by Judge Edilberto G.
Sandoval, docketed as Criminal Case No. 89-69257.

An Ex-Parte Motion for Preliminary Attachment3 dated 06 March 1989 was filed by Reynaldo Anzures
praying that pending the hearing on the merits of the case, a Writ of Preliminary Attachment be
issued ordering the sheriff to attach the properties of Villaluz in accordance with the Rules.

On 03 July 1989, the trial court issued an Order4 for the issuance of a writ of preliminary attachment
"upon complainant’s posting of a bond which is hereby fixed at ₱2,123,400.00 and the Court’s
approval of the same under the condition prescribed by Sec. 4 of Rule 57 of the Rules of Court…."

An attachment bond5 was thereafter posted by Reynaldo Anzures and approved by the court.
Thereafter, the sheriff attached certain properties of Villaluz, which were duly annotated on the
corresponding certificates of title.

On 25 May 1990, the trial court rendered a Decision6 on the case acquitting Villaluz of the crime
charged, but held her civilly liable. The dispositive portion of the said decision is reproduced
hereunder:

WHEREFORE, premises considered, judgment is hereby rendered ACQUITTING the accused

TERESITA E. VILLALUZ with cost de oficio. As to the civil aspect of the case however, accused is
ordered to pay complainant Reynaldo Anzures the sum of TWO MILLION ONE HUNDRED
TWENTY THREE THOUSAND FOUR HUNDRED (P2,123,400.00) PESOS with legal rate of interest
from December 18, 1987 until fully paid, the sum of P50,000.00 as attorney’s fees and the cost of
suit.7
Villaluz interposed an appeal with the Court of Appeals, and on 30 April 1992, the latter rendered its
Decision,8 the dispositive portion of which partly reads:

WHEREFORE, in CA-G.R. CV No. 28780, the Decision of the Regional Trial Court of Manila, Branch
9, dated May 25, 1990, as to the civil aspect of Criminal Case No. 89-69257, is hereby AFFIRMED,
in all respects….

The case was elevated to the Supreme Court (G.R. No. 106214), and during its pendency, Villaluz
posted a counter-bond in the amount of ₱2,500,000.00 issued by petitioner Security Pacific
Assurance Corporation.9 Villaluz, on the same date10 of the counter-bond, filed an Urgent Motion to
Discharge Attachment.11

On 05 September 1997, we promulgated our decision in G.R. No. 106214, affirming in toto the
decision of the Court of Appeals.

In view of the finality of this Court’s decision in G.R. No. 106214, the private complainant moved for
execution of judgment before the trial court.12

On 07 May 1999, the trial court, now presided over by respondent Judge, issued a Writ of
Execution.13

Sheriff Reynaldo R. Buazon tried to serve the writ of execution upon Villaluz, but the latter no longer
resided in her given address. This being the case, the sheriff sent a Notice of Garnishment upon
petitioner at its office in Makati City, by virtue of the counter-bond posted by Villaluz with said
insurance corporation in the amount of ₱2,500,000.00. As reported by the sheriff, petitioner refused
to assume its obligation on the counter-bond it posted for the discharge of the attachment made by
Villaluz.14

Reynaldo Anzures, through the private prosecutor, filed a Motion to Proceed with
Garnishment,15 which was opposed by petitioner16 contending that it should not be held liable on the
counter-attachment bond.

The trial court, in its Order dated 31 March 2000,17 granted the Motion to Proceed with Garnishment.
The sheriff issued a Follow-Up of Garnishment18 addressed to the President/General Manager of
petitioner dated 03 April 2000.

On 07 April 2000, petitioner filed a Petition for Certiorari with Preliminary Injunction and/or
Temporary Restraining Order19 with the Court of Appeals, seeking the nullification of the trial court’s
order dated 31 March 2000 granting the motion to proceed with garnishment. Villaluz was also
named as petitioner. The petitioners contended that the respondent Judge, in issuing the order
dated 31 March 2000, and the sheriff committed grave abuse of discretion and grave errors of law in
proceeding against the petitioner corporation on its counter-attachment bond, despite the fact that
said bond was not approved by the Supreme Court, and that the condition by which said bond was
issued did not happen.20

On 16 June 2000, the Court of Appeals rendered a Decision,21 the dispositive portion of which reads:

WHEREFORE, premises considered, the Court finds no grave abuse of discretion on the part of
respondent judge in issuing the assailed order. Hence, the petition is dismissed.

A Motion for Reconsideration22 was filed by petitioner, but was denied for lack of merit by the Court of
Appeals in its Resolution23 dated 22 August 2000.

Undeterred, petitioner filed the instant petition under Rule 45 of the 1997 Rules of Civil Procedure,
with Urgent Application for a Writ of Preliminary Injunction and/or Temporary Restraining Order.24

On 13 December 2000, this Court issued a Resolution25 requiring the private respondents to file their
Comment to the Petition, which they did. Petitioner was required to file its Reply26 thereafter.

Meanwhile, on 17 January 2001, petitioner and the spouses Reynaldo and Zenaida Anzures
executed a Memorandum of Understanding (MOU).27 In it, it was stipulated that as of said date, the
total amount garnished from petitioner had amounted to ₱1,541,063.85, and so the remaining
amount still sought to be executed was ₱958,936.15.28 Petitioner tendered and paid the amount of
₱300,000.00 upon signing of the MOU, and the balance of ₱658,936.15 was to be paid in
installment at ₱100,000.00 at the end of each month from February 2001 up to July 2001. At the end
of August 2001, the amount of ₱58,936.00 would have to be paid. This would make the aggregate
amount paid to the private respondents ₱2,500,000.00.29 There was, however, a proviso in the MOU
which states that "this contract shall not be construed as a waiver or abandonment of the appellate
review pending before the Supreme Court and that it will be subject to all such interim orders and
final outcome of said case."

On 13 August 2001, the instant petition was given due course, and the parties were obliged to
submit their respective Memoranda.30

ISSUES

The petitioner raises the following issues for the resolution of this Court:

Main Issue - WHETHER OR NOT THE COURT OF Appeals committed reversible error in affirming
the 31 march 2000 order of public respondent judge which allowed execution on the counter-bond
issued by the petitioner.

Corollary Issues – (1) WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED
THAT THE ATTACHMENT ON THE PROPERTY OF VILLALUZ WAS DISCHARGED WITHOUT
NEED OF COURT APPROVAL OF THE COUNTER-BOND POSTED; and (2) WHETHER OR NOT
THE COURT OF APPEALS CORRECTLY RULED THAT THE ATTACHMENT ON THE PROPERTY
OF VILLALUZ WAS DISCHARGED BY THE MERE ACT OF POSTING THE COUNTER-BOND.

THE COURT’S RULING

Petitioner seeks to escape liability by contending, in the main, that the writ of attachment which was
earlier issued against the real properties of Villaluz was not discharged. Since the writ was not
discharged, then its liability did not accrue. The alleged failure of this Court in G.R. No. 106214 to
approve the counter-bond and to cause the discharge of the attachment against Villaluz prevented
the happening of a condition upon which the counter-bond’s issuance was premised, such that
petitioner should not be held liable thereon.31

Petitioner further asserts that the agreement between it and Villaluz is not a suretyship agreement in
the sense that petitioner has become an additional debtor in relation to private respondents. It is
merely waiving its right of excussion32 that would ordinarily apply to counter-bond guarantors as
originally contemplated in Section 12, Rule 57 of the 1997 Rules.

In their Comment,33 the private respondents assert that the filing of the counter-bond by Villaluz had
already ipso facto discharged the attachment on the properties and made the petitioner liable on the
bond. Upon acceptance of the premium, there was already an express contract for surety between
Villaluz and petitioner in the amount of ₱2,500,000.00 to answer for any adverse judgment/decision
against Villaluz.

Petitioner filed a Reply34 dated 09 May 2001 to private respondents’ Comment, admitting the binding
effect of the bond as between the parties thereto. What it did not subscribe to was the theory that the
attachment was ipso facto or automatically discharged by the mere filing of the bond in court. Such
theory, according to petitioner, has no foundation. Without an order of discharge of attachment and
approval of the bond, petitioner submits that its stipulated liability on said bond, premised on their
occurrence, could not possibly arise, for to hold otherwise would be to trample upon the statutorily
guaranteed right of the parties to contractual autonomy.

Based on the circumstances present in this case, we find no compelling reason to reverse the ruling
of the Court of Appeals.

Over the years, in a number of cases, we have made certain pronouncements about counter-bonds.

In Tijam v. Sibonghanoy,35 as reiterated in Vanguard Assurance Corp. v. Court of Appeals,36 we held:

. . . [A]fter the judgment for the plaintiff has become executory and the execution is ‘returned
unsatisfied,’ as in this case, the liability of the bond automatically attaches and, in failure of the
surety to satisfy the judgment against the defendant despite demand therefore, writ of execution may
issue against the surety to enforce the obligation of the bond.

In Luzon Steel Coporation v. Sia, et al.: 37

. . . [C]ounterbonds posted to obtain the lifting of a writ of attachment is due to these bonds being
security for the payment of any judgment that the attaching party may obtain; they are thus mere
replacements of the property formerly attached, and just as the latter may be levied upon after final
judgment in the case in order to realize the amount adjudged, so is the liability of the countersureties
ascertainable after the judgment has become final. . . .

In Imperial Insurance, Inc. v. De Los Angeles,38 we ruled:

. . . Section 17, Rule 57 of the Rules of Court cannot be construed that an "execution against the
debtor be first returned unsatisfied even if the bond were a solidary one, for a procedural may not
amend the substantive law expressed in the Civil Code, and further would nullify the express
stipulation of the parties that the surety’s obligation should be solidary with that of the defendant.

In Philippine British Assurance Co., Inc. v. Intermediate Appellate Court,39 we further held that "the
counterbond is intended to secure the payment of ‘any judgment’ that the attaching creditor may
recover in the action."

Petitioner does not deny that the contract between it and Villaluz is one of surety. However, it points
out that the kind of surety agreement between them is one that merely waives its right of excussion.
This cannot be so. The counter-bond itself states that the parties jointly and severally bind
themselves to secure the payment of any judgment that the plaintiff may recover against the
defendant in the action. A surety is considered in law as being the same party as the debtor in
relation to whatever is adjudged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable.40

Suretyship is a contractual relation resulting from an agreement whereby one person, the surety,
engages to be answerable for the debt, default or miscarriage of another, known as the principal.
The surety’s obligation is not an original and direct one for the performance of his own act, but
merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although
the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the
creditor or promise of the principal is said to be direct, primary and absolute; in other words, he is
directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty
of another although he possesses no direct or personal interest over the obligations nor does he
receive any benefit therefrom.41

In view of the nature and purpose of a surety agreement, petitioner, thus, is barred from disclaiming
liability.

Petitioner’s argument that the mere filing of a counter-bond in this case cannot automatically
discharge the attachment without first an order of discharge and approval of the bond, is lame.

Under the Rules, there are two (2) ways to secure the discharge of an attachment. First, the party
whose property has been attached or a person appearing on his behalf may post a security. Second,
said party may show that the order of attachment was improperly or irregularly issued.42 The first
applies in the instant case. Section 12, Rule 57,43 provides:

SEC. 12. Discharge of attachment upon giving counter-bond. – After a writ of attachment has been
enforced, the party whose property has been attached, or the person appearing on his behalf, may
move for the discharge of the attachment wholly or in part on the security given. The court shall,
after due notice and hearing, order the discharge of the attachment if the movant makes a cash
deposit, or files a counter-bond executed to the attaching party with the clerk of the court where the
application is made, in an amount equal to that fixed by the court in the order of attachment,
exclusive of costs. But if the attachment is sought to be discharged with respect to a particular
property, the counter-bond shall be equal to the value of that property as determined by the court. In
either case, the cash deposit or the counter-bond shall secure the payment of any judgment that the
attaching party may recover in the action. A notice of the deposit shall forthwith be served on the
attaching party. Upon the discharge of an attachment in accordance with the provisions of this
section, the property attached, or the proceeds of any sale thereof, shall be delivered to the party
making the deposit or giving the counter-bond, or to the person appearing on his behalf, the deposit
or counter-bond aforesaid standing in place of the property so released. Should such counter-bond
for any reason be found to be or become insufficient, and the party furnishing the same fail to file an
additional counter-bond, the attaching party may apply for a new order of attachment.

It should be noted that in G.R. No. 106214, per our Resolution dated 15 January 1997,44 we permitted
Villaluz to file a counter-attachment bond. On 17 February 1997,45 we required the private
respondents to comment on the sufficiency of the counter-bond posted by Villaluz.

It is quite palpable that the necessary steps in the discharge of an attachment upon giving counter-
bond have been taken. To require a specific order for the discharge of the attachment when this
Court, in our decision in G.R. No. 106214, had already declared that the petitioner is solidarily bound
with Villaluz would be mere surplusage. Thus:

During the pendency of this petition, a counter-attachment bond was filed by petitioner Villaluz
before this Court to discharge the attachment earlier issued by the trial court. Said bond amounting
to P2.5 million was furnished by Security Pacific Assurance, Corp. which agreed to bind itself "jointly
and severally" with petitioner for "any judgment" that may be recovered by private respondent
against the former.46

We are not unmindful of our ruling in the case of Belisle Investment and Finance Co., Inc. v. State
Investment House, Inc.,47 where we held:

. . . [T]he Court of Appeals correctly ruled that the mere posting of a counterbond does not
automatically discharge the writ of attachment. It is only after hearing and after the judge has
ordered the discharge of the attachment if a cash deposit is made or a counterbond is executed to
the attaching creditor is filed, that the writ of attachment is properly discharged under Section 12,
Rule 57 of the Rules of Court.

The ruling in Belisle, at first glance, would suggest an error in the assailed ruling of the Court of
Appeals because there was no specific resolution discharging the attachment and approving the
counter-bond. As above-explained, however, consideration of our decision in G.R. No. 106214 in its
entirety will readily show that this Court has virtually discharged the attachment after all the parties
therein have been heard on the matter.

On this score, we hew to the pertinent ratiocination of the Court of Appeals as regards the heretofore
cited provision of Section 12, Rule 57 of the 1997 Rules of Civil Procedure, on the discharge of
attachment upon giving counter-bond:

. . . The filing of the counter-attachment bond by petitioner Villaluz has discharged the attachment on
the properties and made the petitioner corporation liable on the counter-attachment bond. This can
be gleaned from the "DEFENDANT’S BOND FOR THE DISSOLUTION OF ATTACHMENT", which
states that Security Pacific Assurance Corporation, as surety, in consideration of the dissolution of
the said attachment jointly and severally, binds itself with petitioner Villaluz for any judgment that
may be recovered by private respondent Anzures against petitioner Villaluz.

The contract of surety is only between petitioner Villaluz and petitioner corporation. The petitioner
corporation cannot escape liability by stating that a court approval is needed before it can be made
liable. This defense can only be availed by petitioner corporation against petitioner Villaluz but not
against third persons who are not parties to the contract of surety. The petitioners hold themselves
out as jointly and severally liable without any conditions in the counter-attachment bond. The
petitioner corporation cannot impose requisites before it can be made liable when the law
clearly does not require such requisites to be fulfilled.48 (Emphases supplied.)

Verily, a judgment must be read in its entirety, and it must be construed as a whole so as to bring all
of its parts into harmony as far as this can be done by fair and reasonable interpretation and so as to
give effect to every word and part, if possible, and to effectuate the intention and purpose of the
Court, consistent with the provisions of the organic law.49

Insurance companies are prone to invent excuses to avoid their just obligation.50 It seems that this
statement very well fits the instant case.
WHEREFORE, in view of all the foregoing, the Decision and Resolution of the Court of Appeals
dated 16 June 2000 and 22 August 2000, respectively, are both AFFIRMED. Costs against
petitioner.

SO ORDERED.

G.R. No. 139941 January 19, 2001

VICENTE B. CHUIDIAN, petitioner,

vs.
SANDIGANBAYAN (Fifth Division) and the REPUBLIC OF THE PHILIPPINES, respondents.

YNARES-SANTIAGO, J.:

The instant petition arises from transactions that were entered into by the government in the
penultimate days of the Marcos administration. Petitioner Vicente B. Chuidian was alleged to be a
dummy or nominee of Ferdinand and Imelda Marcos in several companies said to have been
illegally acquired by the Marcos spouses. As a favored business associate of the Marcoses,
Chuidian allegedly used false pretenses to induce the officers of the Philippine Export and Foreign
Loan Guarantee Corporation (PHILGUARANTEE), the Board of Investments (BOI) and the Central
Bank, to facilitate the procurement and issuance of a loan guarantee in favor of the Asian Reliability
Company, Incorporated (ARCI) sometime in September 1980. ARCI, 98% of which was allegedly
owned by Chuidian, was granted a loan guarantee of Twenty-Five Million U.S. Dollars
(US$25,000,000.00). 1âwphi1.nêt

While ARCI represented to Philguarantee that the loan proceeds would be used to establish five
inter-related projects in the Philippines, Chuidian reneged on the approved business plan and
instead invested the proceeds of the loan in corporations operating in the United States, more
particularly Dynetics, Incorporated and Interlek, Incorporated. Although ARCI had received the
proceeds of the loan guaranteed by Philguarantee, the former defaulted in the payments thereof,
compelling Philguarantee to undertake payments for the same. Consequently, in June 1985,
Philguarantee sued Chuidian before the Santa Clara County Superior Court,1 charging that in
violation of the terms of the loan, Chuidian not only defaulted in payment, but also misused the funds
by investing them in Silicon Valley corporations and using them for his personal benefit.

For his part, Chuidian claimed that he himself was a victim of the systematic plunder perpetrated by
the Marcoses as he was the true owner of these companies, and that he had in fact instituted an
action before the Federal Courts of the United States to recover the companies which the Marcoses
had illegally wrested from him.2

On November 27, 1985, or three (3) months before the successful people's revolt that toppled the
Marcos dictatorship, Philguarantee entered into a compromise agreement with Chuidian whereby
petitioner Chuidian shall assign and surrender title to all his companies in favor of the Philippine
government. In return, Philguarantee shall absolve Chuidian from all civil and criminal liability, and in
so doing, desist from pursuing any suit against Chuidian concerning the payments Philguarantee
had made on Chuidian's defaulted loans.

It was further stipulated that instead of Chuidian reimbursing the payments made by Philguarantee
arising from Chuidian's default, the Philippine government shall pay Chuidian the amount of Five
Million Three Hundred Thousand Dollars (US$5,300,000.00). Initial payment of Five Hundred
Thousand Dollars (US$500,000.00) was actually received by Chuidian, as well as succeeding
payment of Two Hundred Thousand Dollars (US$200,000.00). The remaining balance of Four Million
Six Hundred Thousand Dollars (US$4,600,000.00) was to be paid through an irrevocable Letter of
Credit (L/C) from which Chuidian would draw One Hundred Thousand Dollars (US$100,000.00)
monthly.3 Accordingly, on December 12, 1985, L/C No. SSD-005-85 was issued for the said amount
by the Philippine National Bank (PNB). Subsequently, Chuidian was able to make two (2) monthly
drawings from said L/C at the Los Angeles branch of the PNB.4

With the advent of the Aquino administration, the newly-established Presidential Commission on
Good Government (PCGG) exerted earnest efforts to search and recover money, gold, properties,
stocks and other assets suspected as having been illegally acquired by the Marcoses, their relatives
and cronies.

Petitioner Chuidian was among those whose assets were sequestered by the PCGG. On May 30,
1986, the PCGG issued a Sequestration Order5 directing the PNB to place under its custody, for and
in behalf of the PCGG, the irrevocable L/C (No. SSD-005-85). Although Chuidian was then residing
in the United States, his name was placed in the Department of Foreign Affairs' Hold Order list.6

In the meantime, Philguarantee filed a motion before the Superior Court of Santa Clara County of
California in Civil Case Nos. 575867 and 577697 seeking to vacate the stipulated judgment
containing the settlement between Philguarantee and Chuidian on the grounds that: (a)
Philguarantee was compelled by the Marcos administration to agree to the terms of the settlement
which was highly unfavorable to Philguarantee and grossly disadvantageous to the government; (b)
Chuidian blackmailed Marcos into pursuing and concluding the settlement agreement by threatening
to expose the fact that the Marcoses made investments in Chuidian's American enterprises; and (c)
the Aquino administration had ordered Philguarantee not to make further payments on the L/C to
Chuidian. After considering the factual matters before it, the said court concluded that Philguarantee
"had not carried its burden of showing that the settlement between the parties should be set
aside."7 On appeal, the Sixth Appellate District of the Court of Appeal of the State of California
affirmed the judgment of the Superior Court of Sta. Clara County denying Philguarantee's motion to
vacate the stipulated judgment based on the settlement agreement.8

After payment on the L/C was frozen by the PCGG, Chuidian filed before the United States District
Court, Central District of California, an action against PNB seeking, among others, to compel PNB to
pay the proceeds of the L/C. PNB countered that it cannot be held liable for a breach of contract
under principles of illegality, international comity and act of state, and thus it is excused from
payment of the L/C. Philguarantee intervened in said action, raising the same issues and arguments
it had earlier raised in the action before the Santa Clara Superior Court, alleging that PNB was
excused from making payments on the L/C since the settlement was void due to illegality, duress
and fraud.9

The Federal Court rendered judgment ruling: (1) in favor of PNB excusing the said bank from making
payment on the L/C; and (2) in Chuidian's favor by denying intervenor Philguarantee's action to set
aside the settlement agreement.10

Meanwhile, on February 27, 1987, a Deed of Transfer11 was executed between then Secretary of
Finance Jaime V. Ongpin and then PNB President Edgardo B. Espiritu, to facilitate the rehabilitation
of PNB, among others, as part of the government's economic recovery program. The said Deed of
Transfer provided for the transfer to the government of certain assets of PNB in exchange for which
the government would assume certain liabilities of PNB.12 Among those liabilities which the
government assumed were unused commercial L/C's and Deferred L/C's, including SSD-005-85
listed under Dynetics, Incorporated in favor of Chuidian in the amount of Four Million Four Hundred
Thousand Dollars (US$4,400,000.00).13

On July 30, 1987, the government filed before the Sandiganbayan Civil Case No. 0027 against the
Marcos spouses, several government officials who served under the Marcos administration, and a
number of individuals known to be cronies of the Marcoses, including Chuidian. The complaint
sought the reconveyance, reversion, accounting and restitution of all forms of wealth allegedly
procured illegally and stashed away by the defendants.

In particular, the complaint charged that Chuidian, by himself and/or in conspiracy with the Marcos
spouses, engaged in "devices, schemes and stratagems" by: (1) forming corporations for the
purpose of hiding and avoiding discovery of illegally obtained assets; (2) pillaging the coffers of
government financial institutions such as the Philguarantee; and (3) executing the court settlement
between Philguarantee and Chuidian which was grossly disadvantageous to the government and the
Filipino people.
In fine, the PCGG averred that the above-stated acts of Chuidian committed in unlawful concert with
the other defendants constituted "gross abuse of official position of authority, flagrant breach of
public trust and fiduciary obligations, brazen abuse of right and power, unjust enrichment, violation of
the Constitution and laws" of the land.14

While the case was pending, on March 17, 1993, the Republic of the Philippines filed a motion for
issuance of a writ of attachment15 over the L/C, citing as grounds therefor the following:

(1) Chuidian embezzled or fraudulently misapplied the funds of ARCI acting in a fiduciary
capacity, justifying issuance of the writ under Section 1(b), Rule 57 of the Rules of Court;

(2) The writ is justified under Section 1(d) of the same rule as Chuidian is guilty of fraud in
contracting the debt or incurring the obligation upon which the action was brought, or that he
concealed or disposed of the property that is the subject of the action;

(3) Chuidian has removed or disposed of his property with the intent of defrauding the
plaintiff as justified under Section 1(c) of Rule 57; and

(4) Chuidian is residing out of the country or one on whom summons may be served by
publication, which justifies the writ of attachment prayed for under Section 1(e) of the same
rule.

The Republic also averred that should the action brought by Chuidian before the U.S. District Court
of California to compel payment of the L/C prosper, inspite of the sequestration of the said L/C,
Chuidian can ask the said foreign court to compel the PNB Los Angeles branch to pay the proceeds
of the L/C. Eventually, Philguarantee will be made to shoulder the expense resulting in further
damage to the government. Thus, there was an urgent need for the writ of attachment to place the
L/C under the custody of the Sandiganbayan so the same may be preserved as security for the
satisfaction of judgment in the case before said court.

Chuidian opposed the motion for issuance of the writ of attachment, contending that:

(1) The plaintiff's affidavit appended to the motion was in form and substance fatally
defective;

(2) Section 1(b) of Rule 57 does not apply since there was no fiduciary relationship between
the plaintiff and Chuidian;

(3) While Chuidian does not admit fraud on his part, if ever there was breach of contract,
such fraud must be present at the time the contract is entered into;

(4) Chuidian has not removed or disposed of his property in the absence of any intent to
defraud plaintiff;

(5) Chuidian's absence from the country does not necessarily make him a non-resident; and

(6) Service of summons by publication cannot be used to justify the issuance of the writ since
Chuidian had already submitted to the jurisdiction of the Court by way of a motion to lift the
freeze order filed through his counsel.

On July 14, 1993, the Sandiganbayan issued a Resolution ordering the issuance of a writ of
attachment against L/C No. SSD-005-85 as security for the satisfaction of judgment.16 The
Sandiganbayan's ruling was based on its disquisition of the five points of contention raised by the
parties. On the first issue, the Sandiganbayan found that although no separate affidavit was attached
to the motion, the motion itself contained all the requisites of an affidavit, and the verification thereof
is deemed a substantial compliance of Rule 57, Section 3 of the Rules of Court.

Anent the second contention, the Sandiganbayan ruled that there was no fiduciary relationship
existing between Chuidian and the Republic, but only between Chuidian and ARCI. Since the
Republic is not privy to the fiduciary relationship between Chuidian and ARCI, it cannot invoke
Section 1(b) of Rule 57.
On the third issue of fraud on the part of Chuidian in contracting the loan, or in concealing or
disposing of the subject property, the Sandiganbayan held that there was a prima facie case of fraud
committed by Chuidian, justifying the issuance of the writ of attachment. The Sandiganbayan also
adopted the Republic's position that since it was compelled to pay, through Philguarantee, the bank
loans taken out by Chuidian, the proceeds of which were fraudulently diverted, it is entitled to the
issuance of the writ of attachment to protect its rights as creditor.

Assuming that there is truth to the government's allegation that Chuidian has removed or disposed of
his property with the intent to defraud, the Sandiganbayan held that the writ of attachment is
warranted, applying Section 1(e) of Rule 57. Besides, the Rules provide for sufficient security should
the owner of the property attached suffer damage or prejudice caused by the attachment.17

Chuidian's absence from the country was considered by the Sandiganbayan to be "the most potent
insofar as the relief being sought is concerned."18 Taking judicial notice of the admitted fact that
Chuidian was residing outside of the country, the Sandiganbayan observed that:

"x x x no explanation whatsoever was given by him as to his absence from the country, or as to his
homecoming plans in the future. It may be added, moreover, that he has no definite or clearcut plan
to return to the country at this juncture – given the manner by which he has submitted himself to the
jurisdiction of the court."19

Thus, the Sandiganbayan ruled that even if Chuidian is one who ordinarily resides in the Philippines,
but is temporarily living outside, he is still subject to the provisional remedy of attachment.

Accordingly, an order of attachment20 was issued by the Sandiganbayan on July 19, 1993, ordering
the Sandiganbayan Sheriff to attach PNB L/C No. SSD-005-85 for safekeeping pursuant to the
Rules of Court as security for the satisfaction of judgment in Sandiganbayan Civil Case No. 0027.

On August 11, 1997, or almost four (4) years after the issuance of the order of attachment, Chuidian
filed a motion to lift the attachment based on the following grounds:

First, he had returned to the Philippines; hence, the Sandiganbayan's "most potent ground" for the
issuance of the writ of preliminary attachment no longer existed. Since his absence in the past was
the very foundation of the Sandiganbayan's writ of preliminary attachment, his presence in the
country warrants the immediate lifting thereof.

Second, there was no evidence at all of initial fraud or subsequent concealment except for the
affidavit submitted by the PCGG Chairman citing mere "belief and information" and "not on
knowledge of the facts." Moreover, this statement is hearsay since the PCGG Chairman was not a
witness to the litigated incidents, was never presented as a witness by the Republic and thus was
not subject to cross-examination.

Third, Chuidian denies that he ever disposed of his assets to defraud the Republic, and there is
nothing in the records that support the Sandiganbayan's erroneous conclusion on the matter. Fourth,
Chuidian belied the allegation that he was also a defendant in "other related criminal action," for in
fact, he had "never been a defendant in any prosecution of any sort in the Philippines."21 Moreover,
he could not have personally appeared in any other action because he had been deprived of his
right to a travel document by the government.

Fifth, the preliminary attachment was, in the first place, unwarranted because he was not "guilty of
fraud in contracting the debt or incurring the obligation". In fact, the L/C was not a product of
fraudulent transactions, but was the result of a US Court-approved settlement. Although he was
accused of employing blackmail tactics to procure the settlement, the California Supreme Court
ruled otherwise. And in relation thereto, he cites as a sixth ground the fact that all these allegations
of fraud and wrongdoing had already been dealt with in actions before the State and Federal Courts
of California. While it cannot technically be considered as forum shopping, it is nevertheless a "form
of suit multiplicity over the same issues, parties and subject matter." 22 These foreign judgments
constitute res judicata which warrant the dismissal of the case itself.

Chuidian further contends that should the attachment be allowed to continue, he will be deprived of
his property without due process. The L/C was payment to Chuidian in exchange for the assets he
turned over to the Republic pursuant to the terms of the settlement in Case No. 575867. Said assets,
however, had already been sold by the Republic and cannot be returned to Chuidian should the
government succeed in depriving him of the proceeds of the L/C. Since said assets were disposed of
without his or the Sandiganbayan's consent, it is the Republic who is fraudulently disposing of
assets.

Finally, Chuidian stressed that throughout the four (4) years that the preliminary attachment had
been in effect, the government had not set the case for hearing. Under Rule 17, Section 3, the case
itself should be dismissed for laches owing to the Republic's failure to prosecute its action for an
unreasonable length of time. Accordingly, the preliminary attachment, being only a temporary or
ancillary remedy, must be lifted and the PNB ordered to immediately pay the proceeds of the L/C to
Chuidian.

Subsequently, on August 20, 1997, Chuidian filed a motion to require the Republic to deposit the L/C
in an interest bearing account.23 Annex "D"; Rollo, pp. 77-79.23 He pointed out to the
Sandiganbayan that the face amount of the L/C had, since its attachment, become fully demandable
and payable. However, since the amount is just lying dormant in the PNB, without earning any
interest, he proposed that it would be to the benefit of all if the Sandiganbayan requires PNB to
deposit the full amount to a Sandiganbayan trust account at any bank in order to earn interest while
awaiting judgment of the action.

The Republic opposed Chuidian's motion to lift attachment, alleging that Chuidian's absence was not
the only ground for the attachment and, therefore, his belated appearance before the
Sandiganbayan is not a sufficient reason to lift the attachment. Moreover, allowing the foreign
judgment as a basis for the lifting of the attachment would essentially amount to an abdication of the
jurisdiction of the Sandiganbayan to hear and decide the ill gotten wealth cases lodged before it in
deference to the judgment of foreign courts.

In a Resolution promulgated on November 13, 1998, the Sandiganbayan denied Chuidian's motion
to lift attachment.24

On the same day, the Sandiganbayan issued another Resolution denying Chuidian's motion to
require deposit of the attached L/C in an interest bearing account.25

In a motion seeking a reconsideration of the first resolution, Chuidian assailed the Sandiganbayan's
finding that the issues raised in his motion to lift attachment had already been dealt with in the earlier
resolution dated July 14, 1993 granting the application for the writ of preliminary attachment based
on the following grounds:

First, Chuidian was out of the country in 1993, but is now presently residing in the country.

Second, the Sandiganbayan could not have known then that his absence was due to the non-
renewal of his passport at the instance of the PCGG. Neither was it revealed that the Republic had
already disposed of Chuidian's assets ceded to the Republic in exchange for the L/C. The foreign
judgment was not an issue then because at that time, said judgment had not yet been issued and
much less final. Furthermore, the authority of the PCGG Commissioner to subscribe as a
knowledgeable witness relative to the issuance of the writ of preliminary attachment was raised for
the first time in the motion to lift the attachment. Finally, the issue of laches could not have been
raised then because it was the Republic's subsequent neglect or failure to prosecute despite the
passing of the years that gave rise to laches.26

Chuidian also moved for a reconsideration of the Sandiganbayan resolution denying the motion to
require deposit of the L/C into an interest bearing account. He argued that contrary to the
Sandiganbayan's pronouncement, allowing the deposit would not amount to a virtual recognition of
his right over the L/C, for he is not asking for payment but simply requesting that it be deposited in
an account under the control of the Sandiganbayan. He further stressed that the Sandiganbayan
abdicated its bounden duty to rule on an issue when it found "that his motion will render nugatory the
purpose of sequestration and freeze orders over the L/C." Considering that his assets had already
been sold by the Republic, he claimed that the Sandiganbayan's refusal to exercise its fiduciary duty
over attached assets will cause him irreparable injury. Lastly, the Sandiganbayan's position that
Chuidian was not the owner but a mere payee-beneficiary of the L/C issued in his favor negates
overwhelming jurisprudence on the Negotiable Instruments Law, while at the same time obliterating
his rights of ownership under the Civil Code.27
On July 13, 1999, the Sandiganbayan gave due course to Chuidian's plea for the attached L/C to be
deposited in an interest-bearing account, on the ground that it will redound to the benefit of both
parties.

The Sandiganbayan declared the national government as the principal obligor of the L/C even
though the liability remained in the books of the PNB for accounting and monitoring purposes.

The Sandiganbayan, however, denied Chuidian's motion for reconsideration of the denial of his
motion to lift attachment, agreeing in full with the government's apriorisms that:

x x x (1) it is a matter of record that the Court granted the application for writ of attachment upon
grounds other than defendant's absence in the Philippine territory. In its Resolution dated July 14,
1993, the Court found a prima facie case of fraud committed by defendant Chuidian, and that
defendant has recovered or disposed of his property with the intent of defrauding plaintiff; (2)
Chuidian's belated presence in the Philippines cannot be invoked to secure the lifting of attachment.
The rule is specific that it applies to a party who is about to depart from the Philippines with intent to
defraud his creditors. Chuidian's stay in the country is uncertain and he may leave at will because he
holds a foreign passport; and (3) Chuidian's other ground, sufficiency of former PCGG Chairman
Gunigundo's verification of the complaint, has been met fairly and squarely in the Resolution of July
14, 1993.28

Hence, the instant petition for certiorari contending that the respondent Sandiganbayan committed
grave abuse of discretion amounting to lack or excess of jurisdiction when it ruled that:

1) Most of the issues raised in the motion to lift attachment had been substantially addressed
in the previous resolutions dated July 14, 1993 and August 26, 1998, while the rest were of
no imperative relevance as to affect the Sandiganbayan's disposition; and

2) PNB was relieved of the obligation to pay on its own L/C by virtue of Presidential
Proclamation No. 50.

The Rules of Court specifically provide for the remedies of a defendant whose property or asset has
been attached. As has been consistently ruled by this Court, the determination of the existence of
grounds to discharge a writ of attachment rests in the sound discretion of the lower courts.29

The question in this case is: What can the herein petitioner do to quash the attachment of the L/C?
There are two courses of action available to the petitioner:

First. To file a counterbond in accordance with Rule 57, Section 12, which provides:

SEC. 12. Discharge of attachment upon giving counterbond. – At anytime 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 place of the property so released. Should such counterbond 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. 1âwphi1.nêt

or

Second. To quash the attachment on the ground that it was irregularly or improvidently issued, as
provided for in Section 13 of the same Rule:
SEC. 13. Discharge of attachment for improper or irregular issuance. - The party whose property has
been attached may also, at any time either before or after the release of the attached property, or
before any attachment shall have been actually levied, upon reasonable notice to the attaching
creditor, apply to the judge who granted the order, or to the judge of the court in which the action is
pending, for an order to discharge the attachment on the ground that the same was improperly or
irregularly issued. If the motion be made on affidavits on the part of the party whose property has
been attached, but not otherwise, the attaching creditor may oppose the same by counter-affidavits
or other evidence in addition to that on which the attachment was made. After hearing, the judge
shall order the discharge of the attachment if it appears that it was improperly or irregularly issued
and the defect is not cured forthwith.

It would appear that petitioner chose the latter because the grounds he raised assail the propriety of
the issuance of the writ of attachment. By his own admission, however, he repeatedly acknowledged
that his justifications to warrant the lifting of the attachment are facts or events that came to light or
took place after the writ of attachment had already been implemented.

More particularly, petitioner emphasized that four (4) years after the writ was issued, he had returned
to the Philippines. Yet while he noted that he would have returned earlier but for the cancellation of
his passport by the PCGG, he was not barred from returning to the Philippines. Then he informed
the Sandiganbayan that while the case against him was pending, but after the attachment had
already been executed, the government lost two (2) cases for fraud lodged against him before the
U.S. Courts, thus invoking res judicata. Next, he also pointed out that the government is estopped
from pursuing the case against him for failing to prosecute for the number of years that it had been
pending litigation.

It is clear that these grounds have nothing to do with the issuance of the writ of attachment. Much
less do they attack the issuance of the writ at that time as improper or irregular. And yet, the rule
contemplates that the defect must be in the very issuance of the attachment writ. For instance, the
attachment may be discharged under Section 13 of Rule 57 when it is proven that the allegations of
the complaint were deceptively framed,30 or when the complaint fails to state a cause of
action.31 Supervening events which may or may not justify the discharge of the writ are not within the
purview of this particular rule.

In the instant case, there is no showing that the issuance of the writ of attachment was attended by
impropriety or irregularity. Apart from seeking a reconsideration of the resolution granting the
application for the writ, petitioner no longer questioned the writ itself. For four (4) long years he kept
silent and did not exercise any of the remedies available to a defendant whose property or asset has
been attached. It is rather too late in the day for petitioner to question the propriety of the issuance of
the writ.

Petitioner also makes capital of the two foreign judgments which he claims warrant the application of
the principle of res judicata. The first judgment, in Civil Case Nos. 575867 and 577697 brought by
Philguarantee before the Santa Clara Country Superior Court, denied Philguarantee's prayer to set
aside the stipulated judgment wherein Philguarantee and Chuidian agreed on the subject attached
L/C. On March 14, 1990, the Court of Appeal of the State of California affirmed the Superior Court's
judgment. The said judgment became the subject of a petition for review by the California Supreme
Court. There is no showing, however, of any final judgment by the California Supreme Court. The
records, including petitioner's pleadings, are bereft of any evidence to show that there is a final
foreign judgment which the Philippine courts must defer to. Hence, res judicata finds no application
in this instance because it is a requisite that the former judgment or order must be final.32

Second, petitioner cites the judgment of the United States District Court in Civil Case 86-2255 RSWL
brought by petitioner Chuidian against PNB to compel the latter to pay the L/C. The said Court's
judgment, while it ruled in favor of petitioner on the matter of Philguarantee's action-in-intervention to
set aside the settlement agreement, also ruled in favor of PNB, to wit:

Under Executive Order No. 1, the PCGG is vested by the Philippine President with the power to
enforce its directives and orders by contempt proceedings. Under Executive Order No. 2, the PCGG
is empowered to freeze any, and all assets, funds and property illegally acquired by former President
Marcos or his close friends and business associates.

On March 11, 1986, PNB/Manila received an order from the PCGG ordering PNB to freeze any
further drawings on the L/C. The freeze order has remained in effect and was followed by a
sequestration order issued by the PCGG. Subsequently, Chuidian's Philippine counsel filed a series
of challenges to the freeze and sequestration orders, which challenges were unsuccessful as the
orders were found valid by the Philippine Supreme Court. The freeze and sequestration orders are
presently in effect. Thus, under the PCGG order and Executive Orders Nos. 1 and 2, performance
by PNB would be illegal under Philippine Law. Therefore PNB is excused from performance of the
L/C agreement as long as the freeze and sequestration orders remain in effect. (Underscoring ours)

xxx xxx xxx

Chuidian argues that the fact that the L/C was issued pursuant to a settlement in California, that the
negotiations for which occurred in California, and that two of the payments were made at PNB/LA,
compels the conclusion that the act of prohibiting payment of the L/C occurred in Los Angeles.
However, the majority of the evidence and Tchacosh and Sabbatino compel the opposite conclusion.
The L/C was issued in Manila, such was done at the request of a Philippine government
instrumentality for the benefit of a Philippine citizen, the L/C was to be performed in the Philippines,
all significant events relating to the issuance and implementation of the L/C occurred in the
Philippines, the L/C agreement provided that the L/C was to be construed according to laws of the
Philippines, and the Philippine government certainly has an interest in preventing the L/C from being
remitted in that it would be the release of funds that are potentially illgotten gains. Accordingly, the
Court finds that the PCGG orders are acts of state that must be respected by this Court, and thus
PNB is excused from making payment on the L/C as long as the freeze and sequestration orders
remain in effect.33 (Underscoring ours)

Petitioner's own evidence strengthens the government's position that the L/C is under the jurisdiction
of the Philippine government and that the U.S. Courts recognize the authority of the Republic to
sequester and freeze said L/C. Hence, the foreign judgments relied upon by petitioner do not
constitute a bar to the Republic's action to recover whatever alleged ill-gotten wealth petitioner may
have acquired.

Petitioner may argue, albeit belatedly, that he also raised the issue that there was no evidence of
fraud on record other than the affidavit of PCGG Chairman Gunigundo. This issue of fraud, however,
touches on the very merits of the main case which accuses petitioner of committing fraudulent acts
in his dealings with the government. Moreover, this alleged fraud was one of the grounds for the
application of the writ, and the Sandiganbayan granted said application after it found a prima
facie case of fraud committed by petitioner.

In fine, fraud was not only one of the grounds for the issuance of the preliminary attachment, it was
at the same time the government's cause of action in the main case.

We have uniformly held that:

x x x when the preliminary attachment is issued upon a ground which is at the same time the
applicant's cause of action; e.g., "an action for money or property embezzled or fraudulently
misapplied or converted to his own use by a public officer, or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in the course of his employment as such, or by any other
person in a fiduciary capacity, or for a willful violation of duty," or "an action against a party who has
been guilty of fraud in contracting the debt or incurring the obligation upon which the action is
brought," the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of
Rule 57 by offering to show the falsity of the factual averments in the plaintiff's application and
affidavits on which the writ was based – and consequently that the writ based thereon had been
improperly or irregularly issued – the reason being that the hearing on such a motion for dissolution
of the writ would be tantamount to a trial of the merits of the action. In other words, the merits of the
action would be ventilated at a mere hearing of a motion, instead of at the regular
trial.34 (Underscoring ours)

Thus, this Court has time and again ruled that the merits of the action in which a writ of preliminary
attachment has been issued are not triable on a motion for dissolution of the attachment, otherwise
an applicant for the lifting of the writ could force a trial of the merits of the case on a mere motion.35

It is not the Republic's fault that the litigation has been protracted. There is as yet no evidence of
fraud on the part of petitioner. Petitioner is only one of the twenty-three (23) defendants in the main
action. As such, the litigation would take longer than most cases. Petitioner cannot invoke this delay
in the proceedings as an excuse for not seeking the proper recourse in having the writ of attachment
lifted in due time. If ever laches set in, it was petitioner, not the government, who failed to take action
within a reasonable time period. Challenging the issuance of the writ of attachment four (4) years
after its implementation showed petitioner's apparent indifference towards the proceedings before
the Sandiganbayan.

In sum, petitioner has failed to convince this Court that the Sandiganbayan gravely abused its
discretion in a whimsical, capricious and arbitrary manner. There are no compelling reasons to
warrant the immediate lifting of the attachment even as the main case is still pending. On the other
hand, allowing the discharge of the attachment at this stage of the proceedings would put in
jeopardy the right of the attaching party to realize upon the relief sought and expected to be granted
in the main or principal action. It would have the effect of prejudging the main case.

The attachment is a mere provisional remedy to ensure the safety and preservation of the thing
attached until the plaintiff can, by appropriate proceedings, obtain a judgment and have such
property applied to its satisfaction.36 To discharge the attachment at this stage of the proceedings
would render inutile any favorable judgment should the government prevail in the principal action
against petitioner. Thus, the Sandiganbayan, in issuing the questioned resolutions, which are
interlocutory in nature, committed no grave abuse of discretion amounting to lack or excess of
jurisdiction. As long as the Sandiganbayan acted within its jurisdiction, any alleged errors committed
in the exercise of its jurisdiction will amount to nothing more than errors of judgment which are
reviewable by timely appeal and not by special civil action of certiorari.37

Moreover, we have held that when the writ of attachment is issued upon a ground which is at the
same time the applicant's cause of action, the only other way the writ can be lifted or dissolved is by
a counterbond, in accordance with Section 12 of the same rule.38 This recourse, however, was not
availed of by petitioner, as noted by the Solicitor General in his comment.39

To reiterate, there are only two ways of quashing a writ of attachment: (a) by filing a counterbond
immediately; or (b) by moving to quash on the ground of improper and irregular issuance.40 These
grounds for the dissolution of an attachment are fixed in Rule 57 of the Rules of Court and the power
of the Court to dissolve an attachment is circumscribed by the grounds specified
therein.41 Petitioner's motion to lift attachment failed to demonstrate any infirmity or defect in the
issuance of the writ of attachment; neither did he file a counterbond.

Finally, we come to the matter of depositing the Letter of Credit in an interest-bearing account. We
agree with the Sandiganbayan that any interest that the proceeds of the L/C may earn while the
case is being litigated would redound to the benefit of whichever party will prevail, the Philippine
government included. Thus, we affirm the Sandiganbayan's ruling that the proceeds of the L/C
should be deposited in an interest bearing account with the Land Bank of the Philippines for the
account of the Sandiganbayan in escrow until ordered released by the said Court.

We find no legal reason, however, to release the PNB from any liability thereunder. The Deed of
Transfer, whereby certain liabilities of PNB were transferred to the national government, cannot
affect the said L/C since there was no valid substitution of debtor. Article 1293 of the New Civil Code
provides:

Novation which consists in substituting a new debtor in the place of the original one, may be made
without the knowledge or against the will of the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.

Accordingly, any substitution of debtor must be with the consent of the creditor, whose consent
thereto cannot just be presumed. Even though Presidential Proclamation No. 50 can be considered
an "insuperable cause", it does not necessarily make the contracts and obligations affected thereby
exceptions to the above-quoted law, such that the substitution of debtor can be validly made even
without the consent of the creditor. Presidential Proclamation No. 50 was not intended to set aside
laws that govern the very lifeblood of the nation's commerce and economy. In fact, the Deed of
Transfer that was executed between PNB and the government pursuant to the said Presidential
Proclamation specifically stated that it shall be deemed effective only upon compliance with several
conditions, one of which requires that:

(b) the BANK shall have secured such governmental and creditors' approvals as may be necessary
to establish the consummation, legality and enforceability of the transactions contemplated hereby."

The validity of this Deed of Transfer is not disputed. Thus, PNB is estopped from denying its liability
thereunder considering that neither the PNB nor the government bothered to secure petitioner's
consent to the substitution of debtors. We are not unmindful that any effort to secure petitioner's
consent at that time would, in effect, be deemed an admission that the L/C is valid and binding. Even
the Sandiganbayan found that: 36 Sta. Ines Melale Forest Products Corp. v. Macaraig, Jr., 299 SCRA
491, 515 (1998).

x x x Movant has basis in pointing out that inasmuch as the L/C was issued in his favor, he is
presumed to be the lawful payee-beneficiary of the L/C until such time that the plaintiff successfully
proves that said L/C is ill-gotten and he has no right over the same.42

In Republic v. Sandiganbayan,43 we held that the provisional remedies, such as freeze orders and
sequestration, were not "meant to deprive the owner or possessor of his title or any right to the
property sequestered, frozen or taken over and vest it in the sequestering agency, the Government
or other person."

Thus, until such time that the government is able to successfully prove that petitioner has no right to
claim the proceeds of the L/C, he is deemed to be the lawful payee-beneficiary of said L/C, for which
any substitution of debtor requires his consent. The Sandiganbayan thus erred in relieving PNB of its
liability as the original debtor.

WHEREFORE, in view of all the foregoing, the petition is DISMISSED. The Resolutions of the
Sandiganbayan dated November 6, 1998 and July 2, 1999 are AFFIRMED. The PNB is DIRECTED
to remit to the Sandiganbayan the proceeds of Letter of Credit No. SFD-005-85 in the amount of
U.S. $4.4 million within fifteen (15) days from notice hereof, the same to be placed under special
time deposit with the Land Bank of the Philippines, for the account of Sandiganbayan in escrow for
the person or persons, natural or juridical, who shall eventually be adjudged lawfully entitled thereto,
the same to earn interest at the current legal bank rates. The principal and its interest shall remain in
said account until ordered released by the Court in accordance with law. 1âwphi1.nêt

No costs.

SO ORDERED.
G.R. No. 171741 November 27, 2009

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

DECISION

CARPIO, J.:

The Case

This is a petition for review1 of the 29 September 2004 Decision2 and 2 March 2006 Resolution3 of
the Court of Appeals in CA-G.R. SP No. 79475. In its 29 September 2004 Decision, the Court of
Appeals granted the petition for certiorari of respondents Lara’s Gifts and Decors, Inc., Luis
Villafuerte, Jr., and Lara Maria R. Villafuerte (respondents). In its 2 March 2006 Resolution, the
Court of Appeals denied the motion for reconsideration of petitioners Metro, Inc., Frederick Juan and
Liza Juan (petitioners).

The Facts

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

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

In May 2003, respondents filed with the Regional Trial Court, Branch 197, Las Piñas City (trial court)
a complaint against petitioners for sum of money and damages with a prayer for the issuance of a
writ of preliminary attachment. Subsequently, respondents filed an amended complaint5 and alleged
that, as of July 2002, petitioners defrauded them in the amount of $521,841.62. Respondents also
prayed for ₱1,000,000 as moral damages, ₱1,000,000 as exemplary damages and 10% of the
judgment award as attorney’s fees. Respondents also prayed for the issuance of a writ of preliminary
attachment.
In its 23 June 2003 Order,6 the trial court granted respondents’ prayer and issued the writ of
attachment against the properties and assets of petitioners. The 23 June 2003 Order provides:

WHEREFORE, let a Writ of Preliminary Attachment issue against the properties and assets of
Defendant METRO, INC. and against the properties and assets of Defendant SPOUSES
FREDERICK AND LIZA JUAN not exempt from execution, as may be sufficient to satisfy the
applicants’ demand of US$521,841.62 US Dollars or its equivalent in Pesos upon actual attachment,
which is about ₱27 Million, unless such Defendants make a deposit or give a bond in an amount
equal to ₱27 Million to satisfy the applicants’ demand exclusive of costs, upon posting by the
Plaintiffs of a Bond for Preliminary Attachment in the amount of twenty five million pesos
(₱25,000,000.00), subject to the approval of this Court.

SO ORDERED.7

On 26 June 2003, petitioners filed a motion to discharge the writ of attachment. Petitioners argued
that the writ of attachment should be discharged on the following grounds: (1) that the 2001
agreement was not a valid contract because it did not show that there was a meeting of the minds
between the parties; (2) assuming that the 2001 agreement was a valid contract, the same was
inadmissible because respondents failed to authenticate it in accordance with the Rules on
Electronic Evidence; (3) that respondents failed to substantiate their allegations of fraud with specific
acts or deeds showing how petitioners defrauded them; and (4) that respondents failed to establish
that the unpaid commissions were already due and demandable.

After considering the arguments of the parties, the trial court granted petitioners’ motion and lifted
the writ of attachment. The 12 August 2003 Order8 of the trial court provides:

Premises considered, after having taken a second hard look at the Order dated June 23, 2003
granting plaintiff’s application for the issuance of a writ of preliminary attachment, the Court holds
that the issuance of a writ of preliminary attachment in this case is not justified.

WHEREFORE, the writ of preliminary attachment issued in the instant case is hereby ordered
immediately discharged and/or lifted.

SO ORDERED.9

Respondents filed a motion for reconsideration. In its 10 September 2003 Order, the trial court
denied the motion.

Respondents filed a petition for certiorari before the Court of Appeals. Respondents alleged that the
trial court gravely abused its discretion when it ordered the discharge of the writ of attachment
without requiring petitioners to post a counter-bond.

In its 29 September 2004 Decision, the Court of Appeals granted respondents’ petition. The 29
September 2004 Decision provides:

WHEREFORE, finding merit in the petition, We GRANT the same. The assailed Orders are hereby
ANNULLED and SET ASIDE. However, the issued Writ of Preliminary Attachment may be ordered
discharged upon the filing by the private respondents of the proper counter-bond pursuant to Section
12, Rule 57 of the Rules of Civil Procedure.

SO ORDERED.10

Petitioners filed a motion for reconsideration. In its 2 March 2006 Resolution, the Court of Appeals
denied the motion.

Hence, this petition.

The 12 August 2003 Order of the Trial Court

According to the trial court, respondents failed to sufficiently show that petitioners were guilty of
fraud either in incurring the obligation upon which the action was brought, or in the performance
thereof. The trial court found no proof that petitioners were motivated by malice in entering into the
2001 agreement. The trial court also declared that petitioners’ failure to fully comply with their
obligation, absent other facts or circumstances to indicate evil intent, does not automatically amount
to fraud. Consequently, the trial court ordered the discharge of the writ of attachment for lack of
evidence of fraud.

The 29 September 2004 Decision of the Court of Appeals

According to the Court Appeals, the trial court gravely abused its discretion when it ordered the
discharge of the writ of attachment without requiring petitioners to post a counter-bond. The Court of
Appeals said that when the writ of attachment is issued upon a ground which is at the same time
also the applicant’s cause of action, courts are precluded from hearing the motion for dissolution of
the writ when such hearing would necessarily force a trial on the merits of a case on a mere
motion.11 The Court of Appeals pointed out that, in this case, fraud was not only alleged as the
ground for the issuance of the writ of attachment, but was actually the core of respondents’
complaint. The Court of Appeals declared that the only way that the writ of attachment can be
discharged is by posting a counter-bond in accordance with Section 12,12 Rule 57 of the Rules of
Court.

The Issue

Petitioners raise the question of whether the writ of attachment issued by the trial court was
improperly issued such that it may be discharged without the filing of a counter-bond.

The Ruling of the Court

The petition has no merit.

Petitioners contend that the writ of attachment was improperly issued because respondents’
amended complaint failed to allege specific acts or circumstances constitutive of fraud. Petitioners
insist that the improperly issued writ of attachment may be discharged without the necessity of filing
a counter-bond. Petitioners also argue that respondents failed to show that the writ of attachment
was issued upon a ground which is at the same time also respondents’ cause of action. Petitioners
maintain that respondents’ amended complaint was not an action based on fraud but was a simple
case for collection of sum of money plus damages.

On the other hand, respondents argue that the Court of Appeals did not err in ruling that the writ of
attachment can only be discharged by filing a counter-bond. According to respondents, petitioners
cannot avail of Section 13,13 Rule 57 of the Rules of Court to have the attachment set aside because
the ground for the issuance of the writ of attachment is also the basis of respondents’ amended
complaint. Respondents assert that the amended complaint is a complaint for damages for the
breach of obligation and acts of fraud committed by petitioners. 1 a vv p h i 1

In this case, the basis of respondents’ application for the issuance of a writ of preliminary attachment
is Section 1(d), Rule 57 of the Rules of Court which provides:

SEC. 1. Grounds upon which attachment may issue. — At the commencement of the action or at
any time before entry of judgment, a plaintiff or any proper party may have the property of the
adverse party attached as security for the satisfaction of any judgment that maybe recovered in the
following cases: x x x

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

In Liberty Insurance Corporation v. Court of Appeals,14 we explained:

To sustain an attachment on this ground, it must be shown that the debtor in contracting the debt or
incurring the obligation intended to defraud the creditor. The fraud must relate to the execution of the
agreement and must have been the reason which induced the other party into giving consent which
he would not have otherwise given. To constitute a ground for attachment in Section 1(d), Rule 57 of
the Rules of Court, fraud should be committed upon contracting the obligation sued upon. A debt is
fraudulently contracted if at the time of contracting it the debtor has a preconceived plan or intention
not to pay, as it is in this case.15
The applicant for a writ of preliminary attachment must sufficiently show the factual circumstances of
the alleged fraud because fraudulent intent cannot be inferred from the debtor’s mere non-payment
of the debt or failure to comply with his obligation.16

In their amended complaint, respondents alleged the following in support of their prayer for a writ of
preliminary attachment:

5. Sometime in early 2001, defendant Frederick Juan approached plaintiff spouses and asked them
to help defendants’ export business. Defendants enticed plaintiffs to enter into a business deal. He
proposed to plaintiff spouses the following:

a. That plaintiffs transfer and endorse to defendant Metro some of the Purchase Orders
(PO’s) they will receive from their US buyers;

b. That defendants will sell exclusively and "only thru" plaintiffs for their US buyer;

xxx

6. After several discussions on the matter and further inducement on the part of defendant spouses,
plaintiff spouses agreed. Thus, on April 21, 2001, defendant spouses confirmed and finalized the
agreement in a letter-document entitled "2001 Agreement" they emailed to plaintiff spouses, a copy
of which is hereto attached as Annex "A".

xxx

20. Defendants are guilty of fraud committed both at the inception of the agreement and in the
performance of the obligation. Through machinations and schemes, defendants successfully enticed
plaintiffs to enter into the 2001 Agreement. In order to secure plaintiffs’ full trust in them and lure
plaintiffs to endorse more POs and increase the volume of the orders, defendants during the early
part, remitted to plaintiffs shares under the Agreement.

21. However, soon thereafter, just when the orders increased and the amount involved likewise
increased, defendants suddenly, without any justifiable reasons and in pure bad faith and fraud,
abandoned their contractual obligations to remit to plaintiffs their shares. And worse, defendants
transacted directly with plaintiffs’ foreign buyer to the latter’s exclusion and damage. Clearly,
defendants planned everything from the beginning, employed ploy and machinations to defraud
plaintiffs, and consequently take from them a valuable client.

22. Defendants are likewise guilty of fraud by violating the trust and confidence reposed upon them
by plaintiffs. Defendants received the proceeds of plaintiffs’ LCs with the clear obligation of remitting
15% thereof to the plaintiffs. Their refusal and failure to remit the said amount despite demand
constitutes a breach of trust amounting to malice and fraud.17 (Emphasis and underscoring in the
original) (Boldfacing and italicization supplied)

We rule that respondents’ allegation that petitioners undertook to sell exclusively and only through
JRP/LGD for Target Stores Corporation but that petitioners transacted directly with respondents’
foreign buyer is sufficient allegation of fraud to support their application for a writ of preliminary
attachment. Since the writ of preliminary attachment was properly issued, the only way it can be
dissolved is by filing a counter-bond in accordance with Section 12, Rule 57 of the Rules of Court.

Moreover, the reliance of the Court of Appeals in the cases of Chuidian v. Sandiganbayan,18 FCY
Construction Group, Inc. v. Court of Appeals,19 and Liberty Insurance Corporation v. Court of
Appeals20 is proper. The rule that "when the writ of attachment is issued upon a ground which is at
the same time the applicant’s cause of action, the only other way the writ can be lifted or dissolved is
by a counter-bond"21 is applicable in this case. It is clear that in respondents’ amended complaint of
fraud is not only alleged as a ground for the issuance of the writ of preliminary attachment, but it is
also the core of respondents’ complaint. The fear of the Court of Appeals that petitioners could force
a trial on the merits of the case on the strength of a mere motion to dissolve the attachment has a
basis.

WHEREFORE, we DENY the petition. We AFFIRM the 29 September 2004 Decision and 2 March
2006 Resolution of the Court of Appeals in CA-G.R. SP No. 79475.
SO ORDERED.

September 9, 2015

G.R. No. 181721

WATERCRAFT VENTURE CORPORATION, represented by its Vice-President, ROSARIO E.

RANOA, Petitioners,
vs.
ALFRED RAYMOND WOLFE, Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to reverse and
set aside the Court of Appeals (CA) Resolution1 dated January 24, 2008 denying the motion for
reconsideration of its Decision2 dated September 27, 2007 in CA-G.R. SP No. 97804.

The facts are as follows:

Petitioner Watercraft Venture Corporation (Watercraft) is engaged in the business of building,

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

Sometime in June 1997, Watercraft hired respondent Alfred Raymond Wolfe (Wolfe), a British
national and resident of Subic Bay Freeport Zone, Zambales, as its Shipyard Manager.

During his empolyment, Wolfe stored the sailboat, Knotty Gull, within Watercraft's boat storage
facilities, but never paid for the storage fees.

On March 7, 2002, Watercraft terminated the employment of Wolfe.

Sometime in June 2002, Wolfe pulled out his sailboat from Watercraft's storage facilities after signing
a Boat Pull-Out Clearance dated June 29, 2002 where he allegedly acknowledged the outstanding
obligation of Sixteen Thousand Three Hundred and Twenty-Four and 82/100 US Dollars
(US$16,324.82) representing unpaid boat storage fees for the period of June 1997 to June 2002.
Despite repeated demands, he failed to pay the said amount.
Thus, on July 7, 2005, Watercraft filed against Wolfe a Complaint for Collection of Sum of Money
with Damages with an Application for the Issuance of a Writ of Preliminary Attachment. The case
was docketed as Civil Case No. 4534-MN, and raffled to Branch 1703 of the Regional Trial Court
(RTC) of Malabon City.

In his Answer, Wolfe claimed he was hired as Service and Repair Manager, instead of Shipyard
Manager. He denied owing Watercraft the amount of US$16,324.82 representing storage fees for
the sailboat. He explained that the sailboat was purchased in February 1998 as part of an
agreement between him and Watercraft's then General Manager, Barry Bailey, and its President,
Ricky Sandoval, for it to be repaired and used as training or fill-in project for the staff, and to be sold
later on. He added that pursuant to a central Listing Agreement for the sale of the sailboat, he was
appointed as agent, placed in possession thereof and entitled to a ten percent (10%) sales
commission. He insisted that nowhere in the agreement was there a stipulation that berthing and
storage fees will be charged during the entire time that the sailboat was in Watercraft's dockyard.
Thus, he claimed to have been surprised when he received five (5) invoices billing him for the said
fees two (2) months after his services were terminated. He pointed out that the complaint was an
offshoot of an illegal dismissal case he filed against Watercraft which had been decided in his favor
by the Labor Arbiter.

Meanwhile, finding Watercraft's ex-parte application for writ of preliminary attachment sufficient in
form and in substance pursuant to Section 1 of Rule 57 of the Rules of Court, the RTC granted the
same in the Order dated July 15, 2005, thus:

WHEREFORE, let a Writ of Preliminary Attachment be issued accordingly in favor of the plaintiff,
Watercraft Ventures Corporation conditioned upon the filing of attachment bond in the amount of
Three Million Two Hundred Thirty-One Thousand Five Hundred and Eighty-Nine and 25/100 Pesos
(Php3,231,589.25) and the said writ be served simultaneously with the summons, copies of the
complaint, application for attachment, applicant's affidavit and bond, and this Order upon the
defendant.

SO ORDERED.4

Pursuant to the Order dated July 15, 2005, the Writ of Attachment dated August 3, 2005 and the
Notice of Attachment dated August 5, 2005 were issued, and Wolfe's two vehicles, a gray Mercedes
Benz with plate number XGJ 819 and a maroon Toyota Corolla with plate number TFW 110, were
levied upon.

On August 12, 2005, Wolfe's accounts at the Bank of the Philippine Islands were also garnished.

By virtue of the Notice of Attachment and Levy dated September 5, 2005, a white Dodge pick-up
truck with plate number XXL 111 was also levied upon. However, a certain Jeremy Simpson filed a
Motion for Leave of Court to Intervene, claiming that he is the owner of the truck as shown by a duly-
notarized Deed of Sale executed on August 4, 2005, the Certificate of Registration No. 3628665-1
and the Official Receipt No. 271839105.

On November 8, 2005, Wolfe filed a Motion to Discharge the Writ of Attachment, arguing that
Watercraft failed to show the existence of fraud and that the mere failure to pay or perform an
obligation does not amount to fraud. He also claimed that he is not a flight risk for the following
reasons: (1) contrary to the claim that his Special Working Visa expired in April 2005, his Special
Subic Working Visa and Alien Certificate of Registration are valid until April 25, 2007 and May 11,
2006, respectively; (2) he and his family have been residing in the Philippines since 1997; (3) he is
an existing stockholder and officer of Wolfe Marine Corporation which is registered with the
Securities and Exchange Commission, and a consultant of "Sudeco/Ayala" projects in Subic, a
member of the Multipartite Committee for the new port development in Subic, and the Subic
Chamber of Commerce; and (4) he intends to finish prosecuting his pending labor case against
Watercraft. On even date, Watercraft also filed a Motion for Preliminary Hearing of its affirmative
defenses of forum shopping, litis pendentia, and laches.

In an Order dated March 20, 2006, the RTC denied Wolfe's Motion to Discharge Writ of Attachment
and Motion for Preliminary Hearing for lack of merit.

Wolfe filed a motion for reconsideration, but the RTC also denied it for lack of merit in an Order
dated November 10, 2006. Aggrieved, Wolfe filed a petition for certiorari before the CA.
The CA granted Wolfe's petition in a Decision dated September 27, 2007, the dispositive portion of
which reads:

WHEREFORE, the Order dated March 20, 2006 and the Order dated November 10, 2006 of
respondent Judge are hereby ANNULLED and SET ASIDE. Accordingly, the Writ of Attachment
issued on August 3, 2005, the Notice of Attachment dated August 5, 2005 and the Notice of
Attachment and Levy dated September 5, 2005 are hereby also declared NULL and VOID, and
private respondent is DIRECTED to return to their owners the vehicles that were attached pursuant
to the Writ.

SO ORDERED.5

The CA ruled that the act of issuing the writ of preliminary attachment ex-parte constitutes grave
abuse of discretion on the part of the RTC, thus:

x x x In Cosiquien [v. Court of Appeals], the Supreme Court held that:

"Where a judge issues a fatally defective writ of preliminary attachment based on an affidavit which
failed to allege the requisites prescribed for the issuance of the writ of preliminary attachment,
renders the writ of preliminary attachment issued against the property of the defendant fatally
defective. The judge issuing it is deemed to have acted in excess of jurisdiction. In fact, the defect
cannot even be cured by amendment. Since the attachment is a harsh and rigorous remedy which
exposed the debtor to humiliation and annoyance, the rule authorizing its issuance must be strictly
construed in favor of defendant. It is the duty of the court before issuing the writ to ensure that all the
requisites of the law have been complied with. Otherwise, a judge acquires no jurisdiction to issue
the writ." (emphasis supplied)

In the instant case, the Affidavit of Merit executed by Rosario E. Rañoa, Watercraft's Vice-President,
failed to show fraudulent intent on the part of Wolfe to defraud the company. It merely enumerated
the circumstances tending to show the alleged possibility of Wolfe's flight from the country. And upon
Wolfe's filing of the Motion to Discharge the Writ, what the respondent Judge should have done was
to determine, through a hearing, whether the allegations of fraud were true. As further held in
Cosiquien:

"When a judge issues a writ of preliminary attachment ex-parte, it is incumbent on him, upon proper
challenge of his order to determine whether or not the same was improvidently issued. If the party
against whom the writ is prayed for squarely controverts the allegation of fraud, it is incumbent on
the applicant to prove his allegation. The burden of proving that there indeed was fraud lies with the
party making such allegation. This finds support in Section 1, Rule 131 Rules of Court. In this
jurisdiction, fraud is never presumed." (Emphasis supplied) As correctly noted by Wolfe, although
Sec. 1 of Rule 57 allows a party to invoke fraud as a ground for the issuance of a writ of attachment,
the Rules require that in all averments of fraud, the circumstances constituting fraud must be stated
with particularity, pursuant to Rule 8, Section 5. The Complaint merely stated, in paragraph 23
thereof that "For failing to pay the use [of] facilities and services – in the form of boat storage fees,
the Defendant is clearly guilty of fraud which entitles the Plaintiff to a Writ of Preliminary Attachment
upon the property of the Defendant as security for the satisfaction of any judgment herein." This
allegation does not constitute fraud as contemplated by law, fraud being the "generic term
embracing all multifarious means which human ingenuity can devise, and which are resorted to by
one individual to secure an advantage over another by false suggestions or by suppression of truth
and includes all surprise, trick, cunning, dissembling and any unfair way by which another is
cheated." In this instance, Wolfe's mere failure to pay the boat storage fees does not necessarily
amount to fraud, absent any showing that such failure was due to [insidious] machinations and intent
on his part to defraud Watercraft of the amount due it.

As to the allegation that Wolfe is a flight risk, thereby warranting the issuance of the writ, the same
lacks merit. The mere fact that Wolfe is a British national does not automatically mean that he would
leave the country at will. As Wolfe avers, he and his family had been staying in the Philippines since
1997, with his daughters studying at a local school. He also claims to be an existing stockholder and
officer of Wolfe Marine Corporation, a SEC-registered corporation, as well as a consultant of projects
in the Subic Area, a member of the Multipartite Committee for the new port development in Subic,
and a member of the Subic Chamber of Commerce. More importantly, Wolfe has a pending labor
case against Watercraft – a fact which the company glaringly failed to mention in its complaint –
which Wolfe claims to want to prosecute until its very end. The said circumstances, as well as the
existence of said labor case where Wolfe stands not only to be vindicated for his alleged illegal
dismissal, but also to receive recompense, should have convinced the trial court that Wolfe would
not want to leave the country at will just because a suit for the collection of the alleged unpaid boat
storage fees has been filed against him by Watercraft.

Neither should the fact that Wolfe's Special Working Visa expired in April 2005 lead automatically to
the conclusion that he would leave the country. It is worth noting that all visas issued by the
government to foreigners staying in the Philippines have expiration periods. These visas, however,
may be renewed, subject to the requirements of the law. In Wolfe's case, he indeed renewed his
visa, as shown by Special Working Visa No. 05-WV-0124P issued by the Subic Bay Metropolitan
Authority Visa Processing Office on April 25, 2005, and with validity of two (2) years therefrom.
Moreover, his Alien Certificate of Registration was valid up to May 11, 2006.

Based on the foregoing, it is therefore clear that the writ was improvidently issued. It is well to
emphasize that "[T]he rules on the issuance of a writ of attachment must be construed strictly
against the applicants. This stringency is required because the remedy of attachment is harsh,
extraordinary and summary in nature. If all the requisites for the granting of the writ are not present,
then the court which issues it acts in excess of its jurisdiction. Thus, in this case, Watercraft failed to
meet all the requisites for the issuance of the writ. Thus, in granting the same, respondent Judge
acted with grave abuse of discretion.6

In a Resolution dated January 24, 2008, the CA denied Watercraft's motion for reconsideration of its
Decision, there being no new or significant issues raised in the motion.

Dissatisfied with the CA Decision and Resolution, Watercraft filed this petition for review on
certiorari, raising these two issues:

I.

WHETHER THE EX-PARTE ISSUANCE OF THE PRELIMINARY ATTACHMENT BY THE TRIAL

COURT IN FAVOR OF THE PETITIONER IS VALID.

II.

WHETHER THE ALLEGATIONS IN THE AFFIDAVIT OF MERIT CONCERNING FRAUD ARE

SUFFICIENT TO WARRANT THE ISSUANCE OF A PRELIMINARY WRIT OF ATTACHMENT BY
THE

TRIAL COURT IN FAVOR OF THE PETITIONER.7

Watercraft argues that the CA erred in holding that the RTC committed grave abuse of discretion in
issuing the writ of preliminary attachment, and in finding that the affidavit of merit only enumerated
circumstances tending to show the possibility of Wolfe's flight from the country, but failed to show
fraudulent intent on his part mpany.

Stressing that its application for such writ was anchored on two (2) grounds under Section 1,8 Rule
57, Watercraft insists that, contrary to the CA ruling, its affidavit of merit sufficiently averred with
particularity the circumstances constituting fraud as a common element of said grounds.

Watercraft points out that its affidavit of merit shows that from 1997, soon after Wolfe's employment
as Shipyard Manager, up to 2002, when his employment was terminated, or for a period of five (5)
years, not once did he pay the cost for the use of the company's boat storage facilities, despite
knowledge of obligation and obvious ability to pay by reason of his position.

Watercraft adds that its affidavit clearly stated that Wolfe, in an attempt to avoid settling of his
outstanding obligations to the company, signed a Boat Pull-Out Clearance where he merely
acknowledged but did not pay Sixteen Thousand Three Hundred and Twenty-Four and 82/100 US
Dollars (US$16,324.82) representing unpaid boat storage fees for the period commencing June
1997 to June 2002. It avers that the execution of such clearance enabled Wolfe to pull out his boat
from the company storage facilities without payment of storage fees.

Watercraft also faults the CA in finding no merit in its allegation that Wolfe is a flight risk. It avers that
he was supposed to stay and work in the country for a limited period, and will eventually leave; that
despite the fact that his wife and children reside in the country, he can still leave with them anytime;
and that his work in the country will not prevent him from leaving, thereby defeating the purpose of
the action, especially since he had denied responsibility for his outstanding obligations. It submits
that the CA overlooked paragraph 28 of its Complaint which alleged that "[i]n support of the
foregoing allegations and the prayer for the issuance of a Writ of Preliminary Attachment in the
instant case, the Plaintiff has attached hereto the Affidavit of the Vice-President of the Plaintiff, MS.
ROSARIO E. RAÑOA x x x."9

Watercraft asserts that it has sufficiently complied with the only requisites for the issuance of the writ
of preliminary attachment under Section 3, Rule 57 of the Rules of Court, i.e., affidavit of merit and
bond of the applicant. It posits that contrary to the CA ruling, there is no requirement that evidence
must first be offered before a court can grant such writ on the basis of Section 1 (d) of Rule 57, and
that the rules only require an affidavit showing that the case is one of those mentioned in Section 1,
Rule 57. It notes that although a party is entitled to oppose an application for the issuance of the writ
or to move for the discharge thereof by controverting the allegations of fraud, such rule does not
apply when the same allegations constituting fraud are the very facts disputed in the main action, as
in this case.

Watercraft also points out the inconsistent stance of Wolfe with regard to the ownership and
possession of the sailboat. Contrary to Wolfe's Answer that the purchase of the sailboat was made
pursuant to a three (3)-way partnership agreement between him and its General Manager and
Executive Vice-President, Barry Bailey, and its President, Ricky Sandoval, Watercraft claims that he
made a complete turnaround and exhibited acts of soleownership by signing the Boat Pull-Out
Clearance in order to retrieve the sailboat. It argues that common sense and logic would dictate that
he should have invoked the existence of the partnership to answer the demand for payment of the
storage fees.

Watercraft contends that in order to pre-empt whatever action it may decide to take with respect to
the sailboat in relation to his liabilities, Wolfe accomplished in no time the clearance that paved the
way for its removal from the company's premises without paying his outstanding obligations. It
claims that such act reveals a fraudulent intent to use the company storage facilities without
payment of storage fees, and constitutes unjust enrichment.

The petition lacks merit.

A writ of preliminary attachment is defined as a provisional remedy issued upon order of the court
where an action is pending to be levied upon the property or properties of the defendant therein, the
same to be held thereafter by the sheriff as security for the satisfaction of whatever judgment that
might be secured in the said action by the attaching creditor against the defendant.10 However, it
should be resorted to only when necessary and as a last remedy because it exposes the debtor to
humiliation and annoyance.11 It must be granted only on concrete and specific grounds and not
merely on general averments quoting the words of the rules.12 Since attachment is harsh,
extraordinary, and summary in nature,13 the rules on the application of a writ of attachment must be
strictly construed in favor of the defendant. the court14 in which the action is pending. Such bond
executed to the adverse party in the amount fixed by the court is subject to the conditions that the
applicant will pay: (1) all costs which may be adjudged to the adverse party; and (2) all damages
which such party may sustain by reason of the attachment, if the court shall finally adjudge that the
applicant was not entitled thereto.15 As to the requisite affidavit of merit, Section 3,16 Rule 57of the
Rules of Court states that an order of attachment shall be granted only when it appears in the
affidavit of the applicant, or of some other person who personally knows the facts:

1. that a sufficient cause of action exists;

2. that the case is one of those mentioned in Section 117 hereof;

3. that there is no other sufficient security for the claim sought to be enforced by the action;
and

4. that the amount due to the applicant, or the value of the property the possession of which
he is entitled to recover, is as much as the sum for which the order is granted above all legal
counterclaims.

The mere filing of an affidavit reciting the facts required by Section 3, Rule 57, however, is
not enough to compel the judge to grant the writ of preliminary attachment. Whether or not
the affidavit sufficiently established facts therein stated is a question to be determined by the
court in the exercise of its discretion.18 "The sufficiency or insufficiency of an affidavit
depends upon the amount of credit given it by the judge, and its acceptance or rejection,
upon his sound discretion."19 Thus, in reviewing the conflicting findings of the CA and the
RTC on the pivotal issue of whether or not Watercraft's affidavit of merit sufficiently
established facts which constitute as grounds upon which attachment may be issued under
Section 1 (a)20 and (d),21 Rule 57, the Court will examine the Affidavit of Preliminary
Attachment22 of Rosario E. Rañoa, its Vice-President, which reiterated the following
allegations in its complaint to substantiate the application for a writ of preliminary attachment:

xxxx

4. Sometime in June 1997, the Defendant was hired as Watercraft's Shipyard Manager.

5. Soon thereafter, the Defendant placed his sailboat, the Knotty Gull, within the boat storage
facilities of Watercraft for purposes of storage and safekeeping.

6. Despite having been employed by Watercraft, the Defendant was not exempted from
paying Watercraft boat storage fees for the use of the said storage facilities.

7. By virtue of his then position and employment with Watercraft, the Defendant was very
much knowledgeable of the foregoing fact.

8. All throughout his employment with Watercraft, the Defendant used the boat storage
facilities of Watercraft for his Knotty Gull.

9. However, all throughout the said period of his employment, the Defendant never paid the
boat storage fees in favor of the Plaintiff.

10. The Defendant's contract of employment with Watercraft was terminated on 07 March
2002.

11. [Sometime] thereafter, that is, in or about June 2002, the Defendant pulled out the Knotty
Gull from the boat storage facilities of Watercraft.

12. Instead of settling in full his outstanding obligations concerning unpaid storage fees
before pulling our the Knotty Gull, the Defendant signed a Boat Pull-Out Clearance dated 29
June 2002 wherein he merely acknowledged the then outstanding balance of Sixteen
Thousand Three Hundred and Twenty-four and 82/100 US Dollars (US$16,324.82),
representing unpaid boat storage fees for the period commencing June 1997 to June 2002,
that he owed Watercraft.

13. By reason of Defendant's mere accomplishment of the said Boat Pull-Out Clearance with
acknowledgment of his outstanding obligation to Watercraft in unpaid boat storage fees, Mr.
Franz Urbanek, then the Shipyard Manager who replaced the Defendant, contrary to
company policy, rules and regulations, permitted the latter to physically pull out his boat from
the storage facilities of the Plaintiff without paying any portion of his outstanding obligation in
storage fees.

14. Several demands were then made upon the Defendant for him to settle his outstanding
obligations to the Plaintiff in unpaid storage fees but the same went unheeded.

15. As of 02 April 2005, the outstanding obligation of the Defendant to the Plaintiff in unpaid
boat storage fees stands at Three Million Two Hundred Thirty-One Thousand Five Hundred
and Eighty-Nine and 25/100 Pesos (Php 3,231,589.25) inclusive of interest charges.

16. For failing to pay for the use [of] facilities and services—in the form of boat storage
facilities—duly enjoyed by him and for failing and refusing to fulfill his promise to pay for the
said boat storage fees, the Defendant is clearly guilty of fraud which entitles the Plaintiff to a
Writ of Preliminary Attachment upon the property of the Defendant as security for the
satisfaction of any judgment in its favor in accordance with the provisions of Paragraph (d),
Section 1, Rule 57 of the Rules of Court.

17. The instant case clearly falls under the said provision of law.
 18. Furthermore, lawful factual and legal grounds exist which show that the Defendant may
have departed or is about to depart the country to defraud his creditors thus rendering it
imperative that a Writ of Preliminary Attachment be issued in favor of the Plaintiff in the
instant case.

19. The possibility of flight on the part of the Defendant is heightened by the existence of the
following circumstances:

a. The Special Working Visa issued in favor of the Defendant expired in April 2005;

b. The Defendant is a British national who may easily leave the country at will;

c. The Defendant has no real properties and visible, permanent business or

employment in the Philippines; and

e. The house last known to have been occupied by the Defendant is merely being
rented by him.

20. All told, the Defendant is a very serious flight risk which fact will certainly render for
naught the capacity of the Plaintiff to recover in the instant case.23

After a careful perusal of the foregoing allegations, the Court agrees with the CA that Watercraft
failed to state with particularity the circumstances constituting fraud, as required by Section 5,24 Rule
8 of the Rules of Court, and that Wolfe's mere failure to pay the boat storage fees does not
necessarily amount to fraud, absent any showing that such failure was due to insidious machinations
and intent on his part to defraud Watercraft of the amount due it.

In Liberty Insurance Corporation v. Court of Appeals,25 the Court explained that to constitute a
ground for attachment in Section 1(d), Rule 57 of the Rules of Court, it must be shown that the
debtor in contracting the debt or incurring the obligation intended to defraud the creditor. A debt is
fraudulently contracted if at the time of contracting it, the debtor has a preconceived plan or intention
not to pay. "The fraud must relate to the execution of the agreement and must have been the reason
which induced the other party into giving consent which he would not have otherwise given."26

Fraudulent intent is not a physical entity, but a condition of the mind beyond the reach of the senses,
usually kept secret, very unlikely to be confessed, and therefore, can only be proved by unguarded
expressions, conduct and circumstances.27 Thus, the applicant for a writ of preliminary attachment
must sufficiently show the factual circumstances of the alleged fraud because fraudulent intent
cannot be inferred from the debtor's mere non-payment of the debt or failure to comply with his
obligation.28 The particulars of such circumstances necessarily include the time, persons, places and
specific acts of fraud committed.29 An affidavit which does not contain concrete and specific grounds
is inadequate to sustain the issuance of such writ. In fact, mere general averments render the writ
defective and the court that ordered its issuance acted with grave abuse of discretion amounting to
excess of jurisdiction.30

In this case, Watercraft's Affidavit of Preliminary Attachment does not contain specific allegations of
other factual circumstances to show that Wolfe, at the time of contracting the obligation, had a
preconceived plan or intention not to pay. Neither can it be inferred from such affidavit the particulars
of why he was guilty of fraud in the performance of such obligation. To be specific, Watercraft's
following allegation is unsupported by any particular averment of circumstances that will show why
or how such inference or conclusion was arrived at, to wit: "16. For failing to pay for the use [of]
facilities and services - in the form of boat storage facilities – duly enjoyed by him and for failing and
refusing to fulfill his promise to pay for the said boat storage fees, the Defendant is clearly guilty of
fraud x x x."31 It is not an allegation of essential facts constituting Watercraft's causes of action, but a
mere conclusion of law.

With respect to Section 1 (a),32 Rule 57, the other ground invoked by Watercraft for the issuance of
the writ of preliminary attachment, the Court finds no compelling reason to depart from the CA's
exhaustive ruling to the effect that such writ is unnecessary because Wolfe is not a flight risk, thus:

As to the allegation that Wolfe is a flight risk, thereby warranting the issuance of the writ, the same
lacks merit. The mere fact that Wolfe is a British national does not automatically mean that he would
leave the country at will. As Wolfe avers, he and his family had been staying in the Philippines since
1997, with his daughters studying at a local school. He also claims to be an existing stockholder and
officer of Wolfe Marine Corporation, a SEC-registered corporation, as well as a consultant of projects
in the Subic Area, a member of the Multipartite Committee for the new port development in Subic,
and a member of the Subic Chamber of Commerce. More importantly, Wolfe has a pending labor
case against Watercraft – a fact which the company glaringly failed to mention in its complaint –
which Wolfe claims to want to prosecute until its very end. The said circumstances, as well as the
existence of said labor case where Wolfe stands not only to be vindicated for his alleged illegal
dismissal, but also to receive recompense, should have convinced the trial court that Wolfe would
not want to leave the country at will just because a suit for the collection of the alleged unpaid boat
storage fees has been filed against him by Watercraft.

Neither should the fact that Wolfe's Special Working Visa expired in April 2005 lead automatically to
the conclusion that he would leave the country. It is worth noting that all visas issued by the
1âw phi 1

government to

foreigner staying in the Philippines have expiration periods. These visas, however, may be renewed,
subject to the requirements of the law. In Wolfe's case, he indeed renewed his visa, as shown by
Special Working Visa No. 05-WV-0124P issued by the Subic Bay Metropolitan Authority Visa
Processing Office on April 25, 2005, and with validity of two (2) years therefrom. Moreover, his Alien
Certificate of Registration was valid up to May 11, 2006.33

Meanwhile, Watercraft's reliance on Chuidian v. Sandiganbayan34 is misplaced. It is well settled that:

x x x when the preliminary attachment is issued upon a ground which is at the same time the
applicant's cause of action; e.g., "an action for money or property embezzled or fraudulently
misapplied or converted to his own use by a public officer, or an officer of a corporation, or an
attorney, factor, broker, agent, or clerk, in the course of his employment as such, or by any other
person in a fiduciary capacity, or for a willful violation of duty," or "an action against a party who has
been guilty of fraud in contracting the debt or incurring the obligation upon which the action is
brought," the defendant is not allowed to file a motion to dissolve the attachment under Section 13 of
Rule 57 by offering to show the falsity of the factual averments in the plaintiff's application and
affidavits on which the writ was based – and consequently that the writ based thereon had been
improperly or irregularly issued – the reason being that the hearing on such a motion for dissolution
of the writ would be tantamount to a trial of the merits of the action. In other words, the merits of the
action would be ventilated at a mere hearing of a motion, instead of at the regular trial.35

Be that as it may, the foregoing rule is not applicable in this case because when Wolfe filed a motion
to dissolve the writ of preliminary attachment, he did not offer to show the falsity of the factual
averments in Watercraft's application and affidavit on which the writ was based. Instead, he sought
the discharge of the writ on the ground that Watercraft failed to particularly allege any circumstance
amounting to fraud. No trial on the merits of the action at a mere hearing of such motion will be had
since only the sufficiency of the factual averments in the application and affidavit of merit will be
examined in order to find out whether or not Wolfe was guilty of fraud in contracting the debt or
incurring the obligation upon which the action is brought, or in the performance thereof.

Furthermore, the other ground upon which the writ of preliminary attachment was issued by the RTC
is not at the same time the applicant's cause of action. Assuming arguendo that the RTC was correct
in issuing such writ on the ground that Watercraft's complaint involves an action for the recovery of a
specified amount of money or damages against a party, like Wolfe, who is about to depart from the
Philippines with intent to defraud his creditors, the Court stresses that the circumstances36 cited in
support thereof are merely allegations in support of its application for such writ.37 Such
circumstances, however, are neither the core of Watercraft's complaint for collection of sum of
money and damages, nor one of its three (3) causes of action therein.38

All told, the CA correctly ruled that Watercraft failed to meet one of the requisites for the issuance of
a writ of preliminary attachment, i.e., that the case is one of those mentioned in Section 1 of Rule 57,
and that the RTC gravely abused its discretion in improvidently issuing such writ. Watercraft failed to
particularly state in its affidavit of merit the circumstances constituting intent to defraud creditors on
the part of Wolfe in contracting or in the performance of his purported obligation to pay boat storage
fees, as well as to establish that he is a flight risk. Indeed, if all the requisites for granting such writ
are not present, then the court which issues it acts in excess of its jurisdiction.39
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
September 27, 2007 and its Resolution dated January 24, 2008 in CA-G.R. SP No. 97804, are
AFFIRMED.

SO ORDERED.

G.R. No. 166759 November 25, 2009

SOFIA TORRES, FRUCTOSA TORRES, HEIRS OF MARIO TORRES and SOLAR RESOURCES,
INC., Petitioners,
vs.
NICANOR SATSATIN, EMILINDA AUSTRIA SATSATIN, NIKKI NORMEL SATSATIN and NIKKI
NORLIN SATSATIN, Respondents.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated November 23, 2004 of the
Court of Appeals (CA) in CA-G.R. SP No. 83595, and its Resolution2 dated January 18, 2005,
denying petitioners’ motion for reconsideration.

The factual and procedural antecedents are as follows:

The siblings Sofia Torres (Sofia), Fructosa Torres (Fructosa), and Mario Torres (Mario) each own
adjacent 20,000 square meters track of land situated at Barrio Lankaan, Dasmariñas, Cavite,
covered by Transfer Certificate of Title (TCT) Nos. 251267,3 251266,4 and 251265,5 respectively.

Sometime in 1997, Nicanor Satsatin (Nicanor) asked petitioners’ mother, Agripina Aledia, if she
wanted to sell their lands. After consultation with her daughters, daughter-in-law, and grandchildren,
Agripina agreed to sell the properties. Petitioners, thus, authorized Nicanor, through a Special Power
of Attorney, to negotiate for the sale of the properties.6

Sometime in 1999, Nicanor offered to sell the properties to Solar Resources, Inc. (Solar). Solar
allegedly agreed to purchase the three parcels of land, together with the 10,000-square-meter
property owned by a certain Rustica Aledia, for ₱35,000,000.00. Petitioners alleged that Nicanor
was supposed to remit to them the total amount of ₱28,000,000.00 or ₱9,333,333.00 each to Sofia,
Fructosa, and the heirs of Mario.

Petitioners claimed that Solar has already paid the entire purchase price of ₱35,000,000.00 to
Nicanor in Thirty-Two (32) post-dated checks which the latter encashed/deposited on their
respective due dates. Petitioners added that they also learned that during the period from January
2000 to April 2002, Nicanor allegedly acquired a house and lot at Vista Grande BF Resort Village,
Las Piñas City and a car, which he registered in the names of his unemployed children, Nikki Normel
Satsatin and Nikki Norlin Satsatin. However, notwithstanding the receipt of the entire payment for the
subject property, Nicanor only remitted the total amount of ₱9,000,000.00, leaving an unremitted
balance of ₱19,000,000.00. Despite repeated verbal and written demands, Nicanor failed to remit to
them the balance of ₱19,000,000.00.

Consequently, on October 25, 2002, petitioners filed before the regional trial court (RTC) a
Complaint7 for sum of money and damages, against Nicanor, Ermilinda Satsatin, Nikki Normel
Satsatin, and Nikki Norlin Satsatin. The case was docketed as Civil Case No. 2694-02, and raffled to
RTC, Branch 90, Dasmariñas, Cavite.

On October 30, 2002, petitioners filed an Ex-Parte Motion for the Issuance of a Writ of
Attachment,8 alleging among other things: that respondents are about to depart the Philippines; that
they have properties, real and personal in Metro Manila and in the nearby provinces; that the amount
due them is P19,000,000.00 above all other claims; that there is no other sufficient security for the
claim sought to be enforced; and that they are willing to post a bond fixed by the court to answer for
all costs which may be adjudged to the respondents and all damages which respondents may
sustain by reason of the attachment prayed for, if it shall be finally adjudged that petitioners are not
entitled thereto.

On October 30, 2002, the trial court issued an Order9 directing the petitioners to post a bond in the
amount of ₱7,000,000.00 before the court issues the writ of attachment, the dispositive portion of
which reads as follows:

WHEREFORE, premises considered, and finding the present complaint and motion sufficient in form
and substance, this Court hereby directs the herein plaintiffs to post a bond, pursuant to Section 3,
Rule 57 of the 1997 Rules of Civil Procedure, in the amount of Seven Million Pesos (P7,000,000.00),
before the Writ of Attachment issues.10

On November 15, 2002, petitioners filed a Motion for Deputation of Sheriff,11 informing the court that
they have already filed an attachment bond. They also prayed that a sheriff be deputized to serve
the writ of attachment that would be issued by the court.

In the Order12 dated November 15, 2002, the RTC granted the above motion and deputized the
sheriff, together with police security assistance, to serve the writ of attachment.

Thereafter, the RTC issued a Writ of Attachment13 dated November 15, 2002, directing the sheriff to
attach the estate, real or personal, of the respondents, the decretal portion of which reads:

WE, THEREFORE, command you to attach the estate, real or personal, not exempt from execution,
of the said defendants, in your province, to the value of said demands, and that you safely keep the
same according to the said Rule, unless the defendants give security to pay such judgment as may
be recovered on the said action, in the manner provided by the said Rule, provided that your legal
fees and all necessary expenses are fully paid.

You shall return this writ with your proceedings indorsed hereon within twenty (20) days from the
date of receipt hereof.

GIVEN UNDER MY HAND AND SEAL of this Court, this 15th day of November, 2002, at Imus for
Dasmariñas, Cavite, Philippines.14

On November 19, 2002, a copy of the writ of attachment was served upon the respondents. On the
same date, the sheriff levied the real and personal properties of the respondent, including household
appliances, cars, and a parcel of land located at Las Piñas, Manila.15

On November 21, 2002, summons, together with a copy of the complaint, was served upon the
respondents.16

On November 29, 2002, respondents filed their Answer.17

On the same day respondents filed their answer, they also filed a Motion to Discharge Writ of
Attachment18 anchored on the following grounds: the bond was issued before the issuance of the writ
of attachment; the writ of attachment was issued before the summons was received by the
respondents; the sheriff did not serve copies of the application for attachment, order of attachment,
plaintiffs’ affidavit, and attachment bond, to the respondents; the sheriff did not submit a sheriff’s
return in violation of the Rules; and the grounds cited for the issuance of the writ are baseless and
devoid of merit. In the alternative, respondents offered to post a counter-bond for the lifting of the
writ of attachment.19

On March 11, 2003, after the parties filed their respective pleadings, the RTC issued an
Order20 denying the motion, but at the same time, directing the respondents to file a counter-bond, to
wit:

WHEREFORE, premises considered, after the pertinent pleadings of the parties have been taken
into account, the herein defendants are hereby directed to file a counter-bond executed to the
attaching party, in the amount of Seven Million Pesos (₱7,000,000.00), to secure the payment of any
judgment that the attaching party may recover in the action, with notice on the attaching party,
whereas, the Motion to Discharge Writ of Attachment is DENIED.

SO ORDERED.21

Thereafter, respondents filed a motion for reconsideration and/or motion for clarification of the above
order. On April 3, 2003, the RTC issued another Order22 which reads:

In view of the Urgent Motion For Reconsideration And/Or Motion For Clarification of the Order of this
Court dated March 11, 2003, denying their Motion to Discharge Writ of Attachment filed by the
defendants through counsel Atty. Franco L. Loyola, the Motion to Discharge Writ of Attachment is
denied until after the defendants have posted the counter-bond in the amount of Seven Million
Pesos (₱7,000,000.00).

The defendants, once again, is directed to file their counter-bond of Seven Million Pesos
(₱7,000,000.00), if it so desires, in order to discharge the Writ of Attachment.

SO ORDERED.

On December 15, 2003, respondents filed an Urgent Motion to Lift/Set Aside Order Dated March
[11], 2003,23 which the RTC denied in an Order24 of even date, the dispositive portion of which reads:

WHEREFORE, premises considered, defendants’ Urgent Motion to Lift/Set Aside Order Dated
March 23, 2003 (With Manifestation to Dissolve Writ of Attachment) is hereby DENIED for lack of
Merit.

SO ORDERED.

Respondents filed an Urgent Motion for Reconsideration,25 but it was denied in the Order26 dated
March 3, 2004.

Aggrieved, respondents filed before the CA a Petition for Certiorari, Mandamus and Prohibition with
Preliminary Injunction and Temporary Restraining Order27 under Rule 65 of the Rules of Court,
docketed as CA-G.R. SP No. 83595, anchored on the following grounds:

(1) public respondents committed grave abuse of discretion amounting to lack of or in excess
of jurisdiction in failing to notice that the lower court has no jurisdiction over the person and
subject matter of the complaint when the subject Writ of Attachment was issued;

(2) public respondents committed grave abuse of discretion amounting to lack of or in excess
of jurisdiction in granting the issuance of the Writ of Attachment despite non-compliance with
the formal requisites for the issuance of the bond and the Writ of Attachment.28

Respondents argued that the subject writ was improper and irregular having been issued and
enforced without the lower court acquiring jurisdiction over the persons of the respondents. They
maintained that the writ of attachment was implemented without serving upon them the summons
together with the complaint. They also argued that the bond issued in favor of the petitioners was
defective, because the bonding company failed to obtain the proper clearance that it can transact
business with the RTC of Dasmariñas, Cavite. They added that the various clearances which were
issued in favor of the bonding company were applicable only in the courts of the cities of Pasay,
Pasig, Manila, and Makati, but not in the RTC, Imus, Cavite.29

On November 23, 2003, the CA rendered the assailed Decision in favor of the respondents, finding
grave abuse of discretion amounting to lack of or in excess of jurisdiction on the part of the RTC in
issuing the Orders dated December 15, 2003 and March 3, 2004. The decretal portion of the
Decision reads:

WHEREFORE, the instant petition is hereby GRANTED. Accordingly, the assailed Orders are
hereby nullified and set aside. The levy on the properties of the petitioners pursuant to the Writ of
Attachment issued by the lower court is hereby LIFTED.

SO ORDERED.30

Petitioners filed a Motion for Reconsideration,31 but it was denied in the Resolution32 dated January
18, 2005.

Hence, this petition assigning the following errors:

I.

THE HONORABLE COURT OF APPEALS ERRED IN ORDERING THE LIFTING OF THE WRIT OF
ATTACHMENT PURSUANT TO SECTION 13, RULE 57 OF THE REVISED RULES OF CIVIL
PROCEDURE.

II.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PUBLIC RESPONDENT

COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN GRANTING THE WRIT OF ATTACHMENT DESPITE THE BOND BEING
INSUFFICIENT AND HAVING BEEN IMPROPERLY ISSUED.

III.

THE HONORABLE COURT OF APPEALS ERRED IN NOT DISMISSING THE PETITION BY

REASON OF ESTOPPEL, LACHES AND PRESCRIPTION AND IN HOLDING THAT THE WRIT OF
ATTACHMENT WAS IMPROPERLY AND IRREGULARLY ENFORCED IN VIOLATION OF
SECTION 5, RULE 57 OF THE REVISED RULES OF COURT.

IV.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRINCIPLE OF

ESTOPPEL WILL NOT LIE AGAINST RESPONDENTS.

Petitioners maintain that in the case at bar, as in the case of FCY Construction Group, Inc. v. Court
of Appeals,33 the only way the subject writ of attachment can be dissolved is by a counter-bond.
They claim that the respondents are not allowed to file a motion to dissolve the attachment under
Section 13, Rule 57 of the Rules of Court. Otherwise, the hearing on the motion for the dissolution of
the writ would be tantamount to a trial on the merits, considering that the writ of preliminary
attachment was issued upon a ground which is, at the same time, the applicant’s cause of action.

Petitioners insist that the determination of the existence of grounds to discharge a writ of attachment
rests in the sound discretion of the lower court. They argue that the Certification34 issued by the
Office of the Administrator and the Certifications35 issued by the clerks of court of the RTCs of
Dasmariñas and Imus, Cavite, would show that the bonds offered by Western Guaranty Corporation,
the bonding company which issued the bond, may be accepted by the RTCs of Dasmariñas and
Imus, Cavite, and that the said bonding company has no pending liability with the government.

Petitioners contend that respondents are barred by estoppel, laches, and prescription from
questioning the orders of the RTC issuing the writ of attachment. They also maintain that the issue
whether there was impropriety or irregularity in the issuance of the orders is moot and academic,
considering that the attachment bond questioned by the respondent had already expired on
November 14, 2003 and petitioners have renewed the attachment bond covering the period from
November 14, 2003 to November 14, 2004, and further renewed to cover the period of November
14, 2004 to November 14, 2005.

The petition is bereft of merit.

A writ of preliminary attachment is defined as a provisional remedy issued upon order of the court
where an action is pending to be levied upon the property or properties of the defendant therein, the
same to be held thereafter by the sheriff as security for the satisfaction of whatever judgment that
might be secured in the said action by the attaching creditor against the defendant.36

In the case at bar, the CA correctly found that there was grave abuse of discretion amounting to lack
of or in excess of jurisdiction on the part of the trial court in approving the bond posted by petitioners
despite the fact that not all the requisites for its approval were complied with. In accepting a surety
bond, it is necessary that all the requisites for its approval are met; otherwise, the bond should be
rejected.37

Every bond should be accompanied by a clearance from the Supreme Court showing that the
company concerned is qualified to transact business which is valid only for thirty (30) days from the
date of its issuance.38 However, it is apparent that the Certification39 issued by the Office of the Court
Administrator (OCA) at the time the bond was issued would clearly show that the bonds offered by
Western Guaranty Corporation may be accepted only in the RTCs of the cities of Makati, Pasay, and
Pasig. Therefore, the surety bond issued by the bonding company should not have been accepted
by the RTC of Dasmariñas, Branch 90, since the certification secured by the bonding company from
the OCA at the time of the issuance of the bond certified that it may only be accepted in the above-
mentioned cities. Thus, the trial court acted with grave abuse of discretion amounting to lack of or in
excess of jurisdiction when it issued the writ of attachment founded on the said bond.

Moreover, in provisional remedies, particularly that of preliminary attachment, the distinction

between the issuance and the implementation of the writ of attachment is of utmost importance to
the validity of the writ. The distinction is indispensably necessary to determine when jurisdiction over
the person of the defendant should be acquired in order to validly implement the writ of attachment
upon his person.

This Court has long put to rest the issue of when jurisdiction over the person of the defendant should
be acquired in cases where a party resorts to provisional remedies. A party to a suit may, at any time
after filing the complaint, avail of the provisional remedies under the Rules of Court. Specifically,
Rule 57 on preliminary attachment speaks of the grant of the remedy "at the commencement of the
action or at any time before entry of judgment."40 This phrase refers to the date of the filing of the
complaint, which is the moment that marks "the commencement of the action." The reference plainly
is to a time before summons is served on the defendant, or even before summons issues.41

In Davao Light & Power Co., Inc. v. Court of Appeals,42 this Court clarified the actual time when
jurisdiction should be had:

It goes without saying that whatever be the acts done by the Court prior to the acquisition of
jurisdiction over the person of defendant x x x issuance of summons, order of attachment and writ
of attachment x x x these do not and cannot bind and affect the defendant until and unless
jurisdiction over his person is eventually obtained by the court, either by service on him of
summons or other coercive process or his voluntary submission to the 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 x x x. (Emphasis
supplied.)

In Cuartero v. Court of Appeals,43 this Court held that the grant of the provisional remedy of
attachment involves three stages: first, the court issues the order granting the application; second,
the writ of attachment issues pursuant to the order granting the writ; and third, the writ is
implemented. For the initial two stages, it is not necessary that jurisdiction over the person of the
defendant be first obtained. However, once the implementation of the writ commences, the court
must have acquired jurisdiction over the defendant, for without such jurisdiction, the court has no
power and authority to act in any manner against the defendant. Any order issuing from the Court
will not bind the defendant.44
Thus, it is indispensable not only for the acquisition of jurisdiction over the person of the defendant,
but also upon consideration of fairness, to apprise the defendant of the complaint against him and
the issuance of a writ of preliminary attachment and the grounds therefor that prior or
contemporaneously to the serving of the writ of attachment, service of summons, together with a
copy of the complaint, the application for attachment, the applicant’s affidavit and bond, and the
order must be served upon him.

In the instant case, assuming arguendo that the trial court validly issued the writ of attachment on
November 15, 2002, which was implemented on November 19, 2002, it is to be noted that the
summons, together with a copy of the complaint, was served only on November 21, 2002.

At the time the trial court issued the writ of attachment on November 15, 2002, it can validly to do so
since the motion for its issuance can be filed "at the commencement of the action or at any time
before entry of judgment." However, at the time the writ was implemented, the trial court has not
acquired jurisdiction over the persons of the respondent since no summons was yet served upon
them. The proper officer should have previously or simultaneously with the implementation of the
writ of attachment, served a copy of the summons upon the respondents in order for the trial court to
have acquired jurisdiction upon them and for the writ to have binding effect. Consequently, even if
the writ of attachment was validly issued, it was improperly or irregularly enforced and, therefore,
cannot bind and affect the respondents.

Moreover, although there is truth in the petitioners’ contention that an attachment may not be
dissolved by a showing of its irregular or improper issuance if it is upon a ground which is at the
same time the 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.
However, the same is not applicable in the case bar. It is clear from the respondents’ pleadings that
the grounds on which they base the lifting of the writ of attachment are the irregularities in its
issuance and in the service of the writ; not petitioners’ cause of action.
1avv phi 1

Further, petitioners’ contention that respondents are barred by estoppel, laches, and prescription
from questioning the orders of the RTC issuing the writ of attachment and that the issue has become
moot and academic by the renewal of the attachment bond covering after its expiration, is devoid of
merit. As correctly held by the CA:

There are two ways of discharging the attachment. First, to file a counter-bond in accordance with
Section 12 of Rule 57. Second[,] [t]o quash the attachment on the ground that it was irregularly or
improvidently issued, as provided for in Section 13 of the same rule. Whether the attachment was
discharged by either of the two ways indicated in the law, the attachment debtor cannot be deemed
to have waived any defect in the issuance of the attachment writ by simply availing himself of one
way of discharging the attachment writ, instead of the other. The filing of a counter-bond is merely a
speedier way of discharging the attachment writ instead of the other way.45

Moreover, again assuming arguendo that the writ of attachment was validly issued, although the trial
court later acquired jurisdiction over the respondents by service of the summons upon them, such
belated service of summons on respondents cannot be deemed to have cured the fatal defect in the
enforcement of the writ. The trial court cannot enforce such a coercive process on respondents
without first obtaining jurisdiction over their person. The preliminary writ of attachment must be
served after or simultaneous with the service of summons on the defendant whether by personal
service, substituted service or by publication as warranted by the circumstances of the case. The
subsequent service of summons does not confer a retroactive acquisition of jurisdiction over her
person because the law does not allow for retroactivity of a belated service.46

WHEREFORE, premises considered, the petition is DENIED. The Decision and Resolution of the
Court of Appeals dated November 23, 2004 and January 18, 2005, respectively, in CA-G.R. SP No.
83595 are AFFIRMED.

SO ORDERED.
G.R. No. 158997 October 6, 2008

FORT BONIFACIO DEVELOPMENT CORPORATION petitioner,

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

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 of the Orders issued on 7 March 20032 and 3 July 20033 by
Branch 59 of the Regional Trial Court of Makati City (trial court) in Civil Case No. 01-1452. The trial
court's orders dismissed Fort Bonifacio Development Corporation's (FBDC) third party claim and
denied FBDC's Motion to Intervene and Admit Complaint in Intervention.

The Facts

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

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

Section 20. Default of the Lessee

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

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

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

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

xxx

Section 22, on the other hand, reads:

Section 22. Lien on the Properties of the Lessee

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

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

On 4 March 2002, Yllas Lending Corporation and Jose S. Lauraya, in his official capacity as
President, (respondents) caused the sheriff of Branch 59 of the trial court to serve an alias writ of
seizure against FBDC. On the same day, FBDC served on the sheriff an affidavit of title and third
party claim. FBDC found out that on 27 September 2001, respondents filed a complaint for
Foreclosure of Chattel Mortgage with Replevin, docketed as Civil Case No. 01-1452, against
Tirreno, Eloisa Poblete Todaro (Eloisa), and Antonio D. Todaro (Antonio), in their personal and
individual capacities, and in Eloisa's official capacity as President. In their complaint, respondents
alleged that they lent a total of P1.5 million to Tirreno, Eloisa, and Antonio. On 9 November 2000,
Tirreno, Eloisa and Antonio executed a Deed of Chattel Mortgage in favor of respondents as security
for the loan. The following properties are covered by the Chattel Mortgage:

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

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

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

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

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

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

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

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

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

A. FIXTURES

(2) - Smaller Murano Chandeliers

(1) - Main Murano Chandelier

B. EQUIPMENT

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

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

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

(56) - Chairs

(1) - Table

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

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

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

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

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

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

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

xxx

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

The Ruling of the Trial Court

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

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

The trial court quoted from Bayer Phils. v. Agana9 to justify its ruling that FBDC should have filed a
separate complaint against respondents instead of filing a motion to intervene. The trial court quoted
from Bayer as follows:

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

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

WHEREFORE, premises considered, [FBDC's] Third Party Claim is hereby DISMISSED.

Likewise, the Motion to Intervene and Admit Complaint in Intervention is DENIED.11

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

The Issues

FBDC alleges that the trial court erred in the following:

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

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

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

The Ruling of the Court

The petition has merit.

Taking of Lessee's Properties

without Judicial Intervention

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

 Section 22. Lien on the Properties of the Lessee

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

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

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

On the other hand, Article 1245 of the Civil Code defines dacion en pago, or dation in payment, as
the alienation of property to the creditor in satisfaction of a debt in money. Dacion en pago is
governed by the law on sales. Philippine National Bank v. Pineda13 held that dation in payment
requires delivery and transmission of ownership of a thing owned by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. There is no dation in payment when there
is no transfer of ownership in the creditor's favor, as when the possession of the thing is merely
given to the creditor by way of security.

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

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

We agree with FBDC.

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

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

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

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

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

In Country Bankers, we allowed the forfeiture of the lessee's advance deposit of lease payment.
Such a deposit may also be construed as a guarantee of payment, and thus answerable for any
unpaid rent or charges still outstanding at any termination of the lease.

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

Intervention versus Separate Action

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

We agree with FBDC.

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

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

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

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

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

Indeed, contrary to respondents' contentions, we ruled in BA Finance Corporation v. Court of

Appeals that where the mortgagee's right to the possession of the specific property is evident, the
action need only be maintained against the possessor of the property. However, where the
mortgagee's right to possession is put to great doubt, as when a contending party might contest the
legal bases for mortgagee's cause of action or an adverse and independent claim of ownership or
right of possession is raised by the contending party, it could become essential to have other
persons involved and accordingly impleaded for a complete determination and resolution of the
controversy. Thus:

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

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

Sheriff's Indemnity Bond

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

Pursuant to Section 14 of Rule 57, the sheriff is not obligated to turn over to respondents the
properties subject of this case in view of respondents' failure to file a bond. The bond in Section 14
of Rule 57 (proceedings where property is claimed by third person) is different from the bond in
Section 3 of the same rule (affidavit and bond). Under Section 14 of Rule 57, the purpose of the
bond is to indemnify the sheriff against any claim by the intervenor to the property seized or for
damages arising from such seizure, which the sheriff was making and for which the sheriff was
directly responsible to the third party. Section 3, Rule 57, on the other hand, refers to the attachment
bond to assure the return of defendant's personal property or the payment of damages to the
defendant if the plaintiff's action to recover possession of the same property fails, in order to protect
the plaintiff's right of possession of said property, or prevent the defendant from destroying the same
during the pendency of the suit.

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

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

SO ORDERED.

G.R. No. 168289 March 22, 2010

THE MUNICIPALITY OF HAGONOY, BULACAN, represented by the HON. FELIX V. OPLE,

Municipal Mayor, and FELIX V. OPLE, in his personal capacity, Petitioners,
vs.
HON. SIMEON P. DUMDUM, JR., in his capacity as the Presiding Judge of the REGIONAL
TRIAL COURT, BRANCH 7, CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO SHERIFF of
the REGIONAL TRIAL COURT of CEBU CITY; HON. CLERK OF COURT & EX-OFFICIO
SHERIFF of the REGIONAL TRIAL COURT of BULACAN and his DEPUTIES; and EMILY ROSE
GO KO LIM CHAO, doing business under the name and style KD SURPLUS, Respondents.

DECISION

PERALTA, J.:

This is a Joint Petition1 under Rule 45 of the Rules of Court brought by the Municipality of Hagonoy,
Bulacan and its former chief executive, Mayor Felix V. Ople in his official and personal capacity, from
the January 31, 2005 Decision2 and the May 23, 2005 Resolution3 of the Court of Appeals in CA-
G.R. SP No. 81888. The assailed decision affirmed the October 20, 2003 Order4 issued by the
Regional Trial Court of Cebu City, Branch 7 in Civil Case No. CEB-28587 denying petitioners’ motion
to dismiss and motion to discharge/dissolve the writ of preliminary attachment previously issued in
the case. The assailed resolution denied reconsideration.

The case stems from a Complaint5 filed by herein private respondent Emily Rose Go Ko Lim Chao
against herein petitioners, the Municipality of Hagonoy, Bulacan and its chief executive, Felix V.
Ople (Ople) for collection of a sum of money and damages. It was alleged that sometime in the
middle of the year 2000, respondent, doing business as KD Surplus and as such engaged in buying
and selling surplus trucks, heavy equipment, machinery, spare parts and related supplies, was
contacted by petitioner Ople. Respondent had entered into an agreement with petitioner municipality
through Ople for the delivery of motor vehicles, which supposedly were needed to carry out certain
developmental undertakings in the municipality. Respondent claimed that because of Ople’s earnest
representation that funds had already been allocated for the project, she agreed to deliver from her
principal place of business in Cebu City twenty-one motor vehicles whose value totaled
₱5,820,000.00. To prove this, she attached to the complaint copies of the bills of lading showing that
the items were consigned, delivered to and received by petitioner municipality on different
dates.6 However, despite having made several deliveries, Ople allegedly did not heed respondent’s
claim for payment. As of the filing of the complaint, the total obligation of petitioner had already
totaled ₱10,026,060.13 exclusive of penalties and damages. Thus, respondent prayed for full
payment of the said amount, with interest at not less than 2% per month, plus ₱500,000.00 as
damages for business losses, ₱500,000.00 as exemplary damages, attorney’s fees of ₱100,000.00
and the costs of the suit.

On February 13, 2003, the trial court issued an Order7 granting respondent’s prayer for a writ of
preliminary attachment conditioned upon the posting of a bond equivalent to the amount of the claim.
On March 20, 2003, the trial court issued the Writ of Preliminary Attachment8 directing the sheriff "to
attach the estate, real and personal properties" of petitioners.

Instead of addressing private respondent’s allegations, petitioners filed a Motion to Dismiss9 on the
ground that the claim on which the action had been brought was unenforceable under the statute of
frauds, pointing out that there was no written contract or document that would evince the supposed
agreement they entered into with respondent. They averred that contracts of this nature, before
being undertaken by the municipality, would ordinarily be subject to several preconditions such as a
public bidding and prior approval of the municipal council which, in this case, did not obtain. From
this, petitioners impress upon us the notion that no contract was ever entered into by the local
government with respondent.10 To address the claim that respondent had made the deliveries under
the agreement, they advanced that the bills of lading attached to the complaint were hardly
probative, inasmuch as these documents had been accomplished and handled exclusively by
respondent herself as well as by her employees and agents.11

Petitioners also filed a Motion to Dissolve and/or Discharge the Writ of Preliminary Attachment
Already Issued,12 invoking immunity of the state from suit, unenforceability of the contract, and failure
to substantiate the allegation of fraud.13

On October 20, 2003, the trial court issued an Order14 denying the two motions. Petitioners moved
for reconsideration, but they were denied in an Order15 dated December 29, 2003.

Believing that the trial court had committed grave abuse of discretion in issuing the two orders,
petitioners elevated the matter to the Court of Appeals via a petition for certiorari under Rule 65. In it,
they faulted the trial court for not dismissing the complaint despite the fact that the alleged contract
was unenforceable under the statute of frauds, as well as for ordering the filing of an answer and in
effect allowing private respondent to prove that she did make several deliveries of the subject motor
vehicles. Additionally, it was likewise asserted that the trial court committed grave abuse of
discretion in not discharging/dissolving the writ of preliminary attachment, as prayed for in the
motion, and in effect disregarding the rule that the local government is immune from suit.

On January 31, 2005, following assessment of the parties’ arguments, the Court of Appeals, finding
no merit in the petition, upheld private respondent’s claim and affirmed the trial court’s
order.16 Petitioners moved for reconsideration, but the same was likewise denied for lack of merit
and for being a mere scrap of paper for having been filed by an unauthorized counsel.17 Hence, this
petition.

In their present recourse, which raises no matter different from those passed upon by the Court of
Appeals, petitioners ascribe error to the Court of Appeals for dismissing their challenge against the
trial court’s October 20 and December 29, 2003 Orders. Again, they reason that the complaint
should have been dismissed at the first instance based on unenforceability and that the motion to
dissolve/discharge the preliminary attachment should have been granted.18

Commenting on the petition, private respondent notes that with respect to the Court of Appeals’
denial of the certiorari petition, the same was rightly done, as the fact of delivery may be properly
and adequately addressed at the trial of the case on the merits; and that the dissolution of the writ of
preliminary attachment was not proper under the premises inasmuch as the application for the writ
sufficiently alleged fraud on the part of petitioners. In the same breath, respondent laments that the
denial of petitioners’ motion for reconsideration was rightly done by the Court of Appeals, because it
raised no new matter that had not yet been addressed.19

After the filing of the parties’ respective memoranda, the case was deemed submitted for decision.

We now rule on the petition.

To begin with, the Statute of Frauds found in paragraph (2), Article 1403 of the Civil Code,20 requires
for enforceability certain contracts enumerated therein to be evidenced by some note or
memorandum. The term "Statute of Frauds" is descriptive of statutes that require certain classes of
contracts to be in writing; and that do not deprive the parties of the right to contract with respect to
the matters therein involved, but merely regulate the formalities of the contract necessary to render it
enforceable.21

In other words, the Statute of Frauds only lays down the method by which the enumerated contracts
may be proved. But it does not declare them invalid because they are not reduced to writing
inasmuch as, by law, contracts are obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.22 The object is to prevent fraud and
perjury in the enforcement of obligations depending, for evidence thereof, on the unassisted memory
of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged.23 The effect of noncompliance with this requirement is simply that
no action can be enforced under the given contracts.24 If an action is nevertheless filed in court, it
shall warrant a dismissal under Section 1(i),25 Rule 16 of the Rules of Court, unless there has been,
among others, total or partial performance of the obligation on the part of either party.26

It has been private respondent’s consistent stand, since the inception of the instant case that she
has entered into a contract with petitioners. As far as she is concerned, she has already performed
her part of the obligation under the agreement by undertaking the delivery of the 21 motor vehicles
contracted for by Ople in the name of petitioner municipality. This claim is well substantiated — at
least for the initial purpose of setting out a valid cause of action against petitioners — by copies of
the bills of lading attached to the complaint, naming petitioner municipality as consignee of the
shipment. Petitioners have not at any time expressly denied this allegation and, hence, the same is
binding on the trial court for the purpose of ruling on the motion to dismiss. In other words, since
there exists an indication by way of allegation that there has been performance of the obligation on
the part of respondent, the case is excluded from the coverage of the rule on dismissals based on
unenforceability under the statute of frauds, and either party may then enforce its claims against the
other.

No other principle in remedial law is more settled than that when a motion to dismiss is filed, the
material allegations of the complaint are deemed to be hypothetically admitted.27 This hypothetical
admission, according to Viewmaster Construction Corporation v. Roxas28 and Navoa v. Court of
Appeals,29 extends not only to the relevant and material facts well pleaded in the complaint, but also
to inferences that may be fairly deduced from them. Thus, where it appears that the allegations in
the complaint furnish sufficient basis on which the complaint can be maintained, the same should not
be dismissed regardless of the defenses that may be raised by the defendants.30 Stated differently,
where the motion to dismiss is predicated on grounds that are not indubitable, the better policy is to
deny the motion without prejudice to taking such measures as may be proper to assure that the ends
of justice may be served.31

It is interesting to note at this point that in their bid to have the case dismissed, petitioners theorize
that there could not have been a contract by which the municipality agreed to be bound, because it
was not shown that there had been compliance with the required bidding or that the municipal
council had approved the contract. The argument is flawed. By invoking unenforceability under the
Statute of Frauds, petitioners are in effect acknowledging the existence of a contract between them
and private respondent — only, the said contract cannot be enforced by action for being non-
compliant with the legal requisite that it be reduced into writing. Suffice it to say that while this
assertion might be a viable defense against respondent’s claim, it is principally a matter of evidence
that may be properly ventilated at the trial of the case on the merits.

Verily, no grave abuse of discretion has been committed by the trial court in denying petitioners’
motion to dismiss this case. The Court of Appeals is thus correct in affirming the same.

We now address the question of whether there is a valid reason to deny petitioners’ motion to
discharge the writ of preliminary attachment.

Petitioners, advocating a negative stance on this issue, posit that as a municipal corporation, the
Municipality of Hagonoy is immune from suit, and that its properties are by law exempt from
execution and garnishment. Hence, they submit that not only was there an error committed by the
trial court in denying their motion to dissolve the writ of preliminary attachment; they also advance
that it should not have been issued in the first place. Nevertheless, they believe that respondent has
not been able to substantiate her allegations of fraud necessary for the issuance of the writ.32
Private respondent, for her part, counters that, contrary to petitioners’ claim, she has amply
discussed the basis for the issuance of the writ of preliminary attachment in her affidavit; and that
petitioners’ claim of immunity from suit is negated by Section 22 of the Local Government Code,
which vests municipal corporations with the power to sue and be sued. Further, she contends that
the arguments offered by petitioners against the writ of preliminary attachment clearly touch on
matters that when ruled upon in the hearing for the motion to discharge, would amount to a trial of
the case on the merits.33

The general rule spelled out in Section 3, Article XVI of the Constitution is that the state and its
political subdivisions may not be sued without their consent. Otherwise put, they are open to suit but
only when they consent to it. Consent is implied when the government enters into a business
contract, as it then descends to the level of the other contracting party; or it may be embodied in a
general or special law34 such as that found in Book I, Title I, Chapter 2, Section 22 of the Local
Government Code of 1991, which vests local government units with certain corporate powers —one
of them is the power to sue and be sued.

Be that as it may, a difference lies between suability and liability. As held in City of Caloocan v.
Allarde,35 where the suability of the state is conceded and by which liability is ascertained judicially,
the state is at liberty to determine for itself whether to satisfy the judgment or not. Execution may not
issue upon such judgment, because statutes waiving non-suability do not authorize the seizure of
property to satisfy judgments recovered from the action. These statutes only convey an implication
that the legislature will recognize such judgment as final and make provisions for its full satisfaction.
Thus, where consent to be sued is given by general or special law, the implication thereof is limited
only to the resultant verdict on the action before execution of the judgment.36

Traders Royal Bank v. Intermediate Appellate Court,37 citing Commissioner of Public Highways v.
San Diego,38 is instructive on this point. In that case which involved a suit on a contract entered into
by an entity supervised by the Office of the President, the Court held that while the said entity
opened itself to suit by entering into the subject contract with a private entity; still, the trial court was
in error in ordering the garnishment of its funds, which were public in nature and, hence, beyond the
reach of garnishment and attachment proceedings. Accordingly, the Court ordered that the writ of
preliminary attachment issued in that case be lifted, and that the parties be allowed to prove their
respective claims at the trial on the merits. There, the Court highlighted the reason for the rule, to
wit:

The universal rule that where the State gives its consent to be sued by private parties either by
general or special law, it may limit claimant’s action "only up to the completion of proceedings
anterior to the stage of execution" and that the power of the Courts ends when the judgment is
rendered, since government funds and properties may not be seized under writs of execution or
garnishment to satisfy such judgments, is based on obvious considerations of public policy.
Disbursements of public funds must be covered by the corresponding appropriations as required by
law. The functions and public services rendered by the State cannot be allowed to be paralyzed or
disrupted by the diversion of public funds from their legitimate and specific objects. x x x39

With this in mind, the Court holds that the writ of preliminary attachment must be dissolved and,
indeed, it must not have been issued in the very first place. While there is merit in private
respondent’s position that she, by affidavit, was able to substantiate the allegation of fraud in the
same way that the fraud attributable to petitioners was sufficiently alleged in the complaint and,
hence, the issuance of the writ would have been justified. Still, the writ of attachment in this case
would only prove to be useless and unnecessary under the premises, since the property of the
municipality may not, in the event that respondent’s claim is validated, be subjected to writs of
execution and garnishment — unless, of course, there has been a corresponding appropriation
provided by law.40 1avvphi1

Anent the other issues raised by petitioners relative to the denial of their motion to dissolve the writ
of attachment, i.e., unenforceability of the contract and the veracity of private respondent’s allegation
of fraud, suffice it to say that these pertain to the merits of the main action. Hence, these issues are
not to be taken up in resolving the motion to discharge, lest we run the risk of deciding or prejudging
the main case and force a trial on the merits at this stage of the proceedings.41

There is one final concern raised by petitioners relative to the denial of their motion for
reconsideration. They complain that it was an error for the Court of Appeals to have denied the
motion on the ground that the same was filed by an unauthorized counsel and, hence, must be
treated as a mere scrap of paper.42
It can be derived from the records that petitioner Ople, in his personal capacity, filed his Rule 65
petition with the Court of Appeals through the representation of the law firm Chan Robles &
Associates. Later on, municipal legal officer Joselito Reyes, counsel for petitioner Ople, in his official
capacity and for petitioner municipality, filed with the Court of Appeals a Manifestation with Entry of
Appearance43 to the effect that he, as counsel, was "adopting all the pleadings filed for and in behalf
of [Ople’s personal representation] relative to this case."44

It appears, however, that after the issuance of the Court of Appeals’ decision, only Ople’s personal
representation signed the motion for reconsideration. There is no showing that the municipal legal
officer made the same manifestation, as he previously did upon the filing of the petition.45 From this,
the Court of Appeals concluded that it was as if petitioner municipality and petitioner Ople, in his
official capacity, had never moved for reconsideration of the assailed decision, and adverts to the
ruling in Ramos v. Court of Appeals46 and Municipality of Pililla, Rizal v. Court of Appeals47 that only
under well-defined exceptions may a private counsel be engaged in lawsuits involving a municipality,
none of which exceptions obtains in this case.48

The Court of Appeals is mistaken. As can be seen from the manner in which the Manifestation with
Entry of Appearance is worded, it is clear that petitioner municipality’s legal officer was intent on
adopting, for both the municipality and Mayor Ople, not only the certiorari petition filed with the Court
of Appeals, but also all other pleadings that may be filed thereafter by Ople’s personal
representation, including the motion for reconsideration subject of this case. In any event, however,
the said motion for reconsideration would warrant a denial, because there seems to be no matter
raised therein that has not yet been previously addressed in the assailed decision of the Court of
Appeals as well as in the proceedings below, and that would have otherwise warranted a different
treatment of the issues involved.

WHEREFORE, the Petition is GRANTED IN PART. The January 31, 2005 Decision of the Court of
Appeals in CA-G.R. SP No. 81888 is AFFIRMED insofar as it affirmed the October 20, 2003
Decision of the Regional Trial Court of Cebu City, Branch 7 denying petitioners’ motion to dismiss in
Civil Case No. CEB-28587. The assailed decision is REVERSED insofar as it affirmed the said trial
court’s denial of petitioners’ motion to discharge the writ of preliminary attachment issued in that
case. Accordingly, the August 4, 2003 Writ of Preliminary Attachment issued in Civil Case No. CEB-
28587 is ordered lifted.

SO ORDERED.
G.R. No. 164800 July 22, 2009

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
ESTATE OF ALFONSO LIM, SR., ALFONSO LIM, JR., TEODORO Q. PENA, FERDINAND E.
MARCOS (now deceased and Represented by his Estate/Heirs), IMELDA R. MARCOS,
TAGGAT INDUSTRIES, INC., PAMPLONA REDWOOD VENEER, INC., SOUTHERN PLYWOOD,
WESTERN CAGAYAN LUMBER, ACME PLYWOOD, VETERAN WOODWORK, INC., SIERRA
MADRE WOOD INDUSTRIES, INC., and TROPICAL PHILIPPINES WOOD INDUSTRIES,
INC., Respondent.

DECISION

VELASCO, JR., J.:

In this Petition for Certiorari under Rule 65, the Republic of the Philippines assails and seeks to
nullify the Resolution1 dated March 28, 2003 of the Sandiganbayan, as effectively reiterated in
another resolution of June 18, 2004, which denied petitioner’s motion for the issuance of a writ of
preliminary attachment in Civil Case No. 0030, entitled Republic v. Alfonso Lim, et al.,2 a suit to
recover ill-gotten or unexplained wealth.

The Facts

On October 2, 1991, in Civil Case No. 0030, the Republic, represented by the Presidential
Commission on Good Government (PCGG), filed before the Sandiganbayan, Second Division, an
Amended Complaint for reconveyance, reversion, accounting, restitution, and damages. In it, the
Republic averred that Alfonso Lim, Sr. (now deceased) and Alfonso Lim, Jr., acting by themselves
and/or in unlawful collusion with Ferdinand E. Marcos and Imelda R. Marcos, and taking undue
advantage of their relationship, influence, and connection with the latter, embarked upon devices
and stratagems to unjustly enrich themselves at the expense of the Republic and the Filipino people.
Among other acts, the Lims were alleged to have:

(a) actively solicited and obtained, upon the personal behest of [the Marcoses], with the
active collaboration of Teodoro Q. Peña, who was then Minister of Natural Resources,
additional timber concession in favor of Taggat Industries, Inc. (TAGGAT) and Pamplona
Redwood Veneer, Inc. (PAMPLONA), corporations beneficially held and controlled by
Alfonso Lim and Alfonso Lim, Jr., which, in addition to other areas already awarded to
 TAGGAT and PAMPLONA, resulted in their concession holdings in excess of the allowable
limits prescribed under Section 11, Article XIV of the 1973 Constitution;

(b) actively solicited and obtained, upon the personal behest of [the Marcoses], a
management contract in favor of TAGGAT to operate and manage the logging concessions
of Veterans Woodwork, Inc. (VETERANS), Sierra Madre Wood Industries, Inc. (SIERRA
MADRE), and Tropical Philippines Wood Industries, Inc. (TROPICAL) over and above the
objections of VETERANS;

(c) obtained a permit to cut down a certain number of Narra and Amaciga trees, and, on the
very same day, was likewise given an authorization by Ferdinand E. Marcos to export the
same, in violation of existing ban against cutting and export of the aforesaid trees;

(d) obtained, in favor of PAMPLONA, a syndicated loan in the amount of millions of US

dollars from a consortium of international banks, secured by the guarantee of the National
Investment and Development Corporation (NIDC), a subsidiary of the Philippine National
Bank; and in view of the default by PAMPLONA in the payment of its principal and/or interest
amortizations, the loan was converted, under the debt rescheduling arrangement between
Republic and its foreign creditor banks, into a public sector obligation of Republic, to the
grave and irreparable damage of the Republic and the Filipino people.

The Republic also alleged that the foregoing acts, singly or collectively, constituted grave and gross
abuse of official position and authority, flagrant breach of public trust and fiduciary obligations,
brazen abuse of right and power, unjust enrichment, and violation of the Constitution and laws of the
Republic to the grave and irreparable damage to it and its citizens.

As its main prayer, the Republic asked for the reconveyance of all funds and property impressed
with constructive trust in favor of the Republic and the Filipino people, "as well as funds and other
property acquired with [respondents’] abuse of right and power and through unjust
enrichment, including but not limited to the properties listed in Annex "A" of the Complaint together
with the accruing income or increment from date of acquisition until final judgment."

The properties listed in the said Annex "A"3 consist––besides the Lims’ assets sequestered in
accordance wth Executive Order Nos. 1 and 2, Series of 1986––of the assets and other properties of
Lim, Sr., as follows:

1. a parcel of land with TCT No. 2981 (Lot A), located at Barrio Birinayan, Talisay, Batangas;

2. a parcel of raw land with TCT No. 11750 (Lot 8-C-53) located at Muzon, San Isidro,
Angono, Rizal;

3. a parcel of raw land with TCT No. 11749 (Lot 8-C-51) located at Muzon, San Isidro,
Angono. Rizal;

4. a parcel of land with TCT No. 11728 (Lot 8-C-9) located at Muzon, San Isidro, Angono,
Rizal;

5. a parcel of land with TCT No. 11732 (Lot 8-C-17) located at Muzon, San Isidro, Angono,
Rizal;

6. a parcel of agricultural land with TCT No. 11728 (Lot 8-C-9) located at Muzon, San Isidro,
Angono, Rizal;

7. a parcel of agricultural land with TCT No. 11727 (Lot 8-C-7) located at Muzon, San Isidro,
Angono, Rizal;

8. a parcel of residential land with TCT No. 315 located at Maharlika, Tagaytay City;

9. a parcel of agricultural/residential land with TCT No. 157570 located at Berinayan, Laurel,
Batangas;

10. a parcel of land and building in the name of SIERRA MADRE as reported by Task Force
SEAFRONT, Nov. 20, 1986;
 11. a parcel of land and building in the name of PAMPLONA as reported by Task Force
SEAFRONT, November 20, 1986;

12. Contigous [13] parcels of land located at Claveria, Cagayan in the name of TAGGAT
Industries, Inc. as reported by Task Force SEAFRONT, November 7, 1987:

xxxx

13. a parcel of agricultural land in the name of TAGGAT with OCT No. O-1108 (S) Lot No.
1195;

14. a parcel of commercial land in the name of TAGGAT with TCT No. 78732 located at
Romualdez Street, Paco, Manila;

15. buildings and improvements in the name of TAGGAT erected on OCT No. 0-1104, 0-
11017, 0-1109;

16. buildings in the name of TAGGAT erected on TCT No. 78732; Paco, Manila.

[OTHER PROPERTIES]

A. Shares of Stocks in:

1. Taggat Industries, Inc.

(TAGGAT)
2. Pamplona Redwood Veneer,
Inc. (PAMPLONA)
3. Sierra Madre Wood
Industries, Inc. (SIERRA
MADRE)
4. Veterans Woodworks, Inc.
(VETERANS)
5. Southern Plywood
Corporation (SPC)
6. Western Cagayan Lumber
(WCL)
1350, Romualdez Street, Paco, Manila
1350, Romualdez Street, Paco, Manila
79 Doña Hemady corner 13th St., New
Manila, Quezon City
79 Doña Hemady corner 13th St., New
Manila, Quezon City
5th Floor Jardine Davies Bldg., 222 Sen.
J. Puyat Avenue, Makati, Metro Manila
Jardine Davies Building, 222 Sen. J.
Puyat Avenue, Makati, Metro Manila

B. Property, Plant and Equipment

xxxx

C. Aircraft [2 units]

xxxx

D. Current Assets [as reported]

xxxx

E. Investments and Other Assets

1. Due from affiliated companies, TAGGAT, as reported

2. Investment in Stocks, TAGGAT, as reported

3. Deferred Charges and Other Assets, TAGGAT, as reported

F. Bank Accounts
 1. PAMPLONA Accounts

a. The Consolidated Bank and Trust Co.

b. Equitable Banking Corporation

2. TAGGAT Acccounts

a. The Consolidated Bank and Trust Co,

b. Philippine National Bank

c. Equitable Banking Corporation

d. Philippine Banking Corporation

e. Allied Banking Corporation

G. Other

1. Frozen Bank Accounts and Other Assets of Alfonso Lim, Sr., Alfonso Lim, Jr. and
Lawrence Lim

Meanwhile, Lim, Sr. passed away. On June 22, 1998, his estate filed a motion to lift the
sequestration4 over certain real properties5 contending that the PCGG impleaded him owing to his
alleged association with former Pres. Marcos. The estate would add, however, that Lim, Sr. secured
title over almost all of his real properties thus sequestered way back in 1948, long before the
Marcoses came to power.

To the motion to lift, the Republic interposed an opposition, alleging that the sequestered lots and
titles stand as security for the satisfaction of any judgment the Republic may obtain against the
estate of Lim, Sr., his family, or his group of companies.
1avvphi 1

By Resolution6 dated March 17, 2001, the Sandiganbayan lifted the sequestration order in question
on the strength of the following pertinent premises, to wit:

The sequestration of some of the real properties of movant-defendant [estate of Lim, Sr.] is a
remedial measure resorted to in order to preserve these properties along with others alleged to have
taken illegally x x x, and "in order to prevent the same from disappearance, destruction, loss or
dissipation and /or to foil acts that may render moot and academic the efforts to recover the
aforesaid alleged "ill-gotten wealth". However, the pertinent provisions of Executive Order Nos. 1, 2
and 14 are explicit in saying that the properties that are supposed to be "sequestered" are those x x
x amassed during the regime of the deposed President Ferdinand E. Marcos and not before or later
thereto. x x x

In time, the Republic sought but was later denied reconsideration of the sequestration-lifting
resolution of the Sandiganbayan.7

Meanwhile, after presenting its evidence in the main case, the Republic filed its Formal Offer of
Evidence dated October 8, 2001.8 On December 5, 2001, the Sandiganbayan issued a terse order
admitting all the documentary exhibits of the Republic consisting of Exhibits "A" to "G," inclusive of
their submarkings.9

The following incidents/events then transpired:

(1) Sometime in January 2002, the estate of Lim, Sr., Ruthie Lim, and two others, as
defendants a quo, filed a Demurrer to Evidence10 dated January 14, 2002, on the ground of
either irrelevancy or immateriality of the Republic’s evidence. As argued, the same evidence
did not prove or disprove that the demurring defendants, on their own or in concert with the
Marcoses, amassed ill-gotten wealth. Lim, Jr. later filed a Manifestation11 adopting the
demurrer to evidence of the estate of Lim, Sr., et al.
 (2) On July 4, 2002, the Sandiganbayan denied the Republic’s motion for reconsideration of
the graft court’s resolution lifting the sequestration order.12

(3) In an obvious bid to counter the effects of the lifting of the sequestration, the Republic, on
September 9, 2002, filed a Motion for the Issuance of a Writ of Preliminary
Attachment13 against respondents in the amount of its claim. The Republic alleged that
respondent Lims "were guilty of fraud in incurring various legal obligations which the present
action has been brought," by "taking undue advantage of their relationship, influence and
connection with the [Marcoses]" to unjustly enriched themselves to the prejudice of the
Republic.

Except for one, all the other respondents belonging to the Lim group filed their respective
comment or opposition to the Republic’s motion for a writ of attachment.

(4) On March 28, 2003, the Sandiganbayan, stating that bare allegations of the commission
of fraud by respondents in incurring the aforesaid obligations are not sufficient for the
granting of the writ of preliminary attachment, denied, via a Resolution,14 the corresponding
motion.

In due time, the Republic interposed a motion seeking reconsideration of the

Sandiganbayan’s March 28, 2003 denial action.15

(5) By Resolution dated July 17, 2003, the Sandiganbayan denied respondents’ demurrer to
evidence.16

Forthwith, the estate of Lim, Sr., Taggat Industries, Inc. (TAGGAT), and Pamplona Redwood
Veneer, Inc. (PAMPLONA), followed later by Lim, Jr., respectfully moved for reconsideration
of the July 17, 2003 Resolution.

(6) On June 18, 2004, the Sandiganbayan resolved to affirm the denial of the respondents’
demurrer to evidence. It also denied in its March 28, 2003 resolution the Republic’s motion
for the issuance of a writ of preliminary attachment.17

Hence, this recourse is before us.

The Issues

The two interrelated issues petitioner Republic tenders boils down to: whether the Sandiganbayan,
in the light of the denial of respondents’ demurrer to evidence, acted with grave abuse of discretion
amounting to lack or excess of jurisdiction in not considering that the evidence already on record
support the issuance of a writ or preliminary attachment.

The Republic contends that the pieces of evidence offered before and admitted by the
Sandiganbayan provide sufficient basis for the issuance of a writ of preliminary attachment. Thus,
the graft court, as the Republic argues, committed grave abuse of discretion amounting to excess of
jurisdiction in denying the writ of preliminary injunction by not considering the evidence already on
record and in ruling contrary to its findings and conclusions when it denied respondents’ demurrer to
evidence.

Respondents, on the other hand, reiterate their position on the absence of evidence of fraud, as
required under Section 1(d), Rule 57 of the Rules of Court, which would justify the issuance of the
desired writ. In this regard, they reproduced what the Sandiganbayan said in its March 28, 2003
resolution on the matter of fraud, thus: "These are general averments devoid of the particulars of
time, persons, etc., in support of the serious allegation that [respondents] are guilty of fraud in
incurring these alleged legal obligation. Bare allegations that [respondents] have been guilty of fraud
in incurring the aforesaid obligations are not sufficient for the granting of the writ of attachment."18

The Court’s Ruling

An assiduous review of the antecedent facts and factual findings and conclusions of the
Sandiganbayan relative to the denial of demurrer to evidence and the writ of preliminary injunction
compels this Court to grant the instant petition.
 Nature of Preliminary Attachment

Attachment is an ancillary remedy applied for not for its own sake but to enable the attaching party to
realize upon relief sought and expected to be granted in the main or principal action;19 it is a
measure auxiliary or incidental to the main action. As such, it is available during the pendency of the
action which may be resorted to by a litigant to preserve and protect certain rights and interests
therein pending rendition, and for purposes of the ultimate effects, of a final judgment in the case.
As a corollary proposition, an order granting an application for a writ of preliminary attachment
cannot, owing to the incidental or auxiliary nature of such order, be the subject of an appeal
independently of the main action.20

The instant case is one of those mentioned in Sec. 1, Rule 57 of the Rules, specifically the section’s
paragraph "d," wherein a writ of preliminary attachment may be issued. It 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:

xxxx

(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;

For a writ of attachment to issue under the above-quoted rule, the applicant must sufficiently show
the factual circumstances of the alleged fraud.

Fraud may be defined as the voluntary execution of a wrongful act, or a willful omission, knowing
and intending the effects which naturally and necessarily arise from such act or omission.21 In its
general sense, fraud is deemed to comprise anything calculated to deceive, including all acts and
omissions and concealment involving a breach of legal or equitable duty, trust, or confidence justly
reposed, resulting in damage to another, or by which an undue and unconscientious advantage is
taken of another.22 Fraud is also described as embracing all multifarious means which human
ingenuity can device, and which are resorted to by one individual to secure an advantage over
another by false suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling, and any unfair way by which another is cheated.23 Fraudulent, on the other hand,
connotes intentionally wrongful, dishonest, or unfair.24

In the case at bar, the Republic has, to us, sufficiently discharged the burden of demonstrating the
commission of fraud committed by respondents Lims as a condition sine qua non for the issuance of
a writ of preliminary attachment. The main supporting proving document is the Republic’s Exhibit
"B" which the Sandiganbayan unqualifiedly admitted in evidence. And the fraud or fraudulent
scheme principally came in the form of Lim, Sr. holding and/or operating logging concessions which
far exceeded the allowable area prescribed under the 1973 Constitution.

A cursory evaluation of the Republic’s Exhibit "B"––the Decision dated November 20, 1986 of then
Minister Ernesto M. Maceda of the Ministry Natural Resources (MNR)25 in an unnumbered MNR
case entitled IN RE: VIOLATIONS OF VETERANS WOODWORKS, INC. AND ALFONSO LIM, SR.
AND TAGGAT INDUSTRIES, INC., canceling the logging concessions26 enjoyed by the Lim Group–
–yields the following undisputed relevant data:

(1) Lim, Sr., through the seven (7) respondent corporations, had been
holding/operating/managing several timber concessions with a total area of 533,880
hectares, more or less, which was far in excess of the 100,000 hectares allowed in the 1973
Constitution;27

(2) Since a wide expanse of forest lands were in between the different Lim concessions, the
Lims had effectively access to a total of 633,880 hectares of forests; and

(3) Other violation of the constitutional prohibition applies also to three (3) corporations
(Acme Plywood Co., Inc., Western Cagayan Lumber Co., Inc., and Southern Plywood
Corporation).
As is made abundantly clear in the aforesaid Maceda decision, the MNR revoked or canceled the
concessions or timber license agreements (TLAs) of Lim, Sr. on the principal ground that the timber
award was made in utter violation of the Constitutional limitations on the granting of logging
concessions.28 The same decision also indicated that Lim, Sr.’s "influence, power and strong
connection with the past [i.e., Marcos] dispensation"29 explained his receipt of special privileges and
concessions unfettered by constitutional constraints. So influential was Lim, Sr. that he and
TAGGAT and sister companies received certain timber-related benefits without the knowledge, let
alone approval, of MNR.30 Lim, Sr. doubtless utilized to the hilt his closeness to the Marcoses to
amass what may prima facie be considered as illegal wealth.

Scheme to Circumvent Constitutional Prohibition

Sec. 11 of Article XIV of the governing 1973 Constitution states that "no private corporation or
association may hold by lease, concession, license, or permit, timber or forest lands and
other timber or forest resources in excess of one hundred thousand hectares."
Complementing this provision was Chapter I, No. 3(e) of Forestry Administrative Order (FAO) No. 11
prohibiting any individual, corporation, partnership, or association from acquiring a timber license or
license agreement covering an area in excess of 100,000 hectares. Likewise, Chapter I, No. 3(d) of
FAO No. 11 states that no individual corporation, partnership, or association who is already a holder
of an ordinary timber license or license agreement nor any member of the family, incorporator,
director, stockholder, or member of such individual, corporation, partnership, or association shall be
allowed to acquire a new timber license or license agreement or any interest or participation in it.

The constitutional and statutory limitations on allowable area leases and concessions were obviously
meant to prevent the concentration of large tracts of public land in the hands of a single individual.
But as the Office of the Solicitor General aptly observed, citing the Maceda decision: "For one
Filipino out of 55 million to own, operate or in one form [or] another be financially interested
in more than 600,000 hectares out of a total forest land of 14 million hectares is certainly
unfair, unacceptable and unconstitutional by any standard."31

Lim, Sr., as earlier stated, had been holding/operating/managing several timber concessions through
the seven (7) logging companies for an aggregate area of 533,880 hectares, as follows:

Name of Corporation TLA No. Concession Area

(1) Taggat Industries, Inc. 071 107,845 has.
(2) Pamplona Redwood Veneer Co., Inc. 074 118,315 has
(3) Southern Plywood Corp. (one share) 321 71,300 has.
(4) Western Cagayan Lumber Co., Inc. (one share) 073 69,675 has.
(5) Acme Plywood & Veneer Co,, Inc. (one share) 075 84,525 has.
(6) Veterans Woodworks, Inc. 63,179 has.
(7) Sierra Madre Wood Ind., Inc. 345 19,050 has.
TOTAL 533,880 has.

The Maceda decision stressed that Lim, Sr. had one share each in the three corporations, namely:
(1) Acme Plywood and Veneer Co., Inc. (ACME); (2) Western Cagayan Lumber Co., Inc.
(WESTERN); and (3) Southern Plywood Corporation (SPC). These corporations, the decision
added, likewise violated the Constitution considering that Lim, Sr. had control over them as owner-
founder. To cover the constitutional violation, Lim, Jr. was used as a front and made to appear as
President of the mentioned three corporations.32

There can be no quibbling that MNR correctly revoked/canceled all the timber concessions of Lim,
Sr., namely: TLA No. 071 (TAGGAT), TLA No. 074 (PAMPLONA), TLA No. 321 (SPC), TLA No. 073
(WESTERN), and TLA No. 075 (ACME). As it were, the TLAs of TAGGAT and PAMPLONA each
exceeded the 100,000-hectare threshold prescribed by the 1973 Constitution. Initially, the execution
and granting of those timber license agreements were already tainted with fraud. The Lims resorted
to their close connection with the Marcoses for the approval of the timber license agreements and
the Lims were given access effectively to a total 633,880 hectares in violation of the 1973
Constitution and FAO No. 11.
Indeed, the Lims’ availment and enjoyment of logging concessions grossly in excess of constitutional
limits amount to a voluntary execution of a wrongful act, if not a serious breach of legal duty. By their
acts, the Lims veritably defrauded and cheated the Filipino people––the ultimate beneficiaries of the
country’s natural resources.

Denial of Demurrer to Evidence Indicative

of the Commission of Fraudulent Acts

The evidence that clearly supports the issuance of a writ of preliminary attachment sought by
Republic is already on record before the Sandiganbayan. As a matter of fact, the anti-graft court
already ruled and considered that the evidence so far presented by the Republic had been sufficient
to support a finding that respondents had committed illegal and fraudulent acts against the Republic
and the Filipino people. This was the tenor of the Sandiganbayan’s resolution denying the
respondents’ demurrer to evidence.

A demurrer to evidence is defined as "an objection by one of the parties in an action, to the effect
that the evidence which his adversary produced is insufficient in point of law, whether true or not, to
make out a case or sustain the issue."33 The party demurring challenges the sufficiency of the whole
evidence to sustain a verdict.34 In passing upon the sufficiency of the evidence raised in a demurrer,
the court is merely required to ascertain whether there is competent or sufficient proof to sustain the
indictment or to support a verdict of guilt.35 And when the court denies the demurrer, the defendant
has to present countervailing evidence against the evidence adduced by the plaintiff.36

In the case at bar, when the Sandiganbayan denied respondents’ demurrer to evidence, it in effect
ruled that the evidence presented by the prosecution is, absent a countervailing evidence, prima
facie sufficient to support an adverse verdict against them for amassing illegal wealth. The
Sandiganbayan, in its underlying resolution of July 17, 2003 denying the demurrer, wrote:

The Demurrer is denied.

To support the charges, plaintiff introduced, among others, Exhibit "B", a decision dated November
20, 1986 by then DENR Secretary Ernesto Maceda which, after hearing, revoked or cancelled the
respective Timber License Agreements (TLAs) of defendants Alfonso Lim, Sr., Taggat Industries,
Inc., Pamplona Redwood Veneer, [etc.] after an investigation found that the same entities held
timber concessions in excess of what was allowed by the Constitution. The same decision likewise
made certain findings of facts that x x x Lim, Sr. enjoyed close association with former President
Ferdinand E. Marcos as a consequence of which the latter granted x x x Lim, Sr. special privileges
and concessions in gross violation of the Constitution. In addition, Exhibit "E" indicates that x x x
Taggat Industries, chiefly owned by defendant Lim Sr., using his close association with then
President Marcos, acquired and controlled three (3) other logging firms, namely Veteran
Woodworks, Inc., Tropical Philippine Wood Industries, Inc., and Sierra Madre Wood Industries, Inc. x
x x. This resulted to the acquisition of defendant Lim Sr. of excessive number of timber concessions.

Given the circumstances, this Court cannot simply brush aside the foregoing considering that what
the defendants-movants proffer are mere blanket denial of the charges. In demurrer to evidence, the
party demurring challenges the sufficiency of the whole evidence to sustain a verdict. The court, in
passing upon the sufficiency of the evidence raised in a demurrer, is merely required to ascertain
whether there is competent or sufficient evidence to sustain the indictment. Applying the said ruling
in the instant case, there exists prima facie evidence on record x x x to support or sustain the
charges against the defendants-movants. There is therefore a further need on the part of the
defendants-movants to submit the proof to the contrary other than their mere simple disclaimer.37

Sandiganbayan Did Not Consider

Evidence in Denying Attachment

Given the foregoing pronouncement from the Sandiganbayan, the Court is completely at a loss to
understand the graft court’s denial of the Republic’s plea for the ancillary remedy of preliminary
attachment. The wrongful act––the fraud perpetuated by Lim Sr. and/or his corporations on the
Republic––is written over or easily deducible from the adverted Maceda decision and Exhibit
"E." While fraud cannot be presumed, it need not be proved by direct evidence and it can well be
inferred from attendant circumstances.38 Withal, we cannot but agree with the Republic’s contention
that the Sandiganbayan’s denial of its motion for a writ of preliminary attachment constitutes grave
and patent abuse of discretion amounting to lack or excess of jurisdiction.
A scrutiny of the above-quoted July 17, 2003 Resolution readily shows that the Sandiganbayan
indeed considered the evidence presented and offered by the Republic, specifically Exhibits
"B" and "E" which convincingly show the finding that respondents’ acts were tainted with fraud in
the acquisition of the logging concessions due to their close association with the Marcoses.

It is incongruous, therefore, for the Sandiganbayan to deny the writ of preliminary attachment when
the pieces of evidence on record which it used and based its findings and conclusions in denying the
demurrer to evidence were the same ones which demonstrate the propriety of the writ of preliminary
attachment. Clearly, the Republic has complied with and satisfied the legal obligation to show the
specific acts constitutive of the alleged fraud committed by respondents. The denial of the prayed
writ, thus, evidently constitutes grave abuse of discretion on the part of Sandiganbayan. After all,
"attachment is a mere provisional remedy to ensure the safety and preservation of the thing attached
until the plaintiff can, by appropriate proceedings, obtain a judgment and have such property applied
to its satisfaction."39 Indeed, the properties of respondents sought to be subjected to the ancillary writ
of preliminary attachment are not only in danger of being lost but should be placed under custodia
legis to answer for any liabilities that may be adjudged against them in the instant case.

WHEREFORE, the Sandiganbayan Resolutions dated March 28, 2003 and June 18, 2004 are
hereby REVERSED and SET ASIDE. Accordingly, the 2nd Division of Sandiganbayan is
hereby DIRECTED to ISSUE the Writ of Preliminary Attachment prayed for by the Republic. No
costs.

SO ORDERED.

G.R. No. 111174 March 9, 2000

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
HON. BERNARDO V. SALUDARES, Presiding Judge, RTC, Br. 28, Lianga, Surigao del Sur,
and HUNG MING KUK, respondents.

QUISUMBING, J.:

This special civil action for certiorari assails the decision1 of the Regional Trial Court of Lianga,
Surigao del Sur, Branch 28, dated March 19, 1993. At issue is the jurisdiction of the trial court over
properties owned by Lianga Bay Logging Company, Inc. (LBLC), but allegedly sequestered by the
Presidential Commission on Good Government (PCGG).

The facts on record show that on April 2, 1986, the PCGG issued a writ of sequestration,2 which
reads:

IN THE MATTER OF THE SEQUESTRATION OF LIANGA BAY LOGGING

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

TO: MR. ARISTIDES M. ESCOSORA

Baganga, Davao Oriental

WRIT OF SEQUESTRATION

By virtue of the power vested unto this Commission and by authority of the President of the
Philippines, LIANGA BAY LOGGING, with offices at 2nd Floor, Emerald Building, Emerald Ave.,
Ortigas Office Bldg. Complex, Pasig, Metro Manila is hereby sequestered.

Mr. Aristides Escosora is hereby appointed Fiscal Agent of this Commission and as such, he is
hereby ordered to:

1. To implement this sequestration order with a minimum disruption of business

activities.

2. To preserve and safeguard, as well as prevent the removal concealment of

records and the disposition and dissipation of assets, funds and resources.
 3. To prevent undue removal or withdrawal of funds, until further orders to the
Commission.

4. To report to the Commission on Good Government within five (5) days.

Further, you are authorized to request the Commission for security support from the Military/Police
authorities only if necessary.

xxx xxx xxx

FOR THE COMMISSION:

Originally Signed

MARY CONCEPCION BAUTISTA

Commissioner

The writ of sequestration was based on the ground that the shares of stocks in LBLC owned by
Peter A. Sabido formed part of "illegally acquired wealth." On July 27, 1987, the Republic of the
Philippines through the PCGG and the Office of the Solicitor General filed before the Sandiganbayan
a complaint3 for reconveyance, reversion, accounting, restitution and damages against, among
others, Peter A. Sabido.

On August 12, 1991, Sabido filed a Motion to Lift the Writs of Sequestration before the
Sandiganbayan. On November 29, 1991, the Sandiganbayan granted the motion, disposing as
follows:

WHEREFORE, the "Motion (to Lift Writs of Sequestration)" dated August 12, 1991, is
granted. Accordingly, the Writs of Sequestration issued against the Philippine Integrated
Meat Corporation on March 17, 1986, and Lianga Bay Logging Company, Inc. on April 2,
1986, are declared to have been deemed automatically lifted upon the lapse of six months
from the ratification of the 1987 Constitution on February 2, 1987, without prejudice to the
continuation of the proceedings against PIMECO and Lianga. . . . (emphasis supplied)

xxx xxx xxx

SO ORDERED.4

On December 11, 1991, PCGG filed a motion for reconsideration of the decision of Sandiganbayan
praying for the nullification of the order which lifted the writ of sequestration of LBLC.

In the meantime, on February 11, 1993, private respondent Hung Ming Kuk filed a complaint5 for sum
of money against LBLC, with a prayer for a writ of preliminary attachment, with the Regional Trial
Court, Branch 28, of Lianga, Surigao del Sur. The PCGG was not impleaded by Hung Ming Kuk as
party-defendant nor was the sequestration case referred to the RTC's proceedings.

Thus, the Republic of the Philippines filed a special civil action6 for certiorari under Rule 65, dated
March 29, 1993, with the Supreme Court. This petition, docketed as G.R. No. 109314, was later on
consolidated with other similar cases.

Meantime, on February 15, 1993, the Sandiganbayan denied the motion for reconsideration of
PCGG, dated December 11, 1991.

On February 17, 1993, the trial court granted the writ of preliminary attachment in favor of Hung
Ming Kuk.

Thereafter, Hung Ming Kuk filed a motion to declare LBLC in default for failure to file responsive
pleadings pursuant to Sec. 1, Rule 18 of the Rules of Court. The RTC of Lianga, acting on the
motion of Hung Ming Kuk, issued an order dated March 4, 1993, declaring LBLC as in default.
Consequently, on March 19, 1993, the RTC rendered judgment by default, and decreed thus:
 WHEREFORE, premised on the foregoing evidences and findings, this court hereby renders
judgment in favor of the plaintiff, and ordering the defendant-Corporation to pay, as follows:

1. To pay plaintiff the principal amount of the accrued unpaid obligation in the total
amount of P18,031,563.78, with interests at 14% per annum reckoned from July
1992 to February 1993 in the computed total of P1,250,666.66, the same to continue
until said obligation is fully paid;

2. To pay plaintiff moral and exemplary damages in the total amount of P150,000.00,
plus Appearance Fee for the counsel in the sum of P5,000.00;

3. To pay plaintiff the total amount of P4,857,195.45 for Sheriff's Expenses, Attached
Properties Guards' Fees, Filing Fees, Litigation Expenses, and Attorneys Fees
computed at 25% of the principal obligation, or P4,507,890.95, or a total amount of
P4,857,195.45;

4. To pay the costs of the suit.

IT IS SO ORDERED.7

On August 11, 1993, petitioner filed this special civil action under Rule 65 of the Rules of Court,
raising the sole issue as follows:

WHETHER, THE TRIAL COURT FAULTED IN DECIDING THE CLAIM OF PRIVATE

RESPONDENT WHICH INVOLVED THE PROPERTIES OF LIANGA BAY LOGGING CO.
INC.

In the meantime, on January 23, 1995, the Supreme Court en banc issued its decision in the
consolidated cases of Republic vs. Sandiganbayan (First Division), 240 SCRA 376 (1995). The
decision included the nullification of the resolution of the Sandiganbayan that lifted the writ of
sequestration of LBLC properties in G.R. No. 109314. Hence, the Court effectively confirmed the
validity of the writ of sequestration over said properties. Peter A. Sabido's motion for reconsideration
was denied. Finally, an entry of judgment was issued on April 22, 1997, in G.R. No. 109314.

Petitioner contends that the RTC of Lianga has no jurisdiction over the subject matter of the case
inasmuch as the same are under sequestration by the PCGG. Citing Baseco vs. PCGG, 150 SCRA
181 (1987), petitioner asserts that the sequestered assets have been placed under custodia legis of
the PCGG pending the final determination by the Sandiganbayan that said assets are in fact ill-
gotten. Hence, the RTC has no jurisdiction to order the attachment of said sequestered properties.

Private respondent, however avers that his original complaint was for a sum of money. It was a
demand for payment of a valid obligation owed to him by LBLC. He adds that it would be unfair and
unjust to declare the entire RTC proceedings regarding his claim for sum of money null and void.

Private respondent further claims that the attachment order of the trial court was issued after the
Sandiganbayan had lifted the writ of sequestration against LBLC. But petitioner asserts that this
order of the Sandiganbayan was reversed by the Supreme Court in a banc decision8 dated January
23, 1995, resolving several consolidated cases for which G.R. No. 109314 was included. Petitioner
stresses that said reversal had become final and executory on April 22, 1997.

In PAGCOR vs. CA, 275 SCRA 433-434 (1997), involving ownership by Philippine Casino Operators
Corporation (PCOC) over several gaming and office equipment during the time that PCOC was
under a sequestration by PCGG, the Court ruled:

We disagree with the RTC and the CA on the issue of jurisdiction. While there can be no
dispute that PCOC was sequestered, the fact of sequestration alone did not automatically
oust the RTC of jurisdiction to decide upon the question of ownership of the subject gaming
and office equipment. The PCGG must be a party to the suit in order that the
Sandiganbayan's exclusive jurisdiction may be correctly invoked. This is deducible from no
less than E.O. No. 14, the "Peña" and "Nepomuceno" cases relied upon by both subordinate
courts. Note that in Section 2 of E.O. No. 14 which provides:
 Sec. 2. The Presidential Commission on Good Government shall file all such cases,
whether civil or criminal, with the Sandiganbayan, which shall have exclusive and
original jurisdiction thereof.

it speaks of the PCGG as party-plaintiff. On the other hand, the PCGG was impleaded as co-
defendant in both the "Peña" and "Nepomuceno" cases. But here, the PCGG does not
appear in either capacity, as the complaint is solely between PAGCOR and respondents
PCOC and Marcelo. The "Peña" and "Nepomuceno" cases which recognize the
independence of the PCGG and the Sandiganbayan in sequestration cases, therefore,
cannot be invoked in the instant case so as to divest the RTC of its jurisdiction, under
Section 19 of B.P. Blg. 129, over PAGCOR's action for recovery of personal property.

In the case at bar, the claim of private respondent Hung Ming Kuk is for a sum of money arising from
a debt incurred by LBLC. Under a contract, private respondent had extended cash advances and
supplied LBLC hardware materials, auto spare parts, and rendered services, for cutting and hauling
logs. The total claim amounts to P18,031,563.78. Following Section 19 of B.P. Blg. 129, as amended
by R.A. No. 7691 on March 25, 1994, the complaint falls within the jurisdiction of the Regional Trial
Court, viz:

Sec. 19. Jurisdiction in civil cases. — Regional Trial Courts shall exercise exclusive original
jurisdiction:

xxx xxx xxx

(8) In all other cases in which the demand, exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses, and costs or the value of the property in controversy
exceeds One hundred thousand pesos (P100,000.00) or, in such other cases in Metro
Manila, where the demand, exclusive of the above-mentioned items exceeds Two hundred
thousand pesos (P200,000).

Petitioner relies, however, on the case of PCGG vs. Peña, 159 SCRA 556 (1988) and asserts that
the controversy of LBLC or a sequestered company falls within the exclusive jurisdiction of the
Sandiganbayan and not of the trial court.

In the Peña case, the trial court issued a temporary restraining order which prevented PCGG from
enforcing the memorandum of then PCGG Commissioner Mary Concepcion Bautista. Her
memorandum denied complainant's authority to sign and manage the funds of the sequestered
company. The Supreme Court ruled that the trial court had no jurisdiction over PCGG being a co-
equal body, and therefore, the regional trial courts may not interfere with and restrain the PCGG or
set aside the orders and actions of its Commissioner.

In contrast, the case now before us concerns receivables of the private respondent arising out of a
legitimate business contract to supply goods and services in favor of LBLC. When a collection suit
was filed against LBLC by its supplier, Hung Ming Kuk, evidently PCGG could not be the proper
party to defend against such claim. More so, because when PCGG had not taken over the LBLC's
business operations.

We note that PCGG is not an owner but a conservator. It can exercise only powers of administration
over property sequestered, frozen or provisionally taken over. Even resort to the provisional
remedies should entail the least possible interference with business operations or activities so that,
in the event that the accusation that the business enterprise is "ill-gotten" be not proven, it may be
returned to its rightful owner as far as possible in the same condition as it was at the time of
sequestration. 9

The holding in Peña which confers exclusive jurisdiction on the Sandiganbayan in sequestration
cases cannot also be relied upon by petitioner in this case. We hold that the Regional Trial Court has
jurisdiction over the complaint for payment of money allegedly averred by LBLC to private
respondent.

We now move to the ancillary issue of whether or not the provisional remedy of attachment issued
by the trial court in favor of the private respondent is valid.
It bears recalling that when the Sandiganbayan ordered that the writ of sequestration be lifted,
PCGG filed a special civil action for certiorari to contest that order. The Supreme Court ruled in favor
of PCGG when it granted the latter's petition to declare the lifting of the writ of sequestration by the
Sandiganbayan null and void. The Court's en banc resolution pertinently reads:

WHEREFORE, judgment is hereby rendered:

A. NULLIFYING AND SETTING ASIDE:

xxx xxx xxx

17) in G.R. No. 109314, its impugned Resolutions 10 dated November 29, 1991 and February
16, 1993.

In the same en banc Resolution, the Court observed:

II. Provisional Remedies in Pursuance of Policy

Special adjective tools or devices were provided by the Revolutionary Government for the
recovery of that "ill-gotten wealth." These took the form of provisional remedies akin to
preliminary attachment (Rule 57), writ of seizure of personalty (Rule 60) and receivership
(Rule 59). They were (a) sequestration and (b) freeze orders, as regards "unearthed
instance of "ill-gotten wealth"; and (c) provisional takeover, as regards "business enterprises
and properties taken over by the government of the Marcos Administration or by entities or
persons close to former President Marcos."

A. Executive Orders Re Sequestration, Freezing and Takeover

These special remedies were prescribed and defined in Executive Orders Numbered 1 and
2, promulgated by President Corazon C. Aquino in March, 1986. Their validity and propriety
were sustained by this Court on May 27, 1987, against claims that they were unconstitutional
as being bills of attainder, or as violative of the right against self-incrimination and the
guaranty against unreasonable searches and seizures. In the same case, the Court also set
the parameters for and restrictions on the proper exercise of the remedies.

In BASECO vs. PCGG, 150 SCRA 181, 182 (1987), sequestration is defined as the process, which
may be employed as a conservatory writ whenever the right of the property is involved, to preserve,
pending litigation, specific property subject to conflicting claims of ownership or liens and
privileges. 11

The Court also noted the relationship between attachment and receivership, on one hand, and
sequestration, freeze order and provisional takeover on the other. The latter there are ancillary
remedies in prosecuting the ill-gotten wealth of the previous Marcos regime. The Court observed
that sequestration, freezing and provisional takeover are akin to the provisional remedy of
preliminary attachment or receivership. 1âwphi1

By an order of attachment, a sheriff seizes property of a defendant in a civil suit so that it may stand
as security for the satisfaction of any judgment that may be obtained, and not disposed of, or
dissipated, or lost intentionally, or otherwise, pending the action. 12 When a writ of attachment has
been levied on real property or any interest therein belonging to the judgment debtor, the levy
creates a lien which nothing can destroy but its dissolution. 13 This well-settled rule is likewise
applicable to a writ of sequestration.

Attachment is in the nature of a proceeding in rem. It is against a particular property of a debtor. The
attaching creditor thereby acquires a specific lien upon the attached property which ripens into a
judgment against the res when the order of sale is made. Such a proceeding is in effect a finding
that the property attached is an indebted thing and results in its virtual condemnation to pay for the
owner's debt. The law does not provide the length of time during which an attachment lien shall
continue after the rendition of the judgment, and it must therefore continue until the debt is paid, or
sale is had under execution issued in the judgment, or until the judgment is satisfied, or the
statement discharged or vacated in some manner provided by law. 14
In our view, the disputed properties of LBLC were already under custodia legis by virtue of a valid
writ of sequestration 15 issued by the PCGG on April 2, 1986, when respondent Judge Saludares
issued the assailed writ of attachment in favor of private respondent Hung Ming Kuk. At that time the
writ of sequestration issued by PCGG against LBLC was subsisting. Said writ of the PCGG could not
be interfered with by the RTC of Lianga, because the PCGG is a coordinate and co-equal body. The
PCGG had acquired by operation of law the right of redemption over the property until after the final
determination of the case or until its dissolution.

WHEREFORE, the instant petition is partially GRANTED. The default Order issued by the public
respondent dated March 19, 1993, is AFFIRMED, but should be held in abeyance until the
sequestration case involving LBLC before the Sandiganbayan is determined. The Order of
Attachment issued by the public respondent is declared NULL and VOID. No pronouncement as to
costs.
1âwphi 1.nê

SO ORDERED.
 PRELIMINARY INJUCTION

FIRST DIVISION

[G.R. No. 110086. July 19, 1999.]

PARAMOUNT INSURANCE CORPORATION, Petitioner, v. COURT OF APPEALS and

DAGUPAN ELECTRIC CORPORATION, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Before this Court is a petition for review on certiorari assailing the Decision of the Court of
Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 which dismissed petitioner Paramount
Insurance Corporation’s (PARAMOUNT) appeal, thereby affirming the decision of the court a
quo finding petitioner liable on its injunction bond.chanrobles.com:cralaw:red

McAdore Finance and Investment, Inc. (McADORE) was the owner and operator of the
McAdore International Palace Hotel in Dagupan City. Private respondent Dagupan Electric
Corporation (DECORP), on the other hand, was the grantee of a franchise to operate and
maintain electric services in the province of Pangasinan, including Dagupan City.

On February 2, 1978, McADORE and DECORP entered into a contract whereby DECORP shall
provide electric power to McADORE’s Hotel. During the term of their contract for power
service, DECORP noticed discrepancies between the actual monthly billings and the estimated
monthly billings of McADORE. Upon inspection, it was discovered that the terminal in the
transformers connected to the meter had been interchanged resulting in the slow rotation of the
meter. Consequently, DECORP issued a corrected bill but McADORE refused to pay. As a result
of McADORE’s failure and continued refusal to pay the corrected electric bills, DECORP
disconnected power supply to the hotel on November 27, 1978.

Aggrieved, McADORE commenced a suit against DECORP for damages with prayer for a writ
of preliminary injunction. McADORE posted injunction bonds from several sureties, one of
which was herein petitioner PARAMOUNT, which issued an injunction bond on July 7, 1980
with a face amount of P500,000.00. Accordingly, a writ of preliminary injunction was issued
wherein DECORP was ordered to continue supplying electric power to the hotel and restrained
from further disconnecting it.

After due hearing, the Regional Trial Court of Quezon City, Branch 106, rendered judgment in
favor of DECORP, the dispositive portion of which reads:jgc:chanrobles.com.ph

"WHEREFORE, there being preponderance of evidence, the court hereby dismisses the amended
complaint. Further, the court rescinds the service contract between the parties, and orders
McAdore to pay Decorp the following:chanrob1es virtual 1aw library

1. Actual damages consisting of total arrearages for electric services rendered from February
1978 to January 1983, in the sum of P3,834,489.62, plus interest at the legal rate, computed from
the date of demand until full payment;

2. Moral damages in the sum of P600,000.00;

3. Exemplary damages in the sum of P400,000.00;

4. Attorney’s fees in the sum of P100,000.00; and

5. Costs of the suit.

"While this case was under litigation, the court issued a number of restraining orders or
injunctions. During these incidents, McAdore filed the following bonds: Policy No. 8022709 by
Paramount Insurance Corporation for P500,000.00; No. 00007 and No. 00008 by Sentinel
Insurance Company, Inc. for P100,000.00 and P50,000.00; and No. 1213 by the Travelers Multi-
Indemnity Corporation for P225,000.00.chanroblesvirtual|awlibrary

"Pursuant to the dispositive portion of this decision, the court holds that these bonding
companies are jointly and severally liable with McAdore, to the extent of the value of their
bonds, to pay the damages adjudged to Decorp.

"Send this decision to: plaintiff’s counsel Atty. Pagapong; defendant’s counsel Atty. Vera Cruz;
and to each of the bondsman.

"It is so ordered." 1

McADORE did not appeal the above decision. PARAMOUNT, however, appealed to the Court
of Appeals assigning the following errors, to wit:chanrob1es virtual 1aw library

I. APPELLANT SURETY WAS NOT GRANTED DUE PROCESS NOR GIVEN ITS DAY IN
COURT.

II. APPELLANT’S SURETY BOND, BEING AN INJUNCTION OR TEMPORARY

RESTRAINING ORDER BOND, THE MANDATORY PROCEDURE IN SEC. 20, RULE 57,
IN RELATION TO SEC. 9, RULE 58, RULES OF COURT WAS NOT OBSERVED IN THIS
CASE;

III. NO EVIDENCE NOR PROOF HAD BEEN PRESENTED TO SHOW THAT HEREIN
APPELLANT SURETY BOND SHOULD BE HELD LIABLE FOR TOTAL DAMAGES AS
ADJUDGED IN THE CHALLENGED DECISION." 2

In essence, PARAMOUNT contended that it was not given its day in court because it was not
notified by DECORP of its intention to present evidence of damages against its injunction bond,
as mandated by Sec. 9 of Rule 58, in relation to Sec. 20 of Rule 57 of the Revised Rules of
Court.

The Court of Appeals was not convinced with petitioner’s contentions. On April 30, 1993, it
affirmed the decision of the trial court.chanroblesvirtualawlibrary

In the instant petition, PARAMOUNT seeks to reverse and set aside the decision of the Court of
Appeals on the following assignment of errors:jgc:chanrobles.com.ph

"FIRSTLY, THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NOTICE

TO PETITIONER AND ITS PRESENCE THROUGH COUNSEL IN ONE HEARING WHERE
NO EVIDENCE IN SUPPORT OF THE DAMAGES GUARANTEED BY PETITIONER’S
BOND RENDERS THE NEED FOR ANOTHER HEARING ON THAT MATTER A
SUPERFLUITY.

"SECONDLY, THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE COURT A QUO THAT PETITIONER IS JOINTLY AND SEVERALLY
LIABLE WITH McADORE TO THE EXTENT OF ITS BOND, WHICH DECISION IS NOT
SUPPORTED BY THE EVIDENCE." 3

PARAMOUNT asserts that" (t)he bone of contention in the instant case is the matter of evidence
(or lack thereof) presented by private respondent during the hearing of the case a quo, notice (or
lack thereof) to the surety relative to the proceedings before the court a quo during which said
evidence was presented, as well as the actual proceedings themselves." 4 PARAMOUNT further
asseverates that "no evidence relative to damages suffered by private respondent as a result of the
injunction was ever presented, or that if any such evidence was presented, the same was done
without notice to petitioner and in violation of its right to due process." 5 Moreover, petitioner
maintains that the injunction bond was issued and approved sometime in April 1980 to guarantee
"actual and material damages as may be sustained and duly proved by private Respondent."
Thus, it can only cover the period prospectively from the date of its issuance and does not
retroact to the date of the initial controversy.

In its Comment, DECORP claims that PARAMOUNT participated in the proceedings and was
given its day in court. This is evidenced by the "Notice of Hearing" dated February 26, 1985
addressed to the three sureties. In fact, at the hearing on March 22, 1985, PARAMOUNT was in
attendance represented by Atty. Nonito Q. Cordero. Likewise, PARAMOUNT was notified of
the next hearing scheduled for April 26, 1985. DECORP further stressed that the hearing on
April 26, 1985 proceeded as scheduled without any comment, objection, opposition or
reservation from PARAMOUNT.

The core issue to be resolved here is whether or not petitioner Paramount Insurance Corporation
was denied due process when the trial court found the injunction bond it issued in favor of
McADORE liable to DECORP. Stated otherwise, was there sufficient evidence to establish the
liability of the petitioner on its injunction bond?chanrobles.com : virtual law library

The petition is devoid of merit.

Petitioner’s submissions necessitates going into the nature of an injunction as well as over the
procedure in claiming, ascertaining and awarding damages upon the injunction bond.

Injunction is an extraordinary remedy calculated to preserve the status quo of things and to
prevent actual or threatened acts violative of the rules of equity and good conscience as would
consequently afford an injured party a cause of action resulting from the failure of the law to
provide for an adequate or complete relief. 6 A preliminary injunction is an order granted at any
stage of an action or proceeding prior to the judgment or final order, requiring a party or a court,
agency or a person to refrain from a particular act or acts. It may also require the performance of
a particular act or acts, in which case it shall be known as a preliminary mandatory injunction. 7
Its sole purpose is not to correct a wrong of the past, in the sense of redress for injury already
sustained, but to prevent further injury. 8

A preliminary injunction or temporary restraining order may be granted only when, among
others, the applicant, unless exempted by the court, files with the court where the action or
proceeding is pending, a bond executed to the party or person enjoined, in an amount to be fixed
by the court, to the effect that the applicant will pay such party or person all damages which he
may sustain by reason of the injunction or temporary restraining order if the court should finally
decide that the applicant was not entitled thereto. Upon approval of the requisite bond, a writ of
preliminary injunction shall be issued. 9 At the trial, the amount of damages to be awarded to
either party, upon the bond of the adverse party, shall be claimed, ascertained, and awarded
under the same procedure prescribed in Section 20 of Rule 57. 10

Rule 57, Section 20, of the 1997 Rules of Civil Procedure, which is similarly applicable to
preliminary injunction, pertinently provides:jgc:chanrobles.com.ph

"SECTION 20. Claim for damages on account of improper, irregular or excessive attachment. —
An application for damages on account of improper, irregular or excessive attachment must be
filed before the trial or before appeal is perfected or before the judgment becomes executory,
with due notice to the attaching obligee or his surety or sureties, setting forth the facts showing
his right to damages and the amount thereof. Such damages may be awarded only after proper
hearing and shall be included in the judgment on the main case.

"If the judgment of the appellate court be favorable to the party against whom the attachment
was issued, he must claim damages sustained during the pendency of the appeal by filing an
application in the appellate court with notice to the party in whose favor the attachment was
issued or his surety or sureties, before the judgment of the appellate court becomes executory.
The appellate court may allow the application to be heard and decided by the trial court.

"Nothing herein contained shall prevent the party against whom the attachment was issued from
recovering in the same action the damages awarded to him from any property of the attaching
obligee not exempt from execution should the bond or deposit given by the latter be insufficient
or fail to fully satisfy the award." (mutatis mutandis)chanrobles virtuallawlibrary

The above rule comes into play when the plaintiff-applicant for injunction fails to sustain his
action, and the defendant is thereby granted the right to proceed against the bond posted by the
former. In the case at bench, the trial court dismissed McADORE’s action for damages with
prayer for writ of preliminary injunction and eventually adjudged the payment of actual, moral,
and exemplary damages against plaintiff-applicant. Consequently, private respondent DECORP
can proceed against the injunction bond posted by plaintiff-applicant to recover the damages
occasioned by the issuance by the trial court of the writ of injunction.

In order for the injunction bond to become answerable for the above-described damages, the
following requisites must concur: 11

1. The application for damages must be filed in the same case where the bond was issued;

2. Such application for damages must be filed before the entry of judgment; and

3. After hearing with notice to the surety.chanrobles virtual lawlibrary

The records of this case reveal that during its pendency in the trial court, DECORP filed its
Answer raising compulsory counterclaims for rescission of contract, moral damages, exemplary
damages, attorney’s fees and litigation expenses. 12 During the trial, Atty. Nonito Cordero
appeared 13 as counsel for petitioner. PARAMOUNT as well as the other sureties were properly
notified of the hearing and given their day in court. Specifically, notice was sent to Atty. Cordero
of the hearing on April 27, 1985, which was set for the purpose of determining the liability of the
sureties. The counterclaims for damages of DECORP were proven at the trial and yet
PARAMOUNT did not exert any effort to controvert the evidence presented by DECORP. Given
these circumstances, PARAMOUNT cannot hide under the cloak of non-liability on its
injunction bond on the mere expediency that it was deprived of due process. It bears stressing
that what the law abhors is not the absence of previous notice but rather the absolute lack of
opportunity to ventilate a party’s side. 14 In other words, petitioner cannot successfully invoke
denial of due process where it was given the chance to be heard. As aptly held by the Court of
Appeals, viz.:jgc:chanrobles.com.ph

"The records of the case disclose that during the trial of the case, PARAMOUNT was present
and represented by its counsel Atty. Nonito Q. Cordero as shown in the trial court’s order dated
March 22, 1985 (Annex "A" of Appellee’s Brief). In the said order, PARAMOUNT was duly
notified of the next hearing which was scheduled on April 26, 1985. Evidently, PARAMOUNT
was well-apprised of the next hearing and it cannot feign lack of notice. Having been given an
opportunity to be heard during the main hearing for the matter of damages, PARAMOUNT
therefore, cannot bewail that it was not given an opportunity to be heard upon denial of its
motion to cancel its injunction bond. Of what use, therefore, is there to conduct another hearing
when the issue of damages has been the subject of the main action of which PARAMOUNT had
been duly notified? A new notice and hearing prescribed by Sec. 20, Rule 57, is therefore a
repetition and a superfluity.
"Moreover, PARAMOUNT has only itself to blame when it did not make any opposition or
objection during the hearing for the reception of DECORP’s evidence. Having manifested its
desire to cancel its bond, it should have asked for a deferment of hearing on DECORP’s
evidence but PARAMOUNT did not do anything of this sort. Only when an adverse judgment
was rendered by the trial court against its principal McAdore did it whimper a denial of
procedural due process." 15

On the same point, PARAMOUNT argues that contrary to the ruling of the Court of Appeals,
there is a need for a separate hearing for the purpose of presenting evidence on the alleged
damages claimed by DECORP on petitioner’s injunction bond. PARAMOUNT contends that a
separate hearing is needed as no evidence dealing with DECORP’s claim for damages on
petitioner’s bond was presented during the hearing wherein petitioner’s counsel attended nor in
the next hearing wherein petitioner was notified but failed to attend. Since no hearing was held
for the purpose of establishing its liability on the injunction bond, PARAMOUNT concludes that
it is released from its obligation as surety.chanrobles virtual lawlibrary

Contrary to petitioner’s thesis, it is neither mandatory nor fatal that there should be a separate
hearing in order that damages upon the bond can be claimed, ascertained and awarded, as can be
gleaned from a cursory reading of the provisions of Rule 57, Section 20. This Court agrees with
the appellate court’s ruling that:jgc:chanrobles.com.ph

"Jurisprudential findings laid down the doctrine that a final adjudication that the applicant is not
entitled to the injunction does not suffice to make the surety liable. It is necessary, in addition,
that the surety be accorded due process, that is, that it be given an opportunity to be heard on the
question of its solidary liability for damages arising from a wrongful injunction order. Withal,
the fact that the matter of damages was among the issues tried during the hearings on the merits
will not render unnecessary or superfluous a summary hearing to determine the extent of a
surety’s liability unless of course, the surety had been impleaded as a party, or otherwise earlier
notified and given opportunity to be present and ventilate its side on the matter during the
trial.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

"The exception under the doctrinal ruling abovenoted is extant in the case at bar." 16

What is necessary only is for the attaching party and his surety or sureties to be duly notified and
given the opportunity to be heard. In the case at bench, this Court accords due respect to the
factual finding of the Court of Appeals that "PARAMOUNT was present and represented by its
counsel Atty. Nonito Q. Cordero as shown in the trial court’s order dated March 22, 1985 . . ." 17

As stated, PARAMOUNT also argues that assuming it is liable on its injunction bond, its
liability should be limited only to the amount of damages accruing from the time the injunction
bond was issued until the termination of the case, and not from the time the suit was commenced.
In short, it claims that the injunction bond is prospective and not retroactive in application.

This Court does not agree. Rule 58, Section 4(b), provides that a bond is executed in favor of the
party enjoined to answer for all damages which he may sustain by reason of the injunction. This
Court already had occasion to rule on this matter in Mendoza v. Cruz, 18 where it held that" (t)he
injunction bond is intended as a security for damages in case it is finally decided that the
injunction ought not to have been granted. It is designed to cover all damages which the party
enjoined can possibly suffer. Its principal purpose is to protect the enjoined party against loss or
damage by reason of an injunction." No distinction was made as to when the damages should
have been incurred.

Moreover, when petitioner issued its injunction bond in favor of DECORP, it was done with the
full knowledge of the relevant facts obtaining in the controversy between DECORP and
McADORE. At the time the injunction bond was issued, DECORP was already claiming arrears
in electric bills and damages from McADORE.chanrobles virtual lawlibrary
It bears stressing that McADORE was found liable to pay actual damages, moral damages,
exemplary damages, attorney’s fees and costs of the suit. To argue therefore that PARAMOUNT
is only liable on its injunction bond from the time of its issuance and not from the time the suit
was commenced is preposterous if not absurd. Indeed, it would be impossible to determine the
reckoning point when moral damages, exemplary damages, attorney’s fees and costs of the suit
were supposed to have been incurred. Consequently, it can be safely deduced that the bond
answers for any and all damages arising from the injunction, regardless of whether it was
sustained before or after the filing of the injunction bond.

PARAMOUNT further maintains that it is liable to pay actual damages only. 19 However, Rule
58, Section 4(b), clearly provides that the injunction bond is answerable for all damages. "The
bond insures with all practicable certainty that the defendant may sustain no ultimate loss in the
event that the injunction could finally be dissolved. Consequently, the bond may obligate the
bondsmen to account to the defendant in the injunction suit for all: (1) such damages; (2) costs
and damages; (3) costs, damages and reasonable attorney’s fees as shall be incurred or sustained
by the person enjoined in case it is determined that the injunction was wrongfully issued." 20
Thus, PARAMOUNT is liable, jointly and severally, for actual damages, moral damages,
exemplary damages, attorney’s fees and costs of the suit, to the extent of the amount of the bond.

Be that as it may, a scrutiny of petitioner’s Indemnity Agreement 21 with McADORE shows that
the former agreed "to become surety" for the stated amount "in favor of Dagupan Electric Corp."
It should be noted that McADORE was already in arrears starting from June 1979 22 up to the
time it entered into an Indemnity Agreement with PARAMOUNT on July 17,
1980.chanroblesvirtual|awlibrary

It may not be amiss to point out that by the contract of suretyship, it is not for the obligee to see
to it that the principal pays the debt or fulfills the contract, but for the surety to see to it that the
principal pay or perform. 23 The purpose of the injunction bond is to protect the defendant
against loss or damage by reason of the injunction in case the court finally decides that the
plaintiff was not entitled to it, and the bond is usually conditioned accordingly. Thus, the
bondsmen are obligated to account to the defendant in the injunction suit for all damages, or
costs and reasonable counsel’s fees, incurred or sustained by the latter in case it is determined
that the injunction was wrongfully issued. 24

The posting of a bond in connection with a preliminary injunction (or attachment under Rule 57,
or receivership under Rule 59, or seizure or delivery of personal property under Rule 60) does
not operate to relieve the party obtaining an injunction from any and all responsibility for the
damages that the writ may thereby cause. It merely gives additional protection to the party
against whom the injunction is directed. It gives the latter a right of recourse against either the
applicant or his surety, or against both. 25 In the same manner, when petitioner PARAMOUNT
issued the bond in favor of its principal, it undertook to assume all the damages that may be
suffered after finding that the principal is not entitled to the relief being sought.

WHEREFORE, based on the foregoing, the instant petition is DENIED. The decision of the
Court of Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 is AFFIRMED. With costs.

SO ORDERED.chanrobles.com : virtual law library

Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

G.R. No. 119280 August 10, 2006

UNILEVER PHILIPPINES (PRC), INC., Petitioner,

vs.
THE HONORABLE COURT OF APPEALS and PROCTER AND GAMBLE PHILIPPINES,
INC., Respondents.

DECISION

CORONA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner assails the February 24,
1995 decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 35242 entitled "Unilever Philippines
(PRC), Inc. v. Honorable Fernando V. Gorospe, Jr. and Procter and Gamble Philippines, Inc.
(P&GP)" which affirmed the issuance by the court a quo of a writ of preliminary injunction against it.
The writ enjoined petitioner from using and airing, until further orders of the court, certain television
commercials for its laundry products claimed to be identical or similar to its "double tug" or "tac-tac"
key visual. 2

Petitioner alleges that the writ of preliminary injunction was issued by the trial court (and affirmed by
the CA) without any evidence of private respondent’s clear and unmistakable right to the writ.
Petitioner further contends that the preliminary injunction issued against it already disposed of the
main case without trial, thus denying petitioner of any opportunity to present evidence on its behalf.

The antecedents show that on August 24, 1994, private respondent Procter and Gamble Phils., Inc.
filed a complaint for injunction with damages and a prayer for temporary restraining order and/or writ
of preliminary injunction against petitioner Unilever, alleging that:

1.5. As early as 1982, a P&G subsidiary in Italy used a key visual in the advertisement of its laundry
detergent and bleaching products. This key visual known as the "double-tug" or "tac-tac"
demonstration shows the fabric being held by both hands and stretched sideways.

1.6. The "tac-tac" was conceptualized for P&G by the advertising agency Milano and Gray of Italy in
1982. The "tac-tac" was used in the same year in an advertisement entitled "All aperto" to
demonstrate the effect on fabrics of one of P&GP’s products, a liquid bleach called "Ace."

xxxxxxxxx

1.7. Since then, P&G has used the "tac-tac" key visual in the advertisement of its products. In fact, in
1986, in Italy, the "tac-tac" key visual was used in the television commercial for "Ace" entitled "Kite."

1.8. P&G has used the same distinctive "tac-tac" key visual to local consumers in the Philippines.

xxxxxxxxx

1.10. Substantially and materially imitating the aforesaid "tac-tac" key visual of P&GP and in blatant
disregard of P&GP’s intellectual property rights, Unilever on 24 July 1993 started airing a 60 second
television commercial "TVC" of its "Breeze Powerwhite" laundry product called "Porky." The said
TVC included a stretching visual presentation and sound effects almost [identical] or substantially
similar to P&GP’s "tac-tac" key visual.

xxxxxxxxx

1.14. On July 15, 1994, P&GP aired in the Philippines, the same "Kite" television advertisement it
used in Italy in 1986, merely dubbing the Italian language with Filipino for the same produce "Ace"
bleaching liquid which P&GP now markets in the Philippines.

1.15. On August 1, 1994, Unilever filed a Complaint with the Advertising Board of the Philippines to
prevent P&GP from airing the "Kite" television advertisement. 3

On August 26, 1994, Judge Gorospe issued an order granting a temporary restraining order and
setting it for hearing on September 2, 1994 for Unilever to show cause why the writ of preliminary
injunction should not issue. During the hearing on September 2, 1994, P&GP received Unilever’s
answer with opposition to preliminary injunction. P&GP filed its reply to Unilever’s opposition to a
preliminary injunction on September 6, 1994.

During the hearing on September 9, 1994, Judge Gorospe ordered petitioner to submit a sur-
rejoinder. P&GP received Unilever’s rejoinder to reply on September 13, 1994. The following day, on
September 14, 1994, P&GP filed its sur-reply to Unilever’s rejoinder.

On September 19, 1994, P&GP received a copy of the order dated September 16, 1994 ordering the
issuance of a writ of preliminary injunction and fixing a bond of P100,000. On the same date, P&GP
filed the required bond issued by Prudential Guarantee and Assurance, Inc.

On September 21, 1994, petitioner appealed to the CA assigning the following errors allegedly
committed by the court a quo, to wit:

PUBLIC RESPONDENT HAD ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND WITH

GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN ISSUING THE
WRIT OF PRELIMINARY INJUNCTION IN VIOLATION OF THE RULES ON EVIDENCE AND
PROCEDURE, PARTICULARLY OF SEC. 3 (a), RULE 58 OF THE REVISED RULES OF COURT
AND OF THE PREVAILING JURISPRUDENCE.

PUBLIC RESPONDENT IN ISSUING THE VOID ORDER DATED SEPTEMBER 16, 1994, HAD, IN
EFFECT, ALREADY PREJUDGED THE MERITS OF THE MAIN CASE.

PUBLIC RESPONDENT HAD ISSUED THE VOID ORDER ACCORDING RELIEF TO A NON-
PARTY IN CIVIL CASE NO. 94-2434 WITHOUT JURISDICTION.

PUBLIC RESPONDENT IN ISSUING THE VOID ORDER HAD DEPRIVED PETITIONER OF

SUBSTANTIVE AND PROCEDURAL DUE PROCESS; PUBLIC RESPONDENT HAD
FORECLOSED PETITIONER’S RIGHT AND THE OPPORTUNITY TO CROSS-EXAMINE
PROCTER’S WITNESSES ABAD AND HERBOSA. 4

On February 24, 1995, the CA rendered its decision finding that Judge Gorospe did not act with
grave abuse of discretion in issuing the disputed order. The petition for certiorari was thus dismissed
for lack of merit.

After a careful perusal of the records, we agree with the CA and affirm its decision in toto:

Petitioner does not deny that the questioned TV advertisements are substantially similar to P&GP’s
"double tug" or "tac-tac" key visual. However, it submits that P&GP is not entitled to the relief
demanded, which is to enjoin petitioner from airing said TV advertisements, for the reason that
petitioner has Certificates of Copyright Registration for which advertisements while P&GP has none
with respect to its "double-tug" or "tac-tac" key visual. In other words, it is petitioner’s contention that
P&GP is not entitled to any protection because it has not registered with the National Library the
very TV commercials which it claims have been infringed by petitioner.

We disagree. Section 2 of PD 49 stipulates that the copyright for a work or intellectual creation
subsists from the moment of its creation. Accordingly, the creator acquires copyright for his work
right upon its creation.… Contrary to petitioner’s contention, the intellectual creator’s exercise and
enjoyment of copyright for his work and the protection given by law to him is not contingent or
dependent on any formality or registration. Therefore, taking the material allegations of paragraphs
1.3 to 1.5 of P&GP’s verified Complaint in the context of PD 49, it cannot be seriously doubted that
at least, for purposes of determining whether preliminary injunction should issue during the
pendency of the case, P&GP is entitled to the injunctive relief prayed for in its Complaint.

The second ground is likewise not well-taken. As adverted to earlier, the provisional remedy of
preliminary injunction will not issue unless it is shown in the verified complaint that plaintiff is
probably entitled to the relief demanded, which consists in whole or in part in restraining the
commission or continuance of the acts complained of. In view of such requirement, the court has to
make a tentative determination if the right sought to be protected exists and whether the act against
which the writ is to be directed is violative of such right. Certainly, the court’s determination as to the
propriety of issuing the writ cannot be taken as a prejudgment of the merits of the case because it is
tentative in nature and the writ may be dissolved during or after the trial if the court finds that plaintiff
was not entitled to it….

xxxxxxxxx

Obviously, the determination made by the court a quo was only for purposes of preliminary
injunction, without passing upon the merits of the case, which cannot be done until after a full-blown
hearing is conducted.

The third ground is patently unmeritorious. As alleged in the Complaint P&GP is a subsidiary of
Procter and Gamble Company (P&G) for which the "double tug" or "tac-tac" key visual was
conceptualized or created. In that capacity, P&GP used the said TV advertisement in the Philippines
to promote its products. As such subsidiary, P&GP is definitely within the protective mantle of the
statute (Sec. 6, PD 49).

Finally, We find the procedure adopted by the court a quo to be in order….

The record clearly shows that respondent Judge followed the (procedure provided for in Section 5,
Rule 58, as amended by BP 224, and Paragraph A(8) of the Interim Rules). In fact, the court a
quo set the incident for hearing on September 2, 1994, at which date petitioner was ordered to show
cause why the writ should not be issued. Petitioner filed an Opposition to the application for
preliminary injunction. The same incident was again set for hearing on September 9, 1994, during
which the parties made some manifestations in support of their respective positions. Subsequent to
such hearing petitioner filed a Reply to P&GP’s Rejoinder to its Opposition. Under the foregoing
circumstances, it is absurd to even suggest that petitioner was not given its day in court in the matter
of the issuance of the preliminary injunctive relief.

xxxxxxxxx

There was of course extreme urgency for the court a quo to act on plaintiff’s application for
preliminary injunction. The airing of TV commercials is necessarily of limited duration only. Without
such temporary relief, any permanent injunction against the infringing TV advertisements of which
P&GP may possibly succeed in getting after the main case is finally adjudicated could be illusory if
by then such advertisements are no longer used or aired by petitioner. It is therefore not difficult to
perceive the possible irreparable damage which P&GP may suffer if respondent Judge did not act
promptly on its application for preliminary injunction. 5

Preliminary injunction is a provisional remedy intended to provide protection to parties for the
preservation of their rights or interests during the pendency of the principal action. 6 Thus, Section1,
Rule 58 of the Rules of Court provides:

Section 1. Preliminary injunction defined; classes. — A preliminary injunction is an order granted at

any stage of an action or proceeding prior to the judgment or final order, requiring a party or a court,
agency or a person to refrain from a particular act or acts. It may also require the performance of a
particular act or acts, in which case it shall be known as a preliminary mandatory injunction.

Injunction is resorted to only when there is a pressing necessity to avoid injurious consequences
which cannot be remedied under any standard compensation. 7 As correctly ruled by the CA, there
was an extreme urgency to grant the preliminary injunction prayed for by P&GP considering that TV
commercials are aired for a limited period of time only. In fact, this Court takes note of the fact that the TV
commercial in issue ― the Kite TV advertisement ― is no longer aired today, more than 10 years after the
injunction was granted on September 16, 1994.

The sole objective of a writ of preliminary injunction is to preserve the status quo until the merits of
the case can be heard fully. 8 A writ of preliminary injunction is generally based solely on initial and
incomplete evidence. 9 Thus, it was impossible for the court a quo to fully dispose of the case, as
claimed by petitioner, without all the evidence needed for the full resolution of the same. To date, the
main case still has to be resolved by the trial court.

The issuance of a preliminary injunction rests entirely on the discretion of the court and is generally
not interfered with except in cases of manifest abuse. 10 There was no such abuse in the case at bar,
especially because petitioner was given all the opportunity to oppose the application for injunction.
The fact was, it failed to convince the court why the injunction should not be issued. Thus, in Santos
v. Court of Appeals, 11 we held that no grave abuse of discretion can be attributed to a judge or body
issuing a writ of preliminary injunction where a party has not been deprived of its day in court as it
was heard and it exhaustively presented all its arguments and defenses.

WHEREFORE, the petition is hereby DENIED.

Costs against petitioner.

SO ORDERED.

G.R. No. 181930 January 10, 2011

MILAGROS SALTING, Petitioner,

vs.
JOHN VELEZ and CLARISSA R. VELEZ, Respondents.

DECISION

NACHURA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to annul and
set aside the Court of Appeals (CA) Decision1 dated November 29, 2007 and Resolution2 dated
February 27, 2008 in CA-G.R. SP No. 97618.

The factual and procedural antecedents leading to the instant petition are as follows:

On October 7, 2003, respondents John Velez and Clarissa Velez filed a complaint3 for ejectment
against petitioner Milagros Salting involving a property covered by Transfer Certificate of Title (TCT)
No. 38079. The case was docketed as Civil Case No. 2524. On March 28, 2006, respondents
obtained a favorable decision4 when the Metropolitan Trial Court (MeTC), Branch LXXIV, of Taguig
City, Metro Manila, ordered petitioner to vacate the subject parcel of land and to pay attorney’s fees
and costs of suit. The decision became final and executory, after which respondents filed a motion
for execution which was opposed by petitioner.

Thereafter, petitioner instituted an action before the Regional Trial Court (RTC), Branch 153, for
Annulment of Sale of the Property covered by TCT No. 38079, with prayer for the issuance of a
Temporary Restraining Order (TRO) and/or Writ of Preliminary Injunction against respondents, Hon.
Ma. Paz Yson, Deputy Sheriff Ernesto G. Raymundo, Jr., Teresita Diokno-Villamena, and Heirs of
Daniel B. Villamena (Heirs of Villamena).5 The case was docketed as Civil Case No. 70859-TG.
Petitioner claimed that she purchased the subject parcel of land from Villamena as evidenced by a
notarized document known as Sale of Real Estate. She further explained that respondents were able
to obtain title to the subject property through the fraudulent acts of the heirs of Villamena. Finally,
she averred that the decision in Civil Case No. 2524 had not attained finality as she was not properly
informed of the MeTC decision. Petitioner thus prayed that a TRO be issued, restraining
respondents and all persons acting for and in their behalf from executing the MeTC decision dated
March 28, 2006. She further sought the declaration of nullity of the sale by the heirs of Villamena to
respondents involving the subject parcel of land, and, consequently, the cancellation of the title to
the property in the name of respondents.

Finding that petitioner would suffer grave and irreparable damage if respondents would not be
enjoined from executing the March 28, 2006 MeTC decision while respondents would not suffer any
prejudice, the RTC, in an Order dated October 26, 2006, granted the writ of preliminary injunction
applied for.6 Aggrieved, respondents filed a special civil action for certiorari under Rule 65 of the
Rules of Court before the CA, raising the sole issue of whether or not the RTC committed grave
abuse of discretion amounting to lack or excess of jurisdiction in issuing the writ of preliminary
injunction against the execution of a judgment for ejectment.

In a Decision7 dated November 29, 2007, the CA resolved the issue in the affirmative. The CA noted
that the principal action in Civil Case No. 70859-TG is the annulment of the deed of sale executed
between respondents and the heirs of Villamena, while the subject of the ancillary remedy of
preliminary injunction is the execution of the final judgment in a separate proceeding for ejectment in
Civil Case No. 2524. The appellate court concluded that petitioner had no clear and unmistakable
right to possession over the subject parcel of land in view of the March 28, 2006 MeTC decision.
Hence, contrary to the conclusion of the RTC, the CA opined that petitioner was not entitled to the
writ of preliminary injunction. The CA thus set aside the October 26, 2006 Order of the RTC.

Petitioner now comes before this Court in this petition for review on certiorari under Rule 45 of the
Rules of Court, claiming that:

In rendering the assailed Decision and Resolution, the Court of Appeals has decided in a way
probably not in accord with law or with the applicable decisions of the Supreme Court. (Section 6 (a),
Rule 45, 1997 Rule[s] of Civil Procedure). The Court of Appeals disregarded the rule that service of
decision to a deceased lawyer is invalid and that the party must be duly served by the final judgment
in order that the final judgment will become final and executory. The Court of Appeals, likewise,
disregarded the existence of a clear and existing right of the petitioner which should be protected by
an injunctive relief and the rule that the pendency of an action assailing the right of a party to eject
will justify the suspension of the proceedings of the ejectment case.8

Petitioner claims that she was denied her right to appeal when the March 28, 2006 MeTC decision
was declared final and executory despite the fact that the copy of the decision was served on her
deceased counsel. She further claims that the MeTC decision had not attained finality due to
improper service of the decision. Moreover, petitioner avers that she has a clear and existing right
and interest over the subject property which should be protected by injunction. Finally, petitioner
argues that jurisprudence allows the suspension of proceedings in an ejectment case at whatever
stage when warranted by the circumstances of the case.

In their Comment,9 respondents allege that the petition is already moot and academic in view of the
execution of the MeTC decision. They claim that it is not proper to restrain the execution of the
MeTC decision as the case instituted before the RTC was for the annulment of the sale executed
between respondents and the heirs of Villamena, and not an action for annulment of judgment or
mandamus to compel the MeTC to entertain her belated appeal. Respondents add that the finality of
the ejectment case is not a bar to the case instituted for the annulment of the sale and the eventual
recovery of ownership of the subject property. The actions for ejectment and for annulment of sale
are two different cases that may proceed independently, especially when the judgment in the
ejectment case had attained finality, as in the instant case. Finally, respondents fault the petitioner
herself for not informing the MeTC of the death of her former counsel the moment she learned of
such death.

We find no merit in the petition.

We first determine the validity of the service of the March 28, 2006 MeTC decision on petitioner’s
counsel who, as of that date, was already deceased. If a party to a case has appeared by counsel,
service of pleadings and judgments shall be made upon his counsel or one of them, unless service
upon the party himself is ordered by the court.10 Thus, when the MeTC decision was sent to
petitioner’s counsel, such service of judgment was valid and binding upon petitioner, notwithstanding
the death of her counsel. It is not the duty of the courts to inquire, during the progress of a case,
whether the law firm or partnership continues to exist lawfully, the partners are still alive, or its
associates are still connected with the firm.11 Litigants, represented by counsel, cannot simply sit
back, relax, and await the outcome of their case.12 It is the duty of the party-litigant to be in contact
with her counsel from time to time in order to be informed of the progress of her case.13 It is likewise
the duty of the party to inform the court of the fact of her counsel’s death. Her failure to do so means
that she is negligent in the protection of her cause, and she cannot pass the blame to the court
which is not tasked to monitor the changes in the circumstances of the parties and their counsels.

It is noteworthy that when petitioner came to know of the death of her counsel and upon obtaining
the services of a new counsel, petitioner instituted another action for the annulment of the deed of
sale between her and the heirs of Villamena, instead of questioning the MeTC decision through an
action for annulment of judgment. Obviously, the annulment case instituted by petitioner is separate
and distinct from the ejectment case filed by respondents. She cannot, therefore, obtain relief
through the second case for alleged errors and injustices committed in the first case.

With the foregoing disquisition, we find that the March 28, 2006 MeTC decision had, indeed, become
final and executory. A final and executory decision can only be annulled by a petition to annul the
same on the ground of extrinsic fraud and lack of jurisdiction, or by a petition for relief from a final
order or judgment under Rule 38 of the Rules of Court. However, no petition to that effect was
filed.14 Well-settled is the rule that once a judgment becomes final and executory, it can no longer be
disturbed, altered, or modified in any respect except to correct clerical errors or to make nunc pro
tunc entries. Nothing further can be done to a final judgment except to execute it.15

In the present case, the finality of the March 28, 2006 decision with respect to possession de facto
cannot be affected by the pendency of the annulment case where the ownership of the property is
being contested.16 We are inclined to adhere to settled jurisprudence that suits involving ownership
may not be successfully pleaded in abatement of the enforcement of the final decision in an
ejectment suit. The rationale of the rule has been explained in this wise:

This rule is not without good reason. If the rule were otherwise, ejectment cases could easily be
frustrated through the simple expedient of filing an action contesting the ownership over the property
subject of the controversy. This would render nugatory the underlying philosophy of the summary
remedy of ejectment which is to prevent criminal disorder and breaches of the peace and to
discourage those who, believing themselves entitled to the possession of the property, resort to
force rather than to some appropriate action in court to assert their claims.17

Unlawful detainer and forcible entry suits under Rule 70 of the Rules of Court are designed to
summarily restore physical possession of a piece of land or building to one who has been illegally or
forcibly deprived thereof, without prejudice to the settlement of the parties’ opposing claims of
juridical possession in appropriate proceedings.18

Finally, as aptly held by the CA, petitioner is not entitled to a writ of preliminary injunction to restrain
the execution of the MeTC decision. Section 3, Rule 58 of the Rules of Court enumerates the
grounds for the issuance of preliminary injunction, viz.:

SEC. 3. Grounds for issuance of preliminary injunction. – A preliminary injunction may be granted
when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.

And as clearly explained in Ocampo v. Sison Vda. de Fernandez19 3/4

To be entitled to the injunctive writ, the applicant must show that there exists a right to be protected
which is directly threatened by an act sought to be enjoined. Furthermore, there must be a showing
that the invasion of the right is material and substantial and that there is an urgent and paramount
necessity for the writ to prevent serious damage. The applicant’s right must be clear and
unmistakable. In the absence of a clear legal right, the issuance of the writ constitutes grave abuse
of discretion. Where the applicant’s right or title is doubtful or disputed, injunction is not proper. The
possibility of irreparable damage without proof of an actual existing right is not a ground for
injunction.

A clear and positive right especially calling for judicial protection must be shown. Injunction is not a
remedy to protect or enforce contingent, abstract, or future rights; it will not issue to protect a right
not in esse and which may never arise, or to restrain an act which does not give rise to a cause of
action. There must exist an actual right. There must be a patent showing by the applicant that there
exists a right to be protected and that the acts against which the writ is to be directed are violative of
said right.20

In this case, the enforcement of the writ of execution which would evict petitioner from her residence
is manifestly prejudicial to her interest. However, she possesses no legal right that merits the
protection of the courts through the writ of preliminary injunction. Her right to possess the property in
question has been declared inferior or inexistent in relation to respondents in the ejectment case in
the MeTC decision which has become final and executory.21 1avvphi 1

In any event, as manifested by respondents, the March 28, 2006 MeTC decision has already been
executed. Hence, there is nothing more to restrain.

WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Court of Appeals
Decision dated November 29, 2007 and Resolution dated February 27, 2008 in CA-G.R. SP No.
97618 are AFFIRMED.

SO ORDERED.

G.R. No. 175145 March 28, 2008

SPOUSES ALFREDO and SHIRLEY YAP, Petitioners,

vs.
INTERNATIONAL EXCHANGE BANK,1 SHERIFF RENATO C. FLORA and/or OFFICE OF THE
CLERK OF COURT, REGIONAL TRIAL COURT, MAKATI CITY, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure
which seeks to set aside the Resolution2 of the Court of Appeals in CA-G.R. SP No. 95074 dated 11
July 2006 which dismissed petitioner-spouses Alfredo and Shirley Yap’s petition for certiorari which
questioned the Order3 of Branch 264 of the Regional Trial Court (RTC) of Pasig City in Civil Case
No. 68088 recalling and dissolving the Writ of Preliminary Injunction dated 13 August 2001, and its
Resolution4 dated 9 October 2006 denying petitioners’ Motion for Reconsideration.

The factual antecedents are as follows:

Respondent International Exchange Bank (iBank, for brevity) filed a collection suit with application
for the issuance of a writ of preliminary attachment against Alberto Looyuko and Jimmy T. Go in the
RTC of Makati. The case was raffled to Branch 150 and was docketed as Civil Case No. 98-791. On
7 October 1999, the trial court rendered a Decision in favor of respondent iBank and found Alberto
Looyuko and Jimmy T. Go liable, ordering them to pay the amount of ninety-six million pesos
(₱96,000,000.00), plus penalty.

A Writ of Execution on the judgment against Mr. Looyuko was implemented. Thereafter, a Writ of
Execution was issued against Mr. Go for his part of the liability. Thereupon, respondent Renato C.
Flora, Sheriff of Branch 150 of the RTC of Makati City, issued a Notice of Sheriff’s Sale on 12 May
2000 notifying all the parties concerned, as well as the public in general, that the following real
properties, among other properties, covered by Transfer Certificates of Title (TCTs) No. PT-66751,
No. PT-66749, No. 55469 and No. 45229 of the Registry of Deeds of Pasig City, TCT No. 36489 of
the Registry of Quezon City, and TCTs No. 4621 and No. 52987 of the Registry of Deeds of
Mandaluyong City, allegedly owned by Mr. Go will be sold at public auction on 15 June 2000.5 Said
public auction did not push through.

On 13 June 2000, petitioner-spouses Alfredo and Shirley Yap filed a Complaint for Injunction with
Prayer for Temporary Restraining Order and/or Preliminary Injunction with the RTC of Pasig City.
The case was docketed as Civil Case No. 67945 and was raffled to Branch 158 thereof. Petitioners
sought to stop the auction sale alleging that the properties covered by TCTs No. PT-66751, No. PT-
66749, No. 55469 and No. 45229 of the Registry of Deeds of Pasig City, TCT No. 36489 of the
Registry of Quezon City, and TCTs No. 4621 and No. 52987 of the Registry of Deeds of
Mandaluyong City, are already owned by them by virtue of Deeds of Absolute Sale6 executed by
Jimmy Go in their favor. They further alleged that respondent sheriff disregarded their right over the
properties despite their execution of an Affidavit of Adverse Claim to prove their claim over the
properties and the publication of a Notice to the Public warning that various deeds had already been
issued in their favor evidencing their right over the same.

A second Notice of Sheriff’s Sale dated 30 June 2000 was issued by Sheriff Flora scheduling a
public auction on 24 July 2000 for the afore-mentioned properties. The public auction did not happen
anew. Thereafter, a third Notice of Sheriff’s Sale dated 21 July 2000 scheduling a public auction on
22 August 2000 was issued.

On 21 August 2000, the RTC of Pasig City, Branch 158, issued an Order in Civil Case No. 67945
denying petitioners’ application for a writ of preliminary injunction.7

As scheduled, the public auction took place on 22 August 2000 for which respondent sheriff issued a
Certificate of Sale stating that the subject properties had been sold at public auction in favor of
respondent iBank, subject to the third-party claims of petitioners.8

Petitioners filed with the RTC of Pasig City the instant case for Annulment of Sheriff’s Auction Sale
Proceedings and Certificate of Sale against iBank, the Clerk of Court and Ex-Officio Sheriff of RTC
Makati City, and Sheriff Flora. The case was docketed as Civil Case No. 68088 and was raffled to
Branch 264. The Complaint was amended to include a prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction.9

Engracio M. Escariñas, Jr., Clerk of Court VII and Ex-Officio Sheriff of RTC Makati City, filed his
Answer while respondents iBank and Sheriff Flora filed an Omnibus Motion (Motion to Refer the
Complaint to the Office of the Clerk of Court for Raffle in the Presence of Adverse Party and Motion
to Dismiss) dated 17 October 2000.10

In an Order dated 20 February 2001, Hon. Leoncio M. Janolo, Jr. denied the Omnibus Motion for
lack of merit.11 Respondents iBank and Sheriff Flora filed a Motion for Reconsideration dated 26
February 2001.12

A hearing was held on the application for preliminary injunction. On 18 July 2001, an Order was
issued by Judge Janolo granting petitioners’ application for issuance of a writ of preliminary
injunction. The Order reads:

WHEREFORE, premises considered, plaintiffs’ application for issuance of a Writ of Preliminary

Injunction is GRANTED, and defendants and their representatives are enjoined from proceeding
further with the execution, including consolidating title and taking possession thereof, against
plaintiffs’ real properties covered by Transfer Certificates of Title Nos. PT-66751, PT-66749, 55469,
45229, 4621, 52987 and 36489.

The Writ of Preliminary Injunction shall be issued upon plaintiffs’ posting of a bond executed to
defendant in the amount of Three Million Pesos (₱3,000,000.00) to the effect that plaintiffs will pay
defendants all damages which the latter may sustain by reason of the injunction if it be ultimately
decided that the injunction is unwarranted.13

On 13 August 2001, upon posting a bond in the amount of three million pesos (₱3,000,000.00),
Judge Janolo issued the Writ of Preliminary Injunction.14

Respondents iBank and Sheriff Flora filed on 29 August 2001 a Motion for Reconsideration15 of the
order granting the Writ of Preliminary Injunction which the trial court denied in an Order dated 21
November 2001.16

With the denial of their Motion for Reconsideration, respondents iBank and Sheriff Flora filed with the
Court of Appeals a Petition for Certiorari, Prohibition and Mandamus with prayer for issuance of
Temporary Restraining Order and/or Preliminary Injunction17 praying that it: (a) issue immediately a
temporary restraining order enjoining Judge Janolo from taking any action or conducting any further
proceeding on the case; (b) annul the Orders dated 18 July 2001 and 21 November 2001; and (c)
order the immediate dismissal of Civil Case No. 68088.

In its decision dated 18 July 2003, the Court of Appeals dismissed the Petition.18 It explained that no
grave abuse of discretion was committed by Judge Janolo in promulgating the two Orders. It
emphasized that its ruling only pertains to the propriety or impropriety of the issuance of the
preliminary injunction and has no bearing on the main issues of the case which are still to be
resolved on the merits. The Very Urgent Motion for Reconsideration filed by respondents iBank and
Sheriff Flora was denied for lack of merit.19

Respondents iBank and Sheriff Flora thereafter filed with this Court a Petition for Certiorari which we
dismissed. The Court’s Resolution dated 7 March 2005 reads:

Considering the allegations, issues and arguments adduced in the petition for certiorari, the Court
Resolves to DISMISS the petition for being a wrong remedy under the Rules and evidently used as a
substitute for the lost remedy of appeal under Rule 45 of the 1997 Rules of Civil Procedure, as
amended. Besides, even if treated as a petition under Rule 65 of the said Rules, the same would be
dismissed for failure to sufficiently show that the questioned judgment is tainted with grave abuse of
discretion.20

Accordingly, an Entry of Judgment was issued by the Supreme Court certifying that the resolution
dismissing the case had become final and executory on 30 July 2005.21

Subsequently, respondents iBank and Sheriff Flora filed with the RTC of Pasig City, Branch 264, an
Omnibus Motion (To Resolve Motion to Dismiss Complaint and/or Dissolve Injunction) dated 31
January 2006 praying that their pending Motion for Reconsideration dated 26 February 2001 which
seeks for the dismissal of the case be resolved and/or the Writ of Preliminary Injunction previously
issued be dissolved.22

On 9 February 2006, petitioners filed their Comment thereon with Motion to Cite in Contempt the
counsel23 of respondents. They pray that the pending Motion for Reconsideration be denied for being
devoid of merit, and that the Motion to Dissolve Writ of Preliminary Injunction be also denied, it being
a clear defiance of the directive of the Supreme Court which ruled with finality that the injunction
issued by the trial court was providently issued and was not tainted with grave abuse of discretion.
They further ask that respondents’ counsel be cited in contempt of court and be meted out the
appropriate penalty.24 Respondents filed a Reply dated 20 February 2006.

In a Manifestation dated 24 March 2006, respondents iBank and Sheriff Flora submitted an Affidavit
of Merit to emphasize their resolve and willingness, among other things, to file a counter-bond to
cover whatever damages petitioners may suffer should the trial court decide to dissolve the writ of
preliminary injunction.25 Petitioners filed a Counter-Manifestation with Second Motion to Cite
Respondents’ Counsel in Direct Contempt of Court26 to which respondents filed an
Opposition.27 Petitioners filed a Reply thereto.28

In an Order29 dated 29 April 2006, the trial court recalled and dissolved the Writ of Preliminary
Injunction dated 13 August 2001, and ordered respondents to post a counter-bond amounting to ten
million pesos. It directed the Branch Clerk of Court to issue a Writ Dissolving Preliminary Injunction
upon the filing and approval of the required counter-bond. The dispositive portion of the Order reads:

WHEREFORE, this Court’s writ of preliminary injunction dated August 13, 2001 is recalled and
dissolved. Defendants are hereby ordered to post a counter-bond amounting to ten million pesos
(P10,000,000.00) to cover the damages plaintiffs would incur should a favorable judgment be
rendered them after trial on the merits.

The Branch Clerk of Court is directed to issue a Writ Dissolving Preliminary Injunction upon the filing
and approval of defendants’ counter-bond.30

The trial court explained its ruling in this wise:

In our jurisdiction, the provisions of Rule 58 of the Revised Rules of Court allow the issuance of
preliminary injunction. This court granted plaintiffs’ prayer preliminary injunction in the Order dated
July 18, 2001 and the corresponding writ issued on August 13, 2001.

Defendants in this case, however, are not without remedy to pray for dissolution of preliminary
injunction already granted because it is only interlocutory and not permanent in nature.

The provisions of Section 6, Rule 58 of the Revised Rules of Court allow dissolution of the injunction
granted provided there is affidavit of party or persons enjoined; an opportunity to oppose by the
other party; hearing on the issue, and filing of a bond to be fixed by the court sufficient to
compensate damages applicant may suffer by dissolution thereby.
A preliminary injunction is merely a provisional remedy, an adjunct to the main case subject to the
latter’s outcome. Its sole objective is to preserve the status quo until the trial court hears fully the
merits of the case. The status quo is the last actual, peaceable and uncontested situation which
precedes a controversy. The status quo should be that existing at the time of the filing of the case. A
preliminary injunction should not establish new relations between the parties, but merely maintain or
re-establish the pre-existing relationship between them. x x x.

When the complainant’s right or title is doubtful or disputed, he does not have a clear legal right and,
therefore, the issuance of injunctive relief is not proper and constitutes grave abuse of discretion. x x
x. In the case at bar, plaintiffs’ deed of sale was purported to be not duly notarized. As such, the
legal right of what the plaintiffs claim is still doubtful and such legal right can only be threshed out in
a full blown trial where they can clearly establish the right over the disputed properties.

Moreover, defendants are willing to post a counter bond which could cover up to the damages in
favor of plaintiffs in case the judgment turns out to be adverse to them. Under the Rules of Civil
Procedure, this is perfectly allowed and the dissolution of the writ of injunction can accordingly be
issued. In the case of Lasala vs. Fernandez, the highest court has enunciated that "a court has the
power to recall or modify a writ of preliminary injunction previously issued by it. The issuance or
recall of a preliminary writ of injunction is an interlocutory matter that remains at all times within the
control of the court." (G.R. No. L-16628, May 23, 1962). The defendants had shown that dissolution
of the writ of injunction is just and proper. It was duly shown that great and irreparable injury would
severely cause the defendants if the writ of injunction shall continue to exist.31

On 5 May 2006, petitioners filed a Petition for Certiorari before the Court of Appeals asking that the
trial court’s Order dated 29 April 2006 be set aside.32

During the pendency of the Petition for Certiorari, petitioners filed before the trial court a Very Urgent
Motion to Suspend Proceedings33 to which respondents filed a Comment.34

On 11 July 2006, the Court of Appeals resolved to dismiss outright the Petition for Certiorari for
failure of petitioners to file a motion for reconsideration of the Order dated 29 April 2006.35 The
Motion for Reconsideration36 filed by petitioners was denied.37

After being granted an extension of thirty days within which to file a petition for certiorari, petitioners
filed the instant Petition on 14 December 2006. They made the following assignment of errors:

THE HONORABLE PUBLIC RESPONDENT JUDGE LEONCIO M. JANOLO, JR. GRAVELY

ABUSED HIS DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION IN
DISSOLVING THE WRIT OF PRELIMINARY INJUNCTION DATED 13 AUGUST 2001.

1. DESPITE THE FACT THAT THE COURT OF APPEALS RESOLVED WITH FINALITY
THAT YOUR PERITIONERS WILL "SUFFER IRREPARABLE INJURY" (C.A.’s emphasis) IF
NO INJUNCTION IS ISSUED.

2. DESPITE THE FACT THAT THE HON. SUPREME COURT RULED WITH FINALITY
THAT THE COURT A QUO DID NOT ABUSE ITS JURISDICTION WHEN IT ISSUED THE
INJUNCTION DATED 13 AUGUST 2001, THUS, SUSTAINING THE REGULARITY OF THE
WRIT OF PRELIMINARY INJUNCTION.

II

THE HONORABLE PUBLIC RESPONDENT JUDGE LEONCIO M. JANOLO, JR. GRAVELY

ABUSED HIS DISCRETION TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION BY FIXING
THE PHP10,000,000.00 COUNTER-BOND DESPITE THE FACT THAT THE IRREPARABLE
DAMAGE TO PETITIONERS AS A RESULT OF DISSOLVING THE WRIT OF PRELIMINARY
INJUNCTION IS INCAPABLE OF PECUNIARY ESTIMATION OR COULD NOT BE QUANTIFIED.

III

THE HONORABLE COURT OF APPEALS ERRED AND GRAVELY ABUSED ITS DISCRETION IN
OUTRIGHTLY DISMISSING YOUR PETITIONERS PETITION FOR CERTIORARI IN CA-GR SP
NO. 95074, AS IT FAILED TO APPLY EXISTING JURISPRUDENCE TO THE EFFECT THAT A
MOTION FOR RECONSIDERATION MAY BE DISPENSED WITH WHERE THE CONTROVERTED
ACT IS PATENTLY ILLEGAL OR WAS PERFORMED WITHOUT JURISDICTION OR IN EXCESS
OF JURISDICTION AS HELD IN HAMILTON VS. LEVY, (344 SCRA 821)

IV

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED AND GRAVELY ABUSED ITS
DISCRETION WHEN IT DENIED PETITIONERS’ MOTION FOR RECONSIDERATION CLEARLY
POINTING OUT TO THE COURT THAT AS AN EXCEPTION TO THE RULE, THE REQUIRED
MOTION FOR RECONSIDERATION MAY BE DISPENSED WITH.

At the outset, it must be said that the Writ of Preliminary Injunction dated 13 August 2001 issued by
the trial court has not yet been actually dissolved because respondents have not posted the required
counter-bond in the amount of ₱10,000,000.00. The dissolution thereof is primed on the filing of the
counter-bond.

Petitioners argue that the trial court abused its discretion when it ordered the dissolution of the Writ
of Preliminary Injunction, the propriety of its issuance having been affirmed by both the Court of
Appeals and the Supreme Court. There being an Order by this Court that the injunction issued by
the trial court was not tainted with grave abuse of discretion, the dissolution of said writ is a clear
defiance of this Court’s directive.

Respondents, on the other hand, contend that the trial court has the authority and prerogative to set
aside the Writ of Preliminary Injunction. They add that since petitioners’ Deed of Sale was not duly
notarized, the latter’s application for preliminary injunction is devoid of factual and legal bases. They
assert that, not being public documents, the subject deeds of sale are nothing but spurious, if not
falsified, documents. They add that the continuance of the Writ of Preliminary Injunction would cause
them irreparable damage because it continues to incur damage not only for the nonpayment of the
judgment award (in Civil Case No. 98-791 before the RTC of Makati City, Br. 150), but also for
opportunity losses resulting from the continued denial of its right to consolidate title over the levied
properties.

There is no dispute that both the Court of Appeals and this Court have ruled that the issuance of the
Writ of Preliminary Injunction by the trial court was not tainted with grave abuse of discretion.
Respondents tried to undo the issuance of said writ but to no avail. The Resolution on the matter
attained finality on 30 July 2005 and an entry of judgment was made.

This, notwithstanding, respondents filed with the RTC of Pasig City, Branch 264, an Omnibus Motion
(To Resolve Motion to Dismiss Complaint and/or Dissolve Injunction) dated 31 January 2006 praying
that their Motion for Reconsideration dated 26 February 2001 of the trial court’s denial of their Motion
to Dismiss which the trial court failed to resolve, be resolved and/or the Writ of Preliminary Injunction
previously issued be dissolved. With this Omnibus Motion, the trial court issued the Order dated 13
August 2001 recalling and dissolving the Writ of Preliminary Injunction conditioned on the filing of a
₱10,000,000.00 counter-bond.

The question is: Under the circumstances obtaining in this case, may the trial court recall and
dissolve the preliminary injunction it issued despite the rulings of the Court of Appeals and by this
Court that its issuance was not tainted with grave abuse of discretion?

We hold that the trial court may still order the dissolution of the preliminary injunction it previously
issued. We do not agree with petitioners’ argument that the trial court may no longer dissolve the
1avv phi 1

preliminary injunction because this Court previously ruled that its issuance was not tainted with
grave abuse of discretion.

The issuance of a preliminary injunction is different from its dissolution. Its issuance is governed by
Section 3,38 Rule 58 of the 1997 Rules of Civil Procedure while the grounds for its dissolution are
contained in Section 6, Rule 58 of the 1997 Rules of Civil Procedure. As long as the party seeking
the dissolution of the preliminary injunction can prove the presence of any of the grounds for its
dissolution, same may be dissolved notwithstanding that this Court previously ruled that its issuance
was not tainted with grave abuse of discretion.

Section 6 of Rule 58 reads:

Section 6. Grounds for objection to, or for motion of dissolution of, injunction or restraining order. –
The application for injunction or restraining order may be denied, upon a showing of its insufficiency.
The injunction or restraining order may also be denied, or, if granted, may be dissolved, on other
grounds upon affidavits of the party or person enjoined, which may be opposed by the applicant also
by affidavits. It may further be denied, or, if granted, may be dissolved, if it appears after hearing that
although the applicant is entitled to the injunction or restraining order, the issuance or continuance
thereof, as the case may be, would cause irreparable damage to the party or person enjoined while
the applicant can be fully compensated for such damages as he may suffer, and the former files a
bond in an amount fixed by the court conditioned that he will pay all damages which the applicant
may suffer by the denial or the dissolution of the injunction or restraining order. If it appears that the
extent of the preliminary injunction or restraining order granted is too great, it may be modified.

Under the afore-quoted section, a preliminary injunction may be dissolved if it appears after hearing
that although the applicant is entitled to the injunction or restraining order, the issuance or
continuance thereof, as the case may be, would cause irreparable damage to the party or person
enjoined while the applicant can be fully compensated for such damages as he may suffer, and the
former files a bond in an amount fixed by the court on condition that he will pay all damages which
the applicant may suffer by the denial or the dissolution of the injunction or restraining order. Two
conditions must concur: first, the court in the exercise of its discretion, finds that the continuance of
the injunction would cause great damage to the defendant, while the plaintiff can be fully
compensated for such damages as he may suffer; second, the defendant files a counter-bond.39 The
Order of the trial court dated 29 April 2006 is based on this ground.

In the case at bar, the trial court, after hearing, found that respondents duly showed that they would
suffer great and irreparable injury if the injunction shall continue to exist. As to the second condition,
the trial court likewise found that respondents were willing to post a counter-bond which could cover
the damages that petitioners may suffer in case the judgment turns out to be adverse to them. The
Order of the trial court to recall and dissolve the preliminary injunction is subject to the filing and
approval of the counter-bond that it ordered. Failure to post the required counter-bond will
necessarily lead to the non-dissolution of the preliminary injunction. The Order of Dissolution cannot
be implemented until and unless the required counter-bond has been posted.

The well-known rule is that the matter of issuance of a writ of preliminary injunction is addressed to
the sound judicial discretion of the trial court, and its action shall not be disturbed on appeal unless it
is demonstrated that it acted without jurisdiction or in excess of jurisdiction or, otherwise, in grave
abuse of discretion. By the same token, the court that issued such a preliminary relief may recall or
dissolve the writ as the circumstances may warrant.40 In the case on hand, the trial court issued the
order of dissolution on a ground provided for by the Rules of Court. The same being in accordance
with the rules, we find no reason to disturb the same.

Petitioners contend that the Court of Appeals erred and gravely abused its discretion when it
dismissed outright their Petition for Certiorari by failing to apply existing jurisprudence that a motion
for reconsideration may be dispensed with where the controverted act is patently illegal or was
performed without jurisdiction or in excess of jurisdiction. On the other hand, respondents urge the
Court to deny the Petition for Review, arguing that the Court of Appeals properly applied the general
rule that the filing of a motion for reconsideration is a condition sine qua non in order
that certiorari will lie.

We find petitioners’ contention to be untenable.

The rule is well settled that the filing of a motion for reconsideration is an indispensable condition to
the filing of a special civil action for certiorari.41 It must be stressed that a petition for certiorari is an
extraordinary remedy and should be filed only as a last resort. The filing of a motion for
reconsideration is intended to afford the trial court an opportunity to correct any actual error
attributed to it by way of re-examination of the legal and factual issues.42 By their failure to file a
motion for reconsideration, they deprived the trial court of the opportunity to rectify any error it
committed, if there was any.

Moreover, a perusal of petitioners’ petition for certiorari filed with the Court of Appeals shows that
they filed the same because there was no appeal, or any plain, speedy and adequate remedy in the
course of law except via a petition for certiorari. When same was dismissed by the Court of Appeals
for failure to file a motion for reconsideration of the trial court’s Order, they argue that while the filing
of a motion for reconsideration is a sine qua non before a petition for certiorari is instituted, the same
is not entirely without exception like where the controverted act is patently illegal or was performed
without jurisdiction or in excess of jurisdiction. It was only when the Court of Appeals dismissed their
Petition did they argue that exceptions to the general rule should apply. Their invocation of the
application of the exceptions was belatedly made. The application of the exceptions should be raised
in their Petition for Certiorari and not when their Petition has already been dismissed. They must
give their reasons and explain fully why their case falls under any of the exceptions. This, petitioners
failed to do.

Petitioners’ argument that they filed the Petition for Certiorari without filing a motion for
reconsideration because there is no appeal, or any plain, speedy and adequate remedy in the
course of law except via a Petition for Certiorari does not convince. We have held that the "plain"
and "adequate remedy" referred to in Section 1, Rule 65 of the Rules of Court is a motion for
reconsideration of the assailed Order or Resolution.43 The mere allegation that there is "no appeal, or
any plain, speedy and adequate remedy" is not one of the exceptions to the rule that a motion for
reconsideration is a sine qua non before a petition for certiorari may be filed.

All told, we hold that the act of the trial court of issuing the Order dated 29 April 2006 was not
patently illegal or performed without or in excess of jurisdiction. The Court of Appeals was correct in
dismissing outright petitioners’ Petition for Certiorari for failing to file a motion for reconsideration of
the trial court’s Order.

Our pronouncements in this case are confined only to the issue of the dissolution of the preliminary
injunction and will not apply to the merits of the case.

WHEREFORE, all considered, the Petition is hereby DENIED. The Resolutions of the Court of
Appeals in CA-GR SP No. 95074 dated 11 July 2006 and 9 October 2006 are AFFIRMED. The
Order dated 29 April 2006 of Branch 264 of the Regional Trial Court (RTC) of Pasig City in Civil
Case No. 68088 recalling and dissolving the Writ of Preliminary Injunction dated 13 August 2001 is
AFFIRMED. Upon the posting by respondents of the counter-bond required, the trial court is directed
to issue the Writ Dissolving Preliminary Injunction. No costs.

SO ORDERED

G.R. No. 164459 April 24, 2007

LIMITLESS POTENTIALS, INC., Petitioner,

vs.
HON. COURT OF APPEALS, CRISOSTOMO YALUNG, and ATTY. ROY MANUEL
VILLASOR, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure seeking to annul and set aside: (1) The Decision,1 dated 16 September 2003, of the
Court of Appeals in CA-G.R. SP No. 73463 entitled, Limitless Potentials, Inc. vs. Hon. Manuel D.
Victorio, in his capacity as the Presiding Judge of the Regional Trial Court of Makati City, Branch
141, Crisostomo Yalung, and Atty. Roy Manuel Villasor, which dismissed herein petitioner’s Petition
for Certiorari under Rule 65 of the 1997 Revised Rules of Civil Procedure for lack of merit, and (2)
The Resolution,2 dated 8 July 2004, of the appellate court in the same case which denied petitioner’s
Motion for Reconsideration because the issues and arguments raised therein had already been
passed upon and judiciously resolved in the Decision dated 16 September 2003.

The controversy of this case stemmed from the following facts:

On 12 October 1995, Digital Networks Communications and Computers, Inc. (Digital) and herein
petitioner Limitless Potentials, Inc. (LPI), a domestic corporation duly organized and existing under
Philippine laws, entered into a Billboard Advertisement Contract whereby petitioner was to construct
one billboard advertisement for Digital’s product for a period of one year, with an agreed rental of
₱60,000.00 per month plus Value Added Tax (VAT). It was agreed, among other things, that Digital
will make a three-month deposit in the following manner, to wit: (a) ₱60,000.00 plus VAT upon the
signing of the contract, and (b) ₱120,000.00 plus VAT upon completion of the billboard. Digital
complied with the aforesaid agreement.

The billboard, however, was destroyed by unknown persons. In view thereof, the contract between
Digital and the petitioner was considered terminated. Digital demanded for the return of their rental
deposit for two months, but the petitioner refused to do so claiming that the loss of the billboard was
due to force majeure and that any cause of action should be directed against the responsible
persons. Thus, on 18 April 1997, Digital commenced a suit against herein petitioner before the
Metropolitan Trial Court (MeTC) of Makati City, Branch 66, presided over by then Judge Estela
Perlas-Bernabe (Judge Perlas-Bernabe)3 , for the return of Digital’s deposit, which was equivalent to
two months rental inclusive of VAT and attorney’s fees. The case was docketed as Civil Case No.
55170.

On 18 June 1997, consistent with its defense against Digital’s Complaint, petitioner filed a Third–
Party Complaint4 against Macgraphics Carranz International Corporation (Macgraphics) and herein
private respondents Bishop Crisostomo Yalung (Bishop Yalung) and Atty. Roy Manuel Villasor (Atty.
Villasor) alleging that it had entered into a contract of lease with Roman Catholic Archbishop of
Manila (RCAM), as represented by the private respondents, over a space inside San Carlos Manor
Seminary in Guadalupe Viejo, Makati City, where petitioner erected the subject billboard. Petitioner
further averred that despite its full compliance with the terms and conditions of the lease contract,
herein private respondents, together with their cohorts, maliciously dismantled and destroyed the
subject billboard and prevented its men from reconstructing it. Thereafter, petitioner learned that
Macgraphics had "cajoled and induced" RCAM, through the private respondents, to destroy the
subject billboard to enable Macgraphics to erect its own billboard and advertising signs. Thus, by
way of affirmative defenses, petitioner claimed that: (a) the destruction of the subject billboard was
not of its own making and beyond its control, and (b) Digital’s cause of action, if any, should be
directed against the private respondents and Macgraphics. Hence, petitioner prayed that judgment
be rendered in its favor and to hold private respondents liable for the following: (a) moral damages in
the amount of ₱1,000,000.00; (b) exemplary, temperate and nominal damages amounting to
₱300,000.00; (c) ₱300,000.00 as attorney’s fees; (d) ₱50,000.00 as litigation expenses; and (e)
costs of suit, allegedly suffered or incurred by it because of the willful destruction of the billboard by
the private respondents.

In response, private respondents filed a Motion to Dismiss the aforesaid Third-Party Complaint
based on the following grounds: (1) litis pendentia; (2) lack of cause of action; (3) forum shopping;
and (4) lack of privity of contract. The MeTC, in an Order dated 25 August 1997,5 denied the said
Motion to Dismiss. Petitioner filed an Amended Third-Party Complaint. Again, private respondents
filed a Motion to Dismiss Amended Third-Party Complaint. However, the MeTC also denied the
Motion to Dismiss Amended Third-Party Complaint in an Order dated 10 October 1997.6

On 9 December 1997, private respondents filed a Petition for Certiorari with Prayer for Preliminary
Restraining Order and/or Writ of Preliminary Injunction before the Regional Trial Court (RTC) of
Makati City, assailing the Orders dated 25 August 1997 and 10 October 1997 of the MeTC of Makati
City denying their Motion to Dismiss Third-Party Complaint and Motion to Dismiss Amended Third-
Party Complaint, respectively, in Civil Case No. 55170.

The RTC issued an Order on 6 February 1998,7 granting private respondents’ prayer for a writ of
preliminary injunction, conditioned upon the posting of an injunction bond in the amount of
₱10,000.00. Thus, the MeTC was enjoined from hearing the Third-Party Complaint in Civil Case No.
55170. The pertinent portion of the aforesaid Order reads, as follows:

When the application for temporary restraining order and/or preliminary injunction was heard this
afternoon, [herein petitioner] who did not file comment on the petition appeared thru counsel
Emmanuel Magnaye. It was brought out to the attention of this Court that respondent judge is poised
on pursuing the hearing of the case before her despite the pendency of this petition. It appeared that
the case was set by respondent judge for hearing ex-parte for the reception of [herein petitioner’s]
evidence on 23 February 1998. It also appeared that [herein private respondents] were declared in
default despite the fact that they have filed their answer and the motion to lift such order of default
and for admission of the answer was denied by respondent judge.
Upon consideration of the allegations in the petition and the oral manifestations and admissions of
both parties, this Court hereby resolves to issue the writ of preliminary injunction in order to preserve
the status quo as well as not to render the issue herein raised moot and academic.

WHEREFORE, the motion for preliminary injunction is granted. Accordingly, upon the filing by
[herein private respondents] of a bond in the amount of P10,000.00, let a writ of preliminary
injunction be issued, enjoining respondent judge, or her successor, from hearing the [T]hird [P]arty
[C]omplaint against [herein private respondents] in Civil Case No. 55170 until further orders from this
Court.8

Subsequently, however, the RTC rendered a Decision9 on 28 April 2000, dismissing the Petition for
Certiorari filed by private respondents, the dispositive portion of which reads:

WHEREFORE, the petition is hereby dismissed for lack of merit. The preliminary injunction issued
by this Court on 6 February 200010 (sic) is hereby dissolved.

Costs against [herein private respondents].11

Disgruntled, private respondents filed an Urgent Motion for Reconsideration, which was denied by
the RTC in its Order12 dated 26 June 2000.

Petitioner filed its Motion for Judgment Against the Bond, and in compliance with the directive of the
RTC, the petitioner filed a pleading13 specifying its claims, thus: (a) attorney’s fees in the sum of ₱74,
375.00; and (b) moral damages for the tarnished good will in the sum of ₱1,000,000.00.

The RTC, in its Order dated 3 April 2002,14 denied petitioner’s Motion for Judgment Against the Bond
declaring that the preliminary injunction was not wrongfully obtained; therefore, the claim for
damages on the bond is untenable.

Aggrieved, the petitioner moved for the reconsideration of the aforesaid Order, which was also
denied by the RTC in its Order dated 6 August 2002.15

Dissatisfied, the petitioner filed a Petition for Certiorari under Rule 65 of the Revised Rules of Civil
Procedure before the Court of Appeals assailing the Orders of the RTC dated 3 April 2002 and 6
August 2002 for having been issued with grave abuse of discretion amounting to lack and/or excess
of jurisdiction.

On 6 November 2002, the Court of Appeals issued a Resolution16 dismissing the Petition for failure
to show proof that a certain Quirino B. Baterna has been duly authorized by the petitioner to file the
Petition for and in its behalf. Petitioner moved for the reconsideration of the aforesaid Resolution,
which was granted by the appellate court in its Resolution dated 24 January 200317 thereby
reinstating the Petition for Certiorari filed by the petitioner.

On 16 September 2003, the Court of Appeals rendered a Decision dismissing the Petition filed by
the petitioner for utter lack of merit. The petitioner filed a Motion for Reconsideration based on the
following grounds:

I. The dismissal of the petition and dissolution of the injunction amount to a determination
that the injunction was wrongfully or improvidently obtained.

II. The petitioner suffered damages by reason of the issuance of the injunction.

III. The damages claimed by the petitioner are covered by the injunction bond.

The Court of Appeals through a Resolution dated 8 July 2004, denied the petitioner’s Motion for
Reconsideration.

Hence, this Petition.

Petitioner pointed out two basic legal issues wherein the appellate court committed serious and
reversible errors, to wit:
 I. Is malice or bad faith a condition sine qua non for liability to attach on the injunction bond?

II. Are attorney’s fees, litigation costs, and cost of delay by reason of the injunction covered
by the injunction bond?

Petitioner argues that malice or lack of good faith is not an element of recovery on the bond. The
dissolution of the injunction, even if the injunction was obtained in good faith, amounts to a
determination that the injunction was wrongfully obtained and a right of action on the injunction
immediately accrues to the defendant. The petitioner maintains that the attorney’s fees, litigation
costs, and cost of delay by reason of the injunction are proper and valid items of damages which can
be claimed against the injunction bond. Hence, having proven through testimonial and documentary
evidence that it suffered damages because of the issuance of the writ of injunction, and since malice
or lack of good faith is not an element of recovery on the injunction bond, petitioner asserts that it
can properly collect such damages on the said bond.

Private respondent Bishop Yalung on the other hand, prays for the outright dismissal of the present
Petition due to the alleged failure of the petitioner to comply with the mandatory rule on proper
certification on non-forum shopping under Section 5, Rule 7 of the 1997 Revised Rules of Civil
Procedure. According to him, it is not sufficient for Mr. Baterna to make the undertaking that "I have
not commenced any other action or proceeding involving the same issue in the Supreme Court, etc."
inasmuch as such undertaking should have been made by the principal party, namely, the petitioner.
He underscores that the verification/disclaimer of forum shopping executed by Mr. Baterna on behalf
of the petitioner is legally defective for failure to enumerate with particularity the multiple civil and
criminal actions, which were filed by him and the petitioner against the private respondents.

Private respondent Bishop Yalung also avers that the petitioner is not entitled to collect damages on
the injunction bond filed before the court a quo. Primarily, as the appellate court mentioned in its
Decision, the preliminary injunction was directed not against the petitioner but against the MeTC.
The petitioner was not restrained from doing any act. What was restrained was the hearing of the
Third-Party Complaint while the Petition for Certiorari was pending, "in order to preserve the status
quo and not to render the issue therein moot and academic."18 Also, the fact that the decision is
favorable to the party against whom the injunction was issued does not automatically entitle the
latter to recover damages on the bond. Therefore, the petitioner cannot claim that it suffered
damages because of the issuance of the writ of injunction.

Private respondent Atty. Villasor shares the same argument as that of his co-respondent Bishop
Yalung that it was the MeTC which was enjoined and not herein petitioner. Private respondent Atty.
Villasor further alleged that in the Special Civil Action for Certiorari, the action is principally against
any tribunal, board, or officer exercising judicial or quasi-judicial functions who has acted without or
in excess of jurisdiction or with grave abuse of discretion. Thus, private respondents’ Petition for
Certiorari before the RTC principally pertains to the MeTC and not to herein petitioner. Additionally,
private respondent Atty. Villasor argues that it was petitioner who was benefited by such writ of
preliminary injunction, because the injunction left Digital unable to prosecute Civil Case No. 55170
against herein petitioner. Lastly, private respondent Atty. Villasor claims that petitioner did not
oppose their application for a writ of preliminary injunction at the hearing wherein petitioner was duly
represented by counsel.

Simply stated, the threshold issues are:

I. Can petitioner recover damages from the injunction bond?

II. Was petitioner able to substantiate the damages?

Quite apart from the above, there appears to be another question concerning the alleged violation by
the petitioner of the mandatory rule on proper certification on non-forum shopping.

In the case at bar, petitioner repeatedly argues that malice or lack of good faith is not an element of
recovery on the injunction bond. In answering this issue raised by petitioner, this Court must initially
establish the nature of the preliminary injunction, the purpose of the injunction bond, as well as the
manner of recovering damages on the said bond.

A preliminary injunction is a provisional remedy that a party may resort to in order to preserve and
protect certain rights and interests during the pendency of an action.19 It is an order granted at any
stage of an action, prior to the judgment or final order, requiring a party, court, agency or person to
perform or to refrain from performing a particular act or acts. A preliminary injunction, as the term
itself suggests, is merely temporary, subject to the final disposition of the principal action.20 It is
issued to preserve the status quo ante, which is the last actual, peaceful, and uncontested status
that preceded the actual controversy,21 in order to protect the rights of the plaintiff during the
pendency of the suit. Otherwise, if no preliminary injunction is issued, the defendant may, before
final judgment, do the act which the plaintiff is seeking the court to restrain. This will make ineffectual
the final judgment that the court may afterwards render in granting relief to the plaintiff.22 The status
quo should be existing ante litem motam, or at the time of the filing of the case. For this reason, a
preliminary injunction should not establish new relations between the parties, but merely maintain or
re-establish the pre-existing relationship between them.23

The purpose of a preliminary injunction is to prevent threatened or continuous irremediable injury to

some of the parties before their claims can be thoroughly studied and adjudicated. Thus, to be
entitled to an injunctive writ, the petitioner has the burden to establish the following requisites:

(1) a right in esse or a clear and unmistakable right to be protected;

(2) a violation of that right;

(3) that there is an urgent and permanent act and urgent necessity for the writ to prevent
serious damage.24

A preliminary injunction or temporary restraining order may be granted only when, among other
things, the applicant, not explicitly exempted, files with the court, where the action or proceeding is
pending, a bond executed to the party or person enjoined, in an amount to be fixed by the court, to
the effect that the applicant will pay such party or person all damages which he may sustain by
reason of the injunction or temporary restraining order if the court should finally decide that the
applicant was not entitled thereto. Upon approval of the requisite bond, a writ of preliminary
injunction shall be issued.25 Thus, the posting of a bond is a condition sine qua non for a writ of
preliminary injunction to be issued.

The injunction bond is intended as a security for damages in case it is finally decided that the
injunction ought not to have been granted. Its principal purpose is to protect the enjoined party
against loss or damage by reason of the injunction,26 and the bond is usually conditioned
accordingly.

The damages sustained as a result of a wrongfully obtained injunction may be recovered upon the
injunction bond which is required to be deposited with court.27 Rule 57, Section 20, of the 1997
Revised Rules of Civil Procedure, which is similarly applicable to preliminary injunction,28 has
outlined the procedure for the filing of a claim for damages against an injunction bond. The aforesaid
provision of law pertinently provides:

SEC. 20. Claim for damages on account of improper, irregular or excessive attachment. - An
application for damages on account of improper, irregular or excessive attachment must be filed
before the trial or before appeal is perfected or before the judgment becomes executory, with due
notice to the attaching party and his surety or sureties, setting forth the facts showing his right to
damages and the amount thereof. Such damages may be awarded only after proper hearing and
shall be included in the judgment on the main case.

If the judgment of the appellate court be favorable to the party against whom the attachment was
issued, he must claim damages sustained during the pendency of the appeal by filing an application
in the appellate court, with notice to the party in whose favor the attachment was issued or his surety
or sureties, before the judgment of the appellate court becomes executory. The appellate court may
allow the application to be heard and decided by the trial court.

Nothing herein contained shall prevent the party against whom the attachment was issued from
recovering in the same action the damages awarded to him from any property of the attaching party
not exempt from execution should the bond or deposit given by the latter be insufficient or fail to fully
satisfy the award.29

Now, it can be clearly gleaned that there is nothing from the aforequoted provision of law which
requires an enjoined party, who suffered damages by reason of the issuance of a writ of injunction,
to prove malice or lack of good faith in the issuance thereof before he can recover damages against
the injunction bond. This Court was very succinct in the case of Aquino v. Socorro,30 citing the case
of Pacis v. Commission on Elections,31 thus:

Malice or lack of good faith is not an element of recovery on the bond. This must be so, because to
require malice as a prerequisite would make the filing of a bond a useless formality. The dissolution
of the injunction, even if the injunction was obtained in good faith, amounts to a determination that
the injunction was wrongfully obtained and a right of action on the injunction bond immediately
accrues. Thus, for the purpose of recovery upon the injunction bond, the dissolution of the injunction
because of petitioner’s main cause of action provides the actionable wrong for the purpose of
recovery upon the bond.

We, therefore, agree with the petitioner that indeed, malice or lack of good faith is not a condition
sine qua non for liability to attach on the injunction bond.

With respect to the issue raised by the petitioner regarding the coverage of the injunction bond, this
Court finds it necessary to quote once again the provision of Section 4(b), Rule 58 of the 1997
Revised Rules of Civil Procedure, to wit:

Unless exempted by the court, the applicant files with the court where the action or proceeding is
pending, a bond executed to the party or person enjoined, in an amount to be fixed by the court, to
the effect that the applicant will pay to such party or person all damages which he may sustain by
reason of the injunction or temporary restraining order if the court should finally decide that the
applicant was not entitled thereto. Upon approval of the requisite bond, a writ of preliminary
injunction shall be issued.

The aforesaid provision of law clearly provides that the injunction bond is answerable for all
damages. The bond insures with all practicable certainty that the defendant may sustain no ultimate
loss in the event that the injunction could finally be dissolved.32 Consequently, the bond may obligate
the bondsmen to account to the defendant in the injunction suit for all damages, or costs and
reasonable counsel’s fees, incurred or sustained by the latter in case it is determined that the
injunction was wrongfully issued.33 Likewise, the posting of a bond in connection with a preliminary
injunction does not operate to relieve the party obtaining an injunction from any and all responsibility
for damages that the writ may thereby cause. It merely gives additional protection to the party
against whom the injunction is directed. It gives the latter a right of recourse against either the
applicant or his surety or against both.34

The contention of the petitioner, thus, is tenable. Attorney’s fees, litigation costs, and costs of delay
can be recovered from the injunction bond as long as it can be shown that said expenses were
sustained by the party seeking recovery by reason of the writ of preliminary injunction, which was
later on determined as not to have been validly issued and that the party who applied for the said
writ was not entitled thereto. The case of Aquino v. Socorro,35 citing the case of Pacis v. Commission
on Elections,36 holds that the dissolution of the injunction, even if the injunction was obtained in good
faith, amounts to a determination that the injunction was wrongfully obtained and a right of action on
the injunction bond immediately accrues. It is also erroneous for the appellate court to rule that
petitioner is not entitled to claim damages from the injunction bond simply because the preliminary
injunction was directed against the MeTC and not against the petitioner. The MeTC does not stand
to suffer damages from the injunction because it has no interest or stake in the Petition pending
before it. Damage or loss is suffered by the party whose right to pursue its case is suspended or
delayed, which in this case, is the petitioner. Upon issuance of the writ of injunction, it is the
petitioner who will stand to suffer damages for the delay in the principal case because, had it not
been for the injunction, the petitioner would not have incurred additional expenses for attending the
separate hearings on the injunction, and the RTC can already decide the main case and make a
prompt determination of the respective rights of the parties therein. Hence, even if the preliminary
injunction was directed against the MeTC and not against the petitioner, it is the latter which has the
right to recover from the injunction bond the damages which it might have suffered by reason of the
said injunction.

As to the second main issue in the present case, although we do recognize that the petitioner had a
right to recover damages from the injunction bond, however, we agree in the findings of the Court of
Appeals, which affirmed the findings of the RTC, that the petitioner did not sustain any damage by
reason of the issuance of the writ of injunction. In the petitioner’s Motion for Judgment Against the
Bond,37 petitioner stated therein, thus:
5. There can be no serious debate that the issuance of the Writ of Preliminary injunction, all at the
instance of [herein private respondents], resulted in actual and pecuniary damages on the part of
[herein petitioner] in the amount more than the value of the bond posted by [private respondents].
The attorney’s fees for expenses in litigation alone expended by [petitioner] to defend itself in this
proceedings, not to mention other pecuniary damages, amounts to P10,000.00.38

In the case at bar, petitioner is claiming attorney’s fees in the sum of ₱74,375.00 it allegedly paid to
defend itself in the main case for certiorari, which it would not have spent had the private
respondents not filed their nuisance Petition and secured a writ of preliminary injunction. Likewise,
by reason of the unfounded suit, the good will of the petitioner was brought to bad light, hence,
damaged.39 It is noteworthy to mention that the undertaking of the injunction bond is that it shall
answer for all damages which the party to be restrained may sustain by reason of the injunction if
the court should finally decide that the plaintiff was not entitled thereto. Apparently, as the appellate
court pointed out in its Decision dated 16 September 2003, the damages being claimed by the
petitioner were not by reason of the injunction but the litigation expenses it incurred in defending
itself in the main case for certiorari, which is definitely not within the coverage of the injunction bond.
Thus, this Court is not convinced that the attorney’s fees in the amount of ₱74,375.00 as well as the
moral damages for the tarnished good will in the sum of ₱1,000,000.00 were suffered by the
petitioner because of the issuance of the writ of injunction.

Furthermore, this Court will not delve into the sufficiency of evidence as to the existence and amount
of damages suffered by petitioner for it is already a question of fact. It is settled that the factual
findings of the trial court, particularly when affirmed by the Court of Appeals, are binding on the
Supreme Court.40 Although this rule is subject to exceptions,41 the present case does not fall into any
of those exceptions which would have allowed this Court to make its own determination of facts. This
Court upholds the factual findings of both the RTC and the Court of Appeals that there is insufficient
evidence to establish that petitioner actually suffered damages because of the preliminary injunction
issued by the RTC.

Now, on the matter of proper certification on non-forum shopping.

The requirement of a Certification on Non-Forum Shopping is contained in Rule 7, Section 5, of the

1997 Revised Rules of Civil Procedure, which states that:

The plaintiff or principal party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and simultaneously filed
therewith: (a) that he has not theretofore commenced any action or filed any claim involving the
same issues in any court, tribunal or quasi-judicial agency and, to the best of his knowledge, no such
other action or claim is pending therein; (b) if there is such other pending action or claim, a complete
statement of the present status thereof; and (c) if he should thereafter learn that the same or similar
action or claim has been filed or is pending, he shall report that fact within five (5) days therefrom to
the court wherein his aforesaid complaint or initiatory pleading has been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing. The submission of a false
certification or non-compliance with any of the undertakings therein shall constitute indirect contempt
of court without prejudice to the corresponding administrative and criminal actions. If the acts of the
party or his counsel clearly constitute willful and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall constitute direct contempt, as well as a cause
for administrative sanctions.

Private respondent Bishop Yalung might have overlooked the Secretary’s Certificate42 attached to
the petitioner’s Petition for Review, which authorized Mr. Baterna, President of herein petitioner LPI,
to represent the latter in this case. According to the Secretary’s Certificate, the Board of Directors of
petitioner LPI, at a special meeting held on 12 August 2004 at its office at No. 812 J.P. Rizal St.,
Makati City, during which there was a quorum, the following resolutions were approved, to wit:

RESOLVED, AS IT IS HEREBY RESOLVED, that the corporation reiterates the authority of its
President, Mr. Quirino B. Baterna, to represent the corporation in all cases by and/or against the
corporation vis-à-vis the Roman Catholic Archbishop of Manila/Crisostomo Yalung, Roy
Villasor/Digital Netwrok (sic) Communications and Computers, Inc., and/or MacGraphics Carranz
International Corporation, to file a Petition for Review on Certiorari with the Supreme Court docketed
as G.R. No. 164459 to assert/protect LPI’s rights and interests in connection with C.A.-G.R. No.
73463, entitled "Limitless Potentials, Inc., vs. Hon. Manuel Victorio, et al.," Honorable Court of
Appeals, Manila.

RESOLVED FURTHERMORE, that any and all acts of our President, concerning the above-
referenced subject matter are hereby affirmed, confirmed and ratified by the corporation for all legal
intents and purposes.43

Private respondent Bishop Yalung further argued that Mr. Baterna failed to enumerate in the
Certification against Forum Shopping the multiple cases filed by him and the petitioner against
private respondents. This is also erroneous.

Forum shopping consists of filing multiple suits involving the same parties for the same cause of
action, either simultaneously or successively, for the purpose of obtaining a favorable judgment.44 It
exists where the elements of litis pendentia45 are present or where a final judgment in one case will
amount to res judicata in another.46 It may be resorted to by a party against whom an adverse
judgment or order has been issued in one forum, in an attempt to seek a favorable opinion in
another, other than by an appeal or a special civil action for certiorari.47

As the RTC correctly found, there was no violation of the rule against forum shopping. The cause of
action in petitioner’s case for consignation and damages docketed as Civil Case No. 95-1559,48 is
different from the cause of action in its Third-Party Complaint in Civil Case No. 55170. The damages
sought in the first case were those suffered by petitioner by reason of the alleged breach of the
contract of lease by the RCAM; whereas the damages sought in the Third-Party Complaint were
those allegedly suffered by petitioner owing to the destruction of its billboard by the private
respondents, thereby terminating the Billboard Advertisement Contract between petitioner and
Digital. Digital also sued petitioner for recovery of the rental deposits it had already paid under the
same contract. Consequently, petitioner had to engage the services of counsel and incurred litigation
expenses in order to defend itself in the case filed against it by Digital. Thus, the two actions are
completely different and distinct from each other so much so that a decision in either case could not
be pleaded as res judicata in the other. Hence, there is no forum shopping that would necessitate
the outright dismissal of this case.

WHEREFORE, premises considered, the instant Petition is hereby DENIED. The Decision and
Resolution of the Court of Appeals dated 16 September 2003 and 8 July 2004, respectively,
affirming the Decision of the RTC dated 28 April 2000, denying herein petitioner’s motion to recover
damages against the injunction bond, are hereby AFFIRMED. Costs against petitioner.

SO ORDERED

G.R. No. 167745 June 26, 2007

MIGUEL M. LLAMZON, petitioner,

vs.
ALMA FLORENCE LOGRONIO, NESTOR HUN NADAL and NICANOR OLIVAR constituting the
PHILIPPINE ECONOMIC ZONE AUTHORITY CENTRAL BOARD OF INQUIRY, INVESTIGATION
AND DISCIPLINE (PEZA-CBIID), PEZA Special Prosecutor NORMA CAJULIS and PEZA
Director General LILIA DE LIMA, respondents.

DECISION

TINGA, J.:

The instant petition for review stems from the Decision1 and Resolution2 of the Court of Appeals in
CA-G.R. SP No. 74874

promulgated on 10 June 2004, and 7 April 2005, respectively which annulled and set aside
the status quo order of the Regional Trial Court (RTC), Branch 4, Balanga, Bataan,3 dated 2
December 2002,4 and affirmed the order dated 11 December 20025 denying respondents’ motion to
dismiss.
The antecedents follow.

Petitioner Miguel M. Llamzon is an Enterprise Service Officer III at the Industrial Relations Unit,
Bataan Economic Zone. He was formally charged with dishonesty, grave misconduct and conduct
prejudicial to the best interest of service6 for having billed Edison (Bataan) Cogeneration Corporation
overtime fees for unloading of fuel for the dates 28 February 2000 and 20 March 2000, despite
knowledge that the Philippine Economic Zone Authority (PEZA) had discontinued billing registered
locator/enterprises for overtime fees since 17 December 1999. Petitioner filed his answer denying
the charges against him and requested a formal investigation and the transfer of the venue of the
case to the Civil Service Commission Regional Office in San Fernando, Pampanga. This request
was however denied, and the investigation was conducted by the PEZA Central Board of Inquiry,
Investigation and Discipline (PEZA-CBIID).

While investigation was on-going, petitioner requested the PEZA-CBIID to allow the PNP Crime
Laboratory to examine the written contents of the billings for overtime fees. The request was denied
by PEZA-CBIID considering that the National Bureau of Investigation had already issued a finding
that the signatures appearing in the billings are those of the petitioner.

Feeling aggrieved, petitioner filed a complaint on 17 September 2002 for damages against
respondents, with a prayer for the issuance of a temporary restraining order (TRO) and writ of
preliminary injunction, for allegedly depriving him of his right to present witnesses for himself and to
have compulsory process to secure the attendance of witnesses in the administrative investigation.
On the same date, Judge Benjamin Vianzon, presiding judge of RTC, Branch 4, Balanga, Bataan,
issued a TRO for twenty (20) days "for the maintenance and preservation of the status quo," and
scheduled the hearing for preliminary injunction.7

Respondents moved to lift the TRO on the ground of non-holding of a summary hearing and failure
of petitioner to show extreme urgency for the issuance of said TRO. Respondents’ motion was
denied by Judge Vianzon.8

Respondents filed before the Office of the Court Administrator a complaint for incompetence, gross
ignorance of the law, grave abuse of authority, misconduct, and conduct prejudicial to the proper
administration of justice against Judge Vianzon. They also filed a motion for his inhibition in Civil
Case No. 565-ML which Judge Vianzon granted in his Order dated 21 October 2002.9

Respondents moved for the dismissal of Civil Case No. 565-ML but petitioner opposed the motion.
In the interim, petitioner filed a motion to maintain the status quo, which Judge Vianzon granted
through an Order dated 2 December 2002 (status quo order).10 Petitioner, on the other hand, filed a
motion for reconsideration of the order of inhibition dated 21 October 2002,11 and a motion to cite
petitioner in contempt for resuming the administrative investigation upon the expiration of the TRO.

Confused with the orders of Judge Vianzon, respondents filed a manifestation seeking clarification
whether the judge had recalled his earlier order of inhibition. In his Order dated 15 November
2002,12 Judge Vianzon clarified that he had indeed recalled his order of inhibition and would proceed
to try the case, considering that Branch

4 is a single-sala court and the matter of inhibition would have to be referred to the Supreme Court,
and it would take months before a new judge is designated.

Meanwhile, respondents’ motion to dismiss Civil Case No. 565-ML was denied by Judge Vianzon in
his Order dated 11 December 2002.13

Respondents brought the matter to the Court of Appeals, imputing grave abuse of discretion on the
part of Judge Vianzon in: (i) his conduct of the proceedings before him; (ii) vacating his earlier order
of inhibition; (iii) issuing the status quo order dated 28 November 2002; and (iv) issuing the 11
December 2002 Order denying their motion to dismiss.

The Court of Appeals found the petition partly meritorious. It ruled that Judge Vianzon failed to
observe Section 5, Rule 58 of the Rules of Civil Procedure concerning applications for preliminary
injunction and TRO. According to the appellate court, Judge Vianzon granted a TRO for 20 days
instead of only 72 hours, and he did not conduct a summary hearing within 72 hours to determine
whether the TRO should be extended.14 The status quo order was issued also in violation of the
aforementioned Rule, specifically the portion which provides that the TRO shall not exceed 20 days
and is deemed vacated if the application for preliminary injunction is not resolved within the 20-day
period and that no court has the authority to extend or renew the TRO on the same ground for which
it was issued.15

In addition, the Court of Appeals considered moot the issue of grave abuse of discretion on the part
of Judge Vianzon in recalling his order of inhibition. It found that the judge had already inhibited
himself from hearing Civil Case No. 565-ML via an Order dated 24 February 2003.16

The appellate court also found that respondents were unable to show that the issuance of the 11
December 2002 Order denying their motion to dismiss was tainted with grave abuse of discretion.
They likewise failed to file a motion for reconsideration of the said order of denial, and were unable
to show that the filing thereof was unnecessary.

In the end, the Court of Appeals annulled and set aside the 2 December 2002 status quo order, but
dismissed the petition with respect to the order dated 11 December 2002 denying the motion to
dismiss.17

Petitioner sought partial reconsideration of the decision, arguing for the propriety of the 20-day TRO
and the status quo order of Judge Vianzon, and pointing out alleged defects in respondents’ petition.
The Court of Appeals denied the motion for lack of merit.18

Petitioner now proposes that the Court of Appeals erred when it: (i) ruled that the TRO and status
quo order were wrongfully issued; and (ii) did not dismiss respondents’ petition despite several
defects which should have merited the outright dismissal thereof.

According to petitioner, the TRO and status quo order were made in compliance with Sec. 5, Rule 58
of the 1997 Rules of Civil Procedure. In particular, he claims that a 20-day TRO can be issued
without prior notice or hearing if it is shown that great or irreparable injury would result to the
applicant. On the other hand, he justifies the status quo order by saying that it was issued on a
ground different from that for which the earlier TRO was made.19 He adverts to several infirmities in
respondents’ petition which the Court of Appeals disregarded when it gave due course to the
petition.

As for the alleged defects in respondents’ petition before the Court of Appeals, petitioner claims that
respondents (i) failed to attach the certified true copies of the assailed Orders; (ii) omitted the

discussion on the denial of the motion to dismiss; (iii) failed to state the date of receipt of the third
assailed Order; (iv) questioned the issuance of the 20-day TRO embodied in the 17 September 2002
Order when it was not even among those included in the Orders assailed in their petition; (v) failed to
file a motion for reconsideration of all the assailed orders; (vi) filed a defective certificate against
forum shopping; (vii) failed to include an affidavit of service; and (viii) are politically motivated when
they filed the charges against petitioner.20

For their part, respondents, through the Office of the Solicitor General, argue that an ex-parte TRO is
issued only in extremis, and has a lifetime of only 72 hours. In the instant case, the trial court issued
the TRO ex-parte for a full term of 20 days, and despite there being no clear showing that the
applicant had a clear legal right that should be protected by the writ being sought. Furthermore,
respondents see the status quo order issued by Judge Vianzon as very much akin to a writ of
injunction, forbidding respondents from prosecuting the case against petitioner.21

Anent Judge Vianzon’s order of inhibition, respondents state that while the matter of inhibition is
within the sound discretion of the

judge concerned, that same discretion could not be invoked by the same judge in determining
whether or not to recall or vacate his earlier order inhibiting himself. There must be good and valid
legal grounds for such recall, otherwise, it becomes grave abuse of discretion and an indication of
bias and partiality for a judge to recall his earlier order of recusation.22

The petition must be denied.

At the onset, it must be emphasized that the propriety of the 20-day TRO is a non-issue. It was
never raised as an issue in the petition before the Court of Appeals, nor squarely ruled upon by the
appellate court. Instead, it was discussed in conjunction with the propriety of Judge Vianzon’s
issuance of the status quo order dated 2 December 2002. But in any case, the Court will delve into
the mechanics of issuing TROs, if only to provide the proper perspective to the discussion of the
related issue.

Sec. 5, Rule 58 of the Rules of Court23 proscribes the grant of preliminary injunction
without hearing and prior notice to the party or person sought to be
enjoined. However, the rule authorizes the court to which an application for
preliminary injunction is made to issue a TRO if it should appear from the
facts shown by affidavits or by the verified petition that "great or
irreparable injury would result to the applicant before the matter can be
heard on notice,"24 but only for a limited 72-hour period.

The second paragraph of Sec. 5, Rule 58 was actually lifted from paragraph 3
of Administrative Circular No. 20-95,25 which aims to restrict the ex parte issuance of a
TRO only to cases of extreme urgency in order to avoid grave injustice and irreparable injury. Such
TRO shall be issued only by the executive judge or single-sala station judge and shall take effect
only for 72 hours from its issuance.

Furthermore, within the said period, a summary hearing shall be conducted to determine whether the
Order can be extended for another period until a hearing on the pending application for preliminary
injunction can be conducted.26

The rule thus holds that before a TRO may be issued, all parties must be heard in a summary
hearing first, after the records are transmitted to the branch selected by raffle. The only instance
when a TRO may be issued ex parte is when the matter is of such extreme urgency that grave
injustice and irreparable injury will arise unless it is issued immediately. Under such circumstance,
the Executive Judge shall issue the TRO effective for 72 hours only. The Executive Judge shall then
summon the parties to a conference during which the case should be raffled in their presence.
Before the lapse of the 72 hours, the Presiding Judge to whom the case was raffled shall then
conduct a summary hearing to determine whether the TRO can be extended for another period until
the application for preliminary injunction can be heard, which period shall in no case exceed 20 days
including the original 72 hours.27

It thus becomes apparent that Judge Vianzon erred in issuing a TRO effective, not for 72 hours as
prescribed by law in cases of extreme urgency, but for the maximum of 20 days; and he did so

without conducting beforehand a summary hearing, and without showing that it falls under the
exceptional circumstances enumerated by the Administrative Circular No. 20-95 where a TRO may
be issued by the Executive Judge before assignment by raffle to a judge without first conducting a
summary hearing.

Now on to the real issues of this case.

The status quo order dated 2 December 2002 reads:

Considering the "[M]otion to Maintain Status Quo" filed by plaintiff, through counsel Atty. Francisco
Flaminiano, Jr., and finding the same to be in order, and considering further that the hearing on the
propriety on the issuance of the writ of preliminary injunction is still pending hearing and no
subsequent order has been issued after the issuance of the court’s order dated September 17, 2002,
let the existing status quo be maintained restraining and enjoining defendants from continuing with
the hearing of Administrative Case No. 2002-01 until further orders from this court.

SO ORDERED. (Emphasis supplied)

The above Order was improperly issued by Judge Vianzon. It was, for all intents and purposes, a
mere continuation of the 20-day TRO erroneously issued. Indeed, this Court has ruled that a status
quo ante order has "the nature of a temporary restraining order."28 A TRO

shall be effective only for a period of 20 days from notice to the party or person sought to be
enjoined. During the 20-day period, the judge must conduct a hearing to consider the propriety of
issuing a preliminary injunction. If no action is taken by the judge on the application for preliminary
injunction within the said 20 days, the TRO would automatically expire on the 20th day by the sheer
force of law, no judicial declaration to that effect being necessary. In the instant case, no such
preliminary injunction was issued; in fact, as stated in the Order, "the hearing on the propriety on the
issuance of the writ of preliminary injunction is still pending," hence, the TRO earlier issued,
assuming arguendo that it was indeed validly issued, automatically expired under the aforesaid
provision of the Rules of Court.

The 2 December 2002 Order which directed that the "existing status quo be maintained restraining
and enjoining defendants from continuing with the hearing" was, for all intents and purposes an
indefinite extension of the first TRO, or "a renewed or second temporary restraining order proscribed
by the rule and extant jurisprudence."29

The status quo order is in fact, worse than a second TRO since unlike an ordinary TRO which has a
lifetime of only 20 days, Judge Vianzon directed the maintenance of the status quo for an indefinite
period, or "until further order from this court." It was not a writ of preliminary injunction, because as
previously mentioned, the hearing on the application for the writ is still pending. Besides, in the event
of an injunctive writ, an injunction bond is required, unless exempted by the Court.30

Another important factor which militates against the correctness of the issuance of the status
quo order is the fact that Judge Vianzon no longer had authority to do so because he had already
inhibited himself from hearing the case as early as 21 October 2002, or more than a month before
he issued the 2 December 2002 status quo order. It appears that Judge Vianzon did not even
forward his order of inhibition to this Court, nor waited for the Court's resolution, but instead
immediately recalled his order of inhibition and proceeded to try the case.

Now, to the alleged infirmities of respondents’ petition before the Court of Appeals which petitioner
claims should have merited its outright dismissal. Most of the alleged defects are connected with
Judge Vianzon’s 15 November 2002 Order which recalled his earlier order of inhibition. Petitioner
submits that respondents did not attach a certified true copy of the said Order, neither did it indicate
the date of receipt of the same, nor filed a motion for its reconsideration. The other remaining issues
are: (i) the alleged failure to file a motion for reconsideration of, and failure to discuss, the 11
December 2002 Order of denial of respondents’ motion to dismiss; (ii) the failure to state in the
certificate on non-forum shopping that they filed administrative complaints against Judge Vianzon;
and (iii) the failure to attach the affidavit of service to the petition.

As explained by the Court of Appeals, the order of recall of Judge Vianzon’s inhibition is already
moot and academic, since he had already issued an Order dated 24 February 200331 inhibiting
himself once again from the proceedings. Besides, a new judge has already been assigned to hear
the case.32 Thus, the fact that only a photocopy of the 15 November 2002 Order was attached to the
petition cannot justify the dismissal of the entire petition, especially since respondents attached the
certified true copies of the other assailed Orders (2 December 2002 status quo order and 11
December 2002 denial of the motion to dismiss) to the petition. For the same reason, respondents’
failure to state the date of receipt of the 15 November 2002 Order will not justify the dismissal of the
petition.

Even the purported absence of a discussion on the order denying respondents’ motion to dismiss
cannot be a ground of the petition’s outright dismissal, since the other issues raised therein were
sufficiently discussed. As pointed out by the Court of Appeals, it is because of this failure to show
that the denial of motion was tainted with grave abuse of discretion, and that respondents failed to
file a motion for reconsideration of the denial, that the petition was dismissed for lack of merit insofar
as it assailed the validity of the 11 December 2002 Order.

While the general rule is that before certiorari may be availed of, petitioner must have filed a motion
for reconsideration of the act or order complained of, the Court has dispensed with this requirement
in several instances. Thus, a previous motion for reconsideration before the filing of a petition for
certiorari is necessary unless: (i) the issue raised is one purely of law; (ii) public interest is involved;
(iii) there is urgency; (iv) a question of jurisdiction is squarely raised before and decided by the lower
court; and (v) the order is a patent nullity.33 In the instant case, respondents stated that they did not
file a motion for reconsideration of the status quo order because it would be a useless exercise
considering Judge Vianzon’s predilection for issuing orders without stating or specifying his basis
therefor. In any case, the Court of Appeals found the status quo order to be a nullity, since it was
made in violation of the Rules of Court.

Petitioner maintains that respondents submitted a defective certificate against forum shopping when
they failed to declare the administrative complaints they filed against Judge Vianzon. The Court finds
that the omission of the administrative cases against Judge Vianzon is not fatal to respondents’
petition. Ultimately, what is truly important to consider in determining whether forum shopping exists
or not is the vexation caused the courts and party-litigant by a party who asks different courts to rule
on the same or related causes and/or to grant the same or substantially the same reliefs, in the

process creating the possibility of conflicting decisions being rendered by the different fora upon the
same issue.34 The administrative cases against Judge Vianzon pending before the Office of the
Court Administrator will not affect the outcome of the civil case a quo.

Finally, on the alleged failure to attach an affidavit of service, the Court defers to the finding of the
Court of Appeals that an affidavit of service was "attached to the petition stating that copies thereof
were sent to respondents by registered mail on January 14, 2003, as evidenced by registry receipts
nos. 494 and 495."35

WHEREFORE, the instant petition is DENIED for lack of merit and the challenged Decision of the
Court of Appeals of 10 June 2004 and Resolution of 7 April 2005 in CA-G.R. SP No. 74874 are
hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
 REPLEVIN

[G.R. No. L-48820. May 25, 1979]

MALAYAN INSURANCE CO., INC., Petitioner, v. HON. EMILIO V. SALAS, as

Presiding Judge, Court of First Instance of Rizal, Branch I, Pasig, Metro Manila,
ROSENDO FERNANDO and JOHN DOE, Respondents.

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

Lazaro, Abinoja & Associates for Private Respondents.

SYNOPSIS

Makati Motor Sales, Inc., sued Rosendo Fernando for recovery of four trucks and obtain
immediate possession thereof, posted a replevin bond executed by petitioner surety company.
The lower court rendered a judgment, ordering Makati Motor Sales, among others, to return the
trucks to Fernando and to pay him damages in the amount of P600 daily from the time they were
seized until their return. Makati Motor Sales, Inc. appealed. Before the elevation of the record,
Fernando filed an application for damages against the bond but the trial court denied it. During
the pendency of the appeal, Fernando filed in the Court of Appeals his claim for damages against
the bond and prayed that the same be included in the judgment. The Court of Appeals affirmed
the appealed judgment, and ordered the trial court to hear Fernando’s claim.

After the record had been remanded to the trial court, Fernando moved to set for hearing his
application for damages against the bond, with notice to the surety company. Fernando submitted
documentary evidence. The surety moved to quash the proceedings and stood pat on its
contention that the trial court has no jurisdiction. The trial court denied the motion to quash and
directed the surety to pay Fernando the damages which it had adjudged against Makati Motor
Sales, Inc. From the trial court’s order, the surety appealed.

The Supreme Court held that the trial court had jurisdiction to comply with the Court of Appeals’
directive, but reversed the trial court’s order requiring the surety to pay the damages, stating that
the trial court’s implementation of the appellate court’s directive was incorrect.

Case remanded, directing the trial court to hold a summary hearing wherein the surety should be
given a chance to contest the reasonableness of Fernando’s claim for damages.

SYLLABUS

1. REPLEVIN BONDS; RECOVERY OF DAMAGES ON REPLEVIN BOND. — Under

section 20, Rule 57, in order to recover damages on a replevin bond (or on a bond for
preliminary attachment, injunction or receivership) it is necessary (1) that the defendant has
secured a favorable judgment in the main action, meaning that the plaintiff has no cause of action
and was not, therefore, entitled to the provisional remedy of replevin; (2) that the application for
damages, showing claimant’s rights thereto and the amount thereof, be filed in the same action
before trial or before appeal is perfected or before the judgment becomes executory; (3) that due
notice be given the other party and his surety or sureties, notice to the principal not being
sufficient and (4) that there should be a proper hearing and the award for damages should be
included in the final judgment.

2. ID.; ID.; APPEAL; APPLICATION FOR DAMAGES ON THE BOND. — The application
for damages against the surety must be filed (with notice to the surety) in the Court of First
 Instance before the trial or before appeal is perfected or before the judgment of the court
becomes executory. If an appeal is taken, the application must be filed in the appellate court but
always before the judgment of that court becomes executory so that the award may be included
in its judgment.

3. ID.; ID.; ID.; APPELLATE COURT SHOULD INCLUDE AWARD OF DAMAGES

AGAINST SURETY. — Where the application for damages against the surety is seasonably
made in the appellate court, the latter must either proceed to decide and hear the application or
refer it to the trial court and allow it to hear and decide the same.

4. ID.; ID.; ID.; LAW OF THE CASE DIRECTIVE TO THE TRIAL COURT TO HEAR
CLAIM. — Where a claim for damages on the replevin bond was timely made with the Court of
Appeals, and the surety was notified thereof, but the Court of Appeals did not resolve the claim
immediately and instead directed the trial court to hear that claim, it was held that this peculiar
factual situation makes it an exception to the settled rule that the surety’s liability for damages
should be included in the final judgment to prevent duplicity of suits or proceedings. Obviously,
the lower court has no choice but to implement the directive which is the law of the case.

5. ID.; ID.; NOTICE SURETY. — If the surety was not given notice when the claim for
damages against the principal in the replevin bond was heard, then as a matter of procedural due
process the surety is entitled to be heard when the judgment for damages against the principal is
sought to be enforced against the surety’s replevin bond. The hearing will be summary and will
be limited to such new defense, not previously set up by the principal, as the surety may allege
and offer to prove. The oral proof of damages already adduced by the claimant may be
reproduced without the necessity of retaking the testimony, but the surety should be given an
opportunity to cross-examine the witness or witnesses if it so desires. That procedure would
forestall the perpetration of fraud or collusion against the surety.

6. ID.; ID.; FAILURE TO GIVE SUMMARY HEARING. — Where the surety company was
not given the summary hearing during which it could contest the reality or reasonableness of the
claim for damages on the replevin bond, the trial court’s order awarding damages against it will
be set aside and, in the interest of justice, it should be given an opportunity to be heard on the
merits of the prevailing party’s claim for damages.

7. ID.; ID.; COUNTERCLAIM. — The defendant in a replevin case cannot file a separate action
for damages due to the wrongful issuance of the writ. He should claim the damages as a
counterclaim in the original replevin suit.

8. ID.; REPLEVIN BOND DISTINGUISHED FROM COUNTERBOND AND FROM

SURETY’S OBLIGATION ON AN ADMINISTRATOR’S BOND. — The procedure in Section
20 of the Rule 57 should not be confounded with the procedure in section 17 of the same rule
regarding the surety’s liability on the counterbond for the lifting of the preliminary attachment.
Under section 17, the surety may be held liable after notice and summary hearing conducted after
the judgment had become executory and the execution was returned unsatisfied. The case
contemplated in section 17 of Rule 57 is different from the case envisaged in section 20 of that
rule. Nor does section 20 of Rule 57 apply to cases where the surety bound himself to abide by
the judgment against his principal and hereby renounced his right to be sued or cited, or where
the surety guaranteed the return of certain goods and he did not raise the issue of lack of notice,
or where the sureties bound themselves to pay the plaintiff a definite amount. Note that a
different rule also obtains with respect to the surety in the bond of an administrator or executor.
The nature of the surety’s obligation on an administrator’s bond, which makes him privy to the
proceeding against his principal, is such that he is bound and concluded, in the absence of fraud
or collusion, surety was not a party to the proceedings.

DECISION
 AQUINO, J.:

This case is about the surety company’s liability on its replevin bond which was not included in
the final judgment against the principal in the bond. It is undisputed that in 1970 Makati Motor
Sales, Inc., as vendor mortgagee, sued Rosendo Fernando for the recovery of four diesel trucks
and the collection of the balance of his obligation plus damages (Civil Case No. 13874, Court of
First Instance of Rizal, Pasig Branch I).

To obtain immediate possession of the trucks pending trial, Makati Motors Sales, Inc. posted a
replevin bond executed by the Malayan Insurance Co., Inc. In that bond the surety bound itself to
pay P362,775.92 "for the return of the property to the defendant, if the return thereof be
adjudged, and for the payment of such sum as may in the cause be recovered against the
plaintiff." Pursuant to the order of the court, the sheriff seized the four trucks. Later, two of the
trucks were returned to Fernando.chanroblesvirtualawlibrary

After trial, or on March 2, 1973, the lower court rendered judgment ordering Makati Motor
Sales, Inc. to return to Fernando the other two trucks and to pay him, for the seizure of each of
them, damages in the sum of three hundred pesos daily from September 25 and 26, 1970 (or six
hundred pesos for the two trucks from the latter date) until their return to Fernando plus P26,000
as actual and moral damages.

In turn, Fernando was ordered to pay Makati Motor Sales, Inc. the sum of P66,998.34, as the
balance of the price of the two trucks, with twelve percent interest from February 28, 1969 until
fully paid and the further sum of P15,730.20 as the cost of the repair with six percent interest
from September 11, 1970 until fully paid.

Makati Motor Sales, Inc. appealed to the Court of Appeals. It affirmed the lower court’s
judgment in its decision of March 1, 1977 in CA-G. R. No. 54196-R.

Meanwhile, on May 11, 1973, or before the elevation of the record to the Court of Appeals,
Fernando filed in the trial court an application for damages against the replevin bond. It was
opposed by the surety on the ground that the trial court had lost jurisdiction over the case
because of the perfection of the appeal. The trial court denied the application on June 28, 1973.

On May 27, 1974 Fernando filed in the Court of Appeals his claim for damages against the
replevin bond. He prayed that the same be included in the judgment. The surety, which was
furnished with a copy of the claim, filed an opposition to it.

The Court of Appeals did not act immediately on that claim but in its 1977 decision it observed
that Fernando’s motion or claim "was correct" and it ordered that his claim against Malayan
Insurance Co., Inc. "be heard before the trial court." That decision affirming the lower court’s
judgment became final and executory on March 18, 1977.

On April 6, 1977, or after the remand of the record to the trial court, Fernando filed a motion to
set for hearing his application for damages against the surety on its replevin bond. The
application was heard with notice to Makati Motor Sales, Inc. and Malayan Insurance Co., Inc.
Fernando submitted documentary evidence. On December 15, 1977 Malayan Insurance Co., Inc.
moved to quash the proceeding regarding the claim for damages. It contended that the trial court
has no jurisdiction to alter or modify the final judgment of the Court of Appeals.

The trial court in its order of July 14, 1978 denied the motion to quash. It directed Malayan
Insurance Co., Inc. to pay Fernando the damages which it had adjudged against Makati Motor
Sales, Inc. The surety company appealed from that order to this Court pursuant to Republic Act
No. 5440.
Section 10, Rule 60 of the Rules of Court provides that in replevin cases, as in receivership and
injunction cases, the damages "to be awarded to either party upon any bond filed by the other"
"shall be claimed, ascertained, and granted" in accordance with section 20 of Rule 57 which
reads:jgc:chanrobles.com.ph

"SEC. 20. Claim for damages on account of illegal attachment. — If the judgment on the action
be in favor of the party against whom attachment was issued, he may recover, upon the bond
given or deposit made by the attaching creditor, any damages resulting from the attachment.
Such damages may be awarded only upon application and after proper hearing, and shall be
included in the final judgment. The application must be filed before the trial or before appeal is
perfected or before the judgment becomes executory, with due notice to the attaching creditor
and his surety or sureties, setting forth the facts showing his right to damages and the amount
thereof.

"If the judgment of the appellate court be favorable to the party against whom the attachment
was issued, he must claim damages sustained during the pendency of the appeal by filing an
application with notice to the party in whose favor the attachment was issued or his surety or
sureties, before the judgment of the appellate court becomes executory. The appellate court may
allow the application to be heard and decided by the trial court."cralaw virtua1aw library

Under section 20, in order to recover damages on a replevin bond (or on a bond for preliminary
attachment, injunction or receivership) it is necessary (1) that the defendant-claimant has secured
a favorable judgment in the main action, meaning that the plaintiff has no cause of action and
was not, therefore, entitled to the provisional remedy of replevin; (2) that the application for
damages, showing claimant’s right thereto and the amount thereof, be filed in the same action
before trial or before appeal is perfected or before the judgment becomes executory; (3) that due
notice be given to the other party and his surety or sureties, notice to the principal not being
sufficient and (4) that there should be a proper hearing and the award for damages should be
included in the final judgment (Luneta Motor Co. v. Menendez, 117 Phil. 970, 974; 3 Moran’s
Comments on the Rules of Court, 1970 Ed., pp. 54-56. See Cruz v. Manila Surety & Fidelity
Co., Inc., 92 Phil. 699).

In this appeal, Malayan Insurance Co., Inc. contends that the trial court’s judgment against it is
not warranted under section 20 of Rule 57. It assails the trial court’s competence to render
judgment against the surety after the decision of the Court of Appeals against the surety’s
principal had become final and executory.chanrobles.com.ph : virtual law library

We hold that the trial court has jurisdiction to pass upon Fernando’s application for the recovery
of damages on the surety’s replevin bond. The reason is that Fernando seasonably filed his
application for damages in the Court of Appeals. It was not his fault that the damages claimed by
him against the surety were not included in the judgment of the Court of Appeals affirming the
trial court’s award of damages to Fernando payable by the principal in the replevin bond. The
peculiar factual situation of this case makes it an exception to the settled rule that the surety’s
liability for damages should be included in the final judgment to prevent duplicity of suits or
proceedings.

As may be gathered from section 20 of Rule 57, the application for damages against the surety
must be filed (with notice to the surety) in the Court of First Instance before the trial or before
appeal is perfected or before the judgment becomes executory.

If an appeal is taken, the application must be filed in the appellate court but always before the
judgment of that court becomes executory so that the award may be included in its judgment
(Luneta Motor Co. v. Menendez, 117 Phil. 970, 976).

But it is not always mandatory that the appellate court should include in its judgment the award
of damages against the surety. Thus, it was held that where the application for damages against
the surety is seasonably made in the appellate court, "the latter must either proceed to hear and
decide the application or refer "it" to the trial court and allow it to hear and decide the same"
(Rivera v. Talavera, 112 Phil. 209, 219).

We have stated earlier that in the instant case Fernando in 1974 made a timely claim in the Court
of Appeals for an award of damages against Malayan Insurance Co., Inc. enforceable against its
replevin bond. The surety was notified of that application. It registered an opposition to the
claim. The Court of Appeals did not resolve the claim immediately but in its 1977 decision it
directed the trial court to hear that claim.

Obviously, the lower court has no choice but to implement that directive which is the law of the
case (See Compagnie Franco-Indochinoise v. Deutsch, etc., 39 Phil. 474, 476).

However, the trial court’s implementation of that directive was incorrect. It set the claim for
hearing but the surety assailed its jurisdiction and did not consider itself bound by the mandate of
the appellate court. The merits of the claim for damages were not threshed out at the hearing
because the surety stood pat on its contention that the trial court has no jurisdiction to allow the
claim in view of the finality of the decision of the Court of Appeals.

This Court has held that, if the surety was not given notice when the claim for damages against
the principal in the replevin bond was heard, then as a matter of procedural due process the
surety is entitled to be heard when the judgment for damages against the principal is sought to be
enforced against the surety’s replevin bond.

"The hearing will be summary and will be limited to such new defense, not previously set up by
the principal, as the surety may allege and offer to prove. The oral proof of damages already
adduced by the claimant may be reproduced without the necessity of retaking the testimony, but
the surety should be given an opportunity to cross-examine the witness or witnesses if it so
desires." That procedure would forestall the perpetration of fraud or collusion against the surety
(Visayan Surety and Insurance Corporation v. Pascual, 85 Phil. 779, 785-786).

Inasmuch as in this case appellant Malayan Insurance Co., Inc. was not given the summary
hearing during which it could contest the reality or reasonableness of Fernando’s claim for
damages, we have to set aside the trial court’s order awarding damages against it and, in the
interest of justice, give it another opportunity to be heard on the merits of Fernando’s claim for
damages.

Before closing, it may be useful to make a review and synthesis of the copious jurisprudence on
the surety’s liability in attachment, injunction, replevin and receivership bonds. It was observed
in one case that once upon a time the rulings on that point were in a muddled state.

Section 20 of Rule 57 is a revised version of section 20, Rule 59 of the 1940 Rules of Court
which earlier section 20 is a restatement of this Court’s rulings under sections 170, 177, 223, 272
and 439 of the Code of Civil Procedure regarding the damages recoverable in case of the
wrongful issuance of the writs of preliminary injunction, attachment, mandamus and replevin
and the appointment of a receiver.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph

Section 170 contains the provision that the damages suffered in connection with the issuance of a
preliminary injunction shall be ascertained by the court trying the action (meaning the court
where the action is pending) and shall be included in the final judgment "against the plaintiff and
against the sureties." As to damages in case of wrongful attachment, see section 439 of the Code
of Civil Procedure and Belzunce v. Fernandez, 10 Phil. 452.

So, as held under the Code of Civil Procedure, if the preliminary injunction was issued by this
Court, the specification of damages should be filed in this Court. The petitioner and his
bondsmen should be served with copies of the specification (Somes v. Crossfield, 9 Phil. 13 and
Macatangay v. Municipality of San Juan de Bocboc, 9 Phil. 19).

On the other hand, under section 439 of the Code of Civil Procedure, the damages caused by a
wrongful attachment may be adjudicated in a summary hearing but the better practice would be
to claim the damages in the answer and to offer evidence in support thereof during the trial
(Gasataya v. Fallon, 32 Phil. 245 and Raymundo v. Carpio, 33 Phil. 395).

Note that under the second paragraph of section 20, Rule 57 of the present Rules of Court, the
damages suffered during the pendency of an appeal in a case where the writs of attachment,
injunction and replevin or an order of receivership were issued should be claimed in the appellate
court.

There is an old ruling that the sureties in an injunction bond are bound by a judgment for
damages against their principal even if the sureties were not heard at the time the claim for
damages was tried. The reason for that ruling is that the sureties in an injunction bond "assume
such a connection with the suit that they are included by a judgment in it in a suit at law upon the
bond, so far as the same issues are involved; and that, upon the entry of a judgment against the
principal, their liability is absolute" (Florentino v. Domadag, 45 O.G. 4937, 81 Phil. 882).

Also, it was held that if damages were awarded against the principal in a replevin bond without
notice to the surety, that final judgment may be enforced against the surety after it has been given
an opportunity to be heard as to the reality or reasonableness of the alleged damages. In such a
case, the trial court must order the surety to show cause why the bond should not answer for the
judgment for damages. The hearing is summary and the surety may cross-examine the witnesses
presented by the defendant (Visayan Surety & Insurance Corporation v. Pascual, 85 Phil. 779).

Insofar as those rulings in the Florentino and Visayan Surety cases allowed a claim for damages
against the surety to be ventilated in a separate proceeding or after the finality of the judgment
for damages against the principal in the bond, those rulings were jettisoned and abandoned in
several subsequent cases because they are contrary to the explicit provision of section 20 of Rule
59, now Rule 57, that the judgment for damages against the surety should be included in the final
judgment to avoid additional proceedings (Cruz v. Manila Surety & Fidelity Co., Inc. 92 Phil.
699; Japco v. City of Manila, 48 Phil. 851, 855).

The damages are recoverable on the theory that an actionable wrong was committed by the
losing party. The recovery is limited to the amount of the bond (Pacis v. Commission on
Elections, L-29026, August 22, 1969, 29 SCRA 24, 29).

The usual procedure is to file an application for damages with due notice to the other party and
his sureties. The other party may answer the application. Upon the issues thus being joined, the
matter will be tried and determined. A court order declaring the bond confiscated without
adhering to that procedure is void (Fabella v. Tancinco, 86 Phil. 543; Luzon Surety Co., Inc. v.
Guerrero, L-20705, June 20, 1966, 17 SCRA 400).

The claim for damages against the surety should be made with notice to the surety and before the
judgment against the principal becomes executory. The liability of the surety should be included
in the final judgment. That remedy is exclusive. If not availed of, the surety is released (Curilan
v. Court of Appeals, 105 Phil. 1160 and De la Rama v. Villarosa, 118 Phil. 424, 430; Jesswani v.
Dialdas, 91 Phil. 915; Estioco v. Hamada, 103 Phil. 1145).

Therefore, the prevailing settled rule is that a court has no jurisdiction to entertain any
proceeding seeking to hold a surety liable upon its bond if such surety has not been given notice
of the claim for damages against the principal and the judgment holding the latter liable has
already become executory (People’s Surety & Insurance Co., Inc. v. Court of Appeals, L-21627,
June 29, 1967, 20 SCRA 481).

If the judgment awarding damages against the principal in a bond for the lifting of a preliminary
injunction had already become executory, that claim cannot be pressed against the surety by
setting it for hearing with notice to the surety. The failure to notify the surety of the claim for
damages against the principal relieves the surety from any liability on his bond (Sy v. Ceniza,
115 Phil. 396; Pacis v. Commission on Elections, L-29026, August 22, 1969, 29 SCRA 24; Dee
v. Masloff, 116 Phil. 412).chanroblesvirtualawlibrary

To entertain the belated claim against the surety after the judgment for damages against the
principal has become executory would result in the alteration of that judgment. That should not
be done (De Guia v. Alto Surety & Insurance Co., Inc., 117 Phil. 434; Visayan Surety &
Insurance Co., Inc. v. De Aquino, 96 Phil. 900; Port Motors, Inc. v. Raposas and Alto Surety &
Insurance Co., Inc., 100 Phil. 732; Gerardo v. Plaridel Surety & Insurance Co., Inc., 100 Phil.
178; Luneta Motor Co. v. Lopez, 105 Phil. 327; Curilan v. Court of Appeals, 105 Phil. 1160;
Riel v. Lacson, 104 Phil. 1055).

Moreover, the damages claimed by the defendant should be pleaded as a compulsory

counterclaim in his answer. Hence, a separate action to claim those damages is unwarranted (Ty
Tion and Yu v. Marsman & Co. and Alpha Insurance & Surety Co., Inc., 115 Phil. 746, 749;
Medina v. Maderera del Norte de Catanduanes, Inc., 51 Phil. 240; Nueva-España v.
Montelibano, 58 Phil. 807; Tan-Suyco v. Javier, 21 Phil. 82).

It may be noted that in the Visayan Surety case, 85 Phil. 779, Visayan Surety & Insurance
Corporation filed a replevin bond for one Yu Sip who sued Victoria Pascual for the recovery of a
truck. The trial court found that the writ of replevin was wrongfully procured, that Victoria
Pascual was the lawful owner of the truck and that she suffered damages on account of its
wrongful seizure by the sheriff at the instance of plaintiff Yu Sip.

The trial court ordered Yu Sip to return the truck to Victoria Pascual or to pay its value of P2,300
in case of his inability to return it and, in either case, to pay thirty pesos daily from January 6,
1947 up to the date of the return of the truck or until its value was fully paid. The Court of
Appeals affirmed that judgment.

After the return of the record to the trial court, Victoria Pascual filed a "petition for execution of
the surety bond" wherein she prayed for a writ of execution against the surety to satisfy the
judgment out of its replevin bond. The surety opposed that petition. It contended that it was
never notified by Victoria Pascual regarding her presentation of evidence covering the damages
which she had suffered. The trial court granted the petition and ordered the issuance of a writ of
execution against the surety. That order was assailed in a certiorari in this Court.

It was held that the writ of execution should be set aside and that the surety should be given a
chance to be heard in a summary proceeding. That proceeding was conducted after the judgment
against Yu Sip, the principal in the replevin bond, had become final and executory.

What was done in the Visayan Surety case, as recounted above, was not allowed in subsequent
cases. Thus, in Manila Underwriters Insurance Co., Inc. v. Tan, 107 Phil. 911, the trial court
rendered in 1954 a judgment dissolving the preliminary attachment and ordering the plaintiff to
pay the defendant the damages which the latter suffered by reason of the wrongful attachment.
The surety in the attachment bond was not notified of the hearing but it was furnished with a
copy of the decision.

In 1957 the Court of Appeals affirmed that judgment. After it became final, the defendant filed in
the trial court against the surety a motion for execution which the latter opposed. At the hearing
of the motion, the defendant offered to reproduce the evidence which he had presented at the
trial. The offer was accepted by the trial court. It issued the writ of execution against the surety.

It was held that, because the surety was not notified of the hearing on the damages suffered by
the defendant in the manner prescribed in section 20 of Rule 59, now Rule 57, it was not liable
for damages under its attachment bond.
The surety is notified so that he may cross-examine the witnesses testifying as to the damages
and question the evidence presented by the claimant and interpose any appropriate defense (Riel
v. Lacson, 104 Phil. 1055; Liberty Construction Supply Co. v. Pecson, 89 Phil. 50).

So, if plaintiff’s claim for damages resulting from the wrongful lifting of the writ of preliminary
injunction was awarded in the main decision without notice to the surety and the decision had
become executory, the failure to notify the surety on time relieves him from his liability under
the bond (Alliance Insurance & Surety Co., Inc. v. Piccio, 105 Phil.
1192).chanrobles.com:cralaw:red

The surety may be held liable only if before the judgment for damages against the principal
becomes executory, an order is entered against him after a hearing with notice to him. After the
judgment becomes executory, it is too late to file such claim for damages with notice to the
surety (Abelow v. Riva, 105 Phil. 159; Visayan Surety & Insurance Corp. v. Lacson, 96 Phil.
878).

Where the Court of Appeals dismissed a mandamus action originally filed in that court and
dissolved the preliminary injunction which it had issued and after entry of judgment was made
the record was remanded to the trial court, it was error for the Court of Appeals to allow the
respondent in that case to file a claim for damages against the principal and surety in the
injunction bond. The claim should have been filed before the judgment of dismissal became final
(Luzon Surety Co., Inc. v. Court of Appeals, 108 Phil. 157).

Section 20 of Rule 57 contemplates one judgment for damages against the principal and the
surety in the injunction, replevin, attachment and receivership bonds. Since the judicial
bondsman has no right to demand the exhaustion of the property of the principal debtor, there is
no justification for entering separate judgments against them. The claim for damages against the
surety should be made before entry of judgment (Del Rosario v. Nava, 95 Phil. 637).

In the Del Rosario case, a judgment for damages was rendered against the principal in an
attachment bond but there was no notice to the surety of the claim for damages. That judgment
became final. After the execution against the principal was returned unsatisfied, the claimant
filed a motion praying that the surety company be required to show cause why it should not
answer for the judgment against the principal.

It was held that, while the prevailing party may apply for an award of damages against the surety
even after the award has already been obtained against the principal, nevertheless, in order that
all awards for damages may be included in the final judgment, the application and notice to the
surety must be made before the judgment against the principal becomes final and executory.

In another case, it was held that as the winning party sought to hold the surety liable on its
replevin bond almost a year after the judgment of the Court of Appeals became final, the trial
court erred in enforcing its judgment against the surety. "The surety may only be held liable if,
before judgment becomes final an order against the surety is entered after a hearing with notice
to the surety." The claim against the surety should be included in the final judgment. It is not
sufficient that the surety be afforded an opportunity to oppose the writ of execution. (Plaridel
Surety & Insurance Company v. De los Angeles, L-25550, July 31, 1968, 24 SCRA 487).

After this Court’s judgment dissolving a preliminary injunction had become final and executory,
it would be too late to entertain in the trial court the defendant’s application for damages
allegedly caused by the injunction (Santos v. Moir, 36 Phil. 350).

The defendant in a replevin case cannot file a separate action for damages due to the wrongful
issuance of the writ. He should have claimed the damages as a counterclaim in the original
replevin suit (Pascua v. Sideco, 24 Phil. 26: Ty Tion and Yu v. Marsman & Co. and Alpha Ins. &
Surety Co. Inc., 115 Phil. 746).
A final judgment for damages against the principal in a replevin bond cannot be enforced against
the surety company which was not notified of the claim for damages and was not afforded a
chance to be heard (People’s Surety and Ins. Co., Inc. v. Aragon, 117 Phil. 257).

Where an injunction was dissolved and only attorney’s fees and costs were adjudged against the
principal, and the procedure for claiming damages against the surety was not followed, no
recourse could be had against the injunction bond in case the writ of execution against the
principal was not satisfied. Moreover, the attorney’s fees and costs could be recovered from the
principal even without the filing of the bond (People’s Surety & Insurance Co., Inc. v. Bayona,
103 Phil. 1109).

Where after the dismissal of a petition for relief from the judgment of a municipal court, the
Court of First Instance ordered ex parte the issuance of a writ of execution against the
petitioner’s injunction bond, that order is void because there was no formal claim for damages
and there was no hearing with notice to the petitioner and his surety. The court should hold a
hearing. (Luzon Surety Co., Inc. v. Guerrero, L-20705, June 20, 1966, 17 SCRA 400).

Where on June 11, 1959 an action to stop the foreclosure of a chattel mortgage was dismissed,
without prejudice, for failure to prosecute and, before that dismissal became final, the defendant
did not prove any damages resulting from the issuance of the preliminary injunction, defendant’s
motion of September 7, 1959 praying that judgment be rendered against the surety’s bond could
no longer be entertained. The claim for damages should have been made before entry of final
judgment. It must be duly substantiated at the proper hearing with notice to the surety (Jao and
Sia v. Royal Financing Corporation, 114 Phil. 1152; Visayan Surety & Insurance Corp. v.
Lacson, 96 Phil. 878).

If the case wherein the injunction was issued was dismissed for failure to prosecute and no
damages were awarded to the defendant by reason of the issuance of the injunction, it was error
for the trial court to issue a writ of execution against the surety since there was no claim nor
evidence of damages suffered by the defendant. The order of dismissal did not include any award
of damages. (Vet Bros. and Co., Inc. v. Movido. 114 Phil. 211).

The case of Vadil v. De Venecia, 118 Phil. 1217, involves a queer situation. Plaintiff corporation
in that case filed an action to recover a sum of money. It asked for a writ of attachment. Before
any attachment could be issued, the defendant filed a counterbond. But this bond provided that
the defendant and his sureties would pay "all damages that the defendant (sic) may suffer by
reason of" the attachment. In other words, the defendant executed a bond in favor of himself.

Judgment was rendered for the plaintiff. As the execution was returned unsatisfied, the trial court
on plaintiff’s motion ordered execution against defendant’s bond. It was held that the execution
was wrongfully issued.

However, where an injunction was issued in a forcible entry case but on certiorari to the Court
of First Instance, the justice of the peace court was held to be without jurisdiction to entertain the
ejectment case, that ejectment suit is not considered dismissed and it may still be regarded as
pending in the justice of the peace court for the purpose of allowing the defendant’s claim for
damages on the injunction bond (Cruz v. Manila Surety & Fidelity Co., 92 Phil. 699).

Section 10 of Rule 60 makes section 20 of Rule 57 applicable not only to the replevin bond but
also to the redelivery bond posted by the defendant for the lifting of the order of seizure. The
requisites for holding the surety liable on the replevin bond are also the requisites for holding the
surety liable on the redelivery bond. So, if the surety on the redelivery bond was not notified of
the plaintiff’s claim for damages, the surety cannot be held liable on its redelivery bond for the
damages adjudged against the principal. It is necessary that the surety be notified and that its
liability be included in the final judgment against the principal (Luneta Motor Co. v. Menendez,
117 Phil. 970).chanrobles law library
The writ of execution issued against the counterbond for the dissolution of an injunction is void
if it was issued without notice to the surety and after the judgment on the merits had become
executory. The surety’s liability should have been included in the final judgment (Cajefe v.
Fernandez, 109 Phil. 743).

If the judgment awarding damages against the principals in the counterbonds filed for the lifting
of the receivership was appealed to the Court of Appeals and the plaintiff-appellee filed in the
trial court (not in the appellate court) his application for damages against the sureties in the
counterbonds, the trial court cannot hear the said application after the record is remanded to it
because, by then, the decision of the appellate court had become final and the damages to be
awarded against the sureties could no longer be included in that judgment. The application for
damages against the sureties should have been filed in the Court of Appeals (Luneta Motor Co.
v. Menendez, 117 Phil. 970, 976).

The procedure in section 20 of Rule 57 should not be confounded with the procedure in section
17 of the same rule regarding the surety’s liability on the counterbond for the lifting of the
preliminary attachment. Under section 17, the surety may be held liable after notice and
summary hearing conducted after the judgment had become executory and the execution was
returned unsatisfied (Towers Assurance Corporation v. Ororama Supermart, L-45848, November
9, 1977, 80 SCRA 262; Vanguard Assurance Corporation v. Court of Appeals, L-25921, May 27,
1975, 64 SCRA 148).

The case contempated in section 17 of Rule 57 is different from the case envisaged in section 20
of that rule (Dizon v. Valdes, L-23920, April 25, 1968, 23 SCRA 200; Visayan Surety &
Insurance Corp. v. De Aquino, 96 Phil. 900).

Nor does section 20 of Rule 57 apply to cases where the surety bound himself to abide by the
judgment against his principal and thereby renounced his right to be sued or cited, or where the
surety guaranteed the return of certain goods and he did not raise the issue of lack of notice, or
where the sureties bound themselves to pay the plaintiff a definite amount (Aguasin v.
Velasquez, 88 Phil. 357; Lawyers Cooperative Publishing Co. v. Periquet, 71 Phil. 204; Mercado
v. Macapayag and Pineda, 69 Phil. 403 cited in Alliance Insurance case, 105 Phil. 1201).

Note that a different rule also obtains with respect to the surety in the bond of an administrator or
executor. The nature of a surety’s obligation on an administrator’s bond, which makes him privy
to the proceeding against his principal, is such that he is bound and concluded, in the absence of
fraud or collusion, by a judgment against his principal, even though the surety was not a party to
the proceedings (Laurente v. Rizal Surety & Insurance Co., Inc., L-21250, March 31, 1966, 16
SCRA 551, citing Philippine Trust Co. v. Luzon Surety Co., Inc., 112 Phil. 44. See Cosme de
Mendoza v. Pacheco and Cordero, 64 Phil. 34).

It should be underscored that in the instant case, although the surety’s liability was not included
in the final judgment, which became executory, nevertheless, there was a timely application for
damages in the Court of Appeals which in its decision ordered the trial court to hear defendant-
appellee Fernando’s claim for damages against the surety. That feature of the case removes it
from the coverage of the rule that the surety should be heard before the judgment becomes
executory and that his liability should be included in the final judgment.

WHEREFORE, we hold that the trial court has jurisdiction to comply with the directive of the
Court of Appeals but we reverse and set aside its order of July 14, 1978, requiring petitioner-
appellant Malayan Insurance Co., Inc. to pay the damages which it had adjudged against Makati
Motor Sales, Inc.

The trial court is required to hold a summary hearing wherein appellant surety should be given a
chance to contest the reality or reasonableness of respondent-appellee Rosendo Fernando’s claim
for damages. After such hearing, or if the surety should waive it, the trial court should render the
proper judgment. No costs.

SO ORDERED.

G.R. No. 102998 July 5, 1996

BA FINANCE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ROBERTO M. REYES, respondents.

VITUG, J.:p

The case at bar is a suit for replevin and damages. The petition for review on certiorari assails the decision of the Court of Appeals1 in CA-
G.R. CV No. 23605 affirming that of the Regional Trial Court of Manila, Branch
XX,2 which has disposed of its Civil Case No. 87-42270 in this wise:

WHEREFORE, the case against defendant-spouses (sic) Reynaldo Manahan is

hereby dismissed without prejudice, for failure to prosecute. Plaintiff having failed to
show the liability of defendant John Doe in the person of Roberto M. Reyes, the case
against the latter should likewise be dismissed. Moreover, plaintiff is hereby directed
to return the vehicle seized by virtue of the order of seizure issued by this Court with
all its accessories to the said Roberto M. Reyes.3

The decisions of both the appellate court and the court a quo are based on a like finding of the facts
hereinafter briefly narrated.

The spouses Reynaldo and Florencia Manahan executed, on 15 May 1980, a promissory
note4 binding themselves to pay Carmasters, Inc., the amount of P83,080.00 in thirty-six monthly
installments commencing 01 July 1980. To secure payment, the Manahan spouses executed a deed
of chattel mortgage5 over a motor vehicle, a Ford Cortina 1.6 GL, with motor and serial number
CUBFWE-801010. Carmasters later assigned6 the promissory note and the chattel mortgage to
petitioner BA Finance Corporation with the conformity of the Manahans. When the latter failed to pay
the due installments, petitioner sent demand letters. The demands not having been heeded,
petitioner, on 02 October 1987, filed a complaint for replevin with damages against the spouses, as
well as against a John Doe, praying for the recovery of the vehicle with an alternative prayer for the
payment of a sum of money should the vehicle not be returned. Upon petitioner's motion and the
filing of a bond in the amount of P169,161.00 the lower court issued a writ of replevin. The court,
however, cautioned petitioner that should summons be not served on the defendants within thirty
(30) days from the writ's issuance, the case would be dismissed to failure to prosecute.7 The warning
was based on what the court perceived to be the deplorable practice of some mortgagees of
"freezing (the) foreclosure or replevin cases" which they would so "conveniently utilize as a leverage
for the collection of unpaid installments on mortgaged chattels."8

The service of summons upon the spouses Manahan was caused to be served by petitioner at No.
35 Lantana St., Cubao, Quezon City. The original of the summons had the name and the signature
of private respondent Roberto M. Reyes indicating that he received, on 14 October 1987, a copy of
the summons and the complaint.9 Forthwith, petitioner, through its Legal Assistant, Danilo E. Solano,
issued a certification to the effect that it had received from Orson R. Santiago, the deputy sheriff of
the Regional Trial Court of Manila, Branch 20, the Ford Cortina seized from private respondent
Roberto M. Reyes, the John Doe referred to in the complaint, 10 in Sorsogon, Sorsogon. 11 On 20
October 1987, the lower court came out with an order of seizure.

Alleging possession in good faith, private respondent filed, on 26 October 1987, a motion for an
extension of time within which to file his answer and/or a motion for intervention. The court granted
the motion.

A few months later, or on 18 February 1988, the court issued an order which, in part, stated:
 Perusal of the record shows that an order for the seizure of personal property was
issued on October 20, 1987 in pursuance to a previous order of the Court dated
October 13, 1987. However, to date, there is no showing that the principal
defendants were served with summons inspite of the lapse of four (4) months.

Considering, this is a replevin case and to forestall the evils that arise from this
practice, plaintiff failing to heed the Order dated October 13, 1987, particularly
second paragraph thereof, the above-entitled case is hereby ordered DISMISSED for
failure to prosecute and further ordering the plaintiff to return the property seized with
all its accessories to defendant John Doe in the person of Roberto M. Reyes.

SO ORDERED. 12

On 26 February 1988, petitioner filed a notice of dismissal of the case "without prejudice and without
pronouncement as to costs, before service of Summons and Answer, under Section 1, Rule 17, of
the Rules of Court." 13 It also sought in another motion the withdrawal of the replevin bond. In view of
the earlier dismissal of the case (for petitioner's failure to prosecute), the court, on 02 March 1988,
merely noted the notice of dismissal and denied the motion to withdraw the replevin bond
considering that the writ of replevin had meanwhile been implemented. 14

On 09 March 1988, private respondent filed a motion praying that petitioner be directed to comply
with the court order requiring petitioner to return the vehicle to him. In turn, petitioner filed, on 14
March 1988, a motion for the reconsideration of the orders of 18 February 1988 and 02 March 1988
contending that: (a) the dismissal of the case was tantamount to adjudication on the merits that
thereby deprived it with the remedy to enforce the promissory note, the chattel mortgage and the
deed of assignment, under Section 3, Rule 117, of the Rules of Court; (b) the order to return the
vehicle to private respondent was a departure from jurisprudence recognizing the right of the
mortgagor to foreclose the property to respond to the unpaid obligation secured by the chattel
mortgage, and (c) there were no legal and factual bases for the court's view that the filing of the
replevin case was "characterized (by) evil practices." 15

On 20 April 1988, the court granted petitioner's motion for reconsideration and accordingly recalled
the order directing the return of the vehicle to private respondent, set aside the order dismissing the
case, directed petitioner "to cause the service of summons together with a copy of the complaint on
the principal defendants within five (5) days from receipt" 16 thereof at petitioner's expense, and
ordered private respondent to answer the complaint.

A few months later, or on 02 August 1988, petitioner filed a motion to declare private respondent in
default. The court granted the motion on that same day and declared private respondent "in default
for his failure to file the . . . answer within the reglementary period." 17 The court likewise granted
petitioner's motion to set the case for the presentation, ex parte, of evidence. Petitioner, thereupon,
submitted the promissory note, the deed of chattel mortgage, the deed of assignment, a statement of
account in the name of Florencia Manahan and two demand letters.

On 27 February 1989, the trial court rendered a decision dismissing the complaint against the
Manahans for failure of petitioner to prosecute the case against them. It also dismissed the case
against private respondent for failure of petitioner to show any legal basis for said respondent's
liability. The court ratiocinated:

. . . . Roberto M. Reyes is merely ancillary debtor in this case. The defendant

spouses Manahan being the principal debtor(s) and as there is no showing that the
latter has been brought before the jurisdiction of this court, it must necessarily follow
that the plaintiff has no cause of action against said Roberto M. Reyes herein before
referred to as defendant John Doe. Under the circumstances, it is incumbent upon
the plaintiff to return the seized vehicle unto the said Roberto M. Reyes. 18

In its appeal to the Court of Appeals, petitioner has asserted that a suit for replevin aimed at the
foreclosure of the chattel is an action quasi in rem which does not necessitate the presence of the
principal obligors as long as the court does not render any personal judgment against them. This
argument did not persuade the appellate court, the latter holding that —

. . . . In action quasi in rem an individual is named as defendant and the purpose of

the proceeding is to subject his interest therein to the obligation or lien burdening the
property, such as proceedings having for their sole object the sale or disposition of
 the property of the defendant, whether by attachment, foreclosure, or other form of
remedy (Sandejas vs. Robles, 81 Phil. 421). In the case at bar, the court cannot
render any judgment binding on the defendants spouses for having allegedly violated
the terms and conditions of the promissory note and the contract of chattel mortgage
on the ground that the court has no jurisdiction over their persons no summons
having been served on them. That judgment, it rendered, is void for having denied
the defendants spouses due process of law which contemplates notice and
opportunity to be heard before judgment is rendered, affecting one's person or
property (Macabingkil vs. Yatco, 26 SCRA 150, 157).

It is next contended by appellant that as between appellant, as mortgagee, and John

Doe, whose right to possession is dubious if not totally non-existent, it is the former
which has the superior right of possession.

We cannot agree.

It is an undisputed fact that the subject motor vehicle was taken from the possession
of said Roberto M. Reyes, a third person with respect to the contract of chattel
mortgage between the appellant and the defendants spouses Manahan.

The Civil Code expressly provides that every possessor has a right to be respected
in his possession (Art. 539, New Civil Code); that good faith is always presumed, and
upon him who alleges bad faith on the part of a possessor rests the burden of proof
(Art. 527, ibid.); and that the possession of movable property acquired in good faith is
equivalent to a title; nevertheless, one who has lost any movable or has been
unlawfully deprived thereof, may recover it from the person in possession of the
same (Art. 559, ibid.). Thus, it has been held that a possessor in good faith is entitled
to be respected and protected in his possession as if he were the true owner thereof
until a competent court rules otherwise (Chus Hai vs. Kapunan, 104 Phil. 110; Yu, et
al. vs. Hon. Honrado, etc., et al., 99 SCRA 237). In the case at bar, the trial court did
not err in holding that the complaint does not state any cause of action against
Roberto M. Reyes, and in ordering the return of the subject chattel to him. 19

The appellate court, subsequently, denied petitioner's motion for reconsideration.

In the instant appeal, petitioner insists that a mortgagee can maintain an action for replevin against
any possessor of the object of a chattel mortgage even if the latter were not a party to the mortgage.

Replevin, broadly understood, is both a form of principal remedy and of a provisional relief. It may
refer either to the action itself, i.e., to regain the possession of personal chattels being wrongfully
detained from the plaintiff by another, or to the provisional remedy that would allow the plaintiff to
retain the thing during the pendency of the action and hold it pendente lite. 20 The action is primarily
possessory in nature and generally determines nothing more than the right of possession. Replevin
is so usually described as a mixed action, being partly in rem and partly in personam — in
rem insofar as the recovery of specific property is concerned, and in personam as regards to
damages involved. As an "action in rem," the gist of the replevin action is the right of the plaintiff to
obtain possession of specific personal property by reason of his being the owner or of his having a
special interest therein. 21 Consequently, the person in possession of the property sought to be
replevied is ordinary the proper and only necessary party defendant, and the plaintiff is not required
to so join as defendants other persons claiming a right on the property but not in possession thereof.
Rule 60 of the Rules of Court allows an application for the immediate possession of the property but
the plaintiff must show that he has a good legal basis, i.e., a clear title thereto, for seeking
such interim possession.

Where the right of the plaintiff to the possession of the specific property is so conceded or evident,
the action need only be maintained against him who so possesses the property. In rem actio est per
quam rem nostram quae ab alio possidetur petimus, et semper adversus eum est qui rem possidet.
In Northern Motors, Inc. vs. Herrera, 22 the Court has said:

There can be no question that persons having a special right of property in the goods
the recovery of which is sought; such as a chattel mortgagee, may maintain an action
for replevin therefor. Where the mortgage authorizes the mortgagee to take
possession of the property on default, he may maintain an action to recover
 possession of the mortgaged chattels from the mortgagor or from any person in
whose hands he may find them. 23

In effect then, the mortgagee, upon the mortgagor's default, is constituted an attorney-in-fact
of the mortgagor enabling such mortgagee to act for and in behalf of the owner. Accordingly,
that the defendant is not privy to the chattel mortgage should be inconsequential. By the fact
that the object of replevin is traced to his possession, one properly can be a defendant in an
action for replevin. It is here assumed that the plaintiffs right to possess the thing is not or
cannot be disputed.

In case the right of possession on the part of the plaintiff, or his authority to claim such possession or
that of his principal, is put to great doubt (a contending party might contest the legal bases for
plaintiffs cause of action or an adverse and independent claim of ownership or right of possession is
raised by that party), it could become essential to have other persons involved and accordingly
impleaded for a complete determination and resolution of the controversy. For instance,
in Servicewide Specialists, Inc., vs. Court of Appeals, et al., G.R. No. 103301, 08 December 1995,
this Court ruled.

While, in its present petition for review on certiorari, Servicewide has raised a
number of points, the crucial issue still remains, however, to be whether or not an
action filed by the mortgagee for replevin to effect a foreclosure of the property
covered by the chattel mortgage would require that the mortgagor be so impleaded
as an indispensable party thereto.

Rule 60 of the Rules of Court allows a plaintiff, in an action for the recovery of
possession of personal property, to apply for a writ of replevin if it can be shown that
he is the owner of the property claimed . . . or is entitled to the possession thereof.'
The plaintiff need not be the owner so long as he is able to specify his right to the
possession of the property and his legal basis therefor. The question then, insofar as
the matter finds relation to the instant case, is whether or not the plaintiff (herein
petitioner) who has predicated his right on being the mortgagee of a chattel mortgage
should implead the mortgagor in his complaint that seeks to recover possession of
the encumbered property in order to effect its foreclosure.

The answer has to be in the affirmative. In a suit for replevin, a clear right of
possession must be established. A foreclosure under a chattel mortgage may
properly be commenced only once there is default on the part of the mortgagor of his
obligation secured by the mortgage. The replevin in the instant case has been sought
to pave the way for the foreclosure of the object covered by the chattel mortgage.
The conditions essential for that foreclosure would be to show, firstly, the existence
of the chattel mortgage and, secondly, the default of the mortgagor. These
requirements must be established since the validity of the plaintiffs exercise of the
right of foreclosure are inevitably dependent thereon. It would thus seem, considering
particularly an adverse and independent claim of ownership by private respondent
that the lower court acted improvidently when it granted the dismissal of the
complaint against Dollente, albeit on petitioner's (then plaintiff) plea, on the ground
that the "non-service of summons upon Ernesto Dollente (would) only delay the
determination of the merits of the case, to the prejudice of the parties." In Imson
v. Court of Appeals, we have explained:

. . . . An indispensable party is one whose interest will be affected by

the court's action in the litigation, and without whom no final
determination of the case can be had. The party's interest in the
subject matter of the suit and in the relief sought are so inextricably
intertwined with the other parties' that his legal presence as a party to
the proceeding is an absolute necessity. In his absence there cannot
be a resolution of the dispute of the parties before the court which is
effective, complete, or equitable.

Conversely, a party is not indispensable to the suit if his interest in

the controversy or subject matter is distinct and divisible from the
interest of the other parties and will not necessarily be prejudiced by
a judgment which does complete justice to the parties in court. He is
not indispensable if his presence would merely permit complete relief
 between him and those already parties to the action or will simply
avoid multiple litigation.

Without the presence of indispensable parties to a suit or proceeding, a judgment of

a court cannot attain real finality. (Footnotes omitted.)

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

The appellate court, accordingly, acted well in arriving at its now questioned judgment.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED No costs.

SO ORDERED.

G.R. No. 153788 November 27, 2009

ROGER V. NAVARRO, Petitioner,

vs.
HON. JOSE L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan de Oro City, and
KAREN T. GO, doing business under the name KARGO ENTERPRISES, Respondents.

DECISION

BRION, J.:

This is a petition for review on certiorari1 that seeks to set aside the Court of Appeals (CA)
Decision2 dated October 16, 2001 and Resolution3 dated May 29, 2002 in CA-G.R. SP. No. 64701.
These CA rulings affirmed the July 26, 20004 and March 7, 20015 orders of the Regional Trial Court
(RTC), Misamis Oriental, Cagayan de Oro City, denying petitioner Roger V. Navarro’s (Navarro)
motion to dismiss.

BACKGROUND FACTS

On September 12, 1998, respondent Karen T. Go filed two complaints, docketed as Civil Case Nos.
98-599 (first complaint)6 and 98-598 (second complaint),7 before the RTC for replevin and/or sum of
money with damages against Navarro. In these complaints, Karen Go prayed that the RTC issue
writs of replevin for the seizure of two (2) motor vehicles in Navarro’s possession.

The first complaint stated:

1. That plaintiff KAREN T. GO is a Filipino, of legal age, married to GLENN O. GO, a

resident of Cagayan de Oro City and doing business under the trade name KARGO
ENTERPRISES, an entity duly registered and existing under and by virtue of the laws of the
Republic of the Philippines, which has its business address at Bulua, Cagayan de Oro City;
that defendant ROGER NAVARRO is a Filipino, of legal age, a resident of 62 Dolores Street,
Nazareth, Cagayan de Oro City, where he may be served with summons and other
processes of the Honorable Court; that defendant "JOHN DOE" whose real name and
address are at present unknown to plaintiff is hereby joined as party defendant as he may be
 the person in whose possession and custody the personal property subject matter of this suit
may be found if the same is not in the possession of defendant ROGER NAVARRO;

2. That KARGO ENTERPRISES is in the business of, among others, buying and selling
motor vehicles, including hauling trucks and other heavy equipment;

3. That for the cause of action against defendant ROGER NAVARRO, it is hereby stated that
on August 8, 1997, the said defendant leased [from] plaintiff a certain motor vehicle which is
more particularly described as follows –

Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-51680

Motor No. 6D15-338735
Plate No. GHK-378

as evidenced by a LEASE AGREEMENT WITH OPTION TO PURCHASE entered into by and

between KARGO ENTERPRISES, then represented by its Manager, the aforementioned GLENN O.
GO, and defendant ROGER NAVARRO xxx; that in accordance with the provisions of the above
LEASE AGREEMENT WITH OPTION TO PURCHASE, defendant ROGER NAVARRO delivered
unto plaintiff six (6) post-dated checks each in the amount of SIXTY-SIX THOUSAND THREE
HUNDRED THIRTY-THREE & 33/100 PESOS (₱66,333.33) which were supposedly in payment of
the agreed rentals; that when the fifth and sixth checks, i.e. PHILIPPINE BANK OF
COMMUNICATIONS – CAGAYAN DE ORO BRANCH CHECKS NOS. 017112 and 017113,
respectively dated January 8, 1998 and February 8, 1998, were presented for payment and/or credit,
the same were dishonored and/or returned by the drawee bank for the common reason that the
current deposit account against which the said checks were issued did not have sufficient funds to
cover the amounts thereof; that the total amount of the two (2) checks, i.e. the sum of ONE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66)
therefore represents the principal liability of defendant ROGER NAVARRO unto plaintiff on the basis
of the provisions of the above LEASE AGREEMENT WITH RIGHT TO PURCHASE; that demands,
written and oral, were made of defendant ROGER NAVARRO to pay the amount of ONE HUNDRED
THIRTY-TWO THOUSAND SIX HUNDRED SIXTY-SIX & 66/100 PESOS (₱132,666.66), or to return
the subject motor vehicle as also provided for in the LEASE AGREEMENT WITH RIGHT TO
PURCHASE, but said demands were, and still are, in vain to the great damage and injury of herein
plaintiff; xxx

4. That the aforedescribed motor vehicle has not been the subject of any tax assessment and/or fine
pursuant to law, or seized under an execution or an attachment as against herein plaintiff;

xxx

8. That plaintiff hereby respectfully applies for an order of the Honorable Court for the immediate
delivery of the above-described motor vehicle from defendants unto plaintiff pending the final
determination of this case on the merits and, for that purpose, there is attached hereto an affidavit
duly executed and bond double the value of the personal property subject matter hereof to answer
for damages and costs which defendants may suffer in the event that the order for replevin prayed
for may be found out to having not been properly issued.

The second complaint contained essentially the same allegations as the first complaint, except that
the Lease Agreement with Option to Purchase involved is dated October 1, 1997 and the motor
vehicle leased is described as follows:

Make/Type FUSO WITH MOUNTED CRANE

Serial No. FK416K-510528
Motor No. 6D14-423403

The second complaint also alleged that Navarro delivered three post-dated checks, each for the
amount of ₱100,000.00, to Karen Go in payment of the agreed rentals; however, the third check was
dishonored when presented for payment.8

On October 12, 19989 and October 14, 1998,10 the RTC issued writs of replevin for both cases; as a
result, the Sheriff seized the two vehicles and delivered them to the possession of Karen Go.
In his Answers, Navarro alleged as a special affirmative defense that the two complaints stated no
cause of action, since Karen Go was not a party to the Lease Agreements with Option to Purchase
(collectively, the lease agreements) – the actionable documents on which the complaints were
based.

On Navarro’s motion, both cases were duly consolidated on December 13, 1999.

In its May 8, 2000 order, the RTC dismissed the case on the ground that the complaints did not state
a cause of action.

In response to the motion for reconsideration Karen Go filed dated May 26, 2000,11 the RTC issued
another order dated July 26, 2000 setting aside the order of dismissal. Acting on the presumption
that Glenn Go’s leasing business is a conjugal property, the RTC held that Karen Go had sufficient
interest in his leasing business to file the action against Navarro. However, the RTC held that Karen
Go should have included her husband, Glenn Go, in the complaint based on Section 4, Rule 3 of the
Rules of Court (Rules).12 Thus, the lower court ordered Karen Go to file a motion for the inclusion of
Glenn Go as co-plaintiff.1avv phi1

When the RTC denied Navarro’s motion for reconsideration on March 7, 2001, Navarro filed a
petition for certiorari with the CA, essentially contending that the RTC committed grave abuse of
discretion when it reconsidered the dismissal of the case and directed Karen Go to amend her
complaints by including her husband Glenn Go as co-plaintiff. According to Navarro, a complaint
which failed to state a cause of action could not be converted into one with a cause of action by
mere amendment or supplemental pleading.

On October 16, 2001, the CA denied Navarro’s petition and affirmed the RTC’s order.13 The CA also
denied Navarro’s motion for reconsideration in its resolution of May 29, 2002,14 leading to the filing of
the present petition.

THE PETITION

Navarro alleges that even if the lease agreements were in the name of Kargo Enterprises, since it
did not have the requisite juridical personality to sue, the actual parties to the agreement are himself
and Glenn Go. Since it was Karen Go who filed the complaints and not Glenn Go, she was not a real
party-in-interest and the complaints failed to state a cause of action.

Navarro posits that the RTC erred when it ordered the amendment of the complaint to include Glenn
Go as a co-plaintiff, instead of dismissing the complaint outright because a complaint which does not
state a cause of action cannot be converted into one with a cause of action by a mere amendment or
a supplemental pleading. In effect, the lower court created a cause of action for Karen Go when
there was none at the time she filed the complaints.

Even worse, according to Navarro, the inclusion of Glenn Go as co-plaintiff drastically changed the
theory of the complaints, to his great prejudice. Navarro claims that the lower court gravely abused
its discretion when it assumed that the leased vehicles are part of the conjugal property of Glenn and
Karen Go. Since Karen Go is the registered owner of Kargo Enterprises, the vehicles subject of the
complaint are her paraphernal properties and the RTC gravely erred when it ordered the inclusion of
Glenn Go as a co-plaintiff.

Navarro likewise faults the lower court for setting the trial of the case in the same order that required
Karen Go to amend her complaints, claiming that by issuing this order, the trial court violated Rule
10 of the Rules.

Even assuming the complaints stated a cause of action against him, Navarro maintains that the
complaints were premature because no prior demand was made on him to comply with the
provisions of the lease agreements before the complaints for replevin were filed.

Lastly, Navarro posits that since the two writs of replevin were issued based on flawed complaints,
the vehicles were illegally seized from his possession and should be returned to him immediately.

Karen Go, on the other hand, claims that it is misleading for Navarro to state that she has no real
interest in the subject of the complaint, even if the lease agreements were signed only by her
husband, Glenn Go; she is the owner of Kargo Enterprises and Glenn Go signed the lease
agreements merely as the manager of Kargo Enterprises. Moreover, Karen Go maintains that
Navarro’s insistence that Kargo Enterprises is Karen Go’s paraphernal property is without basis.
Based on the law and jurisprudence on the matter, all property acquired during the marriage is
presumed to be conjugal property. Finally, Karen Go insists that her complaints sufficiently
established a cause of action against Navarro. Thus, when the RTC ordered her to include her
husband as co-plaintiff, this was merely to comply with the rule that spouses should sue jointly, and
was not meant to cure the complaints’ lack of cause of action.

THE COURT’S RULING

We find the petition devoid of merit.

Karen Go is the real party-in-interest

The 1997 Rules of Civil Procedure requires that every action must be prosecuted or defended in the
name of the real party-in-interest, i.e., the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit.15

Interestingly, although Navarro admits that Karen Go is the registered owner of the business name
Kargo Enterprises, he still insists that Karen Go is not a real party-in-interest in the case. According
to Navarro, while the lease contracts were in Kargo Enterprises’ name, this was merely a trade
name without a juridical personality, so the actual parties to the lease agreements were Navarro and
Glenn Go, to the exclusion of Karen Go.

As a corollary, Navarro contends that the RTC acted with grave abuse of discretion when it ordered
the inclusion of Glenn Go as co-plaintiff, since this in effect created a cause of action for the
complaints when in truth, there was none.

We do not find Navarro’s arguments persuasive.

The central factor in appreciating the issues presented in this case is the business name Kargo
Enterprises. The name appears in the title of the Complaint where the plaintiff was identified as
"KAREN T. GO doing business under the name KARGO ENTERPRISES," and this identification was
repeated in the first paragraph of the Complaint. Paragraph 2 defined the business KARGO
ENTERPRISES undertakes. Paragraph 3 continued with the allegation that the defendant "leased
from plaintiff a certain motor vehicle" that was thereafter described. Significantly, the Complaint
specifies and attaches as its integral part the Lease Agreement that underlies the transaction
between the plaintiff and the defendant. Again, the name KARGO ENTERPRISES entered the
picture as this Lease Agreement provides:

This agreement, made and entered into by and between:

GLENN O. GO, of legal age, married, with post office address at xxx, herein referred to as the
LESSOR-SELLER; representing KARGO ENTERPRISES as its Manager,

xxx

thus, expressly pointing to KARGO ENTERPRISES as the principal that Glenn O. Go represented.
In other words, by the express terms of this Lease Agreement, Glenn Go did sign the agreement
only as the manager of Kargo Enterprises and the latter is clearly the real party to the lease
agreements.

As Navarro correctly points out, Kargo Enterprises is a sole proprietorship, which is neither a natural
person, nor a juridical person, as defined by Article 44 of the Civil Code:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law;
their personality begins as soon as they have been constituted according to law;
 (3) Corporations, partnerships and associations for private interest or purpose to which the
law grants a juridical personality, separate and distinct from that of each shareholder, partner
or member.

Thus, pursuant to Section 1, Rule 3 of the Rules,16 Kargo Enterprises cannot be a party to a civil
action. This legal reality leads to the question: who then is the proper party to file an action based on
a contract in the name of Kargo Enterprises?

We faced a similar question in Juasing Hardware v. Mendoza,17 where we said:

Finally, there is no law authorizing sole proprietorships like petitioner to bring suit in court. The law
merely recognizes the existence of a sole proprietorship as a form of business organization
conducted for profit by a single individual, and requires the proprietor or owner thereof to secure
licenses and permits, register the business name, and pay taxes to the national government. It does
not vest juridical or legal personality upon the sole proprietorship nor empower it to file or defend an
action in court.

Thus, the complaint in the court below should have been filed in the name of the owner of Juasing
Hardware. The allegation in the body of the complaint would show that the suit is brought by such
person as proprietor or owner of the business conducted under the name and style Juasing
Hardware. The descriptive words "doing business as Juasing Hardware" may be added to the title of
the case, as is customarily done.18 [Emphasis supplied.]

This conclusion should be read in relation with Section 2, Rule 3 of the Rules, which states:

SEC. 2. Parties in interest. – A real party in interest is the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized
by law or these Rules, every action must be prosecuted or defended in the name of the real party in
interest.

As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or
be injured by a judgment in this case. Thus, contrary to Navarro’s contention, Karen Go is the real
party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action
because her name did not appear in the Lease Agreement that her husband signed in behalf of
Kargo Enterprises. Whether Glenn Go can legally sign the Lease Agreement in his capacity as a
manager of Kargo Enterprises, a sole proprietorship, is a question we do not decide, as this is a
matter for the trial court to consider in a trial on the merits.

Glenn Go’s Role in the Case

We find it significant that the business name Kargo Enterprises is in the name of Karen T. Go,19 who
described herself in the Complaints to be "a Filipino, of legal age, married to GLENN O. GO, a
resident of Cagayan de Oro City, and doing business under the trade name KARGO
ENTERPRISES."20 That Glenn Go and Karen Go are married to each other is a fact never brought in
issue in the case. Thus, the business name KARGO ENTERPRISES is registered in the name of a
married woman, a fact material to the side issue of whether Kargo Enterprises and its properties are
paraphernal or conjugal properties. To restate the parties’ positions, Navarro alleges that Kargo
Enterprises is Karen Go’s paraphernal property, emphasizing the fact that the business is registered
solely in Karen Go’s name. On the other hand, Karen Go contends that while the business is
registered in her name, it is in fact part of their conjugal property.

The registration of the trade name in the name of one person – a woman – does not necessarily lead
to the conclusion that the trade name as a property is hers alone, particularly when the woman is
married. By law, all property acquired during the marriage, whether the acquisition appears to have
been made, contracted or registered in the name of one or both spouses, is presumed to be
conjugal unless the contrary is proved.21 Our examination of the records of the case does not show
any proof that Kargo Enterprises and the properties or contracts in its name are conjugal. If at all,
only the bare allegation of Navarro to this effect exists in the records of the case. As we emphasized
in Castro v. Miat:22

Petitioners also overlook Article 160 of the New Civil Code. It provides that "all property of the
marriage is presumed to be conjugal partnership, unless it be prove[n] that it pertains exclusively to
the husband or to the wife." This article does not require proof that the property was acquired
with funds of the partnership. The presumption applies even when the manner in which the
property was acquired does not appear.23 [Emphasis supplied.]

Thus, for purposes solely of this case and of resolving the issue of whether Kargo Enterprises as a
sole proprietorship is conjugal or paraphernal property, we hold that it is conjugal property.

Article 124 of the Family Code, on the administration of the conjugal property, provides:

Art. 124. The administration and enjoyment of the conjugal partnership property shall belong
to both spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must be availed of within five years from
the date of the contract implementing such decision.

xxx

This provision, by its terms, allows either Karen or Glenn Go to speak and act with authority in
managing their conjugal property, i.e., Kargo Enterprises. No need exists, therefore, for one to obtain
the consent of the other before performing an act of administration or any act that does not dispose
of or encumber their conjugal property.

Under Article 108 of the Family Code, the conjugal partnership is governed by the rules on the
contract of partnership in all that is not in conflict with what is expressly determined in this Chapter or
by the spouses in their marriage settlements. In other words, the property relations of the husband
and wife shall be governed primarily by Chapter 4 on Conjugal Partnership of Gains of the Family
Code and, suppletorily, by the spouses’ marriage settlement and by the rules on partnership under
the Civil Code. In the absence of any evidence of a marriage settlement between the spouses Go,
we look at the Civil Code provision on partnership for guidance.

A rule on partnership applicable to the spouses’ circumstances is Article 1811 of the Civil Code,
which states:

Art. 1811. A partner is a co-owner with the other partners of specific partnership property.

The incidents of this co-ownership are such that:

(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has
an equal right with his partners to possess specific partnership property for partnership
purposes; xxx

Under this provision, Glenn and Karen Go are effectively co-owners of Kargo Enterprises and the
properties registered under this name; hence, both have an equal right to seek possession of these
properties. Applying Article 484 of the Civil Code, which states that "in default of contracts, or special
provisions, co-ownership shall be governed by the provisions of this Title," we find further support in
Article 487 of the Civil Code that allows any of the co-owners to bring an action in ejectment with
respect to the co-owned property.

While ejectment is normally associated with actions involving real property, we find that this rule can
be applied to the circumstances of the present case, following our ruling in Carandang v. Heirs of De
Guzman.24 In this case, one spouse filed an action for the recovery of credit, a personal property
considered conjugal property, without including the other spouse in the action. In resolving the issue
of whether the other spouse was required to be included as a co-plaintiff in the action for the
recovery of the credit, we said:

Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the
spouses Carandang, seems to be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section
9, Rule 3.

Article 108 of the Family Code provides:

Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter or by the spouses in their
marriage settlements.

This provision is practically the same as the Civil Code provision it superseded:

Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter.

In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the
other partners of specific partnership property." Taken with the presumption of the conjugal nature of
the funds used to finance the four checks used to pay for petitioners’ stock subscriptions, and with
the presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino
and Milagros de Guzman co-owners of the alleged credit.

Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an
action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular and Adlawan v.
Adlawan, we held that, in a co-ownership, co-owners may bring actions for the recovery of co-owned
property without the necessity of joining all the other co-owners as co-plaintiffs because the suit is
presumed to have been filed for the benefit of his co-owners. In the latter case and in that of De Guia
v. Court of Appeals, we also held that Article 487 of the Civil Code, which provides that any of the
co-owners may bring an action for ejectment, covers all kinds of action for the recovery of
possession.

In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to
Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any
kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely
the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party
thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for
a complete relief can be accorded in the suit even without their participation, since the suit is
presumed to have been filed for the benefit of all co-owners.25 [Emphasis supplied.]

Under this ruling, either of the spouses Go may bring an action against Navarro to recover
possession of the Kargo Enterprises-leased vehicles which they co-own. This conclusion is
consistent with Article 124 of the Family Code, supporting as it does the position that either spouse
may act on behalf of the conjugal partnership, so long as they do not dispose of or encumber the
property in question without the other spouse’s consent.

On this basis, we hold that since Glenn Go is not strictly an indispensable party in the action to
recover possession of the leased vehicles, he only needs to be impleaded as a pro-forma party to
the suit, based on Section 4, Rule 4 of the Rules, which states:

Section 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except as provided
by law.

Non-joinder of indispensable parties not ground to dismiss action

Even assuming that Glenn Go is an indispensable party to the action, we have held in a number of
cases26 that the misjoinder or non-joinder of indispensable parties in a complaint is not a ground for
dismissal of action. As we stated in Macababbad v. Masirag:27

Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is
a ground for the dismissal of an action, thus:

Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground
for dismissal of an action. Parties may be dropped or added by order of the court on motion of any
party or on its own initiative at any stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with separately.

In Domingo v. Scheer, this Court held that the proper remedy when a party is left out is to implead
the indispensable party at any stage of the action. The court, either motu proprio or upon the motion
of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to
amend his complaint in order to include indispensable parties. If the plaintiff to whom the order to
include the indispensable party is directed refuses to comply with the order of the court, the
complaint may be dismissed upon motion of the defendant or upon the court's own motion. Only
upon unjustified failure or refusal to obey the order to include or to amend is the action dismissed.

In these lights, the RTC Order of July 26, 2000 requiring plaintiff Karen Go to join her husband as a
party plaintiff is fully in order.

Demand not required prior

to filing of replevin action

In arguing that prior demand is required before an action for a writ of replevin is filed, Navarro
apparently likens a replevin action to an unlawful detainer.

For a writ of replevin to issue, all that the applicant must do is to file an affidavit and bond, pursuant
to Section 2, Rule 60 of the Rules, which states:

Sec. 2. Affidavit and bond.

The applicant must show by his own affidavit or that of some other person who personally knows the
facts:

(a) That the applicant is the owner of the property claimed, particularly describing it, or is
entitled to the possession thereof;

(b) That the property is wrongfully detained by the adverse party, alleging the cause of
detention thereof according to the best of his knowledge, information, and belief;

(c) That the property has not been distrained or taken for a tax assessment or a fine
pursuant to law, or seized under a writ of execution or preliminary attachment, or otherwise
placed under custodia legis, or if so seized, that it is exempt from such seizure or custody;
and

(d) The actual market value of the property.

The applicant must also give a bond, executed to the adverse party in double the value of the
property as stated in the affidavit aforementioned, for the return of the property to the adverse party
if such return be adjudged, and for the payment to the adverse party of such sum as he may recover
from the applicant in the action.

We see nothing in these provisions which requires the applicant to make a prior demand on the
possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not
a condition precedent to an action for a writ of replevin.

More importantly, Navarro is no longer in the position to claim that a prior demand is necessary, as
he has already admitted in his Answers that he had received the letters that Karen Go sent him,
demanding that he either pay his unpaid obligations or return the leased motor vehicles. Navarro’s
position that a demand is necessary and has not been made is therefore totally unmeritorious.

WHEREFORE, premises considered, we DENY the petition for review for lack of merit. Costs
against petitioner Roger V. Navarro.

SO ORDERED.

G.R. No. 73317 August 31, 1989

THOMAS YANG, petitioner,

vs.
THE HONORABLE MARCELINO R. VALDEZ, Presiding Judge, Regional Trial Court, 11th
Judicial Region, Branch XXII, General Santos City, SPS. RICARDO MORANTE and MILAGROS
MORANTE, respondents.

Francis M. Zosa for petitioner.

Bayani L. Calonzo for private respondents.

FELICIANO, J.:

The present Petition for Certiorari 1 seeks to annul and set aside the orders dated 7 January 1985,
18 January 1985 and 28 February 1985, of Judge Marcelino R. Valdez of the Regional Trial Court of
General Santos City, Branch 22. The assailed orders, respectively, had approved a replevin bond
posted by respondents, denied the counter-replevin bond filed by Manuel Yaphockun, and rejected
petitioner Thomas Yang's counter replevin bond.

On 4 January 1985, respondent spouses Ricardo and Milagros Morante brought an action in the
Regional Trial Court of General Santos City against petitioner Thomas Yang and Manuel
Yaphockun, to recover possession of two (2) Isuzu-cargo trucks. In their complaint, the Morante
spouses alleged that they had actual use and possession of the two (2) cargo trucks, having
acquired them during the period from 1982 to 1984. The trucks were, however, registered in the
name of petitioner Thomas Yang who was the Treasurer in the Morante spouses' business of buying
and selling corn. The Morante spouses further alleged that they were deprived of possession of the
vehicles in the morning of 3 January 1985, when petitioner Yang had the vehicles taken from where
they were parked in front of the Coca-Cola Plant in General Santos City, to the warehouse of Manuel
Yaphockun and there they were thereafter held. Despite repeated demands, the complaint alleged,
petitioner Yang refused to release the trucks to respondent spouses.

To obtain immediate possession of the Isuzu trucks, respondent spouses applied for a writ of
replevin and put up a replevin bond of P560,000.00 executed by respondent Milagros Morante and
Atty. Bayani Calonzo (counsel for respondent spouses). lâwphî1.ñèt

On 7 January 1985, the respondent judge issued an order of seizure directing the Provincial Sheriff
of South Cotabato to take immediate possession and custody of the vehicles involved. The Sheriff
carried out the order.

On 10 January 1985, defendant Manuel Yaphockun filed a motion seeking repossession of the
cargo trucks, and posted a replevin counter-bond of P560,000.00 executed by himself and one
Narciso Mirabueno. The respondent judge promptly required the respondent spouses to comment
on the counter-bond proffered.

The respondent spouses reacted by amending their complaint on 13 January 1985 by excluding
Manuel Yaphockun as party-defendant. The following day, i.e., 14 January 1985, the respondents
submitted an opposition to Yaphockun's counter-bond, contending that since Manuel Yaphockun
was merely a nominal defendant, he had no standing to demand the return of the cargo trucks. By
an order dated 18 January 1985, the respondent judge disapproved the counter-bond filed by
Manuel Yaphockun, since the latter had been dropped as party-defendant and accordingly no longer
had any personality to litigate in the replevin suit. The trial court also ordered the immediate release
and delivery of the cargo trucks to respondent spouses.

For his part, petitioner Yang moved, on 21 January 1985, for an extension of fifteen (15) days within
which to file an answer to the complaint for replevin. Four days later, on 25 January 1985, petitioner
put up a counter-bond in the amount of P560,000.00 which counter-bond was, however, rejected by
the respondent judge for having been filed out of time.

Petitioner Yang now argues before us that, firstly, respondent judge had committed a grave abuse of
discretion amounting to lack or excess of jurisdiction in approving the replevin bond of respondent
spouses. It is contended by petitioner that replevin bond was merely an undertaking of the
bondsmen Milagros Morante and Atty. Calonzo to pay the sum of P560,000.00, that no tangible
security, such as "cash, property or surety," was placed thereby at the disposal and custody of the
court. It is argued, secondly, that the replevin bond was defective considering that it had been filed
by only one of the two (2) private respondents and that the bondsmen thereon had failed by its terms
to undertake to return the cargo trucks to petitioner should he (the petitioner) be adjudged lawful
owner thereof.

We are not persuaded by petitioner's arguments.

A bond that is required to be given by law is commonly understood to refer to an obligation or

undertaking in writing that is sufficiently secured. 2 It is not indispensably necessary, however, that
the obligation of the bond be secured or supported by cash or personal property or real property or
the obligation of a surety other than the person giving the bond. Most generally understood, a "bond"
is an obligation reduced to writing binding the obligor to pay a sum of money to the obligee under
specified conditions. 3 At common law, a bond was merely a written obligation under seal. 4 A bond is
often, as a commercial matter, secured by a mortgage on real property; the mortgagee may be the
obligee, although the mortgagee may also be a third party surety whose personal credit is added to
that of the principal obligor under the bond.

The sufficiency of a bond is a matter that is addressed to the sound discretion of the court which
must approve the bond. In the case at bar, the replevin bond given by the respondent Morante
spouses was properly secured by the sureties themselves who declared their solvency and capacity
to answer for the undertaking assumed, through an Affidavit of Justification which read as follows:

We, MILAGROS MORANTE and BAYANI L. CALONZO, both of legal age, Filipinos,
married and residents of Maltana, Tampakan, South Cotabato, and General Santos
City, respectively, after having been duly sworn to in accordance with law do hereby
depose and say:

1. That each of them is a resident householder or free-holder within

the Philippines;

2. That each of them is worth the amount specified in the under-

taking assumed by them in the above bond over and above all debts,
obligations and property exempt from execution.

IN WITNESS WHEREOF, we have hereunto set our hands, this 4th day of January,
1985, at General Santos City, Philippines.

The above sworn declaration of solvency which was submitted to the judge together with the bond,
in effect secured the replevin bond. We note also that the sureties or bondsmen under the bond
included not only Milagros Morante who was party-plaintiff below, but also a third person, Atty.
Bayani L. Calonzo who was not a party-litigant. Petitioner Yang never put in issue the financial
capability of these two (2) sureties. It follows that the approval of the replevin bond by respondent
judge, before whom it was presented and who was in a better position than this Court to appreciate
the financial standing of the sureties, can scarely be questioned as a grave abuse of discretion.

The other objections to the replevin bond are equally lacking in merit. The fact that the other
respondent, Ricardo Morante, did not act as surety on the same bond as his wife did, does not affect
the validity or the sufficiency of that bond. It would appear to the benefit of petitioner that Atty.
Bayani L. Calonzo signed up as the other or second surety or bondsman on that bond, since
petitioner thereby acquired a right of recourse not only against the respondent spouses but also
against a third person, not a party to the replevin suit. Further, the failure of the replevin bond to
state expressly that it was "conditioned for the return of the property to the defendant, if the return
thereof be adjudged," 5 is not fatal to the validity of the replevin bond. The replevin bond put up by
Milagros Morante and Bayani L. Calonzo stated that it was given "under the condition that [they] will
pay all the costs, which may be adjudged to the said defendants and all damages which said
defendants may sustain by reason of the order of replevin, if the court shall finally adjudge that the
plaintiffs were not entitled thereto." 6 We believe that the condition of the bond given in this case
substantially complied with the requirement of Section 2, Rule 60. Moreover, the provisions of Rule
60, Section 2 of the Revised Rules of Court under which the replevin bond was given may be
regarded as having become part of the bond as having been imported thereunto. All the particular
conditions prescribed in Section 2, Rule 60, although not written in the bond in printer's ink, will be
read into the bond in determining the scope and content of the liability of the sureties or bondsmen
under that bond. 7

Petitioner also contends that since the respondent spouses are not the registered owners of the
cargo trucks involved, the writ of replevin should not have been issued. We do not think so. The
provisional remedy of replevin is in the nature of a possessory action and the applicant who seeks
immediate possession of the property involved need not be holder of the legal title to the property. It
suffices, if at the time he applies for a writ of replevin, he is, in the words of Section 2, Rule 60,
"entitled to the possession thereof."

Petitioner further urges that the dropping of Manuel Yaphockun as party-defendant in the amended
complaint was fraudulently intended to deprive him (Yaphockun) of the right to demand the return of
the vehicles in dispute. The difficulty with this argument is that it is merely question-begging. A
person in actual or constructive possession of the goods sought to be replevied, should of course be
made a party-defendant. At the same time, however, the respondent spouses, as complainants in
the suit for replevin, were entitled, for their own convenience and at their own peril, to exclude or
strike out the name of a party previously impleaded from the complaint. In excluding Manuel
Yaphockun as party-defendant from the complaint, the respondent spouses were well within their
rights; no leave of court was needed, no responsive pleading having been previously filed. 8

Petitioner would finally challenge the order of respondent judge dated 28 February 1985 rejecting his
counter-replevin bond for having been filed out of time. Petitioner received summons on the
amended complaint on 25 January 1985 and on the same day, filed his counterbond. It is his
contention that his redelivery bond was not filed out of time, since he was served with summons only
on 25 January 1985.

A defendant in a replevin suit may demand return of possession of the property replevied by filing a
redelivery bond within the periods specified in Sections 5 and 6 of Rule 60, which provide:

Sec. 5. Return of property. — If the defendant objects to the sufficiency of the

plaintiffs bond, or of the surety or sureties thereon, he cannot require the return of the
property as in this section provided; but if he does not so object, he may, at any time
before the delivery of the property to the plaintiff, require the return thereof by filing
with the clerk or judge of the court a bond executed to the plaintiff, in double the
value of the property stated in the plaintiff's affidavit, for the delivery of the property to
the plaintiff, if such delivery be adjudged, and for the payment of such sum to him as
may be recovered against the defendant, and by serving a copy of such bond on the
plaintiff or his attorney;

Sec. 6. Disposition of property by officer. — If within five (5) days after the taking of
the property by the officer, the defendant does not object to the sufficiency of the
bond, or of the surety or sureties thereon, or require the return of the property as
provided in the last preceding section; or if the defendant so objects and the plaintiffs
first or new bond is approved; or if the defendant so requires, and his bond is
objected to and found insufficient and does not forthwith file an approved bond, the
property shall be delivered to the plaintiff. If for any reason the property is not
delivered to the plaintiff, the officer must return it to the defendant. (Emphasis
supplied)

Under Section 5, petitioner may "at any time before the delivery of the property to the plaintiff"
require the return of the property; in Section 6, he may do so, "within five (5) days after the taking of
the property by the officer." Both these periods are mandatory in character. 9 Thus, a lower court
which approves a counter-bond filed beyond the statutory periods, acts in excess of its jurisdiction.
In the instant case, the cargo trucks were taken into custody by the Sheriff on 7 January 1985.
Petitioner Yang's counter-replevin bond was filed on 25 January 1985. The matter was treated at
length in the trial court's order of 28 February 1985:

... It is also borne by the record that defendant, thru counsel, was served with copy 6f
the amended complaint dropping defendant Manuel Yap from the complaint on
January 14, 1985 and hence, said receipt of the amended complaint was tantamount
to a summons issued to the defendant Thomas Yang. It is a truism that the primary
purpose of summons is to acquire jurisdiction over the person of the parties, and
jurisdiction can be acquired by the voluntary submission of the defendant to the
jurisdiction of the Court. Hence, after defendant had been duly represented by
counsel even at the inception of the service of summons and a copy of the order of
replevin on January 7, 1985, defendant Thomas Yang had already been duly served,
especially so, when counsel manifested in their comment to the opposition filed by
plaintiffs that Manuel Yap has been duly authorized to represent Thomas Yang. From
then on defendant should have been on guard as to the provision of Section 6, Rule
 60 of the Rules of Court — re — the five (5) days period within which to file the
counter-replevin for the approval of the court, counted from the actual taking of the
property by the officer or the sheriff on January 7, 1985. It is honestly believed that
the five-day period spoken of by the Rule begins from the taking of the property by
the sheriff and not from the service of summons to the defendant, for even if
summons was already duly served to the defendant but the property has not yet
been taken by the sheriff, the provision above cited does not apply. Hence, it is clear
that the prescriptive period for filing a counter-replevin bond must be counted from
the actual taking of the property by the sheriff, subject of the replevin bond and in this
particular case on January 7, 1985. True indeed, that defendant Manuel Yap filed the
counter-replevin bond on January 10, 1985, which was denied by this court, that was
three (3) days after the property was taken on January 7, 1985 but when the said
defendant was dropped from the complaint on January 14, 1985, defendant Thomas
Yang should have immediately filed the proper counter-replevin bond after Manuel
Yap has been dropped from the complaint on January 14, 1985 considering that the
counter-replevin bond filed on January 10, 1985 by Manuel Yap has become
obsolete on this date, January 14, 1985. The service of summons to Thomas Yang
on January 25, 1985, has become an academic formality because on January 21,
1985, counsel has already filed a motion for extension of time of fifteen (15) days
within which to file their responsive pleading counted from January 31, 1985, for the
original period of fifteen (15) days for filing the corresponding answer lapsed on
January 31, 1985, which this court readily granted. Hence, irrespective of the order of
this court dated January 18,1985, denying the counter-replevin bond filed, defendant
Thomas Yang should and must have filed his counter replevin bond within two (2)
days from service of the amended complaint, the same must have been)'filed on
January 18, 1985, to conform with liberal interpretation of the rules and not on
January 25, 1985, for then the counter replevin bond had been filed beyond the
period provided by the Rules. The decisional principle on the filing of counter replevin
bond to entitle the defendant to the redelivery or retaining possession of the property,
is compliance with all the conditions precedent pursuant to the rules, and failure to
comply therewith entitles plaintiff to possession, and the initial steps in obtaining
redelivery must be taken within the time limit provided thereto . . . 10 (Emphasis
supplied)

We agree with the conclusion of respondent judge that petitioner's right to file a counterbond had
already prescribed.

We consider, accordingly, that respondent judge did not commit any grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing the orders here assailed.

WHEREFORE, the Resolution of the Court dated 8 February 1988 granting due course to the
Petition is hereby WITHDRAWN and the "Petition for Review on Appeal by Certiorari" is DENIED for
lack of merit and the orders of respondent Judge Marcelino R. Valdez dated 7 January 1985, 18
January 1985 and 28 February 1985 are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.
 RECEIVERSHIP

G.R. No. 203585 July 29, 2013

MILA CABOVERDE TANTANO and ROSELLER CABOVERDE, Petitioners,

vs.
DOMINALDA ESPINA-CABOVERDE, EVE CABOVERDE-YU, FE CABOVERDE-LABRADOR,
and JOSEPHINE E. CABOVERDE, Respondents.

DECISION

VELASCO, JR., J.:

The Case

Assailed in this petition for review under Rule 45 are the Decision and Resolution of the Court of
Appeals (CA) rendered on June 25, 2012 and September 21, 2012, respectively, in CA-G.R. SP. No.
03834, which effectively affirmed the Resolutions dated February 8, 20 I 0 and July 19, 2010 of the
Regional Trial Court (RTC) of Sindangan, Zamboanga del Norte, Branch 11, in Civil Case No. S-
760, approving respondent Dominalda Espina-Caboverde's application for receivership and
appointing the receivers over the disputed properties.

The Facts

Petitioners Mila Caboverde Tantano (Mila) and Roseller Caboverde (Roseller) are children of
respondent Dominalda Espina-Caboverde (Dominalda) and siblings of other respondents in this
case, namely: Eve Caboverde-Yu (Eve), Fe Caboverde-Labrador (Fe), and Josephine E. Caboverde
(Josephine).

Petitioners and their siblings, Ferdinand, Jeanny and Laluna, are the registered owners and in
possession of certain parcels of land, identified as Lots 2, 3 and 4 located at Bantayan, Sindangan
and Poblacion, Sindangan in Zamboanga del Norte, having purchased them from their parents,
Maximo and Dominalda Caboverde.1

The present controversy started when on March 7, 2005, respondents Eve and Fe filed a complaint
before the RTC of Sindangan, Zamboanga del Norte where they prayed for the annulment of the
Deed of Sale purportedly transferring Lots 2, 3 and 4 from their parents Maximo and Dominalda in
favor of petitioners Mila and Roseller and their other siblings, Jeanny, Laluna and Ferdinand.
Docketed as Civil Case No. S-760, the case was raffled to Branch 11 of the court.

In their verified Answer, the defendants therein, including Maximo and Dominalda, posited the
validity and due execution of the contested Deed of Sale.

During the pendency of Civil Case No. S-760, Maximo died. On May 30, 2007, Eve and Fe filed an
Amended Complaint with Maximo substituted by his eight (8) children and his wife Dominalda. The
Amended Complaint reproduced the allegations in the original complaint but added eight (8) more
real properties of the Caboverde estate in the original list.

As encouraged by the RTC, the parties executed a Partial Settlement Agreement (PSA) where they
fixed the sharing of the uncontroverted properties among themselves, in particular, the adverted
additional eight (8) parcels of land including their respective products and improvements. Under the
PSA, Dominalda’s daughter, Josephine, shall be appointed as Administrator. The PSA provided that
Dominalda shall be entitled to receive a share of one-half (1/2) of the net income derived from the
uncontroverted properties. The PSA also provided that Josephine shall have special authority,
among others, to provide for the medicine of her mother.

The parties submitted the PSA to the court on or about March 10, 2008 for approval.2

Before the RTC could act on the PSA, Dominalda, who, despite being impleaded in the case as
defendant, filed a Motion to Intervene separately in the case. Mainly, she claimed that the verified
Answer which she filed with her co-defendants contained several material averments which were not
representative of the true events and facts of the case. This document, she added, was never
explained to her or even read to her when it was presented to her for her signature.

On May 12, 2008, Dominalda filed a Motion for Leave to Admit Amended Answer, attaching her
Amended Answer where she contradicted the contents of the aforesaid verified Answer by declaring
that there never was a sale of the three (3) contested parcels of land in favor of Ferdinand, Mila,
Laluna, Jeanny and Roseller and that she and her husband never received any consideration from
them. She made it clear that they intended to divide all their properties equally among all their
children without favor. In sum, Dominalda prayed that the reliefs asked for in the Amended
Complaint be granted with the modification that her conjugal share and share as intestate heir of
Maximo over the contested properties be recognized.3

The RTC would later issue a Resolution granting the Motion to Admit Amended Answer.4

On May 13, 2008, the court approved the PSA, leaving three (3) contested properties, Lots 2, 3, and
4, for further proceedings in the main case.

Fearing that the contested properties would be squandered, Dominalda filed with the RTC on July
15, 2008 a Verified Urgent Petition/Application to place the controverted Lots 2, 3 and 4 under
receivership. Mainly, she claimed that while she had a legal interest in the controverted properties
and their produce, she could not enjoy them, since the income derived was solely appropriated by
petitioner Mila in connivance with her selected kin. She alleged that she immediately needs her legal
share in the income of these properties for her daily sustenance and medical expenses. Also, she
insisted that unless a receiver is appointed by the court, the income or produce from these
properties is in grave danger of being totally dissipated, lost and entirely spent solely by Mila and
some of her selected kin. Paragraphs 5, 6, 7, and 8 of the Verified Urgent Petition/Application for
Receivership5 (Application for Receivership) capture Dominalda’s angst and apprehensions:

5. That all the income of Lot Nos. 2, 3 and 4 are collected by Mila Tantano, thru her collector
Melinda Bajalla, and solely appropriated by Mila Tantano and her selected kins, presumably
with Roseller E. Caboverde, Ferdinand E. Caboverde, Jeanny Caboverde and Laluna
Caboverde, for their personal use and benefit;

6. That defendant Dominalda Espina Caboverde, who is now sickly, in dire need of constant
medication or medical attention, not to mention the check-ups, vitamins and other basic
needs for daily sustenance, yet despite the fact that she is the conjugal owner of the said
land, could not even enjoy the proceeds or income as these are all appropriated solely by
Mila Tantano in connivance with some of her selected kins;

7. That unless a receiver is appointed by the court, the income or produce from these lands,
are in grave danger of being totally dissipated, lost and entirely spent solely by Mila Tantano
in connivance with some of her selected kins, to the great damage and prejudice of
defendant Dominalda Espina Caboverde, hence, there is no other most feasible, convenient,
practicable and easy way to get, collect, preserve, administer and dispose of the legal share
or interest of defendant Dominalda Espina Caboverde except the appointment of a receiver x
x x;

xxxx

9. That insofar as the defendant Dominalda Espina Caboverde is concerned, time is of the
utmost essence. She immediately needs her legal share and legal interest over the income
and produce of these lands so that she can provide and pay for her vitamins, medicines,
constant regular medical check-up and daily sustenance in life. To grant her share and
interest after she may have passed away would render everything that she had worked for to
naught and waste, akin to the saying "aanhin pa ang damo kung patay na ang kabayo."

On August 27, 2009, the court heard the Application for Receivership and persuaded the parties to
discuss among themselves and agree on how to address the immediate needs of their mother.6

On October 9, 2009, petitioners and their siblings filed a Manifestation formally expressing their
concurrence to the proposal for receivership on the condition, inter alia, that Mila be appointed the
receiver, and that, after getting the 2/10 share of Dominalda from the income of the three (3) parcels
of land, the remainder shall be divided only by and among Mila, Roseller, Ferdinand, Laluna and
Jeanny. The court, however, expressed its aversion to a party to the action acting as receiver and
accordingly asked the parties to nominate neutral persons.7

On February 8, 2010, the trial court issued a Resolution granting Dominalda’s application for
receivership over Lot Nos. 2, 3 and 4. The Resolution reads:

As regards the second motion, the Court notes the urgency of placing Lot 2 situated at Bantayan,
covered by TCT No. 46307; Lot 3 situated at Poblacion, covered by TCT No. T-8140 and Lot 4 also
situated at Poblacion covered by TCT No. T-8140, all of Sindangan, Zamboanga del Norte under
receivership as defendant Dominalda Espina Caboverde (the old and sickly mother of the rest of the
parties) who claims to be the owner of the one-half portion of the properties under litigation as her
conjugal share and a portion of the estate of her deceased husband Maximo, is in dire need for her
medication and daily sustenance. As agreed by the parties, Dominalda Espina Caboverde shall be
given 2/10 shares of the net monthly income and products of the said properties.8

In the same Resolution, the trial court again noted that Mila, the nominee of petitioners, could not
discharge the duties of a receiver, she being a party in the case.9 Thus, Dominalda nominated her
husband’s relative, Annabelle Saldia, while Eve nominated a former barangay kagawad, Jesus
Tan.10

Petitioners thereafter moved for reconsideration raising the arguments that the concerns raised by
Dominalda in her Application for Receivership are not grounds for placing the properties in the hands
of a receiver and that she failed to prove her claim that the income she has been receiving is
insufficient to support her medication and medical needs. By Resolution11 of July 19, 2010, the trial
court denied the motion for reconsideration and at the same time appointed Annabelle Saldia as the
receiver for Dominalda and Jesus Tan as the receiver for Eve. The trial court stated:

As to the issue of receivership, the Court stands by its ruling in granting the same, there being no
cogent reason to overturn it. As intimated by the movant-defendant Dominalda Caboverde, Lots 2, 3
and 4 sought to be under receivership are not among those lots covered by the adverted Partial
Amicable Settlement. To the mind of the Court, the fulfilment or non-fulfilment of the terms and
conditions laid therein nonetheless have no bearing on these three lots. Further, as correctly pointed
out by her, there is possibility that these Lots 2, 3, and 4, of which the applicant has interest, but are
in possession of other defendants who are the ones enjoying the natural and civil fruits thereof which
might be in the danger of being lost, removed or materially injured. Under this precarious condition,
they must be under receivership, pursuant to Sec. 1 (a) of Rule 59. Also, the purpose of the
receivership is to procure money from the proceeds of these properties to spend for medicines and
other needs of the movant defendant Dominalda Caboverde who is old and sickly. This
circumstance falls within the purview of Sec. 1(d), that is, "Whenever in other cases it appears that
the appointment of a receiver is the most convenient and feasible means of preserving,
administering, or disposing of the property in litigation."

Both Annabelle Saldia and Jesus Tan then took their respective oaths of office and filed a motion to
fix and approve bond which was approved by the trial court over petitioners’ opposition.

Undaunted, petitioners filed an Urgent Precautionary Motion to Stay Assumption of Receivers dated
August 9, 2010 reiterating what they stated in their motion for reconsideration and expressing the
view that the grant of receivership is not warranted under the circumstances and is not consistent
with applicable rules and jurisprudence. The RTC, on the postulate that the motion partakes of the
nature of a second motion for reconsideration, thus, a prohibited pleading, denied it via a Resolution
dated October 7, 2011 where it likewise fixed the receiver’s bond at PhP 100,000 each. The RTC
stated:

[1] The appointed receivers, JESUS A. TAN and ANNABELLE DIAMANTE-SALDIA, are considered
duly appointed by this Court, not only because their appointments were made upon their proper
nomination from the parties in this case, but because their appointments have been duly upheld by
the Court of Appeals in its Resolution dated 24 May 2011 denying the herein defendants’ (petitioners
therein) application for a writ of preliminary injunction against the 8 February 2010 Resolution of this
Court placing the properties (Lots 2, 3 and 4) under receivership by the said JESUS A. TAN and
ANNABELLE DIAMANTE-SALDIA, and Resolution dated 29 July 2011 denying the herein
defendants’ (petitioners therein) motion for reconsideration of the 24 May 2011 Resolution, both, for
lack of merit. In its latter Resolution, the Court of Appeals states:
A writ of preliminary injunction, as an ancillary or preventive remedy, may only be resorted to by a
litigant to protect or preserve his rights or interests and for no other purpose during the pendency of
the principal action. But before a writ of preliminary injunction may be issued, there must be a clear
showing that there exists a right to be protected and that the acts against which the writ is to be
directed are violative of the said right and will cause irreparable injury.

Unfortunately, petitioners failed to show that the acts of the receivers in this case are inimical to their
rights as owners of the property. They also failed to show that the non-issuance of the writ of
injunction will cause them irreparable injury. The court-appointed receivers merely performed their
duties as administrators of the disputed lots. It must be stressed that the trial court specifically
appointed these receivers to preserve the properties and its proceeds to avoid any prejudice to the
parties until the main case is resolved, Hence, there is no urgent need to issue the injunction.

ACCORDINGLY, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED.

xxxx

WHEREFORE, premises considered, this Court RESOLVES, as it is hereby RESOLVED, that:

1. The defendants’ "Urgent Precautionary Motion to Stay Assumption of Receivers" be

DENIED for lack of merit. Accordingly, it being patently a second motion for reconsideration,
a prohibited pleading, the same is hereby ordered EXPUNGED from the records;

2. The "Motion to Fix the Bond, Acceptance and Approval of the Oath of Office, and Bond of
the Receiver" of defendant Dominalda Espina Caboverde, be GRANTED with the receivers’
bond set and fixed at ONE HUNDRED THOUSAND PESOS (Ph₱100,000.00) each.12

It should be stated at this juncture that after filing their Urgent Precautionary Motion to Stay
Assumption of Receivers but before the RTC could rule on it, petitioners filed a petition for certiorari
with the CA dated September 29, 2010 seeking to declare null and void the February 8, 2010
Resolution of the RTC granting the Application for Receivership and its July 19, 2010 Resolution
denying the motion for reconsideration filed by petitioners and appointing the receivers nominated by
respondents. The petition was anchored on two grounds, namely: (1) non-compliance with the
substantial requirements under Section 2, Rule 59 of the 1997 Rules of Civil

Procedure because the trial court appointed a receiver without requiring the applicant to file a bond;
and (2) lack of factual or legal basis to place the properties under receivership because the applicant
presented support and medication as grounds in her application which are not valid grounds for
receivership under the rules.

On June 25, 2012, the CA rendered the assailed Decision denying the petition on the strength of the
following premises and ratiocination:

Petitioners harp on the fact that the court a quo failed to require Dominalda to post a bond prior to
the issuance of the order appointing a receiver, in violation of Section 2, Rule 59 of the Rules of
court which provides that:

SEC. 2. Bond on appointment of receiver.-- Before issuing the order appointing a receiver the court
shall require the applicant to file a bond executed to the party against whom the application is
presented, in an amount to be fixed by the court, to the effect that the applicant will pay such party
all damages he may sustain by reason of the appointment of such receiver in case the applicant
shall have procured such appointment without sufficient cause; and the court may, in its discretion,
at any time after the appointment, require an additional bond as further security for such damages.

The Manifestation dated September 30, 2009 filed by petitioners wherein "they formally manifested
their concurrence" to the settlement on the application for receivership estops them from questioning
the sufficiency of the cause for the appointment of the receiver since they themselves agreed to
have the properties placed under receivership albeit on the condition that the same be placed under
the administration of Mila. Thus, the filing of the bond by Dominalda for this purpose becomes
unnecessary.
It must be emphasized that the bond filed by the applicant for receivership answers only for all
damages that the adverse party may sustain by reason of the appointment of such receiver in case
the applicant shall have procured such appointment without sufficient cause; it does not answer for
damages suffered by reason of the failure of the receiver to discharge his duties faithfully or to obey
the orders of the court, inasmuch as such damages are covered by the bond of the receiver.

As to the second ground, petitioners insist that there is no justification for placing the properties
under receivership since there was neither allegation nor proof that the said properties, not the fruits
thereof, were in danger of being lost or materially injured. They believe that the public respondent
went out of line when he granted the application for receivership for the purpose of procuring money
for the medications and basic needs of Dominalda despite the income she’s supposed to receive
under the Partial Settlement Agreement.

The court a quo has the discretion to decide whether or not the appointment of a receiver is
necessary. In this case, the public respondent took into consideration that the applicant is already an
octogenarian who may not live up to the day when this conflict will be finally settled. Thus, We find
that he did not act with grave abuse of discretion amounting to lack or excess of jurisdiction when he
granted the application for receivership based on Section 1(d) of Rule 59 of the Rules of Court.

A final note, a petition for certiorari may be availed of only when there is no appeal, nor any plain,
speedy and adequate remedy in the ordinary course of law. In this case, petitioners may still avail of
the remedy provided in Section 3, Rule 59 of the said Rule where they can seek for the discharge of
the receiver.

FOR REASONS STATED, the petition for certiorari is DENIED.

SO ORDERED.13

Petitioners’ Motion for Reconsideration was also denied by the CA on September 21, 2012.14

Hence, the instant petition, petitioners effectively praying that the approval of respondent
Dominalda’s application for receivership and necessarily the concomitant appointment of receivers
be revoked.

The Issues

Petitioners raise the following issues in their petition:

(1) Whether or not the CA committed grave abuse of discretion in sustaining the appointment
of a receiver despite clear showing that the reasons advanced by the applicant are not any of
those enumerated by the rules; and

(2) Whether or not the CA committed grave abuse of discretion in upholding the Resolution
of the RTC and ruling that the receivership bond is not required prior to appointment despite
clear dictates of the rules.

The Court’s Ruling

The petition is impressed with merit.

We have repeatedly held that receivership is a harsh remedy to be granted with utmost
circumspection and only in extreme situations. The doctrinal pronouncement in Velasco & Co. v.
Gochico & Co is instructive:

The power to appoint a receiver is a delicate one and should be exercised with extreme caution and
only under circumstances requiring summary relief or where the court is satisfied that there is
imminent danger of loss, lest the injury thereby caused be far greater than the injury sought to be
averted. The court should consider the consequences to all of the parties and the power should not
be exercised when it is likely to produce irreparable injustice or injury to private rights or the facts
demonstrate that the appointment will injure the interests of others whose rights are entitled to as
much consideration from the court as those of the complainant.15
To recall, the RTC approved the application for receivership on the stated rationale that receivership
was the most convenient and feasible means to preserve and administer the disputed properties. As
a corollary, the RTC, agreeing with the applicant Dominalda, held that placing the disputed
properties under receivership would ensure that she would receive her share in the income which
she supposedly needed in order to pay for her vitamins, medicines, her regular check-ups and daily
sustenance. Considering that, as the CA put it, the applicant was already an octogenarian who may
not live up to the day when the conflict will be finally settled, the RTC did not act with grave abuse of
discretion amounting to lack or excess of jurisdiction when it granted the application for receivership
since it was justified under Sec. 1(d), Rule 59 of the Rules of Court, which states:

Section 1. Appointment of a receiver. – Upon a verified application, one or more receivers of the
property subject of the action or proceeding may be appointed by the court where the action is
pending, or by the Court of Appeals or by the Supreme Court, or a member thereof, in the following
cases:

xxxx

(d) Whenever in other cases it appears that the appointment of a receiver is the most convenient
and feasible means of preserving, administering, or disposing of the property in litigation. (Emphasis
supplied.)

Indeed, Sec. 1(d) above is couched in general terms and broad in scope, encompassing instances
not covered by the other grounds enumerated under the said section.16 However, in granting
applications for receivership on the basis of this section, courts must remain mindful of the basic
principle that receivership may be granted only when the circumstances so demand, either because
the property sought to be placed in the hands of a receiver is in danger of being lost or because they
run the risk of being impaired,17 and that being a drastic and harsh remedy, receivership must be
granted only when there is a clear showing of necessity for it in order to save the plaintiff from grave
and immediate loss or damage.18

Before appointing a receiver, courts should consider: (1) whether or not the injury resulting from
such appointment would probably be greater than the injury ensuing if the status quo is left
undisturbed; and (2) whether or not the appointment will imperil the interest of others whose rights
deserve as much a consideration from the court as those of the person requesting for receivership.19

Moreover, this Court has consistently ruled that where the effect of the appointment of a receiver is
to take real estate out of the possession of the defendant before the final adjudication of the rights of
the parties, the appointment should be made only in extreme cases.20

After carefully considering the foregoing principles and the facts and circumstances of this case, We
find that the grant of Dominalda’s Application for Receivership has no leg to stand on for reasons
discussed below.

First, Dominalda’s alleged need for income to defray her medical expenses and support is not a valid
justification for the appointment of a receiver. The approval of an application for receivership merely
on this ground is not only unwarranted but also an arbitrary exercise of discretion because financial
need and like reasons are not found in Sec. 1 of Rule 59 which prescribes specific grounds or
reasons for granting receivership. The RTC’s insistence that the approval of the receivership is
justified under Sec. 1(d) of Rule 59, which seems to be a catch-all provision, is far from convincing.
To be clear, even in cases falling under such provision, it is essential that there is a clear showing
that there is imminent danger that the properties sought to be placed under receivership will be lost,
wasted or injured.

Second, there is no clear showing that the disputed properties are in danger of being lost or
materially impaired and that placing them under receivership is most convenient and feasible means
to preserve, administer or dispose of them.

Based on the allegations in her application, it appears that Dominalda sought receivership mainly
because she considers this the best remedy to ensure that she would receive her share in the
income of the disputed properties. Much emphasis has been placed on the fact that she needed this
income for her medical expenses and daily sustenance. But it can be gleaned from her application
that, aside from her bare assertion that petitioner Mila solely appropriated the fruits and rentals
earned from the disputed properties in connivance with some of her siblings, Dominalda has not
presented or alleged anything else to prove that the disputed properties were in danger of being
wasted or materially injured and that the appointment of a receiver was the most convenient and
feasible means to preserve their integrity.

Further, there is nothing in the RTC’s February 8 and July 19, 2010 Resolutions that says why the
disputed properties might be in danger of being lost, removed or materially injured while in the hands
of the defendants a quo. Neither did the RTC explain the reasons which compelled it to have them
placed under receivership. The RTC simply declared that placing the disputed properties under
receivership was urgent and merely anchored its approval on the fact that Dominalda was an elderly
in need of funds for her medication and sustenance. The RTC plainly concluded that since the
purpose of the receivership is to procure money from the proceeds of these properties to spend for
medicines and other needs of the Dominalda, who is old and sickly, this circumstance falls within the
purview of Sec. 1(d), that is, "Whenever in other cases it appears that the appointment of a receiver
is the most convenient and feasible means of preserving, administering, or disposing of the property
in litigation."

Verily, the RTC’s purported determination that the appointment of a receiver is the most convenient
and feasible means of preserving, administering or disposing of the properties is nothing but a
hollow conclusion drawn from inexistent factual considerations.

Third, placing the disputed properties under receivership is not necessary to save Dominalda from
grave and immediate loss or irremediable damage. Contrary to her assertions, Dominalda is assured
of receiving income under the PSA approved by the RTC providing that she was entitled to receive a
share of one-half (1/2) of the net income derived from the uncontroverted properties. Pursuant to the
PSA, Josephine, the daughter of Dominalda, was appointed by the court as administrator of the
eight (8) uncontested lots with special authority to provide for the medicine of her mother. Thus, it
was patently erroneous for the RTC to grant the Application for Receivership in order to ensure
Dominalda of income to support herself because precisely, the PSA already provided for that. It
cannot be over-emphasized that the parties in Civil Case No. S-760 were willing to make
arrangements to ensure that Dominalda was provided with sufficient income. In fact, the RTC, in its
February 8, 2010 Resolution granting the Application for Receivership, noted the agreement of the
parties that "Dominalda Espina Caboverde shall be given 2/10 shares of the net monthly income and
products of said properties."21

Finally, it must be noted that the defendants in Civil Case No. S-760 are the registered owners of the
disputed properties that were in their possession. In cases such as this, it is settled jurisprudence
that the appointment should be made only in extreme cases and on a clear showing of necessity in
order to save the plaintiff from grave and irremediable loss or damage.22

This Court has held that a receiver should not be appointed to deprive a party who is in possession
of the property in litigation, just as a writ of preliminary injunction should not be issued to transfer
property in litigation from the possession of one party to another where the legal title is in dispute
and the party having possession asserts ownership in himself, except in a very clear case of evident
usurpation.23

Furthermore, this Court has declared that the appointment of a receiver is not proper when the rights
of the parties, one of whom is in possession of the property, depend on the determination of their
respective claims to the title of such property24 unless such property is in danger of being materially
injured or lost, as by the prospective foreclosure of a mortgage on it or its portions are being
occupied by third persons claiming adverse title.25

It must be underscored that in this case, Dominalda’s claim to the disputed properties and her share
in the properties’ income and produce is at best speculative precisely because the ownership of the
disputed properties is yet to be determined in Civil Case No. S-760. Also, except for Dominalda’s
claim that she has an interest in the disputed properties, Dominalda has no relation to their produce
or income.1âwphi 1

By placing the disputed properties and their income under receivership, it is as if the applicant has
obtained indirectly what she could not obtain directly, which is to deprive the other parties of the
possession of the property until the controversy between them in the main case is finally
settled.26 This Court cannot countenance this arrangement.

To reiterate, the RTC’s approval of the application for receivership and the deprivation of petitioners
of possession over the disputed properties would be justified only if compelling reasons exist.
Unfortunately, no such reasons were alleged, much less proved in this case.
In any event, Dominalda’s rights may be amply protected during the pendency of Civil Case No. S-
760 by causing her adverse claim to be annotated on the certificates of title covering the disputed
properties.27

As regards the issue of whether or not the CA was correct in ruling that a bond was not required
prior to the appointment of the receivers in this case, We rule in the negative.

Respondents Eve and Fe claim that there are sufficient grounds for the appointment of receivers in
this case and that in fact, petitioners agreed with them on the existence of these grounds when they
acquiesced to Dominalda’s Application for Receivership. Thus, respondents insist that where there is
sufficient cause to appoint a receiver, there is no need for an applicant’s bond because under Sec. 2
of Rule 59, the very purpose of the bond is to answer for all damages that may be sustained by a
party by reason of the appointment of a receiver in case the applicant shall have procured such
appointment without sufficient cause. Thus, they further argue that what is needed is the receiver’s
bond which was already fixed and approved by the RTC.28 Also, the CA found that there was no
need for Dominalda to file a bond considering that petitioners filed a Manifestation where they
formally consented to the receivership. Hence, it was as if petitioners agreed that there was
sufficient cause to place the disputed properties under receivership; thus, the CA declared that
petitioners were estopped from challenging the sufficiency of such cause.

The foregoing arguments are misplaced. Sec. 2 of Rule 59 is very clear in that before issuing the
order appointing a receiver the court shall require the applicant to file a bond executed to the party
against whom the application is presented. The use of the word "shall" denotes its mandatory nature;
thus, the consent of the other party, or as in this case, the consent of petitioners, is of no moment.
Hence, the filing of an applicant’s bond is required at all times. On the other hand, the requirement of
a receiver’s bond rests upon the discretion of the court. Sec. 2 of Rule 59 clearly states that the court
may, in its discretion, at any time after the appointment, require an additional bond as further
security for such damages.

WHEREFORE, upon the foregoing considerations, this petition is GRANTED. The assailed CA June
25, 2012 Decision and September 21, 2012 Resolution in CA-G.R. SP No. 03834 are hereby
REVERSED and SET ASIDE. The Resolutions dated February 8, 2010 and July 19, 2010 of the
RTC, Branch 11 in Sindangan, Zamboanga del Norte, in Civil Case No. S-760, approving
respondent Dominalda Espina-Caboverde’s application for receivership and appointing the receivers
over the disputed properties are likewise SET ASIDE.

SO ORDERED.

G.R. No. 110086. July 19, 1999.]

PARAMOUNT INSURANCE CORPORATION, Petitioner, v. COURT OF APPEALS and

DAGUPAN ELECTRIC CORPORATION, Respondents.

DECISION

YNARES-SANTIAGO, J.:

Before this Court is a petition for review on certiorari assailing the Decision of the Court of
Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 which dismissed petitioner Paramount
Insurance Corporation’s (PARAMOUNT) appeal, thereby affirming the decision of the court a
quo finding petitioner liable on its injunction bond.chanrobles.com:cralaw:red

McAdore Finance and Investment, Inc. (McADORE) was the owner and operator of the
McAdore International Palace Hotel in Dagupan City. Private respondent Dagupan Electric
Corporation (DECORP), on the other hand, was the grantee of a franchise to operate and
maintain electric services in the province of Pangasinan, including Dagupan City.

On February 2, 1978, McADORE and DECORP entered into a contract whereby DECORP shall
provide electric power to McADORE’s Hotel. During the term of their contract for power
service, DECORP noticed discrepancies between the actual monthly billings and the estimated
monthly billings of McADORE. Upon inspection, it was discovered that the terminal in the
transformers connected to the meter had been interchanged resulting in the slow rotation of the
meter. Consequently, DECORP issued a corrected bill but McADORE refused to pay. As a result
of McADORE’s failure and continued refusal to pay the corrected electric bills, DECORP
disconnected power supply to the hotel on November 27, 1978.

Aggrieved, McADORE commenced a suit against DECORP for damages with prayer for a writ
of preliminary injunction. McADORE posted injunction bonds from several sureties, one of
which was herein petitioner PARAMOUNT, which issued an injunction bond on July 7, 1980
with a face amount of P500,000.00. Accordingly, a writ of preliminary injunction was issued
wherein DECORP was ordered to continue supplying electric power to the hotel and restrained
from further disconnecting it.

After due hearing, the Regional Trial Court of Quezon City, Branch 106, rendered judgment in
favor of DECORP, the dispositive portion of which reads:jgc:chanrobles.com.ph

"WHEREFORE, there being preponderance of evidence, the court hereby dismisses the amended
complaint. Further, the court rescinds the service contract between the parties, and orders
McAdore to pay Decorp the following:chanrob1es virtual 1aw library

1. Actual damages consisting of total arrearages for electric services rendered from February
1978 to January 1983, in the sum of P3,834,489.62, plus interest at the legal rate, computed from
the date of demand until full payment;

2. Moral damages in the sum of P600,000.00;

3. Exemplary damages in the sum of P400,000.00;

4. Attorney’s fees in the sum of P100,000.00; and

5. Costs of the suit.

"While this case was under litigation, the court issued a number of restraining orders or
injunctions. During these incidents, McAdore filed the following bonds: Policy No. 8022709 by
Paramount Insurance Corporation for P500,000.00; No. 00007 and No. 00008 by Sentinel
Insurance Company, Inc. for P100,000.00 and P50,000.00; and No. 1213 by the Travelers Multi-
Indemnity Corporation for P225,000.00.chanroblesvirtual|awlibrary

"Pursuant to the dispositive portion of this decision, the court holds that these bonding
companies are jointly and severally liable with McAdore, to the extent of the value of their
bonds, to pay the damages adjudged to Decorp.

"Send this decision to: plaintiff’s counsel Atty. Pagapong; defendant’s counsel Atty. Vera Cruz;
and to each of the bondsman.

"It is so ordered." 1

McADORE did not appeal the above decision. PARAMOUNT, however, appealed to the Court
of Appeals assigning the following errors, to wit:chanrob1es virtual 1aw library

I. APPELLANT SURETY WAS NOT GRANTED DUE PROCESS NOR GIVEN ITS DAY IN
COURT.
II. APPELLANT’S SURETY BOND, BEING AN INJUNCTION OR TEMPORARY
RESTRAINING ORDER BOND, THE MANDATORY PROCEDURE IN SEC. 20, RULE 57,
IN RELATION TO SEC. 9, RULE 58, RULES OF COURT WAS NOT OBSERVED IN THIS
CASE;

III. NO EVIDENCE NOR PROOF HAD BEEN PRESENTED TO SHOW THAT HEREIN
APPELLANT SURETY BOND SHOULD BE HELD LIABLE FOR TOTAL DAMAGES AS
ADJUDGED IN THE CHALLENGED DECISION." 2

In essence, PARAMOUNT contended that it was not given its day in court because it was not
notified by DECORP of its intention to present evidence of damages against its injunction bond,
as mandated by Sec. 9 of Rule 58, in relation to Sec. 20 of Rule 57 of the Revised Rules of
Court.

The Court of Appeals was not convinced with petitioner’s contentions. On April 30, 1993, it
affirmed the decision of the trial court.chanroblesvirtualawlibrary

In the instant petition, PARAMOUNT seeks to reverse and set aside the decision of the Court of
Appeals on the following assignment of errors:jgc:chanrobles.com.ph

"FIRSTLY, THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT NOTICE

TO PETITIONER AND ITS PRESENCE THROUGH COUNSEL IN ONE HEARING WHERE
NO EVIDENCE IN SUPPORT OF THE DAMAGES GUARANTEED BY PETITIONER’S
BOND RENDERS THE NEED FOR ANOTHER HEARING ON THAT MATTER A
SUPERFLUITY.

"SECONDLY, THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE

DECISION OF THE COURT A QUO THAT PETITIONER IS JOINTLY AND SEVERALLY
LIABLE WITH McADORE TO THE EXTENT OF ITS BOND, WHICH DECISION IS NOT
SUPPORTED BY THE EVIDENCE." 3

PARAMOUNT asserts that" (t)he bone of contention in the instant case is the matter of evidence
(or lack thereof) presented by private respondent during the hearing of the case a quo, notice (or
lack thereof) to the surety relative to the proceedings before the court a quo during which said
evidence was presented, as well as the actual proceedings themselves." 4 PARAMOUNT further
asseverates that "no evidence relative to damages suffered by private respondent as a result of the
injunction was ever presented, or that if any such evidence was presented, the same was done
without notice to petitioner and in violation of its right to due process." 5 Moreover, petitioner
maintains that the injunction bond was issued and approved sometime in April 1980 to guarantee
"actual and material damages as may be sustained and duly proved by private Respondent."
Thus, it can only cover the period prospectively from the date of its issuance and does not
retroact to the date of the initial controversy.

In its Comment, DECORP claims that PARAMOUNT participated in the proceedings and was
given its day in court. This is evidenced by the "Notice of Hearing" dated February 26, 1985
addressed to the three sureties. In fact, at the hearing on March 22, 1985, PARAMOUNT was in
attendance represented by Atty. Nonito Q. Cordero. Likewise, PARAMOUNT was notified of
the next hearing scheduled for April 26, 1985. DECORP further stressed that the hearing on
April 26, 1985 proceeded as scheduled without any comment, objection, opposition or
reservation from PARAMOUNT.

The core issue to be resolved here is whether or not petitioner Paramount Insurance Corporation
was denied due process when the trial court found the injunction bond it issued in favor of
McADORE liable to DECORP. Stated otherwise, was there sufficient evidence to establish the
liability of the petitioner on its injunction bond?chanrobles.com : virtual law library
The petition is devoid of merit.

Petitioner’s submissions necessitates going into the nature of an injunction as well as over the
procedure in claiming, ascertaining and awarding damages upon the injunction bond.

Injunction is an extraordinary remedy calculated to preserve the status quo of things and to
prevent actual or threatened acts violative of the rules of equity and good conscience as would
consequently afford an injured party a cause of action resulting from the failure of the law to
provide for an adequate or complete relief. 6 A preliminary injunction is an order granted at any
stage of an action or proceeding prior to the judgment or final order, requiring a party or a court,
agency or a person to refrain from a particular act or acts. It may also require the performance of
a particular act or acts, in which case it shall be known as a preliminary mandatory injunction. 7
Its sole purpose is not to correct a wrong of the past, in the sense of redress for injury already
sustained, but to prevent further injury. 8

A preliminary injunction or temporary restraining order may be granted only when, among
others, the applicant, unless exempted by the court, files with the court where the action or
proceeding is pending, a bond executed to the party or person enjoined, in an amount to be fixed
by the court, to the effect that the applicant will pay such party or person all damages which he
may sustain by reason of the injunction or temporary restraining order if the court should finally
decide that the applicant was not entitled thereto. Upon approval of the requisite bond, a writ of
preliminary injunction shall be issued. 9 At the trial, the amount of damages to be awarded to
either party, upon the bond of the adverse party, shall be claimed, ascertained, and awarded
under the same procedure prescribed in Section 20 of Rule 57. 10

Rule 57, Section 20, of the 1997 Rules of Civil Procedure, which is similarly applicable to
preliminary injunction, pertinently provides:jgc:chanrobles.com.ph

"SECTION 20. Claim for damages on account of improper, irregular or excessive attachment. —
An application for damages on account of improper, irregular or excessive attachment must be
filed before the trial or before appeal is perfected or before the judgment becomes executory,
with due notice to the attaching obligee or his surety or sureties, setting forth the facts showing
his right to damages and the amount thereof. Such damages may be awarded only after proper
hearing and shall be included in the judgment on the main case.

"If the judgment of the appellate court be favorable to the party against whom the attachment
was issued, he must claim damages sustained during the pendency of the appeal by filing an
application in the appellate court with notice to the party in whose favor the attachment was
issued or his surety or sureties, before the judgment of the appellate court becomes executory.
The appellate court may allow the application to be heard and decided by the trial court.

"Nothing herein contained shall prevent the party against whom the attachment was issued from
recovering in the same action the damages awarded to him from any property of the attaching
obligee not exempt from execution should the bond or deposit given by the latter be insufficient
or fail to fully satisfy the award." (mutatis mutandis)chanrobles virtuallawlibrary

The above rule comes into play when the plaintiff-applicant for injunction fails to sustain his
action, and the defendant is thereby granted the right to proceed against the bond posted by the
former. In the case at bench, the trial court dismissed McADORE’s action for damages with
prayer for writ of preliminary injunction and eventually adjudged the payment of actual, moral,
and exemplary damages against plaintiff-applicant. Consequently, private respondent DECORP
can proceed against the injunction bond posted by plaintiff-applicant to recover the damages
occasioned by the issuance by the trial court of the writ of injunction.

In order for the injunction bond to become answerable for the above-described damages, the
following requisites must concur: 11
1. The application for damages must be filed in the same case where the bond was issued;

2. Such application for damages must be filed before the entry of judgment; and

3. After hearing with notice to the surety.chanrobles virtual lawlibrary

The records of this case reveal that during its pendency in the trial court, DECORP filed its
Answer raising compulsory counterclaims for rescission of contract, moral damages, exemplary
damages, attorney’s fees and litigation expenses. 12 During the trial, Atty. Nonito Cordero
appeared 13 as counsel for petitioner. PARAMOUNT as well as the other sureties were properly
notified of the hearing and given their day in court. Specifically, notice was sent to Atty. Cordero
of the hearing on April 27, 1985, which was set for the purpose of determining the liability of the
sureties. The counterclaims for damages of DECORP were proven at the trial and yet
PARAMOUNT did not exert any effort to controvert the evidence presented by DECORP. Given
these circumstances, PARAMOUNT cannot hide under the cloak of non-liability on its
injunction bond on the mere expediency that it was deprived of due process. It bears stressing
that what the law abhors is not the absence of previous notice but rather the absolute lack of
opportunity to ventilate a party’s side. 14 In other words, petitioner cannot successfully invoke
denial of due process where it was given the chance to be heard. As aptly held by the Court of
Appeals, viz.:jgc:chanrobles.com.ph

"The records of the case disclose that during the trial of the case, PARAMOUNT was present
and represented by its counsel Atty. Nonito Q. Cordero as shown in the trial court’s order dated
March 22, 1985 (Annex "A" of Appellee’s Brief). In the said order, PARAMOUNT was duly
notified of the next hearing which was scheduled on April 26, 1985. Evidently, PARAMOUNT
was well-apprised of the next hearing and it cannot feign lack of notice. Having been given an
opportunity to be heard during the main hearing for the matter of damages, PARAMOUNT
therefore, cannot bewail that it was not given an opportunity to be heard upon denial of its
motion to cancel its injunction bond. Of what use, therefore, is there to conduct another hearing
when the issue of damages has been the subject of the main action of which PARAMOUNT had
been duly notified? A new notice and hearing prescribed by Sec. 20, Rule 57, is therefore a
repetition and a superfluity.

"Moreover, PARAMOUNT has only itself to blame when it did not make any opposition or
objection during the hearing for the reception of DECORP’s evidence. Having manifested its
desire to cancel its bond, it should have asked for a deferment of hearing on DECORP’s
evidence but PARAMOUNT did not do anything of this sort. Only when an adverse judgment
was rendered by the trial court against its principal McAdore did it whimper a denial of
procedural due process." 15

On the same point, PARAMOUNT argues that contrary to the ruling of the Court of Appeals,
there is a need for a separate hearing for the purpose of presenting evidence on the alleged
damages claimed by DECORP on petitioner’s injunction bond. PARAMOUNT contends that a
separate hearing is needed as no evidence dealing with DECORP’s claim for damages on
petitioner’s bond was presented during the hearing wherein petitioner’s counsel attended nor in
the next hearing wherein petitioner was notified but failed to attend. Since no hearing was held
for the purpose of establishing its liability on the injunction bond, PARAMOUNT concludes that
it is released from its obligation as surety.chanrobles virtual lawlibrary

Contrary to petitioner’s thesis, it is neither mandatory nor fatal that there should be a separate
hearing in order that damages upon the bond can be claimed, ascertained and awarded, as can be
gleaned from a cursory reading of the provisions of Rule 57, Section 20. This Court agrees with
the appellate court’s ruling that:jgc:chanrobles.com.ph

"Jurisprudential findings laid down the doctrine that a final adjudication that the applicant is not
entitled to the injunction does not suffice to make the surety liable. It is necessary, in addition,
that the surety be accorded due process, that is, that it be given an opportunity to be heard on the
question of its solidary liability for damages arising from a wrongful injunction order. Withal,
the fact that the matter of damages was among the issues tried during the hearings on the merits
will not render unnecessary or superfluous a summary hearing to determine the extent of a
surety’s liability unless of course, the surety had been impleaded as a party, or otherwise earlier
notified and given opportunity to be present and ventilate its side on the matter during the
trial.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

"The exception under the doctrinal ruling abovenoted is extant in the case at bar." 16

What is necessary only is for the attaching party and his surety or sureties to be duly notified and
given the opportunity to be heard. In the case at bench, this Court accords due respect to the
factual finding of the Court of Appeals that "PARAMOUNT was present and represented by its
counsel Atty. Nonito Q. Cordero as shown in the trial court’s order dated March 22, 1985 . . ." 17

As stated, PARAMOUNT also argues that assuming it is liable on its injunction bond, its
liability should be limited only to the amount of damages accruing from the time the injunction
bond was issued until the termination of the case, and not from the time the suit was commenced.
In short, it claims that the injunction bond is prospective and not retroactive in application.

This Court does not agree. Rule 58, Section 4(b), provides that a bond is executed in favor of the
party enjoined to answer for all damages which he may sustain by reason of the injunction. This
Court already had occasion to rule on this matter in Mendoza v. Cruz, 18 where it held that" (t)he
injunction bond is intended as a security for damages in case it is finally decided that the
injunction ought not to have been granted. It is designed to cover all damages which the party
enjoined can possibly suffer. Its principal purpose is to protect the enjoined party against loss or
damage by reason of an injunction." No distinction was made as to when the damages should
have been incurred.

Moreover, when petitioner issued its injunction bond in favor of DECORP, it was done with the
full knowledge of the relevant facts obtaining in the controversy between DECORP and
McADORE. At the time the injunction bond was issued, DECORP was already claiming arrears
in electric bills and damages from McADORE.chanrobles virtual lawlibrary

It bears stressing that McADORE was found liable to pay actual damages, moral damages,
exemplary damages, attorney’s fees and costs of the suit. To argue therefore that PARAMOUNT
is only liable on its injunction bond from the time of its issuance and not from the time the suit
was commenced is preposterous if not absurd. Indeed, it would be impossible to determine the
reckoning point when moral damages, exemplary damages, attorney’s fees and costs of the suit
were supposed to have been incurred. Consequently, it can be safely deduced that the bond
answers for any and all damages arising from the injunction, regardless of whether it was
sustained before or after the filing of the injunction bond.

PARAMOUNT further maintains that it is liable to pay actual damages only. 19 However, Rule
58, Section 4(b), clearly provides that the injunction bond is answerable for all damages. "The
bond insures with all practicable certainty that the defendant may sustain no ultimate loss in the
event that the injunction could finally be dissolved. Consequently, the bond may obligate the
bondsmen to account to the defendant in the injunction suit for all: (1) such damages; (2) costs
and damages; (3) costs, damages and reasonable attorney’s fees as shall be incurred or sustained
by the person enjoined in case it is determined that the injunction was wrongfully issued." 20
Thus, PARAMOUNT is liable, jointly and severally, for actual damages, moral damages,
exemplary damages, attorney’s fees and costs of the suit, to the extent of the amount of the bond.

Be that as it may, a scrutiny of petitioner’s Indemnity Agreement 21 with McADORE shows that
the former agreed "to become surety" for the stated amount "in favor of Dagupan Electric Corp."
It should be noted that McADORE was already in arrears starting from June 1979 22 up to the
time it entered into an Indemnity Agreement with PARAMOUNT on July 17,
1980.chanroblesvirtual|awlibrary
It may not be amiss to point out that by the contract of suretyship, it is not for the obligee to see
to it that the principal pays the debt or fulfills the contract, but for the surety to see to it that the
principal pay or perform. 23 The purpose of the injunction bond is to protect the defendant
against loss or damage by reason of the injunction in case the court finally decides that the
plaintiff was not entitled to it, and the bond is usually conditioned accordingly. Thus, the
bondsmen are obligated to account to the defendant in the injunction suit for all damages, or
costs and reasonable counsel’s fees, incurred or sustained by the latter in case it is determined
that the injunction was wrongfully issued. 24

The posting of a bond in connection with a preliminary injunction (or attachment under Rule 57,
or receivership under Rule 59, or seizure or delivery of personal property under Rule 60) does
not operate to relieve the party obtaining an injunction from any and all responsibility for the
damages that the writ may thereby cause. It merely gives additional protection to the party
against whom the injunction is directed. It gives the latter a right of recourse against either the
applicant or his surety, or against both. 25 In the same manner, when petitioner PARAMOUNT
issued the bond in favor of its principal, it undertook to assume all the damages that may be
suffered after finding that the principal is not entitled to the relief being sought.

WHEREFORE, based on the foregoing, the instant petition is DENIED. The decision of the
Court of Appeals dated April 30, 1993 in CA-G.R. CV No. 11970 is AFFIRMED. With costs.

SO ORDERED.chanrobles.com :

G.R. No. 155408 February 13, 2008

JULIO A. VIVARES and MILA G. IGNALING, petitioners,

vs.
ENGR. JOSE J. REYES, respondent.

DECISION

VELASCO, JR., J.:

The Case

The kernel dispute in this petition under Rule 45 is the legality of the May 22, 2001 Resolution1 of the
Camiguin Regional Trial Court (RTC), Branch 28 in Civil Case No. 517, which placed the estate of
Severino Reyes under receivership. The Court of Appeals (CA) saw it differently in CA-G.R. SP No.
67492—its June 18, 2002 Decision2 recalled the RTC directive on the appointment of the receiver,
prompting Julio Vivares and Mila Ignaling to file the petition at bar to convince the Court to reinstate
the receivership.

The Facts

Severino Reyes was the father of respondent Jose Reyes and Torcuato Reyes. Upon the death of
Severino, respondent and Torcuato came upon their inheritance consisting of several properties.
They had an oral partition of the properties and separately appropriated to themselves said
properties.

On May 12, 1992, Torcuato died with a last will and testament executed on January 3, 1992.
In Reyes v. Court of Appeals,3 we affirmed the November 29, 1995 CA Decision, admitting the will
for probate.

Petitioner Vivares was the designated executor of Torcuato’s last will and testament, while petitioner
Ignaling was declared a lawful heir of Torcuato.
Believing that Torcuato did not receive his full share in the estate of Severino, petitioners instituted
an action for Partition and Recovery of Real Estate before the Camiguin RTC, Branch 28
entitled Julio A. Vivares, as executor of the estate of Torcuato J. Reyes and Mila R. Ignaling, as heir
v. Engr. Jose J. Reyes and docketed as Civil Case No. 517. With the approval of the trial court, the
parties agreed that properties from the estate of Severino, which were already transferred in the
names of respondent and Torcuato prior to the latter’s death on May 12, 1992, shall be excluded
from litigation. In short, what was being contested were the properties that were still in the name of
Severino.

On November 24, 1997, for the purpose of collating the common properties that were disputed, the
trial court directed the formation of a three-man commission with due representation from both
parties, and the third member, appointed by the trial court, shall act as chairperson. The disputed
properties were then annotated with notices of lis pendens upon the instance of petitioners.

On March 15, 2000, petitioners filed a Motion to Place Properties in Litigation under
Receivership4 before the trial court alleging that to their prejudice respondent had, without prior court
approval and without petitioners’ knowledge, sold to third parties and transferred in his own name
several common properties. Petitioners also averred that respondent fraudulently antedated, prior to
May 12, 1992, some conveyances and transfers to make it appear that these were no longer part of
the estate of Severino under litigation. They further claimed that respondent was and is in
possession of the common properties in the estate of Severino, and exclusively enjoying the fruits
and income of said properties and without rendering an accounting on them and turning over the
share pertaining to Torcuato. Thus, petitioners prayed to place the entire disputed estate of Severino
under receivership. They nominated a certain Lope Salantin to be appointed as receiver.

On March 23, 2000, respondent filed his Opposition to Place the Estate of Severino Reyes under
Receivership,5 denying that he had fraudulently transferred any property of the estate of Severino
and asserting that any transfer in his name of said properties was a result of the oral partition
between him and Torcuato that enabled the latter as well to transfer several common properties in
his own name.

On May 24, 2000, petitioners filed their Offer of Exhibits in support of their motion for receivership.
On the same date, the trial court issued an Order6 granting petitioners’ motion and appointed
Salantin as receiver conditioned on the filing of a PhP 50,000 bond. Respondent filed a motion for
reconsideration, contending that the appointment of a receiver was unduly precipitate considering
that he was not represented by counsel and thus was deprived of due process.

On August 4, 2000, the trial court allowed respondent to present his evidence to contest petitioners’
grounds for the appointment of a receiver, and the trial court set the reception of respondent’s
evidence for September 4, 2000. However, on August 24, 2000, respondent filed a motion for
postponement of the September 4, 2000 scheduled hearing on the ground that he was in the United
States as early as July 23, 2000 for medical examination. On September 5, 2000, the trial court
denied respondent’s motion for postponement and reinstated its May 24, 2000 Order.

On September 19, 2000, respondent filed a Manifestation with Motion to Discharge Receiver,
reiterating the circumstances which prevented him from attending the September 4, 2000 hearing
and praying for the discharge of the receiver upon the filing of a counterbond in an amount to be
fixed by the court in accordance with Section 3, Rule 59 of the 1997 Revised Rules on Civil
Procedure. On October 10, 2000, petitioners filed their undated Opposition to Motion to Discharge
Receiver.

Subsequently, respondent filed a Motion to Cancel Notice of Lis Pendens which was annotated on
Tax Declaration (TD) No. 112 covering Lot No. 33 allegedly belonging exclusively to him.
Respondent asserted in the motion that an adjacent property to Lot No. 33, particularly a portion of
Lot No. 35, which is owned by a certain Elena Unchuan, was erroneously included in Lot No. 33 and,
consequently, was subjected to the notice of lis pendens. Petitioners filed their Opposition to the
Motion to Cancel Lis Pendens.

Consequently, on May 22, 2001, the trial court issued a Resolution, denying respondent’s motions to
discharge receiver and cancel the notice of lis pendens in TD No. 112. Respondent seasonably filed
a partial motion for reconsideration of the May 22, 2001 Resolution, attaching copies of deeds of
sale executed by Torcuato covering several common properties of the estate of Severino to prove
that he and Torcuato had indeed made an oral partition of the estate of their father, Severino, and
thus allowing him and Torcuato to convey their respective shares in the estate of Severino to third
persons.

On October 19, 2001, the trial court heard respondent’s motion for partial reconsideration, and on
the same date issued an Order denying the motion for partial reconsideration on the ground that
respondent failed to raise new matters in the motion but merely reiterated the arguments raised in
previous pleadings.

Aggrieved, respondent filed a Petition for Certiorari before the CA, assailing the May 22, 2001
Resolution and October 19, 2001 Order of the RTC.

The Ruling of the Court of Appeals

On June 18, 2002, the CA rendered the assailed Decision, sustaining respondent’s position and
granted relief, thus:

WHEREFORE, premises considered, the Petition is hereby GRANTED. The Resolution

dated 22 May 2001 of the Regional Trial Court of Camiguin, Branch 28 in Civil Case No. 517
is hereby reversed and set aside. The court-appointed receiver, Lope Salantin, is discharged
upon the posting by petitioner of a counterbond in the amount of P100,000.00. The notice
of lis pendens in Tax Declaration 112, in so far as it covers the property of Elena Unchuan, is
cancelled. Let this case be remanded to the court a quo for further proceedings.7

In reversing the trial court, the CA reasoned that the court a quo failed to observe the well-settled
rule that allows the grant of the harsh judicial remedy of receivership only in extreme cases when
there is an imperative necessity for it. The CA thus held that it is proper that the appointed receiver
be discharged on the filing of a counterbond pursuant to Sec. 3, Rule 59 of the 1997 Revised Rules
on Civil Procedure.

Moreover, the CA ratiocinated that respondent has adequately demonstrated that the appointment of
the receiver has no sufficient basis, and further held that the rights of petitioners over the properties
in litigation are doubly protected through the notices of lis pendens annotated on the titles of the
subject properties. In fine, the appellate court pointed out that the appointment of a receiver is a
delicate one, requiring the exercise of discretion, and not an absolute right of a party but subject to
the attendant facts of each case. The CA found that the trial court abused its discretion in appointing
the receiver and in denying the cancellation of the notice of lis pendens on TD No. 112, insofar as it
pertains to the portion owned by Unchuan.

Aggrieved, petitioners in turn interposed a Motion for Reconsideration that was denied through the
assailed September 24, 2002 CA Resolution.

Thus, this petition for review on certiorari is before us, presenting the following issues for
consideration:

WHETHER OR NOT THE ANNOTATION OF A NOTICE OF LIS PENDENS PRECLUDES

THE APPOINTMENT OF A RECEIVER WHEN THERE IS A NEED TO SAFEGUARD THE
PROPERTIES IN LITIGATION.

II

WHETHER OR NOT A DULY APPOINTED RECEIVER OF PROPERTIES IN LITIGATION

SHOULD BE DISCHARGED SIMPLY BECAUSE THE ADVERSE PARTY OFFERS TO
POST A COUNTERBOND.

III

WHETHER OR NOT THE CANCELLATION OF A NOTICE OF LIS PENDENS ANNOTATED

ON TAX DECLARATION NO. 112 IS CONTRARY TO LAW.8

The Court’s Ruling

The petition must be denied. Being closely related, we discuss the first and second issues together.

Receivership not justified

We sustain the CA ruling that the trial court acted arbitrarily in granting the petition for appointment
of a receiver as "there was no sufficient cause or reason to justify placing the disputed properties
under receivership."

First, petitioners asseverate that respondent alienated several common properties of Severino
without court approval and without their knowledge and consent. The fraudulent transfers, they
claim, were antedated prior to May 12, 1992, the date of Torcuato’s death, to make it appear that
these properties no longer form part of the assets of the estate under litigation in Civil Case No. 517.

Petitioners’ position is bereft of any factual mooring.

Petitioners miserably failed to adduce clear, convincing, and hard evidence to show the alleged
fraud in the transfers and the antedating of said transfers. The fact that the transfers were dated
prior to the demise of Torcuato on May 12, 1992 does not necessarily mean the transfers were
attended by fraud. He who alleges fraud has the burden to prove it.

Moreover, respondent has adduced documentary proof that Torcuato himself similarly conveyed
several lots in the estate of Severino based on the oral partition between the siblings. To lend
credence to the transfers executed by Torcuato but distrust to those made by respondent would be
highly inequitable as correctly opined by the court a quo.

Indeed, receivership is a harsh remedy to be granted only in extreme situations. As early as 1914,
the Court already enunciated the doctrinal pronouncement in Velasco & Co. v. Gochuico & Co. that
courts must use utmost circumspection in allowing receivership, thus:

The power to appoint a receiver is a delicate one and should be exercised with extreme
caution and only under circumstances requiring summary relief or where the court is satisfied
that there is imminent danger of loss, lest the injury thereby caused be far greater than the
injury sought to be averted. The court should consider the consequences to all of the parties
and the power should not be exercised when it is likely to produce irreparable injustice or
injury to private rights or the facts demonstrate that the appointment will injure the interests
of others whose rights are entitled to as much consideration from the court as those of the
complainant.9

Petitioners cannot now impugn the oral partition entered into by Torcuato and respondent and hence
cannot also assail the transfers made by respondent of the lots which were subject of said
agreement, considering that Torcuato also sold properties based on said verbal arrangement.
Indeed, the parties agreed that the civil action does not encompass the properties covered by the
oral partition. In this factual setting, petitioners cannot convince the Court that the alleged fraudulent
transfers of the lots made by respondent, which purportedly form part of his share in Severino’s
estate based on the partition, can provide a strong basis to grant the receivership.

Second, petitioner is willing to post a counterbond in the amount to be fixed by the court based on
Sec. 3, Rule 59 of the 1997 Rules of Civil Procedure, which reads:

Sec. 3. Denial of application or discharge of receiver.—The application may be denied, or the

receiver discharged, when the adverse party files a bond executed to the applicant, in an
amount to be fixed by the court, to the effect that such party will pay the applicant all
damages he may suffer by reason of the acts, omissions, or other matter specified in the
application as ground for such appointment. The receiver may also be discharged if it is
shown that his appointment was obtained without sufficient cause.

Anchored on this rule, the trial court should have dispensed with the services of the receiver, more
so considering that the alleged fraud put forward to justify the receivership was not at all established.

Petitioners advance the issue that the receivership should not be recalled simply because the
adverse party offers to post a counterbond. At the outset, we find that this issue was not raised
before the CA and therefore proscribed by the doctrine that an issue raised for the first time on
appeal and not timely raised in the proceedings in the lower court is barred by estoppel.10 Even if we
entertain the issue, the contention is nevertheless devoid of merit. The assailed CA decision
supported the discharge of the receiver with several reasons including the posting of the
counterbond. While the CA made a statement that the trial court should have discharged the
appointed receiver on the basis of the proposed counterbond, such opinion does not jibe with the
import of Sec. 3, Rule 59. The rule states that the "application may be denied or the receiver
discharged." In statutory construction, the word "may" has always been construed as permissive. If
the intent is to make it mandatory or ministerial for the trial court to order the recall of the receiver
upon the offer to post a counterbond, then the court should have used the word "shall." Thus, the
trial court has to consider the posting of the counterbond in addition to other reasons presented by
the offeror why the receivership has to be set aside.

Third, since a notice of lis pendens has been annotated on the titles of the disputed properties, the
rights of petitioners are amply safeguarded and preserved since "there can be no risk of losing the
property or any part of it as a result of any conveyance of the land or any encumbrance that may be
made thereon posterior to the filing of the notice of lis pendens."11 Once the annotation is made, any
subsequent conveyance of the lot by the respondent would be subject to the outcome of the litigation
since the fact that the properties are under custodia legis is made known to all and sundry by
operation of law. Hence, there is no need for a receiver to look after the disputed properties.

On the issue of lis pendens, petitioners argue that the mere fact that a notice of lis pendens was
annotated on the titles of the disputed properties does not preclude the appointment of a receiver. It
is true that the notice alone will not preclude the transfer of the property pendente lite, for the title to
be issued to the transferee will merely carry the annotation that the lot is under litigation. Hence, the
notice of lis pendens, by itself, may not be the "most convenient and feasible means of preserving or
administering the property in litigation." However, the situation is different in the case at bar. A
counterbond will also be posted by the respondent to answer for all damages petitioners may suffer
by reason of any transfer of the disputed properties in the future. As a matter of fact, petitioners can
also ask for the issuance of an injunctive writ to foreclose any transfer, mortgage, or encumbrance
on the disputed properties. These considerations, plus the finding that the appointment of the
receiver was without sufficient cause, have demonstrated the vulnerability of petitioners’ postulation.

Fourth, it is undisputed that respondent has actual possession over some of the disputed properties
which are entitled to protection. Between the possessor of a subject property and the party asserting
contrary rights to the properties, the former is accorded better rights. In litigation, except for
exceptional and extreme cases, the possessor ought not to be deprived of possession over subject
property. Article 539 of the New Civil Code provides that "every possessor has a right to be
respected in his possession; and should he be disturbed therein he shall be protected in or restored
to said possession by the means established by the laws and the Rules of Court." In Descallar v.
Court of Appeals, we ruled that the appointment of a receiver is not proper where the rights of the
parties, one of whom is in possession of the property, are still to be determined by the trial court.12

In view of the foregoing reasons, we uphold the CA ruling that the grant of the receivership was
without sufficient justification nor strong basis.

Anent the third issue that the cancellation of the notice of lis pendens on TD No. 112 is irregular as
Lot No. 33 is one of the disputed properties in the partition case, petitioners’ position is correct.

The CA made a factual finding that the property of Unchuan was erroneously included in Lot No. 33,
one of the disputed properties in Civil Case No. 517. It then ruled that the annotation of lis
pendens should be lifted.

This ruling is bereft of factual basis.

The determination whether the property of Unchuan is a part of Lot No. 33 and whether that portion
really belongs to Unchuan are matters to be determined by the trial court. Consequently, the notice
of lis pendens on TD No. 112 stays until the final ruling on said issues is made.

WHEREFORE, the petition is PARTLY GRANTED. The June 18, 2002 CA Decision in CA-G.R. SP
No. 67492 is AFFIRMED with MODIFICATION insofar as it ordered the cancellation of the notice
of lis pendens in TD No. 112. As thus modified, the appealed CA Decision should read as follows:

WHEREFORE, premises considered, the Petition is hereby PARTLY GRANTED. The

Resolution dated 22 May 2001 of the Regional Trial Court of Camiguin, Branch 28 in Civil
Case No. 517 is hereby reversed and set aside. The court-appointed receiver, Lope Salantin,
 is discharged upon the posting by petitioner of a counterbond in the amount of PhP
100,000. The notice of lis pendens in TD No. 112, including the portion allegedly
belonging to Elena Unchuan, remains valid and effective. Let this case be remanded to
the court a quo for further proceedings in Civil Case No. 517.

No costs.

SO ORDERED
 SUPPORT PENDE LITE

G.R. No. 125041 June 30, 2006

MA. BELEN B. MANGONON, for and in behalf of her minor children REBECCA ANGELA
DELGADO and REGINA ISABEL DELGADO. Petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE JOSEFINA GUEVARA-SALONGA, Presiding Judge,
RTC-Makati, Branch 149, FEDERICO C. DELGADO and FRANCISCO C.
DELGADO, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals dated
20 March 1996, affirming the Order, dated 12 September 19952 of the Regional Trial Court (RTC),
Branch 149, Makati, granting support pendente lite to Rebecca Angela (Rica) and Regina Isabel
(Rina), both surnamed Delgado.

The generative facts leading to the filing of the present petition are as follows:

On 17 March 1994, petitioner Ma. Belen B. Mangonon filed, in behalf of her then minor children Rica
and Rina, a Petition for Declaration of Legitimacy and Support, with application for support pendente
lite with the RTC Makati.3 In said petition, it was alleged that on 16 February 1975, petitioner and
respondent Federico Delgado were civilly married by then City Court Judge Eleuterio Agudo in
Legaspi City, Albay. At that time, petitioner was only 21 years old while respondent Federico was
only 19 years old. As the marriage was solemnized without the required consent per Article 85 of the
New Civil Code,4 it was annulled on 11 August 1975 by the Quezon City Juvenile and Domestic
Relations Court.5

On 25 March 1976, or within seven months after the annulment of their marriage, petitioner gave
birth to twins Rica and Rina. According to petitioner, she, with the assistance of her second husband
Danny Mangonon, raised her twin daughters as private respondents had totally abandoned them. At
the time of the institution of the petition, Rica and Rina were about to enter college in the United
States of America (USA) where petitioner, together with her daughters and second husband, had
moved to and finally settled in. Rica was admitted to the University of Massachusetts (Amherst)
while Rina was accepted by the Long Island University and Western New England College. Despite
their admissions to said universities, Rica and Rina were, however, financially incapable of pursuing
collegiate education because of the following:

i) The average annual cost for college education in the US is about US$22,000/year, broken
down as follows:

Tuition Fees US$13,000.00

Room & Board 5,000.00

Books 1,000.00

Yearly Transportation &

Meal Allowance 3,000.00

Total US$ 22,000.00

or a total of US$44,000.00, more or less, for both Rica and Rina

ii) Additionally, Rica and Rina need general maintenance support each in the amount of
US$3,000.00 per year or a total of US$6,000 per year.
 iii) Unfortunately, petitioner’s monthly income from her 2 jobs is merely US$1,200 after taxes
which she can hardly give general support to Rica and Rina, much less their required college
educational support.

iv) Neither can petitioner’s present husband be compelled to share in the general support
and college education of Rica and Rina since he has his own son with petitioner and own
daughter (also in college) to attend to.

v) Worse, Rica and Rina’s petitions for Federal Student Aid have been rejected by the U.S.
Department of Education.6

Petitioner likewise averred that demands7 were made upon Federico and the latter’s father,
Francisco,8 for general support and for the payment of the required college education of Rica and
Rina. The twin sisters even exerted efforts to work out a settlement concerning these matters with
respondent Federico and respondent Francisco, the latter being generally known to be financially
well-off.9 These demands, however, remained unheeded. Considering the impending deadline for
admission to college and the opening of classes, petitioner and her then minor children had no
choice but to file the petition before the trial court.

Petitioner also alleged that Rica and Rina are her legitimate daughters by respondent Federico since
the twin sisters were born within seven months from the date of the annulment of her marriage to
respondent Federico. However, as respondent Federico failed to sign the birth certificates of Rica
and Rina, it was imperative that their status as legitimate children of respondent Federico, and as
granddaughters of respondent Francisco, be judicially declared pursuant to Article 173 of the Family
Code.10

As legitimate children and grandchildren, Rica and Rina are entitled to general and educational
support under Articles 17411 and 195(b)12 in relation to Articles 194(1 and 2)13 and 199(c)14 of the
Family Code. Petitioner alleged that under these provisions, in case of default on the part of the
parents, the obligation to provide support falls upon the grandparents of the children; thus,
respondent Federico, or in his default, respondent Francisco should be ordered to provide general
and educational support for Rica and Rina in the amount of US$50,000.00, more or less, per year.

Petitioner also claimed that she was constrained to seek support pendente lite from private
respondents - who are millionaires with extensive assets both here and abroad - in view of the
imminent opening of classes, the possibility of a protracted litigation, and Rica and Rina’s lack of
financial means to pursue their college education in the USA.

In his Answer,15 respondent Francisco stated that as the birth certificates of Rica and Rina do not
bear the signature of respondent Federico, it is essential that their legitimacy be first established as
"there is no basis to claim support until a final and executory judicial declaration has been made as
to the civil status of the children."16 Whatever good deeds he may have done to Rica and Rina,
according to respondent Francisco, was founded on pure acts of Christian charity. He, likewise,
averred that the order of liability for support under Article 199 of the Family Code is not concurrent
such that the obligation must be borne by those more closely related to the recipient. In this case, he
maintained that responsibility should rest on the shoulders of petitioner and her second husband, the
latter having voluntarily assumed the duties and responsibilities of a natural father. Even assuming
that he is responsible for support, respondent Francisco contends that he could not be made to
answer beyond what petitioner and the father could afford.

On 24 May 1994, petitioner filed a Motion to Declare Defendant (respondent herein) Federico in
Default.17 This was favorably acted upon by the trial court in the Order dated 16 June 1994.18

On 5 August 1994, respondent Federico filed a Motion to Lift Order of Default alleging that the
summons and a copy of the petition were not served in his correct address.19 Attached thereto was
his Answer20 where he claimed that petitioner had no cause of action against him. According to him,
he left for abroad and stayed there for a long time "[w]ithin the first one hundred twenty (120) days of
the three hundred days immediately preceding March 25, 1976" and that he only came to know
about the birth of Rica and Rina when the twins introduced themselves to him seventeen years later.
In order not to antagonize the two, respondent Federico claimed he did not tell them that he could
not be their father. Even assuming that Rica and Rina are, indeed, his daughters, he alleged that he
could not give them the support they were demanding as he was only making P40,000.00 a month.
Finding sufficient ground in the motion filed by respondent Federico, the trial court lifted its Order
dated 16 June 1994 and admitted his Answer.21

In the meantime, on 25 April 1994, petitioner filed an Urgent Motion to Set Application for Support
Pendente Lite for Hearing because Rica and Rina both badly needed immediate financial resources
for their education.22 This Motion was opposed by respondent Francisco.23 After both parties
submitted supplemental pleadings to bolster their respective positions, the trial court resolved the
motion in an Order dated 12 September 1995 in this wise:

WHEREFORE, in the light of the foregoing considerations, respondents are hereby directed to
provide a monthly support (pendente lite) of P5,000.00 each or a total of P10,000.00 for the
education of Rebecca Angela and Regina Isabel Delgado to be delivered within the first five days of
each month without need of demand.24

Unsatisfied with the Order of the trial court, petitioner brought the case to the Court of Appeals via
Petition for Certiorari. The Court of Appeals affirmed the holding of the trial court and disposed the
petition in the following manner:

WHEREFORE, the petition for certiorari is hereby DISMISSED and the Order of the lower court
dated September 12, 1995 is hereby AFFIRMED.25

Petitioner’s Motion for Reconsideration was denied through the Resolution of the Court of Appeals
dated 16 May 1996.26

Petitioner is now before this Court claiming that the Decision of the Court of Appeals was tainted
with the following errors:

RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT JUDGE

DID NOT COMMIT GRAVE ABUSE OF DISCRETION IN FIXING THE AMOUNT OF MONTHLY
SUPPORT PENDENTE LITE GRANTED TO PETITIONER’S CHILDREN AT A
MEASLEY P5,000.00 PER CHILD.

I.

RESPONDENT COURT IGNORED EVIDENCE ON RECORD OF THE FINANCIAL INCAPACITY

OF RICA AND RINA’S PARENTS IN DEFAULT OF WHOM THE OBLIGATION TO GIVE SUPPORT
DEVOLVES ON THE GRANDFATHER.

II.

IT BEING ESTABLISHED THAT THE PERSON OBLIGED TO GIVE SUPPORT – GRANDFATHER

DON PACO – IS UNDOUBTEDLY CAPABLE OF GIVING THE AMOUNT DEMANDED,
RESPONDENT COURT ERRED IN NOT HOLDING THAT RESPONDENT JUDGE ACTED WITH
GRAVE ABUSE OF DISCRETION IN FIXING AN AMOUNT OF SUPPORT PENDENTE LITE THAT
IS OBVIOUSLY INADEQUATE TO SUPPORT THE EDUCATIONAL REQUIREMENTS OF THE
RECIPIENTS.27

At the time of the filing of the present Petition, it is alleged that Rica had already entered Rutgers
University in New Jersey with a budget of US$12,500.00 for academic year 1994-1995. She was
able to obtain a tuition fee grant of US$1,190.00 and a Federal Stafford loan from the US
government in the amount of US$2,615.00.28 In order to defray the remaining balance of Rica’s
education for said school year, petitioner claims that she had to secure a loan under the Federal
Direct Student Loan Program.

Meanwhile, Rina entered CW Post, Long Island University, where she was expected to spend
US$20,000.00 for the school year 1994-1995. She was given a financial grant of US$6,000.00,
federal work study assistance of US$2,000.00, and a Federal Stafford loan of US$2,625.00.29 Again,
petitioner obtained a loan to cover the remainder of Rina’s school budget for the year.

Petitioner concedes that under the law, the obligation to furnish support to Rica and Rina should be
first imposed upon their parents. She contends, however, that the records of this case demonstrate
her as well as respondent Federico’s inability to give the support needed for Rica and Rina’s college
education. Consequently, the obligation to provide support devolves upon respondent Francisco
being the grandfather of Rica and Rina.

Petitioner also maintains that as respondent Francisco has the financial resources to help defray the
cost of Rica and Rina’s schooling, the Court of Appeals then erred in sustaining the trial court’s
Order directing respondent Federico to pay Rica and Rina the amount of award P5,000.00 each as
monthly support pendente lite.

On the other hand, respondent Francisco argues that the trial court correctly declared that petitioner
and respondent Federico should be the ones to provide the support needed by their twin daughters
pursuant to Article 199 of the Family Code. He also maintains that aside from the financial package
availed of by Rica and Rina in the form of state tuition aid grant, work study program and federal
student loan program, petitioner herself was eligible for, and had availed herself of, the federal
parent loan program based on her income and properties in the USA. He, likewise, insists that
assuming he could be held liable for support, he has the option to fulfill the obligation either by
paying the support or receiving and maintaining in the dwelling here in the Philippines the person
claiming support.30 As an additional point to be considered by this Court, he posits the argument that
because petitioner and her twin daughters are now US citizens, they cannot invoke the Family Code
provisions on support as "[l]aws relating to family rights and duties, or to the status, condition and
legal capacity of persons are binding upon citizens of the Philippines, even though living abroad."31

Respondent Federico, for his part, continues to deny having sired Rica and Rina by reiterating the
grounds he had previously raised before the trial court. Like his father, respondent Federico argues
that assuming he is indeed the father of the twin sisters, he has the option under the law as to how
he would provide support. Lastly, he assents with the declaration of the trial court and the Court of
Appeals that the parents of a child should primarily bear the burden of providing support to their
offspring.

The petition is meritorious.

As a preliminary matter, we deem it necessary to briefly discuss the essence of support pendente
lite. The pertinent portion of the Rules of Court on the matter provides:

Rule 61
SUPPORT ‘PENDENTE LITE’

SECTION 1. Application.- At the commencement of the proper action or proceeding, or at any time
prior to the judgment or final order, a verified application for support pendente lite may be filed by
any party stating the grounds for the claim and the financial conditions of both parties, and
accompanied by affidavits, depositions or other authentic documents in support thereof.

xxxx

SEC. 4. Order.- The court shall determine provisionally the pertinent facts, and shall render such
orders as justice and equity may require, having due regard to the probable outcome of the case and
such other circumstances as may aid in the proper resolution of the question involved. If the
application is granted, the court shall fix the amount of money to be provisionally paid or such other
forms of support as should be provided, taking into account the necessities of the applicant and the
resources or means of the adverse party, and the terms of payment or mode for providing the
support. If the application is denied, the principal case shall be tried and decided as early as
possible.

Under this provision, a court may temporarily grant support pendente lite prior to the rendition of
judgment or final order. Because of its provisional nature, a court does not need to delve fully into
the merits of the case before it can settle an application for this relief. All that a court is tasked to do
is determine the kind and amount of evidence which may suffice to enable it to justly resolve the
application. It is enough that the facts be established by affidavits or other documentary evidence
appearing in the record.32 lavvphi1.net

After the hearings conducted on this matter as well as the evidence presented, we find that petitioner
was able to establish, by prima facie proof, the filiation of her twin daughters to private respondents
and the twins’ entitlement to support pendente lite. In the words of the trial court –
By and large, the status of the twins as children of Federico cannot be denied. They had maintained
constant communication with their grandfather Francisco. As a matter of fact, respondent Francisco
admitted having wrote several letters to Rica and Rina (Exhs. A, B, C, D, E, F, G, G-1 to G-30). In
the said letters, particularly at the bottom thereof, respondent Francisco wrote the names of Rica
and Rina Delgado. He therefore was very well aware that they bear the surname Delgado. Likewise,
he referred to himself in his letters as either "Lolo Paco" or "Daddy Paco." In his letter of October 13,
1989 (Exh. G-21), he said "as the grandfather, am extending a financial help of US$1,000.00." On
top of this, respondent Federico even gave the twins a treat to Hongkong during their visit to the
Philippines. Indeed, respondents, by their actuations, have shown beyond doubt that the twins are
the children of Federico.33

Having addressed the issue of the propriety of the trial court’s grant of support pendente lite in favor
of Rica and Rina, the next question is who should be made liable for said award.

The pertinent provision of the Family Code on this subject states:

ART. 199. Whenever two or more persons are obliged to give support, the liability shall devolve
upon the following persons in the order herein provided:

(1) The spouse;

(2) The descendants in the nearest degree;

(3) The ascendants in the nearest degree; and

(4) The brothers and sisters.

An eminent author on the subject explains that the obligation to give support rests principally on
those more closely related to the recipient. However, the more remote relatives may be held to
shoulder the responsibility should the claimant prove that those who are called upon to provide
support do not have the means to do so.34

In this case, both the trial court and the Court of Appeals held respondent Federico liable to provide
monthly support pendente lite in the total amount of P10,000.00 by taking into consideration his
supposed income of P30,000.00 to P40,000.00 per month. We are, however, unconvinced as to the
veracity of this ground relied upon by the trial court and the Court of Appeals.

It is a basic procedural edict that questions of fact cannot be the proper subject of a petition for
review under Rule 45 of the 1997 Rules of Civil Procedure. The rule finds a more stringent
application where the Court of Appeals upholds the findings of fact of the trial court; in such a
situation, this Court, as the final arbiter, is generally bound to adopt the facts as determined by the
appellate and the lower courts. This rule, however, is not ironclad as it admits of the following
recognized exceptions: "(1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to that of the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by
the respondent; (10) when the findings of fact are premised on the supposed absence of evidence
and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would
justify a different conclusion."35 The case at bar falls within the seventh and eleventh exceptions.

The trial court gave full credence to respondent Federico’s allegation in his Answer36 and his
testimony37 as to the amount of his income. We have, however, reviewed the records of this case
and found them bereft of evidence to support his assertions regarding his employment and his
earning. Notably, he was even required by petitioner’s counsel to present to the court his income tax
return and yet the records of this case do not bear a copy of said document.38 This, to our mind,
severely undermines the truthfulness of respondent Federico’s assertion with respect to his financial
status and capacity to provide support to Rica and Rina.
In addition, respondent Francisco himself stated in the witness stand that as far as he knew, his son,
respondent Federico did not own anything –

"Atty. Lopez:

I have here another letter under the letter head of Mr. & Mrs. Dany Mangonon, dated October 19,
1991 addressed to Mr. Francisco Delgado signed by "sincerely, Danny Mangonon, can you
remember."

xxxx

WITNESS:

A: I do remember this letter because it really irritated me so much that I threw it away in a waste
basket. It is a very demanding letter, that is what I do not like at all.

ATTY. LOPEZ:

Q: It is stated in this letter that "I am making this request to you and not to your son, Rico, for
reasons we both are aware of." Do you know what reason that is?

A: Yes. The reason is that my son do not have fix employment and do not have fix salary and
income and they want to depend on the lolo.

xxxx lavvphi 1.net

Q: Would you have any knowledge if Federico owns a house and lot?

A: Not that I know. I do not think he has anything.

Q: How about a car?

A: Well, his car is owned by my company.39

Respondent Federico himself admitted in court that he had no property of his own, thus:

Q: You also mentioned that you are staying at Mayflower Building and you further earlier testified
that this building belongs to Citadel Corporation. Do you confirm that?

A: Yes, sir.

Q: What car are you driving, Mr. Witness?

A: I am driving a lancer, sir.

Q: What car, that registered in the name of the corporation?

A: In the corporation, sir.

Q: What corporation is that?

A: Citadel Commercial, Inc., sir.

Q: What properties, if any, are registered in your name, do you have any properties, Mr. Witness?

A: None, sir."40 (Emphasis supplied.)

Meanwhile, respondent Francisco asserts that petitioner possessed the capacity to give support to
her twin daughters as she has gainful employment in the USA. He even went as far as to state that
petitioner’s income abroad, when converted to Philippine peso, was much higher than that received
by a trial court judge here in the Philippines. In addition, he claims that as she qualified for the
federal parent loan program, she could very well support the college studies of her daughters.

We are unconvinced. Respondent Francisco’s assertion that petitioner had the means to support her
daughters’ education is belied by the fact that petitioner was even forced by her financial status in
the USA to secure the loan from the federal government. If petitioner were really making enough
money abroad, she certainly would not have felt the need to apply for said loan. The fact that
petitioner was compelled to take out a loan is enough indication that she did not have enough money
to enable her to send her daughters to college by herself. Moreover, even Rica and Rina themselves
were forced by the circumstances they found themselves in to secure loans under their names so as
not to delay their entrance to college.

There being prima facie evidence showing that petitioner and respondent Federico are the parents
of Rica and Rina, petitioner and respondent Federico are primarily charged to support their
children’s college education. In view however of their incapacities, the obligation to furnish said
support should be borne by respondent Francisco. Under Article 199 of the Family Code, respondent
Francisco, as the next immediate relative of Rica and Rina, is tasked to give support to his
granddaughters in default of their parents. It bears stressing that respondent Francisco is the
majority stockholder and Chairman of the Board of Directors of Citadel Commercial, Incorporated,
which owns and manages twelve gasoline stations, substantial real estate, and is engaged in
shipping, brokerage and freight forwarding. He is also the majority stockholder and Chairman of the
Board of Directors of Citadel Shipping which does business with Hyundai of Korea. Apart from these,
he also owns the Citadel Corporation which, in turn, owns real properties in different parts of the
country. He is likewise the Chairman of the Board of Directors of Isla Communication Co. and he
owns shares of stocks of Citadel Holdings. In addition, he owns real properties here and abroad.41 It
having been established that respondent Francisco has the financial means to support his
granddaughters’ education, he, in lieu of petitioner and respondent Federico, should be held liable
for support pendente lite.

Anent respondent Francisco and Federico’s claim that they have the option under the law as to how
they could perform their obligation to support Rica and Rina, respondent Francisco insists that Rica
and Rina should move here to the Philippines to study in any of the local universities. After all, the
quality of education here, according to him, is at par with that offered in the USA. The applicable
provision of the Family Code on this subject provides:

Art. 204. The person obliged to give support shall have the option to fulfill the obligation either by
paying the allowance fixed, or by receiving and maintaining in the family dwelling the person who
has a right to receive support. The latter alternative cannot be availed of in case there is a moral or
legal obstacle thereto.

Under the abovecited provision, the obligor is given the choice as to how he could dispense his
obligation to give support. Thus, he may give the determined amount of support to the claimant or he
may allow the latter to stay in the family dwelling. The second option cannot be availed of in case
there are circumstances, legal or moral, which should be considered.

In this case, this Court believes that respondent Francisco could not avail himself of the second
option. From the records, we gleaned that prior to the commencement of this action, the relationship
between respondent Francisco, on one hand, and petitioner and her twin daughters, on the other,
was indeed quite pleasant. The correspondences exchanged among them expressed profound
feelings of thoughtfulness and concern for one another’s well-being. The photographs presented by
petitioner as part of her exhibits presented a seemingly typical family celebrating kinship. All of
these, however, are now things of the past. With the filing of this case, and the allegations hurled at
one another by the parties, the relationships among the parties had certainly been affected.
Particularly difficult for Rica and Rina must be the fact that those who they had considered and
claimed as family denied having any familial relationship with them. Given all these, we could not
see Rica and Rina moving back here in the Philippines in the company of those who have disowned
them.

Finally, as to the amount of support pendente lite, we take our bearings from the provision of the law
mandating the amount of support to be proportionate to the resources or means of the giver and to
the necessities of the recipient.42 Guided by this principle, we hold respondent Francisco liable for
half of the amount of school expenses incurred by Rica and Rina as support pendente lite. As
established by petitioner, respondent Francisco has the financial resources to pay this amount given
his various business endeavors.
Considering, however, that the twin sisters may have already been done with their education by the
time of the promulgation of this decision, we deem it proper to award support pendente lite in
arrears43 to be computed from the time they entered college until they had finished their respective
studies.

The issue of the applicability of Article 15 of the Civil Code on petitioner and her twin daughters
raised by respondent Francisco is best left for the resolution of the trial court. After all, in case it
would be resolved that Rica and Rina are not entitled to support pendente lite, the court shall then
order the return of the amounts already paid with legal interest from the dates of actual payment.44

WHEREFORE, premises considered, this Petition is PARTIALLY GRANTED. The Decision of the
Court of Appeals dated 20 March 1996 and Resolution dated 16 May 1996 affirming the Order dated
12 September 1995 of the Regional Trial Court, Branch 149, Makati, fixing the amount of support
pendente lite to P5,000.00 for Rebecca Angela and Regina Isabel, are hereby MODIFIED in that
respondent Francisco Delgado is hereby held liable for support pendente lite in the amount to be
determined by the trial court pursuant to this Decision. Let the records of this case be remanded to
the trial court for the determination of the proper amount of support pendente lite for Rebecca
Angela and Regina Isabel as well as the arrearages due them in accordance with this Decision
within ten (10) days from receipt hereof. Concomitantly, the trial court is directed to proceed with the
trial of the main case and the immediate resolution of the same with deliberate dispatch. The RTC
Judge, Branch 149, Makati, is further directed to submit a report of his compliance with the directive
regarding the support pendente lite within ten (10) days from compliance thereof.

SO ORDERED.

G.R. Nos. 175279-80 June 5, 2013

SUSAN LIM-LUA, Petitioner,

vs.
DANILO Y. LUA, Respondent.

DECISION

VILLARAMA, JR., J.:

In this petition for review on certiorari under Rule 45, petitioner seeks to set aside the
Decision1 dated April 20, 2006 and Resolution2 dated October 26, 2006 of the Court of Appeals (CA)
dismissing her petition for contempt (CA-G.R. SP No. 01154) and granting respondent's petition for
certiorari (CA-G.R. SP No. 01315).

The factual background is as follows:

On September 3, 2003,3 petitioner Susan Lim-Lua filed an action for the declaration of nullity of her
marriage with respondent Danilo Y. Lua, docketed as Civil Case No. CEB-29346 of the Regional
Trial Court (RTC) of Cebu City, Branch 14.

In her prayer for support pendente lite for herself and her two children, petitioner sought the amount
of ₱500,000.00 as monthly support, citing respondent’s huge earnings from salaries and dividends in
several companies and businesses here and abroad.4

After due hearing, Judge Raphael B. Yrastorza, Sr. issued an Order5 dated March 31, 2004 granting
support pendente lite, as follows:

From the evidence already adduced by the parties, the amount of Two Hundred Fifty (₱250,000.00)
Thousand Pesos would be sufficient to take care of the needs of the plaintiff. This amount excludes
the One hundred thirty-five (₱135,000.00) Thousand Pesos for medical attendance expenses
needed by plaintiff for the operation of both her eyes which is demandable upon the conduct of such
operation. The amounts already extended to the two (2) children, being a commendable act of
defendant, should be continued by him considering the vast financial resources at his disposal.

According to Art. 203 of the Family Code, support is demandable from the time plaintiff needed the
said support but is payable only from the date of judicial demand. Since the instant complaint was
filed on 03 September 2003, the amount of Two Hundred Fifty (₱250,000.00) Thousand should be
paid by defendant to plaintiff retroactively to such date until the hearing of the support pendente lite.
₱250,000.00 x 7 corresponding to the seven (7) months that lapsed from September, 2003 to March
2004 would tantamount to a total of One Million Seven Hundred Fifty (₱1,750,000.00) Thousand
Pesos. Thereafter, starting the month of April 2004, until otherwise ordered by this Court, defendant
is ordered to pay a monthly support of Two Hundred Fifty Thousand (₱250,000.00) Pesos payable
within the first five (5) days of each corresponding month pursuant to the third paragraph of Art. 203
of the Family Code of the Philippines. The monthly support of ₱250,000.00 is without prejudice to
any increase or decrease thereof that this Court may grant plaintiff as the circumstances may
warrant i.e. depending on the proof submitted by the parties during the proceedings for the main
action for support.6

Respondent filed a motion for reconsideration,7 asserting that petitioner is not entitled to spousal
support considering that she does not maintain for herself a separate dwelling from their children
and respondent has continued to support the family for their sustenance and well-being in
accordance with family’s social and financial standing. As to the ₱250,000.00 granted by the trial
court as monthly support pendente lite, as well as the ₱1,750,000.00 retroactive support, respondent
found it unconscionable and beyond the intendment of the law for not having considered the needs
of the respondent.

In its May 13, 2004 Order, the trial court stated that the March 31, 2004 Order had become final and
executory since respondent’s motion for reconsideration is treated as a mere scrap of paper for
violation of the threeday notice period under Section 4, Rule 15 of the 1997 Rules of Civil Procedure,
as amended, and therefore did not interrupt the running of the period to appeal. Respondent was
given ten (10) days to show cause why he should not be held in contempt of the court for
disregarding the March 31, 2004 order granting support pendente lite.8

His second motion for reconsideration having been denied, respondent filed a petition for certiorari in
the CA.

On April 12, 2005, the CA rendered its Decision,9 finding merit in respondent’s contention that the
trial court gravely abused its discretion in granting ₱250,000.00 monthly support to petitioner without
evidence to prove his actual income. The said court thus decreed:

WHEREFORE, foregoing premises considered, this petition is given due course. The assailed
Orders dated March 31, 2004, May 13, 2004, June 4, 2004 and June 18, 2004 of the Regional Trial
Court, Branch 14, Cebu City issued in Civil Case No. CEB No. 29346 entitled "Susan Lim Lua
versus Danilo Y. Lua" are hereby nullified and set aside and instead a new one is entered ordering
herein petitioner:

a) to pay private respondent a monthly support pendente lite of ₱115,000.00 beginning the
month of April 2005 and every month thereafter within the first five (5) days thereof;

b) to pay the private respondent the amount of ₱115,000.00 a month multiplied by the
number of months starting from September 2003 until March 2005 less than the amount
supposedly given by petitioner to the private respondent as her and their two (2) children
monthly support; and

c) to pay the costs.

SO ORDERED.10

Neither of the parties appealed this decision of the CA. In a Compliance11 dated June 28, 2005,
respondent attached a copy of a check he issued in the amount of ₱162,651.90 payable to
petitioner. Respondent explained that, as decreed in the CA decision, he deducted from the amount
of support in arrears (September 3, 2003 to March 2005) ordered by the CA -- ₱2,185,000.00 -- plus
₱460,000.00 (April, May, June and July 2005), totaling ₱2,645,000.00, the advances given by him to
his children and petitioner in the sum of ₱2,482,348.16 (with attached photocopies of
receipts/billings).

In her Comment to Compliance with Motion for Issuance of a Writ of Execution,12 petitioner asserted
that none of the expenses deducted by respondent may be chargeable as part of the monthly
support contemplated by the CA in CA-G.R. SP No. 84740.

On September 27, 2005, the trial court issued an Order13 granting petitioner’s motion for issuance of
a writ of execution as it rejected respondent’s interpretation of the CA decision. Respondent filed a
motion for reconsideration and subsequently also filed a motion for inhibition of Judge Raphael B.
Yrastorza, Sr. On November 25, 2005, Judge Yrastorza, Sr. issued an Order14 denying both motions.

WHEREFORE, in view of the foregoing premises, both motions are DENIED. Since a second motion
for reconsideration is prohibited under the Rules, this denial has attained finality; let, therefore, a writ
of execution be issued in favor of plaintiff as against defendant for the accumulated support in
arrears pendente lite.

Notify both parties of this Order.

SO ORDERED.15

Since respondent still failed and refused to pay the support in arrears pendente lite, petitioner filed in
the CA a Petition for Contempt of Court with Damages, docketed as CA-G.R. SP No. 01154 ("Susan
Lim Lua versus Danilo Y. Lua"). Respondent, on the other hand, filed CA-G.R. SP No. 01315, a
Petition for Certiorari under Rule 65 of the Rules of Court ("Danilo Y. Lua versus Hon. Raphael B.
Yrastorza, Sr., in his capacity as Presiding Judge of Regional Trial Court of Cebu, Branch 14, and
Susan Lim Lua"). The two cases were consolidated.

By Decision dated April 20, 2006, the CA set aside the assailed orders of the trial court, as follows:

WHEREFORE, judgment is hereby rendered:

a) DISMISSING, for lack of merit, the case of Petition for Contempt of Court with Damages
filed by Susan Lim Lua against Danilo Y. Lua with docket no. SP. CA-GR No. 01154;

b) GRANTING Danilo Y. Lua’s Petition for Certiorari docketed as SP. CA-GR No. 01315.
Consequently, the assailed Orders dated 27 September 2005 and 25 November 2005 of the
Regional Trial Court, Branch 14, Cebu City issued in Civil Case No. CEB-29346 entitled
"Susan Lim Lua versus Danilo Y. Lua, are hereby NULLIFIED and SET ASIDE, and instead
a new one is entered:

i. ORDERING the deduction of the amount of Ph₱2,482,348.16 plus 946,465.64, or a

total of PhP3,428,813.80 from the current total support in arrears of Danilo Y. Lua to
his wife, Susan Lim Lua and their two (2) children;

ii. ORDERING Danilo Y. Lua to resume payment of his monthly support of

Ph₱115,000.00 pesos starting from the time payment of this amount was deferred by
him subject to the deductions aforementioned.

iii. DIRECTING the issuance of a permanent writ of preliminary injunction.

SO ORDERED.16

The appellate court said that the trial court should not have completely disregarded the expenses
incurred by respondent consisting of the purchase and maintenance of the two cars, payment of
tuition fees, travel expenses, and the credit card purchases involving groceries, dry goods and
books, which certainly inured to the benefit not only of the two children, but their mother (petitioner)
as well. It held that respondent’s act of deferring the monthly support adjudged in CA-G.R. SP No.
84740 was not contumacious as it was anchored on valid and justifiable reasons. Respondent said
he just wanted the issue of whether to deduct his advances be settled first in view of the different
interpretation by the trial court of the appellate court’s decision in CA-G.R. SP No. 84740. It also
noted the lack of contribution from the petitioner in the joint obligation of spouses to support their
children.
Petitioner filed a motion for reconsideration but it was denied by the CA.

Hence, this petition raising the following errors allegedly committed by the CA:

I.

THE HONORABLE COURT ERRED IN NOT FINDING RESPONDENT GUILTY OF

INDIRECT CONTEMPT.

II.

THE HONORABLE COURT ERRED IN ORDERING THE DEDUCTION OF THE AMOUNT

OF PH₱2,482,348.16 PLUS 946,465.64, OR A TOTAL OF PH₱3,428,813.80 FROM THE
CURRENT TOTAL SUPPORT IN ARREARS OF THE RESPONDENT TO THE
PETITIONER AND THEIR CHILDREN.17

The main issue is whether certain expenses already incurred by the respondent may be deducted
from the total support in arrears owing to petitioner and her children pursuant to the Decision dated
April 12, 2005 in CA-G.R. SP No. 84740.

The pertinent provision of the Family Code of the Philippines provides:

Article 194. Support comprises everything indispensable for sustenance, dwelling, clothing, medical
attendance, education and transportation, in keeping with the financial capacity of the family.

The education of the person entitled to be supported referred to in the preceding paragraph shall
include his schooling or training for some profession, trade or vocation, even beyond the age of
majority. Transportation shall include expenses in going to and from school, or to and from place of
work. (Emphasis supplied.)

Petitioner argues that it was patently erroneous for the CA to have allowed the deduction of the
value of the two cars and their maintenance costs from the support in arrears, as these items are not
indispensable to the sustenance of the family or in keeping them alive. She points out that in the
Decision in CA-G.R. SP No. 84740, the CA already considered the said items which it deemed
chargeable to respondent, while the monthly support pendente lite (₱115,000.00) was fixed on the
basis of the documentary evidence of respondent’s alleged income from various businesses and
petitioner’s testimony that she needed ₱113,000.00 for the maintenance of the household and other
miscellaneous expenses excluding the ₱135,000.00 medical attendance expenses of petitioner.

Respondent, on the other hand, contends that disallowing the subject deductions would result in
unjust enrichment, thus making him pay for the same obligation twice. Since petitioner and the
children resided in one residence, the groceries and dry goods purchased by the children using
respondent’s credit card, totalling ₱594,151.58 for the period September 2003 to June 2005 were
not consumed by the children alone but shared with their mother. As to the Volkswagen Beetle and
BMW 316i respondent bought for his daughter Angelli Suzanne Lua and Daniel Ryan Lua,
respectively, these, too, are to be considered advances for support, in keeping with the financial
capacity of the family. Respondent stressed that being children of parents belonging to the upper-
class society, Angelli and Daniel Ryan had never in their entire life commuted from one place to
another, nor do they eat their meals at "carinderias". Hence, the cars and their maintenance are
indispensable to the children’s day-to-day living, the value of which were properly deducted from the
arrearages in support pendente lite ordered by the trial and appellate courts.

As a matter of law, the amount of support which those related by marriage and family relationship is
generally obliged to give each other shall be in proportion to the resources or means of the giver and
to the needs of the recipient.18 Such support comprises everything indispensable for sustenance,
dwelling, clothing, medical attendance, education and transportation, in keeping with the financial
capacity of the family.

Upon receipt of a verified petition for declaration of absolute nullity of void marriage or for annulment
of voidable marriage, or for legal separation, and at any time during the proceeding, the court, motu
proprio or upon verified application of any of the parties, guardian or designated custodian, may
temporarily grant support pendente lite prior to the rendition of judgment or final order.19 Because of
its provisional nature, a court does not need to delve fully into the merits of the case before it can
settle an application for this relief. All that a court is tasked to do is determine the kind and amount of
evidence which may suffice to enable it to justly resolve the application. It is enough that the facts be
established by affidavits or other documentary evidence appearing in the record.20

In this case, the amount of monthly support pendente lite for petitioner and her two children was
determined after due hearing and submission of documentary evidence by the parties. Although the
amount fixed by the trial court was reduced on appeal, it is clear that the monthly support pendente
lite of ₱115,000.00 ordered by the CA was intended primarily for the sustenance of petitioner and
her children, e.g., food, clothing, salaries of drivers and house helpers, and other household
expenses. Petitioner’s testimony also mentioned the cost of regular therapy for her scoliosis and
vitamins/medicines.

ATTY. ZOSA:

xxxx

Q How much do you spend for your food and your two (2) children every month?

A Presently, Sir?

ATTY. ZOSA:

Yes.

A For the food alone, I spend not over ₱40,000.00 to ₱50,000.00 a month for the food alone.

xxxx

ATTY. ZOSA:

Q What other expenses do you incur in living in that place?

A The normal household and the normal expenses for a family to have a decent living, Sir.

Q How much other expenses do you incur?

WITNESS:

A For other expenses, is around over a ₱100,000.00, Sir.

Q Why do you incur that much amount?

A For the clothing for the three (3) of us, for the vitamins and medicines. And also I am having a
special therapy to straighten my back because I am scoliotic. I am advised by the Doctor to hire a
driver, but I cannot still afford it now. Because my eyesight is not reliable for driving. And I still need
another househelp to accompany me whenever I go marketing because for my age, I cannot carry
anymore heavy loads.

xxxx

ATTY. FLORES:

xxxx

Q On the issue of the food for you and the two (2) children, you mentioned ₱40,000.00 to
₱50,000.00?

A Yes, for the food alone.

Q Okay, what other possible expenses that you would like to include in those two (2) items? You
mentioned of a driver, am I correct?
A Yes, I might need two (2) drivers, Sir for me and my children.

Q Okay. How much would you like possibly to pay for those two (2) drivers?

A I think ₱10,000.00 a month for one (1) driver. So I need two (2) drivers. And I need another
househelp.

Q You need another househelp. The househelp nowadays would charge you something between
₱3,000.00 to ₱4,000.00. That’s quite…

A Right now, my househelp is receiving ₱8,000.00. I need another which I will give a compensation
of ₱5,000.00.

Q Other than that, do you still have other expenses?

A My clothing.

COURT:

How about the schooling for your children?

WITNESS:

A The schooling is shouldered by my husband, Your Honor.

COURT:

Everything?

A Yes, Your Honor.

xxxx

ATTY. FLORES:

Q Madam witness, let us talk of the present needs. x x x. What else, what specific need that you
would like to add so I can tell my client, the defendant.

WITNESS:

A I need to have an operation both of my eyes. I also need a special therapy for my back because I
am scoliotic, three (3) times a week.

Q That is very reasonable. [W]ould you care to please repeat that?

A Therapy for my scoliotic back and then also for the operation both of my eyes. And I am also
taking some vitamins from excel that will cost ₱20,000.00 a month.

Q Okay. Let’s have piece by piece. Have you asked the Doctor how much would it cost you for the
operation of that scoliotic?

A Yes before because I was already due last year. Before, this eye will cost ₱60,000.00 and the
other eyes ₱75,000.00.

Q So for both eyes, you are talking of ₱60,000.00 plus ₱75,000.00 is ₱135,000.00?

A Yes.

xxxx

Q You talk of therapy?

A Yes.

Q So how much is that?

A Around ₱5,000.00 a week.21

As to the financial capacity of the respondent, it is beyond doubt that he can solely provide for the
subsistence, education, transportation, health/medical needs and recreational activities of his
children, as well as those of petitioner who was then unemployed and a full-time housewife. Despite
this, respondent’s counsel manifested during the same hearing that respondent was willing to grant
the amount of only ₱75,000.00 as monthly support pendente lite both for the children and petitioner
as spousal support. Though the receipts of expenses submitted in court unmistakably show how
much respondent lavished on his children, it appears that the matter of spousal support was a
different matter altogether. Rejecting petitioner’s prayer for ₱500,000.00 monthly support and finding
the ₱75,000.00 monthly support offered by respondent as insufficient, the trial court fixed the
monthly support pendente lite at ₱250,000.00. However, since the supposed income in millions of
respondent was based merely on the allegations of petitioner in her complaint and registration
documents of various corporations which respondent insisted are owned not by him but his parents
and siblings, the CA reduced the amount of support pendente lite to ₱115,000.00, which ruling was
no longer questioned by both parties.

Controversy between the parties resurfaced when respondent’s compliance with the final CA
decision indicated that he deducted from the total amount in arrears (₱2,645,000.00) the sum of
₱2,482,348.16, representing the value of the two cars for the children, their cost of maintenance and
advances given to petitioner and his children. Respondent explained that the deductions were made
consistent with the fallo of the CA Decision in CA-G.R. SP No. 84740 ordering him to pay support
pendente lite in arrears less the amount supposedly given by him to petitioner as her and their two
children’s monthly support.

The following is a summary of the subject deductions under Compliance dated June 28, 2005, duly
supported by receipts22:

Car purchases for Angelli Suzanne - Php1,350,000.00

and Daniel Ryan - 613,472.86

Car Maintenance fees of Angelli - 51,232.50

Suzanne
Credit card statements of Daniel Ryan - 348,682.28

Car Maintenance fees of Daniel Ryan - 118,960.52

Php2,482,348.16

After the trial court disallowed the foregoing deductions, respondent filed a motion for
reconsideration further asserting that the following amounts, likewise with supporting receipts, be
considered as additional advances given to petitioner and the children23:

Medical expenses of Susan Lim-Lua Php 42,450.71

Dental Expenses of Daniel Ryan 11,500.00

Travel expenses of Susan Lim-Lua 14,611.15

Credit card purchases of Angelli 408,891.08
Suzanne
Salon and travel expenses of Angelli 87,112.70
Suzanne

School expenses of Daniel Ryan Lua 260,900.00

Cash given to Daniel and Angelli 121,000.00
 TOTAL - Php 946,465.64

GRAND TOTAL - Php 3,428,813.80

The CA, in ruling for the respondent said that all the foregoing expenses already incurred by the
respondent should, in equity, be considered advances which may be properly deducted from the
support in arrears due to the petitioner and the two children. Said court also noted the absence of
petitioner’s contribution to the joint obligation of support for their children.

We reverse in part the decision of the CA.

Judicial determination of support pendente lite in cases of legal separation and petitions for
declaration of nullity or annulment of marriage are guided by the following provisions of the Rule on
Provisional Orders24

Sec. 2. Spousal Support.–In determining support for the spouses, the court may be guided by the
following rules:

(a) In the absence of adequate provisions in a written agreement between the spouses, the
spouses may be supported from the properties of the absolute community or the conjugal
partnership.

(b) The court may award support to either spouse in such amount and for such period of time
as the court may deem just and reasonable based on their standard of living during the
marriage.

(c) The court may likewise consider the following factors: (1) whether the spouse seeking
support is the custodian of a child whose circumstances make it appropriate for that spouse
not to seek outside employment; (2) the time necessary to acquire sufficient education and
training to enable the spouse seeking support to find appropriate employment, and that
spouse’s future earning capacity; (3) the duration of the marriage; (4) the comparative
financial resources of the spouses, including their comparative earning abilities in the labor
market; (5) the needs and obligations of each spouse; (6) the contribution of each spouse to
the marriage, including services rendered in home-making, child care, education, and career
building of the other spouse; (7) the age and health of the spouses; (8) the physical and
emotional conditions of the spouses; (9) the ability of the supporting spouse to give support,
taking into account that spouse’s earning capacity, earned and unearned income, assets,
and standard of living; and (10) any other factor the court may deem just and equitable.

(d) The Family Court may direct the deduction of the provisional support from the salary of
the spouse.

Sec. 3. Child Support.–The common children of the spouses shall be supported from the properties
of the absolute community or the conjugal partnership.

Subject to the sound discretion of the court, either parent or both may be ordered to give an amount
necessary for the support, maintenance, and education of the child. It shall be in proportion to the
resources or means of the giver and to the necessities of the recipient.

In determining the amount of provisional support, the court may likewise consider the following
factors: (1) the financial resources of the custodial and non-custodial parent and those of the child;
(2) the physical and emotional health of the child and his or her special needs and aptitudes; (3) the
standard of living the child has been accustomed to; (4) the non-monetary contributions that the
parents will make toward the care and well-being of the child.

The Family Court may direct the deduction of the provisional support from the salary of the parent.

Since the amount of monthly support pendente lite as fixed by the CA was not appealed by either
party, there is no controversy as to its sufficiency and reasonableness. The dispute concerns the
deductions made by respondent in settling the support in arrears.
On the issue of crediting of money payments or expenses against accrued support, we find as
relevant the following rulings by US courts.

In Bradford v. Futrell,25 appellant sought review of the decision of the Circuit Court which found him
in arrears with his child support payments and entered a decree in favor of appellee wife. He
complained that in determining the arrearage figure, he should have been allowed full credit for all
money and items of personal property given by him to the children themselves, even though he
referred to them as gifts. The Court of Appeals of Maryland ruled that in the suit to determine amount
of arrears due the divorced wife under decree for support of minor children, the husband (appellant)
was not entitled to credit for checks which he had clearly designated as gifts, nor was he entitled to
credit for an automobile given to the oldest son or a television set given to the children. Thus, if the
children remain in the custody of the mother, the father is not entitled to credit for money paid
directly to the children if such was paid without any relation to the decree.

In the absence of some finding of consent by the mother, most courts refuse to allow a husband to
dictate how he will meet the requirements for support payments when the mode of payment is fixed
by a decree of court. Thus he will not be credited for payments made when he unnecessarily
interposed himself as a volunteer and made payments direct to the children of his own accord. Wills
v. Baker, 214 S. W. 2d 748 (Mo. 1948); Openshaw v. Openshaw, 42 P. 2d 191 (Utah 1935). In the
latter case the court said in part: "The payments to the children themselves do not appear to have
been made as payments upon alimony, but were rather the result of his fatherly interest in the
welfare of those children. We do not believe he should be permitted to charge them to plaintiff. By so
doing he would be determining for Mrs. Openshaw the manner in which she should expend her
allowances. It is a very easy thing for children to say their mother will not give them money,
especially as they may realize that such a plea is effective in attaining their ends. If she is not
treating them right the courts are open to the father for redress."26

In Martin, Jr. v. Martin,27 the Supreme Court of Washington held that a father, who is required by a
divorce decree to make child support payments directly to the mother, cannot claim credit for
payments voluntarily made directly to the children. However, special considerations of an equitable
nature may justify a court in crediting such payments on his indebtedness to the mother, when such
can be done without injustice to her.

The general rule is to the effect that when a father is required by a divorce decree to pay to the
mother money for the support of their dependent children and the unpaid and accrued installments
become judgments in her favor, he cannot, as a matter of law, claim credit on account of payments
voluntarily made directly to the children. Koon v. Koon, supra; Briggs v. Briggs, supra. However,
special considerations of an equitable nature may justify a court in crediting such payments on his
indebtedness to the mother, when that can be done without injustice to her. Briggs v. Briggs, supra.
The courts are justifiably reluctant to lay down any general rules as to when such credits may be
allowed.28 (Emphasis supplied.)

Here, the CA should not have allowed all the expenses incurred by respondent to be credited
against the accrued support pendente lite. As earlier mentioned, the monthly support pendente lite
granted by the trial court was intended primarily for food, household expenses such as salaries of
drivers and house helpers, and also petitioner’s scoliosis therapy sessions. Hence, the value of two
expensive cars bought by respondent for his children plus their maintenance cost, travel expenses of
petitioner and Angelli, purchases through credit card of items other than groceries and dry goods
(clothing) should have been disallowed, as these bear no relation to the judgment awarding support
pendente lite. While it is true that the dispositive portion of the executory decision in CA-G.R. SP No.
84740 ordered herein respondent to pay the support in arrears "less than the amount supposedly
given by petitioner to the private respondent as her and their two (2) children monthly support," the
deductions should be limited to those basic needs and expenses considered by the trial and
appellate courts. The assailed ruling of the CA allowing huge deductions from the accrued monthly
support of petitioner and her children, while correct insofar as it commends the generosity of the
respondent to his children, is clearly inconsistent with the executory decision in CA-G.R. SP No.
84740. More important, it completely ignores the unfair consequences to petitioner whose
sustenance and well-being, was given due regard by the trial and appellate courts. This is evident
from the March 31, 2004 Order granting support pendente lite to petitioner and her children, when
the trial court observed:

While there is evidence to the effect that defendant is giving some forms of financial assistance to
his two (2) children via their credit cards and paying for their school expenses, the same is, however,
devoid of any form of spousal support to the plaintiff, for, at this point in time, while the action for
nullity of marriage is still to be heard, it is incumbent upon the defendant, considering the physical
and financial condition of the plaintiff and the overwhelming capacity of defendant, to extend support
unto the latter. x x x29

On appeal, while the Decision in CA-G.R. SP No. 84740 reduced the amount of monthly support
fixed by the trial court, it nevertheless held that considering respondent’s financial resources, it is but
fair and just that he give a monthly support for the sustenance and basic necessities of petitioner
and his children. This would imply that any amount respondent seeks to be credited as monthly
support should only cover those incurred for sustenance and household expenses. 1avv phi 1

In the case at bar, records clearly show and in fact has been admitted by petitioner that aside from
paying the expenses of their two (2) children’s schooling, he gave his two (2) children two (2) cars
and credit cards of which the expenses for various items namely: clothes, grocery items and repairs
of their cars were chargeable to him which totaled an amount of more than One Hundred Thousand
(₱100,000.00) for each of them and considering that as testified by the private respondent that she
needs the total amount of ₱113,000.00 for the maintenance of the household and other
miscellaneous expenses and considering further that petitioner can afford to buy cars for his two (2)
children, and to pay the expenses incurred by them which are chargeable to him through the credit
cards he provided them in the amount of ₱100,000.00 each, it is but fair and just that the monthly
support pendente lite for his wife, herein private respondent, be fixed as of the present in the amount
of ₱115,000.00 which would be sufficient enough to take care of the household and other needs.
This monthly support pendente lite to private respondent in the amount of ₱115,000.00 excludes the
amount of One Hundred ThirtyFive (₱135,000.00) Thousand Pesos for medical attendance
expenses needed by private respondent for the operation of both her eyes which is demandable
upon the conduct of such operation. Likewise, this monthly support of ₱115,000.00 is without
prejudice to any increase or decrease thereof that the trial court may grant private respondent as the
circumstances may warrant i.e. depending on the proof submitted by the parties during the
proceedings for the main action for support.

The amounts already extended to the two (2) children, being a commendable act of petitioner,
should be continued by him considering the vast financial resources at his disposal.30 (Emphasis
supplied.)

Accordingly, only the following expenses of respondent may be allowed as deductions from the
accrued support pendente lite for petitioner and her children:
1âw phi1

Medical expenses of Susan Lim-Lua Php 42,450.71

Dental Expenses of Daniel Ryan 11,500.00

Credit card purchases of Angelli 365,282.20

(Groceries and Dry Goods) 228,869.38

Credit Card purchases of Daniel Ryan

TOTAL Php 648,102.29

As to the contempt charge, we sustain the CA in holding that respondent is not guilty of indirect
contempt.

Contempt of court is defined as a disobedience to the court by acting in opposition to its authority,
justice, and dignity. It signifies not only a willful disregard or disobedience of the court’s order, but
such conduct which tends to bring the authority of the court and the administration of law into
disrepute or, in some manner, to impede the due administration of justice.31 To constitute contempt,
the act must be done willfully and for an illegitimate or improper purpose.32 The good faith, or lack of
it, of the alleged contemnor should be considered.33

Respondent admittedly ceased or suspended the giving of monthly support pendente lite granted by
the trial court, which is immediately executory. However, we agree with the CA that respondent’s act
was not contumacious considering that he had not been remiss in actually providing for the needs of
his children. It is a matter of record that respondent continued shouldering the full cost of their
education and even beyond their basic necessities in keeping with the family’s social status.
Moreover, respondent believed in good faith that the trial and appellate courts, upon equitable
grounds, would allow him to offset the substantial amounts he had spent or paid directly to his
children.

Respondent complains that petitioner is very much capacitated to generate income on her own
because she presently maintains a boutique at the Ayala Center Mall in Cebu City and at the same
time engages in the business of lending money. He also claims that the two children have finished
their education and are now employed in the family business earning their own salaries.

Suffice it to state that the matter of increase or reduction of support should be submitted to the trial
court in which the action for declaration for nullity of marriage was filed, as this Court is not a trier of
facts. The amount of support may be reduced or increased proportionately according to the
reduction or increase of the necessities of the recipient and the resources or means of the person
obliged to support.34 As we held in Advincula v. Advincula35

…Judgment for support does not become final. The right to support is of such nature that its
allowance is essentially provisional; for during the entire period that a needy party is entitled to
support, his or her alimony may be modified or altered, in accordance with his increased or
decreased needs, and with the means of the giver. It cannot be regarded as subject to final
determination.36

WHEREFORE, the petition is PARTLY GRANTED. The Decision dated April 20, 2006 of the Court of
Appeals in CA-G.R. SP Nos. 01154 and 01315 is hereby MODIFIED to read as follows:

"WHEREFORE, judgment is hereby rendered:

a) DISMISSING, for lack of merit, the case of Petition for Contempt of Court with Damages
filed by Susan Lim Lua against Danilo Y. Lua with docket no. SP. CA-G.R. No. 01154;

b) GRANTING IN PART Danilo Y. Lua's Petition for Certiorari docketed as SP. CA-G.R. No.
01315. Consequently, the assailed Orders dated 27 September 2005 and 25 November
2005 of the Regional Trial Court, Branch 14, Cebu City issued in Civil Case No. CEB-29346
entitled "Susan Lim Lua versus Danilo Y. Lua, are hereby NULLIFIED and SET ASIDE, and
instead a new one is entered:

i. ORDERING the deduction of the amount of Php 648,102.29 from the support
pendente lite in arrears of Danilo Y. Lua to his wife, Susan Lim Lua and their two (2)
children;

ii. ORDERING Danilo Y. Lua to resume payment of his monthly support of

Ph₱115,000.00 pesos starting from the time payment of this amount was deferred by
him subject to the deduction aforementioned.

iii. DIRECTING the immediate execution of this judgment.

SO ORDERED."

No pronouncement as to costs.

SO ORDERED.

G.R. No. 185595 January 9, 2013

MA. CARMINIA C. CALDERON represented by her Attorney-In-Fact, Marycris V.

Baldevia, Petitioner,
vs.
JOSE ANTONIO F. ROXAS and COURT OF APPEALS, Respondents.

DECISION
VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 assailing the Decision1 dated September
9, 2008 and Resolution2 dated December 15, 2008 of the Court of Appeals (CA) in CA-G.R. CV No.
85384. The CA affirmed the Orders dated March 7, 2005 and May 4, 2005 of the Regional Trial
Court (RTC) of Parañaque City, Branch 260 in Civil Case No. 97-0608.

Petitioner Ma. Carminia C. Calderon and private respondent Jose Antonio F. Roxas, were married
on December 4, 1985 and their union produced four children. On January 16, 1998, petitioner filed
an Amended Complaint3 for the declaration of nullity of their marriage on the ground of psychological
incapacity under Art. 36 of the Family Code of the Philippines.

On May 19, 1998, the trial court issued an Order4 granting petitioner’s application for support
pendente lite. Said order states in part:

…Accordingly, the defendant is hereby ordered to contribute to the support of the above-named
minors, (aside from 50% of their school tuition fees which the defendant has agreed to defray, plus
expenses for books and other school supplies), the sum of P42,292.50 per month, effective May 1,
1998, as his share in the monthly support of the children, until further orders from this Court. The first
monthly contribution, i.e., for the month of May 1998, shall be given by the defendant to the plaintiff
within five (5) days from receipt of a copy of this Order. The succeeding monthly contributions of
P42,292.50 shall be directly given by the defendant to the plaintiff without need of any demand,
within the first five (5) days of each month beginning June 1998. All expenses for books and other
school supplies shall be shouldered by the plaintiff and the defendant, share and share alike. Finally,
it is understood that any claim for support-in-arrears prior to May 1, 1998, may be taken up later in
the course of the proceedings proper.

xxxx

SO ORDERED.5

The aforesaid order and subsequent orders for support pendente lite were the subject of G.R. No.
139337 entitled "Ma. Carminia C. Roxas v. Court of Appeals and Jose Antonio F. Roxas" decided by
this Court on August 15, 2001.6 The Decision in said case declared that "the proceedings and orders
issued by the trial court in the application for support pendente lite (and the main complaint for
annulment of marriage) in the re-filed case, that is, in Civil Case No. 97-0608 were not rendered null
and void by the omission of a statement in the certificate of non-forum shopping regarding the prior
filing and dismissal without prejudice of Civil Case No. 97-0523 which involves the same parties."
The assailed orders for support pendente lite were thus reinstated and the trial court resumed
hearing the main case.

On motion of petitioner’s counsel, the trial court issued an Order dated October 11, 2002 directing
private respondent to give support in the amount of P42,292.50 per month starting April 1, 1999
pursuant to the May 19, 1998 Order.7

On February 11, 2003, private respondent filed a Motion to Reduce Support citing, among other
grounds, that the P42,292.50 monthly support for the children as fixed by the court was even higher
than his then P20,800.00 monthly salary as city councilor.8

After hearing, the trial court issued an Order9 dated March 7, 2005 granting the motion to reduce
support and denying petitioner’s motion for spousal support, increase of the children’s monthly
support pendente lite and support-in-arrears. The trial court considered the following circumstances
well-supported by documentary and testimonial evidence: (1) the spouses’ eldest child, Jose
Antonio, Jr. is a Sangguniang Kabataan Chairman and is already earning a monthly salary; (2) all
the children stay with private respondent on weekends in their house in Pasay City; (3) private
respondent has no source of income except his salary and benefits as City Councilor; (4) the
voluminous documents consisting of official receipts in payment of various billings including school
tuition fees, private tutorials and purchases of children’s school supplies, personal checks issued by
private respondent, as well as his own testimony in court, all of which substantiated his claim that he
is fulfilling his obligation of supporting his minor children during the pendency of the action; (5) there
is no proof presented by petitioner that she is not gainfully employed, the spouses being both
medical doctors; (6) the unrebutted allegation of private respondent that petitioner is already in the
United States; and (7) the alleged arrearages of private respondent was not substantiated by
petitioner with any evidence while private respondent had duly complied with his obligation as
ordered by the court through his overpayments in other aspects such as the children’s school tuition
fees, real estate taxes and other necessities.

Petitioner’s motion for partial reconsideration of the March 7, 2005 Order was denied on May 4,
2005.10

On May 16, 2005, the trial court rendered its Decision11 in Civil Case No. 97-0608 decreeing thus:

WHEREFORE, judgment is hereby rendered declaring (sic):

1. Declaring null and void the marriage between plaintiff Ma.Carmina C. Roxas and defendant Jose
Antonio Roxas solemnized on December 4, 1985 at San Agustin Convent, in Manila. The Local Civil
Registrar of Manila is hereby ordered to cancel the marriage contract of the parties as appearing in
the Registry of Marriage as the same is void;

2. Awarding the custody of the parties’ minor children Maria Antoinette Roxas, Julian Roxas and
Richard Roxas to their mother herein petitioner, with the respondent hereby given his visitorial and
or custodial rights at [sic] the express conformity of petitioner.

3. Ordering the respondent Jose Antonio Roxas to provide support to the children in the amount of
P30,000.00 a month, which support shall be given directly to petitioner whenever the children are in
her custody, otherwise, if the children are in the provisional custody of respondent, said amount of
support shall be recorded properly as the amounts are being spent. For that purpose the respondent
shall then render a periodic report to petitioner and to the Court to show compliance and for
monitoring. In addition, the respondent is ordered to support the proper schooling of the children
providing for the payment of the tuition fees and other school fees and charges including
transportation expenses and allowances needed by the children for their studies.

4. Dissolving the community property or conjugal partnership property of the parties as the case may
be, in accordance with law.

Let copies of this decision be furnished the Office of the Solicitor General, the Office of the City
Prosecutor, Paranaque City, and the City Civil Registrar of Paranaque City and Manila.

SO ORDERED.12

On June 14, 2005, petitioner through counsel filed a Notice of Appeal from the Orders dated March
7, 2005 and May 4, 2005.

In her appeal brief, petitioner emphasized that she is not appealing the Decision dated May 16, 2005
which had become final as no appeal therefrom had been brought by the parties or the City
Prosecutor or the Solicitor General. Petitioner pointed out that her appeal is "from the RTC Order
dated March 7, 2005, issued prior to the rendition of the decision in the main case", as well as the
May 4, 2005 Order denying her motion for partial reconsideration.13

By Decision dated September 9, 2008, the CA dismissed the appeal on the ground that granting the
appeal would disturb the RTC Decision of May 16, 2005 which had long become final and executory.
The CA further noted that petitioner failed to avail of the proper remedy to question an interlocutory
order.

Petitioner’s motion for reconsideration was likewise denied by the CA.

Hence, this petition raising the following issues:

A. DID THE CA COMMIT A GRAVE ABUSE OF DISCRETION and/or REVERSIBLE

ERROR WHEN IT RULED THAT THE RTC ORDERS DATED MARCH 7, 2005 AND MAY 4,
2005 ARE MERELY INTERLOCUTORY?

B. DID THE CA COMMIT A GRAVE ABUSE OF DISCRETION and/or REVERSIBLE

ERROR WHEN IT DISMISSED OUTRIGHT THE APPEAL FROM SAID RTC ORDERS,
WHEN IT SHOULD HAVE DECIDED THE APPEAL ON THE MERITS?14
The core issue presented is whether the March 7, 2005 and May 4, 2005 Orders on the matter of
support pendente lite are interlocutory or final.

This Court has laid down the distinction between interlocutory and final orders, as follows:

x x x A "final" judgment or order is one that finally disposes of a case, leaving nothing more to be
done by the Court in respect thereto, e.g., an adjudication on the merits which, on the basis of the
evidence presented at the trial, declares categorically what the rights and obligations of the parties
are and which party is in the right; or a judgment or order that dismisses an action on the ground, for
instance, of res judicata or prescription. Once rendered, the task of the Court is ended, as far as
deciding the controversy or determining the rights and liabilities of the litigants is concerned. Nothing
more remains to be done by the Court except to await the parties’ next move (which among others,
may consist of the filing of a motion for new trial or reconsideration, or the taking of an appeal) and
ultimately, of course, to cause the execution of the judgment once it becomes "final" or, to use the
established and more distinctive term, "final and executory."

xxxx

Conversely, an order that does not finally dispose of the case, and does not end the Court’s task of
adjudicating the parties’ contentions and determining their rights and liabilities as regards each
other, but obviously indicates that other things remain to be done by the Court, is "interlocutory" e.g.,
an order denying a motion to dismiss under Rule 16 of the Rules, or granting a motion for extension
of time to file a pleading, or authorizing amendment thereof, or granting or denying applications for
postponement, or production or inspection of documents or things, etc. Unlike a "final" judgment or
order, which is appealable, as above pointed out, an "interlocutory" order may not be questioned on
appeal except only as part of an appeal that may eventually be taken from the final judgment
rendered in the case.15 [Emphasis supplied]

The assailed orders relative to the incident of support pendente lite and support in arrears, as the
term suggests, were issued pending the rendition of the decision on the main action for declaration
of nullity of marriage, and are therefore interlocutory. They did not finally dispose of the case nor did
they consist of a final adjudication of the merits of petitioner’s claims as to the ground of
psychological incapacity and other incidents as child custody, support and conjugal assets.

The Rules of Court provide for the provisional remedy of support pendente lite which may be availed
of at the commencement of the proper action or proceeding, or at any time prior to the judgment or
final order.16 On March 4, 2003, this Court promulgated the Rule on Provisional Orders17 which shall
govern the issuance of provisional orders during the pendency of cases for the declaration of nullity
of marriage, annulment of voidable marriage and legal separation. These include orders for spousal
support, child support, child custody, visitation rights, hold departure, protection and administration
of common property.

Petitioner contends that the CA failed to recognize that the interlocutory aspect of the assailed
orders pertains only to private respondent’s motion to reduce support which was granted, and to her
own motion to increase support, which was denied. Petitioner points out that the ruling on support in
arrears which have remained unpaid, as well as her prayer for reimbursement/payment under the
May 19, 1998 Order and related orders were in the nature of final orders assailable by ordinary
appeal considering that the orders referred to under Sections 1 and 4 of Rule 61 of the Rules of
Court can apply only prospectively. Thus, from the moment the accrued amounts became due and
demandable, the orders under which the amounts were made payable by private respondent have
ceased to be provisional and have become final.

We disagree.

The word interlocutory refers to something intervening between the commencement and the end of
the suit which decides some point or matter but is not a final decision of the whole controversy.18 An
interlocutory order merely resolves incidental matters and leaves something more to be done to
resolve the merits of the case. In contrast, a judgment or order is considered final if the order
disposes of the action or proceeding completely, or terminates a particular stage of the same
action.19 Clearly, whether an order or resolution is final or interlocutory is not dependent on
compliance or non-compliance by a party to its directive, as what petitioner suggests. It is also
important to emphasize the temporary or provisional nature of the assailed orders.
Provisional remedies are writs and processes available during the pendency of the action which may
be resorted to by a litigant to preserve and protect certain rights and interests therein pending
rendition, and for purposes of the ultimate effects, of a final judgment in the case. They are
provisional because they constitute temporary measures availed of during the pendency of the
action, and they are ancillary because they are mere incidents in and are dependent upon the result
of the main action.20 The subject orders on the matter of support pendente lite are but an incident to
the main action for declaration of nullity of marriage.

Moreover, private respondent’s obligation to give monthly support in the amount fixed by the RTC in
the assailed orders may be enforced by the court itself, as what transpired in the early stage of the
proceedings when the court cited the private respondent in contempt of court and ordered him
arrested for his refusal/failure to comply with the order granting support pendente lite.21 A few years
later, private respondent filed a motion to reduce support while petitioner filed her own motion to
increase the same, and in addition sought spousal support and support in arrears. This fact
underscores the provisional character of the order granting support pendente lite. Petitioner’s theory
that the assailed orders have ceased to be provisional due to the arrearages incurred by private
respondent is therefore untenable. 1âwphi1

Under Section 1, Rule 41 of the 1997 Revised Rules of Civil Procedure, as amended, appeal from
interlocutory orders is not allowed. Said provision reads:

SECTION 1. Subject of appeal. - An appeal may be taken from a judgment or final order that
completely disposes of the case, or of a particular matter therein when declared by these Rules to
be appealable.

No appeal may be taken from:

(a) An order denying a motion for new trial or reconsideration;

(b) An order denying a petition for relief or any similar motion seeking relief from judgment;

(c) An interlocutory order;

(d) An order disallowing or dismissing an appeal;

(e) An order denying a motion to set aside a judgment by consent, confession or

compromise on the ground of fraud, mistake or duress, or any other ground vitiating consent;

(f) An order of execution;

(g) A judgment or final order for or against one or more of several parties or in separate
claims, counterclaims, cross-claims and third-party complaints, while the main case is
pending, unless the court allows an appeal therefrom; and

(h) An order dismissing an action without prejudice;

In all the above instances where the judgment or final order is not appealable, the aggrieved party
may file an appropriate special civil action under Rule 65. (Emphasis supplied.)

The remedy against an interlocutory order not subject of an appeal is an appropriate special civil
action under Rule 65 provided that the interlocutory order is rendered without or in excess of
jurisdiction or with grave abuse of discretion. Having chosen the wrong remedy in questioning the
subject interlocutory orders of the RTC, petitioner's appeal was correctly dismissed by the CA.

WHEREFORE, the petition for review on certiorari is DENIED, for lack of merit. The Decision dated
September 9, 2008 and Resolution dated December 15, 2008 of the Court of Appeals in CA-G.R.
CV No. 85384 are AFFIRMED.

With costs against the petitioner.

SO ORDERED.